REG - Arbuthnot Banking - Final Results for the year to 31 December 2016 <Origin Href="QuoteRef">ARBB.L</Origin> - Part 6
23/03/2017 07:08
- Part 6: For the preceding part double click ID:nRSW2538Ae
Carrying amount Gross nominal inflow/ (outflow) Not more than 3 months More than 3 months but less than 1 year More than 1 year but less than 5 years More than 5 years
At 31 December 2015 £000 £000 £000 £000 £000 £000
Financial asset by type
Non-derivative assets
Loans and advances to banks 12,444 12,444 11,965 - - 479
Financial investments 125 125 - - 125 -
Other assets 891 891 891 - - -
13,460 13,460 12,856 - 125 479
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as
they mature
are important factors in assessing the liquidity of the Group and its exposure to changes in interest rates and exchange
rates.
Fiduciary activities
The Group provides investment management and advisory services to third parties, which involve the Group making allocation
and purchase and sale decisions in relation to a wide range of financial instruments. Those assets that are held in a
fiduciary capacity are not included in these financial statements. These services give rise to the risk that the Group may
be accused of maladministration or underperformance. At the balance sheet date, the Group had investment management
accounts amounting to approximately £920m (2015: £739m). Additionally, the Group provides investment advisory services.
(e) Financial assets and liabilities
The tables below set out the Group's financial assets and financial liabilities into the respective classifications:
Fair value through profit or loss Held-to-maturity Loans and receivables Available-for-sale Other amortised cost Total carrying amount Fair value
At 31 December 2016 £000 £000 £000 £000 £000 £000 £000
ASSETS
Cash and balances at central banks - - 195,752 - - 195,752 195,752
Loans and advances to banks - - 36,951 - - 36,951 36,951
Debt securities held-to-maturity - 107,300 - - - 107,300 108,757
Derivative financial instruments 1,516 - - - - 1,516 1,516
Loans and advances to customers - - 758,799 - - 758,799 742,894
Other assets - - 1,197 - - 1,197 1,197
Financial investments - - - 2,145 - 2,145 2,145
1,516 107,300 992,699 2,145 - 1,103,660 1,089,212
LIABILITIES
Deposits from banks - - - - 3,200 3,200 3,200
Derivative financial instruments 227 - - - - 227 227
Deposits from customers - - - - 997,649 997,649 997,649
Other liabilities - - 1,812 - - 1,812 1,812
Debt securities in issue - - - - 12,621 12,621 12,621
227 - 1,812 - 1,013,470 1,015,509 1,015,509
Fair value through profit or loss Held-to-maturity Loans and receivables Available-for-sale Other amortised cost Total carrying amount Fair value
At 31 December 2015 £000 £000 £000 £000 £000 £000 £000
ASSETS
Cash and balances at central banks - - 368,611 - - 368,611 368,611
Loans and advances to banks - - 28,578 - - 28,578 28,578
Debt securities held-to-maturity - 87,728 - - - 87,728 87,594
Assets classified as held for sale - - - 118,456 - 118,456 118,456
Derivative financial instruments 1,490 - - - - 1,490 1,490
Loans and advances to customers - - 1,579,512 - - 1,579,512 1,570,932
Other assets - - 2,625 - - 2,625 2,625
Financial investments - - - 2,685 - 2,685 2,685
1,490 87,728 1,979,326 121,141 - 2,189,685 2,180,971
LIABILITIES
Deposits from banks - - - - 55,305 55,305 55,305
Derivative financial instruments 135 - - - - 135 135
Deposits from customers - - - - 1,929,838 1,929,838 1,929,838
Liabilities relating to assets classified as held for sale - - - 8,700 - 8,700 8,700
Other liabilities - - 14,581 - - 14,581 14,581
Debt securities in issue - - - - 10,834 10,834 10,834
135 - 14,581 8,700 1,995,977 2,019,393 2,019,393
Cash, loans and advances to banks, debt securities held-to-maturity, deposits from banks and deposits from customers are
classified as level 2 financial instruments, on the basis that they are liquid but not traded in an active market. Loans
and advances to customers and debt securities in issue are classified as level 3 as there is no observable market data for
these instruments.
7. Capital management
The Group's capital management policy is focused on optimising shareholder value. There is a clear focus on delivering
organic growth and ensuring capital resources are sufficient to support planned levels of growth. The Board regularly
reviews the capital position.
The Group's lead regulator, the Prudential Regulatory Authority ('PRA'), sets and monitors capital requirements for the
Group as a whole and for the individual banking operations. The lead regulator adopted the Basel III capital requirements
with effect from 1 January 2014. As a result, the Group's regulatory capital requirements were based on Basel III in 2014.
In accordance with the EU's Capital Requirements Directive (CRD) and the required parameters set out in the Prudential
Regulation Authority ('PRA') Handbook (BIPRU 2.2), the Individual Capital Adequacy Assessment Process (ICAAP) is embedded
in the risk management framework of the Group and is subject to ongoing updates and revisions when necessary. However, at
a minimum, the ICAAP is updated annually as part of the business planning process. The ICAAP is a process that brings
together management framework (i.e. the policies, procedures, strategies, and systems that the Group has implemented to
identify, manage and mitigate its risks) and the financial disciplines of business planning and capital management. The
Group's regulated entities are also the principal trading subsidiaries as detailed in Note 41.
Not all material risks can be mitigated by capital, but where capital is appropriate the Board has adopted a "Pillar 1
plus" approach to determine the level of capital the Group needs to hold. This method takes the Pillar 1 capital formula
calculations (standardised approach for credit, market and operational risk) as a starting point, and then considers
whether each of the calculations delivers a sufficient capital sum adequately to cover management's anticipated risks.
Where the Board considered that the Pillar 1 calculations did not reflect the risk, an additional capital add-on in Pillar
2 is applied, as per the Individual Capital Guidance (ICG) issued by the PRA.
The Group's regulatory capital is divided into two tiers:
• Tier 1 comprises mainly shareholders' funds and revaluation reserves, after deducting goodwill, other intangible assets
and the
deduction for a significant investment in a financial institution (STB). The portion of the investment up to 10% of ABG's
Tier 1
is added back to capital resources and then risk weighted at 250%.
• Lower Tier 2 comprises qualifying subordinated loan capital and collective provisions. Lower Tier 2 capital cannot exceed
50%
of Tier 1 capital.
The following table shows the regulatory capital resources as managed by the Group:
2016 2015
£000 £000
Tier 1
Share capital 153 153
Retained earnings 235,567 123,330
Deduction for significant investment (81,674) -
Add back 10% of CET1 (risk weighted at 250%) 22,557 -
Other reserves (1,362) (1,111)
Non-controlling interests - 67,887
Deduction for non-controlling interests - (23,047)
Goodwill (1,682) (2,695)
Deductions for other intangibles (6,840) (8,179)
Revaluation reserve (271) 1,145
Total tier 1 capital resources 166,448 157,483
Tier 2
Collective provisions - 2,031
Debt securities in issue 12,621 10,834
Total tier 2 capital resources 12,621 12,865
Total tier 1 & tier 2 capital resources 179,069 170,348
The ICAAP includes a summary of the capital required to mitigate the identified risks in its regulated entities and the
amount of capital that the Group has available. The PRA sets ICG for each UK bank calibrated by reference to its Capital
Resources Requirement, broadly equivalent to 8 percent of risk weighted assets and thus representing the capital required
under Pillar 1 of the Basel III framework. The ICAAP is a key input into the PRA's ICG setting process, which addresses the
requirements of Pillar 2 of the Basel III framework. The PRA's approach is to monitor the available capital resources in
relation to the ICG requirement. Each entity maintains an extra internal buffer and capital ratios are reviewed on a
monthly basis to ensure that external requirements are adhered to. All regulated entities have complied with all of the
externally imposed capital requirements to which they are subject.
Pillar 3 complements the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2). Its aim is
to encourage market discipline by developing a set of disclosure requirements which will allow market participants to
assess key pieces of information on a firm's capital, risk exposures and risk assessment processes. Our Pillar 3
disclosures for the year ended 31 December 2016 are published as a separate document on the Group website under Investor
Relations (Announcements & Shareholder Info).
8. Interest income
Re-presented*
2016 2015
£000 £000
Cash and balances at central banks 997 670
Loans and advances to banks 124 218
Debt securities held-to-maturity 844 539
Loans and advances to customers 36,106 31,374
38,071 32,801
* Prior year numbers have been re-presented to exclude discontinuing operations (see note 14).
In 2016, the Group recognised £325k (2015: £nil) of additional interest income to reflect actual cash flows received on the aquired mortgage book having been in excess of forecast cash flows.
9. Fee and commission income
Re-presented*
2016 2015
£000 £000
Banking commissions 1,947 1,666
Investment management fees and commissions 7,122 5,946
Wealth planning fees and commissions 2,156 1,969
Other fee income 205 418
11,430 9,999
* Prior year numbers have been re-presented to exclude discontinuing operations (see note 14).
10. Net impairment loss on financial assets
Re-presented*
2016 2015
£000 £000
Net Impairment losses on loans and advances to customers 427 1,250
Impairment losses on financial investments 47 34
474 1,284
* Prior year numbers have been re-presented to exclude discontinuing operations (see note 14).
11. Other income
Other income mainly consists of rental income from the investment property (see note 29) of £1.1m and £1.6m realised on the
investment in Visa (see note 24).
12. Operating expenses
Re-presented*
2016 2015
Operating expenses comprise: £000 £000
Staff costs, including Directors:
Wages and salaries 26,708 19,483
Social security costs 3,154 2,117
Pension costs 1,247 946
Share based payment transactions (note 37) 215 51
Amortisation of intangibles (note 27) 521 473
Depreciation (note 28) 1,146 855
Financial Services Compensation Scheme Levy 233 160
Operating lease rentals 2,610 1,941
Operating expenses for investment property 115 -
Acquisitions costs 398 1,645
Other administrative expenses 9,764 8,255
Total operating expenses from continuing operations 46,111 35,926
* Prior year numbers have been re-presented to exclude discontinuing operations (see note 14).
Details on Directors remuneration is disclosed in the Remuneration Report on page 21.
2016 2015
Remuneration of the auditor and its associates, excluding VAT, was as follows: £000 £000
Fees payable to the Company's auditor for the audit of the Company's annual accounts 99 95
Fees payable to the Company's auditor and its associates for other services:
Audit of the accounts of subsidiaries 237 329
Audit related assurance services 157 65
Taxation compliance services 36 82
Taxation advisory services 99 61
Other assurance services 170 321
Corporate finance services - 115
Other non-audit services 15 13
Total fees payable 813 1,081
Other assurance services include regulatory assessments. Corporate finance services include due diligence work on a
potential corporate transaction.
13. Income tax expense
2016 2015
United Kingdom corporation tax at 20% (2015: 20.25%) £000 £000
Current taxation
Corporation tax charge - current year 179 71
Corporation tax charge - adjustments in respect of prior years 457 -
636 71
Deferred taxation
Origination and reversal of temporary differences 11 (67)
Adjustments in respect of prior years 73 (125)
84 (192)
Income tax expense/(credit) 720 (121)
Tax reconciliation
Profit/(loss) before tax 179 (2,606)
Tax at 20% (2015: 20.25%) 36 (528)
Permanent differences 67 531
Tax rate change 87 1
Prior period adjustments 530 (125)
Corporation tax charge/(credit) for the year 720 (121)
Prior year adjustments mainly relate to management charges disallowed, as a result of the resolution of a lengthy dispute
with HMRC.
The tax charge on discontinuing operations is disclosed in note 14.
The UK corporation tax rate reduced from 21% to 20% with effect from 1 April 2015. On 26 October 2015 the Government
substantively enacted a further reduction to the UK corporation tax rate to 19% from 1 April 2017 and to 17% from 1 April
2020. In addition, the Chancellor announced the introduction of a corporation tax surcharge applicable to banking companies
with effect from 1 January 2016. The surcharge is levied at a rate of 8% on the profits of banking companies, after taking
into account an annual allowance of £25m. This will increase the Group's future current tax charge accordingly.
14. Discontinued operations
The profit after tax from discontinued operations is made up as follows:
Year ended 31 December Year ended 31 December
2016 2015
Discontinued operations £000 £000
Profit after tax from discontinued operations - ELL (up to 13 April 2016) 2,027 9,392
Profit after tax on sale of discontinued operations - ELL 116,754 -
Profit after tax from discontinued operations - STB (up to 15 June 2016) 9,149 19,617
Profit after tax on sale of discontinued operations - STB 100,180 -
Profit after tax from discontinued operations 228,110 29,009
On 4 December 2015, STB agreed to the conditional sale of its non-standard consumer lending business, ELL, which comprises
Everyday Loans Holdings Limited and subsidiary companies Everyday Lending Limited and Everyday Loans Limited, to Non
Standard Finance PLC (NSF) for £106.9 million in cash subject to a net asset adjustment and £16.3 million in NSF ordinary
shares. The Disposal completed on 13 April 2016, and on completion, NSF repaid intercompany debt of £108.1 million to STB.
After selling costs of £6.2m, this resulted in a gain recognised on disposal of £116.8m.
Details of the profits of discontinued operations, net assets disposed of and consequential gain recognised on disposal and
cash flow from discontinued operations is set out below.
From 1 January to 13 April Year ended 31 December
2016 2015
Note £000 £000
Interest income 11,137 39,230
Net interest income 11,137 39,230
Fee and commission income 147 1,523
Fee and commission expense (124) (358)
Net fee and commission income 23 1,165
Operating income 11,160 40,395
Net impairment loss on financial assets (2,610) (7,537)
Operating expenses (6,016) (21,195)
Profit before tax 2,534 11,663
Tax expense (507) (2,271)
Profit after tax 2,027 9,392
Profit on sale of business 116,754 -
Total profit from discontinued operation 118,781 9,392
Profit attributable to:
Equity holders of the Company 61,667 4,876
Non-controlling interests 57,114 4,516
Profit after tax 118,781 9,392
Earnings per share for profit attributable to the equity holders of the Company from discontinued operations during the year
(expressed in pence per share):
- basic 16 418.4 33.1
- diluted 16 418.2 32.0
The following assets were sold as part of the sale of ELL:
Recognised values on sale
2016
£000
Loans and advances to banks 457
Loans and advances to customers 116,744
Property, plant and equipment 452
Intangible assets 1,258
Deferred tax assets 371
Prepayments and accrued income 451
Other assets 11
Total assets 119,744
Intercompany funding 108,088
Current tax liability 3,212
Other liabilities 4,748
Total liabilities 116,048
Net identifiable assets / (liabilities) 3,696
Consideration 123,206
Costs (2,756)
Profit on sale of ELL 116,754
The intercompany funding was repaid by NSF at the time of completion.
Cash flow from discontinued operations - ELL From 1 January to 13 April Year ended 31 December
2016 2015
£000 £000
Cash flows from operating activities
Interest received 11,137 40,595
Fees and commissions received 23 1,165
Cash payments to employees and suppliers (8,626) (21,197)
Taxation paid (507) (130)
Cash flows from operating profits before changes in operating assets and liabilities 2,027 20,433
Changes in operating assets and liabilities:
- net increase in loans and advances to customers (3,618) (27,788)
- net (increase) / decrease in other assets (249) 654
- net increase in other liabilities 2,621 7,027
Net cash inflow from operating activities 781 326
Cash flows from investing activities
Purchase of computer software - (33)
Purchase of property, plant and equipment (9) (253)
Net cash outflow from investing activities (9) (286)
Net increase/(decrease) in cash and cash equivalents 772 40
Cash and cash equivalents at 1 January 1,661 1,621
Cash and cash equivalents at 13 April / 31 December 2,433 1,661
On 15 June 2016 Arbuthnot Banking Group ('ABG') sold 6 million shares in Secure Trust Bank PLC ('STB'), which reduced its
shareholding in STB from 51.92% to 18.93%. From this date the Group accounted for its remaining shareholding in STB as an
associate. After the sale of the 6 million shares, the Group retained Board representation and as such is seen to have
significant influence over STB. The profit and cash flow from discontinued operations relating to ELL have been shown in
the tables above. The ELL entities were subsidiaries of STB and therefore formed part of the STB result reported in the
operating segments of ABG. The tables below therefore reflect the profit and cash flow from the STB group excluding ELL.
The combined impact can be seen in the operating segments (see note 42 - Retail banking).
From 1 January to 15 June Year ended 31 December
2016 2015
Note £000 £000
Interest income 57,498 100,442
Interest expense (12,107) (21,560)
Net interest income 45,391 78,882
Fee and commission income 7,981 16,867
Fee and commission expense (779) (3,660)
Net fee and commission income 7,202 13,207
Operating income 52,593 92,089
Net impairment loss on financial assets (12,172) (16,782)
Operating expenses (29,073) (50,133)
Profit before tax 11,348 25,174
Tax expense (2,199) (5,557)
Profit after tax 9,149 19,617
Profit on sale of shares 100,180 -
Total profit from discontinued operation 109,329 19,617
Profit attributable to:
Equity holders of the Company 105,017 10,335
Non-controlling interests 4,312 9,282
Profit after tax 109,329 19,617
Earnings per share for profit attributable to the equity holders of the Company from discontinued operations during the year
(expressed in pence per share):
- basic 16 712.5 70.1
- diluted 16 712.2 67.9
The following assets were deconsolidated as part of the sale of 6 million shares in STB:
Recognised values on sale
2016
£000
Cash and balances at central banks 176,647
Loans and advances to banks 27,618
Loans and advances to customers 1,117,700
Other assets 5,805
Financial investments 15,030
Deferred tax asset 606
Intangible assets 7,017
Property, plant and equipment 8,606
Total assets 1,359,029
Deposits from banks 25,000
Deposits from customers 1,046,009
Current tax liability 293
Other liabilities 29,748
Total liabilities 1,101,050
Net identifiable assets 257,979
Profit on sale of shares was calculated as follows:
2016
£000
Consideration received 150,000
Less costs (2,001)
Less net identifiable assets (257,979)
Add back non-controlling interest 124,046
Add back fair value of remaining investment in STB 86,114
Profit on sale of STB 100,180
Cash flow from discontinued operations - STB excluding ELL From 1 January to 15 June Year ended 31 December
2016 2015
£000 £000
Cash flows from operating activities
Interest received 68,635 141,145
Interest paid (12,107) (28,210)
Fees and commissions received 7,226 4,355
Cash payments to employees and suppliers (51,552) (76,150)
Taxation paid (6,034) (7,410)
Cash flows from operating profits before changes in operating assets and liabilities 6,168 33,730
Changes in operating assets and liabilities:
- net decrease/(increase) in loans and advances to banks - 15,000
- net increase in loans and advances to customers (165,976) (338,343)
- net decrease/(increase) in other assets 117,395 (120,678)
- net (decrease)/increase in deposits from banks (10,000) 19,059
- net increase in amounts due to customers 12,936 424,655
- net decrease in other liabilities (5,031) 5,613
Net cash (outflow)/inflow from operating activities (44,508) 39,036
Cash flows from investing activities
Purchase of computer software (1,754) (2,286)
Purchase of property, plant and equipment (531) (1,068)
Disposal of property, plant and equipment 2,179 -
Proceeds from disposal of businesses 106,912 -
Proceeds from sale of property, plant and equipment 456 -
Proceeds from redemption of debt securities
- More to follow, for following part double click ID:nRSW2538AgRecent news on Arbuthnot Banking
See all newsREG - Arbuthnot Banking - Audited Final Results
AnnouncementREG - Arbuthnot Banking - Pre Close Trading Update
AnnouncementREG - Arbuthnot Banking - Director/PDMR Shareholding
AnnouncementREG - Arbuthnot Banking - Renewal of Tier 2 Regulatory Capital Loan facility
AnnouncementREG - Arbuthnot Banking - Director/PDMR Shareholding
Announcement