Aldermore Bank PLC Annual Report and Accounts For the year ended 31 December 2014 Company number 00947662

Biographies of the Board

Executive Directors

Phillip Monks Chief Executive Officer, Age 54

Phillip was part of the team which founded in 2009 and has over 30 years’ industry experience. Most recently he established, and obtained a banking licence for, Europe Arab Bank where he was CEO until 2008. Prior to this, Phillip held senior roles within Bank plc, including Branch Director of Barclays in , Director of Business and Corporate Banking in North West England, Managing Director of Barclays Corporate Banking in , the Midlands and South East and, finally, CEO of Gerrard Investment Management from 2003 upon its acquisition by Barclays from Old Mutual plc.

James Mack Chief Financial Officer, Age 43

James joined Aldermore in June 2013 and is responsible for the Finance and Treasury functions. From 2010, he held a number of senior finance roles within the Co-operative Banking Group including Acting CFO, Director of Financial Control and Head of Financial Planning and Analysis. Prior to this, James spent six years with the Skipton Building Society and was instrumental in leading the merger with the Scarborough Building Society. James joined KPMG in 1993 and spent 11 years in their financial services practice.

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Non-Executive Directors

Glyn Jones Chairman, Age 62

Glyn joined the Board as Chairman in March 2014. He is currently the Senior Independent Director on the board of Direct Line Insurance Group plc and, since May 2007, has been the chairman of Aspen Insurance Holdings Limited, a New York listed specialty lines insurance and re-insurance business. Glyn was formerly the chairman of Towry Holdings Limited between 2006 and 2011. He also served as chairman of Hermes Fund Managers from 2008 to 2011 and was chairman of the sister company BT Pension Scheme Management for a part of this period. Glyn was chief executive officer of the independent investment group, Thames River Capital, from 2005 to 2006. From 2000, he served as chief executive officer of Gartmore Investment Management in the UK for four years. Prior to this, Glyn was chief executive officer of NatWest Group and Coutts Group, having joined in 1997. In 1991, Glyn joined in Hong Kong where he became the general manager of Global . He was a consulting partner with Coopers & Lybrand/Deloitte Haskins & Sells Management Consultants from 1981 to 1990. Glyn is a graduate of Cambridge University and a Fellow of the Institute of Chartered Accountants in England & Wales.

Danuta Gray Senior Independent Director, Age 55

Danuta joined the Board as the Senior Independent Director in September 2014. Danuta has extensive business experience having spent 26 years in the telecommunications sector. Starting her career at BT in 1984, Danuta held numerous senior roles becoming Senior Vice President, BT Europe in 1999. During her time at BT she gained experience in marketing, customer service, communications, technology and sales, and in leading and implementing change. Danuta was Chairman of Telefonica O2 in Ireland until December 2012, having previously been its Chief Executive from 2001 to 2010. Previously Danuta served for seven years on the board of Irish Life & Permanent PLC as Chairman of the Remuneration Committee and was a non-executive director of Aer Lingus PLC from 2006 - 2013. Danuta is currently also a non-executive director at Old Mutual PLC, Michael Page International PLC and Paddy Power PLC.

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Peter Cartwright Non–Executive Director, Age 49

Peter’s involvement with the Board dates back to the launch of Aldermore in May 2009. He is one of the founding partners of AnaCap Financial Partners LLP where he is also the Co-Managing Principal responsible for developing AnaCap’s portfolio company investments. Prior to AnaCap, Peter was commercial director within a specialty insurance services provider backed by a UK-based private equity firm, and between 1999 and 2003 was Sales & Marketing Director and Operations Director for GMAC UK and On:line Finance, respectively, having previously worked for GE Capital. Peter is an experienced business builder and operational specialist and holds various non-executive and supervisory board roles within banks and financial services companies across Europe.

Neil Cochrane Non–Executive Director, Age 30

Neil joined the Board in September 2014. Neil’s involvement with Aldermore dates back to May 2010, when he joined AnaCap Financial Partners LLP’s Business Services team. This role saw Neil take responsibility for day-to-day interaction with senior management of the AnaCap’s portfolio companies on strategic and operational development. Neil is currently an investment director within the team. Neil brings eight years strategic financial services experience to this role. He started his career as a consultant at Oliver Wyman Financial Services in 2006 where he was involved in a broad range of projects for banking and insurance clients. His assignments covered clients in the UK, Europe and the U.S. and were predominately focused on new business launches, strategy development, M&A and risk management. Neil graduated from the University of Nottingham in 2006 with a BA (Hons) in Economics.

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John Hitchins Independent Non–Executive Director, Age 59

John is an independent Non-Executive Director and chairs the Audit Committee. He was appointed to Board in May 2014. He brings 36 years of experience in the audit arena, having spent his whole career at PricewaterhouseCoopers (‘‘PwC’’), including as an audit partner.

John was formerly Chairman of the Banking Committee of the Institute of Chartered Accountants in England & Wales and a board member of the Institute’s Financial Services Faculty. He has also served as a member of the Institute’s Business Law Committee. During his career with PwC, John specialised in bank auditing and financial advisory services and his clients have included institutions such as Euroclear, , The Bank of England, , Britannia Building Society, Barclays, JP Morgan Chase and Nomura.

Until recently, John was a member of the UK FCA Practitioner and Markets Practitioner Panels. He is currently a member of the Governing Council of the Centre for the Study of Financial Innovation, a not-for-profit City-based think tank. John is a graduate of Oxford University and a Fellow of the Institute of Chartered Accountants in England & Wales.

John Callender Independent Non–Executive Director, Age 64

John joined the Board in May 2009 and chairs the Risk Committee. John resigned from the Board and its committees with effect from 27 February 2015. He is currently Non- Executive chair of ANZ Bank Europe Ltd and holds Non-Executive Directorship at Ford Credit Europe Plc (where he chairs the Risk committee and is a member of the Audit Committee), and at Motability Operations Plc (Where he chairs the Remuneration Committee and is a member of the Audit Committee).

John is also a member of the Financial Conduct Authority Regulatory Decisions Committee which he was invited to join in 2013. Until recently John served for a number of years as Governor of Reading Blue-Coat School in Sonning, Berkshire. Previously he was a senior executive in Barclays plc with considerable experience of operating in Europe, India and the USA, running a number of Businesses including the asset finance, leasing, invoice finance and contract hire operations. He served on the Board of the Finance and Leasing Trade Association for 6 years and was elected Chair for 1996/1997.

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Peter Shaw Independent Non–Executive Director, Age 55

Peter joined the Board as an independent Non-Executive Director in September 2014 and will chair the Risk Committee with effect from 1 March 2015. Peter brings over 30 years financial services experience to his new role, having spent most of his career at RBS NatWest. Joining NatWest as a graduate trainee in 1981, Peter worked across a number of business areas during his career with the group including retail, SME, private banking, corporate banking, HR and risk. Between 1994 and 2002, Peter was Managing Director of various group businesses offshore, based in Jersey. In 2002, Peter returned to the UK to become COO of the Risk Function at Group Head Office and between 2004 and 2010 Peter was Chief Risk Officer for various group businesses including RBS UK Retail, Wealth & . Between May 2012 and January 2013, Peter acted as interim Chief Risk Officer for the Co-operative Banking Group. Peter is currently also a non-executive director at Bank of Ireland UK PLC, where he is chair of the bank’s risk committee and a member of the audit committee. Peter graduated from London South Bank University in 1981 with a BA in Modern Languages. Peter holds an ACIB and DipFS. He is also a Fellow of the Chartered Institute of Bankers in .

Chris Stamper Independent Non–Executive Director, Age 59

Chris is an independent Non-Executive Director and was appointed to the Board in February 2014. He brings 35 years of experience in the asset finance industry, most recently as director and CEO of ING Lease (UK) Ltd. He is a founding governor of The Leasing Foundation and was a director of Finance and Leasing Association Ltd. from 2003 to 2012 and a former Chairman of their Asset Finance Division. Previously, Chris was Head of Abbey Business responsible for five business units focused on the SME market. Prior to this, Chris was the Managing Director of Lombard Sales Finance where he spent 21 years.

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Cathy Turner Independent Non–Executive Director, Age 51

Cathy is an Independent Non-Executive Director and chairs the Remuneration Committee. She was appointed to the Board in May 2014. She is currently Non- Executive Director and Chair of the Remuneration Committee of Countrywide plc. She is also a Vice President of UNICEF UK and a member of the board of the Royal College of Art. She is also an Associate of the advisory group Manchester Square Partners. Cathy has extensive industry experience working with Deloitte & Touche, Ernst & Young and Watson Wyatt as a compensation and benefits consultant in her early career. She subsequently joined Barclays PLC, where she was a member of the Group Executive Committee with responsibility for Human Resources, Corporate Affairs, Strategy and Brand and Marketing. During her time with Barclays she was also Director, Investor Relations for four years and had extensive experience in remuneration in her many roles. Most recently, she was Chief Administrative Officer of Lloyds Banking Group PLC. Cathy is a graduate of the University of Lancaster.

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Aldermore Bank PLC Financial statements for the year ended 31 December 2014

Notes to the financial statements (continued) 39. Risk management (continued) ) Credit risk (continued)

The Bank has a portfolio of asset backed securities (“ABS”). The majority of these investments are in AAA or AA+ to AA- rated bonds secured on UK originated assets. All investments are in Sterling; no foreign currency bonds were bought. The portfolio has credit enhancement, providing principal protection against losses.

Derivatives

Credit risk on derivatives is controlled through a policy of only entering into contracts with a small number of UK credit institutions, with a credit rating of at least AA- at inception. Most derivative contracts are collateralised through the receipt/payment of daily cash margin calls to cover the mark to market asset/liability. iv) Offsetting financial assets and liabilities

It is the Bank’s policy to enter into master netting and margining agreements with all derivative counterparties. In general, under master netting agreements the amounts owed by each counterparty that are due on a single day in respect of all transactions outstanding in the same currency under the agreement are aggregated into a single net amount being payable by one party to the other. In certain circumstances, for example when a credit event such as a default occurs, all outstanding transactions under the agreement are aggregated into a single net amount being payable by one party to the other. In certain circumstances, for example when a credit event such as a default occurs, all outstanding transactions under the agreement are terminated.

Under the margining agreements where the Bank has a net asset position valued at current market values, in respect of its derivatives with a counterparty, then that counterparty will place collateral, usually cash, with the Bank in order to cover the position. Similarly, the Bank will place collateral, usually cash, with the counterparty where it has a net liability position.

As the Bank’s derivatives are under master netting and margining agreements as described above, they do not meet the criteria for offsetting in the statement of financial position.

The following tables detail amounts of financial assets and liabilities subject to offsetting, enforceable master netting agreements and similar arrangements including the Funding for Lending Scheme as detailed in Notes 18 and 26. Gross Gross Net amount of Related amounts not offset in the 31 December 2014 amount of amount of financial statement of financial position recognised recognised instruments Type of financial instrument financial financial presented in instruments instrument the statement offset in the of financial statement of position financial Financial Cash Net position instruments collateral amount paid/ (received) Assets £'000 £'000 £'000 £'000 £'000 £'000 Loans and advances to 719,900 - 719,900 (304,207) - 415,693 customers (amounts pre- positioned as collateral under the FLS) Derivatives held for risk 25,592 - 25,592 (7,068) (1,100) 17,424 management

745,492 - 745,492 (311,275) (1,100) 433,117

Liabilities Amount due to banks – (304,207) - (304,207) 304,207 - - repurchase agreements Derivatives held for risk (53,514) - (53,514) 7,068 46,162 (284) management

(357,721) - (357,721) 311,275 46,162 (284)

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Aldermore Bank PLC Financial statements for the year ended 31 December 2014

Notes to the financial statements (continued) 39. Risk management (continued) c) Liquidity risk (continued)

Wholesale funding

The Bank mainly finances its operations through retail and SME deposit taking. It does not have long term wholesale funding lines in place with the exception of drawings under the Funding for Lending Scheme and repo facilities to help manage liquid assets. The Bank does have relationship banking facilities in place which are used to hedge against currency and interest rate exposures as well as repo facilities for short term liquidity management.

A summary of the Bank’s wholesale funding sources is show below:

31 December 31 December 1 January 2014 2013 2013 Note £'000 £'000 £'000

Repurchase agreements on drawings under FLS Scheme 26 304,207 383,071 114,579 Amounts payable to Aldermore Group undertakings 33 302,712 - - Deposits by banks 26 600 1,205 500 607,519 384,276 115,079

Payments systems

The Bank does not form part of the UK payment system. However, in the event there are problems with one of the payment systems, the Bank has access to other facilities with which to make payments if needed.

Pipeline loan commitments

The Bank needs to maintain liquidity to cover for the outstanding pipeline of loan offers. Although certain pipeline offers may not be legally binding, the failure to adhere to an expression of intent to finance a loan contract brings reputational risk, therefore liquidity is held for such pipeline offers.

Cash collateral requirements

The swap Credit Support Annex (“CSA”) agreement requires the Bank or a swap counterparty to hold cash in a deposit account, depending on whether the swap is in or out of the money. As the Bank is unrated, the swap agreements are not credit rating sensitive in relation to the Bank, which removes the impact from a downgrade risk.

Contingency funding plan

As a regulated firm, the Bank is required to maintain a Contingency Funding Plan (“CFP”). The plan (which is now part of the Bank’s Recovery and Resolution Plan (RRP)) involves a two stage process, covering preventative measures and corrective measures to be invoked when there is a potential or actual risk to the Bank’s liquidity or capital position. The CFP/RRP provides a plan for managing a liquidity or capital situation or crisis within the Bank, caused by internal events, external events or a combination thereof. The plan outlines what actions the Bank could take to ensure it complies with the liquidity adequacy rules, maintains sufficient capital and operates within its risk appetite and limits, as set and approved by the Board.

163 Aldermore Bank PLC Financial statements for the year ended 31 December 2014

Notes to the financial statements (continued) 39. Risk management (continued) c) Liquidity risk (continued)

The following is an analysis of gross undiscounted contractual cash flows payable under financial liabilities:

Gross contractual cash flows Payable More on Up to 3 3 to 12 1 to 5 than 5 demand months months years years Total £’000 £’000 £’000 £’000 £’000 £’000

31 December 2014 Non derivative liabilities Amounts due to banks 1,142 234,785 69,910 - - 305,837 Customers’ accounts 1,190,398 809,826 1,434,729 1,090,600 - 4,525,553 Other liabilities 4,200 9,479 - - - 13,679 Subordinated notes - - 5,150 47,725 - 52,875 Amounts payable to Aldermore Group undertakings - 16,435 45,403 274,506 - 336,344 Unrecognised loan commitments 404,593 - - - - 404,593 1,600,333 1,070,5251,555,192 1,412,831 - 5,638,881 Derivative liabilities Derivatives held for risk management – settled net 542 1,200 10,051 24,890 18,022 54,705 Derivatives held for risk management settled gross: Amounts received (2,349) (4,544) - - - (6,893) Amounts paid 2,349 4,545 - - - 6,894 542 1,20110,051 24,890 18,022 54,706 31 December 2013 Non derivative liabilities Amounts due to banks 1,685 174,938 109,934 99,806 - 386,363 Customers’ accounts 944,724 668,323 1,138,897 775,581 - 3,527,525 Other liabilities 3,583 6,793 - - - 10,376 Subordinated notes - - 5,150 52,875 - 58,025 Unrecognised loan commitments 343,652 - - - - 343,652 1,293,644 850,0541,253,981 928,262 - 4,325,941 Derivative liabilities Derivatives held for risk management – settled net - 978 3,179 11,158 3,118 18,433 Derivatives held for risk management settled gross: Amounts received (13,849) - - - - (13,849) Amounts paid 13,849 - - - - 13,849 - 9783,179 11,158 3,118 18,433 1 January 2013 Non derivative liabilities Amounts due to banks - 25,004 69,968 19,950 - 114,922 Customers’ accounts 449,602 397,955 1,037,748 303,932 - 2,189,237 Other liabilities 2,822 3,990 - - - 6,812 Subordinated notes - - 5,150 58,025 - 63,175 Unrecognised loan commitments 213,640 - - - - 213,640 666,064 426,9491,112,866 381,907 - 2,587,786 Derivative liabilities Derivatives held for risk - 617 5,756 21,274 8,133 35,780 management – settled net Derivatives held for risk management settled gross: Amounts received ------Amounts paid ------6175,756 21,274 8,133 35,780

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Aldermore Bank PLC Financial statements for the year ended 31 December 2014

Notes to the financial statements (continued) 40. Capital management (continued)

The Bank’s regulatory capital position as at the period end was as follows:

31 December 31 December 1 January 2014 2013 2013 £'000 £'000 £’000 (Common equity) Tier 1 (CET1) Share capital 3,300 3,300 3,300 Share premium account 233,380 233,380 171,822 Capital contribution reserve 3,112 2,503 2,339 Retained earnings 59,299 19,590 (6,125) Less: Intangible assets (18,279) (18,366) (18,135)

Total common equity Tier 1 capital (CET1) 280,812 240,407 153,201

Additional Tier 1 (AT1) Additional Tier 1 – perpetual loan 74,250 - - Total Tier 1 capital 355,062 240,407 153,201

Tier 2 Subordinated notes 36,758 35,571 34,600 Collective impairment allowance 8,527 6,314 3,131

Total Tier 2 capital 45,285 41,885 37,731

Total regulatory capital 400,347 282,292 190,932

Both years above are presented on an IFRS basis. The 2013 comparatives were previously reported to the Prudential Regulatory Authority (“PRA”) and its predecessor the Financial Services Authority were based on the Bank’s UK GAAP accounts. Regulatory capital has increased during 2014 as a result of the issuance of Additional Tier 1 capital in December 2014 and the inclusion of the profit for the year in retained earnings.

The Bank has elected to use the standardised approach for credit risk. Under CRD III and CRD IV, the Bank must set aside capital equal to 8 percent of its total risk weighted assets to cover its ‘Pillar 1’ capital requirements. The Bank must also set aside additional ‘Pillar 2’ capital to provide for additional risks. This is calculated by multiplying the Pillar 1 capital by the Individual Capital Guidance (“ICG”) ratio.

The ICG ratio is based on the various risks which the Bank faces and is agreed by the PRA. The Bank’s capital base was in excess of the minimum required under the ICG.

Further details of the Bank’s management of capital are provided in the Pillar III disclosures which are available on the Bank’s investor relations website: www.investors.aldermore.co.uk.

168 Aldermore Bank PLC Financial statements for the year ended 31 December 2014

Notes to the financial statements (continued) 40. Capital management (continued)

Reconciliation of equity per statement of financial position to capital resources

31 December 31 December 1 January 2014 2013 2013 £'000 £'000 £’000 Equity per statement of financial position 374,717 259,364 174,494 Regulatory adjustments: Add: subordinated notes 36,758 35,571 34,600 Add: collective impairment allowance 8,527 6,314 3,131 Less: available for sale reserve (1,376) (583) (3,149) Less: intangible assets (18,279) (18,366) (18,135)

Total regulatory capital 400,347 282,300 190,941

With effect from 1 January 2015 the available for sale reserve will be included in the Group’s Common Equity Tier 1 capital.

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