TIDMARBB
RNS Number : 7449F
Arbuthnot Banking Group PLC
20 July 2021
20 July 2021
For immediate release
ARBUTHNOT BANKING GROUP PLC ("Arbuthnot", "the Company", "the
Group" or "ABG")
Unaudited results for the six months to 30 June 2021
and
Interim Dividend Declaration
Arbuthnot Banking Group PLC is pleased to announce a half yearly
profit before tax of GBP3.0m compared to GBP0.2m in the prior
year.
Arbuthnot Banking Group PLC is the holding company for Arbuthnot
Latham & Co., Limited.
FINANCIAL HIGHLIGHTS
-- Profit before tax of GBP3.0m (30 June 2020: GBP0.2m)
-- Net bargain purchase from the acquisition of Asset Alliance
Group Holdings Ltd ("Asset Alliance") of GBP8.7m*
-- Special dividend paid in March of 21p per share
-- Second interim dividend declared of 16p per share
-- Capital surplus of GBP52.8m (31 December 2020: GBP84.2m)
-- CET1 capital ratio of 12.5% (31 December 2020: 15.4%) and
total capital ratio of 15.2% (31 December 2020: 18.7%)
-- Liquidity surplus of GBP526m in excess of the minimum regulatory requirement
-- Earnings per share 27.2p (30 June 2020: 0.9p)
-- Net assets per share of GBP12.92 (30 June 2020: GBP12.48; 31 December 2020: GBP12.70)
OPERATIONAL HIGHLIGHTS
-- Customer loans of GBP1,726m (30 June 2020: GBP1,565m; 31
December 2020: GBP1,536m)** increased by 12% in the first half of
the year
-- Completed the acquisition of Asset Alliance with integration
progressing well, adding GBP132.3m of leased assets to the balance
sheet
-- Customer deposits of GBP2,643m (30 June 2020: GBP2,207m; 31
December 2020: GBP2,365m) increased by 12% in the first half of the
year
-- Assets under management GBP1,223m (30 June 2020: GBP1,074m;
31 December 2020: GBP1,147m) increased by 7% in the first half of
the year
-- Accredited in March 2021 to provide Government supported Recovery Loans "RLS"
*The net bargain purchase is recorded in the Income Statement
and is the difference between the GBP10m purchase price paid for
Asset Alliance and the adjusted fair value of the assets and
liabilities of the business, which totalled GBP18.7m. This may be
subject to further review and revision in the remaining months of
the year.
**Comparative results adjusted for the sale of Tay residential
mortgage portfolio that was sold in February 2021
Commenting on the results, Sir Henry Angest, Chairman and Chief
Executive of Arbuthnot, said: "During the first half of 2021 the
Group has returned to growth across its businesses and restored
profitability despite the ongoing low interest rate environment.
The acquisition of Asset Alliance is a significant step in our
strategy to diversify further through the development of specialist
commercial finance businesses. The declaration of an interim
dividend at the same level as in 2019 is an indication of our
confidence for the future prospects of the Group."
Interim Dividend
The interim dividend of 16p per share will be paid on 24
September 2021 to shareholders on the register at the close of
business on 27 August 2021.
The full set of interim results are available at
http://www.arbuthnotgroup.com .
The Directors of the Company accept responsibility for the
contents of this announcement.
The information contained within this announcement is deemed to
constitute inside information as stipulated under Market Abuse
Regulations (EU) No. 596/2014 which is part of UK law by virtue of
the European Union (Withdrawal) Act 2018 . Upon the publication of
this announcement, this is now considered to be in the public
domain.
ENQUIRIES:
020 7012
Arbuthnot Banking Group 2400
Sir Henry Angest, Chairman and Chief Executive
Andrew Salmon, Group Chief Operating Officer
James Cobb, Group Finance Director
Grant Thornton UK LLP (Nominated Adviser and AQSE Corporate 020 7383
Adviser) 5100
Colin Aaronson
Samantha Harrison
George Grainger
020 7260
Numis Securities Ltd (Joint Broker) 1000
Stephen Westgate
020 7408
Shore Capital (Joint Broker) 4090
Hugh Morgan
Daniel Bush
020 7379
Maitland/AMO (Financial PR) 5151
Neil Bennett
Sam Cartwright
Chairman's Statement
Arbuthnot Banking Group PLC
The Group has made a good start to the year with progress being
made in all of the businesses. This, despite the fact that the
majority of the Group's employees have remained working remotely
throughout the first six months of the year.
Following our decision in March 2020 to effectively cease
lending, our balance sheet saw no growth along with reduced levels
of new loan originations. This situation has reversed in 2021 with
new loan originations in the first six months totalling GBP392.3m.
This resulted in the Group's customer loan balances increasing by
9% to GBP1.73bn and in addition to this we now have GBP132.3m of
leased assets following the acquisition of Asset Alliance Group
Holdings Limited ("AAGH" or "Asset Alliance") on 31 March 2021. In
April Arbuthnot Latham & Co., Limited ("AL" or "Arbuthnot
Latham") had total assets in excess of GBP3.1bn for the first time
in its history.
The growth trajectory of the loans together with the leased
assets should see the Group end the year with customer assets at
the levels we had forecasted for 2021 prior to the pandemic.
The Group's ability to continue to attract quality customer
deposits remains key to the future success of our strategy. The
Bank made significant progress with this key objective and ended
the first half of 2021 with surplus liquidity of GBP526m in excess
of the minimum regulatory requirement of GBP378m. This is despite
funding both the loan book growth and the acquisition of AAGH.
During the first six months, customer deposits grew by 12% from
the year-end and 20% from 30 June 2020 to close at GBP2.64bn. The
average cost of deposits now stand at 37 basis points ("bps"),
compared to 78bps prior to the reduction in base rate following the
start of the pandemic.
The acquisition of AAGH is a significant addition to the Group
and complements our continued diversification and a move away from
consumer finance to specialist commercial finance.
The final agreed purchase price was GBP10m and when this is
compared to the adjusted fair value of the assets and liabilities
of the business, which totalled GBP18.7m, it results in a bargain
purchase of GBP8.7m which is recorded in the Income Statement.
These numbers may be subject to further review and revision in the
remaining months of the year.
The most significant fair value adjustment arose from the
valuation of the leased truck fleet. The market for second hand
trucks has seen large increases in value resulting from the
shortage of supply of new trucks, which has been caused by the
global scarcity of computer chips used in the manufacture of
vehicles. Thus, the adjustment to the asset values was an increase
of 15.95% on the carrying value. This totalled approximately
GBP19m. The fact that the truck fleet has effectively been marked
to market, resulted in future profit on sale of trucks being
recognised upfront and will not therefore re-emerge in the results
of AAGH until the back book of trucks has been sold over the next
two to three years.
Also, the truck shortage has slowed the ability of AAGH to
return to growth, given the new funding supply it now enjoys. AAGH
has strong purchasing power and the availability of new trucks is
starting to improve, but the relative shortage will delay the
business growth plans by 6-12 months.
At the outset of the pandemic we were determined to support the
economy in any way we could and accordingly we applied and were
accredited to the Government loan schemes; Coronavirus Business
Interruption Loan Scheme ("CBILs") and Bounce Back Loan Scheme
("BBLs"). We were pleased in April to also be accredited to the new
Government scheme; the Recovery Loan Scheme ("RLS").
In 2020 the Group adjusted its IFRS9 economic scenarios to
measure a 5.5% fall in residential property values. This remains
unaltered in 2021 despite the increased property values recorded in
the first six months of the year. We prefer to remain cautious as
we await the impact of the withdrawal of the Government support
packages, including the reduction of stamp duty on house
purchases.
The Renaissance Asset Finance ("RAF") business continues to
monitor its exposure to the London Taxi market, which is showing
signs of recovery but remains some way from full capacity. The
value of loans under active forbearance measures, excluding
re-written loans, now stands at GBP7.1m, which is down from
GBP15.2m at the year ended 31 December 2020.
On 19 March 2021 the Group paid a special dividend of 21p per
share to replace the dividend that was withdrawn at the request of
the regulators at the outset of the pandemic. However, no dividend
was paid in respect of earnings for 2020. This seemed an equitable
share of the risks and rewards as the employees of the Group
received no bonuses or pay rises in the same year.
In trying to restore this equilibrium now that the future
prospects of the business are positive, the Group is declaring an
interim dividend at the same level as paid in 2019 of 16p per
share, to be paid on 24 September 2021 to shareholders on the
register at the close of business on 27 August 2021. At the same
time, the business has recorded a provision for bonuses at the same
level as paid in 2019. It is the Bank's intention to return to
fully operational offices in early September, following the
relaxation in government guidelines, with measures planned over the
summer to ensure a smooth and safe transition for both clients and
staff.
Arbuthnot Latham & Co., Limited
Arbuthnot Latham has reported a profit before tax for the first
half of the year of GBP3.0m (30 June 2020: GBP5.0m).
The Bank has now returned to growth and is restoring its
profitability. However, the earnings continue to be held back by
the continued low interest rate environment introduced as part of
the emergency support package to protect the economy during the
pandemic. This low rate has cost the Bank GBP8.4m in the first six
months, assuming a base rate of 75bps.
Total assets of the Bank have increased to GBP3.16bn (30 June
2020: GBP2.70bn), an increase of 17%. Customer loans ended the
first half at GBP1.73bn (30 June 2020: GBP1.62bn), an increase of
7% and 9% higher than the balance reported at the 2020 year-end.
During the half year, the Bank originated new loans of GBP392.3m
(30 June 2020: GBP193m).
The Bank grew its asset base from the year-end despite the sale
of the Tay retail mortgage portfolio, which comprised balances
totalling GBP54.9m. The portfolio was sold for a consideration of
GBP53.8m representing 97.9% of customer balances. The portfolio was
acquired at a discount in 2014. Upon sale of the portfolio the
unamortised discount was realised, resulting in a net profit after
professional fees of GBP2.1m.
Also included in the result is an accrual for staff bonuses of
GBP6.5m. In order to conserve capital during the height of the
global pandemic no discretionary bonuses were awarded for the year
ending 31 December 2020. However, due to the expected return to
profitability for 2021, the Bank intends to reward its staff for
their hard work and dedication over the period. Bonuses will be
paid after the year-end and in line with the Bank's standard
remuneration and award cycle.
The Bank continued to grow its deposit base, ensuring adequate
liquidity is maintained following the funding of the Asset Alliance
acquisition. As at 30 June 2021, customer deposits were GBP2.64bn
(30 June 2020: GBP2.21bn), an increase of 20% on the prior year and
an increase of 12% from the levels at the 2020 year-end.
Despite the volatility in the markets, Assets under Management
("AuM") increased to GBP1.22bn (30 June 2020: GBP1.07bn).
Banking
The Banking division has reported a profit before tax of GBP0.1m
(30 June 2020: profit of GBP4.8m), with lending balances totalling
GBP1.28bn and deposits of GBP2.43bn. The reduction in profitability
is largely due to bonus accruals which were not included in the
prior period.
The business continued to grow in the first half of 2021,
transforming prospects and pipeline into client balances whilst
supporting its existing clients' aspirations as the economy
tentatively emerges from the pandemic.
In the opening months of 2021, new client acquisitions were
again greater than the prior year. Growth was generated by both
Private and Commercial Banking, whilst at the same time the
business continued to support existing clients by providing further
banking and wealth planning solutions evidenced through growth
across the organisation.
Deposits increased by 12% in the first six months of 2021,
diversified broadly across all segments. The division continues to
focus on deposit growth for the remainder of 2021, in pursuit of
the Bank's client acquisition strategy. A deepening of existing
relationships leveraging off the Bank's high touch relationship
management approach has generated significant goodwill with clients
and is considered more valued than ever.
Deposit pricing fell further compared to the 2020 rates, as
pre-pandemic pricing rolled off the book to be replaced at lower
rates, however, it is expected that pricing will start to stabilise
for the remainder of 2021 as the majority of the higher priced back
book matures.
The lending pipeline at the end of 2020 resulted in 13% loan
book growth for the first half of 2021. The pipeline remains strong
with growth expected to continue for the rest of 2021. The business
has continued to maintain its strategy of conservative lending
whilst ensuring focus remains on the risk reward profile of
potential opportunities. Consequently, there has been a conscious
shift towards more residential investment lending versus commercial
real estate.
Lending growth has been generated from both Private and
Commercial Banking relationships, with high levels of activity from
the International and Real Estate teams.
The Dubai branch was closed on 31 May 2021. All existing
relationships were successfully migrated to the Bank's London based
teams for ongoing client servicing.
Wealth Management
AuM were GBP1.22bn as at 30 June 2021 (30 June 2020: GBP1.07bn).
Wealth Management generated positive gross inflows over the first
six months of 2021, with a 67% increase on the prior year, equating
to a 17% annualised gross inflow rate against opening AuM. The
client pipeline continues to build positively, with several larger
value mandates in development.
The Sustainable Portfolio Service was launched in the second
quarter, which utilises the business's central risk framework. The
service leverages the underlying research and macro views of the
Investment Committee, whilst seeking to maximise exposure to themes
that will deliver positive social and environmental outcomes.
Mortgage Portfolios
Mortgage Portfolio balances were GBP195.1m as at 30 June 2021
(30 June 2020: GBP300.8m); this balance related entirely to the
Santiago portfolio acquired in August 2019, after the Tay portfolio
was sold in February 2021.
The portfolio continues to perform to expectation, with
forbearance balances following the COVID payment holidays reduced
to 0.2% of the total portfolio.
Renaissance Asset Finance ("RAF")
RAF has reported a profit before tax of GBP1.0m (30 June 2020:
GBP1.0m), with customer loan balances of GBP93.0m (30 June 2020:
GBP101.4m).
The decline in loan balances seen in 2020, as the result of the
combined effects of a drop in demand by SMEs for vehicles and
capital equipment, together with a tightened approach to risk, is
now showing signs that it has stabilised with an indication of
increased demand for asset finance facilities.
Loans under forbearance measures have recovered significantly
from the peak 12 months ago. The London taxi market, making up the
majority of loan balances under forbearance, is taking longer to
recover and remains a key area of focus. The business is optimistic
that, as restrictions ease, taxi operators will experience an
improvement in activity as social distancing guidelines relax and
business and leisure activity increase over the coming months.
The business recorded IFRS9 credit provisions of GBP0.1m (30
June 2020: GBP0.3m) for the six months to 30 June 2021.
Arbuthnot Commercial Asset Based Lending ("ACABL")
ACABL has reported a profit before tax of GBP1.8m (30 June 2020:
GBP0.7m), with funds in use of GBP147.9m (30 June 2020:
GBP66.5m).
The asset based lending business experienced a strong first
half, benefitting from a significant pipeline generated at the end
of 2020. The business issued 21 new facilities and had one
repayment in the six months to 30 June 2021.
Revenue from servicing fees has grown in line with client
activity as businesses increased their revenues following the lows
of the previous 12 months. Additionally, as expected, with
increased client activity, existing facilities have shown signs of
amounts drawn against facility limits increasing to pre-pandemic
levels.
Arbuthnot Specialist Finance Limited ("ASFL")
ASFL has made a loss before tax of GBP0.6m (30 June 2020: loss
of GBP0.5m). Customer loan balances were GBP7.5m at the half year
(30 June 2020: GBP8.7m).
The business continues to explore opportunities leveraging the
lack of liquidity within the non-bank lending sector as the
bridging finance market emerges from the lockdown period.
Asset Alliance Group Holdings Limited ("AAGH")
Following the acquisition of AAGH that completed on 31 March
2021, the business reported a profit of GBP7.9m, including the
profit recognised from the bargain purchase. The underlying
performance of the business in the three months to 30 June 2021 was
GBP0.8m and additionally included in the results of AL was GBP0.7m
related to the intercompany funding provided to AAGH.
As a result of the acquisition accounting requirements, which in
the first case generated a gain of GBP8.7m via net bargain
purchase, there is the requirement to adjust the cost of sales of
trucks for the new base cost that will apply to the back book of
trucks. This reversed GBP1.5m of profits. Also included was the
amortisation of the brand intangible which totalled GBP90k in the
three month period.
Beside the fair value exercise, which will be completed in the
second half of the year, the integration of AAGH into the Group is
progressing well.
Owned Properties
At the outset of the pandemic in 2020, the Group commissioned
the refurbishment of the West End office building at 20 St Kings
Street. This work has now been completed with the cost of works
being GBP1.1m under the original budget. The property is now in the
initial stage of marketing and has already generated good interest.
We have also noted that yields for West End office space have
firmed during 2021.
The Group has for some time had five overseas properties that it
acquired as a result of bad debts arising mainly from a specialist
lending team that was disbanded several years ago. In 2020 it
disposed of a villa in Marbella. Last month an apartment in Ibiza
was sold. The Bank has recently accepted an offer on a villa in the
South of France, which is expected to complete in the second half
of 2021. The offer is such that no further impairment will be
required. The house in Barcelona remains subject to a legal dispute
and we currently hold a forfeited deposit of one million Euros in
respect of this property. The final resolution of this will be
dependent on the timings of the Spanish Court that is dealing with
the case. The remaining property is located in Majorca. Attempts to
sell it have been difficult due to the pandemic and also due to the
complexities of local planning issues. Our previous professional
valuations may need to be updated following a recent change to
local development rules, accordingly we have reduced the carrying
value by GBP2.6m whilst the issues surrounding the planning
permissions granted on the property are resolved.
Operations
The Bank continues to operate effectively since the move to
remote working, with all services being maintained and good
progress made with the Bank's transformation agenda.
As reported at the year-end, the Bank introduced 24 x 7 Faster
Payments capability, having previously only transmitted payments
during core business hours, improving the client experience and
aligning the Arbuthnot Latham proposition with that of the larger
retail banks.
The Bank continues to successfully operate remotely. Clients
on-boarded during the first half of 2021, were over 10% higher than
the same period last year. Levels of client attrition remained low
and below the same period in previous years.
Consolidated Statement of Comprehensive Income
Six months Six months
ended ended
30 June 30 June
2021 2020
Note GBP000 GBP000
------------------------------------------------------------- ----- ----------- -----------
Income from banking activities
Interest income 36,723 39,045
Interest expense (6,784) (9,337)
------------------------------------------------------------- ----- ----------- -----------
Net interest income 29,939 29,708
------------------------------------------------------------- ----- ----------- -----------
Fee and commission income 8,782 6,993
Fee and commission expense (177) (147)
------------------------------------------------------------- ----- ----------- -----------
Net fee and commission income 8,605 6,846
------------------------------------------------------------- ----- ----------- -----------
Operating income from banking activities 38,544 36,554
------------------------------------------------------------- ----- ----------- -----------
Income from leasing activities
Revenue 22,533 -
Cost of goods sold (19,689) -
------------------------------------------------------------- ----- ----------- -----------
Gross profit from leasing activities 2,844 -
------------------------------------------------------------- ----- ----------- -----------
Total group operating income 41,388 36,554
------------------------------------------------------------- ----- ----------- -----------
Net impairment loss on financial assets (865) (1,701)
Other income 6 2,889 420
Profit from bargain purchase 8 8,656 -
Operating expenses (49,030) (35,072)
------------------------------------------------------------- ----- ----------- -----------
Profit before income tax 3,038 201
Income tax credit / (expense) 1,054 (70)
------------------------------------------------------------- ----- ----------- -----------
Profit for the period 4,092 131
------------------------------------------------------------- ----- ----------- -----------
Other comprehensive income
Items that will not be reclassified to profit or loss
Changes in fair value of equity investments at fair
value through other comprehensive income 9,096 (15,832)
Tax on other comprehensive income (17) (20)
------------------------------------------------------------- ----- ----------- -----------
Other comprehensive income for the period, net of tax 9,079 (15,852)
------------------------------------------------------------- ----- ----------- -----------
Total comprehensive income for the period 13,171 (15,721)
------------------------------------------------------------- ----- ----------- -----------
Earnings per share for profit attributable to the
equity holders of the Company during the period (expressed
in pence per share):
Basic earnings per share 7 27.2 0.9
Diluted earnings per share 7 27.2 0.9
Consolidated Statement of Financial Position
At 30 At 30 At 31
June June December
2021 2020 2020
GBP000 GBP000 GBP000
ASSETS
Cash and balances at central banks 616,004 434,761 636,799
Loans and advances to banks 104,904 109,751 110,267
Debt securities at amortised cost 391,987 359,042 344,692
Assets classified as held for sale 3,183 7,617 3,285
Derivative financial instruments 850 1,749 1,843
Loans and advances to customers 1,726,471 1,620,262 1,587,849
Current tax asset 17 - 205
Other assets 110,044 90,010 96,288
Financial investments 11,407 15,310 18,495
Deferred tax asset 420 1,931 1,009
Intangible assets 27,794 22,776 23,646
Property, plant and equipment 140,465 6,849 4,905
Right-of-use assets 16,306 18,527 17,703
Investment properties 6,550 6,763 6,550
----------------------------------------------- ---------- ---------- ----------
Total assets 3,156,402 2,695,348 2,853,536
----------------------------------------------- ---------- ---------- ----------
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital 154 154 154
Retained earnings 204,165 209,304 207,839
Other reserves (4,891) (16,929) (13,970)
----------------------------------------------- ---------- ---------- ----------
Total equity 199,428 192,529 194,023
----------------------------------------------- ---------- ---------- ----------
LIABILITIES
Deposits from banks 230,106 230,638 230,090
Derivative financial instruments 286 634 649
Deposits from customers 2,642,761 2,206,515 2,365,207
Current tax liability - 603 -
Other liabilities 29,820 7,477 7,606
Lease liabilities 16,912 19,152 18,305
Debt securities in issue 37,089 37,800 37,656
----------------------------------------------- ---------- ---------- ----------
Total liabilities 2,956,974 2,502,819 2,659,513
----------------------------------------------- ---------- ---------- ----------
Total equity and liabilities 3,156,402 2,695,348 2,853,536
----------------------------------------------- ---------- ---------- ----------
Consolidated Statement of Changes in Equity
Attributable to equity holders
of the Group
-----------------------------------------------------------------------
Capital Fair
Share Revaluation redemption value Treasury Retained
capital reserve reserve reserve shares earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- --------- ------------ ------------ --------- --------- ---------- --------
Balance at 1 January 2021 154 - 19 (12,690) (1,299) 207,839 194,023
Total comprehensive income for the
period
Profit for the six months ended 30
June
2021 - - - - - 4,092 4,092
Other comprehensive income, net of
income
tax
Changes in the fair value of
financial
assets at FVOCI* - - - 4,485 - - 4,485
Tax on other comprehensive income - - - (17) - - (17)
Total other comprehensive income - - - 4,468 - - 4,468
----------------------------------- --------- ------------ ------------ --------- --------- ---------- --------
Total comprehensive income for the
period - - - 4,468 - 4,092 8,560
----------------------------------- --------- ------------ ------------ --------- --------- ---------- --------
Transactions with owners, recorded
directly
in equity
Contributions by and distributions
to
owners
Sale of Secure Trust Bank shares - - - 4,611 - (4,611) -
Special dividend relating to
2019** - - - - - (3,155) (3,155)
----------------------------------- --------- ------------ ------------ --------- --------- ---------- --------
Total contributions by and
distributions
to owners - - - 4,611 - (7,766) (3,155)
----------------------------------- --------- ------------ ------------ --------- --------- ---------- --------
Balance at 30 June 2021 154 - 19 (3,611) (1,299) 204,165 199,428
----------------------------------- --------- ------------ ------------ --------- --------- ---------- --------
* The change in fair value of financial investments of GBP4.5m is due to
the movement in the value of the investment in Secure Trust Bank, as the
share price increased from GBP8.75 at 31 December 2020 to GBP10.58 at 30
June 2021.
** On 19 March 2021 the Group paid a special dividend of 21p per share
to replace the dividend that was withdrawn at the request of the regulators
at the outset of the pandemic.
Attributable to equity holders
of the Group
-----------------------------------------------------------------------
Capital Fair
Share Revaluation redemption value Treasury Retained
capital reserve reserve reserve shares earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------------- --------- ------------ ------------ --------- --------- ---------- ---------
Balance at 1 January 2020 154 - 19 205 (1,214) 209,171 208,335
Total comprehensive income for
the period
Profit for the six months ended
30 June
2020 - - - - - 131 131
Other comprehensive income, net
of income
tax
Changes in the fair value of
financial
assets at FVOCI* - - - (15,872) - - (15,872)
Tax on other comprehensive income - - - 20 - - 20
Total other comprehensive income - - - (15,852) - - (15,852)
---------------------------------- --------- ------------ ------------ --------- --------- ---------- ---------
Total comprehensive income for
the period - - - (15,852) - 131 (15,721)
---------------------------------- --------- ------------ ------------ --------- --------- ---------- ---------
Transactions with owners,
recorded directly
in equity
Contributions by and
distributions to
owners
Purchase of own shares - - - - (85) - (85)
Total contributions by and
distributions
to owners - - - - (85) - (85)
---------------------------------- --------- ------------ ------------ --------- --------- ---------- ---------
Balance at 30 June 2020 154 - 19 (15,647) (1,299) 209,302 192,529
---------------------------------- --------- ------------ ------------ --------- --------- ---------- ---------
* The change in fair value of financial investments of GBP15.9m is due
to the movement in the value of the investment in Secure Trust Bank, as
the share price reduced from GBP16.00 at 31 December 2019 to GBP7.24 at
30 June 2020.
Consolidated Statement of Cash Flows
Six months Six months
ended ended
30 June 30 June
2021 2020
GBP000 GBP000
------------------------------------------------------------- ----------- -----------
Cash flows from operating activities
Interest received 37,476 63,829
Interest paid (7,162) (10,892)
Fees and commissions received 6,397 6,491
Revenue received 22,726 -
Cost of goods sold paid (22,533) -
Net trading and other income 2,889 420
Cash payments to employees and suppliers (34,142) (65,645)
Cash flows from operating profits/(losses) before changes
in operating assets and liabilities 5,651 (5,797)
Changes in operating assets and liabilities:
- net decrease in derivative financial instruments 630 370
- net increase in loans and advances to customers (134,441) (22,646)
- net decrease/(increase) in other assets 179 (2,150)
- net increase in deposits from banks 16 217
- net increase in amounts due to customers 277,554 121,612
- net increase / (decrease) in other liabilities 6,815 (7,302)
--------------------------------------------------------------- ----------- -----------
Net cash inflow from operating activities 156,404 84,304
--------------------------------------------------------------- ----------- -----------
Cash flows from investing activities
Purchase of financial investments (94) (225)
Disposal of financial investments 11,650 -
Purchase of computer software (2,227) (3,973)
Refurbishment cost investment property - (2,365)
Purchase of property, plant and equipment (13,575) 1,064
Proceeds from sale of property, plant and equipment 7,219 -
Purchase of Asset Alliance Group Holdings Limited (9,998) -
Cash balance acquired through Asset Alliance Group Holdings
Limited acquisition 3,883 -
Purchases of debt securities (343,137) (433,775)
Proceeds from redemption of debt securities 294,790 527,316
--------------------------------------------------------------- ----------- -----------
Net cash (outflow)/inflow from investing activities (51,489) 88,042
--------------------------------------------------------------- ----------- -----------
Cash flows from financing activities
Decrease in borrowings (127,918) -
Dividends paid (3,155) -
------------------------------------------------------------- ----------- -----------
Net cash used in financing activities (131,073) -
------------------------------------------------------------- ----------- -----------
Net (decrease)/increase in cash and cash equivalents (26,158) 172,346
Cash and cash equivalents at 1 January 747,066 372,166
--------------------------------------------------------------- ----------- -----------
Cash and cash equivalents at 30 June 720,908 544,512
--------------------------------------------------------------- ----------- -----------
Notes to the Consolidated Financial Statements
1. Basis of preparation
The interim financial statements have been prepared on the basis
of accounting policies set out in the Group's 2020 statutory
accounts as amended by standards and interpretations effective
during 2021 as set out below and in accordance with IAS 34 "Interim
Financial Reporting". The directors do not consider the fair value
of the assets and liabilities presented in these financial
statements to be materially different from their carrying
value.
The statements were approved by the Board of Directors on 19
July 2021 and are unaudited. The interim financial statements will
be available on the Group website (www.arbuthnotgroup.com) from 20
July 2021.
2. Risks and Uncertainties
The Group regards the monitoring and controlling of risks and
uncertainties as a fundamental part of the management process.
Consequently, senior management are involved in the development of
risk management policies and in monitoring their application. A
detailed description of the risk management framework and
associated policies is set out in note 4.
The principal risks inherent in the Group's business are
reputational, macroeconomic and competitive environment, strategic,
credit, market, liquidity, operational, cyber, conduct and,
regulatory and capital.
Reputational risk
Reputational risk is the risk to the Group from a failure to
meet reasonable stakeholder expectations as a result of any event,
behaviour, action or inaction by ABG itself, its employees or those
with whom it is associated. This includes the associated risk to
earnings, capital or liquidity.
ABG seeks to ensure that all of it businesses act consistently
with the seven corporate principles as laid out on page 1 of the
Annual Report and Accounts. This is achieved through a central Risk
Management framework and supporting policies, the application of a
three-lines of defence model across the Group and oversight by
various committees. Employees are supported in training, studies
and other ways and encouraged to live out the cultural values
within the Group of integrity, energy and drive, respect,
collaboration and empowerment. In applying the seven corporate
principles, the risk of reputational damage is minimised as the
Group serves its shareholders, customers and employees with
integrity and high ethical standards.
Macroeconomic and competitive environment
The Group is exposed to indirect risks that may arise from the
macroeconomic and competitive environment.
Coronavirus
The COVID-19 pandemic has had, and continues to have, a material
impact on all businesses around the world and the markets in which
they operate. There are a number of factors associated with the
pandemic and its impact on global economies that could have a
material adverse effect on (among other things) the profitability,
capital and liquidity of financial institutions.
To ensure an appropriate response to the pandemic, management
scrutinised key risks emerging from the crisis and their impact on
the Group's risk profile. The Board's discussions focused on
operational resilience, liquidity and funding considerations,
customer vulnerability, and the impact of material increases in
forbearance requests on the Group's credit portfolios and on its
operational capacity.
The pandemic has caused disruption to the Group's clients,
suppliers and employees globally. The markets in which the Group
operates have implemented severe restrictions on the movement of
their respective populations, with a resultant significant impact
on economic activity. These restrictions are being determined by
the governments of individual jurisdictions (including through the
implementation of emergency powers) and impacts (including the
timing of implementation and any subsequent lifting of
restrictions) may vary from jurisdiction to jurisdiction.
Schemes have been initiated by the Bank of England, national
governments and regulators to provide financial support to parts of
the economy most impacted by the COVID-19 pandemic. These schemes
have been designed and implemented at pace, which has allowed the
Group to continue meeting clients' requirements with employees
monitoring operational issues which may arise in their
implementation.
Furthermore, the Group relies on models to support a broad range
of business and risk management activities, including informing
business decisions and strategies, measuring and limiting risk,
valuing exposures (including the calculation of impairment),
conducting stress testing and assessing capital adequacy.
Management regularly meet to discuss the impact of COVID-19 and
review data to mitigate any potential negative effects.
The significant business risks that may arise from the economic
shock in addition to the reduction in interest rates are:
a) Increased credit risk as borrowers are unable to continue to
meet their interest obligations as they fall due. It is also
currently unclear precisely how the withdrawal of the Government's
announced package of measures will affect this clear risk.
b) The uncertainty in the economy could result in a significant
fall in the collateral values of our security held against the
loans. At the beginning of the pandemic the Royal Institute of
Charter Surveyors ("RICS") issued a statement suggesting that any
valuations they may produce in the current environment would be
subject to a warning that the values vary significantly. However,
property prices have held up and transaction volumes and other
relevant evidence is starting to return to levels adequate to base
valuation opinions on. Also, the average loan to value of our
property backed lending book is 51.5%, so to have a material
impact, this fall in collateral values would have to be severe and
prolonged.
c) A prolonged reduction in business activity will affect our
ability to generate new business opportunities, in which case
repayments in our current lending portfolios will be greater than
new originations, which will lead to an overall fall in the Group's
customer lending balances and the associated revenue that this
generates. At the start of the pandemic the Group significantly
reduced its credit appetite due to uncertainty in the global
economy, which resulted in the loan book remaining flat from 31
December 2019 to 31 December 2020. However, since re-instating
credit appetite to pre-pandemic levels towards the end of 2020, the
Group has generated a significant pipeline of business.
d) The economic shock could also lead to a fall in valuations in
the Groups investment properties and those properties held in
inventory. As mentioned under point (b) above, transaction volumes
are starting to return and property prices have held up since the
start of the pandemic more than a year ago.
e) As the revenues earned by the Group's Investment Management
business are directly linked to the balances managed on behalf of
our clients, any reduction in these values due to market movements
will have a corresponding impact on these revenues. AUM closed the
first half of 2021 7% up from 31 December 2020.
Brexit
The Brexit transition period came to an end on 31 December 2020
and the EU and UK agreed the Trade and Cooperation Agreement on 24
December 2020, which was applicable from 1 January 2021. The Group
has no overseas operations following the closure of its Dubai
office on 31 May 2021. Consequently, the vast majority of the
Group's income and expenditure is based in the UK. The Group will
continue to monitor the implications of Brexit on the wider economy
as the future relationship with the EU develops.
Climate change
Climate change presents financial and reputational risks for the
banking industry. The Board consider climate change a material risk
as per the Board approved risk appetite framework which provides a
structured approach to risk taking within agreed boundaries. The
assessment is proportional at present but will develop over time as
the Group generates further resources and industry consensus
emerges. The assessment is maintained by the Chief Risk officer and
has been informed by the ICAAP review and workshops for
employees.
Whilst it is difficult to assess how climate change will unfold,
the Group is continually assessing various risk exposures. The UK
has a legally binding target to cut its greenhouse gas emissions to
"net-zero" by 2050. There is growing consensus that an orderly
transition to a low-carbon economy will bring substantial
adjustments to the global economy, which will have financial
implications while bringing risks and opportunities.
The risk assessment process has been integrated into existing
risk frameworks and will be governed through the various risk
governance structures including review and recommendations by the
Arbuthnot Latham Risk Committee. Arbuthnot Latham has been assessed
against the Task Force on Climate-related Financial Disclosures'
("TCFD") recommended disclosures and where appropriate the FCA/PRA
guidance as per the Supervisory Statements.
In accordance with the requirements of the PRA's Supervisory
Statement 'Enhancing banks' and insurers' approaches to managing
the financial risks from climate change', the Group has allocated
responsibility for identifying and managing the risks from climate
change to the relevant existing Senior Management Function. The
Bank is continuously developing a suitable strategic approach to
climate change and the unique challenges it poses.
The FCA have issued 'Climate Change and Green Finance: summary
of responses and next steps'. In addition to the modelling of
various scenarios and various governance reviews, the Group will
continue to monitor requirements through the relationship with UK
Finance.
Strategic risk
Strategic risk is the risk that the Group's ability to achieve
its corporate and strategic objectives may be compromised. This
risk is particularly important to the Group as it continues its
growth strategy. However, the Group seeks to mitigate strategic
risk by focusing on a sustainable business model which is aligned
to the Group's business strategy. Also, the Board of Directors
usually meets once a year to hold a two day board meeting to ensure
that the Group's strategy is appropriate for the market and
economy.
Credit risk
Credit risk is the risk that a counterparty (borrower) will be
unable to pay amounts in full when due. This risk exists in
Arbuthnot Latham, which currently has a loan book of GBP1,726m (30
June 2020: GBP1,620m). The lending portfolio in Arbuthnot Latham is
extended to clients, the majority of which is secured against cash,
property or other high quality assets. Credit risk is managed
through the Credit Committee of Arbuthnot Latham.
Market risk
Market risk arises in relation to movements in interest rates,
currencies, property and equity markets. The Group's treasury
function operates mainly to provide a service to clients and does
not take significant unmatched positions in any market for its own
account. As a result, the Group's exposure to adverse movements in
interest rates and currencies is limited to interest earnings on
its free cash and interest rate re-pricing mismatches. The Group
actively monitors its exposure to future changes in interest
rates.
The Group is exposed to changes in the market value of its
properties. The current carrying value of Investment Property is
GBP6.6m and properties classified as inventory are carried at
GBP86.1m. Any changes in the market value of the property will be
accounted for in the Income Statement for the Investment Property
and could also impact the carrying value of inventory, which is at
the lower of cost and net realisable value. As a result, it could
have a significant impact on the profit or loss of the Group.
The Group has a 4.40% interest in Secure Trust Bank. This is
currently recorded in the Group's balance sheet as a Financial
Investment. The carrying value is adjusted to market value at each
balance sheet date, according to the share price of Secure Trust
Bank. Any gains or losses that arise are recorded in Other
Comprehensive Income.
Liquidity risk
Liquidity risk is the risk that the Group, although solvent,
either does not have sufficient financial resources to enable it to
meet its obligations as they fall due, or can only secure such
resources at an excessive cost. The Group takes a conservative
approach to managing its liquidity profile. Retail client deposits
and drawings from the Bank of England Term Funding Scheme fund the
Group. The loan to deposit ratio is maintained at a prudent level,
and consequently the Group maintains a high level of liquidity. The
Arbuthnot Latham Board annually approves the Internal Liquidity
Adequacy Assessment Process ("ILAAP"). The Directors model various
stress scenarios and assess the resultant cash flows in order to
evaluate the Group's potential liquidity requirements. The
Directors firmly believe that sufficient liquid assets are held to
enable the Group to meet its liabilities in a stressed
environment.
Operational risk
Operational risk is the risk that the Group may be exposed to
financial losses from conducting its business. The Group's
exposures to operational risk include its Information Technology
("IT") and Operations platforms. There are additional internal
controls in these processes that are designed to protect the Group
from these risks. The Group's overall approach to managing internal
control and financial reporting is described in the Corporate
Governance section of the Annual Report.
There was significant focus on the potential operational risks
arising from the change in working practices due to the pandemic,
particularly the continued remote working in order to protect
employees and support clients through the crisis. Management
attention also focused heavily on operational resilience to ensure
that planning, controls and operational activities remained robust
and appropriate. The Bank ensured that all employees had access to
equipment to complete their work with all employees working
remotely for the majority of the period.
The Group's control environment was continually monitored to
ensure that the challenges posed by adapting to the impact of
COVID-19 were safely addressed. There was also continued oversight
of the Group's preparations for the end of the transition period,
following the UK's exit from the EU, to ensure that processes and
systems are appropriate to ensure continuity of service for
customers.
Cyber risk
Cyber risk is an increasing risk for the Group within its
operational processes. It is the risk that the Group is subject to
some form of disruption arising from an interruption to its IT and
data infrastructure. The Group regularly tests the infrastructure
to ensure that it remains robust to a range of threats, and has
continuity of business plans in place including a disaster recovery
plan.
Conduct risk
As a financial services provider we face conduct risk, including
selling products to customers which do not meet their needs,
failing to deal with clients' complaints effectively, not meeting
clients' expectations, and exhibiting behaviours which do not meet
market or regulatory standards.
The Group adopts a low risk appetite for any unfair customer
outcomes. It maintains clear compliance guidelines and provides
ongoing training to all employees. Periodic spot checks, compliance
monitoring and internal audits are performed to ensure these
guidelines are followed. The Group also has insurance policies in
place to provide some cover for any claims that may arise.
Regulatory and capital risk
Regulatory and capital risk includes the risk that the Group
will have insufficient capital resources to support the business
and/or does not comply with regulatory requirements. The Group
adopts a conservative approach to managing its capital. The Board
of Arbuthnot Latham approves an ICAAP annually, which includes the
performance of stringent stress tests to ensure that capital
resources are adequate over a three year horizon. Capital and
liquidity ratios are regularly monitored against the Board's
approved risk appetite as part of the risk management
framework.
Regulatory change also exists as a risk to the Group's business.
Notwithstanding the assessments carried out by the Group to manage
the regulatory risk, it is not possible to predict how regulatory
and legislative changes may alter and impact the business.
Significant and unforeseen regulatory changes may reduce the
Group's competitive situation and lower its profitability.
3. Critical accounting estimates and judgements in applying
accounting policies
The Group makes estimates and assumptions that affect the
reported amounts of assets and liabilities within the next
financial year. Estimates and judgements are continually evaluated
and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances. For a full list of critical accounting
estimates and judgements, please refer back to the Annual Report
and Accounts for 2020. Assumptions surrounding credit losses are
discussed in more detail below, while other critical accounting
estimates and judgements have remained unchanged from what was
previously reported.
Estimation uncertainty - Expected credit losses ("ECL") on
financial assets
The Group reviews its loan portfolios and debt security
investments to assess impairment at least on a quarterly basis. The
measurement of ECL required by IFRS 9, necessitates a number of
significant judgements. Specifically, judgements and estimation
uncertainties relate to assessment of whether credit risk on the
financial asset has increased significantly since initial
recognition, incorporation of forward-looking information ("FLI")
in the measurement of ECLs and key assumptions used in estimating
recoverable cash flows. These estimates are driven by a number of
factors that are subject to change which may result in different
levels of ECL allowances.
The Group incorporates FLI into the assessment of whether there
has been a significant increase in credit risk. Forecasts for key
macroeconomic variables that most closely correlate with the Bank's
portfolio are used to produce five economic scenarios, comprising
of a no change, upside case, downside case, moderate decline and
severe decline, and the impacts of these scenarios are then
probability weighted. The estimation and application of this FLI
will require significant judgement supported by the use of external
information.
12-month ECLs on loans and advances (loans within Stage 1) are
calculated using a statistical model on a collective basis, grouped
together by product and geographical location. The key assumptions
are the probability of default, the economic scenarios and loss
given default ("LGD") having consideration for collateral. Lifetime
ECLs on loans and advances (loans within Stage 2 and 3) are
calculated based on an individual valuation of the underlying asset
and other expected cash flows.
For financial assets in Stage 2 and 3, ECL is calculated on an
individual basis and all relevant factors that have a bearing on
the expected future cash flows are taken into account. These
factors can be subjective and can include the individual
circumstances of the borrower, the realisable value of collateral,
the Group's position relative to other claimants, and the likely
cost to sell and duration of the time to collect. The level of ECL
is the difference between the value of the recoverable amount
(which is equal to the expected future cash flows discounted at the
loan's original effective interest rate), and its carrying
amount.
Management considered a range of variables in determining the
level of future ECL. Two of the key judgements were in relation to
"time to collect" and "collateral valuations". Sensitivity analysis
was carried out based on what was considered reasonably possible in
the current market conditions.
If time to collect increased by six months across all client
exposures, this would lead to a negative GBP0.7m (30 June 2020:
negative GBP0.5m) impact through the Profit or Loss. A six-month
reduction in time to collect would lead to a GBP0.4m favourable (30
June 2020: GBP0.4m favourable) impact on Profit or Loss.
If the collateral valuations increased by 10% across client
exposures, this would lead to a positive GBP0.6m (30 June 2020:
positive GBP1.5m) impact through Profit or Loss. If the collateral
valuations decreased by 10% across all Stage 3 client exposures,
this would lead to a GBP1.9m adverse (30 June 2020: GBP2.2m
adverse) impact on Profit or Loss.
Five economic scenarios were modelled. A probability was
assigned to each scenario to arrive at an overall weighted impact
on ECL. Management judgment is required in the application of the
probability weighting for each scenario.
The Group considered the impact of various assumptions on the
calculation of ECL (changes in GDP, unemployment rates, inflation,
exchange rates, equity prices, wages and collateral values/property
prices) and concluded that only collateral values/property prices
have a material impact on ECL.
The five macroeconomic scenarios modelled on future property
prices were as follows:
-- Severe decline
-- Moderate decline
-- Decline
-- No change
-- Growth
Other than collateral/property prices for Arbuthnot Latham and
collateral/asset values for its subsidiary Renaissance Asset
Finance, no other assumptions were assessed to have a material
impact on ECL. The tables below therefore reflect the expected
changes in collateral/property prices and collateral/asset values
in each of the macroeconomic scenarios and the probability
weighting applied for each scenario.
Another of the key judgements concerns the probability of the
economic scenarios in the measurement of the ECL. The probability
weighting and forward-looking economic scenarios are as follows for
the Arbuthnot Latham and Renaissance Asset Finance:
Arbuthnot Latham
Probability weighting Change in property prices
Jun Jun Dec
2021 2020 2020 Jun 2021 Jun 2020 Dec 2020
---------------------------- -------- ------- ------- ---------- ---------- ----------
Economic Scenarios
Severe decline 2.0% 2.0% 2.0% (40.0%) (40.0%) (40.0%)
Moderate decline 15.0% 20.0% 15.0% (20.0%) (20.0%) (20.0%)
Decline 70.0% 70.0% 70.0% (2.5%) (5.0%) (2.5%)
No Change 9.0% 4.0% 9.0% - - -
Growth 4.0% 4.0% 4.0% 0.5% 0.5% 0.5%
Weighted average change in
property price (5.5%) (8.3%) (5.5%)
Renaissance Asset Finance
Probability weighting Change in asset values
Jun Jun Dec
2021 2020 2020 Jun 2021 Jun 2020 Dec 2020
---------------------------- -------- ------- ------- ---------- ---------- ----------
Economic Scenarios
(15%) to (15%) to (15%) to
Severe decline 6.0% 12.0% 6.0% (60%) (60%) (60%)
(7.5%) (7.5%) to (7.5%)
Moderate decline 20.0% 40.0% 20.0% to (30%) (30%) to (30%)
(2.5%) (2.5%) to (2.5%)
Decline 40.0% 40.0% 40.0% to (15%) (15%) to (15%)
No Change 31.0% 5.0% 31.0% - - -
Growth 3.0% 3.0% 3.0% 2.0% 2.0% 2.0%
Weighted average change in
asset values (9.6%) (14.9%) (9.6%)
The above tables reflect the 5-year average expected change in
collateral values in each economic scenario for Arbuthnot Latham
and its subsidiary Renaissance Asset Finance, which were applied
over the full term the Group is exposed to credit risk (also an
average of 5 years). The expected change in property prices under
each scenario, were weighted according to the probability of each
scenario, to arrive at a probability weighted change in property
prices for Arbuthnot Latham and asset values for Renaissance Asset
Finance. These adjusted property and asset values are then used to
assess the future expected cash flows, which are considered along
with the loan exposures at default to calculate the expected credit
loss. No other long-term averages are used in the calculation of
ECL, as the above changes are in effect modelled over the full term
of the Group's exposure to credit risk.
The change in property prices for Arbuthnot Latham and asset
values for Renaissance Asset Finance were maintained at the same
level as at 31 December 2020. This is to reflect the uncertainty to
the property market and economy as Government support is unwound
along with the removal of COVID-19 restrictions whilst the number
of cases of COVID-19 are increasing.
Management have assessed the impact of assigning a 100% probability to
each of the economic scenarios, which would have the following impact on
the Profit or Loss of the Group:
Renaissance Asset
Arbuthnot Latham Finance
Jun 2021 Jun 2020 Dec 2020 Jun 2021 Jun 2020 Dec 2020
Impact of 100% scenario probability GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- --------- --------- --------- --------- --------- ---------
Severe decline (44.4) (31.8) (46.4) (3.6) (2.9) (4.6)
Moderate decline (4.8) (3.1) (5.1) (0.5) (0.1) (0.9)
Decline 0.4 0.7 0.3 0.1 0.2 0.1
No change 0.6 1.3 0.4 0.2 0.3 0.4
Growth 0.6 1.4 0.5 0.2 0.3 0.4
4. Financial risk management
Strategy
By their nature, the Group's activities are principally related
to the use of financial instruments. The Directors and senior
management of the Group have formally adopted a Group Risk and
Controls Policy which sets out the Board's attitude to risk and
internal controls. Key risks identified by the Directors are
formally reviewed and assessed at least once a year by the Board,
in addition to which key business risks are identified, evaluated
and managed by operating management on an ongoing basis by means of
procedures such as physical controls, credit and other
authorisation limits and segregation of duties. The Board also
receives regular reports on any risk matters that need to be
brought to its attention. Significant risks identified in
connection with the development of new activities are subject to
consideration by the Board. There are budgeting procedures in place
and reports are presented regularly to the Board detailing the
results of each principal business unit, variances against budget
and prior year, and other performance data.
The principal non-operational risks inherent in the Group's
business are credit, macroeconomic, market, liquidity and
capital.
Credit risk
The Company and Group take on exposure to credit risk, which is
the risk that a counterparty will be unable to pay amounts in full
when due. Significant changes in the economy, or in the health of a
particular industry segment that represents a concentration in the
Company and Group's portfolio, could result in losses that are
different from those provided for at the balance sheet date. Credit
risk is managed through the Credit Committee of the banking
subsidiary.
The Committee regularly reviews the credit risk profile of the
Group, with a clear focus on performance against risk appetite
statements and risk metrics. The Committee considered credit
conditions during the year, and in particular the impact of the
COVID-19 crisis on performance against both credit risk appetite
and a range of key credit risk metrics.
The Company and Group structure the levels of credit risk it
undertakes by placing limits on the amount of risk accepted in
relation to products, and one borrower or groups of borrowers. Such
risks are monitored on a revolving basis and subject to an annual
or more frequent review. The limits are approved periodically by
the Board of Directors and actual exposures against limits are
monitored daily.
Exposure to credit risk is managed through regular analysis of
the ability of borrowers and potential borrowers to meet interest
and capital repayment obligations and by changing these lending
limits where appropriate. Exposure to credit risk is also managed
in part by obtaining collateral, and corporate and personal
guarantees.
The economic environment remains uncertain and future impairment
charges may be subject to further volatility (including from
changes to macroeconomic variable forecasts) depending on the
longevity of the COVID-19 pandemic and related containment
measures, as well as the longer term effectiveness of central bank,
government and other support measures.
COVID-19 has created an unprecedented challenge for ECL
modelling, given the severity of economic shock and associated
uncertainty for the future economic path coupled with the scale of
government and central bank intervention and COVID-19 relief
mechanisms that have altered the relationships between economic
drivers and default.
The Group has attempted to leverage stress test modelling
insights to inform ECL model refinements to enable reasonable
estimates. Management review of modelling approaches and outcomes
continues to inform any necessary adjustments to the ECL estimates
through the form of in-model adjustments, based on expert judgement
including the use of available information. Management
considerations included the potential severity and duration of the
economic shock, including the mitigating effects of government
support actions, as well the potential trajectory of the subsequent
recovery. The Group also considered differential impacts on asset
classes, including pronouncements from regulatory bodies regarding
IFRS 9 application in the context of COVID-19, notably on
significant increase in credit risk (SICR) identification.
The Group employs a range of policies and practices to mitigate
credit risk. The most traditional of these is the taking of
collateral to secure advances, which is common practice. The
principal collateral types for loans and advances include, but are
not limited to:
-- Charges over residential and commercial properties;
-- Charges over business assets such as premises, inventory and accounts receivable;
-- Charges over financial instruments such as debt securities and equities;
-- Charges over other chattels; and
-- Personal guarantees
Upon initial recognition of loans and advances, the fair value
of collateral is based on valuation techniques commonly used for
the corresponding assets. In order to minimise any potential credit
loss the Group will seek additional collateral from the
counterparty as soon as impairment indicators are noticed for the
relevant individual loans and advances. Repossessed collateral, not
readily convertible into cash, is made available for sale in an
orderly fashion, with the proceeds used to reduce or repay the
outstanding indebtedness, or held as inventory where the Group
intends to develop and sell in the future. Where excess funds are
available after the debt has been repaid, they are available either
for other secured lenders with lower priority or are returned to
the customer.
Commitments to extend credit represent unused portions of
authorisations to extend credit in the form of loans, guarantees or
letters of credit. With respect to credit risk on commitments to
extend credit, the Group is potentially exposed to loss in an
amount equal to the total unused commitments. However, the likely
amount of loss is less than the total unused commitments, as most
commitments to extend credit are contingent upon customers
maintaining specific credit standards.
The Group incorporates forward-looking information into both its
assessment of whether the credit risk of an instrument has
increased significantly since its initial recognition and its
measurement of ECL. The key inputs into the measurement of the ECL
are:
-- assessment of significant increase in credit risk
-- future economic scenarios
-- probability of default
-- loss given default
-- exposure at default
The IFRS 9 impairment model adopts a three stage approach based
on the extent of credit deterioration since origination.
The Group's maximum exposure to credit risk (net of impairment)
before collateral held or other credit enhancements is as
follows:
30 June 2021
All
Mortgage Other
Group Banking Portfolios RAF ACABL ASFL AAGH Divisions Total
Credit risk exposures (all
stage 1, unless otherwise
stated) GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ ---------- ------------ ------- -------- ------- ------- ----------- ----------
On-balance sheet:
Cash and balances at central
banks - - - - - - 615,832 615,832
Loans and advances to banks - - - - - - 104,904 104,904
Debt securities at amortised
cost - - - - - - 391,987 391,987
Derivative financial
instruments - - - - - - 850 850
Loans and advances to
customers 1,278,305 195,108 93,032 147,913 7,530 4,583 - 1,726,471
---------- ------------ ------- -------- ------- ------- ----------- ----------
Stage 1 - Gross amount
outstanding 1,194,660 173,299 76,336 147,987 7,547 4,583 - 1,604,412
Stage 1 - Allowance for
impairment (384) (8) (223) (74) (17) - - (706)
Stage 2 - Gross amount
outstanding 60,472 17,576 15,921 - - - - 93,969
Stage 2 - Allowance for
impairment (148) (44) (135) - - - - (327)
Stage 3 - Gross amount
outstanding 26,817 4,409 1,537 - - - - 32,763
Stage 3 - Allowance for
impairment (3,112) (124) (404) - - - - (3,640)
---------- ------------ ------- -------- ------- ------- ----------- ----------
Other assets - - - - - - 15,827 15,827
Financial investments - - - - - - 11,407 11,407
Off-balance sheet:
Guarantees 3,149 - - - - - - 3,149
Loan commitments 230,876 - - 74,331 1,729 - - 306,936
------------------------------ ---------- ------------ ------- -------- ------- ------- ----------- ----------
At 30 June 2021 1,512,330 195,108 93,032 222,244 9,259 4,583 1,140,807 3,177,363
------------------------------ ---------- ------------ ------- -------- ------- ------- ----------- ----------
30 June 2020
All
Mortgage Other
Group Banking Portfolios RAF ACABL ASFL AAGH Divisions Total
Credit risk exposures (all
stage 1, unless otherwise
stated) GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ---------- ------------ -------- -------- ------- ------- ----------- ----------
On-balance sheet:
Cash and balances at central
banks - - - - - - 434,587 434,587
Loans and advances to banks - - - - - - 109,751 109,751
Debt securities at amortised
cost - - - - - - 359,042 359,042
Derivative financial
instruments - - - - - - 1,749 1,749
Loans and advances to
customers 1,153,552 291,958 100,693 65,528 8,531 - - 1,620,262
---------- ------------ -------- -------- ------- ------- ----------- ----------
Stage 1 - Gross amount
outstanding 1,054,875 279,963 98,475 65,559 8,554 - - 1,507,426
Stage 1 - Allowance for
impairment (524) - (285) (31) (23) - - (863)
Stage 2 - Gross amount
outstanding 63,094 6,314 792 - - - - 70,200
Stage 2 - Allowance for
impairment (24) - (1) - - - - (25)
Stage 3 - Gross amount
outstanding 41,023 5,681 2,158 - - - - 48,862
Stage 3 - Allowance for
impairment (4,892) - (446) - - - - (5,338)
---------- ------------ -------- -------- ------- ------- ----------- ----------
Other assets - - - - - - 4,837 4,837
Financial investments - - - - - - 15,310 15,310
Off-balance sheet:
Guarantees 6,401 - - - - - - 6,401
Loan commitments 129,958 - - 97,238 1,136 - - 228,332
----------------------------- ---------- ------------ -------- -------- ------- ------- ----------- ----------
At 30 June 2020 1,289,911 291,958 100,693 162,766 9,667 - 925,276 2,780,271
----------------------------- ---------- ------------ -------- -------- ------- ------- ----------- ----------
31 December 2020
All
Mortgage Other
Group Banking Portfolios RAF ACABL ASFL AAGH Divisions Total
Credit risk exposures (all
stage 1, unless otherwise
stated) GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------ ---------- ------------ ------- -------- ------- ------- ----------- ----------
On-balance sheet:
Cash and balances at central
banks - - - - - - 636,631 636,631
Loans and advances to banks - - - - - - 110,267 110,267
Debt securities at amortised
cost - - - - - - 344,692 344,692
Derivative financial
instruments - - - - - - 1,843 1,843
Loans and advances to
customers 1,122,300 268,827 91,926 87,331 5,964 - 11,501 1,587,849
---------- ------------ ------- -------- ------- ------- ----------- ----------
Stage 1 - Gross amount
outstanding 1,019,896 223,803 74,790 87,372 5,971 - 11,501 1,423,333
Stage 1 - Allowance for
impairment (425) (3) (249) (41) (7) - - (725)
Stage 2 - Gross amount
outstanding 72,713 36,887 16,747 - - - - 126,347
Stage 2 - Allowance for
impairment (87) (93) (353) - - - - (533)
Stage 3 - Gross amount
outstanding 33,208 8,252 1,336 - - - - 42,796
Stage 3 - Allowance for
impairment (3,005) (19) (345) - - - - (3,369)
---------- ------------ ------- -------- ------- ------- ----------- ----------
Other assets - - - - - - 5,458 5,458
Financial investments - - - - - - 18,495 18,495
Off-balance sheet:
Guarantees 6,248 - - - - - - 6,248
Loan commitments 152,972 - - 155,300 155 - - 308,427
------------------------------ ---------- ------------ ------- -------- ------- ------- ----------- ----------
At 31 December 2020 1,281,520 268,827 91,926 242,631 6,119 - 1,128,887 3,019,910
------------------------------ ---------- ------------ ------- -------- ------- ------- ----------- ----------
Market risk
(a) Properties
The COVID-19 situation and changing market conditions are
monitored closely. As at 30 June 2021, the Group has reduced the
carrying value of Inventory by GBP1.4m due to a reduction in value
of a property in Spain, while further costs were capitalised on the
development of land held by Pinnacle Universal; a special purpose
vehicle 100% owned by the Group. Refurbishment work on the King
Street property completed in June 2021, with costs also capitalised
as part of the carrying value. The Group has not changed the
assumptions in valuing the properties held as Investment Property
or Inventory.
(b) Financial investments
Financial investments mainly consist out of shares held in
Secure Trust Bank ("STB"). The carrying value is adjusted to market
value at each balance sheet date, according to the share price of
STB and any gains or losses that arise are recorded in Other
Comprehensive Income. The Group sold 750,000 shares on 31 March
2021 and a further 250,000 shares on 19 April 2021, reducing the
shareholding from 9.75% to 4.40%. The share price increased from
GBP8.75 at the end of December 2020 to GBP10.58 at 30 June 2021,
with the value of the investment being GBP8.7m (31 December 2020:
GBP15.9m).
Liquidity risk
The Group has managed to increase customer deposits by GBP278m
since year-end. Liquidity buffers have been maintained in excess of
minimum requirements throughout the period, with the actual
Liquidity Coverage Ratio ("LCR") at 246% (31 December 2020: 237%)
significantly exceeding the regulatory minimum of 100%.
Capital management
During the period all regulated entities have complied with all
of the externally imposed capital requirements to which they are
subject. The capital position of the Group remains strong. The
Total Capital Requirement Ratio ("TCR") is 8.69% (31 December 2020:
8.71%), while the CET1 capital ratio is 12.5% (31 December 2020:
15.4%) and the total capital ratio is 15.2% (31 December 2020:
18.7%).
Valuation of financial instruments
The Group measures the fair value of an instrument using quoted
prices in an active market for that instrument. A market is
regarded as active if quoted prices are readily and regularly
available and represent actual and regularly occurring market
transactions. If a market for a financial instrument is not active,
the Group establishes fair value using a valuation technique. These
include the use of recent arm's length transactions, reference to
other instruments that are substantially the same for which market
observable prices exist, net present value and discounted cash flow
analysis. The objective of valuation techniques is to determine the
fair value of the financial instrument at the reporting date as the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants. In
the event that fair values of assets and liabilities cannot be
reliably measured, they are carried at cost.
The Group measures fair value using the following fair value
hierarchy that reflects the significance of the inputs used in
making measurements:
-- Level 1: Quoted prices in active markets for identical assets
or liabilities.
-- Level 2: Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e.
as prices) or indirectly (i.e. derived from prices). This
category includes instruments valued using: quoted market prices in
active
markets for similar instruments; quoted prices for identical or
similar instruments in markets that are considered less than
active;
or other valuation techniques in which all significant inputs
are directly or indirectly observable from market data.
-- Level 3: Inputs that are unobservable. This category includes
all instruments for which the valuation technique includes
inputs
not based on observable data and the unobservable inputs have a
significant effect on the instrument's valuation. This category
includes instruments that are valued based on quoted prices for
similar instruments for which significant unobservable
adjustments or assumptions are required to reflect differences
between the instruments.
The consideration of factors such as the magnitude and frequency
of trading activity, the availability of prices and the size of
bid/offer spreads assists in the judgement as to whether a market
is active. If in the opinion of management, a significant
proportion of the instrument's carrying amount is driven by
unobservable inputs, the instrument in its entirety is classified
as valued using significant unobservable inputs. 'Unobservable' in
this context means that there is little or no current market data
available from which to determine the level at which an arm's
length transaction would be likely to occur. It generally does not
mean that there is no market data available at all upon which to
base a determination of fair value (consensus pricing data may, for
example, be used).
The tables below analyse financial instruments measured at fair
value by the level in the fair value hierarchy into which the
measurement is categorised:
Level Level Level
1 2 3 Total
At 30 June 2021 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------- ------- ------- -------
ASSETS
Derivative financial instruments - 850 - 850
Financial investments 8,671 - 2,736 11,407
Investment properties - - 6,550 6,550
---------------------------------- ------- ------- ------- -------
8,671 850 9,286 18,807
---------------------------------- ------- ------- ------- -------
LIABILITIES
Derivative financial instruments - 286 - 286
---------------------------------- ------- ------- ------- -------
- 286 - 286
---------------------------------- ------- ------- ------- -------
Level Level Level
1 2 3 Total
At 30 June 2020 GBP000 GBP000 GBP000 GBP000
---------------------------------------------- ------- ------- ------- -------
ASSETS
Derivative financial instruments - 1,749 - 1,749
Financial investments 13,178 - 2,132 15,310
Investment properties - - 6,763 6,763
---------------------------------------------- ------- ------- ------- -------
13,178 1,749 8,895 23,822
---------------------------------------------- ------- ------- ------- -------
LIABILITIES
Derivative financial instruments - 634 - 634
Other liabilities (contingent consideration) - - 854 854
---------------------------------------------- ------- ------- ------- -------
- 634 854 1,488
---------------------------------------------- ------- ------- ------- -------
Level Level Level
1 2 3 Total
At 31 December 2020 GBP000 GBP000 GBP000 GBP000
---------------------------------- ------- ------- ------- -------
ASSETS
Derivative financial instruments - 1,843 - 1,843
Financial investments 15,925 - 2,570 18,495
Investment properties - - 6,550 6,550
---------------------------------- ------- ------- ------- -------
15,925 1,843 9,120 26,888
---------------------------------- ------- ------- ------- -------
LIABILITIES
Derivative financial instruments - 649 - 649
---------------------------------- ------- ------- ------- -------
- 649 - 649
---------------------------------- ------- ------- ------- -------
There were no transfers between level 1 and level 2 during
the year.
The following table reconciles the movement in level 3 financial instruments
measured at fair value (financial investments) during the year:
At 30 At 30 At 31
June June December
2021 2020 2020
Movement in level 3 GBP000 GBP000 GBP000
------------------------------------------------------ ------- ------- ----------
At 1 January 9,120 8,566 8,566
Acquisitions 89 225 419
Movements recognised in Other Comprehensive
Income 89 106 366
Movements recognised in the Income Statement (12) (2) (231)
------------------------------------------------------- ------- ------- ----------
At 30 June / 31 December 9,286 8,895 9,120
------------------------------------------------------- ------- ------- ----------
The tables below analyse financial instruments not measured at
fair value by the level in the fair value hierarchy:
Level Level Level
1 2 3 Total
At 30 June 2021 GBP000 GBP000 GBP000 GBP000
------------------------------------ -------- ---------- -------- ----------
ASSETS
Cash and balances at central banks - 616,004 - 616,004
Loans and advances to banks - 104,904 - 104,904
Debt securities at amortised cost - 391,987 - 391,987
Loans and advances to customers - 1,443,667 282,804 1,726,471
Other assets - - 16,058 16,058
------------------------------------ -------- ---------- -------- ----------
- 2,556,562 298,862 2,855,424
--------------------------------------------- ---------- -------- ----------
LIABILITIES
Deposits from banks - 230,106 - 230,106
Deposits from customers - 2,651,721 - 2,651,721
Other liabilities - - 33,495 33,495
Debt securities in issue - - 61,426 61,426
------------------------------------ -------- ---------- -------- ----------
- 2,881,827 94,921 2,976,748
--------------------------------------------- ---------- -------- ----------
Level Level Level
1 2 3 Total
At 30 June 2020 GBP000 GBP000 GBP000 GBP000
------------------------------------ -------- ---------- -------- ----------
ASSETS
Cash and balances at central banks - 434,761 - 434,761
Loans and advances to banks - 109,743 - 109,743
Debt securities at amortised cost - 359,042 24,267 383,309
Loans and advances to customers - 1,317,606 302,656 1,620,262
Other assets - - 5,225 5,225
------------------------------------ -------- ---------- -------- ----------
- 2,221,152 332,148 2,553,300
--------------------------------------------- ---------- -------- ----------
LIABILITIES
Deposits from banks - 230,638 - 230,638
Deposits from customers - 2,206,515 - 2,206,515
Other liabilities - - 8,993 8,993
Debt securities in issue - - 62,067 62,067
------------------------------------ -------- ---------- -------- ----------
- 2,437,153 71,060 2,508,213
--------------------------------------------- ---------- -------- ----------
Level Level Level
1 2 3 Total
At 31 December 2020 GBP000 GBP000 GBP000 GBP000
------------------------------------ -------- ---------- -------- ----------
ASSETS
Cash and balances at central banks - 636,799 - 636,799
Loans and advances to banks - 110,267 - 110,267
Debt securities at amortised cost - 344,692 - 344,692
Loans and advances to customers - 1,300,824 287,025 1,587,849
Other assets - - 5,457 5,457
------------------------------------ -------- ---------- -------- ----------
- 2,392,582 292,482 2,685,064
--------------------------------------------- ---------- -------- ----------
LIABILITIES
Deposits from banks - 230,090 - 230,090
Deposits from customers - 2,365,207 - 2,365,207
Other liabilities - - 1,949 1,949
Debt securities in issue - - 37,656 37,656
------------------------------------ -------- ---------- -------- ----------
- 2,595,297 39,605 2,634,902
--------------------------------------------- ---------- -------- ----------
All above assets and liabilities are carried at amortised cost.
Therefore for these assets, the fair value hierarchy noted above
relates to the disclosure in this note only.
Cash and balances at central banks
The fair value of cash and balances at central banks was
calculated based upon the present value of the expected future
principal and interest cash flows. The rate used to discount the
cash flows was the market rate of interest at the balance sheet
date.
At the end of each year, the fair value of cash and balances at
central banks was calculated to be equivalent to their carrying
value.
Loans and advances to banks
The fair value of loans and advances to banks was calculated
based upon the present value of the expected future principal and
interest cash flows. The rate used to discount the cash flows was
the market rate of interest at the balance sheet date.
Loans and advances to customers
The fair value of loans and advances to customers was calculated
based upon the present value of the expected future principal and
interest cash flows. The rate used to discount the cash flows was
the market rate of interest at the balance sheet date, and the same
assumptions regarding the risk of default were applied as those
used to derive the carrying value.
The Group provides loans and advances to commercial, corporate
and personal customers at both fixed and variable rates. To
determine the fair value of loans and advances to customers, loans
are segregated into portfolios of similar characteristics. A number
of techniques are used to estimate the fair value of fixed rate
lending; these take account of expected credit losses based on
historic trends and expected future cash flows.
For the acquired loan book, the discount on acquisition is used
to determine the fair value in addition to the expected credit
losses and expected future cash flows.
Debt securities
The fair value of debt securities is based on the quoted
mid-market share price.
Derivatives
Where derivatives are traded on an exchange, the fair value is
based on prices from the exchange.
Deposits from banks
The fair value of amounts due to banks was calculated based upon
the present value of the expected future principal and interest
cash flows. The rate used to discount the cash flows was the market
rate of interest at the balance sheet date.
At the end of each year, the fair value of amounts due to banks
was calculated to be equivalent to their carrying value due to the
short maturity term of the amounts due.
Deposits from customers
The fair value of deposits from customers was calculated based
upon the present value of the expected future principal and
interest cash flows. The rate used to discount the cash flows was
the market rate of interest at the balance sheet date for the
notice deposits and deposit bonds. The fair value of instant access
deposits is equal to book value as they are repayable on
demand.
Financial liabilities
The fair value of other financial liabilities was calculated
based upon the present value of the expected future principal cash
flows.
At the end of each year, the fair value of other financial
liabilities was calculated to be equivalent to their carrying value
due to their short maturity. The other financial liabilities
include all other liabilities other than non-interest accruals.
Subordinated liabilities
The fair value of subordinated liabilities was calculated based
upon the present value of the expected future principal cash
flows.
5. Operating segments
The Group is organised into eight operating segments as
disclosed below:
1) Banking - Includes Private and Commercial Banking. Private
Banking - Provides traditional private banking services as well as
offering financial planning and investment management services.
This segment includes Dubai. Commercial Banking - Provides bespoke
commercial banking services and tailored secured lending against
property investments and other assets.
2) Mortgage Portfolios - Acquired mortgage portfolios.
3) RAF - Specialist asset finance lender mainly in high value cars but also business assets.
4) ACABL - Provides finance secured on either invoices, assets or stock of the borrower.
5) ASFL - Provides short term secured lending solutions to
professional and entrepreneurial property investors.
6) AAGH - Provides vehicle finance and related services,
predominantly in the truck & trailer and bus & coach
markets.
7) All Other Divisions - All other smaller divisions and central
costs in Arbuthnot Latham & Co., Ltd (Investment property and
Central costs).
8) Group Centre - ABG Group management.
During the second half of 2020 the Group changed the way it
manages and reports the Banking sector, combining the Private
Banking and Commercial Banking sector into a single Banking sector.
In 2021 the Group also started to report Wealth Management
separately, which was previously included as part of Banking. This
is the level at which management decisions are made and how the
Group will manage the overall business sectors going forward with
the anticipated growth in subsidiary businesses. The comparative
numbers for the divisions have been restated to reflect the new
allocation method.
Transactions between the operating segments are on normal
commercial terms. Centrally incurred expenses are charged to
operating segments on an appropriate pro-rata basis. Segment assets
and liabilities comprise loans and advances to customers and
customer deposits, being the majority of the balance sheet.
All
Wealth Mortgage Other Group
Banking Management Portfolios RAF ACABL ASFL AAGH Divisions Centre Total
Six months GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
ended 30
June 2021
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Interest
revenue 22,634 - 3,732 4,049 3,471 293 70 2,474 9 36,732
Inter-segment
revenue - - - - - - - - (9) (9)
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Interest
revenue from
external
customers 22,634 - 3,732 4,049 3,471 293 70 2,474 - 36,723
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Fee and
commission
income 1,178 5,080 - 26 2,043 5 - 450 - 8,782
Turnover - - - - - - 23,190 - - 23,190
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Revenue from
external
customers 23,812 5,080 3,732 4,075 5,514 298 23,260 2,924 - 68,695
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Interest
expense (2,086) - (1,104) (1,123) (1,148) (94) (891) 977 (1,324) (6,793)
Cost of sales - - - - - - (20,346) - - (20,346)
Add back
inter-segment
revenue - - - - - - - - 9 9
Fee and
commission
expense (158) - - - (19) - - - - (177)
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Segment
operating
income 21,568 5,080 2,628 2,952 4,347 204 2,023 3,901 (1,315) 41,388
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Impairment
losses (42) - (289) (92) (33) (9) (400) - - (865)
Gain from a
bargain
purchase - 8,656 8,656
Other income - - 2,239 43 - - - 754 (147) 2,889
Operating
expenses (21,433) (6,512) (673) (1,923) (2,519) (765) (2,393) (8,126) (4,686) (49,030)
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Segment profit
/ (loss)
before tax 93 (1,432) 3,905 980 1,795 (570) 7,886 (3,471) (6,148) 3,038
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Income tax
(expense)
/ income - - - (186) - - - 1,240 - 1,054
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Segment profit
/ (loss)
after tax 93 (1,432) 3,905 794 1,795 (570) 7,886 (2,231) (6,148) 4,092
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Loans and
advances
to customers 1,279,747 - 195,108 93,033 147,913 7,530 - 11,500 (8,360) 1,726,471
Other assets - - - - - - - 1,427,285 2,226 1,429,511
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Segment total
assets 1,279,747 - 195,108 93,033 147,913 7,530 - 1,438,785 (6,134) 3,155,982
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Customer
deposits 2,427,066 - - - - - - 251,119 (35,424) 2,642,761
Other
liabilities - - - - - - - 300,310 14,296 314,606
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Segment total
liabilities 2,427,066 - - - - - - 551,429 (21,128) 2,957,367
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
Other segment
items:
Capital
expenditure - - - (5) - - (12,557) (131) - (12,693)
Depreciation
and
amortisation - - - (5) (11) (6) - (880) (13) (915)
--------------- ---------- ----------- ----------- -------- -------- ------- --------- ---------- --------- ----------
The "Group Centre" segment above includes the parent entity and all intercompany
eliminations.
All
Wealth Mortgage Other Group
Banking Management Portfolios RAF ACABL ASFL Divisions Centre Total
Six months GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
ended 30 June
2020
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Interest
revenue 22,913 - 5,434 5,058 2,014 393 3,233 27 39,072
Inter-segment
revenue - - - - - - - (27) (27)
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Interest
revenue from
external
customers 22,913 - 5,434 5,058 2,014 393 3,233 - 39,045
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Fee and
commission
income 1,165 4,444 - 87 1,043 1 253 - 6,993
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Revenue from
external
customers 24,078 4,444 5,434 5,145 3,057 394 3,486 - 46,038
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Interest
expense (2,396) - (2,213) (1,410) (859) (128) (1,009) (989) (9,004)
Add back
inter-segment
revenue - - - - - - - 27 27
Subordinated
loan note
interest - - - - - - - (360) (360)
Fee and
commission
expense (124) (12) - (1) (9) - (1) - (147)
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Segment
operating
income 21,558 4,432 3,221 3,734 2,189 266 2,476 (1,322) 36,554
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Impairment
losses (1,087) - - (603) 9 (20) - - (1,701)
Other income - - - - - - 840 (420) 420
Operating
expenses (19,188) (5,516) (838) (2,171) (1,524) (760) (2,039) (3,036) (35,072)
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Segment profit
/ (loss)
before tax 1,283 (1,084) 2,383 960 674 (514) 1,277 (4,778) 201
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Income tax
(expense) /
income - - - (206) - - - 136 (70)
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Segment profit
/ (loss)
after tax 1,283 (1,084) 2,383 754 674 (514) 1,277 (4,642) 131
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Loans and
advances to
customers 1,115,819 - 300,846 101,425 66,504 8,654 38,514 (11,500) 1,620,262
Other assets - - - - - - 1,065,270 9,816 1,075,086
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Segment total
assets 1,115,819 - 300,846 101,425 66,504 8,654 1,103,784 (1,684) 2,695,348
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Customer
deposits 1,956,153 - - - - - 276,826 (26,464) 2,206,515
Other
liabilities - - - - - - 284,844 11,460 296,304
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Segment total
liabilities 1,956,153 - - - - - 561,670 (15,004) 2,502,819
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Other segment
items:
Capital
expenditure - - - - (363) - (4,354) - (4,717)
Depreciation
and
amortisation - - - (5) (11) (6) (880) (13) (915)
--------------- ---------- ----------- ----------- -------- -------- ------- ----------- --------- ----------
Segment profit is shown prior to any intra-group
eliminations.
Prior year numbers have been represented according to the 2021
operating segments reported to management. The UK private bank had
a branch in Dubai, which generated GBP2.0m (30 June 2020: GBP2.0m)
of income and had direct operating costs of GBP1.5m (30 June 2020:
GBP1.2m). All Dubai branch income was booked in the UK. Other than
the Dubai branch, which was closed on 31 May 2021, all operations
of the Group are conducted wholly within the United Kingdom and
geographical information is therefore not presented.
6. Other income
Other income mainly includes the profit on sale of the Tay
Mortgage portfolio of GBP2.2m. It also includes rental income
received from the investment property of GBP0.2m (2020: GBP0.4m)
and GBP0.4m dividend income received from STB (2020: GBPnil).
7. 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 15,022,629 (2020:
15,028,411) in issue during the period.
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 period, as well as the number of dilutive share options
in issue during the period. There were no dilutive share options in
issue at the end of June (2020: nil).
Six months Six months
ended ended
30 June 30 June
2021 2020
Profit attributable GBP000 GBP000
---------------------------------------------------------- ----------- -----------
Total profit after tax attributable to equity holders of
the Company 4,092 131
---------------------------------------------------------- ----------- -----------
Six months Six months
ended ended
30 June 30 June
2021 2020
Basic Earnings per share p p
---------------------------------------------------------- ----------- -----------
Total Basic Earnings per share 27.2 0.9
---------------------------------------------------------- ----------- -----------
8. Acquisition of Asset Alliance Group Holdings Limited
On 31 March 2021, following receipt of regulatory approval,
Arbuthnot Latham completed the acquisition of 100% of the share
capital of AAGH from its former owners made up of institutional
investors and the key management team.
AAGH provides vehicle finance and related services,
predominantly in the truck & trailer and bus & coach
markets. Operating from five locations, it is the UK's leading
independent end-to-end specialist in commercial vehicle financing
and has over 4000 vehicles under management.
The acquisition supported AL's continued strategy to diversify
its proposition within the specialist financial services
sector.
The consideration was paid in full in cash following completion.
AL has also provided an intercompany loan to AAGH at completion of
GBP127.9m to re-finance its existing finance liabilities. The
consideration and the refinancing of AAGH's funding liabilities
have been satisfied from the Group's current cash resources.
The share capital was acquired at a discount to the fair value
of net assets resulting in a bargain purchase gain recognised in
the Statement of Comprehensive Income on acquisition as set out in
the table on the next page. The fair value of intangibles acquired
include GBP3.5m for the brand.
The acquisition contributed GBP0.1m to interest income and
GBP8.6m to profit before tax.
Acquired Fair Recognised
assets/ value values
liabilities adjustments on acquisition
GBP000 GBP000 GBP000
----------------------------------------- ------------- ------------- ----------------
Loans and advances to banks 3,883 - 3,883
Loans and advances to customers 4,226 - 4,226
Other assets 12,159 - 12,159
Deferred tax assets - 2,111 2,111
Intangible assets 1,583 2,837 4,420
Property, plant and equipment 120,631 17,057 137,688
----------------------------------------- ------------- ------------- ----------------
Total assets 142,482 22,005 164,487
----------------------------------------- ------------- ------------- ----------------
Deposits from banks 127,918 - 127,918
Deferred tax liabilities - 3,906 3,906
Corporation tax liability - 2 2
Other liabilities 14,007 - 14,007
----------------------------------------- ------------- ------------- ----------------
Total liabilities 141,925 3,908 145,833
----------------------------------------- ------------- ------------- ----------------
Net identifiable (liabilities) / assets 557 18,097 18,654
----------------------------------------- ------------- ------------- ----------------
Consideration 9,998
Negative Goodwill / Bargain Purchase (8,656)
----------------------------------------- ------------- ------------- ----------------
9. Events after the balance sheet date
There were no material post balance sheet events to report.
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