Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Registered number: 00947662
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Company Information
Board of Directors
Non Executive Chairman
Sir David Arculus
Executive Directors
Phillip Monks - Chief Executive
Mark Stephens - Deputy CEO
Paul Myers - Chief Operating Officer
Stephen Barry – Chief Risk Officer
John Baines – Chief Financial Officer
Ian Wilkins - Group Managing Director - Commercial Finance
Non Executive Directors
John Callender
Finlay McFadyen
Peter Cartwright
Jayne Almond
Secretary
Dionne Baldwin
Registered Office
1st Floor, Block B
Western House
Lynch Wood
Peterborough
PE2 6FZ
Auditors
KPMG Audit Plc
1 The Embankment
Neville Street
Leeds
LS1 4DW
Registered number
00947662
www.aldermore.co.uk
Authorised and regulated by the Financial Services Authority.
Member of British Bankers’ Association.
Member of Finance and Leasing Association.
Member of Asset Based Finance Association.
1
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Contents
Chairman’s overview
Directors’ report
Statement of directors’ responsibilities
Page
3 - 4
5 - 11
12
Independent Auditor’s report
13 - 14
Profit and loss account
Balance sheet
15
16
Notes to the financial statements
17 - 40
2
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
CHAIRMAN’S OVERVIEW
EXPERTISE. APPLIED
A year ago, I said that for Aldermore, 2010 was a transformational year. Now, after my first full year as Chairman, I can report that
there has been no pause in Aldermore’s astonishing progress.
Aldermore has established itself as the champion of British savers, British SME’s and British homeowners. Aldermore is backing
Britain with a straightforward and reliable service that brings together our expertise and dynamic approach to life.
2011 has been marked by a series of important milestones. In June, the Bank broke even for the first time two months ahead of
forecast and has been profitable each quarter since. Given that the Bank launched in May 2009, this was a great achievement in
a short period of time. This was rapidly followed in July by the announcement that gross assets had exceeded £1 billion.
In September, Aldermore was successful in raising a further £62 million of capital from a consortium of blue chip investors,
underpinning the Bank’s mission to lend to small and medium sized enterprises (SMEs), and householders.
The Bank’s liquidity position also remains excellent, as we continue to provide simple, good value and gimmick-free products to
savers. Despite the current, and planned, tightening of the regulatory, capital and liquidity environment, the Bank is extremely well
placed to meet these requirements without any need to modify our business model.
Aldermore’s Commercial Finance division continues to thrive despite a difficult economy. It has doubled in size during 2011.
Asset finance is focused on medium term lending against assets through hire purchase and leasing products. Asset finance
continues to grow in its specialist sectors including, materials handling, construction, professional practices, and wholesale
finance.
Invoice finance provides finance for early growth trading, refinancing, acquisitions, turnaround finance and post-insolvency trading
to British SMEs, secured against the borrower’s sales receivables. In 2011 the Bank’s invoice finance division launched
‘Aldermore Business Confidence’ offering businesses with a turnover of up to £500,000 a fixed fee funding facility. We also
created a Structured Finance team, to specifically assist businesses requiring asset and invoice finance, as well as a commercial
mortgage or any combination of these SME services. We strive to make it easy and straightforward to do business with
Aldermore - a great demonstration of acting as SME champion.
Aldermore continued to make excellent progress in its Mortgage Division. It, too, has more than doubled in size in 2011.
The residential mortgage business was launched in May 2010 and has fully proved its innovative, leading-edge technology
platform, delivering quick decision making and allowing skilled underwriters to ensure that creditworthy customers’ needs can be
met. Over a dozen new mortgage products were launched to market, providing much needed support to those seeking a
mortgage for their home or an investment property. Aldermore’s Family Guarantee Mortgage is unique in the market and sets out
to provide much needed help to first time buyers making that difficult first step on to the housing ladder.
These achievements are recognised in our marketplace and the mortgage business won the prestigious Financial Adviser 5 Star
Service Award and in addition to this, four other national mortgage awards, as well as being highly commended twice. In a very
short period of time our residential mortgage business has become a force to be reckoned with.
The commercial mortgage business goes from strength to strength and in 2011 we became sponsor of the National Association
of Commercial Finance Brokers (NACFB) and launched our new state-of-the-art commercial mortgage processing system. The
3
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
CHAIRMAN’S OVERVIEW (continued)
system was designed and launched in less than a year and places our entire mortgage division on the same operational platform
taking service levels to be amongst the best in the industry. Use of leading edge technology in this way really differentiates us in
the marketplace and provides unparalleled customer service, with fast decision making, and a totally on-line broker service,
making Aldermore straightforward and efficient to do business with.
It was rewarding to be recognised as Best Specialist Lender for Commercial Mortgages for the second consecutive year, and in
2011 we provided our 1,000th commercial mortgage. Our Mortgage Division ‘came of age’ in 2011 and the foundations are now
laid for further growth in 2012 supporting home owners, residential and commercial property investments and businesses
throughout the UK.
Our UK Savings business continues to provide good value, with simple products. Over 50,000 depositors have trusted us with
more than £1 billion of their hard earned savings.
Our savings products regularly appear in the national media’s best buy tables and we pride ourselves on offering no tricks or
gimmicks on any of our savings accounts, just consistently good value and efficient, reliable service. This has resonated with our
customers and Aldermore won the highly acclaimed Consumer Moneyfacts Best ISA Provider for 2011, which is voted on by the
public. Savers can sign-up online in approximately 10 minutes, or over the phone or by post, and our bespoke system enables
the customer to scan in their verification documents, eradicating errors, as well as offering a dynamic and straightforward service.
Aldermore is regulated by the UK Financial Services Authority and so Aldermore’s depositors benefit from the Financial Services
Compensation Scheme which guarantees deposits up to £85,000 or twice that for joint accounts. But it is clear that what is really
bringing deposit customers to the Bank is good value for money, and straightforward uncomplicated products. The customer
feedback has been fantastic on a service which allows customers to deal with us in a way which suits them. Our no-nonsense
products, with no hidden terms or conditions, have been a huge success.
While the Financial Services Compensation Scheme is of real reassurance to many of our customers, it is of course the directors’
mission to ensure it is never required. We continue to lend within our risk appetite, and loan portfolios continue to perform better
than our expectations.
In line with current Government thinking, all of the Executive Management team and some other senior staff have their
compensation tied to the long term fortunes of the Bank, and thus are incentivised to make sure that they are prepared to live
with the consequences of decisions they make now, and well into the future. This helps underpin a risk management culture at
the most senior level of the Bank, which provides the ultimate protection to our depositors. Our shareholders have always had a
seat on our Remuneration Committee, to help ensure the long term interests of the Bank are protected.
Finally, I turn to the most important ingredient of our success – the people who work for us who are experts in their field. This
team of experienced executives, managers and staff brings expertise, strategic vision and a strong risk management ethic which
prevails throughout the DNA of Aldermore. It is also very satisfying to be creating many new jobs, as we continue to build the
skills and capability which will allow the Bank to continue to grow safely in the future.
Sir David Arculus
Chairman
4
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
DIRECTORS’ REPORT
The directors present their report and the financial statements of Aldermore Bank PLC (‘the Bank’) for the year ended 31
December 2011.
Results and Dividends
The results for the year are set out in the profit and loss account on page 15.
The directors do not recommend the payment of a dividend (2010: £nil).
Principal Activities and Business Review
The Bank is authorised to accept deposits under the Financial Services & Markets Act 2000 and the Bank’s principal activities
during 2011 were the provision of banking and related services. The strategic objective of the Bank is to be a provider of secured
financial products to the SME and residential mortgage markets, funded by capital and retail deposits.
The loss before taxation for the year ended 31 December 2011 was £0.9m (2010: £8.8m). As at 31 December 2011 the Bank had
445 employees (2010: 377). As the Bank invested in its infrastructure and people and built out its capabilities, 2011 saw a loss-
making first half with the Bank achieving profitability in both the 3rd and 4th quarters. Significant releases of provisions taken in
prior years were made, as detailed in note 16 to the financial statements, as the credit performance of acquired portfolios was
much better than expected.
The Bank had Tier 1 capital at 31 December 2011 of £158.2m (2010: £83.3m) and a Tier 1 capital ratio of 18.5% (2010: 19.0%).
Capital Injections
The Bank’s ultimate holding company is AC Acquisitions Limited. During 2011 capital injections were made by AnaCap Financial
Partners, L.P., AnaCap Financial Partners II, L.P., AnaCap Derby Co-Investment (No. 1) L.P. and AnaCap Derby Co-Investment
(No.2) L.P. in the share capital of AC Acquisitions Limited. During 2011 £77.9 million was invested in the Bank by AC Acquisitions
Limited via subscription of equity share capital in the intermediate holding company Aldermore Holdings Limited which in turn
invested in equity share capital of the Bank.
Liquidity
At 31 December 2011, the Bank held a 19.8% liquidity buffer (liquid assets excluding encumbered cash as a % of total deposits).
Based on the available buffer, the Bank has sufficient liquidity to meet its liabilities when they are due, and sufficient liquidity
under a 91-day liquidity stress for both the internal and FSA BIPRU 12 stress requirements. As at the reporting date, the Bank
complied with its liquidity risk limits and risk appetite, and BIPRU 12.
5
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
DIRECTORS’ REPORT (continued)
Investment in the Business Systems and Support Structure
Fixed asset additions in the year of £5.0m were mainly focused on new IT systems and infrastructure. This investment is ongoing
and the business is forecast to spend over £4.5m during 2012 on enhancing the technology infrastructure further.
Commercial Finance Division
Asset Finance - during 2011, the Bank saw a significant level of demand for its asset finance services and the business grew
significantly through the provision of funding to the corporate and SME sectors as well as to the public sector and professional
firms. The Bank sources new business from specialist brokers and vendor partnerships.
Invoice Finance – the Bank’s Invoice Finance division provides working capital funding to SME businesses throughout the UK.
2011 saw a significant increase in demand for these services with the Bank being one of the fastest growing providers in the UK
invoice finance market.
Mortgages Division
Commercial Mortgages - the Bank is now an established UK SME commercial mortgage lender offering residential investment
and commercial mortgages products and solutions via intermediaries. Lending is first charge, low loan-to-value, primarily against
commercial/industrial premises, professionally managed residential buy to let, and retail premises.
Residential Mortgages – the Bank offers residential owner occupied and buy-to-let mortgage products via intermediaries.
Property Development - the Bank has decided to re-commence lending in the property development sector. The Bank will focus
on residential development lending.
Summary of lending asset values by Division
Division
As at 31 December 2011
As at 31 December 2010
Net Change
£’000
341,303
819,132
1,160,435
£’000
169,197
305,755
474,952
£’000
172,106
513,377
685,483
Commercial Finance
Mortgages
Total
Investment Securities
The Bank has increased its investment securities holdings from £35.8m at December 2010 to £61.1m at December 2011, primarily
via asset backed securities. The additional investments were made to increase the level of liquidity in the Bank, whilst achieving a
reasonable return on such assets. The investment assets are primarily residential mortgage asset backed securities, AAA/AA rated
bonds, where adequate loss cover is available to absorb high default rates before the bond itself defaults.
6
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
DIRECTORS’ REPORT (continued)
Customer Deposits
The primary source of funding for the Bank is retail deposits. Retail deposit products are offered to the general public via the internet,
post, and telephone. The recent growth in assets has been funded through the deposits base. Deposit balances have increased
from £635m at 31 December 2010 to £1,347m at 31 December 2011.
Going Concern
As referred to in Note 1(b), the directors have made a full assessment of the current state of the balance sheet of the Bank and the
longer term strategy of the business. Capital and liquidity plans have been reviewed by the directors and are reported against at least
monthly, including stress tests. The directors believe that the Bank has sufficient resources to continue lending and deposit taking
throughout 2012 and to continue its expansion. The Bank has sufficient capital to enable it to continue to meet its regulatory capital
requirements as set out by the Financial Services Authority, has firm backing from its current investors, and one new investor has
signed a commitment letter relating to a capital injection of over £30m, subject to FSA approval.
Principal Risks and Uncertainties
A core objective for the Bank is the effective management of risk. Given the nature of the activities undertaken, the principal risks
faced are credit risk, market risk, liquidity risk, interest rate risk and operational risk. Each risk has a detailed documented policy
and is overseen by a robust governance process including regular and detailed management information. The Bank has a Chief
Risk Officer who is responsible for ensuring each risk is adequately monitored, managed and mitigated. A detailed analysis of all
key risks has been documented in the Internal Capital Adequacy Assessment Process report, and approved by the board.
The board has ultimate responsibility for setting the Bank’s strategy, risk appetite and control framework and key risks are
reviewed at the monthly board meeting.
The Bank has an Audit & Risk Committee which meets on a quarterly basis. The committee monitors and considers the internal
control environment focusing on operational risks, internal and external audits and compliance matters.
Credit Risk
Credit risk is the risk of principal loss arising from defaults and losses in the event of default or fraud relating to mortgage, lease
and loan contracts. Credit risks are managed through the use of a detailed lending criteria, careful assessment and suitable
product structures. The Bank has credit policies for each line of business which details the approach to lending. Each lending
division has a Risk director who is responsible for managing credit risk within the business lines and there is a dedicated team
within each business which assesses credit risk. Group Risk has oversight of credit management and lending activities.
The Management Credit Committee is responsible for reviewing credit policy issues, such as provisioning and lending policies
and recommending these to the board or Board Credit Committee. To monitor key performance areas and asset quality, the
committee meets monthly and reviews credit management information, portfolio performance reports and provisioning analysis.
The Management Credit Committee is responsible for approving credit proposals that have been presented to it by the business
lines within its delegated authority.
7
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
DIRECTORS’ REPORT (continued)
The Board Credit Committee meets on a quarterly basis to agree policy issues, such as provisioning and lending policies which
have been proposed by the Management Credit Committee. The committee also reviews management information and carefully
monitors the portfolio performance and lending environment.
Forbearance
On occasions, borrowers experience difficulties which impact on their ability to meet their mortgage or commercial finance
obligations. The Bank identifies borrowers whose mortgages or commercial finance loans have gone into arrears and consults
with them in order to ascertain the reason for the arrears, and to establish what course of action can be taken to bring the account
up to date.
In certain circumstances where the borrower is experiencing significant financial distress, the Bank uses forbearance measures to
assist them. These are all 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 a reduction in long term arrears and allow the best outcome for both the customer
and the Bank by dealing with arrears at an early stage.
The most widely used methods of forbearance are reduced monthly payments, loan term extension and a temporary or
permanent transfer to interest only payments to reduce the borrowers’ financial pressures. Where the arrangement is temporary,
the borrowers are expected to resume normal payments within six months. Since July 2011, the Bank undertook forbearance
measures as follows:
Mortgages Division
Commercial Finance Division
Total
Number
Loan
Balance
£'000
Yearend
arrears
£'000
Number
Loan
Balance
£'000
Yearend
arrears
£'000
Number
Capitalisation
Temporary or permanent
switch to interest only
Reduced monthly
payments
Loan term extension
Total
Total forborne*
0
11
1
0
12
0
1,860
70
0
1,930
0.24%
* as a percentage of the total divisional lending book
General provision
Specific provision
7
5
12
1
4
5
0
0
7
0
7
1
0
3
7
11
7
4
11
989
0
318
290
1,597
0.47%
1
274
275
2
0
8
8
18
1
11
4
7
23
14
9
23
Loan
Balance
£'000
989
1,860
388
290
3,527
0.30%
2
278
280
The provisions against forborne cases in the Mortgages Division are not significant given the nature of the forbearance
arrangements. The measures undertaken relate to a change in the contractual cash flows which have eased the borrower's
financial stress to enable them to continue to repay their mortgage in line with the arrangement. Forbearance arrangements have
been considered in conjunction with other loan characteristics when performing the impairment review.
8
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
DIRECTORS’ REPORT (continued)
There are relatively higher provisions against the Commercial Finance division in respect of forborne cases. Whilst the use of
forbearance measures has been modest, the measures undertaken include a limited level of arrears capitalisation and loan term
extensions.
Market Risk
The Bank does not carry out proprietary trading or hold any positions that would require to be marked to market, nor does it have
any intention to do so in the foreseeable future. Any investments in assets or equity are not actively traded.
Interest Rate Risk
Interest rate risk is the risk of loss through un-hedged or mismatched asset and liability positions sensitive to changes in interest
rates. Where possible, the Bank seeks to match the interest rate structure of assets with liabilities, or deposits, creating a natural
hedge. Where this is not possible, the Bank will enter into swap agreements to convert fixed interest rate liabilities into variable
rate liabilities, which are then matched with variable interest rate assets.
Liquidity Risk
Liquidity risk is the risk that the Bank is not able to meet its financial obligations as they fall due, or can do so only at excessive
cost. The Bank maintains a liquidity buffer of eligible liquid assets such as UK Government Treasury Bills, which is monitored on
a regular basis to ensure there are sufficient liquid assets at all times to cover cash flow imbalances and fluctuations in funding
and to enable the Bank to meet all financial obligations and support the asset growth. The Asset & Liability Committee meets on a
monthly basis to consider market, interest rate and liquidity risks, and to ensure that the Bank adheres to the interest rate risk and
liquidity policies and objectives set down by the board. It also has responsibility for ensuring that the policies that are
implemented are adequate to meet operational, prudential and regulatory requirements.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external
events. This risk includes IT, information security, project, outsourcing, tax, legal, fraud and compliance risks. The Bank aims to
accept a low level of operational risk. Through the establishment and investment in sound systems, controls and audit functions,
the Bank minimises operational failures. The Operating Committee meets monthly to ensure that a quality and robust IT,
operations and compliance service is delivered at all times and is capable of supporting the changing business requirements of
the Bank. It has responsibility for monitoring all the key operational risks facing the organisation, including compliance and
operational risks. As part of the Group Risk function, the Bank has an Operational Risk Manager who has specific responsibility
for managing operational risks.
Other Risks
To manage business, operational and regulatory risks, the Bank has a sound risk management framework and governance
structure in place and applies a standard three lines of defence model. Committees have been established to monitor operational
performance, credit risk and also audit and risk matters. The Compliance and Internal Audit departments also help to review and
monitor operational and regulatory issues to help ensure the Bank is operating in accordance with internal policies and
procedures and provide assurance to the board. The Bank has a business continuity plan in place.
Further information on risk management is contained within note 33.
9
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
DIRECTORS’ REPORT (continued)
Performance analysis based on Key Performance Indicators
The following metrics represent the core key performance indicators for the Bank:
31 December 2011
31 December 2010
Tier 1 capital ratio
18.5%
19.0%
Annual growth in loans and advances to customers
144.3% (£685.5m)
195% (£314.4m)
Annual growth in retail deposits
112.3% (£712.7m)
176% (£405.1m)
Liquidity buffer (as a % of total deposits)
Loss for the year
19.8%
£0.9m
34.5%
£8.8m
Payment Policy
It is the Bank’s policy to pay suppliers as they fall due, in accordance with the negotiated terms of business. The Bank had trade
creditors at 31 December 2011 of £0.8m (2010: £1.6m). Trade creditors’ days at 31 December 2011 was 19 days (2010: 35
days).
Equal Opportunities for Disabled People
The Bank is committed to ensuring that disabled people are afforded equality of opportunity in respect of entering and continuing
employment within the business. This includes all stages from recruitment and selection, terms and conditions of employment,
access to training and career development.
Staff Communication
The Bank provides regular updates to all employees using face to face meetings, conference calls, email and the intranet.
Two staff feedback surveys were conducted in 2011 and management communicated the findings to staff, together with action
plans to address issues identified in the survey. The multi-media communication framework continues to evolve and has been
embraced by staff and management alike.
10
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
DIRECTORS’ REPORT (continued)
Directors
The directors who held office during the year were as follows:
Phillip Monks
Mark Stephens
Peter Cartwright
Finlay McFadyen
John Callender
Paul Myers
Stephen Barry
Sir David Arculus
John Baines
Ian Wilkins
Jayne Almond (appointed 4 April 2011)
Certain directors benefited from qualifying third party indemnity provisions in place during the year ended 31 December 2011 and
at the date of this report.
Political and Charitable Donations
The Bank made no political or charitable donations during the year (2010: Nil).
Disclosure of Information to Auditors
The directors who held office at the date of approval of this directors’ report confirm that, so far as they are each aware, there is
no relevant audit information of which the Bank’s auditors are unaware; and each director has taken all the steps that he/she
ought to have taken as a director to make himself/herself aware of any relevant audit information and to establish that the Bank’s
auditors are aware of that information.
Auditors
In accordance with section 489 of the Companies Act 2006, a resolution for the re-appointment of KPMG Audit Plc as auditors of
the Bank is to be proposed at the forthcoming Annual General Meeting.
By order of the board
Phillip Monks
Director and Chief Executive Officer
11
Western House
Lynch Wood
Peterborough
PE2 6FZ
28 March 2012
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Statement of Directors’ responsibilities in respect of the Directors’ report and the financial statements
The directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to
prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted
Accounting Practice).
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Bank and of the profit or loss of the Bank for that period. In preparing these financial statements,
the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed
and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Bank will
continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Bank’s
transactions and disclose with reasonable accuracy at any time the financial position of the Bank and enable them to ensure that
the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Bank and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Bank’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
This report was approved by the Board on 28 March 2012 and was signed on its behalf by:
Phillip Monks
Director and Chief Executive Officer
12
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Independent Auditor’s report to the members of Aldermore Bank PLC
We have audited the financial statements of Aldermore Bank PLC for the year ended 31 December 2011 set out on pages 15 to
40. The financial reporting framework that has been applied in their preparation is applicable law and UK Accounting Standards
(UK Generally Accepted Accounting Practice).
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to
state to them in an auditor's 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 and the company's members, as a body, for our audit work, for this report, or for
the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities Statement set out on page 12, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and
express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK
and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB's website at
www.frc.org.uk/apb/scope/private.cfm
Opinion on financial statements
In our opinion the financial statements:
give a true and fair view of the state of the company's affairs as at 31 December 2011 and of its loss for the year then
ended;
have been properly prepared in accordance with UK Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared
is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our
opinion:
adequate accounting records have not been kept, or returns adequate for our audit have not been received from
branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
13
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Independent Auditor’s report to the members of Aldermore Bank PLC (continued)
J L Ellacott (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
1 The Embankment
Neville Street
Leeds
LS1 4DW
28 March 2012
14
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Profit and loss account
For the year ended 31 December 2011
Interest receivable
Interest payable
Net interest income
Fees and commissions receivable
Fees and commissions payable
Other operating income
Net operating income
Administrative expenses
Depreciation and amortisation
Provision for bad and doubtful debts
Loss on ordinary activities before taxation
Taxation on loss on ordinary activities
Loss on ordinary activities after taxation
Note
3
4
5
6
7
11
12
16
13
14
2011
£’000
2010
£’000
53,190
24,474
(30,555)
__________
(12,497)
__________
22,635
18,184
(6,656)
11,977
12,264
(3,075)
8,476
__________
7,080
__________
42,639
(40,681)
(1,852)
28,246
(34,295)
(1,267)
(1,005)
__________
(1,490)
__________
(899)
(8,806)
7
__________
-
__________
(892)
__________
(8,806)
__________
The notes and information on pages 17 to 40 form part of these financial statements.
There were no recognised gains and losses other than the loss for the year.
The result for the year is derived entirely from continuing activities.
15
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Balance Sheet
At 31 December 2011
Assets
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Debt securities
Intangible assets
Tangible fixed assets
Other assets
Prepayments and accrued income
Total assets
Liabilities
Customers accounts
Other liabilities
Accruals and deferred income
Total Liabilities
Called up share capital
Share premium account
Profit and loss account
Shareholders’ funds
Total liabilities and shareholders’ funds
Contingent liabilities
Commitments
Note
15
16
17
19
20
21
22
23
24
25
26
27
27
28
30
30
2011
£’000
125
123,122
1,160,435
227,958
7,915
7,367
14,311
2010
£’000
-
219,346
474,952
35,803
8,361
3,781
4,318
12,894
__________
5,771
__________
1,554,127
__________
752,332
__________
1,347,470
8,448
634,719
7,881
32,066
__________
18,105
__________
1,387,984
__________
660,705
__________
3,300
3,300
170,133
(7,290)
__________
94,725
(6,398)
__________
166,143
__________
91,627
__________
1,554,127
__________
752,332
__________
£’000
£’000
-
-
190,555
148,088
These financial statements were approved by the board of directors on 28 March 2012 and were signed on its behalf by:
Phillip Monks
Director and Chief Executive Officer
Registered number: 00947662
The notes and information on pages 17 to 40 form part of the financial statements.
16
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the Financial Statements
1 Accounting policies
a) Accounting basis
The financial statements have been prepared under the historical cost convention and are in accordance with applicable United
Kingdom law, Accounting Standards (United Kingdom Generally Accepted Accounting Practice), and relevant British Bankers’
Association and Finance and Leasing Association Statements of Recommended Practice, which have been applied consistently.
b) Going concern
The financial statements have been prepared on a going concern basis. The directors have made a full assessment of the current
state of the balance sheet of the Bank and the longer term strategy of the business. Capital and liquidity plans have been reviewed
by the directors and are reported against at least monthly, including stress tests. The directors believe that the Bank has sufficient
resources to continue lending and deposit taking throughout 2012, and for the 12 months from the date these financial statements
are approved. The Bank has sufficient capital to enable it to continue to meet its regulatory capital requirements as set out by the
Financial Services Authority, has firm backing from its current investors, and one new investor has signed a commitment letter
relating to a capital injection of over £30m, subject to FSA approval. On this basis the directors believe that it is appropriate to
prepare the financial statements on a going concern basis.
c) Finance leases and hire purchase agreements
Interest receivable from finance leases and hire purchase agreements is credited to the profit and loss account to give a constant
periodic rate of return after tax on the net cash investment. Investments in finance leases and hire purchase agreements are shown
in the balance sheet as assets within loans and receivables, and represent the total rentals receivable less the income allocated to
future periods.
d) Loan agreements
Interest receivable from fixed profile loan agreements is credited to the profit and loss account to give a constant periodic rate of
return on the net cash investment over the life of the loan agreement. Interest from revolving loans is credited on an accrued basis.
Loan assets in the balance sheet represent the amount of total repayments receivable less the income allocated to future periods,
net of provisions for bad and doubtful debts.
e) Invoice financing
Income comprises the fair value receivable for the provision of invoice financing services, net of value-added tax, and is
recognised as follows:
i) Interest income
The Bank charges its clients interest each day on the balance of their outstanding loan. This interest income is recognised
in the profit and loss account as it is added to the clients’ borrowings.
ii) Fee and related income
The Bank charges its clients a factoring fee for managing their sales ledgers. This fee is recognised over the period in
which the ledger management service is provided. Other fee income, which includes disbursements, is credited to the profit
and loss account when the service has been provided or the disbursement expenditure incurred.
17
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the Financial Statements (continued)
1 Accounting policies (continued)
e) Invoice financing (continued)
iii) Unallocated cash
This relates to a liability for receipts of unallocated cash, which are held on the Bank’s balance sheet until the expiry of
the six-year period. Any unclaimed receipts subsequent to the expiry date are recognised as income.
f) Provisions for loan losses
Provisions for finance agreements and loan losses are based on a year end appraisal of recoverability of all advances.
Specific provision is made against exposures which have been identified as bad or doubtful to reduce the carrying amount, including
interest in arrears. The Bank estimates the ultimate net realisable value and incorporates a forced sale discount into that valuation.
Bad debts are written-off in part or in full when the extent of loss has been confirmed and there is no realistic prospect of recovery.
A general provision has been applied to loan balances not specifically provided for. Potential exposures (those that are impaired at
the balance sheet date but are not individually identified) are provided for against the clean book based on the incurred losses of
each relevant line of business. The losses are provided for as a percentage of the loan book. This percentage is reviewed and
adjusted accordingly as experience and economic and market conditions change.
Interest recognition is normally suspended once a customer’s loan is impaired and/or three months or more in arrears.
g) Consolidation
The Bank has taken advantage of the exemption, allowed under section 400 of the Companies Act 2006, not to prepare group
accounts as it is wholly owned subsidiary of AC Acquisitions Limited a company incorporated in England and is included in the
consolidated accounts of AC Acquisitions Limited.
h) Cashflow statement
Under Financial Reporting Standard 1 the Bank is exempt from the requirement to prepare a cashflow statement on the grounds that
its ultimate parent company, AC Acquisitions Limited, includes the Bank in its own published consolidated financial statements.
i) Tangible fixed assets and depreciation
Tangible fixed assets, other than freehold land, are stated at cost less accumulated depreciation and any provision for impairment.
Depreciation is provided on all tangible fixed assets, other than equipment held for use in operating leases, at rates calculated to
write off the cost of each asset on a straight-line basis over its expected useful life, as follows:
Fixtures, fittings and equipment
Computer systems
Motor vehicles
-
-
-
5 years
1 to 5 years
5 years
Equipment held for use in operating leases is written down to its estimated residual value on a straight-line basis over the period of
the underlying lease agreement.
j) Fees and commissions receivable and payable
Fees and commissions receivable and payable directly incremental to a loan are amortised over the period of the loan to a
maximum of five years.
18
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the Financial Statements (continued)
1 Accounting policies (continued)
k) Rentals receivable under operating leases
Rental income from operating leases is recognised on a straight line basis over the lease term of the relevant lease.
l) Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and
liabilities held at the balance sheet date are translated into sterling at the exchange rates ruling at the balance sheet date. Exchange
differences are charged or credited to the profit and loss account.
m) Taxation
Corporation tax payable is provided on taxable profits at the current rate, as reduced by losses surrendered by group undertakings at
nil cost.
Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date
where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have
occurred at the balance sheet date. Timing differences are differences between the Bank’s taxable profits and its results as stated in
the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which
they are recognised in the financial statements.
A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can
be regarded as more likely than not there will be suitable taxable profits from which the future of the underlying timing differences can
be deducted. To date, no deferred tax asset has been recognised as there is insufficient certainty over the ability to use the amounts
in the future.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are
expected to reverse based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date.
Deferred tax is measured on a non-discounted basis.
n) Pension costs
The cost of providing retirement pensions is charged to the profit and loss account at the amount of the defined contributions payable
for each year. Differences between contributions payable and those actually paid are shown as accruals or prepayments. The Bank
has no defined benefit pension scheme.
o) Segmental information
In the opinion of the directors, the Bank has two main lines of business in a variety of geographical locations within the UK. The
performance of the Mortgages and Commercial Finance divisions is shown in note 2.
p) Securities
Securities intended for use on a continuing basis in the Bank’s activities are classified as investment securities and stated at cost
less provision for any permanent diminution in value.
Asset backed securities: where purchased at a discount the discount is amortised through the profit and loss account on an
effective yield basis, which is a change in accounting estimate from the prior period. This is considered more appropriate as the
19
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the Financial Statements (continued)
1 Accounting policies (continued)
p) Securities (continued)
discount is now recognised to give a constant rate of return on the underlying assets. This has resulted in an additional £0.6m of
income being recognised in the profit and loss account in the current year.
Other debt securities: where other investment securities have been purchased at a premium or discount these premiums and
discounts are amortised through the profit and loss account from the date of purchase over the remaining life of the investment.
An impairment review is undertaken periodically to assess whether there has been any permanent diminution in value.
The amortisation of premium and discounts is included within interest income.
q) Impairment of assets
The carrying amounts of the Bank’s assets are reviewed for impairment when events or changes in circumstances indicate that the
carrying amount of the fixed asset may not be recoverable. If any such indication exists, the asset’s recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its income-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the profit and loss account unless they arise on a previously revalued fixed asset. An
impairment loss on a revalued fixed asset is recognised in the profit and loss account if it is caused by a clear consumption of
economic benefits. Otherwise impairments are recognised in the statement of total recognised gains and losses until the carrying
amount reaches the asset’s depreciated historic cost.
Impairment losses recognised in respect of income-generating units are allocated first to reduce the carrying amount of any goodwill
allocated to income-generating units, then to any capitalised intangible asset and finally to the carrying amount of the tangible assets
in the unit on a pro rata or more appropriate basis. An income generating unit is the smallest identifiable group of assets that
generates income that is largely independent of the income streams from other assets or groups of assets.
Calculation of recoverable amount
The recoverable amount of fixed assets is the greater of their net realisable value and value in use. In assessing value in use, the
expected future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the rate of return expected on an equally risky investment. For an asset that does not generate largely independent
income streams, the recoverable amount is determined for the income-generating unit to which the asset belongs.
Reversals of impairment
An impairment loss is reversed on intangible assets and goodwill only if subsequent external events reverse the effect of the original
event which caused the recognition of the impairment or the loss arose on an intangible asset with a readily ascertainable market
value and that market value has increased above the impaired carrying amount. For other fixed assets where the recoverable
amount increases as a result of a change in economic conditions or in the expected use of the asset then the resultant reversal of
the impairment loss should be recognised in the current period.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
20
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the Financial Statements (continued)
1 Accounting policies (continued)
r) Goodwill
Positive goodwill arising on acquisitions is capitalised, classified as an asset on the balance sheet and amortised on a straight line
basis over its useful economic life up to a presumed maximum of 20 years. It is reviewed for impairment at the end of the first full
financial year following the acquisition and in other periods if events or changes in circumstances indicate that the carrying value may
not be recoverable.
If a business is subsequently sold or closed, any goodwill arising on acquisition that was written off directly to reserves or that has not
been amortised through the profit and loss account is taken into account in determining the profit or loss on sale or closure.
s) Fair value adjustments on acquisition
The fair value adjustment arising on acquisition is unwound in the profit and loss account within interest receivable over the expected
remaining life of the instrument to which it relates. At each reporting date, an assessment is made as to whether there is any
indication that the amount of adjustment unwound is inappropriate given the expected remaining life and any potential impairment.
t) Leasing – as lessee
Leases of property, plant and equipment where the Bank has substantially all the risks and rewards of ownership are classified as
finance leases. Assets held under finance leases or hire purchase contracts are capitalised on inception of the agreement at an
amount equal to their fair value or, if lower, the present value of the minimum lease payments. The interest element of the lease cost
is charged to the profit and loss account, within other operating expenses, over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each period. Liabilities under finance leases and hire purchase contracts
are included within other liabilities in the balance sheet.
Property, plant and equipment acquired under finance leases or hire purchase contracts is depreciated over the shorter of the period
of the agreement and the estimated useful lives of the assets.
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments
made under operating leases, net of any incentives received from the lessor, are charged to the profit and loss account, within other
operating expenses or staff costs (in case of company cars), on a straight line basis over the period of the lease.
u) Off-balance sheet financial derivatives
Off-balance sheet financial derivatives are entered into by the Bank for hedging purposes to reduce the risks arising on
transactions entered into in the normal course of business. The income and expense arising from off-balance sheet financial
derivatives entered into for hedging purposes is recognised in the accounts in accordance with the accounting treatments of the
underlying transactions or transactions being hedged. All off-balance sheet financial derivatives are held for the period in which
the underlying hedged items mature, and are not closed out before maturity.
v) Capital raising costs
Cost directly incremental to the raising of share capital are netted against the share premium account.
21
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the Financial Statements (continued)
2 Segmental information
2011
Commercial
Finance
£’000
Mortgages
Other
£’000
£’000
Total
£’000
Net interest income
11,214
10,692
729
22,635
Net fees and other income
17,781
__________
2,115
__________
108
__________
20,004
__________
Net operating income
Operating costs
28,995
12,807
837
42,639
(23,384)
__________
(15,977)
__________
(4,177)
__________
(43,538)
__________
Segmental profit/(loss) before taxation
5,611
__________
(3,170)
__________
(3,340)
__________
(899)
__________
Assets
Liabilities
Net assets
2010
Net interest income
Net fees and other income
Net operating income
Operating costs
Segmental profit/(loss) before taxation
Assets
Liabilities
Net assets
341,303
819,132
393,692
1,554,127
-
__________
-
__________
(1,387,984)
__________
(1,387,984)
__________
341,303
819,132
(994,292)
166,143
Commercial
Finance
£’000
Mortgages
Other
£’000
£’000
Total
£’000
9,392
3,684
(1,099)
11,977
15,729
_________
603
__________
(63)
__________
16,269
__________
25,121
4,287
(1,162)
28,246
(19,617)
__________
(8,813)
__________
(8,622)
__________
(37,052)
__________
5,504
__________
(4,526)
__________
(9,784)
__________
(8,806)
__________
169,197
305,755
277,379
752,332
-
-
(660,705)
(660,705)
__________
__________
__________
__________
169,197
305,755
(383,326)
91,627
The Bank is structured into two main segments – Commercial Finance and Mortgages. Commercial Finance consists of asset
finance and invoice finance business lines while Mortgages comprises residential and commercial lending. The remainder of the
Bank’s business, mainly central support functions, is included in ‘Other’. Operating costs include depreciation charges and
provision for bad and doubtful debts.
22
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the Financial Statements (continued)
3 Interest receivable
Bank deposits and treasury bills
Debt securities
Loans and advances secured on property
2011
£’000
993
3,112
18,346
2010
£’000
944
1,836
6,662
Loans and advances to commercial finance customers
27,180
11,843
Amortisation of discounts on acquired portfolios
4 Interest payable
Customer deposits
Net income on derivative financial instruments
5 Fees and commissions receivable
Invoice finance fees
Mortgage arrangement fees
Other
6 Fees and commissions payable
Introducer commissions
Legal and valuation fees
Credit protection and insurance charges
Company searches and other fees
23
3,559
__________
3,189
__________
53,190
__________
24,474
__________
2011
£’000
2010
£’000
33,125
15,347
(2,570)
__________
(2,850)
__________
30,555
__________
12,497
__________
2011
£’000
2010
£’000
13,142
10,761
4,465
551
577
__________
952
__________
18,184
__________
12,264
__________
2011
£’000
3,591
1,282
588
2010
£’000
1,389
858
468
1,195
__________
360
__________
6,656
__________
3,075
__________
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
7 Other operating income
Disbursements, collect out and other invoice finance income
8 Staff costs
Wages and salaries
Social security costs
Other pension costs
2011
£’000
2010
£’000
8,476
__________
7,080
__________
8,476
__________
7,080
__________
2011
£’000
21,740
2,753
2010
£’000
16,791
1,779
493
__________
404
__________
24,986
__________
18,974
__________
The average number of persons employed by the Bank during the year, including non-executive directors, was 415 (2010: 318).
9 Remuneration of directors
Directors’ emoluments
Bank contributions to money purchase schemes
2011
£’000
2,164
2010
£’000
1,280
61
__________
42
__________
2,225
__________
1,322
__________
The Bank made payments of £21,000 to two directors’ individual personal pension plans during the year (2010: £19,000).
During 2011 certain directors were given the option to purchase B ordinary shares of £0.10 in the ultimate parent company, AC
Acquisitions Limited, at a discount to market value. 557,813 discounted B ordinary shares were purchased (2010: nil). These
shares give rise to a benefit of £97,000 (2010: £nil), of which the current year charge is £33,000 (2010: £nil).
Directors’ emoluments includes £122,000 of deferred bonus (2010: £nil)
Highest paid director
The above amounts include the following in respect of the highest paid director:
Emoluments
Bank contributions to money purchase scheme
2011
£’000
430
2010
£’000
312
13
__________
443
__________
10
__________
322
322
__________
During 2011, the highest paid director purchased 360,272 B Ordinary shares in AC Acquisitions Limited at a discount to market
value, giving rise to a benefit of £69,532 (2010: £nil).
24
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
10 Pension and other post-retirement benefit commitments
Defined Contributions
The Bank operates two defined contribution pension schemes. The assets of the schemes are held separately from those of the
Bank in independently administered funds. Pension contributions of £492,000 (2010: £404,000) were charged to the profit and
loss account during the year in respect of these schemes. The Bank made payments amounting to £21,000 (2010: £19,000) to
certain employees’ individual personal pension plans during the period. There were outstanding contributions of £78,000 at the
year end (2010: £77,000).
11 Administrative expenses
Staff costs (see note 8)
Office costs
Information technology
Legal and professional and other services
Other
12 Depreciation and amortisation
Depreciation
Amortisation of goodwill
13 Loss on ordinary activities before taxation
The loss on ordinary activities is arrived at after charging/(crediting):
Operating lease rentals – land and buildings
Operating lease rentals – plant and equipment
Foreign exchange gain
Fees payable to the Bank’s auditors for the audit of the annual accounts
(excluding VAT)
Fees payable to the Bank’s auditors and its associates for other services
(excluding VAT):
Tax compliance services
Tax advisory services
Corporate finance services
Other assurance services
25
2011
£’000
Year ended
24,986
31 December
2,770
2011
2,484
5,769
Year ended
2010
31 December
£’000
2010
18,974
2,132
2,126
5,230
4,672
__________
5,833
__________
40,681
__________
34,295
__________
2011
£’000
1,406
2010
£’000
810
446
__________
457
__________
1,852
__________
1,267
__________
£’000
1,014
443
1,414
(13)
£’000
768
443
(40)
£’000
162
£’000
159
30
18
425
57
42
84
-
-
__________
__________
692
285
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
14 Taxation
(i) Analysis of tax charge on ordinary activities:
Current tax on profits of the year
Over provision in previous year
Total current tax (credit)/charge
Deferred tax:
Origination and reversal of timing differences
Taxation (credit)/charge on loss on ordinary activities
(ii) Factors affecting tax charge for the current year:
2011
2010
£’000
£’000
-
(7)
-
-
__________
__________
(7)
-
-
-
__________
__________
-
-
__________
__________
(7)
-
The tax assessed for the year is different to that resulting from applying the standard rate of corporation tax in the UK of
26.5% (2010: 28%). The differences are explained below:
2011
2010
£’000
(899)
£’000
(8,806)
__________
__________
(238)
(2,465)
(25)
209
(156)
210
-
-
(7)
227
185
56
1,997
-
-
__________
__________
(7)
-
Loss on ordinary activities before tax
Tax at 26.5% (2010: 28%) thereon
Effects of:
Movements on provisions
Expenses not deductible for tax purposes
Capital allowances less than depreciation
Losses carried forward and not recognised
Deferred tax assets transferred in
Depreciation written back
Over provision in previous year
Current tax (credit)/charge for year
26
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
14 Taxation (continued)
(iii) Deferred tax asset
Movement on deferred taxation balance in the year
Opening balance
(Charge)/credit to profit and loss account
Closing balance
2011
£’000
-
-
2010
£’000
-
-
__________
__________
-
-
A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available
evidence, it can be regarded as more likely than not there will be suitable taxable profits from which the future of the
underlying timing differences can be deducted. To date, no deferred tax asset has been recognised as there is insufficient
certainty over the ability to use the amounts in the future.
The 2012 Budget on 21 March 2012 announced that the UK corporation tax rate will reduce from 26% to 22% by April
2014. A reduction in the UK corporation tax rate from 26% to 25% was initially enacted on 5 July 2011 and was expected
to be effective from 1 April 2012. However, after the Budget on 21 March 2012 it was announced that the rate will
decrease from 26% to 24% on 1 April 2012 instead; though this rate has not yet been enacted. This will reduce the Bank’s
future current tax charge accordingly. The tax disclosures for the period reflect the deferred tax at the 25% substantively
enacted rate. It has not yet been possible to quantify the full anticipated effect of the further rate reductions, although this
will further reduce the Bank’s future tax charge and reduce the Bank’s deferred tax assets / liabilities accordingly.
(iv) Analysis of recognised deferred tax balance
Capital allowances less than depreciation
Short term timing differences
Closing balance
(v) Analysis of unrecognised deferred tax balance
Capital allowances less than depreciation
Other timing differences
Losses carried forward
Closing balance not recognised
27
2011
£’000
-
-
2010
£’000
-
-
__________
__________
-
-
£’000
£’000
165
679
266
615
6,916
9,311
__________
__________
7,760
10,192
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
15 Loans and advances to banks
Repayable on demand
Repayable in three months or less
2011
£’000
2010
£’000
28,284
149,522
94,838
_________
69,824
__________
123,122
219,346
There were no general or specific doubtful debt provisions against loans and advances to banks.
16 Loans and advances to customers
Repayable in not more than three months
Repayable in more than three months but not more than one year
Repayable in more than one year but not more than five years
Repayable in more than five years
Specific and general doubtful debt provisions
Amounts include:
Repayable on demand or at short notice
Non-performing loans and advances to customers:
- loans and advances before provisions
- loans and advances after provisions
Specific and general doubtful debt provisions
2011
1 January 2011
Write off in year net of recoveries
Charge /(credit) to profit and loss account
31 December 2011
2011
£’000
194,119
67,938
161,532
748,069
2010
£’000
137,423
40,350
70,180
241,563
(11,223)
__________
(14,564)
__________
1,160,435
__________
474,952
__________
177,018
__________
136,302
__________
28,611
__________
22,489
__________
18,762
__________
10,015
__________
Specific
£’000
General
£’000
Total
£’000
12,474
2,090
14,564
(4,346)
-
(4,346)
1,721
__________
(716)
__________
1,005
__________
9,849
__________
1,374
__________
11,223
__________
The general provision on an acquired portfolio was reduced by £0.8m in the Mortgages Division, while a reduction was made in
the Commercial Finance Division of £0.2m to reflect lower incurred losses and better performance than expected.
28
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
16 Loans and advances to customers (continued)
2010
1 January 2010
Purchases as part of acquisition
Write off in year net of recoveries
Charge to profit and loss account
31 December 2010
Loans and advances to customers comprise:
Gross finance receivables
Less unearned finance charges
Invoice financing
Mortgage loans
17 Debt securities
Specific
General
£’000
£’000
10,761
3,410
(2,032)
935
-
-
Total
£’000
11,696
3,410
(2,032)
335
__________
1,155
__________
1,490
__________
12,474
__________
2,090
__________
14,564
__________
2011
£’000
218,657
2010
£’000
71,858
(26,990)
__________
(6,925)
__________
191,667
149,636
64,933
104,264
819,132
__________
305,755
__________
1,160,435
__________
474,952
__________
Total
2011
2010
Asset backed securities Other debt securities
2010
2010
2011
2011
£’000
£’000
£’000
£’000
£’000
£’000
40,920
41,550
42,679
-
13,512
167,375
-
-
40,920
208,925
42,679
13,512
(15,271)
(12,062)
_______ _________ _________ _________ _________ _________
(12,062)
(15,271)
-
-
40,920
_________ _________ _________ _________ _________ _________
237,783
167,375
40,920
70,408
-
5,117
6,421
5,318
1,139
(2,224)
(1,340)
-
496
15
-
-
-
5,117
6,917
5,318
1,139
(2,209)
(1,340)
_________ _________ _________ _________ _________ _________
5,117
_________ _________ _________ _________ _________ _________
9,825
9,314
5,117
511
-
_________ _________ _________ _________ _________ _________
35,803
_________ _________ _________ _________ _________ _________
227,938 35,803
227,958
166,864
35,803
61,094
-
Cost
1 January
Additions
Capital repayments
31 December
Discount/(premium) on
purchase
1 January
Additions
Amortisation of
(discount)/premium
31 December
Book value
31 December
29
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
18 Investment in subsidiaries
Holdings of more than 20%
The Bank holds more than 20% of the share capital of the following companies. They are all dormant subsidiaries.
Company
Principal
Country of
Shares held
%
activity
Incorporation
Principal subsidiary undertakings are as follows:
Aldermore Invoice Finance (Holdings) Limited
Dormant
England
Ordinary
Base Commercial Mortgages Holdings Limited
Dormant
England
Ordinary
100
100
Aldermore Bank Nominees Limited
Dormant
England
Ordinary
100
19 Intangible assets
Cost:
At 31 December 2010 and 31 December 2011
Amortisation:
At 1 January 2011
Amortisation for the year
At 31 December 2011
Net book value at 31 December 2011
Net book value at 31 December 2010
Goodwill
2011
£’000
8,962
__________
601
446
__________
1,047
__________
7,915
__________
8,361
__________
Goodwill arising on the acquisition and hive up of Base Commercial Mortgages Holdings Limited and goodwill arising on the
acquisition and hive up of Aldermore Invoice Finance (Holdings) Limited are being amortised evenly over their presumed useful
economic lives of 20 years.
30
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
20 Tangible fixed assets
01 January 2011
Additions
Disposals
31 December 2011
Depreciation
01 January 2011
Disposals
Charge for the period
31 December 2011
Net book value
31 December 2011
31 December 2010
Fixtures,
fittings and
equipment
£’000
1,213
171
-
Computer
systems
£’000
4,154
4,821
-
1,384
8,975
617
235
852
532
596
969
1,171
2,140
6,835
3,185
Motor
vehicles
£’000
23
-
-
23
23
-
23
-
-
Total
£’000
5,390
4,992
-
10,382
1,609
1,406
3,015
7,367
3,781
Future capital expenditure
At 31 December 2011 there was £4.5m capital expenditure authorised but not contracted for or contracted but not provided
for (31 December 2010: £4.5m).
21 Other assets
Corporation tax
Cash collateral on derivatives
Other
22 Prepayments and accrued income
Accrued income
Prepaid broker fees
Other prepayments
31
2011
£’000
-
12,857
1,454
14,311
2011
£’000
5,018
6,477
1,399
12,894
2010
£’000
343
-
3,975
4,318
2010
£’000
2,270
2,404
1,097
5,771
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
23 Customer accounts
Repayable on demand
Repayable in not more than three months but not on demand
Repayable in more than three months but not more than one year
Repayable in more than one year but not more than five years
2011
£’000
137,800
129,542
739,091
2010
£’000
25,976
42,991
243,507
341,037
__________
322,245
__________
1,347,470
__________
634,719
___________
Customer accounts repayable on demand include £1.0 million payable to the immediate parent company, Aldermore Holdings
Limited (2010: £1.0 million).
24 Other liabilities
Amounts payable to Invoice Finance customers
Unallocated cash
Other taxation and social security costs
Trade creditors
Other payables
2011
£’000
2,549
2,438
2,580
818
63
8,448
2010
£’000
2,477
2,277
1,498
1,562
67
7,881
Unallocated cash primarily relates to a liability for unclaimed cash receipts, which are held on the Bank’s balance sheet until the
expiry of the six-year period. Any unclaimed receipts subsequent to the expiry date are recognised as income. It is not possible
to provide a maturity analysis of this liability due to the uncertainty surrounding any reimbursements.
32
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
25 Accruals and deferred income
Accrued interest payable to customers
Prepaid arrangement fees
Accruals
Provisions (see note below)
Amount payable to parent company
Fee creditors
Deferred income
Provisions:
Financial Services Compensation Scheme
1 January
Utilised during the year
Provided during the year
31 December
2011
£’000
12,335
8,635
8,968
1,012
588
336
192
2010
£’000
5,742
3,290
8,081
426
-
467
99
________
32,066
_________
________
18,105
_________
2011
£’000
426
(75)
661
1,012
2010
£’000
128
(65)
363
426
In common with all regulated UK deposit takers, the Bank pays levies to the Financial Services Compensation Scheme (‘FSCS’)
to enable the FSCS to meet claims against it. The FSCS levy consists of two parts: a management expenses levy and a
compensation levy. The management expenses levy covers the costs of running the scheme and the compensation levy covers
the amount of compensation the scheme pays, net of any recoveries it makes using the rights that have been assigned to it.
During 2008 and 2009 claims were triggered against the FSCS in relation to Bradford & Bingley plc, Kaupthing Singer &
Friedlander Ltd, Heritable Bank plc, Landsbanki Islands hf, London Scottish Bank plc and Dunfermline Building Society.
The FSCS provision at 31 December 2011 represents management expense levies for the scheme years triggered but not yet
invoiced and the £1m provision at that date is an estimate of the levy for the scheme years 2011/2012 and 2012/2013. The
management expenses levy for scheme year 2011/2012 has been calculated using the agreed funding rate of 12 months LIBOR
+ 30bps while the management expenses levy for scheme years 2012/2013 has been calculated using the agreed funding rate of
12 months LIBOR + 100bps.
Furthermore, on 8 March 2012 HM Treasury and the FSCS announced that additional levies will be made on industry participants
in order to recover expected capital shortfalls on loans made to failed institutions by the FSCS. The current estimate of the
shortfall to be recovered is £802m and this will be recovered in three approximately equal instalments beginning in scheme year
2013/2014. As a result of this an increased provision for FSCS levies is likely to exist in the financial statements for the year
ending 31 December 2012.
33
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
26 Share capital
Allotted, called up and fully paid
Ordinary shares of £1 each
At 1 January
Issued during the year
At 31 December
2011
£’000
2010
£’000
3,300
3,300
-
__________
-
__________
3,300
3,300
During the year six ordinary shares of £1 each were issued for a total of £77,934,926 creating £77,934,920 share premium.
At 31 December 2011 allotted, called up and fully paid shares totalled 3,300,009.
Share premium
account
£’000
Profit and
loss account
£’000
94,725
-
77,935
(6,398)
(892)
-
(2,527)
__________
-
__________
170,133
__________
(7,290)
__________
2011
£’000
(892)
-
77,935
(2,527)
2010
£’000
(8,806)
-
48,297
(966)
__________
__________
74,516
38,525
91,627
53,102
__________
__________
166,143
91,627
27 Reconciliation of movements in shareholders’ funds
1 January 2011
Loss for the year
Premium on shares issued during the year
Capital raising costs
31 December 2011
28 Reconciliation of movements in shareholders’ funds
Loss for the year
Shares issued during the year
Premium on shares issued during the year
Capital raising costs
Net additions to shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
34
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
29 Financial commitments
At 31 December 2011 the Bank was committed to making the following payments under non-cancellable operating leases:
Land and buildings
Operating leases which expire:
In less than one year
Between two and five years
In over five years
Plant and equipment
Operating leases which expire:
In less than one year
Between two and five years
In over five years
2011
£’000
196
828
2010
£’000
32
449
-
__________
523
__________
1,024
1,004
2011
£’000
-
437
2010
£’000
-
445
-
__________
-
__________
437
445
At 31 December 2011 the majority of plant and equipment related to 82 cars that the Bank held under lease (2010: 91). The
majority of these leases are due to expire in 2014.
30 Memorandum items
At 31 December 2011 the Bank had contingent liabilities of £Nil (2010: £Nil).
At 31 December 2011 the Bank had undrawn commitments of £190.6m (2010: £148.1m). These relate mostly to irrevocable lines of
credit granted to customers.
31 Assets and liabilities denominated in foreign currency
As at 31 December 2011, there were assets of £1,851,000 (2010: £35,000) and liabilities of £84,000 (2010: £589,000) denominated
in Euros. There were assets of £725,000 (2010: £212,000) and liabilities of £Nil (2010: £652,000) denominated in US Dollars.
There were no other foreign currency assets or liabilities at the balance sheet date.
32 Related parties
The Bank has taken advantage under Financial Reporting Standard 8 ‘Related Party Disclosures’ not to disclose transactions with
members of the AC Acquisitions Limited group on the grounds that the Bank is a 100% subsidiary of AC Acquisitions Limited and the
Bank is included in consolidated financial statements published by AC Acquisitions Limited.
Certain directors and shareholders of the ultimate parent company and certain directors of the Bank, in their capacities as
individuals, trustees, directors of other companies or members of pension schemes, have deposits and loans with, and fees from, the
Bank. All deposit arrangements have been operated by the Bank on normal commercial terms and conditions. Directors’ loans at 31
December 2011 were £39,465 (2010: £nil).
35
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
32 Related parties (continued)
Phillip Monks, a director of the Bank, received a loan during the year totalling £36,157 (2010: £Nil) for the purposes of enabling him
to satisfy his personal tax liability in respect of shares issued. Interest was charged at a rate of 2.38% p.a. with the total amount
outstanding at the year end being £36,328 (2010: £Nil) and no repayments were made during the year.
Paul Myers, a director of the Bank, received a loan during the year totalling £3,122 (2010: £Nil) for the purposes of enabling him to
satisfy his personal tax liability in respect of shares issued. Interest was charged at a rate of 2.38% p.a. with the total amount
outstanding at the year end being £3,137 (2010: £Nil) and no repayments were made during the year.
The Bank is controlled by AnaCap Derby Co-Investment (No.1) L.P. (27%), AnaCap Derby Co-Investment (No.2) L.P. (23%),
AnaCap Financial Partners, II L.P. (25%) and AnaCap Financial Partners, L.P. (23%) who are the main shareholders of AC
Acquisitions Limited. The following agreements are in place with a company under their common control:
The Bank provides a £5m Block Discounting facility to Syscap Limited. The facility commenced in September 2009 and is
secured by underlying blocks of short term loans primarily to solicitors’ practices which are funded at a discount to the face
value of the loans. The facility is priced at 5% over 6 month Libor and committed over a 1 year period with appropriate
conditions relating to performance, non-performing deal substitution rights and default provisions.
Third party business is introduced to the Bank by Syscap Limited, under various Programme Agreements, including a
Wholesale Funding Facility entered into on 28 September 2009 but these do not result in any lending by the Bank to
Syscap Limited.
During the year Syscap Limited introduced business of £49.2m (2010: £43.5m) and received commission of £0.4m
(2010: £0.3m) of which £nil is outstanding at year end (2010: £nil).
In addition the group has been charged investment monitoring fees and capital raising costs by AnaCap Financial Partners of
£825,000 for the year (2010: £971,000) of which £75,000 is outstanding at the year end (2010: £150,000).
33 Financial instruments
The Bank’s financial instruments comprise borrowings from banks, customer deposits, loans to customers, debt and government
securities and cash held at banks. All these arise as a result of the Bank’s normal operations. The Bank does not enter transactions
for speculative purposes and accordingly a note of instruments held for trading has not been provided. From time to time, the Bank
may use interest rate derivatives such as swaps to manage part of its interest rate risk. The main risks arising from the Bank’s
financial instruments are credit risk, liquidity risk and interest rate risk. The directors review and agree policies for managing each of
these risks and these are summarised as follows.
Credit risk
Credit risk is the risk that a loss may occur from the failure of another party to perform according to the terms of a contract. Credit risk
is the principal risk encountered by the Bank. Credit risk principally arises from lending activities, but can also arise from other on and
off balance sheet activities such as the issue of guarantees. The Bank manages its credit risk by limiting its exposure to certain
sectors of business and counterparties, by carrying out appropriate checks and taking appropriate security to protect itself in the
event of a default. All exposures are allocated a risk grading which are revised quarterly by the board in conjunction with a review of
specific provisions. Should any event occur between these reviews which indicates a provision is clearly needed then a provision will
be made without waiting for the quarterly review process.
The Bank has no direct exposure to any distressed Eurozone countries.
36
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
33 Financial instruments (continued)
Liquidity risk
Liquidity risk is the risk that an entity encounters difficulty in realising assets or otherwise raising funds to meet commitments
associated with liabilities or financial obligations. There is a requirement to keep a balance between the funding maturity profile and
the funding requirements derived from the run off of the loans receivable. Although the Bank is primarily funded from retail deposits,
the gap between the deposit maturity profile and the lending assets maturity profile is kept within agreed limits. The Bank has always
met its own and the FSA liquidity requirements as defined by BIPRU 12. The Bank monitors closely the profile of deposits and has
the flexibility to quickly amend the deposit rates on offer to rebalance the profile of deposits in the prevailing market conditions.
Fair Value Disclosure
The Bank does not trade in financial instruments. Set out below is a comparison of book values and fair values of the Bank’s financial
liabilities and non-trading derivatives used for hedging and funding purposes.
Book Value 2011
Fair Value 2011
Book Value 2010
Fair Value 2010
£’000
£’000
£’000
£’000
On balance sheet instruments
Asset Backed Securities
Corporate bonds
UK Government debt securities
61,094
5,473
60,102
60,875
5,473
65,190
Supranational bonds
101,289
109,392
Off balance sheet instruments
Interest rate swaps
Other off balance sheet
1,880
-
(12,803)
22
Total
229,838
228,149
35,803
37,100
-
-
-
2,087
-
37,890
-
-
-
4,504
-
41,604
Interest rate related contracts represent interest rate swap transactions which generally involve the exchange of fixed and floating
interest payment obligations without the exchange of the underlying principal amounts.
Derivatives contracts are used for hedging purposes only and are executed with Bank counterparties for whom volume and
settlement limits have been approved. Under the Bank's current treasury policy, derivatives contracts are restricted to interest rate
swaps, currency swaps and forward rate agreements.
At 31 December 2011, there were 75 swaps outstanding (2010: 47). There were unrealised losses outstanding at year end of
£10.9m, of which £1.7m is expected to be realised in the year ending 31 December 2012.
37
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
33 Financial instruments (continued)
2011
Interest rate swaps
Others
Notional values
Fair values
Notional values
Fair values
£m
£’000
£m
£’000
Maturity
1 year or less
5 years or less but over 1 year
More than 5 years
710.0
308.8
93.1
1,659
4,647
(19,109)
1,111.9
(12,803)
2.5
20.0
-
22.5
41
(19)
-
22
2010
Interest rate swaps
Others
Notional values
Fair values
Notional values
Fair values
£’million
£’000
£’million
£’000
Maturity
1 year or less
5 years or less but over 1 year
More than 5 years
Interest rate risk
385.0
259.8
1.7
646.5
741
3,771
(8)
4,504
-
-
-
-
-
-
-
-
Interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates.
The Bank finances its loan book from its capital base and customer deposits. At present a minority of the Bank’s lending to
customers is at fixed rates or subject to a minimum fixed rate (set with reference to the market at the time the loan is made) whilst in
excess of 85% of customers’ deposits are at fixed rates. At present the Bank has a minimal level of repricing mismatches. The table
below summarises the repricing mismatches on the Bank’s non-trading book as at 31 December 2011. Items are allocated to time
bands by reference to the earlier of the next contractual interest rate repricing date and the maturity date.
The table below summarises the repricing mismatches on the Bank’s non-trading book as at 31 December 2011. A positive interest
rate sensitivity gap exists when more assets than liabilities reprice during a given period. A positive gap position tends to benefit net
interest income in an environment where interest rates are rising. However, the actual effect will depend on a number of factors
including actual repayment dates and interest rate sensitivities within the banding periods.
38
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
33 Financial instruments (continued)
Less than
3 months
3 to 6
months
6 months
to 1 year
1 to 5
years
More than
5 years
Total
Non-
interest
bearing
31 December 2011
Balances with UK central
banks
Loans & advances
to banks
Debt securities
Loans & advances to
customers
Other assets
Total assets
£’000
-
£’000
-
£’000
-
£’000
-
£’000
-
£’000
125
£’000
125
115,774
-
130,908
5,000
-
-
-
-
7,348
123,122
10,000
91,875
(9,825)
227,958
757,184
20,046
51,239
345,712
4,328
(18,074)
1,160,435
12,857
________
________
-
________
-
________
-
________
29,630
________
42,487
________
1,016,723
________
25,046
________
51,239
________
355,712
________
96,203
________
9,204
________
1,554,127
________
Customer accounts
263,846
181,050
558,045
341,032
-
-
-
-
-
-
3,497
1,347,470
40,514
40,514
-
________
-
________
-
________
-
________
-
________
166,143
________
166,143
________
263,846
________
181,050
________
558,045
________
341,032
________
-
________
210,154
________
1,554,127
________
Other liabilities
Shareholders’ funds
Total liabilities
Off balance sheet items
Interest rate sensitivity gap
(616,755)
182,943
521,887
3,976
(92,051)
-
136,122
26,939
15,081
18,656
4,152
(200,950)
-
-
Cumulative gap
136,122
________
163,061
________
178,142
________
196,798
________
200,950
________
-
________
-
________
________
________
________
________
________
________
________
39
Aldermore Bank PLC
Financial statements for the year ended 31 December 2011
Notes to the financial statements (continued)
33 Financial instruments (continued)
31 December 2010
Loans & advances
to banks
Debt securities
Loans & advances to customers
Less than
3 months
£’000
219,346
3 to 6
months
£’000
-
6 months
to 1 year
£’000
-
35,803
309,555
-
71,591
-
19,346
1 to 5
years
More than
5 years
Non-
interest
bearing
£’000
-
£’000
-
Total
£’000
219,346
-
620
-
-
35,803
474,952
£’000
-
-
73,840
Other assets
Total assets
Customer accounts
Other liabilities
Shareholders funds
Total liabilities
-
________
-
________ ________
-
-
________
-
________
22,231
________
22,231
________
564,704
________
71,591
19,346
________ ________
73,840
________
620
________
22,231
________
752,332
________
67,967
30,888
212,619
322,246
999
-
634,719
25,986
25,986
-
________
-
________ ________
-
-
________
-
________
91,627
________
91,627
________
67,967
________
30,888
212,619
________ ________
322,246
________
999
________
117,613
________
752,332
________
Off balance sheet items
(494,780)
17,000
218,000
259,780
-
-
Interest rate sensitivity gap
1,957
57,703
24,727
11,374
(379)
(95,382)
-
-
Cumulative gap
1,957
________
59,660
84,387
________ ________
95,761
________
95,382
________
-
________
-
________
________
________ ________
________
________
________
________
34 Ultimate parent company
The ultimate parent company is AC Acquisitions Limited, a private limited company incorporated in England. AC Acquisitions Limited
is controlled by AnaCap Derby Co-Investment (No.1) L.P. (27%), AnaCap Derby Co-Investment (No.2) L.P.(23%), AnaCap Financial
Partners, II LP (25%) and AnaCap Financial Partners, L.P. (23%).
The immediate parent company is Aldermore Holdings Limited, a private limited company incorporated in England.
Consolidated accounts are prepared by AC Acquisitions Limited and copies are available to the public from AC Acquisitions Limited’s
registered office c/o Aldermore Bank PLC, Fourth Floor, Apex Plaza, Forbury Road, Reading, Berkshire, RG1 1AX.
40