Virgin Money UK : Clydesdale Bank PLC 2021 - Annual report & consolidated financial statements (opens in a new window)

Annual report and consolidated financial statements

Clydesdale Bank PLC

For the year ended 30 September 2021

Company Number: SC001111

Clydesdale Bank PLC

Annual report and consolidated financial statements For the year ended 30 September 2021

Contents

Officers and professional advisers	1
Strategic report	2
Risk report	12
Report of the Directors	94
Statement of Directors' responsibilities	104
Independent auditor's report to the members of Clydesdale Bank PLC	106
Consolidated financial statements	114
Glossary	186
Abbreviations	192
Other information	193
Forward-looking statements	194

Overview

Clydesdale Bank PLC ('the Bank'), together with its subsidiary undertakings (which together comprise 'the Group'), operate under the Clydesdale Bank, Yorkshire Bank and Virgin Money brands. It offers a range of banking services for both retail and business customers through retail stores, lounges, business banking centres, direct and online banking, and brokers. It is the main operating subsidiary of its immediate parent, Virgin Money UK PLC. The results referred to in this annual report and accounts relate to the 12 months up to 30 September 2021.

Certain figures contained in this document, including financial information, may have been subject to rounding adjustments and foreign exchange conversions. Accordingly, in certain instances, the sum or percentage change of the numbers contained in this document may not conform exactly to the total figure given.

The forward-looking statements disclaimer can be found on page 194.

Officers and professional advisers

Chairman	David Bennett
Senior Independent Non-	Tim Wade
Executive Director
Independent Non-	Paul Coby
Executive Directors	Geeta Gopalan
	Darren Pope
	Elena Novokreschenova (appointed 22 March 2021)
Non-Executive Director	Amy Stirling
Executive Director	David Duffy
	Clifford Abrahams (appointed 8 March 2021)
Group Company	Lorna McMillan
Secretary
Group General Counsel	James Peirson
and Purpose Officer
Registered office	30 St Vincent Place
	Glasgow
	G1 2HL
Independent auditors	Ernst & Young LLP
	25 Churchill Place
	Canary Wharf
	London
	E14 5EY

1

Strategic report

The Directors of the Bank and its subsidiary undertakings (which together comprise 'the Group') present their Strategic report for the year ended 30 September 2021.

Principal activities

The Group operates a full service UK-focused retail and commercial banking business under the brand names 'Clydesdale Bank', 'Yorkshire Bank' and 'Virgin Money' across its core regional markets (Scotland, North East England, North West England, Yorkshire and the Humber) and selected national markets. The bank is a strong, low risk bank focused on providing residential mortgages, personal and business current accounts, savings, personal loans and credit cards, loans for small and medium businesses, and payment and transaction services.

Business review

Summary balance sheet as at 30 September

Customer loans

Other financial assets

Other non-financial assets

Total assets

Customer deposits

Wholesale funding

Other liabilities

Total liabilities

Ordinary shareholders' equity

Additional Tier 1 (AT1) equity

Equity

Total liabilities and equity

Summary income statement - underlying and statutory basis(1) for the year ended 30 September

Net interest income

Non-interest income

Total operating income

Total operating and administrative expenses

Operating profit before impairment losses

Impairment credit/(losses) on credit exposures

Underlying profit on ordinary activities before tax

Integration and transformation costs

Acquisition accounting unwinds

Legacy conduct

Other items

Statutory profit/(loss) on ordinary activities before tax

Tax credit/(expense)

Statutory profit/(loss) attributable to equity holders

2021	2020
£m	£m
71,990	72,443
15,035	15,608
2,191	2,256
89,216	90,307
(66,870)	(67,511)
(13,609)	(14,224)
(3,155)	(3,582)
(83,634)	(85,317)
(4,910)	(4,318)

1. (672)

(5,582) (4,990)

(89,216) (90,307)

2021	2020
£m	£m
1,415	1,352

155187

1,570 1,539

1. (914)

669625

1. (501)

1. 124

1. (139)

1. (113)

1. (26)

1. (19)

416 (173)

1. (18)

1. (191)

1. The summary income statement is presented on a statutory and underlying basis. The underlying basis excludes certain items that are included in the statutory results, as management believe that these items are not reflective of the underlying business and do not aid meaningful year-on-year comparison. Full details on the adjusted items are included in the glossary on page 187.

2

Strategic report (continued)

Business review (continued)

The Group has continued to make good progress delivering its strategy and benefitted from an improving economic backdrop. The Group has delivered strong financial results with improved performance and momentum on most key metrics. A recovery in income, reduced costs, a significant reduction in the level of expected credit loss (ECL) provisions and robust common equity tier 1 (CET1) accretion, all leave the bank well placed to accelerate its digital strategy and deliver profitable growth.

Well managed balance sheet

The Group managed balances prudently through the year, given the uncertain environment and overall lending finished 1% lower at £72.0bn. Unsecured balances performed strongly, particularly in the second half, with balances growing 4% in the year against a market that contracted, as the resilience of our book and our strong digital propositions allowed us to continue to take market share. Deposit balances reduced 1% to £66.9bn and we continued to focus on improving the mix of our deposit base and reducing our cost of funds. Over the course of FY21, there was a 29% reduction in more expensive term deposits and a 19% increase in lower-cost relationship deposits. This provided an important underpin to the Group's improving momentum in total operating income.

Significant improvement in impairments

Impairments were significantly improved compared to last year as the Group recognised a £131m impairment credit (2020: £501m charge) given the improving economic outlook and continuing robust asset quality. We remain vigilant as Government support is removed and have maintained coverage levels of 70bps (2020: 103bps), well above pre-pandemic levels.

Return to statutory profit

The Group made a statutory profit before tax of £416m (2020: loss before tax of £173m) after deducting £384m of exceptional

costs (2020: £297m). Overall income improved 2% on the prior year driven by stronger net interest income more than offsetting a weaker non-interest income performance. Operating costs were 1% lower than the prior year as the improvement in underlying costs was partially offset by higher conduct charges in relation to the finalisation of the Group's Payment Protection Insurance (PPI) programme and one-off charges recognised in the year following a reassessment of the Group's practices on the capitalisation of work in progress (WIP) balances against the backdrop of the new digital first strategy and the move to an agile project delivery.

Robust capital, liquidity and funding position

The Group has maintained a robust capital postion with a transitional CET1 ratio of 14.9%. The Group therefore retains a significant CET1 management buffer in excess of its Capital Requirements Directive IV (CRD IV) minimum CET1 requirement of 5.7%.

Funding and liquidity

The Group has maintained a strong funding and liquidity position and has no reliance on short-term wholesale funding. The Group's liquidity surplus continues to comfortably exceed our regulatory minimum and internal risk appetite, with a Liquidity Coverage Ratio (LCR) of 151% as at 30 September 2021 (2020:140%). Net stable funding ratio (NSFR) was 134% at 30 September 2020 (2020: 131%).

Outlook

With an improving economic backdrop, the Group has a strong opportunity through its strategy to simplify the bank and accelerate growth aspirations. The Board believes that the strategy is the right one and with a strong 2021 performance as a foundation, the Group is well positioned to deliver profitable growth, in a cost effective and sustainable way that supports all stakeholders, and disrupt the status quo.

3