- Part 2: For the preceding part double click ID:nRSW2538Aa
meet their
needs; failing to deal with customers' complaints effectively; not meeting customers' expectations; and exhibiting
behaviours which do not meet market or regulatory standards.
The Group adopts a zero risk appetite for any unfair customer outcomes. It maintains clear compliance guidelines and
provides ongoing training to all staff. Periodic spot checks and internal audits are performed to ensure these guidelines
are being maintained. The Group also has insurance policies in place to cover any claims that may arise.
Regulatory risk
Regulatory compliance risk is the risk that the Group will have insufficient capital resources to support the business or
does not comply with regulatory requirements. The Group adopts a conservative approach to managing the capital of the
Group. The principal regulated entity maintains capital ratios in excess of the minimum level set by the regulator. Capital
requirements are forecast as part of the annual budgeting process and these are regularly monitored. Annually, the Group
Board assesses the robustness of the capital requirements as part of the ICAAP, where stringent stress tests are performed
to ensure that capital resources are adequate over a three year horizon.
Regulatory change also exists as a risk to the Group's business. Notwithstanding the assessments carried out by the Group
to manage regulatory risk, it is not possible to predict how regulatory and legislative changes may alter and impact the
business. Significant and unforeseen regulatory changes may reduce the Group's competitive situation and lower its
profitability.
Macroeconomic and competitive environment
The Group is also exposed to indirect risks that may arise from the macroeconomic and competitive environment. The economic
environment is relatively stable in the UK. However, the international landscape is increasingly uncertain. The declining
performance of the economies in the EU and the increasingly protectionist stance being taken by other major economies may
have an adverse affect on the UK. In particular, this may cause a softening of central London property prices, which may
spread out further to the South East.
The Group monitors its exposure to future interest rate rises and currently has minimal lending to customers in products
that would be directly sensitive to interest rate rises. However, at the current levels of interest rates, the
affordability enjoyed by the Group's customers is beneficial.
Brexit
It is currently difficult to analyse the impacts that Brexit may have on Arbuthnot Banking Group. However, our only
overseas operation is in Dubai, so the vast majority of the Group's income and expenditure is based in the UK. It is
therefore anticipated that the financial impact would be minimal assuming there were to be no significant macro economic
shock on the UK.
Group Directors' Report
The Directors submit their annual report and the audited consolidated financial statements for the year ended 31 December
2016.
Principal Activities and Review
The principal activities of the Group are banking and financial services. A strategic review in accordance with Section 414
C of the Companies Act 2006 forming part of this report is set out on pages 4 to 12.
Results and Dividends
The results for the year are shown on page 1. The profit after tax for the year of £227.6m (2015: £26.5m) is included in
reserves.
The Directors recommend the payment of a final dividend of 18p on the ordinary shares which, together with the interim
dividend of 13p paid on 30 September 2016, special dividend of 25p paid on 27 July and special dividend of 300p paid on 18
November 2016, represents total dividends for the year of 356p (2015: 29p). The final dividend, if approved by members at
the Annual General Meeting, will be paid on 12 May 2017 to shareholders on the register at close of business on 18 April
2017.
Going Concern
After making appropriate enquiries which assessed strategy, profitability, funding, risk management (see note 6) and
capital resources (see note 7), the directors are satisfied that the Company and the Group have adequate resources to
continue in operation for the foreseeable future. The financial statements are therefore prepared on the going concern
basis.
Share Capital
Shareholders will be asked to approve Ordinary and Special Resolutions regarding the creation of a number of new shares,
which may be non-voting shares, not exceeding 5% of the existing issued share capital, with authority given to the
directors to allot such shares. Directors would use the authority to generate additional capital from institutional
shareholders.
Shareholders will also be asked to approve a Special Resolution renewing the authority of the Directors to make market
purchases of shares not exceeding 10% of the existing issued share capital. The Directors will keep the position under
review in order to maximise the Company's resources in the best interests of shareholders.
Secure Trust Bank PLC
Following approval given by shareholders on 14 June 2016, the Company completed the sale of 6,000,000 ordinary shares in
Secure Trust Bank PLC at a price of £25 per share. This reduced the Company shareholding in Secure Trust Bank PLC from 51.9
per cent to 18.9 per cent. Subsequently the shareholding has reduced to 18.6 per cent following the issue of further shares
by Secure Trust Bank PLC to participants in its share option scheme.
Financial Risk Management
Details of how the Group manages risk are set out in in the Strategic Report and in note 6.
Substantial Shareholders
The Company was aware at 21 March 2017 of the following substantial holdings in the ordinary shares of the Company, other
than those held by one director shown below:
Holder Ordinary Shares %
Liontrust UK Smaller Companies Fund 1,119,607 7.3
Prudential plc 608,890 4.0
Mr. R Paston 529,130 3.5
Directors
Sir Henry Angest Chairman & CEO
J R Cobb Finance Director
I A Dewar
J W Fleming (to 14/04/2016)
I A Henderson (from 06/05/2016)
Ms R J Lea (to 05/05/2016)
P A Lynam
Sir Christopher Meyer
A A Salmon Chief Operating Officer
Sir Alan Yarrow (from 10/06/2016)
All those who are currently directors served throughout the year except for Mr. I.A. Henderson who was appointed on 6 May
2016 and Sir Alan Yarrow who was appointed on 10 June 2016. Mr. J.W. Fleming served as a director until 14 April 2016. Ms
R.J Lea retired from the Board at the Annual General Meeting on 5 May 2016.
Mr. Henderson, who succeeded Mr Fleming as chief executive of Arbuthnot Latham & Co., Limited, and Sir Alan Yarrow offer
themselves for election under Article 75 of the Articles of Association. Mr. Henderson has a service agreement terminable
on twelve months' notice. Sir Alan Yarrow's letter of appointment is terminable on three months' notice.
Mr. Salmon and Mr. Lynam retire under Article 78 of the Articles of Association and, being eligible, offer themselves for
re-election. Mr. Salmon has a service agreement terminable on twelve months' notice. Mr. Lynam, a non-executive director
who remains chief executive of Secure Trust Bank PLC, has a letter of appointment terminable on three months' notice.
According to the information kept under Section 3 of the Disclosure and Transparency Rules 2006 and the Market Abuse
Regulation 2016, the interests of directors and their families in the ordinary 1p shares of the Company at the dates shown
were, and the percentage of the current issued share capital held is, as follows:
Beneficial Interests 1 January 2016 31 December 2016 21 March 2017 %
Sir Henry Angest 8,200,901 8,200,901 8,200,901 53.7
J.R. Cobb - 5,000 6,000 -
P.A. Lynam 10,000 10,000 10,000 0.1
A.A. Salmon 51,699 51,699 51,699 0.3
At the yearend, Mr. Lynam held 9,110 and Mr. Salmon held 7,500 ordinary 40p shares in Secure Trust Bank PLC, an associate
company of the Group.
On 16 April 2013 Mr. Salmon and Mr. Cobb were granted options under the Company's Unapproved Executive Share Option Scheme
to subscribe between April 2016 and April 2021 for 100,000 and 50,000 ordinary 1p shares respectively in the Company at
930p. The fair value of the options at grant date was £125,000. On 14 June 2016 Mr. Salmon and Mr. Cobb each exercised all
their respective options granted on 16 April 2013. The exercise price was 1591p and the Board agreed to make a cash
settlement rather than allot new shares.
On 1 April 2014 Mr. Fleming was granted an option to subscribe between April 2017 and April 2022 for 50,000 ordinary 1p
shares in the Company at 1185p. The fair value of the options at the grant date was £53,000.
At the date of this remuneration report, the only outstanding options to directors under the Unapproved Executive Share
Option Scheme are those in relation to 50,000 shares for James Fleming.
On 14 June 2016 Mr. Salmon, Mr. Cobb and Mr. Henderson were granted phantom options to subscribe for 200,000, 100,000 and
100,000 ordinary 1p shares respectively in the Company at 1591p. 50% of each director's individual holding of phantom
options is exercisable at any time after 15 June 2019 and the other 50% is exercisable at any time after 15 June 2021.
These options replaced options for Mr. Salmon to subscribe for 100,000 ordinary 1p shares and Mr. Cobb to subscribe for
50,000 ordinary 1p shares granted on 16 April 2013 subject to a cash payment reflecting the difference between 930p and
1591p per share. The fair value of the option at the grant date was £1.3m.
Mr. Lynam continues to hold options granted to him on 2 November 2011 to subscribe for 141,667 ordinary 40p shares in
Secure Trust Bank PLC (an associate company of the Group), under the Unapproved Executive Share Option Scheme established
in November 2011, at 720p between 2 November 2016 and 2 November 2021. The fair value of the options at grant date was
£0.3m. On 7 November 2016 Mr. Salmon exercised options granted to him on 2 November 2011 to subscribe for 141,667 ordinary
40p shares in Secure Trust Bank PLC at 720p and sold the shares at a price of 2200p.
On 23 March 2015 Mr. Lynam was granted phantom options to acquire 187,500 ordinary 40p shares in Secure Trust Bank PLC at
2500p exercisable on or after 3 November 2018 when a cash payment would be made equal to any increase in value.
Apart from the interests disclosed above, no director was interested at any time in the year in the share capital of Group
companies.
No director, either during or at the end of the financial year, was materially interested in any contract with the Company
or any of its subsidiaries or associated companies, which was significant in relation to the Group's business. At 31
December 2016 two directors had loans from Arbuthnot Latham & Co., Limited amounting to £1,361,000 and one director had a
loan from Secure Trust Bank PLC amounting to £404,000, on normal commercial terms as disclosed in note 40 to the financial
statements. At 31 December 2016 five directors had deposits with Arbuthnot Latham & Co., Limited amounting to £3,398,000
and two directors had deposits with Secure Trust Bank PLC amounting to £318,000, all on normal commercial terms as
disclosed in note 40 to the financial statements.
Shareholders will be asked to approve a Special Resolution removing the limit on the amount of fees payable to
non-executive directors, currently £400,000. The corresponding Article regarding the remuneration of executive directors
contains no such limit. Responsibilities of non-executive directors have increased significantly in recent years with
further obligations falling on those who serve on board committees. Removal of the limit would increase the flexibility of
the Board, not least if it is felt appropriate to make any additional appointment between Annual General Meetings.
Shareholders will also be asked to approve a Special Resolution amending the Articles relating to the function of the
President, to widen the role, with the objective of safeguarding the long term prosperity and well being of the Company.
The Company maintains insurance to provide liability cover for directors and officers of the Company.
Board Committees
The report of the Remuneration Committee on pages 21 to 22 will be the subject of an Ordinary Resolution at the Annual
General Meeting.
Information on the Audit, Nomination, Risk and Political Donations Committees is included in the Corporate Governance
section of the Annual Report on pages 17 to 20.
As explained in the Corporate Governance section of the Annual Report, the Board now maintains direct responsibility for
issues of risk, as responsibility for large lending proposals has become a direct responsibility of its subsidiary,
Arbuthnot Latham & Co., Limited.
Employees
The Company gives due consideration to the employment of disabled persons and is an equal opportunities employer. It also
regularly provides employees with information on matters of concern to them, consults on decisions likely to affect their
interests and encourages their involvement in the performance of the Company through share participation and in other
ways.
Political Donations
The Company made political donations of £67,000 to the Conservative Party during the year (2015: £68,000).
The Board proposes to update the authority granted by shareholders at the 2015 Annual General Meeting to make donations to
political parties and organisations or incur political expenditure within the meaning of Sections 363 to 365 of the
Companies Act 2006 for a further four years limited to £250,000 in aggregate.
Branches outside of the UK
During the year Arbuthnot Latham & Co., Ltd operated a branch in Dubai which is regulated by the Dubai Financial Services
Authority.
Events after the balance sheet date
There were no material post balance sheet events to report.
Auditor
A resolution for the re-appointment of KPMG LLP as auditor will be proposed at the forthcoming Annual General Meeting at a
fee to be agreed in due course by the directors.
Statement of Disclosure of Information to Auditors
The Directors confirm that:
• so far as each director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
• the Directors have taken all the steps they ought to have taken as directors to make themselves aware of any relevant
audit
information and to establish that the Company's auditor is aware of that information.
This confirmation is given and shall be interpreted in accordance with the provisions of section 418 of the Companies Act
2006.
Corporate Governance
Introduction and Overview
Arbuthnot Banking Group has a strong and effective Corporate Governance framework. This section of the Report and Accounts
summarises key elements of the governance arrangements applicable to the Company and the Company's compliance with the UK
Corporate Governance Code.
As an AIM company, the Group is not bound by the UK Corporate Governance Code; however, the Board endorses the principles
of openness, integrity and accountability, which underlie good corporate governance and takes into account the provisions
of the UK Corporate Governance Code in so far as they are considered appropriate to the Group's size and circumstances.
Moreover, the Group contains subsidiaries authorised to undertake regulated business under the Financial Services and
Markets Act 2000, which are regulated by the Prudential Regulatory Authority and the Financial Conduct Authority, one of
which is an authorised deposit-taking business. Accordingly, the Group operates to the high standards of corporate
accountability and regulatory compliance appropriate for such businesses.
The Group is led by an effective Board which comprises four executive directors, three independent non-executive directors
and one additional non-executive director.
Sir Henry Angest is the Chairman of the Group. The Chairman sets the culture of the Group and his role is to ensure good
corporate governance. His responsibilities include leading the Board, ensuring the effectiveness of the Board in all
aspects of its role, ensuring effective communication with shareholders, setting the Board's agenda and ensuring that all
Directors are encouraged to participate fully in the activities and decision-making process of the Board.
Ruth Lea retired from the Board on 5 May 2016. Sir Alan Yarrow was appointed on 10 June 2016 as an independent
non-executive director of the Company. Sir Alan has joined the Audit, Nomination and Remuneration Committees. Paul Lynam
was appointed to the Board when Secure Trust Bank PLC ("STB") was a subsidiary of the Group, and remains a director of the
Group, in a non-executive role, as well as Chief Executive of STB, following the reduction in the Group's holding in STB to
18.9%.
Ian Henderson succeeded James Fleming as Chief Executive of Arbuthnot Latham & Co., Limited and joined the Board on 6 May
2016. James Fleming retired from the Board on 14 April 2016.
The directors seeking re-election are Andrew Salmon and Paul Lynam, who have served on the Board for 13 years and 6 years
respectively. The contribution of Andrew Salmon as Chief Operating Officer has been invaluable in the successful
development of the Company. Paul Lynam provides an important independent measure of challenge to executive management.
Accordingly, the Board fully supports the resolutions for their reappointment.
In 2016, the Board commissioned KPMG to carry out an independent Board Effectiveness Review. The Directors were satisfied
with the conduct and outcome of the review, which was completed at the end of April and have taken steps to implement its
recommendations.
The Board
At the year end the Board comprised Sir Henry Angest, Andrew Salmon, James Cobb, Ian Henderson and four non-executive
directors.
The Board meets regularly throughout the year, holding six formal meetings during the year as well as a two day strategy
meeting. Substantive agenda items have briefing papers, which are circulated in a timely manner before each meeting. The
Board ensures that it is supplied with all the information that it requires and requests, in a form and of a quality to
fulfil its duties.
In addition to determining and overseeing the implementation of the strategy and management of the Company and of the
Group, the Board has determined certain items which are reserved for decision by itself. These matters include the
acquisition and disposal of other than minor businesses, the issue of capital by any Group company, monitoring overall
regulatory requirements of its subsidiary companies, and their adherence thereto, and any transaction by a subsidiary
company that cannot be made within its own resources or that is not in the normal course of its business.
The Company Secretary is responsible for ensuring that the Board processes and procedures are appropriately followed and
support effective decision making. All directors have access to the Company Secretary's advice and services. There is an
agreed procedure for directors to obtain independent professional advice in the course of their duties, if necessary, at
the Company's expense.
All directors receive induction training upon joining the Board, with individual AIM training provided by the Company's
Nominated Adviser and regulatory and compliance training provided by the Group Head of Compliance.
Board Committees
The Board has established Audit, Nomination and Remuneration Committees, each with formally delegated duties and
responsibilities and with written terms of reference, which require consideration of the committee's effectiveness. The
Board keeps the governance arrangements under review. Further information in relation to these committees is set out below.
The Board now maintains direct responsibility for issues of Risk without the need for its own Risk Committee, since
responsibility for large lending proposals became a direct responsibility of its subsidiary, Arbuthnot Latham & Co.,
Limited.
Audit Committee
Membership and meetings
The Audit Committee assists the Board in, inter alia, discharging its responsibilities with regard to financial reporting,
external and internal audits and controls, including reviewing the Company's annual financial statements, reviewing and
monitoring the extent of the non-audit work undertaken by external auditors, advising on the appointment, reappointment,
removal and independence of external auditors and reviewing the effectiveness of the Company's internal audit activities,
internal controls, whistleblowing procedures and the process for evaluating and monitoring risk. The ultimate
responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the
Board.
Membership of the Audit Committee is restricted to non-executive directors and comprises Ian Dewar (as Chairman), Sir
Christopher Meyer and Sir Alan Yarrow. The Committee met four times during the year.
The present auditors have held office since 2009, but the senior statutory auditor changed in 2013. The Board is satisfied
with the effectiveness of their audit. The Committee received a report showing the level of non-audit services provided by
the external auditors during the year and members were satisfied that this did not infringe auditor independence.
Activity in 2016
Further information in relation to this is set out in the Internal Control and Financial Reporting section at page 19.
Nomination Committee
Membership and meetings
The Nomination Committee assists the Board in discharging its responsibilities relating to the composition of the Board.
The Nomination Committee is responsible for, inter alia, evaluating the balance of skills, experience, independence and
knowledge on the Board, the size, structure and composition of the Board, retirements and appointments of additional and
replacement directors and will make appropriate recommendations to the Board on such matters. The Nomination Committee also
considers succession planning, taking into account the skills and expertise that will be needed on and beneficial to the
Board in the future.
The Nomination Committee is chaired by Sir Henry Angest and its other members are Sir Christopher Meyer and Sir Alan
Yarrow. The Committee met twice during the year. It is required to meet formally at least once per year and otherwise as
required.
Activity in 2016
During the year, the Nomination Committee was involved in the identification, assessment and appointment of an additional
independent Non-Executive Director. This culminated in the recommendation of the Nomination Committee that Sir Alan Yarrow
be appointed as a director of the Company. It also reviewed the terms of service of the Group Finance Director. It has
recently reviewed and reconfirmed Sir Christopher Meyer's independence.
Remuneration Committee
Membership and meetings
The Remuneration Committee assists the Board in determining its responsibilities in relation to remuneration including,
inter alia, in relation to the Company's policy on executive remuneration determining the individual remuneration and
benefits package of each of the Executive Directors, and the fees for Non-Executive Directors.
The Committee also deals with remuneration-related issues under the Prudential Regulation Authority's Remuneration Code
applicable to the Company.
The Remuneration Committee meets formally at least once per year and otherwise as required.
Information on the Remuneration Committee and details of the Directors' remuneration are set out in the separate
Remuneration Report.
Donations Committee
Membership and meetings
The Donations Committee is chaired by Sir Henry Angest and its other members are Sir Christopher Meyer and Sir Alan Yarrow.
The Committee met once during the year. The Committee considers any political donation or expenditure as defined within
sections 366 and 367 of the Companies Act 2006.
Shareholder Communications
The Company maintains ongoing communications with its major shareholders and makes full use of the Annual General Meeting
and other General Meetings (when held) to communicate with investors. The Company aims to present a balanced and
understandable assessment in all its reports to shareholders, its regulators, other stakeholders and the wider public. Key
announcements and other information can be found at www.arbuthnotgroup.com.
Internal Control and Financial Reporting
The Board of directors has overall responsibility for the Group's system of internal control and for reviewing its
effectiveness. Such a system is designed to manage rather than eliminate risk of failure to achieve business objectives and
can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.
The Directors and senior management of the Group have formally adopted a Group Risk and Controls Policy which sets out the
Board's attitude to risk and internal control. Key risks identified by the Directors are formally reviewed and assessed at
least once a year by the Board. In addition, key business risks are identified, evaluated and managed by operating
management on an ongoing basis by means of procedures such as physical controls, credit and other authorisation limits and
segregation of duties. The Board also receives regular reports on any risk matters that need to be brought to its
attention.
Significant risks identified in connection with the development of new activities are subject to consideration by the
Board. There are well-established budgeting procedures in place and reports are presented regularly to the Board detailing
the results, in relation to Arbuthnot Latham & Co., Limited, of each principal business unit, variances against budget and
prior year, and other performance data.
The effectiveness of the internal control system is reviewed regularly by the Board and the Audit Committee, which also
receives reports of reviews undertaken by the internal audit function, which was carried out internally during 2016.
Internal Audit provides the Audit Committee and the Board with detailed independent and objective assurance on the
effectiveness of governance, operational risk management and internal controls. Since Arbuthnot Latham & Co., Limited
established its own Audit Committee, the role of the Group Audit Committee has been mainly supervisory in relation to
internal audit matters.
The Audit Committee also receives reports from the external auditors, KPMG LLP, which include details of internal control
matters that they have identified as part of the annual statutory Financial Statement audit. The ICAAP and ILAAP are
considered key issues and are reviewed in detail by the Arbuthnot Latham & Co., Limited Board and its Risk Committee. The
Board receives reports on these by exception. Certain aspects of the system of internal control are also subject to
regulatory supervision, the results of which are monitored closely by the Board.
Statement of Directors' Responsibilities in Respect of the Strategic Report and the Directors' Report and the Financial
Statements
The Directors are responsible for preparing the Strategic Report, the Directors' Report and the financial statements in
accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent Company
financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange they are required
to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected
to prepare the Parent Company financial statements on the same basis.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and the Company and of their profit or loss for that period. In
preparing each of the Group and Parent Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the
Parent
Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent
Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and
enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility
for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud
and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Remuneration Report
Remuneration Committee
Membership of the Remuneration Committee is limited to non-executive directors together with Sir Henry Angest as Chairman.
The present members of the Committee are Sir Henry Angest, Sir Christopher Meyer and Sir Alan Yarrow. The Committee met
twice during the year.
The Committee has responsibility for producing recommendations on the overall remuneration policy for directors for review
by the Board and for setting the remuneration of individual directors. Members of the Committee do not vote on their own
remuneration.
Remuneration Policy
The Remuneration Committee determines the remuneration of individual directors having regard to the size and nature of the
business; the importance of attracting, retaining and motivating management of the appropriate calibre without paying more
than is necessary for this purpose; remuneration data for comparable positions, in particular the rising remuneration
packages at the challenger banks; the need to align the interests of executives with those of shareholders; and an
appropriate balance between current remuneration and longer-term performance-related rewards. The remuneration package can
comprise a combination of basic annual salary and benefits (including pension), a discretionary annual bonus award related
to the Committee's assessment of the contribution made by the executive during the year and longer-term incentives,
including executive and phantom share options. Pension benefits take the form of annual contributions paid by the Company
to individual money purchase schemes. The Remuneration Committee reviews salary levels each year based on the performance
of the Group during the preceding financial period. This review does not necessarily lead to increases in salary levels.
For the purposes of the FCA Remuneration Code, all applicable provisions of which have been implemented, the Group and its
subsidiary are considered to be Tier 3 institutions.
Directors' Service Contracts
Sir Henry Angest, Andrew Salmon, James Cobb and Ian Henderson each have service contracts terminable at any time on 12
months' notice in writing by either party.
Long Term Incentive Schemes
This part of the remuneration report is audited information.
At the Annual General Meeting in May 2015, shareholders voted by Ordinary Resolution to extend the Company's Unapproved
Executive Share Option Scheme for a further period of 10 years.
On 14 June 2016, the Company announced a phantom share option scheme, intended to replace the Unapproved Executive Share
Option Scheme. The value of each phantom option is related to the market price of an ordinary share of 1p in the Company.
An increase in the market value of an ordinary share of 1p in the Company over the market value per share at the date of
grant of the phantom option will give rise to an entitlement to a cash payment by the Company on the exercise of a phantom
option ('Phantom Option Scheme').
The Company has an ESOP ('the Arbuthnot ESOP Trust') under which trustees may purchase shares in the Company to satisfy the
exercise of share options by employees, including executive directors. 150,500 shares are held in the Arbuthnot ESOP
Trust.
On 16 April 2013 Mr. Salmon and Mr. Cobb were granted options under the Company's Unapproved Executive Share Option Scheme
to subscribe between April 2016 and April 2021 for 100,000 and 50,000 ordinary 1p shares respectively in the Company at
930p. The fair value of the options at grant date was £125,000. On 14 June 2016 Mr. Salmon and Mr. Cobb each exercised all
their respective options granted on 16 April 2013. The exercise price was 1591p and the Board agreed to make a cash
settlement rather than allot new shares.
On 1 April 2014 Mr. Fleming was granted an option to subscribe between April 2017 and April 2022 for 50,000 ordinary 1p
shares in the Company at 1185p. The fair value of the options at the grant date was £53,000.
At the date of this remuneration report, the only outstanding options to directors under the Unapproved Executive Share
Option Scheme are those in relation to 50,000 shares for James Fleming.
On 14 June 2016 Mr. Salmon was granted phantom options pursuant to the Phantom Option Scheme to acquire 200,000 ordinary 1p
shares in the Company at 1591p exercisable in respect of 50% on or after 15 June 2019 and in respect of the remaining 50%
on or after 15 June 2021 when a cash payment would be made equal to any increase in market value. On 14 June 2016 Mr. Cobb
and Mr. Henderson were each granted phantom options pursuant to the Phantom Option Scheme to acquire 100,000 ordinary 1p
shares in the Company at 1591p exercisable in respect of 50% on or after 15 June 2019 and in respect of the remaining 50%
on or after 15 June 2021 when a cash payment would be made equal to any increase in market value. The fair value of the
options at the grant date was £1.3m
On 7 November 2016 Mr. Salmon exercised options granted to him on 2 November 2011 to subscribe for 141,667 ordinary 40p
shares in Secure Trust Bank PLC at 720p (an associate company of the Group) and sold the shares at a price of 2200p.
Directors' Emoluments
This part of the remuneration report is audited information.
2016 2015
£000 £000
Fees (including benefits in kind) 215 70
Salary payments (including benefits in kind) 7,731 5,165
Pension contributions 119 140
Long term incentive 992 5,030
9,057 10,405
Long term Total Total
Salary Bonus Benefits Pension Fees incentive 2016 2015
£000 £000 £000 £000 £000 £000 £000 £000
Sir Henry Angest 1,200 - 60 - - - 1,260 987
JR Cobb 550 650 17 35 - 331 1,583 701
IA Dewar - - - - 75 - 75 29
JW Fleming (to 14/04/2016) 130 - 5 10 - - 145 601
IA Henderson (from 06/05/2016) 297 215 8 23 - - 543 -
Ms RJ Lea (to 05/05/2016) - - - - 45 - 45 130
PA Lynam 550 917 10 16 - - 1,493 1,456
Sir Christopher Meyer - - - - 60 - 60 55
AA Salmon 1,200 1,900 22 35 - 661 3,818 1,356
RJJ Wickham (to 31/12/2015) - - - - - - - 60
Sir Alan Yarrow (from 10/06/2016) - - - - 35 - 35 -
3,927 3,682 122 119 215 992 9,057 5,375
Details of any shares or options held by directors are presented on page 14.
The emoluments of the Chairman were £1,260,000 (2015: £987,000). The emoluments of the highest paid director were
£3,818,000 (2015: £1,456,000) including pension contributions of £35,000 (2015: £35,000).
On 15 June 2016 Secure Trust Bank PLC ceased to be a subsidiary company so the salary of Mr. Lynam as its chief executive
is only shown up to that date. Mr. Lynam then became a non-executive director of the Company, for which Secure Trust Bank
received a fee. On 7 November 2016 Mr Salmon exercised 141,667 share options in Secure Trust Bank (currently treated as an
associate company of the Group) at £7.20 and sold the shares on the same day at a price of £22, realising £2,097,000. This
is also not included in the table above.
Retirement benefits are accruing under money purchase schemes for five directors who served during 2016 (2015: five
directors).
Independent Auditor's Report
We have audited the financial statements of Arbuthnot Banking Group PLC for the year ended 31 December 2016 set out on
pages 25 to 105. The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the Parent Company financial
statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required
to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for
this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors' Responsibilities Statement set out on page 19, the directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices
Board's Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at
31
December 2016 and of the Group's profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as
applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors' Report for the financial year is consistent
with the financial statements.
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading
the Strategic report and the Director' report:
• we have not identified material misstatements in these reports; and
• in our opinion, these reports have been prepared in accordance with the Companies Act 2006.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Parent Company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Richard Gabbertas (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
22 March 2017
Company statement of financial position
At 31 December
2016 2015
Note £000 £000
ASSETS
Loans and advances to banks 18 89,072 12,444
Financial investments 24 121 125
Deferred tax asset 25 397 418
Property, plant and equipment 28 183 204
Other assets 23 887 991
Interests in associates 26 5,056 -
Interests in subsidiaries 41 54,602 46,466
Total assets 150,318 60,648
EQUITY AND LIABILITIES
Equity
Share capital 35 153 153
Other reserves 36 (1,111) (1,111)
Retained earnings 36 133,847 46,537
Total equity 132,889 45,579
LIABILITIES
Other liabilities 32 4,808 4,235
Debt securities in issue 33 12,621 10,834
Total liabilities 17,429 15,069
Total equity and liabilities 150,318 60,648
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Parent Company
profit and loss account. The profit for the Parent Company for the year is presented in the Statement of Changes in Equity.
Consolidated statement of changes in equity
Attributable to equity holders of the Group
Share capital Revaluation reserve Capital redemption reserve Available-for-sale reserve Treasury shares Retained earnings Non-controlling interests Total
£000 £000 £000 £000 £000 £000 £000 £000
Balance at 1 January 2016 153 98 20 1,047 (1,131) 123,330 67,887 191,404
Total comprehensive income for the period
Profit for 2016 - - - - - 166,143 61,426 227,569
Other comprehensive income, net of tax
Available-for-sale reserve - net change in fair value - - - (1,890) - - (487) (2,377)
Available-for-sale reserve - Associate - net change in fair value - - - (389) - - - (389)
Tax on other comprehensive income - - - 456 - - - 456
Total other comprehensive income - - - (1,823) - - (487) (2,310)
Total comprehensive income for the period - - - (1,823) - 166,143 60,939 225,259
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Equity settled share based payment transactions - - - - - (1,074) 31 (1,043)
Secure Trust Bank loss of control - (98) - 525 - (427) (124,046) (124,046)
Final dividend relating to 2015 - - - - - (2,531) (4,811) (7,342)
Special Interim dividend relating to 2016 - - - - - (3,722) - (3,722)
Interim dividend relating to 2016 - - - - - (1,936) - (1,936)
Special Interim dividend relating to 2016 - - - - - (44,216) - (44,216)
Total contributions by and distributions to owners - (98) - 525 - (53,906) (128,826) (182,305)
Balance at 31 December 2016 153 - 20 (251) (1,131) 235,567 - 234,358
Attributable to equity holders of the Group
Share capital Revaluation reserve Capital redemption reserve Available-for-sale reserve Treasury shares Retained earnings Non-controlling interests Total
£000 £000 £000 £000 £000 £000 £000 £000
Balance at 1 January 2015 153 98 20 (250) (1,131) 114,641 60,038 173,569
Total comprehensive income for the period
Profit for 2015 - - - - - 12,726 13,798 26,524
Other comprehensive income, net of tax
Available-for-sale reserve - net change in fair value - - - 1,297 - - - 1,297
Total other comprehensive income - - - 1,297 - - - 1,297
Total comprehensive income for the period - - - 1,297 - 12,726 13,798 27,821
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Equity settled share based payment transactions - - - - - 132 87 219
Final dividend relating to 2014 - - - - - (2,382) (4,549) (6,931)
Interim dividend relating to 2015 - - - - - (1,787) (1,487) (3,274)
Total contributions by and distributions to owners - - - - - (4,037) (5,949) (9,986)
Balance at 31 December 2015 153 98 20 1,047 (1,131) 123,330 67,887 191,404
Company statement of changes in equity
Attributable to equity holders of the Company
Share capital Capital redemption reserve Treasury shares Retained earnings Total
£000 £000 £000 £000 £000
Balance at 1 January 2015 153 20 (1,131) 50,755 49,797
Total comprehensive income for the period
Profit for 2015 - - - (87) (87)
- More to follow, for following part double click ID:nRSW2538Ac