REG - CYBG PLCClydesdale Bank PLC - Final Results <Origin Href="QuoteRef">CYBGC.L</Origin> - Part 6
21/11/2017 07:06
- Part 6: For the preceding part double click ID:nRSU0461Xe
no objective evidence of impairment.
Past due but not impaired Loans that are in arrears but have not been individually assessed as impaired.
Impaired Loans which have been individually assessed for impairment as there is objective evidence of impairment, including changes in customer circumstances.
Gross loans and advances to customers including loans designated 2017£m 2016£m
at fair value through profit or loss (1)
Government and public authorities 32 36
Agriculture, forestry, fishing and mining 1,454 1,458
Financial, investment and insurance 650 698
Property - construction 279 262
Manufacturing 574 577
Instalment loans to individuals and other personal lending (including credit cards) 1,274 1,344
Property - mortgage 23,480 21,836
Asset and lease financing 594 515
Other commercial and industrial 3,630 3,421
31,967 30,147
Supplementary risk management disclosures
Credit risk
Contingent liabilities and credit-related commitments 2017£m 2016£m
Government and public authorities 426 422
Agriculture, forestry, fishing and mining 375 382
Financial, investment and insurance 165 125
Property - construction 154 156
Manufacturing 588 658
Instalment loans to individuals and other personal lending (including credit cards) 1,945 1,931
Property - mortgage 2,305 1,780
Asset and lease financing 125 98
Other commercial and industrial 2,436 2,261
8,519 7,813
(1) Includes balances due from customers on acceptances and excludes accrued interest.
Credit quality of loans and advances
For SME lending, the Group has an internally developed credit rating system, as defined under the Group's credit risk
management policy, which uses data drawn from a number of sources to assess the potential risk in lending to the Group's
customers. This system assigns an indication of the PD for each customer and can be broadly mapped to external agencies
rating scales. Impaired assets consist of SME lending and secured Retail lending where current circumstances indicate that
losses of loan principal and/or interest may be incurred.
Description eCRS(1) PD
Senior investment grade 1 to 5 0 < 0.11
Investment grade 6 to 11 0.11 < 0.55
Sub-investment grade 12 to 23 0.55 < 99.99
(1) eCRS - electronic Customer Rating System.
The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by
reference to the Group's standard credit rating system. The credit rating system is supported by a variety of financial
analytics, combined with processed market information to provide the main inputs for the measurement of counterparty risk.
All internal risk ratings are tailored to the various categories and are derived in accordance with the Group's ratings
policy.
The table below represents the credit quality of SME loans and advances that are neither past due nor impaired:
2017£m 2016£m
Senior investment grade 946 1,077
Investment grade 1,807 1,557
Sub-investment grade 3,873 3,533
6,626 6,167
Supplementary risk management disclosures
Credit risk
The LTV ratio of Retail mortgage lending, coupled with the relationship of the debt to customers' income, is key to the
credit quality of these loans. The table below sets out the indexed LTV analysis of the Group's Retail mortgage stock.
LTV (1) 2017% 2016%
Less than 50% 33 34
50% to 75% 49 50
76% to 80% 7 6
81% to 85% 4 4
86% to 90% 4 2
91% to 95% 1 1
96% to 100% - -
Greater than 100% - -
Unknown 2 3
100 100
(1) LTV of the mortgage portfolio is defined as mortgage portfolio weighted by balance and indexed using the
MIAC Acadametrics indices at a given date. Unknown represents loans where data is not currently available due to front book
data matching still to be completed and a de minimis amount due to weaknesses in historic data capture processes. Prior
period comparatives have been restated on the new basis of indexation, previous basis adopted the Halifax House Price
Index.
Forbearance
The tables below summarise the level of forbearance in respect of the Group's mortgage portfolio at 30 September:
As at 30 September 2017 Total Retail loans and advances subject to forbearance measures Impairment allowance on Retail loans and advances subject to forbearance measures
Number of loans Gross carrying amount £m % of total portfolio Impairment allowance £m Coverage%
Formal arrangements 1,614 164 0.69 3.9 2.43
Temporary arrangements 1,418 174 0.74 3.0 1.72
Interest-only conversion 202 30 0.13 0.2 0.56
Term extension 149 12 0.05 0.1 0.51
Other 29 2 0.01 - 0.61
Legal 167 16 0.07 0.9 5.66
3,579 398 1.69 8.1 2.04
As at 30 September 2016 Total Retail loans and advances subject to Impairment allowance on Retail loans and advances subject to forbearance measures
forbearance measures
Number of loans Gross carrying amount £m % of total portfolio Impairment allowance £m Coverage%
Formal arrangements 1,843 169 0.78 5.5 3.27
Temporary arrangements 1,460 160 0.73 2.7 1.68
Interest-only conversion 154 22 0.10 0.1 0.26
Term extension 123 11 0.05 0.1 0.61
Other 22 2 0.01 - 0.84
Legal 195 20 0.09 1.1 5.60
3,797 384 1.76 9.5 2.48
The Group also has a number of customers with interest-only mortgages past maturity, not subject to forbearance. The Group
has formal processes embedded to proactively track and facilitate prematurity customer engagement to bring the cases to a
formal conclusion, which is generally aimed to be achieved within six months after the loan has reached maturity. Complex
cases can take longer than this to reach conclusion. At 30 September 2017, the Group had 97 (2016: 102) customers with
interest-only mortgages not subject to forbearance and which were post six-month maturity with a total value of £14m (2016:
£12m).
A further forbearance reserve of £4m (2016: £4m) is presently held within the overall collective provision. The effect of
this on the above tables would be to increase the impairment allowance noted above to £12.1m (2016: £13.5m) and to increase
overall coverage to 3.05% (2016: 3.52%). When all other avenues of resolution including forbearance have been explored, the
Group will take steps to repossess and sell underlying collateral. In the year to 30 September 2017, there were 50
repossessions of which 13 were voluntary (2016: 78 including 27 voluntary).
Supplementary risk management disclosures
Credit risk
Retail forbearance - unsecured consumer credit
The Group currently exercises limited forbearance strategies in relation to other types of consumer credit, including
current accounts, unsecured loans and credit cards. The Group has assessed the total loan balances subject to forbearance
on other types of consumer credit to be £11m at 30 September 2017 (2016: £14m), representing 1.02% of the unsecured Retail
portfolio (2016: 1.33%). Impairment provisions on forborne balances totalled £3.1m at 30 September 2017 (2016: £4.2m),
providing overall coverage of 27.18% (2016: 29.02%).
SME forbearance
The tables below summarise the total number of arrangements in place and the loan balances and impairment provisions
associated with those arrangements.
As at 30 September 2017 Total SME loans and advances subject to forbearance measures Impairment allowance on SME loans and advances subject to forbearance measures
Number of loans Gross carrying amount £m % of total portfolio Impairment allowance £m Coverage%
Term extension 206 190 2.58 12.8 6.71
Deferral of contracted capital repayments 109 141 1.91 20.4 14.47
Reduction in contracted interest rate 3 1 0.02 - 3.37
Alternative forms of payment 5 28 0.37 8.1 29.40
Debt forgiveness 3 11 0.15 1.4 12.70
Refinancing 19 33 0.44 4.4 13.41
Covenant breach/reset/waiver 50 155 2.11 8.1 5.24
395 559 7.58 55.2 9.88
As at 30 September 2016 Total SME loans and advances subject to Impairment allowance on SME loans and advances subject to forbearance measures
forbearance measures
Number of loans Gross carrying amount £m % of total portfolio Impairment allowance £m Coverage%
Term extension 350 320 4.43 25.3 7.90
Deferral of contracted capital repayments 118 143 1.99 18.2 12.69
Reduction in contracted interest rate 7 8 0.12 0.6 7.01
Alternative forms of payment 7 35 0.48 11.2 32.37
Debt forgiveness 8 26 0.36 2.4 9.16
Refinancing 22 51 0.70 4.9 9.76
Covenant breach/reset/waiver 62 208 2.88 8.6 4.12
574 791 10.96 71.2 8.99
Included in other financial assets at fair value is a portfolio of loans that is included in the above table. The value of
fair value loans subject to forbearance at 30 September 2017 is £45m (2016: £101m), representing 0.61% of the total SME
portfolio (2016: 1.40%). Impairment allowances on these amounts totalled £4m (2016: £11m), a coverage of 8.89% (2016:
10.82%).
Supplementary risk management disclosures
Credit risk
Loans and advances which were past due but not impaired
The distribution of gross loans and advances that are past due but not impaired is analysed below:
2017 Retailoverdrafts £m Creditcards £m Other retaillending £m Mortgages £m Lease finance £m SME lending(1)£m Total£m
1 to 29 DPD 5 6 6 142 22 88 269
30 to 59 DPD 1 2 3 32 - 10 48
60 to 89 DPD - 1 2 30 - 2 35
Past due 90 days and over 1 3 5 123 - 29 161
7 12 16 327 22 129 513
2016 Retailoverdrafts £m Creditcards £m Other retaillending £m Mortgages £m Lease finance £m SME lending(1)£m Total£m
1 to 29 DPD 5 6 6 81 11 82 191
30 to 59 DPD - 2 3 65 - 27 97
60 to 89 DPD - 1 2 28 - 4 35
Past due 90 days and over 1 3 4 111 - 31 150
6 12 15 285 11 144 473
Movement in impairment provisions throughout the year
2017 Retailoverdrafts £m Creditcards £m Other retaillending £m Mortgages £m Lease finance £m SME lending(1)£m Total£m
Opening balance 3 6 10 39 2 155 215
Charge for the year 2 6 9 (2) - 33 48
Amounts written off (4) (9) (13) (4) - (45) (75)
Recoveries of amounts written off 3 4 6 - - 5 18
in previous years
Other (2) - - - - - 4 4
Closing balance 4 7 12 33 2 152 210
Specific - - - 13 - 43 56
Collective 4 7 12 20 2 109 154
4 7 12 33 2 152 210
2016 Retailoverdrafts £m Creditcards £m Other retaillending £m Mortgages £m Lease finance £m SME lending(1)£m Total£m
Opening balance 5 7 11 39 2 166 230
Charge for the year (1) 3 5 1 1 30 39
Amounts written off (4) (9) (14) (2) - (39) (68)
Recoveries of amounts written off 4 5 7 1 - 1 18
in previous years
Other (2) (1) - 1 - (1) (3) (4)
Closing balance 3 6 10 39 2 155 215
Specific - - - 19 1 44 64
Collective 3 6 10 20 1 111 151
3 6 10 39 2 155 215
(1) SME lending includes business overdrafts.
(2) Other includes the recognition of certain impaired loans which were previously recorded at Fair Value Through Profit or
Loss, the unwind of net present value elements of specific provisions and other minor movements.
Supplementary risk management disclosures
Balance sheet and prudential regulation risks
Balance sheet risks in the financial services industry are highly regulated with ongoing changes in the regulatory
environment expected to influence the risks and their management. The key risks include capital, liquidity and funding
risks, market risk which in the case of the Group is non-traded market risk (incorporating interest rate and foreign
exchange risks), pension risk and non-traded equity risk.
Capital
Capital is held by the Group to protect its depositors, to cover inherent risks in a normal and stressed operating
environment and to support the Group's strategy of sustainable growth. Capital risk is the risk that the Group has
insufficient quantity or quality of capital to support its operations.
Regulatory capital (1)
CET1 capital 2017£m 2016£m
Capital instruments 88 88
Retained earnings and other reserves 2,854 2,673
Regulatory adjustments and deductions
Defined benefit pension fund assets(2) (135) -
Prudent valuation adjustment(3) (4) (7)
Intangible assets(4) (339) (256)
Deferred tax asset relying on future profitability(5) (28) (35)
Cash flow hedge reserve 1 (66)
2,437 2,397
Tier 1 capital
Additional Tier 1 (AT1) capital instruments 450 450
Total Tier 1 capital 2,887 2,847
Tier 2 capital
Subordinated debt 473 474
Credit risk adjustments 154 151
Total Tier 2 capital 627 625
Total capital 3,514 3,472
(1) This table shows the capital position on a CRD IV 'fully loaded' basis.
(2) The defined benefit pension fund asset (net of deferred tax liabilities) does not qualify as capital for regulatory
purposes.
(3) A prudent valuation adjustment is applied in respect of fair-valued instruments as required under regulatory capital
rules.
(4) Intangible assets shall be deducted from capital for regulatory purposes.
(5) Under CRD IV, deferred tax assets that rely on future profitability are deducted from CET1 capital.
Reconciliation of statutory total equity to regulatory capital 2017£m 2016£m
Statutory total equity 3,402 3,211
Deductions from capital (478) (263)
Deferred tax asset relying on future profitability (28) (35)
Cash flow hedge reserve 1 (66)
Foreseeable AT1 dividends and charges (10) -
Regulatory Tier 1 capital 2,887 2,847
Supplementary risk management disclosures
Balance sheet and prudential regulation risks
Regulatory capital flow of funds CRD IV2017£m CRD IV2016£m
CET1 capital
CET1 capital at 1 October 2,397 2,405
Share for share exchange and nominal reduction - (135)
Share premium - (670)
Retained earnings and other reserves (including structured entities) 181 576
Prudent valuation adjustment 3 (2)
Intangible assets (83) 9
Deferred tax asset relying on future profitability 7 238
Defined benefit pension fund assets (135) 42
Cash flow hedge reserve 67 (66)
CET1 capital at 30 September 2,437 2,397
Tier 1 capital
Tier 1 capital at 1 October 450 450
Capital instruments repurchased: Perpetual Capital Notes - (450)
Capital instruments issued: Perpetual Subordinated Contingent Convertible Notes - 450
Tier 1 capital at 30 September 450 450
Total Tier 1 capital 2,887 2,847
Tier 2 capital
Tier 2 capital at 1 October 625 598
Credit risk adjustments 3 13
Other movements (1) -
Capital instruments repurchased: subordinated debt - (475)
Capital instruments issued: subordinated debt - 474
Removal of minority interest deduction on subordinated debt - 15
Tier 2 capital at 30 September 627 625
Total capital 3,514 3,472
Minimum Pillar 1 capital requirements 2017£m 2016£m
Credit risk 1,420 1,352
Operational risk 130 130
Counterparty risk 11 17
Credit valuation adjustment 13 23
Tier 1 regulatory capital requirements 1,574 1,522
Supplementary risk management disclosures
Balance sheet and prudential regulation risks
RWA movements
RWA flow statement 2017£m 2016£m
RWAs at 1 October 19,029 18,227
Book size growth 529 619
Book quality (improvement)/deterioration(1) (28) 183
Methodology and policy(2) 148 -
RWAs at 30 September 19,678 19,029
(1) The improvement in book quality is primarily due to the continued diversification in the Liquid Asset Buffer, where
we are investing in a number of high quality liquid assets from AAA rated issuance programmes.
(2) The definition of default was enhanced to capture a broader interpretation of the regulatory requirements as part of
the Group's programme of activity to prepare for IRB accreditation, which led to an increase in RWAs. This change does not
reflect any movement in the underlying risk profile of the portfolio and is only a reporting and Probability of Default
model build enhancement.
Pillar 1 RWAs and capital requirements by business line
Capital requirements for calculating RWAs At 30 September 2017 At 30 September 2016
Capitalrequired£m RWA£m Exposure£m Capitalrequired£m RWA£m Exposure(restated)£m
Central governments or central banks (1) - - 12,947 - - 8,139
Regional governments or local authorities 2 19 156 2 20 192
Public sector entities - 5 155 - 5 13
Multilateral development banks - - 205 - - 195
Financial institutions 13 163 1,453 19 234 1,344
Corporates (1) 273 3,418 3,791 273 3,419 3,732
Retail 72 905 1,207 72 897 1,196
Secured by mortgages on immovable property 961 12,001 28,203 897 11,242 26,482
Exposures in default 47 590 483 33 408 340
Collective investments undertakings - 1 1 - 3 3
Equity exposures - 5 3 1 11 9
Items associated with particularly high risk 3 40 26 1 15 10
Covered bonds 4 48 477 2 19 191
Other items (1) 45 557 585 52 633 627
Total credit risk 1,420 17,752 49,692 1,352 16,906 42,473
Operational risk 130 1,621 130 1,623
Counterparty risk 11 138 17 214
Credit valuation adjustment 13 167 23 286
1,574 19,678 1,522 19,029
The Exposure amounts disclosed above are post credit conversion factors and pre credit mitigation.
(1) FY2016 comparatives have been restated for the following with no impact to total RWA or capital requirement:
£1.1bn of BoE backing assets reallocated from Other items to Central government or central banks asset class; and
£114m exposure reallocated from Corporates to Other items asset class.
Supplementary risk management disclosures
Balance sheet and prudential regulation risks
Capital position and CET1 2017£m 2016£m
RWA(1)
Retail mortgages 8,646 7,998
Business lending 7,359 7,087
Other retail lending 932 915
Other lending 148 152
Other(2) 667 754
Credit risk 17,752 16,906
Credit valuation adjustment 167 286
Operational risk 1,621 1,623
Counterparty risk 138 214
Total RWAs 19,678 19,029
Capital ratios
CET1 ratio(3) 12.4% 12.6%
Tier 1 ratio 14.7% 15.0%
Total capital ratio 17.9% 18.2%
(1) RWAs are calculated under the standardised approach.
(2) The items included in the Other exposure class that attract a capital charge include items in the course of collection,
cash in hand, fixed assets and deferred tax assets that are not deducted.
(3) CET1 capital is comprised of shares issued and related share premium, retained earnings and other reserves less
specified regulatory adjustments.
While RWAs increased by £649m, driven by growth in mortgages, underlying capital generation post AT1 distribution of 13bps
(before the net impact of pension movements, and below-the-line charges such as the Group's proportion of conduct provision
charges and exceptional restructuring charges) ensured the CET1 ratio remained robust at 12.4%.
As announced above the Board has recommended a 1p per share dividend. The dividend would equate to approximately £9m of
CET1 (equivalent to 4bps of CET1 based on RWAs as at 30 September 2017).
Leverage ratio 2017£m 2016£m
Total Tier 1 capital for the leverage ratio
Total CET1 capital 2,437 2,397
AT1 capital 450 450
Total Tier 1 2,887 2,847
Exposures for the leverage ratio
Total assets as per published financial statements 43,231 39,929
Adjustment for off-balance sheet items 2,019 1,982
Adjustment for derivative financial instruments (228) (399)
Adjustment for securities financing transactions (SFTs) 1,461 601
Other adjustments (505) (364)
Leverage ratio exposure 45,978 41,749
Leverage ratio 6.3% 6.8%
Modified leverage ratio(1) 7.4% 8.0%
(1) The Group's leverage ratio on a modified basis, excluding qualifying central bank claims from the exposure measure in
accordance with the policy statement issued by the PRA in October 2017. The Group is currently excluded from the full
reporting requirements of the UK leverage ratio framework.
The leverage ratio is monitored against a Board set RAS with the responsibility for managing the ratio delegated to ALCO,
which monitors it on a monthly basis.
Supplementary risk management disclosures
Balance sheet and prudential regulation risks
Funding and liquidity risk
Funding risk relates to the impact on the Group's strategy of being unable to raise funds from customers and the wholesale
markets of sufficient quantity and of appropriate mix and tenor. An inability to raise sufficient funds may lead to a
reduction in lending growth or a requirement to raise the price paid for deposits, both outcomes having an adverse effect
on shareholder value. Where funding risk manifests itself in an adverse effect on mix and tenor, for example, a high
proportion of short-term wholesale deposits, there is an increased liquidity risk to the Group.
Liquidity risk is the risk that the Group is unable to meet its current and future financial obligations as they fall due
at acceptable cost. These obligations include the repayment of deposits on demand or at their contractual maturity dates,
the repayment of borrowings and loan capital as they mature, the payment of operating expenses and tax, the payment of
dividends and the ability to fund new and existing loan commitments.
External credit ratings
The Group's long-term credit ratings are summarised below:
Outlook as at
20 Nov 2017(1) 30 Sep 2017 30 Sep 2016
CYBG PLC
Fitch Stable BBB+ BBB+
Standard & Poor's Stable BBB- BBB-
Clydesdale Bank PLC
Fitch Stable BBB+ BBB+
Standard & Poor's Stable BBB+ BBB+
Moody's(2) Review for upgrade Baa2 Baa2
(1) For detailed background on the latest credit opinions, by S&P and Fitch, please refer to the respective rating agency
websites.
(2) Long-term deposit rating.
Liquid assets
The quantity and quality of the Group's liquid assets are calibrated to the Board's view of liquidity risk appetite and
remain at a prudent level above regulatory requirements. The Group was compliant with all internal and regulatory liquidity
metrics at 30 September 2017.
The liquid asset portfolio provides a buffer against sudden and potentially sharp outflows of funds and liquid assets must
therefore be of a high quality so they can be realised for cash and cannot be encumbered for any other purpose (e.g. to
provide collateral for payments systems). Details on encumbered assets are provided in the following section.
The liquid asset portfolio is primarily comprised of cash at the BoE, UK Government Securities (Gilts) and listed
securities (e.g. bonds issued by supra-nationals and AAA rated covered bonds).
Liquid asset portfolio 2017£m 2016£m
Cash and balances with central banks 4,367 3,702
UK government treasury bills and gilts 1,129 1,187
Other debt securities 829 399
Total 6,325 5,288
The liquid asset portfolio has seen some diversification over 2017 with an increase in Other Debt securities. Before
investing in any security an assessment is completed for both the credit quality and the treatment for liquidity purposes.
ALCO oversees the composition of the liquid asset portfolio.
Supplementary risk management disclosures
Balance sheet and prudential regulation risks
Encumbered assets by asset category
Examples of reasons for asset encumbrance include, among others, supporting the Group's secured funding programmes to
provide stable term funding to the Group, use of assets as collateral for payments systems in order to support customer's
transactional activity, and providing security for the Group's issuance of Scottish bank notes. The Group monitors the
level of asset encumbrance to ensure an appropriate balance is maintained.
Encumbered assets by asset category
September 2017 Assets encumbered with non-central bank counterparties Positioned atthe central bank (includingencumbered)£m Other assets Total£m
Assets not positioned at the central bank Total£m
Readily available forencumbrance£m Other assets capable of beingencumbered£m Cannot beencumbered£m
Coveredbonds£m Securiti-sations£m Other£m Total£m
Cash and balances with central banks - - - - 2,850 4,087 - - 6,937 6,937
Due from other banks 46 358 338 742 - - 432 - 432 1,174
Investments - - - - - 95 1,971 - 10 2,076 2,076
available for sale
Other financial assets - - - - - - 477 - 477 477
Derivatives - - - - - - - 282 282 282
Loans and advances 1,347 5,841 - 7,188 6,294 5,940 8,906 2,965 24,105 31,293
to customers
Intangible assets - - - - - - - 339 339 339
Deferred tax assets - - - - - - - 154 154 154
Other assets - - - - - - 100 399 499 499
Total assets 1,393 6,199 338 7,930 9,239 11,998 9,915 4,149 35,301 43,231
September 2016 Assets encumbered with non-central bank counterparties Positioned atthe central bank (includingencumbered)£m Other assets Total£m
Assets not positioned at the central bank Total£m
Readily available forencumbrance£m Other assets capable of beingencumbered£m Cannot beencumbered£m
Coveredbonds£m Securiti-sations£m Other£m Total£m
Cash and balances with central banks - - - - 2,468 3,487 - - 5,955 5,955
Due from other banks 156 282 337 775 - - 177 - 177 952
Investments - - - - - 101 1,594 36 - 1,731 1,731
available for sale
Other financial assets - - - - - - 750 - 750 750
Derivatives - - - - - - - 585 585 585
Loans and advances 1,149 5,144 - 6,293 2,902 3,946 13,003 3,058 22,909 29,202
to customers
Intangible assets - - - - - - - 256 256 256
Deferred tax assets - - - - - - - 183 183 183
Other assets - - - - - - 122 193 315 315
Total assets 1,305 5,426 337 7,068 5,471 9,027 14,088 4,275 32,861 39,929
Other information
The financial information included in this preliminary results announcement does not constitute statutory accounts within
the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 September 2017 were approved
by the directors on 20 November 2017 and will be delivered to the Registrar of Companies following publication in December
2017. The auditors' report on those accounts was unqualified and did not include a statement under sections 498(2)
(accounting records or returns inadequate or accounts not agreeing with records and returns) or 498(3) (failure to obtain
necessary information and explanations) of the Companies Act 2006.
Additional information
Measuring financial performance - glossary
Financial performance measures
As highlighted throughout the preliminary results announcement, the Group utilises a range of performance measures(1) to
assess the Group's performance. These can be grouped under the following headings:
Profitability;
Asset quality; and
Capital optimisation.
The performance measures used are a combination of statutory, regulatory and alternative performance measures; with the
type of performance measure used dependent on the component elements and source of what is being measured.
Statutory performance measures (S)
These are used when the basis of the calculation is derived from a measure that is required under generally accepted
accounting principles (GAAP). An example of this would be references to earnings per share.
Regulatory performance measures (R)
These are used when the basis of the calculation is required and specified by the Group's regulators. Examples of this
would be the leverage ratio and the Tier 1 ratio.
Alternative performance measures (A)
These are used when the basis of the calculation is derived from a non-GAAP measure - also referred to as APMs. Examples of
this would be the cost to income ratio and the return on tangible equity.
Where a performance measure refers to an 'underlying' metric, the detail on how this measure is arrived at, along with
management's reasoning for excluding the item from the Group's current underlying performance rationale, can be found on
page 16. These adjustments to the Group's statutory results made by management are necessary to provide a more meaningful
underlying basis.
Descriptions of the performance measures used, including the basis of calculation where appropriate, are set out below:
Profitability:
Term Type Definition
Net interest margin (NIM) A Net interest income as a percentage of average interest earning assets for a given period. Net interest income of £844m (2016: £806m) is divided by average interest
earning assets for a given period of £37,697m (2016: £36,257m) (which is then adjusted to exclude short-term repos used for liquidity management purposes, amounts
received under the Conduct Indemnity and not yet utilised, and any associated income). As a result of the exclusions noted above, average interest earning assets used as
the denominator have reduced by £491m (2016: £698m) and the net interest income numerator has reduced by £1.1m (2016: £2.6m).
Underlying return on tangible equity (RoTE) A Underlying profit after tax less preference share and other distributions as a percentage of average tangible equity (total equity less intangible assets and AT1) for a
given period.
Underlying cost to income ratio (CIR) A Underlying total operating expenses as a percentage of underlying total operating income for a given period.
Underlying basic earnings per share (EPS) A Underlying profit/(loss) attributable to ordinary equity shareholders including tax relief on any distributions made to other equity holders divided by the weighted
average number of ordinary shares in issue for a given period.
Statutory RoTE A Statutory profit/(loss) after tax less preference share and non-controlling interest distributions as a percentage of average tangible equity (total equity less
intangible assets and AT1) for a given period.
Statutory CIR A Statutory total operating expenses as a percentage of total operating income for a given period.
Statutory basic EPS S Statutory profit/(loss) attributable to ordinary equity shareholders including tax relief on any distributions made to other equity holders divided by the weighted
average number of ordinary shares in issue for a given period.
(1) The term 'financial performance measure' covers all metrics, ratios and percentage calculations used to assess the
Group's performance and is interchangeable with similar terminology used in the preliminary results announcement such as
highlights, key metrics, key performance indicators (KPIs) and key credit metrics.
Additional information
Measuring financial performance - glossary
Asset quality:
Term Type Definition
Impairment charge toaverage customer loans (cost of risk) A Impairment losses on credit exposures plus credit risk adjustment on fair value loans to average customer loans (defined as loans and advances to customers, other financial assets at fair value and due from customers on acceptances).
90+ days past due (DPD) plus impaired assets to customer loans A Customer loans that are either impaired or where the repayment is more than 90 days overdue as a percentage of total customer loans at a given date.
Specific provision to gross impaired assets A The specific impairment provision on credit exposures as a percentage of gross impaired assets at a given date.
Total provision to customer loans A Total impairment provision on credit exposures as a percentage of total customer loans at a given date.
Indexed loan to value (LTV) of the mortgageportfolio A The mortgage portfolio weighted by balance and indexed using the MIAC Acadametrics indices at a given date.
Net write offs to customer loans A Net write offs, including loans at fair value, as a percentage of total customer loans at a given date.
Capital optimisation:
Term Type Definition
Common Equity Tier 1 (CET1) ratio R CET1 capital divided by RWAs at a given date.
Tier 1 ratio R Tier 1 capital as a percentage of risk-weighted assets.
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