Audited Final Results for the year ended 31/12/24

27 March 2025

For immediate release

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

Audited Final Results for the year to 31 December 2024

Strategic progress and growth in net assets per share

Arbuthnot Banking Group today announces its audited results for the year ended 31 December 2024.

Arbuthnot Banking Group PLC is the holding company for Arbuthnot Latham & Co., Limited ("Arbuthnot Latham").

FINANCIAL HIGHLIGHTS

· Profit Before Tax of £35.1m (2023: £47.1m)

· Operating income of £179.5m (2023: £178.9m)

· Average net margin of 5.1% (2023: 5.7%)

· Earnings per share of 152.3p (2023: 222.8p)

· Final dividend declared increased by 2p to 29p (2023: 27p)

· Special dividend of 20p per share paid in June 2024

· Total dividend per share for the year of 69p (2023: 46p), an increase of 50%

· Net assets of £267.0m (2023: £252.4m)

· Strong capital ratios maintained with a CET1 ratio of 13.2% (2023: 13.0%) and a total capital ratio of 15.3% (2023: 15.2%)

· Year-end net assets per share of 1636p (2023: 1547p)

· Substantial surplus liquidity at the year-end of £896m above the regulatory minimum (2023: £962m)

OPERATIONAL HIGHLIGHTS

· Continued growth in customer deposits to £4.13bn (2023: £3.76bn), up 10% year-on-year, driven by the success of the Group's relationship-based approach across both Private & Commercial Banking

· Customer loans increased 2% to £2.38bn (2023: £2.33bn)*, as the Group maintained tighter credit appetite during the year

· Positive contribution to performance from the specialist lending divisions, each of which saw growth in operating income

· Funds under management and administration ("FUMA") increased 30% to £2.21bn (2023: £1.71bn), driven by very strong inflows which represented 28% of FUMA at the start of the year

· Occupied new office located at 20 Finsbury Circus, which was officially opened by HRH The Princess Royal

Commenting on the results, Sir Henry Angest, Chairman and Chief Executive of Arbuthnot, said: "As the interest rate environment normalised and deposit costs caught up with loan pricing, Arbuthnot delivered a creditable performance and made progress against the Group's "Future State 2" strategic plan. We are confident that the continued delivery of our strategic plan will enable Arbuthnot to take advantage of all opportunities to develop the business over the medium term."

Note: * This balance includes both Customer loans and assets available for lease.

The Directors of the Company accept responsibility for the contents of this announcement.

The 2024 Annual Report and Notice of Meeting will be available on the Arbuthnot Banking Group website http://www.arbuthnotgroup.com on or around 16 April 2025. Copies will then be available from the Company Secretary, Arbuthnot Banking Group PLC, Arbuthnot House, 20 Finsbury Circus, London, EC2M 7EA.

Consolidated statement of comprehensive income

Consolidated statement of financial position

Chairman's statement

Arbuthnot Banking Group ("ABG" or "The Group") is pleased to report a profit before tax of £35.1m. Although this is lower than the £47.1m recorded in 2023, I believe this to be a very creditable performance by the business as we have long been signalling that 2023 benefited from rising rates and that as interest rates begin to fall, the lag effect of the pricing of deposits would catch up and our costs of funds would increase. This has been the case in 2024 as the average cost of funds increased from 2.43% to 3.15% contributing to an increase in our interest expense of £42.4m year on year.

On a strategic and operational level, I am pleased with the progress being made across the Group. Our loan book, including assets available for lease, increased to £2.4bn with continued good contributions from our specialist lending subsidiaries. Once again, the attractiveness of the proposition and personal service of our banking products continued to resonate with our clients as the deposit balances grew by 10% to close in excess of £4bn. This is a major milestone that the bank surpassed for the first time in its history.

The most notable achievement, however, is the success of our Wealth Management division. The funds under management and administration increased by 30% to surpass £2bn for the first time and closed the year at £2.2bn. This is on top of the 29% growth in the prior year meaning the division has increased its client balances by 67% over the past two years. This is particularly pleasing in a marketplace where competitors are finding it increasingly difficult to grow their balances organically and to counter this have found growth possible only through acquisitions.

The success of this growth has now led us to focus on improving the profitability of the division and we have started a project in 2025 to optimise the business processes and product offerings. This should begin to show returns in 2026.

Opening of new offices by HRH The Princess Royal

As I mentioned in my report last year, we were busy preparing to move into our new head office located at 20 Finsbury Circus. I am pleased to say that the move was completed successfully during the late summer and the response we have received from both our clients and employees has exceeded our expectations.

This has brought increased levels of energy and collaboration to the Group which has made it far easier to move the business forward. More recently I was delighted to welcome HRH The Princess Royal to officially open the new premises. She toured the new offices and met with the Board of Directors and a number of our managers and staff. The Bank has a long and notable 192 year history but this will certainly be remembered as a major highlight.

Business Environment

During the early months of 2024 it became increasingly apparent that we would face a change in Government as and when a general election was called. Prior to this, the now Labour administration indicated that economic growth would be its main goal, something that I have been championing for several years. However, the type of growth is just as important as simply any growth.

The economy needs to be less bureaucratic, less regulated and more business friendly. Growth must come from private enterprises and not just the public sector and investment in large infrastructure projects.

Therefore, I find it almost inconceivable that the new Government's first initiatives could be any less business friendly. Businesses face higher levels of minimum wages, increased employer national insurance contributions and greater employee rights in the new Employment Bill, all of which place additional burdens on private enterprises and will inevitably reduce growth and investment and increase unemployment. It is inevitable, and already proving to be, that small and medium sized businesses will be the most disadvantaged by these burdens. We hope that further engagement with businesses and the economic imperative to deliver growth will cause the Government to pursue a more pro-growth policy agenda over the course of this parliament, and events across the Atlantic may work to catalyse this.

Capital Regime

An example of how the policy environment in the United States can have a direct and immediate impact on the United Kingdom is the regulatory capital framework. The intention to cease implementation of the new Basel 3.1 capital rules in the United States has led the PRA to announce that it is delaying the introduction of these rules in the United Kingdom until 2027 so that it can see how the situation in the United States develops.

Given the incremental capital requirements, on top of those that are already higher than any other developed country, Basel 3.1 could be another major impediment to growth as banks deleverage to cope with the new rules.

I therefore hope with optimism that the rules will ultimately be abandoned. In the meantime, we will continue to manage our business with an eye to the new requirements and will adjust lending appetites accordingly until the direction of travel becomes clearer.

Board Changes and Personnel

During the year I was pleased to welcome Richard Gabbertas to the Group Board. I would like to give my thanks to the contribution that Paul Marrow has given to Arbuthnot Latham over the past 10 years as he retired from its Board in May 2024. He has held several roles including Chair of the Risk Committee and has always given good advice to the business gained from his long career in the banking industry.

As ever, the continued success of the Group reflects the hard work and commitment of our members of staff. On behalf of the Board, I extend our thanks to all of them for their contribution in 2024. Finally, I would like to thank my fellow Directors on both the Board of Arbuthnot Banking Group PLC and Arbuthnot Latham & Co., Ltd for their help and advice during the year.

Dividend

During 2024 the Board announced the payment of a special dividend of 20p per Ordinary share and Ordinary Non-Voting share which was paid along with the interim dividend of 20p (2023: 19p) per Ordinary share and Ordinary Non-Voting share.

Additionally, the Board is recommending a final dividend in respect of 2024 of 29p per Ordinary share and Ordinary Non-Voting share. This is an increase of 2p compared to the final dividend of 2023. The final dividend, if approved at the 2025 AGM, will be paid on 30 May 2025 to shareholders on the register at the close of business on 22 April 2025. This, together with the interim and special dividend gives a total dividend of 69p per Ordinary share and Ordinary Non-Voting share, which compares to the total dividend of 46p per share paid in respect of 2023.

Outlook

The outlook for the economy appears to be more pessimistic. The UK was considered to be one of the fastest growing markets in the middle of 2024. Now that the fiscal plans of the new Government have become clear, the economy has ground to a halt, with growth forecasts being cut, and the real possibility of recession coming about in the near term. In addition there is further uncertainty in relation to Basel 3.1 and future regulatory capital requirements.

However, our business has never been constrained by a lack of good opportunities and client growth remains strong. I believe this will remain the case going forward. Therefore, we will continue to follow our principles and philosophy and keep our focus on enhancing our stable and sustainable business.

Strategic Report - Business Review

The Group continued to make progress with both its deposits and loans throughout 2024. While the Group maintained its plan to diversify the lending portfolios as indicated in the Future State 2 strategy, published with the 2022 Annual Results, it is also pleasing to report the strong performance of the Wealth Management division, which saw Funds under Management and Administration exceed £2bn for the first time in its history, closing the year at £2.2bn.

The Bank finished the year with total deposits of £4.1bn compared to £3.8bn for the prior year. The Bank continued its strategy of funding the specialist lending divisions with cheaper yet sticky balances from relationship driven deposit account clients. Whilst the Bank experienced increased deposit rates, it did not compete for deposits on the non-relationship aggregator platforms.

Lending balances (including lease assets) finished the year at £2.4bn, compared to £2.3bn for the previous year end. However, as mentioned in the previous year's Report and Accounts, the Bank continued to operate with a tightened credit appetite and reduced LTVs for new lending below the Bank's previous guidance of 60%. Despite the growth in lending the broader economic uncertainty and lower business confidence resulted in reduced new business pipelines towards the end of the year.

The Group reported a profit before tax of £35.1m compared to £47.1m for the prior year. As noted in the prior year Report and Accounts, this decline was expected due to the lag effect of time deposits repricing to higher interest rates in the current year, whereas lending interest income had repriced immediately after the successive interest rate rises in the prior year. In 2024, after twelve months of a static interest rate, the Bank of England made its first 25 basis point interest rate cut on 1 August with a further 25 basis point cut on 7 November. Consequently, the majority of the Bank's financial assets which are based on a variable rate repriced downwards immediately and so interest income reduced accordingly.

It appears that the interest rate cycle has now turned downwards as inflation has receded. This has resulted with the outlook for residential property prices expected to increase 1.8% compared to a 6.4% fall in the prior year, and with commercial property expected to fall 1.3% compared to 4.9% the prior year. These factors have resulted in a release of £0.3m from the expected credit loss provision. Despite the improved conditions, the Bank did experience an increase in expected credit loss provisions, due to idiosyncratic factors on a small number of business exposures. The total charge for the year was £6.3m compared to £3.2m for 2023.

In the third quarter the Group moved into its new offices in the City. The premises, which provide modern facilities to both our clients and employees, was officially opened by HRH The Princess Royal on 4 February 2025. As part of the transition dual running costs associated with the previous premises were incurred until October, when the existing lease breaks were exercised.

The Bank was also pleased with the results from its annual employee engagement survey which showed high levels of employee engagement, and pride in working for the Arbuthnot Group. The nosiness has recently launched an enhanced employee brand initiative, focusing on what employees gain from joining the company and thriving in a dynamic environment.

Banking

The Bank reported strong growth in client acquisition for 2024, across both Private and Commercial Banking, to finish the year with loan balances of £1.5bn, with the majority of new lending being fixed rate providing mitigation for the Bank against future expected base rate reductions.

Deposits finished the year at £4.1bn, despite significant deposit outflows from banking into investment products provided by our Wealth Management division. Following the Bank of England base rate rises in 2022/23, the majority of the Bank's fixed term deposits have repriced. This, along with more clients switching products as depositors try to fix their returns ahead of future interest rate falls, has resulted in the average cost of deposits rising to 3.15%.

The number of Private Clients grew 9% in 2024, with over 5,000 at the year end. This was despite the UK Private Banking market which holds over £400 billion in assets from approximately 500,000 clients, seeing a 1% decline in total accounts during the year. A high proportion of growth was due to clients seeking a personal service as their financial situations become more complex. The Bank's Media Team has been our fastest-growing segment in the Bank over the past four years with success attributed to their responsiveness and quality of service, and the expansion of the teams business into supporting technology, e-games, and the IP markets.

The Bank continues its strategy to focus on low-cost relationship deposits. Commercial Banking deposits increased across a wide spread of target segments with growth of 30% over a twelve-month period. Conversely, non-relationship balances have been intentionally reduced as these were more expensive to maintain. 

Loan book quality remains strong despite the macroeconomic environment. The Bank's cautious underwriting approach with low LTVs is resulting in new problem loans in the year being exited with little or no loss.

The Bank was also pleased to receive the results from its client satisfaction survey. A very strong response rate from clients was received and the overall Net Promoter Score (NPS) had improved from 64 to 71, which is top quartile across Private and Commercial Banking. The results underline the Bank's progress towards its vision to be the leading full service, human-scale relationship bank powered by modern technology; in pursuit of this the Bank continues to deliver its digital transformation plan.

Wealth Management

The Wealth Management business experienced strong growth in new business flows in 2024, driven by economic recovery and increased investor confidence with improved market conditions and higher bond yields attracting further investments. Funds Under Management and Administration increased by 30% during 2024, reaching £2.2bn at the year end (2023: £1.7bn) with gross inflows totalling £482m, representing 28% of balances at the start of the year. Gross outflows of £139m were 16% lower than the previous year.

The Direct Gilt Service, launched in February 2024, supported further momentum achieving £163m under management. This service has become our fourth largest discretionary service in terms of FUMA within one year of launching. The sources of these funds included maturing fixed term deposits, assets from execution-only portfolios, and external cash deposits.

Wealth Planning issued advice on £321m of new assets, compared to £151m in 2023, representing two-thirds of discretionary asset inflows. A total of 210 clients were onboarded in 2024, a 51% increase.

Arbuthnot Commercial Asset Based Lending ("ACABL")

In its 7th year of trading ACABL reported a profit before tax of £11.9m (2023: £8.5m), an increase of 40% compared to the prior year. Despite lower lending volumes throughout the year, the business generated a higher proportion of service based fees from current and exited clients.

ACABL completed 22 new transactions with £122m of facilities written (2023: 17 new transactions and £73.1m of facilities written).

Whilst the environment of higher interest rates and economic uncertainty continued, a number of long standing Private Equity and Family owned clients successfully exited their businesses in the second half of the year, but despite this the loan book reached its highest level in the business's history of almost £300m. However, a combination of lower originations given the macro-economic environment, and expected attrition as some clients reached maturity resulted in drawn balances at year end of £216.2m, a decline of 10% on the prior year (2023: £239.8m).

As expected in the context of the current macro-economic environment, the business continued to observe a higher number of watchlist clients. However, the business model of lending against high-quality realisable assets along with a low ratio of clients to client manager continues to result in successful outcomes. The expected credit loss rate on the book remains low at 13bps.

Facility limits of £542m were in place at year-end (2023: £536m) across a client base of 112 (2023: 104) which continue to operate in a broad range of sectors.

In line with the reported strong growth in profits, the business processed £2.5 billion of invoices during the year, an increase of £200 million on the prior year.  

Renaissance Asset Finance ("RAF")

RAF provides non-regulated asset finance facilities to SMEs and high net worth individuals.

RAF reported a record profit before tax for the year of £5.6m (2023: £1.6m) with a loan book of £248.8m equating to an increase of 25% compared to the prior year end balance of £198.8m. The average margin achieved on new business was maintained at 2023 levels and the volume of new deals written increased by 26% on 2023.

The now established Block Discounting business which launched in late 2021 grew its loan book by 83% in 2024 and is now making a significant contribution to the profitability of the business. This, together with improved operational efficiency and low bad debt expense, has led to increased profitability for the business.

The ruling by the Court of Appeal in October 2024 in relation to the payment of motor finance broker commissions has been noted. Although this ruling and the subsequent appeal to the Supreme Court has created some uncertainty across the sector, the Board believes that this ruling is not applicable to RAF as it is not regulated by the FCA and has only lent to sophisticated borrowers, the majority of whom are corporate entities. In addition, RAF has not facilitated transactions where the car dealer is acting as both seller and credit broker.

Asset Alliance Group ("AAG")

AAG reported a small profit before tax of £28k compared to a £3.2m loss for the prior year. As at 31 December 2024, the business had assets available for lease and finance leases totalling £363.0m (2023: £326.8m), with strong growth in new lending equating to an increase of 11% over the year.

The business continued diversification of lending channels and in turn delivered portfolio growth. The Bus & Coach sector and its newly established Bus Rental Division in particular contributed strongly with long tenures and high yields.

Supply of new commercial vehicles continued to return to an element of normality although Commercial Vehicle leasing remaining largely subdued for much of the year. In contrast, Bus & Coach supply lead time extended during the year with leasing activity seeing healthy and strong activity.

The market for used, end of lease commercial vehicles remained subdued for the majority of the year due in the main to previous over supply in the immediate post covid years. Whilst demand for used assets slowed, encouragingly margins remained good.

Owned Properties

The Bank retains four assets in its property portfolio totalling £22.6m (2023: £20.7m) of which one is overseas.

Property investment yields remain high despite a fall in interest rates. Consequently, £1.4m of impairments have been charged to the income statement for the Group's property portfolio.

Operations

The Bank has continued to drive positive momentum in the acquisition of clients from its target markets. Net growth in new clients for 2024 was strong with over 1,200 new banking clients onboarded in 2024, of which 48% were non-personal clients. This growth has seen operational aspects of the business continue to increase, with over 1.2 million inbound and outbound payments processed in 2024, a growth of 9.5% on the previous year. 98% of outbound payments were originated online, underpinning the need for continued investment in the Bank's digital strategy. There has also been good progress in the investment management operations area, increasing automation and streamlining processes, which has helped support the growth in this part of the business. The number of clients serviced has grown by 15% and the volume of trades has increased by 19%.

In 2024, the Bank commenced its implementation of the digital transformation programme, which will enhance the client experience and offer the customer more choice and flexibility in how they interact with the Bank. In addition, the programme will improve operational efficiency and will deliver greater integration across the Bank's suite of applications in a modern, cloud-based architecture. The first phase of this transformation is focused on the introduction of a new online and mobile banking offering, initially for commercial clients, which will run through 2025.

There was continued progress in embedding the Bank's Operational Resilience arrangements, with a focus on reviewing and testing business continuity plans whilst working closely with cloud and other technology partners to ensure suitable measures exist across all areas that support delivery of the Bank's key services.

Sustainability

The business has made a commitment to reduce its environmental impact and to improve its environmental performance as an integral part of its business strategy.

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 Banking, Wealth Management, Asset Finance, Asset Based Lending, Specialist Lending and Commercial Vehicle Finance. 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 products. The Group also generates revenue from the sale of commercial vehicles and earns rental income on its properties and holds financial investments for income.

The Group has reported a profit before tax of £35.1m (2023: £47.1m). The underlying profit before tax was £35.1m (2023: £51.4m).

Lower net interest income was in line with expectations as reported in the prior year Annual Report and Accounts. In 2023 the Group benefitted from significant excess liquidity held at the Bank of England, together with lending linked to the Bank of England base rate that repriced immediately after successive interest rate rises, while fixed rate deposits naturally lagged and only repriced on maturity. The drop in net interest income was partially offset by higher fee and commission income and operating income from leasing activities. Increased investor confidence with improved market conditions, together with the Direct Gilt Service launched in February 2024, contributed to exceptional growth in Funds under Management and Administration, closing the year at £2.2bn (2023: £1.7bn). Operating income from AAG leased assets increased from £19.9m to £25.5m. The prior year amount was reduced by £4.3m as part of the release of fair value adjustments at acquisition.

The average net margin on client lending was 5.1% (2023: 5.7%).

The Group's operating expenses increased to £139.8m compared to £131.1m for the prior year, mainly due to higher staff costs with the expansion of all businesses.

In 2021, the Group acquired Asset Alliance Group Holdings Limited. The business was acquired at a discount to its fair value, resulting in a bargain purchase of £8.6m. Included in the fair value adjustments at acquisition was an uplift to the valuation of lease assets, together with a residual value provision. In 2023, the remaining fair value uplift of £6.8m at the beginning of that year was realised through sales of vehicles in the year. Similarly, the remaining residual value provision at the beginning of 2023 of £2.5m was released. In 2024 and future years, no adjustment is therefore required.

Total assets increased by £0.4bn to £4.7bn (2023: £4.3bn). Loans and advances to customers together with assets available for lease increased by 2% from the prior year. Customer deposits increased by 10% in the year and contributed to the 18% increase in liquid assets.

The net assets of the Group now stand at £16.36 per share (2023: £15.47).

Segmental Analysis

The segmental analysis is shown in more detail in Note 45. The Group is organised into seven operating segments as disclosed below:

1) Banking - Includes Private and Commercial Banking and the acquired mortgage portfolio. Private Banking - Provides

traditional private banking services. Commercial Banking - Provides bespoke commercial banking services and tailored 

secured lending against property investments and other assets.

2) Wealth Management - Financial planning and investment management services.

3) RAF - Specialist asset finance lender mainly in high value cars but also business assets.

4) ACABL - Provides finance secured on either invoices, assets or stock of the borrower.

5) AAG - Provides vehicle finance and related services, predominantly in the truck & trailer and bus & coach markets.

6) All Other Divisions - All other smaller divisions and central costs in Arbuthnot Latham & Co., Ltd (Investment property,

Central costs and Arbuthnot Specialist Finance Ltd)

7) Group Centre - ABG Group management.

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.

Banking reported a profit before tax of £28.1m (2023: £66.0m). The prior year number was re-presented to include mortgage portfolios, which was previously disclosed as a separate operating segment. Net interest income reduced by £21m, with lending remaining flat while deposit balances increased by 10%. The lag effect of time deposits repricing to higher rates in the current year (after successive interest rate rises in the prior year), as highlighted in the prior year Report and Accounts, together with higher deposit balances, resulted in materially higher interest expense. After one year of static interest rates, the Bank of England reduced rates by 25 basis points ("bps") on 1 August 2024 and a further 25bps on 7 November 2024. This resulted in the immediate reduction of income received on the majority of the Bank's financial assets that are based on variable rates, while the reduction in interest expense will again lag behind as fixed term deposits reprice on maturity.

There was a net impairment charge of £5.6m compared to £1.2m for the prior year. Even though a more stable economic environment compared to the prior year resulted in lower provisions from the expected credit loss model, this was offset by extra provisions on a small number of exposures in Stage 3.

Indirectly allocated operating costs increased by £11.1m, mainly as a result of increased staff costs in support departments, the higher costs relating to the new office building and further investment in information technology.

Customer loan balances, as planned, reduced by £24m to remain fairly flat from the prior year at £1.5bn and customer deposits increased to £4.1bn (2023: £3.8bn). The average loan to value was 48.9% (2023: 47.8%).

Wealth Management reported a loss of £4.9m (2023: loss of £4.3m). Fee and commission income increased by £2.3m, but was more than offset by a £2.9m increase in costs. Staff costs increased by £1m and the contribution from the division before indirectly allocated costs increased from £1.2m to £2.3m. However, indirectly allocated costs from the support departments increased by £1.7m from the prior year. Funds Under Management and Administration increased by £0.5bn to £2.2bn, as improved market conditions together with the newly launched Direct Gilt Service contributed to significant growth. The full year impact on income will be seen in future years.

Renaissance Asset Finance returned a profit of £5.6m (2023: £1.6m). Interest income increased by £6.7m from higher balances and higher rates, which was partly offset by higher funding costs of £1.9m. Operating expenses were £1.3m higher than in 2023, mainly due to higher staff costs.

Customer loan balances increased by 25% to £248.8m (2023: £198.8m), with the Block Discounting business growing by 83% in the year. The average yield for 2024 was 8.7% (2023: 8.2%).

ACABL recorded a profit before tax of £11.9m (2023: £8.5m).

The loan book reached its highest level of nearly £300m in the second half of the year, however, lower originations together with expected client attrition resulted in loan balances of £228.2m at the end of the year (2023: £239.8m). The business had issued facilities of £542m (2023: £536m). Despite a 5% reduction in loan balances, operating income increased by £4.4m. Higher interest income of £2.1m was partially offset by higher internal funding costs of £0.7m, while fee and commission income also increased by £3.0m. Operating expenses increased by £1.2m, mainly due to an increase in staff costs.

The business made a small profit after reaching its breakeven point in 2024 (2023: loss of £3.2m for the period). The prior year income was reduced by £4.3m as part of the release of fair value adjustments at acquisition.

It should be noted that the current year includes £15.3m internal funding costs compared to £10.2m in the prior year. As interest rates start to come down, the fixed rate lending with lower funding costs will start to generate higher profits.

The markets for the disposal of second-hand vehicles was subdued, mainly as a result of the oversupply post covid. However, margins remained strong.

Operating expenses increased by £0.2m from the prior year, while credit provisions were £0.1m (2023: £0.1m).

As at 31 December 2024 the business had a total of £363.0m (2023: £326.8m) of assets available for lease and finance leases, which is a 11% increase on the prior year.

The aggregated profit before tax of other divisions was £5.7m (2023: loss of £10.3m). The prior year was re-presented to include Arbuthnot Specialist Finance Limited ("ASFL") and £4.2m of interest expense charged from the Group Centre on subordinated loans. This change does not affect the statutory profit of any legal entity and represents the way the Group is currently managed and is in line with how it is presented in the current year.

Operating income increased by £4.8m to £16.3m (2023: £11.5m).

Reported within the other divisions in other income was rental income on our property portfolio of £1.0m (2023: £0.7m).

Operating expenses reduced due to a number of one-off costs recognised in the prior year. These included impairment charges to the owned property portfolio, the revision of final sale costs related to the King Street property, an estimate for the dilapidation provisions triggered by the office move and IT development expenses. 

The Group costs remained flat at £11.4m (2023: £11.4m). The prior year was re-presented to include £4.2m of interest charged to Other Divisions on subordinated loans. This change does not affect the statutory profit of any legal entity and represents the way the Group is currently managed and is in line with how it is presented in the current year. Subordinated loan interest reduced by £0.3m due to interest rates starting to decline in the year.

The increase in operating expenses of £0.6m is mainly due to higher staff costs.

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 and the individual banking operation are authorised by the Prudential Regulation Authority ("PRA") and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. One of the requirements for the Group and the individual banking operation is that capital resources must be in excess of capital requirements at all times. 

In accordance with the parameters set out in the PRA Rulebook, the Internal Capital Adequacy Assessment Process ("ICAAP") is embedded in the risk management framework of the Group. The ICAAP identifies and assesses the risks to the Group, considers how these risks can be mitigated and demonstrates that the Group has sufficient resources, after mitigating actions, to withstand all reasonable scenarios.

The Board determines the level of capital the Group needs to hold. The Group holds Pillar 1 capital for credit, market and operational risk as a starting point, and then considers whether each of the calculations delivers a sufficient amount of capital to cover risks to which the Group is, or could be, exposed. Where the Board considers that the Pillar 1 calculations do not adequately cover the risks, an additional Pillar 2A capital requirement is applied. The PRA will set a Pillar 2A capital requirement in light of the calculations included within the ICAAP. The Group's Total Capital Requirement, as issued by the PRA, is the sum of the Pillar 1 and the Pillar 2A capital requirements. The current Total Capital Requirement of the Group is 8.32%.

The ICAAP document is updated at least annually, or more frequently if changes in the business, strategy, nature or scale of the Group's activities or operational environment suggest that the current level of capital resources is no longer adequate. The ICAAP 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 PRA regulated entity is also the principal trading subsidiary as detailed in Note 44.

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

• Common equity Tier 1 ("CET1"), which comprises shareholder funds less regulatory deductions for intangible assets, including

Goodwill and deferred tax assets that do not arise from temporary differences.

• Tier 2 comprises qualifying subordinated loans.

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.

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 reputational, macroeconomic and competitive environment, strategic, credit, market, liquidity, operational, cyber, residual value, conduct and, regulatory and capital.

Reputational risk

Reputational risk is the risk to the Group from a failure to meet reasonable stakeholder expectations as a result of any event, behaviour, action or inaction by ABG itself, its employees or those with whom it is associated. This includes the associated risk to earnings, capital or liquidity.

ABG seeks to ensure that all of its businesses act consistently with the seven corporate principles as laid out on page 3 of the Annual Report and Accounts. This is achieved through a central Risk Management framework and supporting policies, the application of a three-lines of defence model across the Group and oversight by various committees. Employees are supported in training, studies and other ways and encouraged to live out the cultural values within the Group of integrity, energy and drive, respect, collaboration and empowerment. In applying the seven corporate principles, the risk of reputational damage is minimised as the Group serves its shareholders, customers and employees with integrity and high ethical standards. 

Macroeconomic and competitive environment

The Group is exposed to risks that may arise from the macroeconomic and competitive environment.

In recent years there have been a number of global and domestic events which have had significant implications for the Group's operating environment, namely: Russia's war in the Ukraine, the Israel-Hamas war in Gaza and Coronavirus. The culmination of these events has led to significant turmoil in both global and domestic markets. Geo-political volatility and uncertainty remains high with the potential to adversely affect the UK economy, as well as the Group's customers and assets.

Strategic risk

Strategic risk is the risk that the Group's ability to achieve its corporate and strategic objectives may be compromised. This risk is particularly important to the Group as it continues its growth strategy. However, the Group seeks to mitigate strategic risk by focusing on a sustainable business model which is aligned to the Group's business strategy. Also, the Directors normally meet once a year to ensure that the Group's strategy is appropriate for the market and economy.

Credit risk

Credit risk is the risk that a counterparty (borrower) will be unable to pay amounts in full when due. This risk exists in Arbuthnot Latham, which currently has a loan book of £2.1bn (2023: £2.1bn). The lending portfolio in Arbuthnot Latham is extended to clients, the majority of which is secured against cash, property or other high quality assets. Credit risk is managed through the Credit Committee of Arbuthnot Latham.

Market risk

Market risk arises in relation to movements in interest rates, currencies, property and equity markets.

Interest rate and currency risk

The Group's treasury function operates mainly to provide a service to clients and does not take significant unmatched positions in any market for its own account. As a result, the Group's exposure to adverse movements in interest rates and currencies is limited to interest earnings on its free cash and interest rate re-pricing mismatches. The Group actively monitors its exposure to future changes in interest rates. However, at the current time the Group does not hedge the earnings from the free cash which currently totals £912m. The cost of hedging is prohibitive. Cash is held at the Bank of England and with the general consensus in the market that rates are expected to fall, the Group has shifted its focus to longer term fixed rate lending products and also investing some of the excess liquidity into high quality short dated fixed income assets, such as gilts.

Property and equity market risk

The Group is exposed to changes in the market value of its properties. The current carrying value of Investment Property is £5.3m (2023: £6.0m) and properties classified as inventory is £17.4m (2023: £14.7m). Any changes in the market value of the property will be accounted for in the Income Statement for the Investment Property and could also impact the carrying value of inventory, which is at the lower of cost and net realisable value. As a result, it could have a significant impact on the profit or loss of the Group. The Group is also exposed to changes in the value of equity investments. The current carrying value of financial investments is £4.9m (2023: £3.9m). Any changes in the value of financial investments will be accounted for in Other Comprehensive Income.

Liquidity risk

Liquidity risk is the risk that the Group, although solvent, either does not have sufficient financial resources to enable it to meet its obligations as they fall due, or can only secure such resources at an excessive cost. The Group takes a conservative approach to managing its liquidity profile. Retail client deposits, together with drawings from the Bank of England Term Funding Scheme and capital fund the Bank. The loan to deposit ratio is maintained at a prudent level, and consequently the Group maintains a high level of liquidity. The Arbuthnot Latham Board annually approves the Internal Liquidity Adequacy Assessment Process ("ILAAP"). The Directors model various stress scenarios and assess the resultant cash flows in order to evaluate the Group's potential liquidity requirements. The Directors firmly believe that sufficient liquid assets are held to enable the Group to meet its liabilities in a stressed environment.

Operational risk

Operational risk is the risk that the Group may be exposed to financial losses from conducting its business. The Group's exposure to operational risk include its Information Technology ("IT") and Operating 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.

In line with guidance issued by the Regulator, the Bank has continued to focus on ensuring that the design of systems and operational plans are robust to maintain operational resilience in the face of unexpected incidents.

Cyber risk

Cyber risk is an increasing risk for the Group within its operational processes. It is the risk that the Group is subject to some form of disruption arising from an interruption to its IT and data infrastructure. The Group regularly tests the infrastructure to ensure that it remains robust to a range of threats and has continuity of business plans in place including a disaster recovery plan.

Residual value risk

Residual value risk equals the difference in the residual value of a leased asset set at lease inception and the lower salvage value realised upon its disposal or re-lease at the end of the lease term. The Group is exposed to residual value risk in its AAG business. Normal residual value risk is managed through the process set out below, and it should be noted that the transition to greener technology may further impact residual values in two ways. Firstly, residual values could decrease due to assets becoming obsolete; climate related regulations might change, which could result in legal restrictions on the use of assets or technological advances could lead to preferred environmental technologies. Secondly, the lack of historical information on green vehicles could lead to inaccurate measurement of residual values at inception of leases.

The AAG business manages Residual Value setting through its Residual Value Committee that comprises representatives from its Asset Management, Procurement, Sales and Leasing divisions and is chaired by the Residual Value Manager. Assets are valued using either an approved Residual Value matrix or individually, dependent upon the nature of the asset and current market conditions. The strategy for Residual Value setting and oversight of the Residual Value Committee is conducted by the AAG Residual Risk Committee, which in turn reports into the Asset Alliance Group Holdings Limited board. The Residual Risk Committee, chaired by the AAG Group Risk Director, includes AAG CEO, AL Group Risk Director, AAG Managing Director, AAG Finance Director and heads of Asset Management, Sales and Leasing divisions in AAG.

Conduct risk

As a financial services provider the Group faces conduct risk, including selling products to customers which do not meet their needs, failing to deal with clients' complaints effectively, not meeting clients' expectations, and exhibiting behaviours which do not meet market or regulatory standards.

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

Financial Crime

The Group is exposed to risk due to financial crime including money laundering, sanctions evasion, bribery and corruption, market abuse, tax evasion and fraud. The Group operates policies and controls which are designed to ensure that financial crime risks are identified, appropriately mitigated and managed.

Regulatory and capital risk

Regulatory and capital risk includes the risk that the Group will have insufficient capital resources to support the business and/or does not comply with regulatory requirements. The Group adopts a conservative approach to managing its capital. The Board of Arbuthnot Latham approves an ICAAP annually, which includes the performance of stringent stress tests to ensure that capital resources are adequate over a three year horizon. Capital and liquidity ratios are regularly monitored against the Board's approved risk appetite as part of the risk management framework.

Regulatory change also exists as a risk to the Group's business. Notwithstanding the assessments carried out by the Group to manage 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.

Strategic Report - Non-Financial and Sustainability Statement

Strategic Report - Stakeholder Engagement and s.172 Report

Stakeholder Engagement and S. 172 (1) Statement

This section of the Strategic Report describes how the Directors have had regard to the matters set out in section 172 (1) (a) to (f) of the Companies Act 2006 when making decisions. It forms the Directors' statement required by ABG as a large-sized company under section 414CZA of the Act.

The Directors have acted in a way that they considered, in good faith, to be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so had regard, amongst other matters, to:

• the likely consequences of any decision in the long term;

• the interests of the Company's employees;

• the need to foster the Company's business relationships with suppliers, customers and others;

• the impact of the Company's operations on the community and the environment;

• the desirability of the Company maintaining a reputation for high standards of business conduct; and

• the need to act fairly as between members of the Company.

The Arbuthnot Principles and Values set out on page 3 explain the Board's approach to its stakeholders. Details of how the Directors had regard to the interests of its key stakeholders during the year are set out below, in the Group Directors Report on page 42 and in the Corporate Governance Report on page 46.

The Board has regard to the interests of all its key stakeholders in its decision making since the Directors are conscious that their decisions and actions have an impact on them. The stakeholders we consider in this regard are our shareholders, employees, customers, suppliers, regulators and the environment in which we operate.

Likely consequences of any decision in the long term

The Directors make their decisions to ensure that long-term prospects are not sacrificed for short term gain, reflecting the values and support of Sir Henry Angest, Chairman and Chief Executive and majority shareholder, which have proved successful in creating and maintaining value for all shareholders for over 40 years. This was demonstrated in the year by a number of Board decisions.

During the year, as part of its continued succession planning and continuing the recent practice of most directors serving on the boards of both the Company and Arbuthnot Latham (AL), given that has one operating business, the Board appointed Richard Gabbertas, a director of AL since November 2020, as a non-executive director, subject to the review of Grant Thornton as Nominated Adviser and Aquis Stock Exchange (AQSE) Corporate Adviser which was performed, prior to his appointment on 2 July 2024.

In September 2024, the Board approved the Company's Diversity, Equity and Inclusion strategy which is based on Arbuthnot's Seven Principles. These Principles are central to the way the Company works, summarising its corporate philosophy and ethics, and it seeks to ensure that all of its businesses act consistently with them. The approach to Diversity, Equality and Inclusion is therefore holistic, embedded in the Arbuthnot culture and delivered through its cultural values, rather than being as a standalone activity.

Interests of the Company's employees

Overall the Board's intention is to hire the best people and to provide the right environment for them to perform to the best of their ability. 

The decision made in the prior year to move London offices was driven partly by the intention to enhance the staff experience. The Board receives an update on human resource matters at each of its meetings. It is also kept informed of the results of employee surveys. In November 2024 it considered the results of the engagement survey, launched in September 2024 to assess how engaged employees felt with the business, obtaining feedback on key areas that affect engagement. The engagement survey received an 91% response rate from employees, with an 85% engagement score including 92% agreeing with the statement of being proud to work for the Group. The Board regards the maintenance of a high level of employee engagement as key to the Company's future success as an organisation on every level and the focus will continue to be to develop our working environment to achieve this aim.

Executive Directors and senior management are fully engaged with the workforce, most of whom interact on a daily basis. Employees are also able to raise concerns in confidence with the HR Team, with grievances followed up in line with a specified process which satisfies all legal requirements. As explained in the section 172 (1) Statement of Arbuthnot Latham, the Company's banking subsidiary, one of its non-executive directors, Jayne Almond, has been designated by its board as the director to engage with Arbuthnot Latham group's workforce whereas the Company itself has fewer than 20 employees, all of whom have direct access to Board members.

As set out in the Whistleblowing Policy, Richard Gabbertas is the Company's Whistleblowing Champion in succession to Ian Dewar and is available at all times in this role. There is an anonymous whistleblowing service via an external provider. There is also protection for employees deriving from the Public Interest Disclosure Act 1998. Any material whistleblowing events are notified to the Board and to the applicable regulator.

Company's business relationships with suppliers, customers and others

The Directors attach great importance to good relations with customers and business partners. In particular, our clients are integral to our business and forging and maintaining client relationships are core to AL's business and crucial for client retention. The Board's decision in the prior year to move offices, confirmed with the approval of the change of registered office from 12 August 2024, was driven also partly by the intention to enhance the client experience. As regards customers, the Board considered the first formal submission of a Consumer Duty annual assurance report from the Chief Compliance Officer, together with a verbal report from its Board Champion, Angela Knight.

The Company is committed to following agreed supplier payment terms. There is a Supplier Management Framework in place covering governance around the Company's procurement and supplier management activities. For due diligence and compliance purposes, suppliers are assessed through an external registration system. The Modern Slavery Statement, approved by the Board in March as part of its annual review of the Company's stance and approach to the Modern Slavery Act, explains the risk-based approach that the Company has taken to give assurance that slavery and human trafficking are not taking place in its supply chains or any part of its business. The Board requires that AL implements an Anti-Modern Slavery Policy, procedures and processes in relation to the AL Group, which reflects the commitment to act ethically and with integrity, in all their respective business relationships and additionally, to ensure that slavery and human trafficking are not taking place anywhere in the AL Group or in the AL Group's supply chain.

Balancing stakeholder interests

An illustration of the balancing of the interests of our stakeholders in their long-term interest was the Board's decision in July 2024 to pay a special dividend of 20p per Ordinary share and Ordinary Non-Voting share to shareholders, alongside its interim dividend of 20p per Ordinary share and Ordinary Non-Voting share, in recognition of the recent strong performance of the Group which made it appropriate for shareholders to receive an extra payment. This decision was made after the Board had satisfied itself that forecasts showed the Company having sufficient liquidity and capital. The Board has decided to recommend a final dividend of 29p per Ordinary share and Ordinary Non-Voting share. This is an increase of 2p per Ordinary share and Ordinary Non-Voting share compared to the final dividend of 2023 and in total represents total dividends for the year of 69p per Ordinary share and Ordinary Non-Voting share, an increase of 23p per Ordinary share and Ordinary Non-Voting share.

Impact of the Company's operations on the community and the environment

As part of the management information reviewed at its regular meetings, the Board receives a Risk Management report, containing a report on Sustainability / Environmental, Social and Governance ("ESG") matters which includes a Climate Change Dashboard, monitoring climate change measures in place including Scope 1, 2 and 3 GHG emissions. This dashboard sets out climate-change measures and actions.

The Board is updated on the steps the Group is taking to become more sustainable, given its exposure to climate change transition risk as the UK evolves to a low carbon economy. It is also kept informed of the formal approach to ESG established to develop over time, which will underpin the Arbuthnot Principles and Values within the workplace under five 'pillars of sustainability' - governance, clients, employees, community and environment (ESG Pillars). The ESG actions taken are in recognition of the Group's responsibility to make a positive societal impact and the political, regulatory and legal pressure with clients and investors interested in the Group's ESG stance. The Board has again approved an energy and carbon report meeting the requirements of the Streamlined Energy and Carbon Reporting standards, as set out in the Sustainability Report on pages 36 to 37.

During the year, ahead of any likely future decisions required, the Board received a presentation from Asset Alliance Group's Strategic Development Manager on the planned strategy to facilitate a move away from a diesel-based HGV fleet to offering alternative solutions for its customers, based on their needs and operations.

In September 2024 the Board approved the enterprise-wide climate change risk appetite, risk assessments, and stress test scenarios and results. 

Desirability of the Company maintaining a reputation for high standards of business conduct

The Directors believe that the Arbuthnot culture set out in the Arbuthnot Principles and Values manifests itself at Board level and in the external view of the Group as a whole. The importance of the Group's reputation is considered at each Board meeting. These Principles are encapsulated in five Group cultural values, embedded into day-to-day activities. These values are integrity, respect, empowerment, energy and drive, and collaboration.

Acting fairly as between members of the Company

The majority shareholder, Sir Henry Angest, is the Company's Chairman and Chief Executive. There is continuing engagement with other major shareholders and the Directors make their decisions on behalf of all shareholders. The Board welcomes engagement with them and will continue to maintain communications via one-to-one meetings as appropriate. The Directors treat all shareholders equally, albeit that holders of non-voting shares do not have the right to vote in shareholder meetings.

Strategic Report - Sustainability Report

Introduction

The Group has continued to embed sustainable practices across its business and remains committed to ensuring that its activities have a positive impact on clients, shareholders, employees, society and the environment. Two of our key business principles, reciprocity and stability, rely on recognising our responsibility to make a positive societal impact.

Climate change is an important topic for consumers and investors alike. In parallel, inclusive growth and the impact organisations have on society are increasingly a focus. Organisations are being held accountable for their impact. We focus on how we can improve to build a future that delivers growth, sustainability and inclusion.

Our responsible business initiatives enable us to monitor and measure our social impact by considering the impact of our practices and outputs across five pillars: governance, clients, community, environment and employees as explained on pages 28 to 31 below.

Governance

The Group has a solid system of governance in place, endorsing the principles of openness, integrity, and accountability that underpin good corporate governance. The Group operates to high standards of corporate accountability with an effective Board and Board committees. This, together with the role and overall holding of Sir Henry Angest, the ultimate majority shareholder, and compliance with PRA and FCA regulations and with those of the London Stock Exchange Alternative Investment Market and the Aquis Exchange, is fundamental to our success as a business.

Policies

The Group has adopted a wide range of policies that straddle the five pillars to ensure that employees and management are aware of their responsibilities towards our clients and comply with all regulatory requirements. Some of the key policies are set out below and in the Non-Financial and Sustainability Statement on page 21. 

Human Rights commitments

The Group is committed to operating in an ethical manner and ensuring the relationships we have with all our stakeholders adhere to high standards. These are reflected in both our Anti-Modern Slavery Policy and in our Supplier Code of Conduct.

The Group is committed to finding and reducing the risk of slavery or human trafficking in every part of our supply chain.

Clients

Relationships with our clients are at the heart of what we do. We take the time to understand what is important to our clients so that we can be confident that we are working in their best interests, for business, for family, for life. Being a relationship-led bank, every single one of our clients has a dedicated relationship manager to guide and support them. This is supported by our strong Net Promoter Score (NPS) (Non-financial Key Performance Indicator) which is now reviewed annually. In 2024, over 500 private banking and commercial clients completed the survey, and we were delighted that our NPS now stands at 71, a significant increase from the 64 we achieved in the last survey in 2022. On average, clients scored us 9 out of 10 for overall satisfaction, with over 95% saying they were satisfied or very satisfied with the services they receive from us.

Consumer Duty

Our approach in 2024 to the introduction of the new FCA Principle on Consumer Duty in the previous year, was to maintain that clients are at the heart of everything we do. We continue to review all our products and services to ensure they meet good customer outcomes. We also trained frontline staff on different ways to communicate clearly with clients.

Client support

As a relationship-led bank, our purpose is to help our clients go further. This means ensuring that they receive a bespoke service, tailored to their needs, helping them achieve their financial goals. As part of our focus on excellent service, we have increased the minimum banking criteria and account tariff charges from February 2025.

Vulnerable clients

The term 'vulnerability' captures a range of circumstances our clients can face. To ensure we are treating vulnerable clients fairly, we have implemented vulnerable client guidance focused on identifying and supporting vulnerable clients.

We have a Vulnerable Client Committee to support our staff with vulnerable clients. This includes providing training resources. In 2024 the Vulnerable Client Committee welcomed Cancer Support UK, GamCare, and Mental Health UK to provide training for our frontline colleagues.

Employees

We focus on maintaining an outstanding culture and workplace for all our employees. Once again our high engagement scores are a testament to this. We secured a 5-star employer rating from WorkBuzz for the fourth consecutive year. Our employee engagement survey (Non-Financial Key Performance Indicator), conducted in November 2024, showed that 85% of employees are strongly engaged and 92% are proud to work here. These figures reflect a strong alignment with our company's values and a robust commitment from our people to our organisation's success. Up again by 4 percentage points, 88% of employees would recommend Arbuthnot as a great place to work.

Wellbeing

Our work environment fosters and enhances the wellbeing of our employees. Aligned with our mission and core values - Integrity, Respect, Empowerment, Energy & Drive and Collaboration, our wellbeing strategy is designed to resonate with the recognition that our employees constitute our greatest asset. Our wellbeing strategy focuses on four pillars: mental, physical, social and financial. Through these pillars, we provide our employees with a range of resources and tools to support their wellbeing, including resources provided by BUPA, Headspace, Hargreaves Lansdown, ActiveHub, and our Employee Assistance Programme.

We work with external provider Activehub to encourage and incentivise our employees to become active, with 416 engaged with the app, 840 challenge sign-ups and over 25,000 activities logged.

Early Careers and Young Professionals

In 2024, we welcomed 45 young adults to our work experience events, hosted 60 A-Level students at our annual Female Student Event, and engaged 13 summer interns. Additionally, 30 young adults joined our 2024 one-year placements, graduate, and apprentice programmes.

The Group offers five different Early Careers Programmes, including work experience, summer internships, one-year placements, graduate placements and apprenticeships.

We partner with Young Professionals, an organisation which works with schools across the UK from different socio-economic backgrounds to provide an insight and introduction to different industries, in order to grow the quality and diversity of our Early Careers talent pool.

Employee development

As a rapidly growing business, we encourage career progression and seek to develop our people's skills to help them grow within the organisation.

Mentoring

We support our employees' continued development through our internal mentoring programme. We partner with Pushfar, an internal mentoring platform to ensure mentees can find a suitable mentor to assist them in their careers.

Benefits

We offer our employees an array of benefits at favourable rates including life assurance.

Workplace pension scheme

The Group offers all eligible employees membership of a contributory defined contribution plan, which is operated by Hargreaves Lansdown who present annually to the Pension Scheme Governance Committee. The matters discussed at this Committee's meetings are communicated to employees, continuing the focus on their financial wellbeing.

Employee networking forum: Connect

Our colleague network, Connect, continued to educate staff on a range of inclusive topics and promoted employee networking.

The purpose of Connect is to:

1. Promote a safe and supportive workplace for all to work, learn and thrive.

2. Understand the challenges faced in our workplace in order to effect change to increase diversity.

3. Attract and retain a diverse workforce.

Our Connect network hosted a range of events including topics such as neurodiversity, imposter syndrome, and psychological safety.

Diversity, Equity and Inclusion

Our ambition is to create an environment which enables everyone to perform to the best of their potential. In September 2024, the Board approved the Company's Diversity, Equity and Inclusion strategy, based on Arbuthnot's Seven Principles, building on the Company's achievements to date. These Principles are central to the way Arbuthnot works, summarising its corporate philosophy and ethics, and the Group seeks to ensure that all of its businesses act consistently with them. Over the past few years these Principles have been embedded in five cultural values (integrity, respect, empowerment, energy/drive and collaboration). 

The fundamental value being worked on in the context of Diversity, Equity and Inclusion strategy is respect, i.e. respect for people whatever their background or belief. The aim is for the Group to be a place that can foster diversity. The make-up of employees is diverse from graduate up to senior management level, indicating that such a culture has been established. The strategy is also a statement of the intention to hire the best people and to provide the right environment for them to perform to the best of their ability. The approach to Diversity, Equity and Inclusion is therefore holistic, embedded in the Arbuthnot culture and delivered through its key principles and cultural values, rather than being as a standalone activity. 

Colleague Promises and Commitments to Clients

In January 2025 we launched our Colleague Promises and Commitments to Clients to reinforce what it means to be a client or employee of Arbuthnot. These commitments provide clarity on what clients can expect from us and what is means to work for the Group reflecting the long-standing vision, principles, and values that define our business.

Our Colleague Promises and Commitments to Clients set the standard for what people can expect when they interact with the Group.

Community

The Group recognises that we must commit to driving positive community impact, creating an impact within the communities in which we exist and operate, and connecting the dots between the charities we support and the social initiatives we run.

Volunteering and Philanthropy

We maintained our partnerships with Surrey Docks Farm and The Switch, and we also began supporting both Hackney and Bow foodbanks. We encouraged our staff to fundraise for The Felix Project, a charity fighting hunger and food waste, with over £20,000 raised in 2024.

To assist with our skills-based volunteering and to ensure we support education and financial education, The Switch, offers our employees the opportunity to volunteer in schools in Tower Hamlets. Sessions here included CV-writing workshops, Money Matter workshops and interview preparation.

Supported by the Worshipful Company of Farmers, at Surrey Docks Farm, we have had large teams of employees help with the running of the farm, including mucking out the sheep and goats' pens, hedge trimming, installing raised beds, creating dead hedges, clearing overgrown areas and more.

We donated 157 laptops to schools in Tower Hamlets through the charity Business2Schools. Thomas Buxton Primary School took 30 devices for their pupils and distributed the rest to local schools in need.

We are also proud of the work of Asset Alliance Group with charity Transaid whose patron is HRH The Princess Royal. AAG is a corporate partner of Transaid, having agreed a three-year partnership in 2024. By being a corporate partner, AAG contributes time, knowledge, and resources to support Transaid's road safety and access to healthcare projects across sub-Saharan Africa, where they have been working to save lives for more than 25 years.

In October 2024 an intrepid trio from AAG completed a kayak challenge, paddling across the English Channel to raising over £9,000 for Transaid. They covered 18.5 nautical miles in five hours and 45 minutes.

Towards the end of 2024, AAG committed to donate a rigid truck to Transaid's professional driver training partner - the Industrial Training Centre (ITC), in Lusaka, Zambia. The vehicle left Felixstowe port at the end of December, and set sail for Dar-es-Salaam in Tanzania before making the journey overland to Lusaka.

Additionally, our regional offices played a crucial role in our community support efforts: the Exeter office supported the YMCA, while in Manchester we supported The Seashell Trust and The Christie.

Pound for Pound and Payroll giving

We provide pound for pound matching of up to £250 for UK registered charity fundraising events each year.

We also offer our employees the opportunity to donate regularly from their gross pay to charities of their choice.

Environment

We have made a commitment to reduce our environmental impact and to improve our environmental performance as an integral part of our business strategy. We are committed to achieving net-zero by 2050 and effective management of our carbon footprint is an important part of our strategy.

As a consequence, we have in place an Environmental Management policy which sets out our high-level approach to managing environmental issues and provides requirements to help the Bank to achieve its commitments. Enhancing transparency within our own supply chains is part of our mission to work closely with our third-party relationships. In doing so, working together will help us establish how we can better engage and be held accountable.

Due to the nature of the Group's business, we are primarily a consumer of services rather than goods and materials. However, we are still committed to reducing the impact of our supply chain. As a minimum, we expect our suppliers to provide evidence towards their environmental status, where relevant and appropriate.

The Bank's Credit Policy sets out the Group's limited appetite for financial and reputational risk emanating from climate change, which includes physical risk (extreme weather, flooding etc.) and transitional risk (changes to law, policy, regulation and culture). The Bank adopts a favourable stance towards a low carbon economy and lending propositions that have a neutral or positive impact on the environment/climate. The Bank will also consider the impact on public perception and potential impact on continuing demand for clients' products and services, as well as any impact on its underlying security. These factors are assessed as part of the credit application and on-going review processes.

In December, we submitted an action plan under the Energy Savings Opportunity Scheme (ESOS), a Government mandated requirement to identify tailored and cost-effective measures to save energy and achieve carbon and cost savings. We continue to build employee awareness on environmental matters and energy efficiencies.

20 Finsbury Circus

Since moving in July 2024 into our new, BREEAM-rated Excellent office at 20 Finsbury Circus, we have refocused our efforts on operational carbon reduction. Our commitment to achieving net-zero by 2050 is a crucial part of our strategy, and effective management of our environmental impact is at the forefront of our initiatives.

By investing in technologies like building management systems and LED lighting, we significantly reduce energy consumption and improve our Energy Performance Certificate (EPC) ratings. At 20 Finsbury Circus, we source renewable energy to power our operations, which further reduces our carbon footprint and supports sustainable energy practices. Additionally, we have implemented efficient air conditioning systems to optimise energy use and enhance the comfort of our building occupants. Using onsite shredders and compactors to compress waste reduces transport costs and further reduces our carbon footprint. In 2025 we also introduced recycling bins to enable our staff to sort waste effectively.

We are continuously working to reduce our Scope 1 and Scope 2 emissions by decarbonising our buildings and increasing their energy efficiency. These efforts are essential steps towards our sustainability goals.

Summary across our five pillars

We are taking steps, guided by our five pillars of governance, clients, community, environment and employees, to help us become more sustainable.

Metrics

Disclosures around metrics are given in the section on Climate-related Financial Disclosures above.

Climate-related Financial Disclosures

This section of the Strategic Report describes how the Directors have implemented the requirements of the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 which amended the Companies Act 2006 to introduce Task Force on Climate-related Financial Disclosures' ("TCFD") aligned disclosure requirements into the existing non-financial information requirements. These regulations are broadly in line with the recommendations of the global TCFD.

This report covers how climate related risks and opportunities are managed; and on the performance measures and targets applied in managing these issues. The TCFD encourages consistent, reliable and clear measurement and reporting of climate-related financial risks. Its recommendations provide a framework for understanding and analysing how climate change affects our customers, our own operations and our strategy. The recommendations are to assess disclosures around governance, strategy, risk management and metrics and targets.

As stated in the section on Risks and Uncertainties on page (TBC) above, we have assessed the Group against the TCFD recommended disclosures and we set out below our assessments.

The Board considers the Group's business model to be resilient to the financial risks from climate-related risks based on the risk assessments and stress test scenario results.

Streamlined Energy & Carbon Reporting (SECR)

The Group has worked again with a specialist energy management consultancy, Carbon Decoded, to gather the information required to be reported by large unquoted companies under the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018:

· All energy in line with Greenhouse Gas Reporting (GHG) Scope One - gas and owned transport, Scope Two - electricity and Scope Three - non-owned transport. 

· An intensity metric to enable year on year improvements to be tracked.

The report covers data from 1 January to 31 December 2024. The Group has reported all sources of environmental impact, as required in SECR, over which it has financial control, being the Company and its subsidiaries.

Base Year

The Base Year for the organisation is a rolling annual comparison.

Reporting Methodology

· Data has been collected for electricity, gas and transport.

· GHG Protocol Corporate Accounting and Reporting Standard has been followed where relevant.

· Data was collected specifically for the purpose of SECR.

· The 2023 and 2024 UK Government Conversion Factors for Company Reporting were used for all calculations of Carbon emissions.

· Data was estimated where necessary, as set out below.

Estimated Data

The following data was estimated in 2024:

Operational Scopes

The report contains all Scope One and Two energy use and Scope Three Grey Fleet for the whole Group as required by SECR.

Corrective Actions

There are no corrective actions for 2024.

Changes from 2023

A new head office in London at 20 Finsbury Circus was opened in July 2024, resulting in the closure of the Group's offices in Wilson Street and Dominion Street, prior to the expiry of the leases in October. The increase in electricity in 2024 is due to the three London office buildings operating concurrently and the heat pump heating at 20 Finsbury Circus. This will reduce in 2025 due to there being only one building.

Conversion factors are now available to calculate the fuel and electricity used in plug in hybrid vehicles (PHEV). These calculations have been used this year to demonstrate the commitment made to improving the emissions of the company fleet.

Intensity Ratio

An intensity ratio is used to enable year on year comparison. As Arbuthnot is an office-based business the recognised standard measure is kilowatt-hour per square metre (kWh/m2). This enables the energy use to be compared to industry standard benchmarks. Similarly for transport, the metric is kilowatt-hour per mile (kWh/mile). The metrics have been reported as required by the Regulations.

Energy Efficiency Actions

To summarise the energy efficiency actions for 2024:

· The planned move to more efficient and lower emission offices at 20 Finsbury Circus was completed. In 2025, this will deliver a reduction in Scope One Natural Gas carbon tonnes (tCO2e) from Wilson Street and Dominion Street (74.5 tCO2e) to Scope Two electricity at 20 Finsbury Circus, as the new office has heat pump heating.

· AAG have continued to improve the fleet with a further investment in plug-in hybrid vehicles. This has meant that despite a 9% increase in mileage across the AAG group car and van fleet, the emission increase has been held at 0.5%

· Where possible, offices have replaced kerosene use with cleaner air conditioning options, which has reduced Scope One fuels and emissions by 6.3 tCO2e. 

James Cobb

Group Finance Director

26 March 2025

Group Directors' Report

The Directors present their report for the year ended 31 December 2024.

Business Activities

The principal activities of the Group are banking and financial services. The business review and information about future developments, key performance indicators and principal risks are contained in the Strategic Report on pages 6 to 37.

Corporate Governance

The Corporate Governance report on pages 45 to 52 contains information about the Group's corporate governance arrangements, including in relation to the Board's application of the UK Corporate Governance Code.

Results and Dividends

The results for the year are shown on page 64 of the financial statements. The profit after tax for the year of £24.9m (2023: £35.4m) is included in reserves. The Directors recommend the payment of a final dividend of 29p (2023: 27p) per Ordinary share and Ordinary Non-Voting share which, together with the interim dividend of 20p (2023: 19p) per Ordinary share and Ordinary Non-Voting share and a special dividend of 20p (2023: Nil) per Ordinary share and Ordinary Non-Voting share paid on 20 June 2024 represents total dividends for the year of 69p (2023: 46p) per Ordinary share and Ordinary Non-Voting share. The final dividend, if approved by members at the 2025 Annual General Meeting ("AGM"), will be paid on 30 May 2025 to shareholders on the register at close of business on 22 April 2025.

Directors

The names of the Directors of the Company at the date of this report, together with biographical details, are given on pages 38 and 39 of this Annual Report. Mr. R.K. Gabbertas was appointed to the Board on 2 July 2024. All the other Directors listed on those pages were directors of the Company throughout the year. 

Mr. Gabbertas offers himself for election under Article 75 of the Articles of Association. Mr. I.A. Dewar and Sir Alan Yarrow will retire from the Board at the Annual General Meeting and do not seek re-election. Sir Henry Angest, and Mr. A.A. Salmon being eligible, offer themselves for re-election under Article 78 of the Articles of Association. Sir Henry and Mr. Salmon have a service agreement terminable on twelve months' notice.

Articles of Association

The Company's articles of association may only be amended by a special resolution of the Ordinary shareholders. They were last amended at the AGM in May 2017 and can be viewed at www.arbuthnotlatham.co.uk/group/investor-relations/announcements.

Viability Statement

In accordance with the UK Corporate Governance Code, the Directors confirm that there is a reasonable expectation that the Group will continue to operate and meet its liabilities, as they fall due, for the three-year period up to 31 December 2027. A period of three years has been chosen because it is the period covered by the Group's strategic planning cycle and also incorporated in the Individual Capital Adequacy Assessment Process ("ICAAP"), which forecasts key capital requirements, expected changes in capital resources and applies stress testing over that period.

The Directors' assessment has been made with reference to:

• the Group's current position and prospects - please see the Financial Review on pages 10 to 20;

• the Group's key principles - please see Corporate Philosophy on page 3; and

• the Group's risk management framework and associated policies, as explained in Note 6 to the financial statements.

The Group's strategy and three-year plan are evaluated and approved by the Directors annually. The plan considers the Group's future projections of profitability, cash flows, capital requirements and resources, and other key financial and regulatory ratios over the period. The ICAAP is embedded in the risk management framework of the Group and is subject to continuing updates and revisions when necessary. The ICAAP process is used to stress the capital position of the Group over the three-year planning period. It is updated at least annually as part of the business planning process.

Going Concern

In assessing the Company's and the Group's Going Concern position, the Directors have made appropriate enquiries which assessed the following factors:

• the Group's strategy, profitability and funding;

• the Group's risk management (see Note 6 to the financial statements) and capital resources (see Note 7);

• the results of the Group's capital and liquidity stress testing;

• the results of the Group's reverse stress testing and the stress levels that have the potential to cause its business plan failure; and

• the Group's recovery plan and potential management actions to mitigate stress impacts on capital and liquidity.

The key Macro-Economic Risks for the stress testing included:

• Property market falls of up to 35% in property values;

• Stock market falls of up to 33% in UK equity prices;

• Interest rate rise/fall; and

• Regulation change.

The key Idiosyncratic Risks for the stress testing included:

• Credit losses;

• Operational events (i.e. fraud, cyber event, etc.);

• Decline in profitability; and

• Liquidity event (i.e. significant deposit outflow).

As a result of the assessment, the Directors are satisfied that the Company and the Group have adequate resources to continue in operation for a period of at least twelve months from when the financial statements are authorised for issue. The financial statements are therefore prepared on the going concern basis.

Share Capital

The Company has in issue two classes of shares, Ordinary shares and Ordinary Non-Voting shares, each with a nominal value of 1p. The Non-Voting shares rank pari passu with the Ordinary shares, including the right to receive the same dividends as the Ordinary shares, except that they do not have the right to vote in shareholder meetings.

Authority to Purchase Shares

Shareholders will be asked to approve a Special Resolution renewing the authority of the Directors to make market purchases of shares not exceeding 10% of the issued Ordinary and Ordinary Non-Voting share capital. The Directors will keep the position under review in order to maximise the Company's resources in the best interests of shareholders. Details of the resolutions renewing this authority are included in the Notice of Meeting on pages 161 and 162. No shares were purchased during the year. The maximum number of Treasury shares held at any time during the year was 390,274 Ordinary shares and 19,040 Ordinary Non-Voting shares of 1p each.

Financial Risk Management

Details of how the Group manages risk are set out in in the Strategic Report and in Note 6 to the financial statements.

Directors' Interests

The interests of current Directors and their families in the shares of the Company at the dates shown, together with the percentage of the current issued share capital held (excluding treasury shares), were as follows:

Substantial Shareholders

The Company was aware at 4 March 2025 of the following substantial holdings in the Ordinary shares of the Company, other than those held by one director shown above:

Significant Contracts

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, which was significant in relation to the Group's business. At 31 December 2024, two directors had loans from Arbuthnot Latham & Co., Limited amounting to £2.8m (2023: £1.5m) and seven directors had deposits amounting to £3.9m (2023: £3.2m), all on normal commercial terms as disclosed in Note 43 of the financial statements.

Directors' Indemnities 

The Company's Articles of Association provide that, subject to the provisions of the Companies Act 2006, the Company may indemnify any Director or former Director in respect of liabilities (and associated costs and expenses) incurred in connection with the performance of their duties as a Director of the Company or any subsidiary and may purchase and maintain insurance against any such liability. The Company maintained directors and officers liability insurance throughout the year.

Employee Engagement

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 regular communications and in other ways. Further information on employee engagement is given in the Strategic Report on pages 26 to 28.

The Company has a policy in place to ensure that it applies the Equality Act 2010 which makes it unlawful to discriminate inter alia on the grounds of disability. At the recruitment stage, reasonable adjustments are made to ensure that no candidate is put at a disadvantage because of their disability. Should existing employees become disabled, every effort is made to retain them within the workforce wherever reasonable and practicable. The Group also endeavours to provide equal opportunities in the training, promotion and general career development of disabled employees.

Engagement with Suppliers, Customers and Others

Information on engagement with suppliers, customers and other stakeholders is given in the Strategic Report on page 23.

Streamlined Energy & Carbon Reporting

The information required by the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 is set out in the Sustainability Report on page 37. These Regulations implement the Government's policy on Streamlined Energy and Carbon Reporting (SECR) to support business in understanding its responsibility for carbon emissions and to help establish plans to become Net Zero by 2050.

Political Donations

The Company made political donations of £16,000 during the year (2023: £7,500), being principally payment for attendance at political functions, as permitted by the Ordinary Resolution of Ordinary shareholders passed on 22 May 2024.

Events after the Balance Sheet Date

There were no material post balance sheet events.

AGM

The Company's AGM will be held on Wednesday 21 May 2025 at which Ordinary Shareholders will be asked to vote on a number of resolutions. Shareholders are encouraged to submit their votes in respect of the business to be discussed via proxy, appointing the Chairman of the meeting as their proxy. This will ensure that votes will be counted if shareholders are unable to attend the meeting in person. The resolutions, together with explanatory notes about voting arrangements, are set out on pages 161 to 164.

Discretionary Bonuses

An Ordinary resolution will be proposed at the forthcoming AGM to replace the resolution passed on 8 May 2014 which authorises the Company to pay a discretionary bonus to one or more executive director provided that in any case the payment does not exceed two times the annual basic salary of that director or manager for the year in question. This resolution was proposed and passed by Ordinary shareholders in response to the regulatory rules that were to come into force later in 2014, but which were amended in December 2023 by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) in their joint policy statement on remuneration and enhancing proportionality for small firms.

As a consequence, the Remuneration Committee amended the Company's Remuneration Policy to remove regulatory references to percentage thresholds for variable versus fixed remuneration. In light of this regulatory change and consequential change in policy, the Board recommends approval by Ordinary shareholders of this resolution in order to provide the Company the flexibility to pay a discretionary bonus to one or more executive directors or senior managers without restriction within the revised regulatory rules, as explained in the Remuneration Report on page 53.

Auditor

A resolution for the re-appointment of Forvis Mazars LLP as auditor will be proposed at the forthcoming AGM in accordance with section 489 of the Companies Act 2006.

Disclosure of Information to the Auditor

Each of the persons who are Directors at the date of approval of this Annual Report confirm that:

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

• they have taken all the steps they ought to have taken as a director 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 should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.

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 for Companies and in accordance with the Rules of the AQSE Growth Market, they are required to prepare the Group Financial Statements in accordance with UK-adopted international accounting standards in conformity with the requirements of the Companies Act 2006 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 UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006;

· 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 Group and Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and 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 Parent Company 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.

The Directors confirm that the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group and Parent Company's position, performance, business model and strategy.

By order of the Board

N D Jennings

Secretary

26 March 2025

Corporate Governance

Introduction and Overview

The Company has a strong and effective corporate governance framework. The Board endorses the principles of openness, integrity and accountability which underlie good governance and applies the principles of the UK Corporate Governance Code, published by the Financial Reporting Council in July 2018 ("the FRC Code"), and complies with its provisions in so far as they are considered appropriate for the Company, given its size and circumstances, and the role and overall shareholding of its majority shareholder. The Group operates to the high standards of corporate accountability and regulatory compliance. The Company has been approved by the Prudential Regulation Authority (PRA) as a parent financial holding company of its banking subsidiary, Arbuthnot Latham & Co., Limited. Arbuthnot Latham is authorised by the PRA and regulated by the Financial Conduct Authority (FCA) and by the PRA. Two of its subsidiaries, Asset Alliance Leasing Limited and Forest Asset Finance Limited, are authorised and regulated by the FCA.

The Board decided in 2018 to report against the FRC Code. This decision was made in light of the requirement in the AIM Rules for Companies that AIM listed companies state which corporate governance code they have decided to apply, how the company complies with that code, and where it departs from its chosen code an explanation of the reasons for doing so. The Rules of the AQSE Growth Market also require the Company to adopt, as far as possible, the principles and standards set down in a recognised UK corporate governance code. This information is published on the Company's website and the Company reviews it each year as part of its annual reporting cycle. This section of the Annual Report summarises how the Company applies the FRC Code and in broad terms how it has complied with its provisions throughout the year, giving explanations where it has chosen not to do so.

In January 2024 the FRC made limited revisions to its Code, publishing a UK Corporate Governance Code 2024 ("the 2024 Code"). The 2024 Code is not applicable to the Company until its year beginning 1 January 2025 and for one provision until its year beginning 1 January 2026. The Company has reviewed its procedures to enable the Board to report under the 2024 Code, as required, in due course.

Leadership and Purpose

The Company is led by the Board which comprises 11 members: Sir Henry Angest, the Chairman and Chief Executive; two other executive directors, Andrew Salmon and James Cobb; seven independent non-executive directors, Jayne Almond, Sir Nigel Boardman, Angela Knight, Ian Dewar, Richard Gabbertas, Lord Sassoon and Sir Alan Yarrow; and one other non-executive Director, Frederick Angest. This means that more than half of the Board, excluding the Chairman, comprises independent non-executive directors.

The Board sets the long-term focus and customer-oriented culture of the Group. The responsibilities of Sir Henry Angest as Chairman include leading the Board, ensuring its effectiveness 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.

The Board has for many years led a company which focuses on sustainable growth over the longer-term with a culture to match. Investment in resources has been strong and has continued where and as appropriate, with the focus on the benefit this will bring to bear for stakeholders over time. The aim continues to be for a culture of openness among the workforce which combines with the prudent and effective technological and individual controls in place across the business to ensure strong risk management in the Company's continued long-term success.

The Group's cultural values are reflected in a brand values document linking the Arbuthnot Principles to the Group's culture as a way of communicating culture across the business. These cultural Principles are encapsulated in five Group values which are fully embedded into day-to-day activities. These are integrity, respect, empowerment, energy and drive, and collaboration. A formal approach to Environmental, Social and Governance (ESG) is in place to develop over time under five 'pillars of sustainability' - governance, employees, community, environment and clients.

The Board

The Board held seven scheduled meetings during the year, six of which were held jointly with the Board of Arbuthnot Latham with the other one being held to approve the Interim Report. The Directors also held a separate strategy meeting, together with the AL Directors, in September. 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 overseeing the management of the Group, the Board has determined certain items which are reserved for decision by itself, as set out in the Schedule of Matters Reserved to the Board which is reviewed annually and is published on the Company's website at https://www.arbuthnotlatham.co.uk/group/about/corporate-governance. These matters include approval of the Group's long-term objectives and commercial strategy, ensuring a sound system of internal control, risk management strategy, approval of major investments, acquisitions and disposals, any changes to the capital structure and the overall review of corporate governance.

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.

New directors receive induction training upon joining the Board, with individual listed company training provided by the Company's AIM Nominated Adviser and AQSE Corporate Adviser. Regulatory and compliance training is provided by the AL Chief Compliance Officer or by an external firm of lawyers, accountants and other subject matter experts. Risk management training is provided, including that in relation to the ICAAP and ILAAP, by the AL Chief Risk Officer with an overview of credit and its associated risks and mitigation by the AL Chief Credit Officer.

Board Evaluation

The annual Board Effectiveness Review was conducted internally. The 2024 evaluation took the form of a confidential online questionnaire which assessed the performance of the Board and its Committees. The questions were set to explore the themes developed over recent years including Board effectiveness, Board composition, Board dynamics, alignment of the Board and executive team, interaction with major shareholders, induction, performance and training, Board Committees and the Secretariat. They also covered clarity of the business, strategy and risk and accountability. The results were discussed by the Board in November 2024 and proposed actions arising will be considered in due course. The responses were positive, confirming that the Board was of the view that it receives the correct level of insight into and oversight of the Company, both directly to it and in terms of management information and oral updates provided during meetings. Directors also agreed that the Arbuthnot culture set out in the Arbuthnot Principles and Values manifests itself at Board level and in the external view of the Group as a whole. 

Overview of Compliance with the FRC Code, together with Exceptions

The Board focuses not only on the provisions of the Code but on its principles, ensuring as follows:

• The Company's purpose, values and strategy as a prudently managed organisation align with its culture, with a focus on fairness and long-term shareholder returns.

• The Board has an appropriate combination of executive and non-executive directors, who have both requisite knowledge and understanding of the business and the time to commit to their specific roles.

• The Board comprises directors with the necessary combination of skills to ensure the effective discharge of its obligations, with an annual evaluation of the capability and effectiveness of each director as well as the Board as a composite whole; appropriate succession plans are also in place and reviewed annually, or more frequently if appropriate.

• The Board and Audit Committee monitor the procedures in place to ensure the independence and effectiveness of both external and internal auditors, and the risk governance framework of the Company, with all material matters highlighted to the relevant forum (Board/Committee).

• Remuneration policies and practices are designed to support strategy and promote long-term sustainable success, with a Remuneration Committee in place to oversee director and senior management pay.

In respect of the Code's specific provisions, an annual review is carried out, comparing the Company's governance arrangements and practices against them. Any divergences are noted, with relevant rationale considered carefully to determine whether it is appropriate. Consideration is also given to guidance issued. In line with the FRC's Guidance on Board Effectiveness, the Board additionally takes into account its suggestions of good practice when applying the Code focusing on the five key principles specified in the Code.

Where the Company's governance does not align completely with the Code, it is generally as a result of the role of its overall majority shareholder, itself adding a level of protection to long-term shareholder interests, which has had a positive impact on the Company.

All divergences from the Code, with an explanation of the reasons for doing so are set out below:

Provision 5 - The Board has regard to the interests of all its key stakeholders in its decision making. Executive Directors and senior management are fully engaged with the workforce, all of whom interact on a daily basis. Mr. Gabbertas is the Company's Whistleblowing Champion and is available at all times in this role. It has not been deemed necessary to appoint an employee representative to the Board since the Company has fewer than 20 employees, each of whom has direct access to the Board including its Non-Executive Directors. Given its size, as stated in the s.172 Statement on page 22, one of the non-executive directors of Arbuthnot Latham, Jayne Almond, has been designated by its board as the director to engage with the Arbuthnot Latham Group's workforce.

Provision 9 - The Chairman was not independent on appointment, though he was appointed prior to the introduction of the provision. Sir Henry Angest carries out the role of Chairman and Chief Executive, given his long-term interest as majority shareholder, itself aligning with the interests of other shareholders. The Company follows the US model that is successful in ensuring commercial success with strong corporate governance and stakeholder awareness, having a shared Chairman and CEO, with a separate, empowered, Chief Operating Officer. In his role as CEO, Sir Henry Angest is responsible for the effective operation and delivery of the business and ensures that he is surrounded by an exceptional management team which ensures the strong leadership required. In particular, ABG has a strong Group Chief Operating Officer and Group Finance Director ensuring challenge and independence from a business perspective, against the stakeholder focus of the Chairman carrying out his Chairman's role.

Provision 10 - The Board considers Mr. Dewar to be independent, notwithstanding the fact that he has served on the Board for more than nine years since August 2024, as his views and any challenge to executive management remain firmly independent. Mr. Dewar will be stepping down from the Board at the conclusion of the AGM on 21 May 2025, along with Sir Alan Yarrow who has been on the Board since June 2016.

Provision 12 - The Board has not appointed a Senior Independent Director, as the main shareholder is the Chairman and other large independent shareholders communicate frequently with the Chairman, the Group Chief Operating Officer and the Group Finance Director and with the Company's stockbroker, Shore Capital.

Provision 14 - Attendance at meetings is not reported. In the event that a Director is unable to attend a meeting, that Director receives relevant papers in the normal manner and relays any comments in advance of the meeting to the Chairman. The same process applies in respect of the Board Committees.

Provision 18 - Directors retire by rotation every three years in accordance with the Company's Articles of Association and company law. The Directors seeking re-election at the 2025 AGM are Sir Henry Angest and Andrew Salmon who have served on the Board for 39 and 21 years respectively. The contributions of Sir Henry Angest, who beneficially owns more than 50% of the issued share capital, and of Andrew Salmon, an executive director, have been invaluable in the successful development of the Company. Richard Gabbertas, appointed to the Board by the Directors on 2 July 2024, will be seeking election by Ordinary shareholders. Accordingly, the Board fully supports the resolutions for the respective reappointment and appointment of these Directors.

Provision 19 - Sir Henry Angest's role as Chairman is critical to and reflective of the overall group structure. It is through the responsibilities that derive from this role that he is able to consider and protect not only the interests of other shareholders, but also his own interests as a majority shareholder as their interests are aligned. It is for this reason that he surrounds himself with notably strong directors who individually, and as a group, ensure the protection of not only his investments, but also those of other shareholders. As such, he remains as Chairman notwithstanding the length of his tenure. 

Provision 23 - The Nomination Committee takes into account the provisions of the Board Diversity Policy and in terms of succession planning the Equity, Diversity and Inclusion Policy which promotes equality of opportunity for all staff. Further information on diversity and inclusion is given in the Sustainability Report on pages 27, 29 and 31, though the gender balance of senior management and their direct reports has not been given.

Provision 32 - Sir Henry Angest is Chairman of the Remuneration Committee, as is appropriate in the context of his majority shareholding.

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 review and approve the Group's Risk Management Policy and Risk Appetite framework. The Risk Management Policy describes and articulates the risk management and risk governance framework, methodologies, processes and infrastructure required to ensure due attention to all material risks for Arbuthnot Latham, including compliance with relevant regulatory requirements.

The Risk Appetite framework sets out the Board's risk attitude for the principal risks through a series of qualitative statements and quantitative risk tolerance metrics. These guide decision-making at all levels of the organisation and form the basis of risk reporting. The key business risks and emerging risks are continuously identified, evaluated and managed by means of limits and controls at an operational level by Arbuthnot Latham management, and are governed through AL committees.

There are well-established budgeting procedures in place and reports are presented regularly to the Board detailing the results, in relation to Arbuthnot Latham, of each principal business unit, variances against budget and prior year, and other performance data. The Board receives regular reports on risk matters that need to be brought to its attention, enabling it to assess the Group's principal and emerging risks. Material items are presented to the Board in the Risk Report, which includes a risk dashboard, from the AL Chief Risk Officer, who attends the Board meetings held concurrently with those of Arbuthnot Latham. Significant risks identified in connection with the development of new activities are subject to consideration by the Board. The risk dashboard covers key management actions which have included the climate change agenda and its potential longer-term impact on property and other asset classes and on management's approach to sustainability.

In November 2024, the Board received a separate report from the AL CRO enabling it to monitor the company's risk management and internal control systems and to carry out its annual review of the effectiveness of the Group's risk management and internal control systems. The report explained the Risk Management Policy, together with principal risks, risk appetite, policies, three lines of defence, systems, processes, procedures and controls and the risk board dashboard. Following its review, the Board confirms the effectiveness of the Company's risk management and internal control systems.

Shareholder Communications

The majority shareholder is Sir Henry Angest, Chairman and Chief Executive. The Company maintains communications with its major external shareholders via one-to-one meetings, as appropriate, by the Chairman and Chief Executive, the Group Chief Operating Officer or the Group Finance Director on governance and other matters. When practicable it also makes use of the AGM to communicate with shareholders in person. 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.

Board Committees

The Board has Audit, Nomination, Remuneration, Donations and Policy 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 and the terms of reference of the Audit, Nomination and Remuneration Committees are published on the Company's website. The Board maintains direct responsibility for issues of Risk without the need for its own Risk Committee, since responsibility for large lending proposals is a direct responsibility of its subsidiary, Arbuthnot Latham. Additionally the Chairman of the AL Board Risk Committee, Mr. Gabbertas, reports to the ABG Board at its regular meetings, held jointly with the board of Arbuthnot Latham, on the activities of that Committee which is responsible for monitoring the status of the Arbuthnot Latham group against its principal risks. Furthermore, each of the Directors either attends or, in the case of each of the independent Non-Executive Directors appointed since 2019, is a member of the newly constituted AL Board Risk Committee, in their role as a Non-Executive Director of AL, which meets prior to five of the Company's joint Board meetings.

Audit Committee

Membership and meetings

Membership of the Audit Committee comprises Lord Sassoon (as Chairman since 1 June 2024), Jayne Almond, Sir Nigel Boardman, Ian Dewar (Chairman until 1 June 2024), Angela Knight, Richard Gabbertas since 2 July 2024 and Sir Alan Yarrow. All of the Committee's members are independent non-executive Directors. Messrs Gabbertas, Dewar and Lord Sassoon have recent and relevant financial experience and the Committee as a whole has competence relevant to the financial sector in which the Company operates. The Company Secretary acts as its Secretary.

The Audit Committee oversees, on behalf of the Board, 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 Interim Report lies with the Board. The 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.

External Audit

The external auditors, Forvis Mazars LLP, have held office since their appointment in 2019 following a competitive tender. The Committee assesses the independence and objectivity, qualifications and effectiveness of the external auditors on an annual basis as well as making a recommendation to the Board on their reappointment. 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. The Committee has concluded that Forvis Mazars are independent and that their audit is effective.

Activity in 2024

The Audit Committee held four meetings during the year, each of which was held jointly with the Audit Committee of Arbuthnot Latham.

Internal Audit

On behalf of the Board, the Audit Committee monitors the effectiveness of systems and controls. To this end, Internal Audit provides the Committee and the Board with detailed independent and objective assurance on the effectiveness of governance, risk management and internal controls. It additionally provides assurance to the Board that the culture throughout the business is aligned with the Group's values, incorporating within each internal audit an assessment of culture in the area under review.

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, who was appointed in 2023, reports directly to the Chairman of the Audit Committee, Lord Sassoon. He provides reports on the outcomes of Internal Audit work directly to the Committee which monitors progress against actions identified in these reports. 

The Committee received a self-assessment report on Internal Audit from the Head of Internal Audit in November 2024 and is satisfied with Internal Audit arrangements during the year.

Integrity of Financial Statements and oversight of external audit

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; and

 • Reviewed closely the detailed work carried out by management in respect of Going Concern and Viability.

The reports from the external auditors 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 Committee receives by exception reports on the ICAAP and ILAAP which are key control documents that receive detailed consideration by the board of Arbuthnot Latham.

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

Significant areas of judgement and estimation

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

Impairment of financial assets

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 and estimates, were appropriate.

The charge for impaired financial assets totalled £6.3m for the year ended 31 December 2024. The disclosures relating to impairment provisions are set out in Note 4.1(a) to the financial statements.

Property Portfolio

The Group owns two commercial office properties and two repossessed properties. Of these properties, three are held as inventory and one as an investment property. The properties held as inventory are measured at the lower of cost and net realisable value on the basis of internal discounted cash flow models and external valuation reports. The investment property is measured at fair value on the basis of an external valuation report. The Committee discussed the bases of valuation with management and with the auditors who had engaged an internal expert to review management's valuations.

As at 31 December 2024, the Group's total property portfolio totalled £22.6m. The disclosures relating to the carrying value of the investment property and the properties held as inventory and for sale are set out in Notes 4.1(c), 4.1(d), 20, 25 and 31 to the financial statements.

Residual Value Risk

The Committee discussed the annual review of the residual values across the portfolio of leased assets of Asset Alliance Group, taking comfort from an increase during the year in management oversight of its Residual Value Committee, chaired by the AAG Group Risk Director, which is now attended by the Group's Chief Risk Officer. 

Going Concern and Viability Statement

The financial statements are prepared on the basis that the Group and Company are each a going concern for a period of at least twelve months from when the financial statements are authorised for issue. The Audit Committee reviewed management's assessment, which incorporated analysis of the ICAAP and ILAAP approved by the Board of Arbuthnot Latham and of relevant metrics, focusing on liquidity, capital, and the stress scenarios. It is satisfied that the going concern basis and assessment of the Group's longer-term viability is appropriate.

Other Committee activities

The Audit Committee reviewed and discussed a summary of the minutes of meetings of the Financial Regulatory Reporting Committee whose main responsibility is to ensure that the Group meets the PRA's regulatory reporting expectations. The Committee performs this role since it is concerned with financial reporting as well as with external reporting. During the year, it also carried out an assessment of External Auditor Performance and a review of all work being performed by potential audit firms in accordance with the FRC Publication: Audit Committees and the External Audit: Minimum Standard which has been incorporated into the Committee terms of reference. 

In November 2024, the Committee reviewed its performance and agreed that it continued to operate effectively. In March 2025, the Committee met separately with each of the Head of Internal Audit and the Senior Statutory Auditor without any other executives present. There were no concerns raised by them in regard to discharging their responsibilities.

On behalf of the Board, the Audit Committee reviewed the financial statements as a whole in order to assess whether they were fair, balanced and understandable. The Committee discussed and challenged the balance and fairness of the overall report with the executive directors and also considered the views of the external auditor. The Committee was satisfied that the Annual Report could be regarded as fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. It proposed that the Board approve the Annual Report in that respect.

Nomination Committee

Membership and meetings

The Nomination Committee is chaired by Sir Henry Angest and its other members are Sir Nigel Boardman and Sir Alan Yarrow. A majority of the Committee's members are therefore independent non-executive Directors. The Company Secretary acts as its Secretary. The Committee meets once a 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 performance, training requirements and succession planning, taking into account the skills and expertise that will be needed on and beneficial to the Board in the future.

Activity in 2024

The Nomination Committee met three times during the year including to assess and recommend the appointment of Richard Gabbertas, a director of Arbuthnot Latham since November 2020, as a new independent Non-Executive Director of the Company as part of continued succession planning and to continue the recent practice of having most board members serve on both boards, given that the Company has one operating business. Mr. Gabbertas is a highly experienced accountant and auditor, having been a partner of KPMG for 23 years, with a client base consisting of a number of financial services and banking firms, prior to his retirement in 2018. 

It was not considered appropriate to widen the search to include other banking and financial services experts for this role, given the status and profile of this individual, his strong banking and regulatory experience and his knowledge of the Group as a director of Arbuthnot Latham including as Chairman of its Audit Committee until 31 May 2024, after which he took on the role of Chairman of its newly constituted Board Risk Committee. It was also regarded that Mr. Gabbertas's career and reputation demonstrably reflect a good cultural fit with the Group and its Principles, Values and ESG Pillars. For all of these reasons, he was approached directly, and so neither advertising nor an external consultancy was used for this appointment.

The Committee also met to assess and confirm the collective and individual suitability of the existing Board members. Other than Mr. Dewar and Sir Alan Yarrow, who will be standing down at the conclusion of the AGM in May 2025, each of these directors is also a director of Arbuthnot Latham, given that as stated above the Company has one operating business.

In terms of individual performance, the Chairman confirmed that his assessment of all Directors was that they were performing well, with the Executive Directors additionally being formally reviewed in the context of the Senior Managers' Regime applicable to Arbuthnot Latham which confirmed continued strong performance. The Committee agreed with this assessment individually in relation to all members of the Board. Collectively, it was agreed that the Board had operated effectively with a wide range of experience and knowledge. As noted in the responses to the Board Effectiveness Questionnaire, Non-Executives have provided appropriate challenge and guidance.

In terms of the performance of the Company's Board generally, the Committee noted that it takes into account the provisions of the Board Diversity Policy and the Board Suitability Policy. It reviewed the summary of training carried out by each Director during 2024 and noted that Directors had been able to carry out sufficient training both in person and online. 

In November 2024, the Nomination Committee confirmed that the Board's current composition provides the Company with a balanced, knowledgeable, diverse and informed group of directors, bringing strategic acumen, foresight and challenge to the executive, commensurate with the size of the business. The Committee reviewed succession planning and agreed that a sensible and strong plan remained in place. It also agreed that it continued to operate effectively and, as such, no further changes to its membership, composition or activities were proposed to the Board.

In March 2025, the Committee met to recommend to the Board changes in membership of certain Board Committees and the appointment and re-appointment of Directors due to stand for respective election and re-election at the forthcoming AGM.

Remuneration Committee

Membership and meetings

Membership is detailed in the Remuneration Report on page 53. The Committee meets once a year and otherwise as required. The Remuneration Report on pages 53 to 55 gives information on the Committee's responsibilities, together with 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 Andrew Salmon and Sir Alan Yarrow. The Company Secretary acts as its Secretary. The Committee considers any political donation or expenditure as defined within sections 366 and 367 of the Companies Act 2006. It meets as necessary.

Activity in 2024

The Donations Committee met once during the year. It agreed that the Committee was constituted and continued to operate efficiently with its overall performance and the performance of its individual members effective throughout the year. As such, no changes to its membership or activities were proposed to the Board. 

Policy Committee

Membership and meetings

The Policy Committee, which is a joint Committee with Arbuthnot Latham, is chaired by Andrew Salmon. Its other members are James Cobb, Sir Nigel Boardman (since 1 June 2024), the AL Chief Risk Officer, another AL Executive director and the AL Chief Compliance Officer. A member of the AL Operational Risk team acts as its Secretary. Amongst its responsibilities, the Committee reviews the content of policy documentation (other than credit policy documentation which is reviewed by the AL Credit Committee) to ensure that it meets legal and regulatory requirements and approves it on behalf of the Board. 

Activity in 2024

The Policy Committee met six times during the year to review and approve Company policies.

Remuneration Report

Remuneration Committee

Membership of the Remuneration Committee is limited to independent non-executive directors together with Sir Henry Angest as Chairman. The other members of the Committee are Sir Nigel Boardman and Sir Alan Yarrow. As such, a majority of the Committee's members are independent non-executive Directors. The Company Secretary acts as its Secretary. The Committee normally meets twice a year and otherwise, as required.

The Remuneration Committee has responsibility for approving the overall remuneration policy for directors for review by the Board. The Committee is also responsible for remuneration more generally 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. Members of the Committee do not vote on their own remuneration.

The Committee also deals with remuneration-related issues, taking into account the requirements established by the PRA and the FCA.

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 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 contributions paid by the Company to individuals in the form of cash allowances, and, where applicable, to individual money purchase schemes. The 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 requirements established by the PRA and the FCA, the Company and its subsidiaries are all considered to be Tier 3 institutions.

Activity in 2024

The Remuneration Committee met three times during the year. It undertook its regular activities including reviewing the operation of the Remuneration Policy, having regard to the performance of the Company during the year. It reviewed the level of fees for non-executive Directors which reflect the appropriate level of fee to continue to secure the services of a high level non-executive director, increasing the fee for the additional fee payable for chairing the Audit Committee. It also reviewed and approved the Executive Directors' remuneration.

In May 2024, the Committee approved changes to the Remuneration Policy, following publication by the FCA and PRA in December 2023 of a policy statement on remuneration and enhancing proportionality for small firms. The regulators made changes to proportionality thresholds, exempting firms that meet the updated thresholds from requirements relating to malus, clawback and buyout (i.e. firms buying out outstanding deferred bonus awards for staff that have been cancelled by their previous employer). Furthermore, the Policy was amended to remove reference to percentage thresholds for variable remuneration (versus fixed) in response to their removal from regulation. The Company continues to meet the criteria relating to firms in Proportionality Level 3 of the remuneration rules.

The Company retained the existing internal requirement that all bonuses in excess of 33% of total remuneration and/or any annual remuneration package in excess of £500,000 in relation to the Company must be specifically approved in advance by the Ultimate Majority Shareholder who has an express right of veto in relation to all such remuneration packages. Current regulatory remuneration requirements also establish that the Company must report to the PRA any material changes to its remuneration structure. This includes disclosing changes to: the ratio of the maximum payout of bonus and executive incentive schemes when compared to fixed remuneration; and the performance measures and the risk adjustment used to determine whether and how much these bonus schemes and executive incentive schemes will pay out.

In November 2024, the Committee agreed that it continued to operate effectively.

Since the year end, the Committee has met again to review Directors' remuneration. It approved the award of bonuses to Messrs Salmon and Cobb for exceptional performance in the year at a reduced level from the prior year as a result of a smaller bonus pool reflecting outcomes for 2024 with 2023 having been a bumper year of profits. It also determined not to increase the salaries of the executive Directors. This decision was made after due consideration of comparable market rates and in view of an average salary rise in low single digits for employees, reduced from the previously planned amount as a result of the impending rise in employer national insurance in order to share part of the cost of the increase with employees. As in previous years, Sir Henry Angest waived his right to be considered for receipt of a bonus. After conducting a benchmarking exercise from an independent body, it decided not to increase the fees for acting as a non-executive director.

Directors' Service Contracts

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

Long Term Incentive Schemes

Grants were made to Messrs Salman and Cobb on 23 July 2021 under the Phantom Option Scheme to subscribe for 200,000 and 100,000 ordinary 1p shares respectively in ABG at 990p. 50% of each director's individual holding of phantom options is exercisable at any time after 23 July 2024 and the other 50% is exercisable at any time after 23 July 2026 when a cash payment would be made equal to any increase in market value. All share options awarded on 23 July 2021, regardless of first exercise date, may not be exercised later than 23 July 2028, being the day before the seventh anniversary of the date of grant. The fair value of the options as at 31 December 2024 was £0.2m (2023: £0.4m). As at 31 December 2024 the initial 50% of each director's holding had reached the strike date of 24 July 2024 but have not been exercised.

Details of outstanding options are set out below.

* Mr. F. Angest received a bonus as an employee of the Company and not in his role as a non-executive director.

Details of any shares or options held by directors are presented above.

The emoluments of the Chairman were £1,327,000 (2023: £1,261,000). The emoluments of the highest paid director were £2,935,000 (2023: £2,909,000) including pension contributions of £35,000 (2023: £35,000). The emoluments reported above for Mr. Gabbertas and in the prior year for Ms Almond, Ms Knight and Lord Sassoon are pro-rated from the date they became Directors of the Company.

Retirement benefits are accruing under money purchase schemes for three directors who served during 2024 (2023: three directors).

Independent Auditor's Report

Opinion

We have audited the consolidated financial statements of Arbuthnot Banking Group PLC (the 'Parent Company') and its subsidiaries (the 'Group') for the year ended 31 December 2024 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Company Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Company Statement of Cash Flows, and notes to the financial statements, including material accounting policy information.

The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted international accounting standards, as applied in accordance with the provisions of the Companies Act 2006.

In our opinion, the financial statements:

· give a true and fair view of the state of the Group and of the Parent Company's affairs as at 31 December 2024 and of the Group's profit for the year then ended;

· have been properly prepared in accordance with UK-adopted international accounting standards as applied in accordance with the provisions of the Companies Act 2006; and

· have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the "Auditor's responsibilities for the audit of the consolidated financial statements" section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in the UK, including the Financial Reporting Council's ("FRC") Ethical Standard as applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Our audit procedures to evaluate the directors' assessment of the Group and the Parent Company's ability to continue to adopt the going concern basis of accounting included but were not limited to:

· Undertaking an initial assessment at the planning stage of the audit to identify events or conditions that may cast significant doubt on the Group's and the Parent Company's ability to continue as a going concern;

· Obtaining an understanding of the relevant controls relating to the directors' going concern assessment;

· Making enquiries of the directors to understand the period of assessment considered by them, the assumptions they considered and the implication of those when assessing the Group's and the Parent Company's future financial performance;

· Evaluating management's going concern assessment of the Group and the Parent Company and challenging the appropriateness of the key assumptions used in and mathematical accuracy of management's forecasts, including assessing the historical accuracy of management's forecasting and budgeting;

· Assessing the sufficiency of the Group and Parent Company's capital and liquidity taking into consideration the most recent Internal Capital Adequacy Assessment Process ('ICAAP') and Internal Liquidity Assessment Process ('ILAAP') performed by Arbuthnot Latham & Co., Ltd, a wholly owned subsidiary within the Group which is a bank regulated by the Prudential Regulation Authority ('PRA'), and evaluating the results of management's scenarios and reverse stress testing which includes sensitivity analysis, and including consideration of principal and emerging risks on liquidity and regulatory capital;

· Assessing the accuracy of management's forecast through a review of post year-end performance;

· Evaluating the Group's Resolution and Recovery plans which includes possible cost saving measures that could be taken in the event circumstances prevent forecast results from being achieved;

· Reading regulatory correspondence, minutes of meetings of the Audit Committee and the Board of Directors;

· Considering whether there are events subsequent to the balance sheet date which could have an impact on the Group and the Parent Company's going concern conclusions;

· Considering the consistency of management's forecasts with other areas of the consolidated financial statements and our audit; and

· Evaluating the appropriateness of the disclosures in the consolidated financial statements related to going concern.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's and the Parent Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

In relation to Arbuthnot Banking Group PLC's reporting on how it has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the director's considered it appropriate to adopt the going concern basis of accounting.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We summarise below the key audit matters in forming our opinion above, together with an overview of the principal audit procedures performed to address each matter and our key observations arising from those procedures.