Metro Bank Regulatory News (MTRO)

METRO BANK, THE REVOLUTION IN BRITISH BANKING, REPORTS RECORD RESULTS AND ANNOUNCES 2023 GUIDANCE

Metro Bank PLC (LSE: MTRO)

Note: All figures contained in this trading update and preliminary announcement are unaudited. US$ have been translated at a rate of $1.35 to the £.

Craig Donaldson, Chief Executive Officer at Metro Bank said:

"2017 has been a fantastic year for Metro Bank. We've reported our first full year of profitability, had continued exceptional growth in both deposits (47%) and lending (64%), and have the privilege now of looking after over one million customer accounts. All of this at the same time as creating a further 600 jobs, taking our total workforce to over 3,000 and winning 'Most Trusted Financial Provider' for the second year running. Metro Bank, creating FANS through 'bricks and clicks', continues to be the compelling service offering for British consumers and businesses alike.

"For SMEs, the backbone of the British economy, Metro Bank is the real competition to the big incumbents. In our current heartland of London and the South East we are winning 17% of SME business current account switchers3. These businesses are attracted to our convenient stores which are open seven days a week, along with our online and award winning mobile banking services and our 24/7 contact centres, which are supported by our brilliant local business managers in every community we serve. As we enter new markets across the country, we will continue to create more jobs and bring real competition and choice for personal and business banking customers."

Vernon Hill, Chairman and Founder at Metro Bank said:

"FANS join us because of our superior customer service combined with a seamless banking experience, whatever the channel. At Metro Bank we are the fusion of digital and physical, combining face-to-face relationship banking with best in class technology creating record brand recognition of 89% in London. Our record lending, deposit and customer account growth proves that the Metro Bank model is the future of banking. 2018 will see us grow our FAN base across the UK, create a further 900 jobs and continue to provide real competition to the big high street banks."

1Underlying profit before tax for the year excludes costs associated with listing and the Listing Share Awards, impairment of property, plant & equipment ("PPE") and intangible assets, and costs relating to the RBS alternative remedies package application. Underlying profit after tax for the year also excludes the effect of changes in the tax rate on the deferred tax asset.

2Customer Deposit NIM eliminates the distortions created by the Bank of England Term Funding Scheme drawings. As TFS unwinds (repayments are due four years from drawdown) the simple NIM calculation will move closer to the long term Customer Deposit NIM.

3 Source: Charterhouse Research Business Banking Survey, YE Q4 2017. Based on interviews with businesses that had switched main bank in the 12 months prior to interview. Base size: 402. Data weighted by region and turnover to be representative of businesses in Great Britain.4Underlying profit for the quarter also excludes the FSCS levy.

Outlook & Guidance

Financial Highlights for the Year and Quarter Ended 31 December 2017

Summary

Deposits

Lending

Profit and Loss Account

Capital

Customer Experience

1All figures, unless otherwise stated, are from YouGov Plc and are taken from four surveys:

· Total sample size was 1004 adults. Fieldwork was undertaken between 8-12 February 2018. The figures have been weighted and are representative of all London adults (aged 18+).

· Total sample size was 1021 adults. Fieldwork was undertaken between 14-17 February 2017. The figures have been weighted and are representative of all London adults (aged 18+).

· Total sample size was 2191 adults. Fieldwork was undertaken between 6 -7 February 2018. The figures have been weighted and are representative of all GB adults (aged 18+).

· Total sample size was 2079 adults. Fieldwork was undertaken between 30 June - 3 July 2017. The figures have been weighted and are representatve of all GB adults (aged 18+).

Metro Bank PLC

Summary Balance Sheet and Profit & Loss Account

(Unaudited)

1Comprises investment securities, cash & balances with the Bank of England, and loans and advances to banks

2Comprises property, plant & equipment, intangible assets and other assets

Analyst and investor webcast

An analyst and investor webcast will be held as follows:

For more information, please contact:

Metro Bank PLC Investor Relations

Jo Roberts

+44 (0) 20 3402 8900

jo.roberts@metrobank.plc.uk 

Metro Bank PLC Media Relations

Tina Coates

+44 (0) 7811 246 016

tina.coates@metrobank.plc.uk 

Martin Pengelley/ Latika Shah

Tulchan Communications

+44(0)20 7353 4200

metrobank@tulchangroup.com 

Metro Bank PLC

Preliminary Announcement

(Unaudited)

For the year ended 31 December 2017

Chief Executive Officer's Statement

A YEAR OF GROWTH AND FANATICAL EXECUTION

We have had a great year:

Our strategy remains the same: to be a high-growth retailer with a differentiated business model that integrates our innovative digital offering with fanatical physical delivery, delivered by colleagues who embody our AMAZEING culture.

And it's working. By surprising and delighting our customers and creating FANS, we earned a Net Promoter Score of over 80% in 2017. Our FANS are telling their friends and family about us, spreading the revolution through word of mouth, with our brand recognition rising to 89% London.

This means we are winning our personal and business customers through recommendation and as we surprise and delight them we create even more FANS who stay with us longer and recommend more of their friends, family and colleagues to join us- thank you.

Powering from strength to strength

Metro Bank has had a fantastic year, growing across every area of the business. Our geographical expansion, integrated with cutting-edge technology, is reinforcing our network and attracting retail and commercial customers. We've generated both record deposit and record lending growth, closing the year with our highest ever loan to deposit ratio of 82%. This has in turn increased revenue by 51% year-on-year and led to a £32.5 million uplift in profitability to £20.8 million from a £11.7 million loss in 2016.

Record deposit growth

More FANS are trusting us with more of their money. Deposits surpassed £10 billion for the first time, increasing by £3.7 billion over the year to £11,669 million. Over 300,000 customer accounts were opened during the year and the average balance increased by 10% to £9,588.

Deposit growth has been fastest among business customers, particularly small and medium-sized enterprises which we believe are the most under served in the market. These commercial deposits grew 55% to represent 53% of our deposit base, bringing with it the associated transaction fees. In our current heartland of London and the South East we are winning 17% of SME business current account switchers and will continue to strengthen our presence in the sector, as well as entering new markets where we will bring further competition and choice.

Our iconic stores generated deposit growth of £6.3 million per store per month over the year, up from £5.7 million in 2016. Every store across our network has grown its deposit base year-on-year, and we now have three stores which have generated more than £400 million of deposits. Comparative store deposit growth remains strong at 43% for stores open over 12 months; 39% for stores open over 24 months; and 35% for stores open over 36 months.

This was achieved while reducing our cost of deposits from 0.79% to 0.54%, the lowest ever level, bearing testament to our belief that customers will trade lower rates for a better service experience. We've seen 61% year-on-year growth in sticky current accounts, the engine of our organisation, which now total 32% of our deposit base and provide a clear funding advantage in a rising rate environment.

Record lending growth

Both the momentum and quality of our lending have been strong. Building a bank for the long term requires fanatical focus on the right type of lending, without trading volume for quality. We achieved a 64% increase in lending year-on-year to £9,620 million across retail and commercial, while maintaining a low and stable 0.11% cost of risk and average debt to value ratios of c.60%.

I'm particularly proud of the way that we've continued to support the small and medium sized enterprises ('SME') sector. At the start of the year, we committed to providing £1 billion of net new lending to businesses during 2017 - a promise we not only delivered on but renewed for 2018.

Long term capital planning

From a capital perspective our growth was supported by an equity raise of £278 million in July 2017. Shareholders responded overwhelmingly, with shares issued at the market price on the date of issue. We have submitted our application to the PRA to be eligible to apply advanced internal rating-based ('AIRB') capital requirements to our residential mortgage portfolio. A successful application will ensure appropriate capital efficiency to support our future lending.

Fanatical execution and a unique culture

At Metro Bank, the culture is owned by everybody and is what sets us apart from the rest. We're fanatical about creating the right culture for long-term success. A truly differentiated approach to banking starts with hiring for attitude and training for skill, investing in training and development where core values are reinforced, and rewarding colleagues based on their AMAZEING behaviours. By creating FANS of our colleagues, they make FANS of our customers -and this is what the banking revolution is all about.

We commit to the career of each of our colleagues - and during the year provided them with nearly 900 training courses through our in-house training facility, Metro Bank University. We're the only bank that offers all our store and contact centre advisers the chance to gain a professional qualification with the Chartered Banker Institute. We also operate an apprenticeship programme to support young people to start a career in banking. We also give all our apprentices a permanent job with us.

Protecting our culture as we grow is key. We like to promote from within, which means that we always look for internal candidates before searching externally. Each new store creates c.25 new jobs within the local community - and during 2017 we promoted over 600 colleagues. It's inspiring to see the 29 colleagues who began their journey at Metro

Bank as cashiers or customer service representatives who have now been promoted to store manager or more senior positions.

Each of our colleagues is dedicated to supporting the communities that we serve. Our stores act as real hubs for the local community, with hundreds of networking and charity events hosted in them throughout the year, as well as our free financial education programme, MoneyZone, which taught money basics to more than 27,000 students in 2017.

Seamlessly integrating bricks and clicks

Customers tell us time after time that they want the option to choose how, when and where they engage with our services - whether in store, via the app, over the phone or online. Our cultural, customer-led approach applies across all channels.

This year, we continued to expand our network both inside and outside London. We are currently building our 56th store in Watford, and expect to expand our network by a total of 12 stores in 2018. We're excited to open new markets in Cardiff, Bristol, Birmingham and beyond in the coming months.

Award-winning, legacy-free IT platforms enable us to deliver a faster, more informed and more secure service to customers without friction across multiple channels and systems. Real-time data processing enables fulfilment at the point of sale for today's 'now' culture, and we continue to invest in our digital capability so we can adapt to changing consumer behaviours and preferences. Whether that's simple tweaks that make life that bit easier for our customers, like using contactless technology with our Magic Money Machines, or developing state-of-the-art Current Account Online opening using 'selfie' technology for identification and verification and allowing customers to choose to collect their card in store or be sent in the post.

Behind the scenes we're constantly looking to improve the safety and security of our customers. Aided by our top-of-the-range systems and ability to see a single view of all a customer's banking products, we're continually improving our fraud analytics, thereby helping to target fraudsters before they're able to act. Our bespoke telephony systems incorporate a range of market-leading fraud detection platforms. We take looking after customers' data just as seriously as looking after their deposits.

In further developments, we've successfully developed a bank-wide application programme interface ('API') layer to support client data requests and get ready for the opportunities the open banking revolution presents.

Our 2017 awards

There's so much to be proud of at Metro Bank: the entrepreneurs we support to grow their businesses; the families we help to buy their homes; the jobs we create and the contribution we make to local communities. We've also been privileged to again receive a wide range of awards during the year, recognising our commitment to providing outstanding service in every channel. These awards underline the fact that great service is about meeting the needs of our customers, however they want to do business with us - on the go, in our stores or over the phone - and by providing products that can be trusted.

For the second year in a row, we were voted the Moneywise 'Most Trusted Financial Provider', a real validation of how we are viewed by the British public. We also won the Moneywise award for 'Best Mobile Banking app', demonstrating just how well we're able to integrate all facets of our business. We were named a Glassdoor Top 50 employer in the UK and, to top it off, we won 'Financial Services Company of the Year' at the London Evening Standard Business Awards 2017.

Looking to 2020 and beyond

We delivered on our commitment to announce our first full year of profitability in 2017. As we approach 2020, we have refined our 2020 targets to reflect the progress we have made so far:

As we approach 2020, I wanted to share the longer-term vision, so we are also introducing guidance on the next staging post in our growth.

Changes to the Board

This year we welcomed Monique Melis to our Board as an independent Non-Executive Director. Monique brings a wealth of financial services and regulatory experience across established and growth markets.

We were also sad to announce the retirement of our Chief Financial Officer, Mike Brierley. I am really sorry to lose Mike from the Metro Bank family. He has been on the journey with us from the very start, and without his knowledge, hard work and business acumen, it would have been even harder and definitely a lot less fun building Metro Bank.

Mike retires at the end of March 2018 and will be replaced by David Arden who joins us from Sainsbury's Bank. The appointment of David marks a new chapter in the Metro Bank story. David's distinctive blend of retailing and banking experience made him the natural choice to be our CFO and I look forward to him joining the team and helping us take the Bank nationwide.

In summary

It gives me immense pride to report our first annual profit, as we continue to grow towards our 2020 vision and to deliver value for all our FANS.

On behalf of the Board, I'd like to extend my sincere thanks to our shareholders and our tremendous colleagues - as well as to the British businesses and public who have so overwhelmingly embraced the revolution in banking.

Craig Donaldson

Chief Executive Officer

1Moneywise Customer Service Awards 2016 and 2017, Most Trusted Financial Provider - Metro Bank.

2All figures, unless otherwise stated, are from YouGov Plc. and are taken from four surveys: Total sample size was 1004 adults.

Fieldwork was undertaken between 8-12 February 2018. The figures have been weighted and are representative of all London adults (aged 18+). Total sample size was 1021 adults. Fieldwork was undertaken between 14-17 February 2017. The figures have been weighted and are representative of all London adults (aged 18+).Total sample size was 2191 adults. Fieldwork was undertaken between 6 -7 February 2018. The figures have been weighted and are representative of all GB adults (aged 18+). Total sample size was 2079 adults. Fieldwork was undertaken between 30 June - 3 July 2017. The figures have been weighted and are representative of all GB adults (aged 18+).

3Source: Charterhouse Research Business Banking Survey, YE Q4 2017. Based on interviews with businesses that had switched main bank in the 12 months prior to interview. Base size: 402. Data weighted by region and turnover to be representative of businesses in Great Britain.

Risk Factors and Management

We adopt best practice in corporate governance, risk management and control appropriate to the size and complexity of our business. All our colleagues are responsible for managing risk as part of their day-today role. Customer-facing colleagues are at the forefront of risk management, along with their line managers. The Risk function, including the underwriting, credit risk and analytics, treasury risk, and enterprise risk teams, oversees the risk management activities. The function also supports other colleagues in their risk management work, for example by providing centralised 'bump-up' support contacts for more complex requirements, freeing up customer-facing colleagues to focus on creating FANS.

Given the nature of our activities, the principal risks and uncertainties we face are:

The Board has ultimate responsibility for setting the Bank's strategy, corporate objectives and risk appetite. The strategy and risk appetite consider the interests of customers, shareholders and other stakeholders. Taking into consideration the advice of the Risk Oversight Committee, the Board specifically approves the level of risk acceptable under each category of risk, and ensures there is an adequate framework in place for reporting and managing those risks. It is also responsible for maintaining an appropriate control environment to manage the principal risks and for ensuring the capital, liquidity, and other resources are adequate to achieve our objectives within our risk appetite.

The Risk function provides specialist knowledge and support to colleagues throughout the Bank and acts as a reference point for queries, while also overseeing colleagues and the risks and controls in place. The function operates themed, targeted and ad-hoc reviews to provide assurance to the leadership team - and ultimately to the Board - that risks are properly managed, controls are effective, and that we're not exceeding our risk appetite.

The Board has delegated responsibility for reviewing the effectiveness of the Bank's internal controls to the Audit Committee. This Committee monitors and considers the internal control environment, focusing on operational risks, internal and external audits and credit assurance, and is assisted in its oversight role by our Internal Audit function. Internal Audit carries out both regular and ad-hoc reviews of risk management controls and procedures, and reports the results to the Audit Committee. The Director of Internal Audit's reporting line is to the Chairman of the Audit Committee - with a dotted line to the CEO - and therefore supports the function's independence.

The Risk Oversight Committee helps the Board provide leadership, direction and oversight of our risk governance and management. It also helps the Board foster a culture that emphasises and demonstrates the benefits of a risk-based approach to risk management and internal control when creating FANS.

We've established our risk management policies to identify and analyse the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The Risk team regularly reviews these policies and controls to verify compliance and to reflect changes in market conditions and the Bank's activities. We use training and management standards and procedures to develop a robust and effective control environment - one where all colleagues understand their roles and obligations.

Our Chief Risk Officer ('CRO') leads the Risk function, which is independent from the Bank's operational and commercial functions. She is responsible for ensuring that appropriate risk management processes, policies and controls are in place, and that they're sufficiently robust - ensuring that key risks are identified, assessed, monitored and mitigated. The CRO is also responsible for providing assurance to the Board and Directors that the principal risks are appropriately managed and that we are operating within our risk appetite. She is the Bank's designated Money Laundering Reporting Officer ('MLRO'). The CRO has access, and a dotted reporting line, to the Chairman of the Risk Oversight Committee.

Our model has three lines of defence for risk management:

Condensed consolidated statement of comprehensive income

For the year ended 31 December 2017

Condensed consolidated balance sheet

As at 31 December 2017

Condensed consolidated statement of changes in equity

For the year ended 31 December 2017

The available-for-sale reserve represents the unrealised change in the fair value of available for sale investments since initial recognition.

Condensed consolidated cash flow statement

For the year ended 31 December 2017

Notes

1. Summarised accounting policies

The accounting policies and methods of computation are consistent with those applied in the 2016 Annual Report & Accounts. No new accounting policies have been adopted in the period under review, other than the adoption of mandatory accounting standards. The Group adopted IFRS 9, Financial Instruments, on 1 January 2018.

2. Interest income

3. Interest expense

4. Taxation

Income tax (expense)/credit

4. Taxation (continued)

Reconciliation of the total tax (expense)/credit

The tax (expense)/credit shown in the income statement differs from the tax (expense)/credit that would apply if all accounting profits had been taxed at the UK corporation tax rate.

A reconciliation between the tax (expense)/credit and the accounting profit/(loss) multiplied by the UK corporation tax rate for the years ended 31 December 2017 and 2016 is as follows:

Adjustments in respect of prior years

During the period to 31 December 2017 and 2016 we submitted an amendment to prior year corporate tax returns (years ended 2016 & 2015) that resulted in an increase in prior period losses. The amendments in 2017 related mainly to the reclassification of some store costs from non-qualifying to qualifying expenditure. The amendments in 2016 related mainly to prior period accounting adjustments to reflect actual VAT recovery following the Bank's agreement of a Partial Exemption Special Method with HMRC. In addition, 2017 and 2016 include prior year adjustments to share based payments where the current and deferred tax treatment has been subsequently revised.

Effect of changes in tax rates

Legislation restricting the amount of profit that may be offset by brought forward losses to 50% was substantively enacted on 31 October 2017 and was effective from 1 April 2017. As a result the relevant deferred tax balances have been remeasured using the effective tax rate that will apply. The impact of the change in tax rate has been recognised in tax expense. Banks are also subject to a lower threshold of 25% of profits that can be utilised against losses accrued by 1 April 2015. However, this loss restriction relief does not apply to the first five years of banking activity so this particular restriction will not impact us.

Effective tax rate

The effective tax rate for the year is 42.2% (2016: 2.6%) due to the impact of the loss restriction relief on the net deferred tax asset. The effective tax rate on profits, excluding the impact of the loss restriction relief, is 26.3%.

4. Taxation (continued)

Deferred Tax

A deferred tax asset must be regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not there will be suitable tax profits from which the future of the underlying timing differences can be deducted.

The following table shows deferred tax recorded in the statement of financial position and changes recorded in the Income tax expense:

5. Loans and advances to customers and banks

Total loans and advances to customers

5. Loans and advances to customers and banks (continued)

Loans and advances to customers by category

Loan asset credit quality

All loans and advances are categorised as either "neither past due nor impaired", "past due but not impaired", "individually impaired" or "portfolio impaired". For the purposes of the disclosures in the loan asset credit quality section below:

5. Loans and advances to customers and banks (continued)

\* The collectively impaired provision includes provisions held against loans which are included in the neither past due nor impaired, the past due but not impaired and the portfolio impaired categories shown above. 

5. Loans and advances to customers and banks (continued)

Credit impairment charges in the Consolidated Statement of Comprehensive Income are shown net of recoveries on previously written off loans.

Past due but not impaired

Late processing and other administrative delays on the side of the borrower can lead to a financial asset being in early past due but not impaired.

Gross amounts of loans and advances by class to customers that were past due but not impaired were as follows: