27 July 2017

TSB continues to grow and eyes high-tech transformation

Today, 27 July 2017, TSB announces its financial results for the six months to 30 June 2017. Building on the momentum of 2016, TSB continues on its mission to bring more competition to UK banking. These results demonstrate that a bank focused on serving local communities really can thrive.

Highlights include:

  • TSB provided over £4 billion of new mortgage advances to help more than 25,000 homeowners to get a better mortgage deal or buy a new home in the first half of the year.
  • Customers continue to vote with their feet to join TSB – with over 1,000 customers a day opening a TSB bank account, helping boost deposit balances to nearly £30 billion.
  • Customers continue to recommend TSB to friends and family with TSB’s Net Promoter Score (NPS)1 at +24 through the half.
  • After the successful launch of its new mobile banking app, TSB is the first bank in Europe to announce a partnership with Samsung to integrate iris recognition technology into its app.
  • TSB lays foundations to strengthen its support for local businesses – bringing much-needed competition to the business banking market from 2018.

Further highlights of TSB’s H1 results include:

  • TSB advanced £4.1 billion in new mortgage loans in the first half of 2017, up 24.4% year-on-year from £3.3 billion.
  • Franchise customer lending (including the Whistletree portfolio) grew to £30.2 billion, up 16.6% (£4.3 billion) year-on-year from £25.9 billion.
  • 6.0%2 of all customers switching banks or opening a new account in the past 12 months chose TSB – in line with our long-term target.
  • Customer deposits grew to £29.9 billion, up 6.4% (£1.8 billion) year-on-year from £28.1 billion.
  • As expected, operating costs increased 20.6% year-on-year to £408.9 million, driven primarily by the £60.5 million contractual increase in outsourcing fees paid to Lloyds Banking Group year to date.
  • The Mortgage Enhancement portfolio – a £3.4 billion residential mortgage loan book created in February 2014 to enhance TSB’s profitability – was returned early, in June 2017. This accelerated the delivery of profit to TSB in 2017, generating £61.7 million management profit before tax in the first half of 2017 compared with £24.4 million in the first half of 2016.
  • Management profit before tax increased by £3.3 million year-on-year to £111.0 million.
  • Statutory profit before tax fell to £108.3 million, down 13.6% year-on-year from £125.4 million due to the non-recurring gain from the sale of our interest in Visa Europe which was recognised in the first half of 2016.
  • TSB’s liquidity is robust while our capital position remains one of the strongest of the UK banks with a common equity tier one ratio of 19.3%.

Paul Pester, TSB Chief Executive Officer, commented:“Nearly four years since launch, TSB continues to grow and challenge the stranglehold that the big five banks have had on the market for far too long. We’ve maintained our momentum as we grow the business whilst our high-tech transformation gathers pace.

“We’re getting set to move to our brand new, state-of-the-art digital banking platform towards the end of the year. Changes are already afoot for our customers with the launch of our new mobile banking app in April, and last week we were the first bank in Europe to announce a partnership with Samsung to integrate iris recognition into our mobile app.

“And, of course, there’s still plenty to do as we continue on our mission to bring more competition to UK banking. We’re laying the foundations now to bring much needed competition to the small and medium-sized business banking market next year – when we’ll take on the big banks and provide more support for local businesses which form the lifeblood of the UK economy. The RBS remedies announced last night will help us do this.”

1NPS is based on the question “On a scale of 0-10, where 0 is not at all likely and 10 is extremely likely, how likely is it that you would recommend TSB to a friend or colleague?” NPS is the percentage of TSB customers who score 9-10 after subtracting the percentage who score 0-6. Calculated on a year-to-date basis.

2Source: CACI Current and Savings Account Market Database (CSDB) which includes current, packaged, youth, student and basic bank accounts, and new account openings excluding account upgrades. Data presented on a two month lag.

Financial results

Balance sheet and capital

At 30 Jun 2017

At 31 Dec 2016

At 30 Jun 2016

Change Vs. Dec 16

Change Vs. Jun 16

Franchise customer lending – including Whistletree (£ million) 30,174.5 27,570.2 25,880.0 9.4% 16.6%
Mortgage Enhancement customer lending (£ million) - 1,848.9 2,049.0 (100.0)% (100.0)%
Total customer lending (£ million) 30,174.5 29,419.1 27,929.0 2.6% 8.0%
Total customer deposits (£ million) 29,943.0 29,383.8 28,135.4 1.9% 6.4%
Group loan to deposit ratio 100.8% 100.1% 99.3% 0.7pp 1.5pp
Common Equity Tier 1 capital ratio 19.3% 18.4% 17.2% 0.9pp 2.1pp
Financial performance

At 30 Jun 2017

At 31 Dec 2016

At 30 Jun 2016

Change Vs. Dec 16

Change Vs. Jun 16

Franchise profit before tax – including Whistletree (£ million) 49.3 48.2 83.3 2.3% (40.8)%
Mortgage Enhancement profit before tax (£ million) 61.7 21.8 24.4 183.0% 152.9%
Management profit before tax1 (£ million) 111.0 70.0 107.7 58.6% 3.1%
Statutory profit before tax (£ million) 108.3 56.6 125.4 91.3% (13.6)%
Group banking net interest margin2 3.02% 2.98% 3.20% 4bps (18)bps
TSB asset quality ratio3 0.25% 0.32% 0.30% (7)bps (5)bps
Operating costs (management basis)1 (£ million) (408.9) (364.8) (339.0) 12.1% 20.6%

1Management basis is the basis of reporting used by the Board to assess performance without the distortion of one-off and volatile items which are included on a statutory basis.

2Management basis net interest income divided by average loans and advances to customers, gross of impairment allowance.

3 Impairment charge on loans and advances to customers divided by average loans and advances to customers, gross of impairment allowance.

Strategic update

TSB’s three strategic pillars have remained the same since relaunching onto high streets across Britain in September 2013: to provide great banking to more people, to help more people to borrow well, and to provide the kind of banking people tell us they want and we believe they deserve.

1. Provide great banking to more people

Grow market share of bank accounts by consistently taking a greater than 6% share of gross flow over a five-year period.

  • TSB continues to deliver on its share of flow target with 6% of all customers switching banks or opening a new account in the past 12 months choosing TSB.
  • On average, over 7,000 customers a week opened a new bank account with TSB in the first half of the year.
  • Customer deposits grew to £29.9 billion – up 6.4% (£1.8 billion) year-on-year from £28.1 billion, reflecting customers’ continued trust in TSB.

2. Help more people borrow well

Grow TSB franchise customer lending by 40% to 50% over a five-year period from IPO.

  • TSB helped around 15,000 homeowners to get a better deal on their mortgage and around 10,000 people to buy their own home in the first half of the year.
  • TSB extended £4.1 billion in new mortgage loans – building on the £6.6 billion total in 2016, with our average mortgage loan-to-value remaining low at 44.6%.
  • Balance sheet growth remains strong, with total lending at £30.2 billion – up 8.0% (£2.3 billion) year-on-year from £27.9 billion.
  • Franchise customer lending (including Whistletree) grew £4.3 billion, a 16.6% rise year-on-year from £25.9 billion.

3. Provide the kind of banking experience people want and deserve

Deploy TSB’s strong digital capability. Build greater consideration of the TSB brand. Deliver a differentiated customer experience through our Partners.

  • Customers are willing to recommend TSB to friends and family with the Bank’s Net Promoter Score remaining strong at +24 points for the first half of 2017, consistent with the score this time last year.
  • TSB was named in the top 10 of Britain’s Best Big Companies to work for by the Sunday Times, making TSB the best bank to work for in the UK. The Bank was also recognised as one of the Best Workplaces™ in the UK (in the Large 500+ employees category) by Great Places to Work®.
  • TSB launched its Gender Balance Matters report calling on companies to come clean on the root causes of the gender pay gap figures and sign-up to three simple changes to tackle gender imbalance head on.

Outlook

TSB remains one of the most strongly capitalised banks in the UK and, with a healthy liquidity reserve, is well positioned to weather economic uncertainty or shocks. While we continue to be confident in the strength of the UK economy, we are mindful of the challenges ahead. Most commentators predict that economic and market conditions are likely to remain uncertain for a range of reasons, including the UK’s exit from the EU. Despite emerging inflationary pressure, interest rates are also predicted to remain at historically low levels, placing continued pressure on the net interest margins of all banks.

We expect to continue to grow TSB in a responsible and sustainable way throughout 2017. As we’ve seen in this half however, the contractual increase of more than £100 million in outsourcing fees we pay to Lloyds Banking Group this year will continue to drive a significant reduction in our underlying profit before tax in 2017.

In addition, the Mortgage Enhancement portfolio has been returned to Lloyds Banking Group (LBG) having achieved its £230 million profit target roughly a year ahead of schedule. On a full year basis, this will have the effect of bringing forward around £25 million profit before tax expected in 2018 to 2017.

Looking forward, TSB’s ability to make banking better for all UK consumers will increase as we continue to invest in migrating our banking platform from the one provided by Lloyds Banking Group to a new, state-of-the-art platform designed and built with Sabadell. This will reduce TSB’s costs considerably, with the increase in LBG outsourcing costs seen this year reversed in future years. It will also provide opportunities for TSB to become more innovative and agile in responding to our customers’ evolving banking needs. We expect to move to the new platform towards the end of 2017, but customers are already experiencing it through our new mobile banking app which we rolled out earlier this year. This is just the start of the significant transformation which is gathering pace at TSB.

As we prepare for the transition to our new banking platform, it’s important to us that we continue to deliver excellent service to our customers. In order to ensure that we continue to do this, we have been growing our lending less quickly in the second quarter of the year and will continue to grow this less quickly over the coming months. We expect to reverse this slowdown as we move into 2018.

We remain confident that we have the strategy in place to remain an attractive long-term home for customers – and one that is distinct from other banks on the high street.

Notes to editors

TSB was built to bring more competition to UK banking and ultimately make banking better for all UK consumers. TSB only serves local customers and local businesses, to help fuel local economies, because communities thriving across Britain is a good thing for all of us.

We have a simple, straightforward and transparent banking model and make clear on our website how we operate and make money. We offer the products and services people tell us they want, with none of the funny stuff people normally associate with traditional banks.

Our five million customers appear to notice: TSB is Britain’s most recommended high street bank and was recently identified as one of the top 10 big companies to work for.

For further information about TSB Bank plc, please visit our website

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