REG - Arbuthnot BankingSecure Trust Bank - Final Results for the year to 31 December 2015 <Origin Href="QuoteRef">ARBB.L</Origin> <Origin Href="QuoteRef">STBS.L</Origin> - Part 6
17/03/2016 07:05
- Part 6: For the preceding part double click ID:nRSQ3559Se
- - -
12,569 12,569 11,965 - 125 479
The table below analyses the contractual maturity analysis of the Company's financial liabilities and assets as at 31 December 2014:
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 2014 £000 £000 £000 £000 £000 £000
Financial liability by type
Non-derivative liabilities
Other liabilities 3,028 (3,028) (1,438) (125) - (1,465)
Debt securities in issue 11,448 (13,248) (90) (270) (1,440) (11,448)
14,476 (16,276) (1,528) (395) (1,440) (12,913)
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 2014 £000 £000 £000 £000 £000 £000
Financial asset by type
Non-derivative assets
Due from subsidiary undertakings - bank balances 19,244 19,244 3,776 15,000 - 468
Financial investments 158 158 - - 158 -
Other assets 5,365 5,365 5,365 - - -
24,767 24,767 9,141 15,000 158 468
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 £739m (2014: £666m). 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 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
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 2014 £000 £000 £000 £000 £000 £000 £000
ASSETS
Cash and balances at central banks - - 115,938 - - 115,938 115,938
Loans and advances to banks - - 31,844 - - 31,844 31,844
Debt securities held-to-maturity - 91,683 - - - 91,683 91,683
Derivative financial instruments 2,707 - - - - 2,707 2,707
Loans and advances to customers - - 1,158,983 - - 1,158,983 1,162,554
Other assets - - 5,522 - - 5,522 5,522
Financial investments 171 - - 1,106 - 1,277 1,277
2,878 91,683 1,312,287 1,106 - 1,407,954 1,411,525
LIABILITIES
Deposits from banks - - - - 27,657 27,657 27,657
Derivative financial instruments 1,067 - - - - 1,067 1,067
Deposits from customers - - - - 1,194,285 1,194,285 1,203,613
Other liabilities - - 12,024 - - 12,024 12,024
Debt securities in issue - - - - 11,448 11,448 11,448
1,067 - 12,024 - 1,233,390 1,246,481 1,255,809
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 39.
Not all material risks can be mitigated by capital, but where capital is appropriate the Board has adopted a "Pillar 1
plus" approach to determine the level of capital the Group needs to hold. This method takes the Pillar 1 capital formula
calculations (standardised approach for credit, market and operational risk) as a starting point, and then considers
whether each of the calculations delivers a sufficient capital sum adequately to cover management's anticipated risks.
Where the Board considered that the Pillar 1 calculations did not reflect the risk, an additional capital add-on in Pillar
2 is applied, as per the Individual Capital Guidance (ICG) issued by the PRA.
The Group's regulatory capital is divided into two tiers:
• Tier 1 comprises mainly shareholders' funds, non-controlling interests and revaluation reserves, after deducting goodwill
and
other intangible assets.
• Lower Tier 2 comprises qualifying subordinated loan capital and collective provisions. Lower Tier 2 capital cannot exceed
50%
of Tier 1 capital.
The following table shows the regulatory capital resources as managed by the Group:
2015 2014
£000 £000
Tier 1
Share capital 153 153
Retained earnings 123,330 114,641
Other reserves (1,111) (1,111)
Non-controlling interests 67,887 60,038
Deduction for non-controlling interests (23,047) (28,835)
Goodwill (2,695) (2,695)
Deductions for other intangibles (8,179) (8,623)
Revaluation reserve 1,145 (152)
Total tier 1 capital resources 157,483 133,416
Tier 2
Collective provisions 2,031 2,031
Debt securities in issue 10,834 11,448
Total tier 2 capital resources 12,865 13,479
Total tier 1 & tier 2 capital resources 170,348 146,895
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 2015 are published as a separate document on the Group website under Investor
Relations (Announcements & Shareholder Info).
8. Interest income
Re-presented*
2015 2014
£000 £000
Cash and balances at central banks 1,351 1,026
Loans and advances to banks 240 52
Debt securities held-to-maturity 567 530
Loans and advances to customers 130,874 85,790
133,032 87,398
* Prior year numbers have been re-presented to exclude discontinuing operations (see note 11).
9. Fee and commission income
Re-presented*
2015 2014
£000 £000
Banking commissions 1,666 5,014
Trust and other fiduciary fee income 5,946 5,210
Financial Planning fees and commissions 1,969 1,557
Structured product commissions - 1,218
Other fee income** 17,285 12,842
26,866 25,841
* Prior year numbers have been re-presented to exclude discontinuing operations (see note 11).
** This mainly includes fee and commission income received on OneBill, insurance sales and commission earned on debt recovery activities at Secure Trust Bank.
10. Net impairment loss on financial assets
Re-presented*
2015 2014
£000 £000
Net Impairment losses on loans and advances to customers 18,032 11,606
Impairment losses on financial investments 34 347
18,066 11,953
* Prior year numbers have been re-presented to exclude discontinuing operations (see note 11).
11. Discontinued operations
On 4 December 2015 Secure Trust Bank agreed to the conditional sale of its non-standard consumer lending business, Everyday
Loans Group (ELG), which comprises Everyday Loans Holdings Limited and subsidiary companies Everyday Lending Limited and
Everyday Loans Limited, to Non Standard Finance PLC (NSF) for £107 million in cash subject to a net asset adjustment and
£20 million in NSF ordinary shares. The Disposal is conditional on NSF shareholder approval of its equity fundraising,
admission of the new NSF shares to the main market of the London Stock Exchange, regulatory approval and satisfaction of
the conditions to the NSF financing. Completion is expected by 30 April 2016. On completion, NSF will repay the current
intercompany debt of £108 million to STB.
Year ended 31 December Year ended 31 December
2015 2014
Note £000 £000
Interest income 39,230 30,226
Net interest income 39,230 30,226
Fee and commission income 1,523 4,122
Fee and commission expense (358) (111)
Net fee and commission income 1,165 4,011
Operating income 40,395 34,237
Impairment of LTIP loans, illiquid stocks and outstanding receivable (7,537) (6,638)
Operating expenses (21,195) (19,016)
Profit before tax 11,663 8,583
Tax expense (2,271) (2,054)
Profit after tax 9,392 6,529
Profit attributable to:
Equity holders of the Company 4,876 3,390
Non-controlling interests 4,516 3,139
Profit after tax 9,392 6,529
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 15 33.1 26.1
- diluted 15 32.1 24.5
Assets classified as held for sale 2015
£000
Loans and advances to banks 1,661
Loans and advances to customers 114,266
Other assets 509
Intangible assets 1,182
Property, plant and equipment 448
Deferred tax asset 390
118,456
Liabilities relating to assets classified as held for sale 2015
£000
Current tax liability 3,383
Other liabilities 5,317
8,700
Cash flow from discontinued operations Year ended 31 December Year ended 31 December
2015 2014
Note £000 £000
Cash flows from operating activities
Interest received 40,595 33,727
Fees and commissions received 1,165 4,511
Cash payments to employees and suppliers (21,197) (18,313)
Taxation (paid)/received (130) -
Cash flows from operating profits before changes in operating assets and liabilities 20,433 19,925
Changes in operating assets and liabilities:
- net increase in loans and advances to customers (27,788) (22,070)
- net decrease in other assets 654 60
- net increase in other liabilities 7,027 3,010
Net cash inflow from operating activities 326 925
Cash flows from investing activities
Purchase of computer software 26 (33) (43)
Purchase of property, plant and equipment 27 (253) (80)
Net cash from investing activities (286) (123)
Cash flows from financing activities
Increase in borrowings
Dividends paid
Net increase in cash and cash equivalents 40 802
Cash and cash equivalents at 1 January 1,621 819
Cash and cash equivalents at 31 December 37 1,661 1,621
12. Operating expenses
Re-presented*
2015 2014
Operating expenses comprise: £000 £000
Staff costs, including Directors:
Wages and salaries 43,094 31,748
Social security costs 4,195 3,120
Pension costs 1,663 1,269
Share based payment transactions (note 35) 1,889 1,583
Amortisation of intangibles (note 26) 1,824 1,688
Depreciation (note 27) 1,323 685
Financial Services Compensation Scheme Levy 160 -
Operating lease rentals 3,167 4,254
Acquisitions costs 422 198
Other administrative expenses 28,322 21,620
Total operating expenses from continuing operations 86,059 66,165
* Prior year numbers have been re-presented to exclude discontinuing operations (see note 11).
Details on Directors remuneration is disclosed in the Remuneration Report on page 23.
2015 2014
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 95 95
Fees payable to the Company's auditor and its associates for other services:
Audit of the accounts of subsidiaries 399 329
Audit related assurance services 82 65
Taxation compliance services 114 82
Taxation advisory services 48 61
Other assurance services 87 321
Corporate finance services - 115
Other non-audit services 59 13
Total fees payable 884 1,081
Other assurance services include regulatory assessments. Corporate finance services include due diligence work on a
potential corporate transaction.
13. Average number of employees
2015 2014
Retail banking 706 608
Private banking 210 175
Group 21 17
937 800
14. Income tax expense
2015 2014
United Kingdom corporation tax at 20.25% (2014: 21.5%) £000 £000
Current taxation
Corporation tax charge - current year 5,492 3,318
Corporation tax charge - adjustments in respect of prior years 648 43
6,140 3,361
Deferred taxation
Origination and reversal of temporary differences (627) 366
Adjustments in respect of prior years (77) (283)
(704) 83
Income tax expense 5,436 3,444
Tax reconciliation
Profit before tax 22,568 13,931
Tax at 20.25% (2014: 21.5%) 4,570 2,995
Permanent differences 288 630
Tax rate change 8 59
Prior period adjustments 570 (240)
Corporation tax charge for the year 5,436 3,444
A tax charge of £0.3m was recognised in other comprehensive income during the year (2014: £nil) in respect of available for
sale financial investments.
Prior year adjustments mainly relate to the reallocation of costs between continuing and discontinuing operations.
The tax charge on discontinuing operations is disclosed in note 11.
The UK corporation tax rate reduced from 23% to 21% with effect from 1 April 2014 and 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 18% 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 will be 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.
15. 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 (2014: 14,738,548) in issue during the year. The
weighted average number of ordinary shares has been restated for 2014 from 15,279,322, after taking into account treasury
shares (390,274) and shares held in an ESOP trust (150,500).
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 200,000
(2014: 187,500).
2015 2014
Profit attributable £000 £000
Total profit after tax attributable to equity holders of the Company 12,726 8,634
Profit after tax from continuing operations attributable to equity holders of the Company 7,850 4,780
Profit after tax from discontinuing operations attributable to equity holders of the Company 4,876 3,854
2015 2014
Dilutive profit attributable £000 £000
Total profit after tax attributable to equity holders of the Company 12,448 7,884
Profit after tax from continuing operations attributable to equity holders of the Company 7,663 4,269
Profit after tax from discontinuing operations attributable to equity holders of the Company 4,785 3,615
2015 2014
Basic Earnings per share p p
Total Basic Earnings per share 86.3 58.6
Basic Earnings per share from continuing operations 53.3 32.4
Basic Earnings per share from discontinuing operations 33.1 26.1
2015 2014
Diluted Earnings per share p p
Total Diluted Earnings per share 83.3 52.8
Diluted Earnings per share from continuing operations 51.3 28.6
Diluted Earnings per share from discontinuing operations 32.0 24.2
16. Cash and balances at central banks
2015 2014
Group £000 £000
Cash and balances at central banks 368,611 115,938
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).
17. Loans and advances to banks
2015 2014
Group £000 £000
Placements with banks included in cash and cash equivalents (note 37) 28,578 31,844
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:
2015 2014
Group £000 £000
Aa1 220 -
A1 15,972 3,216
A2 6,258 26,242
A3 5,366 -
Baa1 762 2,386
28,578 31,844
None of the loans and advances to banks are either past due or impaired.
18. Debt securities held-to-maturity
Debt securities represent certificates of deposit. The Group's intention is to hold them to maturity and, therefore, they
are stated in the Statement of Financial Position at amortised cost.
The movement in debt securities held to maturity may be summarised as follows:
2015 2014
Group £000 £000
At 1 January 91,683 19,466
Exchange difference on monetary assets 808 188
Additions 145,880 85,244
Redemptions (150,643) (13,215)
At 31 December 87,728 91,683
The table below presents an analysis of debt securities by rating agency designation at 31 December, based on Moody's long term ratings:
2015 2014
Group £000 £000
Aaa 42,618 48,714
Aa1 23,317 22,284
Aa2 8,913 5,001
Aa3 1 3,747
A1 6,311 3,922
A2 4,554 3,507
A3 2,000 -
Baa1 14 4,508
87,728 91,683
None of the debt securities held-to-maturity are either past due or impaired.
19. Derivative financial instruments
2015 2014
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 34,459 59 135 81,898 1,209 1,067
Interest rate caps - - - 20,000 - -
Structured notes 1,607 1,431 - 1,607 1,498 -
36,066 1,490 135 103,505 2,707 1,067
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 indicies) and non-derivative host contracts (discounted bonds). Both the host and embedded
derivatives are presented net within derivative financial instruments.
The Group only uses investment graded banks as counterparties for derivative financial instruments. None of the contracts
are collateralised.
The table below presents an analysis of derivative financial instruments contract/notional amounts by rating agency designation of
- More to follow, for following part double click ID:nRSQ3559SgRecent 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