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FTP transition from MI to Sales Income Tool Factors considered in Management Income FTP calculations: LIBOR/Base rate spread – to reflect true cost of borrowing Liquidity Term premium – to reflect Product behavioural lives Behavioural lives are produced at SBU Product level Stock position revised – via monthly published flow rates Both Sales Income team and our Market Risk Team start with the same FTP P&L figures and the same balances For debt FTP, customer level debt balances x relevant FTP rates For deposit FTP, deposit balances x relevant FTP rates Balances used in VAPM and balances in MI should match VAPM FTP calculation Balances x FTP Rate Man. Acc FTP P&L calculation (Senaka Setunge) Allocation to Sales Income tool at customer level (Paul Machin) FTP Rate card (FTP/Balances) FTP rate card is updated twice a year (last update Jan 2010) No differentiation between LB and MB Rates vary by Product types and Sales Teams Also, FTP rates reflect their respective product behavioural lives (O/D 50bps, ACBS >5yrs 115bps) The FTP rates represent average FTP over 12 months (not practical for Sales teams to update every month)

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Market Risk Team FTP calculation Calculating debt and deposit balances at ISB level (within SBUs): ISB splits are calculated (Peter Webb) and set as fixed for each Product (debt and deposits) at Barcorp and SBU levels (but not SBU to BCB ratios) The balances are then allocated to SBUs based on proportion of SBU to Total BCB average Aug-Apr Balances Then the above ISB split ratios are used to allocate the SBU balances to ISBs FTP P&L allocation The same procedure as above is used to allocate FTP P&L figures (from James Gosney) Man. Acc FTP P&L calculation (Senaka Setunge) 1) Take 3 monthly FTP P&L and annualise (x4) 2) Take avg. monthly Balances forecasted for ) Allocate the above into SBUs, then ISBs FTP/Balances = FTP rates Compared to VAPM FTP these are more forward looking Summary and comparison These FTP figures are not related to FTP margins on the FTP Rate card Market Risk Team FTP is forward looking and it reflects monthly updates of Product behavioural lives by Finance VAPT FTP figures will only reflect updates twice-a-year when FTP Rate card gets updated (the last update was in Jan 2010) Market Risk Team FTPVAPM FTP Unless expected average balances are updated, this represents forward looking figure Behavioural life updates reflected monthly Good attempt to represent ISB level costs FTP P&L figures represent actual average balances as these are calculated based on pre-agreed rates Behavioural life updates reflected only twice a year Bottom up approach potentially omitting items that cannot allocated back at customer level

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FTP: Stock vs Flow Stock FTP P&LFlow FTP P&L Incorporates Base/LIBOR spreads Amortised on straight line within respective maturity profile (funded with straight line amortising swap) Amortised element of stock moves to flow rate for the given maturity (funded with 1yr bullet swap) LTP represents historical funding costs (stock pricing) LTP represents current market rates (flow pricing) Behavioural balances by 6 maturity buckets Securitisation relief is applied by netting the securitisation funding achieved from stock Any stock asset moved to flow pricing will be net of securitisation

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FTP explained Cost of the funds that are lent to customers and gain from the funds that are deposited by customers Designed to: deduct the funding cost of loans from P&L credit the funding benefit of deposits to P&L The longer the funding term (whether loan made or deposit taken), the bigger the cost or benefit At origination, some products (loan or deposit) are Base-rate linked while some are LIBOR-linked FTP assumes that all funding takes places at LIBOR rates, therefore, where products are Base-rate linked, the spread between Base and LIBOR is applied to the Base-rate linked product balances (both stock and flow) to adjust for the gap between Base and LIBOR. LTP (liquidity term premium) represents yield on senior unsecured Barclays bonds (1,2,3 yr bonds, etc). LTP spread means Unsecured Barclays bond yield minus 1 month LIBOR Behavioural life. This simply means that product balances (loan or deposit) are allocated into maturity 6 buckets: 0-1yr, 1-2yr, 2-3yr, 3-4yr, 4-5yr, 5yr+ buckets. Let’s say 10% of Commercial Mortgage product is in 1-2yr bucket, LTP is 1%, Base-Libor spread is 0.1% and the product balance is £1bn. Then FTP charge for the 1-2yr bucket would be 10% x (1%+0.1%) x £1bn = £1.1m Stock and Flow FTP. Stock and Flow methodology was developed to gradually transition actual stock balances fully to flow (to reflect the increased cost or worth of funds). Stock will simply transition to flow by straight line amortising on monthly basis within its maturity. For example, £100m stock balance with behavioural life (i.e. maturity) of 2 years will transition to flow rate by 100m/24months=4.2m each month. FTP cost on the 4.2m flow balance will be based on LTP (which is higher) for flow balances. For flow FTP only Unhedged Balances are considered??? Issues: are non-customer balances included, Base/LIBOR spread on currencies

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How total balances are split into maturity buckets and into base & non-base balances Assets (monthly averages used) 1 yr bucket 2 yr bucket Carry out the same calculation as above for 3, 4, 5 and 5+year behavioural buckets. Definitions: Stock balance – is existing loan balance, allocated to a bucket based on its maturity profile (1yr bucket = 1yr profile) Flow balance – is [new loan + amortised stock balance], allocated to a bucket based on its maturity profile (as above) LTP stock rate – is liquidity term premium charged to stock balance, based on its maturity profile LTP flow rate - is liquidity term premium charged to the “flow” balance, based on its maturity profile FTP P&L across all behavioural buckets is summed to arrive at Total FTP P&L for Debt (Assets) The same methodology applies to FTP P&L for Deposits (Liabilities) Stock balance x LTP stock rate Flow balanceLTP flow rate x + Stock balance Flow balance + x x Base/LIBOR spread = Stock FTP P&L = Flow FTP P&L For each identified Product sub-category, calculate FTP P&L as follows (there are 11 asset categories, with total 32 sub-categories) Stock balance x LTP stock rate Flow balanceLTP flow rate x + Stock balance Flow balance + x x Base/LIBOR spread = Stock FTP P&L = Flow FTP P&L

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Finance Disaggregation model explained Stock funding assumptions per each Product: Either Base or LIBOR funded OR mixture of both Has unique behavioural profile (1yr, 1-2yrs, 2-3yrs, 3-4yrs, 4-5yrs, >5yrs) Pricing curve information (provided by Treasury) Base/LIBOR spread monthly update Liquidity Term Premium (LTP) monthly update LTP curve: historical LTP for Stock and current market LTP for flow are used Securitised (asset) balances are removed from the total in applying the pricing curve (i.e. LTP + Base/LIBOR spread) The rationale behind linearly amortised Stock balances is to steadily transition pricing from Stock to Flow (over 5 years) How Stock balances are identified? Take the latest stock position, remove amortised portion. How Flow balances are identified? Take new business added during the previous month, then add the amortised stock element

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Stock FTP calculation for Debt Assets (average monthly) STEP 1 Allocate stock balances into 1 to 5+ year maturity buckets and assume balances amortise linearly through their respective maturities. Assumptions: There 11 asset categories (Products) assumed with 32 sub-categories in total. So calculations are done separately for each sub-category Behavioural buckets are based on maturity transformation improvement project implemented by Novantas All calculations are done based on monthly (average) balances Starting balances (monthly) For each Product line do the following: Product 1 30 Product 2 20 Product 3 15 Product 4 20 Product 4 5 Product 5 10 Total yr bucket 30% 9 2 yr bucket 20% 6 3 yr bucket 15% yr bucket 15% yr bucket 10% 3 > 5 yr bucket 10% 3 Total 30 Product 1 % £ 1 yr bucket 30% 6 2 yr bucket 20% 4 3 yr bucket 15% 3 4 yr bucket 15% 3 5 yr bucket 10% 2 > 5 yr bucket 10% 2 Total 20 Product 2 % £ 1 yr bucket 30% yr bucket 20% 3 3 yr bucket 15% yr bucket 15% yr bucket 10% 1.5 > 5 yr bucket 10% 1.5 Total 15 Product 3 % £ Product balance X Behavioural bucket % Behavioural profile of assets 1 yr bucket Product 1Stock balance amortised over 12 months 2 yr bucket Product 1Stock balance amortised over 24 months etc …

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Stock FTP calculation for Debt Assets (average monthly) STEP 2 Allocate the results from STEP 1 into Base funded and Non- Base (LIBOR) funded balances Assumptions: There 11 asset categories (Products) assumed with 32 sub-categories in total. So calculations are done separately for each sub-category Behavioural buckets are based on maturity transformation improvement project implemented by Novantas All calculations are done based on monthly (average) balances Starting balances (monthly) For each Product line do the following: Product 1 30 Product 2 20 Product 3 15 Product 4 20 Product 4 5 Product 5 10 Total yr bucket 30% 9 2 yr bucket 20% 6 3 yr bucket 15% yr bucket 15% yr bucket 10% 3 > 5 yr bucket 10% 3 Total 30 Prodct 1 % £ 1 yr bucket 30% 6 2 yr bucket 20% 4 3 yr bucket 15% 3 4 yr bucket 15% 3 5 yr bucket 10% 2 > 5 yr bucket 10% 2 Total 20 Product 2 % £ 1 yr bucket 30% yr bucket 20% 3 3 yr bucket 15% yr bucket 15% yr bucket 10% 1.5 > 5 yr bucket 10% 1.5 Total 15 Product 3 % £ Product balance X Behavioural bucket % Behavioural profile of assets 1 yr bucket Product 1Stock balance amortised over 12 months 2 yr bucket Product 1Stock balance amortised over 24 months etc …

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MRT FTP high level methodology Debt BalancesCredit Balances Debt FTP P&L cost Credit Balance FTP P&L gain Debt and Deposit FTP P&L is distributed based on ISB level Proportions set at Debt and Credit balance levels

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FTP transition from MI to Sales Income Tool Factors considered in Management Income FTP calculations: LIBOR/Base rate spread – to reflect true cost of borrowing Liquidity Term premium – to reflect Product behavioural lives Behavioural lives are produced at SBU Product level Stock position revised – via monthly published flow rates Both Sales Income team and our Market Risk Team start with the same FTP P&L figures and the same balances For debt FTP, customer level debt balances x relevant FTP rates For deposit FTP, deposit balances x relevant FTP rates Balances used in VAPM and balances in MI should match VAPM FTP calculation Balances x FTP Rate Man. Acc FTP P&L calculation Enable allocation to Sales Income tool at customer level FTP Rate card (FTP/Balances) FTP rate card is updated twice a year (last update Jan 2010) No differentiation between LB and MB Rates vary by Product types and Sales Teams Also, FTP rates reflect their respective product behavioural lives (O/D 50bps, ACBS >5yrs 115bps) The FTP rates represent weighted average flow FTP over 12 months (not practical for Sales teams to update every month)

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FTP methodology Step 1: Pooling Single, double or multiple? Multiple Pooling Assets & Liabilities by 6 maturity buckets Step 2: Pooling by funding type Base, LIBOR or mixed Split the above into Base and non-Base funded balances Step 3: Stock balances Assume actual balances linearly amortise within their maturity profiles Step 4: Flow balances Calculate flow balances using previous flow; forecast total balances, start/end stock positions Step 4: Calculate Stock FTP P&L resulting from Base/LIBOR differences Step 5: Calculate Stock FTP P&L reflecting varying costs of funds across maturity buckets Apply Base/LIBOR spread to Base balances Apply LTP to total combined Base and non-Base balances Step 6: Calculate Flow FTP P&L reflecting costs of Base/LIBOR differences & maturity buckets Apply the same Base/LIBOR spread and LTP to flow balances as in STEPs 4 & 5 Step 7: Sum Stock and Flow FTP P&L Add all FTP P&L from STEPs 4-6. This will give debt FTP P&L by Product for the next 5 years. FTP P&L will be shown on a monthly basis.

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FTP process owners FTP inputs - external Senaka Setunge: Barcorp Finance, produces both Debt and Deposit FTP P&L figures at Product level Singh, Jatindar: Barclays Treasury (LDN), provides projected balance run-off for BarCorp securitisation FTP Inputs – Internal Jaskeerat Sidhu for latest avg credit balance split by SBU and ISB Peter Webb for latest avg debt balance split by SBU and ISB (these then are grown in line with forecast balances from Max Keeling) FTP outputs – Market Risk Team Paul Smyth provides ISB level FTP margins that we include in capital returns we calculate for BSMC

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