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TSB announces 2018 full year results
While last year was TSB’s most challenging year, the Bank enters 2019 with a modern platform set up to serve more customers in more communities than ever before.
Today, 1 February 2019, TSB announces its financial results for the year to 31 December 2018:
- TSB’s statutory loss before tax for 2018 was £105.4 million, against a profit of £162.7 million in 2017, reflecting the impact of the issues following the Bank’s IT migration.
- In total, TSB has recognised post-migration costs, including customer compensation, additional resources, fraud and foregone income of £330.2 million, partially offset by the provisional recovery of £153.0 million from TSB’s IT provider, Sabis.
- At 31 December 2018, TSB’s total customer lending was £30.0 billion and total customer deposits stood at £29.1 billion.
- Common Equity Tier 1 capital ratio and liquidity coverage ratio remained very strong at 19.5% and 298.1% respectively, with the loan to deposit ratio at 103.2%.
- Around 140,000 customers opened a new bank account or switched their account to TSB in 2018.
- Around 80,000 customers switched their bank account away from TSB in 2018 with volumes peaking in Q2; this compares with around 50,000 customers switching their account away from TSB in 2017.
- TSB now has 3.8 million current account customers and over five million customers in total.
TSB has continued to make good progress on its three priorities announced in September 2018:
1. Completing the work of putting things right for customers:
- TSB has resolved around 90% (181,000) of the 204,000 customer complaints received since migration. TSB estimates approximately a quarter of this total would have been received in the usual course of business.
- New complaints being received are significantly lower in volume and closer to pre-migration levels, with the majority no longer connected to migration issues.
2. Enabling the Bank to achieve full functionality for customers, including availability of all product services and the launch of a leading business banking offer:
- All critical and urgent IT fixes have been applied, IT services are now stable within the range of industry performance, and the majority of products are available across all channels.
- In December, TSB was named as part of the Incentivised Switching Scheme for SMEs, and the Bank is bidding for a grant from the Capability and Innovation Fund.
3. Appointing a Chief Executive for the next chapter of TSB:
- In November, Debbie Crosbie was announced as CEO designate1 and she joins the business in Spring 2019.
- To recognise the exceptional team effort across the business to put things right for customers, the Board awarded TSB Partners (excluding Executives) £1,500 each in December.
- The Board has decided that no other bonuses will be paid for 2018.
Looking ahead to 2019:
- TSB’s new IT system provides a coherent architecture involving significantly fewer platforms with improved and faster service for customers and Partners.
- Current accounts can now be opened in branch in half the time compared with the old system, and online current account openings have returned to underlying pre-migration levels following the launch of an improved online application.
- Mortgage brokers can also submit applications in half the time compared with the old system; TSB has already started to see the benefit with the busiest ever week in the Bank’s history for mortgage applications in December 2018.
- The Bank is committed to strengthening its support for small and local businesses right across Britain with a multi-million-pound investment programme underway to build new banking services for small businesses.
1 The appointment is subject to regulatory approval.
Richard Meddings, TSB Executive Chairman, says: “Last year was TSB’s most challenging year. But we enter 2019 with renewed ambition to re-emerge as the leading challenger bank in the UK – firmly on the side of the customer. We have a truly customer-focused team, a strong banking system that customers are starting to see the benefits of, and look forward to our new CEO, Debbie Crosbie, joining us later this year.
“In addition to continuing to improve our offer for consumers, we are going to make a significant move into business banking. We have a multi-million-pound investment programme underway to help us grow our business banking offer across every town and city we serve – as the only challenger bank with a nationwide branch network, and we were named in December as part of the Incentivised Switching Scheme.
“Whilst the migration caused considerable difficulties, we’re now a stronger bank, operating on a more coherent and modern platform, and able to service more customers than ever before. Helping local communities and businesses to thrive is just one element in being an essential part of the fabric of communities and their high streets – along with creating jobs, tackling fraud, and helping those in need through our charity partnerships.
“At a time when some banks are quietly retreating from communities, we’re proud to support local customers and businesses through our branches across the country, alongside digital and telephone banking.”
Financial performance
- TSB’s financial performance in 2018 was heavily impacted by the IT migration and subsequent service disruption. As a result, TSB’s statutory loss before tax in 2018 was £105.4 million, versus a profit of £162.7 million in 2017.
- In 2018 TSB recognised additional post-migration costs and foregone income to the value of £330.2 million, including:
- Customer redress, rectification and associated remediation resource costs of £125.2 million;
- Fraud and operational losses of £49.1 million;
- Additional resource and advisory costs to support the remediation of systems and operating defects of £122.4 million;
- Foregone income of £33.5 million relating primarily to waived fees and charges as a result of the service disruption.
- These additional costs were partially offset by the provisional recovery of £153.0 million from TSB’s IT provider, Sabis.
- TSB’s liquidity is robust and its capital position remains one of the strongest of the UK banks with a fully loaded Common Equity Tier 1 ratio of 19.5% and liquidity coverage ratio of 298.1%.
- Total customer deposits at £29.1 billion decreased by 4.7% year-on-year from £30.5 billion driven by:
- A planned reduction in savings balances as a result of pricing decisions taken early last year to manage ISA deposit volumes ahead of the 2018 ‘ISA season’ given TSB’s strong liquidity position, in turn supported by extended participation in the Term Funding Scheme.
- This was partially offset by current account deposit balances increasing.
- TSB advanced £4.8 billion of new mortgage loans in 2018 (versus £7.0 billion in 2017) reflecting the conscious decision to reduce new origination in Q2 and Q3 last year. In Q4 TSB saw the value of mortgage applications increase by 142% on Q3, and therefore enters 2019 with a strong completion pipeline.
- Total customer lending at £30.0 billion has decreased by 2.7% (£0.9 billion) year-on-year including the continued roll-off of the Whistletree portfolio (£0.4 billion year-on-year). The mortgage portfolio loan-to-value remained conservative at 44%.
- Franchise customer lending (excluding the Whistletree portfolio) decreased to £28.3 billion, down by 1.7% (£0.4 billion) year-on-year from £28.7 billion as TSB focused on serving the existing customer base rather than new origination.
- The year-on-year improvement in TSB’s franchise profit before tax (excluding migration costs) was primarily driven by one-off cost savings linked to the non-payment of reward schemes and the TSB Award not being paid, and also lower levels of marketing investment as the business focused on customer remediation.
Financial results
| Balance sheet and capital | At 31 Dec 2018 | At 31 Dec 2017 | Change |
|---|---|---|---|
| Franchise customer lending – excluding Whistletree (£ million) | 28,267.3 | 28,744.8 | (1.7)% |
| Total customer lending (£ million) | 30,008.5 | 30,854.2 | (2.7)% |
| Total customer deposits (£ million) | 29,084.3 | 30,520.6 | (4.7)% |
| Group loan to deposit ratio | 103.2% | 101.1% | 2.1pp |
| Common Equity Tier 1 capital ratio | 19.5% | 20.0% | (0.5)pp |
| Financial performance | At 31 Dec 2018 | At 31 Dec 2017 | Change |
|---|---|---|---|
| Franchise profit before tax – excluding migration costs (£ million) | 173.3 | 119.7 | 44.8% |
| Additional post-migration charges | (330.2) | - | n/a |
| Provisional recovery of additional post-migration charges | 153.0 | - | n/a |
| Mortgage Enhancement profit before tax (£ million) | - | 61.7 | n/a |
| Management (loss) / profit before tax (£ million) | (3.9) | 181.4 | (102.1)% |
| Migration related income from LBG | 318.3 | n/a | |
| Costs of preparing for TSB's migration | (417.3) | n/a | |
| Banking volatility1 (£ million) | (8.7) | 10.1 | (186.1)% |
| Other one-off items2 (£ million) | 6.2 | (28.8) | (121.5)% |
| Statutory (loss) / profit before tax (£ million) | (105.4) | 162.7 | (164.8)% |
| Group banking net interest margin3 | 2.87% | 3.02% | (15)bps |
| TSB asset quality ratio4 | 0.24% | 0.25% | (1)bps |
1Banking volatility reflects gains and losses on derivatives not in hedge accounting relationships, hedge accounting ineffectiveness, and volatility associated with share schemes.
2Other one off items reflects the changes to the branch network and movements in the valuation of partner reward scheme liabilities.
3Management basis net interest income divided by average loans and advances to customers, gross of impairment allowance.
4Impairment charge on loans and advances to customers divided by average loans and advances to customers, gross of impairment allowance.
2Other one off items reflects the changes to the branch network and movements in the valuation of partner reward scheme liabilities.
3Management basis net interest income divided by average loans and advances to customers, gross of impairment allowance.
4Impairment charge on loans and advances to customers divided by average loans and advances to customers, gross of impairment allowance.
Outlook
Economic and market conditions remain uncertain for a range of reasons, including the UK’s exit from the EU. 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.
The year-on-year improvement in TSB’s franchise profit before tax in 2018 (excluding migration costs) was primarily driven by one-off cost savings linked to the non-payment of reward schemes and the TSB Award not being paid, and also lower levels of marketing investment as the business focused on customer remediation. This increase is therefore non-recurring in nature and will not continue in 2019.
Whilst the migration to the new platform caused considerable frustration and difficulties, looking forward TSB is confident that the platform is now delivering real benefits and, importantly, enables TSB to support more customers and local businesses right across the UK.
Although there will be moments when TSB will have to look back to the events of 2018, TSB is now a stronger bank for its experience, with a trusted brand, able to service more customers in more communities than ever before. TSB Partners have responded exceptionally to the challenges of the year. The Bank has come through a very difficult systems migration, but now operates on a more coherent, responsive and modern platform as the foundation for its future success, differentiating TSB from many of its competitors.
