ARBUTHNOT BANKING GROUP PLC
Annual Report & Accounts
2012
1
REPORT & ACCOUNTS 2012 “He whose ranks are united in
purpose will be victorious”
Sun Tzu
The Ar t of War
circa 500 BC
Chairman’s Statement
1 Corporate Philosophy
2 Group Highlights
4
8 Business Review
12 Financial Review
16 Board of Directors
18 Group Directors’ Report
20 Corporate Governance
22 Remuneration Report
24 Independent Auditor’s Report
26 Consolidated Statement of Comprehensive Income
27 Consolidated Statement of Financial Position
28 Company Statement of Financial Position
29 Consolidated Statement of Changes in Equity
31 Company Statement of Changes in Equity
32 Consolidated Statement of Cash Flows
33 Company Statement of Cash Flows
34 Notes to the Consolidated Financial Statements
80 Five Year Summary
82 Notice of Meeting
84 Corporate Contacts & Advisers
ARBUTHNOT BANKING GROUP PLC
…of serving its customers, as well as a long track record of progress against the
background of a continually changing environment. The ability of Arbuthnot to
adapt and grow has come from managing the business through seven key principles
developed over time. These principles, always applied with pragmatism and
common sense, govern the activities of the Group, ranging from major strategic
issues to smaller day-to-day operational matters.
The continued application of these principles will allow the business to pursue
growth in a controlled manner, providing a high quality service to its customers
whilst delivering good returns to shareholders and securing the well-being of
its employees.
Henry Angest
Chairman & CEO
20 March 2013
corporate philosophy
1. Arbuthnot serves its shareholders,
its customers and its employees
with integrity and high ethical
standards. This is expressed in a
progressive dividend policy, in fair
pricing and pay for performance.
2. Arbuthnot attaches great importance
to good relations with customers
and business partners, and treating
them fairly and promptly. Arbuthnot
believes in reciprocity.
3. Arbuthnot is independent, and
profit and growth oriented while
maintaining a controlled risk
profile.
6. Arbuthnot does not sacrifice long
term prospects for short term
gains – nor sacrifice stability for
quick profits.
4. Arbuthnot’s approach is based on
diversification, a long-term view,
empowerment of management
and a culture of rewards for
achievements.
7. Ultimately, the success of Arbuthnot
depends on the teamwork,
commitment, and performance
of its employees, combined with
the determination to win.
5. Arbuthnot’s business is conducted
in an innovative, flexible and
entrepreneurial manner, with an
opportunistic and counter-cyclical
attitude.
1
REPORT & ACCOUNTS 2012
THe GROUP
Private Banking – Arbuthnot Latham
Arbuthnot Latham provides a high quality private banking and wealth
management service, consisting of four core elements:
Private Banking comprises current accounts, deposit accounts, loans,
overdrafts and foreign exchange. Each client deals with a dedicated
Private Banker who is key to providing an individual service.
The wealth planning service is built on long-term relationships and
bespoke financial strategies. The service is independent and fee, not
commission based, with clients receiving a service covering estate and
tax planning, pensions and wealth preservation and generation.
Our discretionary investment management service comprises asset
management, developing tailored investment strategies to ensure that
each client’s specific investment objectives are met.
Gilliat Financial Solutions designs, packages and distributes structured
products to financial intermediaries.
Retail Banking – Secure Trust Bank
Secure Trust Bank is an established UK retail bank. Its core business is
to provide banking services including a range of lending solutions and
deposits. It also provides fee-based current accounts to UK customers
who may not be adequately served by other banks.
Motor Finance A multi-channel offering through motor dealers and
brokers. The hire purchase agreements are fixed rate, fixed term and
secured mainly against used cars with finance term periods varying
from 24 to 60 months with a maximum loan size of £15,000.
Retail Point of Sale Finance Lending solutions for store and online
retailers and an “e”-tailer proposition distributed through partnership
with Pay4Later. Unsecured, fixed rate and fixed term loans with
payments received monthly. Loans vary in term from six months to 48
months and range from £250 to £12,000.
Personal Unsecured Lending Fixed rate, fixed term products with
payments received monthly. Loan terms are between 12 months and 60
months with advances varying from £500 to £15,000.
Current Account A current account with a prepaid card. The account
charges a monthly fee of £12.50 but customers have the ability to earn
rewards at participating retailers.
Savings A combination of instant access accounts, notice deposits and
deposit bonds with competitive interest rates.
2011
£45.5m
2012
£65.6m
2011
£5.1m
2012
£12.6m
2011
(£5.0m)
2012
£8.0m
Operating income
Profit before tax
Profit/(loss) attributable to Equity
holders of the Company
2011
24.0p
2012
25.0p
2011
£769.3m
2012
£1.0bn
2011
£55.7m
2012
£73.3m
Total dividend per share
Total assets
Regulatory capital
2
ARBUTHNOT BANKING GROUP PLC Our independence ensures your future prosperity is
driven by what is best, not what is prescribed.
3
REPORT & ACCOUNTS 2012 CHAIRMAN’S STATeMeNT
This has been a successful year for the Arbuthnot Banking Group and has thus
strengthened the foundation for future growth.
Henry Angest
Chairman & CEO
20 March 2013
4
ARBUTHNOT BANKING GROUP PLC This result reflects the good progress
being made across the whole Group.
A milestone has been achieved in that
the Group exceeded total assets of
£1 billion for the first time.
I am pleased to report that Arbuthnot Banking Group (“ABG” or the
“Group”) has made a profit before tax of £12.6m (2011: £5.1m) for the
year ended 31 December 2012. This result reflects the good progress
being made across the whole Group. A milestone has been achieved
in that the Group exceeded total assets of £1 billion for the first time.
Our cautious approach, during the exuberant times prior to the financial
crisis in 2008, when we were criticised for our prudent approach to risk
taking, has been vindicated. As a result, we have emerged in a strong
and robust position, which has enabled us to take advantage of the
present market conditions, as evidenced by the acquisition of Everyday
Loans (“EDL”).
Following on from the successful IPO of Secure Trust Bank (“STB”) in
2011, we completed a further equity placing in which ABG participated
in December 2012 of £20m. This offering was twice oversubscribed
which is a strong indication that the market fully supports those smaller
banks, which have the track record and ambition to challenge the
banking establishment. As a result of the placing ABG’s shareholding in
STB has been diluted to 70.7%.
There has been much rhetoric in recent times from politicians, Select
Committees and indeed Sir John Vickers, pointing to the fact that the
UK banking market needs more competition and lower barriers to
entry, i.e. “challenger banks”. This will start to redress the moral hazard
created by the concept of some banks being “too big to fail” and over
time provide individuals and companies with a wider choice for their
banking requirements.
It is clear to me when reviewing the progress being made by the
Group’s two businesses that we have been building the foundations
for Arbuthnot Banking Group potentially to become one of those
challengers. Both businesses have invested in infrastructure, developed
new products and reached out to more and more customers around
the country. But most importantly we have built high quality teams
of people at all levels of the organisations that have the necessary
experience and ambition to manage a larger bank. The UK has 234
banks, not including the building societies and overseas banks. It is
obvious that we do not require more banks, what we really need is
an environment in which banks can compete on level terms. Much
of the imbalance preventing competition is caused by the restrictive
regulatory environment in which small banks are forced to operate.
I have also argued in the past that we do not need more banking
regulations but what is required is a more judgemental regulatory
regime. Regulations have become blunt instruments applied to all
banks alike and usually “gold plated” for good measure, mostly to the
detriment of small banks.The impact of this was made very obvious in
the Vickers report. It highlighted the competitive advantage that the
large banks have by operating on the advanced methods to calculate
their capital requirements. With respect to residential mortgages, this
could be up to seven times less than under the standard method, which
is realistically the only method available to small banks. How can
there be a level playing field and more competition when the odds are
stacked in favour of the large banks to such a degree?
We raised this issue in an interview with the Financial Times on 11
February 2013 where we said that small banks faced a “glass ceiling”
which currently prevents them becoming real challenger banks.
I have however detected positive signals from the newly created
Prudential Regulatory Authority (PRA), which has indicated that it is
in favour of judgemental regulation. This should be helpful to well
managed banks, big and small.
Private Banking – Arbuthnot Latham & Co., Ltd
The Private Banking business has reported a pre-tax profit of £2.1m
(2011: £2.0m). Arbuthnot Latham maintained the momentum it has
developed in its lending business. Despite being cautious and selective
in its underwriting process, the bank grew its lending balances by
£51.1m to £289.3m, a 21% growth over 2011. Credit losses remained
below 1% of the asset book.
In line with our stated policy of funding ourselves entirely from retail
deposits, the customer deposit balances grew from £421.7 to £495.7
million, a 17% year on year increase. As a result, the loan to deposit
ratio was 59% (2011: 57%) at the year end. However, much of the
banks deposit raising activity took place in the first half of the year when
the retail market was at its most competitive. After the announcement
of the Funding for Lending Scheme in the third quarter, retail deposit
rates began to fall. This resulted in a compression of margins in the
business, which we expect to reverse as a number of our deposits begin
to mature.
5
REPORT & ACCOUNTS 2012 CHAIRMAN’S STATeMeNT
Continued
Both banks have continued to build the
foundations for growth and are confident
and well positioned to take advantage of
favourable market conditions.
As previously announced, James Fleming joined the bank as CEO in
March. Helpfully, he has been able to recruit a number of key senior
executives. They were attracted to the bank by the market opportunity
that exists for an independent Private Bank such as Arbuthnot Latham.
Notably, the focus of their efforts will be to accelerate the growth in the
wealth management business of the bank.
I was also encouraged by the continued progress shown by Gilliat
Financial Solutions which recorded a profit of £0.6m (2011: £0.2m).
Its track record of designing structured products that are delivering
consistent and acceptable returns to its investors is helping it to gain an
increasing share within the Financial Advisor market place.
Retail Banking – Secure Trust Bank
The reported pre-tax profits of Secure Trust Bank were £17.3m (2011:
£9.1m). The business had a successful year and has shown strong
growth across all lines of the business. The acquisition of Everyday
Loans in the first half of the year was the culmination of many months
of hard work and we were delighted to welcome the management team
and business to the Group. We have worked closely with them over
several years and respect their knowledge and experience of the market
within which they operate.
Overall the lending business within Secure Trust Bank grew by 92% to
close the year at £297.6m (2011: £154.6m). Notably the motor finance
business was named Motor Finance Provider of the Year by the Institute
of Transport Management in 2012.
The Bank also saw strong demand for its deposit products, raising
customer balances by 47% from £272.1m to £398.9m. At the same
time the maturity profile of these deposits was extended with the
proportion of medium term deposits growing from 30% to 39% during
the year.
Since the year end we are pleased that Secure Trust Bank has further
enhanced its strategic capabilities by completing the acquisition of V12
Finance Group a retail point of sale business and the business of Debt
Managers Ltd.
Board Changes and Personnel
As already noted, Dean Proctor resigned from the Board on 1 March
2012 to take up a position with an overseas bank. He was succeeded
on the same day by James Fleming who became CEO of Arbuthnot
Latham & Co., Ltd.
These results reflect the dedication and commitment of both the existing
and new members of staff who, with few exceptions, have performed
well in the current environment. On behalf of the Board I extend our
thanks to all of them for their contributions to the Group in 2012.
I would also like to take this opportunity to express my thanks to my
colleagues on the Board for their generous support and the dedication
they have given to the Group and me personally.
Dividend
The Board is proposing a final dividend of 14p, an increase of 1p on
last year, making a total dividend for the year of 25p (2011: 24p). If
approved, the dividend will be paid on 17 May 2013 to shareholders
on the register at close of business on 19 April 2013.
Outlook
Both banks have continued to build the foundations for growth and are
confident and well positioned to take advantage of favourable market
conditions. However, despite all the efforts that have been made to
paper over the cracks in some of the weaker European economies in an
effort to stabilise the Eurozone, a new economic upheaval cannot be
ruled out, so the Group remains cautious as to what the future holds.
6
ARBUTHNOT BANKING GROUP PLC There is always something deeply reassuring about
an element of craftsmanship in the everyday.
7
REPORT & ACCOUNTS 2012 ARBUTHNOT LATHAM & CO.
As Arbuthnot Latham enters into its 180th year, it has reported pre-tax profits
for 2012 of £2.1m (2011: £2.0m). Although still a creditable performance
over prior years, the progress being made in the business is not fully reflected
in this financial result.
On 1 March 2012 James Fleming joined the bank as Chief Executive to
take over from Dean Proctor. He was soon able to demonstrate his vision
and articulate the market opportunities that exist for a well-capitalised
and robust private bank such as Arbuthnot Latham. This resulted in him
completing the recruitment of a number of key executives. They will
help the bank to develop the wealth management business for clients
based both here in the UK and overseas. This investment in enhancing
the private banking teams cost the bank in excess of £0.3m in the year
and annualised will amount to approximately £1m.
During the year Arbuthnot Latham grew its loan book by 21% to close
the year at £289.3m (2011: £238.2m). Once again the quality of the
lending resulted in the overall loan to value of the portfolio remaining
broadly unchanged at 50%. Credit impairments continued at a level
of less than 1% of loans despite increasing provisions against our non-
core back book.
As with the previously stated policy, the balance sheet continued to be
funded on a prudent basis. All customer lending is matched by retail
deposits with no wholesale funding.
The customer deposits closed the year at £495.7m (2011: £421.7m), an
increase of 17%. The resulting loan to deposit ratio was 59% (2011:
57%), which is below our target range for this period in the economic
cycle.
The cost of deposits rose to a peak in the middle of the year, as a result
the business experienced some margin compression in the final six
months. Indeed, the total interest expense line showed an increase of
£1.3m in the second half of the year compared to the first six months.
Given the impact of the Funding for Lending Scheme on the deposit
market, we expect this margin compression to reverse in the first half of
2013 as existing deposits reach maturity.
Arbuthnot Latham was the first UK bank to achieve chartered wealth
planning status and this contributed to the growth in discretionary
assets under management which increased during the year by 20%
albeit from a modest base to close the year at £377m (2011: £315m).
Gilliat Financial Solutions, our structured product distribution business,
enjoyed its most successful year. Revenues grew by 73% and its pre-tax
profit increased to £0.6m (2011: £0.2m). The trading name is benefiting
from much stronger brand recognition within the UK IFA network. The
business also managed to complete its first overseas sales, as it looks to
develop its offshore distribution channels.
2011
£17.7m
2012
£18.9m
2011
£16.0m
2012
£17.9m
2011
£2.0m
2012
£2.1m
2011
£238.2m
2012
£289.3m
Operating income
Operating expenses
Profit before tax
Customer loans
2011
£421.7m
2012
£495.7m
2011
£554.9m
2012
£568.6m
2011
4.1%
2012
3.3%
2011
57%
2012
59%
Customer deposits
Total assets
Customer net margin
Loan to deposit ratio
8
ARBUTHNOT BANKING GROUP PLC At Arbuthnot we believe in asking the right questions at
the right time, ensuring we obtain the full picture before
targeting any opportunity.
9
REPORT & ACCOUNTS 2012 SeCURe TRUST BANK
Celebrating its 60th Anniversary, Secure Trust Bank has reported pre-tax profits of
£17.3m for 2012 (2011: £9.1m), representing an increase of 90%.
However, when a number of exceptional items are adjusted in this
year and the previous, most notably the fair value gains related to the
Everyday Loans acquisition, the underlying business grew by 110%.
These results demonstrate a robust performance across the whole
business, both organically and inorganically.
Overall the lending operations saw strong controlled growth with total
balances ending the year at £297.6m (2011: £154.6m), representing
a 92% increase during 2012. Within that, Motor Finance our most
mature lending book, grew by 41% to close the year at £89.6m (2011:
£63.4m). The business focuses on the near prime market segment and
now provides its services to the majority of the Top 100 UK car dealer
groups. It was also named Motor Finance Provider of the year by the
Institute of Transport Management.
The personal unsecured lending portfolio produced strong growth of 56%
closing the year at £68.2m (2011: £43.6m). The bank took significant
steps to broaden its distribution capabilities and entered into a number
of new introducer relationships including with Shop Direct.
The Retail Point of sale business continued to see good demand from
retailers for its online and in store services. The balances at the year end
were £64.2m (2011: £42.6m), an increase of 51%. This segment of the
lending business has been further developed since the year end by the
completion of the acquisition of the V12 Finance Group. It will provide
the platform to accelerate future growth.
Our lending business was enhanced by the newly purchased portfolio
from Everyday Loans, which was acquired on 8 June 2012. Everyday Loans
provide loans to nonstandard borrowers via its network of 26 branches
across the UK. At the year end the loan balances stood at £73.8m.
The lending operation has seen significant growth in all of its portfolios
and as a result the total level of impairments has risen accordingly.
However, the actual risk within the business has been tightly controlled
and the losses experienced are less than we had anticipated when
originating the loans. This was mainly a result of two factors. Firstly,
the lending criteria were tightened at the end of 2011, which had
no significant impact on lending volumes in 2012 and secondly all
collection activities were migrated onto a single operating platform,
making the process more efficient.
The growth in lending has been matched by strong demand for the
banks saving products. The balance sheet remains entirely funded by
retail deposits with no exposure to wholesale markets. During the year
deposit products were offered across all tenors from 90 days to 5 years,
roughly matching the funding profile of the asset book. The closing
balance of customer deposits at the end of the year was £398.9m (2011:
£272.1m), an increase of 47%, giving a loan to deposit ratio of 75%.
As a result of our efforts to broaden our distribution channels, the
number of customers on our books has risen by 66% to 231,713 (2011:
145,174).
Finally, during the second half of the year, the business was able to
celebrate three notable milestones. Firstly, Secure Trust Bank was the
first bank to be awarded a Customer Services Excellence Award (CSE).
This award was introduced by the Cabinet Office in 2010 to replace
the Kite Mark. Secondly, the CSE award was followed by Secure Trust
Bank becoming the only UK bank to be granted a 4 star mark from
the Fairbanking Foundation for its current account product. Finally, in
December, Secure Trust Bank successfully completed a £20m equity
placing which will enable it to exploit new opportunities as they arise.
2011
£28.5m
2012
£47.0m
2011
£14.8m
2012
£30.7m
2011
£9.1m
2012
£17.3m
2011
£154.6m
2012
£297.6m
Operating income
Operating expenses
Profit before tax
Customer loans – Unsecured
2011
£272.1m
2012
£398.9m
2011
145,000
2012
232,000
2011
14.0%
2012
15.0%
2011
0.53
2012
0.59
Customer deposits
Customer numbers
Net interest margin
Cost income ratio
10
ARBUTHNOT BANKING GROUP PLC The new and interesting, together with the traditional and
valued, has always produced the best of both worlds.
11
REPORT & ACCOUNTS 2012 fINANCIAL RevIew
Arbuthnot Banking Group PLC adopts a pragmatic approach to risk taking and
seeks to maximise long term revenues and returns. Given its relative size, it is able
to remain entrepreneurial and capable of taking advantage of favourable market
opportunities when they arise.
Following the completion of the disposal of the Investment Banking
business in January 2012, which is designated as discontinued, the
Group provides a range of financial services to customers and clients
in its chosen markets of Private Banking (Arbuthnot Latham & Co.,
Limited) and Retail Banking (Secure Trust Bank PLC). The Group’s
revenues are derived from a combination of net interest income from
lending, deposit-taking and money market activities, fees for services
provided to customers and clients and commission earned on the sale
of financial instruments and products.
Also included in the results are £1.4m of costs related to the acquisitions
of Everyday Loans (£0.9m), V12 Finance Group (£0.3m) and Debt
Managers (£0.2m).
Finally, the expense base includes costs relating to staff incentive
schemes totalling £3.3m which consists of £1.7m to the management
of Everyday Loans based on achieving certain targets following the
integration of the business and £1.6m related to the Secure Trust Bank
executive share option scheme which resulted from the strong growth
in the Secure Trust Bank share price during the year.
Highlights
Summarised Income Statement
2012
£000
44,786
20,769
Net interest income
Net fee and commission income
Gains less losses from dealing in securities
(Group)
-
Operating income
65,555
Gain from a bargain purchase
9,830
Other income
396
Gain on sale of subsidiary
839
Operating expenses
(53,043)
Impairment losses on financial assets
(10,984)
-
Fair value movement derivatives
Profit on continuing operations before tax 12,593
(1,128)
Income tax
11,465
Profit on continuing operations after tax
(347)
Loss from discontinued operations after tax
11,118
Profit / (loss) after tax
52.6
Basic earnings per share (pence)
2011
£000
27,243
18,327
(112)
45,458
-
1,120
-
(34,525)
(6,813)
(124)
5,116
(1,817)
3,299
(10,249)
(6,950)
(33.3)
Following the transformation of the Group at the end of 2011 the
banking businesses have continued to trade robustly during 2012.
Balance Sheet Strength
Summarised Balance Sheet
2012
£000
2011
£000
Assets
Loans and advances to customers
Liquid assets
Other assets
Total assets
Liabilities
Customer deposits
Other liabilities
Total liabilities
Equity
Total equity and liabilities
586,968
361,600
51,441
1,000,009
894,545
36,816
931,361
68,648
1,000,009
392,789
350,223
26,304
769,316
693,800
28,545
722,345
46,971
769,316
Total assets of the Group increased by 30% to exceed £1bn for the first
time in the Group’s history. This growth was again mainly as a result of
the performance of the lending businesses which saw customer loans
and advances increase by £194.2m. An increase of 49% compared to
2011. The acquisition of Everyday Loans contributed £73.8m to the
increase.
Overall the Group has reported a profit before tax on its continuing
operations of £12.6m (2011: £5.1m). The Earnings per Share of 52.6p
(2011: loss of 33.3p) more than twice covers the proposed full year
dividend.
This growth was matched by a 29% increase in customer deposits
which totalled £894.5m at the year end. The Group remains entirely
funded by retail deposits. The loan to deposit ratio at the year end was
65.5% (2011: 56.6%).
The financial results do contain a number of individually significant
items. The “bargain purchase” gain related to the Everyday Loans
acquisition was gross £9.8m and net £7.9m after partially amortising
the intangible assets and reversing part of the fair value adjustment on
the loan book.
The sale of our Swiss Banking operation generated a gain of £0.8m.
Segmental Analysis
The segmental analysis in Note 41 to the Consolidated Financial
Statements of the Annual Report highlights the disclosures required
under IFRS 8 ‘Operating Segments’. The operating segments are Private
Banking (Arbuthnot Latham & Co., Limited) and Retail Banking (Secure
Trust Bank PLC). Group costs and intercompany elimination journals
are shown separately to reconcile back to the Group consolidated result.
12
ARBUTHNOT BANKING GROUP PLC
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.
Total assets increased to £568.6m (2011: 554.9m) with customer
lending increasing by 21%. The bank also saw an increase in other
assets as it purchased the new Group head office – 21 Wilson Street for
£15.7m plus acquisition costs (including stamp duty) of £1.1m which is
due to be occupied in 2015.
Private Banking – Arbuthnot Latham
Net interest income
Net fee and commission income
Operating income
Other income
Operating expenses
Impairment losses
Profit before tax
2012
£000
10,708
8,187
18,895
3,072
(17,871)
(2,038)
2,058
2011
£000
10,594
7,094
17,688
2,631
(16,025)
(2,336)
1,958
Customer deposits again saw good inflows with balances increasing
by 18% as the bank remains funded by retail deposits. Accordingly,
the loan to deposit ratio closed the year at 59% (2011: 57%). This
ratio remains part of our conservative funding policy, but is below our
targeted range for the current stage in the economic cycle.
The Private Bank remains well capitalised with a total capital ratio of
12.4% (2011: 13.3%) and core tier 1 ratio of 9.9% (2011: 10.2%).
Retail Banking – Secure Trust Bank
The profit before tax increased to £2.1m (2011: £2.0m) as the Private
Bank continued to offer its full service banking and advisory product
offering.
The financial results do not truly reflect the progress being made by the
bank, for two reasons. Firstly, the bank saw a good pipeline of lending
opportunities in the first half of the year and as a result raised sufficient
retail deposits to fund this lending. At that time rates were being
pushed up in the markets, as banks were seeking more retail deposits
to comply with the new regulatory liquidity requirements. This caused
some margin compression to take place. Following the introduction of
the Funding for Lending Scheme (“FLS”) the deposit rates have fallen
away and we expect the margin compression to reverse during 2013.
Secondly, during the second half of the year the bank took the
opportunity to accelerate its growth plans by hiring a number of key
executives and private bankers. The cost of this investment was £0.3m
in 2012 and annualised will be nearly £1m. The focus of these bankers
will be to expand the investment management and advisory business
both here in the UK and in overseas markets.
Impairment losses remained above £2m but were lower than the prior year
and continue to be below 1% of the customer loan book. The loan book
remains well secured and of high credit quality with an overall LTV of 50%.
Gilliat Financial Solutions continued to perform well and increased
its revenues by 73% and returned an overall profit of £0.6m (2011:
£0.2m). It broadened its coverage of the UK IFA market and completed
its first overseas product offering.
2012
£000
2011
£000
Assets
289,337
Advances
Liquid assets
231,209
Other assets (including Group companies) 48,069
568,615
Total assets
238,203
292,151
24,581
554,935
Liabilities
Customer deposits
Other liabilities
(including Group companies)
Total liabilities
Equity
Total equity and liabilities
495,654
421,737
48,509
544,163
24,452
568,615
110,854
532,591
22,344
554,935
Net interest income
Net fee and commission income
Operating income
Gain from a bargain purchase
Other income
Operating expenses
Impairment losses
Profit before tax
2012
£000
34,426
12,582
47,008
9,830
37
(30,676)
(8,946)
17,253
2011
£000
17,227
11,233
28,460
–
36
(14,834)
(4,601)
9,061
The reported profit before tax is £17.3m (2011: £9.1m) which represents
an increase of 90% during the year. This in itself gives a good indication
of the growth of the business, but from a financial perspective there
were a number of large items within the results that require explanation.
Firstly, the business benefited from the £9.8m gain from the “bargain
purchase” that arose on the acquisition of Everyday Loans. Most of this
gain will be reversed over time as intangible assets, that were part of the
acquisition, are amortised during the next 3-5 years. During the second
half of 2012 the partial reversal of these assets amounted to £1.9m.
Secondly, Secure Trust Bank incurred expenditure on advisors fees
and due diligence costs totalling £1.4m on the three acquisitions it
completed either during the year or early in 2013. These were £0.9m
for Everyday Loans, £0.3m for V12 Finance Group and £0.2m for Debt
Managers respectively.
Thirdly, the performance of the Secure Trust Bank share price, which
increased from £8.30 to £15.70 during the year, has required the bank
to provide £1.6m toward the cost of the executive share option scheme.
Finally, £1.7m of expenses were recognised as part of the incentive plan
put in place for the management of Everyday Loans, based in achieving
certain performance targets following the integration of the business
into the Group.
The growth in the year was again mainly led by the lending business
with all key books increasing. This was in line with the strategy of
maintaining a diversified portfolio of lending books. The upward
trajectory of fee income was maintained as the current account
revenues offset the gradual decline in OneBill revenues.
The current account ended the year with 20,962 accounts (2011:17,178)
and OneBill stood at 26,154 (2011: 28,698).
13
REPORT & ACCOUNTS 2012
fINANCIAL RevIew
Continued
2012
£000
2011
£000
Group & Other Costs
Assets
Asset finance
Motor vehicles
Cycles
Musical instruments
Personal computers
Pay4Later
DFS
89,620
13,938
6,700
26,306
16,776
469
153,809
68,175
Personal lending
73,806
EDL
1,587
Other lending
254
Acquired portfolios
Liquid assets
130,442
Other assets (including Group companies) 46,526
474,599
Total assets
63,376
13,784
5,398
16,972
6,454
-
105,984
43,601
-
2,520
2,480
57,897
95,358
307,840
Liabilities
Customer deposits
Other liabilities
(including Group companies)
Total liabilities
Equity
Total equity and liabilities
398,891
272,063
19,787
418,678
55,921
474,599
11,962
284,025
23,815
307,840
During the year the overall asset finance portfolio increased by 45% as
a result of good growth in the motor finance, personal computer and
Pay4later portfolios. The personal loan portfolio grew by 56% and the
acquired portfolios have been almost entirely collected out.
The acquisition of Everyday Loans increased the customer asset book
by £73.8m.
Customer deposit balances increased by 47% to £398.9m (2011:
£272.1m) as the bank continued to fund the asset book with retail
deposits across its maturity profile.
Operating Income
Other income
Group costs
Group head office property costs
Subordinated loan stock interest
Total Group & other costs
Loss before tax
2012
£000
122
864
(5,067)
(2,168)
(463)
(7,698)
(6,712)
2011
£000
(63)
-
(4,056)
(1,164)
(573)
(5,793)
(5,856)
The net Group costs increased to £6.7m (2011: £5.9m) as a result of the
higher operating and premises cost offset by the gain on the sale from
the Swiss Bank.
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.
In accordance with the EU’s Capital Requirements Directive (CRD)
and the required parameters set out in the FSA 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 40.
Not all material risks can be mitigated by capital, but where capital
is appropriate the Board has adopted a “Pillar I 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 adequately to cover management’s anticipated risks. Where the
Board considered that the Pillar I calculations did not reflect the risk, an
additional capital add-on in Pillar II is applied.
14
ARBUTHNOT BANKING GROUP PLC
The Group’s regulatory capital is divided into two tiers:
• Tier 1 comprises mainly shareholders’ funds and non-controlling
interest, after deducting goodwill and other intangible assets.
• Lower Tier 2 comprises qualifying subordinated loan capital and
revaluation reserves. 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. The latest version of the Group ICAAP is currently
in the process of being approved by the Board. All regulated entities
have complied with all of the externally imposed capital requirements
to which they are subject.
Core Tier 1 capital
Tier 1 capital after deductions
Tier 2
Total capital
2012
£000
68,508
61,199
12,120
73,319
Core Tier 1 capital ratio
(Net Core Tier 1 capital/ Basel 2 RWAs*)
15.5%
Total Capital ratio (Capital/ Basel 2 RWAs*) 18.5%
* Risk Weighted Assets (RWAs)
2011
£000
46,831
43,270
12,396
55,666
16.7%
21.5%
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.
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, who currently have loan books of
£289.3m and £297.6m respectively.
The lending portfolio in Arbuthnot Latham is extended to our 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.
Credit risk is managed through the Credit Committees of each of the
two banks with significant exposures also being approved by the Group
Risk Committee.
Market risk arises in relation to movement in the 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. Hence, 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 liabilities 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 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.
The Group is also 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.
Regulatory 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 future
three year horizon.
Dividend
The Board proposes a final dividend of 14 pence per share to be paid
on 17 May 2013, giving a total dividend for the year of 25 pence (2011:
24 pence) per share.
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
20 March 2013
15
REPORT & ACCOUNTS 2012
BOARD Of DIReCTORS
16
ARBUTHNOT BANKING GROUP PLC I. Henry Angest
Chairman and Chief Executive of the Group and Chairman of Secure
Trust Bank PLC and Arbuthnot Latham & Co., Limited. He is a past Master
of the Worshipful Company of International Bankers. Previously he was
an International Executive with The Dow Chemical Company and Dow
Banking Corporation in Switzerland, USA, Brazil, Hong Kong and the
UK. He has a law degree from University of Basel and is an Hon. Fellow
of UHI (University of the Highlands and Islands).
II. James Cobb ACA
James Cobb joined the Board on 1 November 2008 as Group Finance
Director. He was previously Deputy Chief Financial Officer and
Controller of Citigroup’s Global Consumer Group in Europe, Middle
East and Africa and qualified as a Chartered Accountant with Price
Waterhouse.
III. James Fleming
James Fleming joined the Board on 1 March 2012 as Chief Executive
Officer of Arbuthnot Latham & Co., Limited. He joined from Coutts &
Co where he held the position of Head of International Private Banking
and more recently was Managing Director of the UK Entrepreneurs,
Landowners and Inpatriates businesses. Prior to Coutts, James was
Managing Director of SG Hambros UK. He has over 25 years experience
of private banking.
IX. Ruth Lea
Independent non-executive director since 1 November 2005 and
Economic Adviser to the Group. She was previously the Director of
Global Vision, Director of the Centre for Policy Studies, Head of the
Policy Unit at the Institute of Directors, Economics Editor at ITN, Chief
UK Economist at Lehman Brothers and Chief Economist at Mitsubishi
Bank. She also spent 16 years in the Civil Service in the Treasury, the
Department of Trade and Industry, the Central Statistical Office and the
Civil Service College.
IV. Paul Lynam
Paul Lynam joined the Board on 13 September 2010 as Chief Executive
of Secure Trust Bank PLC. Prior to his appointment, Paul spent 22 years
in a variety of roles with RBS and NatWest. These included Managing
Director, Banking; Chief Executive, UK Business Banking and Managing
Director, Lombard North Central PLC. Paul holds degree level Banking
and Corporate Treasury qualifications.
V. Sir Christopher Meyer
Independent non-executive director since 1 October 2007. He had a
distinguished diplomatic career, culminating in 1997 as Ambassador
to the USA. Between 1994 and 1996, he was Press Secretary to Prime
Minister John Major. From 2003 to 2009 he was Chairman of the Press
Complaints Commission. He is also on the International Advisory
Board of British American Business Inc. and Chairman of the Advisory
Board of Pagefield.
VII. Andrew Salmon ACA
Appointed a director on 8 March 2004. He joined the Company in 1997
and is Chief Operating Officer and Head of Business Development. He
was previously a director of Hambros Bank Limited and qualified as a
Chartered Accountant with KPMG.
VIII. Robert Wickham
Deputy Chairman and senior independent non-executive director. He
was formerly on the Management Board of Bank of Scotland. He is also
an independent non-executive director of Arbuthnot Latham & Co.,
Limited.
IX. Jeremy Robin Kaye FCIS
Company Secretary.
IX
III
II
vII
I
v
Iv
vIII
IX
17
REPORT & ACCOUNTS 2012 GROUP DIReCTORS’ RePORT
Substantial Shareholders
The Company was aware at 19 March 2013 of the following substantial
holdings in the ordinary shares of the Company, other than those held
by one director shown below:
Holder
Ordinary Shares
Prudential plc
Mr. R Paston
Directors
H Angest
J R Cobb
J W Fleming
Ms R J Lea
P A Lynam
Sir Christopher Meyer
A A Salmon
R J J Wickham
697,835
529,130
%
4.6
3.5
Chairman & CEO
Finance Director
Chief Operating Officer
Deputy Chairman
Apart from Mr. J.W. Fleming who was appointed a director on 1 March
2012, all directors served throughout the year. Mr. D.M. Proctor
resigned from the Board on 1 March 2012.
Mr. H. Angest and Sir Christopher Meyer retire under Article 78 of
the Articles of Association and, being eligible, offer themselves for re-
election. Mr. Angest has a service agreement terminable on twelve
months’ notice. Sir Christopher Meyer does not have a service
agreement.
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:
Beneficial Interests
1 January
2012
31 December
2012
19 March
2013
H Angest
J W Fleming
P A Lynam
A A Salmon
R J J Wickham
8,186,901 8,186,901 8,186,901
-
4,500
10,000 10,000
51,699
3,60
51,699
3,600
4,500
10,000
51,699
3,600
%
53.6
-
0.1
0.3
-
The Directors submit their annual report and the audited consolidated
financial statements for the year ended 31 December 2012.
Principal Activities and Review
The principal activities of the Group are banking and financial services.
A business review in accordance with Section 417 of the Companies
Act 2006 forming part of this report is set out on pages 8 to 15.
Results and Dividends
The results for the year are shown on page 26. The profit after tax for
the year of £11.1 million (2011: loss after tax of £7 million) is included
in reserves.
The Directors recommend the payment of a final dividend of 14 pence
on the ordinary shares which, together with the interim dividend of
11 pence paid on 5 October 2012, represents a total dividend for the
year of 25 pence (2011: 24 pence). The final dividend, if approved by
members at the Annual General Meeting, will be paid on 17 May 2013
to shareholders on the register at close of business on 19 April 2013.
Share Capital
On 10 January 2012 the Company repurchased 5,000 ordinary shares
at 328p per share and on 12 January 2012 a further 5,000 ordinary
shares at 355p, such shares being held as Treasury Shares.
At the Annual General Meeting shareholders will be asked to approve
two Special Resolutions; the authority granted by each of them will
expire at the conclusion of the Annual General Meeting in 2014.
The first continues the authority of the Directors to issue shares in
nominal value equal to 5% of the existing share capital for cash,
otherwise than to existing shareholders pro rata to their holdings. The
Directors have no present intention of issuing any shares and will not
issue shares which would effectively change the control of the Company
without the prior approval of shareholders in General Meeting.
The second renews 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.
18
ARBUTHNOT BANKING GROUP PLC
At the year end Mr. Lynam held 8,800 and Mr. Salmon 7,500 ordinary
40p shares in Secure Trust Bank PLC, a 70.7% subsidiary of the
Company.
On 21 May 2008 Mr. Salmon was granted an option to subscribe
between May 2011 and May 2015 for 100,000 ordinary 1p shares in
the Company at 337.5p.
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.
On 5 November 2008 Mr. Cobb was granted an option to subscribe
between November 2011 and November 2015 for 50,000 ordinary 1p
shares in the Company at 320p.
Supplier Payment Policy
The Company’s policy is to make payment in line with terms agreed
with individual suppliers, payment being effected on average within 30
days of invoice.
Dr. Turrell, a former director of the Company, had an option to subscribe
for 50,000 ordinary 1p shares at 380p exercisable until 31 December
2012 which was exercised on 29 October 2012 and satisfied by a
payment of £132,500.
On 2 November 2011 Mr. Lynam and Mr. Salmon were each granted
options to subscribe for 141,666 ordinary 40p shares in Secure Trust
Bank PLC at 720p between 2 November 2014 and 1 November 2021,
and a further 141,667 shares at 720p between 2 November 2016 and
1 November 2021.
Forbearance
The Group has always looked to support customers who are in financial
difficulty. We seek to engage in early communication with borrowers
experiencing difficulty in meeting their repayments, to obtain their
commitment
their contractual
payment plan. We consider forbearance options on a case by case basis
in line with best practice and they are subject to regular monitoring
and review.
to maintaining or re-establishing
Apart from the interests disclosed above, no director was interested at
any time in the year in the share capital of Group companies.
Charitable Donations
The Company made charitable donations of £83,000 during the year
(2011: £71,000).
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 2012 one director had a loan from Arbuthnot Latham
& Co., Limited amounting to £2,647,000, on normal commercial terms
as disclosed in note 39 to the financial statements. At 31 December
2012 two directors had deposits with Secure Trust Bank PLC amounting
to £217,000 and three directors had deposits with Arbuthnot Latham
& Co., Limited amounting to £1,550,000, all on normal commercial
terms as disclosed in note 39 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 22 to 23 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 page 20 to 21.
Political Donations
The Company made a political donation of £50,000 to the Conservative
Party during the year (2011: political donations £35,000).
Status
The Company is not a close company as defined in the Income and
Corporation Taxes Act 1988.
Auditors
A resolution to reappoint KPMG Audit Plc as auditors of the Company
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
20 March 2013
19
REPORT & ACCOUNTS 2012
CORPORATe GOveRNANCe
AIM companies are not required to comply with The Combined 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 Combined 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 Financial Services 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 nineteen 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.
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), Andrew Salmon and Robert Wickham. The role of the Risk
Committee is to approve specific risk policies for Group subsidiaries
and 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.
20
ARBUTHNOT BANKING GROUP PLC 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.
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.
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 Ernst & Young. The Audit Committee also receives reports from the
external auditors, KPMG Audit Plc, which include details of internal
control matters that they have identified. Certain aspects of the system
of internal control are also subject to regulatory supervision, the results
of which are monitored closely by the Board.
Going Concern
After making appropriate enquiries which assessed
strategy,
profitability, funding and capital resources, 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.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent
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 Auditors
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 auditors are aware
of that information.
21
REPORT & ACCOUNTS 2012 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.
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.
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.
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.
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 FSA 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.
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 for James Cobb. 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.
Directors’ Emoluments
This part of the remuneration report is audited information.
2012
£000
Fees (including benefits in kind)
215
Salary payments (including benefits in kind) 3,027
-
Loss of office
137
Pension contributions
3,379
2011
£000
180
2,808
100
160
3,248
22
ARBUTHNOT BANKING GROUP PLC
H Angest
JR Cobb
JW Fleming (from 01/03/12)
NW Kirton (to 29/12/11)
PA Lynam
DM Proctor (to 01/03/12)
AA Salmon
AD Turrell (to 31/12/11)
Ms RJ Lea
Sir Christopher Meyer
RJJW Wickham
Salary
£000
475
235
192
-
413
42
475
-
-
-
-
1,832
Bonus*
£000
-
150
225
-
400
-
300
-
-
-
-
1,075
Benefits
£000
Pension
£000
44
16
12
-
22
4
22
-
-
-
-
120
-
35
29
-
35
3
35
-
-
-
-
137
Fees
£000
-
-
-
-
-
-
-
-
120
45
50
215
Total
2012
£000
519
436
458
-
870
49
832
-
120
45
50
3,379
Total
2011
£000
415
377
-
358
685
258
672
303
85
45
50
3,248
* These bonus awards are at this time indicative. The Remuneration committee, at its meeting on 13 December 2012, placed certain conditions
which require final approval by the committee prior to the award becoming unconditional and payable. This is anticipated to take place in the
second quarter of 2013.
Details of any shares or options held by directors are presented on page 19.
The emoluments of the Chairman were £519,000 (2011: £415,000). The emoluments of the highest paid director were £870,000 (2011: £685,000)
including pension contributions of £35,000 (2011: £nil).
Mr. R J J Wickham is a director of Calando Finance Limited which received an annual fee of £50,000 (2011: £50,000) 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 2012 (2011: five directors).
Henry Angest
Chairman of the Remuneration Committee
20 March 2013
23
REPORT & ACCOUNTS 2012
INDePeNDeNT AUDITOR’S RePORT
to the members of arbuthnot banking group plc
We have audited the financial statements of Arbuthnot Banking Group
PLC for the year ended 31 December 2012 set out on pages 26 to
79. 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.
In addition to our audit of the financial statements, the directors have
engaged us to audit the information in the Directors’ Remuneration
Report that is described as having been audited, which the directors
have decided to prepare (in addition to that required to be prepared)
as if the Company were required to comply with the requirements of
Schedule 8 to The Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (SI 2008 No. 410) made
under 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
and, in respect of the separate opinion in relation to the Directors’
Remuneration Report and reporting on corporate governance, on terms
that have been agreed. 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, in respect of the separate
opinion in relation to the Directors’ Remuneration Report, those
matters that we have agreed to state to them in our 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 (APB’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 2012
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 part of the Directors’ Remuneration Report which we were
engaged to audit has been properly prepared in accordance with
Schedule 8 to the Companies Act 2006 The Large and Medium-
sized Companies and Groups (Accounts and Reports) Regulations
2008, as if those requirements were to apply to the Company; and
• the information given in the Directors’ Report for the financial year
for which the financial statements are prepared is consistent with
the financial statements.
24
ARBUTHNOT BANKING GROUP PLC Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 and under the terms of our engagement
we are required 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 and the part of the
Directors’ Remuneration Report which we were engaged to audit
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.
Ian Dewar (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
20 March 2013
25
REPORT & ACCOUNTS 2012 CONSOLIDATeD STATeMeNT Of
COMPReHeNSIve INCOMe
Note
8
9
10
11
12
14
16
13
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Gains less losses from dealing in securities
Operating income
Net impairment loss on financial assets
Fair value movement on derivatives
Gain from a bargain purchase
Other income
Gain on sale of subsidiary
Operating expenses
Profit before income tax from continuing operations
Income tax expense
Profit after income tax from continuing operations
Loss from discontinued operations after tax
Profit/(loss) for the year
Foreign currency translation reserve
Revaluation reserve
– Amount transferred to profit and loss
Cash flow hedging reserve
– Effective portion of changes in fair value
– Net amount transferred to profit and loss
Available-for-sale reserve
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period
Profit/(loss) attributable to:
Equity holders of the Company
Non-controlling interests
Profit/(loss) for the year
Total comprehensive income attributable to:
Equity holders of the Company
Non-controlling interests
Total comprehensive income for the period
Year ended
31 December
2012
£000
Year ended
31 December
2011
£000
62,300
(17,514)
44,786
24,116
(3,347)
20,769
–
65,555
(10,984)
–
9,830
396
839
(53,043)
12,593
(1,128)
11,465
(347)
11,118
570
–
(34)
–
81
617
11,735
8,041
3,077
11,118
8,658
3,077
11,735
39,233
(11,990)
27,243
20,087
(1,760)
18,327
(112)
45,458
(6,813)
(124)
–
1,120
–
(34,525)
5,116
(1,817)
3,299
(10,249)
(6,950)
(12)
(2)
(333)
4
(142)
(485)
(7,435)
(5,014)
(1,936)
(6,950)
(5,499)
(1,936)
(7,435)
Earnings per share for profit attributable to the equity holders of the Company during the year
(expressed in pence per share):
– basic and fully diluted
17
52.6
(33.3)
The notes on pages 34 to 79 are an integral part of these consolidated financial statements
26
ARBUTHNOT BANKING GROUP PLC
CONSOLIDATeD STATeMeNT Of
fINANCIAL POSITION
ASSETS
Cash
Loans and advances to banks
Debt securities held-to-maturity
Assets classified as held for sale
Derivative financial instruments
Loans and advances to customers
Current tax asset
Other assets
Financial investments
Deferred tax asset
Intangible assets
Property, plant and equipment
Total assets
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
Share premium account
Retained earnings
Other reserves
Non-controlling interests
Total equity
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Liabilities relating to assets classified as held for sale
Current tax liability
Other liabilities
Deferred tax liability
Debt securities in issue
Total liabilities
Total equity and liabilities
Note
18
19
20
13
21
22
24
25
26
27
28
34
34
35
35
29
21
30
13
31
26
32
At
31 December
2012
£000
203,683
144,391
13,526
–
648
586,968
–
11,666
3,257
5,057
8,326
22,487
1,000,009
153
–
53,372
(1,253)
16,376
68,648
373
462
894,545
–
346
23,021
634
11,980
931,361
1,000,009
At
31 December
2011
£000
243,183
66,961
40,079
3,674
951
392,789
457
8,645
3,076
726
3,561
5,214
769,316
153
21,085
21,571
(1,836)
5,998
46,971
8
–
693,800
1,291
–
14,893
97
12,256
722,345
769,316
The financial statements on pages 26 to 79 were approved and authorised for issue by the Board of directors on 20 March 2013 and were signed
on their behalf by:
H Angest
Director
JR Cobb
Director
Registered Number: 1954085
The notes on pages 34 to 79 are an integral part of these consolidated financial statements
27
REPORT & ACCOUNTS 2012
COMPANy STATeMeNT Of
fINANCIAL POSITION
ASSETS
Due from subsidiary undertakings – bank balances
Financial investments
Deferred tax asset
Intangible assets
Property, plant and equipment
Other assets
Investment in subsidiary undertakings
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium account
Other reserves
Retained earnings
Total equity
LIABILITIES
Due to subsidiary undertakings – bank balances
Other liabilities
Debt securities in issue
Total liabilities
Total equity and liabilities
Note
25
27
28
24
40
34
34
35
35
31
32
At
31 December
2012
£000
At
31 December
2011
£000
–
413
447
20
134
5,662
30,847
37,523
153
–
(1,030)
20,768
19,891
100
5,552
11,980
17,632
37,523
13,329
218
538
28
127
12,156
25,233
51,629
153
21,085
(1,077)
8,517
28,678
–
10,695
12,256
22,951
51,629
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.
The financial statements on pages 26 to 79 were approved and authorised for issue by the Board of directors on 20 March 2013 and were signed
on their behalf by:
H Angest
Director
JR Cobb
Director
The notes on pages 34 to 79 are an integral part of these consolidated financial statements
28
ARBUTHNOT BANKING GROUP PLC
CONSOLIDATeD STATeMeNT Of
CHANGeS IN eqUITy
Attributable to equity holders of the Group
Share
capital
£000
Share
premium
account
£000
Foreign
currency
translation Revaluation redemption
reserve
£000
reserve
£000
reserve
£000
Capital Available-
for-sale
reserve
£000
Cash
flow
hedging
reserve
£000
Treasury
shares
£000
Retained
earnings
£000
Non-
controlling
interests
£000
Total
£000
Balance at 1 January 2012
153 21,085
(570)
140
20
–
(329) (1,097) 21,571 5,998 46,971
Total comprehensive income
for the period
Profit for 2012
Other comprehensive income,
net of income tax
Foreign currency translation reserve
Revaluation reserve
Cash flow hedging reserve
– Effective portion of changes in
fair value
Available-for-sale reserve
Total other comprehensive income
Total comprehensive income
for the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Cancellation of share premium
Purchase of own shares
Credit for share based payments
Share Placing Secure Trust Bank
Final dividend relating to 2011
Interim dividend relating to 2012
Total contributions by and distributions
to owners
Balance at 31 December 2012
–
–
–
–
–
–
–
–
–
570
–
–
–
–
–
–
570
570
– (21,085)
–
–
–
–
–
–
–
–
–
–
– (21,085)
–
153
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,041 3,077 11,118
–
–
–
570
–
81
81
(34)
–
(34)
–
–
–
–
–
–
–
–
–
(34)
81
617
81
(34)
–
8,041 3,077 11,735
–
–
–
–
–
–
–
–
–
–
–
–
– 21,085
–
–
–
–
(70)
–
(34)
(70)
6,881 7,371 14,252
(2,082)
(2,082)
(2,124)
(2,124)
(34)
–
–
–
–
–
–
–
140
–
20
–
81
–
(34) 23,760 7,301 9,942
(363) (1,131) 53,372 16,376 68,648
The notes on pages 34 to 79 are an integral part of these consolidated financial statements
29
REPORT & ACCOUNTS 2012
CONSOLIDATeD STATeMeNT Of
CHANGeS IN eqUITy
CONTINUeD
Attributable to equity holders of the Group
Share
capital
£000
Share
premium
account
£000
Foreign
currency
translation Revaluation redemption
reserve
£000
reserve
£000
reserve
£000
Capital Available-
for-sale
reserve
£000
Cash
flow
hedging
reserve
£000
Treasury
shares
£000
Retained
earnings
£000
Non-
controlling
interests
£000
Total
£000
Balance at 1 January 2011
150 21,085
(558)
146
20
142
–
(1,097) 12,142 2,118 34,148
–
–
–
–
–
–
–
–
–
(333)
–
(142)
(142)
4
–
(329)
–
(5,014)
(1,936)
(6,950)
–
–
–
–
–
–
–
–
4
–
–
–
–
4
–
–
–
–
–
–
–
(12)
–
(2)
(333)
4
(142)
(485)
(142)
(329)
–
(5,010) (1,936) (7,435)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
70
–
70
– 16,899 5,746 22,645
(1,754)
–
(1,608)
–
905
–
(1,754)
(1,608)
–
–
–
–
–
902
–
–
–
– 14,439 5,816 20,258
(329) (1,097) 21,571 5,998 46,971
Total comprehensive income
for the period
Loss for 2011
Other comprehensive income,
net of income tax
Foreign currency translation reserve
Revaluation reserve
– Adjustment
– Amount transferred to profit and loss
Cash flow hedging reserve
– Effective portion of changes
in fair value
– Net amount transferred to
profit and loss
Available-for-sale reserve
Total other comprehensive income
Total comprehensive income
for the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Charge for share based payments
Sale of Secure Trust Bank shares
Final dividend relating to 2010
Interim dividend relating to 2011
New share capital subscribed
Transfer to retained earnings in
lieu of cash dividends
Total contributions by and
distributions to owners
Balance at 31 December 2011
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
–
–
–
–
902
–
(902)
–
(12)
–
–
–
–
–
(12)
(12)
–
–
–
–
–
–
–
–
(4)
(2)
–
–
–
(6)
(6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
–
153 21,085
–
(570)
–
140
–
20
The notes on pages 34 to 79 are an integral part of these consolidated financial statements
30
ARBUTHNOT BANKING GROUP PLC
COMPANy STATeMeNT Of
CHANGeS IN eqUITy
Attributable to equity holders of the Company
Share
capital
£000
Share
premium
account
£000
Capital
redemption
reserve
£000
Available-
for-sale
reserve
£000
Balance at 1 January 2011
150
21,085
20
Total comprehensive income
for the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Final dividend relating to 2010
Interim dividend relating to 2011
New share capital subscribed
Transfer to retained earnings in
lieu of cash dividends
Total contributions by and
distributions to owners
Balance at 1 January 2012
Total comprehensive income
for the period
Loss for 2012
Other comprehensive income,
net of income tax
Available-for-sale reserve
Total other comprehensive income
Total comprehensive income
for the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Cancellation of share premium
Purchase of own shares
Final dividend relating to 2011
Interim dividend relating to 2012
Total contributions by and
distributions to owners
Balance at 31 December 2012
–
–
–
–
3
–
–
–
902
(902)
–
–
–
–
–
3
153
–
21,085
–
20
–
–
–
–
–
–
–
–
–
–
–
–
(21,085)
–
–
–
–
–
–
–
–
–
–
–
–
153
(21,085)
–
–
20
–
–
–
–
–
–
–
–
–
81
81
81
–
–
–
–
–
81
Treasury
shares
£000
Retained
earnings
£000
Total
£000
(1,097)
415
20,573
–
10,562
10,562
–
–
–
–
(1,754)
(1,608)
–
(1,754)
(1,608)
905
902
–
–
(1,097)
(2,460)
8,517
(2,457)
28,678
–
–
–
–
(5,260)
(5,260)
–
–
81
81
(5,260)
(5,179)
–
(34)
–
–
(34)
(1,131)
21,085
–
(1,936)
(1,638)
17,511
20,768
–
(34)
(1,936)
(1,638)
(3,608)
19,891
The notes on pages 34 to 79 are an integral part of these consolidated financial statements
31
REPORT & ACCOUNTS 2012
CONSOLIDATeD STATeMeNT
Of CASH fLOwS
Cash flows from operating activities
Interest received
Interest paid
Fees and commissions received
Net trading and other income
Cash payments to employees and suppliers
Taxation (paid)/received
Cash flows from operating profits/(losses) before changes in
operating assets and liabilities
Changes in operating assets and liabilities:
– net decrease in trading securities
– net decrease/(increase) in derivative financial instruments
– net increase in loans and advances to customers
– net decrease in other assets
– net increase/(decrease) in deposits from banks
– net increase in amounts due to customers
– net increase in other liabilities
Net cash inflow from operating activities
Cash flows from investing activities
Borrowings repaid on acquisition of subsidiary undertaking
Cash acquired on purchase of subsidiary undertaking
Acquisition of financial investments
Disposal of financial investments
Purchase of computer software
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of debt securities
Proceeds from redemption of debt securities
Net cash (outflow)/inflow from investing activities
Cash flows from financing activities
Purchase of treasury shares
Dividends paid
Proceeds from sale and issue of Secure Trust Bank shares
Proceeds from share placing Secure Trust Bank
Net cash inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Note
27
28
38
Year ended
31 December
2012
£000
61,957
(13,405)
20,769
11,065
(64,182)
(4,083)
12,121
–
765
(132,312)
3,616
365
200,745
5,096
90,396
(71,618)
991
(93)
–
(662)
(17,661)
12
(51,523)
78,076
(62,478)
(34)
(4,206)
–
14,252
10,012
37,930
310,144
348,074
Year ended
31 December
2 0 1 1
£000
39,337
(11,494)
24,837
1,263
(59,287)
101
(5,243)
2,457
(1,135)
(94,655)
5,629
(3,698)
190,543
6,651
100,549
–
–
(113)
1,740
(1,004)
(205)
33
(174,337)
277,441
103,555
–
(2,457)
22,645
–
20,188
224,292
85,852
310,144
The notes on pages 34 to 79 are an integral part of these consolidated financial statements
32
ARBUTHNOT BANKING GROUP PLC
COMPANy STATeMeNT Of
CASH fLOwS
Note
Year ended
31 December
2012
£000
Year ended
31 December
2 0 1 1
£000
Cash flows from operating activities
Dividends received from subsidiaries
Interest received
Interest paid
Net trading and other income
Cash payments to employees and suppliers
Taxation received
Cash flows from operating (losses)/profits before changes
in operating assets and liabilities
Changes in operating assets and liabilities:
– net decrease/(increase) in group company balances
– net (increase)/decrease in other assets
– net (decrease)/increase in other liabilities
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Increase in loans to subsidiary companies
Repayment of loans to subsidiary companies
Increase investment in subsidiary companies
Disposal of shares in subsidiaries, net of cash and
cash equivalents disposed
Purchase of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Purchase of treasury shares
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
28
1,947
278
(631)
1,075
(8,298)
(7)
(5,636)
1,061
(357)
(3,762)
(8,694)
(2,000)
6,500
(6,000)
386
(13)
(1,127)
(34)
(3,574)
(3,608)
(13,429)
13,329
(100)
The notes on pages 34 to 79 are an integral part of these consolidated financial statements
8,500
283
(820)
13,734
(9,037)
958
13,618
(4,140)
1,211
3,826
14,515
(2,000)
750
(1,800)
1,897
(46)
(1,199)
–
(2,457)
(2,457)
10,859
2,470
13,329
33
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
1. Reporting entity
Arbuthnot Banking Group PLC is a company domiciled in the United Kingdom. The registered address of the Arbuthnot Banking Group PLC is
One Arleston Way, Solihull B90 4LH. The consolidated financial statements of the Arbuthnot Banking Group PLC as at and for the year ended
31 December 2012 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 20 March 2013.
(b) Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and
buildings, available-for-sale financial assets, and financial assets and financial liabilities at fair value through profit or loss.
(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 pounds 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 7 (Revised), ‘Disclosures – Transfers of Financial Assets’ (effective from 1 July 2011). The revised standard requires additional disclosures for
transfers of financial assets and where there are a disproportionate amount of transactions undertaken around the period end. This change did not
have any material impact on the financial statements.
(f) Going concern
The Group’s business activities and financial position, the factors likely to affect its future development and performance, and its objectives and
policies in managing the financial risks to which it is exposed, and its capital is discussed in the Financial Review. The Directors have assessed,
in the light of current and anticipated economic conditions, the Group’s ability to continue as a going concern. The Directors confirm they are
satisfied that the Company and the Group have adequate resources to continue in business for the foreseeable future. For this reason, they continue
to adopt the ‘going concern’ basis for preparing accounts.
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 entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies,
generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing whether the Group controls another entity. 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.
34
ARBUTHNOT BANKING GROUP PLC 3.1. Consolidation (continued)
The purchase 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 and 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.
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) 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.
(c) Transactions 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.
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
•
International Private Banking
• UK Private Banking
35
REPORT & ACCOUNTS 2012 NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
3. Significant accounting policies (continued)
3.3. Foreign currency translation
(a) Transactions and balances
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.
(b) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional
currency different from the presentational currency are translated into the presentation currency as follows:
•
•
assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the date of that Statement of Financial
Position;
income and expenses for each Statement of Comprehensive Income are translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the rate on the dates of the transactions); and
•
all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other
currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is partially disposed
of or sold, exchange differences that were recorded in equity are recognised in the Statement of Comprehensive Income as part of the gain or loss
on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
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.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised
using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
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 based on the applicable service contracts, usually on a time apportioned basis.
The same principle is applied for financial planning and insurance services that are continuously provided over an extended period of time.
Commissions arising from the sale of structured products are recognised at the point of sale as there are no further services provided or due.
36
ARBUTHNOT BANKING GROUP PLC 3.6. Gains less losses arising from dealing in securities
This includes the net gains arising from both buying and selling securities and from positions held in securities, including related interest income
and dividends, recognised on trade-date – the date on which the Group commits to purchase or sell the asset.
3.7. Financial assets and financial liabilities
The Group classifies its 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 initial recognition. A financial asset or financial liability is measured initially at fair value. At
inception transaction costs that are directly attributable to its acquisition or issue, for an item not at fair value through profit or loss, is added to the
fair value of the financial asset and deducted from the fair value of the financial liability.
(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 trade-date–the date on 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’s
management has the positive intention and ability to hold to maturity. Held-to-maturity investments are carried at amortised cost using the effective
interest method.
(d) Available-for-sale
Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity
or changes in interest rates, exchange rates or equity prices. Included in available-for-sale are equity investments in special purpose vehicles set up
to acquire and enhance the value of commercial properties and equity investments in unquoted vehicles. These investments are of a medium term
nature. There is no open market for these assets and there are no available-for-sale debt securities. Unquoted equity securities whose fair value
cannot reliably be measured are carried at cost. All other available-for-sale investments are carried at fair value. Fair value changes on the equity
securities are recognised in other comprehensive income (fair value reserve) until the investment is sold or impaired. Once sold or impaired the
cumulative gains or losses previously recognised in other comprehensive income is reclassified to 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.
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 or cancelled or expire.
37
REPORT & ACCOUNTS 2012 NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
3.7. Financial assets and financial liabilities (continued)
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, minus any reduction for impairment.
Fair value measurement
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length
transaction on the measurement date. The fair value of assets and liabilities traded in active markets are based on current bid and offer prices
respectively. If the market is not active the Group establishes a fair value by using appropriate valuation techniques. 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.
3.8. 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
The Group assesses at each Statement of Financial Position date changes in the fair value of derivatives are recognised immediately in the Statement
of Comprehensive Income, together with the changes in fair value of the hedged assets or liabilities.
If a 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 Statement of Comprehensive Income.
(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 Statement of Comprehensive Income immediately.
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 of loss, the embedded derivative is bifurcated and reported at fair value and gains or losses are
recognised in the Statement of Comprehensive Income.
38
ARBUTHNOT BANKING GROUP PLC 3.9. 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.
3.10. Impairment of financial assets
(a) Assets carried at amortised cost
On an ongoing basis the Group assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. Objective
evidence is the occurrence of a loss event, after the initial recognition of the asset, that impact on the estimated 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. Such loans are written off after all the necessary procedures have
been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount
of the provision for loan impairment in the Statement of Comprehensive Income.
(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.
3.11. 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 at the date of acquisition. Goodwill on acquisitions of subsidiaries 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.
39
REPORT & ACCOUNTS 2012 NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
3.11. Intangible assets (continued)
The Group reviews the goodwill for impairment at least annually or 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 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 two CGU’s with
goodwill attached; the core Arbuthnot Latham CGU and the Music Finance CGU.
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
(2011: 5 years with a terminal value). The 5 year plan 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 2015 as per the approved 3 year plan. A growth rate of 5% (2011: 5%) was used for income and 4% (2011: 4%) for
expenditure from 2013 to 2015 (these rates were the best estimate of future forecasted performance), while a 4% (2011: 4%) 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 to be the discounted cash flows over 5 years (2011: 5 years). Income and
expenditure were kept flat (2011: 0%) over the 5 year period.
Cash flows were discounted at a pre-tax rate of 12% (2011: 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.
Impairment losses are recognised in profit and loss if the carrying amounts exceed the recoverable amounts.
(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.
3.12. 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
Office equipment
Computer equipment
Motor vehicles
50 years
6 to 20 years
3 to 5 years
4 years
Gains and losses on disposals are determined by comparing proceeds with carrying amount. 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.
40
ARBUTHNOT BANKING GROUP PLC 3.13. 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.
3.14. 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
comprise 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, including certain loans and advances to banks and building societies and short-term highly liquid debt securities.
3.15. 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
As set out in note 36, in 2008 and 2009 the Group awarded share options to two current and one former director under an equity settled share-
based compensation plan. No options were awarded in 2010 or 2012. In 2011 share options were granted to employees in Secure Trust Bank PLC.
Detail on the share options granted to Group directors are set out in note 36. The fair value for the grant of the options is recognised as an expense.
The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted.
In accordance with IFRS2, the valuation technique adopted by the company in calculating the fair value of the share options includes a number
of inputs including: the exercise price of the option, the current share price, the expected life of the option, the expected volatility, the expected
dividend yield, a risk-free interest rate and, incorporates an assessment of the probability of pay out.
The fair value of the liability is remeasured at each reporting date and at each settlement date and is recognised on a straight line basis over the
vesting period.
3.16. 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.
41
REPORT & ACCOUNTS 2012 NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
3.16. Taxation (continued)
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 are recognised where it is probable that future taxable profits will be available against which the temporary differences can be
utilised.
3.17. 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
1.6. Equity instruments, including share capital, are initially recognised at 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.
3.18. 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.
3.19. 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.
3.20. 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.
42
ARBUTHNOT BANKING GROUP PLC 3.21. 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.
3.22. 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 2013 or later periods, but the Group has not early adopted them:
•
•
•
•
•
•
•
•
IAS 1 (Revised), ‘Presentation of Financial Statements – Presentation of items of other comprehensive income’ (effective 1 July 2012). The
revised standard require the split of other comprehensive income between items which may subsequently be reclassified to profit or loss and
items that will not be reclassified to profit or loss.
IFRS 7 (Revised), ‘Disclosures – Offsetting Financial Assets and Financial Liabilities’ (effective 1 January 2013). The revised standard amend the
required disclosures to include information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of
netting arrangements, including rights of set-off associated with the entity’s recognised financial assets and recognised financial liabilities, on
the entity’s financial position.
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.
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.
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.
IFRS 13, ‘Fair Value Measurement’ (effective 1 January 2013). This standard replaces the existing guidance on fair value measurement in
different IFRSs with a single definition of fair value, a framework for measuring fair values and disclosures about fair value measurements.
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.
IFRS 9, ‘Financial instruments’ (effective from 1 January 2015). 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’. The potential effect of this standard is currently being evaluated
but it is expected to have a pervasive impact on the Group’s financial statements, due to the nature of the Group’s operations.*
* This standard has not yet been endorsed by the EU.
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.
43
REPORT & ACCOUNTS 2012 NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
4. Critical accounting estimates and judgements in applying accounting policies (continued)
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, 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.
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 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.
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 £1.6 million.
4.2 Goodwill impairment
The accounting policy for goodwill is described in note 3.11 (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 managements 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.
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. 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.
44
ARBUTHNOT BANKING GROUP PLC 4.4 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 year the acquisition of Everyday Loans indicated that there were four separately identifiable intangible
assets which met the criteria for separation from goodwill, these being Trademarks, Customer Relationships, Broker Relationships and Technology.
Trademarks 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 are 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.
4.5 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.
4.6 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”.
4.7 Valuation of financial instruments
Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices. If the market is not active
the Group establishes a fair value by using appropriate valuation techniques. 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 have
been agreed between active market participants in an arm’s length transaction.
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).
•
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
45
REPORT & ACCOUNTS 2012 NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
4.7 Valuation of financial instruments (continued)
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 instruments measured at fair value by the level in the fair value hierarchy into which the measurement is
categorised:
At 31 December 2012
Derivative financial instruments
Financial investments
Asset
Derivative financial instruments
Liability
At 31 December 2011
Derivative financial instruments
Financial investments
Asset
Level 1
£000
Level 2
£000
–
489
489
–
–
Level 1
£000
–
330
330
648
–
648
462
462
Level 2
£000
951
–
951
There were no significant transfers between level 1 and level 2 during the year.
The following table reconciles the movement in level 3 financial instruments during the year:
Movement in level 3
At 1 January
Purchases
Losses recognised in the profit and loss
At 31 December
Level 3
£000
–
2,768
2,768
–
–
Level 3
£000
–
2,746
2,746
2012
£000
2,746
81
(59)
2,768
Total
£000
648
3,257
3,905
462
462
Total
£000
951
3,076
4,027
2011
£000
2,887
–
(141)
2,746
4.8 Share option scheme valuation
The cost of the cash settled share option scheme is determined by reference to a range of factors aimed at estimating the fair value of the liability
at the balance sheet date. In deriving that fair value, the Directors have also considered the probability of the options vesting. 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.
Much of the bank’s lending is in the near and sub-prime categories, with performance of the book heavily influenced by employment trends. The
UK economy remains fragile, with stagnant growth, high street closures and a triple dip recession a realistic possibility. 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 banks current product range includes expected lifetime losses of between 1% and 20%.
46
ARBUTHNOT BANKING GROUP PLC
4.8 Share option scheme valuation (continued)
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. Further uncertainty exists with the forthcoming demise of the FSA and the likely additional
scrutiny following its replacement, with effect from 1 April, by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority
(FCA). 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.
One participant in the share option scheme left the Company during year and was consequently withdrawn from the scheme. The Directors
consider that there is further uncertainty surrounding whether the remaining participants will all still be in situ and eligible at the vesting date.
Having taken all of the above risk factors into account, the Directors are of the opinion that there is currently only a probability of 45% that all
the options will vest on the respective exercise dates. A change in the probability percentage of 10% would result in a £269,000 movement in the
charge for the year.
In establishing an estimated share price at the vesting dates, an average market consensus valuation has been taken, by reference to a number of
share investment research agencies. The average valuations were determined as £15.61 per share as at 31 December 2012 and £15.56 per share for
2014 and 2016 respectively. The highest and lowest estimates were within 10% of these average prices.
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 2012:
At 31 December 2012
ASSETS
Cash
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
Deferred tax asset
Intangible assets
Property, plant and equipment
Total assets
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Current tax liability
Other liabilities
Deferred tax liability
Debt securities in issue
Total liabilities
Due within
one year
£000
203,683
144,391
13,526
623
347,460
9,080
–
–
–
100
718,863
373
462
749,672
346
18,416
–
–
769,269
Due after
more than
one year
£000
–
–
–
25
239,508
2,586
3,257
5,057
8,326
22,387
281,146
–
–
144,873
–
4,605
634
11,980
162,092
Total
£000
203,683
144,391
13,526
648
586,968
11,666
3,257
5,057
8,326
22,487
1,000,009
373
462
894,545
346
23,021
634
11,980
931,361
47
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
5. Maturity analysis of assets and liabilities (continued)
The table below shows the maturity analysis of assets and liabilities of the Group as at 31 December 2011:
At 31 December 2011
ASSETS
Cash
Loans and advances to banks
Debt securities held-to-maturity
Assets classified as held for sale
Derivative financial instruments
Loans and advances to customers
Current tax asset
Other assets
Financial investments
Intangible assets
Property, plant and equipment
Deferred tax asset
Total assets
LIABILITIES
Deposits from banks
Deposits from customers
Liabilities relating to assets classified as held for sale
Other liabilities
Deferred tax liability
Debt securities in issue
Total liabilities
Due within
one year
£000
243,183
66,961
30,573
3,674
892
257,033
457
6,311
–
–
–
–
609,084
8
616,531
1,291
11,838
–
–
629,668
The table below shows the maturity analysis of assets and liabilities of the Company as at 31 December 2012:
At 31 December 2012
ASSETS
Financial investments
Deferred tax asset
Intangible assets
Property, plant and equipment
Other assets
Shares in subsidiary undertakings
Total assets
LIABILITIES
Due to subsidiary undertakings – bank balances
Other liabilities
Debt securities in issue
Total liabilities
48
Due within
one year
£000
–
421
–
–
812
–
1,233
100
5,552
–
5,652
Due after
more than
one year
£000
–
–
9,506
–
59
135,756
–
2,334
3,076
3,561
5,214
726
160,232
–
77,269
–
3,055
97
12,256
92,677
Due after
more than
one year
£000
413
26
20
134
4,850
30,847
36,290
–
–
11,980
11,980
Total
£000
243,183
66,961
40,079
3,674
951
392,789
457
8,645
3,076
3,561
5,214
726
769,316
8
693,800
1,291
14,893
97
12,256
722,345
Total
£000
413
447
20
134
5,662
30,847
37,523
100
5,552
11,980
17,632
ARBUTHNOT BANKING GROUP PLC
5. Maturity analysis of assets and liabilities (continued)
The table below shows the maturity analysis of assets and liabilities of the Company as at 31 December 2011:
At 31 December 2011
ASSETS
Due from subsidiary undertakings – bank balances
Financial investments
Deferred tax asset
Intangible assets
Property, plant and equipment
Other assets
Shares in subsidiary undertakings
Total assets
LIABILITIES
Other liabilities
Debt securities in issue
Total liabilities
Due within
one year
£000
13,329
–
425
–
–
3,156
–
16,910
10,695
–
10,695
Due after
more than
one year
£000
–
218
113
28
127
9,000
25,233
34,719
–
12,256
12,256
Total
£000
13,329
218
538
28
127
12,156
25,233
51,629
10,695
12,256
22,951
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.
49
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
6. Financial risk management (continued)
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. 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:
2012
£000
2011
£000
203,683
144,391
13,526
648
289,337
297,631
3,257
3,393
243,183
66,961
40,079
951
238,204
154,585
3,076
3,108
879
21,491
978,236
803
21,841
772,791
Credit risk exposures relating to on-balance sheet assets are as follows:
Cash
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers – Arbuthnot Latham
Loans and advances to customers – Secure Trust Bank
Financial investments
Other assets
Credit risk exposures relating to off-balance sheet assets are as follows:
Guarantees
Loan commitments and other credit related liabilities
At 31 December
50
ARBUTHNOT BANKING GROUP PLC
6. Financial risk management (continued)
The Company’s maximum exposure to credit risk before collateral held or other credit enhancements is as follows:
Credit risk exposures relating to on-balance sheet assets are as follows:
Due from subsidiary undertakings – bank balances
Financial investments
Other assets
Credit risk exposures relating to off-balance sheet assets are as follows:
Guarantees
At 31 December
2012
£000
2011
£000
–
413
5,309
13,329
218
11,938
2,500
8,222
2,500
27,985
The above table represents the maximum credit risk exposure (net of impairment) to the Group and Company at 31 December 2012 and 2011
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:
Loan to value
Less than 60%
60% – 80%
80% – 100%
Greater than 100%
Total
31 December 2012
31 December 2011
Loan
Balance
£000
144,250
82,462
21,407
25,000
273,119
Collateral
£000
344,543
121,832
25,463
19,433
511,271
Loan
Balance
£000
105,907
62,259
21,013
25,551
214,730
Collateral
£000
309,328
89,972
23,572
21,596
444,468
Forbearance
Arbuthnot Latham and Secure Trust Bank do not reschedule contractual arrangements where customers default on their repayments. Under its
Treating Customers Fairly (TCF) 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 customers’ 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
12 month period. As at 31 December 2012 the gross balance of rescheduled loans included in the consolidated statement of financial position
was £12.3 million, with an allowance for impairment on these loans of £1.2 million. The gross balance of deferred loans was £2.9 million with an
allowance for impairment on these of £0.4 million.
51
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
6. Financial risk management (continued)
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:
•
•
•
geographical concentration
product 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.
(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 the Company’s 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 on 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 given in Note 25, a stress test scenario of a 10% (2011: 10%) decline in market prices, with all other
things being equal, would result in a £17,000 (2011: £22,000) decrease in the Group’s income and a decrease of £255,000 (2011: £272,000) 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% (2011: 10%) decline in market prices, with all other
things being equal, would result in a £17,000 (2011: £22,000) decrease in the Company’s income and a decrease of £13,000 (2011: £16,000) in
the Company’s equity.
52
ARBUTHNOT BANKING GROUP PLC 6. Financial risk management (continued)
Currency risk
The Company and Group takes 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 2012. Included in the table below are the Group’s
assets and liabilities at carrying amounts, categorised by currency.
At 31 December 2012
ASSETS
Cash
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Other liabilities
Debt securities in issue
Net on-balance sheet position
Credit commitments
GBP (£)
£000
USD ($)
£000
Euro (t)
£000
Other
£000
Total
£000
203,638
132,202
13,526
648
541,745
11,604
515
903,878
373
462
861,329
23,021
–
885,185
18,693
22,370
16
9,713
–
–
4,236
62
–
14,027
–
–
14,469
–
–
14,469
(442)
–
27
738
–
–
40,985
–
2,742
44,492
–
–
17,019
–
11,980
28,999
15,493
–
2
1,738
–
–
2
–
–
1,742
–
–
1,728
–
–
1,728
14
–
203,683
144,391
13,526
648
586,968
11,666
3,257
964,139
373
462
894,545
23,021
11,980
930,381
33,758
22,370
The table below summarises the Group’s exposure to foreign currency exchange risk at 31 December 2011:
At 31 December 2011
ASSETS
Cash
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
LIABILITIES
Deposits from banks
Deposits from customers
Other liabilities
Debt securities in issue
Net on-balance sheet position
Credit commitments
GBP (£)
£000
USD ($)
£000
Euro (t)
£000
Other
£000
Total
£000
242,981
59,431
40,079
951
338,574
8,643
330
690,989
8
663,653
14,891
–
678,552
12,437
22,290
140
4,899
–
–
4,502
2
–
9,543
–
9,821
–
–
9,821
(278)
20
61
578
–
–
47,271
–
2,746
50,656
–
18,271
–
12,256
30,527
20,129
334
1
2,053
–
–
2,442
–
–
4,496
–
2,055
–
–
2,055
2,441
–
243,183
66,961
40,079
951
392,789
8,645
3,076
755,684
8
693,800
14,891
12,256
720,955
34,729
22,644
53
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
6. Financial risk management (continued)
A 10% strengthening of the pound against the US dollar would lead to a £44,000 (2011: £16,000) decrease in Group profits and equity, while a
10% weakening of the pound against the US dollar would lead to the same increase in Group profits and equity. Similarly a 10% strengthening of
the pound against the Euro would lead to a £86,000 (2011: £8,000) decrease 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 2012:
At 31 December 2012
ASSETS
Financial investments
Other assets
Investment in subsidiary undertakings
LIABILITIES
Due to subsidiary undertakings – bank balances
Other liabilities
Debt securities in issue
Net on-balance sheet position
GBP (£)
£000
Euro (t)
£000
CHF
£000
Total
£000
413
5,309
30,847
36,569
12,600
4,639
–
17,239
19,330
–
–
–
–
(12,500)
–
11,980
(520)
520
–
–
–
–
–
–
–
–
–
413
5,309
30,847
36,569
100
4,639
11,980
16,719
19,850
The table below summarises the Company’s exposure to foreign currency exchange rate risk at 31 December 2011:
At 31 December 2011
ASSETS
Due from subsidiary undertakings – bank balances
Financial investments
Other assets
Investment in subsidiary undertakings
LIABILITIES
Other liabilities
Debt securities in issue
Net on-balance sheet position
GBP (£)
£000
Euro (t)
£000
CHF
£000
Total
£000
(1,826)
218
11,938
25,233
35,563
6,020
–
6,020
29,543
12,713
–
–
–
12,713
–
12,256
12,256
457
2,442
–
–
–
2,442
–
–
–
2,442
13,329
218
11,938
25,233
50,718
6,020
12,256
18,276
32,442
A 10% strengthening of the pound against the Euro would lead to £26,000 (2011: £18,000) 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. A 10% strengthening of the
pound against the Swiss Franc would lead to £nil (2011: £38,000) decrease in the Company profits and equity, conversely a 10% weakening of the
pound against the Swiss Franc would lead to the same increase in the Company 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 Swiss Franc exposure.
54
ARBUTHNOT BANKING GROUP PLC
6. Financial risk management (continued)
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 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 £0.6m to £2.4m (2011: £0.3m to £1.1m) 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 decrease pre-tax profits and equity by £37,000 (2011: increase pre-tax profits and equity by £4,000).
(d) Liquidity risk
The new Liquidity regime came into force on the 1 October 2010. The FSA 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 Assessment (ILA). The liquidity buffers required by the ILA 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.
The table below analyses the contractual undiscounted cash flows for the Group into relevant maturity groupings at 31 December 2012:
At 31 December 2012
Non-derivative liabilities
Deposits from banks
Deposits from customers
Other liabilities
Debt securities in issue
Issued financial guarantee contracts
Unrecognised loan commitments
Derivative liabilities
Risk management:
– Outflows
Carrying
amount
£000
373
894,545
23,021
11,980
929,919
Gross
nominal
inflow/
(outflow)
£000
Not
more than
3 months
£000
More than
3 months
but less than
1 year
£000
More than
1 year but
less than
5 years
£000
(373)
(916,708)
(23,409)
(13,933)
(879)
(21,491)
(976,793)
(373)
(396,331)
(23,056)
(98)
(879)
(21,491)
(442,228)
–
(364,647)
(207)
(293)
–
–
(365,147)
–
(153,320)
(146)
(1,562)
–
–
(155,028)
462
462
–
(462)
(462)
–
(462)
(462)
–
–
–
–
–
–
More than
5 years
£000
–
(2,410)
–
(11,980)
–
–
(14,390)
–
–
–
55
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
6. Financial risk management (continued)
The table below analyses the contractual undiscounted cash flows for the Group into relevant maturity groupings at 31 December 2011:
At 31 December 2011
Non-derivative liabilities
Deposits from banks
Deposits from customers
Liabilities relating to assets classsified as held for sale
Other liabilities
Debt securities in issue
Issued financial guarantee contracts
Unrecognised loan commitments
Carrying
amount
£000
8
693,800
1,291
14,893
12,256
722,248
Gross
nominal
inflow/
(outflow)
£000
Not
more than
3 months
£000
More than
3 months
but less than
1 year
£000
(8)
(707,428)
(1,291)
(15,056)
(15,054)
(803)
(21,841)
(761,481)
(8)
(344,558)
(1,291)
(14,821)
(140)
(803)
(21,841)
(383,462)
–
(275,998)
–
(109)
(420)
–
–
(276,527)
More than
1 year but
less than
5 years
£000
–
(86,872)
–
(126)
(2,238)
–
–
(89,236)
More than
5 years
£000
–
–
–
–
(12,256)
–
–
(12,256)
The table below analyses the contractual undiscounted cash flows for the Company into relevant maturity groupings at 31 December 2012:
At 31 December 2012
Non-derivative liabilities
Due to subsidiary undertakings – bank balances
Other liabilities
Debt securities in issue
Issued financial guarantee contracts
Carrying
amount
£000
100
5,552
11,980
17,632
Gross
nominal
inflow/
(outflow)
£000
(100)
(5,552)
(13,933)
(2,500)
(22,085)
Not
more than
3 months
£000
(100)
(4,639)
(98)
(2,500)
(7,337)
More than
3 months
but less than
1 year
£000
More than
1 year but
less than
5 years
£000
–
(913)
(293)
–
(1,206)
–
–
(1,562)
–
(1,562)
More than
5 years
£000
–
–
(11,980)
–
(11,980)
The table below analyses the contractual undiscounted cash flows for the Company into relevant maturity groupings at 31 December 2011:
At 31 December 2011
Non-derivative liabilities
Other liabilities
Debt securities in issue
Issued financial guarantee contracts
Carrying
amount
£000
10,695
12,256
22,951
Gross
nominal
inflow/
(outflow)
£000
(10,695)
(15,054)
(2,500)
(28,249)
Not
more than
3 months
£000
(6,020)
(140)
(2,500)
(8,660)
More than
3 months
but less than
1 year
£000
(4,675)
(420)
–
(5,095)
More than
1 year but
less than
5 years
£000
–
(2,238)
–
(2,238)
More than
5 years
£000
–
(12,256)
–
(12,256)
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.
56
ARBUTHNOT BANKING GROUP PLC
6. Financial risk management (continued)
Fiduciary activities
The Group provides trustee, 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 £377m (2011: £315m). 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:
At 31 December 2012
ASSETS
Cash
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Debt securities held-to-maturity
Financial investments
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Debt securities in issue
At 31 December 2012
ASSETS
Cash
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Debt securities held-to-maturity
Financial investments
LIABILITIES
Deposits from banks
Deposits from customers
Debt securities in issue
Trading
£000
–
648
–
–
–
413
1,061
–
462
–
–
462
Trading
£000
–
951
–
–
–
218
1,169
–
–
–
–
Held-to-
maturity
£000
Loans and
receivables
£000
Available-
for-sale
£000
Other
amortised
cost
£000
Total
carrying
amount
£000
–
–
–
–
13,526
–
13,526
203,683
–
144,391
586,968
–
–
935,042
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,844
2,844
–
–
–
–
–
Held-to-
maturity
£000
Loans and
receivables
£000
Available-
for-sale
£000
–
–
–
–
40,079
–
40,079
243,183
–
66,961
392,789
–
–
702,933
–
–
–
–
–
2,858
2,858
–
–
–
–
–
–
–
373
–
894,545
11,980
906,898
Other
amortised
cost
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
693,800
12,256
706,064
203,683
648
144,391
586,968
13,526
3,257
952,473
373
462
894,545
11,980
907,360
Total
carrying
amount
£000
243,183
951
66,961
392,789
40,079
3,076
747,039
8
693,800
12,256
706,064
Fair value
£000
203,683
648
144,391
585,924
13,526
3,257
951,429
373
462
894,545
11,980
907,360
Fair value
£000
243,183
951
66,961
391,864
40,079
3,076
746,114
8
693,800
12,256
706,064
57
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
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.
In accordance with the EU’s Capital Requirements Directive (CRD) and the required parameters set out in the FSA Handbook (BIPRU 2.2), the
Individual Capital 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 40.
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
managements’ 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 FSA.
The Group’s regulatory capital is divided into two tiers:
•
•
Tier 1 comprises mainly shareholders’ funds, non-controlling interests, after deducting goodwill and other intangible assets.
Lower Tier 2 comprises qualifying subordinated loan capital and revaluation reserves. Lower Tier 2 capital cannot exceed 50% of tier 1 capital.
The following table shows the regulatory capital resources as managed by the Group:
Tier 1
Share capital
Share premium account
Retained earnings
Other reserves
Non-controlling interests
Goodwill
Other deductions
Total tier 1 capital
Tier 2
Revaluation reserve
Debt securities in issue
Total tier 2 capital
Total tier 1 & tier 2 capital
2012
£000
2011
£000
153
–
53,372
(1,393)
16,376
(1,991)
(5,318)
61,199
140
11,980
12,120
73,319
153
21,085
21,571
(1,976)
5,998
(1,991)
(1,570)
43,270
140
12,256
12,396
55,666
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 latest version of the Group ICAAP is in the process of being approved by the Board. The FSA sets ICG for each UK
bank calibrated by references 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 II framework. The ICAAP is a key input into the FSA’s ICG setting process, which addresses
the requirements of Pillar 2 of the Basel II framework. The FSA’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 2012 are published as a separate document
on the Group website under Investor Relations (Announcements & Shareholder Information).
58
ARBUTHNOT BANKING GROUP PLC
8. Fee and commission income
Banking commissions
Trust and other fiduciary fee income
Financial Planning fees and commissions
Structured product commissions
Other fee income *
* – This mainly includes fee income received on OneBill and Current Accounts at Secure Trust Bank.
9. Net impairment loss on financial assets
Impairment losses on loans and advances to customers (Note 23)
Impairment losses on available-for-sale investments
2012
£000
5,872
3,349
1,149
2,441
11,305
24,116
2012
£000
10,984
–
10,984
2011
£000
3,977
3,237
1,460
1,543
9,870
20,087
2011
£000
6,688
125
6,813
10. Gain from a bargain purchase
On 8 June 2012 Secure Trust Bank PLC (“STB”) acquired 100% of the shares in Everyday Loans Holdings Limited and its wholly owned subsidiaries
Everyday Loans Limited and Everyday Lending Limited (together “EDL”). STB acquired EDL for consideration of £1. Upon acquisition STB provided
funding so that EDL could redeem the remaining £34 million of subordinated debt and also provided a loan facility of £37 million to refinance EDL’s
existing bank debt and to fund future loans. A payment of up to a maximum of £1.7 million will be made to the management team of EDL in March 2013,
subject to achieving certain performance targets in 2012. Included in other income is a gain on acquisition of £9.8m, which arose from fair value
adjustments and the recognition of intangible assets. This is expected to amortise through the profit and loss account over the next 3 to 5 years.
ASSETS
Intangible assets
Property, plant and equipment
Loans and advances to customers
Cash at bank
Other assets
Prepayments and accrued income
Deferred tax asset
Total assets
LIABILITIES
Loans and debt securities
Other liabilities
Accruals and deferred income
Deferred tax liabilities
Total liabilities
Net identifiable (liabilities)/assets
Consideration – £1
Gain on acquisition
Acquired
assets/
liabilities
£000
50
491
63,720
991
24
2,939
–
68,215
71,618
960
1,741
–
74,319
(6,104)
Fair value
adjustments
£000
Recognised
values on
acquisition
£000
5,115
–
7,545
–
–
–
6,313
18,973
–
–
–
3,039
3,039
15,934
5,165
491
71,265
991
24
2,939
6,313
87,188
71,618
960
1,741
3,039
77,358
9,830
–
9,830
59
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
11. Other income
Up to the date of sale of Arbuthnot AG, the purchaser funded most of the running costs for this entity, which is included in other income and
amounted to £0.3m (2011: £1.1m). In Secure Trust Bank there was also some other sundry income amounting to £0.1m.
12. Disposals
On 20 March 2012 Arbuthnot Banking Group PLC (“ABG”) agreed terms for the sale of Arbuthnot AG. The company was sold to Ducartis Holding
AG for a total cash consideration of CHF 2.0m which resulted in a profit for the Group of approximately £0.8m.
13. Discontinued operations
On 18 November 2011, the Group entered into a conditional contract to sell its Investment Banking Division, Arbuthnot Securities Ltd, to
Westhouse Holdings PLC (“Westhouse”) subject to regulatory approval. Westhouse agreed to buy Arbuthnot Securities together with its outstanding
subordinated loan of £1.5m for a total of £1.9m. Regulatory approval was received for the sale on 17 January 2012 and the sale completed on
20 January 2012.
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Gains less losses from dealing in securities
Operating income
Other income
Impairment of LTIP loans, illiquid stocks and outstanding receivable
Adjustment of carrying value to fair value less costs to sell
Operating expenses
Loss before income tax
Income tax credit
Loss after income tax
Assets classified as held for sale
Loans and advances to banks
Trading securities – long positions
Other assets
Intangible assets
Property, plant and equipment
Deferred tax asset
Liabilities relating to assets classified as held for sale
Trading securities – short positions
Other liabilities
60
Year ended
31 December
2012
£000
Year ended
31 December
2011
£000
–
–
–
–
–
–
–
–
–
–
–
(383)
(383)
36
(347)
3
(147)
(144)
6,783
(273)
6,510
149
6,515
6
(3,716)
(1,556)
(14,447)
(13,198)
2,949
(10,249)
2011
£000
241
206
1,674
17
36
1,500
3,674
2011
£000
46
1,245
1,291
ARBUTHNOT BANKING GROUP PLC
14. Operating expenses
Operating expenses comprise:
Staff costs, including Directors:
Wages and salaries
Social security costs
Pension costs
Share based payment transactions
Amortisation of intangibles (Note 27)
Depreciation (Note 28)
Profit on disposals of property, plant and equipment
Charitable donations
Operating lease rentals
Costs arising from acquisitions
Other administrative expenses
Total operating expenses
Remuneration of the auditor and its associates, excluding VAT, was as follows:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor for other services:
The audit of the Company’s subsidiaries, pursuant to legislation
Audit related assurance services
Taxation compliance services
Taxation advisory services
Corporate finance services
Other non-audit services
Total fees payable
2012
£000
2011
£000
25,016
2,686
1,084
1,610
1,062
899
–
83
2,463
1,397
16,743
53,043
2012
£000
82
263
104
178
48
250
47
972
16,189
1,839
800
70
324
736
(3)
71
2,079
–
12,420
34,525
2011
£000
75
216
93
138
46
500
110
1,178
Remuneration for corporate finance services in 2012 include £250,000 in relation to the acquisition of Everyday Loans Holdings Limited (2011:
£250,000 for providing services in respect of the issue of new shares in Secure Trust Bank and £250,000 for providing services in respect of the
share listing of Secure Trust Bank).
Audit related services relate to statutory and regulatory filings, including interim profit verification. Other non-audit services include fees for ad
hoc accounting advice.
15. Average number of employees
Retail banking
Private banking
Group
2012
399
144
16
559
2011
229
132
18
379
61
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
16. Income tax expense
United Kingdom corporation tax at 24.5% (2011: 26.5%)
Current taxation
Corporation tax charge – current year
Corporation tax charge – adjustments in respect of prior years
Deferred taxation
Origination and reversal of temporary differences
Adjustments in respect of prior years
Income tax expense
Tax reconciliation
Profit before tax
Tax at 24.5% (2011: 26.5%)
Permanent differences
Tax rate change
Prior period adjustments
Corporation tax charge for the year
2012
£000
2011
£000
1,068
481
1,549
(297)
(124)
(421)
1,128
12,593
3,085
(2,573)
259
357
1,128
1,700
(99)
1,601
3
213
216
1,817
5,116
1,356
278
69
114
1,817
Of the £2,573,000 permanent differences, £2,408,000 relates to the non-taxable gain from a bargain purchase.
During the year the Government substantively enacted a reduction in UK corporation tax rate from 26% to 24% with effect from 1 April 2012
and to 23% with effect from 1 April 2013. Furthermore, on 5 December 2012 the Government announced its intention to further reduce the UK
corporation tax rate to 21% by April 2014. This will reduce the Company’s future current tax charge accordingly.
17. Earnings per ordinary share
Basic and fully diluted
Earnings per ordinary share are calculated on the net basis by dividing the profit attributable to equity holders of the Company of £8,041,000
(2011: loss of £5,014,000) by the weighted average number of ordinary shares 15,279,322 (2011: 15,046,364) in issue during the year. There is no
difference between basic and fully diluted earnings per ordinary share.
18. Cash
Cash in hand included in cash and cash equivalents (Note 38)
2012
£000
2011
£000
203,683
243,183
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). The Group took the prudent approach of moving the majority of
excess funds to the BoE reserve account, after the downgrade of UK banks and the instability in the Eurozone.
62
ARBUTHNOT BANKING GROUP PLC
19. Loans and advances to banks
2012
£000
2011
£000
Placements with banks included in cash and cash equivalents (Note 38)
144,391
66,961
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:
Aaa
Aa1
Aa3
A1
A2
2012
£000
2011
£000
68,783
–
23,082
13,373
39,153
144,391
52,936
581
10,575
2,257
612
66,961
None of the loans and advances to banks is 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. Amounts include £nil (2011: £nil) with a maturity, when placed, of 3 months or less included in cash and
cash equivalents (Note 38).
The movement in debt securities held-to-maturity may be summarised as follows:
At 1 January
Additions
Redemptions
At 31 December
2012
£000
2011
£000
40,079
51,012
(77,565)
13,526
143,119
174,401
(277,441)
40,079
The table below presents an analysis of debt securities by rating agency designation at 31 December, based on Moody’s long term ratings:
Aaa
Aa2
Aa3
A1
A3
None of the debt securities held-to-maturity is either past due or impaired.
2012
£000
8,026
–
1,500
–
4,000
13,526
2011
£000
15,291
4,510
11,775
8,503
–
40,079
63
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
21. Derivative financial instruments
Group and Company
Currency swaps
Interest rate caps
Structured notes
Contract/
notional
amount
£000
41,206
20,000
–
61,206
2012
Fair value
assets
£000
623
25
–
648
Fair value
liabilities
£000
462
–
–
462
Contract/
notional
amount
£000
20,840
40,000
691
61,531
2011
Fair value
assets
£000
325
59
567
951
Fair value
liabilities
£000
–
–
–
–
The principal derivatives used by the Group are exchange rate contracts and 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 Company only uses investment graded banks for derivative financial instruments.
The table below presents an analysis of derivative financial instruments contract/notional amounts by rating agency designation at 31 December,
based on Moody’s long term ratings:
Aa3
A1
22. Loans and advances to customers
Gross loans and advances
Less: allowances for impairment on loans and advances (Note 23)
For a maturity profile of loans and advances to customers, refer to Note 6.
64
2012
£000
41,206
20,000
61,206
2011
£000
21,531
40,000
61,531
2012
£000
2011
£000
607,616
(20,648)
586,968
404,039
(11,250)
392,789
ARBUTHNOT BANKING GROUP PLC
22. Loans and advances to customers (continued)
Loans and advances to customers include finance lease receivables as follows:
Gross investment in finance lease receivables:
– No later than 1 year
– Later than 1 year and no later than 5 years
Unearned future finance income on finance leases
Net investment in finance leases
The net investment in finance leases may be analysed as follows:
– No later than 1 year
– Later than 1 year and no later than 5 years
Loans and advances to customers can be further summarised as follows:
Neither past due nor impaired
Past due but not impaired
Impaired
Gross
Less: allowance for impairment
Net
(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:
Past due up to 30 days
Past due 30 – 60 days
Past due 60 – 90 days
Over 90 days
Total
2012
£000
2011
£000
22,188
13,047
35,235
(8,914)
26,321
10,509
15,812
26,321
2012
£000
550,640
14,756
42,220
607,616
(20,648)
586,968
2012
£000
1,160
4,584
5,354
3,658
14,756
12,857
10,663
23,520
(6,518)
17,002
8,395
8,607
17,002
2011
£000
371,884
19,263
12,892
404,039
(11,250)
392,789
2011
£000
10,217
5,272
942
2,832
19,263
Loans and advances normally 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 £nil (2011: £nil).
65
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
22. Loans and advances to customers (continued)
(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:
Past due but not impaired
Impaired
Fair value of collateral held
2012
£000
39,162
7,881
47,043
2011
£000
18,764
5,735
24,499
Collateral is shown at fair value less costs to sell. The fair value of the collateral held is £47,043,000 against £36,328,000 secured loans, giving an
average loan-to-value of 77% (2011: 72%).
The gross amount of individually impaired loans and advances to customers before taking into account the cash flows from collateral held is
£21,572,000 (2011: £12,892,000).
Interest income on loans classified as impaired totalled £1,601,000 (2011: £745,000).
23. Allowances for impairment of loans and advances
A reconciliation of the allowance account for losses on loans and advances by class is as follows:
At 1 January
Impairment losses
Loans written off during the year as uncollectible
Amounts recovered during the year
At 31 December
A further analysis of allowances for impairment of loans and advances is as follows:
Loans and advances to customers – Arbuthnot Latham
Loans and advances to customers – unsecured – Secure Trust Bank
At 31 December
24. Other assets
Group
Trade receivables
Repossessed collateral – held-for-sale
Prepayments and accrued income
Company
Trade receivables
Due from subsidiary undertakings
Prepayments and accrued income
66
2012
£000
11,250
11,618
(1,586)
(634)
20,648
2012
£000
4,423
16,225
20,648
2012
£000
3,393
2,586
5,687
11,666
2012
£000
731
4,578
353
5,662
2011
£000
9,196
7,367
(4,634)
(679)
11,250
2011
£000
2,386
8,864
11,250
2011
£000
3,108
2,334
3,203
8,645
2011
£000
419
11,519
218
12,156
ARBUTHNOT BANKING GROUP PLC
25. Financial investments
Group
Financial investments comprise:
– Securities (at fair value through profit and loss)
– Securities (available-for-sale)
Total financial investments
2012
£000
2011
£000
169
3,088
3,257
218
2,858
3,076
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 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.
Company
Financial investments comprise:
– Securities (at fair value through profit and loss)
– Securities (available-for-sale)
Total financial investments
26. Deferred taxation
The deferred tax asset comprises:
Unrealised surplus on revaluation of freehold property
Accelerated capital allowances and other short-term timing differences
Fair value of derivatives
Tax losses
Transfer to assets classified as held for sale
Deferred tax asset
At 1 January
On acquisition of EDL
Available-for-sale securities
Movement in fair value of derivatives
Profit and loss account – accelerated capital allowances and other short-term timing differences
Profit and loss account – tax losses
Transfer to assets classified as held for sale
Deferred tax asset at 31 December
2012
£000
169
244
413
2012
£000
(71)
(673)
110
5,057
–
4,423
629
3,276
–
–
1,040
(522)
–
4,423
2011
£000
218
–
218
2011
£000
(97)
494
110
2,211
(2,089)
629
806
–
55
110
(217)
1,964
(2,089)
629
67
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
26. Deferred taxation (continued)
The above balance is made up as follows:
Deferred tax assets within the Group
Deferred tax liabilities within the Group
2012
£000
5,057
(634)
4,423
2011
£000
726
(97)
629
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.
During the year the Government substantively enacted a reduction in UK corporation tax rate from 26% to 24% with effect from 1 April 2012 and
to 23% with effect from 1 April 2013. This will reduce the Group’s future current tax charge accordingly. Deferred tax has been calculated based
on a rate of 23% to the extent that the related temporary or timing differences are expected to reverse.
On 5 December 2012 the Government announced its intention to further reduce the UK corporation tax rate to 21% by April 2014. It has not yet
been possible to quantify the full anticipated effect of the announced further 2% reduction, although this will further reduce the Group’s future tax
charge and reduce the Group’s deferred tax assets and liabilities accordingly.
27. Intangible assets
Group
Cost
At 1 January 2011
Additions
Disposals
Transfer to assets classified as held for sale
At 31 December 2011
Additions
On acquisition of EDL
At 31 December 2012
Accumulated amortisation
At 1 January 2011
Amortisation charge
Disposals
Transfer to assets classified as held for sale
At 31 December 2011
Amortisation charge
At 31 December 2012
Net book amount
At 31 December 2011
At 31 December 2012
Refer to note 3.11 (a) for assumptions used in the impairment review of goodwill.
68
Goodwill
£000
Computer
software
£000
1,991
–
–
–
1,991
–
1,991
–
–
–
–
–
–
–
4,151
1,004
(177)
(58)
4,920
662
50
5,632
(3,227)
(333)
177
33
(3,350)
(367)
(3,717)
Other
intangible
assets
£000
–
–
–
–
–
–
5,115
5,115
–
–
–
–
–
(695)
(695)
Total
£000
6,142
1,004
(177)
(58)
6,911
662
5,165
12,738
(3,227)
(333)
177
33
(3,350)
(1,062)
(4,412)
1,991
1,991
1,570
1,915
–
4,420
3,561
8,326
ARBUTHNOT BANKING GROUP PLC
27. Intangible assets (continued)
Company
Cost
At 1 January 2011
At 31 December 2011
At 31 December 2012
Accumulated amortisation
At 1 January 2011
Amortisation charge
At 31 December 2011
Amortisation charge
At 31 December 2012
Net book amount
At 31 December 2011
At 31 December 2012
28. Property, plant and equipment
Group
Cost or valuation
At 1 January 2011
Additions
Disposals
Transfer to assets classified as held for sale
At 31 December 2011
Additions
On acquisition of EDL
Disposals
At 31 December 2012
Accumulated depreciation
At 1 January 2011
Depreciation charge
Disposals
Transfer to assets classified as held for sale
At 31 December 2011
Depreciation charge
Disposals
At 31 December 2012
Net book amount
At 31 December 2011
At 31 December 2012
Computer
software
£000
40
40
40
(4)
(8)
(12)
(8)
(20)
28
20
Total
£000
16,838
205
(819)
(200)
16,024
17,612
540
(232)
33,944
(10,935)
(809)
786
148
(10,810)
(867)
220
(11,457)
Computer
and other
equipment
£000
11,778
205
(609)
(200)
11,174
818
–
(200)
11,792
(10,151)
(731)
609
148
(10,125)
(567)
198
(10,494)
Motor
vehicles
£000
210
–
(210)
–
–
–
–
–
–
(177)
–
177
–
–
–
–
–
1,049
1,298
–
–
5,214
22,487
69
Freehold
land and
buildings
£000
4,850
–
–
–
4,850
16,789
–
–
21,639
(607)
(78)
–
–
(685)
(199)
–
(884)
4,165
20,755
Leasehold
improvements
£000
–
–
–
–
–
5
540
(32)
513
–
–
–
–
–
(101)
22
(79)
–
434
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
28. Property, plant and equipment (continued)
The Group’s freehold property at 1 Arleston Way, Solihull, B90 4LH, was valued on 17 December 2008 by an Independent external valuer, who
is a Fellow of the Royal Institute of Chartered Surveyors. The Valuation was in accordance with the requirements of the RICS Valuation Standards
6th Edition and the International Valuation Standards. The Valuation of the property was on the basis and assumption it is an Owner/Occupied
property, valued to Market Value assuming that the property will be sold as part of the continuing business. The Valuer’s opinion of Market Value
was primarily derived using comparable recent market transactions on arms-length terms. The Directors have assessed the value at year end
through comparison to current rental yields on similar properties in the area and do not believe that the fair value of freehold property is materially
different from the carrying value.
On 3 August 2012 the Group acquired freehold premises at 7-21 Wilson Street, London, EC2M 2TD for £15.7 million plus acquisition costs
(including stamp duty) of £1.1m. It is intended that in due course the building will become the head office for Arbuthnot Banking Group PLC, the
principal location for Arbuthnot Latham & Co., Limited and London offices for Secure Trust Bank PLC. 7-21 Wilson Street is currently let at a rent of
£1.65 million per annum. The lease is due to expire in December 2013 and as the building will be 25 years old it is planned that a renovation and
fit out programme will be undertaken which is expected to cost approximately £7.0 million plus VAT. The lease on the Group’s current premises at
20 Ropemaker Street, London, EC2Y 9AR has a break option in June 2015. The Group has exercised the break option and will move together with
Arbuthnot Latham & Co., Limited to Wilson Street in June 2015. As it is intended to use this building as the principal office for Arbuthnot Latham
& Co., Limited, the building has been classified as freehold land and buildings in these financial statements.
The carrying value of freehold land not depreciated is £1.7 million (2011: £0.5 million).
The historical cost of freehold property included at valuation is as follows:
Group
Cost
Accumulated depreciation
Net book amount
Company
Cost or valuation
At 1 January 2011
Additions
At 31 December 2011
Additions
At 31 December 2012
Accumulated depreciation
At 1 January 2011
Depreciation charge
At 31 December 2011
Depreciation charge
At 31 December 2012
Net book amount
At 31 December 2011
At 31 December 2012
70
2012
£000
20,567
(1,102)
19,465
2011
£000
4,792
(1,057)
3,735
Computer and
other equipment
£000
143
46
189
13
202
(55)
(7)
(62)
(6)
(68)
127
134
ARBUTHNOT BANKING GROUP PLC
29. Deposits from banks
Deposits from other banks
For a maturity profile of deposits from banks, refer to Note 6.
30. Deposits from customers
Current/demand accounts
Term deposits
2012
£000
373
2011
£000
8
2012
£000
2011
£000
260,037
634,508
894,545
202,843
490,957
693,800
Included in customer accounts are deposits of £8,294,000 (2011: £8,578,000) 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.
31. Other liabilities
Group
Trade payables
Finance lease liabilities
Accruals and deferred income
2012
£000
7,656
–
15,365
23,021
2011
£000
7,044
25
7,824
14,893
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.
At 31 December 2012, the Group had accrued £452,000 (2011: £355,000) in respect of the levy, based on the bank’s estimated share of total
market protected deposits.
Company
Due to subsidiary undertakings
Accruals and deferred income
32. Debt securities in issue
Subordinated loan notes 2035
£000
£000
4,639
913
5,552
6,020
4,675
10,695
2012
£000
2011
£000
11,980
12,256
The subordinated loan notes 2035 were issued on 7 November 2005 and are denominated in Euros. The principal amount outstanding at
31 December 2012 was €15,000,000 (2011: €15,000,000). 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 €15,000,000.
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.
71
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
33. Contingent liabilities and commitments
Capital commitments
At 31 December 2012, the Group had capital commitments of £nil (2011: £nil) 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:
Guarantees and other contingent liabilities
Commitments to extend credit:
– Original term to maturity of one year or less
2012
£000
879
2011
£000
803
21,491
22,370
21,841
22,644
Operating lease commitments
Where a Group company is the lessee, the future aggregate lease payments under non-cancellable operating leases are as follows:
Expiring:
Within 1 year
Later than 1 year and no later than 5 years
Later than 5 years
2012
£000
2011
£000
1,982
3,168
29
5,179
1,877
5,324
43
7,244
Other commitments
At 31 December 2012 a commitment exists to make further payments with regard to the Financial Compensation Scheme Levy for 2012 and thereafter.
Due to uncertainties regarding the calculation of the levy and the Group’s share thereof, the Directors consider this cost to be unquantifiable.
34. Share capital
At 1 January 2011
Rights issue
At 31 December 2011
Cancellation of share premium account
At 31 December 2012
Number of
shares
14,999,619
279,703
15,279,322
–
15,279,322
Ordinary
share
capital
£000
150
3
153
–
153
Share
premium
£000
21,085
–
21,085
(21,085)
–
In 2011 there was a rights issue of 279,703 shares, as shares were issued as part of a scrip dividend alternative. All issued shares are fully paid.
During 2012 the share premium was cancelled and transferred to reserves.
At 31 December 2012 the Company held 390,274 shares (2011: 380,274) in treasury.
72
ARBUTHNOT BANKING GROUP PLC
35. Reserves and retained earnings
Group
Foreign currency translation reserve
Revaluation reserve
Capital redemption reserve
Available-for-sale reserve
Cash flow hedging reserve
Treasury shares
Retained earnings
Total reserves at 31 December
2012
£000
–
140
20
47
(329)
(1,131)
53,372
52,119
2011
£000
(570)
140
20
(329)
–
(1,097)
21,571
19,735
The revaluation reserve represents the unrealised change in the fair value of properties.
The foreign exchange translation reserve represents the cumulative gains and losses on the retranslation of the Group’s and the Company’s net
investment in foreign operations, net of the effects of economic hedging.
The capital redemption reserve represents a reserve created after the Company purchased its own shares which resulted in a reduction of share
capital.
Company
Capital redemption reserve
Available-for-sale reserve
Treasury shares
Retained earnings
Total reserves as 31 December
2012
£000
20
81
(1,131)
20,768
19,738
2011
£000
20
–
(1,097)
8,517
7,440
36. Share-based payment options
At 31 December 2012, the Company had the following equity settled share-based payment awards outstanding:
• On 21 May 2008 Mr. Salmon was granted an option to subscribe for 100,000 ordinary 1p shares in the Company between May 2011 and May
2015 at 337.5p. The fair value of the option at grant date was £nil.
• On 5 November 2008 Mr. Cobb was granted an option to subscribe for 50,000 ordinary 1p shares in the Company between November 2011
and November 2015 at 320p. The fair value of the option at grant date was £nil.
On 17 October 2011, the Secure Trust Bank Group established a Share Option Scheme that 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 £8 million 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 PLC’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 PLC or any of its subsidiaries which has a material impact on the business of the Company.
73
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
36. Share-based payment options (continued)
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. Half of the share options are exercisable on
2 November 2014 with the remainder exercisable on 2 November 2016. At the grant date these share options had a fair value of £1,580,147. Of the
share options granted on 2 November 2011, the following were to Group directors:
• Mr. Lynam was granted an option to subscribe for 141,666 ordinary 40p shares in Secure Trust Bank PLC at 720p between 2 November 2014
and 1 November 2021 and a further 141,667 shares at 720p between 2 November 2016 and 1 November 2021.
• Mr. Salmon was granted an option to subscribe for 141,666 ordinary 40p shares in Secure Trust Bank PLC at 720p between 2 November 2014
and 1 November 2021 and a further 141,667 shares at 720p between 2 November 2016 and 1 November 2021.
During 2011 the Share Option Scheme was established as a share settled scheme with an expense recognised in the Statement of Comprehensive
Income and a corresponding movement within reserves during the year of £70,000. In 2012 the Scheme was changed to be cash settled with an
expense recognised in the Statement of Comprehensive Income of £1,610,000, an associated liability in the Statement of Financial Position, with
the prior year’s reserves movement reversed.
The fair value of the cash settled share options as at 31 December 2012 was established by reference to the dividend yield and expected lives noted
above and the following inputs:
Key Management Personnel
Senior Management
Share Options in Issue
Exercise Price (£)
Current Share Price (£)
Market Consensus Share Price (£)
Expected Volatility
Risk Free Year UK Gilt Rate
Liability at 31 December (£’000)
74
31 December 2012
No.
LTIP1
LTIP2
Total
3
5
8
318,750
141,666
460,416
318,749
141,666
460,415
637,499
283,332
920,831
7.20
15.70
15.61
10%
0.86%
1,108
7.20
15.70
15.56
10%
0.86%
572
1,680
ARBUTHNOT BANKING GROUP PLC
37. Dividends per share
Final dividends are not accounted for until they have been approved at the Annual General Meeting. At the meeting on 9 May 2013, a dividend
in respect of 2012 of 14 pence per share (2011: actual dividend 13 pence per share) amounting to a total of £2.08m (2011: actual £1.94m) is to
be proposed. The financial statements for the year ended 31 December 2012 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 2013.
38. Cash and cash equivalents
For the purposes of the Statement of Cash Flows, cash and cash equivalents comprises of the following balances with less than three months
maturity from the date of acquisition.
Cash (Note 18)
Loans and advances to banks (Note 19)
2012
£000
2011
£000
203,683
144,391
348,074
243,183
66,961
310,144
39. 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.
Loans
Loans outstanding at 1 January
Loans advanced during the year
Loan repayments during the year
Loans outstanding at 31 December
Interest income earned
2012
£000
2011
£000
2,377
391
(120)
2,648
118
2,952
98
(673)
2,377
167
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 (2011: £nil). Details of directors’ remuneration are given in the Remuneration Report. The Directors do not
believe that any other key management disclosures are required.
Deposits
Deposits at 1 January
Deposits placed during the year
Deposits repaid during the year
Deposits at 31 December
Interest expense on deposits
2012
£000
2011
£000
1,273
1,332
(838)
1,767
97
2,468
4,021
(5,216)
1,273
134
75
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
39. Related-party transactions (continued)
Details of principal subsidiaries are given in Note 40. Transactions and balances with subsidiaries are shown below:
ASSETS
Due from subsidiary undertakings
Investment in subsidiary undertakings
Total assets
LIABILITIES
Due to subsidiary undertakings
Total liabilities
Issued guarantee contracts
2012
2011
Highest
balance during
the year
£000
Balance at
31 December
£000
Highest
balance during
the year
£000
Balance at
31 December
£000
24,009
30,847
54,856
10,738
10,738
2,500
4,928
30,847
35,775
4,740
4,740
2,500
27,072
25,233
52,305
12,263
12,263
2,500
24,848
25,233
50,081
6,020
6,020
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.
40. Investment in subsidiary undertakings
Arbuthnot Banking Group PLC:
At 1 January 2011
Allotment of shares in Arbuthnot Securities Limited
Impairment of investment in Arbuthnot Securities Limited
Sale of shares in Secure Trust Bank PLC
At 31 December 2011
Sale of Arbuthnot Securities Limited
Sale of Arbuthnot AG
Capital contribution in Arbuthnot Latham & Co., Limited
Allotment of shares in Secure Trust Bank PLC
At 31 December 2012
Subsidiary undertakings:
Banks
Other
Total
76
Investment
at cost
£000
Impairment
provisions
£000
31,612
1,800
–
(1,897)
31,515
(4,062)
(42)
1,000
5,000
33,411
(2,979)
–
(3,303)
–
(6,282)
3,718
–
–
–
(2,564)
2012
£000
28,547
2,300
30,847
Net
£000
28,633
1,800
(3,303)
(1,897)
25,233
(344)
(42)
1,000
5,000
30,847
2011
£000
22,589
2,644
25,233
ARBUTHNOT BANKING GROUP PLC
40. Investment in subsidiary undertakings (continued)
The principal subsidiary undertakings of Arbuthnot Banking Group PLC at 31 December 2012 were:
Secure Trust Bank PLC
Arbuthnot Latham & Co., Limited
Country of incorporation
Interest %
Principal activity
UK
UK
70.7
100
Retail banking
Private 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.
41. Operating segments
The Group is organised into three main operating segments, arranged over three separate companies with each having its own specialised banking
service, as disclosed below:
1) Retail banking–incorporating household cash management, personal lending and banking and insurance services.
2) UK Private banking–incorporating private banking and wealth management.
3) International Private banking–incorporating private banking and wealth management outside the UK.
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.
Year ended 31 December 2012
Discontinued
operations
Investment
banking
£000
Continuing operations
Retail
banking
£000
UK Private
banking
£000
International
Private
banking
£000
Group
(reconciling
items)
£000
Interest revenue
Inter-segment revenue
Interest revenue from external customers
Fee and commission income
Revenue from external customers
Interest expense
Subordinated loan note interest
Segment operating income
Gain from a bargain purchase
Impairment losses
Segment (loss)/profit before tax
Income tax income/(expense)
Segment (loss)/profit after tax
Segment total assets
Segment total liabilities
Other segment items:
Capital expenditure
Depreciation and amortisation
–
–
–
–
–
–
–
–
–
–
(383)
36
(347)
–
–
44,893
(121)
44,772
15,788
60,560
(10,467)
–
47,008
9,830
(8,946)
17,253
(1,591)
15,662
474,599
418,649
17,494
(165)
17,329
8,328
25,657
(6,786)
–
18,895
–
(2,038)
2,058
507
2,565
568,615
544,160
–
–
(810)
(1,472)
(17,451)
(443)
–
–
–
–
–
(7)
–
(7)
–
–
(6)
–
(6)
–
–
–
–
The “Group” segment above includes the parent entity and all intercompany eliminations.
Group
Total
£000
Total
£000
62,677
(377)
62,300
24,116
86,416
(17,051)
(463)
65,555
9,830
(10,984)
290
(91)
199
–
199
209
(463)
(341)
–
–
(6,712)
(44)
(6,756)
(43,205)
(31,448)
12,593
(1,128)
11,465
1,000,009
931,361
11,118
1,000,009
931,361
(13)
(14)
(18,274)
(1,929)
(18,274)
(1,929)
77
REPORT & ACCOUNTS 2012
NOTeS TO THe CONSOLIDATeD fINANCIAL STATeMeNTS
CONTINUeD
41. Operating segments (continued)
Year ended 31 December 2011
Discontinued
operations
Investment
banking
£000
Continuing operations
Retail
banking
£000
UK Private
banking
£000
International
Private
banking
£000
Group
(reconciling
items)
£000
22,836
(11)
22,825
12,662
35,487
(5,609)
–
28,460
(4,601)
9,061
(2,241)
6,820
307,840
284,025
16,405
(139)
16,266
7,425
23,691
(5,811)
–
17,688
(2,212)
1,958
448
2,406
554,933
532,586
–
–
–
–
–
–
–
(54)
–
296
(154)
142
–
142
3
(573)
(636)
–
(47)
–
(47)
85
2,542
(5,856)
(24)
(5,880)
(101,401)
(99,599)
Total
£000
39,537
(304)
39,233
20,087
59,320
(11,417)
(573)
45,458
(6,813)
5,116
(1,817)
3,299
761,457
719,554
Group
Total
£000
(6,950)
769,316
722,345
Interest revenue
Inter-segment revenue
Interest revenue from external customers
Fee and commission income
Revenue from external customers
Interest expense
Subordinated loan note interest
Segment operating income
Impairment losses
3
–
3
6,783
6,786
(147)
–
6,515
–
Segment (loss)/profit before tax
Income tax income/(expense)
Segment (loss)/profit after tax
Segment total assets
Segment total liabilities
Other segment items:
Capital expenditure
Depreciation and amortisation
(13,198)
2,949
(10,249)
7,859
2,791
(9)
(76)
(140)
(606)
(1,013)
(440)
–
(5)
(47)
(15)
(1,200)
(1,066)
(1,209)
(1,142)
Segment profit is shown prior to any intra-group eliminations.
Other than the International private banking operations which are in Switzerland, all the Group’s other operations are conducted wholly within the
United Kingdom and geographical information is therefore not presented.
42. Ultimate controlling party
The Company regards Henry Angest, the Group Chairman and Chief Executive Officer, who has a beneficial interest in 53.6% 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 39 of the
consolidated financial statements includes related party transactions with Mr Angest.
43. Events after the balance sheet date
On 3 January 2013 Secure Trust Bank PLC 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 provides retail point of sale loans, typically for 12 months on
an unsecured basis to consumers who are predominantly classified as prime borrowers. The acquisition is complementary to the Group’s existing
retail finance proposition and the V12 management team will continue in the business.
Cash consideration of £3.5 million was paid on completion and Secure Trust Bank PLC provided funding such that the V12 Group could redeem
£7 million of subordinated debt and also repay existing bank finance amounting to £28.5 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.
78
ARBUTHNOT BANKING GROUP PLC
43. Events after the balance sheet date (continued)
The unaudited net assets being acquired are expected to be fair valued at £3.4 million and the associated costs incurred by Secure Trust Bank PLC
to complete the transaction are expected to be £0.7 million.
On 15 January 2013 Secure Trust Bank acquired the businesses of Debt Managers Holdings Ltd, Debt Managers (AB) Limited and Debt Managers
Limited (together “Debt Managers”). Debt Managers collects delinquent debt on behalf of a range of clients including banks and utility companies.
Key benefits of this acquisition to Secure Trust Bank PLC include:
• Broadening the income base of Secure Trust Bank PLC without the requirement for large amounts of capital;
•
•
The acquisition of a scalable collections platform through which Secure Trust Bank PLC intends to channel its delinquent debt; and
The acquisition of the latest call centre and collections technology, including market leading dialler capability, IVR technology and payment
websites.
Secure Trust Bank PLC acquired Debt Managers for an initial cash payment of £0.4 million paid on completion of the transaction which includes
payment for the estimated book value of the net assets of £14,000. In addition deferred consideration of up to £0.4 million in cash is payable by
Secure Trust Bank PLC one year after completion subject in part to the business achieving certain income criteria. The assets acquired are expected
to be fair valued at circa £0.76 million after completion.
Debt Managers generated an unaudited loss before tax of £0.1 million under UK GAAP for the year ended 31 August 2012. No material differences
are anticipated under IFRS. The acquisition is initially expected to be earnings neutral.
The initial cash consideration was funded from Secure Trust Bank PLC’s existing cash resources and the additional regulatory capital requirements
arising as a result of this acquisition are expected to be minimal. No regulatory approvals were required in relation to the transaction. Secure Trust
Bank PLC also funded the repayment of Debt Managers’ outstanding overdraft of £1.7 million.
79
REPORT & ACCOUNTS 2012 fIve yeAR SUMMARy
fIve yeAR SUMMARy
In the table below, all the figures are presented in accordance with IFRS.
(Loss)/profit before tax *
Earnings per share
Basic (p) **
Dividends per share (p)
2008
£000
2009
£000
2010
£000
2011
£000
2012
£000
(2,150)
5,050
5,104
5,116
12,593
3.5
21.0
23.4
22.0
25.0
23.0
(33.3)
24.0
52.6
25.0
* 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.
80
ARBUTHNOT BANKING GROUP PLC
PAGe LefT BLANK fOR yOUR NOTeS
81
REPORT & ACCOUNTS 2012 NOTICe Of MeeTING
NOTICE IS HEREBY GIVEN that the twenty-seventh Annual General Meeting of Arbuthnot Banking Group PLC (the Company) will be held at Arbuthnot
House, 20 Ropemaker Street, London EC2Y 9AR on Thursday, 9 May 2013 at 3pm for the following purposes:
Ordinary Business
To consider and, if thought fit, pass the following resolutions which will be proposed as ordinary resolutions:
1. To receive and adopt the report of the directors and the financial statements for the year ended 31 December 2012.
2. To receive the report of the Remuneration Committee.
3. To declare a final dividend in respect of the year ended 31 December 2012 which the directors propose should be 14p per Ordinary Share,
payable on 17 May 2013 to shareholders on the register of members at the close of business on 19 April 2013.
4. To re-elect Mr. H. Angest as a Director who retires by rotation in accordance with Article 78 of the Articles of Association and offers himself
for re-election.
5. To re-elect Sir Christopher Meyer as a Director who retires by rotation in accordance with Article 78 of the Articles of Association and offers
himself for re-election.
6. To re-appoint KPMG Audit plc as Auditors of the Company and to authorise the Directors to fix their remuneration.
Special Business
To consider and, if thought fit, pass the following resolutions which will be proposed as special resolutions:
7. That, in substitution for all subsisting authorities to the extent unused, the Directors be and they are hereby empowered to allot or make offers
or agreements to allot equity securities (as defined in Section 560 of the Companies Act 2006 (the “Act”)) for cash either pursuant to the
authority conferred by the resolution of the Company passed at the Annual General Meeting held on 13 May 2009 or by way of a sale of
treasury shares as if Section 561 (1) of the Act did not apply to any such allotment provided that this power shall be limited to:
(a) the allotment or sale of equity securities in connection with any issue of shares to holders of relevant shares or relevant employee shares,
or in connection with any other form of issue of such securities in which such holders are offered the right to participate, in proportion (as
nearly as may be) to their respective holdings, but subject to such exclusions or other arrangements as the Directors consider necessary or
expedient to deal with any fractional entitlements or any legal or practical problems under the laws of any territory or the requirements of
any stock exchange or regulatory authority; and
(b) the allotment or sale (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal amount of £7,440
(being approximately 5% of the issued share capital of the Company (excluding Ordinary Shares held in treasury) as at 20 March 2013).
and this authority shall expire on 13 May 2014, or, if earlier, on the conclusion of the next Annual General Meeting of the Company save that
the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry
and the Directors may allot equity securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired.
8. That the Company be and is hereby generally and unconditionally authorised to make market purchases (as defined in section 693(4) of the
Companies Act 2006) of Ordinary Shares of 1p each in the capital of the Company (“Ordinary Shares”) provided that:
(a) the maximum number of Ordinary Shares hereby authorised to be purchased shall be 1,488,000 (being approximately 10% of the issued share
capital of the Company as at 20 March 2013);
(b) the minimum price which may be paid for an Ordinary Share shall be £0.01;
(c) the maximum price which may be paid for an Ordinary Share shall be 5 per cent. above the average of the closing middle market price of the
Ordinary Shares (as derived from the London Stock Exchange Daily Official List) for the 10 business days prior to the day the purchase is
made;
82
ARBUTHNOT BANKING GROUP PLC
(d) the authority hereby conferred shall expire on 31 May 2014 or, if earlier, on the conclusion of the next Annual General Meeting of the
Company unless such authority is renewed prior to such time; and
(e) the Company may enter into contracts to purchase Ordinary Shares under the authority hereby conferred prior to the expiry of such authority,
which contracts will or may be executed wholly or partly after the expiry of such authority, and may make purchases of Ordinary Shares
pursuant to any such contracts.
By order of the Board
J.R. Kaye
Secretary
5 April 2013
Notes:
Registered Office
One Arleston Way
Solihull B90 4LH
1.
In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, the Company gives notice that only those shareholders
entered on the relevant register of members (the Register) for certificated or uncertificated shares of the Company (as the case may be) at 6 p.m.
on 7 May 2013 (“the Specified Time”) will be entitled to attend or vote at the Annual General Meeting in respect of the number of shares
registered in their name at that time. Changes to entries on the Register after the Specified Time will be disregarded in determining the rights
of any person to attend or vote at the Annual General Meeting. Should the Annual General Meeting be adjourned to a time not more than 48
hours after the Specified Time, that time will also apply for the purpose of determining the entitlement of members to attend and vote (and for
the purpose of determining the number of votes they may cast) at the adjourned Annual General Meeting. Should the Annual General Meeting
be adjourned for a longer period, then to be so entitled, members must be entered on the Register at the time which is 48 hours before the time
fixed for the adjourned Annual General Meeting, or, if the Company gives notice of the adjourned Annual General Meeting, at the time
specified in the notice.
2. Members who want to attend and vote should either attend in person or appoint a proxy or corporate representative to attend, speak and vote
on his/her behalf. A member may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is
appointed to exercise the rights attached to a different share or shares of the member, but must attend the meeting in person. A proxy need
not be a member. A paper Form of Proxy is enclosed. Please read carefully the instructions on how to complete the form. Forms of Proxy,
together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power of attorney
or other authority, must be lodged with the Registrars or submitted not later than 48 hours before the time for which the Annual General
Meeting is convened. Completion of the appropriate Form of Proxy does not prevent a member from attending and voting in person if he/she
is entitled to do so and so wishes.
3. There are no service contracts of Directors other than ones which may be terminated on up to 12 months’ notice at any time. Copies of these
service agreements will be available for inspection at the registered office during usual business hours on any weekday (Saturdays, Sundays and
public holidays excepted) from the date of this notice until the date of the Annual General Meeting and at the place of the Annual General
Meeting for 15 minutes prior to and during the Annual General Meeting.
83
REPORT & ACCOUNTS 2012
CORPORATe CONTACTS & ADvISeRS
Advisers
Auditors:
KPMG Audit Plc
Principal Bankers:
Barclays Bank PLC
Lloyds TSB Bank plc
Stockbrokers:
Numis Securities Limited
Nominated Advisor:
Canaccord Genuity Limited
Registrars:
Capita Registrars
The Registry
34 Beckenham Road
Beckenham, Kent BR3 4TU
Group Address
Arbuthnot Banking Group PLC
Arbuthnot House
20 Ropemaker Street
London EC2Y 9AR
T 020 7012 2400
E info@arbuthnotgroup.co.uk
www.arbuthnotgroup.com
Registered Office
One Arleston Way
Solihull B90 4LH
T 0121 693 9100
F 0121 693 9124
Corporate Contacts
Secure Trust Bank PLC
One Arleston Way
Solihull B90 4LH
T 0121 693 9100
F 0121 693 9124
E banking@securetrustbank.com
www.securetrustbank.com
Arbuthnot Latham & Co., Limited
Arbuthnot House
20 Ropemaker Street
London EC2Y 9AR
T 020 7012 2500
F 020 7012 2501
E banking@arbuthnot.co.uk
www.arbuthnotlatham.co.uk
17 Southernhay West
Exeter EX1 1PJ
T 01392 496061
F 01392 495313
84
ARBUTHNOT BANKING GROUP PLC
Advisers
Auditors:
KPMG Audit Plc
Principal Bankers:
Barclays Bank PLC
Lloyds TSB Bank plc
Stockbrokers:
Numis Securities Limited
Nominated Advisor:
Canaccord Genuity Limited
Registrars:
Capita Registrars
The Registry
34 Beckenham Road
Beckenham, Kent BR3 4TU
Arbuthnot Banking Group PLC
Arbuthnot House
20 Ropemaker Street
London EC2Y 9AR
T 020 7012 2400
E info@arbuthnotgroup.com
www.arbuthnotgroup.com
Registration No. 1954085