Aldermore Group PLC Investor Presentation Half Year Results 2016 - PowerPoint PPT Presentation

Aldermore Group PLC Investor Presentation Half Year Results 2016 aldermore.co.uk

Half year results 2016 Results highlights Performance update Portfolio overview and outlook 1

Continue to build on our excellent track record of delivery Generated strong returns and continued growth in H1 2016 1 A diversified business supporting a significant, structural market opportunity 2 Consistent, robust and prudent underwriting approach 3 Deliberately constructed granular and highly secured portfolio 4 5 Benefit from modern systems, scaleable operating platform and an experienced team 6 Well positioned to navigate any challenges ahead and take advantage of opportunities 2

Another strong six months for the Group Underlying profit before tax (£m) (1)  Underlying PBT (1) up 45% to £63m; RoE (2) of 18.0 % 63 44  Excellent H1 origination, up by 26% to £1.5bn, supports net loan growth of 11% to £6.8bn H1 2015 H1 2016 Net interest margin (%) 3.6% 3.6%  Maintained net interest margin at 3.6% as expected H1 2015 H1 2016  Underlying cost/income ratio (1) further improved Underlying cost income ratio (%) (1) by 8 percentage points to 45% 53 45  Another excellent credit performance; cost of risk stable at 20bps H1 2015 H1 2016 Cost of risk (bps) 20 20  Strong capital position; total capital ratio of 14.0% H1 2015 H1 2016 (1) Excluding impairment of goodwill of £4.1m (pre- and post-tax) in H1 2016 and IPO related costs of £4.1m (pre-tax) and £3.2m (post-tax) in H1 2015 (2) H1 2016 RoE excludes impairment of goodwill of £4.1m (post-tax) and is after payment of AT1 coupon of £6.6m (post-tax) 3

Generating balanced growth across a diversified portfolio Net loans to customers (£bn)  Asset Finance grew by 11% to £1.5bn ‒ Customer numbers increased by 9% to c46,000 ‒ Origination up by 20% to £509m +11% 6.8  SME Commercial Mortgages up 12% to £0.9bn 6.1 +9% 1.5 ‒ 15% growth in customers to c1,800 1.4 ‒ Strong origination growth of 29% to £210m  Buy-to-Let grew by 12% to £2.7bn +12% 2.7 2.4 ‒ Customers numbers up by 9% to c17,000 ‒ Excellent origination of £519m up 74%; reflects market spike ahead of stamp duty changes in April +12% 0.9 0.8 0.2 -3% 0.2  Residential Mortgages up by 9% to £1.5bn 1.5 +11% 1.3 ‒ 8% increase in customers numbers to c11,000 2015 H1 2016 ‒ Origination was robust at £243m although down by 14% compared with H1 2015 Asset Finance Invoice Finance SME Commercial Mortgages Buy-to-Let Residential Mortgages 4

Half year results 2016 Results highlights Performance update Portfolio overview and outlook 5

Continued balance sheet momentum… Commentary 30 June 31 December (£m) 2016 2015 Growth % 1. Net loan growth of 11% to £6.8bn 1 Key balance sheet items 1 − Excellent origination of £1.5bn; up by 26% Net loans 6,799 6,145 11% Cash and investments 875 806 9% − Customer numbers up by 8% to c77,000 Intangible assets 2 22 24 (9%) Fixed and other assets (1) 50 34 45% − Balanced growth across a diversified portfolio Total assets 7,746 7,009 11% Customer deposits (2) 3 6,538 5,742 14% Wholesale funding 4 521 636 (18%) 1. Intangible assets down by 9% 2 Other liabilities 118 97 22% − £4m goodwill impairment reflects current lower Total liabilities 7,177 6,475 11% Ordinary shareholders' equity 5 495 460 8% financial services company valuations AT1 capital 74 74 - Total equity 569 534 7% 1. Deposits up by 14% to £6.5bn 3 Total liabilities and equity 7,746 7,009 11% − SMEs form 23% of deposit base Key ratios 3 Loans to deposits ratio 104% 107% − Loans to deposits ratio of 104% Net loan growth (£bn) 1 654 1,344 Fully loaded CRD IV RWAs 4,281 3,693 1. Wholesale funding of £521m 4 Fully loaded CRD IV CET1 capital 473 436 Fully loaded CRD IV CET1 ratio (3) 11.0% 11.8% − Utilised less wholesale due to growth in deposits Fully loaded CRD IV Leverage ratio (4) 6.9% 7.2% Tangible book value per share (p) (5) 5 137 126 1. 8% growth in shareholder equity driven by profits 5 for the first 6 months − Tangible book value per share of 137p Note: Numbers may not exactly sum / reconcile due to rounding. (3) CET1 ratio = Common equity tier 1 capital / Risk Weighted Assets (RWA) (1) Includes derivatives held for risk management, fair value adjustments for (4) The year end 2015 leverage ratio was restated to 7.2% in the published Pillar 3 disclosures portfolio hedged risk, other assets, prepayments and accrued income, deferred following finalisation of off-balance sheet exposures 6 tax and property, plant and equipment. (5) Tangible book value = Ordinary shareholders’ equity less intangible assets. Outstanding number (2) Includes corporate deposits. of shares as at 31 December 2015 and 30 June 2016 were 344.7m

…drives a 45% increase in underlying profit before tax Commentary (£m) H1 2016 H1 2015 Growth % 1. Net interest income up by 26% to £116m 1 Key P&L items − Driven by balance sheet growth Interest income 176 139 26% − Net interest margin stable at 3.6% Interest expense (60) (47) (27%) 1 Net interest income 116 92 26% 2. Operating income increased by 22% 2 Net fee and other operating income (1) 13 12 5% − Fee income growth driven by mortgage volumes Net derivatives (expense)/ income and (1) 0 (300%) gains on disposal of debt securities (2) 2 Operating income 128 105 22% 2. Tightly controlled cost base 3 3 − Underlying operating expenses up 4% to £58m Underlying operating expenses (58) (56) (4%) IPO related costs – (4) n/a − Underlying cost/income ratio further Impairment of goodwill (4) – n/a improved by 8pts Profit before impairment losses 66 45 47% Impairment losses (6) (5) (23%) 4 2. Rigorous focus on credit quality maintained 4 Profit before tax 59 40 50% − Overall cost of risk stable at 20bps Tax 6 (17) (8) (104%) − Additional level of caution within collective Profit after tax 42 31 35% provision charge as emergence periods extended Underlying profit before tax (3) 5 63 44 45% 2. Underlying PBT up by 45% to £63m 5 Key ratios 1 Net interest margin 3.6% 3.6% Underlying cost/income ratio (4) 3. Tax charge reflects UK bank surcharge and 3 6 45% 53% zero relief on goodwill impairment Cost of risk 4 20bps 20bps Underlying return on equity (3)(5) 7 18.0% 18.6% 4. Underlying return on equity of 18.0% 7 Earnings per share 10.3 p 8.8 p (1) Net fees and other operating income = Fee income + Fee expense + Other (3) Excludes goodwill impairment of £4.1m (pre- and post-tax) in H1 16 and IPO related costs of £4.1m pre- operating income tax (£3.2m post-tax) in H1 2015 (2) Net derivatives (expense)/income and gains on disposal of debt securities = (4) Cost/income ratio = Underlying operating expenses/ Operating income 7 Net income from derivatives and other financial instruments + Gains on (5) Return on Equity = (PAT / average ordinary shareholder equity)*2 less (AT1 coupon paid / average disposal of available for sale debt securities ordinary shareholder equity). Annual AT1 coupon payable in April 2016 of £8.9m pre-tax (£6.6m post-tax) and in April 2015 of £3.5m pre-tax (£2.8m post-tax)

Actively managing portfolio to hold overall gross margin stable Group Asset Finance Invoice Finance 5.4% 5.4% 6.5% 6.2% 4.3% 4.3% 176 44 36 139 4 3 H1 2015 H1 2016 H1 2015 H1 2016 H1 2015 H1 2016 SME Commercial Mortgages Buy-to-Let Residential Mortgages 6.9% 6.9% 5.0% 4.9% 5.1% 5.0% 37 63 30 53 28 21 H1 2015 H1 2016 H1 2015 H1 2016 H1 2015 H1 2016 Interest income (£m) Gross interest margin (%) (1) (1) Gross interest margin = interest income / average net loans 8

Successfully maintained net interest margin at 3.6% Increasingly diversified funding base (£bn) (1)  Deposit-led funding strategy 108% 107% 104% − £6.5bn of customer deposits; up by 14% 7.1 6.4 0.5 − Retail deposits grew by 15% to £4.8bn 0.2 0.6 5.1 0.2 1.5 1.4 0.6 − Now serving c126,000 customers 1.0 4.8 − SME deposits grew by 8% to £1.5bn 4.2 3.4 − Customer numbers grew by 12% to c16,000 2014 2015 H1 2016 Retail deposits SME deposits Corporate deposits Wholesale funding − Corporate deposits now exceed £200m LDR (2) (%) Stable cost of funding (3)  Supported by wholesale funding of £521m − On-balance sheet FLS funding of £323m 2.1% 1.9% 1.9% − RMBS of £156m; reduction since year end reflects capital repayments on underlying mortgages 2014 2015 H1 2016 Cost of funding (%) − Tier 2 debt and other wholesale of £42m Net interest margin (4)  Delivered stable cost of funding of 1.9% 3.6% 3.6% 3.4%  Net interest margin maintained at 3.6% 2014 2015 H1 2016 − In line with management expectations Net interest margin (%) (1) Numbers may not exactly sum / reconcile due to rounding (2) Loans to Deposits Ratio (LDR) = net customer loans / customer deposits 9 (3) Cost of funding = interest expense / average net loans (4) Net interest margin = net interest income / average net loans