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Metro Bank Full Year Results and Q4 Trading Update 2018

26th February 2019

Metro Bank reports continued growth in Lending, Deposits, and Customer Accounts and is named Best Bank for Customer Service: Strategic Evolution Announced to Optimise Balance of Growth, Profitability and Capital Efficiency


2018 full year highlights

  • Record deposit growth of £4.0b; up 34% year-on-year to £15.7b.
  • Net deposit growth per store per month of £5.9m ($7.5m); £70.8m ($90m) growth a year.
  • Record lending growth of £4.6b; up 48% year-on-year to £14.2b. Loan to deposit ratio 91%.
  • Strong asset quality maintained, with cost of risk improving to 0.07% from 0.11% in 2017.
  • Underlying profit before tax at £50.0m ($63.5m); up 140% year-on-year from £20.8m ($26.4m).
  • Statutory profit before tax at £40.6m, up 117% from £18.7m.
  • Underlying earnings per share 39.4p vs. 18.8p in 2017; up 110% year-on-year.
  • Record increase in customer accounts of 403,000 to 1,620,000.

Strategic update

  • Best bank for overall quality of service for personal banking in the latest CMA survey.
  • Winner of top award of £120m from the Capability and Innovation (‘C&I’) Fund of the RBS Alternative Remedies package to accelerate our SME offering.
  • We remain a high growth business model centred on creating FANS through our integrated digital and physical experience and will evolve in the prevailing operating environment:
    • Optimise balance of growth, profitability and capital efficiency.
    • Expand range of services and drive fee income.
    • Deliver cost efficiency improvement.
  • Revised medium term targets announced.
  • Comprehensive review undertaken regarding RWA adjustment.
  • Committed standby underwrite in place to raise c.£350m to fund growth.
  • Announcing a number of changes to our Board and Committees.
Year ended £ in millions 31 December 2018 31 December 2017 Change in Year
Assets £21,647 £16,355 32%
Loans £14,235 £9,620 48%
Deposits £15,661 £11,669 34%
Loan to deposit ratio 91% 82%  
Total Revenue £404.1 £293.8 38%
Underlying profit before tax1 £50.0 £20.8 140%
Statutory profit before tax £40.6 £18.7 £117
Customer NIM  2.21% 2.19% 2bps
Customer NIM + fees 2.67% 2.69% (2bps)
Net Interest margin 1.81% 1.93% (12bps)
Underlying EPS-basic 39.4p 18.8p 110%
Underlying EPS-diluted 38.2p 18.5p 106%

1. Underlying profit before tax for the year excludes Listing Share Awards, impairment of property, plant & equipment (‘PPE’) and intangible assets and costs relating to the RBS alternative remedies package application costs. Where underlying profit is disclosed for a quarter this also excludes the financial services compensation scheme (‘FSCS’) levy. Statutory Profit after tax is included in the Profit and Loss Account.

Craig Donaldson, Chief Executive Officer at Metro Bank said:
“These are a strong set of results demonstrating progress across all key areas despite an uncertain and challenging environment. While our strategy is delivering, we need to evolve to ensure continued progress over the medium term. Today’s update on our growth, cost efficiency plans and capital requirements – enhanced by last week’s C&I fund award - outlines how we are building the best bank for customer service whilst continuing our focus on generating growth and strong long-term returns for shareholders.”

Vernon Hill, Chairman and Founder at Metro Bank, added:
“Metro Bank’s model continues to disrupt the status quo in British Banking. Over the past twelve months we’ve seen record lending, record deposits and over 400,000 new customer accounts, leading to a 140% increase in underlying profit before tax. We’ve also out performed every big high street bank for overall service in the recent CMA survey. Last week’s top award of £120m for SMEs is indicative of what a great customer proposition can achieve. Whilst the external environment is not without its challenges, we will make continued progress by bringing a better service and greater convenience to thousands of customers and businesses every day, and the strategic steps and planned equity raise that we have announced today will help support our future growth.”

Strategic Update and Outlook

  • We remain a business centred on creating FANS, attracting low-cost sticky deposits and lending at low risk through our integrated customer experience. The recently published independent survey carried out by the CMA highlights Metro Bank as the best bank for overall service quality in personal banking. We continue to focus on the customer experience through integrating our physical and digital services, attracting customers on service and convenience, and lending at low risk.
  • Changes in the prevailing operating environment have created headwinds. Competition in the mortgage market has put margins under pressure, whilst requirements to raise new loss absorbing debt (MREL) have coincided with elevated pricing in the wholesale debt markets. Furthermore, complying with the rapid pace of regulatory change has weighed on our cost:income progress.
  • Coupled with specific Metro Bank challenges. We recognise that the pace of improving operating leverage has been too slow and requires investment to transform back-office functions to scale appropriately with our growth. The previously announced RWA adjustment has also led to the reassessment of our return hurdle rates in certain asset classes.
  • Our strategic evolution builds on the strengths of our model with a balance of profitability and capital efficiency. We will evolve our business strategy to balance growth, profitability and capital efficiency through an integrated customer experience:
    1. Balance growth, profitability and capital efficiency. Given the prevailing margin environment we will moderate deposit growth to c.20% per annum by reducing the proportion of higher cost term deposits and manage the loan to deposit ratio within a 85-90% range. Store growth will be reduced to c.8 stores per year in addition to a further 30 stores added by 2023 from the C&I fund, complemented by enhanced digital origination and servicing.
    2. Rebalance lending mix to optimise capital allocation and returns centred around Mortgages and SME, whilst maintaining our low risk appetite. We will develop our capabilities in higher-returning SME lending and move into unsecured consumer and business lending with new integrated platforms.
    3. Expand range of services to create new sources of income through the introduction of new services, maximising customer value and leveraging market-leading APIs, especially for SMEs. This will be strongly supported by the funding from the C&I award.
    4. Deliver cost efficiency improvement. We anticipate delivering a cost:income ratio of 55-60% in the medium-term, with the majority of the improvements coming from a structured programme of already identified initiatives, including the automation of back office processes and shared services across the footprint.
  • We will maintain a strong capital position to support further growth, and plan to raise c.£350m of equity in 2019. We have a committed standby underwrite in place with RBC Capital Markets, Jefferies and KBW to support the planned equity raise. The Chairman and Executive Directors intend to participate in the equity raise and it is expected to launch in the first half of the year. It remains our intention to target a minimum CET1 ratio of 12% and a regulatory leverage ratio above 4%. We also plan to issue c.£500m of MREL-eligible securities in 2019 to meet our transitional MREL requirement by 1 January 2020.
  • AIRB migration for residential mortgages is ongoing and we now do not expect accreditation before 2021.
  • The strategic update is reflected in the medium term guidance below:
  Medium term guidance
Deposit growth c.20% per annum, c.2% share of the market by 2023
Store growth c.8 new stores a year plus C&I funded store growth (2 stores in 2019)
Average deposits per store per month >£4m
Loan to deposit ratio 85% – 90%
Cost of risk  15bps – 30bps through the cycle
Cost: income ratio 55% - 60% by 2023
Capital 12% minimum CET1 ratio and leverage ratio >4%
ROE Low double digit RoE by 2023

RBS Alternative Remedies Package

  • Awarded top £120m grant from the Capability & Innovation (“C&I”) Fund. Successful bid focussed on:
    • Accelerating national store coverage by expanding to new strong SME markets in the North with 30 new stores by 2023;
    • Launching game changing digital capabilities e.g. digital tax submission, online account opening; and
    • Building capabilities to serve larger, more complex SMEs e.g. sweeping / pooling, trade finance accelerating our growth to become an “at scale” SME challenger by 2025.
  • Award will support the strategic growth initiatives outlined above in a financially prudent way. The £120m grant is received as cash so there is no immediate capital impact. Management expects a marginally negative earnings impact in the short-term but turning positive as revenue from new capabilities materialises. Metro Bank has committed to match the grant with co-investment of £240m, of which it expects 75% to be capitalised. We plan to fund two stores in 2019, with the remaining balance by 2023. The C&I grant will be used to fund the first 18 months of frontline roles.
  • Selected to be part of the Incentivised Switching Scheme which opened on 25 February 2019. We are well positioned to welcome more SME customers to Metro Bank.

Financial highlights for the year and quarter ended 31 December 2018


  • Total deposits increased to £15,661m as at 31 December 2018, up from £11,669m at 31 December 2017 and £14,813m at 30 September 2018; representing year-on-year growth of 34% and 6% growth in the last quarter. Deposits from business and commercial customers represented 53% of total deposits as of 31 December 2018, in line with last year.
£ in millions 31 December 2018 31 December 2017 Change from full year 17 30 September 2018 Change from Q3 18
Demand: current accounts 2   £4,685 £3,682 27% £4,502 4%
Demand: savings accounts 3  £6,924 £5,303 31% £6,810 2%
Fixed term: savings accounts  £4,052 £2,684 51% £3,501 16%
Deposits from customers £15,661 £11,669 34% £14,813 6%
Deposits from customers includes:          
Deposits from retail customers  £7,429 £5,476 36% £6,768 10%
Deposits from business and corporate customers £8,232 £6,193 33% £8,045 2%

2. Not all current accounts are non-interest bearing. At 31 December 2018 £4,507 million (31 December 2017: £3,487 million) of current accounts were non-interest bearing representing 96% of the total (31 December 2017: 95%).The remainder of the accounts pay only a small interest rate.
3. Included within demand: savings accounts are notice accounts. These are repayable upon 30, 35, 60, 95 or 100 days’ notice.

  • Net deposit growth per store per month of £5.9m for the full year 2018 representing annualised deposit growth per store of £70.8m ($89.9m).
  • Cost of deposits was 61bps for full year up from 54bps in 2017, primarily reflecting base rate rises in November 2017 and August 2018. The increase in cost of deposits in the second half, that includes a 6bps rise in the fourth quarter, is significantly less than the full 25bps base rate increase in August. Our low deposit cost model, supported by a high proportion of current accounts, has delivered total cost of deposits that is below the current base rate of 75bps.
  • Comparative store deposit growth (a “like for like” measure of deposit growth using deposit numbers from stores that have been operating for more than a full year) is 31% as of 31 December 2018


  • Total net loans as of 31 December were £14,235m, up from £9,620m at 31 December 2017.
£ in millions 31 December 2018 31 December 2017 Change from full year 17 30 September 2018 Change from Q3 18
Gross Loans and advances to customers £14,269 £9,635 48% £13,152 8%
Less: allowance for impairment 4 £(34) £(15) 127% £(31) 10%
Net Loans and advances to customers £14,235 £9,620 48% £13,121 8%
Gross loans and advances to customers includes:          
Commercial loans £4,356 £3,187 37% £4,166 5%
Retail mortgages £9,625 £6,231 54% £8,715 10%
Consumer lending £288 £217 33% £271 6%

4. The allowance for impairment is calculated under IAS 39 as at 31 December 2017 and under IFRS 9 at 30 September 2018 and 31 December 2018.

  • Retail mortgages remain the largest component of our lending book at 67% of gross lending (31 December 2017: 65%) helped by the acquisition of a seasoned mortgage portfolio in March 2018.
  • Net interest margin at 1.81% compares to 1.93% for the prior year, with the margin at 1.76% in the fourth quarter. Net interest margin compression follows elevated levels of competition in the mortgage market combined with a rising cost of funding following the August base rate rise and debt servicing costs on the Tier 2 bond issued in June. We expect competitive conditions to continue for the short-to-medium-term, together with increased financing costs in due course from MREL debt.
  • Loan to deposit ratio increased to 91% (31 December 2018: 82%) driven by our fifth successive quarter of £1bn+ lending growth. The transition to a moderated growth profile during 2019 may result in the loan to deposit ratio staying in excess of 90% for a short period.
  • Asset quality remains strong, in line with our low risk lending approach. Cost of risk remained low at 0.07% (31 December 2017: 0.11%). Non-performing loans also reduced to 0.15% of the portfolio (31 December 2017: 0.27%), with non-performing loan coverage of 162%. The impairment allowance increased year-on-year following the adoption of IFRS 9 in January 2018.

Profit and Loss Account

  • Underlying profit before tax increased by 140% year-on-year to £50.0m, up from £20.8m in 2017, reflecting strong growth in lending combined with improving economies of scale. Profit in the fourth quarter was £11.2 million, impacted by reduced net interest margin in the final months of the year. Operating costs increased in the final quarter owing to heavy investment spend in stores and technology as well as additional project costs relating to regulatory change and scaling the back-office to power future growth.
  • Statutory profit before tax increased by 117% year-on-year to £40.6m, up from £18.7m in 2017. This reflects the strong performance outlined above, as well as additional costs from preparing for the RBS Alternative Remedies Capability and Innovation fund bid and Switching Scheme, and impairment of assets as part of our periodic review.
  • Cost:Income ratio has decreased to 86% year-on-year from 90% in 2017, benefitting from positive operating jaws with income growth of 37% outpacing cost growth of 30%. The fourth quarter saw a temporary reversal of operating jaws leading to a cost:income ratio of 88%.
  • Customer net interest margin at 2.21% was a modest improvement on 2.19% in the prior year, reflecting competition in the residential mortgage market offset by the higher loan to deposit ratio. In the fourth quarter Customer NIM declined by 2bps to 2.19% whilst absorbing a 5bps increase in cost of deposits as the effect of the August base rate rise flowed through. However, we continue to lend into low-risk assets which management believes preserves cost of risk in the long term and provides the right foundation on which to grow.
  • Customer net interest margin plus fees increased slightly to 2.67% in the quarter from 2.66%, reflecting progress on fee initiatives.


  • Capital ratios remain robust. Common Equity Tier 1 Capital (‘CET1’) was £1,171m as at 31 December 2018 representing 13.1% as a percentage of risk weighted assets. Lending growth during the year was supported by the completion of a £303m equity raise in July 2018. Our minimum target CET1 ratio of 12.0% provides a buffer above our Tier 1 regulatory requirement of 10.6%5. Our year-end total capital ratio of 15.9% was supported by the successful subordinated debt issuance of £250m, which qualifies as Tier 2 capital. The Regulatory Leverage ratio is 5.4%.
  • Risk weighted assets at 31 December 2018 were £8,936m up 52% year-on-year (31 December 2017: £5,882m). This includes an increase of £900m following the adjustment to the risk weighting of certain commercial loans secured on property and certain specialist buy-to-let loans to large portfolio landlords as previously announced. We have completed a review of classification and risk-weighting across the commercial loan portfolio, supported by an external advisor. We are implementing changes to our internal procedures, are recruiting additional expertise and commenced a remediation of internal systems, process and controls.
  • Metro Bank has received initial notification that the PRA and FCA intend to investigate the circumstances and events that led to the RWA adjustment announced on 23 January 2019.
  • IFRS 16 adopted from 1 January 2019 with an expected £313m increase in RWAs.

5. Based on current capital requirements, excluding any confidential PRA buffer, if applicable

Customer Experience

  • Customer accounts exceeded 1.6m, increasing from 1,520,000 at 30 September to 1,620,000 at 31 December 2019; a quarterly increase of 100,000.
  • Ranked first for personal current account holders for overall service quality in the latest Competition and Market Authority’s (‘CMA') Service Quality Survey. We also came second among business current account customers for overall service quality and were ranked in the top five for all qualifying business and personal services.
  • Enhanced our digital offering, launching international payments for personal and business customers directly from our app, enabling our customers to make payments in Euros, US dollars and GBP sterling to more than 38 countries.
  • Launched Insights, our app-based Artificial Intelligence powered money management tool, as we continue to develop the customer experience across all channels.
  • Launched award winning current account opening online, named Retail Banker’s 2018 “Best Digital Onboarding Strategy”, and also launched instant access savings application online.
  • Now have the second highest rated bank app overall.
  • Expanded the network, opening stores in Bath, Crawley, Northampton, Putney, Ashford, and Piccadilly in the fourth quarter and neared completion of Moorgate, which opened in January. We now have 66 stores ranging from Canterbury in the East to Bristol in the West of England with a further seven stores in advanced planning stages or under construction.
  • Recognised by Glassdoor as a Best Place to Work, ranked 21st as part of the job site’s Employee’s Choice Awards, and the highest rated UK bank.

Board and committee changes

  • From 1 April 2019 Sir Michael Snyder will succeed Ben Gunn as Senior Independent Director. Ben Gunn will take on a newly created role of Deputy Chairman.
  • At the same time, Sir Michael Snyder will become Chair of the Audit Committee, replacing Stuart Bernau who will continue as a Non-Executive Director.
  • Lord Howard Flight will step down from the Board on the 1 April 2019 after 9 years and will not be standing for re-election at the AGM. He will be succeeded as Chair of the Nomination and Remuneration Committee by Roger Farah.
  • The Board continues its proactive search for an additional independent non-executive director to ensure continued compliance with the UK Corporate Governance Code.
  • The above changes in Committee Chair and Senior Independent Director roles are subject to regulatory approval. The number of Non-Executive Directors on the Board will be nine following the appointment of Catherine Brown and Paul Thandi as new Independent Non-Executive Directors over the last six months. The full list of Board members can be found on our website.

Metro Bank PLC

Summary Balance Sheet and Profit and Loss Account (Unaudited)        
Balance Sheet Annual Growth Rate 2018 2017
Assets   31-Dec (£'m) 30-Sep (£'m) 31-Dec (£'m)
Loans and advances to customers 48% 14,235 13,121 9,620
Treasury assets 6   6,604 6,698 6,127
Other assets 7   808 748 608
Total assets 32% 21,647 20,567 16,355
Deposits from customers 34% 15,661 14,813 11,669
Deposits from central banks   3,801 3,801 3,321
Debt securities   249 249 -
Other liabilities   533 300 269
Total liabilities   20,244 19,163 15,259
Total equity   1,403 1,404 1,096
Total equity and liabilities   21,647 20,567 16,355

6. Comprises investment securities, cash & balances with the Bank of England, and loans & advances to banks
7. Comprises property, plant & equipment, intangible assets and other assets

Profit  & Loss Account Annual Growth Rate 12 months to 31 December
    2018 (£'m) 2017(£'m)
Net interest income   330.1 241.0
Fee and other income   63.3 49.1
Net gains on sale of assets   10.7 3.7
Total revenue 38% 404.1 293.8
Operating costs 31% (346.1) (264.8)
Credit impairment charges   n/a (8.2)
Expected credit loss expense   (8.0) n/a
Underlying profit before tax 140% 50.0 20.8
Underlying taxation   (13.4) (4.9)
Underlying profit after tax 130% 36.6 15.9
Listing Share Awards   (0.9) (1.4)
Impairment of property plant & equipment and intangible assets   (4.8) (0.6)
Costs relating to RBS alternative remedies package application   (3.8) (0.1)
Effect of changes in tax rate on deferred tax asset   - (3.0)
Statutory profit after tax 151% 27.1 10.8
Underlying earnings per share - basic   39.4p 18.8p
Underlying earnings per share - diluted   38.2p 18.5p
Profit & Loss Account-Quarterly Annual Growth Rate 2018 2017
    Q4 (£'m) Q3 (£'m) Q4 (£'m)
Net interest income   88.9 84.8 69.3
Fee and other income   18.3 16.2 13.8
Net gains on sale of assets   2.0 4.0 1.5
Total revenue 29% 109.2 105.0 84.6
Operating costs 31% (96.0) (87.9) (73.1)
Credit impairment charges   n/a n/a (3.2)
Expected credit loss expense   (2.0) (2.0) n/a
Underlying profit before tax 35% 11.2 15.1 8.3
Underlying taxation   (4.2) (3.5) (1.7)
Underlying profit after tax 6% 7.0 11.6 6.6
Listing Share Awards   (0.2) (0.2) (0.3)
FSCS levy (net of tax)   - 0.3 -
Impairment of property plant & equipment and intangible assets   (3.0) (1.2) (0.2)
Costs relating to RBS alternative remedies package application   (1.9) (0.5) (0.1)
Effect of changes in tax rate on deferred tax asset   - - (3.0)
Statutory profit after tax (37)% 1.9 10.0 3.0
Underlying earnings per share - basic   7.2p 11.9p 7.5p
Underlying earnings per share - diluted   7.1p 11.6p 7.4p
Net interest margin (NIM)   1.76% 1.77% 1.87%
Customer NIM   2.19% 2.21% 2.21%
Customer NIM + Fees   2.67% 2.66% 2.71%
Cost of deposits   0.67% 0.61% 0.52%
Cost of risk   0.06% 0.06% 0.14%
Underlying cost:income ratio   88% 84% 86%

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 and was authorised for release by David Arden, Chief Financial Officer.

Analyst and investor call

An analyst and investor call will be held as follows:

Date: Tuesday 26 February 2019
Time: 5.30pm (GMT)
From the UK dial: +44 3333 000 804
From the US dial: +1 631 913 1422
Participant Pin: 15129632#
URL for other international dial in numbers:
An operator will assist you in joining the call.
A replay of the call will be available using the following details:
From the UK dial: +44 3333 000 819
From the US dial: +1 866 931 1566
Access code: 301274944#