REG - CYBG PLCClydesdale Bank PLC - Final Results <Origin Href="QuoteRef">CYBGC.L</Origin> - Part 5
21/11/2017 07:06
- Part 5: For the preceding part double click ID:nRSU0461Xd
liability experience adjustments 76 51
Actuarial gain/(loss) due to liability assumption changes 185 (1,021)
Actuarial gain due to demographic assumption changes 88 -
Return on Scheme assets (less)/greater than discount rate (195) 791
Cumulative actuarial losses recognised in the statement of comprehensive income (695) (849)
Actuarial assumptions
2017% p.a. 2016% p.a.
Financial assumptions
Discount rate 2.74 2.38
Inflation (RPI) 3.24 3.02
Inflation (CPI) 2.24 2.02
Career average revalued earnings (CARE) revaluations:
Pre 31 March 2012 benefits (RPI) 3.24 3.02
Post 31 March 2012 benefits (CPI capped at 5% per annum) 2.24 2.02
Pension increases (capped at 2.5% per annum) 2.12 2.05
Pension increases (capped at 5% per annum) 3.10 2.94
Rate of increase for pensions in deferment 2.24 2.02
Demographic assumptionsPost-retirement mortality: 2017years 2016years
Current pensioners at 60 - male 28.2 27.7
Current pensioners at 60 - female 29.7 29.6
Future pensioners at 60 - male 29.3 29.2
Future pensioners at 60 - female 30.9 31.1
Financial statements
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.16 Retirement benefit obligations continued
Critical accounting estimates and judgementsThe value of the Group's defined benefit pension scheme requires management to make several assumptions. The key areas of estimation uncertainty are:· The discount rate applied. The discount rate is required to be set with reference to market yields at the end of the reporting period on high quality corporate bonds in the currency and with a term consistent with the Scheme's obligations. The average duration of the Scheme's obligations is approximately 20
years. The market for bonds with a similar duration is illiquid and, as a result, significant management judgement is required to determine an appropriate yield curve on which to base the discount rate. · Inflation assumptions. Inflation is set with reference to market expectations of the RPI measure of inflation for a term consistent with the Scheme's obligations, based on data published by the BoE. Other measures of inflation (such as CPI, or inflation measures subject to an annual cap) are derived
from this assumption.· Mortality assumptions. The cost of the benefits payable by the Scheme will also depend upon the life expectancy of the members. The assumptions for mortality rates are based on standard mortality tables which allow for future improvements in life expectancies.The table below sets out the sensitivity of the defined benefit obligation and pension cost to realistic changes in the key actuarial assumptions: Assumption change Impact on definedbenefit obligation £m Impact onpensioncost
£m Discount rate +0.25% (186) (6) -0.25% 199 6 Inflation +0.25% 140 4 -0.25% (135) 4 Life expectancy +1 year 136 4 -1 year (139) (4) The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, changes in some of the assumptions may be correlated.
Impact on definedbenefit obligation £m Impact onpensioncost £m
Discount rate
+0.25% (186) (6)
-0.25% 199 6
Inflation
+0.25% 140 4
-0.25% (135) 4
Life expectancy
+1 year 136 4
-1 year (139) (4)
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In
practice, changes in some of the assumptions may be correlated.
The discounted mean term of the defined benefit obligation at 30 September 2017 is 20 years (2016: 22 years). The expected
contributions for the year ending 30 September 2018 are £33m (2017: £Nil) and expected benefit payments for the year ending
30 September 2018 are £100m (2017: £85m).
During the current year, the Group and Trustee entered into a contingent security arrangement (the 'Security Arrangement')
(note 5.3).
3.17 Other liabilities
2017 £m 2016 £m
Notes in circulation 2,197 1,912
Accruals and deferred income 163 152
Other 111 146
2,471 2,210
Financial statements
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.18 Fair value of financial instruments
Accounting policyFair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants at the valuation date.When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument. Where no such active market exists for the particular asset or liability, the Group uses a valuation technique to arrive at the fair value, including the use of transaction prices obtained in
recent arm's length transactions where possible, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. In doing so, fair value is estimated using a valuation technique that makes maximum possible use of market inputs and that places minimal possible reliance upon entity-specific inputs.The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, which represents the fair value of the
consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Group recognises profits or losses on the transaction date.In certain limited circumstances the Group applies the fair value measurement option to financial assets
including loans and advances where the inherent market risks (principally interest rate and option risk) are individually hedged using appropriate interest rate derivatives. The loan is designated as being carried at fair value through profit or loss to offset the movements in the fair value of the derivative within the income statement and therefore avoid accounting mismatch. When a loan is held at fair value, a statistical based calculation is used to estimate expected losses attributable to adverse
movements in credit risk on the assets held. This adjustment to the credit quality of the asset is then applied to the carrying amount of the loan to arrive at fair value and recognised in the income statement.
Analysis of the fair value disclosures uses a hierarchy that reflects the significance of inputs used in measuring fair
value. The level in the fair value hierarchy within which a fair value measurement is categorised is determined on the
basis of the lowest level input that is significant to the fair value measurement in its entirety. The fair value hierarchy
is as follows:
· Level 1 fair value measurements - quoted prices (unadjusted) in active markets for an identical financial asset or
liability;
· Level 2 fair value measurements - inputs other than quoted prices within Level 1 that are observable for the
financial asset or liability, either directly (as prices) or indirectly (derived from prices); and
· Level 3 fair value measurements - inputs for the financial asset or liability that are not based on observable
market data (unobservable inputs).
For the purpose of reporting movements between levels of the fair value hierarchy, transfers are recognised at the
beginning of the reporting period in which they occur.
(a) Fair value of financial instruments recognised on the balance sheet at amortised cost
The tables overleaf show a comparison of the carrying amounts of financial assets and liabilities measured at amortised
cost, as reported on the balance sheet, and their fair values where these are not approximately equal.
There are various limitations inherent in this fair value disclosure particularly where prices are derived from
unobservable inputs due to some financial instruments not being traded in an active market. The methodologies and
assumptions used in the fair value estimates are therefore described in the notes to the tables. The difference between
carrying value and fair value is relevant in a trading environment, but is not relevant to assets such as loans and
advances.
Financial statements
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.18 Fair value of financial instruments continued
30 September 2017 30 September 2016
Carryingvalue £m Fairvalue £m Fair value measurement using: Carryingvalue £m Fairvalue £m Fair value measurement using:
Level 1 £m Level 2 £m Level 3 £m Level 1 £m Level 2 £m Level 3 £m
Financial assets
Loans and advances to customers 31,293 31,088 - 1,009 30,079 29,202 29,298 - 1,076 28,222
Financial liabilities
Due to customers 27,718 27,833 - 27,833 - 27,090 27,114 - 27,114 -
Debt securities in issue 4,785 4,910 795 4,115 - 4,501 4,592 459 4,133 -
The Group's fair values disclosed for financial instruments at amortised cost are based on the following methodologies and
assumptions:
(a) Loans and advances to customers - The fair values of loans and advances are determined by firstly segregating them into
portfolios of similar characteristics. Contractual cash flows are then adjusted for expected credit losses and expectations
of customer behaviour based on observed historic data. The cash flows are then discounted using current market rates for
instruments of similar terms and maturity to arrive at an estimate of their fair value. Certain variable rate loan
portfolios are discounted using market rates on similar loans offered by the Group at the valuation date.
(b) Due to customers - The fair value of deposits is determined from a discounted cash flow model using current market
rates for instruments of similar terms and maturity.
(c) Debt securities in issue - The fair value is taken directly from quoted market prices where available or determined
from a discounted cash flow model using current market rates for instruments of similar terms and maturity.
(b) Fair value of financial instruments recognised on the balance sheet at fair value
The following tables provide an analysis of financial instruments that are measured subsequent to initial recognition at
fair value, using the fair value hierarchy described above.
Fair value measurement as at30 September 2017 Fair value measurement as at30 September 2016
Level 1 £m Level 2 £m Level 3 £m Total £m Level 1 £m Level 2 £m Level 3 £m Total £m
Financial assets
Derivative financial assets - 282 - 282 - 585 - 585
AFS investments - listed 2,066 - - 2,066 1,695 - - 1,695
AFS investments - unlisted - - 4 4 - - 29 29
AFS - other - - 6 6 - - 7 7
Other financial assets at fair value - - 477 477 - - 750 750
Total financial assets at fair value 2,066 282 487 2,835 1,695 585 786 3,066
Financial liabilities
Derivative financial liabilities - 376 - 376 - 598 - 598
Other financial liabilities at fair value - - 26 26 - - 48 48
Total financial liabilities at fair value - 376 26 402 - 598 48 646
There were no transfers between Level 1 and 2 in the year.
The Group's fair values for financial instruments that are measured subsequent to initial recognition at fair value are
based on the following methodologies and assumptions:
(a) Derivative financial assets and liabilities - The fair values of derivatives, including foreign exchange
contracts, interest rate swaps, interest rate and currency option contracts, and currency swaps, are obtained from
discounted cash flow models or option pricing models as appropriate.
Financial statements
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
(b) Available for sale investments
Listed (Level 1) - The fair values of listed investments are based on quoted closing market prices.
Unlisted (Level 3) - Includes £2m of Visa Inc. preferred stock received as partial consideration for the sale of the
Group's share in Visa Europe (note 2.3). The preferred stock is convertible into Visa Inc. common stock or its equivalent
at a future date, subject to potential reduction for certain litigation losses that may be incurred by Visa Europe. The
fair value of the preference shares has been calculated by taking the period end New York Stock Exchange share price for
Visa Inc. and discounting for illiquidity and clawback related to contingent litigation. For other unlisted equity and debt
investments, the Group's share of the net asset value or the transaction price respectively are considered the best
representation of the exit price and are the Group's best estimates of fair value.
Available for sale - other (Level 3) - The other available for sale financial asset represents deferred consideration
receivable and consists of the rights to future commission. The valuation is determined from a discounted cash flow model
incorporating estimated attrition rates and investment growth rates appropriate to the underlying funds under management.
(c) Financial assets and liabilities at fair value through profit or loss - fair values are derived from data or valuation
techniques based upon observable market data and non-observable inputs as appropriate to the nature and type of the
underlying instrument.
Assets and liabilities measured at fair value based on valuation techniques for which any significant input is not based on
observable market data
(Level 3):
Level 3 movement analysis:
2017
Financial assetsavailable for sale £m Other financialassets at fair value £m Other financialliabilities at fair value £m
Balance at the beginning of the year 36 750 (48)
Fair value gains/(losses) recognised(1)
In profit or loss (unrealised) - (39) 2
In profit or loss (realised) 1 2 -
In available for sale reserve (unrealised) 1 - -
Purchases - - -
Sales(2) (26) - -
Settlements (2) (236) 20
Balance at the end of the year 10 477 (26)
Level 3 movement analysis:
2016
Financial assetsavailable for sale £m Other financialassets at fair value £m Other financialliabilities at fair value £m
Balance at the beginning of the year 15 1,097 (67)
Fair value gains/(losses) recognised(1)
In profit or loss (unrealised) - 10 2
In profit or loss (realised) 8 - -
In available for sale reserve (unrealised) 21 - -
Purchases 2 - -
Sales (8) - -
Settlements(3) (2) (357) 17
Balance at the end of the year 36 750 (48)
(1) Net gains or losses were recorded in non-interest income, interest income or expense and impairment losses or within
the available for sale reserve as appropriate.
(2) The sale principally relates to the disposal of the VocaLink investment during the year (note 2.3).
(3) Settlements for the year ended 30 September 2016 include a realised loss of £5m relating to financial assets that are
measured at fair value at the end of each reporting period. Such fair value gains or losses are included in non-interest
income (note 2.3).
There were no transfers into or out of Level 3 in the year ended 30 September 2017 (2016: £Nil).
Financial statements
Notes to the consolidated financial statements
Section 3: Assets and liabilities continued
3.18 Fair value of financial instruments continued
Quantitative information about significant unobservable inputs in Level 3 valuations
The table below lists key unobservable inputs to Level 3 financial instruments, and provides the range of those inputs as
at 30 September 2017.
Fairvalue £m Valuationtechnique Unobservableinputs Lowrange Highrange
Financial assets
Other financial assets at fair value 477 Discounted cash flow Portfolio lifetimeprobability of default 2.2% 11.3%
Available for sale - other 6 Discounted cash flow Funds under managementattrition rate 10% 20%
Available for sale - investments - unlisted 4 Discounted cash flow Contingent litigation risk 0% 100%
The Group has £26m (2016: £48m) of financial liabilities at fair value classed as Level 3 which represent a portfolio of
term deposits that are directly linked to the customer loans, which are also held at fair value and classed as Level 3.
Their relationship to the fair value assets is such that should the liability be settled, the amount payable would be net
of the fair value asset.
Sensitivity of Level 3 fair value measurements to reasonably possible alternative assumptions
Where valuation techniques use non-observable inputs that are significant to a fair value measurement in its entirety,
changing these inputs will change the resultant fair value measurement.
The most significant exposure to Level 3 fair value measurements is in respect of the Group's fair value loan portfolio
with the most significant input (other than interest rates) being the future expectations of credit losses. If lifetime
expected losses were 20% greater than predicted, the carrying value of the loans would decrease by £2m and vice versa.
The most significant input impacting the fair value of the available for sale - other asset is the funds under management
attrition rate. The Group currently assumes a 15% attrition rate. If this rate was 20% the fair value would reduce by £1m,
if it was 10% the fair value would increase by £2m.
The most significant input impacting the fair value of the available for sale - investments is contingent litigation risk.
If this risk crystallised, the fair value would reduce by £2m. In the event the litigation risk did not transpire the fair
value would increase by £3m.
Other than these significant Level 3 measurements, the Group has a limited remaining exposure to Level 3 fair value
measurements, and changing one or more of the inputs for fair value measurements in Level 3 to reasonable alternative
assumptions would not change the fair value significantly with respect to profit or loss, total assets, total liabilities
or equity on these remaining Level 3 measurements.
Financial statements
Notes to the consolidated financial statements
Section 4: Capital
4.1 Equity
Accounting policyEquityThe financial instruments issued by the Company are treated as equity (i.e. forming part of shareholders' funds) only to the extent that they meet the following two conditions:(a) they include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and(b) where the instrument will or may be settled in the Company's
own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company's own equity instruments or is a derivative that will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability.DividendsIncremental costs directly attributable to the issue of new shares or options
or to the acquisition of a business are shown in equity as a deduction, net of tax, from the proceeds.Final dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Company's shareholders. Interim dividends are deducted from equity when they are no longer at the discretion of the Company.Proposed final dividends for the year are disclosed as an event after the balance sheet date.
4.1.1 Share capital
2017Number ofshares 2016Number ofshares 2017 £m 2016 £m
Ordinary shares - allotted, called up and fully paid
Opening ordinary share capital 881,531,852 2,232,012,512 88 223
Share for share exchange - (1,352,697,256) - 876
Share capital reduction - - - (1,011)
Issued under employee share schemes 2,074,214 2,216,596 - -
Closing ordinary share capital 883,606,066 881,531,852 88 88
During the year 2,074,214 (2016: 2,216,596) ordinary shares were issued under employee share schemes with a nominal value
of £0.2m (2016: £0.2m).
The share for share exchange in the year to 30 September 2016 arose on the Group's demerger from NAB and listing on the
London Stock Exchange.
The holders of ordinary shares are entitled to dividends as declared from time to time and are entitled to one vote per
share at meetings of the shareholders of the Company. All shares in issue at 30 September 2017 rank equally with regard to
the Company's residual assets.
The Directors have recommended a final dividend in respect of the year ended 30 September 2017 of 1p per ordinary share in
the Company (2016: Nil) to be paid on 16 February 2018. The payment of the final dividend is subject to approval of the
shareholders at the 2018 Annual General Meeting. These financial statements do not reflect the recommended dividend.
With regards to utilisation of the Conduct Indemnity, note 3.14 sets out a number of circumstances where share capital in
the Company could be subscribed for by NAB.
A description of the other equity categories included within the Consolidated statement of changes in equity, and
significant movements during the year, is provided below.
4.1.2 Other equity instruments
Other equity instruments consists of Perpetual Contingent Convertible Notes (fixed 8%) which were issued on 8 February 2016
with a principal amount of £450m and an optional redemption on 8 December 2022.
AT1 distributions of £36m were paid in the year, £29m net of tax (2016: £35m paid, £28m net of tax).
Financial statements
Notes to the consolidated financial statements
Section 4: Capital continued
4.1.3 Capital reorganisation reserve
The capital reorganisation reserve of £839m was recognised on the issuance of CYBG PLC ordinary shares in February 2016 in
exchange for the acquisition of the entire share capital of the Group's previous parent company, CYBI Limited. The reserve
reflects the difference between the consideration for the issuance of CYBG PLC shares and CYBI Limited's share capital and
share premium.
4.1.4 Merger reserve
A merger reserve of £633m was recognised on the issuance of CYBG PLC ordinary shares in February 2016 in exchange for the
acquisition of the entire share capital of CYBI Limited. The merger reserve reflects the difference between the
consideration for the issuance of CYBG PLC shares and the nominal value of the shares issued.
4.1.5 Other reserves
4.1.5.1 Asset revaluation reserve
The asset revaluation reserve includes the gross revaluation increments and decrements arising from the revaluation of land
and buildings.
4.1.5.2 Available for sale reserve
The available for sale reserve records the gains and losses arising from changes in the fair value of available for sale
financial assets. The principal movement in the reserve reflects the sale of VocaLink during the year as detailed in note
2.3.
4.1.5.3 Cash flow hedge reserve
The cash flow hedge reserve represents the cumulative post-tax gains and losses on derivatives designated as cash flow
hedging instruments that will be recycled to the income statement when the hedged items affect profit or loss.
As at 30 September 2017, the cash flow hedge reserve reflected a cumulative loss of £1m (2016: £66m cumulative gain). The
fair value of derivatives in cash flow hedges decreased by £84m in the year (2016: £105m increase), and a £4m gain (2016:
£2m gain) was recycled to interest income in line with hedged items affecting profit or loss. A £0.3m loss (2016: £1m loss)
was transferred to non-interest income due to ineffectiveness arising from cash flow hedges. These movements were offset by
a deferred tax credit of £21m (2016: charge of £25m).
4.1.5.4 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 and adjusted for
deferred tax.
4.2 Equity based compensation
Accounting policyThe Group operates a number of equity settled share based compensation plans in respect of services received from certain of its employees. The fair value of the services received is recognised as an expense. The total amount to be expensed is measured by reference to the fair value of the Company's shares, performance options or performance rights granted, including, where relevant, any market performance conditions and any non-vesting conditions. The impacts of any service and non-market
performance vesting conditions are not included in the fair value and instead are included in estimating the number of awards or options that are expected to vest.The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. A corresponding credit is recognised in the equity based compensation reserve, adjusted for deferred tax. In some circumstances employees may provide services in advance of the grant date and
therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between the start of the service period and the grant date.At the end of each reporting period, the Group revises its estimates of the number of shares, performance options and performance rights that are expected to vest 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.
The equity settled share based payment charge for the year is £6m (2016: £5m).
In the prior year, the figures include awards under the Group's and NAB share plans. The charges under the NAB share plans
were classified as equity settled share based payments up to the demerger date of 8 February 2016 and are included in the
total above. Following the demerger these plans no longer meet the definition of share based payments under IFRS 2 'Share
based payments'; accordingly, the total above excludes NAB share plan costs after 8 February 2016. Details of these plans
are included within the Directors' remuneration report contained in the Group's Annual Report and Accounts.
Financial statements
Notes to the consolidated financial statements
Section 4: Capital continued
CYBG awards
The Group made a number of awards under its share plans:
Plan Eligible employees Nature of award Vesting conditions(1) Grant dates(2)
Deferred Equity Plan(3) Selected employees Conditional rights to shares Continuing employment or leaving in certain limited circumstances 2016 and 2017
Long Term Incentive Plan Selected senior employees Conditional rights to shares Continuing employment or leaving in certain limited circumstances and achievement of delivery of the Group's strategic goals and growth in shareholder value. 2017
Share Incentive Plan All employees Non-conditional share award Continuing employment 2016
(1) All awards are subject to vesting conditions and therefore may or may not vest.
(2) The year in which grants have been made under the relevant plan.
(3) Grants made under the Deferred Equity Plan are made the year following the financial year to which they relate.
Further detail on each plan is provided below:
Deferred Equity Plan (DEP)
Under the plan employees were awarded conditional rights to CYBG PLC shares. The shares are subject to forfeiture
conditions including forfeiture as a result of resignation, termination by the Group or failure to meet compliance
requirements. Awards include:
· The upfront and deferred elements of bonus awards where required to comply with the PRA Remuneration Code or the
Group's deferral policy.
· Buyout of equity from previous employment for senior new hires.
· Demerger awards which are also subject to the achievement of performance conditions over a three-year period.
Details of the performance conditions are set out in the Directors' remuneration report.
Long Term Incentive Plan (LTIP)
Under the plan employees were awarded conditional rights to CYBG PLC shares. The shares are subject to forfeiture
conditions including forfeiture as a result of resignation, termination by the Group or failure to meet compliance
requirements.
The performance conditions of the plan must be met over a three-year period. The measures reflect a balanced approach
between financial and non-financial performance and are aligned to the organisation's strategic goals. Measures, relative
weightings and the quantum for assessing performance are outlined in the Directors' remuneration report section.
Share Incentive Plan (SIP)
Eligible employees at the date of the award, were awarded Group shares, which are held in the Share Incentive Plan Trust
(SIP Trust). Awards are not subject to performance conditions and participants are the beneficial owners of the shares
granted to them, but not the registered owners. Voting rights over the shares are normally exercised by the registered
owner at the direction of the participants. For the 2015 Demerger award, leavers (with the exception of gross misconduct)
retain their awards but they must withdraw their shares from the SIP Trust.
Financial statements
Notes to the consolidated financial statements
Section 4: Capital continued
4.2 Equity based compensation continued
Awards/rights made during the year
Plan Numberoutstanding at 1 October 2016 Numberawarded Number forfeited Numberreleased Number outstanding as 30 September2017 Average fair value of awards at grantpence
Deferred Equity Plan
2015 Demerger 2,235,204 - (197,152) - 2,038,052 196.96
2015 Bonus 1,489,390 - (7,370) (1,346,425) 135,595 195.17
2015 Commencement 111,127 - - (46,059) 65,068 194.67
2016 Bonus - 1,193,700 (6,776) (643,729) 543,195 266.03
2016 Commencement - 169,997 - (38,001) 131,996 266.03
Long Term Incentive Plan
2016 LTIP - 2,261,948 (18,561) - 2,243,387 266.03
Share Incentive Plan
2015 Demerger 1,822,976 - (2,560)(1) (337,408)(2) 1,483,008 194.67
(1) Forfeited shares remain in the SIP Trust.
(2) Shares withdrawn from SIP Trust on leaving the Group.
Determination of grant date fair values
Participants of the DEP and LTIP plans are not entitled to dividends until the awards vest, but the number of shares which
vest may be increased to reflect the value of dividends that would have been paid up to the end of the holding period for
the awards, subject to the extent permitted under the relevant remuneration regulation. Accordingly, the grant date fair
value of the awards with only service conditions and/or non-market performance conditions has been taken as the market
value of the Company's ordinary shares at the grant date. Where awards are subject to non-market performance conditions, an
estimate is made of the number of awards expected to vest in order to determine the overall share-based payment charge to
be recognised over the vesting period.
The Group has not issued awards under any CYBG plan with market performance conditions.
Financial statements
Notes to the consolidated financial statements
Section 5: Other notes
5.1 Contingent liabilities and commitments
Accounting policyFinancial guaranteesThe Group provides guarantees in the normal course of business on behalf of its customers. Guarantees written are conditional commitments issued by the Group to guarantee the performance of a customer to a third party and are primarily issued to support direct financial obligations such as commercial bills or other debt instruments issued by a counterparty. The rating of the Group as a guarantee provider enhances the marketability of the paper issued by the counterparty
in these circumstances. Financial guarantee contracts are initially recorded at fair value which is equal to the premium received, unless there is evidence to the contrary. Operating lease commitmentsThe leases entered into by the Group are primarily operating leases; with operating lease rentals charged to the income statement
ona straight line basis over the period of the lease. The Group discloses its obligations for future minimum payments under
non-cancellable leases.Contingent liabilitiesContingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised on the balance sheet but are disclosed unless they are remote.
The table below sets out the amounts of financial guarantees and commitments which are not recorded on the balance sheet.
Financial guarantees and commitments are credit-related instruments which include acceptances, letters of credit,
guarantees and commitments to extend credit. The amounts do not represent the amounts at risk at the balance sheet date but
the amounts that would be at risk should the contracts be fully drawn upon and the customer default. Since a significant
portion of guarantees and commitments is expected to expire without being drawn upon, the total of the contract amounts is
not representative of future liquidity requirements.
Financial guarantees
2017 £m 2016 £m
Guarantees and assets pledged as collateral security:
Due in less than 3 months 19 19
Due between 3 months and 1 year 40 44
Due between 1 year and 3 years 7 9
Due between 3 years and 5 years 3 3
Due after 5 years 42 48
No specified maturity - -
111 123
Other credit commitments
Undrawn formal standby facilities, credit lines and other commitments to lend at call 8,408 7,690
Capital commitments
The Group had future capital expenditure which had been contracted for but not provided for at 30 September 2017 of £1m
(2016: £2m).
Financial statements
Notes to the consolidated financial statements
Section 5: Other notes
5.1 Contingent liabilities and commitments continued
Operating lease commitments
2017 £m 2016 £m
Leases as lessor
Future minimum lease payments under non-cancellable operating leases are:
Within 1 year 1 2
Between 1 year and 5 years 4 4
Over 5 years - 1
5 7
Leases as lessee
Future minimum lease payments under non-cancellable operating leases are:
Within 1 year 30 29
Between 1 year and 5 years 100 94
Over 5 years 137 117
267 240
Other contingent liabilities
Financial Services Compensation Scheme (FSCS)
The FSCS provides compensation to depositors in the event that a financial institution is unable to repay amounts due.
Following the failure of a number of financial institutions, claims were triggered against the FSCS, initially to pay
interest on borrowings which the FSCS has raised from the UK Government to support the protected deposits. During 2015, the
FSCS levy was also invoiced to institutions for the third of three annual levies to cover capital repayments to the UK
Government. The principal of these borrowings, which remains after the three annual levies have been paid, is anticipated
to be repaid from the realisation of the assets of the defaulted institutions. The FSCS has however confirmed that the size
of the future levies will be kept under review in light of developments from the insolvent estates.
The FSCS has estimated levies due to 31 March 2018 for the interest on borrowings and an accrual of £2m (30 September 2016:
£8m) is held for the Group's calculated liability to that date. The ultimate FSCS levy as a result of the failures is
uncertain.
Conduct risk related matters
There continues to be significant uncertainty and thus judgement is required in determining the quantum of conduct risk
related liabilities, with note 3.14 reflecting the Group's current position in relation to redress provisions including
those for PPI. The final amount required to settle the Group's potential liabilities for these, and other conduct related
matters, is materially uncertain. Contingent liabilities include those matters where redress is likely to be paid and costs
incurred but the amounts cannot currently be estimated. The financial exposure to the Group related to legacy conduct risks
is mitigated by the Capped Indemnity provided by NAB (note 3.14). The Group will continue to reassess the adequacy of
provisions for these matters and the assumptions underlying the calculations at each reporting date based upon experience
and other relevant factors at that time.
Legal claims
The Group is named in and is defending a number of legal claims arising in the ordinary course of business. No material
adverse impact on the financial position of the Group is expected to arise from the ultimate resolution of these legal
actions.
Financial statements
Notes to the consolidated financial statements
Section 5: Other notes
5.2 Notes to the statement of cash flows
2017 £m 2016 £m
Adjustments included in profit before tax
Interest receivable (1,075) (1,101)
Interest payable 231 295
Depreciation and amortisation (note 2.4) 87 88
Net gain on capital and debt restructure - (1)
Transfer from cash flow hedge reserve - 1
Derivative financial instruments fair value movements (6) (10)
Impairment losses on credit exposures (note 3.6) 48 39
Impairment losses on software (note 2.4) - 45
Fair value movement on investment properties 1 1
Equity based compensation 6 -
Gain on disposal of VocaLink (20) -
(728) (643)
Changes in operating assets
Net (increase)/decrease in:
Balances with supervisory central banks (1) 1
Due from other banks (221) (826)
Derivative financial instruments 280 (63)
Financial assets at fair value through profit or loss 237 346
Loans and advances to customers (2,140) (1,758)
Other assets (12) 15
(1,857) (2,285)
Changes in operating liabilities
Net increase/(decrease) in:
Due to other banks 608 960
Derivative financial instruments (221) 60
Financial liabilities at fair value through profit or loss (21) (19)
Due to customers 699 672
Provisions for liabilities and charges (298) (154)
Defined benefit pension obligations (128) (52)
Other liabilities 280 120
919 1,587
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances with less than
three months maturity from the date of acquisition. This includes cash and liquid assets and amounts due to other banks (to
the extent less than 90 days).
2017 £m 2016 £m
Cash and balances with central banks (note 3.1) 6,893 5,912
Other assets 99 111
Due to other banks (12) (25)
Other liabilities (28) (48)
6,952 5,950
Financial statements
Notes to the consolidated financial statements
Section 5: Other notes
5.3 Related party transactions
Compensation of key management personnel (KMP)
KMP comprises Directors of the Company and members of the Executive Leadership Team.
2017 £m 2016 £m
Salaries and short-term benefits 8 8
Other long-term employee benefits - 1
Termination benefits - 2
Equity based compensation(1) 1 4
9 15
(1) Basis of the expense recognised in the year 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.
2017£m 2016£m
Aggregate remuneration 5 6
In addition to the above, £0.2m (2016: £Nil) was expensed relating to long-term incentive plans. None of the Directors were
members of the Group's defined contribution pension scheme during 2017 (2016: none). One of the Directors was a member of
the Group's defined benefit pension scheme during 2017 (2016: one). None of the Directors hold share options and none were
exercised during the year (2016: none).
Transactions with KMP
KMP, their close family members and any entities controlled or significantly influenced by the KMP 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.
2017£m 2016£m
Loans and advances 2 8
Deposits 4 3
No provisions have been recognised in respect of loans provided to the KMP (2016: £Nil). There were no debts written off or
forgiven during the year to 30 September 2017 (2016: £Nil). Included in the above are three (2016: six) loans totalling £1m
(2016: £7.4m) made to Directors. In addition to the above, there are guarantees of £Nil (2016: £0.4m) made to Directors and
their related parties.
Other related party transactions
During the current year, the Group and Trustee entered into a contingent Security Arrangement. The Security Arrangement
provides additional support to the Scheme by underpinning recovery plan contributions and some additional investment risk.
The security is in the form of a pre-agreed maximum level of assets that are set aside for the benefit of the Pension
Scheme in certain trigger events. These assets are held by Red Grey Square Funding LLP, an insolvency remote consolidated
structured entity.
The Group incurred costs in relation to pension scheme administration. These costs, which amounted to £0.3m in the year
ended 30 September 2017 (2016: £0.5m), were charged to the Group sponsored scheme. The Group has deposits of £20.3m (2016:
£31.7m) at the year end placed by the Scheme at market rates.
Pension contributions of £69m (2016: £84m) were made during the year to the Yorkshire and Clydesdale Bank Pension Scheme
sponsored by the Group (note 3.16).
5.4 Pillar 3 disclosures
Basel III Capital Requirements Directive IV
Pillar 3 disclosure requirements are set out in Part Eight of the CRR. The consolidated disclosures of the Group, for the
2017 financial year, will be issued concurrently with the Annual Report and Accounts and will be found at
www.cybg.com/investor-centre/financial-results/.
Supplementary risk management disclosures
Credit risk
Credit risk is the risk that a borrower or counterparty fails to pay the interest or capital due on a loan or other
financial instrument.
Credit risk manifests itself in the financial instruments and/or products that the Group offers, and those in which the
Group invests (including, among others, loans, guarantees, credit-related commitments, letters of credit, acceptances,
inter-bank transactions, foreign exchange transactions, swaps and bonds). Credit risk can be found both on- and off-balance
sheet.
Distribution of loans and advances to customers by credit quality
As at 30 September 2017 Retail overdrafts£m Credit cards£m Other retail lending£m Mortgages£m Lease finance£m SME lending(1)£m Total£m
Gross loans and advances:
Neither past due nor impaired 51 384 635 23,104 572 6,054 30,800
Past due but not impaired 7 12 16 327 22 129 513
Impaired - - - 49 - 126 175
58 396 651 23,480 594 6,309 31,488
As at 30 September 2016 Retail overdrafts£m Credit cards£m Other retail lending£m Mortgages£m Lease finance£m SME lending(1)£m Total£m
Gross loans and advances:
Neither past due nor impaired 57 388 612 21,485 502 5,665 28,709
Past due but not impaired 6 12 15 285 11 144 473
Impaired - - - 66 2 146 214
63 400 627 21,836 515 5,955 29,396
(1) SME lending includes business overdrafts.
Credit risk categorisation Description
Neither past due nor impaired Loans that are not in arrears and where there is
- More to follow, for following part double click ID:nRSU0461XfRecent 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