REG - CYBG PLCClydesdale Bank PLC - Half-year Report <Origin Href="QuoteRef">CYBGC.L</Origin> - Part 2
16/05/2017 07:06
- Part 2: For the preceding part double click ID:nRSP1995Fa
Averageyield/(rate)(1) Averagebalance Interestincome/(expense) Averageyield/(rate) (1)
£m £m % £m £m %
Interest earning assets:
Mortgages 22,052 325 2.96 20,868 335 3.22
SME lending (2) 7,023 130 3.72 6,883 131 3.82
Unsecured personal lending 1,157 53 9.23 1,230 61 9.97
Liquid assets 5,770 10 0.35 6,136 17 0.55
Due from other banks 961 1 0.16 486 1 0.27
Due from related entities (3) - - - 391 1 0.37
Swap income/other - 15 n/a - 4 n/a
─────────────────────────────────────────────────────── ────────────────────────
Total average interest-earning assets 36,963 534 2.90 35,994 550 3.06
─────────────────────────────────────────────────────── ────────────────────────
Total average non interest-earning assets 2,440 2,588
─────────────────────────────────────────────────────── ────────────────────────
Interest bearing liabilities:
Current accounts 10,956 (3) (0.05) 10,733 (6) (0.11)
Savings accounts 8,257 (22) (0.54) 7,943 (32) (0.82)
Term deposits 5,301 (48) (1.83) 5,439 (59) (2.16)
Other wholesale deposits 3 - (0.95) 95 - (0.94)
Debt securities in issue 4,314 (44) (2.06) 3,887 (40) (2.08)
Due to other banks 1,373 (6) (0.84) 646 (2) (0.59)
Due to related entities (3) - - - 607 (11) (3.48)
─────────────────────────────────────────────────────── ────────────────────────
Total average interest-bearing liabilities 30,204 (123) (0.82) 29,350 (150) (1.03)
─────────────────────────────────────────────────────── ────────────────────────
Total average non interest-bearing liabilities 6,419 6,187
─────────────────────────────────────────────────────── ────────────────────────
Total average equity attributable toordinary equity holders 2,780 3,045
─────────────────────────────────────────────────────── ────────────────────────
NIM (4) 2.26% 2.25%
─────────────────────────────────────────────────────── ────────────────────────
(1) Average yield is calculated by annualising the interest income/expense for the period.
(2) Includes loans designated at fair value through profit and loss.
(3) The average for the six months includes the related party balances with NAB for the four months to January 2016. Effective from 8 February 2016 these have moved to the relevant third party lines.
(4) Net interest income as a percentage of average interest earning assets. Net interest income is divided by average interest earning assets for a given period (excluding short term repos used for liquidity management purposes, amounts received under the Conduct Indemnity and not yet utilised, and any associated income).
Business and financial review (continued)
Financial analysis (continued)
6 months to
───────────────────────────────
31 Mar 2017 31 Mar 2016 30 Sep 2016
Non-interest income £m £m £m
─────────────────────────────────────────────────────────────────────────────────
Gains less losses on financial instruments at fair value 3 3 6
Fees and commission 73 77 74
Net fair value movement on investment properties - - (1)
Other income 10 11 13
─────────────────────────────────────────────────────────────────────────────────
Total underlying non-interest income 86 91 92
─────────────────────────────────────────────────────────────────────────────────
Net gain on capital and debt restructuring - 1 -
Gain on disposal of Visa share - - 7
─────────────────────────────────────────────────────────────────────────────────
Total statutory non-interest income 86 92 99
═════════════════════════════════════════════════════════════════════════════════
Statutory non-interest income reduced by £6m (6.0%) compared with March 2016, largely driven by a reduction in fees and
commission income, principally in relation to insurance revenues from off-sale products which have continued to unwind, and
lower home insurance profit share due to a higher level of claims.
6 months to
───────────────────────────────
31 Mar 2017 31 Mar 2016 30 Sep 2016
Operating and administrative expenses £m £m £m
─────────────────────────────────────────────────────────────────────────────────
Personnel expenses 135 137 143
Depreciation and amortisation expense 42 41 47
Other operating and administrative expenses 171 175 186
─────────────────────────────────────────────────────────────────────────────────
Total underlying operating and administrative expenses 348 353 376
─────────────────────────────────────────────────────────────────────────────────
Conduct charges 19 46 5
Restructuring expense 53 - 45
Separation costs 5 4 7
Impairment of intangible assets - - 45
─────────────────────────────────────────────────────────────────────────────────
Total statutory operating and administrative expenses 425 403 478
═════════════════════════════════════════════════════════════════════════════════
Underlying CIR 70% 72% 76%
Statutory CIR 86% 82% 95%
═════════════════════════════════════════════════════════════════════════════════
On an underlying basis, personnel expenses reduced in the period in line with headcount, with the effects of the reduction
in salaries and related employee costs partially offset by a rise in defined benefit pension scheme costs.
Other operating and administrative expenses benefited from a reduction in NAB charges of £4m, however this was offset by a
marginal increase in costs within other categories. Underlying these movements, the Group's cost base has reduced as a
result of the impact of central cost management activity, which has delivered early savings that more than offset the
impact of contractual inflation increases. Whilst benefits from the Group's strategic cost efficiency initiatives are now
starting to be realised, the full financial effect of these initiatives, such as the branch closures and redundancy
programmes announced in January 2017, will not be seen until the second half of the financial year and into 2018.
The above factors, together with the increase in net interest income, had a positive impact on the underlying CIR, which
reduced from 72% to 70% period on period.
Business and financial review (continued)
Financial analysis (continued)
The costs associated with the implementation of the Group's transformation programme amounted to £53m in the period, and
largely comprises property closure and redundancy costs. Whilst these have been offset in part by lower conduct charges,
overall these have driven a 4% increase in the statutory CIR to 86%. Fundamentally however, this increase in the cost base
(on a statutory basis) reflects the Group's commitment to its strategy of increased efficiency, which requires shorter term
investment in order to realise longer term benefits.
In the first half of the year the Group reassessed the level of provision that was considered appropriate to meet current
and future expectations in relation to the mis-selling of PPI policies and concluded that a further charge of £150m was
required incorporating the Group's estimate of the impact of the Regulator's policy statement issued on 2 March 2017
relating to a proposed time bar for complaints in August 2019. It also incorporated a reassessment of the costs of
processing cases and the impact of experience adjustments. The Group has also raised further provisions of £40m for other
less significant conduct related matters. In aggregate, only 9.7% of the charge, or £19m, impacts the Group's income
statement. The Group continues to assess the impact of resolving legacy conduct issues on an ongoing basis.
Impairment losses on credit exposures 6 months to
───────────────────────────────────────
31 Mar 2017 31 Mar 2016 30 Sep 2016
£m £m £m
─────────────────────────────────────────────────────────────────────────────────
Impairment losses on credit exposures 26 31 8
═════════════════════════════════════════════════════════════════════════════════
Impairment losses on credit exposures have reduced by £5m (14.1%). Prudent underwriting standards and controlled risk
appetite have resulted in continued stabilisation of asset quality across the portfolio, driving lower default rates and
reduced levels of impaired lending.
6 months to
─────────────────────────────
31 Mar 2017 31 Mar 2016
Tax expense £m £m
─────────────────────────────────────────────────────────────────────────────────
Tax expense on underlying profit 29 21
Other tax (credit)/expense (13) 1
─────────────────────────────────────────────────────────────────────────────────
Tax expense on statutory profit 16 22
─────────────────────────────────────────────────────────────────────────────────
UK corporation tax rate 19.5% 20.0%
Effective tax rate - underlying profit 23.5% 19.7%
Effective tax rate - statutory profit 34.8% 38.0%
─────────────────────────────────────────────────────────────────────────────────
The statutory effective tax rate of 34.8% is higher than the statutory rate of 19.5% due to a deferred tax prior year
charge of £4m, and a further charge of £7m due to a change in the deferred tax rate. The charges are offset by the net
conduct indemnity credit of £5m.
The charge arising from the change in the deferred tax rate is the result of two factors. Assets have unwound at a lower
rate than originally predicted because there is no practical impact of the Bank Surcharge for the Group at this time.
There has also been a reduction in the long term average rate at which balance sheet deferred tax assets and liabilities
are valued as the mainstream corporation tax rate trends toward 17%.
Note 6 to the interim condensed consolidated financial statements details the differences between the tax charge at 31
March 2017 and 31 March 2016.
Business and financial review (continued)
Financial analysis (continued)
Balance sheet
Assets As at
────────────────────────────────
31 Mar 2017 30 Sep 2016
£m £m
───────────────────────────────────────────────────────────────────────────────────
Mortgages 22,376 21,836
SME lending (1)
- Core 6,439 6,357
- Non-core 740 800
Unsecured personal lending 1,135 1,153
──────────────────────────────────────────────────────────────────────────────────
Gross loans and advances to customers 30,690 30,146
Accrued interest receivable 75 76
Unearned, deferred and unamortised fee income (58) (55)
Impairment provisions (223) (215)
──────────────────────────────────────────────────────────────────────────────────
Loans and advances to customers 30,484 29,952
Other financial assets 8,983 9,227
Other non-financial assets 761 750
──────────────────────────────────────────────────────────────────────────────────
Total assets 40,228 39,929
══════════════════════════════════════════════════════════════════════════════════
(1) Includes financial assets at fair value of £570m (September 2016: £750m).
Asset quality % %
Retail mortgages:
Proportion of retail mortgage accounts 90+ DPD 0.54 0.51
Indexed LTV of the retail mortgage book 56.9 55.7
SME lending:
Proportion of SME lending 90+ DPD 0.40 0.49
──────────────────────────────────────────────────────────────────────────────────
The Group continued to see growth in its mortgage and core SME portfolios whilst successfully managing the run off in the
non-core SME book. Overall total assets remained broadly flat in the period.
Business and financial review (continued)
Financial analysis (continued)
Mortgages
Mortgage Graph PDF
http://www.rns-pdf.londonstockexchange.com/rns/1995F_-2017-5-15.pdf
Mortgages comprise the Group's largest asset portfolio and have a significant impact on its overall financial performance.
The mortgage portfolio increased by 5% (annualised), higher than system growth(1) of 2.2% (annualised). In line with our
competitors, we continue to see customers favour fixed rate mortgage products, which accounted for 94% of mortgages drawn
in the period.
The average LTV of new lending in the period was 69.7%. Overall average LTV of the Group's retail mortgage portfolio
remains stable, with no change to our robust underwriting criteria. Our proportion of residential mortgages 90 days in
arrears has remained stable at 0.54% (September 2016: 0.51%) as the UK continues to benefit from low unemployment.
Past due balances fell slightly to £283m (September 2016: £285m). Impairment provisions have fallen £2m to £37m (September
2016: £39m) reflecting the modest improvement in past due balances and house price growth in the period.
SME lending
In SME lending the core portfolio continued to grow, with an increase of £82m (2.6% annualised) since September 2016,
slightly below system growth(2) of 2.7% annualised. Drawdowns were 5% higher than in the second half of 2016, although net
lending was impacted by large repayments. The book is well diversified across the product portfolio.
The Group continues to run off its non-core portfolio, which reduced from £800m to £740m during the period.
Unsecured personal lending
The Group's unsecured personal lending portfolio comprises credit cards, personal loans and overdrafts. Unsecured
personal lending balances reduced in the period by £18m (1.6%), albeit at a slower rate than in the prior comparative
period. Fixed rate personal loans have been the key driver of the reduction, with amortising balances exceeding
origination volumes as the Group managed origination flows in a competitive market environment where headline rates fell
below 3% in the quarter to 31 March 2017.
(1) System growth is sourced from the BoE "Mortgages outstanding by type of lender, UK (BOE)" report (MM4).
(2) System growth is sourced from the BoE "Industrial analysis of monetary financial institutions' lending to UK residents" report (c1.2), and excludes individuals and individual trusts, activities auxiliary to financial intermediation, insurance companies & pension funds and financial intermediation (excluding insurance and pension funds) results.
Business and financial review (continued)
Financial analysis (continued)
Liabilities As at
────────────────────────
31 Mar 2017 30 Sep 2016
£m £m
──────────────────────────────────────────────────────────────────────────────────
Current accounts 13,848 13,248
Variable rate savings accounts 7,429 8,240
Fixed rate term deposits (1) 5,056 5,500
Other wholesale deposits - 12
──────────────────────────────────────────────────────────────────────────────────
Total customer deposits 26,333 27,000
Accrued interest 82 138
──────────────────────────────────────────────────────────────────────────────────
26,415 27,138
Due to other banks 2,980 1,309
Debt securities in issue 4,180 4,501
Other financial liabilities 415 602
Other non-financial liabilities 2,989 3,168
──────────────────────────────────────────────────────────────────────────────────
Total liabilities 36,979 36,718
══════════════════════════════════════════════════════════════════════════════════
(1) Includes financial liabilities at fair value of £32m (September 2016: £48m).
Other key ratios:
LDR 117% 112%
LCR 112% 140%
─────────────────────────────────────────────────────────────────────────────────
We continued to work on optimising our liability base in the half. We grew our current account balances by 4.5%, with
particular success in recruiting new Business Current Account deposits which were up 7.9% We also took a number of actions
to restructure elements of our deposit book - to improve the deposit mix and reduce funding costs. In particular we
simplified our ISA product range, collapsing our three Cash ISA products into a single Flexible ISA offering, repriced
around £9.8bn of liabilities and undertook a managed exit of £0.7bn of non-relationship corporate deposits with low
liquidity value.
Current accounts
Funding provided by current accounts increased by £0.6bn (4.5%) since September 2016, due to continued growth on business
current account balances (£0.4bn) driven by the ongoing 25 month fee free offer and system growth; continued growth in B
current account balances (£0.1bn); and a number of other normal deposit inflows (£0.3bn). This was partly offset by the
managed run-off of £0.2bn of corporate current accounts.
Variable rate savings accounts
Variable rate savings account balances decreased by £0.8bn (9.8%) since September 2016 primarily driven by £0.8bn of
attrition on ISAs largely due to repricing actions, and the managed run-off of corporate deposits of £0.4bn. This was
partially offset by continued strong performance in our digital offering with the B savings account attracting an
additional £0.4bn of deposits in the 6 months to March 2017.
Fixed rate term deposits
Fixed rate term deposits decreased by £0.4bn (8.1%) since September 2016, driven by the Group's ongoing strategy to
proactively run off the higher rate back book and price origination in line with current market rates.
Due to other banks
The Group previously indicated its intention to participate in the TFS which provides cash secured against eligible
collateral and has a four year maturity. In the period the Group has drawn £1.9bn (September 2016: nil) under this scheme
as we continue to optimise our funding mix. Drawdowns under the scheme arose mainly in the second quarter, giving rise to
an average balance of £0.5bn in the half.
Business and financial review (continued)
Financial analysis (continued)
Debt securities in issue
Debt securities in issue decreased by £0.3bn (7.1%) since September 2016, largely due to scheduled repayments on the
residential mortgage backed securities (RMBS) programmes of £297m in the period.
Liquidity coverage
The Group's liquidity position benefited from an increase in wholesale funding at September 2016, which led to a higher
than normal LCR of 140% at that time. The LCR ratio returned to a more normal operating level of 112% at March 2017.
Business and financial review (continued)
Asset Quality
6 months to
Key Credit Metrics 31 Mar 2017 31 Mar 2016 30 Sep 2016
─────────────────────────────────────────────────────────────────────────────────
Impairment charge on credit exposures (£m)
SME lending (including lease finance) 15 20 11
Retail lending 11 11 (3)
─────────────────────────────────────────────────────────────────────────────────
26 31 8
Of which:
Specific charge for impairment losses 26 25 -
Collective charge for impairment losses - 6 8
─────────────────────────────────────────────────────────────────────────────────
26 31 8
─────────────────────────────────────────────────────────────────────────────────
As at
31 Mar 2017 31 Mar 2016 30 Sep 2016
─────────────────────────────────────────────────────────────────────────────────
Impairment provisions held on credit exposures (£m)
SME lending (including lease finance) 165 172 157
Retail lending 58 62 58
─────────────────────────────────────────────────────────────────────────────────
223 234 215
Of which:
Specific provision 72 90 64
Collective provision 151 144 151
─────────────────────────────────────────────────────────────────────────────────
223 234 215
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