The group, which owns the Clydesdale and Yorkshire Banks, booked a £164 million pre-tax loss in the year to September 30, compared with a £268 million profit in 2017.
The group was stung by £396 million of legacy conduct costs, the bulk of which were linked to PPI claims.
It reflects higher-than-predicted complaints volumes following a Financial Conduct Authority advertising campaign featuring Arnold Schwarzenegger aimed at encouraging people to come forward before an August 2019 deadline for final claims.
CYBG said that, while weekly complaint volumes have been falling since the end of July, it considers it “prudent” to take a further £150 million increase in provisions as it estimates 83,000 future claims.
On an underlying basis, profit before tax was up 13% to £331 million and net interest income rose 1% to £851 million.
Chief executive David Duffy also used the annual update to warn over Brexit uncertainty.
“Clearly Brexit negotiations mean the external political and macroeconomic environment remains inherently uncertain.
“We have planned for a period of uncertainty, but it is impossible to ignore the lower levels of business confidence, especially for SMEs, while the final specific outcome of negotiations remains unclear.”
Earlier this year, CYBG completed a £1.7 billion takeover of Virgin Money, marking one of the first major banking deals since the financial crisis.
The combined group is expected to result in annual cost savings of around £120 million by the end of September 2021.
With more than six million customers, the bank will also hold £70 billion in customer loans and around £58 billion in mortgages.
Mr Duffy added: “It has been a landmark year for CYBG, continuing to deliver ahead of market growth and meeting our underlying financial targets in a highly competitive market, while also completing the transformational Virgin Money acquisition in October 2018 following overwhelming shareholder support.
“In a competitive market, we have delivered an increase in underlying profits, returns and capital generation - all of which means we are delighted to recommend an increase to last year’s inaugural CYBG dividend, payable to all shareholders.”