TIDMARBB TIDMSTB
RNS Number : 8401H
Arbuthnot Banking Group PLC
19 March 2015
19 March 2015
For immediate release
ARBUTHNOT BANKING GROUP ("Arbuthnot", "the Group" or "ABG")
Audited Final Results for the year to 31 December, 2014
Poised for next phase of growth
Arbuthnot Banking Group today announces a record profit before
tax of GBP22.5m, a 43% increase on the prior year.
Arbuthnot Banking Group PLC is the holding company for Arbuthnot
Latham & Co., Limited and Secure Trust Bank PLC.
FINANCIAL HIGHLIGHTS
-- Profit before tax GBP22.5m (2013: GBP15.7m)
-- No significant one off transactions
-- Underlying profits of GBP30.6m (2013: GBP18.5m)
-- Operating income grew by 26% to GBP126.3m (2013: GBP100m)
-- Customer lending exceeded GBP1bn for the first time; 2014 GBP1.1bn (2013: GBP732m)
-- Positive operating leverage of 13% (2013: 14%)*
-- Earnings per share 56.5p (2013: 51.9p)
-- Total dividend per share 27p (2013: 44p which included a 18p special dividend)
-- Net assets per share 1,136p (2013: 570.5p) an increase of 99%
OPERATIONAL HIGHLIGHTS
Private Banking - Arbuthnot Latham
-- Profit before tax GBP3.6m (2013: GBP7.7m which included a
GBP6.5m gain on sale of Wilson Street, the Group's offices)
-- Customer loans up 57% to GBP536.0m (2013: GBP341.0m)
-- Customer deposits grew 12% to GBP585.9m (2013: GBP519.7m)
-- Assets under management increased 26% to GBP666m (2013: GBP528m)
-- Completed the purchase of GBP106m mortgage portfolio
Retail Banking - Secure Trust Bank
-- Profit before tax GBP26.3m (2013: GBP17.2m)
-- Customer lending balances increased by 59% to GBP622m (2013: GBP391m)
-- Total customer numbers increased to 429,507 (2013: 350,861)
-- All SME lending divisions have now extended credit
-- Successful share placing raised a further GBP50m of capital to fund further growth
Commenting on the results, Henry Angest, Chairman and Chief
Executive of Arbuthnot, said: "This has been another good year for
the Group with it reporting record profits. Customer lending across
the Group has been particularly strong and has now exceeded GBP1.1
billion. Over the recent past Secure Trust has remained the Group's
main focus of strategic investment while Arbuthnot Latham has also
been growing well. The Group has now generated additional capital
and is well positioned further to support this growth."
*Percentage difference between the increase in Operating Income
and Operating Expenses
Note: Secure Trust Bank is also making its final results
announcement today which should be read in conjunction with this
statement.
ENQUIRIES:
Arbuthnot Banking Group
Henry Angest, Chairman and Chief Executive 0207 012 2400
Andrew Salmon, Chief Operating Officer
James Cobb, Group Finance Director
David Marshall, Director of Communications
Canaccord Genuity Ltd (Nominated Advisor)
Sunil Duggal 0207 665 4500
Numis Securities Ltd (Broker)
Chris Wilkinson 0207 260 1000
Mark Lander
Bell Pottinger (Financial PR)
Ben Woodford 0203 772 2566
Dan de Belder
The 2014 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 2015. 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
Year Year
ended ended
31 December 31 December
2014 2013
Note GBP000 GBP000
----------------------------------------------------- ----- ------------- -------------
Interest income 117,624 93,329
Interest expense (19,371) (20,279)
----------------------------------------------------- ----- ------------- -------------
Net interest income 98,253 73,050
----------------------------------------------------- ----- ------------- -------------
Fee and commission income 9 29,963 31,816
Fee and commission expense (1,930) (4,846)
----------------------------------------------------- ----- ------------- -------------
Net fee and commission income 28,033 26,970
----------------------------------------------------- ----- ------------- -------------
Operating income 126,286 100,020
----------------------------------------------------- ----- ------------- -------------
Net impairment loss on financial assets 10 (18,591) (18,807)
Gain from a bargain purchase 11 - 413
Gain on sale of building 12 - 6,535
Other income 13 - 1,183
Operating expenses 14 (85,180) (73,631)
----------------------------------------------------- ----- ------------- -------------
Profit before income tax from continuing operations 22,515 15,713
Income tax expense 16 (5,499) (4,198)
----------------------------------------------------- ----- ------------- -------------
Profit after income tax from continuing operations 17,016 11,515
Profit for the year 17,016 11,515
----------------------------------------------------- ----- ------------- -------------
Other comprehensive income
Items that are or may be reclassified to profit or
loss
Revaluation reserve
- Amount transferred to profit and loss (2) -
Cash flow hedging reserve
- Effective portion of changes in fair value - (15)
- Net amount transferred to profit and loss 378 -
Available-for-sale reserve (81) (250)
----------------------------------------------------- ----- ------------- -------------
Other comprehensive income for the period, net of
tax 295 (265)
----------------------------------------------------- ----- ------------- -------------
Total comprehensive income for the period 17,311 11,250
----------------------------------------------------- ----- ------------- -------------
Profit attributable to:
Equity holders of the Company 8,634 7,930
Non-controlling interests 8,382 3,585
----------------------------------------------------- ----- ------------- -------------
Profit for the year 17,016 11,515
----------------------------------------------------- ----- ------------- -------------
Total comprehensive income attributable to:
Equity holders of the Company 8,677 7,681
Non-controlling interests 8,634 3,569
----------------------------------------------------- ----- ------------- -------------
Total comprehensive income for the period 17,311 11,250
----------------------------------------------------- ----- ------------- -------------
Earnings per share for profit attributable to the
equity holders of the Company during the year
(expressed in pence per share):
- basic 17 56.5 51.9
- diluted 17 55.8 51.5
Consolidated statement of financial position
At 31 December
2014 2013
Note GBP000 GBP000
ASSETS
Cash and balances at central banks 18 115,938 193,046
Loans and advances to banks 19 31,844 105,061
Debt securities held-to-maturity 20 91,683 19,466
Derivative financial instruments 21 2,707 508
Loans and advances to customers 22 1,158,983 732,009
Other assets 24 16,866 17,267
Financial investments 25 1,277 1,975
Deferred tax asset 26 2,588 3,954
Investment in associate 27 943 943
Intangible assets 28 11,318 13,103
Property, plant and equipment 29 12,475 5,522
--------------------------------------------- ----- ---------- ----------
Total assets 1,446,622 1,092,854
--------------------------------------------- ----- ---------- ----------
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital 35 153 153
Retained earnings 36 114,641 67,901
Other reserves 36 (1,263) (1,467)
--------------------------------------------- ----- ---------- ----------
Non-controlling interests 60,038 20,327
--------------------------------------------- ----- ---------- ----------
Total equity 173,569 86,914
--------------------------------------------- ----- ---------- ----------
LIABILITIES
Deposits from banks 30 27,657 2,003
Derivative financial instruments 21 1,067 371
Deposits from customers 31 1,194,285 957,791
Current tax liability 3,612 1,427
Other liabilities 32 34,984 31,017
Deferred tax liability 26 - 1,099
Debt securities in issue 33 11,448 12,232
--------------------------------------------- ----- ---------- ----------
Total liabilities 1,273,053 1,005,940
--------------------------------------------- ----- ---------- ----------
Total equity and liabilities 1,446,622 1,092,854
--------------------------------------------- ----- ---------- ----------
Chairman's statement
Once again I am pleased to report that Arbuthnot Banking Group
("ABG" or "the Group") has made a record profit before tax, this
year of GBP22.5m (2013: GBP15.7m), which represents an increase of
43% on 2013. This result does not include any large one off
transactions, so the true value of the recurring business that we
are developing can now be clearly seen.
While I reflect on the financial results, I note with interest
that the customer lending across the Group has now exceeded
GBP1.1bn. This is a strong performance, given that at the start of
the recent financial crisis the balance stood at GBP172m. This
would seem to justify our cautious approach leading up to the
downturn, but also reflects our decisive and entrepreneurial
reaction to the opportunities that have since arisen.
The most significant decision that we took three years ago was
to proceed with an IPO of Secure Trust Bank ("STB" or "the Retail
Bank"). This gave our retail bank the access to the capital markets
that it needed to support its expansion plans. The first phase of
its development has been to grow the consumer finance lending
portfolios, both organically and through acquisition. These are now
well established and hence it has started the next phase, which is
to build the SME lending operations.
In order to fund these plans, STB carried out a successful share
placing in July which raised a further GBP50m of new capital. At
the same time the Group took the opportunity to sell GBP25m of its
stake in STB. The result of these transactions was nearly to double
the net assets of the Group.
While STB has remained the Group's main focus of strategic
investment over the recent past, Arbuthnot Latham ("AL" or "the
Private Bank") has also been growing well. Now that the Group has
generated additional capital, it is positioned to further support
the development of AL, by allowing it to expand into other areas,
where it can use its position as a highly respected and well-funded
bank.
The first of such actions resulted in AL being able to buy a
geographically diversified portfolio of residential mortgages from
the administrator of the Dunfermline Building Society. This
purchase was achieved at a good discount to the face value of the
loans, but more importantly it is a well-seasoned portfolio, which
allows us to predict the credit performance with a high degree of
accuracy. In the longer term the assets should enable us to take
advantage of the Bank of England's sterling monetary framework,
giving us another source of stable funding with which to manage the
Private Bank's liquidity.
AL also completed its move to our new headquarters in Wilson
Street. The upgrade in facilities appears to have been well
received by both our clients and employees alike and represents a
clear statement of confidence in our prospects for the future.
One note of caution regarding an issue that has concerned me
during the recent months is the acceleration of regulatory
pronouncements emanating from both the UK and International
regulators. We had hoped for a more level playing field on which to
compete with the larger banks. However, the Basel Committee's
recent proposed revision to the standardised capital rules would
not appear to achieve this. I hope that the consultation process
will enable this to be addressed, before it is implemented in the
future. We will watch developments on this matter closely. Another
issue is the increasing geo-political risks that emanate from
various flashpoints.
Private Banking - Arbuthnot Latham & Co., Ltd
The Private Bank has reported a profit of GBP3.6m (2013:
GBP7.7m). At first glance this does not seem to reflect the good
progress that the business has made. However, when you exclude the
GBP6.5m one off gain from the sale and lease back transaction in
2013, the underlying profits have more than doubled. I am also
pleased to note that customer loans have exceeded GBP500m for the
first time. Helped in part by the acquisition of the mortgage
portfolio, but excluding that, the core loan book still grew at a
healthy rate of 26%.
Last year, I discussed the importance of investing for the
future by developing the bank's distribution capabilities. The
dislocation in the financial services sector has made it possible
for us to continue to attract experienced senior bankers, which has
proved an effective means of increasing both the number and also
the quality of clients that we serve. Outside London, the office in
Dubai celebrated its first anniversary and has generated good
momentum in a short space of time. Elsewhere, the Exeter office has
been strengthened and we opened a new office in Manchester to cover
the North West of England.
Retail Banking - Secure Trust Bank PLC
Our retail banking business has delivered a pre-tax profit of
GBP26.3m (2013: GBP17.2m), which is a 53% increase on the previous
year and confirms that the underlying profits of the bank are
emerging as the effect of the accounting required for the
acquisitions is unwinding.
All of the STB lending portfolios have grown at a good rate, but
I have been particularly pleased to see the robust performance of
the retail finance division. This has been largely due to the
smooth integration of the V12 business. Their market leading
technology and operating platform, along with the strong funding
profile of STB, has combined to allow them to pitch with greater
confidence and success to larger retail clients than previously.
This is evidenced by amongst others, the new strategic relationship
with the online retailer AO.com.
The next phase of expansion for STB began in 2014 with the start
of the SME division. The largest part of this is currently Real
Estate Finance which generated GBP133.7m of new lending volumes,
most of which was secured on residential property. Furthermore, the
division also launched an invoice finance business and formed a
partnership with Haydock Finance to offer asset based lending.
Board Changes and Personnel
The ABG Board has once again remained unchanged throughout the
year. I would like to thank my colleagues on the Board for their
generous and continued support and the dedication they have shown
to the Group.
The results of the Group also reflect the hard work and
commitment of both existing and new members of staff. On behalf of
the Board I extend our thanks to all of them for their contribution
in 2014.
Dividend
The Board is proposing a final dividend of 16p per share, an
increase of 1p on last year and together with the interim dividend
of 11p combines to give a total dividend for the year of 27p (2013:
44p), which is an increase of 1p excluding last year's special
dividend of 18p.
If approved, the dividend will be paid on 15 May 2015 to
shareholders on the register at close of business on 17 April
2015.
Outlook
The economic outlook is now uncertain; deflation may become a
short term reality in the UK. The Eurozone economy is still weak
and the central banks seem committed to expansionary monetary
policies. On top of this the General Election looms large with an
uncertain outcome and potentially far reaching consequences.
Despite all of this both of our banks are making good progress and
we remain optimistic that this can continue.
Strategic Report
Business Review - Private Banking - Arbuthnot Latham
2014 2013
Operating income GBP28.9m GBP21.7m
Other income GBP2.1m GBP10.3m
Operating expenses GBP24.0m GBP21.3m
Profit before tax GBP3.6m GBP7.7m
Customer loans GBP536.5m GBP341.0m
Customer deposits GBP585.9m GBP521.2m
Total assets GBP700.8m GBP619.7m
Customer net margin 4.4% 4.4%
Loan to deposit ratio 92% 66%
AL delivered a year of further growth across all of its key
business areas, with the momentum that has been established in
previous years continuing to strengthen. The core business of
Private Banking and Wealth Management benefited from the evolving
market conditions. Its client focused approach resonates well in
its core market. As a consequence the bank has been able to
increase its profile and in turn its flow of good quality
borrowers. The move into the newly refurbished headquarters in
London towards the end of the year was a tangible sign of the
development of the business and the positive intent towards
continuing this growth in the years ahead.
The year-end reported profit for AL is GBP3.6m (2013: GBP7.7m).
However, the prior year's result was dominated by the gain
generated by the sale and lease back transaction on the new
headquarters.
The strategy to focus on key sectors of the wealth market in the
UK, through the recruitment of new Senior Bankers, is proving to be
increasingly effective. At the same time, the growing
disenchantment of wealthy clients with the ever increasing volume
of changes, in what is essentially a relationship driven market,
has resulted in many of these clients moving their business to AL.
Delivering on relationship led client service is at the heart of
the philosophy of the bank and the foundation principle of its
business. The financial results demonstrate the success of this
strategy.
During the year the client loan book (excluding the acquired
portfolio) grew by 26% to GBP430m (2013: GBP341m), as the bank
supported its clients in pursuing their wealth preservation and
enhancement strategies, through appropriate use of well-structured
lending opportunities. Client deposits grew by 12% to close the
year at GBP586m (2013: GBP521m). As a result of the higher number
of quality private banking clients, the overall cost of deposits
fell during the year as, these clients have a higher propensity to
retain a proportion of their deposits at call.
The final product in the bank's full service offering to clients
is wealth management. This maintained its momentum with a 26%
increase in Assets Under Management which finished the year at
GBP666m (2013: GBP528m).
The bank has continued to develop the strength of its business
outside of the London headquarters. The office in Exeter has grown,
a new office in Manchester to cover the North West has been opened
and Dubai completed its first year of operation. Here strong
business growth has been achieved in a short space of time,
reflecting the dynamic nature of the local market and its long term
potential.
Towards the end of the year, the bank successfully completed the
purchase of a portfolio of residential mortgage loans. This
portfolio was being sold by the Administrator of the Dunfermline
Building Society. The loans are well seasoned which offers us a
good insight into their underlying credit risk. They are also
geographically diversified. More importantly, these loans should
give us a stable asset to offer as collateral to participate in the
Bank of England's sterling monetary framework. This further
diversifies and strengthens our sources of liquidity.
The portfolio was purchased at a discount to face value and came
onto our balance sheet at GBP106m. It had little impact on the
results for 2014 but will be immediately accretive in 2015.
Looking ahead, the increasing profile of the bank along with the
continuing positive conditions in the market, provide an
encouraging scenario for the bank to continue its growth in the
future.
Business Review - Retail Banking - Secure Trust Bank
2014 2013
Operating income GBP97.9m GBP79.0m
Operating expenses GBP56.3m GBP46.7m
Profit before tax GBP26.3m GBP17.2m
Customer loans GBP622.5m GBP391.0m
Customer deposits GBP608.4m GBP436.6m
Customer numbers 429,507 350,861
Net interest margin 17.1% 16.9%
Cost income ratio 0.57 0.55
STB has reported record pre-tax profits of GBP26.3m (2013:
GBP17.2m), which is an increase of 53% on the previous year.
This continues the favourable trend of the business since the
IPO late in 2011, which now shows that underlying profits have
increased by 323% and customer lending balances have followed suit
with growth in excess of 300%.
The bank is also serving record numbers of customers (429,507)
across its savings, basic bank account, motor finance, retail
finance, unsecured lending, asset finance, invoice finance and real
estate finance markets. As ever, the bank's friendly and
professional staff remain fully committed to achieving good
outcomes for its customers, through the provision of
straightforward transparent banking solutions.
In total, the bank's lending portfolios achieved healthy double
digit growth with advances to customers increasing 59% to close the
year at GBP622.5m. Total new lending volumes grew 79% to GBP545.9m
(2013: GBP304.7m).
Across the individual portfolios, motor finance increased by 20%
to GBP137.9m, as the business continued to service the Top 100 UK
car dealer groups and strengthened its relationship with specialist
motor intermediaries.
Retail finance grew by 37% to GBP156.3m, with the encouraging
performance of V12, the business acquired in 2013. The launch of
its season ticket offering was well received and the funding
strength provided by STB has allowed the business to pitch to
larger retailers.
Personal unsecured lending balances including Everyday Loans
increased to GBP181.4m (2013: GBP159.2m). These portfolios are
currently being managed to maximise return rather than outright
growth, however the business has now successfully launched a
Guarantor Loan offering which should supplement the portfolio
growth rates in 2015.
As forecast in 2013, the bank launched its SME division during
the year. Real estate finance has quickly developed a portfolio of
loans totalling GBP133.7m largely secured on residential
properties.
Towards the end of the year the bank also began its invoice
finance business via STB Commercial Services. The flow of new
business exceeded our initial expectations and the portfolio at the
end of the year totalled GBP5m.
Finally, asset finance was commenced via a strategic partnership
with Haydock Finance, which provides a full business outsourcing
service.
Given the focus that the bank puts on ensuring that its credit
underwriting systems and processes generate the appropriate lending
decisions, it is not surprising that the credit performance of the
portfolios continues to outperform the levels expected at the time
of origination.
The bank has been on a good trajectory of growth and the
management teams have been careful to ensure that growth is well
controlled. Improvements have been made in key areas of the bank,
the risk and compliance teams have been enhanced. A new Treasurer,
a Chief Internal Auditor and a Chief Technology Officer have been
appointed. As ever, the team have ensured that their long
established principles of ensuring a stable and secure funding base
to underpin the growth have been followed. The bank remains funded
from the retail deposit market and during the year customer
deposits increased by 39% to close at GBP608.4m. Also, in July the
bank successfully completed a GBP50m share placement, which
increased the capital base of the bank by 44%.
As the good reputation of the bank continues to grow, it has
been recognised by receiving external accolades. STB remains the
only bank in the UK to hold the Customer Service Excellence Award
(CSE), which replaced the kite mark and for the third year running
it has been awarded the 4 star mark by the Fair Banking Foundation.
Finally, Investors in People upgraded the bank's status from bronze
to silver.
Strategic Report - Financial Review
ABG 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 customers
and clients in its chosen markets of Private Banking and Retail
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 to customers and clients and
commission earned on the sale of financial instruments and
products.
Highlights
2014 2013
Summarised Income Statement GBP000 GBP000
----------------------------------------------------- --------- ---------
Net interest income 98,253 73,050
Net fee and commission income 28,033 26,970
----------------------------------------------------- --------- ---------
Operating income 126,286 100,020
Gain from a bargain purchase - 413
Gain from sale of building - 6,535
Other income - 1,183
Operating expenses (85,180) (73,631)
Impairment losses - financial investments (347) (1,073)
Impairment losses - loans and advances to customers (18,244) (17,734)
----------------------------------------------------- --------- ---------
Profit before tax 22,515 15,713
Income tax (5,499) (4,198)
----------------------------------------------------- --------- ---------
Profit after tax 17,016 11,515
----------------------------------------------------- --------- ---------
Basic earnings per share (pence) 56.5 51.9
Arbuthnot Secure Arbuthnot
Latham Trust Banking
Underlying profit reconciliation & Co. Bank Group
31 December 2014 GBP000 GBP000 GBP000
---------------------------------- ---------- ------- ----------
Profit before tax 3,628 26,339 22,515
Dubai office investment 981 - 981
Regional office investment 217 - 217
ELL fair value amortisation - 4,294 4,294
STB acquisition costs - 198 198
STB share options - 1,542 1,542
V12 fair value amortisation - 893 893
---------------------------------- ---------- ------- ----------
Underlying profit 4,826 33,266 30,640
---------------------------------- ---------- ------- ----------
Basic earnings per share (pence) 79.8
Arbuthnot Secure Arbuthnot
Latham Trust Banking
Underlying profit reconciliation & Co. Bank Group
31 December 2013 GBP000 GBP000 GBP000
---------------------------------- ---------- ------- ----------
Profit before tax 7,728 17,193 15,713
Gain on sale of building (6,535) - (6,535)
180th Year anniversary - - 436
Dubai office investment 879 - 879
ELL fair value amortisation - 4,066 4,066
STB acquisition costs - 854 854
STB share options - 2,221 2,221
V12 fair value amortisation - 893 893
Acquired portfolios - 1 1
---------------------------------- ---------- ------- ----------
Underlying profit 2,072 25,228 18,528
---------------------------------- ---------- ------- ----------
Basic earnings per share (pence) 42.3
Once again the Group has traded well during 2014. The profit
before tax at GBP22.5m is a record for the Group. It represents an
increase of 43% compared to 2013 (GBP15.7m) which in itself is a
significant increase, but this is even more impressive if the prior
year results are adjusted for the GBP6.5m gain recognised on the
sale and lease back transaction of Wilson Street.
The results are also noteworthy in that 2014 contained no
significant "one off" items. This gives a better understanding to
shareholders of the returns of the business that the Group has been
developing over the recent few years.
This profit before tax translates into a basic earnings per
share ("EPS") of 56.5p compared to the prior year of 51.9p, which
is an increase of 9%. However, on an underlying basis the EPS is
79.8p up from 42.3p in the prior year, an increase of 89%.
During 2013 the Group recorded operating income in excess of
GBP100m for the first time, which continued its robust growth in
2014 with a further 26% increase led once again by the growth in
our lending balances. Net interest income now represents 78% of
total revenues compared to 73% in the prior year. Also, the
approximate average blended yield of net interest income compared
to average customer loans increased to 13% with the continuing
increased proportion of the higher yielding loan portfolios in
Secure Trust Bank. However, I would expect this value to fall over
time as the impact of the Real estate finance written by Secure
Trust Bank becomes more significant as a proportion of the Group's
overall lending portfolio.
The expense base grew by 16% to GBP85m as the first impact of
the new business lines was recognised. However, the net operating
leverage was 13% (2013: 14%), which indicates that for every pound
the Group adds to its expense base it receives back GBP1.13 in
revenues.
Impairment losses increased by 3% to GBP18.2m; however, compared
to the increase in the loan book of 58% this would suggest that the
Group credit decision process is performing well.
Balance Sheet Strength
2014 2013
Summarised Balance Sheet GBP000 GBP000
--------------------------------- ---------- ----------
Assets
Loans and advances to customers 1,158,983 732,009
Liquid assets 239,465 317,573
Other assets 48,174 43,272
--------------------------------- ---------- ----------
Total assets 1,446,622 1,092,854
--------------------------------- ---------- ----------
Liabilities
Customer deposits 1,194,285 957,791
Other liabilities 78,768 48,149
--------------------------------- ---------- ----------
Total liabilities 1,273,053 1,005,940
Equity 173,569 86,914
--------------------------------- ---------- ----------
Total equity and liabilities 1,446,622 1,092,854
--------------------------------- ---------- ----------
During 2014 the Group's lending to customers exceeded GBP1bn for
the first time and closed the year at over GBP1.1bn. This figure
was increased by the purchase of the residential mortgage portfolio
(GBP106m) toward the end of December, but excluding that the
customer loans portfolio increased by 44% and all in the figure
grew by 58%.
Once again the Group's lending remains almost entirely funded by
customer deposits, which increased by 25% during the year. The
Group's deposit base also broke through GBP1bn for the first time
in its history. The loan to deposit ratio closed at 97% as a result
of the mortgage portfolio purchase. However, the Group has
significantly increased its access to sources of liquidity during
the year. The share placing in July raised GBP75m of cash, but more
importantly the mortgage portfolio should contribute collateral to
the Funding for Lending Scheme ("FLS") and other schemes operated
by the Bank of England.
As noted, the share placing not only raised surplus cash but it
also helped to significantly increase the net assets of the Group
which closed the year at GBP174m, double the value of the prior
year.
Segmental Analysis
The segmental analysis in Note 42 of the Consolidated Financial
Statements in the Annual Report highlights the disclosures required
under IFRS 8 'Operating Segments'. The operating segments are
Private Banking (Arbuthnot Latham & Co., Ltd) and Retail
Banking (Secure Trust Bank PLC). Group costs and intercompany
elimination journals are shown separately to reconcile back to the
Group consolidated result.
The analysis presented below, and in the business review, is
before any consolidation adjustments to reverse the impact of
intergroup operating activities and also intergroup recharges and
is a fair reflection of the way the Directors manage the Group.
Private Banking - Arbuthnot Latham
2014 2013
Summarised Income Statement GBP000 GBP000
----------------------------------------------------- --------- ---------
Net interest income 19,387 12,778
Net fee and commission income 9,508 8,873
----------------------------------------------------- --------- ---------
Operating income 28,895 21,651
Gain from sale of building - 6,535
Other income 2,088 3,765
Operating expenses (23,977) (21,309)
Impairment losses - financial investments (334) (824)
Impairment losses - loans and advances to customers (3,044) (2,090)
----------------------------------------------------- --------- ---------
Profit before tax 3,628 7,728
----------------------------------------------------- --------- ---------
The profit before tax for the year was reported at GBP3.6m
(2013: GBP7.7m). However, the prior year results included the one
off gain of GBP6.5m on the sale of the Wilson Street property. Once
the impact of this is excluded, the core results show a robust
increase of 200%. Much of this increase was driven by the growth in
net interest income which grew by 52%, as the continued growth in
the loan portfolio has a positive benefit to the income of the
bank. It should also be noted that the purchase of the mortgage
portfolio from the Dunfermline Building Society had an immaterial
impact on the results for 2014, having only been completed on 19
December. The benefit to net interest will emerge in 2015.
With the continued low interest rate environment, which was
helped by the extension to the Funding for Lending Scheme, the
bank's net customer margin remained at 4.4% consistent with the
prior year. The fees and commissions earned grew by 7% as a result
of the continued success of the investment management and wealth
planning businesses. Operating expenses increased by 13% with the
further investment in the number and quality of our Private
Bankers.
The credit impairment losses increased to GBP3m, but compared to
the average loan portfolio the loss rate was 68 basis points, well
below the 1% benchmark and trending to below 50 basis points, as
the legacy portfolio continues to be worked through by our recovery
team.
During 2014 the bank closed Gilliat Financial Solutions. The
financial impact of this was broadly neutral, with the exit costs
being offset by receipts from the sale of certain intellectual
properties.
2014 2013
Summarised Balance Sheet GBP000 GBP000
---------------------------------------------- -------- --------
Assets
Loans and advances to customers 536,488 340,982
Liquid assets 122,198 239,168
Other assets (including Group balances) 40,786 39,523
---------------------------------------------- -------- --------
Total assets 699,472 619,673
---------------------------------------------- -------- --------
Liabilities
Customer deposits 585,867 521,183
Other liabilities (including Group balances) 73,636 71,438
---------------------------------------------- -------- --------
Total liabilities 659,503 592,621
Equity 39,969 27,052
---------------------------------------------- -------- --------
Total equity and liabilities 699,472 619,673
---------------------------------------------- -------- --------
Customer assets increased by 57% and by 26% excluding the
purchase of the mortgage portfolio (GBP106m) to close the year at
GBP536.5m (2013: GBP341.0m). The loan book remains well secured
with an average LTV of 48% (2013: 50%).
The fall in liquid assets is largely as a result of utilising
surplus cash resources held at the Bank of England to complete the
portfolio acquisition. Customer deposits increased by GBP64.7m
(12%) to close the year at GBP585.9m as the bank continued to
experience strong deposit growth.
In order to facilitate the bank's ambitions to grow and more
specifically to complete the portfolio acquisition, the Group made
further capital contributions to the bank during the year. This
increased its net assets by 48% to close at GBP40m. As a result,
the Private Bank had a total capital ratio of 10.8% (2013: 10.8%)
and a core tier 1 ratio of 9.4% (2013: 8.8%).
Retail Banking - Secure Trust Bank
2014 2013
Summarised Income Statement GBP000 GBP000
---------------------------------------- --------- ---------
Net interest income 79,372 60,885
Net fee and commission income 18,525 18,097
---------------------------------------- --------- ---------
Operating income 97,897 78,982
Gain from a bargain purchase - 413
Operating expenses (56,270) (46,558)
Impairment losses - loans and advances (15,288) (15,644)
---------------------------------------- --------- ---------
Profit after tax 26,339 17,193
---------------------------------------- --------- ---------
The reported profit before tax is GBP26.3m (2013: GBP17.2m),
which represents an increase of 53%. This increase is once again
driven by the increase in net interest income from the lending
portfolios, which grew by 30% to GBP79.4m for the full year. In
total the operating income fell marginally short of GBP100m, a
milestone that the bank expects to surpass in 2015, as the SME
lending division develops.
Operating expenses increased by 21% to GBP56.3m but the
operational efficiency of the bank is borne out by the fact that
overall operating leverage was a positive 4%.
Total impairments in the year actually declined despite the
increase in the bank's balance sheet. Firstly, a significant
proportion of the increase in lending was as a result of the start
up of the Real estate finance division. This lending is fully
secured typically at LTV's of around 60%, so losses on this
portfolio should be minimal and due to the short time since its
inception, it is too early for any of its lending to have become
impaired. Secondly, as a result of a market benchmarking exercise
for non performing loans, the business concluded that the
provisions held against our debt in long term recovery were
excessive. This provision was therefore released. Without this the
annual impairment charge would have been GBP17.7m.
The Current Account ended the year with 20,792 accounts (2013:
22,860) and One Bill with 22,731 (2013: 24,297).
2014 2013
Summarised Balance Sheet GBP000 GBP000
---------------------------------------------- -------- --------
Assets
Consumer Finance
Personal Lending
STB 87,571 77,889
ELL 93,864 81,368
Motor Finance 137,853 114,570
Retail Finance 156,251 114,386
Business Finance
Asset Finance 4,541 -
Commercial Finance 5,024 -
Real Estate Finance 133,738 1,784
Additional Services
Debt Collection 3,058 277
Acquired Portfolios 28 110
One Bill 388 465
Other 179 179
---------------------------------------------- -------- --------
Total loans and advances to customers 622,495 391,028
Liquid assets 117,258 71,958
Other assets (including Group balances) 42,260 56,611
---------------------------------------------- -------- --------
Total assets 782,013 519,597
---------------------------------------------- -------- --------
Liabilities
Customer deposits 608,418 436,608
Other liabilities (including Group balances) 48,734 21,368
---------------------------------------------- -------- --------
Total liabilities 657,152 457,976
Equity 124,861 61,621
---------------------------------------------- -------- --------
Total equity and liabilities 782,013 519,597
---------------------------------------------- -------- --------
Overall the customer lending portfolio grew by 59%. Apart from
the start up of the SME finance division there was good growth in
the Motor portfolio of 20% as a result of our broadening coverage
of the UK broker and dealership networks and a wider offering of
products across the credit spectrum. Also, the Retail finance
division increased its lending by 37% as the integration of the V12
operating platform and the STB funding advantage allowed the
division to successfully pitch to more and larger retailers.
The SME lending division has now extended credit in all three of
its portfolios. The most significant of these is currently the Real
Estate finance business, which added GBP132m during the year. This
business is benefitting from the lack of housing stock, which is
driving demand for finance from developers.
Deposits grew by 39% to close at GBP608m and the bank remained
entirely funded by retail deposits. Deposits have been raised
across all the tenors of the bank's lending, generally in the form
of fixed term deposits and bonds.
Following the issuance of new shares as a result of the
placement in July (GBP50m) and the positive earnings of the year,
the net assets of the bank have more than doubled to stand at
GBP125m.
Group & Other Costs
2014 2013
Summarised Income Statement GBP000 GBP000
------------------------------------- -------- --------
Net interest income (105) (195)
Subordinated loan stock interest (401) (418)
------------------------------------- -------- --------
Operating income (506) (613)
Other income - 18
Operating expenses (7,027) (8,364)
Impairment on financial investments 81 (249)
------------------------------------- -------- --------
Profit after tax (7,452) (9,208)
------------------------------------- -------- --------
Total Group costs fell from GBP9.2m to GBP7.5m due to a
rebalancing of the share of the cost of running the London
headquarters. This is a result of the increasing utilisation of the
space by the expanding Private Bank. Also, the prior year impact of
the 180 year anniversary has fallen away.
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 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 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, non-controlling
interests and revaluation reserves, after deducting goodwill
and
other intangible assets.
-- 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 entities have
complied with all of the externally imposed capital requirements to
which they are subject.
2014 2013
Capital ratios GBP000 GBP000
------------------------------------------------------------- --------- ---------
Core Tier 1 capital 173,721 87,270
Deductions (11,470) (11,405)
------------------------------------------------------------- --------- ---------
Tier 1 capital after deductions 162,251 75,865
Tier 2 capital 13,479 13,832
------------------------------------------------------------- --------- ---------
Total capital 175,730 89,697
------------------------------------------------------------- --------- ---------
Core Tier 1 capital ratio (Net Core Tier 1 capital/Basel
III Total Risk Exposure) 18.2% 14.4%
------------------------------------------------------------- --------- ---------
Total Capital Ratio (Capital/Basel III Total Risk Exposure) 18.4% 14.8%
------------------------------------------------------------- --------- ---------
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 their associated
policies is set out in note 6 to the financial statements.
The principal risks inherent in the Group's business are credit,
market, liquidity, operational and regulatory compliance.
Credit risk is the risk that a counterparty will be unable to
pay amounts in full when due. This risk exists mainly in Arbuthnot
Latham & Co., Limited and Secure Trust Bank PLC, which
currently have loan books of GBP536.5m and GBP622.5m respectively.
The lending portfolio in Arbuthnot Latham is extended to private
banking clients, the majority of which is secured against cash,
property or other assets. The portfolios within Secure Trust are
extended to retail customers and are largely unsecured. However,
the new Real Estate finance business lends mainly secured on
properties. Credit risk is managed through the Credit Committees of
each bank with significant exposures also being approved by the
Group Risk Committee.
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.
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 entirely funded by
retail customer deposits. The loan to deposit ratios are maintained
at prudent levels. Following introduction of the new liquidity
regime, which came into force on 1 October 2010, the Group now
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 is the risk that the Group may be exposed to
financial losses from conducting its business. The largest exposure
to this risk exists in Arbuthnot Latham as mis-selling risk via its
wealth management advisory service and its structured product
distribution 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.
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 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 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 entities maintain 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 Individual
Capital Adequacy Assessment Process (ICAAP) where stringent stress
tests are performed to ensure that capital resources are adequate
over a three year horizon.
Dividend
The Board proposes a final dividend of 16 pence per share to be
paid on 15 May 2015, giving a total dividend for the year of 27
pence (2013: 44 pence) per share. The prior year dividend included
a special dividend of 18p paid in November 2013.
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.
James Cobb
Group Finance Director
18 March 2015
Group Directors' Report
The Directors present their annual report and the audited
consolidated financial statements for the year ended 31 December
2014.
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 16.
Results and Dividends
The results for the year are shown on page 27. The profit after
tax for the year of GBP17.0m (2013: GBP11.5m) is included in
reserves.
The Company sold 1,041,667 ordinary 40p shares (6.7%) in its
subsidiary Secure Trust Bank PLC on 9 July 2014 at a price of GBP24
per share. This resulted in a net gain of GBP24.3m which is
included in the Group's reserves. On the same day, Secure Trust
Bank PLC issued 2,083,333 ordinary 40p shares at a price of GBP24,
which is also included in the Group's reserves at GBP48.8m.
The Directors recommend the payment of a final dividend of 16
pence on the ordinary shares which, together with the interim
dividend of 11 pence paid on 3 October 2014, represents total
dividends for the year of 27 pence (2013: 44 pence including a
special dividend of 18p). The final dividend, if approved by
members at the Annual General Meeting, will be paid on 15 May 2015
to shareholders on the register at close of business on 17 April
2015.
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 Option Scheme
At the Annual General Meeting shareholders will be asked to
approve an Ordinary Resolution extending the Unapproved Executive
Share Option Scheme, introduced in 1995, for a further 10 years,
details of which are given in the circular to shareholders dated 2
April 2015.
Share Capital
Shareholders will 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.
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 17 March 2015 of the following
substantial holdings in the ordinary shares of the Company, other
than those held by one director shown below:
Ordinary
Holder Shares %
---------------------- ----------------- -------
Unicorn UK Income
Fund 913,460 6.0
Liontrust UK Smaller
Companies Fund 775,257 5.2
Prudential plc 624,161 4.1
Mr. R Paston 529,130 3.5
Directors
H Angest Chairman & CEO
J R Cobb Finance Director
J W Fleming
Ms R J Lea
P A Lynam
Sir Christopher
Meyer
A A Salmon Chief Operating Officer
R J J Wickham Deputy Chairman
All directors served throughout the year.
Mr. J.R. Cobb and Mr. J.W. Fleming retire under Article 78 of
the Articles of Association and, being eligible, offer themselves
for re-election. Mr. Cobb has a service agreement terminable on six
months' notice, while Mr. Fleming has a service agreement
terminable on twelve months' notice.
According to the information kept under Section 3 of the
Disclosure and Transparency Rules 2006, 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:
1 January 31 December 17 March
Beneficial Interests 2014 2014 2015 %
---------------------- ---------- ------------ ---------- -----
H Angest 8,200,901 8,200,901 8,200,901 53.7
J W Fleming 4,500 4,500 4,500 -
P A Lynam 10,000 10,000 10,000 0.1
A A Salmon 51,699 51,699 51,699 0.3
R J J Wickham 3,600 3,600 3,600 -
At the year end Mr. Lynam held 9,110 and Mr. Salmon 7,500
ordinary 40p shares in Secure Trust Bank PLC, a 52% subsidiary of
the Company.
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 GBP125k.
On 2 November 2014 Mr. Lynam and Mr. Salmon each exercised
options granted to them on 2 November 2011 to subscribe for 141,666
ordinary 40p shares in Secure Trust Bank PLC at 720p and sold the
shares at a price of GBP25. Mr. Lynam and Mr. Salmon continue to
hold options granted to them on 2 November 2011 to subscribe for
141,667 ordinary 40p shares in Secure Trust Bank PLC at 720p
between 2 November 2016 and 2 November 2021. The fair value of the
options at grant date was GBP1.6m.
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 these shares at grant date
was GBP53k.
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, which was significant in relation to the
Group's business. At 31 December 2014 three directors had loans
from Arbuthnot Latham & Co., Limited amounting to GBP5,503,000,
on normal commercial terms as disclosed in note 40 to the financial
statements. At 31 December 2014 three directors had deposits with
Secure Trust Bank PLC amounting to GBP354,000 and five directors
had deposits with Arbuthnot Latham & Co., Limited amounting to
GBP2,287,000, all on normal commercial terms as disclosed in note
40 to the financial statements.
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 23 and 24 will
be the subject of an Ordinary Resolution at the Annual General
Meeting.
Information on the Audit, Nomination, Risk and Donations
Committees is included in the Corporate Governance section of the
Annual Report on pages 20 to 22.
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.
Branches outside of the UK
During the year the 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.
Political Donations
The Company made political donations of GBP48,000 to the
Conservative Party during the year (2013: GBP27,000).
The Board proposes to seek renewal of the authority granted by
shareholders at the 2011 Annual General Meeting to make donations
to EU political parties or organisations or incur EU political
expenditure within the meaning of the Political Parties, Elections
and Referendums Act 2000 for a further four years limited to
GBP250,000 in aggregate.
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.
The directors have disclosed to the auditors to the best of
their knowledge and belief all relevant information necessary to
assist the auditors in the preparation of their report.
By order of the Board
J R Kaye
Secretary
18 March 2015
Corporate Governance
AIM companies are not required to comply with The UK Corporate
Governance Code ("The Code"). Nevertheless, the Board endorses the
principles of openness, integrity and accountability which underlie
good corporate governance and intends to take into account the
provisions of The Code in so far as they are 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 and regulated by the
Prudential Regulatory Authority and the Financial Conduct
Authority, including two which are authorised deposit taking
businesses. Accordingly, the Group operates to the high standards
of corporate accountability and regulatory compliance appropriate
for such businesses.
Directors
The Group is led and controlled by an effective Board which
comprises five executive directors and three non-executive
directors.
The senior independent non-executive director is Robert Wickham,
who in addition is Deputy Chairman. Although Mr. Wickham has served
on the Board for twenty one years from the date of his first
election, he displays independence in both character and judgement
and there are no other relationships or circumstances which could
affect his judgement. Accordingly, the Board considers him to be
independent.
The Board
The Board meets regularly throughout the year. Substantive
agenda items have briefing papers, which are circulated in a timely
manner before each meeting. The Board is satisfied that it is
supplied with all the information that it requires and requests, in
a form and of a quality to enable it to discharge its duties. In
addition to ongoing matters concerning 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 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 Board
processes and procedures are appropriately followed and support
effective decision making. All directors have access to the Company
Secretary's advice and services and 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.
The Board has delegated certain of its responsibilities to
Committees. All Committees have written terms of reference.
Audit Committee
Membership of the Audit Committee is limited to non-executive
directors and comprises Ruth Lea (as Chairman), Sir Christopher
Meyer and Robert Wickham.
The Audit Committee provides a forum for discussing with the
Group's external auditors their report on the annual accounts,
reviewing the scope, results and effectiveness of the internal
audit work programme and considering any other matters which might
have a financial impact on the Company, including the Group's
arrangements by which staff may, in confidence, raise concerns
about possible improprieties in matters of financial reporting or
other matters. The Audit Committee's responsibilities include
reviewing the Group's system of internal control and the process
for evaluating and monitoring risk. The Committee also reviews the
appointment, terms of engagement and objectivity of the external
auditors, including the level of non-audit services provided, and
ensures that there is an appropriate audit relationship.
Remuneration Committee
Information on the Remuneration Committee and details of the
Directors' remuneration are set out in the separate Remuneration
Report.
Nomination Committee
The Nomination Committee is chaired by Henry Angest and its
other members are Robert Wickham and Ruth Lea. Before a Board
appointment is made the skills, knowledge and experience required
for a particular appointment are evaluated and a recommendation
made to the Board.
Risk Committee
The Risk Committee is chaired by Henry Angest and its other
members are James Cobb, James Fleming, John Reed (non-executive of
Arbuthnot Latham until 31 December 2014), Paul Lynam (appointed 27
February 2014), Andrew Salmon and Robert Wickham. The principal
role of the Risk Committee is to approve significant individual
credit or other exposures.
Donations Committee
The Donations Committee is chaired by Henry Angest and its other
members are Robert Wickham and Ruth Lea. The Committee considers
any political donation or expenditure as defined within the
Political Parties, Elections and Referendums Act 2000.
Shareholder Communications
The Company maintains a regular dialogue with its shareholders
and makes full use of the Annual General Meeting and any other
General Meetings to communicate with investors.
The Company aims to present a balanced and understandable
assessment in all its reports to shareholders, its regulators 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 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 well-established 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 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 outsourced to EY. 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
Financial Statement audit. 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
and 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 Parent 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.
Statement of Disclosure of Information to Auditor
The Directors confirm that:
-- so far as each director is aware, there is no relevant audit
information of which the Company's auditors are 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 are
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.
Remuneration Report
Remuneration Committee
Membership of the Remuneration Committee is limited to
non-executive directors together with Henry Angest as Chairman. The
present members of the Committee are Henry Angest, Robert Wickham
and Ruth Lea.
The Committee has responsibility for producing recommendations
on the overall remuneration policy for directors and for setting
the remuneration of individual directors, both for review by the
Board. 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; 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 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. During 2011 the
Group implemented all the provisions required under the FCA
Remuneration Code. Accordingly the Group and its subsidiaries are
all considered to be Tier 3 institutions.
Directors' Service Contracts
Henry Angest, James Fleming, Paul Lynam and Andrew Salmon each
have service contracts terminable at any time on 12 months' notice
in writing by either party. James Cobb has a service contract
terminable at any time on 6 months' notice in writing by either
party.
Share Option and Long Term Incentive Schemes
This part of the remuneration report is audited information.
In May 2005, the Company extended its Unapproved Executive Share
Option Scheme for a further period of 10 years. An Ordinary
Resolution will be put to shareholders at the Annual General
Meeting proposing to extend the scheme for a further 10 years.
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.
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 GBP125k.
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 grant date
was GBP53k.
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 100,000 shares for Andrew Salmon
and 50,000 shares each for James Cobb and James Fleming. 150,500
shares are held in the Arbuthnot ESOP Trust.
Under the Unapproved Executive Share Option Scheme of the
Company's subsidiary, Secure Trust Bank PLC, established in
November 2011, Paul Lynam and Andrew Salmon were each granted
options over 283,333 shares in that company. The fair value of the
options at grant date was GBP1m.
On 2 November 2014 Mr. Lynam and Mr. Salmon each exercised
options granted to them on 2 November 2011 to subscribe for 141,666
ordinary 40p shares in Secure Trust Bank PLC at 720p and sold the
shares at a price of GBP25. Mr. Lynam and Mr. Salmon continue to
hold options granted to them on 2 November 2011 to subscribe for
141,667 ordinary 40p shares in Secure Trust Bank PLC at 720p
between 2 November 2016 and 2 November 2021. The fair value of the
options at grant date was GBP0.5m.
Directors' Emoluments
This part of the remuneration report is audited information.
2014 2013
GBP000 GBP000
------------------------------------------------ ------- -------
Fees (including benefits in kind) 98 215
Salary payments (including benefits in kind) 3,938 3,328
Pension contributions 140 140
Long term incentive 5,030 897
------------------------------------------------ ------- -------
9,206 4,580
------------------------------------------------ ------- -------
Long
term Total Total
Salary Bonus Benefits Pension Fees incentive 2014 2013
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- ------- ------- --------- -------- ------- ---------- ------- -------
H Angest 600 - 32 - - - 632 515
JR Cobb 275 200 16 35 - - 526 791
JW Fleming 275 250 16 35 - - 576 505
PA Lynam 600 500 21 35 - 2,515 3,671 1,031
AA Salmon 600 400 21 35 - 2,515 3,571 1,523
Ms RJ Lea 41 - - - 84 - 125 120
Sir Christopher Meyer 50 - - - - - 50 45
RJJ Wickham 41 - - - 14 - 55 50
2,482 1,350 106 140 98 5,030 9,206 4,580
----------------------- ------- ------- --------- -------- ------- ---------- ------- -------
Details of any shares or options held by directors are presented
on page 18.
The emoluments of the Chairman were GBP632,000 (2013:
GBP515,000). The emoluments of the highest paid director were
GBP3,671,000 (2013: GBP1,523,000) including pension contributions
of GBP35,000 (2013: GBP35,000).
Mr. R J J Wickham is a director of Calando Finance Limited which
received an annual fee of GBP14,000 (2013: GBP50,000) in respect of
his services to the Group. These amounts are included in the table
above.
Retirement benefits are accruing under money purchase schemes
for five directors who served during 2014 (2013: five
directors).
Henry Angest
Chairman of the Remuneration Committee
18 March 2015
Independent Auditor's Report
We have audited the financial statements of Arbuthnot Banking
Group PLC for the year ended 31 December 2014 set out on pages 27
to 96. 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 21, 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 2014 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
and under the terms of our engagement
In our opinion the information given in the Strategic Report and
the Directors' Report for the financial year for which the
financial statements are prepared is consistent with the financial
statements.
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
18 March 2015
Company statement of financial position
At 31 December
2014 2013
Note GBP000 GBP000
---------------------------------------------------- ----- -------- --------
ASSETS
Due from subsidiary undertakings - bank balances 19,244 16,551
Financial investments 25 158 165
Deferred tax asset 406 441
Intangible assets 28 4 12
Property, plant and equipment 29 127 130
Other assets 24 5,472 5,415
Investment in subsidiary undertakings 41 39,966 30,995
---------------------------------------------------- ----- -------- --------
Total assets 65,377 53,709
---------------------------------------------------- ----- -------- --------
EQUITY AND LIABILITIES
Equity
Share capital 35 153 153
Other reserves 36 (1,111) (1,030)
Retained earnings 36 50,755 31,325
---------------------------------------------------- ----- -------- --------
Total equity 49,797 30,448
---------------------------------------------------- ----- -------- --------
LIABILITIES
Deposits from banks - 2,000
Other liabilities 32 4,132 9,029
Debt securities in issue 33 11,448 12,232
---------------------------------------------------- ----- -------- --------
Total liabilities 15,580 23,261
---------------------------------------------------- ----- -------- --------
Total equity and liabilities 65,377 53,709
---------------------------------------------------- ----- -------- --------
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
-----------------------------------------------------------------------------------------
Cash
Capital flow
Share Revaluation redemption Available-for-sale hedging Treasury Retained Non-controlling
capital reserve reserve reserve reserve shares earnings interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Balance at 1
January 2014 153 191 20 (169) (378) (1,131) 67,901 20,327 86,914
Total comprehensive
income
for the period
Profit for 2014 - - - - - - 8,634 8,382 17,016
Other comprehensive
income,
net of tax
Revaluation reserve
- Adjustment - (91) - - - - 91 - -
- Amount
transferred to
profit and loss - (2) - - - - - - (2)
Cash flow hedging
reserve
- Adjustment - - - - 124 - (124) - -
- Net amount
transferred
to profit and
loss - - - - 254 - - 124 378
Available-for-sale
reserve - - - (81) - - - - (81)
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Total other
comprehensive
income - (93) - (81) 378 - (33) 124 295
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Total comprehensive
income
for the period - (93) - (81) 378 - 8,601 8,506 17,311
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Transactions with
owners,
recorded directly
in equity
Contributions by
and distributions
to owners
Equity settled
share based
payment
transactions - - - - - - 488 3,393 3,881
Issue of new shares
Secure
Trust Bank - - - - - - 23,810 24,949 48,759
Sale of shares
Secure Trust
Bank - - - - - - 17,712 6,615 24,327
Final dividend
relating
to 2013 - - - - - - (2,233) (2,426) (4,659)
Interim dividend
relating
to 2014 - - - - - - (1,638) (1,326) (2,964)
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Total contributions
by and
distributions to
owners - - - - - - 38,139 31,205 69,344
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Balance at 31
December 2014 153 98 20 (250) - (1,131) 114,641 60,038 173,569
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Attributable to equity holders of
the Group
-----------------------------------------------------------------------------------------
Cash
Capital flow
Share Revaluation redemption Available-for-sale hedging Treasury Retained Non-controlling
capital reserve reserve reserve reserve shares earnings interests Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Balance at 1
January 2013 153 140 20 81 (363) (1,131) 53,372 16,376 68,648
Total comprehensive
income
for the period
Profit for 2013 - - - - - - 7,930 3,585 11,515
Other comprehensive
income,
net of tax
Revaluation reserve
- Adjustment - 51 - - - - (35) (16) -
Cash flow hedging
reserve
- Effective
portion of
changes in fair
value - - - - (15) - - - (15)
Available-for-sale
reserve - - - (250) - - - - (250)
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Total other
comprehensive
income - 51 - (250) (15) - (35) (16) (265)
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Total comprehensive
income
for the period - 51 - (250) (15) - 7,895 3,569 11,250
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Transactions with
owners,
recorded directly
in equity
Contributions by
and distributions
to owners
Equity settled
share based
payment
transactions - - - - - - 901 770 1,671
Sale of shares
Secure Trust
Bank - - - - - - 12,135 2,270 14,405
Final dividend
relating
to 2012 - - - - - - (2,084) (1,970) (4,054)
Interim dividend
relating
to 2013 - - - - - - (1,638) (688) (2,326)
Special dividend
relating
to 2013 - - - - - - (2,680) - (2,680)
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Total contributions
by and
distributions to
owners - - - - - - 6,634 382 7,016
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Balance at 31
December 2013 153 191 20 (169) (378) (1,131) 67,901 20,327 86,914
-------------------- -------- ------------ ----------- ------------------- -------- --------- ---------- ---------------- --------
Company statement of changes in equity
Attributable to equity holders
of the Company
-----------------------------------------------------------
Capital Available
Share redemption -for-sale Treasury Retained
capital reserve reserve shares earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------------ --------- ------------ ----------- --------- ---------- --------
Balance at 1 January 2013 153 20 81 (1,131) 20,768 19,891
Total comprehensive income for the
period
Profit for 2013 - - - - 17,828 17,828
Other comprehensive income, net of
income tax
Total comprehensive income for the
period - - - - 17,828 17,828
------------------------------------------ --------- ------------ ----------- --------- ---------- --------
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Share based payments settled in cash - - - - (897) (897)
Equity settled share based payment
transactions - - - - 28 28
Final dividend relating to 2012 - - - - (2,084) (2,084)
Interim dividend relating to 2013 - - - - (1,638) (1,638)
Special dividend relating to 2013 - - - - (2,680) (2,680)
------------------------------------------ --------- ------------ ----------- --------- ---------- --------
Total contributions by and distributions
to owners - - - - (7,271) (7,271)
------------------------------------------ --------- ------------ ----------- --------- ---------- --------
Balance at 1 January 2014 153 20 81 (1,131) 31,325 30,448
------------------------------------------ --------- ------------ ----------- --------- ---------- --------
Total comprehensive income for the
period
Profit for 2014 - - - - 23,260 23,260
Other comprehensive income, net of
income tax
Available-for-sale reserve - - (81) - - (81)
------------------------------------------ --------- ------------ ----------- --------- ---------- --------
Total other comprehensive income - - (81) - - (81)
------------------------------------------ --------- ------------ ----------- --------- ---------- --------
Total comprehensive income for the
period - - (81) - 23,260 23,179
------------------------------------------ --------- ------------ ----------- --------- ---------- --------
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Equity settled share based payment
transactions - - - - 41 41
Final dividend relating to 2013 - - - - (2,233) (2,233)
Interim dividend relating to 2014 - - - - (1,638) (1,638)
Total contributions by and distributions
to owners - - - - (3,830) (3,830)
------------------------------------------ --------- ------------ ----------- --------- ---------- --------
Balance at 31 December 2014 153 20 - (1,131) 50,755 49,797
------------------------------------------ --------- ------------ ----------- --------- ---------- --------
Consolidated statement of cash flows
Year Year
ended ended
31 December 31 December
2014 2013
Note GBP000 GBP000
------------------------------------------------------------- ------ ------------- -------------
Cash flows from operating activities
Interest received 116,675 91,075
Interest paid (18,260) (20,085)
Fees and commissions received 27,692 26,325
Net trading and other income - 7,718
Cash payments to employees and suppliers (91,874) (81,157)
Taxation paid (3,047) (2,543)
------------------------------------------------------------- ------ ------------- -------------
Cash flows from operating profits before changes
in operating assets and liabilities 31,186 21,333
Changes in operating assets and liabilities:
- net (increase)/decrease in derivative financial
instruments (1,503) 49
- net increase in loans and advances to customers (434,352) (122,682)
- net decrease/(increase) in other assets 401 (3,572)
- net increase/increase in deposits from banks - 1,630
- net increase in amounts due to customers 236,494 61,945
- net increase in other liabilities 3,967 6,990
------------------------------------------------------------- ------ ------------- -------------
Net cash outflow from operating activities (163,807) (34,307)
------------------------------------------------------------- ------ ------------- -------------
Cash flows from investing activities
Borrowings repaid on acquisition of subsidiary undertakings 11,43 - (36,922)
Cash acquired on purchase of subsidiary undertakings 11,43 - 1,512
Purchase of subsidiary undertakings 11,43 - (4,026)
Disposal of financial investments 243 63
Purchase of computer software 28 (1,214) (1,162)
Disposal of computer software 28 - 1,900
Purchase of property, plant and equipment 29 (7,803) (746)
Investment in associate 27 - (943)
Proceeds from sale of property, plant and equipment 29 42 23,259
Purchases of debt securities (85,243) (9,844)
Proceeds from redemption of debt securities 13,026 3,904
------------------------------------------------------------- ------ ------------- -------------
Net cash from investing activities (80,949) (23,005)
------------------------------------------------------------- ------ ------------- -------------
Cash flows from financing activities
Increase in borrowings 25,654 2,000
Dividends paid (7,623) (9,060)
Proceeds from share placing by Secure Trust Bank 48,758 14,405
Proceeds from sale of Secure Trust Bank shares 24,327 -
Proceeds from exercise of Secure Trust Bank share
options 3,315 -
------------------------------------------------------------- ------ ------------- -------------
Net cash used in financing activities 94,431 7,345
------------------------------------------------------------- ------ ------------- -------------
Net decrease in cash and cash equivalents (150,325) (49,967)
Cash and cash equivalents at 1 January 298,107 348,074
------------------------------------------------------------- ------ ------------- -------------
Cash and cash equivalents at 31 December 39 147,782 298,107
------------------------------------------------------------- ------ ------------- -------------
Company statement of cash flows
Year Year
ended ended
31 December 31 December
2014 2013
Note GBP000 GBP000
------------------------------------------------------ ----- ------------- -------------
Cash flows from operating activities
Dividends received from subsidiaries 6,440 11,418
Interest received 149 99
Interest paid (661) (714)
Net trading and other income 1,629 1,364
Cash payments to employees and suppliers (7,866) (8,089)
Taxation received - (160)
------------------------------------------------------ ----- ------------- -------------
Cash flows from operating (losses)/profits before
changes in operating assets and liabilities (309) 3,918
Changes in operating assets and liabilities:
- net (increase)/decrease in group company balances (4,950) 3,128
- net (increase)/decrease in other assets (3) 254
- net (decrease)/increase in other liabilities (1) 348
------------------------------------------------------ ----- ------------- -------------
Net cash (outflow)/inflow from operating activities (5,263) 7,648
------------------------------------------------------ ----- ------------- -------------
Cash flows from investing activities
Increase investment in subsidiary 41 (10,500) (1,000)
Disposal of share in subsidiaries 41 24,327 14,405
Net cash from investing activities 13,827 13,405
------------------------------------------------------ ----- ------------- -------------
Cash flows from financing activities
Dividends paid (3,871) (6,402)
(Decrease)/Increase in borrowings (2,000) 2,000
------------------------------------------------------ ----- ------------- -------------
Net cash used in financing activities (5,871) (4,402)
------------------------------------------------------ ----- ------------- -------------
Net increase in cash and cash equivalents 2,693 16,651
Cash and cash equivalents at 1 January 16,551 (100)
------------------------------------------------------ ----- ------------- -------------
Cash and cash equivalents at 31 December 39 19,244 16,551
------------------------------------------------------ ----- ------------- -------------
Notes to the Consolidated Financial Statements
1. Reporting entity
Arbuthnot Banking Group PLC is a company domiciled in 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 2014 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 18 March 2015.
(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, 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
-- IFRS 10, 'Consolidated Financial Statements' and IAS 27
(Revised), 'Separate Financial Statements' (effective 1 January
2013). IFRS 10 supersedes IAS 27 and SIC-12, and provides a single
model to be applied in the control analysis for all investees.
There are some minor clarifications in IAS27, and the requirements
of IAS 28 and IAS 31 have been incorporated into IAS 27. Due to the
adoption of IFRS 10 the Group had to change its accounting policy
for determining whether it has control over and consequently
whether it consolidates other investees. According to this
standard, control is now defined as when the investor 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. However, this standard did not have any
material impact on the financial statements as there was no change
in the investees consolidated.
-- IFRS 11, 'Joint Arrangements' (effective 1 January 2013).
This standard replaces the existing accounting for subsidiaries and
joint ventures (now joint arrangements) and removes the choice of
equity or proportionate accounting for jointly controlled entities,
as was the case under IAS 31. This standard did not have any
material impact on the financial statements.
-- IFRS 12, 'Disclosure of Interests in Other Entities\'
(effective 1 January 2013). This standard replaces the existing
accounting for subsidiaries and joint ventures (now joint
arrangements) and contains the disclosure requirements for entities
that have interests in subsidiaries, joint arrangements, associates
and/or unconsolidated structured entities. Due to the adoption of
IFRS 12 the Group has expanded its disclosures surrounding
associates (see Note 27) and subsidiaries (see Note 41).
-- IAS 32 (Revised), 'Offsetting Financial Assets and Financial
Liabilities' (effective 1 January 2014). This standard was amended
to clarify the offsetting criteria, specifically when an entity
currently has a legal right of set off; and when gross settlement
is equivalent to net settlement. This standard did not have any
material impact on the financial statements.
-- IFRIC 21, 'Levies' (effective 1 January 2014). The
interpretation defines a levy as an outflow from an entity imposed
by a government in accordance with legislation. That levy is
recognised as a liability when, and only when, the triggering event
specified in the legislation occurs. This standard did not have any
material impact on the Group, due to the fact that in the prior
year the Group already adjusted the trigger date for FSCS levies
from 31 December to 1 April.
(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 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
substance of the relationship between the Group and the entity and
the evaluation of the Group's exposure to the risks and rewards of
the SPE indicates control. The following circumstances may indicate
control by the Group and would therefore require consolidation of
the SPE:
-- in substance, the activities of the SPE are being conducted
on behalf of the entity according to its specific business needs so
that
the entity obtains benefits from the SPE's operation;
-- in substance, the entity has the decision-making powers to
obtain the majority of the benefits of the activities of the SPE
or, by
setting up an 'autopilot' mechanism, the entity has delegated
these decision-making powers;
-- in substance, the entity has rights to obtain the majority of
the benefits of the SPE and therefore may be exposed to risks
incident
to the activities of the SPE; or
-- in substance, the entity retains the majority of the residual
or ownership risks related to the SPE or its assets in order to
obtain
benefits from its activities.
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 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 year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies
are recognised in the Statement of 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 method calculates the amortised cost of a
financial asset or a financial liability and allocates the interest
income or interest expense over the relevant period. 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 new 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. Loan commitment fees are
deferred and recognised as an adjustment to the effective interest
rate on the loan.
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 accrued 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. 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 carried 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.
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 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.
3.7. 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.
(a) Fair value hedges
Fair value hedges are used to hedge against the change in fair
value of a recognised asset or liability or a firm commitment that
could affect profit or loss. Changes in the fair value of the
derivative are recognised immediately in profit or loss together
with changes in the fair value of the hedged item that are
attributable to the hedged risk (in the same line item in the
profit or loss as the hedged item).
If the hedging derivative expires or is sold, terminated or
exercised, or the hedging relationship no longer meets the criteria
for hedge accounting, the carrying amount of the hedged item is
amortised over the residual period to maturity, as part of the
newly calculated effective interest rate. However, if the hedged
item has been derecognised, it is immediately released to the
profit or loss.
(b) Cash flow hedges
These cash flow hedges are used to hedge against fluctuations in
future cash flows from interest rate movements on variable rate
customer deposits. On initial purchase the derivative is valued at
fair value and then the effective portion of the change in the fair
value of the hedging instrument is recognised in equity (cash flow
hedging reserve) until the gain or loss on the hedged item is
realised, when it is amortised; the ineffective portion of the
hedging instrument is recognised in the immediately in the profit
or loss.
If a hedging derivative expires or is sold, terminated, or
exchanged, or the hedge no longer meets the criteria for cash flow
hedge accounting, or the hedge designation is revoked, then hedge
accounting is discontinued prospectively. In a discontinued hedge
of a forecast transaction the cumulative amount recognised in other
comprehensive income from the period when the hedge was effective
is reclassified from equity to profit or loss as a reclassification
adjustment when the forecast transaction occurs and affects profit
or loss. If the forecast transaction is no longer expected to
occur, then the balance in other comprehensive income is
reclassified immediately to profit or loss as a reclassification
adjustment.
Hedge effectiveness testing
On initial designation of the hedge, the Group formally
documents the relationship between the hedging instruments and the
hedged items, including the risk management objective and strategy
in undertaking the hedge, together with the method that will be
used to assess the effectiveness of the hedging relationship. The
Group makes an assessment, both at the inception of the hedge
relationship as well as on an ongoing basis, as to whether the
hedging instruments are expected to be highly effective in
offsetting the changes in the fair value or cash flows of the
respective hedged items during the period for which the hedge is
designated, and whether the actual results of each hedge are within
a range of 80-125%. The Group makes an assessment for a cash flow
hedge of a forecast transaction, as to whether the forecast
transaction is highly probable to occur and presents an exposure to
variations in cash flows that could ultimately affect profit or
loss.
(c) 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.
3.8. Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the Statement of Financial Position when there is a
legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis, or realise the
asset and settle the liability simultaneously.
3.9. 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. When a loan is uncollectible, it is written off
against the related provision for loan impairment. Subsequent
recoveries of amounts previously written off decrease the amount of
the provision for loan impairment in the Statement of Comprehensive
Income.
(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 Statement of
Comprehensive Income. Impairment losses recognised in the Statement
of Comprehensive Income on equity instruments are not reversed
through the Statement of Comprehensive Income.
(c) Renegotiated loans
Loans that are either 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
Forbearance is available to support customers who are in
financial difficulty and help them re-establish their contractual
payment plan. The main option offered by the Group is an
arrangement to clear outstanding arrears. If the forbearance
request is granted the account is monitored in accordance with the
Group's policy and procedures. All debts however retain the
customer's normal contractual payment due dates. Arrears tracking
and the allowance for impairment is based on the original
contractual due dates for both the secured and unsecured lending
channels.
3.10 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.
3.11 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.
3.12. 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 five years).
Costs associated with developing or maintaining computer
software programs are recognised as an expense as incurred.
(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).
3.13. 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 buildings 50 years
Office equipment 6 to 20 years
Computer equipment 3 to 5 years
Motor vehicles 4 years
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.
3.14. 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.
3.15. 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.
3.16. 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 cash settled to
equity 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, the liability in the Statement of Financial Position
is reclassified to equity and the prospective charge to the profit
or loss from the modification reflects the spreading of the initial
grant date fair value of the award over the remaining vesting
period in line with the policy on equity settled awards.
3.17. 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.
3.18. 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.
3.19. 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.
3.20. Financial guarantee contracts
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.
3.21. 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.
3.22. 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 2015 or
later periods, but the Group has not early adopted them:
-- 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 9, 'Financial instruments' (effective from 1 January
2018). This standard deals with the classification and measurement
of financial assets and will replace IAS 39. The requirements of
this standard represent a significant change from the existing
requirements in IAS 39. The standard contains two primary
measurement categories for financial assets: amortised cost and
fair value. The standard eliminates the existing IAS 39 categories
of 'held to maturity', 'available for sale' and ' loans and
receivables'. Further development phases for IFRS 9 are scheduled
to cover key areas such as impairment and hedge accounting. The
potential effect of this standard together with the further
development phases are currently being evaluated but it is expected
to have a material impact on the Group's financial statements, due
to the nature of the Group's operations.
Notes to the consolidated financial statements
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 Credit losses
The Group reviews its loan portfolios and held-to-maturity
investments to assess impairment at least on a half-yearly 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.
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.
To the extent that the default rates differ from that estimated
by 10%, the allowance for impairment on loans and advances would
change by an estimated GBP3.2m (2013: GBP2.6m).
4.2 Goodwill impairment
The accounting policy for goodwill is described in note 3.12
(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 do
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 are
currently three CGU's (2013: three) with goodwill attached; the
core Arbuthnot Latham CGU, the Music Finance CGU and the V12 Group
CGU (subsidiary of Secure Trust Bank acquired in the year).
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 (2013: 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 2017 as per the approved 3 year plan. A
growth rate of 10% (2013: 9%) was used for income and 10% (2013:
7%) for expenditure from 2015 to 2017 (these rates were the best
estimate of future forecasted performance), while a 3% (2013: 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.
Management considers the value in use for the Music Finance CGU
and V12 Group CGU to be the discounted cash flows over 5 years
(2013: 5 years). Income and expenditure were kept flat (2013: 0%)
over the 5 year period.
Cash flows were discounted at a pre-tax rate of 12% (2013: 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.
4.3 Taxation
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.
4.4 Acquisition of loan book
Acquired loan books are initially recognised at fair value.
Significant judgement is exercised in calculating their effective
interest rate ("EIR") using cash flow models which include
assumptions on the likely macroeconomic environment, including HPI,
unemployment levels and interest rates, as well as loan level and
portfolio attributes and history used to derive prepayment rates,
the probability and timing of defaults and the amount of incurred
losses.
4.5 Acquisition accounting
The Group recognises identifiable assets and liabilities at
their acquisition date fair values. The exercise of attributing a
fair value to the balance sheet of the acquired entity requires the
use of a number of assumptions and estimates, which are documented
at the time of the acquisition. These fair value adjustments are
determined from the estimated future cash flows generated by the
assets.
Loans and advances to customers
The methodology of attributing a fair value to the loans and
advances to customers involves discounting the estimated future
cashflows after impairment losses, using a risk adjusted discount
factor. A fair value adjustment is then applied to the carrying
value in the acquiree's balance sheet.
Intangible assets
Identifying the separately identifiable intangible assets of an
acquired company is subjective and based upon discussions with
management and a review of relevant documentation. During the
current and prior years the acquisition of Everyday Loans and the
V12 Finance Group indicated that there were four separately
identifiable intangible assets which met the criteria for
separation from goodwill, these being Trademarks/Tradenames,
Customer Relationships, Broker Relationships and Technology.
Trademarks and Tradenames are valued by estimating the fair
value of the estimated costs savings resulting from the ownership
of trade names as opposed to licensing them. Customer Relationships
are valued through the application of a discounted cashflow
methodology to net anticipated renewal revenues. The valuation of
Broker Relationships is derived from a costs avoided methodology,
by reviewing costs incurred on non-broker platforms versus costs
which are incurred in broker commission. Technology is valued by
the market derived royalty rate applied to the related cash flows
to arrive at estimated savings resulting from the use of the
acquired credit decisioning technology.
4.6 Average life of lending
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.
4.7 Share option scheme valuation
The valuation of the Secure Trust Bank equity-settled share
option scheme was determined at the original grant date of 2
November 2011 using Black-Scholes valuation models. 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.
Much of the bank's lending is in the near and sub-prime
categories, with performance of the book heavily influenced by
employment trends. With the UK economy remaining fragile, the
impact of a further downturn would be increasing unemployment,
potentially causing impairments to rise and new business levels to
fall, thereby affecting the bank's ability to sustain the levels of
dividend growth required under the terms of the scheme. Depending
on the product type, market and customer demographics, the bank's
current product range includes expected lifetime losses of between
1% and 20%.
Uncertainties in the regulatory environment continue, with
pressure on the government to further constrain the activities of
banks following the well reported catalogue of recent issues in the
industry. 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 95% for the remaining share options (SOS2) which vest on
2 November 2016.
Although one participant in the share option scheme left the
Company during 2012 and was consequently withdrawn from the scheme.
The directors consider that there is no further uncertainty
surrounding whether the remaining participants will all still be in
situ and eligible at the vesting date. Therefore the directors have
assumed no attrition rate for the remaining share options over the
scheme period.
4.8 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".
4.9 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 analyses financial instrument by the level in
the fair value hierarchy into which the measurement is
categorised:
Level Level Level
1 2 3 Total
At 31 December 2014 GBP000 GBP000 GBP000 GBP000
------------------------------------ ------- -------- ---------- ----------
ASSETS
Cash and balances at central banks - 115,938 - 115,938
Loans and advances to banks - 31,844 - 31,844
Debt securities held-to-maturity - 91,683 - 91,683
Derivative financial instruments - 2,707 - 2,707
Loans and advances to customers - 106,285 1,052,698 1,158,983
Other assets - - 5,522 5,522
Financial investments 171 - 1,106 1,277
------------------------------------ ------- -------- ---------- ----------
Asset 171 348,457 1,059,326 1,407,954
------------------------------------ ------- -------- ---------- ----------
LIABILITIES
Deposits from banks - 27,657 - 27,657
Derivative financial instruments - 1,067 - 1,067
Deposits from customers - - 1,194,285 1,194,285
Other liabilities - - 12,024 12,024
Debt securities in issue - - 11,448 11,448
------------------------------------ ------- -------- ---------- ----------
Liability - 28,724 1,217,757 1,246,481
------------------------------------ ------- -------- ---------- ----------
Level Level Level
1 2 3 Total
At 31 December 2013 GBP000 GBP000 GBP000 GBP000
------------------------------------ ------- -------- -------- ----------
ASSETS
Cash and balances at central banks - 193,046 - 193,046
Loans and advances to banks - 105,061 - 105,061
Debt securities held-to-maturity - 19,466 - 19,466
Derivative financial instruments - 508 - 508
Loans and advances to customers - - 732,009 732,009
Other assets - - 6,135 6,135
Financial investments 179 - 1,796 1,975
------------------------------------ ------- -------- -------- ----------
Asset 179 318,081 739,940 1,058,200
------------------------------------ ------- -------- -------- ----------
LIABILITIES
Deposits from banks - 2,003 - 2,003
Derivative financial instruments - 371 - 371
Deposits from customers - - 957,791 957,791
Other liabilities - - 10,152 10,152
Debt securities in issue - - 12,232 12,232
------------------------------------ ------- -------- -------- ----------
Liability - 2,374 980,175 982,549
------------------------------------ ------- -------- -------- ----------
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 2014:
Due
after
Due more
within than
one one
year year Total
At 31 December 2014 GBP000 GBP000 GBP000
------------------------------------------------ -------- -------- ----------
ASSETS
Cash 115,938 - 115,938
Loans and advances to banks 31,844 - 31,844
Debt securities held-to-maturity 62,839 28,844 91,683
Derivative financial instruments 1,209 1,498 2,707
Loans and advances to customers 444,594 714,389 1,158,983
Other assets 16,516 350 16,866
Financial investments - 1,277 1,277
Deferred tax asset 992 1,596 2,588
Investment in associate - 943 943
Intangible assets - 11,318 11,318
Property, plant and equipment - 12,475 12,475
------------------------------------------------ -------- -------- ----------
Total assets 673,932 772,690 1,446,622
------------------------------------------------ -------- -------- ----------
LIABILITIES
Deposits from banks 27,657 - 27,657
Derivative financial instruments 1,067 - 1,067
Deposits from customers 911,579 282,706 1,194,285
Current tax liability 3,612 - 3,612
Other liabilities 30,679 4,305 34,984
Debt securities in issue - 11,448 11,448
------------------------------------------------ -------- -------- ----------
Total liabilities 974,594 298,459 1,273,053
------------------------------------------------ -------- -------- ----------
The table below shows the maturity analysis of assets and liabilities
of the Group as at 31 December 2013:
Due
after
Due more
within than
one one
year year Total
At 31 December 2013 GBP000 GBP000 GBP000
----------------------------------------- ---------- --------- -----------
ASSETS
Cash 193,046 - 193,046
Loans and advances to banks 105,061 - 105,061
Debt securities held-to-maturity 19,466 - 19,466
Derivative financial instruments 488 20 508
Loans and advances to customers 419,694 312,315 732,009
Other assets 13,699 3,568 17,267
Financial investments - 1,975 1,975
Deferred tax asset - 3,954 3,954
Investment in associate - 943 943
Intangible assets - 13,103 13,103
Property, plant and equipment - 5,522 5,522
----------------------------------------- ---------- --------- -----------
Total assets 751,454 341,400 1,092,854
----------------------------------------- ---------- --------- -----------
LIABILITIES
Deposits from banks 2,003 - 2,003
Derivative financial instruments 371 - 371
Deposits from customers 781,468 176,323 957,791
Current tax liability 1,427 - 1,427
Other liabilities 26,702 4,315 31,017
Deferred tax liability - 1,099 1,099
Debt securities in issue - 12,232 12,232
----------------------------------------- ---------- --------- -----------
Total liabilities 811,971 193,969 1,005,940
----------------------------------------- ---------- --------- -----------
The table below shows the maturity analysis of assets and liabilities
of the Company as at 31 December 2014:
Due
after
Due more
within than
one one
year year Total
At 31 December 2014 GBP000 GBP000 GBP000
-------------------------------------------------- -------- ------- -------
ASSETS
Due from subsidiary undertakings - bank balances 19,244 - 19,244
Financial investments - 158 158
Deferred tax asset - 406 406
Intangible assets - 4 4
Property, plant and equipment - 127 127
Other assets 622 4,850 5,472
Shares in subsidiary undertakings - 39,966 39,966
-------------------------------------------------- -------- ------- -------
Total assets 19,866 45,511 65,377
-------------------------------------------------- -------- ------- -------
LIABILITIES
Other liabilities 4,132 - 4,132
Debt securities in issue - 11,448 11,448
-------------------------------------------------- -------- ------- -------
Total liabilities 4,132 11,448 15,580
-------------------------------------------------- -------- ------- -------
The table below shows the maturity analysis of assets and liabilities
of the Company as at 31 December 2013:
Due
after
Due more
within than
one one
year year Total
At 31 December 2013 GBP000 GBP000 GBP000
-------------------------------------------------- -------- ------- -------
ASSETS
Due from subsidiary undertakings - bank balances 16,551 - 16,551
Financial investments - 165 165
Deferred tax asset - 441 441
Intangible assets - 12 12
Property, plant and equipment - 130 130
Other assets 565 4,850 5,415
Shares in subsidiary undertakings - 30,995 30,995
-------------------------------------------------- -------- ------- -------
Total assets 17,116 36,593 53,709
-------------------------------------------------- -------- ------- -------
LIABILITIES
Deposits from banks 2,000 - 2,000
Other liabilities 9,029 - 9,029
Debt securities in issue - 12,232 12,232
-------------------------------------------------- -------- ------- -------
Total liabilities 11,029 12,232 23,261
-------------------------------------------------- -------- ------- -------
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:
2014 2013
GBP000 GBP000
------------------------------------------------------------ ---------- ----------
Credit risk exposures relating to on-balance sheet assets
are as follows:
Cash and balances at central banks 115,938 193,046
Loans and advances to banks 31,844 105,061
Debt securities held-to-maturity 91,683 19,466
Derivative financial instruments 2,707 508
Loans and advances to customers - Arbuthnot Latham 536,488 340,981
Loan and advances to customers - Secure Trust Bank 622,495 391,028
Other assets 5,522 6,135
Financial investments 1,277 1,975
Credit risk exposures relating to off-balance sheet assets
are as follows:
Guarantees 714 805
Loan commitments and other credit related liabilities 139,423 37,094
------------------------------------------------------------ ---------- ----------
At 31 December 1,548,091 1,096,099
------------------------------------------------------------ ---------- ----------
The Company's maximum exposure to credit risk before collateral
held or other credit enhancements is as follows:
2014 2013
GBP000 GBP000
------------------------------------------------------------ ------- -------
Credit risk exposures relating to on-balance sheet assets
are as follows:
Due from subsidiary undertakings - bank balances 19,244 16,551
Financial investments 158 165
Other assets 5,365 5,310
Credit risk exposures relating to off-balance sheet assets
are as follows:
Guarantees - 2,500
------------------------------------------------------------ ------- -------
At 31 December 24,767 24,526
------------------------------------------------------------ ------- -------
The above tables represents the maximum credit risk exposure
(net of impairment) to the Group and Company at 31 December 2014
and 2013 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
2014 2013
Loan Loan
Balance Collateral Balance Collateral
Loan to value GBP000 GBP000 GBP000 GBP000
------------------------ ------------ --------------- ------------ --------------
Less than 60% 300,384 824,044 176,713 464,460
60% - 80% 179,527 269,673 94,295 136,786
80% - 100% 28,176 29,899 24,188 26,907
Greater than 100% 23,497 18,382 17,089 13,816
------------------------ ------------ --------------- ------------ --------------
Total 531,584 1,141,998 312,285 641,969
------------------------ ------------ --------------- ------------ --------------
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.
Arbuthnot Latham and Secure Trust Bank generally do not
reschedule contractual arrangements where customers default on
their repayments due to financial difficulties (referred to as
'forbearance activities'). Under its Treating Customers Fairly
policies however, the Company may offer the customer the option to
reduce or defer payments for a short period. If the request is
granted, the account continues to be monitored in accordance with
the Group's impairment provisioning policy. Such debts retain the
customer's normal contractual payment due dates and will be treated
the same as any other defaulting cases for impairment purposes.
Arrears tracking will continue on the account with any impairment
charge being based on the original contractual due dates for all
products.
In June 2012, the Group acquired Everyday Loans whose policy on
forbearance is that 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. These
may be modified by way of a reschedule or deferment of repayments.
Rescheduling of debts retains the customers' contractual due dates,
whilst the deferment of repayments extends the payment schedule up
to a maximum of four payments in a twelve month period. As at 31
December 2014 the gross balance of rescheduled loans included in
the Consolidated Statement of Financial Position was GBP14.7m, with
an allowance for impairment on these loans of GBP1.0m. The gross
balance of deferred loans was GBP3.0m with an allowance for
impairment on these of GBP0.4m. (31 December 2013: the gross
balance of rescheduled loans was GBP13.9m, with an allowance for
impairment of GBP1.1m. The gross balance of deferred loans was
GBP2.8m with an allowance for impairment of GBP0.4m).
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
2014 2013 2014 2013
GBP000 GBP000 GBP000 GBP000
--------------------------- ----------- -------- ---------- -------
Concentration by product
Cash collateralised 19,934 17,709 - -
Commercial 164,154 31,625 95,790 12,492
Residential mortgages 451,645 253,845 43,428 19,548
Non-Performing 11,940 15,717 - -
Other Collateral 32,587 8,399 - -
Unsecured 11,203 27,150 - -
Personal Lending 87,571 77,799 - -
Motor 137,853 114,667 205 893
Music 13,829 10,590 - -
Cycle 33,310 23,274 - -
Pay4Later 14,013 18,784 - -
ELL 93,864 81,368 - -
Consumer electronics 24,792 7,739 - -
Sport and leisure 6,882 6,810 - -
Healthcare 8,756 5,165 - -
Rentsmart 25,504 25,548 - -
Furniture 5,263 3,679 - -
Other 15,883 2,141 - 4,161
--------------------------- ----------- -------- ---------- -------
At 31 December 1,158,983 732,009 139,423 37,094
--------------------------- ----------- -------- ---------- -------
Concentration by location
East Anglia 44,359 33,138 7,195 -
East Midlands 44,869 27,790 - -
London 463,333 220,028 64,329 11,608
Midlands 13,208 3,214 - -
North East 39,292 18,934 17,638 -
North West 76,349 56,603 - -
Northern Ireland 8,622 6,054 - -
Scotland 53,177 39,149 - -
South East 174,912 112,694 17,845 7,671
South West 58,627 45,964 10,825 1,629
Wales 32,799 25,086 - -
West Midlands 44,146 36,139 1,262 -
Yorkshire & Humber 38,176 33,741 - -
Other 67,114 73,475 20,329 16,186
--------------------------- ----------- -------- ---------- -------
At 31 December 1,158,983 732,009 139,423 37,094
--------------------------- ----------- -------- ---------- -------
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 25, a
stress test scenario of a 10% (2013: 10%) decline in market prices,
with all other things being equal, would result in a GBP127,000
(2013: GBP394,000) decrease in the Group's income and a decrease of
GBP103,000 (2013: GBP140,000) 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 25, a
stress test scenario of a 10% (2013: 10%) decline in market prices,
with all other things being equal, would result in a GBP15,000
(2013: GBP15,000) decrease in the Company's income and a decrease
of GBP13,000 (2013: GBP13,000) 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
2014. Included in the table below are the Group's assets and
liabilities at carrying amounts, categorised by currency.
GBP USD Euro
(GBP) ($) (EUR) Other Total
At 31 December 2014 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------ ---------- ------- ------- ------- ----------
ASSETS
Cash and balances at central banks 115,891 17 28 2 115,938
Loans and advances to banks 22,381 5,428 3,099 936 31,844
Debt securities held-to-maturity 76,124 15,559 - - 91,683
Derivative financial instruments 2,707 - - - 2,707
Loans and advances to customers 1,107,440 8,437 43,106 - 1,158,983
Other assets 5,522 - - - 5,522
Financial investments 158 - 1,119 - 1,277
------------------------------------ ---------- ------- ------- ------- ----------
1,330,223 29,441 47,352 938 1,407,954
------------------------------------ ---------- ------- ------- ------- ----------
LIABILITIES
Deposits from banks 27,489 168 - - 27,657
Derivative financial instruments 1,067 - - - 1,067
Deposits from customers 1,147,299 28,081 18,146 759 1,194,285
Other liabilities 12,024 - - - 12,024
Debt securities in issue - - 11,448 - 11,448
------------------------------------ ---------- ------- ------- ------- ----------
1,187,879 28,249 29,594 759 1,246,481
------------------------------------ ---------- ------- ------- ------- ----------
Net on-balance sheet position 142,344 1,192 17,758 179 161,473
------------------------------------ ---------- ------- ------- ------- ----------
Credit commitments 140,137 - - - 140,137
------------------------------------ ---------- ------- ------- ------- ----------
The table below summarises the Group's exposure to foreign currency exchange
risk at 31 December 2013:
GBP USD Euro
(GBP) ($) (EUR) Other Total
At 31 December 2013 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------- --------- ------- ------- ------- ----------
ASSETS
Cash and balances at central banks 192,972 53 20 1 193,046
Loans and advances to banks 85,365 16,703 1,160 1,833 105,061
Debt securities held-to-maturity 16,423 3,043 - - 19,466
Derivative financial instruments 508 - - - 508
Loans and advances to customers 682,925 3,748 45,336 - 732,009
Other assets 6,135 - - - 6,135
Financial investments 179 - 1,796 - 1,975
-------------------------------------- --------- ------- ------- ------- ----------
984,507 23,547 48,312 1,834 1,058,200
-------------------------------------- --------- ------- ------- ------- ----------
LIABILITIES
Deposits from banks 2,003 - - - 2,003
Derivative financial instruments 371 - - - 371
Deposits from customers 916,465 20,292 19,388 1,646 957,791
Other liabilities 10,152 - - - 10,152
Debt securities in issue - - 12,232 - 12,232
-------------------------------------- --------- ------- ------- ------- ----------
928,991 20,292 31,620 1,646 982,549
-------------------------------------- --------- ------- ------- ------- ----------
Net on-balance sheet position 55,516 3,255 16,692 188 75,651
-------------------------------------- --------- ------- ------- ------- ----------
Credit commitments 37,899 - - - 37,899
-------------------------------------- --------- ------- ------- ------- ----------
A 10% strengthening of the pound against the US dollar would
lead to a GBP1,000 decrease (2013: GBP5,000 increase) 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 increase (2013: GBP20,000 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 21), which
covers 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 2014:
GBP Euro
(GBP) (EUR) Total
At 31 December 2014 GBP000 GBP000 GBP000
-------------------------------------------------------- -------- ------- -------
ASSETS
Due from subsidiary undertakings - bank balances 7,276 11,968 19,244
Financial investments 158 - 158
Other assets 5,365 - 5,365
-------------------------------------------------------- -------- ------- -------
12,799 11,968 24,767
-------------------------------------------------------- -------- ------- -------
LIABILITIES
Other liabilities 3,028 - 3,028
Debt securities in issue - 11,448 11,448
-------------------------------------------------------- -------- ------- -------
3,028 11,448 14,476
-------------------------------------------------------- -------- ------- -------
Net on-balance sheet position 9,771 520 10,291
-------------------------------------------------------- -------- ------- -------
The table below summarises the Company's exposure to foreign currency
exchange rate risk at 31 December 2013:
GBP Euro
(GBP) (EUR) Total
At 31 December 2013 GBP000 GBP000 GBP000
-------------------------------------------------------- -------- ------- -------
ASSETS
Due from subsidiary undertakings - bank balances 3,827 12,724 16,551
Financial investments 165 - 165
Other assets 5,310 - 5,310
-------------------------------------------------------- -------- ------- -------
9,302 12,724 22,026
-------------------------------------------------------- -------- ------- -------
LIABILITIES
Deposits from banks 2,000 - 2,000
Other liabilities 7,768 - 7,768
Debt securities in issue - 12,232 12,232
-------------------------------------------------------- -------- ------- -------
9,768 12,232 22,000
-------------------------------------------------------- -------- ------- -------
Net on-balance sheet position (466) 492 26
-------------------------------------------------------- -------- ------- -------
A 10% strengthening of the pound against the Euro would lead to
GBP28,000 (2013: GBP24,000) 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 GBP0.3m to GBP1.1m (2013: GBP0.5m 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 GBP60,000 (2013: increase pre-tax profits and equity by
GBP12,000).
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 2014 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
ASSETS
Cash and balances at central
banks 115,938 - - - - - 115,938
Loans and advances to banks 31,844 - - - - - 31,844
Debt securities held-to-maturity 86,462 - - 5,221 - - 91,683
Derivative financial instruments 1,209 - - - 1,498 - 2,707
Loans and advances to customers 615,599 74,042 116,012 383,698 200 (30,568) 1,158,983
Other assets - - - - - 44,190 44,190
Financial investments - - - - - 1,277 1,277
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Total assets 851,052 74,042 116,012 388,919 1,698 14,899 1,446,622
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
LIABILITIES
Deposits from banks 27,657 - - - - - 27,657
Derivative financial instruments 1,067 - - - - - 1,067
Deposits from customers 615,005 119,973 138,515 253,360 29,670 37,762 1,194,285
Other liabilities - - - - - 38,596 38,596
Debt securities in issue 11,448 - - - - - 11,448
Equity - - - - - 173,569 173,569
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Total liabilities 655,177 119,973 138,515 253,360 29,670 249,927 1,446,622
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Impact of derivative instruments (16,200) 20,000 - (3,800) - -
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
Interest rate sensitivity
gap 179,675 (25,931) (22,503) 131,759 (27,972) (235,028)
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
Cumulative gap 179,675 153,744 131,241 263,000 235,028 -
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
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 2013 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
ASSETS
Cash and balances at central
banks 193,046 - - - - - 193,046
Loans and advances to banks 105,061 - - - - - 105,061
Debt securities held-to-maturity 16,423 - - 3,043 - - 19,466
Derivative financial instruments 488 - - - - 20 508
Loans and advances to customers 394,714 56,077 84,819 220,038 150 (23,789) 732,009
Other assets - - - - - 40,789 40,789
Financial investments - - - - - 1,975 1,975
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Total assets 709,732 56,077 84,819 223,081 150 18,995 1,092,854
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
LIABILITIES
Deposits from banks 1,943 - - - - 60 2,003
Derivative financial instruments 371 - - - - - 371
Deposits from customers 437,888 212,070 90,206 178,713 5,347 33,567 957,791
Other liabilities - - - - - 33,543 33,543
Debt securities in issue 12,232 - - - - - 12,232
Equity - - - - - 86,914 86,914
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Total liabilities 452,434 212,070 90,206 178,713 5,347 154,084 1,092,854
---------------------------------- ---------- ---------- ---------- --------- --------- ---------- ----------
Impact of derivative instruments (16,200) - - 16,200 - -
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
Interest rate sensitivity
gap 241,098 (155,993) (5,387) 60,568 (5,197) (135,089)
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
Cumulative gap 241,098 85,105 79,718 140,286 135,089 -
---------------------------------- ---------- ---------- ---------- --------- --------- ----------
(d) Liquidity risk
The current Liquidity regime came into force on the 1 October
2010. 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 liquid 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.
The banking entities both prepared and approved their Individual
Liquidity Adequacy Assessment ("ILAA"). The liquidity buffers
required by the ILAA have all been put in place and maintained
since. Liquidity resources outside of the buffer are made up of
certificates of deposit and fixed rate notes (debt securities). The
Company and Group also maintain long-term committed bank
facilities. At 31 December 2014 AL had GBP119.8m (2013: GBP205.3m)
and STB GBP122.3m (2013: GBP111.6m) in their liquidity asset
buffers.
The tables below show the undiscounted contractual maturity analysis of
the Group's financial liabilities and assets as at 31 December 2014:
More More
than than
3 months 1 year
Gross but but
nominal Not more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2014 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
Financial liability by type
Non-derivative liabilities
Deposits from banks 27,657 (27,657) (12,627) (15,030) - -
Deposits from customers 1,194,285 (1,227,753) (510,423) (382,230) (299,841) (35,259)
Other liabilities 12,024 (18,674) (17,084) (125) - (1,465)
Debt securities in issue 11,448 (13,248) (90) (270) (1,440) (11,448)
Issued financial guarantee contracts (714) (714) - - -
Unrecognised loan commitments (139,423) (139,423) - - -
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
1,245,414 (1,427,469) (680,361) (397,655) (301,281) (48,172)
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
Derivative liabilities
Risk management: 1,067 - - - - -
- Outflows (1,067) (1,067) - - -
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
1,067 (1,067) (1,067) - - -
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
More More
than than
3 months 1 year
Gross but but
nominal Not more less less More
Carrying inflow/ than than than than
amount (outflow) 3 months 1 year 5 years 5 years
At 31 December 2014 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
Financial asset by type
Non-derivative assets
Cash and balances at central banks 115,938 115,938 115,938 - - -
Loans and advances to banks 31,844 31,843 31,843 - - -
Debt securities held-to-maturity 91,683 92,511 50,832 12,359 29,320 -
Loans and advances to customers 1,158,983 1,353,592 205,066 319,221 800,860 28,445
Other assets 5,522 5,522 5,522 - - -
Financial investments 1,277 1,277 - 1,119 158 -
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
1,405,247 1,600,683 409,201 332,699 830,338 28,445
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
Derivative assets
Risk management: 2,707 - - - - -
- Inflows 2,707 1,209 - - 1,498
2,707 2,707 1,209 - - 1,498
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
The tables below show the undiscounted contractual maturity analysis
of the Group's financial liabilities and assets as at 31 December 2013:
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 2013 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
Financial liability by type
Non-derivative liabilities
Deposits from banks 2,003 (2,003) (2,003) - - -
Deposits from customers 957,791 (1,013,314) (435,868) (388,573) (185,953) (2,920)
Other liabilities 10,152 (8,892) (7,857) (1,025) (10) -
Debt securities in issue 12,232 (14,224) (100) (299) (1,593) (12,232)
Issued financial guarantee contracts (805) (805) - - -
Unrecognised loan commitments (37,094) (37,094) - - -
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
982,178 (1,076,332) (483,727) (389,897) (187,556) (15,152)
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
Derivative liabilities
Risk management: 371 - - - - -
- Outflows (371) (371) - - -
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
371 (371) (371) - - -
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
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 2013 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
Financial asset by type
Non-derivative assets
Cash and balances at central banks 193,046 193,046 193,046 - - -
Loans and advances to banks 105,061 105,061 105,061 - - -
Debt securities held-to-maturity 19,466 19,701 2,491 141 17,069 -
Loans and advances to customers 732,009 878,370 167,005 169,645 540,159 1,561
Other assets 6,135 6,135 6,135 - - -
Financial investments 1,975 1,975 - 1,810 165 -
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
1,057,692 1,204,288 473,738 171,596 557,393 1,561
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
Derivative assets
Risk management: 508 - - - - -
- Inflows 508 508 - - -
508 508 508 - - -
-------------------------------------- ---------- ------------ ---------- ---------- ---------- ---------
The table below analyses the contractual maturity analysis of the Company's
financial liabilities and assets as at 31 December 2014:
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 2014 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------- --------- ----------- ---------- ---------- --------- ---------
Financial liability by type
Non-derivative liabilities
Other liabilities 3,028 (3,028) (1,438) (125) - (1,465)
Debt securities in issue 11,448 (13,248) (90) (270) (1,440) (11,448)
14,476 (16,276) (1,528) (395) (1,440) (12,913)
-------------------------------------- --------- ----------- ---------- ---------- --------- ---------
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 2014 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------- --------- ----------- ---------- ---------- --------- ---------
Financial asset by type
Non-derivative assets
Due from subsidiary undertakings
- bank balances 19,244 19,244 3,776 15,000 - 468
Other assets 5,365 5,365 5,365 - - -
Financial investments 158 158 - - 158 -
-------------------------------------- --------- ----------- ---------- ---------- --------- ---------
24,767 24,767 9,141 15,000 158 468
-------------------------------------- --------- ----------- ---------- ---------- --------- ---------
The table below analyses the contractual maturity analysis of the Company's
financial liabilities and assets as at 31 December 2013:
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 2013 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------- --------- ----------- ---------- ---------- --------- ---------
Financial liability by type
Non-derivative liabilities
Deposits from banks 2,000 (2,000) (2,000) - - -
Other liabilities 7,768 (7,768) (5,143) (1,025) (10) (1,590)
Debt securities in issue 12,232 (14,224) (100) (299) (1,593) (12,232)
Issued financial guarantee contracts (2,500) (2,500) - - -
-------------------------------------- --------- ----------- ---------- ---------- --------- ---------
22,000 (26,492) (9,743) (1,324) (1,603) (13,822)
-------------------------------------- --------- ----------- ---------- ---------- --------- ---------
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 2013 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------------- --------- ----------- ---------- ---------- --------- ---------
Financial asset by type
Non-derivative assets
Due from subsidiary undertakings
- bank balances 16,551 16,551 15,327 - - 1,224
Other assets 5,310 5,310 5,310 - - -
Financial investments 165 165 - - 165 -
-------------------------------------- --------- ----------- ---------- ---------- --------- ---------
22,026 22,026 20,637 - 165 1,224
-------------------------------------- --------- ----------- ---------- ---------- --------- ---------
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 GBP666m (2013: GBP528m). 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 Loans Other Total
profit and amortised carrying Fair
or loss Held-to-maturity receivables Available-for-sale cost amount value
At 31 December
2014 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
ASSETS
Cash and balances
at
central banks - - 115,938 - - 115,938 115,938
Loans and advances
to
banks - - 31,844 - - 31,844 31,844
Debt securities
held-to-maturity - 91,683 - - - 91,683 91,683
Derivative
financial
instruments 2,707 - - - - 2,707 2,707
Loans and advances
to
customers - - 1,158,983 - - 1,158,983 1,162,554
Other assets - - 5,522 - - 5,522 5,522
Financial
investments 171 - - 1,106 - 1,277 1,277
-------------------- -------- ----------------- ------------ ------------------- ---------- ---------- ----------
2,878 91,683 1,312,287 1,106 - 1,407,954 1,411,525
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
LIABILITIES
Deposits from banks - - - - 27,657 27,657 27,657
Derivative
financial
instruments 1,067 - - - - 1,067 1,067
Deposits from
customers - - - - 1,194,285 1,194,285 1,203,613
Other liabilities - - 12,024 - - 12,024 12,024
Debt securities in
issue - - - - 11,448 11,448 11,448
-------------------- -------- ----------------- ------------ ------------------- ---------- ---------- ----------
1,067 - 12,024 - 1,233,390 1,246,481 1,255,809
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
Fair
value
through Loans Other Total
profit and amortised carrying Fair
or loss Held-to-maturity receivables Available-for-sale cost amount value
At 31 December
2013 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
ASSETS
Cash and balances
at
central banks - - 193,046 - - 193,046 193,046
Loans and advances
to
banks - - 105,061 - - 105,061 105,061
Debt securities
held-to-maturity - 19,466 - - - 19,466 19,466
Derivative
financial
instruments 508 - - - - 508 508
Loans and advances
to
customers - - 732,009 - - 732,009 730,706
Other assets - - 6,135 - - 6,135 6,135
Financial
investments (244) - - 2,219 - 1,975 1,975
-------------------- -------- ----------------- ------------ ------------------- ---------- ---------- ----------
264 19,466 1,036,251 2,219 - 1,058,200 1,056,897
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
LIABILITIES
Deposits from banks - - - - 2,003 2,003 2,003
Derivative
financial
instruments 371 - - - - 371 371
Deposits from
customers - - - - 957,791 957,791 957,791
Other liabilities - - 10,152 - - 10,152 10,152
Debt securities in
issue - - - - 12,232 12,232 12,232
-------------------- -------- ----------------- ------------ ------------------- ---------- ---------- ----------
371 - 10,152 - 972,026 982,549 982,549
------------------ -------- ----------------- ------------ ------------------- ---------- ---------- ----------
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 Regulatory
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, non-controlling
interests and revaluation reserves, after deducting goodwill
and
other intangible assets.
-- 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:
2014 2013
GBP000 GBP000
------------------------------------------------------------ -------- --------
Tier 1
Share capital 153 153
Retained earnings 114,641 67,901
Other reserves (1,111) (1,111)
Non-controlling interests 60,038 20,327
Goodwill (2,695) (2,695)
Deductions for other intangibles (8,623) (8,710)
Revaluation reserve (152) 22
------------------------------------------------------------ -------- --------
Total tier 1 capital 162,251 75,887
------------------------------------------------------------ -------- --------
Tier 2
Collective provisions 2,031 1,578
Debt securities in issue 11,448 12,232
------------------------------------------------------------ -------- --------
Total tier 2 capital 13,479 13,810
------------------------------------------------------------ -------- --------
Total tier 1 & tier 2 capital 175,730 89,697
------------------------------------------------------------ -------- --------
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 2014 are published as a separate document on the Group
website under Investor Relations (Announcements & Shareholder
Info).
8. Net interest income
Year Year
ended ended
31 December 31 December
2014 2013
GBP000 GBP000
------------------------------------ ------------- -------------
Cash and balances at central banks 1,026 733
Loans and advances to banks 52 70
Debt securities held-to-maturity 530 296
Loans and advances to customers 116,016 92,230
-------------------------------------- ------------- -------------
Interest income 117,624 93,329
-------------------------------------- ------------- -------------
9. Fee and commission income
2014 2013
GBP000 GBP000
--------------------------------------------------------- ---------- ---------
Banking commissions 5,014 4,714
Trust and other fiduciary fee income 5,210 4,320
Financial Planning fees and commissions 1,557 1,351
Structured product commissions 1,218 1,810
Other fee income * 16,964 19,621
--------------------------------------------------------- ---------- ---------
29,963 31,816
--------------------------------------------------------- ---------- ---------
* This mainly includes fee and commission income received on OneBill,
PPI insurance and commission earned on debt recovery activities at Secure
Trust Bank.
10. Net impairment loss on financial assets
2014 2013
GBP000 GBP000
---------------------------------------------------------- ------- -------
Net Impairment losses on loans and advances to customers 18,244 17,734
Impairment losses on financial investments 347 1,073
---------------------------------------------------------- ------- -------
18,591 18,807
---------------------------------------------------------- ------- -------
11. Gain from a bargain purchase
On 15 January 2013 Debt Managers (Services) Limited (DMS), a
wholly owned subsidiary of Secure Trust Bank, acquired certain
trade and assets from Debt Managers Holdings Ltd, Debt Managers
(AB) Limited and Debt Managers Limited (together "Debt Managers").
Debt Managers collects debt on behalf of a range of clients
including banks and utility companies.
Key benefits of this acquisition to Secure Trust Bank
include:
-- Broadening the income base of Secure Trust Bank without the
requirement for large amounts of capital;
-- The acquisition of a scalable collections platform through
which Secure Trust Bank intends to channel its delinquent debt;
and
-- The acquisition of the latest call centre and collections
technology, including market leading dialler capability,
interactive voice response technology and payment websites.
DMS acquired the Debt Managers business for an initial cash
payment of GBP0.4m paid on completion of the transaction. Deferred
consideration of up to GBP0.3m was payable by DMS one year after
completion subject to the business achieving certain performance
criteria. Of this, GBP0.1m was paid by DMS in final settlement.
The acquired assets included a software platform jointly
developed with a third party. Upon completion the rights to this
software were sold to that third party for consideration of GBP2m.
DMS then proceeded to lease back the internal rights to use this
software. On completion Secure Trust Bank provided DMS with GBP2.2m
of funding to clear an outstanding overdraft of GBP1.8m and to fund
the working capital requirements of DMS.
The Consolidated Statement of Comprehensive Income includes
revenue of GBP3.8m and a loss before tax of GBP0.9m attributable to
DMS. Had the acquisition occurred at the start of the financial
year, the Consolidated Statement of Comprehensive Income would have
included revenue of GBP4.0m and a loss before tax of GBP0.9m
attributable to DMS.
Acquired Recognised
assets Fair values
/ value on
liabilities adjustments acquisition
GBP000 GBP000 GBP000
--------------------------------------- ------------ ------------ ------------
Clients cash at bank 1,362 - 1,362
Other assets 1,117 263 1,380
Intangible assets 2,010 - 2,010
Property, plant and equipment 57 - 57
--------------------------------------- ------------ ------------ ------------
Total assets 4,546 263 4,809
Bank overdraft 1,846 - 1,846
Client account 1,301 - 1,301
Other liabilities 730 - 730
--------------------------------------- ------------ ------------ ------------
Total liabilities 3,877 - 3,877
Net identifiable (liabilities)/assets 669 263 932
--------------------------------------- ------------ ------------ ------------
Consideration 519
Goodwill (413)
--------------------------------------- ------------ ------------ ------------
12. Gain on Sale of Building
On 17 October 2013 Arbuthnot Latham & Co., Limited completed
the sale and leaseback of 7 Wilson Street. The net book value of
the property at the date of sale was GBP16.5m. Under the terms of
the sale and leaseback agreement, the cash consideration received
by Arbuthnot Latham was GBP26.2m paid on completion. The Buyer also
provided GBP5.4m to be drawn by Arbuthnot Latham to fund a
renovation and fit out programme. After providing GBP3.0m for the
rent payable during the period of refurbishment prior to occupation
and GBP0.2m of transaction costs, the net gain was GBP6.5m.
13. Other income
Arbuthnot Latham received GBP1.2m of rental income in 2013 from
the letting of the 7 Wilson Street property. The property was
vacated by the tenants at the end of September 2013 and
refurbishment works started soon afterwards in anticipation of the
Group occupation which took place in November 2014.
14. Operating expenses
2014 2013
Operating expenses comprise: GBP000 GBP000
--------------------------------------------- ------- -------
Staff costs, including Directors:
Wages and salaries 41,082 33,262
Social security costs 4,180 3,553
Pension costs 1,741 1,509
Share based payment transactions (note 37) 1,583 2,249
Amortisation of intangibles (note 28) 3,000 2,803
Depreciation (note 29) 808 1,015
Operating lease rentals 5,120 4,617
Costs arising from acquisitions 198 535
Other administrative expenses 27,468 24,088
--------------------------------------------- ------- -------
Total operating expenses 85,180 73,631
--------------------------------------------- ------- -------
2014 2013
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 95 82
Fees payable to the Company's auditor and its associates
for other services:
Audit of the accounts of subsidiaries 329 356
Audit related assurance services 65 104
Taxation compliance services 82 73
Taxation advisory services 61 62
Other assurance services 321 56
Corporate finance services 115 -
Other non-audit services 13 28
----------------------------------------------------------- ------- -------
Total fees payable 1,081 761
----------------------------------------------------------- ------- -------
Other assurance services include regulatory assessments.
Corporate finance services include due diligence work on a
potential corporate transaction.
15. Average number of employees
2014 2013
--------------------------------- ----- -----
Retail banking 608 530
Private banking 175 145
Group 17 16
--------------------------------- ----- -----
800 691
--------------------------------- ----- -----
16. Income tax expense
2014 2013
United Kingdom corporation tax at 21.5% (2013: 23.25%) GBP000 GBP000
---------------------------------------------------------- ------- -------
Current taxation
Corporation tax charge - current year 5,349 3,146
Corporation tax charge - adjustments in respect of prior
years (18) 548
---------------------------------------------------------- ------- -------
5,331 3,694
---------------------------------------------------------- ------- -------
Deferred taxation
Origination and reversal of temporary differences 274 1,006
Adjustments in respect of prior years (106) (502)
---------------------------------------------------------- ------- -------
168 504
---------------------------------------------------------- ------- -------
Income tax expense 5,499 4,198
---------------------------------------------------------- ------- -------
Tax reconciliation
Profit before tax 22,515 15,713
Tax at 21.5% (2013: 23.25%) 4,841 3,653
Permanent differences 657 208
Tax rate change 126 291
Prior period adjustments (125) 46
---------------------------------------------------------- ------- -------
Corporation tax charge for the year 5,499 4,198
---------------------------------------------------------- ------- -------
The UK corporation tax rate reduced from 24% to 23% with effect
from 1 April 2013 and to 21% from 1 April 2014. On 2 July 2013 the
Government substantively enacted a further reduction to the UK
corporation tax rate to 20% from 1 April 2015. This will reduce the
Company's future current tax charge accordingly.
17. 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 of
GBP8,634,000 (2013: GBP7,930,000 ) by the weighted average number
of ordinary shares 15,279,322 (2013: 15,279,322) in issue during
the year.
Diluted
Diluted earnings per ordinary share are calculated by dividing
the profit after tax attributable to equity holders of the Company
of GBP8,634,000 (2013: GBP7,930,000 ) by the weighted average
number of ordinary shares in issue during the year, as noted above,
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 187,500 (2013: 106,250).
18. Cash and balances at central banks
2014 2013
Group GBP000 GBP000
---------------------------------------- --------- --------
Cash and balances at central banks 115,938 193,046
---------------------------------------- --------- --------
In 2010 a reserve account was opened at the Bank of England
(BoE) to comply with the new liquidity regime that came into force
on 1 October 2010. Surplus funds are now mainly held in the BoE
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).
19. Loans and advances to banks
2014 2013
Group GBP000 GBP000
------------------------------------------------------------- ------- --------
Placements with banks included in cash and cash equivalents
(note 39) 31,844 105,061
------------------------------------------------------------- ------- --------
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:
2014 2013
Group GBP000 GBP000
------------------------------------------------------------- ------- --------
Aaa - 57,101
A1 3,216 -
A2 26,242 44,327
A3 - 3,633
Baa1 2,386 -
------------------------------------------------------------- ------- --------
31,844 105,061
------------------------------------------------------------- ------- --------
None of the loans and advances to banks are either past
due or impaired.
20. 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
stated in the Statement of Financial Position at amortised
cost.
The movement in debt securities held to maturity may be
summarised as follows:
2014 2013
Group GBP000 GBP000
--------------------------------------------------------- --------- --------
At 1 January 19,466 13,526
Exchange difference on monetary assets 188 -
Additions 85,244 9,844
Redemptions (13,215) (3,904)
--------------------------------------------------------- --------- --------
At 31 December 91,683 19,466
--------------------------------------------------------- --------- --------
The table below presents an analysis of debt securities by rating agency
designation at 31 December, based on Moody's long term ratings:
2014 2013
Group GBP000 GBP000
------------------------------------------------------------ ------- -------
Aaa 48,714 14,120
Aa1 22,284 3,044
Aa2 5,001 -
Aa3 3,747 2,302
A1 3,922 -
A3 3,507 -
Baa1 4,508 -
------------------------------------------------------------ ------- -------
91,683 19,466
------------------------------------------------------------ ------- -------
None of the debt securities held-to-maturity are either
past due or impaired.
21. Derivative financial
instruments
2014 2013
----------------------------------- -----------------------------------
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 81,898 1,209 1,067 39,850 488 371
Interest rate caps 20,000 - - 20,000 20 -
Structured notes 1,607 1,498 - - - -
-------------------------- ---------- -------- ------------- ---------- -------- -------------
103,505 2,707 1,067 59,850 508 371
-------------------------- ---------- -------- ------------- ---------- -------- -------------
The principal derivatives used by the Group are 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 indicies) 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:
2014 2013
Group GBP000 GBP000
----------------------------------------------------------- -------- -------
Aa3 81,898 39,850
A2 20,000 20,000
Baa1 1,607 -
----------------------------------------------------------- -------- -------
103,505 59,850
----------------------------------------------------------- -------- -------
22. Loans and advances to customers
2014 2013
Group GBP000 GBP000
------------------------------------------------------------- ---------- ---------
Gross loans and advances 1,197,394 763,042
Less: allowances for impairment on loans and advances (note
23) (38,411) (31,033)
------------------------------------------------------------- ---------- ---------
1,158,983 732,009
------------------------------------------------------------- ---------- ---------
On the 18th December 2014 AL completed the purchase of a
residential mortgage portfolio acquired from the administrators of
the Dunfermline Building Society ("DBS") for a consideration of
GBP106.3m. 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:
2014 2013
Group GBP000 GBP000
------------------------------------------------------------------- ---------- ---------
Gross investment in finance lease receivables:
- No later than 1 year 18,262 16,386
- Later than 1 year and no later than 5 years 13,047 16,053
31,309 32,439
Unearned future finance income on finance leases (5,799) (6,885)
------------------------------------------------------------------- ---------- ---------
Net investment in finance leases 25,510 25,554
------------------------------------------------------------------- ---------- ---------
The net investment in finance leases may be analysed as
follows:
- No later than 1 year 13,729 12,905
- Later than 1 year and no later than 5 years 11,781 12,649
25,510 25,554
------------------------------------------------------------------- ---------- ---------
Loans and advances to customers can be further summarised
as follows:
2014 2013
Group GBP000 GBP000
------------------------------------------------------------------- ---------- ---------
Neither past due nor impaired 1,082,580 684,783
Past due but not impaired 23,175 19,210
Impaired 91,639 59,049
------------------------------------------------------------------- ---------- ---------
Gross 1,197,394 763,042
Less: allowance for impairment (38,411) (31,033)
------------------------------------------------------------------- ---------- ---------
Net 1,158,983 732,009
------------------------------------------------------------------- ---------- ---------
(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:
2014 2013
Group GBP000 GBP000
------------------------------------------------------------------- ---------- ---------
Past due up to 30 days 4,763 2,681
Past due 30 - 60 days 1,145 4,369
Past due 60 - 90 days 1,233 3,439
Over 90 days 16,034 8,721
------------------------------------------------------------------- ---------- ---------
Total 23,175 19,210
------------------------------------------------------------------- ---------- ---------
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 (2013: GBPnil).
(c) Collateral held
An analysis of loans and advances to customers past due or impaired by
reference to the fair value of the underlying collateral is as follows:
2014 2013
Group GBP000 GBP000
--------------------------------------------------- ------------ -----------
Past due but not impaired 73,047 62,168
Impaired 16,477 10,963
--------------------------------------------------- ------------ -----------
Fair value of collateral held 89,524 73,131
--------------------------------------------------- ------------ -----------
Collateral is shown at fair value less costs to sell. The fair
value of the collateral held is GBP89,524,000 against GBP76,403,000
secured loans, giving an average loan-to-value of 85% (2013:
65%).
The gross amount of individually impaired loans and advances to
customers before taking into account the cash flows from collateral
held is GBP53,228,000 (2013: GBP28,016,000). Interest income on
loans classified as impaired totalled GBP3,143,000 (2013:
GBP2,574,000).
23. Allowances for impairment of loans and advances
Reconciliation of specific allowance for impairments:
2014 2013
Group GBP000 GBP000
---------------------------------------------------------- --------- --------
At 1 January 31,033 20,648
Impairment losses 18,669 18,798
Loans written off during the year as uncollectible (11,003) (8,413)
Amounts recovered during the year (288) -
---------------------------------------------------------- --------- --------
At 31 December 38,411 31,033
---------------------------------------------------------- --------- --------
Reconciliation of collective allowance for impairments:
2014 2013
Group GBP000 GBP000
---------------------------------------------------------- --------- --------
At 1 January 1,578 370
Impairment losses 453 1,208
At 31 December 2,031 1,578
---------------------------------------------------------- --------- --------
A further analysis of allowances for impairment of loans
and advances is as follows:
2014 2013
Group GBP000 GBP000
---------------------------------------------------------- --------- --------
Loans and advances to customers - UK Private Bank 4,355 3,973
Loan and advances to customers - Retail Bank - unsecured 34,056 27,060
---------------------------------------------------------- --------- --------
At 31 December 38,411 31,033
---------------------------------------------------------- --------- --------
24. Other assets
2014 2013
Group GBP000 GBP000
-------------------------------------------- ------- -------
Trade receivables 5,522 6,135
Repossessed collateral - held as inventory 3,742 3,543
Prepayments and accrued income 7,602 7,589
-------------------------------------------- ------- -------
16,866 17,267
-------------------------------------------- ------- -------
2014 2013
Company GBP000 GBP000
---------------------------------- ------- -------
Trade receivables 732 731
Due from subsidiary undertakings 4,633 4,579
Prepayments and accrued income 107 105
---------------------------------- ------- -------
5,472 5,415
---------------------------------- ------- -------
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.
25. Financial investments
2014 2013
Group GBP000 GBP000
------------------------------------------------------- ------- -------
Financial investments comprise:
- Securities (at fair value through profit and loss) 145 152
- Securities (available-for-sale) 1,132 1,823
------------------------------------------------------- ------- -------
Total financial investments 1,277 1,975
------------------------------------------------------- ------- -------
Unlisted 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.
2014 2013
Company GBP000 GBP000
------------------------------------------------------- ------- -------
Financial investments comprise:
- Securities (at fair value through profit and loss) 145 152
- Securities (available-for-sale) 13 13
------------------------------------------------------- ------- -------
Total financial investments 158 165
------------------------------------------------------- ------- -------
26. Deferred taxation
The deferred tax asset comprises:
2014 2013
Group GBP000 GBP000
------------------------------------------------------------ ------- --------
Unrealised surplus on revaluation of freehold property 180 173
Accelerated capital allowances and other short-term timing
differences 215 (160)
Fair value of derivatives - 100
Tax losses 2,193 2,742
Deferred tax asset 2,588 2,855
------------------------------------------------------------ ------- --------
At 1 January 2,855 4,423
On acquisition of V12/ELL - (960)
Revaluation reserve - 242
Profit and loss account - accelerated capital allowances
and other short-term timing differences 282 589
Profit and loss account - tax losses (549) (1,439)
Deferred tax asset at 31 December 2,588 2,855
------------------------------------------------------------ ------- --------
The above balance is made up as follows:
2014 2013
Group GBP000 GBP000
------------------------------------------------------------ ------- --------
Deferred tax assets 2,588 3,954
Deferred tax liabilities - (1,099)
------------------------------------------------------------ ------- --------
2,588 2,855
------------------------------------------------------------ ------- --------
2014 2013
Company GBP000 GBP000
------------------------------------------------------------ ------- -------
Accelerated capital allowances and other short-term timing
differences 406 441
Deferred tax asset 406 441
------------------------------------------------------------ ------- -------
At 1 January 441 447
Profit and loss account - accelerated capital allowances
and other short-term timing differences (35) (6)
Deferred tax asset at 31 December 406 441
------------------------------------------------------------ ------- -------
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 24% to 23% with effect
from 1 April 2013 and to 21% with effect from 1 April 2014. On 2
July 2013 the Government substantively enacted a further reduction
to the UK corporation tax rate to 20% from 1 April 2015. Deferred
tax has been calculated based on a rate of 20% to the extent that
the related temporary or timing differences are expected to
reverse.
27. Investment in associate
2014 2013
Group GBP000 GBP000
----------------------------- ------- -------
Investment in associate 943 943
----------------------------- ------- -------
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 GBP87k. Due to
the fact that the associate made a profit in the last quarter and
the fact that the value of the outstanding loan notes (including
accrued interest) exceeded the investment in associate, no loss has
been recorded at Group level and the carrying value was left at
cost. The summarised Statement of Financial Position of the
associate is set out below:
2014 2013
At 31 December 2014 GBP000 GBP000
------------------------------------ ------- -------
ASSETS
Cash and balances at central banks 1,724 320
Other assets 8 -
Property, plant and equipment 10,416 10,580
------------------------------------ ------- -------
12,148 10,900
------------------------------------ ------- -------
EQUITY AND LIABILITIES
Deposits from banks 9,970 9,500
Other liabilities 865 -
Debt securities in issue 1,400 1,400
Retained Earnings (87) -
------------------------------------ ------- -------
12,148 10,900
------------------------------------ ------- -------
(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.
28. Intangible assets
Computer Other
Goodwill software intangibles Total
Group GBP000 GBP000 GBP000 GBP000
---------------------------------------------- --------- ---------- ------------- --------
Cost
At 1 January 2013 1,991 5,632 5,115 12,738
Additions - 948 214 1,162
On acquisition of V12 & DMS (note 12 and 43) 704 5,414 2,200 8,318
Disposals - (1,900) - (1,900)
At 31 December 2013 2,695 10,094 7,529 20,318
---------------------------------------------- --------- ---------- ------------- --------
Additions - 1,214 - 1,214
Disposals - (1,838) - (1,838)
---------------------------------------------- --------- ---------- ------------- --------
At 31 December 2014 2,695 9,470 7,529 19,694
---------------------------------------------- --------- ---------- ------------- --------
Accumulated amortisation
At 1 January 2013 - (3,717) (695) (4,412)
Amortisation charge - (1,307) (1,496) (2,803)
At 31 December 2013 - (5,024) (2,191) (7,215)
---------------------------------------------- --------- ---------- ------------- --------
Amortisation charge - (1,482) (1,517) (2,999)
Disposals - 1,838 - 1,838
---------------------------------------------- --------- ---------- ------------- --------
At 31 December 2014 - (4,668) (3,708) (8,376)
---------------------------------------------- --------- ---------- ------------- --------
Net book amount
---------------------------------------------- --------- ---------- ------------- --------
At 31 December 2013 2,695 5,070 5,338 13,103
---------------------------------------------- --------- ---------- ------------- --------
At 31 December 2014 2,695 4,802 3,821 11,318
---------------------------------------------- --------- ---------- ------------- --------
Computer
software
Company GBP000
----------------------------------------------------------------- ----------
Cost
At 1 January 2013 40
At 31 December 2013 40
----------------------------------------------------------------- ----------
At 31 December 2014 40
----------------------------------------------------------------- ----------
Accumulated amortisation
At 1 January 2013 (20)
Amortisation charge (8)
At 31 December 2013 (28)
----------------------------------------------------------------- ----------
Amortisation charge (8)
At 31 December 2014 (36)
----------------------------------------------------------------- ----------
Net book amount
----------------------------------------------------------------- ----------
At 31 December 2013 12
----------------------------------------------------------------- ----------
At 31 December 2014 4
----------------------------------------------------------------- ----------
Refer to note 4.2 for assumptions used in the impairment review
of goodwill.
29. Property, plant and equipment
Freehold Computer
land and
and Leasehold other
buildings improvements equipment Total
Group GBP000 GBP000 GBP000 GBP000
---------------------------------------------- ----------- -------------- ----------- ---------
Cost or valuation
At 1 January 2013 21,639 513 11,792 33,944
Additions - 122 624 746
On acquisition of V12 & DMS (note 12 and 43) - 9 78 87
Disposals (16,789) (16) (461) (17,266)
At 31 December 2013 4,850 628 12,033 17,511
---------------------------------------------- ----------- -------------- ----------- ---------
Additions 2,638 2,926 2,239 7,803
Disposals - - (541) (541)
---------------------------------------------- ----------- -------------- ----------- ---------
At 31 December 2014 7,488 3,554 13,731 24,773
---------------------------------------------- ----------- -------------- ----------- ---------
Accumulated depreciation
At 1 January 2013 (884) (79) (10,494) (11,457)
Depreciation charge (301) (168) (546) (1,015)
Disposals 345 - 138 483
At 31 December 2013 (840) (247) (10,902) (11,989)
---------------------------------------------- ----------- -------------- ----------- ---------
Depreciation charge (89) (234) (485) (808)
Disposals - - 499 499
---------------------------------------------- ----------- -------------- ----------- ---------
At 31 December 2014 (929) (481) (10,888) (12,298)
---------------------------------------------- ----------- -------------- ----------- ---------
Net book amount
---------------------------------------------- ----------- -------------- ----------- ---------
At 31 December 2013 4,010 381 1,131 5,522
---------------------------------------------- ----------- -------------- ----------- ---------
At 31 December 2014 6,559 3,073 2,843 12,475
---------------------------------------------- ----------- -------------- ----------- ---------
The Group's opening freehold property is the Registered Office
of the Company and Secure Trust Bank and is fully utilised for the
Group's own purposes. During the year, Secure Trust Bank acquired a
further freehold property, Secure Trust House, Boston Drive, Bourne
End SL8 5YS. The majority of this property will be used for the
Group's own purposes. However, the legacy tenant of the property
has remained in situ. The cost of the property was GBP2.7m.
The directors have assessed the value of the Group's freehold
property at the year end through comparison to current rental
yields on similar properties in the same area and do not believe
that the fair value of freehold property is materially different
from its carrying value.
The carrying value of freehold land not depreciated is GBP1.7m
(2013: GBP0.5m). The historical cost of freehold property included
at valuation is as follows:
2014 2013
Group GBP000 GBP000
-------------------------- -------- --------
Cost 7,470 4,832
Accumulated depreciation (1,153) (1,063)
-------------------------- -------- --------
Net book amount 6,317 3,769
-------------------------- -------- --------
Computer
and
other
equipment
Company GBP000
-------------------------- -----------
Cost or valuation
At 1 January 2013 202
Additions 1
At 31 December 2013 203
---------------------------- -----------
Additions 1
At 31 December 2014 204
---------------------------- -----------
Accumulated depreciation
At 1 January 2013 (68)
Depreciation charge (5)
At 31 December 2013 (73)
---------------------------- -----------
Depreciation charge (4)
At 31 December 2014 (77)
---------------------------- -----------
Net book amount
-------------------------- -----------
At 31 December 2013 130
---------------------------- -----------
At 31 December 2014 127
---------------------------- -----------
30. Deposits from banks
2014 2013
Group GBP000 GBP000
--------------------------------------------------------- ------- -------
Deposits from other banks 27,657 2,003
--------------------------------------------------------- ------- -------
For a maturity profile of deposits from banks, refer to
Note 6.
31. Deposits from customers
2014 2013
Group GBP000 GBP000
----------------------------- ---------- --------
Current/demand accounts 354,097 306,955
Notice accounts 295,347 265,448
Term deposits 544,841 385,388
----------------------------- ---------- --------
1,194,285 957,791
----------------------------- ---------- --------
Included in customer accounts are deposits of GBP4,195,000
(2013: GBP9,947,000) 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
2014 2013
Group GBP000 GBP000
------------------------------ ------- -------
Trade payables 12,024 10,152
Accruals and deferred income 22,960 20,865
------------------------------ ------- -------
34,984 31,017
------------------------------ ------- -------
The Financial Services Compensation Scheme ('FSCS') has provided
compensation to consumers following the collapse of a number of
deposit takers. The compensation paid out to consumers is currently
funded through loans from the Bank of England and HM Treasury.
Within trade payables at 31 December 2014 there is GBP4.3m
(2013: GBP4.3m) collateral held from RentSmart. STB buys assets
which are then leased to customers of RentSmart and STB pays
RentSmart a commission, which is recognised within operating
income. In return, RentSmart continues to operate the agreement,
retains the credit risk and provides STB with a collateral amount
that is based upon the balance of customer receivables and expected
new agreements during the following month.
Within accruals and deferred income there is GBP6.6m relating to
accrued interest payable (2013: GBP5.1m).
Company GBP000 GBP000
-------------------------------- ------- -------
Due to subsidiary undertakings 3,028 7,768
Accruals and deferred income 1,104 1,261
-------------------------------- ------- -------
4,132 9,029
-------------------------------- ------- -------
33. Debt securities in issue
2014 2013
Group and Company GBP000 GBP000
------------------------------ ------- -------
Subordinated loan notes 2035 11,448 12,232
------------------------------ ------- -------
The subordinated loan notes 2035 were issued on 7 November 2005
and are denominated in Euros. The principal amount outstanding at
31 December 2014 was EUR15,000,000 (2013: 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
Capital commitments
At 31 December 2014, the Group had capital commitments of GBPnil
(2013: 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:
2014 2013
Group GBP000 GBP000
--------------------------------------------------------- ---------- -------
Guarantees and other contingent liabilities 714 805
Commitments to extend credit:
- Original term to maturity of one year or less 139,423 37,094
--------------------------------------------------------- ---------- -------
140,137 37,899
--------------------------------------------------------- ---------- -------
Operating lease commitments
Where a Group company is the lessee, the future aggregate lease payments
under non-cancellable operating leases are as follows:
2014 2013
Group GBP000 GBP000
--------------------------------------------------------- ---------- -------
Expiring:
Within 1 year 3,766 4,672
Later than 1 year and no later than 5 years 8,715 9,636
Later than 5 years 8,876 19,351
--------------------------------------------------------- ---------- -------
21,357 33,659
--------------------------------------------------------- ---------- -------
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.
35. Share capital
Ordinary
Number share Share
of shares capital premium
Group and Company GBP000 GBP000
------------------------------------- ----------- --------- ---------
At 1 January 2012 15,279,322 153 -
At 31 December 2013 & December 2014 15,279,322 153 -
------------------------------------- ----------- --------- ---------
The total authorised number of ordinary shares at 31 December
2014 and 31 December 2013 was 418,439,000 with a par value of 1
pence per share (2013: 1 pence per share). At 31 December 2014 the
Company held 390,274 shares (2013: 390,274) in treasury.
36. Reserves and retained earnings
2014 2013
Group GBP000 GBP000
------------------------------------ -------- --------
Revaluation reserve 98 191
Capital redemption reserve 20 20
Available-for-sale reserve (250) (169)
Cash flow hedging reserve - (378)
Treasury shares (1,131) (1,131)
Retained earnings 114,641 67,901
------------------------------------ -------- --------
Total reserves at 31 December 113,378 66,434
------------------------------------ -------- --------
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.
2014 2013
Company GBP000 GBP000
------------------------------- -------- --------
Capital redemption reserve 20 20
Available-for-sale reserve - 81
Treasury shares (1,131) (1,131)
Retained earnings 50,755 31,325
------------------------------- -------- --------
Total reserves as 31 December 49,644 30,295
------------------------------- -------- --------
37. Share-based payment options
Company
The Company had the following equity settled share-based payment
awards outstanding at 31 December 2014:
-- On 16 April 2013 Mr. Salmon was granted an option to
subscribe for 100,000 ordinary 1p shares in the Company between
April
2016 and April 2021 at 930p. The fair value of the option at
grant date was GBP83k.
-- On 16 April 2013 Mr. Cobb was granted an option to subscribe
for 50,000 ordinary 1p shares in the Company between April
2016 and April 2021 at 930p. The fair value of the option at
grant date was GBP41k.
-- 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 GBP53k.
There are no other vesting conditions for these awards.
Group
Apart from the share-based payment awards for the Company listed
above, the Group also include awards allocated under the Secure
Trust Bank Share Option Scheme, which was established on 17 October
2011 and entitles key management personnel and senior employees of
Secure Trust Bank PLC to purchase shares in that company.
The performance conditions of the Scheme are that for the
duration of the vesting period, the dividends paid by Secure Trust
Bank PLC must have increased in percentage terms when compared to
an assumed dividend of GBP8m in respect of the financial year
ending 31 December 2012, by a minimum of the higher of:
a) the increase in the Retail Prices Index during that period;
or
b) 5% per annum during that period.
All dividends paid by Secure Trust Bank each year during the
vesting period must be paid from Secure Trust Bank's earnings
referable to that year. 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 Secure Trust Bank or any
of its subsidiaries which has a material impact on the business of
the Company.
Options are forfeited if they remain unexercised after a period
of more than 10 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.
On 2 November 2011 934,998 share options were granted at an
exercise price of 720p per share. Approximately half of the share
options were exercisable on 2 November 2014 with the remainder
being exercisable on 2 November 2016, being classed as share option
tranches SOS1 and SOS2 respectively. A total of 14,167 share
options have been forfeited since their grant date. At the grant
date these share options had a fair value of GBP1.6m. Of the share
options granted on 2 November 2011, the following remaining share
options (SOS2) were to Group directors:
-- Mr. Lynam was granted an option to subscribe for 141,667
shares at 720p between 2 November 2016 and 1 November 2021.
-- Mr. Salmon was granted an option to subscribe for 141,667
shares at 720p between 2 November 2016 and 1 November 2021.
The Share Option Scheme is an equity settled scheme. The
original grant date valuation was determined to be GBP1.69 per
option and this valuation has been used in the calculation. An
attrition rate of option holders has been assumed of nil for the
second tranche of share options. Due to the options being fully
conditional knockout options, a probability of pay-out has been
assigned based on the likelihood of meeting the performance
criteria, which is 95% for SOS2. The Company incurred an expense in
relation to share based payments of GBP1.5m during 2014.
Summary details of the Secure Trust Bank Share Option Scheme are shown
in the table below:
31 December
2014
No. SOS2
--------------------------------------------------------- ----- ----------
Key Management Personnel 3 318,751
Senior Management 5 141,668
Share Options in Issue 8 460,419
----------------------------------------------------------- ----- ----------
Exercise Price (GBP) 7.20
Value per option (GBP) 1.69
Total included in reserves (GBP000) 778
----------------------------------------------------------- ----- ----------
Probability of payout 95%
Assumed value of share options on exercise
date (GBP000) 739
----------------------------------------------------------- ----- ----------
Value of share options at 31 December 2014
(GBP000) 468
----------------------------------------------------------- ----- ----------
38. Dividends per share
Final dividends are not accounted for until they have been
approved at the Annual General Meeting. At the meeting on 14 May
2015, a dividend in respect of 2014 of 16 pence per share (2013:
actual dividend 15 pence per share) amounting to a total of
GBP2.38m (2013: actual GBP2.23m) is to be proposed. The financial
statements for the year ended 31 December 2014 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 2015.
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.
2014 2013
Group GBP000 GBP000
-------------------------------------------------- -------- --------
Cash and balances at central banks (Note 18) 115,938 193,046
Loans and advances to banks (Note 19) 31,844 105,061
-------------------------------------------------- -------- --------
147,782 298,107
-------------------------------------------------- -------- --------
2014 2013
Company GBP000 GBP000
-------------------------------------------------- -------- --------
Due from subsidiary undertakings - bank balances 19,244 16,551
-------------------------------------------------- -------- --------
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, payment of dividends and
transactions with subsidiaries, 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.
2014 2013
Group GBP000 GBP000
---------------------------------- ------- -------
Loans
Loans outstanding at 1 January 5,188 2,648
Loans advanced during the year 1,083 3,160
Loan repayments during the year (768) (620)
---------------------------------- ------- -------
Loans outstanding at 31 December 5,503 5,188
---------------------------------- ------- -------
Interest income earned 255 138
---------------------------------- ------- -------
The loans to directors are 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 (2013:
GBPnil). Details of directors' remuneration are given in the
Remuneration Report. The Directors do not believe that any other
key management disclosures are required.
2014 2013
Group GBP000 GBP000
--------------------------------- -------- --------
Deposits
Deposits at 1 January 2,522 1,767
Deposits placed during the year 3,531 3,237
Deposits repaid during the year (3,388) (2,482)
--------------------------------- -------- --------
Deposits at 31 December 2,665 2,522
--------------------------------- -------- --------
Interest expense on deposits 15 20
--------------------------------- -------- --------
Details of principal subsidiaries are given in Note 41. Transactions
and balances with subsidiaries are shown below:
2014 2013
Highest Balance Highest Balance
balance at 31 balance at 31
during December during December
the year the year
GBP000 GBP000 GBP000 GBP000
----------------------------------- ---------- ---------- ---------- ----------
ASSETS
Due from subsidiary undertakings 34,808 23,877 21,130 21,130
Shares in subsidiary undertakings 39,966 39,966 31,847 30,995
----------------------------------- ---------- ---------- ---------- ----------
Total assets 74,774 63,843 52,977 52,125
----------------------------------- ---------- ---------- ---------- ----------
LIABILITIES
Due to subsidiary undertakings 3,878 2,872 8,003 7,768
----------------------------------- ---------- ---------- ---------- ----------
Total liabilities 3,878 2,872 8,003 7,768
----------------------------------- ---------- ---------- ---------- ----------
Issued guarantee contracts 2,500 - 2,500 2,500
The disclosure of the year-end 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.
41. Investment in subsidiary undertakings
Investment Impairment
at cost provisions Net
Company GBP000 GBP000 GBP000
------------------------------------------------- ----------- ------------ --------
At 1 January 2013 33,411 (2,564) 30,847
Capital contribution in Arbuthnot Latham & Co.,
Limited 1,000 - 1,000
Sale of shares in Secure Trust Bank PLC (852) - (852)
------------------------------------------------- ----------- ------------ --------
At 31 December 2013 33,559 (2,564) 30,995
------------------------------------------------- ----------- ------------ --------
Capital contribution in Arbuthnot Latham & Co.,
Limited 10,500 - 10,500
Sale of shares in Secure Trust Bank PLC (1,529) - (1,529)
------------------------------------------------- ----------- ------------ --------
At 31 December 2014 42,530 (2,564) 39,966
------------------------------------------------- ----------- ------------ --------
2014 2013
Company GBP000 GBP000
-------------------------- ------- -------
Subsidiary undertakings:
Banks 37,666 28,695
Other 2,300 2,300
-------------------------- ------- -------
Total 39,966 30,995
-------------------------- ------- -------
(a) List of significant subsidiaries
The table below provides details of the significant subsidiaries
of Arbuthnot Banking Group PLC at 31 December:
Ownership interest
%
-------------------
Country Principal
of incorporation 2014 2013 activity
------------------------------------- ------------------- ---------- --------- ---------------
Secure Trust Bank PLC UK 52 67 Retail banking
Private
Arbuthnot Latham & Co., Limited UK 100 100 banking
------------------------------------- ------------------- ---------- --------- ---------------
(i) All the above subsidiary undertakings are included in the consolidated
financial statements and have an accounting reference date of 31 December.
(ii) All the above interests relate
wholly to ordinary shares.
(b) Non-controlling interests in subsidiaries
The only subsidiary in the Group with non-controlling interests
is Secure Trust Bank PLC, with external parties having 48.1% (2013:
33%) ownership interests in the bank. Summary financial information
on the subsidiary is shown in the table below.
Year Year
ended ended
31 December 31 December
2014 2013
Summary of profit GBP000 GBP000
----------------------------------------------- ------------- -------------
Operating income 97,897 78,982
Profit after income tax 20,455 12,253
------------------------------------------------- ------------- -------------
Total comprehensive income 20,831 12,253
------------------------------------------------- ------------- -------------
Profit allocated to non-controlling interests 8,450 3,569
------------------------------------------------- ------------- -------------
31 December 31 December
2014 2013
Summary of assets and liabilities GBP000 GBP000
-------------------------------------------------------- ------------- -------------
Loans and advances to customers 622,495 391,028
Other assets 159,769 131,647
Liabilities (657,402) (461,053)
---------------------------------------------------------- ------------- -------------
Net assets 124,862 61,622
---------------------------------------------------------- ------------- -------------
Carrying amount of non-controlling interests 60,038 20,327
---------------------------------------------------------- ------------- -------------
Year Year
ended ended
31 December 31 December
2014 2013
Summary of cash flows GBP000 GBP000
-------------------------------------------------------- ------------- -------------
Cash flows from operating activities (21,356) 43,449
Cash flows from investing activities (4,533) (38,255)
Cash flows from financing activities, before dividends
to non-controlling interests 52,073 -
Cash flows from financing activities - cash dividends
to non-controlling interests (3,752) (2,658)
---------------------------------------------------------- ------------- -------------
Net increase in cash and cash equivalents 22,432 2,536
---------------------------------------------------------- ------------- -------------
(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 banking
subsidiaries' assets and liabilities are GBP1,452m and GBP1,268m
respectively (2013: GBP1,096m and GBP994m respectively).
(d) Risks associated with interests
During the year Arbuthnot Banking Group PLC made a GBP10.5m
capital contribution to Arbuthnot Latham & Co., Ltd. The
contribution was made to assist the private bank during a period of
growth (which included the acquisition of a loan book at fair value
of GBP106m) to ensure that all regulatory capital requirements were
met.
(e) Changes in ownership interest
On 9 July, Secure Trust Bank PLC issued 2,083,333 new shares to
external shareholders and at the same time Arbuthnot Banking Group
PLC sold 1,041,667 shares, thereby reducing its shareholding in
Secure Trust Bank PLC from 67% to 53.3%. The effect of these
transactions on the Group's reserves can be seen in the
Consolidated Statement of Changes in Equity. As can been seen from
the table under paragraph (b) above, the full year equivalent
profit attributable to equity holders of the Group has therefore
reduced from GBP13.7m to GBP10.9m due to these transactions.
On 4 November, 460,416 share options issued by Secure Trust
Bank, under its equity settled share option scheme were exercised
(see Note 37). This resulted in the shareholding in Secure Trust
Bank PLC reducing from 53.3% to 51.9%. The effect of the exercise
of the share options on the Group's reserves can be seen in the
Consolidated Statement of Changes in Equity. As can been seen from
the table under paragraph (b) above, the full year equivalent
profit attributable to equity holders of the Group has therefore
reduced from GBP10.9m to GBP10.6m due to these shares being
issued.
42. Operating segments
The Group is organised into three main operating segments,
arranged over two separate companies with each having its own
specialised banking service, as disclosed below:
1) Retail banking - incorporating household cash management,
personal lending and banking and insurance services.
2) UK Private banking - incorporating private 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.
Continuing operations
------------------------------------------------
Retail UK Private Group
banking banking Centre Total
Year ended 31 December 2014 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ----------- --------- ------------
Interest revenue 93,542 24,303 155 118,000
Inter-segment revenue (51) (177) (148) (376)
------------------------------------------ ---------- ----------- --------- ------------
Interest revenue from external customers 93,491 24,126 7 117,624
------------------------------------------ ---------- ----------- --------- ------------
Fee and commission income 20,204 9,759 - 29,963
------------------------------------------ ---------- ----------- --------- ------------
Revenue from external customers 113,695 33,885 7 147,587
------------------------------------------ ---------- ----------- --------- ------------
Interest expense (14,170) (4,916) 116 (18,970)
Subordinated loan note interest - - (401) (401)
Fee and commission expense (1,679) (251) - (1,930)
------------------------------------------ ---------- ----------- --------- ------------
Segment operating income 97,897 28,895 (506) 126,286
------------------------------------------ ---------- ----------- --------- ------------
Impairment losses (15,288) (3,378) 75 (18,591)
Other income - 2,088 (2,088) -
Operating expenses (56,270) (23,977) (4,933) (85,180)
------------------------------------------ ---------- ----------- --------- ------------
Segment profit / (loss) before tax 26,339 3,628 (7,452) 22,515
------------------------------------------ ---------- ----------- --------- ------------
Income tax (expense) / income (5,672) 209 (36) (5,499)
------------------------------------------ ---------- ----------- --------- ------------
Segment profit / (loss) after tax 20,667 3,837 (7,488) 17,016
------------------------------------------ ---------- ----------- --------- ------------
Loans and advances to customers 622,495 536,488 - 1,158,983
Other assets 159,504 162,984 (34,849) 287,639
------------------------------------------ ---------- ----------- --------- ------------
Segment total assets 781,999 699,472 (34,849) 1,446,622
------------------------------------------ ---------- ----------- --------- ------------
Customer deposits (608,418) (585,867) - (1,194,285)
Other liabilities (48,719) (73,636) 43,587 (78,768)
------------------------------------------ ---------- ----------- --------- ------------
Segment total liabilities (657,137) (659,503) 43,587 (1,273,053)
------------------------------------------ ---------- ----------- --------- ------------
Other segment items:
Capital expenditure (4,533) (4,482) (2) (9,017)
Depreciation and amortisation (3,087) (708) (12) (3,807)
------------------------------------------ ---------- ----------- --------- ------------
The "Group Centre" segment above includes the parent entity and all
intercompany eliminations.
Continuing operations
------------------------------------------------
Retail UK Private Group
banking banking Centre Total
Year ended 31 December 2013 GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ----------- --------- ------------
Interest revenue 73,790 19,712 101 93,603
Inter-segment revenue (62) (209) (3) (274)
------------------------------------------ ---------- ----------- --------- ------------
Interest revenue from external customers 73,728 19,503 98 93,329
------------------------------------------ ---------- ----------- --------- ------------
Fee and commission income 22,745 9,071 - 31,816
------------------------------------------ ---------- ----------- --------- ------------
Revenue from external customers 96,473 28,574 98 125,145
------------------------------------------ ---------- ----------- --------- ------------
Interest expense (12,905) (6,934) (22) (19,861)
Subordinated loan note interest - - (418) (418)
Fee and commission expense (4,648) (198) - (4,846)
------------------------------------------ ---------- ----------- --------- ------------
Segment operating income 78,982 21,651 (613) 100,020
------------------------------------------ ---------- ----------- --------- ------------
Impairment losses (15,644) (2,914) (249) (18,807)
Gain from a bargain purchase 413 - - 413
Gain on sale of building - 6,535 - 6,535
Other income - 3,765 (2,582) 1,183
Operating expenses (46,558) (21,309) (5,764) (73,631)
------------------------------------------ ---------- ----------- --------- ------------
Segment profit / (loss) before tax 17,193 7,728 (9,208) 15,713
------------------------------------------ ---------- ----------- --------- ------------
Income tax (expense) / income (4,832) 794 (160) (4,198)
------------------------------------------ ---------- ----------- --------- ------------
Segment profit / (loss) after tax 12,361 8,522 (9,368) 11,515
------------------------------------------ ---------- ----------- --------- ------------
Loans and advances to customers 391,028 340,981 - 732,009
Other assets 134,865 278,692 (52,712) 360,845
------------------------------------------ ---------- ----------- --------- ------------
Segment total assets 525,893 619,673 (52,712) 1,092,854
------------------------------------------ ---------- ----------- --------- ------------
Customer deposits (436,608) (521,183) - (957,791)
Other liabilities (26,915) (71,437) 50,203 (48,149)
------------------------------------------ ---------- ----------- --------- ------------
Segment total liabilities (463,523) (592,620) 50,203 (1,005,940)
------------------------------------------ ---------- ----------- --------- ------------
Other segment items:
Capital expenditure (1,159) (747) (2) (1,908)
Depreciation and amortisation (3,103) (702) (13) (3,818)
------------------------------------------ ---------- ----------- --------- ------------
Segment profit is shown prior to any intra-group
eliminations.
The UK private bank opened a branch in Dubai in the year, which
generated GBP613k (2013: GBP11k) fee income and had operating costs
of GBP1,593k (2013: GBP890k). Other than the Dubai branch opened in
2013, all operations of the Group are conducted wholly within the
United Kingdom and geographical information is therefore not
presented.
43. Acquisition of V12 Finance Group Limited
On 2 January 2013 Secure Trust Bank acquired 100% of the
ordinary share capital of V12 Finance Group Limited, which along
with its wholly owned subsidiaries V12 Retail Finance Limited and
V12 Personal Finance Limited provide retail loans, typically for 12
months on an unsecured basis to consumers who are predominantly
classified as prime borrowers. The cash consideration for the
companies of GBP3.5 million was paid on completion. The acquisition
is complementary to the Group's existing retail finance proposition
and the V12 management team will continue in the business.
As part of the acquisition Secure Trust Bank provided funding
such that the V12 Finance Group could redeem GBP7.0 million of
subordinated debt and repay existing bank finance amounting to
GBP28.1 million.
The acquisition of V12 Finance Group Limited is accounted for in
accordance with IFRS 3 'Business Combinations', which requires the
recognition of the identifiable assets acquired and liabilities
assumed at their acquisition date fair values. As part of this
process, it is also necessary to identify and recognise certain
assets and liabilities which are not included on the acquiree's
balance sheet, for example intangible assets. The exercise to fair
value the balance sheet is inherently subjective and required
management to make a number of assumptions and estimates.
The Consolidated Statement of Comprehensive Income includes
revenue of GBP5.1 million and a profit before tax of GBP0.5 million
attributable to V12.
The following assets were acquired as part of the acquisition of the
V12 Finance Group Limited and its wholly owned subsidiary entities:
Acquired Recognised
assets Fair values
/ value on
liabilities adjustments acquisition
GBP000 GBP000 GBP000
--------------------------------------- ------------ ------------ ------------
Cash 150 - 150
Loans and advances to customers 32,744 - 32,744
Other assets 619 - 619
Deferred tax assets 292 - 292
Intangible assets 17 5,443 5,460
Property, plant and equipment 176 - 176
--------------------------------------- ------------ ------------ ------------
Total assets 33,998 5,443 39,441
Loans and debt securities 35,076 - 35,076
Other liabilities 276 - 276
Deferred tax liability 34 1,252 1,286
--------------------------------------- ------------ ------------ ------------
Total liabilities 35,386 1,252 36,638
Net identifiable (liabilities)/assets (1,388) 4,191 2,803
--------------------------------------- ------------ ------------ ------------
Consideration 3,507
Goodwill arising on acquisition 704
--------------------------------------- ------------ ------------ ------------
44. Ultimate controlling party
The Company regards 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 Mr Angest.
45. Events after the balance sheet date
There were no material post balance sheet events.
Five Year Summary
In the table below, all the figures are presented in accordance with IFRS.
2010 2011 2012 2013 2014
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------------------------- ------- ------- ------- ------- --------
Profit / (Loss) before tax * 5,104 5,116 12,593 15,713 22,515
Earnings per share
Basic (p) ** 25.0 (33.3) 52.6 51.9 56.5
Dividends per share (p) - ordinary 23.0 24.0 25.0 26.0 27.0
- special - - - 18.0 -
Other KPI:
2010 2011 2012 2013 2014
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------------------------- ------- ------- ------- ------- --------
Net asset value per share (p) 227.7 312.2 449.3 570.5 1,136.0
* The profit before tax for 2011 is shown as the results of
continuing operations. The previous years have not been restated
but the contribution of the discontinued operation can be seen in
the segmental analysis for those historical years.
** The earnings per share includes the effect of discontinued
operations in 2011.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JPMPTMBMBBJA
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