Metro Bank Holdings Plc · LSE:MTRO
Metro Bank — FY2019 Earnings Presentation
40 slides from Metro Bank's earnings presentation, Feb 26, 2020
Slide 1: 2019 Results Presentation
2019 RESULTS PRESENTATION 26 February 2020
Slide 2: Agenda
Agenda 1 Introduction Dan Frumkin (CEO) 2 2019 Financial results David Arden (CFO) 3 Strategy update Dan Frumkin (CEO) 4 Q&A Agenda 1
Slide 3: Introduction
Introduction Dan Frumkin (CEO)
Slide 4: Comprehensive business evaluation
Comprehensive business evaluation What works? What do we need to address? Customer-centric culture External Internal • Lower for longer rate • Negative operating jaws Differentiated customer proposition environment presents • Existing stores have consumed capital income challenges and are dr
Slide 5: Core foundations continue to deliver
Core foundations continue to deliver Customer service Customer service Customer accounts proposition validation growth Open 362 days a year, 7 days a week, early ‘till late Service in stores(3) 2.0m +385k At the heart of our local communities total 2019 – hosted more than 1,500 Money custome
Slide 6: Straightforward strategy – execution is key
Straightforward strategy – execution is key 1 2 3 4 5 Balance sheet Internal and Costs Revenue Infrastructure optimisation external comms Tight cost control through back office Meeting more Investment in Enhanced focus on efficiencies, Improve our customer needs and integrated channels risk-adjusted
Slide 7: 2019 Financial results
2019 Financial results David Arden (CFO)
Slide 8: 2019 key performance indicators
2019 key performance indicators Customer Net fee and Liquidity Total capital accounts other income coverage ratio + MREL ratio (2018: £63.3m) (2018: 139%) (2018: 15.9%) +25% (2018: 1.6m) +58pp +6.2pp +43% 2.0m £90.4m 197% 22.1% Customer Net interest Underlying Statutory deposits margin loss before t
Slide 9: Statutory loss primarily driven by one-off write-down of intangibles
Statutory loss primarily driven by one-off write-down of intangibles and derecognition of deferred tax asset Impairment Intangibles DTA Net BCR Listing share £m Underlying Remediation Transformation and write- Statutory write-down derecognition costs awards down of PPE Net interest income 308.1 - -
Slide 10: Capital above requirements
Capital above requirements Capital position in 2019 supported by the equity capital raise and MREL issuance, optimisation of the treasury portfolio, a loan portfolio disposal and lower lending volumes Total capital + MREL ratio bridge 3.8% 22.1% 3.9% 18.3% (1) 15.9% 1.0% (0.5%) (0.3%) (0.4%) (0.7%)
Slide 11: Resilient deposit base and strong current account growth
Resilient deposit base and strong current account growth Deposit flow challenges experienced in H1 2019 stabilised in H2 2019 and provide a solid foundation for 2020 Deposits by customer type Cost of deposits (£b) 2018 2019 15.7 26% 30% 32% 29% 13.8 14.5 Fixed term: Demand: Fixed term: Demand: 5.1 2
Slide 12: High quality and liquid balance sheet
High quality and liquid balance sheet Treasury assets Funding split £0.6b £0.3b £1.1b £2.7b Cash Retail deposits £3.8b £8.7b LCR eligible RMBS Business and commercial deposits £0.5b 80% LCR Government bonds £5.5b eligible(1) TFS funding £19.1b Covered Bonds Debt securities £0.3b Non-LCR eligible Rep
Slide 13: Conservative underwriting and strong asset quality
Conservative underwriting and strong asset quality We continue to have a low risk, simple product offering, supported by our prudent approach to credit underwriting and lending Low risk lending portfolio Conservative debt to value profile Retail: 72% of portfolio £0.2b • Average retail mortgage DTV(
Slide 14: Pressure on interest income mitigated by significant growth in non-interest income
Pressure on interest income mitigated by significant growth in non-interest income NIM reduction reflects actions taken to protect the balance sheet, offset through strong growth in fee income NIM bridge Net fee and other income (£m) Growth of +385k as a % of customer 181bps 16% 23% accounts total
Slide 15: Run-the-bank cost growth is moderating; a key focus for 2020
Run-the-bank cost growth is moderating; a key focus for 2020 Growth in operating expenses slowed in 2019 reflecting initial delivery of bank-wide cost transformation programme Sequential cost growth Cost drivers 2019 cost actions Significant reduction in the pace of Investment includes opex spend on
Slide 16: Strategy update
Strategy update Dan Frumkin (CEO)
Slide 17: Straightforward strategy – execution is key
Straightforward strategy – execution is key 1 2 3 4 5 Balance sheet Internal and Costs Revenue Infrastructure optimisation external comms Tight cost control through back office Meeting more Investment in Enhanced focus on efficiencies, Improve our customer needs and integrated channels risk-adjusted
Slide 18: Analysis of cost base
1 Analysis of cost base Largely fixed cost base will deliver operating leverage as the Bank continues to scale 2019 cost base by type Front • Fixed cost base allows us to drive office scale and operating leverage Fixed • Store network primary driver for Head office fixed cost base • Store optimisati
Slide 19: Our store network has been carefully assessed
1 Our store network has been carefully assessed Conclusion at present that it is not economic to close any stores Store performance forecast based on 2019 average What works performance(1) Excellent service in stores Integrated ‘bricks-and-clicks’ 10 year NPV variance open vs closed (£m) experie
Slide 20: Efficiency and simplification initiatives underway
1 Efficiency and simplification initiatives underway UK banks’ total assets (£5b – £100b) vs. total Addressable cost initiatives operating expenses(1) Back-office efficiency 100 • Increased use of automation and digitisation across the bank • Re-engineering processes to reduce colleague work 80 • In
Slide 21: Revenue initiatives – meeting more customer needs through better execution
2 Revenue initiatives – meeting more customer needs through better execution Initiatives Enablers Continue to deliver growth in core deposits Outstanding customer service through across all teams and channels community banking model Enhancing store New geographies processes and digital journeys Enha
Slide 22: C&I commitments aligned to new strategy
2 C&I commitments aligned to new strategy c.6% BCA market share by 2025 with more than 395,000 SME current accounts Original commitments Revised commitments By end-2025 By end-2025 C&I funding £120m £70m Metro Bank co- c. £240m c. £140m investment (£2 for every £1) (£2 for every £1) 30 15 New stores
Slide 23: Investment spend to bring the physical and digital world together
3 Investment spend to bring the physical and digital world together Making life easier for FANS and colleagues Going further to enhance the infrastructure to support our community banking model • Start in one channel, finish in another Store network Digital channels • New or improved digital journey
Slide 24: Execution plan developed
3 Execution plan developed Plan underway to deliver the financial results of our transformation strategy Investment plan spend Mobilising our transformation plan Investment category 2020 2021 2022 Every initiative is sponsored by a member of the executive management team Existing products New prod
Slide 25: Focus on risk-adjusted returns and growing our tangible book value
4 Focus on risk-adjusted returns and growing our tangible book value We will optimise our balance sheet and asset mix Balance sheet optimisation initiatives Strategy to rebalance the lending mix 2019 mix Short-term Asset disposals tactical 2% Mortgages Securitisation Forward flow 27% funding program
Slide 26: Internal and external communications
5 Internal and external communications Refreshed strategy focuses on providing colleagues, shareholders and stakeholders a clear message Internal External Help colleagues understand their role in helping the Bank to New leadership to set realistic expectations of the future direction achieve its
Slide 27: Measuring our performance
Measuring our performance 2020 2024 Guidance Targets Guidance Deposits Growth Growth LTD Cost of deposits Mid-single <10% CAGR ‘20-‘24 <100% To reduce over time as the mix digit of current accounts increases Revenue NIM NIM + fees Cost of risk Target lending mix In-line with NIM expansion vs. 2019 1
Slide 28: We continue to surprise and delight our FANS
We continue to surprise and delight our FANS Our unique model remains valuable and our customers love us… …and it is clearly working through tangible demonstration in customer service rankings, awards and colleague engagement 1 Leading service scores for our 2 Awards & increasing brand 3 Award-winni
Slide 29: This is a liability led strategy
This is a liability led strategy Proven liability generation capability 2.0% 1.5% Cost of deposits(1) 1.0% 0.5% 0% (10%) 0% 10% 20% 30% 40% 50% 60% Deposit CAGR – last five years(1) (1) Based on latest full year reported financials. CAGR between 2015 to 2019 shown for Metro Bank, Aldermore, Barclays
Slide 30: Targets are achievable
Targets are achievable Realistic and achievable targets 2024 Targets Why targets are achievable Deposit growth LTD 30% deposit CAGR ‘15-‘19 <10% CAGR ‘20-‘24 <100% 21% total current accounts CAGR ‘15-‘19 Revenue Upside to current consumer unsecured origination NIM expansion vs. 2019 Cost of risk (Av
Slide 31: Becoming the UK's best community bank
Becoming the UK’s best community bank
Slide 32: Appendix
ETRO BANK Appendix
Slide 33: Balance sheet
Balance sheet Annual £’m 2019 2018 Growth • Strong liquidity and funding position Loans and advances to customers 14,681 14,235 3% maintained, reflecting Q4 2019 deposit Treasury assets(1) 5,554 6,604 growth of £249 million Other assets(2) 1,165 808 • Common equity Tier 1 capital (“CET1”) Total asse
Slide 34: Capital and MREL requirements
Capital and MREL requirements Significant surplus to capital requirements Met 1 January 2020 interim MREL requirement 22.1% 22.5% 21.5% MREL eligible Regulatory debt, Regulatory buffers(2), 3.5% 3.7% buffers, 3.5% 5.0% RWAs Tier 2, 2.7% 15.6% Tier 1 surplus MREL 2×(P1+P2A) 10.6%(1) MREL requirement,
Slide 35: Lower net income reflects actions to strengthen balance sheet
Lower net income reflects actions to strengthen balance sheet Annual £’m FY 2019 FY 2018 Growth • Underlying loss before tax reflects Net interest income 308.1 330.1 actions taken to maintain a resilient Net fees and other income 90.4 63.3 balance sheet, IFRS 16, the cost of new Net gains on sale of
Slide 36: Quarterly performance
Quarterly performance Q4 Q3 QoQ £’m 2019 2019 Growth • Actions taken in Q4 taken to maintain a Net interest income 65.3 76.6 resilient balance sheet, including a Net fees and other income 18.7 25.3 moderation of loan growth, reduced revenue by c.£15m in the quarter Net gains on sale of assets - (2.5
Slide 37: Retail mortgage portfolio (1/2)
Retail mortgage portfolio (1/2) Total retail mortgages – Owner occupied and BTL split Total retail mortgages debt-to-value profile £9.6b £10.4b >80% are less than 80%LTV Average retail 30% mortgage lending 76% 81% 27% DTV is 59%, flat 23% YoY 18% 20% 20% 17% 18% 14% 12% 24% 19% 1% 0% 0% 0% 2018 2019
Slide 38: Retail mortgage portfolio (2/2)
Retail mortgage portfolio (2/2) Owner occupied retail mortgages Debt-to-value profile Repayment type Geography 31% 29% 70% 70% Greater London 9.9% 21% South East 40.3% 4.0% 19% 19% 16%16% 17% 16% South West 5.7% 14% 30% 30% East of England 6.7% North West 1% 0% 0%0% 8.7% West Midlands < 50% 61-70% 8
Slide 39: Commercial lending
Commercial lending Debt-to-value profile Industry sector 36% 33% Industry sector 31 Dec 2019 31 Dec 2018 (£m) (£m) 24% 23% 21% 21% Real estate (rent, buy and sell) 2,374 2,547 11% 11% Legal, accountancy and 234 384 7% 6% consultancy 3% 1% 1% 1% Health and social work 263 217 < 50% 51-60% 61-70% 71-8
Slide 40: Disclaimer
Disclaimer This presentation (the "Presentation") does not constitute or form part of an offer or invitation to sell or a solicitation of an offer to buy or subscribe for or otherwise acquire any securities in any jurisdiction or an inducement to engage in investment activity. There shall be no offe