Metro Bank Holdings PLC: Results for year ended 31 December 2023
Metro Bank Holdings PLC (MTRO)
13-March-2024 / 07:00 GMT/BST
Metro Bank Holdings plc Full year results Trading update 2023 13 March 2024 Metro Bank Holdings plc (LSE: MTRO LN) Results for year ended 31 December 2023 Highlights
Statutory profit before tax of £30.5 million for the year, the first time since 2018, with a 67% year-on-year reduction in underlying loss to £16.9 million
Deposits of £15,623 million as at 31 December 2023 are up 1% from June leading to an elevated liquidity coverage ratio of 332% as at 31 December 2023
Underlying revenue grew by 5% year-on-year reflecting effective asset rotation and increased yields plus 12% growth in capital efficient fee income, whilst costs marginally reduced, creating positive operating jaws
Continued to grow personal and business current accounts, opened 246,000 accounts in the year and over 52,000 of those were in the fourth quarter
On track to deliver £50 million of annualised cost savings in Q1 2024 as previously announced, these savings have been actioned with c.1,000 colleagues, equal to 22% of headcount, leaving before mid-April
A further £30 million of annualised cost savings is expected to be delivered by the end of 2024
Remain committed to stores, including opening new stores in the North of England
Secured the capital position and extended the debt instrument maturities to 2028 or beyond
Daniel Frumkin, Chief Executive Officer at Metro Bank, said: “Overall, Metro Bank performed strongly in 2023 as we continued to position the business for growth. We were pleased to return to profit on a statutory basis and deliver our best half-year results for several years. After addressing our capital position in Q4, we also launched a successful deposit campaign, with deposits totalling £16.5 million as at the end of February 2024.” “During the year we also launched a cost saving plan which included reducing store hours and roles across the organisation. These efforts will ensure the bank is right-sized for the future, with a strong focus on both digital and great customer service.” “Looking forward, I remain confident in our ability to be the number one community bank. The work we have undertaken this year has laid the path to become a structurally profitable business and our focus towards the SME, Commercial and specialist mortgages sector presents an exciting opportunity in an underserved area of the market. I remain grateful for the continued support of our colleagues, customers and shareholders as we embark on the next chapter of our journey”. Key Financials
£ in millions
31 Dec 2023
31 Dec 2022
Change from FY 2022
30 Jun 2023
Change from H1 2023
Assets
£22,245
£22,119
1%
£21,747
2%
Loans
£12,297
£13,102
(6%)
£12,572
(2%)
Deposits
£15,623
£16,014
(2%)
£15,529
1%
Loan to deposit ratio
79%
82%
(3 ppts)
81%
(2 ppts)
CET1 capital ratio
13.1%
10.3%
280 bps
10.4%
270 bps
Total capital ratio (TCR)
15.1%
13.4%
170 bps
13.2%
190 bps
MREL ratio
22.0%
17.7%
430 bps
18.1%
390 bps
Liquidity coverage ratio
332%
213%
119 bps
214%
118 bps
£ in millions
FY 2023
FY 2022
Change from FY 2022
H2 2023
H1 2023
Change from H1 2023
Total underlying revenue1
£546.5
£522.1
5%
£260.9
£285.6
(9%)
Underlying profit/(loss) before tax2
(£16.9)
(£50.6)
67%
(£33.0)
£16.1
(305%)
Statutory profit/(loss) before tax
£30.5
(£70.7)
143%
£15.1
£15.4
(2%)
Net interest margin
1.98%
1.92%
6 bps
1.85%
2.14%
(29 bps)
Lending yield
4.72%
3.67%
105 bps
4.91%
4.50%
41 bps
Cost of deposits
0.97%
0.20%
77 bps
1.29%
0.66%
63 bps
Cost of risk
0.26%
0.32%
(6 bps)
0.34%
0.18%
(16 bps)
Underlying EPS
(8.4p)
(30.5p)
22.1p
(12.2p)
7.8p
(20.0p)
Tangible book value per share
£1.40
£4.29
(67%)
£1.40
£4.42
(68%)
Underlying revenue excludes grant income recognised relating to the Capability & Innovation fund and the gain relating to the capital raise and refinancing Underlying loss before tax is an alternative performance measure and excludes impairment and write-off of property, plant & equipment (PPE) and intangible assets, transformation costs, remediation costs, costs incurred as part of the holding company insertion and impacts of the capital raise and refinancing Investor presentation A presentation for investors and analysts will be held at 9AM (UK time) on Wednesday 13 March 2024. The presentation will be webcast on: https://webcast.openbriefing.com/metrobank-mar24/ For those wishing to dial-in: From the UK: +44 800 358 1035 From the US: +1 855 9796 654 Access code: 439242 Other global dial-in numbers: https://www.netroadshow.com/events/global-numbers?confId=59913 Financial performance for the year ended 31 December 2023 Deposits
£ in millions
31 Dec 2023
31 Dec 2022
Change from FY 2022
30 Jun 2023
Change from H1 2023
Demand: current accounts
£5,696
£7,888
(28%)
£7,106
(20%)
Demand: savings accounts
£7,827
£7,501
4%
£7,218
8%
Fixed term: savings accounts
£2,100
£625
236%
£1,205
74%
Deposits from customers
£15,623
£16,014
(2%)
£15,529
1%
Deposits from customers includes:
Retail customers (excluding retail partnerships)
£7,235
£5,797
25%
£5,647
28%
SMEs3
£3,782
£5,080
(26%)
£5,066
(25%)
£11,017
£10,877
1%
£10,713
3%
Retail partnerships
£1,708
£1,949
(12%)
£1,910
(11%)
Commercial customers (excluding SMEs3)
£2,898
£3,188
(9%)
£2,906
0%
£4,606
£5,137
(10%)
£4,816
(4%)
SME defined as enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding €50 million, and/or an annual balance sheet total not exceeding €43 million, and have aggregate deposits less than €1 million
Total deposits increased by 1% from June to £15,623 million, and further increased to c£16.5 billion in February 2024 (31 December 2022: £16,014 million). The underlying service-led core deposit franchise remained resilient and over 117,000 current accounts were opened in the second half of 2023. In Q4 the Group saw deposit outflows following press speculation in the week leading up to the capital raise, Metro Bank launched a successful fourth quarter deposit campaign in response to these outflows proving the resilience and value in the brand. The campaign has now concluded and the significant levels of liquidity raised now enable the Group to focus on low-cost relationship deposits to manage down the cost of funding.
Cost of deposits was 0.97% for the year (2022: 0.20%) reflecting rising base rates, the impact of the deposit campaign in the fourth quarter, and the customer behaviour shift away from current accounts towards savings and fixed term accounts, a trend seen across the market.
Customer account growth of 0.3 million in the year to 3.0 million (31 December 2022: 2.7 million) as organic growth in the underlying franchise continued, with over 203,000 personal current accounts and over 43,000 business current accounts opened in the year.
Stores remain a key element to the Group’s service offering and opportunity exists for further market penetration in new locations, Metro Bank continues to work to identify appropriate sites for new stores in the North of England. Locations are being prioritised to support Metro Bank’s SME, Commercial and Corporate Banking offering.
Loans
£ in millions
31 Dec 2023
31 Dec 2022
Change from FY 2022
30 Jun 2023
Change from H1 2023
Gross loans and advances to customers
£12,496
£13,289
(6%)
£12,769
(2%)
Less: allowance for impairment
(£199)
(£187)
6%
(£197)
1%
Net loans and advances to customers
£12,297
£13,102
(6%)
£12,572
(2%)
Gross loans and advances to customers consists of:
Retail mortgages
£7,818
£7,649
2%
£7,591
3%
Commercial lending4
£2,443
£2,847
(14%)
£2,659
(8%)
Consumer lending
£1,297
£1,480
(12%)
£1,410
(8%)
Government-backed lending5
£938
£1,313
(29%)
£1,109
(15%)
Includes CLBILS BBLS, CBILS and RLS
Total net loans reduced by 6% in the year to £12,297 million (31 December 2022: £13,102 million) as focus remained on optimising the mix for risk-adjusted return on regulatory capital, the Consumer and Government-backed lending portfolios are in run-off as the Group pivots its strategy towards SME, Commercial and Specialist Mortgages.
Retail mortgages increased by 2% during the year to £7,818 million (31 December 2022: £7,649 million) and remains the largest component of the lending book at 63% (31 December 2022: 58%). The DTV of the portfolio at 31 December 2023 was 58% (31 December 2022: 56%) and 80% of new originations in 2023 were <80% LTV (2022: 82%). Over the next 3 years more than £4.1 billion of fixed rate mortgages will mature at an average blended yield of less than 3.7%. A pivot towards more specialist mortgages is expected following recent investment to enhance product offerings. Metro Bank’s operating model is tailored to more complex underwriting which enables the Group to meet the needs of more customers and scale underserved markets whilst offering improved risk-adjusted returns.
Commercial loans (excluding BBLS, CBILS and RLS) reduced by 14% during the year to £2,443 million (31 December 2022: £2,847) reflecting continued portfolio management with reductions in commercial real estate to £509 million (31 December 2022: £681 million) and portfolio buy-to-let to £465 million (31 December 2022: £731 million). The DTV of the portfolio at 31 December 2023 was 55% (31 December 2022: 55%) and the portfolio has a coverage ratio of 2.13% (31 December 2022: 2.21%). Metro Bank is committed to supporting local businesses and expects to grow SME and Commercial lending through 2024.
Cost of risk reduced to 26bps for the year (2022: 32bps) reflecting the run-off of the Consumer portfolio, improvements in the macroeconomic scenarios for the Commercial and Retail mortgage portfolios and repayments of a small number of large Commercial exposures.
Non-performing loans increased to 3.11% (31 December 2022: 2.65%) driven largely by the maturity profile of the Consumer portfolio and reduced Commercial lending volumes, partly offset by successful BBLS claims and repayments of a number of large Commercial exposures. Excluding Government-backed lending, non-performing loans were 2.58% at 31 December 2023 (31 December 2022: 2.02%).
The Group’s loan portfolio remains highly collateralised and well provisioned. The ECL provision at 31 December 2023 was £199 million with a coverage ratio of 1.59%, compared to £187 million with a coverage ratio of 1.41% at 31 December 2022.
Profit and Loss Account
Underlying net interest income increased by 2% to £411.9 million (2022: £404.2 million) driven by improvements in net interest margin (NIM) which is up 6bps to 1.98% for the year (2022: 1.92%) reflecting improved yields on new lending and treasury investments offset by the impact of increased cost of deposits in the fourth quarter following the successful deposit campaign.
Underlying net fee and other income increased by 12% to £131.9 million (2022: £117.9 million) reflecting strong underlying customer acquisition and increased transactional volumes.
Underlying costs reduced to £530.2 million for the year (2022: £532.8 million) against a backdrop of inflationary pressures, including the full year impact of the autumn 2022 2.75% cost of living payrise coupled with a 5% average colleague payrise in April 2023. Cost reduction has been driven by the disciplined approach to cost management.
The previously announced annualised savings of £50 million (up from the original guidance of £30 million) are on track to be delivered in the first quarter of 2024, with the colleague restructuring and consultation process having concluded, and all impacted colleagues having left the organisation by mid-April. The Group continues to seek cost-reductions through transitioning to a more cost-effective model and expects to deliver additional annualised savings of £30 million by the end of 2024.
The Group has upgraded its cost guidance as it expects to deliver additional annualised savings of £30 million by the end of 2024. Together with the £50 million already announced this totals £80 million of annualised cost reductions, all delivered in 2024.
Operating jaws remain positive and led to a reduction in the underlying cost:income ratio to 97% (2022: 102%), the first time Metro Bank’s cost:income ratio has fallen below 100% since 2018.
Underlying loss before tax continued to improve, reducing to £16.9 million for the year (2022: loss of £50.6 million) reflecting significant margin improvements achieved through disciplined cost management and balance sheet optimisation. The second half loss was impacted by market pressures on current account balances and asset pricing, and constrained lending volumes to maintain capital as well as the impact of inflated cost of deposits in the fourth quarter due to the deposit campaign in response to the previously announced deposit outflows and press speculation.
Statutory profit before tax of £30.5 million for the year (2022: loss of £70.7 million), the first time Metro Bank has achieved statutory profitability since 2018, driven by the first half performance and the gain recognised in relation to the haircut on the Tier 2 debt instrument in the debt refinancing, marginally offset by costs associated with restructuring.
Capital, Funding and Liquidity
Position 31 Dec 2023
Position 31 Dec 2022
Minimum requirement including buffers6
Minimum requirement excluding buffers6
Common Equity Tier 1 (CET1)
13.1%
10.3%
9.2%
4.7%
Tier 1
13.1%
10.3%
10.8%
6.3%
Total Capital
15.1%
13.4%
12.9%
8.4%
Total Capital + MREL
22.0%
17.7%
21.2%
16.7%
CRD IV buffers On 30 November 2023 Metro Bank announced completion of the Capital Raise which consisted of £150 million equity, £600 million of debt refinancing and £175 million of new MREL debt. The capital raise secured the balance sheet, extended the debt instrument maturities to 2028 or beyond and provided sufficient capital resources to enable the Group to meet all minimum regulatory requirements including CRD IV buffers.
Total RWAs as at 31 December 2023 were £7,533 million (31 December 2022: £7,990 million). The movement reflects the actions taken to optimise the balance sheet. RWA density was 33.9% as at 31 December 2023 (31 December 2022: 36.1%), the movement year-on-year reflects the elevated liquidity position.
Strong liquidity and funding position maintained. All customer loans are fully funded by customer deposits with a loan-to-deposit ratio of 79% as at 31 December 2023, and less than 75% in February 2024 (31 December 2022: 82%). Liquidity Coverage Ratio (LCR) of 332% as at 31 December 2023, and more than 360% in February 2024 (31 December 2022: 213%) with cash balances at c£5.1 billion. Net Stable Funding Ratio (NSFR) of 145% as at 31 December 2023 (31 December 2022: 134%). Over the next 3 years more than £2.0 billion of fixed rate treasury assets will mature at an average blended yield of less than 0.9%, these will be replaced by asset with yields in line with the prevailing base rate.
UK leverage ratio was 5.3% as at 31 December 2023 (31 December 2022: 4.2%).
No decision has been made regarding the Group’s AIRB application. Forward plans are not predicated on accreditation and the work performed on the application to date remains beneficial to the Group.
Outlook and Guidance
2023
Guidance
Lending
£12.3 billion
Loan growth of mid-single digit CAGR from 2024 to 2028 Total blended risk weight density on a standardised basis (total RWA/ total assets) 35-45%
Deposits
£15.6 billion
Low-mid single digit reduction in 2024 to optimise cost of funding Mid-single digit growth across 2025 and 2026
NIM
1.98%
Marginal reduction in 2024; Headwinds in H1 2024 following the deposit campaign, marginally offset by; Momentum generated in H2 2024 as assets reprice, lending pivot towards higher yielding specialist mortgages and SME/ Commercial, and the elevated liquidity position enables focus on reducing cost of funding 2024 exit rate will support accretion through 2025 and 2026, coupled with a continuation of asset repricing, lending pivot and a rising loan-to-deposit ratio
Costs
£530 million
£80m of annualised cost savings, of which; £50 million of annualised cost savings to be delivered in Q1 2024 £30 million of annualised cost savings to be delivered by Q4 2024 2024 costs are expected to be below 2023, with further reductions in 2025 reflecting the benefit of the full £80 million annualised cost savings Low single digit annual growth from 2025 onwards, nearing 60% cost:income ratio by 2028
ROTE
4%
ROTE low-single digit in 2025, increasing to high-single digit in 2026 and low-mid teens thereafter
The guidance above reflects the impact of recent market pressures, competition for deposits and the prevailing macroeconomic outlook. Metro Bank Holdings plc Summary Balance Sheet and Profit & Loss Account (Unaudited)
