Metro Bk Hldgs Plc

Good morning and welcome to Metro Bank's Half One 2023 interim results. We're glad you could join us this morning. For the running order of the day, I'll start with a bit of an overview, relatively brief. Then I'll turn it over to James, who will walk you through the numbers. And then I'll come back on with a few slides to talk about the potential of Metro and the strategy going forward. So let's kick off. So we start where we always start. Metro Bank remains committed to being the number one community bank in the UK. We've made huge progress to becoming the number one community bank in the UK, and we do that by exemplary customer service, which is seen through being the number one best bank on the high street for the 10th time running. Actually, since the studies began, we've always been number one on the high street. We do that through our special sauce, which are our colleagues. Our colleagues are unbelievable. They make everything at Metro work. And we know our colleagues remain engaged because 95% of our Voice of the Colleagues scores, our employee opinion survey, were above the global benchmark. And you may have seen we're now the lead and first ever sponsor of women's and girls' cricket. We're really proud to help girls' cricket grow throughout the UK. We know full well we can influence the lives of many young women and girls throughout the UK by helping them engage in sports, giving them the confidence that comes from participating in sport and helping them grow to help lead their communities going forward. The next couple of boxes are a little interesting. We tried to do something a bit different. So we've seen a 50% increase year-on-year in accounts opened in the hours that only Metro is opened. So after 3 p.m., before 9, and on weekends. It's a sign that our seven-day-a-week model, our extended hours open early to late, still work. 50% more accounts were opened than a year ago during the hours that we are the only ones open. It makes a difference. In addition to that, we saw 11% more safe deposit visits during that period as well. Another sign that our extended-hour, seven-day-a-week banking is a real differentiator. The other differentiator amongst many is that we have local business managers in every store. We have actually more than 120 business managers across 76 stores. Their job is to help small businesses and small corporates grow. The only way the communities in which we operate get bigger, thrive, can add more value is by growing. And we need the small businesses and the small corporates in those communities to grow with us. We only do as well as the communities in which we operate. We're completely committed to the localness of Metro Bank. And a sign of that is the people we dedicate to help those communities. The bottom left, we have 76 stores today. We are committed to opening 11 more stores before the end of 2025 in the north of England. We're close. I think we might have actually already signed our first purchase agreement for a piece of property in Chester. And we continue to look for sites across the north of England. We'll continue to be open early to late and open seven days a week. We continue to win awards. be it for our mortgage business, which has done really well over the last few years, to be one of the top 10 most loved workplaces in the UK. All of that and the culture, the differentiators of Metro, has allowed us to open over 200,000 new accounts in the first half. We opened 106,000 personal current accounts in the first half and 23,000 business current accounts in the first half. That's 8% more personal current accounts than the second half of 22 and 20% more business current accounts than the second half of 22. The business is continuing to win fans every day. It continues to grow every day. We saw deposit inflows in June. Well, in the first half, we saw a bit of deposit attrition, like every other bank in the UK. We were quite pleased to see meaningful inflows in June that continued into July. And those flows included increases in current accounts. We continue to transform the financial performance of the business. The jaws continue to widen. While cost of deposits are up meaningfully in the first half of 23, our lending yield grew more. So we are continuing to grow and continuing to expand the spread between lending and cost of deposits. And it took me a while to get here, but the reality is it's quite a moment for us to have first half profitability on both an underlying and statutory basis. The fact that we could print 16.1 million pounds of underlying profits and 15.4 million pounds of statutory profits in the first half of the year is quite a moment for Metrobank given the journey we've been on. We're primed for further profitable growth. We managed to hold costs down, costs decreased at Metrobank half on half and year on year. I'm not sure another bank could say that this time. We continue to maximize the balance sheet. We continue to look at mix all the time. You will have seen we've slowed growing in unsecured personal lending and continue to invest in our mortgage business. That's all about risk-adjusted return on regulatory capital. We continue to invest in the business to make sure we have scalable and dynamic asset engines and are starting to invest meaningful amounts into our deposit-gathering engines, which I'll come back to. And I think overall, it's a stable business. When James stands up, you're going to see the balance sheet is as it was. We continue to build a balance sheet to create sustainable earnings that allows us to be profitable as we move forward. We're primed to scale up. So as we can grow the business, we've actually built a scalable platform. And there's more work to be done in that area, but we're making real progress. And there's significant margin accretion potential, which I'll come back to at the end. And with that, I'll turn it over to James to walk through the financials.

Thank you, Dan. So today I'm going to walk through a few slides setting out the bank's improved performance and return to profitability. So first looking at the P&L on the left-hand side. Overall, income was up 21% year on year, but broadly flat versus the second half, reflecting three broad themes of these results. First, assets maturing into a higher rate environment. Second, we've been constraining our lending and our appetite for raising higher cost deposits. And third, reducing current account balances and increasing deposit costs, which I'll cover later in the presentation. So moving down the P&L, fees were up 14.5% year-on-year, 1% half-and-half, reflecting some seasonality and strong underlying customer activity levels. Despite ongoing inflationary pressures, we've managed to cost tightly, down 3%, both half on half and year on year, driving 24% positive cost income jaws year on year. Touching quickly on ECL, expected credit loss, this is down 49% half on half, reflecting several payments in our commercial business. some improvement in macro variables and overlays, and the continued lack of clear signs of elevated credit stress. Finally, exceptional items are now significantly lower as we closed out legacy issues and completed the insertion of our holding company. The bottom line, therefore, is a statutory profit of £12.7 million for the first half, marking our third consecutive quarter of underlying profitability, as Dan mentioned. Moving to the NIM waterfall, and you can see that NIM grew by a modest three basis points, half on half, as lending yield was broadly offset by increased costs of deposits, which were up from 25 basis points in the prior period up to 66 basis points this half. The next slide digs into costs in a little more detail. From the chart on the left hand side, you can see that people related costs have remained broadly flat across each of the last three half year periods, despite pay increases for the majority of our colleagues in each of those periods. The main driver of cost reductions has been the decision to bring the majority of our change capacity and capability in house, significantly reducing the number of contractors towards the end of 2022. The team have adopted a fixed capacity agile development process, which has contributed towards the reduction in professional fees down 33% from the second half of last year. Each area of the bank has also been very diligent in scrubbing supplier contracts to try and offset inflationary pressures. The result of this has been an improvement in the cost income ratio, from 113% in the first half of 2022 down to 90% in the current period. And finally, as previously mentioned, we've closed out the remediation actions and completed the turnaround plan, so the exceptional items have significantly reduced, with the most recent exceptional item being the one-off insertion costs of the holding company. Moving to the balance sheet. Again, as previously guided, we are constraining our asset originations to at or below replacement levels, resulting in a 4% reduction in lending during the half and a 2% reduction in risk-weighted assets. The top right chart shows that retail mortgages remain the significant majority of our assets, albeit with reducing balances. We also continue to see repayments in government-backed lending, Our commercial real estate exposures are now less than 5% of our total lending, and we've continued to constrain our consumer originations. Bringing this together then for credit quality, the 11 million ECL charge reflects the maturation of the consumer book, repayments in our commercial business, and the impact of macroeconomic variables. Looking forward, we expect consumer ECL to continue, although commercial is more likely to normalise from the releases seen in the first half. Non-performing loans and past due loans have increased in the period, largely driven by seasoning of the consumer lending from earlier years. Our ECL coverage ratio has increased from 1.41% to 1.54% in the period, which includes post-model adjustments and overlays of £24 million, or 12% of the ECL stock. While we remain watchful of the impact of the economic environment, we believe we are appropriately provisioned. So moving to the deposits chart, this shows, as Dan mentioned, that balances are down 3% half on half in line with the prevailing trends across the industry. Importantly, however, there are green shoots emerging with more stability in the second quarter, which was down only 67 million pounds from the first quarter. That's 0.4% compared to Q1. And we've seen deposit inflows in both June and July. So moving to our asset mix. Mortgages represent 59% of our lending. This book remains high quality with a loan to value ratio of 58% and no exposures above 100% LTV. New lending loan to value has reduced four percentage points year on year to 67% and buy to let new lending reduced to only 14% of first half originations. On commercial, the book is largely floating rate with a high level of collateral, which remains at 55% LTV. And the segment also drives 51% of overall deposits for the bank and a good share of our fee income. Moving to consumer lending on the bottom left segment, where balances were down 5% in the half. Origination quality also remains high in this portfolio, with the average borrower salary of £49,000 in the period. That was up 6% compared to the first half of last year. And over half of the new lending now is to our top three risk categories. So turning to deposits. Our proposition, as you heard earlier, continues to attract new customers at pace, with 106,000 personal and 23,000 business current accounts opened in the first half. The bottom left chart shows, in line with the wider industry, that deposits outflows in the first quarter of the year as cost of living pressures combined with some additional seasonal tax payment factors. Those outflows, however, moderated in the second quarter. As I said earlier, down only 0.4% quarter on quarter. And we have seen strong deposit inflows in both June and July. Our payments data are pointing towards individuals paying more monthly amounts to energy, utility and mortgage providers, although there is some growing evidence that increased wages may be starting to ease the monthly pressure on people's savings. And we're also seeing recent growth in non-interest bearing business deposits, which is encouraging. As you will hear from Dan later, We have been investing in our cash ISA and savings product set and see real opportunities there to win share. And importantly, we retain very strong liquidity and funding metrics with a loan-to-deposit ratio of 81%, a liquidity coverage ratio of 214%, and a net stable funding ratio of 132%. So turning to capital. As you can see from the main chart, we've accreted around 70 basis points to our MREL ratio since the 1st of January, as we have constrained lending to live within our means and we have delivered profitability. We continue to operate within our MREL buffers and also at Tier 1 level following the counter-cyclical buffer increase to 2% on the 5th of July. Our AIRB application is still in progress. And as previously highlighted, we continue to review options across the capital stack to strengthen our capital base. It's also important to note that the regulators have provided several important approvals over the past year, including last week agreeing to a further extension of our MREL eligibility for our Tier 2 notes, now up to maturity in June 2028. They have reduced our Pillar 2A requirement from 0.5% to 0.36% from the 1st of January this year. and they have also supported the establishment of our holding company. So moving finally to our outlook and guidance. Overall, we continue to target mid single digit return on tangible by 2024. And again, we give directional guidance for the key lines for 2023 compared to 2022. I'm going to spend a little bit more time on this slide to give some context. On NIM, We continue to expect full year NIM to be higher than last year, although the second half outcome is heavily dependent on our deposit shape, as well as how we are constraining our asset origination. And therefore, it is likely that there will be more NIM pressure in the second half. Breaking NIM down a little and starting with the lending yield. While we are constraining asset origination, there is strong embedded yield uplift in our book. For example, 35% of our mortgage book is due to reprice in the next 18 months with a yield of around 2.5%. In our treasury book, we have about 1.5 billion maturing in the next 18 months and that yield average is just under 3%. On cost of deposits, We expect this to continue to increase as we pass on more of the UK base rate increases and also continue to increase the mix of fixed term and higher cost deposits in our deposit base. Moving to costs, we will manage costs tightly, but inflation will continue to weigh against our cost initiatives and it's likely that costs will increase in the second half. On cost of risk, We continue to be watchful of the external environment, but we're not seeing any material signs of emerging stress. And finally on capital, we'll continue to look to accrete capital through disciplined RWA allocation. In summary then, our steady progress has underpinned the return to first half profitability. We've seen strong customer acquisition plus better recent deposit trends. We continue to be disciplined on cost, risk, and asset allocation. And we're investing in a fuller deposit product set to go alongside our scalable asset origination engines. And with that, I'll hand back to Dan to walk you through our strategy and our priorities. Thank you very much.

Thanks, James.