Aldermore Group PLC Aldermore Group Annual report and accounts 2014 Annual report Banking as it should be Aldermore Group PLC Annual report and accounts 2014 Aldermore Group PLC Annual report and accounts 2014 Strategic report Highlights of the year Increased support for UK SMEs and homeowners • Net loans to customers up by 42% to £4.8 billion (2013: £3.4 billion) • Record level of annual organic origination of £2.4 billion (2013: £1.7 billion) • Lending to SMEs up by 32% to £2.2 billion (2013: £1.7 billion) • Residential Mortgages grew by 53% to £2.6 billion (2013: £1.7 billion) Dynamic online savings franchise • Customer deposits up by 29% to £4.5 billion (2013: £3.5 billion) • Excellent growth in SME deposits, up by 97% to £1.0 billion (2013: £0.5 billion) Record levels of profitability • Profit before tax up by 96% to £50.3 million (2013: £25.7 million) • Excluding IPO costs, underlying profit before tax more than doubled to £56.3 million • Return on equity1 increased to 15.1% (2013: 11.6%) Diversified funding and strong capital base • Issued £333 million of RMBS to further diversify funding base • Successfully issued £75 million of Additional Tier 1 capital • Total capital ratio of 14.8% (2013: 14.2%) and leverage ratio of 6.3% (2013: 5.3%) Building a Bank to be proud of • Delivering exceptional service, rated 4.6 out of 5 by our customers • Number of customers up by 23% • Received accreditation as ‘One to Watch’ in The Sunday Times ‘Best Companies to Work For’ annual survey • Investing for the future, number of staff increased by 28% to 876 1 Excluding IPO costs of £6.0 million. In this report Strategic report Strategic Strategic report Aldermore at a glance 2 Chairman’s statement 4 Chief Executive Officer’s statement 6 Leveraging the business model 8 Our strategy 10 Our Key Performance Indicators 11 Chief Financial Officer’s review 12 Business review Asset Finance 18 Invoice Finance 22 SME Commercial Mortgages 26 Residential Mortgages 30 Savings 34 Principal risks and uncertainties 38 Our customers, people and communities 42 Corporate governance Corporate governance report 45 Biographies of the Board 52 Consolidated Directors’ report 54 Statement of Directors’ responsibilities 57 Governance Financial statements Independent auditor’s report 58 Consolidated financial statements 59 Notes to the consolidated financial statements 63 The Company financial statements 121 Notes to the Company financial statements 124 For more information on our business visit www.aldermore.co.uk Financial statementsFinancial Twitter: @AldermoreBank Facebook: AldermoreBank LinkedIn: company/aldermore-bank-plc YouTube: AldermoreBank The consolidated financial statements of Aldermore Group PLC (‘the Group’) comprise of Aldermore Group PLC (‘the Company’) and its subsidiary undertakings, including Aldermore Bank PLC (‘the Bank’). 1 Aldermore Group PLC Annual report and accounts 2014 Strategic report Aldermore at a glance Established in 2009, Aldermore is a SME-focused bank with a legacy-free, modern and scalable digital infrastructure. Vision – “Banking as it should be” • To be the strategically important bank for UK SMEs and homeowners • DNA: Reliable, Expert, Dynamic, Straightforward Targeted product offering • Asset-backed lending for underserved customer segments • Large, growing markets with attractive risk-adjusted returns • Dynamic online deposit franchise forms funding core Intermediary-led distribution complemented by direct • 12 regional offices provide operational support Consistent, robust credit risk management • Modern IT systems allows focused use of expert underwriters • Granular loan portfolio with strong credit KPIs Proven track record of growth and profitability • 98% of origination organically generated2 • Profit before tax almost doubled in 2014 to £50.3 million Net loans3 Customer deposits4 1 1 1 Asset Finance 22% 2 Invoice Finance 4% Total net loans2 2 Total deposits3 1 Retail deposits 77% 2 3 SME Commercial £4.8bn 3 Mortgages 21% £4.5bn 2 SME deposits 23% 4 Residential Mortgages 53% 4 2 From 2012 to 2014. 3 Loans and advances to customers as at 31 December 2014. 4 Customers’ accounts as at 31 December 2014. SME deposits includes corporate deposits. 2 Strategic report Strategic Proven track record of delivery Net loans (£bn) Customer deposits (£bn) 4.8 4.5 3.5 3.4 2.2 2.1 Compound 1.4 Compound 1.2 Annual Annual Growth Growth Governance Rate Rate +61% +49% 2011 2012 2013 2014 2011 2012 2013 2014 Profit before tax (£m) Return on equity5 (%) 15.1 50.3 11.6 25.7 Financial statementsFinancial 0.7 -0.7 0.3 -0.5 2011 2012 2013 2014 2011 2012 2013 2014 5 Return on equity is calculated as profit after tax (excluding post tax IPO related costs) as a percentage of average shareholders’ funds. 3 Aldermore Group PLC Annual report and accounts 2014 Strategic report Chairman’s statement “ Aldermore has the corporate governance, risk management and culture to operate a profitable and sustainable business in public markets over the long term.” Glyn Jones Chairman 2014 highlights • Further strengthening of the Board with the appointment of four new independent Non-Executive Directors • A Corporate Governance Policy Framework in line with best practice standards set out in UK Corporate Governance Code • Continued development of our customer-centric culture founded on a clearly defined approach to risk management 4 Strategic report Strategic Another record year the year four independent Non-Executive risk appetites and the effectiveness of the Directors joined the Board, Danuta Gray Group’s risk management processes. When appointed to the Board in March as the Senior Independent Director, 2014, it was evident I was joining an John Hitchins as Chair of the Audit Underpinned by our culture energised business which had a refreshingly Committee, Cathy Turner as Chair of the We continue to foster a culture centred different approach to banking. It really is Remuneration Committee and Peter Shaw, on the customer which is informed by a quite remarkable that a bank which started who will now take over as Chair of the Risk keen awareness of risk. We encourage in the midst of the financial crisis has grown Committee with effect from 1 March 2015. staff to take personal responsibility and so significantly and is now an established Neil Cochrane also joined the Board as a ask managers to empower their teams. business delivering long-term sustainable Non-Executive Director representing our We have developed a management growth and strong shareholder returns. principal shareholder. framework which supports a balanced and By offering our customers exceptional fair approach towards risk and reward. service, underpinned by strong values, I am delighted that we were able to Aldermore is performing strongly, with attract such high calibre and experienced What does this mean in practical terms? excellent organic growth and a proven track individuals who bring a wealth of business It means that we clearly communicate record of delivery. The Group generated and public company experience. our risk appetite to all staff including profit before tax excluding IPO costs In December, John Callender decided to measurable risk tolerances and the of £56.3 million, more than double the step down from his position on the Board appropriate escalation procedures. It means amount achieved in 2013. with effect from 27 February 2015, having that our people are assessed not only on what they achieve, but more importantly The Group ended 2014 with a fully loaded served as an independent Non-Executive on how they achieve it. It means that CRD IV Common Equity Tier 1 capital Director since the Group was established. incentives we offer to senior management ratio of 10.4 per cent, underlining our John has played a critical role at Aldermore, making invaluable contributions both as a are aligned with long-term outcomes. strong capital base and positioning the Governance Crucially, it means that we deliver products Group for long-term growth. Our liquidity member of the Board, as Chairman of the and services to our customers which are position is also robust and in excess of Audit and Risk Committee and latterly the transparent and meet their needs. regulatory requirements. Risk Committee and as Acting Chairman prior to my appointment. I would like to I am confident Aldermore has the Governance thank John for all of his hard work and wish corporate governance, risk management One of my primary goals since joining him the very best for the future. and culture to operate a profitable and has been to further enhance the Group’s I would also like to thank Mark Stephens, sustainable business in public markets over corporate governance as we prepare for life Deputy CEO and Group Commercial the long term. as a public entity. Director, Paul Myers, Chief Operating 2015 and beyond In September, we announced Aldermore’s Officer, and Steve Barry, Chief Risk Officer, 2015 will be an important year for the intention to float on the London Stock who in line with best practice for listed Group. The challenges facing the global Exchange, however, the significant entities stepped down from the Board in economy look set to continue, particularly deterioration in global equity markets 2014. Mark, Paul and Steve have been with in the eurozone. Meanwhile the general persuaded the Board to postpone the initial Aldermore since the beginning and have election in May looks likely to be one of public offering (IPO). The number of IPOs made an enormous contribution to the the most unpredictable in living memory. that did not proceed during this period effectiveness of the Board. They all remain Yet amid this economic and political reinforces just how difficult the global key members of our Executive team. uncertainty, SMEs, homeowners and markets were at the time. It is impossible to A clearly defined approach savers will continue to require financial call the markets, but I am very proud of the to risk management services which meet their needs and we are management team for what was achieved, committed to playing our part.