Arbuthnot Banking H1 2025 PBT £10.9m, dividend up 10% to 22p

Arbuthnot Banking Group Plc (LON:ARBB) has announced its unaudited results for the six months to 30 June 2025.

FINANCIAL HIGHLIGHTS

OPERATIONAL HIGHLIGHTS

Commenting on the results, Sir Henry Angest, Chairman and Chief Executive of Arbuthnot Banking Group, said: “Arbuthnot has continued to grow the overall business and in particular its relationship deposit base, funds under management and specialist commercial lending. The continued strength of the business is reflected in the decision to increase the interim dividend by 10 per cent even though, as anticipated, this year’s results reflect the effect of a series of reductions in base rate over the last twelve months.”

Chairman’s Statement

The Group has reported a profit before tax for the first six months of the year of £10.9m compared to £20.8m in the same period last year.

This reduction in reported profit was expected, as the Bank of England’s base rate was lower than the prior period. However, the Group continues to make good strategic progress. As in prior periods, the Group has maintained its discipline in allocating capital to the lending proposals that offer the best returns on capital rather than using lending volumes themselves as an indicator of success.

During the first half of the year our lending balances fell to £2.3bn compared to the position at the end of 2024 where they stood at £2.4bn. Within this we have continued to grow our asset finance and truck leasing balances but have seen more subdued conditions elsewhere in the Group, in particular in the real estate finance market along with our invoice finance business.

The uncertain economic outlook has meant that real estate markets have seen thin volumes of business and therefore other lenders have been chasing this business by offering sub optimal rates. We have always considered ourselves to be counter cyclical lenders, and we refuse to be drawn into competing on price alone, so we remain content to preserve our capital for the future, when these markets become firmer, and the prices produce acceptable returns on our capital deployed.

I was delighted to see that our plan to increase lending in our specialist divisions was recognised in the recently published Asset Finance UK 50 report, where Asset Alliance was the number one firm with the highest percentage growth rate in the last reported year and Renaissance Asset Finance was ranked sixth with the highest percentage growth rate over the past three years.

The success that the Bank has enjoyed in attracting new deposits has continued into the first half of the year, with balances growing to in excess of £4.4bn. This is an increase of £285.5m since the year end and £554.9m since the same time in the prior year. This is a growth rate of 7% since the year end, despite seeing approximately net £140m of outflows around the tax payment season.

As we have previously indicated, our profitability performance is somewhat linked to the level of the base rate as our surplus liquidity balances are held at the Bank of England or invested in short term fixed income products. The continued fall in the base rate during the first half, after the initial reductions that started in August 2024, is the most significant factor in the reduction in the reported profit.

However, there is also a lag effect as a result of the time it takes for deposit balances to reprice. This can be seen in the average cost of deposits, which fell to 2.80% for the six month period compared to 3.19% for the same period in the prior year; it stood at 2.68% at the end of June 2025.

I am happy to report that our Wealth Management distribution continues to grow at a very acceptable rate, with funds under management increasing to £2.4bn despite the volatile markets. That is a growth rate of 8% since the year end and 22% in the past year. The business is also making good progress in its optimisation project which should be up and running in 2026.

Given the continued progress of the Group and the strength of the balance sheet the Board are proposing to pay an interim dividend of 22p per Ordinary and Ordinary Non-Voting share, an increase of 2p per share compared to the regular interim dividend paid in the prior year. This dividend will be paid on 26 September 2025 to shareholders on the register at 29 August 2025.

Finally, at the AGM both Ian Dewar and Sir Alan Yarrow retired from the Board having reached the notorious nine year guillotine. I would like to thank them once again for their significant contributions and advice, as they have guided the Group through a period of exceptional growth. On 16 July we appointed Charlotte Crosswell to the Board of Directors, and I would like to welcome her to the Group and look forward to working alongside her in the future.

Banking

Banking’s relationship-led approach continued to support the acquisition and retention of criteria clients across Private and Commercial Banking.

Despite the annual expected outflows to HMRC in the early part of 2025, these were more than offset with an increase in deposit flows from new and existing clients.  As a result, core deposits for Banking increased by £285.5m to £4.4bn, equating to 7% growth for the first half of 2025, and 14% compared to 30 June 2024.

Lending declined, as expected, in the first half of 2025 by 8% to £1.4bn. The Bank continued its strategy to recycle capital into higher margin lending by the subsidiary companies. With the macro-economic outlook remaining uncertain, the Bank’s loan appetite remains cautious, with a focus on continuing to support existing clients, whilst maintaining its principle of high quality credit lending for new business. Consequently, the low growth environment has suppressed opportunities, resulting in a lower deal flow, with market participants competing for the quality deals by lowering margins, and hence returns on capital. Given our long standing principle of maintaining our returns on capital employed we have not been drawn into this competition.

The Bank’s recent Net Promotor Score of 68 reflects the ongoing support from its clients and its commitment to its vision of being a leading full service, human-scale relationship bank powered by modern technology.

Wealth Management

Funds Under Management & Administration (FUMA) continued to grow in the first half of 2025 to finish June at £2.4bn, up 8% from the start of the year and representing growth of 22% year on year (30 June 2024: £2.0bn).

The threat of a global trade war along with geo-political instability resulted in high levels of market volatility in the first 6 months of 2025. However despite the turbulence, year to date gross inflows of £204m over the period compared to £170m over the same period last year, which has resulted in net flows for the current period of £127m.

Arbuthnot Commercial Asset Based Lending (ACABL)

ACABL reported a profit of £4.8m compared to £4.4m for the same period the prior year and finished the period with a loan book of £231.2m, relatively unchanged from the end of 2024.

The economic uncertainty and low growth environment, which suppressed activity in 2024, continued in the first half of 2025. Client facilities reaching the end of their terms continued to offset growth in the loan book, although originations in Q2 including the provision of additional facilities for existing clients, together with ACABL’s pipeline, are showing more positive signs.

The business carries on closely monitoring watch cases, but the proven business model of high quality collateral continues to mitigate against credit losses.

Renaissance Asset Finance (RAF)

RAF reported a profit of £3.3m (30 June 2024: £2.2m), an increase of 48% compared to the same period in the prior year, and finished the first half with a loan book of £279.6m, equating to annual growth of 19% when compared to £234.3m for the same period in the prior year and 12% up from the year end (31 December 2024: £248.8m).

The Block Discounting business now makes up 21% of the RAF book with balances of £58m, equating to annual growth of 88% when compared to £30.9m for the same period in the prior year.

Despite the challenging economic climate for the SME sector, problem debt provisions remain low and favourable net margins were maintained.

Asset Alliance (AAG)

AAG reported a loss before tax of £0.5m (30 June 2024: £0.03m profit).

Whilst the commercial vehicle market remains subdued, there are definite signs of improvement in both new business lending and end of lease asset sales.  As at 30 June 2025 the business had assets available for lease and finance leases totalling £385.0m (30 June 2024: £363.1m), growth of 6% since the year end and over the previous 12 months (31 December 2024: £363.0m).

Own book origination of £75m in the first six months has been achieved by a continuation of the strong origination within the bus and coach market from 2024 as well as the improvements on truck and trailer leasing. Yields on new business remain stable, in line with the prior year and resilient amidst recent rate reductions and a highly competitive market.

Trading in used end of lease commercial vehicles, which saw a slump in 2024, has seen improvement towards the second half of the period.  The strategy to diversify the portfolio has resulted in strong performance from the bus and coach division offsetting the more challenging truck sector.

The Bus Rental Division which launched in 2024 continues to deliver growth amidst the ongoing drive for Extra Low Emission Zones within the UK Cities with all assets fully utilised and delivering strong yields, coupled with a healthy forward pipeline.

The lending book remains robust with minimal impairments. 

Operations

The Bank has continued to pursue its client growth strategy in target markets whilst investing in infrastructure to improve client service and operational resilience.  New account growth was 5% higher than for the same period in the prior year.

Inbound and outbound payments increased by 8% to 630,162 for the period compared to 585,520 for the prior year. The Total Number of Active cards grew to 7,834 with a 32% increase in Digital Wallet spending.

The digital transformation programme launched in the prior year continued to progress, enhancing the client experience and how they interact with the Bank whilst improving operational efficiency with greater integration across the Bank’s suite of applications in a modern, cloud-based architecture.

Outlook

The UK economic environment appears to be weaker than expected with two months of falling GDP. This suggests that further rate cuts may be required. However, inflation remains stubbornly higher than the target rate so any rate cuts will have to balance this, and that is before the effect of global tariffs or the increase in employers’ national insurance have fed their way into the economy. Added to this, the geopolitical situation is far from stable. Regardless, the Group remains focused on pursuing its long term ‘Future State 2’ strategy and will continue to seek and pursue opportunities with caution and discipline.