Aldermore are celebrating another record year following the release of their full year figures
Phillip Monks, CEO at Aldermore, said: “I am delighted with the progress we are making in delivering our vision to support UK SMEs across their business and personal lives as well as homeowners who we believe are underserved by the wider banking sector. We focus on prime credit quality customers across four lending lines chosen for their large market sizes, high levels of tangible asset security and attractive risk adjusted returns.
“Six years after establishing Aldermore, I believe that we are uniquely positioned to continue our growing support of these underserved market segments and have demonstrated a strong track record of strategic delivery. 2014, was another great year for the group with record levels of lending to customers, deposits and profitability.
“Our DNA is to be reliable, expert, dynamic and straightforward and this informs everything we do, forming the basis of our culture and brand. We engage with customers both through intermediaries and directly and aim to differentiate our service by being easy to do business with and making consistent and transparent credit decisions. We enjoy the advantage of modern, legacy-free and
scalable systems which we use to support our expert underwriters in making considered decisions rather than adopting a ‘computer says no’ approach.
“At the centre of our funding base is our dynamic online proposition which provides both retail and SME customers with innovative savings products. With our modern systems it is possible for a customer to open and fund an account online, usually in less than fifteen minutes.
“During 2014, we lent more than ever before to UK SMEs and homeowners with net loans to customers up by 42% to £4.8bn (2013: £3.4bn). Record levels of origination of £2.4bn (2013: £1.7bn), all of it organic, supported this excellent growth in the lending book. We take a robust, consistent approach to credit management and have deliberately constructed a granular portfolio with high levels of tangible asset security.
“We remain predominantly deposit-funded and grew our deposit base by 29% during the year to almost £4.5bn (2013: £3.5bn).
“As expected, our balance sheet growth has driven a significant increase in interest income, which, in 2014, was up by 46% to £227.8m (2013: £156.4m). Our cost of funds continued to benefit from the ongoing diversification of our funding base including the increased amount of SME customers in our deposit base and the success of our inaugural Residential Mortgage-Backed Securitisation (RMBS) issued in April 2014. As a result, our interest expense increased by only 16% to £87.6m (2013: £75.8m) and we grew net interest income by an excellent 74% to £140.2m (2013: £80.6m). This positively impacted the net interest margin which increased by 0.4 percentage points during the year to 3.4% (2013: 3.0%).
“With our continued focus on managing costs and leveraging our operating model, we generated operating profit before impairment losses of £59.9m for 2014, an increase of 61% on 2013 of £37.2m. Our cost/ income ratio, excluding costs related to the withdrawn IPO of £6.0m, improved by 6 percentage points to 60% (2013: 66%). In the second six months of 2014, this underlying cost/income ratio was 57% and as a result of the good progress we are making, we are now targeting a cost/ income ratio of below 40% by the end of 2017.
“Our cost of risk improved by 19bps to 23bps (2013: 42bps) reflecting both the actions taken to enhance our credit risk management processes and the benefit of our in-house management of recoveries. The underlying cost of risk, excluding three large recoveries totalling £3.8m was 33bps and broadly in line with our medium term expectations of a normalised cost of risk in the mid to high 30’s basis points.
“Profit before tax for 2014 on a reported basis of £50.3m was almost double the £25.7m generated in 2013 and, excluding the costs related to the withdrawn IPO, the underlying profit before tax of £56.3m was 2.2 times 2013 levels. During 2014, the Group became a tax payer for the first time and profit after tax as reported was £38.4m, up by 50% on 2013 where no tax was incurred due to the utilisation of brought forward tax losses.
“Excluding IPO related costs, the Group generated an underlying return on equity of 15.1% for the year, an increase of 3.5 percentage points compared to the 2013 return on equity of 11.6%. On a like for like basis, had 2013 profits not benefitted from losses carried forward and been taxed at the 2014 effective tax rate, the 2013 return on equity would have been around 8.8%, equivalent to an underlying improvement of 6.3 percentage points during 2014. We are driving an accelerating trajectory of profitability with the underlying return on equity for the second six months of 2014 approaching 20%.
“In the second half of 2014, we actively pursued a listing on the London Stock Exchange. However, subsequent to the announcement of our intention to float on 22 September 2014, global financial markets suffered significant falls, exhibiting unusually high levels of volatility and on 15 October 2014, we announced our decision to withdraw our offering.
“We created a Capital Requirements Regulation (CRR) compliant capital structure appropriate for a more mature bank and strengthened our overall capital position with the issue of £75m of Additional Tier 1 capital in December 2014. As at 31 December 2014, our total capital ratio had improved to 14.8% (2013: 14.2%). Our leverage ratio of 6.3% was also very strong and well above the expected regulatory minimum requirement for the industry which the regulator is currently finalising but which is anticipated to be between 3% and 4%.
“Our continued strong performance in 2014 provides an excellent base for the future. We look forward with confidence and this is reflected in the stretching targets we have set. We expect to grow net lending in 2015 in line with the current nominal run rate. We will continue to leverage our legacy-free operating platform and are now targeting a cost/ income ratio of less than 40% by the end of 2017.”