REG - Arbuthnot Banking - Final Results for the year to 31 December 2016 <Origin Href="QuoteRef">ARBB.L</Origin> - Part 7
23/03/2017 07:30
- Part 7: For the preceding part double click ID:nRSW2538Af
- 12,487
Net cash inflow/(outflow) from investing activities 107,262 9,133
Cash flows from financing activities
Dividends paid (10,005) (12,552)
Net cash used in financing activities (10,005) (12,552)
Net increase in cash and cash equivalents 52,749 35,617
Cash and cash equivalents at 1 January 141,595 105,978
Cash and cash equivalents at 15 June / 31 December 194,344 141,595
15. Average number of employees
2016 2015
Retail banking - 706
Private banking 268 210
Group 19 21
287 937
As STB was deconsolidated during the year, the employees have been removed from the above averages in 2016
16. Earnings per ordinary share
Basic
Basic earnings per ordinary share are calculated by dividing the profit after tax attributable to equity holders of the
Company by the weighted average number of ordinary shares 14,738,548 (2015: 14,738,548) in issue during the year.
Diluted
Diluted earnings per ordinary share are calculated by dividing the dilutive profit after tax attributable to equity holders
of the Company by the weighted average number of ordinary shares in issue during the year, as well as the number of
dilutive share options in issue during the year. The number of dilutive share options in issue at the year end was 50,000
(2015: 200,000).
2016 2015
Profit attributable £000 £000
Total profit after tax attributable to equity holders of the Company 166,143 12,726
Loss after tax from continuing operations attributable to equity holders of the Company (541) (2,485)
Profit after tax from discontinued operations attributable to equity holders of the Company (STB excl. ELL) 105,017 10,335
Profit after tax from discontinued operations attributable to equity holders of the Company (ELL) 61,667 4,876
2016 2015
Dilutive profit attributable £000 £000
Total profit after tax attributable to equity holders of the Company 166,143 12,448
Loss after tax from continuing operations attributable to equity holders of the Company (541) (2,485)
Profit after tax from discontinued operations attributable to equity holders of the Company (STB excl. ELL) 105,017 10,148
Profit after tax from discontinued operations attributable to equity holders of the Company (ELL) 61,667 4,785
2016 2015
Basic Earnings per share p p
Total Basic Earnings per share 1,127.2 86.3
Basic Earnings per share from continuing operations (3.7) (16.9)
Basic Earnings per share from discontinued operations (STB excl. ELL) 712.5 70.1
Basic Earnings per share from discontinued operations (ELL) 418.4 33.1
2016 2015
Diluted Earnings per share p p
Total Diluted Earnings per share 1,126.7 83.3
Diluted Earnings per share from continuing operations (3.7) (16.6)
Diluted Earnings per share from discontinued operations (STB excl. ELL) 712.2 67.9
Diluted Earnings per share from discontinued operations (ELL) 418.2 32.0
17. Cash and balances at central banks
2016 2015
Group £000 £000
Cash and balances at central banks 195,752 368,611
Surplus funds are mainly held in the Bank of England reserve account, with the remainder held in certificates of deposit,
fixed rate notes and money market deposits in highly rated banks (the majority held in UK clearing banks).
18. Loans and advances to banks
2016 2015
Group £000 £000
Placements with banks included in cash and cash equivalents (note 39) 36,951 28,578
The table below presents an analysis of loans and advances to banks by rating agency designation as at 31 December, based on Moody's long term ratings:
2016 2015
Group £000 £000
Aa1 - 220
A1 20,696 15,972
A2 15,582 6,258
A3 110 5,366
Baa1 555 762
Unrated 8 -
36,951 28,578
None of the loans and advances to banks are either past due or impaired.
2016 2015
Company £000 £000
Placements with banks included in cash and cash equivalents (note 39) 89,072 12,444
Loans and advances to banks include bank balances of £89.1m (2015: £12.4m) with Arbuthnot Latham & Co., Ltd
19. Debt securities held-to-maturity
Debt securities represent certificates of deposit. The Group's intention is to hold them to maturity and, therefore, they
are presented in the Statement of Financial Position at amortised cost.
The movement in debt securities held to maturity may be summarised as follows:
2016 2015
Group £000 £000
At 1 January 87,728 91,683
Exchange difference 2,087 808
Additions 89,384 145,880
Redemptions (68,103) (150,643)
Deconsolidation of STB (3,796) -
At 31 December 107,300 87,728
The table below presents an analysis of debt securities by rating agency designation at 31 December, based on Moody's long term ratings:
2016 2015
Group £000 £000
Aaa 40,337 42,618
Aa1 23 23,317
Aa2 26,089 8,913
Aa3 6,000 1
A1 31,953 6,311
A2 - 4,554
A3 2,898 2,000
Baa1 - 14
107,300 87,728
None of the debt securities held-to-maturity are either past due or impaired.
20. Derivative financial instruments
2016 2015
Contract/ notional amount Fair value assets Fair value liabilities Contract/ notional amount Fair value assets Fair value liabilities
Group £000 £000 £000 £000 £000 £000
Currency swaps 6,566 85 218 34,459 59 135
Interest rate caps 3,800 - 9 - - -
Structured notes 1,607 1,431 - 1,607 1,431 -
11,973 1,516 218 36,066 1,490 135
The principal derivatives used by the Group are over the counter exchange rate contracts and interest rate caps (used for
cash flow hedges). Exchange rate related contracts include currency swaps and cash flow hedges include interest rate caps.
A forward foreign exchange contract is an agreement to buy or sell a specified amount of foreign currency on a specified
future date at an agreed rate. Currency swaps generally involve the exchange of interest payment obligations denominated in
different currencies; exchange of principal can be notional or actual. The currency swaps are settled net and therefore the
fair value is small in comparison to the contract/notional amount.
An interest rate cap is an option contract which puts an upper limit on a floating exchange rate. The writer of the cap has
to pay the holder of the cap the difference between the floating rate and the reference rate when that reference rate is
breached. The holder pays a premium for the cap.
Also included in derivative financial instruments are structured notes. These notes contain embedded derivatives (embedded
options to buy and sell indices) and non-derivative host contracts (discounted bonds). Both the host and embedded
derivatives are presented net within derivative financial instruments.
The Group only uses investment graded banks as counterparties for derivative financial instruments. None of the contracts
are collateralised.
The table below presents an analysis of derivative financial instruments contract/notional amounts by rating agency designation of
counterparty bank at 31 December, based on Moody's long term ratings:
2016 2015
Group £000 £000
Aa3 - 34,459
A1 10,366 -
Baa1 1,607 1,607
11,973 36,066
21. Loans and advances to customers
2016 2015
Group £000 £000
Gross loans and advances 759,772 1,615,208
Less: allowances for impairment on loans and advances (note 22) (973) (35,696)
758,799 1,579,512
On 19 December 2016 AL completed the purchase of a private banking loan portfolio from Duncan Lawrie Ltd for a
consideration of £42.7m. The portfolio is included in loans and advances to customers at fair value.
For a maturity profile of loans and advances to customers, refer to note 6.
Loans and advances to customers include finance lease receivables as follows:
2016 2015
Group £000 £000
Gross investment in finance lease receivables:
- No later than 1 year - 41,906
- Later than 1 year and no later than 5 years - 67,789
- Later than 5 years - 873
- 110,568
Unearned future finance income on finance leases - (18,996)
Net investment in finance leases - 91,572
The net investment in finance leases may be analysed as follows:
- No later than 1 year - 31,684
- Later than 1 year and no later than 5 years - 59,074
- Later than 5 years - 814
- 91,572
Loans and advances to customers can be further summarised as follows:
2016 2015
Group £000 £000
Neither past due nor impaired 719,515 1,516,236
Past due but not impaired 23,379 23,792
Impaired 16,878 75,180
Gross 759,772 1,615,208
Less: allowance for impairment (973) (35,696)
Net 758,799 1,579,512
(a) Loans and advances past due but not impaired
Gross amounts of loans and advances to customers that were past due but not impaired were as follows:
2016 2015
Group £000 £000
Past due up to 30 days 961 643
Past due 30 - 60 days 5,689 1,714
Past due 60 - 90 days 638 1,706
Over 90 days 16,091 19,729
Total 23,379 23,792
Loans and advances typically fall into this category when there is a delay in either the sale of the underlying collateral
or the completion of formalities to extend the credit facilities for a further period. Management have no material concerns
regarding the quality of the collateral that secures the lending.
(b) Loans and advances renegotiated
Restructuring activities include external payment arrangements, modification and deferral of payments. Following
restructuring, a previously overdue customer account is reset to a normal status and managed together with other similar
accounts. Restructuring policies and practices are based on indicators or criteria which, in the judgement of management,
indicate that payment will most likely continue. These policies are kept under continuous review. Renegotiated loans that
would otherwise be past due or impaired totalled £nil (2015: £nil).
(c) Collateral held
Collateral is measured at fair value less costs to sell.
Arbuthnot Latham & Co., Ltd
Most of the loans are secured by property. The fair value of the collateral held against past due but not impaired or
impaired balances is £103.7m (2015: £93.3m) against loans of £40.3m (2015: £43.2m), giving an average loan-to-value of 39%
(2015: 46%). The weighted average loan-to-value is 61% (2015: 63%). The net amount of individually impaired loans and
advances to customers after impairment but before taking into account the cash flows from collateral held is £15.9m (2015:
£18.0m).
Secure Trust Bank PLC (2015 comparatives)
The majority of the loans were unsecured personal loans with an average size at inception of £5,000; therefore the
portfolio did not have a significant concentration to any individuals, sectors or geographic locations. £0.2m related to a
standard mortgage loan secured upon residential property which was neither past due nor impaired. The residential property
over which the mortgage loan was secured had a fair value of £0.2m based on other property sales, and a loan to value ratio
of 72%.
£368.0m of the loans were secured upon residential or commercial property and these were neither past due nor impaired. All
loans secured were at a loan to value ratio of less than 80%.
£165.7m of the loans were secured against motor vehicles where the security was discharged when the buyer exercised an
option to buy the goods at a predetermined price at the end of the loan term. Management's estimate of the fair value of
the motor vehicles was £127.1m.
22. Allowances for impairment of loans and advances
Reconciliation of specific allowance for impairments:
2016 2015
Group £000 £000
At 1 January 35,696 38,411
Adjustments for disposals - (5,812)
Impairment losses 474 26,654
De-consolidation of STB (34,285) -
Loans written off during the year as uncollectible (962) (23,590)
Amounts recovered during the year 50 33
At 31 December 973 35,696
Reconciliation of collective allowance for impairments:
2016 2015
Group £000 £000
At 1 January 3,141 2,031
Impairment losses - 1,110
De-consolidation of STB (3,141) -
At 31 December - 3,141
A further analysis of allowances for impairment of loans and advances is as follows:
2016 2015
Group £000 £000
Loans and advances to customers - UK Private Bank 973 1,411
Loan and advances to customers - Retail Bank - 34,285
At 31 December 973 35,696
23. Other assets
2016 2015
Group £000 £000
Trade receivables 1,197 2,625
Inventory 5,213 5,226
Prepayments and accrued income 5,529 9,043
11,939 16,894
Land acquired through repossession of collateral which is subsequently held in the ordinary course of business with a view
to develop and sell is accounted for as inventory. The land is currently in the process of being redeveloped and will
ultimately be sold off as individual residential plots. The proceeds from the sale of these plots will be used to reduce or
repay the outstanding indebtedness.
2016 2015
Company £000 £000
Trade receivables 633 732
Due from subsidiary undertakings 158 159
Prepayments and accrued income 96 100
887 991
24. Financial investments
2016 2015
Group £000 £000
Designated at fair value through profit and loss
- Listed securities 108 112
Available-for-sale
- Listed securities 13 13
- Debt securities 1,443 1,239
- Unlisted securities 581 1,321
Total financial investments 2,145 2,685
Listed securities
The Group holds investments in listed securities which are valued based on quoted prices.
Debt securities
The Group has made equity investments in unlisted special purpose vehicles set up to acquire and enhance the value of
commercial properties. These investments are of a medium term nature. There is no open market for these investments and
therefore the Group has valued them using appropriate valuation methodologies, which include net asset valuations and
discounted future cash flows. The Directors intend to dispose of these assets when a suitable buyer has been identified and
when the Directors believe that the underlying assets have reached their maximum value.
Unlisted securities
On 23 June 2016 Arbuthnot Latham received E1.3m cash consideration following Visa Inc.'s completion of the acquisition of
Visa Europe. As part of the deal Arbuthnot Latham also received preference shares in Visa Inc., these have been valued at
their future conversion value into Visa Inc. common stock. Management has assessed the fair value of the Company's
investment as £569k. This valuation includes a 31% haircut, as referred to in Note 4.
2016 2015
Company £000 £000
Financial investments comprise:
- Listed securities (at fair value through profit and loss) 108 112
- Unlisted securities (available-for-sale) 13 13
Total financial investments 121 125
25. Deferred taxation
The deferred tax asset comprises:
2016 2015
Group £000 £000
Unrealised surplus on revaluation of freehold property - 196
Accelerated capital allowances and other short-term timing differences 929 697
Unutilised tax losses 736 891
Deferred tax asset 1,665 1,784
At 1 January 1,784 2,588
Other Comprehensive Income - available-for-sale securities 248 (262)
Profit and loss account - accelerated capital allowances and other short-term timing differences (21) 673
Profit and loss account - tax losses (64) (812)
Deconsolidate / Transfer to assets classified as held for sale (282) (403)
Deferred tax asset at 31 December 1,665 1,784
2016 2015
Company £000 £000
Accelerated capital allowances and other short-term timing differences 397 418
Deferred tax asset 397 418
At 1 January 418 406
Profit and loss account - accelerated capital allowances and other short-term timing differences (21) 12
Deferred tax asset at 31 December 397 418
Deferred tax assets are recognised for tax losses to the extent that the realisation of the related tax benefit through
future taxable profits is probable.
The UK corporation tax rate reduced from 21% to 20% with effect from 1 April 2015. On 26 October 2015 the Government
substantively enacted a further reduction to the UK corporation tax rate to 19% from 1 April 2017 and to 17% from 1 April
2020. In addition, the Chancellor announced the introduction of a corporation tax surcharge applicable to banking companies
with effect from 1 January 2016. The surcharge is levied at a rate of 8% on the profits of banking companies, after taking
into account an annual allowance of £25m. This is expected to increase the Group's future current tax charge accordingly.
26. Interests in associates
2016 2015
Group £000 £000
Tarn Crag 900 943
Secure Trust Bank PLC 81,674 -
Interests in associates 82,574 943
Tarn Crag
On 11 October 2013, Arbuthnot Latham & Co., Ltd together with Praxis (Holding) Limited, formed a special purpose vehicle in
the form of a separate legal entity (Tarn Crag Limited). The purpose of this legal entity is to refurbish and re-let a
property in Glasgow, with the intention to exit via a sale to an institutional investor in circa 5 years time. The
investment is accounted for using the equity method.
During the year the associate recorded a loss of £197k (2015: loss of £331k). Legal costs of £43k, previously capitalised
against the carrying value of the associate, were written off in the year.
The summarised balance sheet for Tarn Crag is set out below:
Tarn Crag
2016 2015
At 31 December £000 £000
ASSETS
Cash and balances at central banks 3,468 2,236
Loans and advances to customers
Other assets 656 1,010
Property, plant and equipment 9,201 15,412
13,325 18,658
EQUITY AND LIABILITIES
Deposits from banks 12,474 12,014
Other liabilities 1,484 667
Debt securities in issue 1,400 1,400
Revaluation reserve (1,418) 4,995
Retained Earnings (615) (418)
13,325 18,658
(a) Significant restrictions
Praxis (Holding) Ltd receives £0.1m per annum in its capacity as property manager. Arbuthnot Latham & Co., Ltd subscribed
to £0.9m of loan notes and Praxis (Holding) Ltd subscribed to £0.5m of loan notes, which carry interest at 15% and is
rolled up and payable on redemption. The bank debt and interest and the loan notes and interest thereon as well as the
property management fees need to be repaid, before further distributions to shareholders can take place.
(b) Risks associated with interests
Arbuthnot Latham & Co., Ltd agreed to subscribe to a further £0.2m of loan notes when required to fund working capital.
Secure Trust Bank
On 15 June 2016 Arbuthnot Banking Group sold 6 million shares in Secure Trust Bank PLC ('STB') for £150m, which reduced its
shareholding in STB from 51.92% to 18.93%. From this date the Group accounted for its remaining shareholding in STB as an
associate. After the sale of the 6 million shares, the Group retained Board representation and as such is seen to have
significant influence over STB. The principal place of business of STB is the United Kingdom. Subsequent to initial
recognition at fair value, the investment is accounted for using the equity method. The fair value of the investment as at
31 December 2016 was £75.4m. STB recorded a profit after tax of £11.4m in the period from 16 June to 31 December 2016. The
carrying value of the interest in STB is shown as the fair value at the date of sale adjusted for the share of the Group's
profit after tax and dividends received. STB is listed on the main market of the London Stock Exchange.
(a) Significant restrictions
The Group does not have significant restrictions on its ability to access funds, other than the liquidity in the market for
the sale of the shares.
(b) Risks associated with interests
As STB is a publicly listed company, there are a number of risks, e.g. conduct risk, regulatory risk and macroeconomic and
competitive environment risks that could have an impact on the share price and ultimate recoverability of the investment.
(c) Changes in ownership interest
On 15 June 2016 Arbuthnot Banking Group sold 6 million shares in Secure Trust Bank PLC ('STB') for £150m, which reduced its
shareholding in STB from 51.92% to 18.93%. From this date the Group accounted for its remaining shareholding in STB as an
associate. After the sale of the 6 million shares, the Group retained Board representation and as such is seen to have
significant influence over STB.
On 7 November 460,419 share options in STB vested. On the same date 283,335 share options were exercised with admission of
the shares on the stock market on 9 November. This increased STB's shares in issue from 18,191,894 to 18,475,229 and as a
result ABG's shareholding was diluted from 18.93% to 18.64%. If the remaining share options of 177,084 were exercised,
ABG's shareholding would further dilute to 18.47%.
2016 2015
Company £000 £000
Secure Trust Bank PLC 5,056 -
Interests in associates 5,056 -
27. Intangible assets
Goodwill Computer software Other intangibles Total
Group £000 £000 £000 £000
Cost
At 1 January 2015 2,695 9,470 7,529 19,694
Additions - 3,532 - 3,532
Transfer to assets classified as held for sale - (349) (5,115) (5,464)
At 31 December 2015 2,695 12,653 2,414 17,762
Additions - 5,155 - 5,155
Transfer out on deconsolidation (1,013) (9,301) (2,200) (12,514)
At 31 December 2016 1,682 8,507 214 10,403
Accumulated amortisation
At 1 January 2015 - (4,668) (3,708) (8,376)
Amortisation charge - (1,627) (1,167) (2,794)
Transfer to assets classified as held for sale - 247 4,035 4,282
At 31 December 2015 - (6,048) (840) (6,888)
Amortisation charge - (478) (43) (521)
Transfer out on deconsolidation - 4,794 734 5,528
At 31 December 2016 - (1,732) (149) (1,881)
Net book amount
At 31 December 2015 2,695 6,605 1,574 10,874
At 31 December 2016 1,682 6,775 65 8,522
Included within Computer Software additions is an amount of £5.5m (2015: £0.9m) relating to intangible assets in the course
of construction, which management has assessed to not be available for use as at 31 December 2016 are not being amortised.
The accounting policy for goodwill is described in note 3.15 (a). The Company reviews the goodwill for impairment at least
annually or when events or changes in economic circumstances indicate that impairment may have taken place. Significant
management judgements are made in estimations, to evaluate whether an impairment of goodwill is necessary. Impairment
testing is done at CGU level and the following two items, with judgements surrounding them, have a significant impact on
the estimations used in determining the necessity of an impairment charge:
• Future cash flows - Cash flow forecasts reflect management's view of future business forecasts at the time of the
assessment. A detailed three year budget is done every year and management also uses judgement in applying a growth rate.
The accuracy of future cash flows is subject to a high degree of uncertainty in volatile market conditions. During such
conditions, management would perform impairment testing more frequently than annually to ensure that the assumptions
applied are still valid in the current market conditions.
• Discount rate - Management also apply judgement in determining the discount rate used to discount future expected cash
flows. The discount rate is derived from the cost of capital for each CGU.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. There
is currently one CGU (2015: three) with goodwill attached; the core Arbuthnot Latham CGU (£1.7m).
Management considers the value in use for the core Arbuthnot Latham CGU to be the discounted cash flows over 5 years with a
terminal value (2015: 5 years with a terminal value). The 5 year discounted cash flows with a terminal value is considered
to be appropriate as the goodwill relates to an ongoing well established business and not underlying assets with finite
lives. The terminal value is calculated by applying a discounted perpetual growth model to the profit expected in 2019 as
per the approved 3 year plan. A growth rate of 11% (2015: 19%) was used for income and 13% (2015: 16%) for expenditure from
2017 to 2019 (these rates were the best estimate of future forecasted performance), while a 3% (2015: 3%) percent growth
rate for income and expenditure (a more conservative approach was taken for latter years as these were not budgeted for in
detail as per the three year plan approved by the Board of Directors) was used for cash flows after the approved three year
plan.
Cash flows were discounted at a pre-tax rate of 12% (2015: 12%) to their net present value. The discount rate of 12% is
considered to be appropriate after evaluating current market assessments of the time value of money and the risks specific
to the assets or CGUs. Currently, the value in use and fair value less costs to sell far exceeds the carrying value and as
such no sensitivity analysis was done. At the time of the impairment testing, if the future expected cash flows decline
and/or the cost of capital has increased, then the recoverable amount will reduce.
Computer software
Company £000
Cost
At 1 January 2015 40
At 31 December 2015 and 2016 40
Accumulated amortisation
At 1 January 2015 (36)
Amortisation charge (4)
At 31 December 2015 and 2016 (40)
Net book amount
At 31 December 2015 and 2016 -
28. Property, plant and equipment
Freehold land and buildings Leasehold improvements Computer and other equipment Motor Vehicles Total
Group £000 £000 £000 £000
Cost or valuation
At 1 January 2015 7,488 3,554 13,731 - 24,773
Additions - 1,722 1,576 97 3,395
Disposals - - (2,417) - (2,417)
Transfer to assets classified as held for sale - (590) (447) - (1,037)
At 31 December 2015 7,488 4,686 12,443 97 24,714
Additions - 127 227 - 354
Transfer out on de-consolidation of STB (7,488) (226) (9,929) - (17,643)
At 31 December 2016 - 4,587 2,741 97 7,425
At 1 January 2015 (929) (481) (10,888) - (12,298)
Depreciation charge (108) (399) (891) (22) (1,420)
Disposals - - 2,419 - 2,419
Transfer to assets classified as held for sale - 350 239 - 589
At 31 December 2015 (1,037) (530) (9,121) (22) (10,710)
Depreciation charge - (697) (425) (24) (1,146)
Transfer out on de-consolidation of STB 1,037 10 8,166 - 9,213
At 31 December 2016 - (1,217) (1,380) (46) (2,643)
Net book amount
At 31 December 2015 6,451 4,156 3,322 75 14,004
At 31 December 2016 - 3,370 1,361 51 4,782
The Group's opening freehold property is also the Registered Office of Secure Trust Bank and was fully utilised for the
Group's own purposes.
The carrying value of freehold land not depreciated is £nil (2015: £1.7m). The historical cost of freehold property
included at valuation was as follows:
2016 2015
Group £000 £000
Cost - 7,628
Accumulated depreciation - (1,305)
Net book amount - 6,323
Computer and other equipment Motor Vehicles Total
Company £000 £000 £000
Cost or valuation
At 1 January 2015 204 - 204
Additions 5 97 102
At 31 December 2015 209 97 306
Additions 5 - 5
At 31 December 2016 214 97 311
Accumulated depreciation
At 1 January 2015 (77) - (77)
Depreciation charge (3) (22) (25)
At 31 December 2015 (80) (22) (102)
Depreciation charge (2) (24) (26)
At 31 December 2016 (82) (46) (128)
Net book amount
At 31 December 2015 129 75 204
At 31 December 2016 132 51 183
29. Investment property
Total
Group £000
Purchase price 50,200
Acquisition costs 3,139
At 31 December 2016 53,339
Arbuthnot Latham & Co., Limited acquired premises in the West End of London (namely 20 King Street/10 St James's Street) on
23 June 2016. The property comprises 22,450 square feet of office space and approximately 7,000 square feet of retail
space. The property is held by way of leasehold from The Crown Estate Commissioners with 119 years unexpired and with a
review every five years.
The property, which is currently fully tenanted, generates annual rental income in excess of £1.8m. It is accounted for as
investment property and the Group has elected to apply the fair value model. It is therefore initially recognised at cost
and then subsequently at fair value. The fair value is determined using the rental income on the property and the
associated effective yield of similar properties in the surrounding area (see note 4.1(e)). At 31 December 2016 there was
no material difference between the cost of the property and the fair value. No property interests are held under operating
leases and accounted for as investment property. There was also no independent valuation done at year end.
The Group received £1.1m rental income during the year and incurred £0.1m of direct operating expenses.
30. Deposits from banks
2016 2015
Group £000 £000
Deposits from other banks 3,200 55,305
For a maturity profile of deposits from banks, refer to Note 6.
31. Deposits from customers
2016 2015
Group £000 £000
Current/demand accounts 610,512 499,022
Notice accounts 141,728 579,877
Term deposits 245,409 850,939
997,649 1,929,838
Included in customer accounts are deposits of £8,380,000 (2015: £4,195,000) held as collateral for loans and advances. The
fair value of these deposits approximates the carrying value.
For a maturity profile of deposits from customers, refer to Note 6.
32. Other liabilities
2016 2015
Group £000 £000
Trade payables 1,814 14,581
Accruals and deferred income 15,268 17,396
17,082 31,977
Financial Services Compensation Scheme Levy
In common with all regulated UK deposit takers, AL pays levies to the Financial Services Compensation Scheme ("FSCS") to
enable the FSCS to meet claims against the Scheme. The FSCS levy consists of two parts: a management expenses levy and a
more significant compensation levy. The management expenses levy covers the costs of running the scheme and the
compensation levy covers the amount of compensation and associated interest the scheme pays, net of any recoveries it makes
using the rights that have been assigned to it.
The Group's FSCS provision reflects market participation up to the reporting date and the accrual of £0.1m (2015: £0.3m)
relates to the interest levy for the scheme year 2016/17 which is payable in September 2017. This amount was calculated on
the basis of the Group's share of protected deposits and the FSCS's estimate of total interest levies payable for each
scheme year. The loan repayment relating to the scheme year 2016/17 was paid by the Group in September 2016.
Company £000 £000
Due to subsidiary undertakings 3,624 3,068
Accruals and deferred income 1,184 1,167
4,808 4,235
33. Debt securities in issue
2016 2015
Group and Company £000 £000
Subordinated loan notes 12,621 10,834
The subordinated loan notes were issued on 7 November 2005 and are denominated in Euros. The principal amount outstanding
at 31 December 2016 was E15,000,000 (2015: E15,000,000). 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
E15,000,000.
Given the fact that the Group has never been subject to a published credit rating by any of the relevant agencies and the
notes in issue are not quoted, it is not considered possible to approximate a fair value for these notes.
34. Contingent liabilities and commitments
Contingent liabilities
The Group is subject to extensive regulation in the conduct of its business. A failure to comply with applicable
regulations could result in regulatory investigations, fines and restrictions on some of the Group's business activities or
other sanctions. The Group seeks to minimise this risk through the adoption of compliance and other policies and
procedures, continuing to refine controls over business practices and behaviour, employee training, the use of appropriate
documentation, and the involvement of outside legal counsel where appropriate.
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