CYBG PLC INTERIM FINANCIAL RESULTS David Duffy Strategic progress - PowerPoint PPT Presentation

CYBG PLC INTERIM FINANCIAL RESULTS

David Duffy Strategic progress Chief Executive Officer

ST RO N G P RO G RE SS IN D E L IV E RIN G O U R ST RAT EG Y Building a bank fit for the underlying profitability Underlying PBT (£m) / Underlying RoTE Sustainable +5% customer growth 10.6% annualised growth in lending 6.3% 6% pts +28% reduction in cost to income ratio (to 64% ) £158m Capital Efficiency optimisation +27bps £123m underlying capital generation H1- 17 H1- 18 Underpinned by digital transformation 3

Ian Smith Financial results Chief Financial Officer

SIG N IF IC A N T IN C RE A SE IN U N D E RLY IN G P RO F IT Underlying P&L Six months to to Change £m £m 31 March 2018 31 2018 31 March 2017 31 2017 YoY Net interest income 411 +4% 426 Non- interest income 86 (10)% 77 Total operating income 497 +1% 503 503 Total operating and administrative expenses (348) (7)% (323) Operating profit before impairment losses 149 +21% 180 180 Impairment losses on credit exposures (26) (15)% (22) Underlying profit on ordinary activities before tax 123 123 +28% 158 158 Net interest margin (NIM) 218 bps 226 bps (8) bps Cost of risk 13 bps 15 bps (2) bps Underlying cost income ratio 64% 70% (6) % pts Underlying return on tangible equity (RoTE) 10.6% 6.3% +4.3 % pts Underlying earnings per share (EPS) 15.5p 9.0p +6.5p 5

STAT U T O RY E A RN IN G S IM PA C T E D B Y L EG A C Y C O N D U C T Statutory P&L Six months to £m £m 31 March 2018 2018 31 31 March 2017 Underlying profit on ordinary activities before tax 158 158 123 123 Exceptional Items - Conduct charges (220) (19) - Business restructuring and similar expenses (33) (58) Statutory (loss)/profit on ordinary activities before tax (95) 46 46 Tax credit / (charge) 19 (16) Statutory (loss)/profit for the period (76) 30 30 6

B RO A D B A SE D F U N D IN G , C O ST E F F EC T IV E M IX Deposit balances Wholesale balances (1) +5% £bn £bn 8.6 28.4 27.7 7.1 1.9 0.4 6.3 6.0 1.9 2.3 8.1 7.9 4.8 4.4 13.8 14.0 Sep- 17 Mar- 18 Sep- 17 Mar- 18 Cost (2) (bps) Cost (2) (bps) 41 51 133 149 LDR 115% 115% TFS (% of lending) 6% 7% Current accounts Savings Term deposits Debt securities TFS Due to other banks 7 (1) Annualised (2) Average cost of funds during six month period

ST RO N G A SSE T G RO W T H A C RO SS A L L SEG M E N T S Mortgages Core SME Unsecured personal £bn £bn £bn (1) (1) (1) +6% +5% +5% 24.1 23.9 7.0 23.5 6.8 1.2 1.2 6.8 1.2 Sep- 17 Dec- 17 Mar- 18 Sep- 17 Dec- 17 Mar- 18 Sep- 17 Dec- 17 Mar- 18 Strong growth in Continued strong new Improved capability competitive market business volumes supporting origination (1) Annualised 8

4 % N II N II G RO W T H H IG H E R B A L A N C E S, M A N A G IN G N IM N IM average yield (1) SME book average yield (1) Mortgage book a (bps) (bps) (19) 16 388 296 277 372 H1- 17 H1- 18 H1- 17 H1- 18 average balance (2) SME book average balance (2) Mortgage book a (£bn) (£bn) +8% +4% 23.9 7.3 7.0 22.1 H1- 17 H1- 18 H1- 17 H1- 18 (1) Average yield is calculated by annualising the interest income/expense for the period and includes the effective interest rate of associated fees 9 (2) Average balances are calculated using the daily balances across the period.

C O ST SAV IN G S RU N N IN G A H E A D O F SC H E D U L E Underlying operating costs Run rate cost savings Ru Reinvestment in business to enhance customer proposition £m £m FY18 guidance 120 376 improved 100+ Network 44 <£640m efficiency 353 Driven by central 348 Operational cost management 10 efficiency and organisational efficiency Org. design 29 327 323 Central cost 37 management Run rate savings Run rate savings to Savings reinvested Target net cost (1) achieved to date be delivered in business savings by FY19 H1- 16 H2- 16 H1- 17 H2- 17 H1- 18 H2- 18 10 (1) Relative to FY16

STA B L E A SSE T Q U A L IT Y, L O W C O ST O F RISK Cost of risk (1) Gross cost of risk (2) 32 (bps) (bps) 3 2 2 24 Mortgages 20 £24.1bn H1- 17 H2- 17 H1- 18 15 13 12 37 SME 87 55 £7.4bn H1- 17 H2- 17 H1- 18 H1- 17 H2- 17 H1- 18 Impairment £26m £22m £22m charge 283 272 Unsecured 253 £1.2bn Net Gross (2) H1- 17 H2- 17 H1- 18 (1) Annualised cost of risk includes credit risk adjustment on loans at fair value 11 (2) Annualised cost of risk excluding provision releases/recoveries, debt sales and credit risk adjustments on loans at fair value

SIG N IF IC A N T A C T IO N O N P P I Utilisation in period required a provision top- PPI provision PPI walk i in complaints £m Remediation 110 programme now complete 422 59 350 367 44 35 235 148 H1- 17 H2- 17 H1- 18 H2- 18 FY19 202 170 Elevated complaints driven by: • CMC activity ahead of fee- capping and cold- calling limit Sep- 17 Remediation Walk Increased Mar- 18 • Heightened media coverage ins provision • FCA advertising campaign Provision Utilisation CYBG charge Indemnity 12

U N D E RLY IN G C A P ITA L G E N E RAT IO N A B SO RB E D B Y C O N D U C T A N D RE ST RU C T U RIN G CET1 ratio evolution (bps) 15 41 90 7 12.4% 10 102 Underlying capital generation 27bps 11.3% 28 Sep- 17 Underlying Asset growth Investment AT1 Restructuring Conduct Other Mar- 18 generated spend distribution 17.9% T otal capital 16.7% 7.4% UK Leverage ratio 7.0% 13

ST RO N G C A P ITA L P O SIT IO N A N D IRB O N T RA C K Significant buff ffer to transitional CRD IV IRB application process for mortgages Phase 1 : scoping (M1) Phase • Mortgages permission application submission 11.3% Complete Phase 2 : reviews of: IRB Accreditation Process (2) 8.9% • Mortgages models (M2); Phase £470m Surplus (1) • Data & IT (M3); Complete • Use test & experience test (M4). CCB (3) 1.9% Phase 3 : reviews of: 2.5% Pillar 2A • Financial reporting & stress testing (M6); Phase • Internal audit and validation (M7); Complete Pillar 1 • Governance (M8). Pillar 1, Pillar 1, 4.5% Pillar 1 8.0% 8.0% Recommendation & supervisory decision Awaiting (M9) Mar- 18 CRD IV CET1 Mar- 18 CET1 Ratio Min. Requirement Remediation: if required Mar- 18 Total RW As (£bn) 19.9 Implementation (M10): Issuance of UK Leverage ratio (4) 7.0% permission confirmation and agreement on any further implementation required. 14 (1) Includes PRA/P2B buffer and management buffer (2) Expect to add a UK CCyB of 0.5% from Jun- 18, increasing to 1% from Nov- 18 (3) Being phased in to Jan- 19, with 1.875% applicable for 2018 (4) Excluding central bank claims

F Y 1 8 A N D M E D IU M T E RM G U ID A N C E Metric FY18 guidance Metric Medium term guidance NIM c.220bps RoTE Double digit by FY19 Underlying costs < £640m *improved* CIR 55%- 58% by FY19 Loan growth Mid- single digit % Loan growth Mid single digit % CAGR to FY19 LDR (1) <120% LDR (1) < 120% Dividend 50% pay out ratio over time Medium term guidance on track 15 (1) Including TFS

David Duffy Summary & outlook Chief Executive Officer

L E V E RA G IN G T H E i B i B P L AT F O RM T O D E L IV E R A N E N H A N C E D D IG ITA L E X P E RIE N C E Core CYBG offerings Customer- focused marketplace B Account(s) B Traveller B @ Home B Money B Rewarded in development not yet live to all customers B Smart B Aggregator due late-May B for Business B Secure 17

A D IF F E RE N T IAT E D REG IO N A L SM E c.3.5% market share of BCAs (national) • Trusted, regional SME brands with Deep, long- term heritage market share of BCAs (regional) c.15% relationships • 170 years of experience in Scotland and Yorkshire c.200k customers half have been with CYBG >10 yrs • Comprehensive product suite Market- leading supported by RM- led servicing model >300 relationship managers avg. tenure of 14 yrs customer • c.95% of borrowing customers use offering CB/YB as primary BCA product c.£9bn of deposits at a cost of c.25bps • Deep sector specialism through £7.4bn of lending average yield of 388bps Proven SME focused teams for key industries expertise • Proven risk management expertise c.100bps OOI yield (as % of lending) On track to deliver our three- year £6bn lending commitment to SMEs by 2019 18