REG - CYBG PLCClydesdale Bank PLC - Final Results <Origin Href="QuoteRef">CYBGC.L</Origin> - Part 5
22/11/2016 07:08
- Part 5: For the preceding part double click ID:nRSV7721Pd
based on the non-market and service vesting conditions. The impact of the
revision to original estimates, if any, is recognised in the income statement, with a corresponding adjustment to the
equity based compensation reserve.
CYBG PLC
Notes to the consolidated financial statements (continued)
2. Accounting policies (continued)
Equity
Equity based compensation reserve
The Group's equity based compensation reserve records the value of equity-settled share based payment benefits provided to
the Group's employees as part of their remuneration that has been charged through the income statement adjusted for
deferred tax.
In comparative periods the equity based compensation reserve represented the outstanding fair value amount in respect of
share based payment expense recharged by the Group's former ultimate parent, NAB, which had been charged through the income
statement and adjusted for deferred tax.
At the date of the demerger, current and former employees of the Group held awards granted in previous periods for which
vesting is subject to continuing employment, and in some instances specified performance criteria being met. Following the
demerger, existing unvested awards remain in place. NAB will settle the awards granted to Group employees in previous
periods in accordance with the original terms of the grant. The Group will compensate NAB for the cost of the awards
provided to the Group's employee. Subsequent to the demerger, the amounts payable to NAB in respect of such awards no
longer meet the definition of equity based payments under IFRS 2: Share based payment. Consequently, amounts within the
equity based compensation reserve relating to outstanding NAB awards were reclassified to due to other banks in the
consolidated balance sheet immediately following the demerger.
Cash flow hedge reserve
The cash flow hedge reserve records the effective portion of the fair value revaluation of derivatives designated as cash
flow hedging instruments.
Other equity instruments
Other equity instruments represent AT1 notes. These are perpetual capital notes with no fixed maturity or redemption date
and are classified as equity instruments. Distributions on the AT1 notes are deducted from equity on the payment date net
of any tax relief. The Company has sole and absolute discretion at all times and for any reason to cancel (in whole or in
part) any distribution that would otherwise be payable on any interest payment date.
Combination of businesses under common control
Business combinations involving entities under common control, where all combining entities are ultimately controlled by
the same entity before and after the business combination, are accounted for using the predecessor values method of
accounting. This involves recognising assets and liabilities of the acquired business at the predecessors' book value,
without any change to reflect fair value of those assets and liabilities. Any difference between the cost of acquisition
and the aggregate book value of the assets and liabilities as of the date of the transfer of the acquired entity is
recorded as an adjustment to equity. No additional goodwill is created by the business combination.
Post-acquisition, income received and expenses incurred by the entity or entities acquired are included in the consolidated
income statement on a line by line basis in accordance with the accounting policies set out herein.
A non-controlling interest is recognised by the Group in respect of any portion of the total assets less total liabilities
of an acquired entity or entities that is not owned by the Group.
CYBG PLC
Notes to the consolidated financial statements (continued)
3. Critical accounting estimates and judgements
The preparation of financial statements requires the use of certain critical accounting estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses and the disclosed amount of contingent
liabilities. Assumptions made at each balance sheet date are based on best estimates at that date. Although the Group has
internal control systems in place to ensure that estimates can be reliably measured, actual amounts may differ from those
estimates. The most significant use of judgements and estimates are as follows:
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded on the balance sheet cannot be derived from
active markets, they are determined using a variety of valuation techniques that include the use of mathematical models.
The inputs to these models are derived from observable market data where possible, but where observable market data is not
available, judgement is required to establish fair values. The judgements include considerations of liquidity and model
inputs.
The most significant judgement is in relation to the Group's fair value loan portfolio. The most significant input
impacting the carrying value of the loans other than interest rates is the future expectation of credit losses.
Sensitivity analysis indicating the impact of reasonably possible changes in this input on the fair value is included
within note 37.
The valuation of these financial instruments is described in more detail in note 14.
Impairment losses on loans and advances
The Group reviews its individually significant loans and advances at each balance sheet date to assess whether an
impairment loss should be recorded in the income statement. In particular, judgement is required in the estimation of the
amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Group
makes judgements about the borrower's financial situation and the net realisable value of collateral. These estimates are
based on assumptions about a number of factors and actual results may differ, resulting in future changes to the impairment
allowance.
Loans and advances that have been assessed individually and found not to be impaired and all not individually significant
loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine
whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are
not yet evident. The collective assessment takes account of data from the loan portfolio (such as credit quality, levels
of arrears, credit utilisation, loan to collateral ratios etc.), concentrations of risk and economic data (including levels
of unemployment and real estate price indices). If the PDs were to improve from those presently used within the Group's
provisioning models by 5% the impairment provision on loans and advances would decrease by £5m. Alternatively, if PDs
deteriorate by 5%, the impairment provision on loans and advances would increase by £5m. To the extent that recovery rates
improve from those presently used within each of the Group's provisioning models by 5%, the impairment provision on loans
and advances would decrease by £12m. Alternatively, if recovery rates deteriorate by 5%, the impairment provision on loans
and advances would increase by £22m. There are interactions between the various assumptions within the provisioning
models, which mean that no single factor is likely to move independent of others; however, the sensitivities disclosed
above assume all other assumptions remain unchanged.
The impairment loss on loans and advances is disclosed in more detail in note 17 and in the Risk Report section of the
Annual Report and Accounts.
CYBG PLC
Notes to the consolidated financial statements (continued)
3. Critical accounting estimates and judgements (continued)
PPI redress provision and other conduct related matters
Disclosures in relation to the Group's PPI redress provision can be found in note 27 with the Group holding a provision of
£725m at 30 September 2016 (2015: £774m). Significant judgement is required in determining the key assumptions used to
estimate the quantum of the provision, including the level of complaint volume, (both historic and estimated future
complaint volumes), uphold rates (how many claims are, or may be, upheld in the customer's favour) and redress costs (the
average payment made to customers). Also factored into the estimate is the effect of the past business review and the
judgements required around customer mailing response rates. The provision is therefore subject to inherent uncertainties
as a result of the subjective nature of the assumptions used in quantifying the overall estimated position at 30 September
2016. Consequently, the provision calculated may be subject to change in future years as a result of the emergence of new
trends in relation to the judgements and assumptions which differ to those currently used. Sensitivity analysis indicating
the impact of reasonably possible changes in key assumptions on the PPI provision is included within note 27.
There are similar uncertainties and judgements for other conduct risk related matters, including the Group's IRHP
provision, disclosed in note 27, however, the level of liability is materially lower.
Retirement benefit obligations
The cost of the defined benefit pension plan is determined using an actuarial valuation. The actuarial valuation involves
making assumptions about discount rates, future salary increases, mortality rates and future pension increases. Due to the
long term nature of these plans, such estimates are subject to significant uncertainty. Further details on the assumptions
used and sensitivity analysis on the key assumptions are provided in note 29.
Carrying value of investments
In accordance with the requirements of IAS 36, an impairment test was performed on the carrying value of the Company's
investment in Clydesdale Bank PLC at the Group's standard annual impairment test date in September 2016. The results of
this test did not indicate any impairment in the carrying value of Clydesdale Bank PLC.
The key assumptions and sensitivities involved in these calculations are discussed further in note 42 of the Company
financial statements.
Deferred tax assets
Disclosures in relation to the Group's deferred tax assets of £183m (2015: £389m) can be found in note 23. The reduction
of £206m principally reflects the impact of changes in legislation restricting the use of certain historic losses to 25% of
future profits and the change in future tax rates, coupled with management's decision to reduce its horizon for recognition
of losses reflecting the uncertainty inherent in the taxation of banks. The Group has assessed the recoverability of these
deferred tax assets at 30 September 2016 and considers it probable that sufficient future taxable profits will be available
against which the underlying deductible temporary differences can be utilised. The Group has made this assessment with
reference to the latest available profit forecasts. The tax losses carried forward have been assessed for recoverability
against the Group's forecasts which include adjustments for future strategic changes, the future economic outlook and
regulatory change. Current UK tax legislation does not specify a maximum forecast horizon to utilise losses; the Group
expects the assets remaining on its balance sheet to be recovered over a horizon consistent with the Group's current
corporate planning period which is deemed to be the reasonably forseeable future in light of the uncertainty surrounding
the taxation of banking groups.
CYBG PLC
Notes to the consolidated financial statements (continued)
4. Segment information
The Group's operating segments are operating units engaged in providing different products or services and whose operating
results and overall performance are regularly reviewed by the Group's Chief Operating Decision Maker, the Chief Executive
Officer.
The Group's business is organised into two principal operating segments: SME Banking and Retail Banking. The Central
Functions of the Group consist of: Finance, Risk Management, Chief Operating Office, Corporate Development and Stakeholder
Engagement, CEO Office Support, Products, Propositions & Marketing, Internal Audit, and Human Resources.
'Other' reflects elements of income and expenditure that are not recharged to the Group's two principal operating segments
such as conduct related provisions, impairment of intangibles and restructuring costs.
SME Banking
The Group's established regional SME franchise offers a full range of banking products and services to meet business
customers' banking needs across its small business, commercial and specialist and acquisition finance segments.
The Group's SME franchise is comprised of small businesses (which the Group defines as businesses with lending of up to
£0.5m but less than £2.0m in turnover) and commercial businesses (which the Group defines as businesses with lending of
more than £0.5m and greater than £2.0m in turnover). Across all business segments, the Group provides working capital
solutions through asset finance, invoice finance, international trade, merchant acquiring and treasury services.
The Group offers a full range of lending products and services across a portfolio consisting of term lending, overdrafts
and working capital solutions through its SME franchise:
· Term lending: the Group offers a wide variety of term loans, both secured and unsecured, and offers customers a range
of repayment and interest rate options. The majority of the Group's business term lending is LIBOR based.
· Overdrafts: business overdrafts are the primary type of revolving variable rate credit facility offered by the Group
to business customers.
· Invoice finance: the Group advances funds against the customer's trade receivables.
· Asset finance: these products provide a method of financing capital equipment purchases.
· International trade services: these products facilitate transactions between a buyer and seller located in different
countries. The Group offers import loans, export loans, documentary collections and currency guarantees, together with
letters of credit for securing trade.
· BCAs: the Group provides business customers day to day banking, current account facilities (including debit cards,
cheque books, regular statements, direct debits and standing orders), online banking and overdraft facilities.
CYBG PLC
Notes to the consolidated financial statements (continued)
4. Segment information (continued)
Retail Banking
The Group has a comprehensive regional and national retail banking product proposition with a personal deposit portfolio
comprising of PCAs, savings accounts and term deposits. The Group's retail loan portfolio comprises of mortgages, personal
loans, credit cards and overdrafts:
· PCA: a stable source of funding with a large number of PCA customers having a tenure with the Group of more than ten
years.
· Savings accounts: the Group offers a variety of savings accounts that pay a variable rate of interest. It also
offers cash ISAs that offer depositors tax free returns.
· Term deposits (sometimes referred to as 'fixed rate savings accounts' or 'time deposits'): offer a fixed interest
rate for a fixed term.
· Mortgages: the Group provides mortgage loans on a capital repayment basis, where the loan is required to be repaid
during its life, and on an interest-only basis, where the customer pays interest during the term of the mortgage loan with
the principal balance required to be repaid in full at maturity. The Group offers both owner-occupied mortgage loans
(pursuant to which the borrower is the owner and occupier of the mortgaged property) and BTL loans (pursuant to which the
borrower intends to let the mortgaged property).
· Personal loans: the Group provides unsecured personal loans through its branch network and through its digital and
telephone distribution channels.
· Credit cards: the Group currently offers three credit card products, Private MasterCard, Business MasterCard and
Gold MasterCard.
· Overdrafts: the Group provides overdraft lending across a variety of PCA products, subject to the account holder's
status.
Major customers
Revenues from no one single customer amount to greater than 10% of the Group's revenues.
Geographical areas
The Group has no operations outside the UK and therefore no secondary geographical area information is presented.
Operating segments SME Retail Central
2016 Banking Banking Functions Other Total
£m £m £m £m £m
Net interest income 285 472 49 - 806
Non-interest income 77 77 29 8 191
──────── ──────── ──────── ──────── ────────
Operating income 362 549 78 8 997
Operating and administrative expenses (70) (119) (540) (152) (881)
Impairment losses on credit exposures (1) (30) (9) - - (39)
──────── ──────── ──────── ──────── ────────
Segment operating profit/(loss) before tax 262 421 (462) (144) 77
════════ ════════ ════════ ════════ ════════
Average interest earning assets 10,406 (2) 19,049 6,802 - 36,257
════════ ════════ ════════ ════════ ════════
(1) (2) The impairment losses on credit exposures of £9m (2015: £33m) for Retail Banking includes losses on certain retail products attributable to SME (private banking) customers. Average interest earning assets for SME Banking include £3.3bn (2015: £3.3bn) of mortgages originated by private banking.
CYBG PLC
Notes to the consolidated financial statements (continued)
4. Segment information (continued)
Operating segments SME Retail Central
2015 Banking Banking Functions Other Total
£m £m £m £m £m
Net interest income 274 461 52 - 787
Non-interest income 77 94 6 63 240
──────── ──────── ──────── ──────── ────────
Operating income 351 555 58 63 1,027
Operating and administrative expenses (82) (116) (529) (507) (1,234)
Impairment losses on credit exposures (45) (33) - - (78)
──────── ──────── ──────── ──────── ────────
Segment operating profit/(loss) before tax 224 406 (471) (444) (285)
════════ ════════ ════════ ════════ ════════
Average interest earning assets 10,908 (2) 17,400 7,472 - 35,780
════════ ════════ ════════ ════════ ════════
The components of the 'Other' segment are £1m for gains on capital and debt restructure (2015: £63m), £7m gain on available
for sale asset disposal (2015: £Nil) through non-interest income. Operating and administrative expenses include £44m for
PPI redress expense (2015: £390m), £Nil for PPI handling fine (2015: £21m), £Nil for IRHP redress expense (2015: £75m),
other conduct expenses £7m (2015: £Nil), £45m for restructuring expenses (2015: £17m), £11m for separation costs (2015:
£10m), £Nil for pension increase exchange result (2015: £18m), £45m of Impairment of intangible assets (2015: £10m), £Nil
for loss on capital restructure (2015: £2m).
5. Net interest income
2016 2015
£m £m
Interest income and similar income
Loans and advances to other banks 22 28
Financial assets available for sale 11 8
Loans and advances to customers 1,037 1,033
Financial assets at fair value through profit or loss 27 37
Due from related entities (note 12) 1 3
Other interest income 3 1
──────── ────────
Total interest income and similar income 1,101 1,110
Less: interest expense and similar charges
Due to other banks 8 5
Financial liabilities at fair value through profit or loss 1 1
Due to customers 188 195
Debt securities in issue 87 82
Due to related entities (note 12) 11 40
──────── ────────
Total interest expense and similar charges 295 323
──────── ────────
Net interest income 806 787
════════ ════════
CYBG PLC
Notes to the consolidated financial statements (continued)
6. Non-interest income
2016 2015
£m £m
Gains less losses on financial instruments at fair value
Interest rate derivatives 3 29
Other assets and liabilities at fair value 7 (29)
Ineffectiveness arising from fair value hedges (note 15) - 1
Ineffectiveness arising from cash flow hedges (note 15) (1) 1
──────── ────────
9 2
Other operating income
Fees and commission 151 144
Margin on foreign exchange derivative brokerage 19 19
Gains on disposal of available for sale financial assets 8 -
Net fair value movement on investment properties (1) (1)
Other income 5 76
──────── ────────
182 238
──────── ────────
Total non-interest income 191 240
════════ ════════
Gains less losses on financial instruments at fair value incorporates valuation movements for certain financial assets
which are designated at inception as fair value through profit or loss. These assets are predominantly fixed interest rate
loans and movements in fair value are recognised in the income statement as part of non-interest income. The fair value of
these loans is derived from the future loan cash flows using appropriate discount rates and includes adjustments for credit
risk and credit losses. In general, as interest rates fall, the fair value of the loan portfolio increases. Conversely,
as interest rates rise, the fair value of the loan portfolio decreases. Similarly, if credit spreads widen, the fair value
of these loans will decrease, and vice versa. A credit risk gain on fair value loans and associated liabilities of £11m,
offset by a fair value loss of £4m, has been recognised in the current period (2015: £18m and £47m, respectively). The
valuation technique used is reflective of current market practice.
In the year ended 30 September 2016 fees and commission income includes an additional £13m of income as a result of the
acquisition of CYB Intermediaries Limited on 30 September 2015.
In the year ended 30 September 2016 other income includes a gain of £1m (2015: £2m) on early repurchase of medium term
subordinated debt (note 28 and 12) and a gain of £Nil (2015: £61m) arising on capital restructures. A loss of £Nil arising
on a capital restructure is included in related entity charges (notes 7 and 12) (2015: £2m).
On 2 November 2015 Visa Inc. announced the proposed acquisition of Visa Europe Limited ('Visa Europe') which was completed
on 21 June 2016. The Group was a principal member and shareholder of Visa Europe and in exchange for its share received a
combination of cash and preferred stock. Following the acquisition announcement, the fair value of the Group's share in
Visa Europe was increased by £7m, with a corresponding increase in the Group's available for sale reserve. The fair value
gain recognised within the available for sale reserve was recycled to the income statement on completion of the sale and is
included within 'gains on disposal of available for sale financial assets' above.
In December 2014, £650m of Tier 2 subordinated debt issued was redeemed. These instruments would have become progressively
ineligible for Tier 2 treatment under CRD IV's transitional rules from 1 January 2015 as well as being impacted by the
introduction of a 25% capital limit under Pillar 2A. These instruments were replaced by an issue of £350m of ordinary
shares and an issue of AT1 capital instruments of £150m. As a result of the redemptions, the prior year results include
gains of £61m in other income arising on capital restructures and a further gain of £2m on early redemption of medium term
funding on 30 September 2015, resulting in total gains in the year to 30 September 2015 of £63m.
CYBG PLC
Notes to the consolidated financial statements (continued)
7. Operating and administrative expenses
2016 2015
£m £m
Personnel expenses
Salaries, wages and non-cash benefits 184 175
Related personnel expenses 27 22
Defined contribution pension expense 20 16
Defined benefit pension expense 28 11
Equity based compensation 5 7
Other personnel expenses 16 35
──────── ────────
280 266
Restructuring
Restructuring expense 45 17
Depreciation and amortisation expense
Depreciation of property, plant and equipment (note 19) 25 26
Amortisation of intangible assets (note 22) 63 57
──────── ────────
88 83
Other operating and administrative expenses
Operating lease charges 30 32
Other occupancy charges 39 38
Related entity charges (note 12) 5 20
Impairment losses on software (note 22) 45 10
PPI redress expense (note 27) 44 390
Other conduct expenses (note 27) 7 75
Other operating and administrative expenses 298 303
──────── ────────
468 868
──────── ────────
Total operating and administrative expenses 881 1,234
════════ ════════
Related entity charges includes a loss on capital restructuring of £Nil (2015: £2m) (note 12).
During the year ended 30 September 2015, the Group's defined benefit pension plan arrangements were amended to offer
certain members the option to participate in a pension increase exchange upon retirement. After taking independent
financial advice the member can elect to take a higher rate of pension upon retirement in exchange for waiving their right
to future inflation based increases. Accounting for this change resulted in a credit to the income statement of £18m in
2015, resulting in a reduction in the defined benefit pension expense for that year. Separation costs of £11m and £Nil
(2015: £8m and £2m) are included within other operating and administrative expenses and personnel expenses respectively.
Auditor's remuneration
2016 2015
Included within other operating and administrative expenses: £'000 £'000
Fees payable to the company's auditor for the audit of the company's financial statements 20 242
Fees payable to the company's auditor for the audit of the company's subsidiaries 1,387 858
──────── ────────
Total audit fees 1,407 1,100
Audit related assurance services 180 337
Other assurance services 35 1,926
──────── ────────
Total non-audit fees 215 2,263
Fees payable to the company's auditor in respect of associated pension schemes 75 75
──────── ────────
Total fees payable to the company's auditor 1,697 3,438
════════ ════════
Included within other assurance is £Nil in respect of assurance work related to the demerger and IPO (2015: £1,926k) which
has been paid by NAB. The movement in audit fees from 2015 to 2016 primarily relates to the demerger and changes in the
Group structure.
CYBG PLC
Notes to the consolidated financial statements (continued)
8. Taxation
2016 2015
Current tax £m £m
UK Corporation tax
Current year 12 2
Adjustment in respect of prior years (3) (21)
──────── ────────
9 (19)
Deferred tax (note 23)
Current year 236 (43)
Adjustment in respect of prior years (4) 6
──────── ────────
232 (37)
──────── ────────
Tax expense/(credit) for the year 241 (56)
════════ ════════
The tax assessed for the year differs from that arising from applying the standard rate of corporation tax in the UK. A
reconciliation from the expense/(credit) implied by the standard rate to the actual tax expense/(credit) is as follows:
2016 2015
£m £m
Profit/(loss) on ordinary activities before tax 77 (285)
════════ ════════
Tax expense/(credit) based on the standard rate of Corporation Tax in the UK of 20% (2015: 20.5%) 15 (58)
──────── ────────
Effects of:
Disallowable expenses 8 8
Conduct indemnity adjustment (1) -
Non-deductible FCA fine - 4
Regulatory capital and debt restructure - (12)
Deferred tax assets derecognised (note 23) 237 16
Impact of rate changes (11) 1
Adjustments in respect of prior years (7) (15)
──────── ────────
Tax expense/(credit) for the year 241 (56)
════════ ════════
Comparative disclosures have been amended to conform with the current period's presentation as detailed in note 1.
Finance Act (No2) 2015 introduced the Bank Surcharge for the banking entity within the Group from 1 January 2016, being an
8% charge on taxable profits above £25m before the offset of brought forward losses or group relief. There are no such
taxable profits in the underlying banking entity and accordingly no surcharge liability arises.
The 'Conduct indemnity adjustment' represents the receipt from the Group's former parent less refunds attributable in
accordance with the indemnity agreement (note 27).
The impact of the corporation tax rate change, restriction on loss utilisation, and the impact of management's concurrent
reassessment of the recoverability of deferred tax assets, is discussed in note 23 Deferred Tax.
9. Distributions paid
2016 2015
£m £m
AT1 distribution paid 35 18
════════ ════════
CYBG PLC
Notes to the consolidated financial statements (continued)
10. Earnings per share
The Group presents basic and diluted loss per share data in relation to the ordinary shares of CYBG PLC.
2016 2015
£m £m
Loss attributable to ordinary shareholders (206) (247)
Tax relief on AT1 distribution attributable to ordinary equity holders (note 1) 7 4
Tax relief on loss on repurchase of CYBI AT1 issued to NAB 1 -
──────── ────────
Loss attributable to ordinary equity holders for the purposes of basic and diluted EPS (198) (243)
──────── ────────
2016 2015
Number of Number of
shares shares
(million) (million)
Weighted-average number of ordinary shares in issue
- Basic 880 846
- Diluted 881 846
──────── ────────
Basic loss per share (pence) (22.5) (28.7)
════════ ════════
Diluted loss per share (pence) (22.4) (28.7)
════════ ════════
The numbers of shares used for calculating the earnings per share are those of CYBG PLC. The number of CYBI shares in the
comparative periods have been converted into the equivalent number of CYBG PLC shares to reflect the corporate
reorganisation on 8 February 2016 (note 1).
11. Cash and balances with central banks
2016 2015
£m £m
Cash assets 1,313 1,452
Balances with central banks (including EU payment systems) 4,642 4,979
──────── ────────
5,955 6,431
Less mandatory deposits with central banks (1) (43) (44)
──────── ────────
Included in cash and cash equivalents (note 34) 5,912 6,387
════════ ════════
(1) Mandatory deposits are not available for use in the Group's day to day business and are non-interest bearing.
12. Related party transactions
As explained in note 1, on 8 February 2016, CYBG PLC became the new holding company for the CYBI Group by way of a share
for share exchange and was listed on the London Stock Exchange. Following the demerger and completion of the IPO, NAB no
longer controls, jointly controls or has significant influence over the Company or its subsidiaries. Consequently, there
is no related party relationship between NAB and the Company or its subsidiaries following the demerger date. As a result,
amounts due to and due from NAB and its controlled entities have been reclassified from 8 February 2016, as explained
below.
As the related party relationship ceased between the Group and NAB at the date of the demerger, only those transactions
with NAB taking place up to the demerger date are reported herein as related party transactions. The comparative financial
information has not been restated.
CYBG PLC
Notes to the consolidated financial statements (continued)
12. Related party transactions (continued)
During the period there have been transactions between the Group, NAB, controlled entities of NAB, controlled entities of
the Group, and other related parties. Any transactions with NAB subsequent to the demerger are not included in the
disclosures below.
The Group provides a range of services to NAB and controlled entities of NAB, including the provision of banking
facilities, granting loans and accepting deposits.
The Group receives a range of services from NAB and its related parties, including loans and deposits, foreign exchange and
various technical and administrative services.
Subsequent to the date of the demerger, these are governed by TSAs and Reverse TSAs.
2016 2015
£m £m
Amounts due from NAB Group
Loans - 673
Other receivables - 113
──────── ────────
- 786
════════ ════════
The interest income on the amounts due from NAB was £1m to 8 February 2016 (2015: £3m) (note 5).
2016 2015
£m £m
Amounts due to NAB Group
Deposits - 125
RMBS - 382
Subordinated debt - 478
Other payables - 13
──────── ────────
- 998
════════ ════════
The interest expense on the amounts due to NAB was £11m to 8 February 2016 (2015: £40m) (note 5).
On 30 September 2015, the Group redeemed £429m of medium term notes with NAB early, resulting in a gain of £2m. The gain
is included within other income (note 6) along with other capital restructuring gains of £61m.
On 8 February 2016, amounts due from NAB were reclassified as amounts due from other banks. Deposits and Other payables
previously classified within Amounts due to NAB were reclassified as amounts due to other banks. The comparative financial
information has not been restated.
Derivatives
The following derivative positions were held with NAB:
2016 2015
£m £m
Derivative financial assets
Designated as hedging instruments - 86
Designated as held for training - 60
──────── ────────
- 146
════════ ════════
Derivative financial liabilities
Designated as hedging instruments - 173
Designated as held for trading - 263
──────── ────────
- 436
════════ ════════
On 8 February 2016 derivative positions with NAB were reclassified as positions with third parties.
CYBG PLC
Notes to the consolidated financial statements (continued)
12. Related party transactions (continued)
Subordinated debt
Subordinated debt comprises loan capital. Prior to the demerger, the subordinated debt was included within amounts due to
related entities on the balance sheet. Subordinated debt outstanding at 30 September 2016 is included in debt securities
in issue (note 28). The comparative financial information has not been restated.
Interest on the debt is payable at fixed rates, is subordinated to the claims of other creditors and is unsecured. The debt
is employed in the general business of the Group.
On 8 February 2016, the Group repurchased £475m of subordinated debt from NAB at a market value of £474m, resulting in a
gain on debt restructure of £1m included within other income (note 6). The replacement notes issued on 8 February 2016 are
disclosed in note 28.
The rates of interest stated below applied to the Notes prior to their repayment on 8 February.
2016 2016 2015
£m £m
10-year, non-call with a final maturity of 20 December 2023 - LIBOR +3.41% - 300
10-year, non-call with a final maturity of 25 January 2021 - LIBOR + 4.42% - 175
──────── ────────
- 475
Accrued interest payable - 3
──────── ────────
Total subordinated debt - 478
════════ ════════
On 29 December 2014, the Group repaid £232m of subordinated debt to NAB at a market value of £206m, resulting in a gain on
capital restructure of £26m included within other income. A further £343m was repaid to National Equities Limited at a
market value of £308m, resulting in a gain of £35m. The combined gain on capital restructures of £61m is reflected in note
6. The Group also repaid £75m subordinated debt to NAB at a market value of £77m, resulting in a loss on capital
restructure of £2m included within other operating and administrative expenses (note 7).
Securitisation
The Group has securitised part of its residential and BTL mortgage portfolio. The cash raised from the issue of RMBS
through structured entities forms part of the Group's medium term funding. A portfolio of BTL mortgages has been
securitised through the Lannraig Master Trust Issuer programme and a total of £352m (2015: £382m) of the securities issued
are held by NAB, which is no longer a related party. Following the demerger, these notes are included within debt
securities in issue (note 28). The comparative financial information has not been restated.
Other transactions with NAB group 2016 2015
£m £m
Gain on repurchase of subordinated debt 1 63
──────── ────────
Non-interest income received - 10
──────── ────────
Other operating and administrative expenses (note 7) 5 20
──────── ────────
CYBG PLC
Notes to the consolidated financial statements (continued)
12. Related party transactions (continued)
Compensation of key management personnel (KMP)
During the year, the Group has reviewed and updated its definition of KMPs for the purposes of IAS 24 (Related Party
Disclosures). KMP comprises directors of the Bank and members of the Executive Leadership Team. The 2015 comparative figure
has been amended to conform with this revised definition.
2016 2015
£m £m
Salaries and short term benefits 8 6
Other long term employee benefits 1 -
Termination benefits 2 2
Equity based compensation (1) 4 2
──────── ────────
15 10
════════ ════════
(1) Basis of the expense recognised in the period in accordance with IFRS 2; equity based compensations, including
associated employers NIC.
The following information regarding Directors' remuneration is presented in accordance with the Companies Act 2006.
Directors' remuneration figures for 2015 have been included for comparative purposes. These reflect the remuneration
received by the Directors, as Directors of CYBI and CB PLC during 2015.
2016 2015
£m £m
Aggregate remuneration 6 3
Long term incentive plans - -
──────── ────────
6 3
════════ ════════
None of the Directors were members of the Group's defined contribution pension scheme during 2016 (2015: nil). One of the
Directors was a member of the Group's defined benefit pension scheme during 2016 (2015: one). None of the Directors hold
share options and none were exercised during the year (2015: nil).
Transactions with KMP
KMPs, their close family members and any entities controlled or significantly influenced by the KMPs have undertaken the
following transactions with the Group in the normal course of business. The transactions were made on the same terms and
conditions as applicable to other Group employees, or on normal commercial terms.
2016 2015
£m £m
Loans and advances 8 11
════════ ════════
Deposits 3 1
════════ ════════
No provisions have been recognised in respect of loans provided to KMPs (2015: £Nil). There were no debts written off or
forgiven during the year to 30 September 2016 (2015: £Nil). Included in the above are six (2015: ten) loans totalling
£7.4m (2015: £9.5m) made to directors. In addition to the above, there are guarantees of £0.4m (2015: £0.4m) made to
directors and their related parties.
Other related party transactions
The Group incurred costs in relation to pension scheme administration. These costs, which amounted to £0.5m in the year
ended 30 September 2016 (2015: £0.6m), were charged to the Group sponsored scheme. The Group has deposits of £31.7m (2015:
£2.1m) at the year end placed by the Scheme at market rates.
Pension contributions of £84m (2015: £51m) were made during the year to the Yorkshire and Clydesdale Bank Pension Scheme
sponsored by the Group (note 29). The Group also has a £Nil (2015: £3m) term deposit balance due to the Group's associated
entity (note 21) on normal commercial terms. The balance is disclosed within due to customers (note 26).
CYBG PLC
Notes to the consolidated financial statements (continued)
13. Financial assets available for sale
2016 2015
£m £m
Listed securities 1,695 1,447
Unlisted securities 29 8
Other financial assets 7 7
──────── ────────
1,731 1,462
════════ ════════
Listed Securities
Included in the available for sale (AFS) listed securities are £1,286m (2015: £1,274m) in UK Government Gilts.
Unlisted securities
These consist of unquoted equity and debt instruments, primarily:
VocaLink Holdings Limited ("VocaLink")
On 21 July 2016, MasterCard announced that it has entered into a definitive agreement to acquire 92.4% of VocaLink for
consideration of £700m with an additional earn out of £169m based on attainment of certain performance targets. The
allocation of earn out between equity holders varies depending on the exit option chosen. The transaction is subject to
regulatory approvals and the completion date is uncertain. VocaLink is an unquoted company which operates the BACS and
direct debit schemes in the UK as well as connecting ATMs using the LINK network.
- More to follow, for following part double click ID:nRSV7721PfRecent news on Aucyber
See all newsREG - CYBG PLC Clydesdale Bank PLC - Director/PDMR Shareholding <Origin Href="QuoteRef">CYBGC.L</Origin>
AnnouncementREG - CYBG PLC Clydesdale Bank PLC - Total Voting Rights <Origin Href="QuoteRef">CYBGC.L</Origin>
AnnouncementREG - CYBG PLC Clydesdale Bank PLC - Director/PDMR Shareholding <Origin Href="QuoteRef">CYBGC.L</Origin>
AnnouncementREG - CYBG PLC Clydesdale Bank PLC - Director/PDMR Shareholding <Origin Href="QuoteRef">CYBGC.L</Origin>
AnnouncementREG - CYBG PLC Clydesdale Bank PLC - Pillar 3 Disclosures <Origin Href="QuoteRef">CYBGC.L</Origin>
Announcement