Metro Bank Holdings Plc · LSE:MTRO
Metro Bank — FY2018 Earnings Presentation
35 slides from Metro Bank's earnings presentation, Feb 26, 2019
Slide 1: Results Presentation
RESULTS PRESENTATION FEBRUARY 26, 2019
Slide 2: Metro Bank Today
Metro Bank Today The revolution • Opening stores, entering new markets, expanding digital capabilities, continues… growing deposits, and creating FANS …delivering strong earnings growth… • Strong deposit and loan growth drives 140% increase in Underlying PBT …but environment is • Continue to operate
Slide 3: The Revolution Continues
The Revolution Continues Another Year of Progress Service Delivery Recognition Number 1 For Overall Quality of Best All Round Personal Best Digital Service in Personal Banking(1) Finance Provider Onboarding Strategy Cost of deposits (bps) 82 79 54 61 Growth of Low Cost 11.7 15.7 Sticky Deposits 8.0
Slide 4: We continue to create FANS
We continue to create FANS Number one service for personal customers… …and well positioned to challenge for the top spot in SME Personal Current Accounts: Overall Quality of Service(1) Business Current Accounts: Overall Quality of Service(1) Award winning customer service… …and award winning colleag
Slide 5: Expanding physical network and digital footprint
As we expand our physical network & digital footprint to deliver an integrated customer experience Increasing Customer Stores Digital Acquisition Digital Investment in 2018 Customer Accounts 1,620 (‘000) • Insights launched 1,217 • International payments functionality added 915 • Current Account ope
Slide 6: Delivering strong growth in deposits, loans and profit
Delivering strong growth in deposits, loans and profit FY 2018 FY 2017 YoY % Customer accounts 1.6m 1.2m 33% Customer deposits £15.7b £11.7b +34% Net average deposit growth per store per month £5.9m £6.3m (6)% Loan to deposit ratio 91% 82% +9pp Net customer loans £14.2b £9.6b +48% Underlying profit
Slide 7: With a liquid, deposit-funded balance sheet
With a liquid, deposit-funded balance sheet £’m Annual FY 2018 FY 2017 Growth Loans and advances to customers 14,235 9,620 48% Treasury assets(1) 6,604 6,127 • Liquid balance sheet with a 91% loan to deposit ratio and 139% Other assets(2) 808 608 liquidity coverage ratio Total assets 21,647 16,355 3
Slide 8: Driven by core deposit growth
Driven by core deposit growth TOTAL CUSTOMER DEPOSIT GROWTH SPLIT OF DEPOSITS BY DIVISION £15.7b £4.1b £4.7b Fixed term: Demand: £7.4b £11.7b savings current accounts Retail accounts £8.0b £15.7b £15.7b £5.1b £8.2b Commercial 82 79 54 61 £6.9b Demand: 2015 2016 2017 2018 savings accounts Cost of dep
Slide 9: Underpinning our continued low risk lending
Underpinning our continued low risk lending DIVERSIFIED LENDING PORTFOLIO STRONG ASSET QUALITY Retail: 69% of portfolio Commercial: 31% of portfolio (12bps) 0.27% £0.3b £0.3b £2.3b £1.4b 0.15% £9.9b £4.4b NPL Ratio £7.3b £2.7b 2017 2018 Residential mortgages Professional BTL Non-performing loans £26
Slide 10: Underlying profit before tax growth of 140% year on year
Underlying profit before tax growth of 140% year on year FY FY Annual £’m 2018 2017 Growth Net interest income 330.1 241.0 Fees and other income 63.3 49.1 Net gains on sale of assets 10.7 3.7 • Positive operating jaws with income Total revenue 404.1 293.8 38% growth (+38%) outpacing cost (+31%) Oper
Slide 11: Maintaining a solid capital position
Maintaining a solid capital position CET1 ratio of 13.1% maintains headroom above our minimum target of 12% Capital generation Capital consumption • Total capital ratio of 15.9% supported by equity raise and • 48% growth in lending is the primary driver of capital Tier 2 debt issuance, and is above
Slide 12: RWA adjustment
RWA adjustment Adjustment Management Actions • Quality of assets is unchanged • Completed a review of classification and risk- weighting across the commercial loan portfolio • Risk-weights assigned to certain exposures under the Credit Risk Standardised Approach were • Supported by a “big four” acco
Slide 13: Strategic Update and Outlook
STRATEGIC UPDATE AND OUTLOOK
Slide 14: Business model centered around creating FANS
Business model centered around creating FANS through our integrated customer experience • Growth retail bank model for modern-day banking centred around an Creating FANS through our integrated physical and digital experience, “bricks & clicks” service-led culture… • Independent CMA survey showed tha
Slide 15: 2019 is a year of evolution for Metro Bank
2019 is a year of evolution for Metro Bank Our Core Strengths Key Challenges • Competitive environment has Creating FANS through put margins under pressure our service-led culture… Changed • Macro uncertainty operating • Continued low interest rate environment environment • Ongoing increasing regula
Slide 16: Evolved our strategy to balance growth, profitability and capital efficiency
Evolved our strategy to balance growth, profitability and capital efficiency through an integrated customer experience Balance growth, profitability and capital efficiency through an 1 integrated customer experience 2 3 4 Rebalance lending Expand range of mix to optimise services to create Improve c
Slide 17: Balance growth, profitability and capital efficiency
1 Balance growth, profitability and capital efficiency Moderate deposit and c.20% • Reduce proportion of higher cost term deposits associated cost deposit • Concentrate on relationship current accounts as well as growth given growth per variable accounts prevailing margin annum environment Maintain
Slide 18: Rebalance lending mix towards mortgages and SME
2 Rebalance lending mix towards mortgages and SME to optimise capital allocation and returns Overall mix shift to elevate ROE Lending will continue to be built around low risk mortgages which are cost-efficient and high ROE Using C&I funding to broaden business services, creating opportunities for f
Slide 19: Expand fee income through new value added services
3 Expand fee income through new value added services, especially for SMEs Development of SME lending supports capital-light fee income generation Fee & commission income (% deposits)(1) Broaden service offering to deepen customer relationships 0.72 e.g. online business account opening, expand paymen
Slide 20: We must increase cost efficiency by driving operational leverage
4 We must increase cost efficiency by driving our operational leverage now we are achieving scale We have identified specific initiatives that will enable Historical Operating Costs(1) us to scale our growth more efficiently £346m Operations £265m Operations IT, Digital and Design Total savings (%)
Slide 21: Capability & Innovation Funding
Capability & Innovation Funding The C&I funding brings the … supporting our three strategic … in a financially future forwards…. initiatives…. prudent way ▪ Winner of the top award for the Increase coverage ▪ No “Day 1” capital C&I fund to over two-thirds impacts Re- of UK SME hot ▪ £120m grant acce
Slide 22: Maintaining a strong capital position to support our growth plan
Maintaining a strong capital position to support our growth plan Capital planning • Plan to raise c.£350m of equity capital in 2019 • Committed standby underwriting by RBC Capital Markets, Equity raise of c.£350m to strengthen capital position Jefferies, and Keefe, Bruyette & Woods in place to suppo
Slide 23: Our medium-term guidance
Our medium-term guidance Deposit growth c.20% per annum, c.2% share of the market by 2023 c.8 new stores a year plus C&I funded store growth (2 Store growth stores in 2019) Average deposits per store >£4m per month Loan to deposit 85% – 90% Cost of risk 15bps – 30bps through the cycle Cost to income
Slide 24: Summary
Summary 2019 is a year of evolution for Metro Bank We will remain a high-growth, low-risk, integrated “bricks & clicks” model focused on creating FANS… … but we will build on our core strengths whilst adapting to the challenging operating environment… … and leveraging the £120m award from the C&I fu
Slide 25: Q&A
Q&A
Slide 26: Appendix
APPENDIX
Slide 27: QoQ performance
QoQ performance Q4 Q3 QoQ £’m 2018 2018 Growth Net interest income 88.9 84.8 • Customer NIM + fees 1bp increase to 2.67% driven by Fees and other income 18.3 16.2 13% growth in fees and other income due to actions taken to extend the range of services Net gains on sale of assets 2.0 4.0 • Customer N
Slide 28: Initiatives to support targeted 55-60% cost income ratio by 2023
We have identified a set of initiatives to support our targeted 55-60% cost income ratio by 2023 2021+ 2020+ 2019 Rollout scheduling optimisation New self-serve ATM and card printing functionalities – more convenient Stores Lean workflow improvements for customers, more efficient for Metro Ban
Slide 29: We are facing headwinds posed by the prevailing operating environment
We are facing headwinds posed by the prevailing operating environment Current headwinds for a low risk, deposit … growing into increased regulatory funded model… requirements Interest rate environment Regulatory requirements change Bank of England base rate Non-G/D-SIB Requirement(2) • MREL signific
Slide 30: Average Store Deposits
Annual cohorts start and grow faster(1) Average Store Deposits Months open 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 2010 2011 2012 2013 2014 2015 2016 2017 (1) 2010 excludes Holborn. Data as at 31 December 2018. Excludes stores opened in the last 1
Slide 31: Capital, funding and liquidity
Capital, funding and liquidity CET1 TARGET VS REQUIREMENTS AS PERCENTAGE OF RWAs(1) FUNDING SPLIT(2) Target CET1 ratio of c.12% £0.2b £0.3b Retail deposits £3.8b 1.0% Countercyclical buffer Business and commercial £7.4b 2.5% Capital Conservation buffer deposits 1.1% Tier 1 component of P2A TFS fundi
Slide 32: 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 £6.2b £9.6b Average retail mortgage lending 28% 27% 73% 76% DTV is 61% vs 60% in 2017 23% 20% 20% 18% 18% 18% 14% 11% 27% 24% 2% 1% 1% 0% Less than 51-60% 61-70% 71-80%
Slide 33: Retail mortgage portfolio (2/2)
Retail mortgage portfolio (2/2) OWNER-OCCUPIED RETAIL MORTGAGES DEBT-TO-VALUE PROFILE REPAYMENT TYPE GEOGRAPHY 31% 29% 69% 70% Greater London 10% 22% South east 4% 19% 19% 17% 16% 16% 6% 16% South west 41% 12% 31% 30% 7% East of England 2% 1% North west 8% 1%0% West Midlands < 50% 51-60% 61-70% 71-8
Slide 34: Commercial lending
Commercial lending DEBT-TO-VALUE PROFILE INDUSTRY SECTOR 36% Industry Sector 31 Dec 31 Dec 33% 2018 (£m) 2017 (£m) 24% Real estate (rent, buy and sell) 2,547 1,704 22% 21% 18% Legal, accountancy and 384 304 12% 11% consultancy 7% 7% Health and social work 217 214 4%3% 1%1% Hospitability 235 185 < 50
Slide 35: 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