TIDMMTRO

RNS Number : 9197Q

Metro Bank PLC

23 October 2019

23 October 2019

Metro Bank PLC (LSE: MTRO LN)

Q3 Trading Update 2019

 
 Q3 Summary for 3 months ending 30 September 2019 
 --   Total deposits of GBP14.2 billion with Q3 growth of GBP528 
       million. 
 --   Customer account growth of 106,000 in Q3 2019 (Q2 2019: 
       93,000) to 1.9 million. 
 --   Total net loans of GBP14.9 billion broadly flat quarter-on-quarter, 
       with the loan to deposit ratio reducing to 105% (H1 2019: 
       109%). 
 --   Modest quarter-on-quarter reduction in operating costs 
       and continued growth in fee and other income. 
 --   Asset quality remains strong, reflected in Q3 cost of 
       risk of 5 bps (Q2 2019: 6 bps). 
 --   Strong liquidity and funding position maintained, with 
       LCR higher than Q2 2019. 
 --   Underlying loss before tax(1) of GBP2.2 million in Q3 
       2019 (Q2 2019: GBP6.7 million profit) reflecting the impact 
       from actions taken to maintain a resilient balance sheet, 
       including a one-off GBP2.5 million charge following the 
       GBP521 million portfolio disposal in July 2019. 
 --   Completed inaugural GBP350 million senior non-preferred 
       debt issuance with pro forma total capital plus MREL ratio 
       of 22.6% at 30 September 2019. 
 --   Retained position as number one bank for overall quality 
       of service for personal current account customers and 
       second for business current account customers in the Competition 
       and Market Authority's latest Service Quality Survey. 
 --   Metro Bank is further evaluating its future plans to balance 
       growth, profitability and capital efficiency, the results 
       of which will be communicated in conjunction with the 
       full year results. 
---  -------------------------------------------------------------------- 
 
 
                                      30          30       Change       30        Change 
   GBP in millions                    Sep         June      From        Sept        From 
                                      2019        2019      H1 19       2018       Q3 18 
 
 Assets                            GBP21,002   GBP21,357    (2%)     GBP20,567      2% 
 Loans                             GBP14,891   GBP14,989    (1%)     GBP13,121      13% 
 Deposits                          GBP14,231   GBP13,703     4%      GBP14,813     (4%) 
 Loan to deposit ratio               105%        109%                   89% 
--------------------------------  ----------  ----------  -------  ------------  -------- 
 
 GBP in millions                         9m to 30              9m to 30         Change 
                                          Sep 2019             Sep 2018 
 
 Total underlying revenue(2)             GBP316.2              GBP294.8           7% 
 Underlying profit before 
  tax(1)                                  GBP11.3              GBP39.2           (71%) 
 Statutory (loss)/profit before 
  tax                                    (GBP3.3)              GBP34.4          (110%) 
 
 Net interest margin                       1.58%                1.82%           (24bps) 
 
 Underlying earnings per share 
  - basic                                  6.3p                 32.6p            (81%) 
 Underlying earnings per share 
  - diluted                                6.3p                 31.8p            (80%) 
--------------------------------  ----------------------  -----------------  ------------ 
 
 

1. Underlying (loss)/profit before tax excludes Listing Share Awards, the FSCS levy, impairment of property, plant & equipment ("PPE") and intangible assets, costs relating to the RBS alternative remedies package application and transformation and remediation costs.

2. Underlying revenue excludes Capability & Innovation Funding in respect of the RBS alternative remedies package

Craig Donaldson, Chief Executive Officer at Metro Bank, said:

"This financial performance reflects a challenging nine months for the Bank. Despite considerable headwinds, we have made strong progress in reducing costs, increasing fee income and further strengthening our capital and liquidity position whilst also retaining our top position for overall quality of service for personal current account holders.

"Following our GBP350m MREL-eligible debt issuance and taking into account the challenging macro-economic environment, we are further evaluating our future growth plans to strike the right balance between growth, costs and capital efficiency. We expect to update the market in conjunction with our full year results."

Financial performance for the quarter ended 30 September 2019

Deposits

 
 --   Strong customer account growth of 106,000 in Q3 2019 (Q2 
       2019: 93,000) bringing the total to 1.9 million, including 
       continued growth in personal current accounts and business 
       current accounts. 
 --   Deposit growth of GBP528 million in Q3 2019 supported 
       by the conscious decision to elevate the price of fixed 
       term retail deposits during Q3. September saw net deposit 
       outflows of GBP213 million following the postponed senior 
       non-preferred debt issuance, but we are returning to business 
       as usual. 
 --   Cost of deposits was 84 bps in Q3 2019 (Q2 2019: 71 bps) 
       and 75 bps in the first nine months of 2019. Following 
       the deposit pricing actions taken in Q2 and Q3 2019, cost 
       of deposits normalised to business as usual levels as 
       the quarter progressed and is expected to be marginally 
       above current base rate of 75 bps for full year 2019. 
 
 
 GBP in millions                    30           30       Change      30       Change 
                                    Sep          Jun       From       Sep       From 
                                   2019         2019       H1 19      2018      Q3 18 
 
 Demand: current accounts        GBP4,181     GBP4,305     (3%)    GBP4,502     (7%) 
 Demand: savings accounts        GBP5,700     GBP5,509      3%     GBP6,810    (16%) 
 Fixed term: savings 
  accounts                       GBP4,350     GBP3,889     12%     GBP3,501     24% 
                               -----------  -----------  -------  ----------  ------- 
 Deposits from customers        GBP14,231    GBP13,703      4%     GBP14,813    (4%) 
                               -----------  -----------  -------  ----------  ------- 
 
 Deposits from customers 
  includes: 
 Retail customers (excluding 
  retail partnerships)           GBP6,351     GBP5,555     14%     GBP4,879     30% 
 Retail partnerships             GBP1,890     GBP1,954     (3%)    GBP1,890      - 
                               -----------  -----------  -------  ----------  ------- 
 Deposits from retail 
  customers                      GBP8,241     GBP7,509     10%     GBP6,768     22% 
                               -----------  -----------  -------  ----------  ------- 
 Commercial customers 
  (excluding SMEs(3) 
  )                              GBP2,829     GBP3,064     (8%)    GBP5,194    (46%) 
 SMEs                            GBP3,161     GBP3,130      1%     GBP2,851     11% 
                               -----------  -----------  -------  ----------  ------- 
 Deposits from commercial 
  customers                      GBP5,990     GBP6,194     (3%)    GBP8,045    (26%) 
                               -----------  -----------  -------  ----------  ------- 
 

3. SME defined as enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR50 million, and/or an annual balance sheet total not exceeding EUR43 million, and have aggregate deposits less than EUR1 million.

Loans

 
 --   Total net loans of GBP14,891 million (Q2 2019: GBP14,989 
       million), reflecting proactive management of the Bank's 
       capital and liquidity positions. 
 --   The loan to deposit ratio was 105% at Q3 2019 (Q2 2019: 
       109%). The Bank continues to manage the loan to deposit 
       ratio in a controlled way towards 100%. 
 --   Asset quality remains robust reflecting our continued low-risk 
       lending. Cost of risk was 5 bps in the three months to 
       30 September 2019 (Q2 2019: 6 bps). Non-performing loans 
       were GBP31 million, representing just 0.20% of the total 
       loan portfolio (Q2 2019: 0.17%). 
 
 
 GBP in millions                 30           30       Change      30       Change 
                                 Sep          Jun       From       Sep       From 
                                2019         2019       H1 19      2018      Q3 18 
 
 Gross loans and advances 
  to customers               GBP14,922    GBP15,020     (1%)    GBP13,152    13% 
 Less: allowance for          (GBP31)      (GBP31)       -       (GBP31)      - 
  impairment 
                            -----------  -----------  -------  ----------  ------- 
 Net loans and advances 
  to customers               GBP14,891    GBP14,989     (1%)    GBP13,121    13% 
                            -----------  -----------  -------  ----------  ------- 
 
 Gross loans and advances 
  to customers includes: 
 Commercial lending           GBP4,182     GBP4,343     (4%)    GBP4,166      - 
 Residential mortgages       GBP10,495    GBP10,412      1%     GBP8,715     20% 
 Consumer lending              GBP245       GBP265      (8%)     GBP271     (10%) 
                            -----------  -----------  -------  ----------  ------- 
 

Profit and Loss Account

 
 --   Net interest income in the third quarter was down 7% to 
       GBP76.6 million (Q2 2019: GBP82.4 million), with a 11bps 
       reduction in the net interest margin to 1.50% (Q2 2019: 
       1.61%). This reflects the actions taken in Q2 and Q3 2019 
       to maintain a resilient balance sheet, including the sale 
       of GBP1.5 billion non-LCR interest-bearing investment 
       securities, an increase in fixed term deposit costs, and 
       the GBP521 million loan portfolio disposal. These actions, 
       including a moderation of loan growth, reduced revenue 
       by c.GBP17m in Q3 2019. 
 --   Fee and other income up 5% in Q3 2019 to GBP25.3 million 
       (Q2 2019: GBP24.0 million) supported by growth in the 
       number of transacting customer accounts and benefits from 
       the recent roll-out of further value-added services. The 
       reduction in NIM + fees to 1.99% (Q2 2019: 2.07%) was 
       partially offset by continued fee income growth. Fee growth 
       is expected to continue into Q4 2019. 
 --   Reduction in costs quarter-on-quarter, lowering to GBP99.7 
       million in Q3 2019 from GBP100.3 million in Q2 2019 despite 
       opening new stores. The slow-down in the pace of the cost 
       growth reflects delivery within the Bank's cost transformation 
       programme. We expect cost growth to continue to moderate 
       with low single digit growth in H2 2019 compared with 
       H1 2019 with cost growth reflecting the current expansion 
       of the business in Q4. 
 --   Underlying cost:income ratio of 100% for Q3 2019 (Q2 2019: 
       92%). 
 --   Underlying loss before tax of GBP2.2 million in Q3 2019 
       (Q2 2019: GBP6.7 million profit). This reflects profitability 
       impacts from the prudent balance sheet actions, including 
       a GBP2.5 million charge (comprising of GBP1.8 million 
       loss from the sale of portfolio and GBP0.7 million of 
       interest foregone between the beginning of the quarter 
       and the sale date) following the GBP521 million portfolio 
       disposal in July 2019. 
 --   Statutory loss before tax of GBP6.7 million in Q3 2019 
       (Q2 2019: loss of GBP0.9 million) also reflects the ongoing 
       costs as we progress the transformation and remediation 
       programmes. 
 

Capital, Funding and Liquidity

 
 --    Completed GBP350 million senior non-preferred debt issuance 
        in October. Our pro forma total capital plus MREL resources 
        are GBP2,086 million with a pro forma total capital plus 
        MREL ratio of 22.6% at 30 September, exceeding the 21.5% 
        1 January 2020 interim MREL requirement. 
 --    Common Equity Tier 1 Capital ("CET1") of GBP1,494 million 
        as at 30 September 2019 is 16.2% of risk-weighted assets 
        (Q2 2019: 15.8%), materially exceeding our Tier 1 regulatory 
        minimum of 10.6%(4) . Total capital as a percentage of 
        risk-weighted assets is 18.9%. 
 --    Risk-weighted assets at 30 September 2019 were GBP9,242 
        million (Q2 2019: GBP9,559 million) reflecting the loan 
        portfolio disposal and continued rebalancing of the loan 
        book. 
 --    Regulatory leverage ratio of 7.1%. 
 --    Strong liquidity and funding position maintained, reflecting 
        Q3 2019 deposit growth of GBP528m, the execution of a GBP521 
        million loan portfolio disposal, the completion of GBP350 
        million senior non-preferred notes in October and continued 
        management of lending volumes. As a result, the Bank's 
        Liquidity Coverage Ratio was higher than the 163% reported 
        in Q2. 
            4. Based on current capital requirements, excluding any confidential 
             PRA buffer, if applicable 
 

Operational Update

 
 --   Developing C&I funded sites in SME hotspots including Liverpool 
       and Manchester to open in Q4 2019. Expanded store footprint 
       to the Midlands. 
 --   Launched artificial intelligence-led, in-app Business Insights 
       tool to make managing business finances easy, helping customers 
       make more data-driven decisions and manage their cash flows 
       better. 
 --   Signed a trio of fintech and SME partnerships with Funding 
       Options, Conance and DueDil, to enhance business banking 
       offering for SMEs. 
 --   Retained position as number one bank for overall quality 
       of service for personal current account customers and second 
       for business current account customers in Competition and 
       Market Authority's latest Service Quality Survey. 
 --   Awarded five stars for personal current account and credit 
       card in the Moneyfacts annual star rating. 
 

Governance

 
 --   As separately announced today, Sir Michael Snyder has been 
       appointed as interim Chairman, subject to regulatory approval. 
       Vernon Hill has stepped down from his role as Chairman 
       and will step down from the Board on 31 December 2019. 
       The recruitment process for an independent, Non-Executive 
       Chairperson is progressing. 
 --   Michael Torpey joined the Board in September as an independent 
       Non-Executive Director and was appointed as a member of 
       the Risk Oversight and Audit committees with effect from 
       1 October. Michael has been appointed Chairman of the Audit 
       Committee effective 1 November, subject to regulatory approval. 
 

Outlook

 
 --   Margin trends experienced in Q3 2019 are expected to continue 
       into Q4 2019, in addition to the cost of servicing the 
       senior non-preferred debt. Deposit growth will moderate 
       in Q4 as we strike the right balance between growth, cost 
       of deposits and capital efficiency. 
 --   Metro Bank is further evaluating future growth plans to 
       maximise returns, including future expansion, cost initiatives 
       and optimising capital efficiency. 
 --   Our plans with regards to C&I commitments remain unchanged. 
 --   The results of the evaluation process along with revised 
       targets and KPIs will be communicated in conjunction with 
       the full year results. In the intervening time the Bank 
       will optimise capital, continue to progress with its cost 
       efficiency programme and target further income diversification. 
 

Metro Bank PLC

Summary Balance Sheet and Profit & Loss Account

(Unaudited)

 
                                    Annual         2019          2018 
                                     Growth 
                                      Rate 
 Balance Sheet                                30 Sep   30 Jun   30 Sep 
                                               GBP'm    GBP'm    GBP'm 
 Assets 
 Loans and advances to customers      13%     14,891   14,989   13,121 
 Treasury assets(5)                            4,837    4,668    6,698 
 Assets classified as held for                     -      521        - 
  sale 
 Other assets(6)                               1,274    1,179      748 
                                             -------  -------  ------- 
 Total assets                         2%      21,002   21,357   20,567 
                                             -------  -------  ------- 
 
 Liabilities 
 Deposits from customers             (4%)     14,231   13,703   14,813 
 Deposits from banks                           3,801    3,801    3,801 
 Debt securities                                 249      249      249 
 Other liabilities                               959    1,837      300 
                                             -------  -------  ------- 
 Total liabilities                            19,240   19,590   19,163 
                                             -------  -------  ------- 
 Total shareholder's equity                    1,762    1,767    1,404 
                                             -------  -------  ------- 
 Total equity and liabilities                 21,002   21,357   20,567 
                                             -------  -------  ------- 
 

5. Comprises investment securities, cash & balances with central banks, and loans and advances to banks

6. Comprises property, plant & equipment, intangible assets and other assets

 
                                           Annual Growth    Nine months to 
                                                Rate             30 Sep 
 Profit & Loss Account-Nine months                          2019      2018 
  YTD 
                                                             GBP'm     GBP'm 
 
 Net interest income                                         242.8     241.1 
 Fee and other income                                         71.8      45.0 
 Net gains on sale of assets                                   1.6       8.7 
                                                          --------  -------- 
 Total underlying revenue(7)                    7%           316.2     294.8 
 
 Operating costs                                20%        (298.5)   (249.6) 
 Expected credit loss expense                                (6.4)     (6.0) 
 
 Underlying profit before tax                  (71%)          11.3      39.2 
 
 Underlying taxation                                         (2.6)     (9.4) 
 
 Underlying profit after tax                   (71%)           8.7      29.8 
 
 Listing Share Awards                                        (0.4)     (0.8) 
 FSCS levy                                                   (0.6)     (0.3) 
 Impairment and write offs of property, 
  plant & equipment and intangible 
  assets                                                     (1.0)     (1.7) 
 Costs relating to RBS alternative 
  remedies package application                               (1.0)     (1.9) 
 Capability & Innovation costs                              (10.0)         - 
 Capability & Innovation funding                              10.0         - 
 Transformation and remediation costs                        (9.3)         - 
 Statutory (loss)/profit after tax            (114%)         (3.6)      25.1 
                                                          --------  -------- 
 
 Underlying earnings per share - 
  basic                                        (81%)          6.3p     32.6p 
 Underlying earnings per share - 
  diluted                                      (80%)          6.3p     31.8p 
 Net interest margin (NIM)                                   1.58%     1.82% 
 NIM + fees                                                  2.04%     2.16% 
 Cost of deposits                                            0.75%     0.59% 
 Cost of risk                                                0.06%     0.07% 
 Underlying cost: income ratio                                 94%       85% 
 

7. Underlying revenue excludes Capability & Innovation Funding in respect of the RBS alternative remedies package

 
                                      Annual          2019          2018 
                                       Growth 
                                        Rate 
 Profit & Loss Account-Quarterly                  Q3       Q2        Q3 
                                                 GBP'm     GBP'm    GBP'm 
 
 Net interest income                              76.6      82.4     84.8 
 Fee and other income                             25.3      24.0     16.2 
 Net (loss)/gains on sale of 
  assets                                         (2.5)       2.8      4.0 
                                               -------  --------  ------- 
 Total underling revenue               (5%)       99.4     109.2    105.0 
 
 Operating costs                        13%     (99.7)   (100.3)   (87.9) 
 Expected credit loss expense                    (1.9)     (2.2)    (2.0) 
 
 Underlying (loss)/profit before 
  tax                                 (115%)     (2.2)       6.7     15.1 
 
 Underlying taxation                               1.0     (1.8)    (3.5) 
 
 Underlying (loss)/profit after 
  tax                                 (110%)     (1.2)       4.9     11.6 
 
 Listing Share Awards                            (0.1)     (0.1)    (0.2) 
 FSCS levy                                           -     (0.6)      0.3 
 Impairment and write offs of 
  property, plant & equipment 
  and intangible assets                              -     (1.0)    (1.2) 
 Costs relating to RBS alternative 
  remedies package application                       -       0.2    (0.5) 
 Capability & Innovation costs                   (6.2)     (3.8)        - 
 Capability & Innovation funding                   6.2       3.8        - 
 Transformation and remediation 
  costs                                          (3.6)     (4.6)        - 
 Statutory (loss)/profit after 
  tax                                 (149%)     (4.9)     (1.2)     10.0 
                                               -------  --------  ------- 
 
 Underlying earnings per share 
  - basic                             (106%)    (0.7p)      3.6p    11.9p 
 Underlying earnings per share 
  - diluted                           (106%)    (0.7p)      3.6p    11.6p 
 Net interest margin (NIM)                       1.50%     1.61%    1.77% 
 NIM + fees                                      1.99%     2.07%    2.11% 
 Cost of deposits                                0.84%     0.71%    0.61% 
 Cost of risk                                    0.05%     0.06%    0.06% 
 Underlying cost:income ratio                     100%       92%      84% 
 

Analyst and investor call

An analyst and investor call will be held as follows:

Date: Wednesday 23(rd) October 2019

Time: 5.30pm (BST)

From the UK dial: +44 333 3000 804

From the US dial: + 1 631 9131 422

Participant Pin: 24502748#

URL for other international dial in numbers: http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf

An operator will assist you in joining the call.

For more information, please contact:

Metro Bank PLC Investor Relations

Jo Roberts

+44 (0)20 3402 8900

IR@metrobank.plc.uk

Metro Bank PLC Media Relations

Charlotte Sjoberg / Tina Coates

+44 (0)7970 633255 / +44 (0)7811 246016

pressoffice@metrobank.plc.uk

Teneo

Charles Armitstead / Haya Herbert Burns

+44 (0)7703 330269/ +44 (0) 7342 031051

Metrobank@teneo.com

ENDS

About Metro Bank

Metro Bank is celebrated for its exceptional customer experience and achieved the top spot in the Competition and Market Authority's Service Quality Survey among personal current account holders for its overall service and came second among business current account holders in August 2019. It was also awarded 'Best All-Round Personal Finance Provider' at the Moneynet Personal Finance Awards 2019. It is also recognised by Glassdoor in its 'Best Place to Work UK 2019' top 50 list.

Offering retail, business, commercial and private banking services, it prides itself on using technology to give customers the choice to bank however, whenever and wherever they choose. Whether that's through its growing network of stores open seven days a week, from early in the morning to late at night, 362 days a year; on the phone through its UK-based 24/7 contact centres manned by people not machines; or online through its internet banking or award-winning mobile app: the bank offers customers real choice.

The bank employs around 3,500 colleagues and is headquartered in Holborn, London.

Metro Bank PLC. Registered in England and Wales. Company number: 6419578. Registered office: One Southampton Row, London, WC1B 5HA. 'Metrobank' is the registered trademark of Metro Bank PLC.

It is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Most relevant deposits are protected by the Financial Services Compensation Scheme. For further information about the Scheme refer to the FSCS website www.fscs.org.uk.

All Metro Bank products are subject to status and approval.

Metro Bank PLC is an independent UK bank - it is not affiliated with any other bank or organisation (including the METRO newspaper or its publishers) anywhere in the world. Please refer to Metro Bank using the full name.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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