HSBC UK Bank plc Annual Report and Accounts 2019 Contents Presentation of information Page This document comprises the Annual Report and Accounts 2019 Strategic report for HSBC UK Bank plc (‘the bank’) and its subsidiaries (together Key financial metrics 2 ‘HSBC UK’ or ‘the group’). ’We’, ‘us’ and ‘our’ refer to HSBC UK About us 3 Bank plc together with its subsidiaries. It contains the Strategic Report, the Report of the Directors, the Statement of Directors’ Our strategy 4 Responsibilities and Financial Statements, together with the How we do business 5 Independent Auditors’ Report, as required by the UK Companies Key performance indicators 9 Act 2006. References to ‘HSBC Group’ or ‘the Group’ within this Financial summary 10 document mean HSBC Holdings plc together with its subsidiaries. Risk overview 16 Report of the Directors HSBC UK is exempt from publishing information required by The Risk 17 Capital Requirements Country-by-Country Reporting Regulations Capital 52 2013, as this information is published by its ultimate parent, HSBC Corporate governance report 54 Holdings plc. This information will be available in June 2020 on the Disclosure of information to the auditors and Statement of Directors’ Group's website: www.hsbc.com. Responsibilities 60 Pillar 3 disclosures for HSBC UK are also available on Independent auditors’ Report 61 www.hsbc.com, under Investor Relations. Financial statements All narrative disclosures, tables and graphs within the Strategic Financial statements 70 Report and Report of the Directors are unaudited unless otherwise Notes on the financial statements 78 stated. Our reporting currency is £ sterling. Unless otherwise specified, all $ symbols represent US dollars. Cautionary statement regarding forward- looking statements This Annual Report and Accounts 2019 contains certain forward- looking statements with respect to the financial condition, results of operations and business of the group. Statements that are not historical facts, including statements about the group’s beliefs and expectations, are forward-looking statements. Words such as ‘expects’, ‘anticipates’, ‘intends’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘potential’ and ‘reasonably possible’, variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward- looking statements speak only as of the date they are made. HSBC UK makes no commitment to revise or update any forward-looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statement. Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement. HSBC UK Bank plc Annual Report and Accounts 2019 1 Strategic report Key financial metrics Year ended Half Year 31 Dec 31 Dec 31 Dec 30 Jun 2019 20181 20191 20191 Reported results Reported revenue (£m) 6,484 3,357 3,169 3,315 Reported profit before tax (£m)3 1,010 1,064 394 616 Reported profit after tax (£m) 516 763 165 351 Profit attributable to the shareholders of the parent company (£m) 512 763 164 348 Return on average tangible equity (annualised) ('RoTE') (%)3 2.4 8.8 N/A N/A Net interest margin (%) 2.05 2.22 N/A N/A Expected credit losses and other credit impairment charges ('ECL') as % of average gross loans and advances to customers (%) 0.34 0.35 N/A N/A Adjusted results Adjusted revenue (£m) 6,613 3,352 3,298 3,315 Adjusted profit before tax (£m)3 2,263 1,299 1,125 1,138 Cost efficiency ratio (%)3 56.5 52.1 57.4 55.7 Adjusted return on average tangible equity (annualised) ('RoTE') (%)2, 3 9.9 11.7 N/A N/A Balance sheet Total assets (£m) 257,102 238,939 N/A N/A Net loans and advances to customers (£m) 183,056 174,807 N/A N/A Customer accounts (£m) 216,214 204,837 N/A N/A Average interest-earning assets (£m) 231,701 219,419 N/A N/A Loans and advances to customers as % of customer accounts (%) 84.7 85.3 N/A N/A Total shareholders' equity (£m) 22,191 22,273 N/A N/A Tangible ordinary shareholders equity (£m) 16,001 16,243 N/A N/A Capital, leverage and liquidity Common equity tier 1 ('CET1') capital ratio (%)3 13.0 12.7 N/A N/A Total capital ratio (%) 19.2 18.3 N/A N/A Risk-weighted assets ('RWAs') (£m) 85,881 91,839 N/A N/A Leverage ratio (%) 5.0 5.6 N/A N/A High-quality liquid assets (liquidity value) (£m) 56,822 46,357 N/A N/A Liquidity coverage ratio (%) 165 143 N/A N/A 1 HSBC UK's banking operations commenced on 1 July 2018, following the transfer of the qualifying businesses and subsidiaries from HSBC Bank plc. Results for the year ended 2019 have been provided on a half year to date basis in order to provide better comparability to the 2018 results. Balance sheet data and related metrics are not provided on this basis. 2 In the event that the current IAS 19 Pension fund surplus was zero, additional CET1 capital would be required to be held and Adjusted RoTE would be 11.3% (2018: 13.7%); we refer to this as Pension Adjusted RoTE. 3 These metrics are tracked as Key Performance Indicators of the group. Presentation of non-GAAP measures In measuring our performance, the financial measures that we use include those derived from our reported results in order to eliminate factors that distort period-on-period comparisons. Such measures are referred to as adjusted performance. A reconciliation of reported to adjusted performance is provided on pages 11 to 14. RoTE is computed by adjusting the reported equity for goodwill and intangibles. A reconciliation is provided on page 119, which details the adjustments made to the reported results and equity in calculating RoTE. 2 HSBC UK Bank plc Annual Report and Accounts 2019 About us Commercial Banking HSBC UK comprises of Retail Banking and Wealth Management Customers (‘RBWM’); Commercial Banking (‘CMB’), Private Banking (‘PB’) CMB serves over 830,000 active customers across the UK, ranging and a restricted Global Banking and Markets (‘GB&M’) business. from start-ups to multi-national corporates, through four customer HSBC UK is strongly connected to the rest of the HSBC Group and groups: Large Corporates (‘LC’); Mid-Market Enterprises (‘MME’); leverages this network to support customers and grow revenue Business Banking (‘BB’); and Small Business Banking (‘SBB’). across key trade corridors around the world. Products and services CMB supports customers with tailored financial products and Purpose, values and ambition services to allow them to operate efficiently and to grow, with a strong relationship focus. These include Credit and Lending, Global Liquidity and Cash Management (GLCM), and Global Trade HSBC Group's purpose and Receivables Finance (GTRF). Through close collaboration with HSBC Group, we can make available GB&M products and To be where the growth is; connecting customers to opportunities. Securities Services to our customers. They enable businesses to thrive and economies to prosper, helping people to fulfil their hopes and dreams and realise their Private Banking ambitions. Customers Our values PB serves high and ultra-high net worth individuals and families; Our values define who we are as an organisation: including those with international banking needs. Dependable Products and services We are dependable, standing firm for what is right and delivering PB supports clients with investment management; including on our commitments. advisory, discretionary and brokerage services. We also offer private wealth solutions, comprising trusts and estate planning, Open designed to protect wealth and preserve it for future generations. We are open to different ideas and cultures, and value diverse This is as well as a full range of lending and transactional banking perspectives. services. Connected Global Banking and Markets We are connected to our customers, communities, regulators and each other, caring about individuals and their progress. We are able to offer selected GB&M products to our customer base. For example, we maintain a markets team that help to Our UK ambition support the sale of eligible markets products to our CMB customers from HSBC Bank plc. Deeply rooted in the UK and providing a unique gateway to the world. We are investing in growth and innovation to make banking Corporate Centre simple, safe and sustainable, and be the bank of choice for our customers, colleagues and communities through the generations. Corporate Centre comprises Central Treasury, including Balance Sheet Management, interests in a joint venture, and central stewardship costs that support our businesses. What we do HSBC UK, headquartered in Birmingham, has over 15 million Economic background and active customers, with 22,000 colleagues across the country, supported by a further 10,000 colleagues based in our service outlook company HSBC Global Services (UK) Limited, who provide Real quarterly UK GDP growth slowed from 0.5% in the third services to HSBC UK and the wider HSBC Group. quarter of 2019, to 0.0% in the fourth quarter, according to data HSBC UK manages its products and services through four from the Office of National Statistics. The underlying pace of UK businesses: RBWM, CMB, PB and a restricted GB&M business. In economic growth remains subdued, with full-year growth at 1.4% addition, certain central operations of the HSBC UK business lines for 2019. are managed through the Corporate Centre. The labour market remains relatively firm with the unemployment rate standing at 3.8% in the three months to November.