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Santander UKGrp Hdgs (83WK)

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Wednesday 27 October, 2021

Santander UKGrp Hdgs

Quarterly Management Statement - Q3 2021

RNS Number : 3524Q
Santander UK Group Holdings PLC
27 October 2021
 

The information contained in this report is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 or interim financial statements in accordance with International Accounting Standard 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and adopted in the UK, and the Disclosure Guidance and Transparency Rules sourcebook of the FCA.

This report provides a summary of the unaudited business and financial trends for the nine months ended 30 September 2021 for Santander UK Group Holdings plc and its subsidiaries (Santander UK), including its principal subsidiary Santander UK plc. The unaudited business and financial trends in this statement only pertain to Santander UK on a statutory basis (the statutory perimeter). Unless otherwise stated, references to results in previous periods and other general statements regarding past performance refer to the business results for the same period in 2020.

This report contains non-IFRS financial measures that are reviewed by management in order to measure our overall performance. These are financial measures which management believe provide useful information to investors regarding our results and are outlined as Alternative Performance Measures in Appendix 1. These measures are not a substitute for IFRS measures. Appendix 2 contains supplementary consolidated information for Santander UK plc, our principal ring-fenced bank. A list of abbreviations used in this report is included in Appendix 4 and a glossary of terms is available at:
https://www.santander.co.uk/about-santander/investor-relations/glossary  

 

 

Santander UK Group Holdings plc

 

Quarterly Management Statement
for the nine months ended 30 September 2021

 

 

 

 

 

 

Paul Sharratt

Head of Investor Relations

07715 087 829

Stewart Todd

Head of External Affairs

07711 776 286

Adam Williams

Head of Media Relations

07711 783 118

For more information:

santander.co.uk/about -santander

[email protected]

 

 

Nathan Bostock, Chief Executive Officer, commented:
 

"Our strong financial performance has been driven by the continuing success of our strategy and the hard work of our colleagues in supporting customers and communities whilst the UK economy reopened.

"We have built on our position as the UK's third largest retail mortgage provider, delivering £5.2 billion of net mortgage growth in a competitive market as well as an increase in customer deposits.

"Despite a more positive economic environment, conditions remain uncertain and a number of factors could impact the pace of recovery. While the pandemic's trajectory over the winter remains unclear, I believe we are well positioned to grow and to support our customers over the years ahead, with strong capital and liquidity and proven balance sheet resilience."

 

Strong 9M21 results with higher operating income, £5.2bn net mortgage growth and £1.5bn increase in customer deposits

§

Profit from continuing operations1 before tax up 381% to £1,438m (adjusted2 up 272%). Adjusted RoTE2 up to 12.9% (2020: 4.3%).

§

Adjusted Banking NIM2 up 32bps to 1.91% (9M20: 1.59%). CIR down to 56% (9M20: 65%).

§

Operating income up 22% and adjusted operating income2 up 19% driven by higher net interest income following deposit repricing.

§

Operating expenses up 5% with £221m transformation programme investment.

Adjusted operating expenses2 down 2% with improved efficiency.

§

£170m credit impairment write-backs largely related to the UK economic recovery.

§

Provisions for other liabilities and charges increased by £90m to £225m, of which £113m related to the transformation programme.

 

Proven balance sheet resilience with strong capital and liquidity

§

Over 90% of customer balances are secured, the majority of which are prime residential mortgages with an average LTV of 41%.

§

Prudent approach to risk reflected by low write-offs, no material corporate defaults in 9M21, ECL provision of £1.0bn (Dec20: £1.4bn).

§

CET1 capital ratio of 16.6% and UK leverage ratio of 5.4% are well above regulatory requirements. Strong LCR of 145% (2020: 150%).

 

Multi-year transformation programme focused on efficiency and meeting the changing needs of our customers and people

§

9M21 transformation programme investment largely related to the branch closures and head office consolidation announced in Q121.

§

Since 2019, £666m of investment has realised £404m of savings to date.

 

Continuing to embed ESG to become a more responsible and sustainable bank

§

Financing UK renewables projects with our parent to help deliver Banco Santander green finance targets of EUR 220bn.

§

Founding partners of the National Parks 'Net Zero with Nature' initiative.

§

Accredited in the Best Workplaces for Women™ list of super large companies for 2021.

 

 

 

Income statement highlights

 

 

9M21

£m

9M20

£m

Operating income

 

3,413

2,791

Operating expenses before credit impairment losses, provisions and charges

 

(1,920)

(1,824)

Credit impairment write-backs / (losses)

 

170

(533)

Provisions for other liabilities and charges

 

(225)

(135)

Profit from continuing operations before tax 1

 

1,438

299

Adjusted profit from continuing operations before tax 2

 

1,701

457

 

Balance sheet and capital highlights

 

30.09.21

31.12.20

 

 

£bn

£bn

Customer loans 3

 

209.0

210.4

- of which retail mortgages

 

175.0

169.8

- of which corporates

 

23.7

27.5

Customer deposits 3

 

193.2

191.7

CET1 capital ratio

 

16.6%

15.2%

UK leverage ratio

 

5.4%

5.1%

 

 

1.

See page 8 for more on the discontinued operation.

2.

Non-IFRS measure. The financial results were impacted by a number of specific income, expenses and charges with an aggregate impact on profit from continuing operations before tax of £263m in 9M21 and £158m in 9M20. Adjusted Banking NIM calculated using adjusted net interest income and adjusted RoTE calculated using adjusted profit. See Appendix 1 for details of APMs and reconciliation to the nearest IFRS measure.

3.

Customer loans includes £0.9bn of loans classified as assets held for sale. Customer deposits includes £2.1bn of deposits classified as liabilities held for sale. See page 8 for details.

 

 

Summarised consolidated income statement 9M21 vs 9M20

 

 

Adjusted 2

 

9M21

9M20

Change

 

 

9M21

9M20

Change

 

£m

£m

%

 

 

£m

£m

%

Net interest income

2,968

2,383

25

 

 

2,968

2,425

22

Non-interest income1

445

408

9

 

 

302

314

(4)

Total operating income

3,413

2,791

22

 

 

3,270

2,739

19

Operating expenses before credit impairment losses, provisions and charges

(1,920)

(1,824)

5

 

 

(1,627)

(1,662)

(2)

Credit impairment write-backs / (losses)

170

(533)

n.m.

 

 

170

(533)

n.m.

Provisions for other liabilities and charges

(225)

(135)

67

 

 

(112)

(87)

29

Profit from continuing operations before tax

1,438

299

381

 

 

1,701

457

272

Tax on profit from continuing operations

(383)

(71)

439

 

 

 

 

 

Profit from continuing operations after tax

1,055

228

363

 

 

 

 

 

Profit from discontinued operations after tax 3

33

14

136

 

 

 

 

 

Profit after tax

1,088

242

350

 

 

 

 

 

Adjusted Banking NIM

-

-

-

 

 

1.91%

1.59%

32bps

CIR

56%

65%

-9pp

 

 

50%

61%

-11pp

 

 

§

Net interest income up 25%, with repricing actions on 1I2I3 Current Account and other deposits offsetting 2020 base rate cuts and back book mortgage margin pressure, including £1.5bn net attrition on SVR and FoR products (2020: £1.8bn).

When adjusted for mortgage accounting treatment of £42m in 9M20, net interest income2 increased 22%.

§

Non-interest income was up 9%, with the gain on sale of our UK head office (announced in Q221) partially offset by significantly lower banking and transaction fees in our retail business largely due to the implementation of regulatory changes to overdrafts.

When adjusted for the Q221 £71m gain on sale, operating lease depreciation of £72m (9M20: £74m) and mortgage accounting treatment change of £20m in 9M20, non-interest income2 fell 4%.

§

Operating expenses before credit impairment losses, provisions and charges up 5% largely related to the transformation programme.

When adjusted for transformation programme costs of £221m (9M20: £64m) and operating lease depreciation of £72m (9M20: £74m), operating expenses2 fell 2% with continued efficiency savings.

§

Credit impairment write-backs of £170m, largely due to a net £144m release related to the improved economic outlook and Covid-19 PMAs. In 9M20 we made a significant charge for Covid-19 related PMAs, which was not repeated. New to arrears flows and Stage 3 defaults remain low as all portfolios continue to perform resiliently.

§

Provisions for other liabilities and charges increased 67%, largely related to the transformation programme.

When adjusted for transformation programme charges of £113m (9M20: £48m) provisions2 were up 29%.

§

Tax on profit from continuing operations increased to £383m with higher profit. The effective tax rate of 26.6% (9M20: 23.7%) was higher as the proportion of profits subject to the bank surcharge increased.

 

2021 outlook

§

Although GDP has recovered in 2021, uncertainties remain for the UK economy. We anticipate the ongoing effects of Covid-19, supply chain disruption and dislocation in the labour market are likely to have an impact on the sustainability of the recovery while inflationary pressures and the impact on interest rates are likely to have implications for bank earnings.

§

We expect the Banking NIM2 in Q421 to be in line with 9M21. Increased competition for lending has affected mortgage application pricing which is likely to impact mortgage margins in the near term.

§

The credit environment continues to be benign and subject to no further economic setbacks, we do not expect a deterioration of our credit performance for the rest of the year.

§

We expect Q421 provisions for other liabilities and charges to be impacted by the UK Bank Levy which is charged annually in the fourth quarter.

 

 

1.

Comprises 'Net fee and commission income' and 'Other operating income'.

2.

Non-IFRS measure. A number of specific income, expenses and charges with an aggregate impact on profit from continuing operations before tax of £263m in 9M21 and £158m in 9M20 impacted the financial results which are shown excluding these in the adjusted columns. See Appendix 1 for details and reconciliation to the nearest IFRS measure.

3.

See page 8 for more on the discontinued operation.

 

 

Summarised income statement Q321 vs Q221

 

 

 

Adjusted 2

 

Q321

Q221

Change

 

 

Q321

Q221

Change

 

£m

£m

%

 

 

£m

£m

%

Net interest income

1,040

1,003

4

 

 

1,040

1,003

4

Non-interest income1

161

191

(16)

 

 

137

95

44

Total operating income

1,201

1,194

1

 

 

1,177

1,098

7

Operating expenses before credit impairment losses, provisions and charges

(579)

(622)

(7)

 

 

(529)

(544)

(3)

Credit impairment write-backs

100

68

47

 

 

100

68

47

Provisions for other liabilities and charges

(35)

(64)

(45)

 

 

(34)

(48)

(29)

Profit from continuing operations before tax

687

576

19

 

 

714

574

24

 

 

 

 

 

 

 

 

 

Adjusted Banking NIM

-

-

-

 

 

1.98%

1.93%

5bps

CIR

48%

52%

-4pp

 

 

45%

50%

-5pp

 

§

Net interest income continued to benefit from changes to the cost of liabilities following repricing on 1I2I3 Current Account and other deposits as well as management actions to reduce funding costs.

§

Non-interest income fell following the Q221 gain on sale of our UK headquarters which was offset by higher gains on corporate centre liability management exercises in Q321.

§

Operating expenses before credit impairment losses, provisions and charges fell with lower transformation programme spend in Q321 and improved efficiency.

§

Credit impairment write-backs in Q321 and Q221 due to releases related to the improved economic outlook and the Q321 release of Covid-19 related PMAs.

§

Provisions for other liabilities and charges fell with lower transformation programme spend in Q321.

 

Summarised balance sheet

 

30.09.21

31.12.20

 

£bn

£bn

Customer loans3

209.0

210.4

Other assets

78.9

88.7

Total assets

287.9

299.1

 

 

 

Customer deposits3

193.2

191.7

Total wholesale funding

53.8

63.2

Other liabilities

23.9

28.0

Total liabilities

270.9

282.9

Shareholders' equity

16.8

15.8

Non-controlling interest

0.2

0.4

Total liabilities and equity

287.9

299.1

 

 

§

Customer loans fell £1.4bn largely due to £5.1bn of asset sales and changes to CIB (outlined on page 8). This fall and lower corporate lending balances were partially offset by £5.2bn net mortgage lending with £25.2bn of gross lending.

§

Customer deposits increased £1.5bn, with £4.4bn growth in Retail Banking partially offset by lower corporate deposits including the changes to CIB (outlined on page 8). 1I2I3 Current Account balances grew to £58bn (Dec20: £57bn) despite repricing actions taken during 2020 and 2021.

§

Other assets and other liabilities fell, as part of liquidity management during 9M21.

 

 

1.

Comprises 'Net fee and commission income' and 'Other operating income'.

2.

Non-IFRS measure. The financial results and adjusted CIR were impacted by a number of specific income, expenses and charges with an aggregate impact on profit from continuing operations before tax of £27m in Q321 and £(2)m in Q221. See Appendix 1 for details of APMs and reconciliation to the nearest IFRS measure.

3.

Customer loans includes £0.9bn of loans classified as assets held for sale. Customer deposits includes £2.1bn of deposits classified as liabilities held for sale. See page 8 for details.

 

 

Notable Q321 changes in ECL

§

Economic scenarios and weights:
Following the quarterly update to economic scenarios and weights used to calculate ECL we made a Q321 release of £70m. This reflected lower unemployment and a strong housing market against a back-drop of low arrears and defaults. The details of our latest economic scenarios are outlined on page 6.

§

Change in perimeter:
The
asset sales and changes to CIB (outlined on page 8) led to a net reduction of £31m.

§

Covid-19 related PMAs:
We made a net release of £25m for Covid-19 related PMAs, largely related to payment holidays and corporate lending to sectors affected by Covid-19. These improved as customers completed 12 months of repayments since the end of the payment holiday or corporate client ratings were reviewed and upgraded.

 

Credit performance1

 

Customer loans

9-month Gross

Loan loss allowances

 

30 September 2021

Total

Stage 1

Stage 2

Stage 3

write-offs

 

 

£bn

£bn

£bn

£bn

£m

£m

 

Retail Banking

188.4

178.3

8.1

2.0

103

496

 

- of which mortgages

175.0

165.9

7.3

1.8

5

200

 

- of which business banking2

3.7

3.4

0.2

0.1

4

22

 

- of which consumer (auto) finance

5.1

4.8

0.3

-

20

61

 

- of which other unsecured lending

4.6

4.2

0.3

0.1

74

213

 

Corporate & Commercial Banking

16.6

11.5

4.2

0.9

24

477

 

Corporate & Investment Banking

0.9

0.8

0.1

-

-

9

 

Corporate Centre

3.1

3.0

0.1

-

-

37

 

 

209.0

193.6

12.5

2.9

127

1,019

 

Undrawn balances

 

36.3

1.2

0.1

 

 

 

Stage 1, Stage 2 and Stage 33 ratios

 

92.63%

5.97%

1.45%

 

 

 

 

 

 

 

 

 

Customer loans

12-month Gross

Loan loss allowances

31 December 2020

Total

Stage 1

Stage 2

Stage 3

write-offs

 

£bn

£bn

£bn

£bn

£m

£m

Retail Banking

186.5

173.2

11.4

1.9

180

706

- of which mortgages

169.8

157.6

10.4

14

280

- of which business banking2

3.9

3.9

-

12

9

- of which consumer (auto) finance

8.0

7.6

0.4

25

118

- of which other unsecured lending

4.8

4.1

0.6

129

299

Corporate & Commercial Banking

17.6

11.1

5.5

51

603

Corporate & Investment Banking

2.8

2.6

0.2

22

33

Corporate Centre

3.5

3.5

-

-

-

35

 

210.4

190.4

17.1

2.9

253

1,377

Undrawn balances

 

41.8

1.3

0.1

 

 

Stage 1, Stage 2 and Stage 33 ratios

 

90.49%

8.12%

 

 

 

 

 

1.

Customer loans includes £0.9bn of loans classified as assets held for sale.

2.

Business banking customer loans consist predominantly of BBLS, some tranches of which began making repayment during Q321.

3.

Stage 3 ratio is the sum of Stage 3 drawn and Stage 3 undrawn assets divided by the sum of total drawn assets and Stage 3 undrawn assets.

 

 

Economic scenarios

§

The UK economy has faced a range of challenges over the last 18 months from Brexit, the weakening global environment, and most significantly, the Covid-19 crisis.

§

The outlook for 2021 has been more positive following the success of the vaccination programme in alleviating the health crisis and allowing social restrictions to be lifted and economic activity to resume. In recent weeks headwinds have materialised, as outlined in the 2021 outlook on page 3, which are likely to negatively impact growth in the short term.

§

The base case reflects the progress made on vaccinations and the end of social distancing restrictions. It also assumes that some form of voluntary social distancing measures for winter will be introduced in Q421.

§

The downside scenarios continue to encapsulate different potential outcomes from the base case including a return to high and persistent rates of inflation; lower use of savings as a means of increasing consumption; higher for longer unemployment and the longer-term impact this can have on economic growth; further lockdowns due to vaccine resistant strains of Covid-19; continuing weak investment; and a larger than assumed negative impact from the EU trade deal.

§

The weights were adjusted to reflect recent market forecasts for lower growth and higher inflation, resulting in a 5pp reduction in Downside 2 offset by a 5pp increase to Downside 1.

 

30 September 20211
 

Upside 1

%

Base case

%

Downside 1

%

Downside 2

%

Downside 3

%

GDP

(calendar year annual growth rate)

2020

-9.8

-9.8

-9.8

-9.8

-9.8

2021

7.3

6.9

6.2

4.5

1.6

2022

5.1

5.0

4.8

0.4

-5.4

2023

2.0

1.7

0.9

1.3

3.0

2024

1.9

1.5

0.4

1.6

1.5

2025

2.1

1.6

0.5

1.6

1.4

Base rate
(At 31 December)

2020

0.10

0.10

0.10

0.10

0.10

2021

0.10

0.10

0.10

0.10

-0.50

2022

0.25

0.10

0.10

0.75

-0.50

2023

0.75

0.25

0.25

1.75

0.00

2024

1.25

0.50

0.50

3.00

0.00

2025

1.75

0.75

0.50

2.75

0.00

HPI

(Q4 annual growth rate)

2020

6.9

6.9

6.9

6.9

6.9

2021

4.3

5.0

3.5

2.8

-8.0

2022

-3.5

2.0

-5.9

-13.7

-18.0

2023

-2.0

2.0

-4.3

-11.5

-5.7

2024

2.1

2.0

-1.4

-1.4

3.2

2025

5.8

2.0

1.3

7.0

3.2

5yr CAGR

1.3

2.6

-1.4

-3.7

-5.4

Unemployment
(At 31 December)

2020

5.2

5.2

5.2

5.2

5.2

2021

4.6

5.7

5.3

5.9

8.0

2022

5.0

5.0

5.4

7.8

10.1

2023

4.7

4.6

5.6

7.3

8.5

2024

4.3

4.5

5.6

6.8

7.7

2025

3.9

4.5

5.7

6.3

7.1

5yr Peak

5.1

5.7

5.7

7.8

11.9

 

Scenario weighting:

 

 

 

 

 

30 September 2021

5%

50%

20%

20%

5%

30 June 20212

5%

50%

15%

25%

5%

 

  

 

1.

Based on July 2021 data and forecast

2.

For 30 June 2021 scenarios see QMS for six months ended 30 June 2021.

 

 

Capital, funding and liquidity

 

30.09.21

31.12.20

 

£bn

£bn

Capital

 

 

CET1 capital

11.5

11.1

Total qualifying regulatory capital

15.3

15.4

CET1 capital ratio

16.6%

15.2%

Total capital ratio

22.3%

21.1%

UK leverage ratio

5.4%

5.1%

RWAs

68.8

72.9

 - of which CIB

1.8

3.8

UK leverage exposure

250.3

259.0

 

 

 

Funding

 

 

Total wholesale funding and AT1

56.2

65.7

- of which with a residual maturity of less than one year

12.5

21.1

 

 

 

Liquidity

 

 

RFB DoLSub LCR

145%

150%

RFB DoLSub LCR eligible liquidity pool

44.5

51.5

SFS LCR

211%

165%

SFS LCR eligible liquidity pool

2.5

2.8

 

 

Higher capital ratios through RWA management and retained profit

 

§

CET1 capital ratio increased 140bps to 16.6%, 670bps above the threshold for MDA, largely due to lower RWAs and retained profit.

§

RWAs were £4.1bn lower, largely due to the asset sales and changes to CIB outlined on page 8.

§

The UK leverage ratio improved by 30bps from year end, 180bps above regulatory minimum, due to lower assets from the asset sales and changes to CIB.

§

Following the announcement from the PRA on 13 July 2021, regarding the return to normalised shareholder distribution framework, we paid an interim ordinary share dividend to our parent in July 2021. We expect to assess any capital surpluses during Q421.

§

CET1 capital ratio includes a benefit of c30bps and UK leverage ratio c10bps from the change in treatment of software assets outlined in the EBA technical standard on the prudential treatment of software assets. The PRA have outlined in Policy Statement PS17/21 on the Implementation of Basel Standards that this treatment will fall away at the start of 2022 and software assets will instead be fully deducted from CET1 capital from that date.

§

Total capital ratio increased by 120bps to 22.3%, with lower RWA and retained profits offsetting the reduction in AT1 securities in issue and the increased effect from January 2021 of the CRD IV Grandfathering Cap rules that reduce the recognition of grandfathered capital instruments issued by Santander UK plc.

 

Robust funding and liquidity

 

§

We drew £5.0bn of TFSME, with £16.7bn outstanding, and issued £2.8bn of MREL eligible senior unsecured securities. We also repaid £4.0bn of TFS, leaving £2.3bn outstanding. Wholesale funding costs improved in 9M21 with buy backs and maturities being refinanced at lower cost, which is expected to continue in Q421.

§

The RFB DoLSub LCR of 145% reduced from 150% at year end, but remains significantly above regulatory requirements.

 

 

Asset sales

 

Consumer (auto) finance, sale of shareholding in PSA Finance UK

 

§

On 30 July 2021 we sold our shareholding in PSA Finance UK Limited at book value to PSA Financial Services Spain, E.F.C., S.A., a joint venture between Santander Consumer Finance, S.A., a subsidiary of Banco Santander, S.A., and Banque PSA Finance, S.A.

 

Retail mortgage portfolio sale

 

§

The sale of a £0.6bn retail mortgage portfolio which was previously classified as held for sale was completed in August 2021 for a premium of £15.2m.

 

Changes to CIB (including Part VII banking business transfer scheme)

 

CIB Part VII banking business transfer scheme

§

Following the sanction hearing held on 23 June 2021, the High Court of England and Wales has sanctioned the transfer of substantially all of the Santander UK CIB business to SLB by way of a Part VII banking business transfer scheme.

§

The migration of the business under the Part VII banking business transfer scheme completed on 11 October 2021.

 

Presentation of CIB

 

§

The CIB segment is presented as a single discontinued operation line on the consolidated income statement of Santander UK, with any residual amounts remaining being transferred to the Corporate Centre. Prior periods have been restated accordingly.

§

At 30 September 2021, customer loans included £0.9bn of CIB loans classified as assets held for sale and £2.1bn of CIB customer deposits classified as liabilities held for sale.

§

The combined impact on CIB from the transfers made under the Part VII banking business transfer scheme and the wind down of the remaining business up to 30 September 2021 is shown as part of the table below.

 

 

Impact of asset sales and changes to CIB on customer deposits, customer loans and RWA

 

 

Customer
deposits

Customer
loans

RWA

 

 

£bn

£bn

£bn

 

Sale of PSA shareholding

-

(2.6)

(2.2)

 

Retail mortgage portfolio sale

-

(0.6)

(0.4)

 

CIB balance sheet changes

(4.4)

(1.9)

(2.0)

 

 

(4.4)

(5.1)

(4.6)

 

 

 

Appendix 1 - Alternative Performance Measures1

In addition to the financial information prepared under IFRS, this Quarterly Management Statement contains non-IFRS financial measures that constitute APMs, as defined in ESMA guidelines. The financial measures contained in this report that qualify as APMs have been calculated using the financial information of the Santander UK group but are not defined or detailed in the applicable financial information framework or under IFRS.

We use these APMs when planning, monitoring and evaluating our performance. We consider these APMs to be useful metrics for management and investors to facilitate operating performance comparisons from period to period. Whilst we believe that these APMs are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for IFRS measures.

 

 

a)  Adjusted profit metrics and average customer assets

Net interest income, non-interest income, operating expenses before credit impairment losses, provisions and charges, provisions for other liabilities and charges, and profit from continuing operations before tax are all adjusted for items management believe to be significant, to facilitate underlying operating performance comparisons from period to period.

 

 

 

Ref.

9M21

9M20

Q321

Q221

 

 

£m

£m

£m

£m

Net interest income

 

 

 

 

 

Reported

(i)

2,968

2,383

1,040

1,003

Adjust for accounting treatment

 

-

42

-

-

Adjusted

(ii)

2,968

2,425

1,040

1,003

 

 

 

 

 

 

Non-interest income

 

 

 

 

 

Reported

(iii)

445

408

161

191

Adjust for accounting treatment

 

-

(20)

0

-

Adjust for operating lease depreciation

 

(72)

(74)

(24)

(25)

Adjust for gain on sale of our UK head office

 

(71)

-

-

(71)

Adjusted

(iv)

302

314

137

95

 

 

 

 

 

 

Operating expenses before credit impairments, provisions and charges

Reported

(v)

(1,920)

(1,824)

(579)

(622)

Adjust for transformation

 

221

64

26

53

Adjust for operating lease depreciation

 

72

74

24

25

Adjust for higher increased expenses as a result of Covid-19

 

-

24

-

-

Adjusted

(vi)

(1,627)

(1,662)

(529)

(544)

 

 

 

 

 

 

Provisions for other liabilities and charges

 

 

 

 

 

Reported

 

(225)

(135)

(35)

(64)

Adjust for transformation

 

113

48

1

16

Adjusted

 

(112)

(87)

(34)

(48)

 

 

 

 

 

 

Profit from continuing operations before tax

 

 

 

 

 

Reported

 

1,438

299

687

576

Specific income, expenses and charges

 

263

158

27

(2)

Adjusted profit from continuing operations before tax

 

1,701

457

714

574

 

 

 

 

 

 

Average customer assets

(vii)

207,871

203,998

207,952

208,583

 

The adjustment for accounting treatment changed was outlined in the Santander UK Group Holdings plc QMS for the three months ended 31 March 2021. The adjustment for the gain on sale of our UK head office was outlined in the Santander UK Group Holdings plc QMS for the six months ended 30 June 2021. Explanations for the other adjustments in the table were outlined on page 192 of the Santander UK Group Holdings plc 2020 Annual Report.

 

 

 

1.

The financial results reflect continuing operations and therefore do not include discontinued operations. Prior period results have been amended accordingly.

 

 

b)  Adjusted Banking NIM

Calculated as adjusted net interest income as a percentage of average customer assets over the period. We consider this metric useful for management and investors as it removes the positive impact of the 2020 accounting change on net interest income, which is not expected to be repeated.

 

 

Ref.

9M21

9M20

Q321

Q221

Reported net Interest Income

(i)

£2,968m

£2,383m

£1,040m

£1,003m

Adjusted net Interest Income

(ii)

£2,968m

£2,425m

£1,040m

£1,003m

Reported net Interest Income - annualised

(viii)

£3,968m

£3,183m

£4,126m

£4,023m

Adjusted net Interest Income - annualised

(ix)

£3,968m

£3,239m

£4,126m

£4,023m

Banking NIM

(viii) divided by (vii)

1.91%

1.56%

1.98%

1.93%

Adjusted Banking NIM

(ix) divided by (vii)

1.91%

1.59%

1.98%

1.93%

 

c)  Adjusted cost-to-income ratio

Calculated as adjusted total operating expenses before credit impairment losses and provisions for other liabilities and charges as a percentage of the total of adjusted net interest income and adjusted non-interest income. We consider this metric useful for management and investors as an efficiency measure to capture the amount spent to generate income, as we invest in our multi-year transformation programme.

 

 

Ref.

9M21

9M20

Q321

Q221

Cost-to-income ratio

(v) divided by the sum of (i) + (iii)

56%

65%

48%

52%

Adjusted cost-to-income ratio

(vi) divided by the sum of (ii) + (iv)

50%

61%

45%

50%

 

d)  Adjusted RoTE

Calculated as adjusted profit after tax attributable to equity holders of the parent, divided by average shareholders' equity less non-controlling interests, other equity instruments and average goodwill and other intangible assets. We consider this adjusted measure useful for management and investors as a measure of income generation on shareholder investment, as we focus on improving returns through our multi-year transformation programme.

 

 

9M21

Specific income, expenses and charges

As adjusted

 

£m

£m

£m

Profit after tax

1,088

195

1,283

Annualised profit after tax

1,455

 

1,668

Phasing adjustments

 

 

(35)

Less non-controlling interests of annual profit

(36)

 

(36)

Profit due to equity holders of the parent (A)

1,419

 

1,598

 

 

 

 

 

 

9M21

£m

Equity adjustments

£m

As adjusted

£m

Average shareholders' equity

16,616

 

 

Less average Additional Tier 1 (AT1) securities

(2,216)

 

 

Less average non-controlling interests

(316)

 

 

Average ordinary shareholders' equity (B)

14,084

 

 

Average goodwill and intangible assets

(1,612)

 

 

Average tangible equity (C)

12,472

(127)

12,345

Return on ordinary shareholders' equity (A/B)

10.1%

 

-

Adjusted RoTE (A/C)

-

 

12.9%

 

 

 

 

 

 2020

Specific income, expenses and charges

As adjusted

 

£m

£m

£m

Profit after tax

438

115

553

Less non-controlling interests of annual profit

(36)

 

(36)

Profit due to equity holders of the parent (A)

402

 

517

 

 

 

 

 

2020

£m

Equity adjustments

£m

As adjusted

£m

Average shareholders' equity

16,293

 

 

Less average Additional Tier 1 (AT1) securities

(2,243)

 

 

Less average non-controlling interests

(398)

 

 

Average ordinary shareholders' equity (B)

13,652

 

 

Average goodwill and intangible assets

(1,713)

 

 

Average tangible equity (C)

11,939

29

11,968

Return on ordinary shareholders' equity (A/B)

2.9%

 

-

Adjusted RoTE (A/C)

-

 

4.3%

 

Specific income, expenses, charges

Details of these items are outlined in section a) of Appendix 1, with a total impact on profit from continuing operations before tax of £263m. The impact of these items on the taxation charge was £68m and on profit after tax was £195m.

Phasing adjustments

To facilitate comparison with the full year ratio we adjust profit due to equity holders of the parent and average tangible equity for charges, releases or accounting changes which only relate to this period. This includes the UK Bank Levy, which is charged annually on 31 December, as required under IFRS.

Equity adjustments

These adjustments are made to reflect the impact of adjustments to profit on average tangible equity.

 

e)  Other non-IFRS measures

A description of the Santander UK group's other non-IFRS measures and their calculation, in addition to the adjusted APMs above, were disclosed on page 194 of the Santander UK Group Holdings plc 2020 Annual Report.

 

 

Appendix 2 - Supplementary consolidated information for Santander UK plc and its controlled entities

 

Santander UK plc is the principal subsidiary of Santander UK Group Holdings plc.

Summarised consolidated income statement

9M21

9M20

 

£m

£m

Net interest income

2,932

2,399

Non-interest income 1

446

418

Total operating income

3,378

2,817

Operating expenses before credit impairment losses, provisions and charges

(1,899)

(1,796)

Credit impairment write-backs / (losses)

170

(533)

Provisions for other liabilities and charges

(224)

(134)

Total operating impairment losses, provisions and charges

(54)

(667)

Profit from continuing operations before tax

1,425

354

Tax on profit from continuing operations

(383)

(88)

Profit from continuing operations after tax

1,042

266

Profit from discontinued operations after tax

32

14

Profit after tax

1,074

280

 

Summarised balance sheet

30.09.21

31.12.20

 

£bn

£bn

Total customer loans2

205.7

207.0

Other assets

76.0

85.3

Total assets

281.7

292.3

 

 

 

Total customer deposits2

187.5

185.7

Total wholesale funding

53.8

63.1

Other liabilities

23.7

27.5

Total liabilities

265.0

276.3

Shareholders' equity

16.7

15.8

Non-controlling interests

-

0.2

Total liabilities and equity

281.7

292.3

 

 

 

Summarised consolidated capital

30.09.21

31.12.20

 

£bn

£bn

Total qualifying regulatory capital

15.0

15.2

Risk-weighted assets (RWAs)

67.6

71.9

Total capital ratio

22.2%

21.2%

 

The information contained in this report is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 or interim financial statements in accordance with International Accounting Standard 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and adopted in the UK, and the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority (FCA).

 

 

1.

Comprises 'Net fee and commission income' and 'Other operating income'.

2.

Customer loans includes £0.9bn of loans classified as assets held for sale. Customer deposits includes £2.1bn of deposits classified as liabilities held for sale.

 

 

Appendix 3 - Supporting information

 

Payment holidays1

30 September 2021

Customers supported

Breakdown of total PH granted

Outstanding PH

 

 

Up to date after PH

Ongoing PH

New to arrears after PH ends

In arrears before PH

Mortgages

256,000

96%

0%

2%

2%

-

Consumer (auto) finance

39,000

89%

0%

6%

5%

-

UPL

36,000

93%

0%

6%

1%

-

Credit cards

34,000

97%

0%

3%

0%

-

Businesses and corporates

3,000

98%

0%

2%

0%

£0.8m

 

Government lending schemes (applications drawn to 30 September 2021)


 

Number of
customers

Loan balance
 

% of relevant loan book

BBLS (100% government guaranteed)

149,000

£3.8bn

19

CBILS (80% government guaranteed)

2,000

£0.7bn

3

CLBILS (80% government guaranteed)

41

£0.2bn

7

 

 

1.

Retail balances are stock positions for customers supported and loans at 30 September 2021 that had, or currently have, payment holidays granted.

 

 

Appendix 4 - Abbreviations

 

APM

Alternative Performance Measure

AT1

Additional Tier 1

BBLS

Bounce Back Loan Scheme

Banco Santander

Banco Santander S.A.

Banking NIM

Banking Net Interest Margin

BTL

Buy-To-Let

CAGR

Compound Annual Growth Rate

CBILS

Coronavirus Business Interruption Loan Scheme

CCB

Corporate & Commercial Banking

CET1

Common Equity Tier 1

CIB

Corporate & Investment Banking

CIR

Cost-To-Income Ratio

CLBILS

Coronavirus Large Business Interruption Loan Scheme

CRR

Capital Requirements Regulation

EBA

European Banking Authority

ECL

Expected Credit Losses

ESMA

European Securities and Markets Authority

EU

European Union

FoR

Follow on Rate

FCA

Financial Conduct Authority

FSCS

Financial Services Compensation Scheme

GDP

Gross Domestic Product

HPI

House Price Index

IASB

International Accounting Standards Board

IFRS

International Financial Reporting Standard

IRD

Interest Rate Derivatives

LCR

Liquidity Coverage Ratio

LTV

Loan-To-Value

MDA

Maximum Distributable Amount

MREL

Minimum Requirement for own funds and Eligible Liabilities

NII

Net interest income

n.m.

Not meaningful

PH

Payment Holiday

PMAs

Post model adjustments

PRA

Prudential Regulation Authority

QMS

Quarterly Management Statement

QoQ

Quarter-on-Quarter

RFB

Ring-Fenced Bank

RFB DoLSub

Santander UK plc Domestic Liquidity Sub-group

RoTE

Return on Tangible Equity

RWA

Risk-Weighted Assets

Santander UK

Santander UK Group Holdings plc

SFS

Santander Financial Services plc

SLB

Santander London Branch

SME

Small and Medium-Sized Enterprise

SVR

Standard Variable Rate

TFS

Term Funding Scheme

TFSME

Term Funding scheme with additional incentives for SMEs

UK

United Kingdom

UPL

Unsecured Personal Lending

YoY

Year-On-Year

 

 

 

 

Additional information about Santander UK and Banco Santander

Santander UK is a financial services provider in the UK that offers a wide range of personal and commercial financial products and services. At 30 September 2021, the bank had around 20,000 employees and serves around 14 million active customers, via a nationwide branch network, telephone, mobile and online banking. Santander UK is subject to the full supervision of the FCA and the PRA in the UK. Santander UK plc customers' eligible deposits are protected by the FSCS in the UK.

 

Banco Santander (SAN SM, STD US, BNC LN) is a leading retail and commercial bank, founded in 1857 and headquartered in Spain and is one of the largest banks in the world by market capitalization. Its primary segments are Europe, North America, South America and Digital Consumer Bank, backed by its secondary segments: Santander Corporate & Investment Banking (Santander CIB), Wealth Management & Insurance (WM&I) and PagoNxt. Its purpose is to help people and businesses prosper in a simple, personal and fair way. Banco Santander is building a more responsible bank and has made a number of commitments to support this objective, including raising over €120 billion in green financing between 2019 and 2025, as well as financially empowering more than 10 million people over the same period. At the end of H1 2021, Banco Santander had more than a trillion euros in total funds, 150 million customers, of which 24.2 million are loyal and 45.4 million are digital, 10,000 branches and over 190,000 employees.

 

Banco Santander has a standard listing of its ordinary shares on the London Stock Exchange and Santander UK plc has preference shares listed on the London Stock Exchange.

 

None of the websites referred to in this Quarterly Management Statement, including where a link is provided, nor any of the information contained on such websites is incorporated by reference in this Quarterly Management Statement.

 

 

 

Disclaimer

Santander UK Group Holdings plc (Santander UK), Santander UK plc and Banco Santander caution that this announcement may contain forward-looking statements. Such forward-looking statements are found in various places throughout this announcement. Words such as "believes", "anticipates", "expects", "intends", "aims" and "plans" and other similar expressions are intended to identify forward-looking statements, but they are not the exclusive means of identifying such statements. Forward-looking statements include, without limitation, statements concerning our future business development and economic performance. These forward-looking statements are based on management's current expectations, estimates and projections and Santander UK, Santander UK plc and Banco Santander caution that these statements are not guarantees of future performance. We also caution readers that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. We have identified certain of these factors in the forward-looking statements on page 278 of the Santander UK Group Holdings plc 2020 Annual Report. Investors and others should carefully consider the foregoing factors and other uncertainties and events. Undue reliance should not be placed on forward-looking statements when making decisions with respect to Santander UK, Santander UK plc, Banco Santander and/or their securities. Such forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise. Statements as to historical performance, historical share price or financial accretion are not intended to mean that future performance, future share price or future earnings for any period will necessarily match or exceed those of any prior quarter.

Santander UK is a frequent issuer in the debt capital markets and regularly meets with investors via formal roadshows and other ad hoc meetings. In line with Santander UK's usual practice, over the coming quarter it expects to meet with investors globally to discuss this Quarterly Management Statement, the results contained herein and other matters relating to Santander UK.

 

Nothing in this announcement constitutes or should be construed as constituting a profit forecast.

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