26 October 2017

TSB continues to grow and prepares to unveil its new banking platform

Today, 26 October 2017, TSB announces its financial results for the nine months to 30 September 2017. Four years since launch, 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 £5.8 billion of new mortgage advances to help more than 38,000 homeowners to get a better mortgage deal or buy a new home in the nine month period.
  • Customers continue to trust TSB with their money – with around 1,000 customers a day opening a TSB bank account, helping boost deposit balances to over £30 billion.
  • Customers continue to recommend TSB to friends and family with TSB’s Net Promoter Score (NPS)1  at +24 for the nine month period.
  • TSB customers are the first in Europe to use iris scanning security features to access their accounts with TSB’s mobile banking app.
  • TSB is set to become the first major bank in the UK to have designed and built a new state-of-the-art banking platform for the digital age.  

 

Further highlights include:

  • TSB advanced £5.8 billion in new mortgage loans in the first nine months of 2017, up 17.5% on the same period last year from £4.9 billion.
  • Franchise customer lending (excluding the Whistletree portfolio) grew to £28.6 billion, up 18.8% (£4.5 billon) year-on-year from £24.1 billion.
  • Franchise customer lending (including the Whistletree portfolio) grew to £30.8 billion, up 15.5% (£4.1 billion) year-on-year from £26.7 billion.
  • 6.4%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 £30.3 billion, up 4.5% (£1.3 billion) year-on-year from £29.0 billion.
  • Management profit before tax of £147.3 million was 1.3% lower (£2.0 million) year-on-year.   
    • As expected, operating costs increased 18.2% year-on-year to £612.4 million, driven primarily by the £90.5 million increase in outsourcing fees paid to Lloyds Banking Group in the first nine months of 2017.
    • As reported at H1 2017, 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 nine months of 2017 compared with £36.1 million in the same period last year – an increase of £25.6 million.
    • Excluding the increase in outsourcing fees and the effect of the early return of the Mortgage Enhancement, management profit before tax grew £62.9 million (42.1%) year-on-year from £149.3 million.
  • Statutory profit before tax fell to £134.2 million, down 17.0% (£27.4m) year-on-year from £161.6 million due to the non-recurring gain from the sale of our interest in Visa Europe (£32.5 million) which was recognised in June 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 18.9%.

 

Paul Pester, TSB Chief Executive Officer, commented: "When we launched TSB in 2013, we set out to break the stranglehold of the big five banks and bring a different sort of banking to the UK. Four years on, our latest set of results show TSB has cemented its positon as Britain’s challenger bank and that a bank focused on serving local communities really can thrive.

"Our high-tech transformation continues with TSB becoming the first major bank in the UK to have designed and built a new banking platform for the digital age. Customers are already starting to see the benefits as they are the first in Europe to use iris scanning security with TSB’s mobile banking app – accessing their accounts simply by glancing at their phones. And I’m also delighted to announce that TSB customers will be amongst the first to use Apple’s new facial recognition technology to login to their TSB account.

"Looking forward, our new, state-of-the-art banking platform will be transformational as we continue on our mission to bring more competition to UK banking – both for consumers and local businesses. The new platform will position TSB well to compete for one of the grants from the Capability and Innovation Fund recently announced by the UK Government. Breaking the stranglehold of the big five banks remains top of our agenda and we’ll continue to work closely with the Government, policymakers and regulators in an attempt to bring the full force of competition to bear on the UK banking market – and ultimately make banking better for all UK consumers.”

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 Sep 2017 At 30 Sept 2016 Change
Franchise customer lending - including Whistletree (£ million) 30,829.2 26,685.8 15.5%
Mortgage Enhancement customer lending (£ million) - 1,944.0 N/A
Total customer lending (£ million) 30,892.2 28,629.8 7.7%
Total customer deposits (£ million) 30,264.3 28,955.9 4.5%
Group loan to deposit ratio 101.9% 98.9% 3.0pp
Common Equity Tier 1 captital ratio 18.9% 17.0% 1.9pp
Financial performance 9 months prior to 30 Sept 2017 9 months to 30 Sept 2016 Change
Franchise profit before tax – including Whistletree (£ million) 85.6 113.2 (24.4)%
Mortgage Enhancement profit before tax (£ million) 61.7 36.1 70.9%
Management profit before tax1 (£ million) 147.3 149.3 (1.3)%
Statutory profit before tax (£ million) 134.2 161.6 (17.0)%
Group banking net interest margin2 3.02% 3.14% (12)bps
TSB asset quality ratio3 0.25% 0.30% (5)bps
Operating costs (management basis)1 (£ million) 612.4 518.0 18.2%
1 Management 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.
2 Management 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 6.4% of all customers switching banks or opening a new account in the past 12 months choosing TSB.
  • On average, around 1,000 customers a day opened a new bank account with TSB in the first nine months of the year.
  • Customer deposits grew to £30.3 billion – up 4.5% (£1.3 billion) year-on-year from £29.0 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 over 22,000 homeowners to get a better deal on their mortgage and around 16,000 people to buy their own home in the first nine months of the year. 
  • TSB extended £5.8 billion in new mortgage loans – building on the £6.6 billion total in 2016, with the average mortgage loan-to-value remaining low at 44.3%.
  • Balance sheet growth remains strong, with total lending at £30.8 billion - up 7.7% (£2.2 billion) year-on-year from £28.6 billion.
  • Franchise customer lending (excluding Whistletree) grew £4.5 billion, an 18.8% rise year-on-year from £24.1 billion.
  • Franchise customer lending (including Whistletree) grew £4.1 billion, a 15.5% rise year-on-year from £26.7 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 nine months of 2017.
  • In September, TSB customers became the first in Europe to use iris scanning security with their mobile banking app – logging into their TSB accounts just by looking at their phones. 
  • 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.  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.  While we continue to be confident in the strength of the UK economy, we are mindful of the challenges ahead.  Despite the widely anticipated base rate rise next month, rates are still 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 the first nine months 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, in the first half of the year the Mortgage Enhancement portfolio was 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 has the effect of bringing forward around £25 million of 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. We have already passed many significant milestones and the new platform is being used to support a number of our core services. Customers are starting to see the benefits through our new TSB banking app – the first in Europe to integrate iris scanning security features. They will also be amongst the first to use Apple’s new facial recognition technology to login to their TSB account and, going forward, the new platform will enable us to be more agile in responding to customers’ needs as they evolve.

As previously announced, TSB is re-planning the final phase of the roll-out of the platform, originally scheduled for 4-5 November, into Q1 2018. The re-planned roll-out will enable us to focus on communicating the effects of the widely anticipated early November base rate rise to our five million customers.

When the roll-out is completed, the new platform will reduce TSB’s costs considerably, with the increase in LBG outsourcing costs seen this year reversed in future years; however, the re-planning of the roll-out will have an impact on our profitability in 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.

Media Contacts

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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 identified earlier in the year as one of the top 10 big companies to work for.

For further information about TSB Bank plc, please visit our website www.tsb.co.uk.

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