TIDMALD
RNS Number : 8699G
Aldermore Group PLC
11 August 2016
11 August 2016
Aldermore Group PLC
H1 2016: Delivering strong returns and continued growth
Underlying profit before tax(1) up by 45% to GBP63m (H1 2015:
GBP44m)
-- Reported profit before tax increased by 50% to GBP59m (H1 2015: GBP40m)
-- Net interest margin stable at 3.6% (H1 2015: 3.6%)
-- Underlying cost/income ratio(1) further improved by 8pts to 45% (H1 2015: 53%)
-- Another excellent credit performance; cost of risk again at 20bps (H1 2015: 20bps)
Delivering a high-teens underlying return on equity(1)
-- Underlying return on equity(1) of 18.0% (H1 2015: 18.6%)
-- Reported return on equity of 16.3% (H1 2015: 16.8%)
-- Earnings per share grew by 17% to 10.3p (H1 2015: 8.8p)
Continued and balanced growth across the diversified
portfolio
-- Excellent loan origination; up by 26% to GBP1.5bn (H1 2015: GBP1.2bn)
-- Net loans up by 11% to GBP6.8bn (31 December 2015: GBP6.1bn)
-- Asset Finance +11%; SME Commercial Mortgages +12%; Buy-to-Let +12%; Residential Mortgages +9%
Strong capital position is in line with management
expectations
-- Total capital ratio of 14.0% (31 December 2015: 15.1%)
-- CET1 capital ratio of 11.0% (31 December 2015: 11.8%)
Phillip Monks, CEO, commented:
"It has been another strong six months of operational and
financial performance as we delivered double digit growth and an
underlying return on equity in the high teens. New lending
increased by more than a quarter compared with the first half of
last year as we continue to expand our customer base. I'm very
pleased with the strong and balanced growth we have achieved across
our diversified portfolio whilst maintaining our prudent
underwriting approach.
"We have also driven another significant increase in profits as
we have successfully maintained our net interest margin and
leveraged the scaleability of our operations, further reducing our
cost to income ratio. These actions, combined with our continued
focus on prudent lending, have led to a 45% increase in the Group's
underlying profit before tax to GBP63 million for the first six
months.
"Following the EU Referendum, we all face a period of heightened
political and economic uncertainty. As a purely UK-focused
business, we are not directly exposed to potential changes in
access to European markets. However, we are exposed to the wider
economic effects of the result. To date, we have seen no direct
impact on our business but we continue to monitor the situation
closely and have a proven ability to react quickly to a changing
environment.
"We remain optimistic about our future. We are a diversified
business and continue to focus on supporting our customers who are
under- or poorly served by the wider banking market. Building on
our strong track record of delivery across our prudently
constructed portfolio and with our experienced management team,
modern systems and efficient operating platform, we remain
confident that we will successfully navigate the challenges ahead
as well as take advantage of the opportunities that change may
bring."
(1) Excluding goodwill impairment of GBP4.1m (pre-tax and
post-tax) in H1 2016 and IPO related costs of GBP4.1m pre-tax and
GBP3.2m post-tax in H1 2015
Enquiries:
Analysts Media
Claire Cordell Holly Marshall
Tel: +44 (0) 20 Tel: +44 (0) 20 3553 4828
3553 4274
Amit Deshpande Andy Homer
Tel: +44 (0) 20 Tel: +44 (0) 20 3553 4244
3553 4251
FTI Consulting
Paul Marriott
Mobile: +44 (0) 7703 330 390
A live webcast of the analyst presentation, including the
question and answer session, will be broadcast on our IR website
www.investors.aldermore.co.uk at 9:30am today and is available via
a listen only conference call by dialling +44 (0) 20 3059 8125. An
indexed version of the webcast will be available on the website by
the end of the day and copies of the slides to be presented at the
analyst meeting will be available on the website from 9.00am
today.
Contents Page
Summary balance sheet 3
Summary income statement 4
CEO review 5
Financial review 8
Segmental analysis 16
Risk management report 22
Directors' responsibility statement 38
Independent review report to Aldermore
Group PLC 39
Consolidated income statement 41
Consolidated statement of comprehensive
income 42
Consolidated statement of financial
position 43
Consolidated statement of cash flows 44
Consolidated statement of changes in
equity 45
Notes to the consolidated interim financial
statements 46
Note on rounding and % movements
In preparing the 2016 interim financial statements, the 2015
comparative numbers were restated from the original GBP thousands
to GBP millions to one decimal place. As a result of rounding
issues arising from this change, the presentation of some of the
comparative numbers may differ slightly to the H1 2015 financial
statements. All percentage movements shown are calculated using the
financial data in GBP millions to one decimal place as shown in the
consolidated financial statements. We have adopted the convention
of favourable movements being shown as a positive, e.g. a reduced
expense is shown as a positive variance.
Important disclaimer
Visit www.aldermore.co.uk for more information. This press
release contains certain forward-looking statements with respect to
the business, strategy and plans of Aldermore Group PLC
("Aldermore") and its current goals and expectations relating to
its future financial condition and performance. Such
forward-looking statements include, without limitation, those
preceded by, followed by or that include the words "targets",
"believes", "estimates", "expects", "aims", "intends", "will",
"may", "anticipates", "projects", "plans", "forecasts", "would",
"could", "should" or similar expressions or negatives thereof.
Statements that are not historical facts, including statements
about Aldermore's, its directors' and/or management's beliefs and
expectations, are forward-looking statements. By their nature,
forward-looking statements involve risk and uncertainty because
they relate to events and depend upon circumstances that will or
may occur in the future. Factors that could cause actual business,
strategy, plans and/or results to differ materially from the plans,
objectives, expectations, estimates and intentions expressed in
such forward-looking statements made by Aldermore or on its behalf
include, but are not limited to: general economic and business
conditions in the UK and internationally; market related trends and
developments; fluctuations in exchange rates, stock markets,
inflation, deflation, interest rates and currencies; policies of
the Bank of England, the European Central Bank and other G8 central
banks; the ability to access sufficient sources of capital,
liquidity and funding when required; changes to Aldermore's credit
ratings; the ability to derive cost savings; changing demographic
developments, and changing customer behaviour, including consumer
spending, saving and borrowing habits; changes in customer
preferences; changes to borrower or counterparty credit quality;
instability in the global financial markets, including Eurozone
instability, the potential for countries to exit the European Union
(the "EU") or the Eurozone, and the impact of any sovereign credit
rating downgrade or other sovereign financial issues; technological
changes and risks to cyber security; natural and other disasters,
adverse weather and similar contingencies outside Aldermore's
control; inadequate or failed internal or external processes,
people and systems; terrorist acts and other acts of war or
hostility and responses to those acts; geopolitical, pandemic or
other such events; changes in laws, regulations, taxation,
accounting standards or practices, including as a result of an exit
by the UK from the EU; regulatory capital or liquidity requirements
and similar contingencies outside Aldermore's control; the policies
and actions of governmental or regulatory authorities in the UK,
the EU or elsewhere including the implementation and interpretation
of key legislation and regulation; the ability to attract and
retain senior management and other employees; the extent of any
future impairment charges or write-downs caused by, but not limited
to, depressed asset valuations, market disruptions and illiquid
markets; market relating trends and developments; exposure to
regulatory scrutiny, legal proceedings, regulatory investigations
or complaints; changes in competition and pricing environments; the
inability to hedge certain risks economically; the adequacy of loss
reserves; the actions of competitors, including non-bank financial
services and lending companies; and the success of Aldermore in
managing the risks of the foregoing.
Aldermore
Aldermore Bank PLC is an operating entity of Aldermore Group
PLC. Aldermore Group PLC's shares (ALD.L) are listed on the Main
Market of the London Stock Exchange. Aldermore Bank PLC is
regulated by the Prudential Regulation Authority and the Financial
Conduct Authority and is registered under the Financial Services
Compensation Scheme.
Summary balance sheet
30 June 31 December Movement
2016 2015 %
GBPm GBPm
Net loans 6,799.2 6,144.8 11%
Cash and investments 875.2 805.6 9%
Intangible assets 21.8 24.0 (9)%
Fixed and other assets 49.5 34.1 45%
----------------------------------- -------- ------------ ---------
Total assets 7,745.7 7,008.5 11%
----------------------------------- -------- ------------ ---------
Customer deposits 6,538.0 5,742.0 14%
Wholesale funding 520.7 635.8 (18)%
Other liabilities 118.4 97.1 22%
----------------------------------- -------- ------------ ---------
Total liabilities 7,177.1 6,474.9 11%
----------------------------------- -------- ------------ ---------
Ordinary shareholders' equity 494.6 459.6 8%
AT1 capital 74.0 74.0 -%
----------------------------------- -------- ------------ ---------
Equity 568.6 533.6 7%
----------------------------------- -------- ------------ ---------
Total liabilities and equity 7,745.7 7,008.5 11%
----------------------------------- -------- ------------ ---------
Key ratios (%)
Non-performing loans (NPL)
ratio(1) 0.33% 0.37% 0.04%
Loans to deposits ratio 104% 107% (3)%
Fully loaded CRD IV CET1 ratio 11.0% 11.8% (0.8)%
Fully loaded CRD IV total capital
ratio 14.0% 15.1% (1.1)%
Fully loaded CRD IV leverage
ratio(2) 6.9% 7.2% (0.3)%
Tangible book value/share (pence) 137.1p 126.4p 9%
Number of shares in issue at
period end (million) 344.7m 344.7m -%
(1) Non-performing loans ratio is calculated as individually
impaired loans as a percentage of gross loans at the period end
(2) The year end 2015 leverage ratio was restated to 7.2% in the
published Pillar 3 disclosures following finalisation of
off-balance sheet exposures
Summary income statement
H1 2016 H1 2015 Movement
GBPm GBPm %
Interest income 175.6 139.1 26%
Interest expense (60.0) (47.1) (27)%
------------------------------------ -------- -------- ---------
Net interest income 115.6 92.0 26%
Net fee and other operating
income 12.9 12.3 5%
Net derivatives (expense)/ income
and gains on disposal of debt
securities (0.8) 0.4 (300)%
------------------------------------ -------- -------- ---------
Operating income 127.7 104.8 22%
Underlying expenses, depreciation
and amortisation (58.1) (56.0) (4)%
IPO costs - (4.1) n/a
Impairment of goodwill (4.1) - n/a
------------------------------------ -------- -------- ---------
Operating profit before impairment
losses 65.5 44.7 47%
Impairment losses (6.4) (5.2) (23)%
Profit before tax 59.1 39.5 50%
Tax (16.9) (8.3) (104)%
------------------------------------ -------- -------- ---------
Profit after tax 42.2 31.2 35%
------------------------------------ -------- -------- ---------
Basic earnings per share (pence) 10.3p 8.8p 17%
Diluted earnings per share (pence) 10.3p 8.7p 18%
GBPm GBPm
Underlying profit before tax(1) 63.2 43.6 45%
Underlying profit after tax(1) 46.3 34.5 34%
H1 2016 H1 2015 Movement
Key ratios % % %
Gross interest margin 5.4 5.4 -%
Cost of funding 1.9 1.8 -%
Net interest margin 3.6 3.6 -%
Cost/income ratio 49 57 8%
Underlying cost/income ratio(1) 45 53 8%
Cost of risk 20bps 20bps -bps
Return on equity 16.3 16.8 (0.5)%
Underlying return on equity(1) 18.0 18.6 (0.6)%
Effective tax rate(2) 29 21 (8)%
(1) Excluding goodwill impairment of GBP4.1m (pre-tax and
post-tax) in H1 2016 and IPO related costs of GBP4.1m pre-tax and
GBP3.2m post-tax in H1 2015
(2) The effective tax rate for H1 2016 is impacted by the
introduction, from 1 January 2016, of the 8% UK bank tax surcharge
levied on profits above GBP25m as well as the goodwill impairment
which is not allowable for tax purposes
CEO review
Aldermore is a diversified specialist lender, supporting UK
SMEs, homeowners and landlords. Enjoying the advantages of modern,
legacy-free and scaleable systems, our expert underwriters are able
to make informed decisions regarding customers who are often under-
or poorly served by the wider market.
We focus on prime, creditworthy customers across lending lines
chosen for their large and growing markets, high levels of tangible
asset security and attractive risk-adjusted returns. Our funding
base is an appropriately balanced mix of retail, SME and corporate
deposits as well as wholesale funding. We continue to extend our
direct distribution capabilities and aim to differentiate our
service by being easy to do business with and making quick,
consistent and transparent credit decisions.
Another strong half for the Group
We have continued to build on our proven track record and have
delivered another strong set of financial results for the six
months ended 30 June 2016 with our underlying profit before tax(1)
up by 45% to GBP63m. As expected, the net interest margin remained
stable at 3.6%, we drove a further 8 percentage point improvement
in our underlying cost/income ratio and, in what remained a
relatively benign credit environment, we generated another
excellent credit performance with our cost of risk stable at
20bps.
Continued and balanced growth
As at 30 June 2016, we are supporting more UK SMEs, homeowners
and landlords than ever before and have increased our lending
customer numbers by 8% since the start of the year to around
77,000. Net loans to customers were up by GBP0.7bn or 11% to
GBP6.8bn (31 December 2015: GBP6.1bn) as we generated balanced
growth across our diversified portfolio with 11% growth in Asset
Finance to GBP1.5bn (31 December 2015: GBP1.3bn), 12% growth in SME
Commercial Mortgages to GBP0.9bn (31 December 2015: GBP0.8bn),
Buy-to-Let growth of 12% to GBP2.7bn (31 December 2015: GBP2.4bn)
and Residential Mortgages up by 9% to GBP1.5bn (31 December 2015:
GBP1.4bn). Our Invoice Finance portfolio remained broadly stable at
GBP0.2bn (31 December 2015: GBP0.2bn).
Growth was driven by excellent loan origination, which was up by
26% to GBP1.5bn (H1 2015: GBP1.2bn). We again generated strong
origination in Asset Finance which was up by 20% to GBP0.51bn (H1
2015: GBP0.42bn). Across the Mortgages division, we demonstrated
our ability to be nimble and take advantage of the market
opportunity in the first quarter as we focused on driving
Buy-to-Let, increasing our market share to 2.3% with origination up
by 74% to GBP0.52bn (H1 2015: GBP0.30bn). Residential Mortgages
origination, although robust at GBP0.24bn, was down by 14% on the
same period in 2015 (H1 2015: GBP0.28bn). SME Commercial Mortgages
origination increased by 29% to GBP0.21bn (H1 2015: GBP0.16bn). In
addition to leveraging our strong relationships with our broker
partners, where origination grew by 21% compared with H1 2015, we
were pleased with the 51% increase in direct driven by strong
growth in wholesale deals in Asset Finance and our direct team in
Buy-to-Let. As a result, direct accounted for 21% of origination
(H1 2015: 17%).
We actively managed our funding base, balancing the ongoing
diversification of funding sources with maintaining a prudent loans
to deposits ratio. We remain predominantly deposit-funded and have
grown deposits by 14% to GBP6.5bn (31 December 2015: GBP5.7bn).
Another significant increase in profits
We are a straightforward business; prudent lending growth drives
increased net interest income and we continue to leverage our
scaleable cost base to deliver an accelerating profit trajectory.
Once again, our results demonstrate this with our ongoing momentum
driving net interest income up by 26% to GBP115.6m (H1 2015:
GBP92.0m) and our net interest margin remaining, as expected, at
around 3.6% (H1 2015: 3.6%).
We have an ongoing investment programme to ensure the
sustainability of the business and, in the first half of 2016, we
have continued upgrading our Mortgages and Asset Finance platforms.
Despite this continued investment, we improved our underlying
cost/income ratio(1) by further 8 percentage points to 45% (H1
2015: 53%).
(1) Excluding goodwill impairment of GBP4.1m (pre-tax and
post-tax) in H1 2016 and IPO related costs of GBP4.1m pre-tax and
GBP3.2m post-tax in H1 2015
As a result, we delivered a 47% increase in operating profit
before impairment losses to GBP65.5m (H1 2015: GBP44.7m).
We take a rigorous and prudent approach to credit management,
constructing a granular and highly secured portfolio and our cost
of risk was stable at 20bps (H1 2015: 20bps). We test affordability
at origination and re-score the portfolio each month which gives us
early sight of any emerging issues.
Invoice Finance remains a useful part of our proposition to
SMEs. At the end of 2015, goodwill relating to the acquisition of
Absolute Invoice Finance (Holdings) Limited, totalling GBP4.1m, was
supported using a comparable market valuation calculation. As a
result of current lower valuations across the financial services
sector, we have adopted a cautious approach and impaired this
amount.
We are committed to delivering strong and sustainable returns
for our shareholders. Profit before tax on a reported basis
increased by 50% to GBP59.1m (H1 2015: GBP39.5m). Excluding the
goodwill impairment and the H1 2015 IPO related costs, the
underlying profit before tax(1) increased by 45% to GBP63.2m (H1
2015: GBP43.6m).
As a result of our increased profitability, the introduction of
the 8% bank corporation tax surcharge on all UK banking profits
above GBP25m per annum and the tax treatment of the goodwill
impairment, our tax charge for the first half of 2015 increased by
104% to GBP16.9m (H1 2015: GBP8.3m) with an effective tax rate of
29% (H1 2015: 21%).
Profit after tax increased by 35% to GBP42.2m (H1 2015:
GBP31.2m) with our reported return on equity (RoE) at 16.3% (H1
2015: 16.8%). Our underlying RoE(1) , excluding the impact of the
goodwill impairment in 2016 and the H1 2015 IPO related costs, was
18.0% (H1 2015: 18.6%).
Strong capital position
We remain strongly capitalised and as at 30 June 2016, the Group
had a fully loaded CRD IV total capital ratio of 14.0% (31 December
2015: 15.1%), a fully loaded CRD IV CET1 capital ratio of 11.0% (31
December 2015: 11.8%) and a leverage ratio(2) of 6.9% (31 December
2015: 7.2%).
Seasonally, we experience greater capital utilisation relating
to non-lending items in the first half of the year. We recalculate
our operational risk charge annually in the first quarter using the
preceding three years' income which means that, in our 30 June 2016
capital calculation, 2012 is replaced by the higher income
generating 2015. We also pay the full AT1 coupon annually in April
which is treated as a dividend for accounting purposes and deducted
from retained earnings. The goodwill impairment is capital
neutral.
We raised sufficient capital at our IPO in March 2015 to support
our growth plans and act as a bridge to the point at which we start
to generate surplus capital. Given our progress to date against our
business plan, our capital levels are in line with management
expectations as we approach the point of capital
self-sufficiency.
Balanced and diversified portfolio
We have deliberately created a prudently underwritten portfolio
with small average outstanding balances and carefully managed
concentration risks. We are continuously reviewing those aspects of
our lending which are potentially more exposed to an economic
downturn. We see the benefit of the deliberate construct of the
portfolio with 82% of the Asset Finance book backed by tangible
hard assets; our SME Commercial Mortgages portfolio has an average
indexed loan to value (LTV) of 50%; Property Development, where we
support regional residential property developers with a
through-the-cycle track record, is only 3% of total net lending;
our Buy-to-Let portfolio has an average indexed LTV of 61%; in
Residential Mortgages, the average indexed LTV of our Owner
Occupied (non-Help to Buy) book is 62% with our Help to Buy (HTB)
Guarantee product, which accounts for the vast majority of the HTB
book, having an average indexed LTV of 88% but with associated
government guarantees which reduce the risk to Aldermore to 80%
LTV.
(1) Excluding goodwill impairment of GBP4.1m (pre-tax and
post-tax) in H1 2016 and IPO related costs of GBP4.1m pre-tax and
GBP3.2m post-tax in H1 2015
(2) The year end 2015 leverage ratio was restated to 7.2% in the
published Pillar 3 disclosures following finalisation of
off-balance sheet exposures
Strengthening the team
I am delighted to announce that Christine Palmer and Dana Cuffe
have joined the executive team as Chief Risk Officer and Chief
Operating Officer respectively. Paul Myers, who was previously
Chief Operating Officer, moves to become Group Corporate
Development Director. Rob Divall will join us shortly as Group
Human Resources Director. This strengthened team has significant
and varied experience on which to draw as we chart the future
course of Aldermore through a more uncertain economic
environment.
EU Referendum and outlook
On 24 June 2016, it was announced that the UK had voted to leave
the EU and, as a result, the outlook faced by all participants in
the UK economy is undeniably more uncertain.
As a UK-focused business, we are sheltered from the more direct
impacts of the Referendum but are exposed to the wider economic
impacts. Along with other market participants, we are watching
political and economic developments closely but we believe it will
be some time before the true impact becomes clear.
To date, we have seen no direct impact either on the lending,
deposit or credit aspects of our business. However, we have
proactively added a further element of caution into our collective
provision charge by extending the mortgages emergence period
assumptions by three months to reflect increased economic
uncertainty.
On 4 August 2016, the Bank of England reduced the Bank Rate by
25bps to 0.25% and market expectations are for a further rate cut,
potentially by the end of 2016. We intend to pass the full
reduction onto both our lending and deposit customers. The impact
of this actual change and a further potential rate reduction is not
expected to be material in terms of our net interest income. We
note the introduction, by the Bank of England, of the Term Funding
Scheme and will review the full details when they become available
to understand how this can be most efficiently utilised, in the
interest of our customers, as an additional funding source in
conjunction with Funding for Lending and other schemes.
I would like to thank our customers, colleagues and shareholders
for their consistently strong support. We remain committed to
working with UK SMEs, homeowners, landlords and savers who, we
believe, remain under- or poorly served by the wider market.
Looking back at previous periods of heightened economic
uncertainty, incumbent lenders often reacted by retrenching or
withdrawing services completely from these customers. These are
structural changes in the market place which are not easily
reversed and, in fact, this shift continues to create opportunities
for us.
We are optimistic despite the political and economic uncertainty
ahead. Our prudently constructed, diversified lending portfolio,
modern systems and operating platform, experienced management team
and strong track record of delivery position us well for the
future. We remain confident in our proven ability to be nimble and
successfully navigate a changing market environment.
Phillip Monks
CEO
Financial review
Balance sheet
Assets
30 June 31 December Movement
* Net loans to customers 2016 2015 %
GBPm GBPm
Asset Finance 1,498.2 1,346.7 11%
Invoice Finance 155.3 160.8 (3)%
SME Commercial Mortgages 926.0 829.2 12%
Buy-to-Let 2,704.0 2,417.9 12%
Residential Mortgages 1,515.7 1,390.2 9%
------------------------------- -------- ------------ ---------
6,799.2 6,144.8 11%
------------------------------- -------- ------------ ---------
We continued to support UK SMEs, homeowners and landlords across
our balanced and diversified portfolio with net loans to customers
increasing by 11% in the first six months of 2016 to GBP6.8bn (31
December 2015: GBP6.1bn) and customer numbers up by 8% to
c77,000.
30 June 31 December Movement
* Gross loans analysis 2016 2015 %
GBPm GBPm
Neither past due nor individually
impaired 6,761.5 6,106.4 11%
Past due but not individually
impaired 38.5 36.3 (6)%
Individually impaired 22.3 22.8 2%
----------------------------------- --------- ------------ ---------
Gross loans 6,822.3 6,165.5 11%
Impairments (23.1) (20.7) (12)%
----------------------------------- --------- ------------ ---------
Net loans to customers 6,799.2 6,144.8 11%
----------------------------------- --------- ------------ ---------
Non-performing loans ratio(1) 0.33% 0.37% 0.04%
Allowance for losses - individual
provisions GBP10.6m GBP10.2m (4)%
Coverage ratio 47.5% 44.7% 2.8%
82 82
We take a rigorous and prudent approach to credit management and
have deliberately constructed a granular and highly secured
portfolio. We have also maintained our prudent risk appetite as we
have grown the portfolio by 11% since the start of the year. This
approach, along with the current relatively benign credit
environment, has led to continued low levels of arrears and an
improvement in the non-performing loans ratio of 4 basis points to
0.33% (31 December 2015: 0.37%). We continue to test affordability
at origination and re-score the portfolio on a monthly basis to
give us early sight of any emerging issues.
The coverage ratio measures the impairment allowance relating to
individual loan balances as a percentage of total individually
impaired balances. As at 30 June 2016, this ratio was 47.5% (31
December 2015: 44.7%).
Amounts relating to customers subject to forbearance measures,
where we have made concessionary arrangements for a period of three
months or more where financial difficulty is present or imminent,
are detailed within the Risk Management Report on page 33. As at 30
June 2016, such gross lending totalled GBP36.6m or 0.54% of the
portfolio (31 December 2015: GBP16.3m and 0.26%). Around half of
the increase in the first six months is due to SME Commercial
Mortgages which totals GBP15.0m (31 December 2015: GBP5m) but
includes GBP8.7m relating to one customer of which only GBP1.7m is
past due and against which no provision is currently deemed
necessary. A large part of the remaining increase is due to a few
Invoice Finance accounts which are neither past due nor
individually impaired.
(1) Non-performing loans ratio is calculated as individually
impaired loans as a percentage of gross loans at the period end
30 June 31 December Movement
* Cash and investments 2016 2015 %
GBPm GBPm
Cash and balances at central
banks 34.6 105.3 (67)%
Loans and advances to banks 131.2 94.2 39%
Debt securities 709.4 606.1 17%
875.2 805.6 9%
------------------------------ -------- ------------ ---------
Cash and investments are the Group's treasury assets which
reflect the increased liquidity requirements of our growing
business. These assets are not held for speculative purposes or
actively traded and further details of the related credit rating
can be found on page 35. As at 30 June 2016, we saw a reduction in
amounts held at central banks which was offset by an increase in
holdings at other banks as well as UK Government gilts, Treasury
bills and Supranational and Corporate bonds.
30 June 31 December Movement
* Intangible assets 2016 2015 %
GBPm GBPm
21.8 24.0 (9)%
-------------------------- -------- ------------ ---------
Included within Intangible assets at 31 December 2015 was
GBP4.1m of goodwill related to the acquisition of Absolute Invoice
Finance (Holdings) Limited which was supported using a Fair Value
less Costs of Disposal valuation method. As a result of the lower
market valuations for financial services companies following the EU
Referendum, it is not clear whether the goodwill currently
continues to be supported on this basis so we have adopted a
cautious approach and impaired this amount.
30 June 31 December Movement
* Fixed and other assets 2016 2015 %
GBPm GBPm
Derivatives held for risk management 12.5 6.7 87%
Fair value adjustment for portfolio
hedged risk 10.0 1.1 809%
Other assets 1.5 1.4 7%
Prepayments and accrued income 6.1 5.1 20%
Deferred taxation 15.9 16.4 (3)%
Property, plant and equipment 3.5 3.4 3%
49.5 34.1 45%
-------------------------------------- -------- ------------ ---------
Fixed and other assets as at 30 June 2016 totalled GBP49.5m (31
December 2015: GBP34.1m) as shown in the table above. Derivatives
held for risk management total GBP12.5m (31 December 2015: GBP6.7m)
reflecting the fair asset value of derivatives held. Fair value
adjustment for portfolio hedged risk of GBP10.0m (31 December 2015:
GBP1.1m) relates to the cumulative fair value adjustment to the
loan portfolio in relation to interest rate risk as at 30 June 2016
and will be amortised to the income statement over the weighted
average life of the hedging relationships as per the Group's
accounting policy.
Liabilities
Our funding strategy remains predominantly deposit-led whilst
actively managing wholesale sources including the Funding for
Lending Scheme (FLS) and our Residential Mortgage Backed
Securitisation (RMBS) to provide diversification and drive an
efficient cost of funds. As at 30 June 2016, our loans to deposits
ratio was in line with management expectations at 104% (31 December
2015: 107%).
30 June 31 December Movement
* Deposits 2016 2015 %
GBPm GBPm
Retail 4,808.4 4,186.3 15%
SME 1,516.6 1,399.4 8%
Corporate deposits 213.0 156.3 36%
-------------------- -------- ------------ ---------
6,538.0 5,742.0 14%
-------------------- -------- ------------ ---------
Our dynamic and innovative online savings franchise provides
award winning savings products to customers and grew by 14% to
GBP6.5bn (31 December 2015: GBP5.7bn) supporting our growth in net
lending. SME deposits of GBP1.5bn (31 December 2015: GBP1.4bn)
represent c23% of the overall deposit base providing a key source
of funding diversification. Corporate deposits, launched in
December 2014, continue to grow rapidly, and now total GBP213.0m
(31 December 2015: GBP156.3m).
30 June 31 December Movement
2016 2015 %
GBPm GBPm
* Wholesale funding GBPm
FLS 323.3 398.6 (19)%
RMBS 155.9 193.9 (20)%
Other wholesale funding 41.5 43.3 (4)%
-------------------------------- -------- ------------ ---------
520.7 635.8 (18)%
-------------------------------- -------- ------------ ---------
Wholesale funding reduced by 18% to GBP520.7m (31 December 2015:
GBP635.8m) and predominantly consists of on-balance sheet funding
via repurchase agreements of FLS drawings and our RMBS.
Under the Bank of England's extension of FLS for SME lending,
our on-balance sheet funding derived from sale and repurchase
transactions of treasury bills was GBP323.3m (31 December 2015:
GBP398.6m). At 30 June 2016, loans totalling GBP1.6bn were
pre-positioned as collateral for this scheme and against this,
GBP780.0m of UK Treasury Bills were drawn (31 December 2015:
GBP1.4bn and GBP750.0m respectively).
Once the full details of the Bank of England's new Term Funding
Scheme are available later this month, we will look to see how we
can most effectively combine FLS with this new funding source.
In April 2014, we issued our inaugural GBP333m RMBS transaction
priced at LIBOR + 67bps. The outstanding balance as at 30 June 2016
stood at GBP155.9m (31 December 2015: GBP193.9m) with the reduction
reflecting the paying down of the notes in line with the capital
repayments on the underlying mortgages within the securitised
portfolio.
Other wholesale funding predominantly consists of Tier 2 debt
capital of GBP38.8m (31 December 2015: GBP38.1m) which has a
nominal value of GBP40.0m and is callable in May 2017.
30 June 31 December Movement
2016 2015 %
GBPm GBPm
* Other liabilities GBPm
Derivatives held for risk management 57.5 35.4 (62)%
Fair value adjustment for portfolio
hedged risk 2.9 (0.8) (463)%
Other liabilities 21.8 23.2 6%
Accruals and deferred income 20.2 25.7 21%
Current taxation 13.6 12.5 (9)%
Provisions 2.4 1.1 (118)%
-------------------------------------- -------- ------------ ---------
118.4 97.1 22%
-------------------------------------- -------- ------------ ---------
Other liabilities as at 30 June 2016 totalled GBP118.4m (31
December 2015: GBP97.1m). Derivatives held for risk management
totalled GBP57.5m (31 December 2015: GBP35.4m) and reflects the
fair liability value of derivatives held. Fair value adjustment for
portfolio hedged risk of GBP2.9m (31 December 2015: asset of
GBP0.8m) relates to the cumulative fair value adjustment to the
deposit portfolio in relation to interest rate risk as at 30 June
2016 and will be amortised to the income statement over the
weighted average life of the hedging relationships as per the
Group's accounting policy.
Equity
GBPm
* Movements in ordinary shareholders' equity
--------------------------------------------------- ------
31 December 2015 459.6
--------------------------------------------------- ------
Profit after tax 42.2
Total other comprehensive income (1.3)
Share based payments 1.6
Own shares adjustment (0.9)
AT1 coupon (net of tax) (6.6)
--------------------------------------------------- ------
30 June 2016 494.6
--------------------------------------------------- ------
Movement in period 8%
Ordinary shareholders' equity increased to GBP494.6m (31
December 2015: GBP459.6m) predominantly as a result of GBP42.2m of
profit after tax for the period partially offset by the post-tax
coupon paid on the Additional Tier 1 instrument of GBP6.6m. During
the first half of 2016, one of the Group's employee benefit trusts
acquired 466,179 shares in Aldermore Group PLC to meet a future
share based payment obligation and the cost of these shares of
GBP0.9m is recorded against retained earnings.
- AT1 Capital
On 9 December 2014, the Group issued GBP75m (GBP74m net of
costs) Fixed Rate Reset Additional Tier 1 (AT1) Perpetual
Subordinated Contingent Convertible Securities. The securities are
listed on the Irish Stock Exchange, with a coupon of 11.875%
payable annually on 30 April, subject to Board approval, and
convert to equity if the Group's CET1 ratio falls below 7%. The
first call date is 30 April 2020. From an accounting perspective,
the securities are classified as equity with the coupon payments
treated as dividends and deducted from retained earnings when
payable.
Financial Performance
H1 2016 H1 2015 Movement
* Net interest income GBPm GBPm %
Interest income 175.6 139.1 26%
Interest expense (60.0) (47.1) (27)%
---------------------------- -------- -------- ---------
115.6 92.0 26%
---------------------------- -------- -------- ---------
During the first half of 2016, interest income grew by 26% to
GBP175.6m (H1 2015: GBP139.1m), driven by continued growth in net
loans with the gross interest margin remaining stable at 5.4% (H1
2015: 5.4%).
We continued to benefit from our diversified funding base and
interest expense increased by 27% to GBP60.0m (H1 2015: GBP47.1m)
as our cost of funding also remained broadly stable at 1.9% (H1
2015: 1.8%).
As a result, the Group's net interest income increased by 26% to
GBP115.6m (H1 2015: GBP92.0m) while, as expected, the net interest
margin remained broadly stable at 3.6% (H1 2015: 3.6%).
H1 2016 H1 2015 Movement
* Net fee and other operating income GBPm GBPm %
Fee and commission income 13.5 12.6 7%
Fee and commission expense (3.8) (3.8) -
Other operating income 3.2 3.5 (9)%
------------------------------------------- -------- -------- ---------
12.9 12.3 5%
------------------------------------------- -------- -------- ---------
Net fee and other operating income was up by 5% compared with
the same period in the prior year at GBP12.9m
(H1 2015: GBP12.3m). Within this, fee and commission income was
up by 7% to GBP13.5m (H1 2015: GBP12.6m). Invoice Finance remains a
key component of fee income but the increase in the period was
driven by the underlying growth in the mortgages portfolios. Fee
and commission expense remains in line with the first six months of
last year at GBP3.8m (H1 2015: GBP3.8m). Other operating income is
mainly related to disbursements, collect out and other income in
Invoice Finance and was marginally down compared with the first six
months of 2015.
H1 2016 H1 2015 Movement
* Net derivatives (expense)/ income and gains on GBPm GBPm %
disposal of debt securities
Net expense on derivatives (1.5) (2.0) n/a
Gains on disposal of debt securities 0.7 2.5 n/a
------------------------------------------------------- -------- -------- ---------
(0.8) 0.4 n/a
------------------------------------------------------- -------- -------- ---------
Net expense from derivatives and gains on disposal of debt
securities was a charge of GBP0.8m (H1 2015: net income of GBP0.4m)
and comprises a net expense on derivatives of GBP1.5m (H1 2015:
GBP2.0m) which is partially offset by the gains on disposal of debt
securities of GBP0.7m (H1 2015: GBP2.5m).
H1 2016 H1 2015 Movement
GBPm GBPm %
* Underlying expenses, depreciation and amortisation
Other administrative expenses 54.6 51.6 (6)%
Provisions 1.3 2.2 41%
Depreciation and amortisation 2.2 2.2 -%
------------------------------------------------------------ -------- -------- ---------
58.1 56.0 4%
------------------------------------------------------------ -------- -------- ---------
Administrative expenses increased by 4% to GBP58.1m (H1 2015:
GBP56.0m) which is in line with management expectations. The
increase in other administrative expenses supports growth in the
business and is mainly due to additional staff costs to support
growth. Provisions of GBP1.3m (H1 2015: GBP2.2m) include the full
year charge for the Financial Services Compensation Scheme (FSCS)
levy. Depreciation and amortisation was consistent with the same
period last year at GBP2.2m (H1 2015: GBP2.2m).
- IPO costs
The Group listed on the London Stock Exchange in March 2015. IPO
costs charged to the income statement and shown in the H1 2015
comparative figures were GBP4.1m.
- Goodwill impairment
At the end of 2015, we held goodwill of GBP4.1m related to the
acquisition of Absolute Invoice Finance (Holdings) Limited which
was supported using a Fair Value less Cost of Disposal methodology.
As a result of the lower market valuations for financial services
companies following the Referendum, it is not clear whether the
goodwill currently continues to be supported on this basis so we
have adopted a cautious approach and impaired this amount.
- Cost/income ratio
The underlying cost/income ratio measures administrative
expenses, excluding the goodwill impairment in H1 2016 and the IPO
related costs in H1 2015 but including depreciation and
amortisation, as a percentage of operating income. We further
improved our underlying cost/income ratio by 8 percentage points to
45% (H1 2015: 53%).
On a reported basis, the cost/income ratio measures
administrative expenses including depreciation, amortisation,
goodwill impairments and IPO costs as a percentage of operating
income. On this basis, the ratio also improved by 8 percentage
points to 49% (H1 2015: 57%).
- Operating profit before impairment losses
Operating profit before impairment losses increased by 47% to
GBP65.5m (H1 2015: GBP44.7m) with operating income growth of 22%
outstripping the 4% growth in underlying expenses which includes
depreciation and amortisation excludes the goodwill impairment and
IPO related costs.
H1 2016 H1 2015 Movement
* Impairment losses GBPm GBPm %
Individual 3.5 3.5 -%
Collective 2.9 1.7 (71)%
-------------------------- -------- -------- ---------
6.4 5.2 (23)%
-------------------------- -------- -------- ---------
H1 2016 H1 2015 Movement
* Cost of risk bps bps bps
Individual 11 14 3
Collective 9 7 (2)
--------------------- -------- -------- ---------
20 20 -
--------------------- -------- -------- ---------
Impairment losses increased by 23% to GBP6.4m (H1 2015: GBP5.2m)
overall. Within this, the individual charge was GBP3.5m (H1 2015:
GBP3.5m) and in line with the first half of 2015 as a result of our
rigorous focus on prudent credit management and the relatively
benign credit environment. We increased our collective charge by
71% to GBP2.9m (H1 2015: GBP1.7m) predominantly to apply a further
degree of caution reflecting increased economic uncertainty.
The cost of risk, which measures impairment losses as a
percentage of average net loans, remained flat at 20bps (H1 2015:
20bps) and consists of an individual charge of 11bps and collective
charge of 9bps (H1 2015: 14bps and 7bps respectively).
- Profit before tax
Profit before tax for the period increased by 50% to GBP59.1m
(H1 2015: GBP39.5m). Excluding GBP4.1m for each of the goodwill
impairment in H1 2016 and the H1 2015 pre-tax IPO related costs,
the underlying profit before tax increased by 45% to GBP63.2m (H1
2015: GBP43.6m).
- Tax
The tax charge for the period increased by 104% to GBP16.9m (H1
2015: GBP8.3m) reflecting the Group's increased profitability as
well as the introduction of the 8% bank corporation tax surcharge
on taxable profits above GBP25m from 1 January 2016. As a result of
this, and the fact that the goodwill impairment is not an allowable
deduction for tax purposes, the effective tax rate for H1 2016 was
29% (H1 2015: 21%). Excluding the goodwill impairment, the
effective tax rate for H1 2016 would be closer to 27%.
- Profit after tax
Profit after tax increased by 35% to GBP42.2m (H1 2015:
GBP31.2m). Excluding the goodwill impairment in the first half of
2016 and the post-tax IPO related costs of GBP3.2m in H1 2015, the
underlying profit after tax increased by 34% to GBP46.3m (H1 2015:
GBP34.5m).
- Return on equity
Return on equity as reported is 16.3% (H1 2015: 16.8%) and is
calculated as the profit after tax attributable to ordinary
shareholders expressed in relation to average ordinary
shareholders' funds, i.e. the AT1 coupon is deducted from profit
after tax.
On an underlying basis, excluding the post-tax goodwill
impairment of GBP4.1m in the first half of 2016 and post-tax IPO
related costs of GBP3.2m in H1 2015, the return on equity was 18.0%
(H1 2015: 18.6%).
- Earnings per share
Basic earnings per share (EPS) of 10.3p (H1 2015: 8.8p) is
calculated as net profit attributable to ordinary shareholders of
the Group divided by the weighted average number of ordinary shares
in issue during the period. On a fully diluted basis, the EPS was
10.3p (H1 2015: 8.7p). The weighted average number of ordinary
shares in issue during the period was 344.7m (H1 2015: 322.1m) and
345.1 (H1 2015: 326.7m) on a diluted basis.
Regulatory capital position
The fully loaded regulatory capital position of the Group under
CRD IV is set out below:
30 June 31 December Movement
2016 2015 %
GBPm GBPm
Shareholders' equity 494.6 459.6 8%
Intangible assets (21.8) (24.0) (9)%
----------------------------------- -------- ------------ ---------
CET 1 capital 472.8 435.6 9%
AT1 capital 74.0 74.0 -%
Tier 2 capital 51.3 48.5 6%
----------------------------------- -------- ------------ ---------
Total capital 598.1 558.1 7%
Fully loaded CRD IV CET1 ratio
(%) 11.0 11.8 (0.8)%
Fully loaded CRD IV Tier 1
capital ratio (%) 12.8 13.8 (1.0)%
Tier 2 capital ratio (%) 1.2 1.3 (0.1)%
----------------------------------- -------- ------------ ---------
Fully loaded CRD IV total capital
ratio (%) 14.0 15.1 (1.1)%
----------------------------------- -------- ------------ ---------
Risk Weighted Assets (GBPm) 4,281 3,693 16%
As at 30 June 2016, the Group's fully loaded CRD IV total
capital ratio was 14.0% (31 December 2015: 15.1%) and its CET1
ratio was 11.0% (31 December 2015: 11.8%). These movements were
driven by the profit after tax of GBP42.2m for the first six months
of 2016 offset by growth in Risk Weighted Assets (RWAs) and the
post-tax AT1 coupon of GBP6.6m which is payable in April. The
goodwill impairment is capital neutral as intangible assets are
deducted from shareholders' equity in calculating available CET1
capital.
RWAs have increased by 16%, a greater rate than growth in the
loan book mainly due to the recalculation of the Operational Risk
charge which is updated annually during the first quarter. We use a
standardised methodology whereby the operational risk charge is
based on the average operating income from the previous three years
which accounted for c30bps of the reduction in the CET1 ratio in
the first half of this year.
As discussed at our full year results, we face an evolving
regulatory environment with changes to buy-to-let risk weights
proposed by the Basel Committee on Banking Supervision in a
consultation paper at the end of 2015. It is not clear whether
these discussions will be impacted by the Referendum and we
continue to monitor developments closely. We continue to work
towards fully understanding the requirements and implications of a
move to an internal ratings-based capital approach (IRB) which,
subject to regulatory approval, would allow us to use our own
internal credit models rather than standardised risk weights.
Leverage ratio
The Group's leverage ratio under CRD IV is set out below:
30 June 31 December Movement
2015 %
2016 %
%
Leverage ratio(1) 6.9 7.2 (0.3)%
The Group's leverage ratio reduced by 0.3 percentage points to
6.9% (31 December 2015: 7.2%) mainly due to growth in lending
assets partially offset by retained earnings generated during the
period.
(1) The year end 2015 leverage ratio was restated to 7.2% in the
published Pillar 3 disclosures following finalisation of
off-balance sheet exposures
Segmental analysis
Asset Finance 30 June 31 December Movement
2016 2015 %
GBPm GBPm
Net loans to customers 1,498.2 1,346.7 11%
Non-performing loans ratio(1) 0.31% 0.31% -%
H1 2016 H1 2015 Movement
GBPm GBPm %
Organic origination 509 424 20%
Net interest income 29.9 25.2 19%
Net fees and other income 1.7 2.0 (15)%
------------------------------- -------- ------------ ---------
Operating income 31.6 27.3 16%
Administrative expenses (6.3) (5.6) (13)%
Impairment losses (2.4) (2.2) (9)%
------------------------------- -------- ------------ ---------
Segmental result 22.9 19.5 17%
------------------------------- -------- ------------ ---------
Net interest margin (%) 4.2% 4.5% (0.3)%
Cost of risk (bps) 34bps 40bps 6bps
Aldermore supports capital investment in a wide range of
business-critical assets from hard assets such as vehicles,
agricultural machinery, printing equipment, digital technologies
and renewables as well as soft assets such as IT and telephony
equipment. We aim to be our broker partners' "funder of first
choice" by being easy to do business with, quick to respond and
consistent in our credit decisions.
The Asset Finance business delivered good growth in the first
six months of 2016, with net loans growing by 11% to GBP1.5bn (31
December 2015: GBP1.3bn) as we grew customer numbers by 9% to
around 46,000 (31 December 2015: c42,000). This growth was driven
by excellent organic origination which increased by 20% to GBP509m
(H1 2015: GBP424m). Almost one third of the first half's
origination was generated from non-broker channels. We were
particularly successful in attracting wholesale deals which are
becoming a bigger feature of the market following recent
consolidation.
Net interest income grew by 19% to GBP29.9m (H1 2015: GBP25.2m)
driven by growth in lending with the net interest margin 0.3% below
the prior year at 4.2% (H1 2015: 4.5%) due to the increased level
of wholesale business which is written at a finer gross margin but
incurs lower associated administrative expenses to underwrite.
Administrative expenses were 13% up on the prior year at GBP6.3m
(H1 2015: GBP5.6m) representing a small number of additional staff
as we continue to invest in the business to support growth.
The portfolio is granular with an average outstanding balance of
GBP32k and around 82% of loans backed by tangible security. The
non-performing loans ratio remains low at 0.31% and unchanged from
the end of 2015. Impairment charges for the first half totalled
GBP2.4m (H1 2015: GBP2.2m) leading to a cost of risk of 34bps (H1
2015: 40bps).
Asset Finance delivered a strong bottom line performance with
the segmental result increasing by 17% to GBP22.9m (H1 2015:
GBP19.5m).
(1) Non-performing loans ratio is calculated as individually
impaired loans as a percentage of gross loans at the period end
Invoice Finance 30 June 31 December Movement
2016 2015 %
GBPm GBPm
Net loans to customers 155.3 160.8 (3)%
Non-performing loans ratio(1) 1.68% 1.51% (0.17)%
H1 2016 H1 2015 Movement
GBPm GBPm %
Organic origination 19 20 (5)%
Net interest income 2.2 2.6 (15)%
Net fees and other income 7.2 7.5 (4)%
------------------------------- -------- ------------ ---------
Operating income 9.4 10.2 (8)%
Administrative expenses (5.3) (7.4) 28%
Impairment losses (1.0) (0.6) (67)%
Segmental result 3.1 2.2 41%
------------------------------- -------- ------------ ---------
Net interest margin (%) 2.8% 3.0% (0.2)%
Net revenue margin (%) 11.9% 11.6% 0.3%
Cost of risk (bps) 127bps 69bps (58)bps
Invoice Finance is a useful working capital tool for SMEs. Our
customers are typically owner-managed SMEs and we focus on key
sectors including Manufacturing, Wholesale, Recruitment and
Logistics. We employ specialist service teams that spend time
understanding our customers' business and design appropriate
financing solutions. We will usually lend up to 90% of the value of
approved outstanding invoices issued by the borrower to its
customers.
Invoice Finance remains around 2% of the total net loan
portfolio although a more meaningful contributor to net fees and
other income. At 30 June 2016, net loans were GBP0.2bn (31 December
2015: GBP0.2bn). Customer numbers reduced to around 1,100 (31
December 2015: c1,200) as we continue to re-orientate the business
away from micro-clients and small invoice factoring facilities.
Net interest income decreased by GBP0.4m to GBP2.2m (H1 2015:
GBP2.6m) driven by lower average balances during the period and a
reduction in the net interest margin to 2.8% (H1 2015: 3.0%). Net
fee income was down by GBP0.3m to GBP7.2m (H1 2015: GBP7.5m)
predominantly as a result of lower factoring fees as we continue to
focus on our invoice discounting proposition. The net revenue
margin improved to 11.9% (H1 2015: 11.6%).
We maintained our focus on cost management and expenses reduced
by 28% to GBP5.3m (H1 2015: GBP7.4m) as we reduced headcount
following the restructuring of our operating model and sales
structure in the second half of 2015.
For Invoice Finance, collateral is provided by the underlying
trade invoices issued by our customer, and at 30 June 2016, the
average advance rate was 62% (31 December 2015: 65%). We continue
to focus on credit and fraud controls and our non-performing loan
ratio remains low at 1.68% (31 December 2015: 1.51%). Impairments
for the first six months of 2016 were GBP1.0m (H1 2015: GBP0.6m)
with the cost of risk at a more normal level of 127bps as compared
with the first half of 2015 which was particularly low (H1 2015:
69bps).
The segmental result increased by GBP0.9m or 41% to GBP3.1m (H1
2015: GBP2.2m).
As a result of lower market valuations for financial services
companies following the EU Referendum, we have adopted a cautious
approach and impaired GBP4.1m of goodwill related to the
acquisition of Absolute Invoice Finance (Holdings) Limited with the
charge reflected in Central Functions.
(1) Non-performing loans ratio is calculated as individually
impaired loans as a percentage of gross loans at the period end
SME Commercial Mortgages 30 June 31 December Movement
2016 2015 %
GBPm GBPm
Net loans to customers 926.0 829.2 12%
Non-performing loans ratio(1) 0.59% 0.83% 0.24%
H1 2016 H1 2015 Movement
GBPm GBPm %
Organic origination 210 163 29%
Net interest income 23.7 16.1 47%
Net fees and other income 0.6 0.7 (14)%
------------------------------- -------- ------------ ---------
Operating income 24.3 16.8 45%
Administrative expenses (1.8) (2.0) 10%
Impairment losses (1.2) (1.0) (20)%
------------------------------- -------- ------------ ---------
Segmental result 21.3 13.7 55%
------------------------------- -------- ------------ ---------
Net interest margin (%) 5.4% 5.3% 0.1%
Cost of risk (bps) 27bps 33bps 6bps
We offer a full range of mortgages from residential property
development through to purchase and refinancing as well as bridging
loans. Our SME Commercial Mortgages business focuses on mortgages
for shops, warehouses, industrial units and offices. In Property
Development, we have created flexible funding solutions for
experienced housebuilders working on residential and mixed-use
developments. We work closely with our brokers to ensure we are
easy to do business with and responsive, providing direct access to
our underwriters in more complex cases.
In the first half of 2016, our SME Commercial Mortgage business
grew net loans to customers by 12% to GBP0.9bn (31 December 2015:
GBP0.8bn) as we grew customer numbers by 15% to around 1,800 (31
December 2015: c1,500). Growth was supported by strong organic
origination, up by 29% to GBP210m (H1 2015: GBP163m) with around
84% introduced via brokers as we leveraged our strong relationships
in this channel.
The continued balance sheet momentum is reflected in the
increasing net interest income, up by 47% to GBP23.7m (H1 2015:
GBP16.1m). The net interest margin increased by 0.1 percentage
points to 5.4% (H1 2015: 5.3%).
The Mortgages division is run as one business with common
platforms and some shared teams and the overall costs are around
GBP0.5m down on the same period last year. We have allocated
expenses to the three portfolios with front office costs allocated
using origination activity and back office costs allocated on the
basis of average loan balances. The GBP0.2m or 10% reduction in
administrative expenses to GBP1.8m (H1 2015: GBP2.0m) results from
the allocation of costs to support our increased Buy-to-Let
origination.
The SME Commercial Mortgages portfolio is geographically
diversified and prudently underwritten with an average indexed loan
to value (excluding Property Development) of 50% (31 December 2015:
49%). The Property Development portfolio totalled GBP211m,
accounting for around 3% of overall lending and with an average
loan-to-gross-development-value of 58%.
As at 30 June 2016, the non-performing loan ratio was 0.59% down
from 0.83% at the start of the year. Impairment losses increased by
20% to GBP1.2m (H1 2015: GBP1.0m) and mainly relate to collective
provisions as we increased emergence periods by 3 months to reflect
additional uncertainty post the EU Referendum. However, the cost of
risk decreased by 6bps to 27bps (H1 2015: 33bps) due to growth in
the portfolio.
The segmental result was strong, growing by 55% to GBP21.3m (H1
2015: GBP13.7m).
(1) Non-performing loans ratio is calculated as individually
impaired loans as a percentage of gross loans at the period end
Buy-to-Let 30 June 31 December Movement
2016 2015 %
GBPm GBPm
Net loans to customers 2,704.0 2,417.9 12%
Non-performing loans ratio(1) 0.18% 0.21% 0.03%
H1 2016 H1 2015 Movement
GBPm GBPm %
Organic origination 519 298 74%
Net interest income 40.9 35.2 16%
Net fees and other income 2.3 1.7 35%
------------------------------- -------- ------------ ---------
Operating income 43.2 36.9 17%
Administrative expenses (4.7) (4.5) (4)%
Impairment losses (0.9) (0.5) (80)%
------------------------------- -------- ------------ ---------
Segmental result 37.6 32.0 18%
------------------------------- -------- ------------ ---------
Net interest margin (%) 3.2% 3.3% (0.1)%
Cost of risk (bps) 7bps 5bps (2)bps
We provide a complete buy-to-let proposition catering for both
individual and corporate landlords, simple to complex properties
and from a single property to a large portfolio.
In the first six months of 2016, our Buy-to-Let mortgage
business grew net loans to customers by 12% to GBP2.7bn (31
December 2015: GBP2.4bn) as customer numbers increased by 9% to
c17,000 (31 December 2015: c16,000). Growth was supported by
organic origination of GBP519m (H1 2015: GBP298m), driven in large
part by applications received towards the end of 2015, as we took
advantage of the expected market spike ahead of the introduction of
the additional 3% stamp duty from 1 April 2016. We delivered strong
double digit growth in both intermediated and direct
origination.
The increase in net interest income, which was up by 16% to
GBP40.9m (H1 2015: GBP35.2m) was driven by the continued growth of
the lending book with the net interest margin reducing to 3.2% (H1
2015: 3.3%).
The GBP0.2m increase in administrative expenses reflects the
allocation of costs to support our increased origination.
Our average outstanding balance as at 30 June 2016 was GBP163k
and the portfolio, although regionally diversified, has a bias
towards Greater London and the South East where the rental market
is stronger. The average indexed loan-to-value of the portfolio is
61% providing strong levels of collateral cover.
The NPL ratio was low at 0.18%, an improvement of 0.03% on the
year end position. Impairment losses increased by GBP0.4m to
GBP0.9m (H1 2015: GBP0.5m) as we extended emergence periods by 3
months to reflect increased economic uncertainty and the cost of
risk increased by 2bps but remains very low at 7bps (H1 2015:
5bps).
The segmental result was excellent, growing by 18% to GBP37.6m
(H1 2015: GBP32.0m).
(1) Non-performing loans ratio is calculated as individually
impaired loans as a percentage of gross loans at the period end
Residential Mortgages 30 June 31 December Movement
2016 2015 %
GBPm GBPm
Net loans to customers 1,515.7 1,390.2 9%
Non-performing loan ratio(1) 0.31% 0.29% (0.02)%
H1 2016 H1 2015 Movement
GBPm GBPm %
Organic origination 243 281 (14)%
Net interest income 22.8 17.5 30%
Net fees and other income 0.9 0.3 200%
------------------------------ -------- ------------ ---------
Operating income 23.7 17.8 33%
Administrative expenses (2.2) (2.7) 19%
Impairment losses (0.9) (0.8) (13)%
------------------------------ -------- ------------ ---------
Segmental result 20.6 14.4 43%
------------------------------ -------- ------------ ---------
Net interest margin (%) 3.1% 3.2% (0.1)%
Cost of risk (bps) 12bps 15bps 3bps
Our Residential Mortgages business targets under- or poorly
served prime creditworthy customers including the self-employed,
professionals and first time buyers. In Residential Mortgages, we
benefit from modern technology with our brokers able to apply via
an online portal and obtain a decision in principle within 90
seconds. This portal takes the application and links to external
systems, automatically completing basic identity, fraud and credit
checks and builds an underwriting file highlighting any specific
issues to our underwriters allowing us to use targeted human
underwriting in a cost-effective manner to make considered and
consistent credit decisions.
In the first six months of 2016, Residential Mortgages grew by
9% to GBP1.5bn (31 December 2015: GBP1.4bn) as we increased
customer numbers by 8% to around 11,000 (31 December 2015:
c10,000). Growth was supported by robust organic origination of
GBP243m (H1 2015: GBP281m) of which direct distribution accounted
for 7%.
The continued balance sheet momentum is reflected in the
increasing net interest income, up by 30% to GBP22.8m (H1 2015:
GBP17.5m) despite the net interest margin reducing by 0.1
percentage points to 3.1% (H1 2015: 3.2%).
The GBP0.5m decrease in allocated administrative expenses
compared with the same period in H1 2015 reflects reduced
origination levels in this segment as well as the increased cost
allocation to Buy-to-Let.
As at 30 June 2016, the average outstanding balance was GBP139k
with 87% of the portfolio having a balance of under GBP300k. The
average indexed loan-to-value of the portfolio is 70% (31 December
2015: 72%). However, this is skewed by the Help to Buy Guarantee
product which accounts for the majority of the HTB book and has an
average indexed LTV of 88% but with associated government
guarantees which reduce the risk to Aldermore to 80% LTV. The
average indexed LTV of the (non HTB) owner occupied book is
62%.
The non-performing loan ratio was 0.31% (31 December 2015:
0.29%). Impairment losses increased by GBP0.1m to GBP0.9m (H1 2015:
GBP0.8m) again predominantly driven by the collective charge as we
extended emergence periods to reflect the additional uncertainty
post the Referendum. The cost of risk improved to 12bps (H1 2015:
15bps) due to growth in the portfolio.
The segmental result was excellent, growing by 43% to GBP20.6m
(H1 2015: GBP14.4m).
(1) Non-performing loans ratio is calculated as individually
impaired loans as a percentage of gross loans at the period end
Central Functions H1 2016 H1 2015 Movement
GBPm GBPm %
Net interest expense (3.9) (4.6) 15%
Net fees and other income (0.6) 0.4 (250)%
------------------------------------ -------- -------- ---------
Operating income (4.5) (4.2) (7)%
Administrative expenses (excluding
IPO costs) (37.8) (34.0) (11)%
IPO related costs - (4.1) n/a
Impairment of Invoice Finance (4.1) - n/a
goodwill
------------------------------------ -------- -------- ---------
Segmental result (46.4) (42.2) (10)%
------------------------------------ -------- -------- ---------
Central Functions includes the Group's Treasury function and
Savings division as well as common costs which are not directly
attributable to the operating segments. Common costs include
central support function costs such as Finance, IT, Legal &
Compliance, Risk and Human Resources. It also includes the
reconciling items between the total of the five reportable segments
and the consolidated income statement.
Net interest expense includes the interest expense relating to
the Tier 2 subordinated notes and the net interest income or
expense element arising from derivatives held at fair value in
hedging relationships, neither of which are recharged to
segments.
Net fees and other income predominantly includes the net expense
or income from derivatives not in hedging relationships and other
financial instruments at fair value through profit or loss and
gains on disposals of available for sale debt securities.
Central administrative expenses, excluding IPO costs, increased
by 11% to GBP37.8m (H1 2015: GBP34.0m) mainly driven by an increase
in headcount to support growth.
At the end of 2015, we held goodwill of GBP4.1m related to the
acquisition of Absolute Invoice Finance (Holdings) Limited which
was supported using a Fair Value less Cost of Disposal methodology.
As a result of the lower market valuations for financial services
companies following the EU referendum, it is not clear whether the
goodwill currently continues to be supported on this basis so we
have adopted a cautious approach and impaired this amount.
The segmental result was a charge of GBP46.4m (H1 2015: charge
of GBP42.2m).
Risk management report
Principal risks and uncertainties
There has been no significant change to our business model, risk
management framework or risk appetite during the six months ended
30 June 2016. The following section summarises the principal risks
and uncertainties to which we are exposed, along with our approach
to mitigating these risks. A more detailed review of these
principal risks is set out in the Risk Management section of the
2015 Annual Report on pages 40 to 41 and 110 to 130, which can be
accessed via our Investor Relations website at
www.investors.aldermore.co.uk.
(a) Principal risks
The principal risks and uncertainties which we may face in the
remaining six months of the financial year are summarised below. We
operate within a three lines of defence model to ensure that all
risk areas receive independent overview and challenge, as well
independent audit, where appropriate.
Principal risk Mitigation
------------------------- ----------------------------------------------------------------
Strategic risk
The risks that * Remain focused on a sustainable business model which
can affect our is aligned to the Group's strategy.
ability to achieve
our corporate and
strategic objectives.
------------------------- ----------------------------------------------------------------
Credit risk
The risk of financial * Focus on business sectors where we have specific
loss arising from expertise.
a borrower failing
to meet their financial
obligations to * Limit concentration of exposures by size, geography
the Group. and sector.
* Obtain appropriate level of security cover along with
affordability testing.
* Detailed lending policies in place in all business
areas.
* Portfolio performance against risk appetite regularly
reviewed.
* Stress testing on an on-going basis informs credit
risk appetite.
------------------------- ----------------------------------------------------------------
Liquidity risk
The risk that we * Maintain a liquidity buffer, which is based on
are not able to requirements under stressed conditions.
meet our financial
obligations as
they fall due, * Monitor liquidity buffer on a daily basis to ensure
or can do so only there are sufficient liquid assets at all times.
at excessive cost.
------------------------- ----------------------------------------------------------------
Market risk
The financial impact * We do not seek to take or expose the Group to market
from movements risk and we do not carry out proprietary trading.
in market prices
on the value of
assets and liabilities.
------------------------- ----------------------------------------------------------------
Principal risk Mitigation
-------------------------- ------------------------------------------------------------------------
Interest rate risk
The risk of financial * Match interest rate structure of assets with
loss through un-hedged liabilities or deposits creating a natural hedge.
or mismatched asset
and liability positions
sensitive to changes * Where this is not possible, we enter into interest
in interest rates. rate swap transactions to convert fixed rate
exposures on loans and advances, customer deposits
and available for sale securities into variable rate
exposures. These are then aggregated with other
variable rate exposures. Any residual unhedged fixed
rate exposure is regularly monitored to ensure it
remains within our overall tolerance levels.
-------------------------- ------------------------------------------------------------------------
Capital risk
The risk that we * Regulate the volume of loan origination.
have insufficient
capital to cover
regulatory requirements * Monthly forecasting of 12-18 month capital outlook.
or growth plans.
* Stress testing and sensitivity analysis.
-------------------------- ------------------------------------------------------------------------
Operational risk
The risk of financial * An embedded Operational Risk Management Framework
loss and/or reputational which includes Risk and Control Self Assessments,
damage resulting risk event and loss management, and policies for
from inadequate specific areas of risk.
or failed internal
processes, people
and systems or * Monitoring and reviewing the operational risk profile
from external events on an ongoing basis.
including financial
crime.
* Operational risk policies are reviewed, monitored and
refreshed on an ongoing basis.
-------------------------- ------------------------------------------------------------------------
Conduct risk
The risk of causing * An embedded Conduct Risk Management Framework which
unfair outcomes includes Risk and Control Self Assessments, and
and detriment to policies for specific areas of risk.
our customers,
regulatory censure
and/or undermining * Product Governance Framework.
market integrity
as a result of
our behaviour, * Conduct risk policies are reviewed, monitored and
decision-making, refreshed on an ongoing basis.
activities or processes.
* Monitor first line conduct risk metrics covering the
product life cycle.
-------------------------- ------------------------------------------------------------------------
(b) Current strategic risks
The above risks are all classified as principal risks within the
Group's Risk Management Framework and are considered to be
important to the development, performance and position of the
Group. The Group's current strategic risks are detailed below.
These may have a potential future impact on the strategic plans for
the business and its future financial performance. The section
below should not be regarded as a complete and comprehensive
statement of all current risks:
Area Consideration
----------------------- ---------------------------------------------
Regulatory change The banking sector is currently subject
/ intervention to a large volume of actual and potential
regulatory change. We actively manage
a number of regulatory review and
change activities on an ongoing basis.
A second consultative document, 'Revisions
to the Standardised Approach for Credit
Risk', was issued by the Basel Committee
on Banking Supervision in December
2015. This document contained proposals
to increase the capital risk weights
of buy-to-let and commercial real
estate lending. If these proposals
were implemented as outlined, possibly
from 2019, the Group would be required
to hold increased capital to support
these lending segments under a standardised
approach.
New reporting requirements under IFRS
9 introduce forward looking credit
loss models which will lead to changes
in timing of impairment recognition.
We continue to assess the impact of
IFRS 9 and have implemented a project
plan to ensure compliance with the
new standard ahead of its proposed
implementation date of 1 January 2018.
We remain a UK-focused business and
we continue to seek to inform proposed
regulatory changes by working closely
with industry bodies, banking regulators
and Government authorities.
----------------------- ---------------------------------------------
Economic and political There are ongoing economic and political
environment risks following the EU Referendum.
As a UK focused bank, we are sheltered
from the more direct impacts of the
Referendum such as access to European
markets but we are exposed to the
wider economic impacts. To date, we
have seen no direct impact on either
the lending or deposit sides of our
business.
The UK economic outlook potentially
now appears more negative, with growth
expected to slow, employment prospects
to weaken, and an uncertain property
market. In response, on 4 August 2016,
the Bank of England announced a package
of measures including cutting the
Bank Rate by 25bps to 0.25%, a new
Term Funding Scheme, up to GBP10bn
of corporate bond purchases and an
expansion of the asset purchase scheme
for UK government bonds of up to GBP60bn.
Along with other market participants,
we are monitoring developments closely
but believe it may be some time before
the true impact of the Referendum
and the Bank of England's stimulus
package become clear. We will review
the full details of the Term Funding
Scheme when they are available to
understand how this can be most efficiently
used in conjunction with other schemes
such as Funding for Lending. Given
the extensively hedged nature of our
business into variable rates, we believe
there is limited downside risk as
a result of the announced and potential
interest rate cuts although we may
experience some small short term impacts
as elements of both the lending and
deposit portfolios re-price at different
speeds depending on the terms of the
individual products.
----------------------- ---------------------------------------------
Area Consideration
------------------------- --------------------------------------------------
Economic and political The international economic and political
environment (continued) environment also contains risks, notwithstanding
our UK focus. These include structural
and deflationary concerns in the EU,
continuing geopolitical risks in Russia
and the Middle East, and a continuing
slowing of the economy in China, putting
pressure on global financial and commodity
markets.
Until recently, the UK economy has
remained robust in the face of these
domestic and global headwinds and
as a UK-focused business we have not
felt any material adverse consequences.
The medium-term outlook is unclear
and there remains a possibility that
material international events could
adversely affect the UK economy and
therefore the sectors to which we
lend. We aim to manage these risks
by maintaining a well-diversified
product base, and remaining firmly
focused on the UK.
As a business which has substantial
lending exposure to the residential,
buy-to-let, and commercial property
sectors, any property value falls,
or increase in unemployment may lead
to a rising number of defaults. This
risk is partly mitigated by the enforcement
of strict lending criteria at origination
including affordability requirements.
We are cognisant of the very low interest
rate environment at present. Despite
the recent 25bps rate cut discussed
above, the market still expects further
downwards movements in base rates
possibly by the end of 2016. However,
if interest rates were to rise instead,
for example should Sterling be prioritised,
then the associated potential impact
on our customers' ability to repay
has been recognised and mitigated
through a range of measures. These
include stress testing and the use
of affordability criteria which measure
the ability of customers to service
loan payments at higher interest rates.
------------------------- --------------------------------------------------
Competitive environment The competitive landscape contains
risks from new entrants, increased
competition from incumbent lenders
and disruptive products/software solutions
potentially affecting both lending
and deposit taking activities. The
effect of this could result in lower
volume, higher customer attrition
and/or lower net interest margins.
The risk of competition has been incorporated
in our forward planning process and
the external market is constantly
monitored.
------------------------- --------------------------------------------------
Cyber-crime risk Cyber-crime remains a major issue
in our increasingly interconnected
world and exposes our business to
financial as well as reputational
damage. During 2015, and continuing
into 2016, we have invested heavily
and strengthened our defences against
cyber-crime. Nonetheless, this remains
a key risk area and the Group continues
to invest in ongoing security improvements
given the evolving nature of the risk.
We have plans in place to identify
and respond to a cyber-risk event
on a timely basis, ensuring that there
is a practical approach to actions
and appropriate escalation to help
minimise any potential impact.
------------------------- --------------------------------------------------
Principal risk drivers
Effective risk management is a key component of our strategy of
supporting UK SMEs, homeowners, landlords and savers. Our approach
to risk combines an effective Risk Management Framework ('RMF')
with a strong risk management culture.
We manage our risks under the RMF. Further details of the RMF,
the principal risks and the way in which we manage these risks are
available in our 2015 Annual Report and Accounts. Our RMF, policies
and procedures are subject to ongoing improvement and are regularly
reviewed and updated to ensure that they accurately identify the
risks that we face in our business activities.
During the six months ended 30 June 2016, there has been no
significant change to our business model, risk management approach
or risk appetite. The following sections provide an overview of our
exposure to credit, liquidity, interest rate and market risk.
(a) Credit risk
The following table presents our maximum exposure to credit risk
of financial instruments on the balance sheet and commitments to
lend before taking into account any collateral held or other credit
enhancements. The maximum exposure to credit risk for loans, debt
securities, derivatives and other on-balance sheet financial
instruments is the carrying amount, and for loan commitments the
full amount of any commitment to lend that is either irrevocable or
revocable only in response to material adverse change.
Maximum exposure to credit risk
30 June 31 December
2016 2015
Included in the statement of Note GBPm GBPm
financial position:
Cash and balances at central
banks 34.6 105.3
Loans and advances to banks 131.2 94.2
Debt securities 709.4 606.1
Derivatives held for risk management 12.5 6.7
Loans and advances to customers 13 6,822.3 6,165.5
Other financial assets 1.2 0.4
7,711.2 6,978.2
Commitments to lend 20 746.8 556.0
-------------------------------------- ----- -------- ------------
Gross credit risk exposure 8,458.0 7,534.2
-------------------------------------- ----- -------- ------------
Less: allowance for impairment
losses 13 (23.1) (20.7)
Net credit risk exposure 8,434.9 7,513.5
-------------------------------------- ----- -------- ------------
Credit risk - lending assets
Analysis of loans and advances by impairment status
The table below provides information on the payment due status
of loans and advances to customers, shown gross of impairment
provisions:
Asset Invoice SME Commercial Residential
Finance Finance Mortgages Buy-to-Let Mortgages Total
30 June 2016 GBPm GBPm GBPm GBPm GBPm GBPm
Neither past due
nor individually
impaired 1,495.2 158.1 917.7 2,690.9 1,499.6 6,761.5
Past due but not
individually impaired 6.2 - 7.7 10.8 13.8 38.5
Individually impaired 4.6 2.7 5.5 4.8 4.7 22.3
1,506.0 160.8 930.9 2,706.5 1,518.1 6,822.3
------------------------ --------- --------- --------------- ----------- ------------ --------
Asset Invoice SME Commercial Residential
Finance Finance Mortgages Buy-to-Let Mortgages Total
31 December 2015 GBPm GBPm GBPm GBPm GBPm GBPm
Neither past due
nor individually
impaired 1,346.0 163.6 820.0 2,403.9 1,372.9 6,106.4
Past due but not
individually impaired 3.9 - 6.5 10.9 15.0 36.3
Individually impaired 4.2 2.5 6.9 5.1 4.1 22.8
1,354.1 166.1 833.4 2,419.9 1,392.0 6,165.5
------------------------ --------- --------- --------------- ----------- ------------ --------
Loans and advances which are past due but not individually
impaired
Past due but not individually impaired loans are further
analysed according to the number of months past due as below:
30 June 31 December
2016 2015
Past due but not individually GBPm GBPm
impaired
- Up to 2 months past due 28.5 28.4
- 2 to 3 months past due 10.0 7.9
Total 38.5 36.3
-------------------------------- -------- ------------
Fair value of collateral held 37.1 35.2
-------------------------------- -------- ------------
Loans and advances neither past due nor individually
impaired
The credit quality of assets that are neither past due nor
individually impaired is analysed internally as follows:
SME Commercial
Asset Invoice Mortgages Residential
Finance Finance (1) Buy-to-Let Mortgages Total
30 June 2016 GBPm GBPm GBPm GBPm GBPm GBPm
Low risk 246.1 - 361.1 2,159.8 1,071.9 3,838.9
Medium risk 1,168.4 9.6 336.9 469.7 384.2 2,368.8
High risk 80.7 148.5 8.6 61.4 43.5 342.7
Total 1,495.2 158.1 706.6 2,690.9 1,499.6 6,550.4
Fair value of collateral
held 1,202.8 156.8 706.6 2,689.3 1,499.6 6,255.1
-------------------------- --------- --------- --------------- ----------- ------------ --------
Asset SME Commercial
Finance Invoice Mortgages Residential
(2) Finance (1) Buy-to-Let Mortgages Total
31 December 2015 GBPm GBPm GBPm GBPm GBPm GBPm
Low risk 225.5 - 325.2 1,898.1 907.3 3,356.1
Medium risk 1,043.7 12.8 308.2 471.1 432.2 2,268.0
High risk 76.8 150.8 7.3 34.7 33.3 302.9
Total 1,346.0 163.6 640.7 2,403.9 1,372.8 5,927.0
Fair value of collateral
held 957.0 160.8 640.7 2,403.4 1,372.8 5,534.7
-------------------------- --------- --------- --------------- ----------- ------------ --------
(1) The above analysis excludes Property Development. Further
detail of the Property Development book of GBP211.1 million (31
December 2015: GBP179.3 million) is provided on page 29.
(2) During the period, the underlying modelling technique for
Asset Finance has been enhanced based on more granular segmentation
of the portfolio. Accordingly, the prior year comparatives have
been re-presented using the enhanced modelling techniques to ensure
comparability.
The categorisation of low, medium, high risk in the above table
is based on internal grading models. There has been no change in
the grading methodology since 31 December 2015. The methodology to
calculate the fair value of collateral held also remains unchanged.
Where the indexed value is greater than the balance outstanding,
the fair value of the collateral is capped to the value of the
outstanding balance. Full details of both methodologies are
provided in the Group's 2015 Annual Report and Accounts.
Impaired loan analysis
Individually impaired balances are further analysed as
follows:
Asset Invoice SME Commercial Residential
Finance Finance Mortgages Buy-to-Let Mortgages Total
30 June 2016 GBPm GBPm GBPm GBPm GBPm GBPm
Past due 3-6 months 2.4 - 1.3 1.3 3.2 8.2
Past due 6-12 months 1.3 0.9 0.7 2.6 1.4 6.9
Past due over 12
months 0.9 1.8 3.5 0.9 0.1 7.2
4.6 2.7 5.5 4.8 4.7 22.3
Of which: Possessions 0.7 - - 0.1 0.2 1.0
----------------------- --------- --------- --------------- ----------- ------------ ------
Asset Invoice SME Commercial Residential
Finance Finance Mortgages Buy-to-Let Mortgages Total
31 December 2015 GBPm GBPm GBPm GBPm GBPm GBPm
Past due 3-6 months 1.2 - 3.3 2.8 3.3 10.6
Past due 6-12 months 1.4 0.5 - 1.6 0.5 4.0
Past due over 12
months 1.6 2.0 3.6 0.7 0.3 8.2
4.2 2.5 6.9 5.1 4.1 22.8
------------ ------
Of which: Possessions 0.8 - - - 0.4 1.2
----------------------- --------- --------- --------------- ----------- ------------ ------
The fair value of collateral held against the above individually
impaired balances at 30 June 2016 of GBP22.3 million (31 December
2015: GBP22.8 million) was GBP16.5 million (31 December 2015:
GBP18.4 million).
Movement in impaired loans is analysed as follows:
Asset Invoice SME Commercial Residential
Finance Finance Mortgages Buy-to-Let Mortgages Total
2016 GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 4.2 2.5 6.9 5.1 4.1 22.8
Classified as impaired
during the period 3.6 0.9 1.3 2.0 2.9 10.7
Transferred from
impaired to unimpaired (0.2) - (1.2) (1.6) (1.2) (4.2)
Amounts written
off (1.7) (0.7) (0.1) (0.1) (0.1) (2.7)
Repayments (1.3) - (1.4) (0.6) (1.0) (4.3)
At 30 June 2016 4.6 2.7 5.5 4.8 4.7 22.3
------------------------- --------- --------- --------------- ----------- ------------ -------
Asset Invoice SME Commercial Residential
Finance Finance Mortgages Buy-to-Let Mortgages Total
2015 GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2.6 5.9 5.9 3.1 3.3 20.8
Classified as impaired
during the period 5.7 3.8 5.1 5.3 3.7 23.6
Transferred from
impaired to unimpaired (0.7) - (0.1) (0.8) (0.7) (2.3)
Amounts written
off (1.9) (4.6) (1.7) (0.9) (0.2) (9.3)
Repayments (1.5) (2.6) (2.3) (1.6) (2.0) (10.0)
At 31 December 2015 4.2 2.5 6.9 5.1 4.1 22.8
------------------------- --------- --------- --------------- ----------- ------------ -------
Impairment coverage ratio
Impairment coverage is analysed as follows:
30 June 31 December
2016 2015
Coverage ratio GBPm GBPm
Gross loans and advances 6,822.3 6,165.5
Of which individually impaired 22.3 22.8
------------------------------------ -------- ------------
Impaired as a % of gross loans
and advances 0.33% 0.37%
Allowance for losses - individual
provisions 10.6 10.2
Coverage 47.5% 44.7%
------------------------------------ -------- ------------
Quality of collateral
The principal indicators used to assess the credit security of
performing loans are loan-to-value ratios for SME Commercial,
Buy-to-Let and Residential Mortgages.
SME Commercial Mortgages(1)
Loan-to-value on indexed origination information on our SME
Commercial Mortgage portfolio is set out below:
30 June 31 December
2016 2015
GBPm GBPm
100%+ - -
85-100% - -
80-85% 0.9 -
75-80% 7.5 5.1
70-75% 26.0 18.2
60-70% 168.5 126.3
50-60% 171.4 157.3
0-50% 340.6 343.0
714.9 649.9
--------------------------------- -------- ------------
Capital repayment 497.6 505.8
Interest only 217.3 144.1
714.9 649.9
--------------------------------- -------- ------------
Average loan-to-value percentage 49.5% 48.6%
--------------------------------- -------- ------------
(1() The above analysis excludes Property Development segment
which totals GBP211.1million (31 December 2015: GBP179.3
million).
Property Development
We use 'loan-to-gross-development-value' as an indicator of the
quality of credit security of performing loans for the Property
Development portfolio. Loan-to-gross-development-value is a measure
used to monitor the loan balance drawn compared against the
expected gross development value once the development is complete.
The gross development value is based on valuations by qualified
valuers with reference to recent market transactions for similar
developments in the local area.
At 30 June 2016, 97 per cent (31 December 2015: 99 per cent) of
the portfolio had a loan-to-gross-development value of 65 per cent
or less. The average loan-to-gross-development value at 30 June
2016 is 58 per cent (31 December 2015: 56 per cent).
Buy-to-Let
Loan-to-value on indexed origination information on our
Buy-to-Let mortgage portfolio is set out below:
30 June 31 December
2016 2015
GBPm GBPm
100%+ 0.9 0.6
95-100% 1.1 5.1
90-95% 12.1 18.5
85-90% 13.5 14.5
80-85% 84.6 51.6
75-80% 232.9 219.1
70-75% 386.7 323.5
60-70% 803.7 735.1
50-60% 602.6 528.8
0-50% 565.9 521.1
2,704.0 2,417.9
--------------------------------- -------- ------------
Capital repayment 236.3 228.4
Interest only 2,467.7 2,189.5
2,704.0 2,417.9
--------------------------------- -------- ------------
Average loan-to-value percentage 60.6% 60.5%
--------------------------------- -------- ------------
Residential Mortgages
Loan-to-value on indexed origination information on our
Residential Mortgage portfolio is set out below:
30 June 31 December
2016 2015
GBPm GBPm
100%+ 0.5 6.6
95-100% 19.2 55.2
90-95% 150.9 200.5
85-90% 188.0 166.2
80-85% 184.9 153.6
75-80% 164.6 138.9
70-75% 170.3 121.5
60-70% 245.5 218.3
50-60% 166.3 145.5
0-50% 225.5 183.9
1,515.7 1,390.2
--------------------------------- -------- ------------
Capital repayment 1,310.1 1,188.0
Interest only 205.6 202.2
1,515.7 1,390.2
--------------------------------- -------- ------------
Average loan-to-value percentage 70.0% 72.3%
--------------------------------- -------- ------------
Lending at higher LTV bandings has increased as a result of the
Group's participation in the Help to Buy Scheme, with the majority
of the portfolio having an associated government guarantee on
amounts where the loan-to-value is above 85%, thereby reducing the
Group's exposure. As at 30 June 2016, 95 per cent of the exposures
with loan-to-value in excess of 85 per cent relate to the Help to
Buy Scheme (31 December 2015: 89 per cent) and the Help to Buy
guarantee portfolio, which makes up the majority of the Help to Buy
book, had an average indexed loan-to-value of 88 per cent. As at 30
June 2016, the average indexed loan-to-value of the non Help to Buy
owner occupied book is 62 per cent.
Invoice Finance
In respect of Invoice Finance, collateral is provided by the
underlying receivables (e.g. trade invoices). As at 30 June 2016,
the average advance rate against the fair value of sales ledger
balances which have been assigned to the Group, net of amounts
considered to be irrecoverable, is 62 per cent (31 December 2015:
65 per cent).
Asset Finance
In respect of Asset Finance, collateral is provided by our
rights and/or title to the underlying leased assets, which we are
able to repossess in the event of default. Where appropriate, we
will also obtain additional security, such as parent company or
personal guarantees. These assets range from wheeled assets such as
cars, to IT software and equipment.
Asset Finance also undertakes a small volume of unsecured
lending, where we have obtained an understanding of the ability of
the borrower's business to generate cash flows to service and repay
the facilities provided. As at 30 June 2016 the total amount of
such unsecured lending was GBP29.2 million (31 December 2015:
GBP30.3 million).
Concentration of credit risk
We monitor concentration of credit risk by segment, size of
asset, geography and sector. Analyses of concentrations are shown
below.
Credit concentration by segment
Details of our net lending by segment are as follows:
30 June 31 December
2016 2015
GBPm GBPm
Asset Finance 1,498.2 1,346.7
Invoice Finance 155.3 160.8
SME Commercial Mortgages 926.0 829.2
Buy-to-Let 2,704.0 2,417.9
Residential Mortgages 1,515.7 1,390.2
6,799.2 6,144.8
-------------------------- -------- ------------
Credit concentration by size of asset
An analysis of loans and advances to customers by size of asset
for the larger portfolios is shown in the table below:
30 June 2016 31 December 2015
SME SME
Asset Commercial Residential Asset Commercial Residential
Finance Mortgages(1) Buy-to-Let Mortgages Finance Mortgages(1) Buy-to-Let Mortgages
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
GBP0
- GBP50k 624.7 4.2 24.0 22.5 578.8 4.0 20.7 21.1
GBP50
- GBP100k 334.6 29.3 482.1 261.1 307.6 25.6 453.7 240.0
GBP100
- GBP150k 143.2 33.1 435.6 425.9 136.8 29.1 410.0 396.2
GBP150
- GBP200k 92.2 31.7 351.4 300.4 78.0 23.1 323.0 274.3
GBP200
- GBP300k 96.3 61.0 531.4 308.3 83.9 53.3 450.5 278.7
GBP300
- GBP400k 56.6 42.5 336.2 116.5 45.6 33.7 281.1 104.9
GBP400
- GBP500k 37.8 42.3 174.6 24.6 31.0 36.5 145.5 24.1
GBP500k
- GBP1m 63.8 127.6 245.9 50.2 52.5 117.7 209.0 45.7
GBP1m
- GBP2m 39.1 134.0 77.4 4.2 27.9 140.4 79.2 5.2
GBP2m+ 9.9 209.2 45.4 2.0 4.6 186.5 45.2 -
Total 1,498.2 714.9 2,704.0 1,515.7 1,346.7 649.9 2,417.9 1,390.2
------------ --------- ------------- ----------- ------------ --------- ------------- ----------- ------------
(1() The analysis of the SME Commercial Mortgages segment
presented above excludes the Property Development segment which
totals GBP211.1 million (31 December 2015: GBP179.3 million).
Credit concentration by geography
An analysis of our loans and advances to customers by geography,
including Property Development, is shown in the table below:
30 June 31 December
2016 2015
% %
East Anglia 9.6 9.4
East Midlands 6.0 6.2
Greater London 20.0 19.3
North East 2.6 2.8
North West 11.0 11.4
Northern Ireland 0.2 0.1
Scotland 4.9 4.9
South East 19.3 19.0
South West 9.7 9.8
Wales 3.2 3.2
West Midlands 6.9 7.2
Yorkshire and Humberside 6.6 6.7
100.0 100.0
-------------------------- -------- ------------
Credit concentration by sector
An analysis of our loans and advances to customers by sector is
shown in the table below:
30 June 31 December
2016 2015
% %
Agriculture, hunting and forestry 1.2 1.2
Construction 4.2 4.2
Education 0.1 0.1
Electricity, gas and water supply 0.5 0.5
Financial intermediation 1.5 1.4
Health and social work 0.2 0.2
Hotels and restaurants 0.3 0.3
Manufacturing 3.4 3.8
Mining and quarrying 0.3 0.2
Private households with employed
persons 0.9 1.0
Real estate, renting and business
activities 19.1 18.6
Residential 61.5 61.5
Transport, storage and communication 4.0 4.1
Wholesale & retail trade; repair
of motor vehicles, motorcycles
& personal household goods 2.8 2.9
100.0 100.0
-------------------------------------- -------- ------------
Forbearance
Forbearance is defined as any concessionary arrangement that is
made for a period of three months or more where financial
difficulty is present or imminent. Occasionally, some borrowers
experience financial difficulties which impact their ability to
meet mortgage and/or SME finance obligations. We seek to identify
borrowers who are experiencing financial difficulties as well as
contacting borrowers, whose loans have gone into arrears,
consulting with them in order to ascertain the reason for the
difficulties, and to establish the best course of action that can
be taken to bring the account up to date.
In certain circumstances, where the borrower is experiencing
significant financial distress, management may use forbearance
measures to assist the borrower. These are considered on a
case-by-case basis and must be in the best interest of the
customer. The forbearance measures are undertaken in order to
achieve the best outcome for both the customer and the Group by
dealing with financial difficulties and arrears at an early
stage.
The most widely used methods of forbearance are temporarily
reduced monthly payments, deferral of payment and a temporary or
permanent transfer to interest only payments to reduce the
borrower's financial pressures. Where the arrangement is temporary,
borrowers are expected to resume normal payments within six months.
Both temporary and permanent concessions are counted as forborne
for 24 months following the end of the concession. In all cases,
the above definitions are subject to no further concessions being
made and the customers' compliance with new terms.
Forbearance analysis by segment
As at 30 June 2016, we had undertaken forbearance measures as
follows in each of our segments:
30 June 31 December
2016 2015
GBPm GBPm
Asset Finance
Capitalisation 1.1 -
Reduced monthly payments 0.2 0.3
Loan-term extension 0.1 0.1
Deferred payment 1.5 0.8
-------- ------------
Total Asset Finance 2.9 1.2
Forborne as a percentage of the total
divisional gross lending book (%) 0.19% 0.09%
Invoice Finance
Agreement to advance funds in excess
of normal contractual terms 9.4 1.8
--------
Total Invoice Finance 9.4 1.8
Forborne as a percentage of the total
divisional gross lending book (%) 5.85% 1.12%
SME Commercial Mortgages
Temporary or permanent switch to
interest only 15.0 5.0
-------- ------------
Total SME Commercial Mortgages 15.0 5.0
Forborne as a percentage of the total
divisional gross lending book (%) 1.61% 0.66%
Buy-to-Let
Temporary or permanent switch to
interest only 1.3 1.5
Reduced monthly payments 1.3 0.8
Deferred payment 0.3 0.3
--------
Total Buy-to-Let 2.9 2.6
Forborne as a percentage of the total
divisional gross lending book (%) 0.11% 0.10%
Residential Mortgages
Temporary or permanent switch to
interest only 3.6 3.5
Reduced monthly payments 1.4 0.8
Deferred payment 1.4 1.4
-------- ------------
Total Residential Mortgages 6.4 5.7
Forborne as a percentage of the total
divisional gross lending book (%) 0.42% 0.41%
Total forborne
Total capitalisation 1.1 -
Total temporary or permanent switch
to interest only 19.9 10.0
Total reduced monthly payments 2.9 1.9
Total loan-term extension 0.1 0.1
Total deferred payment 3.2 2.5
Total agreement to advance funds
in excess of normal contractual terms 9.4 1.8
Total forborne 36.6 16.3
Total forborne as a percentage of
the total gross lending book (%) 0.54% 0.26%
---------------------------------------- -------- ------------
Further details of forborne accounts are provided on page 8.
Forbearance analysis by payment status
Analysis of forborne accounts by payment status is shown in the
tables below:
Asset Invoice SME Commercial Residential
Finance Finance Mortgages Buy-to-Let Mortgages Total
30 June 2016 GBPm GBPm GBPm GBPm GBPm GBPm
Neither past due
nor individually
impaired 2.8 9.1 11.5 2.1 3.9 29.4
Past due but not
individually impaired - - 3.5 0.8 1.7 6.0
Individually impaired 0.1 0.3 - - 0.8 1.2
2.9 9.4 15.0 2.9 6.4 36.6
------------------------ --------- --------- --------------- ----------- ------------ ------
Asset Invoice SME Commercial Residential
Finance Finance Mortgages Buy-to-Let Mortgages Total
31 December 2015 GBPm GBPm GBPm GBPm GBPm GBPm
Neither past due
nor individually
impaired 1.1 1.8 2.3 1.9 3.7 10.8
Past due but not
individually impaired - - 1.5 0.7 1.3 3.5
Individually impaired 0.1 - 1.2 - 0.7 2.0
1.2 1.8 5.0 2.6 5.7 16.3
------------------------ --------- --------- --------------- ----------- ------------ ------
Credit risk - treasury assets
Credit risk exists with treasury assets where we have acquired
securities or placed cash deposits with other financial
institutions. The credit risk of treasury assets is considered to
be relatively low. No assets are held for speculative purposes or
actively traded. Certain liquid assets are held as part of our
liquidity buffer.
Credit quality of treasury assets
The table below sets out information about the credit quality of
treasury financial assets. As at 30 June 2016 and at 31 December
2015, none of the treasury assets were past due or impaired. The
analysis presented below is derived using ratings provided by
Standard and Poor's (see below disclaimer for further details) and
Fitch. The worst rating from the credit agencies for each of the
counterparties is used as the basis for assessing credit risk of
treasury financial assets.
30 June 31 December
2016 2015
GBPm GBPm
Cash and balances at central
banks and loans and advances
to banks
- Rated AAA - 105.3
- Rated AA+ to AA- 56.1 29.6
- Rated A+ to A- 92.9 48.7
- Rated BBB+ 16.8 15.9
165.8 199.5
-------------------------------------- -------- ------------
Debt securities: UK Government
gilts and Treasury bills,
Supranational and Corporate
bonds
- Rated AAA 491.1 396.7
- Rated AA+ to AA- 162.8 134.5
- Rated A+ to A- - -
- Rated BBB+ - -
Debt securities: Asset backed
securities
- Rated AAA 55.5 71.8
- Rated AA+ to AA- - -
- Rated A+ to A- - 3.1
- Rated BBB+ - -
709.4 606.1
-------------------------------------- -------- ------------
Derivatives held for risk management
purposes
- Rated AAA - -
- Rated AA+ to AA- 2.2 1.4
- Rated A+ to A- 5.3 2.0
- Rated BBB+ 5.0 2.3
- Rated BBB - 1.0
12.5 6.7
-------------------------------------- -------- ------------
887.7 812.3
-------------------------------------- -------- ------------
Standard and Poor's disclaimer notice in relation to the ratings
information set out above:
"This may contain information obtained from third parties,
including ratings from credit ratings agencies such as Standard
& Poor's. Reproduction and distribution of third party content
in any form is prohibited except with the prior written permission
of the related third party. Third party content providers do not
guarantee the accuracy, completeness, timeliness or availability of
any information, including ratings, and are not responsible for any
errors or omissions (negligent or otherwise), regardless of the
cause, or for the results obtained from the use of such content.
THIRD PARTY CONTENT PROVIDERS GIVE NO EXPRESS OR IMPLIED
WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. THIRD
PARTY CONTENT PROVIDERS SHALL NOT BE LIABLE FOR ANY DIRECT,
INDIRECT, INCIDENTAL, EXEMPLARY, COMPENSATORY, PUNITIVE, SPECIAL OR
CONSEQUENTIAL DAMAGES, COSTS, EXPENSES, LEGAL FEES, OR LOSSES
(INCLUDING LOST INCOME OR PROFITS AND OPPORTUNITY COSTS OR LOSSES
CAUSED BY NEGLIGENCE) IN CONNECTION WITH ANY USE OF THEIR CONTENT,
INCLUDING RATINGS. Credit ratings are statements of opinions and
are not statements of fact or recommendations to purchase, hold or
sell securities. They do not address the suitability of securities
or the suitability of securities for investment purposes, and
should not be relied on as investment advice."
(b) Liquidity risk
To protect the Group and its depositors against liquidity risks,
we maintain a liquidity buffer which is based on our liquidity
needs under stressed conditions. The liquidity buffer is monitored
on a daily basis to ensure there are sufficient liquid assets at
all times to cover cash flow movements and fluctuations in funding
and to enable us to meet all financial obligations and to support
anticipated asset growth.
Analysis of the liquidity buffer
The components of the Group's liquidity buffer are shown
below:
30 June 31 December
2016 2015
GBPm GBPm
Level 1
-------------------------------------------- -------- ------------
Bank of England reserve account
and unencumbered cash and bank
balances 93.1 104.8
UK gilts and Treasury bills, Supranational
bonds and Covered bonds (level
1 eligible) 623.4 505.9
Treasury bills held under the
FLS scheme 453.9 349.0
Level 2
-------------------------------------------- -------- ------------
Covered bonds (level 2 eligible) 26.8 20.8
Asset backed securities 55.5 74.8
Total liquidity buffer 1,252.7 1,055.3
--------------------------------------------- -------- ------------
As a % of funding liabilities 16.7% 15.8%
--------------------------------------------- -------- ------------
Wholesale funding
We mainly finance our operations through retail and SME deposit
taking. We also have long-term wholesale funding lines in place
under the Funding for Lending Scheme ('FLS'), repo facilities to
help manage liquid assets, and debt securities issued by the Group
securitisation vehicle in April 2014. We also have relationship
banking facilities in place which are used to hedge against
currency and interest rate exposures.
A summary of our wholesale funding sources is shown below:
30 June 31 December
2016 2015
Note GBPm GBPm
Repurchase agreements on
drawings under FLS Scheme 323.3 398.6
Debt securities in issue 16 155.9 193.9
Deposits by banks 2.7 5.2
Subordinated notes 38.8 38.1
520.7 635.8
---------------------------- ----- -------- ------------
(c) Interest rate and market risk
The main market risk faced by the Group is interest rate risk
which primarily arises from retail and commercial assets and
liabilities, liquidity holdings, funding through FLS, debt
securities issued by the Group securitisation vehicle and
subordinated notes. Monitoring of interest rate risk is performed
by the Asset and Liability Management function which has oversight
from the Asset and Liability Committee ('ALCO') on a monthly
basis.
Asset-liability gap risk
Where possible we seek to match the interest rate structure of
assets with liabilities, creating a natural hedge. Where this is
not possible we will enter into interest rate swap transactions to
convert the fixed rate exposures on loans and advances, customer
deposits and available for sale securities into variable three
month LIBOR liabilities.
Given timing differences and the price of hedging small gaps, it
is not cost effective to have an absolute match of variable rate
assets and liabilities. The risk exposure of the overall
asset-liability interest rate profile is monitored against approved
limits using changes to economic value of the balance sheet as a
result of a modelled 2 per cent shift in the interest yield
curve.
The impact of a 2 per cent shift in the interest yield curve is
as follows:
30 June 31 December
2016 2015
GBPm GBPm
2% shift up of the yield curve:
As at period ended (5.6) (5.5)
Average of month end positions
reported to ALCO (4.3) (3.0)
----------------------------------- -------- ------------
2% shift down of the yield curve:
As at period ended - 4.0
Average of month end positions
reported to ALCO 1.2 1.3
----------------------------------- -------- ------------
Directors' responsibility statement
The Directors are responsible for preparing the interim
financial report in accordance with applicable law and
regulations.
We confirm that to the best of our knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting, as required
by DTR 4.2.4, as adopted by the European Union ('EU'); and
-- The interim management report includes a fair review of the information required by:
Ø DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
half of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining half of the year; and
Ø DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first half
of the current financial year and that have materially affected the
financial position or performance of the entity during that period;
and any changes in the related party transactions described in the
last annual report that could do so.
The Board of Directors, as listed below, represents those
individuals responsible for these condensed consolidated interim
financial statements.
Glyn Jones - Chairman
Phillip Monks - Chief Executive Officer
James Mack - Chief Financial Officer
Neil Cochrane
Danuta Gray
John Hitchins
Robert Sharpe
Peter Shaw
Christopher Stamper
Cathy Turner
By order of the Board
James Mack
Director and Chief Financial Officer
10 August 2016
Independent review report to Aldermore Group PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2016 which comprises:
-- the consolidated income statement;
-- the consolidated statement of comprehensive income;
-- the consolidated statement of financial position;
-- the consolidated statement of cash flows;
-- the consolidated statement of changes in equity; and
-- the notes to the consolidated interim financial statements.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the Disclosure and Transparency Rules ('the DTR')
of the UK's Financial Conduct Authority ('the UK FCA'). Our review
has been undertaken so that we might state to the Company those
matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company
for our review work, for this report, or for the conclusions we
have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in Note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the EU.
The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
IAS 34 'Interim Financial Reporting' as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2016 is not prepared, in all material respects, in accordance
with IAS 34 as adopted by the EU and the DTR of the UK FCA.
Michael Peck
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
10 August 2016
Consolidated income statement
For the six month period ended 30 June 2016
Period Period
ended ended
30 30
June 2016 June 2015
Note GBPm GBPm
Interest income 4 175.6 139.1
Interest expense 5 (60.0) (47.1)
Net interest income 115.6 92.0
-------------------------------------- ----- ----------- -----------
Fee and commission income 6 13.5 12.6
Fee and commission expense 7 (3.8) (3.8)
Net expense from derivatives
and other financial instruments
at fair value through profit
or loss 8 (1.5) (2.0)
Gains on disposal of available
for sale debt securities 0.7 2.5
Other operating income 9 3.2 3.5
Total operating income 127.7 104.8
-------------------------------------- ----- ----------- -----------
Provisions 15 (1.3) (2.2)
Costs in respect of initial
public offering 10 - (4.1)
Impairment of goodwill 2 (4.1) -
Other administrative expenses (54.6) (51.6)
-------------------------------------- ----- ----------- -----------
Administrative expenses 10 (60.0) (57.9)
Depreciation and amortisation (2.2) (2.2)
--------------------------------------
Operating profit before impairment
losses 65.5 44.7
Impairment losses on loans and
advances to customers 13 (6.4) (5.2)
-------------------------------------- ----- ----------- -----------
Profit before taxation 59.1 39.5
Taxation 11 (16.9) (8.3)
-------------------------------------- ----- ----------- -----------
Profit after taxation - attributable
to equity holders of the Group 42.2 31.2
-------------------------------------- ----- ----------- -----------
Basic earnings per share (pence) 12 10.3p 8.8p
Diluted earnings per share (pence) 12 10.3p 8.7p
-------------------------------------- ----- ----------- -----------
The notes and information on pages 46 to 63 form part of these
interim financial statements.
The result for the period is derived entirely from continuing
activities.
Consolidated statement of comprehensive income
For the six month period ended 30 June 2016
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
Profit after taxation 42.2 31.2
---------------------------------------- ------- -------
Other comprehensive expense:
Items that may subsequently be
transferred to the income statement:
Available for sale debt securities:
Fair value movements (1.0) 1.9
Amounts transferred to the income
statement (0.7) (2.4)
Taxation 0.4 0.1
---------------------------------------- ------- -------
Total other comprehensive expense (1.3) (0.4)
---------------------------------------- ------- -------
Total comprehensive income -
attributable to equity holders
of the Group 40.9 30.8
---------------------------------------- ------- -------
The notes and information on pages 46 to 63 form part of these
interim financial statements.
Consolidated statement of financial position
As at 30 June 2016
30 June 31 December
2016 2015
Note GBPm GBPm
Assets
Cash and balances at central
banks 34.6 105.3
Loans and advances to banks 131.2 94.2
Debt securities 709.4 606.1
Derivatives held for risk management 12.5 6.7
Loans and advances to customers 13 6,799.2 6,144.8
Fair value adjustment for portfolio
hedged risk 10.0 1.1
Other assets 1.5 1.4
Prepayments and accrued income 6.1 5.1
Deferred taxation 15.9 16.4
Property, plant and equipment 3.5 3.4
Intangible assets 2 21.8 24.0
Total assets 7,745.7 7,008.5
-------------------------------------- ----- -------- ------------
Liabilities
Amounts due to banks 326.8 405.1
Customers' accounts 14 6,538.0 5,742.0
Derivatives held for risk management 57.5 35.4
Fair value adjustment for portfolio
hedged risk 2.9 (0.8)
Other liabilities 21.0 21.9
Accruals and deferred income 20.2 25.7
Current taxation 13.6 12.5
Provisions 15 2.4 1.1
Debt securities in issue 16 155.9 193.9
Subordinated notes 38.8 38.1
Total liabilities 7,177.1 6,474.9
-------------------------------------- ----- -------- ------------
Equity
Share capital 17 34.5 34.5
Share premium account 73.4 73.4
Contingent convertible securities 74.0 74.0
Capital redemption reserve 0.1 0.1
Available for sale reserve (2.3) (1.0)
Retained earnings 388.9 352.6
Total equity 568.6 533.6
-------------------------------------- ----- -------- ------------
Total liabilities and equity 7,745.7 7,008.5
-------------------------------------- ----- -------- ------------
The notes and information on pages 46 to 63 form part of these
interim financial statements.
These financial statements were approved by the Board and signed
on its behalf by:
Phillip Monks James Mack
Director and Chief Executive Director and Chief Financial
Officer Officer
10 August 2016 10 August 2016
Registered number: 06764335
Consolidated statement of cash flows
For the six month period ended 30 June 2016
Period Period
ended ended
30 30
June June
2016 2015
Note GBPm GBPm
Cash flows from operating activities
Profit before taxation 59.1 39.5
Adjustments for non-cash items
and other adjustments included
within the income statement 19 (4.7) 5.2
(Increase) in operating assets 19 (687.6) (611.4)
Increase in operating liabilities 19 738.4 634.3
Income tax paid (12.6) (8.1)
Net cash flows generated from
operating activities 92.6 59.5
--------------------------------------- ----- -------- --------
Cash flows from investing activities
Purchase of debt securities (192.0) (339.1)
Proceeds from sale and maturity
of debt securities 55.5 201.2
Capital repayments of debt securities 43.4 11.9
Interest received on debt securities 7.6 6.1
Purchase of property, plant and
equipment and intangible assets (4.1) (2.5)
Net cash used in investing activities (89.6) (122.4)
--------------------------------------- ----- -------- --------
Cash flows from financing activities
Proceeds from issue of ordinary
shares - 75.0
Issuance costs of ordinary shares - (2.7)
Capital repayments on debt securities
issued (38.2) (40.7)
Coupon paid on contingent convertible
securities (8.9) (3.5)
Purchase of own shares by employee (0.9) -
benefit trust
Interest paid on debt securities
issued (1.1) (1.6)
Interest paid on subordinated
notes (2.6) (2.6)
Net cash (used in)/from financing
activities (51.7) 23.9
--------------------------------------- ----- -------- --------
Net decrease in cash and cash
equivalents (48.7) (39.0)
Cash and cash equivalents at
start of the period 149.4 134.0
Movement during the period (48.7) (39.0)
Cash and cash equivalents at
end of the period 19 100.7 95.1
--------------------------------------- ----- -------- --------
Consolidated statement of changes in equity
Share Share Contingent Capital Warrant Available Retained Total
capital premium convertible redemption reserve for earnings
account securities reserve sale
reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Period ended
30 June 2016
As at 1 January
2016 34.5 73.4 74.0 0.1 - (1.0) 352.6 533.6
Total comprehensive
income - - - - - (1.3) 42.2 40.9
Transactions
with equity holders:
* Share based payments, including tax reflected
directly in
retained earnings - - - - - - 1.6 1.6
- Own shares
adjustment - - - - - - (0.9) (0.9)
* Coupon paid on contingent convertible securities,
net of tax - - - - - - (6.6) (6.6)
As at 30 June
2016 34.5 73.4 74.0 0.1 - (2.3) 388.9 568.6
--------------------------------------------------------- -------- -------- ------------ ----------- -------- ---------- --------- ------
Period ended
31 December 2015
As at 1 July
2015 33.9 68.4 73.7 0.1 2.2 0.9 301.0 480.3
Total comprehensive
income - - - - - (2.0) 47.1 45.1
Transactions
with equity holders:
* Share based payments, including tax reflected
directly in
retained earnings - - - - - - 2.3 2.3
- Tax credit
on AT1 issue
costs - - 0.3 - - - - 0.3
- Exercise of
share warrants 0.6 5.0 - - (2.2) - 2.2 5.6
As at 31 December
2015 34.5 73.4 74.0 0.1 - (1.0) 352.6 533.6
--------------------------------------------------------- -------- -------- ------------ ----------- -------- ---------- --------- ------
Period ended
30 June 2015
As at 1 January
2015 23.7 - 73.7 - 2.2 1.4 277.9 378.9
Total comprehensive
income - - - - - (0.4) 31.2 30.8
Transactions
with equity holders:
- Capital reorganisation
prior to IPO 6.3 - - 0.1 - - (6.4) -
- Share issue
proceeds from
IPO 3.9 71.1 - - - - - 75.0
- Share issuance
costs - (2.7) - - - - - (2.7)
* Share based payments, including tax reflected
directly in
retained earnings - - - - - - 1.1 1.1
* Coupon paid on contingent convertible securities,
net of tax - - - - - - (2.8) (2.8)
As at 30 June
2015 33.9 68.4 73.7 0.1 2.2 0.9 301.0 480.3
--------------------------------------------------------- -------- -------- ------------ ----------- -------- ---------- --------- ------
Notes to the consolidated interim financial statements
1. Accounting policies and presentation
(a) Basis of preparation
These consolidated interim financial statements have been
prepared in accordance with the Disclosure and Transparency Rules
of the Financial Conduct Authority and with IAS 34 'Interim
Financial Reporting' as adopted by the EU. These consolidated
interim financial statements should be read in conjunction with the
Group's 2015 Annual Report and Accounts, which have been prepared
in accordance with International Financial Reporting Standards as
adopted by the EU ('IFRSs').
The comparative financial information for the year ended 31
December 2015 does not constitute statutory accounts as defined in
section 434 of the Companies Act 2006. A copy of the statutory
accounts for that period have been delivered to the Registrar of
Companies in England and Wales. The auditor has reported on those
accounts. The auditor's report was unqualified; did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying the report, and did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
The consolidated interim financial statements were approved by
the Board of Directors on 10 August 2016.
Note on rounding
In preparing the 2016 interim financial statements, the 2015
comparative figures were restated from the original GBP thousands
to GBP millions to one decimal place. As a result of rounding
arising from this change, the presentation of the comparative
numbers may not total as each individual number has been rounded
based on the prior reported number. All percentage movements as
shown in the document are calculated using the financial data in
GBP millions to one decimal place.
(b) Basis of consolidation
The consolidated interim financial statements incorporate the
consolidated results of Aldermore Group PLC ('the Company') and its
subsidiaries (including Aldermore Bank PLC) which are entities
controlled by the Company (jointly referred to as 'the Group').
(c) Going concern
The consolidated interim financial statements are prepared on a
going concern basis, as the Directors are satisfied that the Group
has the resources to continue in business for the foreseeable
future (which has been taken as 12 months from the date of approval
of these consolidated interim financial statements). In making this
assessment, the Directors have considered a wide range of
information relating to present and future conditions, including
the current state of the balance sheet, future projections of
profitability, cash flows and capital resources and the longer term
strategy of the business.
The Group's capital and liquidity plans, including stress tests,
have been reviewed by the Directors. The Group's forecasts and
projections show that it will be able to operate at adequate levels
of both liquidity and capital for the foreseeable future, including
a range of stressed scenarios, taking management actions into
account as appropriate. After making due enquiries, the Directors
believe that the Group has sufficient resources to continue its
activities for the foreseeable future and to continue its
expansion, and the Group has sufficient capital and liquidity to
enable it to continue to meet its regulatory requirements as set
out by the Prudential Regulation Authority ('PRA').
(d) Accounting policies
The accounting policies are consistent with those applied by the
Group in the 2015 Annual Report and Accounts. During the six month
period ended 30 June 2016, the accounting policy for share based
payments has been updated to reflect the nature of the recruitment
award issued during the period as further described in Note 18. The
updated policy is as follows:
Share based payments - Recruitment awards
During the period, the Group granted a number of share awards as
described in Note 18, including a recruitment award.
Where an Employee Benefit Trust ('EBT') purchases the Company's
share capital, the consideration paid is deducted from
shareholders' equity as own shares until they are cancelled. Where
such shares are subsequently sold or reissued, any consideration
received is included in shareholders' equity.
(d) Accounting policies continued
As described in Note 17, an EBT purchased shares in the Company
for the sole purpose of satisfying awards under employee share
plans. These shares are held within an EBT, which is consolidated
in these financial statements as the EBT is deemed to be controlled
by the Group.
(e) Future accounting developments
There are a number of standards, amendments and interpretations
which have been issued by the International Accounting Standards
Board ('IASB') but which have not yet been endorsed by the EU. The
most significant of these is IFRS 9: 'Financial Instruments', the
planned replacement for IAS 39: 'Financial Instruments: Recognition
and Measurement'. Others include IFRS 15: 'Revenue from contracts
with customers' and IFRS 16: 'Leases'.
(f) Presentation of risk disclosures
The disclosures prepared under IFRS 7 'Financial instruments:
disclosures' have been included within the Risk Management Report
on pages 22 to 37 and are covered by the Independent Review Report
on pages 39 to 40.
2. Use of estimates and judgements
The preparation of financial information requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates and assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised and in any future periods affected.
The judgements and assumptions that are considered to be the most
important to the portrayal of the Group's financial condition are
those relating to loan impairment provisions, effective interest
rates ('EIR') and Invoice Finance goodwill.
(a) Loan impairment provisions
Loan portfolios across all divisions of the Group are reviewed
on at least a monthly basis to assess for impairment. In
determining whether an impairment provision should be recorded,
judgements are made as to whether there is objective evidence that
a financial asset or portfolio of financial assets is impaired as a
result of loss events that occurred after recognition of the asset
and by the reporting date. The calculation of impairment loss is
management's best estimate of losses incurred in the portfolio at
the balance sheet date and reflects expected future cash flows
based on both the likelihood of a loan or advance being written off
and the estimated loss on such a write-off.
At 30 June 2016, gross loans and advances to customers totalled
GBP6,822.3 million (31 December 2015: GBP6,165.5 million) against
which impairment allowances of GBP23.1 million (31 December 2015:
GBP20.7 million) have been made (see Note 13). The Group's
accounting policy for loan impairment provisions on financial
assets classified as loans and receivables is described in the
Group's 2015 Annual Report and Accounts (Note 2g). Impairment
allowances are made up of two components, those determined
individually against specific assets and those determined
collectively. Of the impairment allowance of GBP23.1 million at 30
June 2016, GBP10.6 million (31 December 2015: GBP10.2 million)
relates to individual provisions and GBP12.5 million (31 December
2015: GBP10.5 million) relates to collective provisions. The
section below provides details of the critical elements of
judgement within the loan impairment calculations. Less significant
judgements are not disclosed.
(i) Individual
Individual impairment allowances are established against the
Group's individually significant financial assets that are deemed
by management to be impaired. The determination of individual
impairment allowances requires the exercise of considerable
judgement by management involving matters such as local economic
conditions, the financial status of the customer and the realisable
value of the security held. The actual amount of the future cash
flows and their timing may differ significantly from the
assumptions made for the purposes of determining the impairment
allowances and consequently these allowances can be subject to
variation as time progresses and the circumstances of the customer
become clearer.
(ii) Collective
The collective impairment allowance is also subject to
estimation uncertainty and in particular is sensitive to changes in
economic and credit conditions, including house prices,
unemployment rates, interest rates, borrowers' behaviour and
consumer bankruptcy trends. All of these factors can influence the
key assumptions detailed below. It is, however, inherently
difficult to estimate how changes in one or more of these factors
might impact the collective impairment allowance.
The key assumptions used in the collective impairment model are:
probability of default ('PD'), the loss given default ('LGD') and
the loss emergence period ('EP') (the time between a trigger event
occurring and the loans being identified as individually impaired).
An additional element is included within the collective provision
to reflect estimated fraud losses that are incurred as at the
reporting date but are yet to be individually identified.
Further details in respect of assumptions and details of the
sensitivity of the estimate to changes in significant assumptions
are as follows:
Probability of default:
The PD is based on external individual customer credit rating
information updated for each reporting date. This external credit
rating information gives a PD in the next 12 months where 'default'
is defined as loans which are 2 months or more in arrears ('2 MIA')
and incorporates credit information from a broad range of financial
services products for each customer.
Management make an estimate so as to adjust the external data to
reflect both the individual nature of the Group's lending and the
Group's policy of classifying loans which are 3 months or more in
arrears ('3 MIA') as 'impaired'. This adjustment is achieved by
using two management assumptions: firstly a 'conversion rate' that
reflects how many of the loans which fall into 2 MIA will also fall
into 3 MIA; and secondly scaling factors that adjust the external
PDs to reflect the individual nature of the Group's lending.
-- A 10 per cent. absolute increase in the 'conversion rate'
assumed by management between 2 MIA and 3 MIA (e.g. a PD increasing
from 50 per cent. to 60 per cent.), when the loans are considered
to be individually impaired would increase the impairment allowance
by GBP0.5 million.
-- A 10 per cent. relative reduction in the scaling factors
applied to external data in order to arrive at PDs appropriate to
the individual nature of lending being undertaken would increase
the impairment allowance by GBP0.5 million.
Loss given default:
The model calculates the LGD from the point of repossession. Not
all cases that are 3 MIA will reach repossession. Management
therefore adjust the model by applying an assumption of the
percentage of accounts 3 MIA that will reach repossession.
-- A 10 per cent. absolute reduction in this assumption would
decrease the impairment allowance by GBP0.3 million.
The LGD is also sensitive to the application of the House Price
Index ('HPI') and Forced Sale Discount ('FSD') which affect the
underlying value of the collateral which is expected to be
received.
-- A 10 per cent. relative reduction in the HPI would increase
the overall impairment allowance by GBP1.6 million.
-- A 5 per cent. absolute increase in the FSD would increase the
overall impairment provision by GBP1.2 million.
The above assumptions are important factors when calculating the
LGD to be applied for the mortgage business.
For the Asset Finance and Invoice Finance models, the assumption
with most judgement is the absolute LGD value calculated.
-- A 10 per cent. relative increase in the LGDs applied would
increase the overall impairment allowance by GBP0.7 million.
Emergence period:
The Group's collective models estimate the expected losses for
the next 12 months, which are then scaled back to reflect the level
of incurred loss as at the reporting date, using the emergence
period. The emergence period is the time taken from the trigger
event (such as a job loss) to the Group identifying the loan as
impaired. The emergence period varies by segment and requires
management to make judgements because of the limited data
available. During the period, management increased the emergence
period applied to the Mortgage businesses by three months in order
to apply a degree of caution to reflect the potential impact of
political and economic uncertainty resulting from the EU
referendum. The impact of this change was to increase the
collective provisions by GBP1.1 million.
-- A further three month increase in all emergence periods would
increase the overall impairment allowance by GBP4.9 million.
(b) Effective interest rate
IAS 39 requires interest earned from mortgages to be measured
under the EIR method. Management must therefore use judgement to
estimate the expected life of each type of instrument and hence the
expected cash flows relating to it. The accuracy of the EIR would
therefore be affected by unexpected market movements resulting in
altered customer behaviour, inaccuracies in the models used
compared to actual outcomes and incorrect assumptions.
A critical estimate in determining EIR is the expected life to
maturity of the Group's SME Commercial, Buy-to-Let and Residential
Mortgage portfolios, as a change in the estimates will have an
impact on the period over which the directly attributable costs and
fees, reversionary income and any discount received on the
acquisition of the mortgage loan portfolios, are recognised.
An extension to the expected lives of the SME Commercial,
Buy-to-Let and Residential Mortgage portfolios by six months would
have the effect of reducing the cumulative profit before tax
recognised as at 30 June 2016 by GBP1.8 million (30 June 2015:
GBP2.6 million). Included within this sensitivity of GBP1.8
million, is a GBP2.9 million cumulative reduction in profit
relating to acquired portfolios (30 June 2015: GBP3.0 million) due
to a change in the unwind of the discount which is offset by a
GBP1.1 million cumulative increase in profit relating to the
organic portfolios (30 June 2015: GBP0.4 million).
A 0.5 per cent. increase in the rate of early redemptions,
expressed as a percentage of the outstanding balance in respect of
the Asset Finance portfolio would have the impact of reducing
cumulative profit before tax recognised as at 30 June 2016 by
GBP0.4 million (30 June 2015: GBP0.3 million).
(c) Invoice Finance goodwill
At 31 December 2015, the Group held goodwill balances totalling
GBP12.6 million within intangible assets on the statement of
financial position, GBP8.5 million of which is attributable to the
SME Commercial Mortgages segment, with the remaining balance of
GBP4.1 million attributable to the Invoice Finance segment relating
to the 2009 acquisition of Absolute Invoice Finance (Holdings)
Limited.
IAS 36 requires an assessment of goodwill balances for
impairment on at least an annual basis, or more frequently if there
is an indication of impairment. An impairment charge should be
recognised where the recoverable amount from the segment is less
than the carrying value of the goodwill.
At 31 December 2015, the Invoice Finance goodwill balance was
fully supportable under the Fair Value less Costs of Disposal
('FVLCD') method. FVLCD is defined as the price that would be
expected to be received, net of costs of disposal, if sold in an
orderly transaction between market participants and requires
judgement to be applied, specifically in assessing comparable
transactions in order to derive a fair value.
At 30 June 2016, as a result of the general fall in market
values of financial services businesses following the EU
referendum, management has decided to fully impair this balance and
accordingly an impairment charge of GBP4.1 million has been
recognised in the income statement.
3. Segmental information
The Group's reportable operating segments are consistent with
those disclosed in the 2015 Annual Report and Accounts. Further
details regarding the operating segments are available in the 2015
Annual Report and Accounts.
Segmental information for the period ended 30 June 2016
Asset Invoice SME Commercial Buy-to-Let Residential Central Total
Finance Finance Mortgages Mortgages Functions
(1)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Interest income
- external customers 44.2 3.4 30.4 63.3 36.6 (2.3) 175.6
Interest expense
- external customers - - - - - (60.0) (60.0)
Interest (expense)/income
- internal (14.3) (1.2) (6.7) (22.4) (13.8) 58.4 -
Net fees and other
income - external
customers 1.7 7.2 0.6 2.3 0.9 (0.6) 12.1
Total operating
income 31.6 9.4 24.3 43.2 23.7 (4.5) 127.7
-------------------------- -------- -------- -------------- ---------- ----------- ---------- ---------
Administrative
expenses including
depreciation and
amortisation (6.3) (5.3) (1.8) (4.7) (2.2) (41.9) (62.2)
Impairment losses
on loans and advances
to customers (2.4) (1.0) (1.2) (0.9) (0.9) - (6.4)
Segmental result 22.9 3.1 21.3 37.6 20.6 (46.4) 59.1
-------------------------- -------- -------- -------------- ---------- ----------- ---------- ---------
Tax (16.9)
Profit after tax 42.2
-------------------------- -------- -------- -------------- ---------- ----------- ---------- ---------
Assets 1,498.2 155.3 926.0 2,704.0 1,515.7 946.5 7,745.7
Liabilities - - - - - (7,177.1) (7,177.1)
Net assets/(liabilities) 1,498.2 155.3 926.0 2,704.0 1,515.7 (6,230.6) 568.6
-------------------------- -------- -------- -------------- ---------- ----------- ---------- ---------
(1) Central Functions administrative expenses of GBP41.9 million
includes an impairment charge of GBP4.1 million in relation to
Invoice Finance goodwill
Segmental information for the period ended 30 June 2015
Asset Invoice SME Commercial Buy-to-Let(1) Residential Central Total
Finance Finance Mortgages Mortgages Functions(2)
(1) (1)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Interest income
- external customers 36.3 3.8 21.0 53.2 27.9 (3.1) 139.1
Interest expense
- external customers - - - - - (47.1) (47.1)
Interest (expense)/income
- internal (11.1) (1.2) (4.9) (18.0) (10.4) 45.5 -
Net fees and other
income - external
customers 2.0 7.5 0.7 1.7 0.3 0.4 12.8
-------------------------- -------- -------- -------------- ------------- ----------- ------------- ---------
Total operating
income 27.3 10.2 16.8 36.9 17.8 (4.2) 104.8
-------------------------- -------- -------- -------------- ------------- ----------- ------------- ---------
Administrative
expenses including
depreciation and
amortisation (5.6) (7.4) (2.0) (4.5) (2.7) (38.1) (60.1)
Impairment losses
on loans and advances
to customers (2.2) (0.6) (1.0) (0.5) (0.8) - (5.2)
Segmental result 19.5 2.2 13.7 32.0 14.4 (42.2) 39.5
-------------------------- -------- -------- -------------- ------------- ----------- ------------- ---------
Tax (8.3)
Profit after tax 31.2
-------------------------- -------- -------- -------------- ------------- ----------- ------------- ---------
Assets 1,196.1 170.5 657.1 2,221.5 1,191.1 825.5 6,261.7
Liabilities - - - - - (5,781.4) (5,781.4)
Net assets/(liabilities) 1,196.1 170.5 657.1 2,221.5 1,191.1 (4,955.9) 480.3
-------------------------- -------- -------- -------------- ------------- ----------- ------------- ---------
(1) The comparatives have been represented to align with the
reportable segments as at 31 December 2015. Further details of the
operating segments can be found in Note 4 of the 2015 Annual Report
and Accounts.
(2) Central Functions administrative expenses of GBP38.1 million
includes costs in relation to the Group's initial public offering
of GBP4.1 million.
4. Interest income
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
On financial assets not at fair
value through profit or loss:
On loans and advances to customers 177.9 142.2
On loans and advances to banks 0.5 0.3
On debt securities 5.9 4.8
----------------------------------------- ------- -------
184.3 147.3
On financial assets at fair value
through profit or loss:
Net interest expense on financial
instruments hedging assets (8.7) (9.8)
Net interest income on debt securities
designated at fair value - 1.6
175.6 139.1
---------------------------------------- ------- -------
Included within interest income on loans and advances to
customers for the six months ended 30 June 2016 is a total of
GBP1.5 million (30 June 2015: GBP1.7 million) relating to impaired
financial advances.
Included within net interest expense on financial instruments
hedging assets for the six months ended 30 June 2016 are fair value
losses of GBP10.8 million (30 June 2015: gain of GBP2.5 million) on
derivatives held in qualifying fair value hedging arrangements,
together with gains of GBP8.9 million (30 June 2015: loss of GBP4.7
million) representing changes in the fair value of the hedged item
attributable to the hedged interest rate risk on loans and advances
to customers.
5. Interest expense
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
On financial liabilities not
at fair value through profit
or loss:
On customers' accounts 54.6 42.6
On amounts due to banks 3.9 1.6
On debt securities in issue 1.3 1.9
On subordinated notes 3.3 3.2
63.1 49.2
On financial liabilities at fair
value through profit or loss:
Net interest income on financial
instruments hedging liabilities (4.0) (2.9)
Other 0.9 0.7
60.0 47.1
---------------------------------- ------- -------
Included within net interest income on financial instruments
hedging liabilities for the six months ended 30 June 2016 are fair
value gains of GBP4.7 million (30 June 2015: gains of GBP1.9
million) on derivatives held in qualifying fair value hedging
arrangements, together with losses of GBP3.7 million (30 June 2015:
loss of GBP2.6 million) representing changes in the fair value of
the hedged item attributable to the hedged interest rate risk on
customers' accounts.
6. Fee and commission income
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
Invoice finance fees 5.9 6.1
Valuation fees 2.4 1.8
Documentation fees 1.3 1.6
Other fees 3.9 3.0
13.5 12.6
---------------------- ------- -------
7. Fee and commission expense
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
Introducer commissions 0.8 0.8
Legal and valuation fees 1.5 1.3
Company searches and other fees 0.5 1.0
Credit protection and insurance
charges 0.6 0.5
Other 0.4 0.1
3.8 3.8
--------------------------------- ------- -------
8. Net expense from derivatives and other financial instruments
at fair value through profit or loss
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
Net (losses)/gains on derivatives (14.4) 6.0
Net(losses) on assets designated
at fair value through profit
or loss - (0.2)
Net gains/(losses) on available
for sale assets held in fair
value hedges 12.9 (7.8)
(1.5) (2.0)
----------------------------------- ------- -------
9. Other operating income
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
Disbursements, collect out and
other invoice finance income 3.1 3.3
Other 0.1 0.2
3.2 3.5
-------------------------------- ------- -------
10. Administrative expenses
Period Period
ended ended
30 30
June June
2016 2015
Note GBPm GBPm
Staff costs 30.9 29.7
Legal and professional and other
services 10.5 13.0
Information technology costs 5.2 3.8
Office costs 2.2 2.3
Provisions 15 1.3 2.2
Other 5.8 7.0
Impairment of goodwill 2 4.1 -
60.0 57.9
---------------------------------- ----- ------- -------
Included in other administrative expenses are costs relating to
temporary staff of GBP2.0 million (30 June 2015: GBP3.4 million),
travel and subsistence of GBP1.6 million (30 June 2015: GBP1.4
million), staff recruitment of GBP0.7 million (30 June 2015: GBP0.6
million) and other expenses of GBP1.5 million (30 June 2015: GBP1.6
million).
Administrative expenses of GBP57.9 million for the six months
ended 30 June 2015 included GBP4.1 million of non-recurring costs
associated with the Group's initial public offering.
11. Taxation
Period Period
ended ended
30 June 30 June
2016 2015
GBPm GBPm
Current tax on profits for the
period before the banking surcharge 12.0 9.4
Banking surcharge 4.1 -
Overall current tax on profits
for the period 16.1 9.4
--------------------------------------- --------- ---------
Deferred tax 0.8 (1.1)
Total tax charge 16.9 8.3
--------------------------------------- --------- ---------
Current tax on profits reflects UK corporation tax levied at a
rate of 20% for the year ending 31 December 2016 (year ended 31
December 2015: 20.25%) and the Banking surcharge levied at a rate
of 8% on the profits of banking companies chargeable to corporation
tax after an allowance of GBP25 million per annum which applies for
years commencing from 1 January 2016.
The deferred tax asset at 30 June 2016 of GBP15.9 million has
been calculated at an overall rate of 25.9% which is based on tax
rates, including the Banking surcharge, which have been
substantively enacted at the balance sheet date and which are
expected to apply when the temporary differences which give rise to
the deferred tax are expected to reverse. The deferred tax asset
relates largely to temporary differences between capital allowances
and depreciation.
Reductions in the UK corporation tax rate from 20% to 19% with
effect from 1 April 2017 and to 18% with effect from 1 April 2020
were substantively enacted on 18 November 2015.
In the 2016 Budget, the Chancellor announced a further reduction
in the UK corporation tax rate from 18% to 17% with effect from 1
April 2020: it is expected that this change will be substantively
enacted in the second half of 2016.
There were no unrecognised deferred tax balances at 30 June 2016
(30 June 2015: GBPnil).
12. Earnings per share
Basic earnings per share ('EPS') is calculated by dividing the
net profit attributable to ordinary shareholders of the Group by
the weighted average number of ordinary shares in issue during the
period.
Period Period
ended ended
30 30
June June
2016 2015
Profit after taxation - attributable
to equity holders of the Group
(GBPmillion) 42.2 31.2
Coupon paid on contingent convertible
securities, net of tax (GBPmillion) (6.6) (2.8)
------------------------------------------
Profit attributable to ordinary
shareholders of the Group (GBPmillion) 35.6 28.5
------------------------------------------ ------- -------
Weighted average number of ordinary
shares in issue (million) 344.7 322.1
Basic earnings per share (p) 10.3p 8.8p
------------------------------------------ ------- -------
The ordinary shares in issue used in the denominator in the
calculation of basic earnings per share are the ordinary shares of
the Company since the share reorganisation that occurred on the
Company's admission to the LSE on 13 March 2015. Prior to that
date, the ordinary shares in issue figure was based on the A1, A2,
D and E ordinary shares in issue. The B and C ordinary shares were
excluded from the calculation on the basis that they had no
entitlement to dividends or other distributions of the Company.
Period Period
ended ended
30 30
June June
2016 2015
Weighted average number of ordinary
shares in issue (million) (basic) 344.7 322.1
Effect of share warrants prior
to their exercise - 3.1
Effect of share based payment
awards 0.4 1.5
Weighted average number of ordinary
shares in issue (million) (diluted) 345.1 326.7
Diluted earnings per share (p) 10.3p 8.7p
--------------------------------------- ------- -------
The calculation of diluted earnings per share has been based on
the same profit attributable to ordinary shareholders of the Group
as for basic earnings and the weighted average number of ordinary
shares outstanding after the potential dilutive effect of share
based payment awards to Directors and employees. The share
warrants, giving rise to dilution for the first half of 2015, were
exercised on 9 September 2015 and new shares were issued and listed
on the London Stock Exchange.
13. Loans and advances to customers
30 June 31 December
2016 2015
GBPm GBPm
Gross loans and advances 6,822.3 6,165.5
less: allowance for impairment
losses (23.1) (20.7)
6,799.2 6,144.8
------------------------------------- -------- ------------
Amounts include:
Expected to be recovered more
than 12 months after the reporting
date 5,865.2 5,345.5
-------------------------------------- -------- ------------
At 30 June 2016, loans and advances to customers of GBP1,596.1
million (31 December 2015: GBP1,445.5 million) were pre-positioned
with the Bank of England and HM Treasury Funding for Lending
Scheme. These loans and advances were available for use as
collateral with the Scheme, against which GBP780.0 million of UK
Treasury Bills had been drawn as at the reporting date
(31 December 2015: GBP750.0 million).
At 30 June 2016, loans and advances to customers include
GBP176.8 million (31 December 2015: GBP206.5 million) which have
been used in secured funding arrangements, resulting in the
beneficial interest in these loans being transferred to Oak No. 1
PLC, a securitisation vehicle consolidated into these financial
statements. All the assets pledged are retained within the
statement of financial position as the Group retains substantially
all the risks and rewards relating to the loans.
Allowance for impairment losses
Individual Collective Total
GBPm GBPm GBPm
Six months ended 30 June 2016
Balance as at 1 January 2016 10.2 10.5 20.7
Impairment loss for the period:
Charge to the income statement 3.5 2.9 6.4
Unwind of discounting (0.6) (0.9) (1.5)
Write-offs net of recoveries (2.5) - (2.5)
--------------------------------- ----------- ----------- ------
Balance as at 30 June 2016 10.6 12.5 23.1
--------------------------------- ----------- ----------- ------
Individual Collective Total
GBPm GBPm GBPm
Six months ended 31 December
2015
Balance as at 1 July 2015 10.9 9.5 20.3
Impairment loss for the period:
Charge to the income statement 3.3 1.9 5.2
Unwind of discounting (0.7) (0.8) (1.5)
Write-offs net of recoveries (3.2) - (3.2)
--------------------------------- ----------- ----------- ------
Balance as at 31 December 2015 10.2 10.5 20.7
--------------------------------- ----------- ----------- ------
Individual Collective Total
GBPm GBPm GBPm
Six months ended 30 June 2015
Balance as at 1 January 2015 14.0 8.5 22.6
Impairment loss for the period:
Charge to the income statement 3.5 1.7 5.2
Unwind of discounting (0.9) (0.8) (1.7)
Write-offs net of recoveries (5.8) - (5.8)
--------------------------------- ----------- ----------- ------
Balance as at 30 June 2015 10.9 9.5 20.3
--------------------------------- ----------- ----------- ------
14. Customers' accounts
30 June 31 December
2016 2015
GBPm GBPm
Retail deposits 4,808.4 4,186.3
SME deposits 1,516.6 1,399.4
Corporate deposits 213.0 156.3
6,538.0 5,742.0
---------------------------------- -------- ------------
Of which:
Amounts repayable within one
year 4,903.4 4,288.8
Amounts repayable after one year 1,634.6 1,453.2
-----------------------------------
6,538.0 5,742.0
---------------------------------- -------- ------------
15. Provisions
Financial Customer Total
Services redress
Compensation
Scheme
GBPm GBPm GBPm
Six months ended 30 June
2016
Balance as at 1 January
2016 1.1 - 1.1
Utilised during the period - - -
Provided during the period 1.3 - 1.3
Balance as at 30 June
2016 2.4 - 2.4
-------------------------------- -------------- --------- ------
Six months ended 31 December
2015
Balance as at 1 July 2015 3.3 - 3.3
Utilised during the period (2.3) - (2.3)
Provided during the period 0.2 - 0.2
Balance as at 31 December
2015 1.1 - 1.1
-------------------------------- -------------- --------- ------
Six months ended 30 June
2015
Balance as at 1 January
2015 1.2 0.8 2.0
Utilised during the period - (0.9) (0.9)
Provided during the period 2.0 0.2 2.2
Balance as at 30 June
2015 3.3 - 3.3
-------------------------------- -------------- --------- ------
Financial Services Compensation Scheme ('FSCS')
In common with all regulated UK deposit takers, the Group's
principal subsidiary, Aldermore Bank PLC, pays levies to the FSCS
to enable the FSCS to meet claims against it. The FSCS provision at
30 June 2016 of GBP2.4 million (31 December 2015: GBP1.1 million)
represents the interest levies for the 2015/2016 and 2016/2017
scheme years (31 December 2015: interest levy for the 2015/2016
scheme year).
Customer redress
The Group has a small number of loans which are regulated under
the Consumer Credit Act ('CCA') and has previously identified that,
following changes to the CCA in 2008, certain letters and
statements had been sent to customers that did not fully comply
with the requirements prescribed by the CCA. Accordingly, these
customers were entitled to redress for interest and fees charged on
the relevant loans as a result of this technical non-compliance,
notwithstanding there is unlikely to have been any customer
detriment. Remediation payments to customers impacted were
completed during the six month period ended 30 June 2015.
16. Debt securities in issue
Debt securities in issue are repayable from the reporting date
in the ordinary course of business as follows:
30 June 31 December
2016 2015
GBPm GBPm
In more than one year 155.9 193.9
------------------------ -------- ------------
Debt securities in issue with a principal value of GBP156.6
million (31 December 2015: GBP194.8 million) are secured on certain
portfolios of variable and fixed rate mortgages through the Group's
securitisation vehicle, Oak No. 1 PLC. These notes are redeemable
in part from time to time, such redemptions being limited to the
net capital received from mortgage customers in respect of the
underlying assets. There is no obligation for the Group to make
good any shortfall. Further disclosure relating to the underlying
assets is contained in Note 13.
17. Share capital
30 June 31 December
2016 2015
GBP'000 GBP'000
Type
Ordinary shares of GBP0.10 each 34,474.0 34,474.0
---------------------------------- --------- ------------
Ordinary shares have full voting rights, dividend rights and
distribution rights in the event of sale or wind up. At 30 June
2016, there were 344,739,584 ordinary GBP0.10 shares in issue
resulting in share capital of GBP34,473,958.
During June 2016, an Employee Benefit Trust ('EBT') purchased
466,179 of Aldermore Group PLC's ordinary GBP0.10 shares from the
market for consideration of GBP925,715. Purchases were made to
enable the Group to meet a future share based payment obligation in
respect of the recruitment award as detailed in Note 18.
These purchases constitute own shares held by a Group EBT, and
accordingly are recorded against retained earnings within
equity.
18. Share based payments
The share based payment charge, excluding tax reflected directly
in retained earnings, comprises:
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
Share plans issued in 2015 1.1 1.0
Share plans issued in 2016 0.3 -
Total share based payment charge 1.4 1.0
----------------------------------- ------- -------
Details of the existing share plans can be found in Note 36 of
the 2015 Annual Report and Accounts. New awards have been granted
in 2016 under the Performance Share Plan, Restricted Share Plan and
Deferred Share Plan.
During the six months ended 30 June 2016, the Recruitment award
was granted for the purpose of buying out awards forfeited by
senior employees on resignation from their previous employment.
There are no performance conditions attached to the award. The
grant date fair value of the award has been taken as the market
value of the Company's ordinary shares at the grant date and the
fair value of the award was GBP0.9m. As detailed in Note 17, during
June 2016, an Employee Benefit Trust of the Group purchased all of
the shares required to meet the future obligations under this
award.
19. Statement of cash flows
(a) Adjustments for non-cash items and other adjustments
included within the income statement
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
Depreciation and amortisation 2.2 2.2
Impairment of goodwill 4.1 -
Amortisation of securitisation
issuance cost 0.2 0.3
Discount accretion on subordinated
notes 0.7 0.6
Impairment losses on loans and
advances 6.4 5.2
Unwind of discounting (1.5) (1.7)
Write-offs net of recoveries (2.5) (5.8)
Net losses on debt securities
designated at fair value through
profit or loss - 0.2
Net gains on disposal of available
for sale debt securities (0.7) (2.5)
Net (gains)/losses on available
for sale assets held in fair
value hedges (12.9) 7.8
Interest expense on subordinated
notes 2.5 2.6
Interest income on debt securities (5.9) (6.4)
Interest expense on debt securities
in issue 1.1 1.6
Equity settled share based payment
charge 1.6 1.0
--------------------------------------
(4.7) 5.2
------------------------------------- ------- -------
(b) Increase in operating assets
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
Loans and advances to customers (656.8) (632.9)
Loans and advances to banks (13.8) 15.9
Derivative financial instruments (5.8) (0.8)
Fair value adjustments for portfolio
hedged risk (8.9) 4.7
Other operating assets (2.3) 1.8
---------------------------------------
(687.6) (611.4)
-------------------------------------- -------- --------
(c) Increase in operating liabilities
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
Amounts due to banks (78.3) 144.5
Customers' accounts 796.0 508.4
Derivative financial instruments 22.1 (16.3)
Fair value adjustments for portfolio
hedged risk 3.7 (2.6)
Other operating liabilities (5.1) 0.2
738.4 634.3
-------------------------------------- ------- -------
(d) Cash and cash equivalents
Period Period
ended ended
30 30
June June
2016 2015
GBPm GBPm
Cash and balances at central
banks 34.6 36.6
Less restricted balances (8.7) (6.6)
Loans and advances to banks 74.8 65.1
100.7 95.1
------------------------------ ------- -------
For the purpose of the statement of cash flows, cash and cash
equivalents comprise cash on demand and overnight deposits
classified as cash and balances at central banks (unless
restricted) and balances within loans and advances to banks as
shown in the table above.
20. Commitments and contingencies
As at 30 June 2016 the Group has undrawn commitments to lend of
GBP746.8 million (31 December 2015: GBP556.0 million). These relate
mostly to irrevocable commitments to lend to customers.
Legislation:
As a financial services Group, Aldermore Group PLC is subject to
extensive and comprehensive regulation. The Group must comply with
numerous laws and regulations, which significantly affect the way
it does business. Whilst management believe there are no
unidentified areas of failure to comply with these laws and
regulations which would have a material impact on the financial
statements, there can be no guarantee that all issues have been
identified.
21. Related parties
Related party transactions and transactions with key management
personnel ('KMP') in the six month period to 30 June 2016 are
similar in nature to those for the year ended 31 December 2015.
Details of those transactions can be found in the Group's 2015
Annual Report and Accounts.
a) Key management personnel
Transactions with KMP remain consistent with those disclosed at
31 December 2015. KMP at 30 June 2016 continue to comprise
Directors of the Group and members of the Executive Committee.
There were new share based payment transactions that occurred
during the six month period ended 30 June 2016 and a number of KMP
were granted share awards in the Group. In total, KMP were granted
awards over an additional 1,942,731 shares.
22. Financial instruments and fair values
The following table summarises the classification and carrying
amounts of the Group's financial assets and liabilities:
Fair
value
through
Available profit Fair Liabilities
Loans for or loss value at amortised
and receivables sale (required) hedges cost Total
30 June 2016 GBPm GBPm GBPm GBPm GBPm GBPm
Cash and balances
at central banks 34.6 - - - - 34.6
Loans and advances
to banks 131.2 - - - - 131.2
Debt securities - 709.4 - - - 709.4
Derivatives held
for risk management - - 12.5 - - 12.5
Fair value
adjustment
for portfolio
hedged risk - - - 10.0 - 10.0
Loans and advances
to customers 6,799.2 - - - - 6,799.2
Other assets 1.2 - - - - 1.2
Total financial
assets 6,966.2 709.4 12.5 10.0 - 7,698.1
--------------------- ----------------- ---------- ------------ --------------- -------------- -----------------
Non-financial assets 47.6
--------------------- ----------------- ---------- ------------ --------------- -------------- -----------------
Total assets 7,745.7
--------------------- ----------------- ---------- ------------ --------------- -------------- -----------------
Amounts due to
banks - - - - 326.8 326.8
Customers' accounts - - - - 6,538.0 6,538.0
Derivatives held
for risk management - - 57.5 - - 57.5
Fair value
adjustment
for portfolio
hedged risk - - - 2.9 - 2.9
Other liabilities - - - - 18.1 18.1
Debt securities
in issue - - - - 155.9 155.9
Subordinated notes - - - - 38.8 38.8
Total financial
liabilities - - 57.5 2.9 7,077.6 7,138.0
--------------------- ----------------- ---------- ------------ --------------- -------------- -----------------
Non-financial
liabilities 39.1
Total liabilities 7,177.1
--------------------- ----------------- ---------- ------------ --------------- -------------- -----------------
Fair
value
through
Available profit Fair Liabilities
Loans for or loss value at amortised
and receivables sale (required) hedges cost Total
31 December GBPm GBPm GBPm GBPm GBPm GBPm
2015
Cash and
balances
at central
banks 105.3 - - - - 105.3
Loans and
advances
to banks 94.2 - - - - 94.2
Debt securities - 606.1 - - - 606.1
Derivatives
held
for risk
management - - 6.7 - - 6.7
Fair value
adjustment
for portfolio
hedged risk - - - 1.1 - 1.1
Loans and
advances
to customers 6,144.8 - - - - 6,144.8
Other assets 0.4 - - - - 0.4
Total financial
assets 6,344.7 606.1 6.7 1.1 - 6,958.6
---------------- ---------------- ---------- ------------ --------------------- -------------- -----------------
Non-financial
assets 49.9
---------------- ---------------- ---------- ------------ --------------------- -------------- -----------------
Total assets 7,008.5
---------------- ---------------- ---------- ------------ --------------------- -------------- -----------------
Amounts due to
banks - - - - 405.1 405.1
Customers'
accounts - - - - 5,742.0 5,742.0
Derivatives
held
for risk
management - - 35.4 - - 35.4
Fair value
adjustment
for portfolio
hedged risk - - - (0.8) - (0.8)
Other
liabilities - - - - 17.6 17.6
Debt securities
in issue - - - - 193.9 193.9
Subordinated
notes - - - - 38.1 38.1
Total financial
liabilities - - 35.4 (0.8) 6,396.7 6,431.3
---------------- ---------------- ---------- ------------ --------------------- -------------- -----------------
Non-financial
liabilities 43.6
Total
liabilities 6,474.9
---------------- ---------------- ---------- ------------ --------------------- -------------- -----------------
The following table summarises the carrying amounts and fair
values of those financial assets and liabilities not presented in
the statement of financial position at fair value. The
methodologies to calculate the fair value are consistent with those
applied at 31 December 2015. Full details are available in Note 41
of the Group's 2015 Annual Report and Accounts.
The methodology for calculating the fair value for loans and
advances to customers remains unchanged from that used at year end
2015. The fair value estimations do not incorporate adjustments for
changes in future credit risk since loans were granted, however,
incurred loss provisions are deducted from the fair value
amounts.
As highlighted in the current strategic risk section on page 24,
the UK's vote to leave the EU has resulted in greater economic
uncertainty. This may have an impact on the level of expected
future impairment losses within the loan portfolio and consequently
its fair value. However, at present it is not possible to quantify
any potential impact with any degree of certainty and accordingly
no adjustment has been made for changes in future credit risk
within the fair value calculated for loans and advances to
customers.
The fair values in this note are stated at a specific date and
may be significantly different from the amounts which will actually
be paid on the maturity or settlement dates of the instruments. As
a wide range of valuation techniques are available, it may be
inappropriate to compare this fair value information to that of
independent market or other financial institutions.
2016 2015
Carrying Fair value Carrying Fair value
value value
GBPm GBPm GBPm GBPm
Cash and balances
at central banks 34.6 34.6 105.3 105.3
Loans and advances
to banks 131.2 131.2 94.2 94.2
Loans and advances
to customers 6,799.2 6,898.2 6,144.8 6,194.1
Other assets 1.2 1.2 0.4 0.4
Total financial assets 6,966.2 7,065.2 6,344.7 6,394.0
----------------------------- --------- ----------- --------- -----------
Amounts due to banks 326.8 326.8 405.1 405.1
Customers' accounts 6,538.0 6,556.8 5,742.0 5,752.8
Other liabilities 18.1 18.1 17.6 17.6
Debt securities in
issue 155.9 157.1 193.9 194.8
Subordinated notes 38.8 43.5 38.1 48.0
Total financial liabilities 7,077.6 7,102.3 6,396.7 6,418.3
----------------------------- --------- ----------- --------- -----------
The following table provides an analysis of financial assets and
liabilities held on the consolidated statement of financial
position at fair value, grouped into Levels 1 to 3 based on the
degree to which the fair value is observable:
Level Level Level Total
1 2 3
30 June 2016 GBPm GBPm GBPm GBPm
Financial assets:
Derivatives held for risk management - 12.5 - 12.5
Debt securities:
Asset backed securities - 55.5 - 55.5
UK Gilts and Supranational
bonds 485.2 - - 485.2
Corporate bonds 29.6 - - 29.6
Covered bonds 139.1 - - 139.1
653.9 68.0 - 721.9
-------------------------------------- ------ ------ ------ ------
Financial liabilities:
Derivatives held for risk management - 57.5 - 57.5
- 57.5 - 57.5
-------------------------------------- ------ ------ ------ ------
Level Level Level Total
1 2 3
31 December 2015 GBPm GBPm GBPm GBPm
Financial assets:
Derivatives held for risk management - 6.7 - 6.7
Debt securities:
Asset backed securities - 74.9 - 74.9
UK Gilts and Supranational
bonds 362.3 - - 362.3
Corporate bonds 29.9 - - 29.9
Covered bonds 139.0 - - 139.0
531.2 81.6 - 612.8
--------------------------------------- -------------- -------------- -------------- --------------
Financial liabilities:
Derivatives held for risk management - 35.4 - 35.4
- 35.4 - 35.4
--------------------------------------- -------------- -------------- -------------- --------------
Level Fair value determined using quoted prices (unadjusted)
1: in active markets for identical assets or liabilities.
Level Fair value determined using directly or indirectly
2: observable inputs other than unadjusted quoted
prices included within Level 1 that are observable.
Level Fair value determined using one or more significant
3: inputs that are not based on observable market
data.
Fair value measurement - financial assets and liabilities held
at amortised cost
All the fair values of financial assets and liabilities carried
at amortised cost are considered to be Level 2 valuations which are
determined using directly or indirectly observable inputs other
than unadjusted quoted prices, except for debt securities in issue
which are Level 1 and loans and advances to customers which are
Level 3.
Fair value of transferred assets and associated liabilities
Securitisation vehicle
The Bank has previously transferred the beneficial ownership of
a number of loans and advances to customers to a securitisation
vehicle as described in the Group's 2015 Annual Report and
Accounts. The loans and advances fail the derecognition criteria
and consequently, these loans remain on the balance sheet of the
seller. The results of the securitisation vehicle are consolidated
in to the results of the Group. There has been no change in the
relationship with the securitisation vehicle since 31 December
2015.
The table below shows the carrying value and fair value of the
assets transferred to the securitisation vehicle and its associated
liabilities. The carrying value presented below is the carrying
amount recorded in the consolidated Group accounts. Some of the
notes are held internally by the Group and as such are not shown in
the consolidated statement of financial position of the Group.
Carrying Carrying Fair value Fair Net
amount amount of transferred value position
of transferred of associated assets of associated
assets liabilities not derecognised liabilities
not derecognised
30 June 2016 GBPm GBPm GBPm GBPm GBPm
Oak No. 1 PLC 176.8 155.9 181.9 157.1 24.8
------------------ ------------------ --------------- ------------------ --------------- ----------
Carrying Carrying Fair value Fair Net
amount amount of transferred value position
of transferred of associated assets of associated
assets liabilities not derecognised liabilities
not derecognised
31 December 2015 GBPm GBPm GBPm GBPm GBPm
Oak No. 1 PLC 206.5 193.9 209.9 194.8 15.1
------------------ ------------------ --------------- ------------------ --------------- ----------
23. Post balance sheet events
There have been no material post balance sheet events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UROBRNVAWAAR
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