ADVFN Logo

We could not find any results for:
Make sure your spelling is correct or try broadening your search.

Trending Now

Toplists

It looks like you aren't logged in.
Click the button below to log in and view your recent history.

Hot Features

Registration Strip Icon for default Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.

ARBB Arbuthnot Banking Group Plc

1,110.00
45.00 (4.23%)
Last Updated: 15:40:25
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Arbuthnot Banking Group Plc LSE:ARBB London Ordinary Share GB0007922338 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  45.00 4.23% 1,110.00 1,050.00 1,110.00 1,130.00 1,050.00 1,090.00 10,080 15:40:25
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Commercial Banks, Nec 139.02M 16.46M 1.0085 10.81 177.89M

Arbuthnot Banking Group PLC Final Results (1581J)

28/03/2018 7:01am

UK Regulatory


Arbuthnot Banking (LSE:ARBB)
Historical Stock Chart


From Mar 2019 to Mar 2024

Click Here for more Arbuthnot Banking Charts.

TIDMARBB

RNS Number : 1581J

Arbuthnot Banking Group PLC

28 March 2018

28 March 2018

For immediate release

ARBUTHNOT BANKING GROUP ("Arbuthnot", "the Group" or "ABG")

Audited Final Results for the year to 31 December 2017

Increased profitability as capital successfully deployed

Arbuthnot Banking Group today announces an increase in underlying profit of 91%.

Arbuthnot Banking Group PLC is the holding company for Arbuthnot Latham & Co., Limited and has an 18.6% shareholding in Secure Trust Bank PLC.

FINANCIAL HIGHLIGHTS

   --      Profit Before Tax GBP7.0m (2016: GBP0.2m)* 
   --      Underlying profit before tax GBP7.7m (2016: GBP4.0m) 
   --      Operating income increased by 32% to GBP54.6m (2016: GBP41.5m) 
   --      Earnings per share 43.9p (2016: (3.7p))* 
   --      Final dividend per share 19p (2016: 18p), an increase of 6% 
   --      Total full year dividend per share 33p (2016: 31p)** 
   --      Underlying net assets GBP236m (2016: GBP234m) 
   --      Net assets per share 1547p (2016: 1534p) 
   --      Underlying return on deployed equity 10.0% (2016: 9.6%) 

OPERATIONAL HIGHLIGHTS

Arbuthnot Latham

   --      Profit before tax GBP11.0m (2016: GBP9.1m) an increase of 21% 
   --      Average net margin at 4.8% (2016: 4.8%) 
   --      Customer loans exceeded GBP1bn increasing 38% to GBP1,049m (2016: GBP759m) 
   --      Written loan volume increased 105% to GBP466m (2016: GBP227m) 
   --      Customer deposits exceeded GBP1bn increasing 39% to GBP1,391m (2016: GBP998m) 
   --      Assets under management exceeded GBP1bn increasing 13% to GBP1,044m (2016: GBP920m) 
   --      Completed acquisition of Renaissance Asset Finance Limited on 28 April 2017 
   --      Installed Oracle Flexcube operating system at a total investment of GBP8m 

Secure Trust Bank - Associated Undertaking

   --      Shareholding maintained at 18.6% 
   --      Treated as an associated undertaking due to significant influence via three board members 
   --      Reported GBP4.4m of profit from associate (2016: GBP2.1m) 

Commenting on the results, Sir Henry Angest, Chairman and Chief Executive of Arbuthnot, said: "The Group had a good year, with profits increasing substantially, supported by the deployment of capital into the business. Arbuthnot Latham reached a creditable milestone of surpassing GBP1bn in its key business metrics: Customer Loans, Customer Deposits and Assets under Management. With a new banking system successfully installed, strong capital and a good liquidity surplus, the Group is well set for further growth."

Note: * The prior year profit and EPS excludes profit from discontinued operations of GBP228m.

** The total dividend for 2016 excludes special dividend payments of 325p.

 
 ENQUIRIES: 
 
 Arbuthnot Banking Group 
 Sir Henry Angest, Chairman and Chief Executive      0207 012 2400 
 Andrew Salmon, Chief Operating Officer 
 James Cobb, Group Finance Director 
 
 Stifel Nicolaus Europe Ltd trading as KBW (Nomad 
  and Joint Broker)                                  0207 710 7600 
 Robin Mann 
 Gareth Hunt 
 Stewart Wallace 
 
 Numis Securities Ltd (Joint Broker) 
 Chris Wilkinson                                     0207 260 1000 
 Stephen Westgate 
 
 Maitland (Financial PR) 
 Neil Bennett 
 Jais Mehaji 
 Sam Cartwright                                      0207 379 5151 
 

The 2017 Annual Report and Notice of Meeting will be posted and available on the Arbuthnot Banking Group website http://www.arbuthnotgroup.com on or before 13 April 2018. Copies may be obtained from the Company Secretary, Arbuthnot Banking Group PLC, Arbuthnot House, 7 Wilson Street, London, EC2M 2SN.

Consolidated statement of comprehensive income

 
                                                                   Year ended 31 
                                                                      December 
                                                                    2017       2016 
                                                         Note     GBP000     GBP000 
------------------------------------------------------  -----  ---------  --------- 
 Interest income                                         8        47,427     38,071 
 Interest expense                                                (6,334)    (7,626) 
------------------------------------------------------  -----  ---------  --------- 
 Net interest income                                              41,093     30,445 
------------------------------------------------------  -----  ---------  --------- 
 Fee and commission income                               9        13,805     11,430 
 Fee and commission expense                                        (282)      (425) 
------------------------------------------------------  -----  ---------  --------- 
 Net fee and commission income                                    13,523     11,005 
------------------------------------------------------  -----  ---------  --------- 
 Operating income                                                 54,616     41,450 
------------------------------------------------------  -----  ---------  --------- 
 Net impairment loss on financial assets                 10        (394)      (474) 
 Profit from associates                                  27        4,437      2,145 
 Other income                                            11        3,033      3,169 
 Operating expenses                                      12     (54,721)   (46,111) 
------------------------------------------------------  -----  ---------  --------- 
 Profit before tax from continuing operations                      6,971        179 
 Income tax expense                                      13        (448)      (720) 
------------------------------------------------------  -----  ---------  --------- 
 Profit / (loss) after tax from continuing operations              6,523      (541) 
 Profit from discontinued operations after tax           14            -    228,110 
------------------------------------------------------  -----  ---------  --------- 
 Profit for the year                                               6,523    227,569 
------------------------------------------------------  -----  ---------  --------- 
 Other comprehensive income 
 Items that are or may be reclassified to profit or 
  loss 
 Available-for-sale reserve                                          128    (2,377) 
 Available-for-sale reserve - Associate                              389      (389) 
 Tax on other comprehensive income                                 (104)        456 
------------------------------------------------------  -----  ---------  --------- 
 Other comprehensive income for the period, net of 
  tax                                                                413    (2,310) 
------------------------------------------------------  -----  ---------  --------- 
 Total comprehensive income for the period                         6,936    225,259 
------------------------------------------------------  -----  ---------  --------- 
 
 Profit attributable to: 
 Equity holders of the Company                                     6,523    166,143 
 Non-controlling interests                                             -     61,426 
------------------------------------------------------  -----  ---------  --------- 
 Profit for the year                                               6,523    227,569 
------------------------------------------------------  -----  ---------  --------- 
 
 Total comprehensive income attributable to: 
 Equity holders of the Company                                     6,936    164,320 
 Non-controlling interests                                             -     60,939 
------------------------------------------------------  -----  ---------  --------- 
 Total comprehensive income for the period                         6,936    225,259 
------------------------------------------------------  -----  ---------  --------- 
 
 Earnings per share for profit attributable to the 
  equity holders of the Company during the year 
 (expressed in pence per share): 
 Basic earnings per share - Continuing operations        16         43.9      (3.7) 
 Basic earnings per share - Discontinued operations      16            -    1,130.9 
------------------------------------------------------  -----  ---------  --------- 
 Basic earnings per share                                16         43.9    1,127.2 
------------------------------------------------------  -----  ---------  --------- 
 
 Diluted earnings per share - Continuing operations      16         43.9      (3.7) 
 Diluted earnings per share - Discontinued operations    16            -    1,130.4 
------------------------------------------------------  -----  ---------  --------- 
 Diluted earnings per share                              16         43.9    1,126.7 
------------------------------------------------------  -----  ---------  --------- 
 

Consolidated statement of financial position

 
                                                          At 31 December 
                                                            2017        2016 
                                                Note      GBP000      GBP000 
 ASSETS 
 Cash and balances at central banks               17     313,101     195,752 
 Loans and advances to banks                      18      70,679      36,951 
 Debt securities held-to-maturity                 19     227,019     107,300 
 Assets classified as held for sale               20       2,915           - 
 Derivative financial instruments                 21       2,551       1,516 
 Loans and advances to customers                  22   1,049,269     758,799 
 Other assets                                     24      20,624      11,939 
 Financial investments                            25       2,347       2,145 
 Deferred tax asset                               26       1,527       1,665 
 Interests in associates                          27      83,804      82,574 
 Intangible assets                                28      15,995       8,522 
 Property, plant and equipment                    30       3,962       4,782 
 Investment property                              31      59,439      53,339 
---------------------------------------------  -----  ----------  ---------- 
 Total assets                                          1,853,232   1,265,284 
---------------------------------------------  -----  ----------  ---------- 
 EQUITY AND LIABILITIES 
 Equity attributable to owners of the parent 
 Share capital                                    37         153         153 
 Retained earnings                                38     237,171     235,567 
 Other reserves                                   38       (949)     (1,362) 
---------------------------------------------  -----  ----------  ---------- 
 Total equity                                            236,375     234,358 
---------------------------------------------  -----  ----------  ---------- 
 LIABILITIES 
 Deposits from banks                              32     195,097       3,200 
 Derivative financial instruments                 21         931         227 
 Deposits from customers                          33   1,390,781     997,649 
 Current tax liability                                       705         147 
 Other liabilities                                34      16,239      17,082 
 Debt securities in issue                         35      13,104      12,621 
---------------------------------------------  -----  ----------  ---------- 
 Total liabilities                                     1,616,857   1,030,926 
---------------------------------------------  -----  ----------  ---------- 
 Total equity and liabilities                          1,853,232   1,265,284 
---------------------------------------------  -----  ----------  ---------- 
 

Chairman's statement

I am pleased to report that Arbuthnot Banking Group ("ABG" or the "Group") has achieved a profit before tax for 2017 of GBP7.0m (2016: GBP0.2m), which reflects the financial result of the deployment of part of our surplus capital into expanding the businesses of our principal banking subsidiary Arbuthnot Latham & Co., Ltd ("AL" or the "Bank").

Overview

It has been a notable year for many reasons, not just that of the financial results. During the year AL reached the creditable milestone of surpassing GBP1bn in three of its key business metrics: Customer Loans, Customer Deposits and Assets under Management. This was achieved while undertaking a significant IT infrastructure project that touched all parts of the Bank.

Over the May Bank Holiday weekend, the Bank installed its new banking platform Flexcube, supplied by Oracle, as part of an investment programme worth in excess of GBP8m. The weekend was a culmination of two years of careful planning and preparation by a significant number of our employees. Over the weekend 120 employees, approximately one third of the Group, gave up their time to achieve a successful transition.

As I mentioned in last year's statement our intention, after having sold a significant stake in Secure Trust Bank, is to develop and diversify the business lines within AL. During 2017 we took two significant steps with this aim in mind. Firstly, we completed the acquisition of Renaissance Asset Finance Limited ("RAF") in April. This business has been successfully integrated into the Group and has returned to growth after being constrained by the limited access to funding it suffered as an independent entity. AL has meanwhile benefited from gaining RAF's expertise in the asset finance markets, by being able to refer a number of lending deals that previously we might not have been able to complete.

Secondly, our development of the Commercial Banking business continues at a robust pace. We hired a number of new bankers and expanded into new business areas and regions during the year. This business closed the year with over GBP300m of customer loans, a significant achievement given the fact it was only launched in early 2016.

We plan to continue our diversification in 2018 as we work with the team that we have hired to establish Asset Based Lending and others with whom we are currently developing plans. These are new start-up ventures that in time should make strong contributions to the Group, but will require a degree of initial investment. I also look forward to our Commercial Property Fund becoming established during 2018.

I initially thought when the financial crisis weakened the larger banks, the major benefit to us would be that the smaller banks would be able to compete more equally in their chosen specialist markets. I hope this may still come to pass, but it has become much clearer to me that the real benefit of the weakening of the larger banks has been our ability to attract talented employees to develop further the success of our Group. We have made a number of key hires during the year and they are helping to enhance our business and make the operational structures more resilient and provide a sound foundation for expansion.

Regulation

Previously I have commented on how unfair I believe both the regulatory and taxation systems can be when they introduce retrospective changes. During 2017 we saw a prime example of this when the Bank of England announced the introduction of a 1% Countercyclical Capital Buffer, to be effective in 2018. This is applicable to the back book of lending as well as new business to be written. How can banks plan over the long term when their capital requirements can be increased by nearly 10% without warning? Keeping significant surplus capital for such moments is inefficient for both the banks and the economy. This buffer on top of the Capital Conservation Buffer, which will be fully phased in within a year from now, has increased the capital requirement by up to 35% for loans that may have been originated prior to these requirements. This can result in inefficient pricing decisions and below target returns on equity. Surely it would make more sense to apply these new capital requirements only to new written business, so that banks can decide if they want to continue to lend? In this way they can make fully informed decisions based on the capital requirements that will be applicable to a loan, rather than trying to anticipate how regulation will evolve over its lifespan.

I am also concerned about the unintended consequences of regulatory change. The Countercyclical Capital Buffer was reportedly introduced by the Bank of England with the intention of dampening a perceived bubble that may have been developing in the unsecured credit markets, in particular those related to credit card loans. If this was the case, would it not have made sense to apply the buffer to those institutions that actually carry out unsecured lending? Instead, the buffer has been imposed on all banks and all types of lending, which is a very blunt instrument to correct a very specific threat. This will result in all credit markets being constrained and ultimately putting a strain on the whole economy.

As banks see their returns on equity falling, due to these higher capital levels, their inclination will be either to charge customers more or to move up the risk curve to maintain their target returns. This may over time increase the risks within the banking sector rather than reduce them, entirely contrary to the primary objective of the Bank of England.

The fact that banks shape their business models around the regulatory rules should be no surprise to both the regulators and the Government. Thus, you would expect that both of these bodies would ensure that the rules are complementary to Government policy. However, there seems to have been a significant breakdown in this co-ordination regarding the current housing policy. The regulators have increased the capital requirements for development funding by at least 50%, so at the time the Government is calling for more houses to be built, the banks are withdrawing their lending for property developers. I believe that the Government and regulators should revisit these rules to ensure the best outcome for the economy overall.

In the final quarter of the year, the Basel Committee published its revised Basel III capital rules; in particular, the changes to the standardised credit risk methodology. From the outset the Regulators had stated that their objective in these revised rules was not to increase total capital within the banking system, but to redistribute it toward credit risks that they felt had been underestimated in the prior model.

It will come as no surprise, given our long stated conservative view on risk taking and our business model, that the revised rules will overall be beneficial to our business. However, I am disappointed by the fact that these rules will not be effective until 2022. Once again, I fear that intense lobbying from the big banks has favoured them to the detriment of the smaller specialist banks.

Board Changes and Personnel

Once again I would like to thank my colleagues on the Board for their continued support and the dedication they have shown to the Group.

The performance of the Group also reflects the hard work and commitment of the members of staff. On behalf of the Board I extend our thanks to all of them for their dedicated efforts in 2017.

Dividend

The Board is proposing a final dividend of 19p, an increase of 1p on last year. Together with the interim dividend of 14p it gives a total dividend of 33p (2016: 356p, including special dividends of 325p), which represents an increase of 2p on the ordinary dividend.

If approved, the dividend will be paid on 18 May 2018 to shareholders on the register at close of business on 27 April 2018.

Outlook

During 2017 and early 2018 the stock markets reached record levels as the global economy continued its recovery, underpinned by loose fiscal policies and the introduction of business-friendly tax regimes, in particular in the US. However, more recently those markets have seen more volatility and corrections to values.

We take note of this macro-economic environment, but remain focused on developing our current and new businesses within the Group. This will bring greater diversity to the earnings of Arbuthnot and should provide greater balance and stability to the Group for the future, which looks promising.

By the time you receive my next Chairman's report we will be on the verge of Britain's official exit from the EU. This I believe should not be the major worry for Britain's business community or economy and indeed should present an opportunity. The greater risk must be that of a hard left Labour government. This could have a significant impact on our clients and business. Such a threat is something that we all, and in particular businesses and entrepreneurs, must take very seriously.

 
 Strategic Report 
 
 Business Review 
 
 
 Arbuthnot Latham & Co., Ltd 
                                       2017          2016 
 Operating income                  GBP54.9m      GBP41.8m 
 Other income                       GBP3.9m       GBP4.4m 
 Operating expenses                GBP47.4m      GBP36.6m 
 Profit before tax                 GBP11.0m       GBP9.1m 
 Customer loans                 GBP1,049.3m     GBP758.8m 
 Customer deposits              GBP1,390.8m     GBP997.6m 
 Total assets                   GBP1,783.7m   GBP1,199.2m 
 Assets under management        GBP1,044.3m     GBP919.8m 
 Average net margin                    4.8%          4.8% 
 Loan to deposit ratio                75.4%         76.0% 
 

Arbuthnot Latham and Co., Limited has reported a profit before tax of GBP11m (2016: GBP9.1m), which is an increase of 21%. However, the increase in underlying profit is 48%, if the one off gain of GBP1.6m from the sale of Visa Europe shares in 2016 is removed.

Overall, the increased financial performance of the Bank is an indicator of the growth of the three key business metrics: Customer Loans, Customer Deposits and Assets under Management. Significantly, as well as achieving good growth in annual profits, the Bank achieved a major milestone during the year, with each of the key metrics increasing beyond the GBP1bn level. Customer Loans and Deposits increased by 38% and 39% respectively and Asset under Management grew by 13%.

A contributing factor to the strong financial performance of the Bank was the completion of the acquisition of RAF. This niche asset finance lending business specialises in financing high value cars and other business assets. Prior to the acquisition it had been an independent business, but was wholly reliant on its funding from a single banking line. The growth ability of the business was therefore constrained, and indeed in the period of time between the announcement of our intention to acquire the operation and the final completion in April, the lending balances declined as the original banking line was gradually withdrawn.

At the time of acquisition the customer loan balances were GBP58m. Once the company became part of the Group, this growth constraint was removed and it was able to return to the market with new vigour and was quickly able to re-energise its relationship with brokers and business introducers, thus returning to a growth trajectory and closed the year with loan balances of GBP71m.

During its eight full months of ownership it directly contributed GBP1.6m and a further GBP0.8m to the Group via the funding benefit achieved by the new banking facilities.

The business saw no significant change in impairments during the year, with losses running at 20bps.

To support the future growth plans of RAF and the resultant increase in activities, the business will be moving to new premises in Basildon toward the end of the first quarter of 2018.

Private Banking

The Private Bank increased loan origination by 22% to a record of GBP201m. However, this was not sufficient to offset repayment of loans. Overall the loan portfolio closed the year at GBP578m (2016: GBP607m). However, more than half of this reduction is due to the natural amortisation of the acquired loan portfolios, namely those from Duncan Lawrie and the Dunfermline Building Society. These portfolios continue to perform ahead of our expected cash flow forecasts, but still contributed GBP16m of the reduction in overall balances. The remaining core private banking book reduced by 3%. We expect that the portfolio will return to growth in 2018, with more emphasis on finding niche bespoke lending deals rather than vanilla lending, which has become an increasingly competitive area in recent years.

The credit performance of the book remained well within our expected risk tolerance levels with impairments remaining steady during the year at GBP0.4m (2016: GBP0.4m). This reflects our conservative lending policies, which focus on not only the standing of the borrower but also the quality of the collateral that we take as security. Our experience to date in managing problem debt positions is that in almost all cases we recover our lending and expect that this will remain the case for the foreseeable future.

The Private Bank continued to see a good flow of new client introductions and was able to increase customer deposit balances by 14% to GBP1,082m (2016: GBP946m).

Many of the new clients transferred their balances into the Wealth Management division of the Private Bank. The Investment Management team saw assets under management increase by a net 13% reaching GBP1,044m (2016: GBP920m). The gross client inflow of funds was GBP166m, which offset natural withdrawals of GBP135m and the remaining balance is accountable to market increases in clients funds under management.

Finally, the Private Bank was the most impacted by the replacement of our banking platform with a new Oracle sourced product, Flexcube. A significant number of employees showed true dedication and commitment to ensure that this project ran as smoothly as could be expected. The Bank now has the modern infrastructure it needs on which to build for the future.

Commercial Bank

The Commercial Bank has traded robustly during 2017. Customer loan balances increased by over 300% to close the year at GBP305m (2016: GBP76m), as the investment in new bankers resulted in good quality commercial lending opportunities. The commercial banking proposition of quality service and relationship banking has also proved successful in being able to attract deposits, with the deposit book growing by more than 500% to close the year at GBP308m (2016: GBP51m).

Now that the business has an established loan portfolio and with it the resultant positive revenue stream, which supports our central overheads, the Commercial Bank will focus on generating higher returns on the capital employed to ensure that this area of growth continues to add to the Group's targeted return on equity.

Dubai (included in Private Banking above)

The office in Dubai continued to perform well, contributing GBP1.8m to the Group's profit. The customer loan balances closed at GBP94m (2016: GBP74m), deposits were GBP94m (2016: GBP64m) and AUMs were GBP95m (2016: GBP78m). With a growing confidence that our business can trade in the region, the office is expanding both with larger premises and additional private bankers being recruited. The expansion will double the footprint of the office located in the Dubai Financial Centre. With EXPO 2020 on the horizon, the business is well placed to build and develop the proposition in the UAE and wider region.

Funding

Early in 2018, access to further capacity from the Bank of England for liquidity schemes (Funding for Lending Scheme and Term Funding Scheme) was closed. This will leave banks four more years before funding benefits provided by the schemes fully unwind.

The Bank has participated in these schemes but only to modest levels. The Bank remains highly liquid with a loan to deposit ratio of 75%. Importantly, it has also managed to develop a good mix of customer deposits with call, notice and term balances. This should give the Bank an advantage over time as interest rates rise. We anticipate that margins should see a benefit, with our surplus liquidity balances becoming more valuable and providing greater strength to the Bank than relying on "best buy" tables for deposit gathering.

Business Development

During 2018 the Bank plans to continue to diversify its income sources by developing further businesses.

The first of these is the creation of an Asset Based Lending ("ABL") business. The core team of seven to establish this have been hired and are based in offices near Gatwick. The Managing Director, Tim Hawkins, has a long and respected track record in this business area and was most recently the head of ABL at Shawbrook. This business expects to write its first customer loans in late Q2 2018.

We also have plans to launch a Commercial Property Investment Fund for professional investors and to establish other new lending businesses that have a synergy with our current business and help diversify our revenue streams.

A key strength of AL is its ability to raise deposits at attractive margins. The Private Bank has over the years built a significant deposit base and recently this has grown well. Since commencing the Commercial Banking business, the Bank has also created a good SME deposit base. To supplement this, the Bank is now developing a direct to market retail deposit offering. The proposition will further diversify the Bank's sources of funding, with the ability to raise fixed term deposits from the best buy and aggregator platforms. "Arbuthnot Direct" is expected to soft launch in the middle of the year and be available to depositors in the third quarter. It is planned only to raise a modest amount of funding from this platform, but it is being put in place, principally, so that if a compelling acquisition proposition became available to the Bank, it would be able to raise additional liquidity at short notice. The platform will be administered from our Exeter office with two additional staff being directly employed and a third party service provider adding additional capacity where needed.

Strategic Report - Financial Review

Arbuthnot Banking Group adopts a pragmatic approach to risk taking and seeks to maximise long term revenues and returns. Given its relative size, it is nimble and able to remain entrepreneurial and capable of taking advantage of favourable market opportunities when they arise.

The Group provides a range of financial services to clients and customers in its chosen markets of Private and Commercial Banking and specialist lending. The Group's revenues are derived from a combination of net interest income from lending, deposit taking and treasury activities, fees for services provided and commission earned on the sale of financial instruments and products.

 
 Highlights 
                                                                    2017       2016 
 Summarised Income Statement                                      GBP000     GBP000 
-------------------------------------------------------------  ---------  --------- 
 Net interest income                                              41,093     30,445 
 Net fee and commission income                                    13,523     11,005 
-------------------------------------------------------------  ---------  --------- 
 Operating income                                                 54,616     41,450 
 Profit from associates                                            4,437      2,145 
 Other income                                                      3,033      3,169 
 Operating expenses                                             (54,721)   (46,111) 
 Impairment losses - financial investments                             -       (47) 
 Impairment losses - loans and advances to customers               (394)      (427) 
-------------------------------------------------------------  ---------  --------- 
 Profit before tax from continuing operations                      6,971        179 
 Income tax expense                                                (448)      (720) 
-------------------------------------------------------------  ---------  --------- 
 Profit after tax from continuing operations                       6,523      (541) 
 Profit from discontinued operations after tax                         -    228,110 
-------------------------------------------------------------  ---------  --------- 
 Profit for the year                                               6,523    227,569 
-------------------------------------------------------------  ---------  --------- 
 
 Basic earnings per share (pence) - Continuing operations           43.9      (3.7) 
 Basic earnings per share (pence) - Discontinuing operations           -    1,130.9 
-------------------------------------------------------------  ---------  --------- 
 Basic earnings per share (pence)                                   43.9    1,127.2 
-------------------------------------------------------------  ---------  --------- 
 
 
                                                 Arbuthnot       Retail             Arbuthnot 
                                                    Latham      Banking     Group     Banking 
 Underlying profit reconciliation                    & Co.    Associate    Centre       Group 
 31 December 2017                                   GBP000       GBP000                GBP000 
----------------------------------------------  ----------  -----------  --------  ---------- 
 Profit before tax from continuing operations       10,959        4,437   (8,425)       6,971 
 AL investment in operating systems                     78            -         -          78 
 AL acquisition costs                                  108            -         -         108 
 RAF - full year equivalent income*                    466            -         -         466 
----------------------------------------------  ----------  -----------  --------  ---------- 
 Underlying profit                                  11,611        4,437   (8,425)       7,623 
----------------------------------------------  ----------  -----------  --------  ---------- 
 
 Underlying basic earnings per share (pence) 
  - Continuing operations                                                                47.5 
----------------------------------------------  ----------  -----------  --------  ---------- 
 Underlying basic earnings per share (pence)                                             47.5 
----------------------------------------------  ----------  -----------  --------  ---------- 
 * - RAF profit contribution adjustment as if received from 1 January 
  2017 and not as currently included from 28 April 2017 (pro forma basis). 
 
 
                                                 Arbuthnot       Retail              Arbuthnot 
                                                    Latham      Banking      Group     Banking 
 Underlying profit reconciliation                    & Co.    Associate     Centre       Group 
 31 December 2016                                   GBP000       GBP000     GBP000      GBP000 
----------------------------------------------  ----------  -----------  ---------  ---------- 
 Profit before tax from continuing operations        9,053        2,145   (11,019)         179 
 ABG Group bonuses relating to sale of ELL               -            -      2,304       2,304 
 STB full year equivalent associate income*              -        1,732          -       1,732 
 AL realised profit on AFS investment (Visa)       (1,624)            -          -     (1,624) 
 AL investment in operating systems                     21            -          -          21 
 AL commercial banking investment                      999            -          -         999 
 AL acquisition costs                                  398            -          -         398 
----------------------------------------------  ----------  -----------  ---------  ---------- 
 Underlying profit                                   8,847        3,877    (8,715)       4,009 
----------------------------------------------  ----------  -----------  ---------  ---------- 
 
 Underlying basic earnings per share (pence) 
  - Continuing operations                                                                 17.1 
----------------------------------------------  ----------  -----------  ---------  ---------- 
 Underlying basic earnings per share (pence)                                           1,148.1 
----------------------------------------------  ----------  -----------  ---------  ---------- 
 * - STB associate income adjustment (excl. ELL & bonuses relating to 
  ELL sale) as if received from 1 January 2016 and not as currently included 
  from 16 June 2016 (pro forma basis). 
 

The Group has reported a profit before tax of GBP7.0m (2016: GBP0.2m). This is a good increase from the prior year and is the result of the continued deployment of part of the significant capital surplus that was created following the part sale of Secure Trust Bank ("STB") shares in 2016.

On an underlying basis the Group has generated profits of GBP7.6m compared to GBP4m in the prior year, which represents an increase of nearly 91%, reflecting the improving scale being generated in the business.

The deployment of capital has largely been focused on increasing the lending portfolio of the Group's businesses and notably during the year the customer loan balances once again exceeded the GBP1bn mark.

In line with ABG's long standing belief that diversification gives the Group strength, a portion of the capital was allocated to complete the acquisition of RAF. This deal was completed on 28 April following the receipt of approval from the relevant regulatory bodies. At the time of completion the customer balances of RAF stood at GBP58m. During the eight months that RAF formed part of the Group, it contributed GBP1.6m at an operating level.

The total Basic Earnings per share ("EPS") of the Group are 43.9p (2016: 1,127.2p). The reduction is largely due to the impact of the STB transactions in the prior year. On an underlying basis the EPS is 47.5p (2016: 17.1p), an increase of 177%. The total dividend is covered 1.33 times by the earnings.

At the time of the sale of a substantial part of the Group's ownership of STB, it was determined that the remaining investment (18.6%) should be treated as an associate, as ABG was considered to have "significant influence" by way of three directors of Arbuthnot Banking Group also being directors of STB. The determination remained consistent throughout 2017 and as a result the income statement has included a full year of our share of the profit after tax of STB, which contributed a further GBP2.3m as opposed to a half year impact in 2016.

The Group's expense base increased to GBP54.7m (2016: GBP46.1m), an increase of 19%. This increment is largely due to the continued investment in the diversification of businesses within the Group. The Commercial Banking business has expanded its numbers in London, Exeter and Manchester and opened a small office in Bristol. Also, the acquisition of RAF added GBP1.5m to the expense book in 2017. Additionally, the Bank has been strengthening its control and oversight functions to provide a sound foundation from which to continue to grow the business. The increase in expenses compares favourably to the 30% increase in operating income, resulting in a 10% positive operating leverage or increase in "Jaws".

Impairment losses on loans remained consistent at GBP0.4m (2016: GBP0.4m) but the overall loss rate declined to 4 bps on the total lending book.

Overall, the Return on Equity of the Group was 2.8%, though this is distorted by the significant unutilised capital within the Group. However, in the long run the Group remains committed to its target of 20%, though this will depend on reaching a sufficient level of operational scale regarding its overhead and also how the Regulators view the level of capital buffers they require from time to time.

 
 Balance Sheet Strength 
                                         2017        2016 
 Summarised Balance Sheet              GBP000      GBP000 
---------------------------------  ----------  ---------- 
 Assets 
 Loans and advances to customers    1,049,269     758,799 
 Liquid assets                        610,799     340,003 
 Other assets                         193,164     166,482 
---------------------------------  ----------  ---------- 
 Total assets                       1,853,232   1,265,284 
---------------------------------  ----------  ---------- 
 
 Liabilities 
 Customer deposits                  1,390,781     997,649 
 Other liabilities                    226,076      33,277 
---------------------------------  ----------  ---------- 
 Total liabilities                  1,616,857   1,030,926 
 Equity                               236,375     234,358 
---------------------------------  ----------  ---------- 
 Total equity and liabilities       1,853,232   1,265,284 
---------------------------------  ----------  ---------- 
 

During the year total assets increased to GBP1.9bn (2016: GBP1.3bn), driven almost entirely by the increase in customer loan balances and the incremental treasury assets that arise from our ability to raise surplus customer deposits, which are then held at the Bank of England. Customer deposits increased to GBP1.4bn (2016: GBP1.0bn), an increase of 39%.

The net assets of the Group now stand at GBP15.47 per share (2016: GBP15.34).

Segmental Analysis

The segmental analysis is shown in more detail in Note 44. The operating segments are Arbuthnot Latham & Co., Limited and Retail Banking Associate (being the Group's 18.6% investment in STB). Group costs and intercompany elimination journals are shown separately to reconcile back to Group consolidated results.

The analysis presented below, and in the business review, is before any consolidation adjustments to reverse the impact of the intergroup operating activities and also intergroup recharges and is a fair reflection of the way the Directors manage the Group.

 
 Arbuthnot Latham 
                                                            2017       2016 
 Summarised Income Statement                              GBP000     GBP000 
-----------------------------------------------------  ---------  --------- 
 Net interest income                                      41,402     30,771 
 Net fee and commission income                            13,523     11,005 
-----------------------------------------------------  ---------  --------- 
 Operating income                                         54,925     41,776 
 Other income                                              3,870      4,353 
 Operating expenses                                     (47,442)   (36,602) 
 Impairment losses - financial investments                     -       (47) 
 Impairment losses - loans and advances to customers       (394)      (427) 
-----------------------------------------------------  ---------  --------- 
 Profit before tax                                        10,959      9,053 
-----------------------------------------------------  ---------  --------- 
 

The profit before tax for AL has reached GBP11m (2016: GBP9.1m), which is an increase of 21% on a reported basis. However, on an underlying basis the increase is 48% after the impact of the profit on sale of Visa Europe shares is excluded from 2016.

Operating income of the Bank increased by 31% as the capital deployment drove higher lending revenues.

Average net margin has remained stable at 4.8%.

Operating expenses increased by 30% as the expansion of the Commercial Bank continued and RAF was incorporated from April 2017.

Impairment losses were GBP0.4m (2016: GBP0.4m) as the lending portfolios continued to perform well.

 
                                                      2017        2016 
 Summarised Balance Sheet                           GBP000      GBP000 
----------------------------------------------  ----------  ---------- 
 Assets 
 Loans and advances to customers                 1,049,269     758,799 
 Liquid assets                                     610,785     339,990 
 Other assets (including Group balances)           123,621     100,373 
----------------------------------------------  ----------  ---------- 
 Total assets                                    1,783,675   1,199,162 
----------------------------------------------  ----------  ---------- 
 
 Liabilities 
 Customer deposits                               1,390,781     997,649 
 Other liabilities (including Group balances)      259,957     120,815 
----------------------------------------------  ----------  ---------- 
 Total liabilities                               1,650,738   1,118,464 
 Equity                                            132,937      80,698 
----------------------------------------------  ----------  ---------- 
 Total equity and liabilities                    1,783,675   1,199,162 
----------------------------------------------  ----------  ---------- 
 

AL reached a creditable milestone during 2017, with all of its key business metrics exceeding GBP1bn: Customer Loans, Customer Deposits and Assets under Management.

Total customer assets increased by 38% to close the year at GBP1,049m (2016: GBP759m). At the same time the total volume of loans written in the year increased to GBP466m (2016: GBP227m), an increase of 105%. Overall, the loan books remain well served with an average LTV of 53% (2016: 45%) for the Private and Commercial Banking business.

Total deposits increased by 39% to close the year at GBP1.4bn (2016: GBP1.0bn).

The investment management business was able to grow its assets under management by 13% to reach GBP1,044m (2016: GBP920m).

The net assets of the Bank now stand at GBP133m (2016: GBP81m), an increase of 65% as ABG made further capital contribution to facilitate additional growth and also to complete the acquisition of RAF. Additionally, retained reserves from the earnings of the Bank have contributed to give Arbuthnot Latham a total and core tier 1 capital ratio of 11.9% (2016: 12.3%).

 
 Group & Other Costs 
                                        2017       2016 
 Summarised Income Statement          GBP000     GBP000 
----------------------------------  --------  --------- 
 Net interest income                      51         26 
 Subordinated loan stock interest      (360)      (352) 
----------------------------------  --------  --------- 
 Operating income                      (309)      (326) 
 Other income                            160        120 
 Operating expenses                  (8,276)   (10,813) 
 Profit after tax                    (8,425)   (11,019) 
----------------------------------  --------  --------- 
 

The Group costs reduced to GBP8.4m (2016: GBP11m) as the impact of the bonuses paid in 2016 relating to the STB transaction recurring. The Group centre continues to oversee the Group operations, including the remaining investment in STB.

IFRS 9

The provisions of IFRS 9 - Financial Instruments will apply to the Group for the year ending 31 December 2018.

As a result of the implementation of IFRS 9, accounting for credit losses will fundamentally change, moving from an "incurred" to an "expected" basis. This has required the development of credit loss models, which will be used to estimate credit impairments by taking into account the composition of individual loan portfolios and the macro economic outlook at each reporting date. Also, the future economic environment will be "stressed" in varying scenarios to ensure the provisions are appropriate.

The initial models have been developed and are currently being validated and refined ahead of the full implementation.

The introduction of IFRS 9 will result in an initial increase in impairment provisions and may potentially increase volatility in the Group's Income Statement in the future (see Note 3.27).

It is expected that the opening entries as at 1 January 2018 required for the implementation will require an adjustment to shareholder reserves of between GBP2.4m to GBP3.2m. Under new capital regulations, the impact of IFRS 9 on regulatory capital will be phased over a period of 5 years. The Group has a strong capital position and the impact of IFRS 9 is not considered significant.

Capital

The Group's capital management policy is focused on optimising shareholder value over the long term. There is a clear focus on delivering organic growth and ensuring capital resources are sufficient to support planned levels of growth. The Board regularly reviews the capital position.

The Group's lead regulator, the Prudential Regulation Authority ("PRA"), sets and monitors capital requirements for the Group as a whole and for the individual banking operations. The lead regulator adopted the Basel III capital requirements with effect from 1 January 2014. As a result, the Group's regulatory capital requirements have been based on Basel III since 2014.

In accordance with the EU's Capital Requirements Directive ("CRD") and the required parameters set out in the PRA Handbook, the Individual Capital Adequacy Assessment Process ("ICAAP") is embedded in the risk management framework of the Group and is subject to ongoing updates and revisions when necessary. However, at a minimum, the ICAAP is updated annually as part of the business planning process. The ICAAP is a process that brings together the management framework (i.e. the policies, procedures, strategies, and systems that the Group has implemented to identify, manage and mitigate its risks) and the financial disciplines of business planning and capital management. The Group's regulated entity is also the principal trading subsidiary as detailed in Note 43.

Not all material risks can be mitigated by capital, but where capital is appropriate the Board has adopted a "Pillar I plus" approach to determine the level of capital the Group needs to hold. This method takes the Pillar I capital formula calculations (standardised approach for credit, market and operational risk) as a starting point, and then considers whether each of the calculations deliver a sufficient capital sum adequate to cover management's anticipated risks. Where the Board considers that the Pillar I calculations do not reflect the risk, an additional capital add-on in Pillar II is applied, as per the Individual Capital Guidance ("ICG") issued by the PRA.

The Group's regulatory capital is divided into two tiers:

-- Tier 1 comprises mainly shareholders' funds and revaluation reserves, after deducting goodwill, other intangible assets and the deduction for a significant investment in a financial institution (STB). The portion of the investment representing up to 10% of ABG's Tier 1 is added back to capital resources and then risk weighted at 250%, while anything above this 10% is deducted.

-- Lower Tier 2 comprises qualifying subordinated loan capital. Lower Tier 2 capital cannot exceed 50% of Tier 1 capital.

The ICAAP includes a summary of the capital required to mitigate the identified risks in its regulated entities and the amount of capital that the Group has available. All regulated trading entities have complied with all of the externally imposed capital requirements to which they are subject.

 
                                                                    2017       2016 
 Capital ratios                                                   GBP000     GBP000 
-------------------------------------------------------------  ---------  --------- 
 Core Tier 1 capital                                             236,375    234,358 
 Deductions                                                     (77,761)   (67,639) 
-------------------------------------------------------------  ---------  --------- 
 Tier 1 capital after deductions                                 158,614    166,719 
 Tier 2 capital                                                   13,104     12,621 
-------------------------------------------------------------  ---------  --------- 
 Total capital                                                   171,718    179,340 
-------------------------------------------------------------  ---------  --------- 
 
 Core Tier 1 capital ratio (Net Core Tier 1 capital/Basel 
  III Total Risk Exposure)                                         17.3%      28.1% 
-------------------------------------------------------------  ---------  --------- 
 Total Capital Ratio (Capital/Basel III Total Risk Exposure)       18.7%      30.2% 
-------------------------------------------------------------  ---------  --------- 
 

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 6.

The principal risks inherent in the Group's business are strategic, credit, market, liquidity, operational, cyber, conduct and regulatory.

Strategic risk

Strategic risk is the risk that may affect the Group's ability to achieve its corporate and strategic objectives. This risk is 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 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 will be unable to pay amounts in full when due. This risk exists in Arbuthnot Latham, which currently has a loan book of GBP1,049m. The lending portfolio in AL is extended to clients, the majority of which is secured against cash, property or other assets. Credit risk is managed through the Credit Committee of AL.

Market risk

Market risk arises in relation to movements in interest rates, currencies 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 interest rate rises.

The Group is exposed to changes in the market value of properties. The current carrying value of Investment Property is GBP59m. Any changes in the market value of the property will be accounted for in the Income Statement and as a result could have a significant impact on the profit or loss of the Group.

The Group has an 18.6% interest in STB. This is currently recorded in the Group's balance sheet as an interest in associates and at 31 December 2017 was carried at GBP83.8m or the equivalent of GBP24.33 per share. At the year end the market price of STB was GBP17.97 per share. The Board has determined that the current carrying value remains appropriate after having carried out extensive analysis to be satisfied that the long term value in use does not suggest that this carrying value is impaired. These valuations included the Gordon's Growth model and Dividend Discount model. The resultant output from the models indicated valuations in a range that was in excess of GBP24 but this will be ultimately dependent on the surplus capital within STB being deployed in the business over the long term. There is a risk that the output of the value in use models could require an impairment charge to be recognised in the future.

If the Group was considered to no longer have significant influence over STB it would lead to the investment being accounted for as a financial asset at fair value. The value would then be marked to market with changes in the share price giving rise to gains or losses being recorded in Other Comprehensive Income or Profit or Loss - see Note 3.8(d) and Note 3.10(b).

Liquidity risk

Liquidity risk is the risk that the Group cannot meet its obligations as they fall due. 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 Individual 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 is exposed to operational risks from its Information Technology 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.

Cyber risk

Cyber risk is an increasing risk that the Group is subject to within its operational processes. This 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 test the infrastructure to ensure that it remains robust to a range of threats, and have continuity of business plans in place including a disaster recovery provision.

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 customers' complaints effectively; not meeting customers' expectations; and exhibiting behaviours which do not meet market or regulatory standards.

The Group adopts a zero risk appetite for any unfair customer outcomes. It maintains clear compliance guidelines and provides ongoing training to all staff. Periodic spot checks and internal audits are performed to ensure these guidelines are being followed. The Group also has insurance policies in place to provide some cover for any claims that may arise.

Regulatory risk

Regulatory risk is the risk that the Group will have insufficient capital resources to support the business or does not comply with regulatory requirements. The Group adopts a conservative approach to managing its capital. The Board approves an Individual Capital Adequacy Assessment Process ("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.

Macroeconomic and competitive environment

The Group is also exposed to indirect risks that may arise from the macroeconomic and competitive environment. The economic environment is relatively stable in the UK. However, the international landscape is increasingly uncertain. The uncertain performance of the economies in the EU and the increasingly protectionist stance being taken by other major economies may have an adverse affect on the UK. In particular, this may cause a further softening of central London property prices, which may spread out further to the South East.

The Group monitors its exposure to future interest rate rises and currently has minimal lending to customers in products that would be directly sensitive to interest rate rises. However, at the current levels of interest rates, the affordability enjoyed by the Group's customers is beneficial.

Brexit

It is currently difficult to analyse the impacts that Brexit may have on Arbuthnot Banking Group. However, our only overseas operation is in Dubai, so the vast majority of the Group's income and expenditure is based in the UK. It is therefore anticipated that the financial impact would be minimal, assuming no significant macro economic shock in the UK.

Group Directors' Report

The Directors submit their annual report and the audited consolidated financial statements for the year ended 31 December 2017.

Principal Activities and Review

The principal activities of the Group are banking and financial services. A strategic review in accordance with Section 414 C of the Companies Act 2006 forming part of this report is set out on pages 4 to 14.

Results and Dividends

The results for the year are shown on page 1. The profit after tax for the year of GBP6.5m (2016: GBP227.6m) is included in reserves.

The Directors recommend the payment of a final dividend of 19p on the ordinary shares which, together with the interim dividend of 14p paid on 29 September 2017, represents total dividends (other than special dividends) for the year of 33p (2016: 31p). The final dividend, if approved by members at the Annual General Meeting, will be paid on 18 May 2018 to shareholders on the register at close of business on 27 April 2018.

Going Concern

After making appropriate enquiries which assessed strategy, profitability, funding, risk management (see note 6) and capital resources (see note 7), the directors are satisfied that the Company and the Group have adequate resources to continue in operation for the foreseeable future. The financial statements are therefore prepared on the going concern basis.

Share Capital

Shareholders will also be asked to approve a Special Resolution renewing the authority of the Directors to make market purchases of shares not exceeding 10% of the existing issued share capital. The Directors will keep the position under review in order to maximise the Company's resources in the best interests of shareholders.

Financial Risk Management

Details of how the Group manages risk are set out in in the Strategic Report and in note 6.

Substantial Shareholders

The Company was aware at 26 March 2018 of the following substantial holdings in the ordinary shares of the Company, other than those held by one director shown below:

 
                                        Ordinary 
 Holder                                   Shares        % 
----------------------------   -----------------  ------- 
 Liontrust Asset Management              924,228      6.0 
 Prudential plc                          633,554      4.1 
 Slater Investments                      595,638      3.9 
 Miton Asset Management                  540,896      3.5 
 Mr. R Paston                            529,130      3.5 
 
 Directors 
 Sir Henry Angest                          Chairman & CEO 
 J R Cobb                                Finance Director 
 I A Dewar 
 I A Henderson 
 P A Lynam 
 Sir Christopher 
  Meyer 
 A A Salmon                       Chief Operating Officer 
 Sir Alan Yarrow 
 

All these are currently directors and served throughout the year.

Mr. Cobb and Mr. Dewar retire under Article 78 of the Articles of Association and, being eligible, offer themselves for re-election. Mr. Cobb has a service agreement terminable on twelve months' notice. Mr. Dewar, an independent non-executive director, has a letter of appointment terminable on three months' notice.

According to the information kept under Section 3 of the Disclosure and Transparency Rules 2006 and the Market Abuse Regulation 2016, the interests of directors and their families in the ordinary 1p shares of the Company at the dates shown were, and the percentage of the current issued share capital held is, as follows::

 
                         1 January   31 December    27 March 
 Beneficial Interests         2017          2017        2018      % 
----------------------  ----------  ------------  ----------  ----- 
 Sir Henry Angest        8,200,901     8,351,401   8,351,401   54.7 
 J.R. Cobb                   5,000         6,000       6,000      - 
 P.A. Lynam                 10,000        10,000      10,000    0.1 
 A.A. Salmon                51,699        51,699      51,699    0.3 
 

On 14 June 2016 Mr. Salmon, Mr. Cobb and Mr. Henderson were granted phantom options to subscribe for 200,000, 100,000 and 100,000 ordinary 1p shares respectively in the Company at 1591p. 50% of each director's individual holding of phantom options is exercisable at any time after 15 June 2019 and the other 50% is exercisable at any time after 15 June 2021. The fair value of the options at the grant date was GBP1.3m.

Apart from the interests disclosed above, no director was interested at any time in the year in the share capital of Group companies.

No director, either during or at the end of the financial year, was materially interested in any contract with the Company or any of its subsidiaries or associated companies, which was significant in relation to the Group's business. At 31 December 2017, one director had loans from Arbuthnot Latham & Co., Limited amounting to GBP508,000 and one director had a loan from Secure Trust Bank PLC amounting to GBP409,000, on normal commercial terms as disclosed in note 42 to the financial statements. At 31 December 2017, six directors had deposits with Arbuthnot Latham & Co., Limited amounting to GBP3,233,000 and two directors had deposits with Secure Trust Bank PLC amounting to GBP403,000, all on normal commercial terms as disclosed in note 42 to the financial statements.

The Company maintains insurance to provide liability cover for directors and officers of the Company.

Board Committees

The report of the Remuneration Committee on pages 24 to 25 will be the subject of an Ordinary Resolution at the Annual General Meeting.

Information on the Audit, Nomination and Political Donations Committees is included in the Corporate Governance section of the Annual Report on pages 19 to 22.

As explained in the Corporate Governance section of the Annual Report, the Board now maintains direct responsibility for issues of risk, as responsibility for large lending proposals has become a direct responsibility of its subsidiary, Arbuthnot Latham & Co., Limited.

Employees

The Company gives due consideration to the employment of disabled persons and is an equal opportunities employer. It also regularly provides employees with information on matters of concern to them, consults on decisions likely to affect their interests and encourages their involvement in the performance of the Company through share participation and in other ways.

Political Donations

The Company made political donations of GBP32,000 to the Conservative Party during the year (2016: GBP67,000).

Branches outside of the UK

During the year Arbuthnot Latham & Co., Ltd operated a branch in Dubai which is regulated by the Dubai Financial Services Authority.

Events after the balance sheet date

On 3 January 2018, Arbuthnot Latham entered into a 12 year lease (up to 16 October 2029) to occupy the first, second and third floors of 10 Dominion Street London, with a break clause on 16 October 2024. The initial rent is GBP0.7m per annum. This is reflected in contingent liabilities Note 36.

Auditor

A resolution for the re-appointment of KPMG LLP as auditor will be proposed at the forthcoming Annual General Meeting at a fee to be agreed in due course by the directors.

Statement of Disclosure of Information to the Auditor

The Directors confirm that:

-- so far as each director is aware, there is no relevant audit information of which the Company's auditor is unaware; and

-- the Directors have taken all the steps they ought to have taken as directors to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

This confirmation is given and shall be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.

Corporate Governance

Introduction and Overview

Arbuthnot Banking Group has a strong and effective Corporate Governance framework. This section of the Report and Accounts summarises key elements of the governance arrangements applicable to the Group and its compliance with the UK Corporate Governance Code.

As an AIM company, ABG is not bound by the UK Corporate Governance Code. However, the Board endorses the principles of openness, integrity and accountability, which underlie good corporate governance and takes into account both the provisions of the UK Corporate Governance Code in so far as they are considered appropriate to the Group's size and circumstances and in particular the role and overall holding of the majority shareholder. Moreover, the Group contains two subsidiaries authorised to undertake regulated business under the Financial Services and Markets Act 2000, one of which is regulated by the Prudential Regulatory Authority and the Financial Conduct Authority and is an authorised deposit-taking business. It in turn has a subsidiary, Renaissance Asset Finance Limited, which is regulated by the Financial Conduct Authority. Accordingly, the Group operates to the high standards of corporate accountability and regulatory compliance appropriate for such a business.

The Group is led by an effective Board which comprises four executive directors, two independent non-executive directors and two other non-executive directors.

Sir Henry Angest is the Chairman of the Group. The Chairman sets the long term focus and customer oriented culture of the Group and his role is to ensure good corporate governance. His responsibilities include leading the Board, ensuring the effectiveness of the Board in all aspects of its role, ensuring effective communication with shareholders, setting the Board's agenda and ensuring that all Directors are encouraged to participate fully in the activities and decision-making process of the Board.

There were no changes in Board membership during the year. Paul Lynam was appointed to the Board when Secure Trust Bank PLC ("STB") was a subsidiary of the Group, and remains a director of the Group, in a non-executive role, as well as Chief Executive of STB, following the reduction in the Group's holding in STB to 18.6%.

The directors seeking re-election are James Cobb and Ian Dewar, who have served on the Board for 9 years and 2 1/2 years respectively. The contribution of James Cobb as the Group Financial Director has been very valuable in determining the capital and liquidity requirements of the Group. Ian Dewar, with a wealth of experience as a partner in a major accounting firm, has successfully chaired the Audit Committee. Accordingly, the Board fully supports the resolutions for their reappointment.

In 2016, the Board commissioned an independent Board Effectiveness Review. The Directors were satisfied with the conduct and outcome of the review and have since implemented its recommendations.

The Board

The Board meets regularly throughout the year, holding six formal meetings during the year as well as a two day strategy meeting. Substantive agenda items have briefing papers, which are circulated in a timely manner before each meeting. The Board ensures that it is supplied with all the information that it requires and requests, in a form and of a quality to fulfil its duties.

In addition to determining and overseeing the implementation of the strategy and management of the Company and of the Group, the Board has determined certain items which are reserved for decision by itself. These matters include the acquisition and disposal of other than minor businesses, the issue of capital by any Group company, monitoring overall regulatory requirements of its subsidiary companies, and their adherence thereto, and any transaction by a subsidiary company that cannot be made within its own resources or that is not in the normal course of its business.

The Company Secretary is responsible for ensuring that the Board processes and procedures are appropriately followed and support effective decision making. All directors have access to the Company Secretary's advice and services. There is an agreed procedure for directors to obtain independent professional advice in the course of their duties, if necessary, at the Company's expense.

All directors receive induction training upon joining the Board, with individual AIM training provided by the Company's Nominated Adviser, regulatory and compliance training provided by the Group Head of Compliance or an external firm of lawyers, risk management training (including that in relation to the ICAAP and ILAAP) with an overview of credit and its associated risks and mitigation by the Head of Credit Risk in Arbuthnot Latham & Co., Limited.

Board Committees

The Board has established Audit, Nomination, Remuneration and Donations Committees, each with formally delegated duties and responsibilities and with written terms of reference, which require consideration of the committee's effectiveness. The Board keeps the governance arrangements under review. Further information in relation to these committees is set out below. The Board now maintains direct responsibility for issues of Risk without the need for its own Risk Committee, since responsibility for large lending proposals became a direct responsibility of its subsidiary, Arbuthnot Latham & Co., Limited.

Audit Committee

Membership and meetings

Membership of the Audit Committee is restricted to non-executive directors and comprises Ian Dewar (as Chairman), Sir Christopher Meyer and Sir Alan Yarrow. The Committee met four times during the year.

The Audit Committee oversees, on behalf of the Board, the financial reporting, the appropriateness and effectiveness of systems and controls, the work of Internal Audit and the arrangements for and effectiveness of the external audit. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly report remains with the Board. The Audit Committee also reviews procedures for detecting fraud and preventing bribery, reviews whistleblowing arrangements for employees to raise concerns in confidence, and reviews, as necessary, arrangements for outsourcing significant operations.

The present auditors, KPMG LLP, have held office since 2009. The Senior Statutory Auditor changed in 2013 and will change again in 2018, following a five-year association with the Parent Company. The Board is satisfied with the effectiveness of their audit and endorses the comments made by the Committee in relation to the Audit Report set out below. The Committee received a report showing the level of non-audit services provided by the external auditors during the year and members were satisfied that the extent and nature of these did not compromise auditor independence.

Activity in 2017

Internal Audit

On behalf of the Board, the Audit Committee monitors the effectiveness of systems and controls. To this end, Internal Audit provides the Audit Committee and the Board with detailed independent and objective assurance on the effectiveness of governance, risk management and internal controls. Since Arbuthnot Latham & Co., Limited established its own Audit Committee, the role of the Group Audit Committee has been mainly supervisory in relation to internal audit matters, though it receives items of material note deriving from Arbuthnot Latham & Co., Limited's internal audits, including an assessment of culture which forms part of every internal audit.

The Audit Committee approves the Internal Audit risk based programme of work and monitors progress against the annual plan. The Committee reviews Internal Audit resources and the arrangements that ensure Internal Audit faces no restrictions or limitations to conducting its work, that it continues to have unrestricted access to all personnel and information, and that Internal Audit remains objective and independent from business management.

The Head of Internal Audit provides reports on the outcomes of Internal Audit work directly to the Committee and the Committee monitors progress against actions identified in these reports.

The Committee is satisfied with Internal Audit arrangements during 2017.

Integrity of Financial Statements and oversight of external audit

In 2017, for the first time, the Group Financial Statements include a long form audit report and with this change, it is appropriate

to include further information on the role that the Audit Committee has played in the approval of these accounts. The Committee:

   --       Received and agreed the Audit Plan prepared by the external auditors; 

-- Considered and formed a conclusion on the critical judgements underpinning the Financial Statements, as presented in papers prepared by management. In respect of all of these critical judgements, the Committee concluded that the treatment in the Financial Statements was appropriate.

-- Received reports from the external auditors on the matters arising from their work, the key issues and conclusions they had reached;

-- The Chairman of the Committee attended, as an observer, Audit Committees of Arbuthnot Latham & Co., Limited, the Company's operating subsidiary;

-- In addition, the Committee considered changes to financial reporting requirements that are not yet effective but that are likely to impact on the reported results or financial position of the Group and Company in future. The most notable being the implementation of IFRS 9 (from 1 January 2018) and the carrying value and disclosure of the Group's interest in Secure Trust Bank PLC. The Committee has reviewed Management's methodology, and is satisfied with the disclosures as set out in Note 3.27 and Note 27 to the financial statements.

The Audit Committee also receives reports from the external auditors which include details of internal control matters that they have identified as part of the annual statutory Financial Statements audit. Certain aspects of the system of internal control are also subject to regulatory supervision, the results of which are monitored closely by the Committee and the Board. In addition, the ICAAP and ILAAP are key control documents and received detailed consideration by the board of Arbuthnot Latham & Co., Limited. The Committee receives reports on these by exception.

The Committee approved the terms of engagement and the remuneration to be paid to the external auditors in respect of their audit services.

Significant areas of judgement

The Audit Committee considered the following significant issues and accounting judgements in relation to the Financial Statements:

Impairment review of interest in associate

The Group has an 18.6% interest in STB. This is currently recorded in the Group's Statement of Financial Position as an interest in associate and at 31 December 2017 was carried at GBP83.8m or the equivalent of GBP24.33 per share. At the year end the market price of STB was GBP17.97 per share.

The Committee reviewed the carrying value to ensure it was still appropriate. This included reviewing the valuation models and underlying assumptions used to substantiate the current value as reflected in the Statement of Financial Position. No impairment was considered necessary.

Refer to Note 4.1 (e) of the Notes to the Financial Statements for more information.

Impairment of loans and advances to customers

The Committee reviewed presentations from management detailing the provisioning methodology across the Group as part of the full year results process. The Committee considered and challenged the provisioning methodology applied by management, including timing of cash flows, valuation and recoverability of supporting collateral on impaired assets. The Committee concluded that the impairment provisions, including management's judgements, were appropriate.

The charge for impaired loans and advances totalled GBP0.4m for the year ended 31 December 2017. The disclosures relating to impairment provisions are set out in Note 4.1(a) to the financial statements.

Effective Interest rate

Interest earned on loans and receivables is recognised using the Effective Interest Rate ("EIR") method. The EIR is calculated on the initial recognition of a loan through a discounted cash flow model that incorporates fees, costs and other premiums or discounts. There have been no changes to the EIR accounting policies during the year.

The Committee considered and challenged the EIR methodology applied by management and specifically in relation to acquired loan portfolios. The Committee considered management assumptions including expected future customer behaviours and concluded that the EIR methodology was appropriate as at 31 December 2017.

The disclosures relating to EIR are set out in Note 4.1(b) to the financial statements.

Valuation of Investment Property

The two investment properties are held at fair value. The Committee reviewed the assumptions used in the valuation of the properties including capital expenditure, incentive periods, rental income, and yields.

As at 31 December, the Group's property investment portfolio totalled GBP59.4m, as detailed in Note 31. The disclosures relating to the fair value of investment property are set out in Note 4.1(c) to the financial statements.

Acquisition Accounting

During the year Arbuthnot Latham acquired the entire share capital of Renaissance Asset Finance Limited. The consideration consisted of an upfront and deferred payment based on future profits.

The Committee reviewed the accounting and the disclosures for the acquisition. This included reviewing the assumptions used in the valuation and identification of the separately identifiable intangible assets. An intangible asset relating to goodwill on acquisition was recognised totalling GBP3.5m (see Note 28).

Refer to Note 4.1 (d) of the Notes to the Financial Statements for more information.

Going Concern

The financial statements are prepared on the basis that the Group and Company are each a going concern. The Audit Committee reviewed management's assessment, and is satisfied that the going concern basis was appropriate.

Other Committee activities

During 2017 the Audit Committee received and reviewed reports from management relating to:

-- The procedures for detecting fraud and prevention of bribery, and any instances of non-compliance;

   --       Whistleblowing arrangements for employees to raise concerns in confidence; 
   --       Arrangements involving outsourcing of significant operations. 

The Committee met separately with each of the Finance Director, Head of Internal Audit and the External Audit Partner without any other executives present. There were no issues or concerns raised by them in regard to discharging their responsibilities.

In September 2017, the Committee performed a review of its effectiveness by means of a self-assessment framework and completion of a questionnaire by members of the Committee. The review did not highlight any material concerns.

Nomination Committee

Membership and meetings

The Nomination Committee is chaired by Sir Henry Angest and its other members are Sir Christopher Meyer and Sir Alan Yarrow. The Committee met once during the year. It is required to meet formally at least once per year and otherwise as required.

The Nomination Committee assists the Board in discharging its responsibilities relating to the composition of the Board. The Nomination Committee is responsible for and evaluates on a regular basis the balance of skills, experience, independence and knowledge on the Board, its size, structure and composition, retirements and appointments of additional and replacement directors and will make appropriate recommendations to the Board on such matters. The Nomination Committee also considers succession planning, taking into account the skills and expertise that will be needed on and beneficial to the Board in the future.

Activity in 2017

The Committee reviewed the terms of service of the Group Finance Director. It has also reviewed and reconfirmed Sir Christopher Meyer's independence. It has examined the balance of executive and non-executive directors in relation to succession planning and the extent to which the requirements of a board diversity policy are met.

Remuneration Committee

Membership and meetings

Membership is detailed in the Remuneration Report on page 24. The Committee met twice during the year. It is required to meet formally at least once per year and otherwise as required.

The Remuneration Committee assists the Board in determining its responsibilities in relation to remuneration including, inter alia, in relation to the Company's policy on executive remuneration determining the individual remuneration and benefits package of each of the Executive Directors, and the fees for Non-Executive Directors.

The Committee also deals with remuneration-related issues under the Prudential Regulation Authority's Remuneration Code applicable to the Company.

A separate Remuneration Report gives further information and details of each Director's remuneration.

Donations Committee

Membership and meetings

The Donations Committee is chaired by Sir Henry Angest and its other members are Sir Christopher Meyer and Sir Alan Yarrow. The Committee met once during the year.

The Committee considers any political donation or expenditure as defined within sections 366 and 367 of the Companies Act 2006.

Internal Control and Financial Reporting

The Board of directors has overall responsibility for the Group's system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate risk of failure to achieve business objectives and can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

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 control. Key risks identified by the Directors are formally reviewed and assessed at least once a year by the Board. In addition, 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 well-established budgeting procedures in place and reports are presented regularly to the Board detailing the results, in relation to Arbuthnot Latham & Co., Limited, of each principal business unit, variances against budget and prior year, and other performance data.

Shareholder Communications

The Company maintains ongoing communications via one to one meetings as appropriate with its major shareholders and makes full use of the Annual General Meeting and other General Meetings (when held) to communicate with investors. The Company aims to present a balanced and understandable assessment in all its reports to shareholders, its regulators, other stakeholders and the wider public. Key announcements and other information can be found at www.arbuthnotgroup.com.

Statement of Directors' Responsibilities in Respect of the Strategic Report and the Directors' Report and the Financial Statements

The Directors are responsible for preparing the Strategic Report, the Directors' Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent Company Financial Statements for each financial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the EU and applicable law and have elected to prepare the Parent Company Financial Statements on the same basis.

Financial Statements

Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the Group profit or loss for that period. In preparing each of the Group and Parent Company Financial Statements, the Directors are required to:

   --       select suitable accounting policies and then apply them consistently; 
   --       make judgements and estimates that are reasonable, relevant and reliable; 
   --       state whether they have been prepared in accordance with IFRSs as adopted by the EU; 

-- assess the Group and Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

-- use the going concern basis of accounting unless they intend either to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Remuneration Report

Remuneration Committee

Membership of the Remuneration Committee is limited to non-executive directors together with Sir Henry Angest as Chairman. The present members of the Committee are Sir Henry Angest, Sir Christopher Meyer and Sir Alan Yarrow. The Committee met twice during the year.

The Committee has responsibility for producing recommendations on the overall remuneration policy for directors for review by the Board and for setting the remuneration of individual directors. Members of the Committee do not vote on their own remuneration.

Remuneration Policy

The Remuneration Committee determines the remuneration of individual directors having regard to the size and nature of the business; the importance of attracting, retaining and motivating management of the appropriate calibre without paying more than is necessary for this purpose; remuneration data for comparable positions, in particular the rising remuneration packages at challenger banks; the need to align the interests of executives with those of shareholders; and an appropriate balance between current remuneration and longer-term performance-related rewards. The remuneration package can comprise a combination of basic annual salary and benefits (including pension), a discretionary annual bonus award related to the Committee's assessment of the contribution made by the executive during the year and longer-term incentives, including executive share options. Pension benefits take the form of annual contributions paid by the Company to individual money purchase schemes. The Remuneration Committee reviews salary levels each year based on the performance of the Group during the preceding financial period. This review does not necessarily lead to increases in salary levels. For the purposes of the FCA Remuneration Code, all the provisions of which have been implemented, the Group and its subsidiaries are all considered to be Tier 3 institutions.

The Remuneration Committee reviewed the operation of the policy, having regard to the performance of the Company during the year, with particular regard to the level of discretionary bonus awarded and the level of inflation impacting on salaries.

Directors' Service Contracts

Sir Henry Angest, Andrew Salmon, James Cobb and Ian Henderson each have service contracts terminable at any time on 12 months' notice in writing by either party.

Long Term Incentive Schemes

At the Annual General Meeting in May 2015, shareholders voted by Ordinary Resolution to extend the Company's Unapproved Executive Share Option Scheme for a further period of 10 years. No such options were subsequently granted prior to the setting up of the Phantom Option Scheme.

On 14 June 2016, the Company announced a Phantom Share Option Scheme ("Phantom Option Scheme"), intended to replace the Unapproved Executive Share Option Scheme. The value of each phantom option is related to the market price of an ordinary share of 1p in the Company. An increase in the market value of an ordinary share of 1p in the Company over the market value per share at the date of grant of the phantom option will give rise to an entitlement to a cash payment by the Company on the exercise of a phantom option.

On 14 June 2016 Mr. Salmon was granted a phantom option pursuant to the Phantom Option Scheme to acquire 200,000 ordinary 1p shares in the Company at 1591p exercisable in respect of 50% on or after 15 June 2019 and in respect of the remaining 50% on or after 15 June 2021 when a cash payment would be made equal to any increase in market value. On 14 June 2016 Mr. Cobb and Mr. Henderson were each granted phantom options pursuant to the Phantom Option Scheme to acquire 100,000 ordinary 1p shares in the Company at 1591p exercisable in respect of 50% on or after 15 June 2019 and in respect of the remaining 50% on or after 15 June 2021 when a cash payment would be made equal to any increase in market value. The fair value of the options at the grant date was GBP1.3m.

 
 Directors' Emoluments 
                                                   2017     2016 
                                                 GBP000   GBP000 
----------------------------------------------  -------  ------- 
 Fees (including benefits in kind)                  205      215 
 Salary payments (including benefits in kind)     4,533    7,731 
 Pension contributions                              105      119 
 Long term incentive                                  -      992 
----------------------------------------------  -------  ------- 
                                                  4,843    9,057 
----------------------------------------------  -------  ------- 
 
 
                                                                                        Long 
                                                                                        term    Total    Total 
                                   Salary    Bonus   Benefits   Pension     Fees   incentive     2017     2016 
                                   GBP000   GBP000     GBP000    GBP000   GBP000      GBP000   GBP000   GBP000 
--------------------------------  -------  -------  ---------  --------  -------  ----------  -------  ------- 
 Sir Henry Angest                   1,200        -         89         -        -           -    1,289    1,260 
 JR Cobb                              550      250         17        35        -           -      852    1,583 
 IA Dewar                               -        -          -         -       75           -       75       75 
 JW Fleming (to 14/04/2016)             -        -          -         -        -           -        -      145 
 IA Henderson (from 06/05/2016)       488      300         17        35        -           -      840      543 
 Ms RJ Lea (to 05/05/2016)              -        -          -         -        -           -        -       45 
 PA Lynam                               -        -          -         -        -           -        -    1,493 
 Sir Christopher Meyer                  -        -          -         -       60           -       60       60 
 AA Salmon                          1,200      400         22        35        -           -    1,657    3,818 
 Sir Alan Yarrow (from 
  10/06/2016)                           -        -          -         -       70           -       70       35 
                                    3,438      950        145       105      205           -    4,843    9,057 
--------------------------------  -------  -------  ---------  --------  -------  ----------  -------  ------- 
 

Details of any shares or options held by directors are presented on page 16.

The emoluments of the Chairman were GBP1,289,000 (2016: GBP1,260,000). The emoluments of the highest paid director were GBP1,657,000 (2016: GBP3,818,000) including pension contributions of GBP35,000 (2016: GBP35,000).

Secure Trust Bank was paid a fee of GBP60,000 (2016: GBP33,000 from 15 June 2016) for the services of Mr. Lynam rendered as a non-executive director.

Retirement benefits are accruing under money purchase schemes for four directors who served during 2017 (2016: five directors).

Independent Auditor's Report

The Independent Auditor's report can be viewed at the following link: here

Company statement of financial position

 
                                                            At 31 December 
                                                              2017         2016 
                                                 Note       GBP000       GBP000 
--------------------------------------------  -------  -----------  ----------- 
 ASSETS 
 Loans and advances to banks                       18       36,103       89,072 
 Financial investments                             25          140          121 
 Deferred tax asset                                26          641          397 
 Property, plant and equipment                     30          157          183 
 Other assets                                      24          199          887 
 Interests in associates                           27        5,056        5,056 
 Interests in subsidiaries                         43       97,802       54,602 
--------------------------------------------  -------  -----------  ----------- 
 Total assets                                              140,098      150,318 
--------------------------------------------  -------  -----------  ----------- 
 EQUITY AND LIABILITIES 
 Equity 
 Share capital                                     37          153          153 
 Other reserves                                    38      (1,111)      (1,111) 
 Retained earnings                                 38      124,659      133,847 
--------------------------------------------  -------  -----------  ----------- 
 Total equity                                              123,701      132,889 
--------------------------------------------  -------  -----------  ----------- 
 LIABILITIES 
 Current tax liability                                         152            - 
 Other liabilities                                 34        3,141        4,808 
 Debt securities in issue                          35       13,104       12,621 
--------------------------------------------  -------  -----------  ----------- 
 Total liabilities                                          16,397       17,429 
--------------------------------------------  -------  -----------  ----------- 
 Total equity and liabilities                              140,098      150,318 
--------------------------------------------  -------  -----------  ----------- 
 
 The Company has elected to take the exemption under section 408 of the 
  Companies Act 2006 not to present the Parent Company 
 profit and loss account. The profit for the Parent Company for the year 
  is presented in the Statement of Changes in Equity. 
 

Consolidated statement of changes in equity

 
                                               Attributable to equity holders 
                                                        of the Group 
                      ------------------------------------------------------------------------------- 
                                                  Capital 
                         Share   Revaluation   redemption   Available-for-sale   Treasury    Retained   Non-controlling 
                       capital       reserve      reserve              reserve     shares    earnings         interests     Total 
                        GBP000        GBP000       GBP000               GBP000     GBP000      GBP000            GBP000    GBP000 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  -------- 
 Balance at 1 
  January 2017             153             -           20                (251)    (1,131)     235,567                 -   234,358 
 
 Total comprehensive 
 income for 
 the period 
 Profit for 2017             -             -            -                    -          -       6,523                 -     6,523 
 
 Other comprehensive 
 income, 
 net of tax 
 Available-for-sale 
  reserve - 
  net change in fair 
  value                      -             -            -                  128          -           -                 -       128 
 Available-for-sale 
  reserve - 
  Associate - net 
  change in fair 
  value                      -             -            -                  389          -           -                 -       389 
 Tax on other 
  comprehensive 
  income                     -             -            -                (104)          -           -                 -     (104) 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  -------- 
 Total other 
  comprehensive 
  income                     -             -            -                  413          -           -                 -       413 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  -------- 
 Total comprehensive 
  income for 
  the period                 -             -            -                  413          -       6,523                 -     6,936 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  -------- 
 
 Transactions with 
 owners, recorded 
 directly in equity 
 Contributions by 
 and distributions 
 to owners 
 Equity settled 
  share based 
  payment 
  transactions               -             -            -                    -          -       (155)                 -     (155) 
 Final dividend 
  relating to 2016           -             -            -                    -          -     (2,680)                 -   (2,680) 
 Interim dividend 
  relating to 
  2017                       -             -            -                    -          -     (2,084)                 -   (2,084) 
 Total contributions 
  by and 
  distributions 
  to owners                  -             -            -                    -          -     (4,919)                 -   (4,919) 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  -------- 
 Balance at 31 
  December 2017            153             -           20                  162    (1,131)     237,171                 -   236,375 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  -------- 
 
 
                                               Attributable to equity holders 
                                                        of the Group 
                      ------------------------------------------------------------------------------- 
                                                  Capital 
                         Share   Revaluation   redemption   Available-for-sale   Treasury    Retained   Non-controlling 
                       capital       reserve      reserve              reserve     shares    earnings         interests       Total 
                        GBP000        GBP000       GBP000               GBP000     GBP000      GBP000            GBP000      GBP000 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  ---------- 
 Balance at 1 
  January 2016             153            98           20                1,047    (1,131)     123,330            67,887     191,404 
 
 Total comprehensive 
 income for 
 the period 
 Profit for 2016             -             -            -                    -          -     166,143            61,426     227,569 
 
 Other comprehensive 
 income, 
 net of tax 
 Available-for-sale 
  reserve - 
  net change in fair 
  value                      -             -            -              (1,890)          -           -             (487)     (2,377) 
 Available-for-sale 
  reserve - 
  Associate - net 
  change in fair 
  value                      -             -            -                (389)          -           -                 -       (389) 
 Tax on other 
  comprehensive 
  income                     -             -            -                  456          -           -                 -         456 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  ---------- 
 Total other 
  comprehensive 
  income                     -             -            -              (1,823)          -           -             (487)     (2,310) 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  ---------- 
 Total comprehensive 
  income for 
  the period                 -             -            -              (1,823)          -     166,143            60,939     225,259 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  ---------- 
 
 Transactions with 
 owners, recorded 
 directly in equity 
 Contributions by 
 and distributions 
 to owners 
 Equity settled 
  share based 
  payment 
  transactions               -             -            -                    -          -     (1,074)                31     (1,043) 
 Secure Trust Bank 
  loss of control            -          (98)            -                  525          -       (427)         (124,046)   (124,046) 
 Final dividend 
  relating to 2015           -             -            -                    -          -     (2,531)           (4,811)     (7,342) 
 Special dividend 
  relating to 
  2016                       -             -            -                    -          -     (3,722)                 -     (3,722) 
 Interim dividend 
  relating to 
  2016                       -             -            -                    -          -     (1,936)                 -     (1,936) 
 Special dividend 
  relating to 
  2016                       -             -            -                    -          -    (44,216)                 -    (44,216) 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  ---------- 
 Total contributions 
  by and 
  distributions 
  to owners                  -          (98)            -                  525          -    (53,906)         (128,826)   (182,305) 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  ---------- 
 Balance at 31 
  December 2016            153             -           20                (251)    (1,131)     235,567                 -     234,358 
--------------------  --------  ------------  -----------  -------------------  ---------  ----------  ----------------  ---------- 
 

Company statement of changes in equity

 
                                                               Attributable to equity 
                                                                holders of the Company 
                                                   ---------------------------------------------- 
                                                                   Capital 
                                                       Share    redemption   Treasury    Retained 
                                                     capital       reserve     shares    earnings      Total 
                                                      GBP000        GBP000     GBP000      GBP000     GBP000 
-------------------------------------------------  ---------  ------------  ---------  ----------  --------- 
 Balance at 1 January 2016                               153            20    (1,131)      46,537     45,579 
 
 Total comprehensive income for the period 
 Profit for 2016                                           -             -          -     140,826    140,826 
 
 Other comprehensive income, net of income 
  tax                                                      -             -          -           -          - 
 Total comprehensive income for the period                 -             -          -     140,826    140,826 
-------------------------------------------------  ---------  ------------  ---------  ----------  --------- 
 
 
 Transactions with owners, recorded directly 
  in equity 
 Contributions by and distributions to 
  owners 
 Equity settled share based payment transactions           -             -          -     (1,111)    (1,111) 
 Final dividend relating to 2015                           -             -          -     (2,531)    (2,531) 
 Special dividend relating to 2016                         -             -          -     (3,722)    (3,722) 
 Interim dividend relating to 2016                         -             -          -     (1,936)    (1,936) 
 Special dividend relating to 2016                         -             -          -    (44,216)   (44,216) 
-------------------------------------------------  ---------  ------------  ---------  ----------  --------- 
 Total contributions by and distributions 
  to owners                                                -             -          -    (53,516)   (53,516) 
-------------------------------------------------  ---------  ------------  ---------  ----------  --------- 
 Balance at 31 December 2016                             153            20    (1,131)     133,847    132,889 
-------------------------------------------------  ---------  ------------  ---------  ----------  --------- 
 
 Total comprehensive income for the period 
 Loss for 2017                                             -             -          -     (4,269)    (4,269) 
 
 Other comprehensive income, net of income 
  tax                                                      -             -          -           -          - 
 Total comprehensive income for the period                 -             -          -     (4,269)    (4,269) 
-------------------------------------------------  ---------  ------------  ---------  ----------  --------- 
 
 Transactions with owners, recorded directly 
  in equity 
 Contributions by and distributions to 
  owners 
 Equity settled share based payment transactions           -             -          -       (155)      (155) 
 Final dividend relating to 2016                           -             -          -     (2,680)    (2,680) 
 Interim dividend relating to 2017                         -             -          -     (2,084)    (2,084) 
 Total contributions by and distributions 
  to owners                                                -             -          -     (4,919)    (4,919) 
-------------------------------------------------  ---------  ------------  ---------  ----------  --------- 
 Balance at 31 December 2017                             153            20    (1,131)     124,659    123,701 
-------------------------------------------------  ---------  ------------  ---------  ----------  --------- 
 

Consolidated statement of cash flows

 
                                                                           Year           Year 
                                                                          ended          ended 
                                                                    31 December    31 December 
                                                                           2017           2016 
                                                            Note         GBP000         GBP000 
---------------------------------------------------------  -----  -------------  ------------- 
 Cash flows from operating activities 
 Interest received                                                       43,389        109,311 
 Interest paid                                                          (6,093)       (19,372) 
 Fees and commissions received                                            8,682         37,511 
 Other income                                                             3,033              - 
 Cash payments to employees and suppliers                              (47,600)      (101,217) 
 Taxation paid                                                            (379)        (3,020) 
---------------------------------------------------------  -----  -------------  ------------- 
 Cash flows from operating profits before changes 
  in operating assets and liabilities                                     1,032         23,213 
 Changes in operating assets and liabilities: 
  - net (increase)/decrease in derivative financial 
   instruments                                                            (331)             66 
  - net (increase)/decrease in loans and advances 
   to customers                                                       (233,175)        855,436 
  - net (increase)/decrease in other assets                             (7,952)         41,780 
  - net increase/(decrease) in amounts due to customers                 392,937      (932,189) 
  - net decrease in other liabilities                                     (843)       (23,595) 
---------------------------------------------------------  -----  -------------  ------------- 
 Net cash inflow/(outflow) from operating activities                    151,668       (35,289) 
---------------------------------------------------------  -----  -------------  ------------- 
 Cash flows from investing activities 
 Disposal of financial investments                                            -          1,078 
 Purchase of computer software                                28        (2,641)        (5,155) 
 Purchase of property, plant and equipment                    30          (666)          (354) 
 Purchase of investment property                              31        (6,421)       (53,339) 
 Disposal of Tarn Crag (Holdings) Limited                     27            900              - 
 Purchase of Renaissance Asset Finance Limited                29        (2,072)              - 
 Cash balance acquired through Renaissance Asset Finance 
  Limited acquisition                                         29          2,815              - 
 Proceeds from sale of Everyday Loans Group, net of 
  cash and cash equivalents disposed                                          -        101,723 
 Proceeds from sale of Secure Trust Bank shares                               -        147,999 
 Reduction in cash balance with deconsolidation of 
  Secure Trust Bank                                                           -      (194,344) 
 Purchases of debt securities                                         (211,080)       (89,384) 
 Proceeds from redemption of debt securities                             90,410         71,899 
---------------------------------------------------------  -----  -------------  ------------- 
 Net cash outflow from investing activities                           (128,755)       (19,877) 
---------------------------------------------------------  -----  -------------  ------------- 
 Cash flows from financing activities 
 Increase/(decrease) in borrowings                                      132,928       (52,105) 
 Dividends paid                                                         (4,764)       (57,215) 
---------------------------------------------------------  -----  -------------  ------------- 
 Net cash inflow/(outflow) from financing activities                    128,164      (109,320) 
---------------------------------------------------------  -----  -------------  ------------- 
 Net increase/(decrease) in cash and cash equivalents                   151,077      (164,486) 
 Cash and cash equivalents at 1 January                                 232,703        397,189 
---------------------------------------------------------  -----  -------------  ------------- 
 Cash and cash equivalents at 31 December                     41        383,780        232,703 
---------------------------------------------------------  -----  -------------  ------------- 
 

Company statement of cash flows

 
                                                                        Year           Year 
                                                                       ended          ended 
                                                                 31 December    31 December 
                                                                        2017           2016 
                                                         Note         GBP000         GBP000 
------------------------------------------------------  -----  -------------  ------------- 
 Cash flows from operating activities 
 Dividends received from subsidiaries                                  2,618         11,468 
 Interest received                                                       202            283 
 Interest paid                                                         (513)          (611) 
 Other income                                                          1,643          1,816 
 Cash payments to employees and suppliers                            (7,977)       (10,107) 
 Taxation paid                                                             -          (488) 
------------------------------------------------------  -----  -------------  ------------- 
 Cash flows from operating (losses)/profits before 
  changes in operating assets and liabilities                        (4,027)          2,361 
 Changes in operating assets and liabilities: 
  - net (increase)/decrease in group company balances                (1,788)            526 
  - net decrease in other assets                                         690            104 
  - net increase in other liabilities                                    120             48 
------------------------------------------------------  -----  -------------  ------------- 
 Net cash (outflow)/inflow from operating activities                 (5,005)          3,039 
------------------------------------------------------  -----  -------------  ------------- 
 Cash flows from investing activities 
 Increase investment in subsidiary                         43       (43,200)       (22,000) 
 Disposal of share in subsidiaries                         43              -        147,999 
 Purchase of property, plant and equipment                 30              -            (5) 
------------------------------------------------------  -----  -------------  ------------- 
 Net cash (outflow)/inflow from investing activities                (43,200)        125,994 
------------------------------------------------------  -----  -------------  ------------- 
 Cash flows from financing activities 
 Dividends paid                                                      (4,764)       (52,405) 
 Net cash used in financing activities                               (4,764)       (52,405) 
------------------------------------------------------  -----  -------------  ------------- 
 Net (decrease)/increase in cash and cash equivalents               (52,969)         76,628 
 Cash and cash equivalents at 1 January                               89,072         12,444 
------------------------------------------------------  -----  -------------  ------------- 
 Cash and cash equivalents at 31 December                  41         36,103         89,072 
------------------------------------------------------  -----  -------------  ------------- 
 

Notes to the Consolidated Financial Statements

1. Reporting entity

Arbuthnot Banking Group PLC is a company domiciled in the United Kingdom. The registered address of Arbuthnot Banking Group PLC is 7 Wilson Street, London, EC2M 2SN. The consolidated financial statements of Arbuthnot Banking Group PLC as at and for the year ended 31 December 2017 comprise Arbuthnot Banking Group PLC and its subsidiaries (together referred to as the "Group" and individually as "subsidiaries"). The Company is the holding company of a group primarily involved in banking and financial services.

2. Basis of presentation

(a) Statement of compliance

The Group's consolidated financial statements and the Company's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs as adopted and endorsed by the EU) and the Companies Act 2006 applicable to companies reporting under IFRS.

The consolidated financial statements were authorised for issue by the Board of Directors on 27 March 2018.

(b) Basis of measurement

The consolidated and company financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, investment property, available-for-sale financial assets, derivatives, and financial assets and financial liabilities at fair value through profit or loss.

(c) Functional and presentational currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Pounds Sterling, which is the Company's functional and the Group's presentational currency.

(d) Use of estimates and judgements

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

(e) Accounting developments

The accounting policies adopted are consistent with those of the previous financial year. There were no new or amended standards or interpretations that resulted in a change in accounting policy.

(f) Going concern

After making appropriate enquiries which assessed strategy, profitability, funding, risk management (see Note 6) and capital resources (see Note 7), the directors are satisfied that the Company and the Group have adequate resources to continue in operation for the foreseeable future. The financial statements are therefore prepared on the going concern basis.

3. Significant accounting policies

The accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

3.1. Consolidation

(a) Subsidiaries

Subsidiaries are all investees (including special purpose entities) controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group's shares of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Statement of Comprehensive Income as a gain on bargain purchase.

The Parent's investments in subsidiaries are recorded at cost less, where appropriate, provisions for impairment in value.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(b) Changes in ownership and non-controlling interests

Changes in ownership interest in a subsidiary that do not result in the loss of control are accounted for as equity transactions and no gain or loss is recognised. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary.

When control of a subsidiary is lost, the Group derecognises the assets, liabilities, non-controlling interest and all other components of equity relating to the former subsidiary from the consolidated statement of financial position. Any resulting gain or loss is recognised in profit or loss. Any investment retained in the former subsidiary is recognised at its fair value at the date when control is lost.

(c) Special purpose entities

Special purpose entities ("SPEs") are entities that are created to accomplish a narrow and well-defined objective such as the securitisation of particular assets or the execution of a specific borrowing or lending transaction. SPEs are consolidated when the investor controls the investee. The investor would only control the investee if it had all of the following:

-- power over the investee;

-- exposure, or rights, to variable returns from its involvement with the investee; and

-- the ability to use its power over the investee to affect the amount of the investor's returns.

The assessment of whether the Group has control over an SPE is carried out at inception and the initial assessment is only reconsidered at a later date if there were any changes to the structure or terms of the SPE, or there were additional transactions between the Group and the SPE.

(d) Associates

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Associates are accounted for using the equity method and are initially recognised at cost. The Group's investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group's share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. When the Group's share of losses exceeds its interest in an equity accounted investee, the Group's carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee.

3.2. Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Group Board. The Group Board, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the chief operating decision maker. All transactions between segments are conducted on an arm's length basis. Income and expenses directly associated with each segment are included in determining segment performance. There are three main operating segments:

-- Retail Banking

-- Private Banking

-- Group Centre

3.3. Foreign currency translation

Foreign currency transactions are translated into the functional currency using the spot exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income. Foreign exchange differences arising from translation of available-for-sale equity instruments are recognised in Other Comprehensive Income.

3.4. Interest income and expense

Interest income and expense are recognised in the Statement of Comprehensive Income for all instruments measured at amortised cost using the effective interest rate method.

The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group takes into account all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate and the change in carrying amount is recorded as interest income or expense.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income continues to be recognised using the original effective interest rate applied to the impaired carrying amount.

3.5. Fee and commission income

Fees and commissions which are not considered integral to the effective interest rate are generally recognised on an accrual basis when the service has been provided.

Asset and other management, advisory and service fees are recognised on an accruals basis as the related services are performed. The same principle is applied for financial planning and insurance services that are continuously provided over an extended period of time.

3.6. Rental income

Rental income is recognised on a straight line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income over the term of the lease.

3.7. Discontinued operations

A discontinued operation is a component of the Group's business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:

-- represents a separate major line of business or geographical area of operations;

-- is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or

-- is a subsidiary acquired exclusively with a view to re-sale.

Classification as a discontinued operation occurs on disposal or when the operation meets the criteria to be classified as held for sale (see note 3.14), if earlier. When an operation is classified as a discontinued operation, the comparative Statement of Comprehensive Income is re-presented as if the operation had been discontinued from the start of the comparative year.

3.8. Financial assets and financial liabilities

The Group classifies financial assets and financial liabilities in the following categories: financial assets and financial liabilities at fair value through profit or loss; loans and receivables; held-to-maturity investments; available-for-sale financial assets and other financial liabilities. Management determines the classification of its investments at acquisition. A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue.

(a) Financial assets and financial liabilities at fair value through profit or loss

This category comprises listed securities and derivative financial instruments. Derivative financial instruments utilised by the Group include embedded derivatives and derivatives used for hedging purposes. Financial assets and liabilities at fair value through profit or loss are initially recognised on the date from which the Group becomes a party to the contractual provisions of the instrument. Subsequent measurement of financial assets and financial liabilities held in this category are carried at fair value through profit or loss.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Loans are recognised when cash is advanced to the borrowers. Loans and receivables, other than those relating to assets leased to customers, are carried at amortised cost using the effective interest rate method. The accounting for assets leased to customers, is set out under Note 3.18 (a).

(c) Held-to-maturity

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the positive intent and ability to hold to maturity and that have not been designated at fair value through profit or loss or as available-for-sale investments. Held-to-maturity investments are carried at amortised cost using the effective interest rate method, less any impairment loss.

(d) Available-for-sale

Available-for-sale ("AFS") investments are those not classified as another category of financial assets. These include investments in special purpose vehicles and equity investments in unquoted vehicles. They may be sold in response to liquidity requirements, interest rate, exchange rate or equity price movements. AFS investments are initially recognised at cost, which is considered as the fair value of the investment including any acquisition costs. AFS securities are subsequently measured at fair value in the statement of financial position. Fair value changes in the AFS securities are recognised directly in equity (AFS reserve) until the investment is sold or impaired. Once sold or impaired, the cumulative gains or losses previously recognised in the AFS reserve are recycled to the profit or loss.

(e) Current financial assets held for sale

Current financial assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell except where measurement and remeasurement is outside the scope of IFRS 5. Where investments that have initially been recognised as current financial assets held for sale, because the Group has been deemed to hold a controlling stake, are subsequently disposed of or diluted such that the Group's holding is no longer deemed a controlling stake, the investment will subsequently be classified as fair value through profit or loss investments in accordance with IAS 39. Subsequent movements will be recognised in accordance with the Group's accounting policy for the newly adopted classification.

(f) Other financial liabilities

Other financial liabilities are non-derivative financial liabilities with fixed or determinable payments. Other financial liabilities are recognised when cash is received from the depositors. Other financial liabilities are carried at amortised cost using the effective interest rate method. The fair value of other liabilities repayable on demand is assumed to be the amount payable on demand at the Statement of Financial Position date.

Amortised cost measurement

The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition, minus principal payments, plus or minus the cumulative amortisation using the effective interest rate method of any difference between the initial amount recognised and the maturity amount, less any reduction for impairment.

Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

When available, 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 on an arm's length basis.

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. In the instance that fair values of assets and liabilities cannot be reliably measured, they are carried at cost.

For measuring derivatives that might change classification from being an asset to a liability or vice versa such as interest rate swaps, fair values take into account both credit valuation adjustment (CVA) and debit valuation adjustment (DVA) when market participants take this into consideration in pricing the derivatives.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or when the Group has transferred substantially all risks and rewards of ownership. Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or liability in the Statement of Financial Position. In transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. There have not been any instances where assets have only been partially derecognised.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled, expire, are modified or exchanged.

3.9. Derivative financial instruments

All derivatives are recognised at their fair value. Fair values are obtained from quoted market prices in active markets, including recent arm's length transactions or using valuation techniques such as discounted cash flow models. Derivatives are shown in the Statement of Financial Position as assets when their fair value is positive and as liabilities when their fair value is negative.

Embedded derivatives

Embedded derivatives arise from contracts ('hybrid contracts') containing both a derivative (the 'embedded derivative') and a non-derivative (the 'host contract'). Where the economic characteristics and risks of the embedded derivatives are not closely related to those of the host contract, and the host contract is not at fair value through profit or loss, the embedded derivative is bifurcated and reported at fair value and gains or losses are recognised in the Statement of Comprehensive Income.

3.10. Impairment of financial assets

(a) Assets carried at amortised cost

On an ongoing basis the Group assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. Objective evidence is the occurrence of a loss event, after the initial recognition of the asset, that impacts on the estimated contractual future cash flows of the financial asset or group of financial assets, and can be reliably estimated.

The criteria that the Group uses to determine whether there is objective evidence of an impairment loss include, but are not limited to, the following:

-- Delinquency in contractual payments of principal or interest;

-- Cash flow difficulties experienced by the borrower;

-- Initiation of bankruptcy proceedings;

-- Deterioration in the value of collateral;

-- Deterioration of the borrower's competitive position.

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the Statement of Comprehensive Income. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

The Group considers evidence of impairment for loans and advances at both a specific asset and collective level. All individually significant loans and advances are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. In assessing collective impairment the Group uses historical trends of the probability of default, emergence period, the timing of recoveries and the amount of loss incurred, adjusted for management's judgement as to whether current economic and credit conditions are such that the actual losses are likely to be significantly different to historic trends.

When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the Statement of Comprehensive Income.

A customer's account may be modified to assist customers who are in or have recently overcome financial difficulties and have demonstrated both the ability and willingness to meet the current or modified loan contractual payments. Loans that have renegotiated or deferred terms, resulting in a substantial modification to the cash flows, are no longer considered to be past due but are treated as new loans recognised at fair value, provided the customers comply with the renegotiated or deferred terms.

(b) Assets classified as available-for-sale

The Group assesses at each Statement of Financial Position date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in the profit or loss. Impairment losses recognised in the profit or loss on equity instruments are reversed through other comprehensive income.

(c) Renegotiated loans

Loans that are neither subject to collective impairment assessment nor individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans.

(d) Forbearance

Under certain circumstances, the Group may use forbearance measures to assist borrowers who are experiencing significant financial hardship. Any forbearance support is assessed on a case by case basis in line with best practice and subject to regular monitoring and review. The Group seeks to ensure that any forbearance results in a fair outcome for both the customer and the Group.

3.11. Impairment of non-financial assets

The carrying amounts of the Group's non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. Impairment for goodwill is discussed in more detail under note 3.15(a).

3.12. Term Funding Scheme

The Term Funding Scheme ("TFS") was announced by the Bank of England on 4 August 2016 and became effective from 19 September 2016. The TFS allows participants to borrow central bank reserves in exchange for eligible collateral. Amounts drawn from the TFS are included within "Deposits from banks" on the Statement of Financial Position as detailed in Note 32.

3.13. Inventory

Land acquired through repossession of collateral which is subsequently held in the ordinary course of business with a view to develop and sell is accounted for as inventory.

Inventory is measured at the lower of cost or net realisable value. The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

3.14. Assets classified as held for sale

Assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. These assets and liabilities are subsequently measured at the lower of carrying amount and fair value less costs to sell. Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortised or depreciated.

3.15. Intangible assets

(a) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition. Goodwill on acquisitions of subsidiaries or associates is included in 'intangible assets'. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

The Group reviews the goodwill for impairment at least annually or more frequently when events or changes in economic circumstances indicate that impairment may have taken place and carries goodwill at cost less accumulated impairment losses. Assets are grouped together in the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit" or "CGU"). For impairment testing purposes goodwill cannot be allocated to a CGU that is greater than a reported operating segment. CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. The test for impairment involves comparing the carrying value of goodwill with the present value of pre-tax cash flows, discounted at a rate of interest that reflects the inherent risks of the CGU to which the goodwill relates, or the CGU's fair value if this is higher.

(b) Computer software

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives (three to ten years).

Costs associated with maintaining computer software programs are recognised as an expense as incurred.

Costs associated with developing computer software which are assets in the course of construction, which management has assessed to not be available for use, are not amortised.

(c) Other intangibles

Other intangibles include trademarks, customer relationships, broker relationships, technology and banking licences acquired. These costs are amortised on the basis of the expected useful lives (three to fourteen years).

3.16. Property, plant and equipment

Land and buildings comprise mainly branches and offices and are stated at the latest valuation with subsequent additions at cost less depreciation. Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, applying the following annual rates, which are subject to regular review:

 
 Freehold buildings        50 years 
 Office equipment     3 to 10 years 
 Computer equipment    3 to 5 years 
 Motor vehicles             4 years 
 

Leasehold improvements are depreciated over the term of the lease (until the first break clause). Gains and losses on disposals are determined by deducting carrying amount from proceeds. These are included in the Statement of Comprehensive Income. Depreciation on revalued freehold buildings is calculated using the straight-line method over the remaining useful life. Revaluation of assets and any subsequent disposals are addressed through the revaluation reserve and any changes are transferred to retained earnings.

3.17. Investment property

Investment property is initially measured at cost. Transaction costs are included in the initial measurement. Subsequently, investment property is measured at fair value, with any change therein recognised in profit and loss within other income.

If a change in use occurs and investment property is transferred to owner-occupied property, the property's deemed cost for subsequent reporting is its fair value at the date of change in use.

3.18. Leases

(a) As a lessor

Assets leased to customers under agreements which transfer substantially all the risks and rewards of ownership, with or without ultimate legal title, are classified as finance leases. When assets are held subject to finance leases, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.

Assets leased to customers under agreements which do not transfer substantially all the risks and rewards of ownership are classified as operating leases. When assets are held subject to operating leases, the underlying assets are held at cost less accumulated depreciation, The assets are depreciated down to their estimated residual values on a straight-line basis over the lease term. Lease rental income is recognised on a straight line basis over the lease term.

(b) As a lessee

Rentals made under operating leases are recognised in the Statement of Comprehensive Income on a straight-line basis over the term of the lease.

Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Leased assets by way of finance leases are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

3.19. Cash and cash equivalents

For the purposes of the Statement of Cash Flows, cash and cash equivalents comprises cash on hand and demand deposits, and cash equivalents are deemed highly liquid investments that are convertible into cash with an insignificant risk of changes in value with a maturity of three months or less at the date of acquisition.

3.20. Employee benefits

(a) Post-retirement obligations

The Group contributes to a defined contribution scheme and to individual defined contribution schemes for the benefit of certain employees. The schemes are funded through payments to insurance companies or trustee-administered funds at the contribution rates agreed with individual employees.

The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

There are no post-retirement benefits other than pensions.

(b) Share-based compensation

The fair value of equity settled share-based payment awards is calculated at grant date and recognised over the period in which the employees become unconditionally entitled to the awards (the vesting period). The amount is recognised as personnel expenses in the profit and loss, with a corresponding increase in equity. The Group adopts a Black-Scholes valuation model in calculating the fair value of the share options as adjusted for an attrition rate for members of the scheme and a probability of pay-out reflecting the risk of not meeting the terms of the scheme over the vesting period. The number of share options that are expected to vest are reviewed at least annually.

The fair value of cash settled share-based payments is recognised as personnel expenses in the profit or loss with a corresponding increase in liabilities over the vesting period. The liability is remeasured at each reporting date and at settlement date based on the fair value of the options granted, with a corresponding adjustment to personnel expenses.

When share-based payments are changed from equity settled to cash settled and there is no change in the fair value of the replacement award, it is seen as a modification to the terms and conditions on which the equity instruments were granted and is not seen as the settlement and replacement of the instruments. Accordingly, on the date of modification, the Group recognises the entire liability as a reclassification from equity and does not recognise any profit or loss in the Statement of Comprehensive Income.

(c) Deferred cash bonus scheme

The Bank has a deferred cash bonus scheme for senior employees. The cost of the award is recognised to the income statement over the period to which the performance relates.

3.21. Taxation

Current income tax which is payable on taxable profits is recognised as an expense in the period in which the profits arise. Income tax recoverable on tax allowable losses is recognised as an asset only to the extent that it is regarded as recoverable by offset against current or future taxable profits.

Deferred tax is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not accounted for if it arises from the initial recognition of goodwill, the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the Statement of Financial Position date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, when they intend to settle current tax liabilities and assets on a net basis or the tax assets and liabilities will be realised simultaneously.

Deferred tax assets are recognised where it is probable that future taxable profits will be available against which the temporary differences can be utilised.

3.22. Issued debt and equity securities

Issued financial instruments or their components are classified as liabilities where the contractual arrangement results in the Group having a present obligation to either deliver cash or another financial asset to the holder, to exchange financial instruments on terms that are potentially unfavourable. Issued financial instruments, or their components, are classified as equity where they meet the definition of equity and confer on the holder a residual interest in the assets of the Company. The components of issued financial instruments that contain both liability and equity elements are accounted for separately with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component.

Financial liabilities, other than trading liabilities at fair value, are carried at amortised cost using the effective interest rate method as set out in policy 3.4. Equity instruments, including share capital, are initially recognised as net proceeds, after deducting transaction costs and any related income tax. Dividend and other payments to equity holders are deducted from equity, net of any related tax.

3.23. Share capital

(a) Share issue costs

Incremental costs directly attributable to the issue of new shares or options or the acquisition of a business by Arbuthnot Banking Group or its subsidiaries, are shown in equity as a deduction, net of tax, from the proceeds.

(b) Dividends on ordinary shares

Dividends on ordinary shares are recognised in equity in the period in which they are approved.

(c) Share buybacks

Where any Group company purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company's equity holders until the shares are cancelled or reissued.

3.24. Financial guarantees and loan commitments

Financial guarantees represent undertakings that the Group will meet a customer's obligation to third parties if the customer fails to do so. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. The Group is theoretically exposed to loss in an amount equal to the total guarantees or unused commitments. However, the likely amount of loss is expected to be significantly less; most commitments to extend credit are contingent upon customers maintaining specific credit standards. Liabilities under financial guarantee contracts are initially recorded at their fair value, and the initial fair value is amortised over the life of the financial guarantee. Subsequently, the financial guarantee liabilities are measured at the higher of the initial fair value, less cumulative amortisation, and the best estimate of the expenditure to settle obligations.

3.25. Fiduciary activities

The Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Group.

3.26. Provisions and contingent liabilities

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be reliably measured.

Onerous contract provisions are recognised for losses on contracts where the forecast costs of fulfilling the contract throughout the contract period exceed the forecast income receivable. In assessing the amount of the loss to provide on any contract, account is taken of the Group's forecast results which the contract is servicing. The provision is calculated based on discounted cash flows to the end of the contract.

Contingent liabilities are disclosed when the Group has a present obligation as a result of a past event, but the probability that it will be required to settle that obligation is more than remote, but not probable.

3.27. New standards and interpretations not yet adopted

The following standards, interpretations and amendments to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2018 or later periods, but the Group has not early adopted them:

IFRS 9, 'Financial instruments' (effective from 1 January 2018).

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments (IFRS 9). IFRS 9 replaces IAS 39 Financial instruments: "Recognition and measurement", and is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Group will initially apply IFRS 9 on 1 January 2018. In October 2017, the IASB issued "Prepayment Features with Negative Compensation" (Amendment to IFRS 9). The amendments are effective for annual periods beginning on or after 1 January 2019, with early adoption permitted. This Amendment does not have an impact on Group's financial assets' classification and measurement. The Group will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. The changes in measurement arising on initial application of IFRS 9 will be incorporated through an adjustment to the opening reserves and retained earnings position as at 1 January 2018.

The assessment below is preliminary and not all transition work has been finalised yet. The actual impact of adopting IFRS 9 on 1 January 2018 may change because the Group is still refining its models and methodology for Expected Credit Loss ("ECL") calculations, and revisions of governance and internal controls (including IT systems) required for adoption of IFRS 9 are not yet complete and neither is the testing of these controls. Further, the assumptions, judgements and estimation techniques employed are subject to change until the Bank finalises its first financial statements that include the date of initial application.

i) Classification and Measurement of Financial Assets and Liabilities

There are three measurement classifications under IFRS 9: amortised cost, fair value through profit and loss ("FVTPL") and for financial assets, fair value through other comprehensive income ("FVOCI"). The existing IAS 39 financial asset categories have been removed. Financial assets are classified into these measurement classifications based on the business model within which they are held, and their contractual cash flow characteristics. The business model reflects how groups of financial assets are managed to achieve a particular business objective.

Financial assets can only be held at amortised cost if the instruments are held in order to collect the contractual cash flow ("held to collect") and where those contractual cash flows are solely payments of principal and interest ("SPPI"). Financial asset debt instruments where the business model objectives are achieved by both collecting the contractual cash flows and selling the assets ("held to collect and sell"), are held at FVOCI, with unrealised gains and losses deferred within reserves until the asset is derecognised. All financial assets not classified as measured at amortised cost or FVOCI, as described above, are measured at FVTPL.

The Group has assessed the business models that it operates and most of the loans to banks and customers are held within a "held to collect" business model. Investment debt securities categorised as held--to--maturity under IAS 39 are held within a "held to collect" portfolio. The majority of the remaining investment debt securities are held within a "held to collect and sell" business model or trading portfolio. Where the objective of a business is to hold the assets to collect the contractual cash flows or where the objective is to hold the assets to collect contractual cash flows and sell, a further assessment has been undertaken to determine whether the cash flows of the assets are deemed to meet the SPPI criteria. Where these instruments have cash flows that meet the SPPI criteria, the instruments are measured at amortised cost (for held to collect business models) or FVOCI (for held to collect and sell business models). Instruments that do not meet the SPPI criteria are measured at FVTPL regardless of the business model in which they are held.

IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities, except for changes in presentation of fair value changes of financial liabilities designated at FVTPL attributable to changes in liability credit risk (under IFRS 9 these changes are presented within other comprehensive income). There has been no change in the way the Group classifies and measures its financial liabilities.

ii) Impairment of Financial Assets, Loan Commitments and Financial Guarantee Contracts

IFRS 9 introduces a new forward--looking ECL impairment framework for all financial assets not measured at FVTPL and certain off--balance sheet loan commitments and guarantees. It replaces the "incurred loss model" from IAS 39. The new ECL framework will result in an allowance for expected credit losses being recorded on financial assets regardless of whether there has been an actual loss event. This differs from the current approach where the allowance recorded on performing loans is designed to capture only losses that have been incurred, whether or not they have been specifically identified. The new impairment model applies to the following financial instruments that are not measured at fair value through profit or loss:

-- Financial assets that are debt instruments; and;

-- Loan commitments and financial guarantee contracts issued.

The IFRS 9 impairment model adopts a three stage approach based on the extent of credit deterioration since origination:

-- Stage 1: 12--month ECL applies to all financial assets that have not experienced a significant increase in credit risk ("SICR") since origination and are not credit impaired. The ECL will be computed based on the probability of default events occurring over the next 12 months. This Stage 1 approach is different from the current approach which estimates a collective allowance to recognise losses that have been incurred but not reported on performing loans.

-- Stage 2: When a financial asset experiences a SICR subsequent to origination but is not credit impaired, it is considered to be in Stage 2. This requires the computation of ECL based on the probability of all possible default events occurring over the remaining life of the financial asset. Provisions are higher in this stage because of an increase in credit risk and the impact of a longer time horizon being considered (compared to 12 months in Stage 1).

-- Stage 3: Financial assets that exhibit objective evidence of impairment are included in this stage. Similar to Stage 2, the allowance for credit losses will continue to capture the lifetime expected credit losses. At each reporting date, the Group will assess whether financial assets carried at amortised cost are credit impaired. A financial asset will be considered to be credit impaired when an event(s) that has a detrimental impact on estimated future cash flows have occurred. Evidence that a financial asset is credit impaired includes the following observable data:

-- Initiation of bankruptcy proceedings;

-- Notification of bereavement;

-- Identification of loan meeting debt sale criteria; or

-- Initiation of repossession proceedings.

In addition, a loan that is 90 days or more past due will be considered credit impaired for all portfolios. The credit risk of financial assets that become credit impaired are not expected to improve such that they are no longer considered credit impaired.

The ECL requirements of IFRS 9 are complex and require management judgments, estimates and assumptions, particularly in the areas of assessing whether the credit risk of an instrument has increased significantly since initial recognition and incorporating forward--looking information into the measurement of ECLs.

Under IFRS 9, the Group will consider a financial asset to be in default when:

-- The borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising collateral (if any is held); or

-- The borrower is more than 90 days past due on any material credit obligation to the Group.

This definition is largely consistent with the definition that is used for the Group's credit risk management process and for regulatory purposes.

Significant increase in credit risk

Under IFRS 9, when determining whether the credit risk (risk of default) on a financial instrument has increased significantly since initial recognition, the Group will consider reasonable and supportable information that is relevant and available without undue cost or effort, including both quantitative and qualitative information and analysis based on the Group's historical experience, expert credit assessment and forward--looking information.

The Group has established a methodology and framework that incorporates both quantitative and qualitative information to determine whether the credit risk on a particular financial instrument has increased significantly since initial recognition and this is aligned to the internal credit risk management process.

The criteria for determining whether credit risk has increased significantly will vary according to the individual circumstances of each loan, given the nature of the loan book, but will also include a backstop based on delinquency of 30 days past due. In certain instances, using its judgement and, where possible, relevant historical experience, the Group may determine that an exposure has undergone a significant increase in credit risk if particular qualitative factors indicate so, as the quantitative analysis may not always capture this on a timely basis.

Measuring ECL

The key inputs to the measurement of ECLs are the following variables:

-- Probability of default ("PD");

-- Loss given default ("LGD"); and

-- Exposure at default ("EAD").

Off--balance sheet items, such as financial guarantees and loan commitments, are included within the ECL computation.

Forward--looking information ("FLI")

IFRS 9 requires an unbiased and probability weighted estimate of credit losses by evaluating a range of possible outcomes that incorporates forecasts of future economic conditions. FLI is required to be incorporated into the measurement of ECL as well as the determination of whether there has been a significant increase in credit risk since origination. Measurement of ECLs at each reporting period should reflect reasonable and supportable information at the reporting date about past events, current conditions and forecasts of future economic conditions. Forecasts for key macroeconomic variables that most closely correlate with the Bank's portfolio are used to produce five economic scenarios, comprising a central case, upside case, downside case, moderate stress and severe stress, and the impacts of these scenarios are then probability weighted. The estimation and application of this forward--looking information will require significant judgement. External information is used to produce the forecast information.

iii) Hedge Accounting

IFRS 9 introduces a new hedge accounting model that expands the scope of hedged items and risks eligible for hedge accounting and aligns hedge accounting more closely with risk management. The new model no longer specifies quantitative measures for effectiveness testing and does not permit hedge de--designation.

iv) Transitional impact, including impact on capital

The Group will record an adjustment to its opening retained earnings as at 1 January 2018 to reflect the application of the new requirements at the adoption date and will not restate comparative periods. The Group estimates the IFRS 9 transition amount will reduce shareholders' equity by between GBP2.4m and GBP3.2m before tax as at 1 January 2018.

Under IFRS 9, it is estimated that the Group's CET1 ratio would reduce by approximately 2 basis points after transitional relief (between 26 and 35 basis points before transitional relief). This is mainly driven by the increase in IFRS 9 ECL for standardised portfolios that directly impacts CET1 as there is no regulatory deduction to absorb the increase.

CET 1 ratio:

-- 17.29% under IAS 39 at 31 December 2017;

-- Between 16.93% and 17.03% under IFRS 9 at 1 January 2018 before transitional relief;

-- 17.27% under IFRS 9 at 1 January 2018 after transitional relief.

Transitional relief relates to the phasing of the impact of the initial adoption of ECL as permitted by Regulation (EU) 2017/2395 of the European Parliament and Council. The Group is planning to adopt the transitional relief. Under this approach, the balance of ECL allowances in excess of the regulatory excess EL and standardised portfolios are phased into the CET1 capital base over 5 years. The proportion phased in for the balance at each reporting period is 2018: 5%; 2019 15%; 2020 30%; 2021 50%; 2022 75%. From 2023 onwards, there is no transitional relief.

v) Impact on Governance and Controls

The Group plans to apply its existing governance framework to ensure that appropriate controls and validations are in place over key processes and judgments to determine the ECL. As part of the implementation, the Group is in the process of refining existing internal controls and implementing new controls where required in areas that are impacted by IFRS 9, including controls over the development and probability weighting of macroeconomic scenarios, credit risk data and systems, and the determination of a significant increase in credit risk.

IFRS 15, 'Revenue from contracts with customers' (effective 1 January 2017).

This standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC--31 Revenue - Barter of Transactions Involving Advertising Services. IFRS 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted.

The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract--based five step analysis of transactions to determine whether, how much and when revenue is recognised. IFRS 15 is not expected to have a significant impact on the Group, but further analysis is continuing.

IFRS 16, 'Leases' (effective from 1 January 2019).

This standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e the customer ('lessee') and the supplier ('lessor'). IFRS 16 eliminates the classification of leases as required by IAS 17 and introduces a single lease accounting model. Applying that model, a lessee is required to recognise:

-- Assets and liabilities for leases with a term of more than 12 months, unless the underlying asset is of low value;

-- Depreciation of lease assets separately from interest on lease liabilities in profit or loss.

The standard is effective for annual periods beginning on or after 1 January 2019. The Group is currently in the process of assessing the impact that the initial application would have on its business and will adopt the standard for the year ending 31 December 2019.

4. 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.

4.1 Estimation uncertainty

(a) Credit losses

The Group reviews its loan portfolios and held-to-maturity investments to assess impairment at least on a quarterly basis. The basis for evaluating impairment losses is described in accounting policy 3.10. Where financial assets are individually evaluated for impairment, management uses its best estimates in calculating the net present value of future cash flows. Management has to make judgements on the financial position of the counterparty and the net realisable value of collateral (where held), in determining the expected future cash flows.

The recoverable amount is typically dependent on the sale of the collateral. The amount recoverable is determined with reference to:

-- The property valuation, which is typically updated every 12 months.

-- The time taken to realise the sale proceeds (UK property is assumed to take 12 months and Non-UK property 24 months).

-- The property marketing costs (UK property is assumed to be at 3% of property value and Non-UK at 7%).

-- The legal costs of sale (UK legal sales costs are assumed to be GBP5k, whilst Non-UK are assumed to be EUR10k).

Any change in timing of estimated future cash flows (other than impairment) will adjust carrying value with gain or loss in profit or loss. The revised carrying amount will be recalculated by discounting the revised estimated future cash flows at the loan's original effective interest rate.

A sensitivity analyses was done on the two main assumptions used to calculate the recoverable amount and therefore the impairments required:

-- If the value of the collateral increased or decreased by 10%, impairments would decrease or increase by GBP1.6m (2016: GBP1.7m);

-- If the time taken to sell the properties were increased or decreased by 12 months, impairments would increase or decrease by GBP0.8m (2016: GBP0.8m).

In determining whether an impairment loss should be recorded in the Statement of Comprehensive Income, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans or held-to-maturity investments with similar credit characteristics, before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the Group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

In assessing collective impairment the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management's judgement as to whether current economic and credit conditions are such that the actual losses are likely to be significantly different to historic trends. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.

(b) Effective Interest Rate

Acquired loan books are initially recognised at fair value. Subsequently they are measured under the effective interest rate method, based on cash flow models which require significant judgement assumptions on prepayment rates, late payments, the probability and timing of defaults and the amount of incurred losses. Management review the expected cash flows against actual cash flows to ensure future assumptions on customer behaviour and future cash flows remain valid. If the estimates of future cash flows are revised, the adjustment to the carrying value of the loan book is recognised in the Statement of Comprehensive Income.

If the acquired loan books were modelled to repay 6 months earlier, it would increase interest income in 2017 by GBP0.3m (2016: GBP0.1m), while a 10% increase in credit losses would reduce interest income in 2017 by GBP0.2m (2016: GBP0.3m), both as a result of AG8 adjustments.

IAS 39 requires interest earned from lending to be measured under the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset.

Management must therefore use judgement to estimate the expected life of each instrument. The accuracy of the effective interest rate would therefore be affected by unexpected market movements resulting in altered customer behaviour, inaccuracies in the models used compared to actual outcomes and incorrect assumptions.

If customer loans repaid 6 months earlier than anticipated, interest income would increase by GBP0.3m (2016: GBP0.3m).

(c) Investment property

The valuations that the Group places on its investment properties are subject to a degree of uncertainty and are calculated on the basis of assumptions in relation to prevailing market rents and effective yields. These assumptions may not prove to be accurate, particularly in periods of market volatility. The Group currently owns two investment properties, as outlined in Note 31.

The King Street property is currently fully tenanted, with the main lease ending in 2019 at which point the offices will be refurbished and re-let at prevailing market rents. The valuation model considers the net present value of net cash flows to be generated from the property, taking into account expected rental growth rate, void periods, occupancy rate, lease incentive costs such as rent-free periods and other costs not paid by tenants. The expected net cash flows are discounted using risk-adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location, tenant quality and lease terms. Management judgement is required for significant unobservable inputs used in the discounted cash flow model, which have been assessed as follows:

-- refurbishment period: 6 months

-- void period after refurbishment: 6 months

-- rent free period: 18 months

-- estimated refurbishment costs: GBP2.4m

-- yield rate: 4%

-- expected rental income uplift following re-let: 15%

If the discount rate went up by 25bps, there would be a reduction in fair value of GBP4.8m, while a decrease in the discount rate would have a positive fair value impact through the Profit or Loss of GBP4.0m. If the expected rental uplift following the re-let of the building is reduced to 10%, there would be a reduction in fair value through the Profit or Loss of GBP2.4m, while an increase in the rental uplift to 20%, would have a positive fair value impact through the Profit or Loss of GBP2.2m.

The St Philips Place property was acquired on 24 November 2017. As the property was bought shortly before the year end, the cost of acquisition is considered to remain a good estimate of fair value.

(d) Acquisition accounting

The Group recognises identifiable assets and liabilities at their acquisition date fair values. The exercise of attributing a fair value to the balance sheet of the acquired entity requires the use of a number of assumptions and estimates, which are documented at the time of the acquisition. These fair value adjustments are determined from the estimated future cash flows generated by the assets.

Loans and advances to customers

The methodology of attributing a fair value to the loans and advances to customers involves discounting the estimated future cash flows, using a risk adjusted market rate discount factor. A fair value adjustment is then applied to the carrying value in the acquirers balance sheet.

Intangible assets

Identifying the separately identifiable intangible assets of an acquired company is subjective and based upon discussions with management and a review of relevant documentation. During the year, there were three separately identifiable intangible assets which met the criteria for separation from goodwill, these being Customer Relationships, Broker Relationships and Brand.

Customer Relationships are valued through the application of a discounted cash flow methodology to net anticipated renewal revenues. The valuation of Broker Relationships is derived from a costs avoided methodology, by reviewing costs incurred on non-broker platforms versus costs which are incurred in broker commission. The Brand is valued considering a market participant's view on the likely period over which it might be utilised, and its fair value was estimated using the relief from royalty methodology.

In calculating the fair value of the assets and liabilities acquired, management judgement is required as discussed above, in particular for the discount rate applied to the economic life of the intangibles assets of GBP2.3m. A 1% movement in the discount rate applied, would result in a GBP0.06m increase or decrease in the intangible recognised with an equal and opposite increase or decrease in goodwill on acquisition.

(e) Impairment review of interest in associate

The Group has an 18.6% interest in STB. This is currently recorded in the Group's balance sheet as an interest in associates and at 31 December 2017 was carried at GBP83.8m or the equivalent of GBP24.33 per share. At the year end the market price of STB was GBP17.97 per share. The Board have determined that the current carrying value remains appropriate after having carried out extensive analysis to be satisfied that the long term value in use does not suggest that this carrying value is impaired. These valuations included the Gordon's Growth model and Dividend Discount model. The resultant output from the models indicated valuations in a range that was in excess of GBP24 per share, but this will be ultimately dependent on the surplus capital within STB being deployed in the business over the long term.

Various judgements were made in the application of the models used. The following sensitivity analyses were also done on the assumptions used in the two main models used:

Gordon's Growth Model

   --      1% change in return on equity would change the calculated valuation by GBP2.77 per share 

-- 1% change in cost of equity/discount factor would change the calculated valuation by GBP6.92 per share

   --      0.5% change in GDP would change the calculated valuation by GBP1.54 per share 

Dividend Discount Model

-- 1% change in cost of equity/discount factor would change the calculated valuation by GBP3.38 per share

-- 10% change in earnings/dividend growth would change the calculated valuation by GBP2.11 per share

Based on the current output of the valuation models, reviewing sensitivity analyses on assumptions applied in the models and taking into account the current market consensus on the shares, the Board is satisfied that the current carrying value remains appropriate.

There is a risk that the output of the value in use models could require an impairment charge to be recognised in the future.

If the Group was considered to no longer have significant influence over STB it would lead to the investment being accounted for as a financial asset at fair value. The value would then be marked to market with changes in the share price giving rise to gains or losses being recorded in Other Comprehensive Income or Profit or Loss - see Note 3.8(d) and Note 3.10(b).

4.2 Judgements

(a) 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 31 December 2017                 GBP000   GBP000   GBP000   GBP000 
----------------------------------  -------  -------  -------  ------- 
 ASSETS 
 Derivative financial instruments         -    2,551        -    2,551 
 Financial investments                  144        -    2,203    2,347 
----------------------------------  -------  -------  -------  ------- 
                                        144    2,551    2,203    4,898 
----------------------------------  -------  -------  -------  ------- 
 LIABILITIES 
 Derivative financial instruments         -      931        -      931 
----------------------------------  -------  -------  -------  ------- 
                                          -      931        -      931 
----------------------------------  -------  -------  -------  ------- 
 
 
                                      Level    Level    Level 
                                          1        2        3    Total 
 At 31 December 2016                 GBP000   GBP000   GBP000   GBP000 
----------------------------------  -------  -------  -------  ------- 
 ASSETS 
 Derivative financial instruments         -    1,516        -    1,516 
 Financial investments                  133        -    2,012    2,145 
----------------------------------  -------  -------  -------  ------- 
                                        133    1,516    2,012    3,661 
----------------------------------  -------  -------  -------  ------- 
 LIABILITIES 
 Derivative financial instruments         -      227        -      227 
----------------------------------  -------  -------  -------  ------- 
                                          -      227        -      227 
----------------------------------  -------  -------  -------  ------- 
 
 
 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: 
                                                                      2017      2016 
 Movement in level 3                                                GBP000    GBP000 
---------------------------------------------------------------    -------  -------- 
 At 1 January                                                        2,012     2,548 
 Consideration received                                                  -       494 
 Disposals                                                               -   (1,310) 
 Movements recognised in Other Comprehensive 
  Income                                                               136        75 
 Movements recognised in the Income Statement                           55       205 
-----------------------------------------------------------------  -------  -------- 
 At 31 December                                                      2,203     2,012 
-----------------------------------------------------------------  -------  -------- 
 

Visa Inc. investment

Arbuthnot Latham currently holds preference shares in Visa Inc., valued at GBP706k as at 31 December 2017. The valuation includes a 31 % haircut, comprising 25% due to a contingent liability disclosed in Visa Europe's accounts in relation to litigation and 6% based on a liquidity discount.

A 5% increase in valuation would lead to a 35k increase in the gain through Other Comprehensive Income. A 5% decrease would lead to a GBP35k decrease in the gain through Other Comprehensive Income.

Investment in overseas property company

For those financial investments measured at fair value, the Group uses proprietary valuation models which are developed from recognised valuation techniques. Some or all of the significant inputs into these models may not be observable in the market. Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in the determination of fair value.

The Group has established a valuation methodology for measuring level 3 financial investments which are categorised as available for sale. Unobservable inputs used include: yield of 4.60% (2016: 4.90%) and occupancy rates of 90.0% (2016: 95.3%). These inputs are taken from online real estate reports available from BNP Paribas. The inputs are stressed to ensure that the fair value is robust. Increases in the yield or decreases in annual rental value or occupancy rate would result in lower fair values (an increase in yield by 0.5% would lead to a decrease in fair value of GBP126k). Another indicator of appropriate fair value would be if a reasonable offer were to be made on the value of the property. Management analyse and investigate any significant movements in the unobservable inputs which impact the valuation of level 3 instruments.

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 31 December 2017                    GBP000      GBP000      GBP000      GBP000 
------------------------------------  --------  ----------  ----------  ---------- 
 ASSETS 
 Cash and balances at central banks          -     313,101           -     313,101 
 Loans and advances to banks                 -      70,679           -      70,679 
 Debt securities held-to-maturity            -     227,019           -     227,019 
 Loans and advances to customers             -           -   1,049,269   1,049,269 
 Other assets                                -           -      11,964      11,964 
------------------------------------  --------  ----------  ----------  ---------- 
                                             -     610,799   1,061,233   1,672,032 
 ---------------------------------------------  ----------  ----------  ---------- 
 LIABILITIES 
 Deposits from banks                         -     195,097           -     195,097 
 Deposits from customers                     -   1,390,781           -   1,390,781 
 Other liabilities                           -           -       1,207       1,207 
 Debt securities in issue                    -           -      13,104      13,104 
------------------------------------  --------  ----------  ----------  ---------- 
                                             -   1,585,878      14,311   1,600,189 
 ---------------------------------------------  ----------  ----------  ---------- 
 
 
                                         Level       Level     Level 
                                             1           2         3       Total 
 At 31 December 2016                    GBP000      GBP000    GBP000      GBP000 
------------------------------------  --------  ----------  --------  ---------- 
 ASSETS 
 Cash and balances at central banks          -     195,752         -     195,752 
 Loans and advances to banks                 -      36,951         -      36,951 
 Debt securities held-to-maturity            -     107,300         -     107,300 
 Loans and advances to customers             -      42,691   716,108     758,799 
 Other assets                                -           -     1,197       1,197 
------------------------------------  --------  ----------  --------  ---------- 
                                             -     382,694   717,305   1,099,999 
 ---------------------------------------------  ----------  --------  ---------- 
 LIABILITIES 
 Deposits from banks                         -       3,200         -       3,200 
 Deposits from customers                     -     997,649         -     997,649 
 Other liabilities                           -           -     1,812       1,812 
 Debt securities in issue                    -           -    12,621      12,621 
------------------------------------  --------  ----------  --------  ---------- 
                                             -   1,000,849    14,433   1,015,282 
 ---------------------------------------------  ----------  --------  ---------- 
 

(b) Associate accounting

An associate is an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. It is presumed that the investor does not have significant influence if it has less than 20% of the voting power of the investee, unless proven otherwise. ABG holds 18.64% of the voting power of STB, but has retained Board representation (two directors out of eight) and as a result the Board believes ABG has significant influence. The interest in STB is therefore accounted for as an associate.

If significant influence is lost, the shareholding will be accounted for as an available-for-sale financial investment.

 
 5. Maturity analysis of assets and liabilities 
 
 The table below shows the maturity analysis of assets and liabilities 
  of the Group as at 31 December 2017: 
                                                                     Due 
                                                                   after 
                                                         Due        more 
                                                      within        than 
                                                         one         one 
                                                        year        year       Total 
 At 31 December 2017                                  GBP000      GBP000      GBP000 
------------------------------------------------  ----------  ----------  ---------- 
 ASSETS 
 Cash                                                313,101           -     313,101 
 Loans and advances to banks                          70,679           -      70,679 
 Debt securities held-to-maturity                    122,236     104,783     227,019 
 Assets classified as held for sale                    2,915           -       2,915 
 Derivative financial instruments                        950       1,601       2,551 
 Loans and advances to customers                     224,954     824,315   1,049,269 
 Other assets                                         16,188       4,436      20,624 
 Financial investments                                   128       2,219       2,347 
 Deferred tax asset                                        -       1,527       1,527 
 Interests in associates                                   -      83,804      83,804 
 Intangible assets                                         -      15,995      15,995 
 Property, plant and equipment                             -       3,962       3,962 
 Investment property                                       -      59,439      59,439 
------------------------------------------------  ----------  ----------  ---------- 
                                                     751,151   1,102,081   1,853,232 
------------------------------------------------  ----------  ----------  ---------- 
 LIABILITIES 
 Deposits from banks                                 195,097           -     195,097 
 Derivative financial instruments                        931           -         931 
 Deposits from customers                           1,333,423      57,358   1,390,781 
 Current tax liability                                   705           -         705 
 Other liabilities                                    16,239           -      16,239 
 Debt securities in issue                                  -      13,104      13,104 
------------------------------------------------  ----------  ----------  ---------- 
                                                   1,546,395      70,462   1,616,857 
------------------------------------------------  ----------  ----------  ---------- 
 
 
 The table below shows the maturity analysis of assets and liabilities 
  of the Group as at 31 December 2016: 
                                                             Due 
                                                           after 
                                                  Due       more 
                                               within       than 
                                                  one        one 
                                                 year       year        Total 
 At 31 December 2016                           GBP000     GBP000       GBP000 
-----------------------------------------  ----------  ---------  ----------- 
 ASSETS 
 Cash                                         195,752          -      195,752 
 Loans and advances to banks                   36,951          -       36,951 
 Debt securities held-to-maturity              85,782     21,518      107,300 
 Derivative financial instruments                  85      1,431        1,516 
 Loans and advances to customers              337,376    421,423      758,799 
 Other assets                                   7,708      4,231       11,939 
 Financial investments                              -      2,145        2,145 
 Deferred tax asset                                 -      1,665        1,665 
 Investment in associate                          900     81,674       82,574 
 Intangible assets                                  -      8,522        8,522 
 Property, plant and equipment                      -      4,782        4,782 
 Investment property                                -     53,339       53,339 
-----------------------------------------  ----------  ---------  ----------- 
                                              664,554    600,730    1,265,284 
-----------------------------------------  ----------  ---------  ----------- 
 LIABILITIES 
 Deposits from banks                            3,200          -        3,200 
 Derivative financial instruments                 227          -          227 
 Deposits from customers                      906,083     91,566      997,649 
 Current tax liability                            147          -          147 
 Other liabilities                             17,082          -       17,082 
 Debt securities in issue                           -     12,621       12,621 
-----------------------------------------  ----------  ---------  ----------- 
                                              926,739    104,187    1,030,926 
-----------------------------------------  ----------  ---------  ----------- 
 
 
 The table below shows the maturity analysis of assets and liabilities 
  of the Company as at 31 December 2017: 
                                                                    Due 
                                                                  after 
                                                          Due      more 
                                                       within      than 
                                                          one       one 
                                                         year      year     Total 
 At 31 December 2017                                   GBP000    GBP000    GBP000 
---------------------------------------------------  --------  --------  -------- 
 ASSETS 
 Loans and advances to banks                                6         -         6 
 Loans and advances to banks - due from subsidiary 
  undertakings                                         36,097         -    36,097 
 Financial investments                                    128        12       140 
 Deferred tax asset                                         -       641       641 
 Property, plant and equipment                              -       157       157 
 Other assets                                             199         -       199 
 Interests in associates                                    -     5,056     5,056 
 Interests in subsidiaries                                       97,802    97,802 
---------------------------------------------------  --------  --------  -------- 
                                                       36,430   103,668   140,098 
---------------------------------------------------  --------  --------  -------- 
 LIABILITIES 
 Current tax liability                                    152         -       152 
 Other liabilities                                      3,141         -     3,141 
 Debt securities in issue                                   -    13,104    13,104 
---------------------------------------------------  --------  --------  -------- 
                                                        3,293    13,104    16,397 
---------------------------------------------------  --------  --------  -------- 
 
 The table below shows the maturity analysis of assets and liabilities 
  of the Company as at 31 December 2016: 
                                                                    Due 
                                                                  after 
                                                          Due      more 
                                                       within      than 
                                                          one       one 
                                                         year      year     Total 
 At 31 December 2016                                   GBP000    GBP000    GBP000 
---------------------------------------------------  --------  --------  -------- 
 ASSETS 
 Loans and advances to banks                                6         -         6 
 Loans and advances to banks - due from subsidiary 
  undertakings                                         89,066         -    89,066 
 Financial investments                                      -       121       121 
 Deferred tax asset                                         -       397       397 
 Property, plant and equipment                              -       183       183 
 Other assets                                             254       633       887 
 Interests in associates                                    -     5,056     5,056 
 Interests in subsidiaries                                  -    54,602    54,602 
---------------------------------------------------  --------  --------  -------- 
                                                       89,326    60,992   150,318 
---------------------------------------------------  --------  --------  -------- 
 LIABILITIES 
 Other liabilities                                      4,808         -     4,808 
 Debt securities in issue                                   -    12,621    12,621 
---------------------------------------------------  --------  --------  -------- 
                                                        4,808    12,621    17,429 
---------------------------------------------------  --------  --------  -------- 
 

6. 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, market and liquidity risks.

(a) 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. Impairment provisions are provided for losses that have been incurred at the balance sheet date. 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 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 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's maximum exposure to credit risk before collateral held or other credit enhancements is as follows:

 
                                                                    2017        2016 
                                                                  GBP000      GBP000 
------------------------------------------------------------  ----------  ---------- 
 Credit risk exposures relating to on-balance sheet assets 
  are as follows: 
 Cash and balances at central banks                              313,101     195,752 
 Loans and advances to banks                                      70,679      36,951 
 Debt securities held-to-maturity                                227,019     107,300 
 Derivative financial instruments                                  2,551       1,516 
 Loans and advances to customers                               1,049,269     758,799 
 Other assets                                                     11,964       1,197 
 Financial investments                                             2,347       2,145 
 
 Credit risk exposures relating to off-balance sheet assets 
  are as follows: 
 Guarantees                                                        2,976         274 
 Loan commitments and other credit related liabilities           131,963      54,934 
------------------------------------------------------------  ----------  ---------- 
 At 31 December                                                1,811,869   1,158,868 
------------------------------------------------------------  ----------  ---------- 
 
 
 The Company's maximum exposure to credit risk before collateral 
  held or other credit enhancements is as follows: 
                                                                2017     2016 
                                                              GBP000   GBP000 
-----------------------------------------------------------  -------  ------- 
 Credit risk exposures relating to on-balance sheet assets 
  are as follows: 
 Loans and advances to banks                                  36,103   89,072 
 Financial investments                                           140      121 
 Other assets                                                    162      791 
-----------------------------------------------------------  -------  ------- 
 At 31 December                                               36,405   89,984 
-----------------------------------------------------------  -------  ------- 
 

The above tables represent the maximum credit risk exposure (net of impairment) to the Group and Company at 31 December 2017 and 2016 without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures are based on the net carrying amounts as reported in the Statement of Financial Position.

 
 The table below represents an analysis of the loan to values of the exposures 
  secured by property for the Group: 
 
                                     31 December                     31 December 
                                         2017                            2016 
                                    Loan                            Loan 
                                 Balance       Collateral        Balance      Collateral 
 Loan to value                    GBP000           GBP000         GBP000          GBP000 
--------------------------  ------------  ---------------    -----------  -------------- 
 
 Less than 60%                   455,398        1,108,363        438,076       1,219,532 
 60% - 80%                       343,864          524,256        167,765         253,550 
 80% - 100%                       69,826           80,998         76,289          88,598 
 Greater than 100%*               45,242           34,354         32,022          21,387 
--------------------------  ------------  ---------------    -----------  -------------- 
 Total                           914,330        1,747,971        714,152       1,583,067 
--------------------------  ------------  ---------------    -----------  -------------- 
 

*In addition to property, other security is taken, including charges over Arbuthnot Latham Investment Management portfolios, other chattels and personal guarantees.

Property valuations used are those from the loan origination date or updated 3rd party valuations where applicable.

 
 The table below represents an analysis of loan commitments compared to 
  the values of properties for the Group: 
 
                                                  31 December                31 December 
                                                      2017                       2016 
                                             Committed   Collateral     Committed   Collateral 
 Loan commitments and other credit related 
  liabilities                                   GBP000       GBP000        GBP000       GBP000 
------------------------------------------  ----------  -----------    ----------  ----------- 
 
 Less than 60%                                  62,775      274,643        26,988       73,659 
 60% - 80%                                      26,340       38,796        23,940       42,102 
 80% - 100%                                     29,579       32,737             -            - 
 Greater than 100%                               5,090        4,104             -            - 
------------------------------------------  ----------  -----------    ----------  ----------- 
 Total                                         123,784      350,280        50,928      115,761 
------------------------------------------  ----------  -----------    ----------  ----------- 
 

Renegotiated loans and forbearance

The contractual terms of a loan may be modified due to factors that are not related to the current or potential credit deterioration of the customer (changing market conditions, customer retention, etc.). In such cases, the modified loan may be derecognised and the renegotiated loan recognised as a new loan at fair value.

As at 31 December 2017, loans for which forbearance measures were in place totalled 0.13% (2016: 0.50%) of total loans to customers for the Group. These are set out in the following table:

 
                                                 2017                2016 
                                                        Loan                Loan 
                                           Number    Balance   Number    Balance 
                                                      GBP000              GBP000 
----------------------------------------  -------  ---------  -------  --------- 
 Transfer to interest only                      -          -        3        115 
 Interest temporarily not being charged         -          -        1      3,607 
 Long term extension                            1         84        -          - 
 Payment holiday                                5      1,237        1         78 
----------------------------------------  -------  ---------  -------  --------- 
 Total forbearance                              6      1,321        5      3,800 
----------------------------------------  -------  ---------  -------  --------- 
 

Concentration risk

The Group is well diversified in the UK, being exposed to retail banking, private banking and commercial banking. Management assesses the potential concentration risk from a number of areas including:

-- Product concentration;

-- Geographical concentration; and

-- High value residential properties.

Due to the well diversified nature of the Group and the significant collateral held against the loan book, the Directors do not consider there to be a potential material exposure arising from concentration risk.

The tables below show the concentration in the loan book based on the most significant type of collateral held for each loan. Where multiple types of collateral are held with no significant majority, the loan is shown within "mixed collateral".

 
                                  Loans and advances 
                                     to customers        Loan Commitments 
                                       2017      2016        2017     2016 
                                     GBP000    GBP000      GBP000   GBP000 
------------------------------  -----------  --------  ----------  ------- 
 Concentration by product 
 Cash collateralised                 17,747     5,245           -        - 
 Commercial Lending                 202,912    71,674      24,371   18,260 
 Asset finance                       71,425         -           -        - 
 Residential mortgages              633,003   626,751      99,413   32,668 
 Investment portfolio secured        49,667    34,014       4,222    4,006 
 Non-Performing                           -    15,953           -        - 
 Other Collateral                    70,954     2,103       3,957        - 
 Unsecured                            3,561     3,059           -        - 
 At 31 December                   1,049,269   758,799     131,963   54,934 
------------------------------  -----------  --------  ----------  ------- 
 
 Concentration by location 
   East Anglia                       18,438     2,714           -        - 
   East Midlands                          -     7,245           -        - 
   London                           407,805   422,901      56,777   27,161 
   Midlands                          42,484     3,800         800        - 
   North East                        25,741     2,100           -        - 
   North West                        44,630    14,288         825    4,590 
   Northern Ireland                   2,903         -           -        - 
   Scotland                          10,988    13,410           -        - 
   South East                       203,305   117,805      23,462   12,560 
   South West                       116,692    89,018      15,236    3,468 
   Wales                              8,002     7,460           -        - 
   West Midlands                          -    14,436           -      108 
   Yorkshire & Humber                     -     6,398           -        - 
   Overseas                          21,556    20,136           -        - 
   Other                            146,725    37,088      34,863    7,047 
------------------------------  -----------  --------  ----------  ------- 
 At 31 December                   1,049,269   758,799     131,963   54,934 
------------------------------  -----------  --------  ----------  ------- 
 

Commercial lending and Mixed collateral reflect the growth in the Commercial bank. All non-property loans are disclosed in "Other" in the concentration by location table above.

(b) Operational risk (unaudited)

The Group's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group's reputation with overall cost effectiveness and to avoid control procedures that restrict initiatives and creativity. Operational risk arises from all of the Group's operations.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to the senior management within each subsidiary.

Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of the Internal Audit reviews are discussed with senior management, with summaries submitted to the Arbuthnot Banking Group Audit Committee.

(c) Market risk

Price risk

The Company and Group are exposed to price risk from equity investments and derivatives held by the Group and classified in the Consolidated Statement of Financial Position either as available-for-sale or at fair value through the profit and loss. The Group is not exposed to commodity price risk.

Based upon the financial investment exposure in Note 25, a stress test scenario of a 10% (2016: 10%) decline in market prices, with all other things being equal, would result in a GBP32,000 (2016: GBP11,000) decrease in the Group's income and a decrease of GBP231,000 (2016: GBP172,000) in the Group's equity. The Group considers a 10% stress test scenario appropriate after taking the current values and historic data into account.

Based upon the financial investment exposure given in Note 25, a stress test scenario of a 10% (2016: 10%) decline in market prices, with all other things being equal, would result in a GBP13,000 (2016: GBP11,000) decrease in the Company's income and a decrease of GBP11,000 (2016: GBP10,000) in the Company's equity.

Currency risk

The Company and Group take on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. This is managed through the Group entering into forward foreign exchange contracts. The Board sets limits on the level of exposure for both overnight and intra-day positions, which are monitored daily. The table below summarises the Group's exposure to foreign currency exchange rate risk at 31 December 2017. Included in the table below are the Group's assets and liabilities at carrying amounts, categorised by currency.

 
                                             GBP       USD     Euro 
                                           (GBP)       ($)    (EUR)    Other       Total 
 At 31 December 2017                      GBP000    GBP000   GBP000   GBP000      GBP000 
------------------------------------  ----------  --------  -------  -------  ---------- 
 ASSETS 
 Cash and balances at central banks      313,101         -        -        -     313,101 
 Loans and advances to banks               6,027    40,870   16,944    6,838      70,679 
 Debt securities held-to-maturity        170,723    56,296        -        -     227,019 
 Derivative financial instruments          2,525         1       25        -       2,551 
 Loans and advances to customers         997,025    14,912   37,332        -   1,049,269 
 Other assets                             11,964         -        -        -      11,964 
 Financial investments                       140       706    1,501        -       2,347 
------------------------------------  ----------  --------  -------  -------  ---------- 
                                       1,501,505   112,785   55,802    6,838   1,676,930 
------------------------------------  ----------  --------  -------  -------  ---------- 
 LIABILITIES 
 Deposits from banks                     195,067         -        -       30     195,097 
 Derivative financial instruments            914         1        -       16         931 
 Deposits from customers               1,228,878   112,731   42,733    6,439   1,390,781 
 Other liabilities                         1,207         -        -        -       1,207 
 Debt securities in issue                      -         -   13,104        -      13,104 
------------------------------------  ----------  --------  -------  -------  ---------- 
                                       1,426,066   112,732   55,837    6,485   1,601,120 
------------------------------------  ----------  --------  -------  -------  ---------- 
 Net on-balance sheet position            75,439        53     (35)      353      75,810 
------------------------------------  ----------  --------  -------  -------  ---------- 
 Credit commitments                      131,963         -        -        -     131,963 
------------------------------------  ----------  --------  -------  -------  ---------- 
 
 
 The table below summarises the Group's exposure to foreign currency exchange 
  risk at 31 December 2016: 
 
                                              GBP      USD     Euro 
                                            (GBP)      ($)    (EUR)    Other       Total 
 At 31 December 2016                       GBP000   GBP000   GBP000   GBP000      GBP000 
--------------------------------------  ---------  -------  -------  -------  ---------- 
 ASSETS 
 Cash and balances at central banks       195,669       35       40        8     195,752 
 Loans and advances to banks                2,197   24,494    5,062    5,198      36,951 
 Debt securities held-to-maturity          94,299   13,001        -        -     107,300 
 Derivative financial instruments           1,516        -        -        -       1,516 
 Loans and advances to customers          701,165   21,927   35,707        -     758,799 
 Other assets                               1,197        -        -        -       1,197 
 Financial investments                        120      569    1,456        -       2,145 
--------------------------------------  ---------  -------  -------  -------  ---------- 
                                          996,163   60,026   42,265    5,206   1,103,660 
--------------------------------------  ---------  -------  -------  -------  ---------- 
 LIABILITIES 
 Deposits from banks                        3,198        -        -        2       3,200 
 Derivative financial instruments             227        -        -        -         227 
 Deposits from customers                  903,687   59,916   28,535    5,511     997,649 
 Other liabilities                          1,812        -        -        -       1,812 
 Debt securities in issue                       -        -   12,621        -      12,621 
--------------------------------------  ---------  -------  -------  -------  ---------- 
                                          908,924   59,916   41,156    5,513   1,015,509 
--------------------------------------  ---------  -------  -------  -------  ---------- 
 Net on-balance sheet position             87,239      110    1,109    (307)      88,151 
--------------------------------------  ---------  -------  -------  -------  ---------- 
 Credit commitments                        54,934        -        -        -      54,934 
--------------------------------------  ---------  -------  -------  -------  ---------- 
 

A 10% strengthening of the pound against the US dollar would lead to a GBP5,000 increase (2016: GBP3,000 increase) in Group profits and equity, while a 10% weakening of the pound against the US dollar would lead to the same decrease in Group profits and equity. Similarly, a 10% strengthening of the pound against the Euro would lead to a GBP4,000 increase (2016: GBP6,000 increase) in Group profits and equity, while a 10% weakening of the pound against the Euro would lead to the same increase in Group profits and equity. The above results are after taking into account the effect of derivative financial instruments (see Note 21), which cover most of the net exposure in each currency.

 
 The table below summarises the Company's exposure to foreign currency 
  exchange rate risk at 31 December 2017: 
 
                                                           GBP         Euro 
                                                         (GBP)        (EUR)    Total 
 At 31 December 2017                                    GBP000       GBP000   GBP000 
-------------------------------------------------  -----------  -----------  ------- 
 ASSETS 
 Loans and advances to banks                            22,734       13,369   36,103 
 Financial investments                                     140            -      140 
 Other assets                                              162            -      162 
-------------------------------------------------  -----------  -----------  ------- 
                                                        23,036       13,369   36,405 
-------------------------------------------------  -----------  -----------  ------- 
 LIABILITIES 
 Other liabilities                                       1,840            -    1,840 
 Debt securities in issue                                    -       13,104   13,104 
-------------------------------------------------  -----------  -----------  ------- 
                                                         1,840       13,104   14,944 
-------------------------------------------------  -----------  -----------  ------- 
 Net on-balance sheet position                          21,196          265   21,461 
-------------------------------------------------  -----------  -----------  ------- 
 
 
 The table below summarises the Company's exposure to foreign currency 
  exchange rate risk at 31 December 2016: 
 
                                                           GBP         Euro 
                                                         (GBP)        (EUR)    Total 
 At 31 December 2016                                    GBP000       GBP000   GBP000 
-------------------------------------------------  -----------  -----------  ------- 
 ASSETS 
 Loans and advances to banks                            76,037       13,035   89,072 
 Financial investments                                     121            -      121 
 Other assets                                              791            -      791 
-------------------------------------------------  -----------  -----------  ------- 
                                                        76,949       13,035   89,984 
-------------------------------------------------  -----------  -----------  ------- 
 LIABILITIES 
 Other liabilities                                       3,624            -    3,624 
 Debt securities in issue                                    -       12,621   12,621 
-------------------------------------------------  -----------  -----------  ------- 
                                                         3,624       12,621   16,245 
-------------------------------------------------  -----------  -----------  ------- 
 Net on-balance sheet position                          73,325          414   73,739 
-------------------------------------------------  -----------  -----------  ------- 
 

A 10% strengthening of the pound against the Euro would lead to GBP3,000 (2016: GBP41,000) decrease in the Company profits and equity, conversely a 10% weakening of the pound against the Euro would lead to the same increase in the Company profits and equity.

Interest rate risk

Interest rate risk is the potential adverse impact on the Company and Group's future cash flows from changes in interest rates, and arises from the differing interest rate risk characteristics of the Company and Group's assets and liabilities. In particular, fixed rate savings and borrowing products expose the Group to the risk that a change in interest rates could cause either a reduction in interest income or an increase in interest expense relative to variable rate interest flows. The Group seeks to "match" interest rate risk on either side of the Statement of Financial Position. However, this is not a perfect match and interest rate risk is present in: Money market transactions of a fixed rate nature, fixed rate loans and fixed rate savings accounts. There is interest rate mismatch in Arbuthnot Latham. Interest rate risk is measured throughout the maturity bandings of the book on a parallel shift scenario for a 200 basis points movement. Interest rate risk is managed to limit value at risk to be less than GBP1m. The current position of the balance sheet is such that it results in a favourable impact on the economic value of equity of GBP0.8m (2016: GBP2.0m) for a positive 200bps shift and an adverse impact of GBP0.8m (2016: GBP0.5m) for a negative 200bps movement capped at the Bank of England base rate (50bps). The Company has no fixed rate exposures, but an upward change of 50bps on variable rates would increase pre-tax profits and equity by GBP10,000 (2016: increase pre-tax profits and equity by GBP7,000).

The following tables summarise the re-pricing periods for the assets and liabilities in the Company and Group, including derivative financial instruments which are principally used to reduce exposure to interest rate risk. Items are allocated to time bands by reference to the earlier of the next contractual interest rate re-price and the maturity date.

 
                                                      More        More       More 
                                                      than        than       than 
                                                  3 months    6 months     1 year 
                                                       but         but        but 
                                                      less        less       less       More         Non 
                                        Within        than        than       than       than    interest 
 Group                                3 months    6 months      1 year    5 years    5 years     bearing       Total 
 As at 31 December 2017                 GBP000      GBP000      GBP000     GBP000     GBP000      GBP000      GBP000 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ----------  ---------- 
 ASSETS 
 Cash and balances at central 
  banks                                313,101           -           -          -          -           -     313,101 
 Loans and advances to banks            61,211         579       8,889          -          -           -      70,679 
 Debt securities held-to-maturity      185,926      35,093       6,000          -          -           -     227,019 
 Derivative financial instruments          950           -           -      1,601          -           -       2,551 
 Loans and advances to customers       880,822       6,938      10,774    143,979          -       6,756   1,049,269 
 Other assets                                -           -           -          -          -     188,266     188,266 
 Financial investments                       -           -           -          -          -       2,347       2,347 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ----------  ---------- 
                                     1,442,010      42,610      25,663    145,580          -     197,369   1,853,232 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ----------  ---------- 
 LIABILITIES 
 Deposits from banks                   195,097           -           -          -          -           -     195,097 
 Derivative financial instruments          931           -           -          -          -           -         931 
 Deposits from customers             1,061,442     162,503     109,478     57,358          -           -   1,390,781 
 Other liabilities                           -           -           -          -          -      16,944      16,944 
 Debt securities in issue               13,104           -           -          -          -           -      13,104 
 Equity                                      -           -           -          -          -     236,375     236,375 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ----------  ---------- 
                                     1,270,574     162,503     109,478     57,358          -     253,319   1,853,232 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ----------  ---------- 
 Interest rate sensitivity 
  gap                                  171,436   (119,893)    (83,815)     88,222          -    (55,950) 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ---------- 
 
 Cumulative gap                        171,436      51,543    (32,272)     55,950     55,950           - 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ---------- 
 
 
                                                      More        More       More 
                                                      than        than       than 
                                                  3 months    6 months     1 year 
                                                       but         but        but 
                                                      less        less       less       More         Non 
                                        Within        than        than       than       than    interest 
 Group                                3 months    6 months      1 year    5 years    5 years     bearing       Total 
 As at 31 December 2016                 GBP000      GBP000      GBP000     GBP000     GBP000      GBP000      GBP000 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ----------  ---------- 
 ASSETS 
 Cash and balances at central 
  banks                                195,752           -           -          -          -           -     195,752 
 Loans and advances to banks            36,951           -           -          -          -           -      36,951 
 Debt securities held-to-maturity       78,994       6,813      21,493          -          -           -     107,300 
 Derivative financial instruments           85           -           -      1,431          -           -       1,516 
 Loans and advances to customers       624,468     120,311       8,755      5,265          -           -     758,799 
 Other assets                                -           -           -          -          -     162,821     162,821 
 Financial investments                       -           -           -          -          -       2,145       2,145 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ----------  ---------- 
                                       936,250     127,124      30,248      6,696          -     164,966   1,265,284 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ----------  ---------- 
 LIABILITIES 
 Deposits from banks                     3,200           -           -          -          -           -       3,200 
 Derivative financial instruments          227           -           -          -          -           -         227 
 Deposits from customers               813,047      61,519      84,480     38,603          -           -     997,649 
 Other liabilities                           -           -           -          -          -      17,229      17,229 
 Debt securities in issue               12,621           -           -          -          -           -      12,621 
 Equity                                      -           -           -          -          -     234,358     234,358 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ----------  ---------- 
                                       829,095      61,519      84,480     38,603          -     251,587   1,265,284 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ----------  ---------- 
 Impact of derivative instruments        3,800     (3,800)           -          -          -           - 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ---------- 
 Interest rate sensitivity 
  gap                                  110,955      61,805    (54,232)   (31,907)          -    (86,621) 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ---------- 
 
 Cumulative gap                        110,955     172,760     118,528     86,621     86,621           - 
----------------------------------  ----------  ----------  ----------  ---------  ---------  ---------- 
 
 
                                                 More        More       More 
                                                 than        than       than 
                                             3 months    6 months     1 year 
                                                  but         but        but 
                                                 less        less       less       More         Non 
                                   Within        than        than       than       than    interest 
 Company                         3 months    6 months      1 year    5 years    5 years     bearing     Total 
 As at 31 December 2017            GBP000      GBP000      GBP000     GBP000     GBP000      GBP000    GBP000 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ----------  -------- 
 ASSETS 
 Loans and advances to banks       35,944           -           -          -          -         159    36,103 
 Other assets                           -           -           -          -          -     103,855   103,855 
 Financial investments                  -           -           -          -          -         140       140 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ----------  -------- 
                                   35,944           -           -          -          -     104,154   140,098 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ----------  -------- 
 LIABILITIES 
 Other liabilities                      -           -           -          -          -       3,293     3,293 
 Debt securities in issue          13,104           -           -          -          -           -    13,104 
 Equity                                 -           -           -          -          -     123,701   123,701 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ----------  -------- 
                                   13,104           -           -          -          -     126,994   140,098 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ----------  -------- 
 Interest rate sensitivity 
  gap                              22,840           -           -          -          -    (22,840) 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ---------- 
 
 Cumulative gap                    22,840      22,840      22,840     22,840     22,840           - 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ---------- 
 
                                                 More        More       More 
                                                 than        than       than 
                                             3 months    6 months     1 year 
                                                  but         but        but 
                                                 less        less       less       More         Non 
                                   Within        than        than       than       than    interest 
 Company                         3 months    6 months      1 year    5 years    5 years     bearing     Total 
 As at 31 December 2016            GBP000      GBP000      GBP000     GBP000     GBP000      GBP000    GBP000 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ----------  -------- 
 ASSETS 
 Loans and advances to banks       88,914           -           -          -          -         158    89,072 
 Other assets                           -           -           -          -          -      61,125    61,125 
 Financial investments                  -           -           -          -          -         121       121 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ----------  -------- 
                                   88,914           -           -          -          -      61,404   150,318 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ----------  -------- 
 LIABILITIES 
 Other liabilities                      -           -           -          -          -       4,808     4,808 
 Debt securities in issue          12,621           -           -          -          -           -    12,621 
 Equity                                 -           -           -          -          -     132,889   132,889 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ----------  -------- 
                                   12,621           -           -          -          -     137,697   150,318 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ----------  -------- 
 Interest rate sensitivity 
  gap                              76,293           -           -          -          -    (76,293) 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ---------- 
 
 Cumulative gap                    76,293      76,293      76,293     76,293     76,293           - 
-----------------------------  ----------  ----------  ----------  ---------  ---------  ---------- 
 

(d) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The liquidity requirements of the Group are met through withdrawing funds from its Bank of England Reserve Account to cover any short-term fluctuations and longer term funding to address any structural liquidity requirements.

The Group has formal governance structures in place to manage and mitigate liquidity risk on a day to day basis. The Board of AL sets and approves the liquidity risk management strategy. The Assets and Liabilities Committee ("ALCO"), comprising senior executives of the Group, monitors liquidity risk. Key liquidity risk management information is reported by the finance teams and monitored by the Chief Executive Officer and Finance Director on a daily basis. The ALCO meets monthly to review liquidity risk against set thresholds and risk indicators including early warning indicators, liquidity risk tolerance levels and Individual Liquidity Adequacy Assessment Process ("ILAAP") metrics.

The PRA requires the Board to ensure that the Group has adequate levels of liquidity resources and a prudent funding profile, and that it comprehensively manages and controls liquidity and funding risks. The Group maintains deposits placed at the Bank of England, and highly liquid unencumbered assets that can be called upon to create sufficient liquidity to meet liabilities on demand, particularly in a period of liquidity stress.

Arbuthnot Latham & Co., Limited ("AL") has a Board approved ILAAP, and maintains liquidity buffers in excess of the minimum requirements. The ILAAP is embedded in the risk management framework of the Group and is subject to ongoing updates and revisions when necessary. At a minimum, the ILAAP is undated annually. The Liquidity Coverage Ratio ("LCR") regime has applied to the Group from 1 October 2015, requiring management of net 30 day cash outflows as a proportion of high quality liquid assets. The actual LCR has significantly exceeded the regulatory minimum throughout the year.

The Group is exposed to daily calls on its available cash resources from current accounts, maturing deposits and loan draw-downs. The Group maintains significant cash resources to meet all of these needs as they fall due. The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It is unusual for banks to be completely matched, as transacted business is often of uncertain term and of different types.

The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest bearing liabilities as they mature are important factors in assessing the liquidity of the Group and its exposure to changes in interest rates.

 
 The tables below show the undiscounted contractual cash flows of the Group's 
  financial liabilities and assets as at 31 December 2017: 
 
                                                                                      More       More 
                                                                                      than       than 
                                                                                  3 months     1 year 
                                                           Gross                       but        but 
                                                         nominal      Not more        less       less       More 
                                          Carrying       inflow/          than        than       than       than 
                                            amount     (outflow)      3 months      1 year    5 years    5 years 
 At 31 December 2017                        GBP000        GBP000        GBP000      GBP000     GBP000     GBP000 
--------------------------------------  ----------  ------------  ------------  ----------  ---------  --------- 
 Financial liability by type 
 Non-derivative liabilities 
 Deposits from banks                       195,097     (195,097)     (195,097)           -          -          - 
 Deposits from customers                 1,390,781   (1,395,770)   (1,040,893)   (293,425)   (61,452)          - 
 Other liabilities                           1,207       (1,207)       (1,207)           -          -          - 
 Debt securities in issue                   13,104      (19,381)          (87)       (262)    (1,395)   (17,637) 
 Issued financial guarantee contracts            -       (2,976)       (2,976)           -          -          - 
 Unrecognised loan commitments                   -     (131,963)     (131,963)           -          -          - 
--------------------------------------  ----------  ------------  ------------  ----------  ---------  --------- 
                                         1,600,189   (1,746,394)   (1,372,223)   (293,687)   (62,847)   (17,637) 
--------------------------------------  ----------  ------------  ------------  ----------  ---------  --------- 
 
 Derivative liabilities 
 Risk management:                              931 
  - Outflows                                     -         (931)         (931)           -          -          - 
--------------------------------------  ----------  ------------  ------------  ----------  ---------  --------- 
                                               931         (931)         (931)           -          -          - 
--------------------------------------  ----------  ------------  ------------  ----------  ---------  --------- 
 
                                                                                      More       More 
                                                                                      than       than 
                                                                                  3 months     1 year 
                                                           Gross                       but        but 
                                                         nominal      Not more        less       less       More 
                                          Carrying       inflow/          than        than       than       than 
                                            amount     (outflow)      3 months      1 year    5 years    5 years 
 At 31 December 2017                        GBP000        GBP000        GBP000      GBP000     GBP000     GBP000 
--------------------------------------  ----------  ------------  ------------  ----------  ---------  --------- 
 Financial asset by type 
 Non-derivative assets 
 Cash and balances at central banks        313,101       313,101       313,101           -          -          - 
 Loans and advances to banks                70,679        70,679        61,211         579      8,889          - 
 Debt securities held-to-maturity          227,019       227,166        22,886     101,277    103,003          - 
 Loans and advances to customers         1,049,269     1,187,665       126,689     121,493    800,091    139,392 
 Other assets                               11,964        11,964        11,964           -          -          - 
 Financial investments                       2,347         2,347         2,335           -         12          - 
--------------------------------------  ----------  ------------  ------------  ----------  ---------  --------- 
                                         1,674,379     1,812,922       538,186     223,349    911,995    139,392 
--------------------------------------  ----------  ------------  ------------  ----------  ---------  --------- 
 
 Derivative assets 
 Risk management:                            2,551 
  - Inflows                                      -         2,551             -           -          -      2,551 
                                             2,551         2,551             -           -          -      2,551 
--------------------------------------  ----------  ------------  ------------  ----------  ---------  --------- 
 
 
 The tables below show the undiscounted contractual cash flows of the 
  Group's financial liabilities and assets as at 31 December 2016: 
 
                                                                                    More       More 
                                                                                    than       than 
                                                                                3 months     1 year 
                                                           Gross                     but        but 
                                                         nominal    Not more        less       less       More 
                                          Carrying       inflow/        than        than       than       than 
                                            amount     (outflow)    3 months      1 year    5 years    5 years 
 At 31 December 2016                        GBP000        GBP000      GBP000      GBP000     GBP000     GBP000 
--------------------------------------  ----------  ------------  ----------  ----------  ---------  --------- 
 Financial liability by type 
 Non-derivative liabilities 
 Deposits from banks                         3,200       (3,200)     (3,200)           -          -          - 
 Deposits from customers                   997,649   (1,000,384)   (716,285)   (243,247)   (40,852)          - 
 Other liabilities                           1,812       (1,812)       (223)           -          -    (1,589) 
 Debt securities in issue                   12,621      (14,345)        (86)       (259)    (1,379)   (12,621) 
 Issued financial guarantee contracts            -         (274)       (274)           -          -          - 
 Unrecognised loan commitments                   -      (54,934)    (54,934)           -          -          - 
--------------------------------------  ----------  ------------  ----------  ----------  ---------  --------- 
                                         1,015,282   (1,074,949)   (775,002)   (243,506)   (42,231)   (14,210) 
--------------------------------------  ----------  ------------  ----------  ----------  ---------  --------- 
 
 Derivative liabilities 
 Risk management:                              227 
  - Outflows                                     -         (227)       (227)           -          -          - 
--------------------------------------  ----------  ------------  ----------  ----------  ---------  --------- 
                                               227         (227)       (227)           -          -          - 
--------------------------------------  ----------  ------------  ----------  ----------  ---------  --------- 
 
                                                                                    More       More 
                                                                                    than       than 
                                                                                3 months     1 year 
                                                           Gross                     but        but 
                                                         nominal    Not more        less       less       More 
                                          Carrying       inflow/        than        than       than       than 
                                            amount     (outflow)    3 months      1 year    5 years    5 years 
 At 31 December 2016                        GBP000        GBP000      GBP000      GBP000     GBP000     GBP000 
--------------------------------------  ----------  ------------  ----------  ----------  ---------  --------- 
 Financial asset by type 
 Non-derivative assets 
 Cash and balances at central banks        195,752       195,752     195,752           -          -          - 
 Loans and advances to banks                36,951        36,951      36,951           -          -          - 
 Debt securities held-to-maturity          107,300       130,360      70,082      41,334     18,944          - 
 Loans and advances to customers           758,799       841,283     218,427     130,870    447,253     44,733 
 Other assets                                1,197         1,197       1,197           -          -          - 
 Financial investments                       2,145         2,145       2,025           -        120          - 
--------------------------------------  ----------  ------------  ----------  ----------  ---------  --------- 
                                         1,102,144     1,207,688     524,434     172,204    466,317     44,733 
--------------------------------------  ----------  ------------  ----------  ----------  ---------  --------- 
 
 Derivative assets 
 Risk management:                            1,516 
  - Inflows                                      -         1,516          85           -          -      1,431 
  - Outflows                                 1,516             -           -           -          -          - 
--------------------------------------  ----------  ------------  ----------  ----------  ---------  --------- 
                                             3,032         1,516          85           -          -      1,431 
--------------------------------------  ----------  ------------  ----------  ----------  ---------  --------- 
 
 
 The table below sets out the components of the Group's liquidity reserves: 
 
                                                31 December            31 December 
                                                    2017                   2016 
                                                            Fair                  Fair 
                                              Amount       value     Amount      value 
 Liquidity reserves                           GBP000      GBP000     GBP000     GBP000 
--------------------------------------    ----------  ----------  ---------  --------- 
 Cash and balances at central banks          313,101     313,101    195,752    195,752 
 Loans and advances to banks                  70,679      70,679     36,951     36,951 
 Debt securities held-to-maturity            227,019     227,951    107,300    108,757 
 Undrawn credit lines                         10,000      10,000     12,500     12,500 
----------------------------------------  ----------  ----------  ---------  --------- 
                                             620,799     621,731    352,503    353,960 
  --------------------------------------  ----------  ----------  ---------  --------- 
 

Assets pledged as collateral or encumbered

The total financial assets recognised in the statement of financial position that had been pledged as collateral for liabilities at 31 December 2017 were GBP208.7m (2016: GBP112.0m).

Financial assets are pledged as collateral as part of sales and repurchases, securities borrowing and securitisation transactions under terms that are usual and customary for such activities. In addition, as part of these transactions, the Group has received collateral that it is permitted to sell or repledge in the absence of default.

 
 The table below analyses the contractual cash flows of the Company's 
  financial liabilities and assets as at 31 December 2017: 
                                                                                  More       More 
                                                                                  than       than 
                                                                              3 months     1 year 
                                                         Gross         Not         but        but 
                                                       nominal        more        less       less       More 
                                         Carrying      inflow/        than        than       than       than 
                                           amount    (outflow)    3 months      1 year    5 years    5 years 
 At 31 December 2017                       GBP000       GBP000      GBP000      GBP000     GBP000     GBP000 
--------------------------------------  ---------  -----------  ----------  ----------  ---------  --------- 
 Financial liability by type 
 Non-derivative liabilities 
 Other liabilities                          1,840      (1,840)       (251)           -          -    (1,589) 
 Issued financial guarantee contracts      13,104     (19,381)        (87)       (262)    (1,395)   (17,637) 
--------------------------------------  ---------  -----------  ----------  ----------  ---------  --------- 
                                           14,944     (21,221)       (338)       (262)    (1,395)   (19,226) 
--------------------------------------  ---------  -----------  ----------  ----------  ---------  --------- 
 
                                                                                  More       More 
                                                                                  than       than 
                                                                              3 months     1 year 
                                                         Gross         Not         but        but 
                                                       nominal        more        less       less       More 
                                         Carrying      inflow/        than        than       than       than 
                                           amount    (outflow)    3 months      1 year    5 years    5 years 
 At 31 December 2017                       GBP000       GBP000      GBP000      GBP000     GBP000     GBP000 
--------------------------------------  ---------  -----------  ----------  ----------  ---------  --------- 
 Financial asset by type 
 Non-derivative assets 
 Loans and advances to banks               36,103       36,103      36,103           -          -          - 
 Financial investments                        140          140         128           -         12          - 
 Other assets                                 162          162         162           -          -          - 
--------------------------------------  ---------  -----------  ----------  ----------  ---------  --------- 
                                           36,405       36,405      36,393           -         12          - 
--------------------------------------  ---------  -----------  ----------  ----------  ---------  --------- 
 
 
 The table below analyses the contractual cash flows of the Company's 
  financial liabilities and assets as at 31 December 2016: 
 
                                                                         More       More 
                                                                         than       than 
                                                                     3 months     1 year 
                                                Gross         Not         but        but 
                                              nominal        more        less       less       More 
                                Carrying      inflow/        than        than       than       than 
                                  amount    (outflow)    3 months      1 year    5 years    5 years 
 At 31 December 2016              GBP000       GBP000      GBP000      GBP000     GBP000     GBP000 
-----------------------------  ---------  -----------  ----------  ----------  ---------  --------- 
 Financial liability by type 
 Non-derivative liabilities 
 Other liabilities                 3,624      (3,624)     (2,035)           -          -    (1,589) 
 Debt securities in issue         12,621     (14,345)        (86)       (259)    (1,379)   (12,621) 
                                  16,245     (17,969)     (2,121)       (259)    (1,379)   (14,210) 
-----------------------------  ---------  -----------  ----------  ----------  ---------  --------- 
 
                                                                         More       More 
                                                                         than       than 
                                                                     3 months     1 year 
                                                Gross         Not         but        but 
                                              nominal        more        less       less       More 
                                Carrying      inflow/        than        than       than       than 
                                  amount    (outflow)    3 months      1 year    5 years    5 years 
 At 31 December 2016              GBP000       GBP000      GBP000      GBP000     GBP000     GBP000 
-----------------------------  ---------  -----------  ----------  ----------  ---------  --------- 
 Financial asset by type 
 Non-derivative assets 
 Loans and advances to banks      89,072       89,072      89,072           -          -          - 
 Financial investments               121          121           -           -        121          - 
 Other assets                        791          791         791           -          -          - 
-----------------------------  ---------  -----------  ----------  ----------  ---------  --------- 
                                  89,984       89,984      89,863           -        121          - 
-----------------------------  ---------  -----------  ----------  ----------  ---------  --------- 
 

The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature

are important factors in assessing the liquidity of the Group and its exposure to changes in interest rates and exchange rates.

Fiduciary activities

The Group provides investment management and advisory services to third parties, which involve the Group making allocation and purchase and sale decisions in relation to a wide range of financial instruments. Those assets that are held in a fiduciary capacity are not included in these financial statements. These services give rise to the risk that the Group may be accused of maladministration or underperformance. At the balance sheet date, the Group had investment management accounts amounting to approximately GBP1,044m (2016: GBP920m). Additionally, the Group provides investment advisory services.

 
 (e) Financial 
 assets 
 and liabilities 
 
 The tables below set out the Group's financial assets and financial liabilities 
  into their respective classifications: 
 
                          Fair 
                         value                                                         Liabilities 
                       through                            Loans                                 at       Total 
                        profit                              and                          amortised    carrying        Fair 
                       or loss   Held-to-maturity   receivables   Available-for-sale          cost      amount       value 
 At 31 December 
 2017                   GBP000             GBP000        GBP000               GBP000        GBP000      GBP000      GBP000 
------------------    --------  -----------------  ------------  -------------------  ------------  ----------  ---------- 
 
 ASSETS 
 Cash and balances 
  at 
  central banks              -                  -       313,101                    -             -     313,101     313,101 
 Loans and advances 
  to 
  banks                      -                  -        70,679                    -             -      70,679      70,679 
 Debt securities 
  held-to-maturity           -            227,019             -                    -             -     227,019     227,951 
 Derivative 
  financial 
  instruments            2,551                  -             -                    -             -       2,551       2,551 
 Loans and advances 
  to 
  customers                  -                  -     1,049,269                    -             -   1,049,269   1,022,816 
 Other assets                -                  -        11,964                    -             -      11,964      11,964 
 Financial 
  investments                -                  -             -                2,347             -       2,347       2,347 
--------------------  --------  -----------------  ------------  -------------------  ------------  ----------  ---------- 
                         2,551            227,019     1,445,013                2,347             -   1,676,930   1,651,409 
  ------------------  --------  -----------------  ------------  -------------------  ------------  ----------  ---------- 
 
 LIABILITIES 
 Deposits from banks         -                  -             -                    -       195,097     195,097     195,097 
 Derivative 
  financial 
  instruments              931                  -             -                    -             -         931         931 
 Deposits from 
  customers                  -                  -             -                    -     1,390,781   1,390,781   1,390,781 
 Other liabilities           -                  -         1,207                    -             -       1,207       1,207 
 Debt securities in 
  issue                      -                  -             -                    -        13,104      13,104      13,104 
--------------------  --------  -----------------  ------------  -------------------  ------------  ----------  ---------- 
                           931                  -         1,207                    -     1,598,982   1,601,120   1,601,120 
  ------------------  --------  -----------------  ------------  -------------------  ------------  ----------  ---------- 
 
                          Fair 
                         value                                                         Liabilities 
                       through                            Loans                                 at       Total 
                        profit                              and                          amortised    carrying        Fair 
                       or loss   Held-to-maturity   receivables   Available-for-sale          cost      amount       value 
 At 31 December 
 2016                   GBP000             GBP000        GBP000               GBP000        GBP000      GBP000      GBP000 
------------------    --------  -----------------  ------------  -------------------  ------------  ----------  ---------- 
 
 ASSETS 
 Cash and balances 
  at 
  central banks              -                  -       195,752                    -             -     195,752     195,752 
 Loans and advances 
  to 
  banks                      -                  -        36,951                    -             -      36,951      36,951 
 Debt securities 
  held-to-maturity           -            107,300             -                    -             -     107,300     108,757 
 Derivative 
  financial 
  instruments            1,516                  -             -                    -             -       1,516       1,516 
 Loans and advances 
  to 
  customers                  -                  -       758,799                    -             -     758,799     742,894 
 Other assets                -                  -         1,197                    -             -       1,197       1,197 
 Financial 
  investments                -                  -             -                2,145             -       2,145       2,145 
--------------------  --------  -----------------  ------------  -------------------  ------------  ----------  ---------- 
                         1,516            107,300       992,699                2,145             -   1,103,660   1,089,212 
  ------------------  --------  -----------------  ------------  -------------------  ------------  ----------  ---------- 
 
 LIABILITIES 
 Deposits from banks         -                  -             -                    -         3,200       3,200       3,200 
 Derivative 
  financial 
  instruments              227                  -             -                    -             -         227         227 
 Deposits from 
  customers                  -                  -             -                    -       997,649     997,649     997,649 
 Other liabilities           -                  -         1,812                    -             -       1,812       1,812 
 Debt securities in 
  issue                      -                  -             -                    -        12,621      12,621      12,621 
--------------------  --------  -----------------  ------------  -------------------  ------------  ----------  ---------- 
                           227                  -         1,812                    -     1,013,470   1,015,509   1,015,509 
  ------------------  --------  -----------------  ------------  -------------------  ------------  ----------  ---------- 
 

Cash, loans and advances to banks, debt securities held-to-maturity, deposits from banks and deposits from customers are classified as level 2 financial instruments, on the basis that they are liquid but not traded in an active market. Loans and advances to customers and debt securities in issue are classified as level 3 as there is no observable market data for these instruments.

7. Capital management

The Group's capital management policy is focused on optimising shareholder value. There is a clear focus on delivering organic growth and ensuring capital resources are sufficient to support planned levels of growth. The Board regularly reviews the capital position.

The Group's lead regulator, the Prudential Regulatory Authority ("PRA"), sets and monitors capital requirements for the Group as a whole and for the individual banking operations. The lead regulator adopted the Basel III capital requirements with effect from 1 January 2014. As a result, the Group's regulatory capital requirements were based on Basel III in 2014.

In accordance with the EU's Capital Requirements Directive ("CRD") and the required parameters set out in the PRA Handbook (BIPRU 2.2), the Individual Capital Adequacy Assessment Process ("ICAAP") is embedded in the risk management framework of the Group and is subject to ongoing updates and revisions when necessary. However, at a minimum, the ICAAP is updated annually as part of the business planning process. The ICAAP is a process that brings together the management framework (i.e. the policies, procedures, strategies, and systems that the Group has implemented to identify, manage and mitigate its risks) and the financial disciplines of business planning and capital management. The Group's regulated entities are also the principal trading subsidiaries as detailed in Note 43.

Not all material risks can be mitigated by capital, but where capital is appropriate the Board has adopted a "Pillar I plus" approach to determine the level of capital the Group needs to hold. This method takes the Pillar I capital formula calculations (standardised approach for credit, market and operational risk) as a starting point, and then considers whether each of the calculations delivers a sufficient capital sum adequately to cover management's anticipated risks. Where the Board considered that the Pillar I calculations did not reflect the risk, an additional capital add-on in Pillar II is applied, as per the Individual Capital Guidance ("ICG") issued by the PRA.

The Group's regulatory capital is divided into two tiers:

-- Tier 1 comprises mainly shareholders' funds and revaluation reserves, after deducting goodwill, other intangible assets and the deduction for a significant investment in a financial institution (STB). The portion of the investment representing up to 10% of ABG's Tier 1 is added back to capital resources and then risk weighted at 250%, while anything above this 10% is deducted.

-- Lower Tier 2 comprises qualifying subordinated loan capital and collective provisions. Lower Tier 2 capital cannot exceed 50% of Tier 1 capital.

 
 The following table shows the regulatory capital resources 
  as managed by the Group: 
                                                                   2017       2016 
                                                                 GBP000     GBP000 
------------------------------------------------------------  ---------  --------- 
 Tier 1 
 Share capital                                                      153        153 
 Retained earnings                                              237,171    235,567 
 Deduction for significant investment                          (83,804)   (81,674) 
 Add back 10% of CET1 (risk weighted at 250%)                    22,038     22,557 
 Capital redemption reserve                                          20         20 
 Treasury shares                                                (1,131)    (1,131) 
 Goodwill                                                       (5,202)    (1,682) 
 Deductions for other intangibles                              (10,793)    (6,840) 
 Available-for-sale reserve                                         162      (251) 
------------------------------------------------------------  ---------  --------- 
 Total tier 1 capital resources                                 158,614    166,719 
------------------------------------------------------------  ---------  --------- 
 Tier 2 
 Debt securities in issue                                        13,104     12,621 
------------------------------------------------------------  ---------  --------- 
 Total tier 2 capital resources                                  13,104     12,621 
------------------------------------------------------------  ---------  --------- 
 
 Total tier 1 & tier 2 capital resources                        171,718    179,340 
------------------------------------------------------------  ---------  --------- 
 

The ICAAP includes a summary of the capital required to mitigate the identified risks in its regulated entities and the amount of capital that the Group has available. The PRA sets ICG for each UK bank calibrated by reference to its Capital Resources Requirement, broadly equivalent to 8 percent of risk weighted assets and thus representing the capital required under Pillar I of the Basel III framework. The ICAAP is a key input into the PRA's ICG setting process, which addresses the requirements of Pillar II of the Basel III framework. The PRA's approach is to monitor the available capital resources in relation to the ICG requirement. Each entity maintains an extra internal buffer and capital ratios are reviewed on a monthly basis to ensure that external requirements are adhered to. All regulated entities have complied with all of the externally imposed capital requirements to which they are subject.

Pillar III complements the minimum capital requirements (Pillar I) and the supervisory review process (Pillar II). Its aim is to encourage market discipline by developing a set of disclosure requirements which will allow market participants to assess key pieces of information on a firm's capital, risk exposures and risk assessment processes. Our Pillar III disclosures for the year ended 31 December 2017 are published as a separate document on the Group website under Investor Relations (Announcements & Shareholder Info).

 
 8. Net interest income 
                                                                  2017          2016 
                                                                GBP000        GBP000 
------------------------------------------------------    ------------  ------------ 
 Cash and balances at central banks                                801           873 
 Loans and advances to banks                                       258           124 
 Debt securities held-to-maturity                                1,353           844 
 Loans and advances to customers                                45,015        36,230 
--------------------------------------------------------  ------------  ------------ 
                                                                47,427        38,071 
  ------------------------------------------------------  ------------  ------------ 
 
 Deposits from banks                                              (35)         (297) 
 Deposits from customers                                       (5,939)       (6,977) 
 Debt securities in issue                                        (360)         (352) 
--------------------------------------------------------  ------------  ------------ 
 Interest expense                                              (6,334)       (7,626) 
--------------------------------------------------------  ------------  ------------ 
 
 Net interest income                                            41,093        30,445 
--------------------------------------------------------  ------------  ------------ 
 
 In 2017, the Group recognised GBP0.1m (2016: GBP0.3m) of additional interest 
  income to reflect actual cash flows received on the aquired loan portfolios 
  having been in excess of forecast cash flows. 
 
 
 9. Fee and commission income 
                                                 2017     2016 
                                               GBP000   GBP000 
--------------------------------------------  -------  ------- 
 Banking commissions                            2,263    1,947 
 Investment management fees and commissions     7,887    7,122 
 Wealth planning fees and commissions           2,593    2,156 
 Other fee income                               1,062      205 
--------------------------------------------  -------  ------- 
                                               13,805   11,430 
--------------------------------------------  -------  ------- 
 
 
 10. Net impairment loss on financial assets 
                                                                   2017     2016 
                                                                 GBP000   GBP000 
--------------------------------------------------------------  -------  ------- 
 Net Impairment losses on loans and advances to customers           394      427 
 Impairment losses on financial investments                           -       47 
--------------------------------------------------------------  -------  ------- 
                                                                    394      474 
--------------------------------------------------------------  -------  ------- 
 
 During the year, the Group recovered GBP116k (2016: GBPnil) of loans which 
  had previously been written off. 
 

11. Other income

Other income mainly consists of rental income from the investment property (see Note 31) of GBP2.1m (2016: GBP1.1m) and premises recharges of GBP0.7m (2016: GBP0.4m) to Secure Trust Bank for office space occupied. In 2016, other income also included GBP1.6m realised on the investment in Visa Europe Ltd (see Note 25).

 
 12. Operating expenses 
                                                          2017     2016 
 Operating expenses comprise:                           GBP000   GBP000 
-----------------------------------------------------  -------  ------- 
 Staff costs, including Directors: 
  Wages, salaries and bonuses                           30,937   26,708 
  Social security costs                                  3,576    3,154 
  Pension costs                                          1,558    1,247 
  Share based payment transactions (note 39)               189      215 
 Amortisation of intangibles (note 28)                   1,036      521 
 Depreciation (note 30)                                  1,508    1,146 
 Financial Services Compensation Scheme Levy               190      233 
 Operating lease rentals                                 3,087    2,610 
 Operating expenses for investment property                230      115 
 Acquisitions costs                                        108      398 
 Other administrative expenses                          12,302    9,764 
-----------------------------------------------------  -------  ------- 
 Total operating expenses from continuing operations    54,721   46,111 
-----------------------------------------------------  -------  ------- 
 

Details on Directors remuneration are disclosed in the Remuneration Report on page ##RREP.

 
                                                                2017     2016 
 Remuneration of the auditor and its associates, excluding 
  VAT, was as follows:                                        GBP000   GBP000 
-----------------------------------------------------------  -------  ------- 
 Fees payable to the Company's auditor for the audit of 
  the Company's annual accounts                                  105       99 
 Fees payable to the Company's auditor and its associates 
  for other services: 
  Audit of the accounts of subsidiaries                          221      237 
  Audit related assurance services                                85      157 
  Taxation compliance services                                     -       36 
  Taxation advisory services                                       -       99 
  Other assurance services                                        17      170 
  Other non-audit services                                         -       15 
-----------------------------------------------------------  -------  ------- 
 Total fees payable                                              428      813 
-----------------------------------------------------------  -------  ------- 
 

Other assurance services include regulatory assessments. Corporate finance services include due diligence work on a potential corporate transaction.

 
 13. Income tax expense 
                                                               2017     2016 
 United Kingdom corporation tax at 19.25% (2016: 20%)        GBP000   GBP000 
----------------------------------------------------------  -------  ------- 
 Current taxation 
 Corporation tax charge - current year                          472      179 
 Corporation tax charge - adjustments in respect of prior 
  years                                                       (141)      457 
----------------------------------------------------------  -------  ------- 
                                                                331      636 
----------------------------------------------------------  -------  ------- 
 Deferred taxation 
 Origination and reversal of temporary differences            (135)       11 
 Adjustments in respect of prior years                          252       73 
----------------------------------------------------------  -------  ------- 
                                                                117       84 
----------------------------------------------------------  -------  ------- 
 Income tax expense                                             448      720 
----------------------------------------------------------  -------  ------- 
 Tax reconciliation 
 Profit before tax                                            6,971      179 
 Tax at 19.25% (2016: 20%)                                    1,342       36 
 Permanent difference - Tax on associate income               (854)    (429) 
 Other permanent differences                                  (152)      496 
 Tax rate change                                                  1       87 
 Prior period adjustments                                       111      530 
----------------------------------------------------------  -------  ------- 
 Corporation tax charge for the year                            448      720 
----------------------------------------------------------  -------  ------- 
 

Permanent differences mainly relate to associate income which is reflected after tax.

The tax charge on discontinuing operations is disclosed in note 14.

On 26 October 2015 the Government substantively enacted a reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017). An additional reduction to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Bank's future current tax charge accordingly. The deferred tax asset at 31 December 2017 has been calculated based on the rate of 19%.

14. Discontinued operations

The profit after tax from discontinued operations is made up as follows:

 
                                                                   Year           Year 
                                                                  ended          ended 
                                                            31 December    31 December 
                                                                   2017           2016 
 Discontinued operations                                         GBP000         GBP000 
-----------------------------------------------------    --------------  ------------- 
 Profit after tax from discontinued operations - ELL 
  (up to 13 April 2016)                                               -          2,027 
 Profit after tax on sale of discontinued operations 
  - ELL                                                               -        116,754 
 Profit after tax from discontinued operations - STB 
  (up to 15 June 2016)                                                -          9,149 
 Profit after tax on sale of discontinued operations 
  - STB                                                               -        100,180 
-------------------------------------------------------    ------------  ------------- 
 Profit after tax from discontinued operations                        -        228,110 
-------------------------------------------------------    ------------  ------------- 
 

On 4 December 2015, STB agreed to the conditional sale of its non-standard consumer lending business, ELL, which comprises Everyday Loans Holdings Limited and subsidiary companies Everyday Lending Limited and Everyday Loans Limited, to Non Standard Finance PLC (NSF) for GBP106.9 million in cash subject to a net asset adjustment and GBP16.3 million in NSF ordinary shares. The Disposal completed on 13 April 2016, and on completion, NSF repaid intercompany debt of GBP108.1 million to STB. After selling costs of GBP6.2m, this resulted in a gain recognised on disposal of GBP116.8m.

Details of the profits of discontinued operations, net assets disposed of and consequential gain recognised on disposal and cash flow from discontinued operations are set out below.

 
                                                                         From 
                                                                    1 January 
                                                                        to 13 
                                                                        April 
                                                                         2016 
                                                                       GBP000 
-------------------------------------------------------  ----  -------------- 
 Interest income                                                       11,137 
 Net interest income                                                   11,137 
-------------------------------------------------------  ----  -------------- 
 Fee and commission income                                                147 
 Fee and commission expense                                             (124) 
-------------------------------------------------------  ----  -------------- 
 Net fee and commission income                                             23 
-------------------------------------------------------  ----  -------------- 
 Operating income                                                      11,160 
-------------------------------------------------------  ----  -------------- 
 Net impairment loss on financial assets                              (2,610) 
 Operating expenses                                                   (6,016) 
-------------------------------------------------------  ----  -------------- 
 Profit before tax                                                      2,534 
 Tax expense                                                            (507) 
-------------------------------------------------------  ----  -------------- 
 Profit after tax                                                       2,027 
-------------------------------------------------------  ----  -------------- 
 Profit on sale of business                                           116,754 
-------------------------------------------------------  ----  -------------- 
 Total profit from discontinued operation                             118,781 
-------------------------------------------------------  ----  -------------- 
 
 Profit attributable to: 
 Equity holders of the Company                                         61,667 
 Non-controlling interests                                             57,114 
-------------------------------------------------------  ----  -------------- 
 Profit after tax                                                     118,781 
-------------------------------------------------------  ----  -------------- 
 
 Earnings per share for profit attributable to the equity holders of the 
  Company from discontinued operations during the year 
 (expressed in pence per share): 
  - basic                                                  16           418.4 
  - diluted                                                16           418.2 
 
 
 The following assets were sold as part of the sale of ELL: 
                                                                          Recognised 
                                                                              values 
                                                                             on sale 
                                                                                2016 
                                                                              GBP000 
-----------------------------------------------------------------------  ----------- 
 
 Loans and advances to banks                                                     457 
 Loans and advances to customers                                             116,744 
 Property, plant and equipment                                                   452 
 Intangible assets                                                             1,258 
 Deferred tax assets                                                             371 
 Prepayments and accrued income                                                  451 
 Other assets                                                                     11 
-----------------------------------------------------------------------  ----------- 
 Total assets                                                                119,744 
 
 Intercompany funding                                                        108,088 
 Current tax liability                                                         3,212 
 Other liabilities                                                             4,748 
-----------------------------------------------------------------------  ----------- 
 Total liabilities                                                           116,048 
 
 Net identifiable assets / (liabilities)                                       3,696 
-----------------------------------------------------------------------  ----------- 
 
 Consideration                                                               123,206 
 Costs                                                                       (2,756) 
 
 Profit on sale of ELL                                                       116,754 
-----------------------------------------------------------------------  ----------- 
 
 The intercompany funding was repaid by NSF at the time of completion. 
 
 
                                                                 From 
                                                            1 January 
                                                                to 13 
 Cash flow from discontinued operations - ELL                   April 
                                                                 2016 
                                                               GBP000 
-----------------------------------------------------     ----------- 
 Cash flows from operating activities 
 Interest received                                             11,137 
 Fees and commissions received                                     23 
 Cash payments to employees and suppliers                     (8,626) 
 Taxation paid                                                  (507) 
--------------------------------------------------------  ----------- 
 Cash flows from operating profits before changes in 
  operating assets and liabilities                              2,027 
 Changes in operating assets and liabilities: 
  - net increase in loans and advances to customers           (3,618) 
  - net increase in other assets                                (249) 
  - net increase in other liabilities                           2,621 
--------------------------------------------------------  ----------- 
 Net cash inflow from operating activities                        781 
--------------------------------------------------------  ----------- 
 Cash flows from investing activities 
 Purchase of property, plant and equipment                        (9) 
--------------------------------------------------------  ----------- 
 Net cash outflow from investing activities                       (9) 
--------------------------------------------------------  ----------- 
 Net increase in cash and cash equivalents                        772 
 Cash and cash equivalents at 1 January                         1,661 
--------------------------------------------------------  ----------- 
 Cash and cash equivalents at 13 April                          2,433 
--------------------------------------------------------  ----------- 
 

On 15 June 2016 ABG sold 6 million shares in STB, which reduced its shareholding in STB from 51.92% to 18.93%. From this date the Group accounted for its remaining shareholding in STB as an associate. After the sale of the 6 million shares, the Group retained Board representation and as such is seen to have significant influence over STB. The profit and cash flow from discontinued operations relating to ELL have been shown in the tables above. The ELL entities were subsidiaries of STB and therefore formed part of the STB result reported in the operating segments of ABG. The tables below therefore reflect the profit and cash flow from the STB group excluding ELL. The combined impact can be seen in the operating segments (see note 44 - Retail banking).

 
                                                                         From 
                                                                    1 January 
                                                                        to 15 
                                                                         June 
                                                                         2016 
                                                                       GBP000 
-------------------------------------------------------  ----  -------------- 
 Interest income                                                       57,498 
 Interest expense                                                    (12,107) 
-------------------------------------------------------  ----  -------------- 
 Net interest income                                                   45,391 
-------------------------------------------------------  ----  -------------- 
 Fee and commission income                                              7,981 
 Fee and commission expense                                             (779) 
-------------------------------------------------------  ----  -------------- 
 Net fee and commission income                                          7,202 
-------------------------------------------------------  ----  -------------- 
 Operating income                                                      52,593 
-------------------------------------------------------  ----  -------------- 
 Net impairment loss on financial assets                             (12,172) 
 Operating expenses                                                  (29,073) 
-------------------------------------------------------  ----  -------------- 
 Profit before tax                                                     11,348 
 Tax expense                                                          (2,199) 
-------------------------------------------------------  ----  -------------- 
 Profit after tax                                                       9,149 
-------------------------------------------------------  ----  -------------- 
 Profit on sale of shares                                             100,180 
-------------------------------------------------------  ----  -------------- 
 Total profit from discontinued operation                             109,329 
-------------------------------------------------------  ----  -------------- 
 
 Profit attributable to: 
 Equity holders of the Company                                        105,017 
 Non-controlling interests                                              4,312 
-------------------------------------------------------  ----  -------------- 
 Profit after tax                                                     109,329 
-------------------------------------------------------  ----  -------------- 
 
 Earnings per share for profit attributable to the equity holders of the 
  Company from discontinued operations during the year 
 (expressed in pence per share): 
  - basic                                                  16           712.5 
  - diluted                                                16           712.2 
 
 
 The following assets were deconsolidated as part of the sale of 6 million 
  shares in STB: 
                                                                   Recognised 
                                                                       values 
                                                                      on sale 
                                                                         2016 
                                                                       GBP000 
--------------------------------------------------------------  ------------- 
 
 Cash and balances at central banks                                   176,647 
 Loans and advances to banks                                           27,618 
 Loans and advances to customers                                    1,117,700 
 Other assets                                                           5,805 
 Financial investments                                                 15,030 
 Deferred tax asset                                                       606 
 Intangible assets                                                      7,017 
 Property, plant and equipment                                          8,606 
--------------------------------------------------------------  ------------- 
 Total assets                                                       1,359,029 
 
 Deposits from banks                                                   25,000 
 Deposits from customers                                            1,046,009 
 Current tax liability                                                    293 
 Other liabilities                                                     29,748 
--------------------------------------------------------------  ------------- 
 Total liabilities                                                  1,101,050 
 
 Net identifiable assets                                              257,979 
--------------------------------------------------------------  ------------- 
 
 
 Profit on sale of shares was calculated as follows: 
                                                                         2016 
                                                                       GBP000 
--------------------------------------------------------------  ------------- 
 Consideration received                                               150,000 
 Less costs                                                           (2,001) 
 Less net identifiable assets                                       (257,979) 
 Add back non-controlling interest                                    124,046 
 Add back fair value of remaining investment in STB                    86,114 
 
 Profit on sale of STB                                                100,180 
--------------------------------------------------------------  ------------- 
 
 
                                                                    From 
                                                               1 January 
 Cash flow from discontinued operations - STB excluding            to 15 
  ELL                                                               June 
                                                                    2016 
                                                                  GBP000 
--------------------------------------------------------     ----------- 
 Cash flows from operating activities 
 Interest received                                                68,635 
 Interest paid                                                  (12,107) 
 Fees and commissions received                                     7,226 
 Cash payments to employees and suppliers                       (51,552) 
 Taxation paid                                                   (6,034) 
-----------------------------------------------------------  ----------- 
 Cash flows from operating profits before changes in 
  operating assets and liabilities                                 6,168 
 Changes in operating assets and liabilities: 
  - net increase in loans and advances to customers            (165,976) 
  - net decrease in other assets                                 117,395 
  - net decrease in deposits from banks                         (10,000) 
  - net increase in amounts due to customers                      12,936 
  - net decrease in other liabilities                            (5,031) 
-----------------------------------------------------------  ----------- 
 Net cash outflow from operating activities                     (44,508) 
-----------------------------------------------------------  ----------- 
 Cash flows from investing activities 
 Purchase of computer software                                   (1,754) 
 Purchase of property, plant and equipment                         (531) 
 Disposal of property, plant and equipment                         2,179 
 Proceeds from disposal of businesses                            106,912 
 Proceeds from sale of property, plant and equipment                 456 
-----------------------------------------------------------  ----------- 
 Net cash inflow from investing activities                       107,262 
-----------------------------------------------------------  ----------- 
 Cash flows from financing activities 
 Dividends paid                                                 (10,005) 
 Net cash used in financing activities                          (10,005) 
-----------------------------------------------------------  ----------- 
 Net increase in cash and cash equivalents                        52,749 
 Cash and cash equivalents at 1 January                          141,595 
-----------------------------------------------------------  ----------- 
 Cash and cash equivalents at 15 June                            194,344 
-----------------------------------------------------------  ----------- 
 
 
 15. Average number of employees 
                                                              2017      2016 
--------------------------------------------------------  --------  -------- 
 Central                                                       161       146 
 Private banking                                               136       108 
 Commercial banking                                             38        14 
 Renaissance Asset Finance                                      13         - 
 Group                                                          17        19 
--------------------------------------------------------  --------  -------- 
                                                               365       287 
--------------------------------------------------------  --------  -------- 
 
 As STB was deconsolidated during 2016, the employees have been removed 
  from the above averages in 2016. 
 

16. Earnings per ordinary share

Basic

Basic earnings per ordinary share are calculated by dividing the profit after tax attributable to equity holders of the Company by the weighted average number of ordinary shares 14,852,763 (2016: 14,738,548) in issue during the year.

Diluted

Diluted earnings per ordinary share are calculated by dividing the dilutive profit after tax attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, as well as the number of dilutive share options in issue during the year. The number of dilutive share options in issue at the year end was nil (2016: 50,000).

 
                                                                      2017      2016 
 Profit attributable                                                GBP000    GBP000 
-----------------------------------------------------------------  -------  -------- 
 Total profit after tax attributable to equity holders of 
  the Company                                                        6,523   166,143 
 Profit/(loss) after tax from continuing operations attributable 
  to equity holders of the Company                                   6,523     (541) 
 Profit after tax from discontinued operations attributable 
  to equity holders of the Company (STB excl. ELL)                       -   105,017 
 Profit after tax from discontinued operations attributable 
  to equity holders of the Company (ELL)                                 -    61,667 
-----------------------------------------------------------------  -------  -------- 
 
                                                                      2017      2016 
 Dilutive profit attributable                                       GBP000    GBP000 
-----------------------------------------------------------------  -------  -------- 
 Total profit after tax attributable to equity holders of 
  the Company                                                        6,523   166,143 
 Loss after tax from continuing operations attributable to 
  equity holders of the Company                                      6,523     (541) 
 Profit after tax from discontinued operations attributable 
  to equity holders of the Company (STB excl. ELL)                       -   105,017 
 Profit after tax from discontinued operations attributable 
  to equity holders of the Company (ELL)                                 -    61,667 
-----------------------------------------------------------------  -------  -------- 
 
                                                                      2017      2016 
 Basic Earnings per share                                                p         p 
-----------------------------------------------------------------  -------  -------- 
 Total Basic Earnings per share                                       43.9   1,127.2 
 Basic Earnings per share from continuing operations                  43.9     (3.7) 
 Basic Earnings per share from discontinued operations (STB 
  excl. ELL)                                                             -     712.5 
 Basic Earnings per share from discontinued operations (ELL)             -     418.4 
-----------------------------------------------------------------  -------  -------- 
 
                                                                      2017      2016 
 Diluted Earnings per share                                              p         p 
-----------------------------------------------------------------  -------  -------- 
 Total Diluted Earnings per share                                     43.9   1,126.7 
 Diluted Earnings per share from continuing operations                43.9     (3.7) 
 Diluted Earnings per share from discontinued operations (STB 
  excl. ELL)                                                             -     712.2 
 Diluted Earnings per share from discontinued operations (ELL)           -     418.2 
-----------------------------------------------------------------  -------  -------- 
 
 
 17. Cash and balances at central banks 
                                               2017      2016 
 Group                                       GBP000    GBP000 
----------------------------------------  ---------  -------- 
 Cash and balances at central banks         313,101   195,752 
----------------------------------------  ---------  -------- 
 

Surplus funds are mainly held in the Bank of England reserve account, with the remainder held in certificates of deposit, fixed rate notes and money market deposits in highly rated banks (the majority held in UK clearing banks).

 
 18. Loans and advances to banks 
                                                                       2017     2016 
 Group                                                               GBP000   GBP000 
------------------------------------------------------------------  -------  ------- 
 Placements with banks included in cash and cash equivalents 
  (note 41)                                                          70,679   36,951 
------------------------------------------------------------------  -------  ------- 
 
 The table below presents an analysis of loans and advances to banks by 
  rating agency designation as at 31 December, based on Moody's long term 
  ratings: 
                                                                       2017     2016 
 Group                                                               GBP000   GBP000 
------------------------------------------------------------------  -------  ------- 
 Aa3                                                                 39,871        - 
 A1                                                                  20,553   20,696 
 A2                                                                  10,012   15,582 
 A3                                                                       -      110 
 Baa1                                                                   235      563 
 Unrated                                                                  8        - 
------------------------------------------------------------------  -------  ------- 
                                                                     70,679   36,951 
------------------------------------------------------------------  -------  ------- 
 
 None of the loans and advances to banks are either past 
  due or impaired (2016: GBPnil). 
 
                                                                       2017     2016 
 Company                                                             GBP000   GBP000 
------------------------------------------------------------------  -------  ------- 
 Placements with banks included in cash and cash equivalents 
  (note 41)                                                          36,103   89,072 
------------------------------------------------------------------  -------  ------- 
 
 Loans and advances to banks include bank balances of GBP36.1m (2016: GBP89.1m) 
  with Arbuthnot Latham & Co., Ltd. 
 

19. Debt securities held-to-maturity

Debt securities represent certificates of deposit. The Group's intention is to hold them to maturity and, therefore, they are presented in the Statement of Financial Position at amortised cost.

 
 The movement in debt securities held to maturity may be 
  summarised as follows: 
                                                                2017       2016 
 Group                                                        GBP000     GBP000 
---------------------------------------------------------  ---------  --------- 
 At 1 January                                                107,300     87,728 
 Exchange difference                                           (951)      2,087 
 Additions                                                   211,080     89,384 
 Redemptions                                                (90,410)   (68,103) 
 Deconsolidation of STB                                            -    (3,796) 
---------------------------------------------------------  ---------  --------- 
 At 31 December                                              227,019    107,300 
---------------------------------------------------------  ---------  --------- 
 
 
 The table below presents an analysis of debt securities by rating agency 
  designation at 31 December, based on Moody's long term ratings: 
 
                                                                2017      2016 
 Group                                                        GBP000    GBP000 
----------------------------------------------------------  --------  -------- 
 Aaa                                                         100,106    40,337 
 Aa1                                                          51,389        23 
 Aa2                                                           5,946    26,089 
 Aa3                                                          18,384     6,000 
 A1                                                           18,187    31,953 
 A3                                                           33,007     2,898 
                                                             227,019   107,300 
----------------------------------------------------------  --------  -------- 
 
 None of the debt securities held-to-maturity are either 
  past due or impaired. 
 
 
 20. Assets classified as held for sale 
                                               Group 
                                         ---------------- 
                                            2017     2016 
                                          GBP000   GBP000 
---------------------------------------  -------  ------- 
 Seed capital investments held for sale        -        - 
 Repossessed property held for sale        2,915        - 
---------------------------------------  -------  ------- 
                                           2,915        - 
---------------------------------------  -------  ------- 
 

Seed capital investments held for sale

The Group considers itself a sponsor of an investment fund when it facilitates the establishment of a fund in which the Group is the investment manager. The Group ordinarily provides seed capital in order to provide initial scale and facilitate marketing of the funds to third-party investors. The fund is then financed through the issue of units to investors. Aggregate interests held by the Group include seed capital, management fees and performance fees. The Group generates management and performance fee income from managing the assets on behalf of third-party investors.

The Group has an investment of GBP1 in the share capital of the SPV created to administer the fund. At 31 December 2017, the Group has a receivable of GBP6.8m from the SPV, which is reflected in Note 24.

Repossessed property held for sale

During the year a property held as collateral on a loan was repossessed. The property is expected to be sold within 12 months and is therefore classified in the accounts as held for sale.

 
 21. Derivative financial 
  instruments 
                                            2017                                 2016 
                            -----------------------------------  ----------------------------------- 
                             Contract/      Fair           Fair   Contract/      Fair           Fair 
                              notional     value          value    notional     value          value 
                                amount    assets    liabilities      amount    assets    liabilities 
 Group                          GBP000    GBP000         GBP000      GBP000    GBP000         GBP000 
--------------------------  ----------  --------  -------------  ----------  --------  ------------- 
 Currency swaps                  9,614       950            931       6,566        85            218 
 Interest rate swaps            17,824         -              -       3,800         -              9 
 Structured notes                1,607     1,601              -       1,607     1,431              - 
--------------------------  ----------  --------  -------------  ----------  --------  ------------- 
                                29,045     2,551            931      11,973     1,516            227 
--------------------------  ----------  --------  -------------  ----------  --------  ------------- 
 

The principal derivatives used by the Group are over the counter exchange rate contracts. Exchange rate related contracts include currency swaps and interest rate swaps.

A forward foreign exchange contract is an agreement to buy or sell a specified amount of foreign currency on a specified future date at an agreed rate. Currency swaps generally involve the exchange of interest payment obligations denominated in different currencies; exchange of principal can be notional or actual. The currency swaps are settled net and therefore the fair value is small in comparison to the contract/notional amount. Interest rate swaps are used to hedge against the Profit or Loss impact resulting from the movement in interest rates, due to some exposures having fixed rate terms.

Also included in derivative financial instruments are structured notes. These notes contain embedded derivatives (embedded options to buy and sell indices) and non-derivative host contracts (discounted bonds). Both the host and embedded derivatives are presented net within derivative financial instruments. The Group invested in the structured notes, which are maturing in 2021.

The Group only uses investment graded banks as counterparties for derivative financial instruments. None of the contracts are collateralised.

 
 The table below presents an analysis of derivative financial instruments 
  contract/notional amounts by rating agency designation of 
 counterparty bank at 31 December, based on Moody's long 
  term ratings: 
                                                                 2017     2016 
 Group                                                         GBP000   GBP000 
------------------------------------------------------------  -------  ------- 
 A1                                                            26,521   10,366 
 A2                                                             2,524        - 
 Baa1                                                               -    1,607 
------------------------------------------------------------  -------  ------- 
                                                               29,045   11,973 
------------------------------------------------------------  -------  ------- 
 
 
 22. Loans and advances to customers 
                                                                     2017      2016 
 Group                                                             GBP000    GBP000 
-------------------------------------------------------------  ----------  -------- 
 Gross loans and advances                                       1,050,631   759,772 
 Less: allowances for impairment on loans and advances (note 
  23)                                                             (1,362)     (973) 
-------------------------------------------------------------  ----------  -------- 
                                                                1,049,269   758,799 
-------------------------------------------------------------  ----------  -------- 
 

For a maturity profile of loans and advances to customers, refer to note 6.

 
 Loans and advances to customers can be further summarised 
  as follows: 
                                                                           2017      2016 
 Group                                                                   GBP000    GBP000 
-------------------------------------------------------------------  ----------  -------- 
 Neither past due nor impaired                                          888,332   719,515 
 Past due but not impaired                                              131,247    23,379 
 Impaired                                                                31,052    16,878 
-------------------------------------------------------------------  ----------  -------- 
 Gross                                                                1,050,631   759,772 
 Less: allowance for impairment                                         (1,362)     (973) 
-------------------------------------------------------------------  ----------  -------- 
 Net                                                                  1,049,269   758,799 
-------------------------------------------------------------------  ----------  -------- 
 
 Loans and advances to customers include finance lease receivables 
  as follows: 
                                                                           2017      2016 
 Group                                                                   GBP000    GBP000 
-------------------------------------------------------------------  ----------  -------- 
 Gross investment in finance lease receivables: 
  - No later than 1 year                                                 28,911         - 
  - Later than 1 year and no later than 5 years                          53,766         - 
                                                                         82,677         - 
 Unearned future finance income on finance leases                      (11,412)         - 
-------------------------------------------------------------------  ----------  -------- 
 Net investment in finance leases                                        71,265         - 
-------------------------------------------------------------------  ----------  -------- 
 The net investment in finance leases may be analysed as 
  follows: 
  - No later than 1 year                                                 23,170         - 
  - Later than 1 year and no later than 5 years                          48,095         - 
                                                                         71,265         - 
-------------------------------------------------------------------  ----------  -------- 
 
 (a) Loans and advances past due but not impaired 
 
 Gross amounts of loans and advances to customers that were 
  past due but not impaired were as follows: 
                                                                           2017      2016 
 Group                                                                   GBP000    GBP000 
-------------------------------------------------------------------  ----------  -------- 
 Past due up to 30 days                                                 115,126       961 
 Past due 30 - 60 days                                                   11,043     5,689 
 Past due 60 - 90 days                                                    5,078       638 
 Over 90 days                                                                 -    16,091 
-------------------------------------------------------------------  ----------  -------- 
 Total                                                                  131,247    23,379 
-------------------------------------------------------------------  ----------  -------- 
 

The newly implemented banking system has enabled the Group to establish a more sophisticated tracking of early stage arrears. The majority of loans and advances up to 30 days past due were subsequently up to date post year end.

Loans and advances typically fall into this category when there is a delay in either the sale of the underlying collateral or the completion of formalities to extend the credit facilities for a further period. Management have no material concerns regarding the quality of the collateral that secures the lending.

Additionally, the Group updated its impairment policy in the year to include all loans and advances over 90 days past due within impaired loans. Interest income on loans classified as impaired totalled GBP338,000 (2016: GBP126,000).

(b) Loans and advances renegotiated

Restructuring activities include external payment arrangements, modification and deferral of payments. Following restructuring, a previously overdue customer account is reset to a normal status and managed together with other similar accounts. Restructuring policies and practices are based on indicators or criteria which, in the judgement of management, indicate that payment will most likely continue. These policies are kept under continuous review. Renegotiated loans that would otherwise be past due or impaired totalled GBPnil (2016: GBPnil).

(c) Collateral held

Collateral is measured at fair value less costs to sell.

Most of the loans are secured by property. The fair value of the collateral held against past due but not impaired or impaired balances is GBP302.9m (2016: GBP103.7m) against loans of GBP162.3m (2016: GBP40.3m), giving an average loan-to-value of 54% (2016: 39%). The weighted average loan-to-value is 46% (2016: 61%). The net amount of individually impaired loans and advances to customers after impairment but before taking into account the cash flows from collateral held is GBP29.7m (2016: GBP15.9m).

 
 23. Allowances for impairment of loans and advances 
 
 Reconciliation of specific allowance for impairments: 
                                                              2017       2016 
 Group                                                      GBP000     GBP000 
---------------------------------------------------------  -------  --------- 
 At 1 January                                                  973     35,696 
 Impairment losses                                             329        474 
 On acquisition of RAF (see note 29)                            51          - 
 De-consolidation of STB                                         -   (34,285) 
 Loans written off during the year as uncollectible           (15)      (962) 
 Amounts recovered during the year                           (116)         50 
---------------------------------------------------------  -------  --------- 
 At 31 December                                              1,222        973 
---------------------------------------------------------  -------  --------- 
 
 Reconciliation of collective allowance for impairments: 
                                                              2017       2016 
 Group                                                      GBP000     GBP000 
---------------------------------------------------------  -------  --------- 
 At 1 January                                                    -      3,141 
 On acquisition of RAF (see note 29)                            75          - 
 Impairment losses                                              65          - 
 De-consolidation of STB                                         -    (3,141) 
 At 31 December                                                140          - 
---------------------------------------------------------  -------  --------- 
 
 
 24. Other assets 
                                                    2017     2016 
 Group                                            GBP000   GBP000 
-----------------------------------------------  -------  ------- 
 Trade receivables                                 5,208    1,197 
 Inventory                                         4,436    5,213 
 Receivable from investment fund held for sale     6,756        - 
 Prepayments and accrued income                    4,224    5,529 
-----------------------------------------------  -------  ------- 
                                                  20,624   11,939 
-----------------------------------------------  -------  ------- 
 

Inventory

Land acquired through repossession of collateral which is subsequently held in the ordinary course of business with a view to develop and sell is accounted for as inventory. The land is currently in the process of being redeveloped and will ultimately be sold off as individual residential plots. The proceeds from the sale of these plots will be used to repay the outstanding loans. Pinnacle Universal is a special purpose vehicle, 100% owned by the Group, which owns this land.

 
                                       2017     2016 
 Company                             GBP000   GBP000 
----------------------------------  -------  ------- 
 Trade receivables                        3      633 
 Due from subsidiary undertakings       159      158 
 Prepayments and accrued income          37       96 
----------------------------------  -------  ------- 
                                        199      887 
----------------------------------  -------  ------- 
 
 
 25. Financial investments 
                                                       2017     2016 
 Group                                               GBP000   GBP000 
--------------------------------------------------  -------  ------- 
 Designated at fair value through profit and loss 
  - Listed securities                                   128      108 
 Available-for-sale 
  - Listed securities                                     4       13 
  - Debt securities                                   1,497    1,443 
  - Unlisted securities                                 718      581 
--------------------------------------------------  -------  ------- 
 Total financial investments                          2,347    2,145 
--------------------------------------------------  -------  ------- 
 

Listed securities

The Group holds investments in listed securities which are valued based on quoted prices.

Debt securities

The Group has made an investment in an unlisted special purpose vehicle, set up to acquire and enhance the value of a commercial property. This investment is of a medium term nature. There is no open market for the investment and therefore the Group has valued it using appropriate valuation methodologies (see Note 4.2 (a)), which include net asset valuations and discounted future cash flows. The Directors intend to dispose of the underlying asset when a suitable buyer has been identified and when the Directors believe that the underlying asset has reached its optimal value.

Unlisted securities

On 23 June 2016 Arbuthnot Latham received EUR1.3m cash consideration following Visa Inc.'s completion of the acquisition of Visa Europe. As part of the deal Arbuthnot Latham also received preference shares in Visa Inc., these have been valued at their future conversion value into Visa Inc. common stock. Management has assessed the fair value of the Group's investment as GBP706k (2016: GBP569k). This valuation includes a 31% haircut, as referred to in Note 4.

 
                                                             2017     2016 
 Company                                                   GBP000   GBP000 
--------------------------------------------------------  -------  ------- 
 Financial investments comprise: 
  - Listed securities (at fair value through profit and 
   loss)                                                      128      108 
  - Unlisted securities (available-for-sale)                   12       13 
--------------------------------------------------------  -------  ------- 
 Total financial investments                                  140      121 
--------------------------------------------------------  -------  ------- 
 
 
 26. Deferred taxation 
 
 The deferred tax asset comprises: 
                                                                 2017     2016 
 Group                                                         GBP000   GBP000 
------------------------------------------------------------  -------  ------- 
 Accelerated capital allowances and other short-term timing 
  differences                                                     372      943 
 Movement in fair value of available-for-sale securities         (40)     (14) 
 Unutilised tax losses                                          1,195      736 
------------------------------------------------------------  -------  ------- 
 Deferred tax asset                                             1,527    1,665 
------------------------------------------------------------  -------  ------- 
 
 At 1 January                                                   1,665    1,784 
 On acquisition of RAF                                              5        - 
 Other Comprehensive Income - available-for-sale securities      (26)      456 
 Profit and loss account - accelerated capital allowances 
  and other short-term timing differences                       (576)     (21) 
 Profit and loss account - tax losses                             459     (64) 
 Deconsolidate / Transfer to assets classified as held for 
  sale                                                              -    (490) 
------------------------------------------------------------  -------  ------- 
 Deferred tax asset at 31 December                              1,527    1,665 
------------------------------------------------------------  -------  ------- 
 
 
                                                                 2017     2016 
 Company                                                       GBP000   GBP000 
------------------------------------------------------------  -------  ------- 
 Accelerated capital allowances and other short-term timing 
  differences                                                     346      397 
 Tax losses                                                       295        - 
------------------------------------------------------------  -------  ------- 
 Deferred tax asset                                               641      397 
------------------------------------------------------------  -------  ------- 
 
 At 1 January                                                     397      418 
 Profit and loss account - accelerated capital allowances 
  and other short-term timing differences                        (51)     (21) 
 Profit and loss account - tax losses                             295        - 
------------------------------------------------------------  -------  ------- 
 Deferred tax asset at 31 December                                641      397 
------------------------------------------------------------  -------  ------- 
 

Deferred tax assets are recognised for tax losses to the extent that the realisation of the related tax benefit through future taxable profits is probable.

 
 27. Interests in associates 
                                  2017     2016 
 Group                          GBP000   GBP000 
-----------------------------  -------  ------- 
 Tarn Crag                           -      900 
 Secure Trust Bank PLC          83,804   81,674 
-----------------------------  -------  ------- 
 Interests in associates        83,804   82,574 
-----------------------------  -------  ------- 
 

Tarn Crag

On 11 October 2013, AL together with Praxis (Holding) Limited, formed a special purpose vehicle in the form of a separate legal entity (Tarn Crag Limited). The purpose of this legal entity was to refurbish and re-let a property in Glasgow, with the intention to exit via a sale to an institutional investor in circa 5 years time. The investment was accounted for using the equity method.

On 28 March 2017 AL sold its investment in Tarn Crag to Praxis (Holding) Ltd at book value of GBP900k.

During the year the associate recorded a loss of GBPnil (2016: loss of GBP197k). Legal costs of GBPnil (2016: GBP43k), previously capitalised against the carrying value of the associate, were written off in the year.

The summarised balance sheet for Tarn Crag at the previous year end is set out below:

 
                                           2016 
 At 31 December                          GBP000 
------------------------------------   -------- 
 ASSETS 
 Cash and balances at central banks       3,468 
 Other assets                               656 
 Property, plant and equipment            9,201 
-------------------------------------  -------- 
                                         13,325 
 ------------------------------------  -------- 
 EQUITY AND LIABILITIES 
 Deposits from banks                     12,474 
 Other liabilities                        1,484 
 Debt securities in issue                 1,400 
 Revaluation reserve                    (1,418) 
 Retained Earnings                        (615) 
-------------------------------------  -------- 
                                         13,325 
 ------------------------------------  -------- 
 

Secure Trust Bank

On 15 June 2016 Arbuthnot Banking Group sold 6 million shares in Secure Trust Bank PLC ('STB') for GBP150m, which reduced its shareholding in STB from 51.92% to 18.93%. From this date the Group accounted for its remaining shareholding in STB as an associate. After the sale of the 6 million shares, the Group retained Board representation and as such is seen to have significant influence over STB. The principal place of business of STB is the United Kingdom. Subsequent to initial recognition at fair value, the investment is accounted for using the equity method. The fair value of the investment as at 31 December 2016 was GBP75.4m. STB recorded a profit after tax of GBP11.4m in the period from 16 June to 31 December 2016. The carrying value of the interest in STB is shown as the fair value at the date of sale adjusted for the share of the Group's profit after tax and dividends received. STB is listed on the main market of the London Stock Exchange.

(a) Significant restrictions

The Group does not have significant restrictions on its ability to access funds, other than the liquidity in the market for the sale of the shares.

(b) Risks associated with interests

As STB is a publicly listed company, there are a number of risks, e.g. conduct risk, regulatory risk and macroeconomic and competitive environment risks that could have an impact on the share price and ultimate recoverability of the investment.

(c) Changes in ownership interest

On 15 June 2016 Arbuthnot Banking Group sold 6 million shares in STB for GBP150m, which reduced its shareholding in STB from 51.92% to 18.93%. From this date the Group accounted for its remaining shareholding in STB as an associate. After the sale of the 6 million shares, the Group retained Board representation and as such is seen to have significant influence over STB.

On 7 November 2016, 460,419 share options in STB vested. On the same date 283,335 share options were exercised with admission of the shares on the stock market on 9 November. This increased STB's shares in issue from 18,191,894 to 18,475,229 and as a result ABG's shareholding was diluted from 18.93% to 18.64%. If the remaining 177,084 share options were exercised, ABG's shareholding would further dilute to 18.47%.

The summarised Income Statement and Balance Sheet for STB is set out below (STB reports in millions):

 
                                                             Year ended 31 
                                                                December 
                                                              2017     2016 
                                                              GBPm     GBPm 
-------------------------------------------------------    -------  ------- 
 Interest income                                             141.3    118.8 
 Interest expense                                           (26.7)   (26.3) 
---------------------------------------------------------  -------  ------- 
 Net interest income                                         114.6     92.5 
---------------------------------------------------------  -------  ------- 
 Fee and commission income                                    16.0     16.3 
 Fee and commission expense                                  (1.1)    (1.8) 
---------------------------------------------------------  -------  ------- 
 Net fee and commission income                                14.9     14.5 
---------------------------------------------------------  -------  ------- 
 Operating income                                            129.5    107.0 
---------------------------------------------------------  -------  ------- 
 Net impairment loss on financial assets                    (33.5)   (23.3) 
 Other income                                                  0.3        - 
 Operating expenses                                         (71.3)   (64.3) 
---------------------------------------------------------  -------  ------- 
 Profit before tax                                            25.0     19.4 
 Income tax expense                                          (5.1)    (5.2) 
---------------------------------------------------------  -------  ------- 
 Profit after tax                                             19.9     14.2 
 Profit from discontinued operations after tax                 3.9    123.3 
---------------------------------------------------------  -------  ------- 
 Profit for the year                                          23.8    137.5 
---------------------------------------------------------  -------  ------- 
 Other comprehensive income 
 Items that will not be reclassified to profit or loss 
 Revaluation reserve                                           0.1      1.2 
 Tax on other comprehensive income                               -    (0.2) 
---------------------------------------------------------  -------  ------- 
                                                               0.1      1.0 
  -------------------------------------------------------  -------  ------- 
 Items that are or may be reclassified to profit or 
  loss 
 Available-for-sale reserve                                    2.8    (2.8) 
                                                               2.8    (2.8) 
  -------------------------------------------------------  -------  ------- 
 Other comprehensive income for the period, net of 
  tax                                                          2.9    (1.8) 
---------------------------------------------------------  -------  ------- 
 Total comprehensive income for the period                    26.7    135.7 
---------------------------------------------------------  -------  ------- 
 
 Profit attributable to: 
-------------------------------------------------------    -------  ------- 
 Equity holders of the Company                                23.8    137.5 
---------------------------------------------------------  -------  ------- 
 
 Total comprehensive income attributable to: 
-------------------------------------------------------    -------  ------- 
 Equity holders of the Company                                26.7    135.7 
---------------------------------------------------------  -------  ------- 
 
 
                                                   At 31 December 
                                                     2017      2016 
                                                     GBPm      GBPm 
 ASSETS 
 Cash and balances at central banks                 226.1     112.0 
 Loans and advances to banks                         34.3      18.2 
 Loans and advances to customers                  1,598.3   1,321.0 
 Debt securities held-to-maturity                     5.0      20.0 
 Financial investments                                  -      13.5 
 Property, plant and equipment                       11.5      11.4 
 Intangible assets                                   10.4       9.0 
 Deferred tax asset                                   0.6         - 
 Other assets                                         5.4       4.9 
-----------------------------------------------  --------  -------- 
 Total assets                                     1,891.6   1,510.0 
-----------------------------------------------  --------  -------- 
 EQUITY AND LIABILITIES 
 Equity attributable to owners of the parent 
 Share capital                                        7.4       7.4 
 Share premium account                               81.2      81.2 
 Retained earnings                                  159.2     149.0 
 Other reserves                                       1.3     (1.6) 
-----------------------------------------------  --------  -------- 
 Total equity                                       249.1     236.0 
-----------------------------------------------  --------  -------- 
 LIABILITIES 
 Deposits from banks                                113.0      70.0 
 Deposits from customers                          1,483.2   1,151.8 
 Current tax liability                                3.0       1.7 
 Deferred tax liability                                 -       0.2 
 Other liabilities                                   43.3      50.3 
 Total liabilities                                1,642.5   1,274.0 
-----------------------------------------------  --------  -------- 
 Total equity and liabilities                     1,891.6   1,510.0 
-----------------------------------------------  --------  -------- 
 
 
 Interest in associate for the Company is set out below: 
 
                                                              2017     2016 
 Company                                                    GBP000   GBP000 
---------------------------------------------------------  -------  ------- 
 Secure Trust Bank PLC                                       5,056    5,056 
---------------------------------------------------------  -------  ------- 
 Interests in associates                                     5,056    5,056 
---------------------------------------------------------  -------  ------- 
 
 
 28. Intangible assets 
 
                                                      Computer          Other 
                                          Goodwill    software    intangibles      Total 
 Group                                      GBP000      GBP000         GBP000     GBP000 
---------------------------------------  ---------  ----------  -------------  --------- 
 Cost 
 At 1 January 2016                           2,695      12,653          2,414     17,762 
 Additions                                       -       5,155              -      5,155 
 Transfer out on deconsolidation - STB     (1,013)     (9,301)        (2,200)   (12,514) 
 At 31 December 2016                         1,682       8,507            214     10,403 
---------------------------------------  ---------  ----------  -------------  --------- 
 Additions                                       -       2,641              -      2,641 
 On Acquisition - RAF (see note 29)          3,520           -          2,348      5,868 
 At 31 December 2017                         5,202      11,148          2,562     18,912 
---------------------------------------  ---------  ----------  -------------  --------- 
 
 Accumulated amortisation 
 At 1 January 2016                               -     (6,048)          (840)    (6,888) 
 Amortisation charge                             -       (478)           (43)      (521) 
 Transfer out on deconsolidation - STB           -       4,794            734      5,528 
 At 31 December 2016                             -     (1,732)          (149)    (1,881) 
---------------------------------------  ---------  ----------  -------------  --------- 
 Amortisation charge                             -       (830)          (206)    (1,036) 
 At 31 December 2017                             -     (2,562)          (355)    (2,917) 
---------------------------------------  ---------  ----------  -------------  --------- 
 
 Net book amount 
---------------------------------------  ---------  ----------  -------------  --------- 
 At 31 December 2016                         1,682       6,775             65      8,522 
---------------------------------------  ---------  ----------  -------------  --------- 
 At 31 December 2017                         5,202       8,586          2,207     15,995 
---------------------------------------  ---------  ----------  -------------  --------- 
 

Included within Computer Software additions is an amount of GBP2.6m (2016: GBP5.5m) relating to the new banking system which went live in 2017.

The accounting policy for goodwill is described in note 3.15 (a). The Group reviews the goodwill for impairment at least annually or when events or changes in economic circumstances indicate that impairment may have taken place. Significant management judgements are made in estimations, to evaluate whether an impairment of goodwill is necessary. Impairment testing is performed at CGU level and the following two items, with judgements surrounding them, have a significant impact on the estimations used in determining the necessity of an impairment charge:

-- Future cash flows - Cash flow forecasts reflect management's view of future business forecasts at the time of the assessment. A detailed three year budget is done every year and management also uses judgement in applying a growth rate. The accuracy of future cash flows is subject to a high degree of uncertainty in volatile market conditions. During such conditions, management would perform impairment testing more frequently than annually to ensure that the assumptions applied are still valid in the current market conditions.

-- Discount rate - Management also apply judgement in determining the discount rate used to discount future expected cash flows. The discount rate is derived from the cost of capital for each CGU.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. There are currently two CGUs (2016: one) with goodwill attached; the core Arbuthnot Latham CGU (GBP1.7m) and RAF CGU (GBP3.5m).

Management considers the value in use for both CGUs to be the discounted cash flows over 5 years with a terminal value (2016: 5 years with a terminal value). The 5 year discounted cash flows with a terminal value are considered to be appropriate as the goodwill relates to an ongoing well established business and not underlying assets with finite lives. The terminal value is calculated by applying a discounted perpetual growth model to the profit expected in 2020 as per the approved 3 year plan. A growth rate of 12.5% (2016: 11%) was used for income and 18% (2016: 13%) for expenditure from 2018 to 2020 (these rates were the best estimate of future forecasted performance), while a 3% (2016: 3%) percent growth rate for income and expenditure (a more conservative approach was taken for latter years as these were not budgeted for in detail as per the three year plan approved by the Board of Directors) was used for cash flows after the approved three year plan.

Management considers the value in use for the RAF CGU to be the discounted cash flows over 5 years with a terminal value. The 5 year discounted cash flows with a terminal value are considered to be appropriate as the goodwill relates to an ongoing, well established, business and not underlying assets with finite lives. The terminal value is calculated by applying a discounted perpetual growth model to the profit expected in 2022 as per the approved budget. A growth rate of 5% was used (this rate was the best estimate of future forecasted performance).

The growth rates used are above the forecast UK growth rate of 1.8% to reflect the Bank's current growth strategy enabled by capital available at parent level.

Cash flows were discounted at a pre-tax rate of 12% (2016: 12%) to their net present value. The discount rate of 12% is considered to be appropriate after evaluating current market assessments of the time value of money and the risks specific to the assets or CGUs.

Currently, the value in use and fair value less costs to sell of both CGUs exceed the carrying values of the associated goodwill and as a result no sensitivity analysis was performed.

29. Acquisition of Renaissance Asset Finance Ltd

On 28 April 2017, Arbuthnot Latham & Co. Ltd completed the acquisition of 100% of the share capital of Renaissance Asset Finance Limited ("RAF") from its founders following receipt of regulatory approval.

RAF is a provider of finance for a range of specialist assets which includes vintage and expensive cars and SME business assets. The acquisition supported ALs strategy to diversify its proposition within the specialist financial services sector.

The consideration will be paid in four staged amounts, all of which will be in cash. The first payment was equal to the net assets at completion of GBP2.1m. The remaining three payments are performance related and will be based on the profits of RAF in each of the three calendar years 2018 to 2020. The maximum amount payable for the performance based payments is limited to GBP6.5m. AL has also provided an intercompany loan to RAF at completion of GBP57m to re-finance RAF's existing finance liabilities. The consideration and the refinancing of RAF's funding liabilities have been satisfied from the Group's current cash resources.

The assets acquired and resulting goodwill on acquisition are set out in the table below. The fair value of intangibles acquired include GBP0.4m relating to customer relationships, GBP1.5m relating to broker relationships and GBP0.4m for the brand. The resultant goodwill represented the assembled specialist workforce, established process and control environment, cross selling opportunities between the two companies and the opportunity cost of a fully operational company within the sector.

The acquisition contributed GBP4.2m to interest income and GBP1.6m to profit before tax.

 
                                       Acquired                  Recognised 
                                         assets          Fair        values 
                                              /         value            on 
                                    liabilities   adjustments   acquisition 
                                         GBP000        GBP000        GBP000 
---------------------------------  ------------  ------------  ------------ 
 
 Loans and advances to banks              2,815             -         2,815 
 Loans and advances to customers         57,684             -        57,684 
 Other asset                              1,341             -         1,341 
 Deferred tax assets                          5             -             5 
 Intangible assets                            -         2,348         2,348 
 Property, plant and equipment               23             -            23 
---------------------------------  ------------  ------------  ------------ 
 Total assets                            61,868         2,348        64,216 
---------------------------------  ------------  ------------  ------------ 
 
 Deposits from banks                     58,969             -        58,969 
 Current tax liability                      195             -           195 
 Other liabilities                          632             -           632 
---------------------------------  ------------  ------------  ------------ 
 Total liabilities                       59,796             -        59,796 
---------------------------------  ------------  ------------  ------------ 
 
 Net identifiable assets                  2,072         2,348         4,420 
---------------------------------  ------------  ------------  ------------ 
 
 Consideration                                                        7,940 
 
 Goodwill                                                             3,520 
---------------------------------  ------------  ------------  ------------ 
 
 
 30. Property, plant and equipment 
 
                                            Freehold                     Computer 
                                                land                          and 
                                                 and       Leasehold        other       Motor 
                                           buildings    improvements    equipment    Vehicles      Total 
 Group                                        GBP000          GBP000       GBP000                 GBP000 
---------------------------------------  -----------  --------------  -----------  ----------  --------- 
 Cost or valuation 
 At 1 January 2016                             7,488           4,686       12,443          97     24,714 
 Additions                                         -             127          227           -        354 
 Transfer out on deconsolidation - STB       (7,488)           (226)      (9,929)           -   (17,643) 
---------------------------------------  -----------  --------------  -----------  ----------  --------- 
 At 31 December 2016                               -           4,587        2,741          97      7,425 
---------------------------------------  -----------  --------------  -----------  ----------  --------- 
 Additions                                         -             408          258           -        666 
 On acquisition - RAF (see note 29)                -              20           52           -         72 
 Disposals                                         -               -         (10)           -       (10) 
 At 31 December 2017                               -           5,015        3,041          97      8,153 
---------------------------------------  -----------  --------------  -----------  ----------  --------- 
 
 
 At 1 January 2016                           (1,037)           (530)      (9,121)        (22)   (10,710) 
 Depreciation charge                               -           (697)        (425)        (24)    (1,146) 
 Transfer out on deconsolidation - STB         1,037              10        8,166           -      9,213 
---------------------------------------  -----------  --------------  -----------  ----------  --------- 
 At 31 December 2016                               -         (1,217)      (1,380)        (46)    (2,643) 
---------------------------------------  -----------  --------------  -----------  ----------  --------- 
 Depreciation charge                               -           (944)        (540)        (25)    (1,509) 
 On acquisition - RAF (see note 29)                             (16)         (33)           -       (49) 
 Disposals                                         -               -           10           -         10 
 At 31 December 2017                               -         (2,177)      (1,943)        (71)    (4,191) 
---------------------------------------  -----------  --------------  -----------  ----------  --------- 
 
 Net book amount 
---------------------------------------  -----------  --------------  -----------  ----------  --------- 
 At 31 December 2016                               -           3,370        1,361          51      4,782 
---------------------------------------  -----------  --------------  -----------  ----------  --------- 
 At 31 December 2017                               -           2,838        1,098          26      3,962 
---------------------------------------  -----------  --------------  -----------  ----------  --------- 
 
 

The Group's opening freehold property in 2016 is also the Registered Office of Secure Trust Bank and was fully utilised for the Group's own purposes. Included within the depreciation charge for the year is GBP78k (2016: GBPnil) of additional depreciation in relation to the early termination of a property lease.

 
                               Computer 
                                    and 
                                  other       Motor 
                              equipment    Vehicles    Total 
 Company                         GBP000      GBP000   GBP000 
--------------------------  -----------  ----------  ------- 
 Cost or valuation 
 At 1 January 2016                  209          97      306 
 Additions                            5           -        5 
 At 31 December 2016                214          97      311 
--------------------------  -----------  ----------  ------- 
 At 31 December 2017                214          97      311 
--------------------------  -----------  ----------  ------- 
 
 Accumulated depreciation 
 At 1 January 2016                 (80)        (22)    (102) 
 Depreciation charge                (2)        (24)     (26) 
 At 31 December 2016               (82)        (46)    (128) 
--------------------------  -----------  ----------  ------- 
 Depreciation charge                (2)        (24)     (26) 
 At 31 December 2017               (84)        (70)    (154) 
--------------------------  -----------  ----------  ------- 
 
 Net book amount 
--------------------------  -----------  ----------  ------- 
 At 31 December 2016                132          51      183 
--------------------------  -----------  ----------  ------- 
 At 31 December 2017                130          27      157 
--------------------------  -----------  ----------  ------- 
 
 
 31. Investment property 
 
                              2017     2016 
 Group                      GBP000   GBP000 
-------------------------  -------  ------- 
 Opening balance            53,339        - 
 Additions                   6,100   50,200 
 Acquisition costs             321    3,139 
 Fair value adjustment       (321)        - 
-------------------------  -------  ------- 
 At 31 December 2017        59,439   53,339 
-------------------------  -------  ------- 
 

King Street London

Arbuthnot Latham & Co., Limited acquired premises in the West End of London (namely 20 King Street/10 St James's Street) on 23 June 2016. The property comprises 22,450 square feet of office space and approximately 7,000 square feet of retail space. The property is held by way of leasehold from The Crown Estate Commissioners with 119 years unexpired and with a rent review every five years.

The property is currently fully tenanted, with the main lease ending in 2019. It is accounted for as investment property and the Group has elected to apply the fair value model. It is therefore initially recognised at cost and then subsequently at fair value. The fair value is determined using the rental income on the property and the associated effective yield of similar properties in the surrounding area (see note 4.1(d)). At 31 December 2017 there was no material difference between the cost of the property and the fair value. No independent valuation was undertaken at year end.

The Group received GBP2.1m (2016: GBP1.1m) rental income during the year and incurred GBP0.2m (2016: GBP0.1m) of direct operating expenses.

St Philips Place Birmingham

On 24 November 2017, Arbuthnot Latham & Co., Limited acquired leasehold premises in Birmingham (St Philips House, 4 St Philips Place). The property comprises 24,286 square feet of office space.

The property is unoccupied and will be refurbished at an estimated cost of GBP3.4m. After refurbishment the property will be let out. It is accounted for as investment property and the Group has elected to apply the fair value model. It is therefore initially recognised at cost and then subsequently at fair value. As the property was bought shortly before yearend, the capitalised acquisition costs of GBP0.3m were written off and the cost at acquisition was deemed to be the fair value. No independent valuation was undertaken at year end.

No property interests are held under operating leases and accounted for as investment property.

 
 32. Deposits from banks 
                                                               2017           2016 
 Group                                                       GBP000         GBP000 
--------------------------------------------------  ---------------  ------------- 
 Deposits from other banks                                  195,097          3,200 
--------------------------------------------------  ---------------  ------------- 
 
 Deposits from banks include GBP188m obtained through the Bank of England 
  Term Funding Scheme ("TFS"). For a maturity profile of deposits from banks, 
  refer to Note 6. 
 
 
 33. Deposits from customers 
                                     2017      2016 
 Group                             GBP000    GBP000 
-----------------------------  ----------  -------- 
 Current/demand accounts          868,855   610,512 
 Notice accounts                  101,909   141,728 
 Term deposits                    420,017   245,409 
-----------------------------  ----------  -------- 
                                1,390,781   997,649 
-----------------------------  ----------  -------- 
 

Included in customer accounts are deposits of GBP29.2m (2016: GBP8.4m) held as collateral for loans and advances. The fair value of these deposits approximates their carrying value.

For a maturity profile of deposits from customers, refer to Note 6.

 
 34. Other liabilities 
                                   2017     2016 
 Group                           GBP000   GBP000 
------------------------------  -------  ------- 
 Trade payables                   1,207    1,814 
 Accruals and deferred income    15,032   15,268 
------------------------------  -------  ------- 
                                 16,239   17,082 
------------------------------  -------  ------- 
 

Financial Services Compensation Scheme Levy

In common with all regulated UK deposit takers, AL pays levies to the Financial Services Compensation Scheme ("FSCS") to enable the FSCS to meet claims against the Scheme. The FSCS levy consists of two parts: a management expenses levy and a more significant compensation levy. The management expenses levy covers the costs of running the scheme and the compensation levy covers the amount of compensation and associated interest the Scheme pays, net of any recoveries it makes using the rights that have been assigned to it.

The Group's FSCS provision reflects market participation up to the reporting date and the accrual of GBP0.1m (2016: GBP0.1m) relates to the interest levy for the Scheme year 2017/18 which is payable in September 2017. This amount was calculated on the basis of the Group's share of protected deposits and the FSCS's estimate of total interest levies payable for each Scheme year.

 
                                     2017     2016 
 Company                           GBP000   GBP000 
--------------------------------  -------  ------- 
 Due to subsidiary undertakings     1,840    3,624 
 Accruals and deferred income       1,301    1,184 
--------------------------------  -------  ------- 
                                    3,141    4,808 
--------------------------------  -------  ------- 
 
 
 35. Debt securities in issue 
                                   2017     2016 
 Group and Company               GBP000   GBP000 
------------------------------  -------  ------- 
 Subordinated loan notes         13,104   12,621 
------------------------------  -------  ------- 
 

`The subordinated loan notes were issued on 7 November 2005 and are denominated in Euros. The principal amount outstanding at 31 December 2017 was EUR15,000,000 (2016: EUR15,000,000). The notes carry interest at 3% over the interbank rate for three month deposits in euros and are repayable at par in August 2035 unless redeemed or repurchased earlier by the Company.

The contractual undiscounted amount that will be required to be paid at maturity of the above debt securities is EUR15,000,000.

Given the fact that the Group has never been subject to a published credit rating by any of the relevant agencies and the notes in issue are not quoted, it is not considered possible to estimate a fair value for these notes.

36. Contingent liabilities and commitments

Contingent liabilities

The Group is subject to extensive regulation in the conduct of its business. A failure to comply with applicable regulations could result in regulatory investigations, fines and restrictions on some of the Group's business activities or other sanctions. The Group seeks to minimise this risk through the adoption of compliance and other policies and procedures, continuing to refine controls over business practices and behaviour, employee training, the use of appropriate documentation, and the involvement of outside legal counsel where appropriate.

Capital commitments

At 31 December 2017, the Group had capital commitments of GBPnil (2016: GBPnil) in respect of equipment purchases.

Credit commitments

The contractual amounts of the Group's off-balance sheet financial instruments that commit it to extend credit to customers are as follows:

 
                                                                 2017     2016 
 Group                                                         GBP000   GBP000 
---------------------------------------------------------  ----------  ------- 
 Guarantees and other contingent liabilities                    2,976      274 
 Commitments to extend credit: 
  - Original term to maturity of one year or less             131,963   54,934 
---------------------------------------------------------  ----------  ------- 
                                                              134,939   55,208 
---------------------------------------------------------  ----------  ------- 
 
 Operating lease commitments 
 Where a Group company is the lessee, the future aggregate lease payments 
  under non-cancellable operating leases are as follows: 
 
                                                                 2017     2016 
 Group                                                         GBP000   GBP000 
---------------------------------------------------------  ----------  ------- 
 Expiring: 
 Within 1 year                                                  2,330    2,635 
 Later than 1 year and no later than 5 years                   10,943    8,422 
 Later than 5 years                                             5,384    5,745 
---------------------------------------------------------  ----------  ------- 
                                                               18,657   16,802 
---------------------------------------------------------  ----------  ------- 
 

In 2013, Arbuthnot Latham & Co., Ltd entered into a 16 year lease on 7 Wilson Street, London (the head office for Arbuthnot Banking Group PLC, the principal location for Arbuthnot Latham & Co., Ltd and London offices for Secure Trust Bank PLC), with a break at 11 years and rent reviews after 5, 10 and 15 years. The initial rent is GBP1.75m per annum. This lease forms the most significant part of the operating leases disclosed in the table above.

In 2015, the Bank entered into a 10 year lease to occupy part of the ground floor of The Senate, Southernhay Gardens, Exeter, with a break clause and rent review after 5 years. The initial rent is GBP0.1m per annum.

In 2017, the Bank entered into a 10 year lease to occupy part of the eighth floor of 82 King Street, Manchester, with a break clause and rent review after 5 years. The initial rent is GBP0.1m per annum.

On 3 January 2018, Arbuthnot Latham entered into a 12 year lease (up to 16 October 2029) to occupy the first, second and third floor of 10 Dominion Street London, with a break clause on 16 October 2024. The initial rent is GBP0.7m per annum. This is reflected in the table above as an adjusting post balance sheet event.

Prior to the year end, the Bank reached agreement on the early termination of a property lease, which gave rise to an onerous lease provision of GBP0.3m (2016: GBPnil).

In addition to the above commitments, ground rent of GBP0.2m per annum is payable for the remaining term of 119 years of the King Street investment property.

 
 37. Share capital 
                                                     Ordinary 
                                            Number      share      Share 
                                         of shares    capital    premium 
 Group and Company                                     GBP000     GBP000 
-------------------------------------  -----------  ---------  --------- 
 At 1 January 2016                      15,279,322        153          - 
 At 31 December 2016 & December 2017    15,279,322        153          - 
-------------------------------------  -----------  ---------  --------- 
 

The Ordinary shares have a par value of 1p per share (2016: 1p per share). At 31 December 2017 the Company held 390,274 shares (2016: 390,274) in treasury.

 
 38. Reserves and retained earnings 
                                          2017      2016 
 Group                                  GBP000    GBP000 
------------------------------------  --------  -------- 
 Capital redemption reserve                 20        20 
 Available-for-sale reserve                162     (251) 
 Treasury shares                       (1,131)   (1,131) 
 Retained earnings                     237,171   235,567 
------------------------------------  --------  -------- 
 Total reserves at 31 December         236,222   234,205 
------------------------------------  --------  -------- 
 

The capital redemption reserve represents a reserve created after the Company purchased its own shares which resulted in a reduction of share capital.

 
                                     2017      2016 
 Company                           GBP000    GBP000 
-------------------------------  --------  -------- 
 Capital redemption reserve            20        20 
 Treasury shares                  (1,131)   (1,131) 
 Retained earnings                124,659   133,847 
-------------------------------  --------  -------- 
 Total reserves as 31 December    123,548   132,736 
-------------------------------  --------  -------- 
 

39. Share-based payment options

Company - equity settled

The Company had no equity settled share-based payment awards outstanding at 31 December 2017.

On 1 April 2014 Mr Fleming was granted an option to subscribe for 50,000 ordinary 1p shares in the Company between April 2017 and April 2022 at 1185p. The fair value of these shares at grant date was GBP53,000. On 11 April 2017 Mr. Fleming exercised all his options granted on 1 April 2014 at a price of 1457p. The Board agreed to make a cash settlement rather than allot new shares.

On 16 April 2013 Mr. Salmon and Mr. Cobb were granted options to subscribe between April 2016 and April 2021 for 100,000 and 50,000 ordinary 1p shares respectively in the Company at 930p. The fair value of the options at grant date was GBP125,000. On 14 June 2016 Mr. Salmon and Mr. Cobb each exercised all their respective options granted on 16 April 2013 at a price of 1591p. The Board agreed to make a cash settlement rather than allot new shares.

No equity settled share options were granted, forfeited, or expired during the year. ABG incurred an expense in relation to share based payments of GBP4,000 during 2017 (2016: GBP31,000), as disclosed in Note 12. In line with the Group accounting policy, where the equity settled scheme was modified to cash settled, the entire liability totalling GBP155,000 (2016: GBP1,128,000) was accounted for as a reserves reclassification, with no profit or loss recognised in the Income Statement.

 
 Measurement inputs and assumptions used in the Black-Scholes model are 
  as follows: 
                                                                       2016 
--------------------------------------------------------------   ---------- 
 
 Expected Stock Price Volatility                                        17% 
 Expected Dividend Yield                                               2.7% 
 Risk Free Interest Rate                                              1.20% 
 Average Expected Life (in years)                                      0.25 
 
 

Company - cash settled

On 14 June 2016 Mr. Salmon was granted phantom options pursuant to the Phantom Option Scheme to acquire 200,000 ordinary 1p shares in the Company at 1591p exercisable in respect of 50% on or after 15 June 2019 and in respect of the remaining 50% on or after 15 June 2021 when a cash payment would be made equal to any increase in value. On 14 June 2016 Mr. Cobb and Mr. Henderson were each granted phantom options pursuant to the Phantom Option Scheme to acquire 100,000 ordinary 1p shares in the Company at 1591p exercisable in respect of 50% on or after 15 June 2019 and in respect of the remaining 50% on or after 15 June 2021 when a cash payment would be made equal to any increase in market value. The fair value of the options at grant date was GBP1.3m. At 31 December 2017, the fair value of the options was GBP0.8m.

The performance conditions of the Scheme are that for the duration of the vesting period, the dividends paid by ABG must have increased in percentage terms when compared to an assumed dividend of 29p per share in respect of the financial year ending 31 December 2016, by a minimum of the increase in the Retail Prices Index during that period.

Also from the grant date to the date the Option is exercised, there must be no public criticism by any regulatory authority on the operation of ABG or any of its subsidiaries which has a material impact on the business of ABG.

Options are forfeited if they remain unexercised after a period of more than 7 years from the date of grant. If the participant ceases to be employed by the Group by reason of injury, disability, ill-health or redundancy; or because his employing company ceases to be a shareholder of the Group; or because his employing business is being transferred out of the Group, his option may be exercised within 6 months after such cessation. In the event of the death of a participant, the personal representatives of a participant may exercise an option, to the extent exercisable at the date of death, within 6 months after the death of the participant.

On cessation of employment for any other reason (or when a participant serves, or has been served with, notice of termination of such employment), the option will lapse although the Remuneration Committee has discretion to allow the exercise of the option for a period not exceeding 6 months from the date of such cessation.

In such circumstances, the performance conditions may be modified or waived as the Remuneration Committee, acting fairly and reasonably and taking due consideration of the circumstances, thinks fit. The number of Ordinary Shares which can be acquired on exercise will be pro-rated on a time elapsed basis, unless the Remuneration Committee, acting fairly and reasonably and taking due consideration of the circumstances, decides otherwise. In determining whether to exercise its discretion in these respects, the Remuneration Committee must satisfy itself that the early exercise of an option does not constitute a reward for failure.

The probability of payout has been assigned based on the likelihood of meeting the performance criteria, which is 100%. The Directors consider that there is some uncertainty surrounding whether the participants will all still be in situ and eligible at the vesting date. Therefore the directors have assumed a 9% attrition rate for the share options vesting in June 2019 and 15% attrition rate for the share options vesting in June 2021. The attrition rate will increase by 3% per year until the vesting date. ABG incurred an expense in relation to share based payments of GBP0.2m during 2017 (2016: GBP0.2m), as disclosed in Note 12.

 
 Measurement inputs and assumptions used in the Black-Scholes model are 
  as follows: 
                                                             2017       2016 
------------------------------------------------------  ---------  --------- 
 
 Expected Stock Price Volatility                            27.0%      33.0% 
 Expected Dividend Yield                                     2.5%       2.3% 
 Risk Free Interest Rate                                     0.5%       0.4% 
 Average Expected Life (in years)                            2.46       3.46 
 
 

40. Dividends per share

Final dividends are not accounted for until they have been approved at the Annual General Meeting. At the meeting on 10 May 2017, a dividend in respect of 2017 of 19p per share (2016: actual dividend 18p per share) amounting to a total of GBP2.83m (2016: actual GBP2.68m) is to be proposed. The financial statements for the year ended 31 December 2017 do not reflect the final dividend which will be accounted for in shareholders' equity as an appropriation of retained profits in the year ending 31 December 2018.

41. Cash and cash equivalents

For the purposes of the Statement of Cash Flows, cash and cash equivalents are comprised of the following balances with less than three months maturity from the date of acquisition.

 
                                                    2017      2016 
 Group                                            GBP000    GBP000 
----------------------------------------------  --------  -------- 
 Cash and balances at central banks (Note 17)    313,101   195,752 
 Loans and advances to banks (Note 18)            70,679    36,951 
----------------------------------------------  --------  -------- 
                                                 383,780   232,703 
----------------------------------------------  --------  -------- 
 
                                                    2017      2016 
 Company                                          GBP000    GBP000 
----------------------------------------------  --------  -------- 
 Loans and advances to banks                      36,103    89,072 
----------------------------------------------  --------  -------- 
 

42. Related party transactions

Related parties of the Company and Group include subsidiaries, Key Management Personnel, close family members of Key Management Personnel and entities which are controlled, jointly controlled or significantly influenced, or for which significant voting power is held, by Key Management Personnel or their close family members.

Other than the directors' remuneration (see Remuneration Report pages 20 to 21), payment of dividends and transactions with subsidiaries and associates, there were no related party transactions within the Parent Company. A number of banking transactions are entered into with related parties in the normal course of business on normal commercial terms. These include loans and deposits. Except for the directors' disclosures, there were no other Key Management Personnel disclosures; therefore the tables below relate to directors and their close family members.

 
                                            2017      2016 
 Group - subsidiaries                     GBP000    GBP000 
--------------------------------------  --------  -------- 
 Loans 
 Loans outstanding at 1 January            1,361     3,123 
 Loans advanced during the year              150     2,076 
 Loan repayments during the year             (3)   (3,429) 
 Transferred to loans with associates    (1,000)     (409) 
--------------------------------------  --------  -------- 
 Loans outstanding at 31 December            508     1,361 
--------------------------------------  --------  -------- 
 Interest income earned                       23       122 
--------------------------------------  --------  -------- 
 
 
                                               2017     2016 
 Group - associates                          GBP000   GBP000 
------------------------------------------  -------  ------- 
 Loans 
 Loans outstanding at 1 January                 404        - 
 Loans advanced during the year                   5        5 
 Loan repayments during the year                  -     (10) 
 Transferred from loans with subsidiaries     1,000      409 
------------------------------------------  -------  ------- 
 Loans outstanding at 31 December             1,409      404 
------------------------------------------  -------  ------- 
 Interest income earned                           5        5 
------------------------------------------  -------  ------- 
 

The loans to directors are mainly secured on property, shares or cash and bear interest at rates linked to base rate. No provisions have been recognised in respect of loans given to related parties (2016: GBPnil).

 
                                               2017      2016 
 Group - subsidiaries                        GBP000    GBP000 
-----------------------------------------  --------  -------- 
 Deposits 
 Deposits at 1 January                        3,398     2,692 
 Deposits placed during the year              3,563     6,644 
 Deposits repaid during the year            (2,728)   (5,623) 
 Transferred to deposits with associates    (1,000)     (315) 
-----------------------------------------  --------  -------- 
 Deposits at 31 December                      3,233     3,398 
-----------------------------------------  --------  -------- 
 Interest expense on deposits                    46        12 
-----------------------------------------  --------  -------- 
 
 
                                                  2017     2016 
 Group - associates                             GBP000   GBP000 
---------------------------------------------  -------  ------- 
 Deposits 
 Deposits at 1 January                             318        - 
 Deposits placed during the year                    85        3 
 Transferred from deposits with subsidiaries     1,000      315 
---------------------------------------------  -------  ------- 
 Deposits at 31 December                         1,403      318 
---------------------------------------------  -------  ------- 
 Interest expense on deposits                        5        3 
---------------------------------------------  -------  ------- 
 

Details of directors' remuneration are given in the Remuneration Report. The Directors do not believe that there were any other transactions with key management or their close family members that require disclosure.

 
 Details of principal subsidiaries are given in Note 43. Transactions 
  and balances with subsidiaries are shown below: 
                                              2017                    2016 
                                        Highest     Balance     Highest     Balance 
                                        balance       at 31     balance       at 31 
                                         during    December      during    December 
                                       the year                the year 
                                         GBP000      GBP000      GBP000      GBP000 
-----------------------------------  ----------  ----------  ----------  ---------- 
 ASSETS 
 Due from subsidiary undertakings        89,150      36,256     150,776      89,224 
 Shares in subsidiary undertakings       97,802      97,802      54,602      54,602 
-----------------------------------  ----------  ----------  ----------  ---------- 
                                        186,952     134,058     205,378     143,826 
-----------------------------------  ----------  ----------  ----------  ---------- 
 LIABILITIES 
 Due to subsidiary undertakings           4,011       1,570       3,650       3,357 
-----------------------------------  ----------  ----------  ----------  ---------- 
                                          4,011       1,570       3,650       3,357 
-----------------------------------  ----------  ----------  ----------  ---------- 
 

The disclosure of the year end balance and the highest balance during the year is considered the most meaningful information to represent the transactions during the year. The above transactions arose during the normal course of business and are on substantially the same terms as for comparable transactions with third parties.

 
 The Company undertook the following transactions with other companies 
  in the Group during the year: 
                                                                2017      2016 
                                                              GBP000    GBP000 
----------------------------------------------------------  --------  -------- 
 Arbuthnot Latham & Co., Ltd - Recharge of property and 
  IT costs                                                     1,087     1,087 
 Arbuthnot Latham & Co., Ltd - Recharge for costs paid 
  on the Company's behalf                                      1,501     4,015 
 Arbuthnot Latham & Co., Ltd - Group recharges for shared 
  services                                                   (1,483)   (1,483) 
 Secure Trust Bank PLC (up to 15 June 2016 as subsidiary) 
  - Group recharges for shared services                            -     (212) 
 Secure Trust Bank PLC (up to 15 June 2016 as subsidiary) 
  - Dividends received                                             -   (5,195) 
 Secure Trust Bank PLC (from 16 June 2016 as associate) 
  - Group recharges for shared services                        (813)     (490) 
 Secure Trust Bank PLC (from 16 June 2016 as associate) 
  - Dividends received                                       (2,618)   (6,273) 
----------------------------------------------------------  --------  -------- 
 Total                                                       (2,326)   (8,551) 
----------------------------------------------------------  --------  -------- 
 
 
 43. Interests in subsidiaries 
                                                     Investment    Impairment 
                                                        at cost    provisions        Net 
 Company                                                 GBP000        GBP000     GBP000 
--------------------------------------------------  -----------  ------------  --------- 
 At 1 January 2016                                       49,030       (2,564)     46,466 
 Capital contributions to Arbuthnot Latham & Co., 
  Limited                                                22,000             -     22,000 
 Disposal of Secure Trust Bank PLC                     (13,864)             -   (13,864) 
--------------------------------------------------  -----------  ------------  --------- 
 At 31 December 2016                                     57,166       (2,564)     54,602 
--------------------------------------------------  -----------  ------------  --------- 
 Capital contributions to Arbuthnot Latham & Co., 
  Limited                                                43,200             -     43,200 
--------------------------------------------------  -----------  ------------  --------- 
 At 31 December 2017                                    100,366       (2,564)     97,802 
--------------------------------------------------  -----------  ------------  --------- 
 
 
 
                               2017     2016 
 Company                     GBP000   GBP000 
--------------------------  -------  ------- 
 Subsidiary undertakings: 
 Bank                        95,502   52,302 
 Other                        2,300    2,300 
--------------------------  -------  ------- 
 Total                       97,802   54,602 
--------------------------  -------  ------- 
 
   (a)   List of subsidiaries 

Arbuthnot Latham & Co., Limited is the only significant subsidiary of Arbuthnot Banking Group. Arbuthnot Latham is incorporated in the United Kingdom, has a principal activity of Private and Commercial Banking and is 100% owned by the Group.

Secure Trust Bank PLC became an associate company of the Group from 15 June 2016.

 
 The table below provides details of other subsidiaries and related undertakings 
  of Arbuthnot Banking Group PLC at 31 December: 
 
                                                                  Country 
                                       % shareholding    of incorporation          Principal activity 
  ----------------------------------  ---------------  ------------------    ------------------------ 
 Direct shareholding 
   Arbuthnot Fund Managers Limited             100.0%                  UK                     Dormant 
   Arbuthnot Investments Limited               100.0%                  UK                     Dormant 
   Arbuthnot Limited                           100.0%                  UK                     Dormant 
   Arbuthnot Properties Limited                100.0%                  UK                     Dormant 
   Arbuthnot Unit Trust Management             100.0%                  UK 
    Limited                                                                                   Dormant 
   Gilliat Financial Solutions                 100.0%                  UK 
    Limited                                                                                   Dormant 
   Peoples Trust and Savings Plc               100.0%                  UK                     Dormant 
   Secure Trust Bank PLC*                       18.6%                  UK              Retail banking 
   West Yorkshire Insurance Company            100.0%                  UK 
    Limited                                                                               Non-trading 
   Windward Insurance Company                  100.0%            Guernsey 
    PCC Limited                                                                             Insurance 
 
 Indirect shareholding via intermediate 
  holding companies 
   Arbuthnot Latham (Nominees)                 100.0%                  UK 
    Limited                                                                                   Dormant 
   Arbuthnot Latham Real Estate                100.0%              Jersey 
    Holdco Limited                                                                Property Investment 
   Arbuthnot Latham Real Estate                100.0%                  UK 
    Holdings Limited                                                              Property Investment 
   Arbuthnot Latham Real Estate                100.0%              Jersey 
    PropCo Limited                                                                Property Investment 
   Arbuthnot Real Estate Capital               100.0%              Jersey 
    Limited                                                                       Property Investment 
   Arbuthnot Real Estate Capital               100.0%              Jersey 
    GP 1 Limited                                                                  Property Investment 
   Arbuthnot Real Estate Capital               100.0%              Jersey 
    Fund 1 Limited                                                                Property Investment 
   Arbuthnot Securities Limited                100.0%                  UK                     Dormant 
   Artillery Nominees Limited                  100.0%                  UK                     Dormant 
   Debt Managers (Services) Limited*            18.6%                  UK     Debt collection company 
   John K Gilliat & Co., Limited               100.0%                  UK                     Dormant 
   Pinnacle Universal Limited                  100.0%                 BVI        Property development 
   Renaissance Asset Finance Limited           100.0%                  UK               Asset Finance 
   Secure Homes Services Limited*               18.6%                  UK             Property rental 
   STB Leasing Limited*                         18.6%                  UK                     Leasing 
   V12 Finance Group Limited*                   18.6%                  UK             Holding company 
   V12 Personal Finance Limited*                18.6%                  UK                     Dormant 
                                                18.6%                  UK      Sourcing and servicing 
   V12 Retail Finance Limited*                                                     of unsecured loans 
  ----------------------------------  ---------------  ------------------  -------------------------- 
 * Treated as interests in associates. 
 

All the subsidiary and related undertakings above are unlisted and none are banking institutions, except for Secure Trust Bank PLC. All 100% owned entities are included in the consolidated financial statements and have an accounting reference date of 31 December. All other entities are disclosed in the consolidated financial statements under interests in associates (see note 27). On 16 January 2018, Artillery Nominees Limited was dissolved.

All Jersey entities have their registered office as 26 New Street, St Helier, Jersey, JE2 3RA. Pinnacle Universal Limited's registered office is 9 Columbus Centre, Pelican Drive, Road Town, Tortola, BVI. The companies treated as associates have their registered office as One Arleston Way, Solihull, West Midlands, B90 4LH. All other entities listed above have their registered office as 7 Wilson Street, London, EC2M 2SN.

(b) Non-controlling interests in subsidiaries

There were no non-controlling interests at the end of 2016 or 2017.

(c) Significant restrictions

The Group does not have significant restrictions on its ability to access or use its assets and settle its liabilities other than those resulting from the supervisory frameworks within which banking subsidiaries operate. The supervisory frameworks require banking subsidiaries to keep certain levels of regulatory capital and liquid assets, limit their exposure to other parts of the Group and comply with other ratios. The carrying amounts of the banking subsidiary's assets and liabilities are GBP1,784m and GBP1,651m respectively (2016: GBP1,199m and GBP1,118m respectively).

(d) Risks associated with interests

During the year Arbuthnot Banking Group PLC made GBP43.2m (2016: GBP22m) capital contributions to Arbuthnot Latham & Co., Ltd. The contributions were made to assist the Bank during a period of growth to ensure that all regulatory capital requirements were met.

(e) Changes in ownership interest

On 15 June 2016 Arbuthnot Banking Group sold 6 million shares in Secure Trust Bank PLC ('STB') for GBP150m, which reduced its shareholding in STB from 51.92% to 18.93%. From this date the Group accounted for its remaining shareholding in STB as an associate. After the sale of the 6 million shares, the Group retained Board representation and as a result is seen to have significant influence over STB.

44. Operating segments

The Group is organised into three main operating segments, arranged over three separate companies with each having its own specialised banking service, as disclosed below:

1) Retail banking (associate) - incorporating household cash management, personal lending and banking and insurance services.

2) UK Private banking - incorporating private banking, commercial banking and wealth management.

3) Group Centre - ABG Group Centre management

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 operating assets and liabilities, being the majority of the balance sheet.

 
 
                                                         Continuing operations 
                                            ----------------------------------------------- 
                                                 Retail 
                                                   Bank 
                                              Associate   UK Private      Group 
                                                 Income      banking     Centre       Total 
 Year ended 31 December 2017                     GBP000       GBP000     GBP000      GBP000 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Interest revenue                                     -       47,601        204      47,805 
 Inter-segment revenue                                -        (174)      (204)       (378) 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Interest revenue from external customers             -       47,427          -      47,427 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Fee and commission income                            -       13,805          -      13,805 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Revenue from external customers                      -       61,232          -      61,232 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Interest expense                                     -      (6,199)        225     (5,974) 
 Add back inter-segment revenue                       -          174      (174)           - 
 Subordinated loan note interest                      -            -      (360)       (360) 
 Fee and commission expense                           -        (282)          -       (282) 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Segment operating income                             -       54,925      (309)      54,616 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Impairment losses                                    -        (394)          -       (394) 
 Other income                                         -        3,870      (837)       3,033 
 Income from associates                           4,437                               4,437 
 Operating expenses                                   -     (47,442)    (7,279)    (54,721) 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Segment profit / (loss) before tax               4,437       10,959    (8,425)       6,971 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Income tax (expense) / income                        -        (540)         92       (448) 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Segment profit / (loss) after tax                4,437       10,419    (8,333)       6,523 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Segment profit / (loss) after tax                4,437       10,419    (8,333)       6,523 
------------------------------------------  -----------  -----------  ---------  ---------- 
 
 Loans and advances to customers                           1,049,269          -   1,049,269 
 Other assets                                                734,406     69,557     803,963 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Segment total assets                                      1,783,675     69,557   1,853,232 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Customer deposits                                         1,390,781          -   1,390,781 
 Other liabilities                                           259,957   (33,881)     226,076 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Segment total liabilities                                 1,650,738   (33,881)   1,616,857 
------------------------------------------  -----------  -----------  ---------  ---------- 
 Other segment items: 
 Capital expenditure                                         (3,307)          -     (3,307) 
 Depreciation and amortisation                               (2,354)       (26)     (2,380) 
------------------------------------------  -----------  -----------  ---------  ---------- 
 
 The "Group Centre" segment above includes the parent entity and all 
  intercompany eliminations. 
 
 
                               Discontinued operations 
                                   (Retail Banking)                     Continuing operations 
                           ------------------------------  ----------------------------------------------- 
                                                            UK Private   UK Private      Group                   Group 
                                ELL        STB      Total      banking      banking     Centre       Total       Total 
 Year ended 31 December      GBP000     GBP000     GBP000       GBP000       GBP000     GBP000      GBP000      GBP000 
  2016 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 Interest revenue            11,137     57,498     68,635            -       38,245        285      38,530 
 Inter-segment revenue            -          -          -            -        (174)      (285)       (459) 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ---------- 
 Interest revenue from 
  external customers         11,137     57,498     68,635            -       38,071          -      38,071 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ---------- 
 Fee and commission 
  income                        147      7,981      8,128            -       11,430          -      11,430 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ---------- 
 Revenue from external 
  customers                  11,284     65,479     76,763            -       49,501          -      49,501 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ---------- 
 Interest expense                 -   (12,107)   (12,107)            -      (7,474)        200     (7,274) 
 Add back inter-segment 
  revenue                         -          -          -            -          174      (174)           - 
 Subordinated loan note 
  interest                        -          -          -            -            -      (352)       (352) 
 Fee and commission 
  expense                     (124)      (779)      (903)            -        (425)          -       (425) 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ---------- 
 Segment operating income    11,160     52,593     63,753            -       41,776      (326)      41,450 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ---------- 
 Impairment losses          (2,610)   (12,172)   (14,782)            -        (474)          -       (474) 
 Other income                     -          -          -            -        4,353    (1,184)       3,169 
 Income from associates           -          -          -        2,145            -          -       2,145 
 Operating expenses         (6,016)   (29,073)   (35,089)            -     (36,602)    (9,509)    (46,111) 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 Segment profit / (loss) 
  before tax                  2,534     11,348     13,882        2,145        9,053   (11,019)         179      14,061 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 Income tax (expense) 
  / income                    (507)    (2,199)    (2,706)            -        (211)      (509)       (720)     (3,426) 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 Segment profit / (loss) 
  after tax                   2,027      9,149     11,176        2,145        8,842   (11,528)       (541)      10,635 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 Profit on sale of 
  discontinued 
  operations                116,754    100,180    216,934            -            -          -           -     216,934 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 Segment profit / (loss) 
  after tax                 118,781    109,329    228,110        2,145        8,842   (11,528)       (541)     227,569 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 
 Loans and advances to 
  customers                                                          -      758,799          -     758,799 
 Other assets                                                        -      440,363     66,122     506,485 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 Segment total assets                                                -    1,199,162     66,122   1,265,284   1,265,284 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 Customer deposits                                                   -      997,649          -     997,649 
 Other liabilities                                                   -      120,815   (87,538)      33,277 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 Segment total 
  liabilities                                                        -    1,118,464   (87,538)   1,030,926   1,030,926 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 Other segment items: 
 Capital expenditure                                                 -      (5,504)        (5)     (5,509) 
 Depreciation and 
  amortisation                                                       -      (1,641)       (26)     (1,667) 
-------------------------  --------  ---------  ---------  -----------  -----------  ---------  ----------  ---------- 
 

Segment profit is shown prior to any intra-group eliminations.

The UK private bank has a branch in Dubai, which generated GBP4.5m (2016: GBP3.1m) fee income and had operating costs of GBP2.7m (2016: GBP2.2m). All Dubai branch income is booked in the UK. Other than the Dubai branch, all operations of the Group are conducted wholly within the United Kingdom and geographical information is therefore not presented.

45. Country by Country Reporting

Article 89 of the EU Directive 2013/36/EU otherwise known as the Capital Requirements Directive IV ('CRD IV') was implemented into UK domestic legislation through statutory instrument 2013 No. 3118, the Capital Requirements (Country-by-Country Reporting) Regulations 2013 (the Regulations), which were laid before the UK Parliament on 10 December 2013 and which came into force on 1 January 2014.

Article 89 requires credit institutions and investment firms in the EU to disclose annually, specifying, by Member State and by third country in which it has an establishment, the following information on a consolidated basis for the financial year: name, nature of activities, geographical location, turnover, number of employees, profit or loss before tax, tax on profit or loss and public subsidies received.

 
 31 December 2017                                     Turnover      Number   Profit/(loss)   Tax paid 
                                                                       FTE 
 Name                 Nature of           Location      (GBPm)   employees          before     (GBPm) 
                       activity                                                 tax (GBPm) 
-------------------  ------------------  ----------  ---------  ----------  --------------  --------- 
 
 Arbuthnot Banking 
  Group PLC           Banking Services    UK              54.6         350             9.8          - 
 Arbuthnot Banking 
  Group PLC           Banking Services    Dubai              -          16           (2.7)          - 
 
 
 31 December 2016                                     Turnover      Number   Profit/(loss)   Tax paid 
                                                                       FTE 
 Name                 Nature of           Location      (GBPm)   employees          before     (GBPm) 
                       activity                                                 tax (GBPm) 
-------------------  ------------------  ----------  ---------  ----------  --------------  --------- 
 
 Arbuthnot Banking 
  Group PLC           Banking Services    UK             105.2         272           247.1        6.1 
 Arbuthnot Banking 
  Group PLC           Banking Services    Dubai              -          15           (2.2)          - 
 
 The Dubai branch income is booked through the UK, hence the turnover 
  is nil in the above analysis. Offsetting this income 
 against Dubai branch costs would result in a GBP1.8m profit (2016: GBP0.9m). 
  No public subsidies were received during 2017 or 2016. 
 

46. Ultimate controlling party

The Company regards Sir Henry Angest, the Group Chairman and Chief Executive Officer, who has a beneficial interest in 54.7% of the issued share capital of the Company, as the ultimate controlling party. Details of his remuneration are given in the Remuneration Report and Note 42 of the consolidated financial statements includes related party transactions with Sir Henry Angest.

47. Events after the balance sheet date

On 3 January 2018, Arbuthnot Latham entered into a 12 year lease (up to 16 October 2029) to occupy the first, second and third floors of 10 Dominion Street London, with a break clause on 16 October 2024. The initial rent is GBP0.7m per annum. This is reflected in contingent liabilities (Note 36) as an adjusting post balance sheet event.

Five Year Summary

 
                                             2013      2014      2015      2016      2017 
                                           GBP000    GBP000    GBP000    GBP000    GBP000 
---------------------  ----------------  --------  --------  --------  --------  -------- 
 Profit for the year after tax             11,515    17,016    26,524   227,569     6,523 
 Profit before tax from continuing 
  operations*                             (1,480)   (3,824)   (2,606)       179     6,971 
 Total Earnings per share 
  Basic (p)                                  53.8      58.6      86.3   1,127.2      43.9 
 Earnings per share from continuing 
  operations* 
  Basic (p)                                 (5.7)    (24.8)    (16.9)     (3.7)      43.9 
 Dividends per 
  share (p)             - ordinary           26.0      27.0      29.0      31.0      33.0 
  - special                                  18.0         -         -     325.0         - 
 
 Other KPI: 
                                             2013      2014      2015      2016      2017 
                                           GBP000    GBP000    GBP000    GBP000    GBP000 
---------------------  ----------------  --------  --------  --------  --------  -------- 
 Net asset value per share (p)              570.5   1,136.0   1,252.7   1,533.8   1,547.0 
 
 * - Prior year numbers have been restated 
  for continuing operations. 
 

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR JRMLTMBTTBPP

(END) Dow Jones Newswires

March 28, 2018 02:01 ET (06:01 GMT)

1 Year Arbuthnot Banking Chart

1 Year Arbuthnot Banking Chart

1 Month Arbuthnot Banking Chart

1 Month Arbuthnot Banking Chart

Your Recent History

Delayed Upgrade Clock