REG - Secure Trust BankArbuthnot Banking - Final Results for the year to 31 December 2015 <Origin Href="QuoteRef">ARBB.L</Origin> <Origin Href="QuoteRef">STBS.L</Origin> - Part 5
17/03/2016 07:06
- Part 5: For the preceding part double click ID:nRSQ3659Sd
94.4 432.0 37.8 - 1,033.1
Other liabilities - - - - - 29.4 29.4
Liabilities held for sale 8.7 - - - - - 8.7
Equity - - - - - 141.2 141.2
Total liabilities and equity 106.6 406.0 94.4 432.0 37.8 170.6 1,247.4
Interest rate sensitivity gap 320.7 (267.6) 77.8 88.9 (37.8) (182.0)
Cumulative gap 320.7 53.1 130.9 219.8 182.0 -
Group Within 3 months More than 3 months but less than 6 months More than 6 months but less than 1 year More than 1 year but less than 5 years More than 5 years Non interest bearing Total
As at 31 December 2014 £million £million £million £million £million £million £million
ASSETS
Cash 81.2 - - - - - 81.2
Loans and advances to banks 24.8 15.0 - - - - 39.8
Loans and advances to customers 102.1 69.9 114.2 366.8 0.2 (30.7) 622.5
Debt securities held-to-maturity 16.3 - - - - - 16.3
Other assets - - - - - 22.5 22.5
Total assets 224.4 84.9 114.2 366.8 0.2 (8.2) 782.3
LIABILITIES AND EQUITY
Due to banks 15.9 - - - - - 15.9
Deposits from customers 248.9 18.2 37.3 236.5 29.7 37.8 608.4
Other liabilities - - - - - 33.1 33.1
Equity - - - - - 124.9 124.9
Total liabilities and equity 264.8 18.2 37.3 236.5 29.7 195.8 782.3
Impact of derivative instruments (20.0) 20.0 - - - -
Interest rate sensitivity gap (60.4) 86.7 76.9 130.3 (29.5) (204.0)
Cumulative gap (60.4) 26.3 103.2 233.5 204.0 -
Company Within 3 months More than 3 months but less than 6 months More than 6 months but less than 1 year More than 1 year but less than 5 years More than 5 years Non interest bearing Total
As at 31 December 2015 £million £million £million £million £million £million £million
ASSETS
Cash and balances at central banks 131.8 - - - - - 131.8
Loans and advances to banks 9.2 - - - - - 9.2
Debt securities held-to-maturity 3.8 - - - - - 3.8
Loans and advances to customers 145.7 133.2 164.9 509.5 - (20.6) 932.7
Other assets - - - - - 157.7 157.7
Total assets 290.5 133.2 164.9 509.5 - 137.1 1,235.2
LIABILITIES AND EQUITY
Due to banks - 35.0 - - - 1.4 36.4
Deposits from customers 97.9 371.0 94.4 432.0 37.8 - 1,033.1
Other liabilities - - - - - 30.5 30.5
Equity - - - - - 135.2 135.2
Total liabilities and equity 97.9 406.0 94.4 432.0 37.8 167.1 1,235.2
Interest rate sensitivity gap 192.6 (272.8) 70.5 77.5 (37.8) (30.0)
Cumulative gap 192.6 (80.2) (9.7) 67.8 30.0 -
Company Within 3 months More than 3 months but less than 6 months More than 6 months but less than 1 year More than 1 year but less than 5 years More than 5 years Non interest bearing Total
As at 31 December 2014 £million £million £million £million £million £million £million
ASSETS
Cash and balances at central banks 81.2 - - - - - 81.2
Loans and advances to banks 22.9 15.0 - - - - 37.9
Loans and advances to customers 59.6 43.9 69.2 345.9 0.3 (18.8) 500.1
Debt securities held-to-maturity 16.3 - - - - - 16.3
Other assets - - - - - 125.2 125.2
Total assets 180.0 58.9 69.2 345.9 0.3 106.4 760.7
LIABILITIES AND EQUITY
Due to banks 15.9 - - - - - 15.9
Deposits from customers 248.9 18.2 37.3 236.5 29.7 37.8 608.4
Other liabilities - - - - - 23.7 23.7
Equity - - - - - 112.7 112.7
Total liabilities and equity 264.8 18.2 37.3 236.5 29.7 174.2 760.7
Impact of derivative instruments (20.0) 20.0 - - - -
Interest rate sensitivity gap (104.8) 60.7 31.9 109.4 (29.4) (67.8)
Cumulative gap (104.8) (44.1) (12.2) 97.2 67.8 -
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset.
The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity
to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Group's reputation. The liquidity requirements of the Group are met through withdrawing funds from
its Bank of England Reserve Account to cover any short-term fluctuations and, longer term funding to address any structural
liquidity requirements.
The Company has a formal governance structure in place to manage and mitigate liquidity risk on a day to day basis. The
Board sets and approves the Company's liquidity risk management strategy. The Assets and Liabilities Committee ('ALCO'),
comprising senior executives of the Company, monitors liquidity risk. Key liquidity risk management information is reported
by the Treasury function and monitored by the Chief Executive Officer and Chief Financial Officer on a daily basis. The
ALCO meets monthly to review liquidity risk against set thresholds and risk indicators including early warning indicators,
liquidity risk tolerance levels and ILAAP metrics.
The Group relies on deposits from customers. During the current year the Company issued over £172 million of fixed rate
deposit bonds to customers over terms ranging from 1 to 7 years. These were issued to broadly match the term lending by the
Company.
The PRA requires a firm to maintain at all times liquidity resources which are adequate, both as to amount and quality, to
ensure that there is no significant risk that its liabilities cannot be met as they fall due. There is also a requirement
that a firm ensures its liquidity resources contain an adequate buffer of high quality, unencumbered assets (i.e.
Government Securities in the liquidity asset buffer); and it maintains a prudent funding profile. The liquidity assets
buffer is a pool of highly liquid assets that can be called upon to create sufficient liquidity to meet liabilities on
demand, particularly in a period of liquidity stress. The liquidity resources outside the buffer must either be marketable
assets with a demonstrable secondary market that the firm can access, or a credit facility that can be activated in times
of stress.
The Group has a Board approved ILAAP. The liquidity buffer required by the ILAAP has been put in place and maintained since
that time. Liquidity resources outside of the buffer are made up of deposits placed at the Bank of England. The ILAAP is
updated annually.
The Liquidity Coverage Ratio (LCR) regime has applied to the Group from 1 October 2015, requiring management of net 30 day
cash outflows as a proportion of high quality liquid assets. STB has set a more prudent internal limit. The actual LCR has
significantly exceeded both limits throughout the year.
The Group is exposed to daily calls on its available cash resources from current accounts, maturing deposits and loan
draw-downs. The Group maintains significant cash resources to meet all of these needs as they fall due.
The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to
the management of the Group. It is unusual for banks to be completely matched, as transacted business is often of uncertain
term and of different types.
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.
The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers.
For this purpose net liquid assets are considered to be loans and advances to banks and cash and balances at central banks.
At the year end this ratio was 14.1% (2014: 19.9%).
The tables below analyse the contractual undiscounted cash flows for the Group's financial liabilities and assets into relevant maturity groupings:
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 £million £million £million £million £million £million
Non-derivative financial liabilities
Due to banks (35.0) (35.0) (35.0) - - -
Deposits from customers (1,033.1) (1,078.0) (442.9) (142.7) (449.5) (42.9)
Other financial liabilities (13.8) (13.8) (13.8) - - -
Liabilities held for sale (8.7) (8.7) (8.7) - - -
(1,090.6) (1,135.5) (500.4) (142.7) (449.5) (42.9)
Non-derivative financial assets
Cash and balances at central banks 131.8 131.8 131.8 - - -
Loans and advances to banks 9.8 9.8 9.8 - - -
Debt securities held to maturity 3.8 3.8 3.8 - - -
Loans and advances to customers 960.6 1,194.5 130.8 335.6 728.1 -
Other financial assets 2.9 2.9 2.9 - - -
Assets held for sale 118.5 118.5 118.5
1,227.4 1,461.3 397.6 335.6 728.1 -
Liquidity mismatch 136.8 325.8 (102.8) 192.9 278.6 (42.9)
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 £million £million £million £million £million £million
Non-derivative financial liabilities
Due to banks (15.9) (15.9) (15.9) - - -
Deposits from customers (608.4) (635.2) (87.3) (257.6) (255.0) (35.3)
Other financial liabilities (17.8) (17.8) (17.8) - - -
(642.1) (668.9) (121.0) (257.6) (255.0) (35.3)
Non-derivative financial assets
Cash and balances at central banks 81.2 81.2 81.2 - - -
Loans and advances to banks 39.8 39.8 24.8 15.0 - -
Debt securities held to maturity 16.3 16.3 11.3 5.0 - -
Loans and advances to customers 622.5 788.4 109.9 186.2 486.1 6.2
759.8 925.7 227.2 206.2 486.1 6.2
Liquidity mismatch 117.7 256.8 106.2 (51.4) 231.1 (29.1)
The tables below analyse the contractual undiscounted cash flows for the Company's financial liabilities and assets into relevant maturity groupings:
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 £million £million £million £million £million £million
Non-derivative financial liabilities
Due to banks (36.4) (36.4) (36.4) - - -
Deposits from customers (1,033.1) (1,078.0) (442.9) (142.7) (449.5) (42.9)
Other financial liabilities (8.3) (8.3) (8.3) - - -
(1,077.8) (1,122.7) (487.6) (142.7) (449.5) (42.9)
Non-derivative financial assets
Cash and balances at central banks 131.8 131.8 131.8 - - -
Loans and advances to banks 9.2 9.2 9.2 - - -
Debt securities held to maturity 3.8 3.8 3.8 - - -
Loans and advances to customers 932.7 1,160.9 127.1 321.7 712.1 -
Other assets 1.4 1.4 1.4 - - -
1,078.9 1,307.1 273.3 321.7 712.1 -
Liquidity mismatch 1.1 184.4 (214.3) 179.0 262.6 (42.9)
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 £million £million £million £million £million £million
Non-derivative financial liabilities
Due to banks (15.9) (15.9) (15.9) - - -
Deposits from customers (608.4) (635.2) (87.3) (257.6) (255.0) (35.3)
Other financial liabilities (15.5) (15.5) (15.5) - - -
(639.8) (666.6) (118.7) (257.6) (255.0) (35.3)
Non-derivative financial assets
Cash and balances at central banks 81.2 81.2 81.2 - - -
Loans and advances to banks 37.9 37.9 22.9 15.0 - -
Loans and advances to customers 500.1 622.5 68.2 172.5 381.8 -
Debt securities held to maturity 16.3 16.3 11.3 5.0 - -
635.5 757.9 183.6 192.5 381.8 -
Liquidity mismatch (4.3) 91.3 64.9 (65.1) 126.8 (35.3)
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest bearing financial
liabilities as they mature are important factors in assessing the liquidity of the Company and Group and its exposure to
changes in interest rates and exchange rates.
Other financial liabilities, as shown above, do not include non-interest accruals as these are not classed as financial
liabilities.
(d) Operational risk (unaudited)
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's
processes, personnel, technology and infrastructure, and from external factors other than the risks identified above.
Operational risks arise from all of the Group's operations.
The Group's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the
Group's reputation with overall cost effectiveness and innovation. In all cases, the Group's policy requires compliance
with all applicable legal and regulatory requirements.
The Corporate Governance statement describes the Group's system of internal controls which are used to mitigate against
operational risk. An operational risk department within the Bank also supports and provides assurance to the business in
recognising, assessing and managing risk. Compliance with Group standards is supported by a programme of periodic reviews
undertaken by an internal audit function. The results of the internal audit reviews are discussed with the Company's senior
management with summaries submitted to the Group Audit Committee.
6. Capital management
The Group's capital management policy is focused on optimising shareholder value, in a safe and sustainable manner. There
is a clear focus on delivering organic growth and ensuring capital resources are sufficient to support planned levels of
growth. The Board regularly reviews the capital position.
In accordance with the EU's Capital Requirements Directive IV (CRD IV) and the required parameters set out in the EU's
Capital Requirements Regulation (CRR), the Group's Internal Capital Adequacy Assessment Process (ICAAP), which is
aggregated into the Arbuthnot Banking Group's ICAAP, is embedded in the risk management framework of the Group and is
subject to ongoing updates and revisions when necessary. However, at a minimum, the ICAAP is updated annually as part of
the business planning process. The ICAAP is a process that brings together the management framework (i.e. the policies,
procedures, strategies, and systems that the Group has implemented to identify, manage and mitigate its risks) and the
financial disciplines of business planning and capital management.
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 it is considered that the Pillar 1 calculations do not reflect the risk, an additional capital add-on in Pillar 2
should be applied, as per the Individual Capital Guidance (ICG) issued by the PRA.
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 would allow market participants to
assess key pieces of information on a firm's capital, risk exposures and risk assessment processes. Pillar 3 disclosures
for the Arbuthnot Banking Group for the year ended 31 December 2015 are published as a separate document on the Arbuthnot
Banking Group website.
The following table shows the regulatory capital resources as managed by the solo-consolidated Group: 2015 2014
£million £million
Tier 1
Share capital 7.3 7.3
Share premium 79.3 79.3
Retained earnings 53.1 38.7
Revaluation reserve 0.2 0.2
Goodwill (0.3) (0.3)
Intangible assets net of attributable deferred tax (3.8) (2.8)
Deferred tax assets due to losses - (1.0)
Common Equity Tier 1 capital 135.8 121.4
Tier 2
Collective allowance for impairment of loans and advances 3.1 2.0
Total Tier 2 capital 3.1 2.0
Own Funds 138.9 123.4
Reconciliation to total equity:
Goodwill and other intangible assets net of attributable deferred tax 4.1 3.1
Collective allowance for impairment of loans and advances (3.1) (2.0)
Deferred tax assets due to losses - 1.0
Net cumulative profits/(losses) of non-solo consolidated entities 1.3 (0.6)
Total equity 141.2 124.9
The Group forms part of the Arbuthnot Banking Group's ICAAP which 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% 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. The Group maintains an extra internal buffer
and capital ratios are reviewed on a monthly basis to ensure that external and internal requirements are adhered to.
7. Net interest income
2015 2014
£million £million
Cash and balances at central banks 0.7 0.3
Loans and advances to banks 0.2 0.1
Loans and advances to customers 99.6 62.8
Debt securities held-to-maturity - 0.2
Interest receivable and similar income 100.5 63.4
Deposits from customers (21.6) (14.2)
Interest expense and similar charges (21.6) (14.2)
Net interest income 78.9 49.2
Net interest income shown above excludes £39.2 million (2014: £30.2 million) of interest on loans and advances to customers
in respect of discontinued operations, as shown in note 33.
In the previous year £0.2 million of interest income arising from debt securities held-to-maturity was included as interest
income on loans and advances to banks.
8. Operating expenses
2015 2015 2015 2014 2014 2014
Continuing Discontinued Total Continuing Discontinued Total
£million £million £million £million £million £million
Staff costs, including those of directors:
Wages and salaries 24.7 10.0 34.7 16.4 9.3 25.7
Social security costs 2.6 1.1 3.7 1.3 1.1 2.4
Pension costs 0.7 0.6 1.3 0.4 0.5 0.9
Share based payment transactions 1.4 - 1.4 1.5 - 1.5
Depreciation of property, plant and equipment (Note 18) 0.5 0.1 0.6 0.4 0.1 0.5
Amortisation of intangible assets (Note 16) 1.4 0.9 2.3 1.2 1.3 2.5
Operating lease rentals 1.2 0.8 2.0 0.7 0.9 1.6
Other administrative expenses 18.0 7.7 25.7 15.6 5.8 21.4
Total operating expenses 50.5 21.2 71.7 37.5 19.0 56.5
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 190 138
Fees payable to the Company's auditor for other services:
The audit of the Company's subsidiaries, pursuant to legislation 122 115
Audit related assurance services 21 17
Tax advisory services 49 47
Corporate finance services - 115
All other non-audit services 146 292
528 724
All other non-audit services incurred during 2014 included £183,000 relating to advice received on the transitioning of consumer credit licencing from the Office of Fair Trading to the Financial Conduct Authority.
9. Average number of employees
2015 2014
Directors 7 7
Management 78 69
Administration 621 532
Total 706 608
10. Income tax expense
2015 2015 2015 2014 2014 2014
Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total
Current taxation £million £million £million £million £million £million
Corporation tax charge - current year 5.4 2.5 7.9 3.3 1.9 5.2
Corporation tax charge - adjustments in respect of prior years 0.6 (1.0) (0.4) - - -
6.0 1.5 7.5 3.3 1.9 5.2
Deferred taxation
Deferred tax charge - current year (0.5) (0.1) (0.6) 0.2 - 0.2
Deferred tax charge - adjustments in respect of prior years - 0.9 0.9 0.1 0.1 0.2
(0.5) 0.8 0.3 0.3 0.1 0.4
Income tax expense 5.5 2.3 7.8 3.6 2.0 5.6
Tax reconciliation
Profit before tax 24.8 11.7 36.5 17.5 8.6 26.1
Tax at 20.25% (2014: 21.5%) 5.0 2.4 7.4 3.8 1.8 5.6
Permanent differences (0.3) - (0.3) (0.2) - (0.2)
Prior period adjustments 0.8 (0.1) 0.7 - 0.2 0.2
Income tax expense for the year 5.5 2.3 7.8 3.6 2.0 5.6
At 31 December 2015 the Group had accumulated tax losses of £nil (2014: £5.0 million). These tax losses were recovered in
the current year, consequently the Group has no longer recognised a deferred tax asset (2014: £1.0 million).
On 2 July 2013 the Government substantively enacted a reduction in the main rate of UK corporation tax from 23% to 21% with
effect from 1 April 2014 and then from 21% to 20% with effect from 1 April 2015. Further reductions to 19% (effective from
1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015.This will reduce the
Company's future current tax charge accordingly.
11. Earnings per ordinary share
Basic
Basic earnings per ordinary share are calculated by dividing the profit attributable to equity holders of the parent of
£28.7 million (2014: £20.5 million) by the weighted average number of ordinary shares 18,191,894 (2014: 16,725,876) in
issue during the year.
Diluted
Diluted earnings per ordinary share are calculated by dividing the profit attributable to equity holders of the parent of
£28.7 million (2014: £20.5 million) by the weighted average number of ordinary shares in issue during the year, as noted
above, as well as the number of dilutive share options in issue during the year.
The number of dilutive shares in issue at the year end was 352,147, being based on the number of options granted of
460,419, the exercise price of 720 pence per option and the average share price during the year of 3,061.75 pence.
12. Loans and advances to banks
2015 2014
Group
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