1H 2020 RESULTS PRESENTATION 5 August 2020
Agenda 1 Daniel Frumkin (CEO) Introduction 1H20 Financial results 2 David Arden (CFO) Daniel Frumkin (CEO) 3 Strategy & Operational update 4 Q&A 1H20 Agenda 1
Introduction Daniel Frumkin (CEO)
Supporting our customers, communities and colleagues through COVID-19 Community banking has never been more relevant Customers Communities • Store support for local communities e.g. NHS • 100% of store network remained open collections, fundraising activities • Contact centre open daily • Colleagues given 5 Days to AMAZE to • Digital services available 24/7 volunteer / support in their local communities • Opened stores in two new communities 1 Retail Colleagues • Supported vulnerable customers • Additional COVID-19 leave granted • >9,000 mortgage payment deferrals granted 2 • No use of government furlough scheme • Total app / website logins up 8% vs • £2m ‘Thank You’ fund for colleagues 2H19 • Central functions equipped to work from home Business • Launched Health and Wellbeing Hub • Capital repayment deferrals, interest supporting physical and mental wellbeing roll-ups, covenant waivers • >25,000 BBLS applications 3 • >£100m of CBILS 3 • CLBILS accredited 1H20 Introduction 3 (1) Since the start of the pandemic (2) Includes PBTL (3) As at 27 July 2020
Impact of COVID-19 Credit Operational Provisioning Fee Margin Income Compression 1H20 Introduction 4
Strategic priorities reaffirmed 1 2 3 4 5 Balance sheet Internal and Costs Infrastructure Revenue optimisation external comms Tight cost control through back office Investment in Meeting more Enhanced focus on efficiencies, Improve our integrated channels customer needs and risk-adjusted returns organisational approach to and core development of new and growing tangible simplification and communication infrastructure capabilities book value disciplined property footprint Becoming the UK’s best community bank 1H20 Introduction 5
1H20 Financial results David Arden (CFO)
1H 2020 key performance indicators Customer Liquidity Total capital Customer deposits coverage ratio + MREL ratio accounts (80bps) (2019: £14.5b) (2019: 197%) (2019: 2.0m) (2019: 22.1%) 29pp 8% 5% 2.1m 226% 21.3% £15.6b Net fee and Net interest Underlying Statutory other income 1 margin loss before tax loss before tax (25bps) (18%) >100% 79% (2H19: £44.0m) (2H19: 1.40%) (2H19: £25.1m loss) (2H19: £134.2m loss) £36.1m 1.15% (£183.4m) (£240.6m) Includes c.£109m of impact directly related to COVID-19 Strong deposit growth, particularly in current accounts ‘Run the bank’ costs controlled, 2% growth ‘Change the Bank’ accelerated with change initiatives brought forward 1H20 Financial results 7 (1) Disclosed on an underlying basis
Revenue reduction reflects base rate repricing lag as well as lower fee income from reduced transaction volumes NIM Bridge Net fee and other income 1 (bps) (£m) 46.4 (11) 2 14.0 (10) 36.1 140 (5) FX gains and other 12.7 travel money impacted by 11.1 lockdown 115 ATM and interchange 6.5 lower transaction volumes 2H19 Lending yield deposits deposit ratio Other 1H20 Cost of Service charges 14.9 Loan to 9.5 removal of overdraft fees Safe deposits boxes 7.4 6.4 new stores and utilisation NIM impacted by lower loan to deposit ratio, sustained mortgage market competition and repricing lag effect following base rate cut 1H19 1H20 1H20 Financial results 8 (1) Disclosed on an underlying basis
Disciplined cost growth Improved cost discipline and successful delivery of planned initiatives contained ‘Run the Bank’ cost growth to 2% Contained growth £21.5m • Growth contained despite: 11% 6 store openings First advertising campaign 2H19 COVID-19 costs: WFH/PPE equipment; ‘Thank You’ fund Run the £201m Bank • Improved cost discipline supported by: Accelerated central London property decision 89% Reduced size of Senior Leadership Team £179.7m Implementation of preferred supplier lists IT outsourcing at lower cost and greater flexibility Run the Bank Change the Bank Improved Management Information enabling greater accountability £40.6m Investment on track 18% • Front loaded investment spend attracting a lower average capitalisation rate Change 1H20 • Investment spend focused on: the £225m Regulatory programmes Bank AIRB 82% £184.1m Infrastructure Cost transformation 1H20 Financial results 9
Macroeconomic scenarios and COVID-19 provisioning Application of scenarios and weighting • 3 probability weighted scenarios: Baseline (40%); Upside (30%) and Downside (30%) • Macro-economic projections provided by Moody’s Analytics 30% 30% Upside • underlying portfolio uses pre-COVID19 scenarios (Dec19) Baseline • COVID19 impact assessed using latest scenarios (Jun 20) Downside • COVID-19 impact combines • modelled impact • expert judgement to capture potential impact of payment deferrals and 40% other relief measures Modelled scenarios 1 Macroeconomic variable Scenario 2020 2021 2022 2023 Baseline 8.4% 8.4% 7.9% 6.9% Unemployment (%) Upside 7.7% 6.8% 6.4% 5.7% Downside 9.9% 10.8% 10.4% 9.2% Baseline (14.6%) (4.9%) 5.8% 10.0% House price index (YoY%) Upside (12.1%) 1.3% 7.2% 8.3% Downside (19.4%) (14.4%) 2.0% 10.4% Baseline (7.7%) 3.9% 5.2% 3.5% UK GDP (YoY%) Upside (4.7%) 3.9% 5.0% 3.4% Downside (10.6%) 4.4% 5.3% 3.4% Baseline 1.7% 1.9% 2.2% 2.8% Mortgage 5 year interest rates (%) Upside 2.0% 2.4% 2.9% 3.3% Downside 1.8% 1.9% 1.9% 2.1% 1H20 Financial results 10 (1) Moody’s Analytics published 20 June 2020
Expected credit loss expense ECL expense and Cost of Risk COVID-19 impact assessment has leveraged a combination of ECL expense (£m) Cost of Risk (%) modelled results and expert judgement: 1H20 1H19 Change 1H20 1 FY19 • Model driven analysis, in particular reflecting the impact of deterioration in unemployment and HPI on mortgage Retail Mortgages 3 - 3 0.06 0.01 portfolio Commercial Lending 10 1 9 0.59 0.11 • Expert judgment analysis to reflect the impact of Consumer Lending 2 3 (1) 1.84 1.92 payment deferrals Underlying ECL 15 4 11 0.23 0.08 • Detailed assessment of individual exposures: Retail Mortgages 29 - 29 0.60 - • Commercial portfolio >£3m Commercial Lending 61 - 61 2.90 - • Commercial Real Estate >£5m • Expert judgement analysis to apply industry based Consumer Lending 7 - 7 5.51 - sector scalers within the Commercial portfolio COVID-19 ECL 97 - 97 1.32 - Total ECL 112 4 108 1.55 0.08 COVID-19 £97m ECL provision movement 2 82 145 (£m) Underlying £14m 15 7 7 34 Dec-19 Single names Portfolio charge COVID-19 COVID-19 Jun-20 single names Macroeconomic outlook 1H20 Financial results 11 (1) Annualised (2) The difference between ECL expense and ECL provision movement relates to write offs and other movements
Asset quality Non-performing loans Cost of risk Lending portfolio 7.35% 1% £0.2b 5.74% £0.8b 4.30% 3.49% 5.51% 5% 2.06% 1.55% 0.66% 1.12% 2.90% 0.96% 0.53% 0.39% 0.24% 1.84% 1.32% 0.60% £3.8b 0.06% 0.59% 0.23% 1 Retail Commercial Consumer Total 26% mortgages 1 Retail Commercial Consumer Total £15.0b mortgages FY19 1H20 Underlying COVID-19 impact 68% £10.2b ECL coverage ratio Balance by IFRS9 stages ECL 0.96% Coverage 0.1% 0.6% 0.9% 2.6% 17.2% 20.1% Ratio Retail mortgages Commercial 0.33% 0.23% 95% 93% CBILS / BBLS Consumer FY19 1H20 6% 4% Underlying COVID-19 scenario 0.7% 1.4% Stage 1 Stage 2 Stage 3 FY19 1H20 Average debt-to-value Debt-to-value 37% 30% • Retail mortgage 59% 24% 23% 21% 18% 17% 11% 10% 6% 2% • Commercial term loan 60% 1% 0% 0% < 50% 51-60% 61-70% 71-80% 81-90% 91-100% > 100% 1 Retail Commercial 1H20 Financial results 12 (1) Commercial term loans excluding BBLS and CBILS
Retail mortgages Retail lending portfolio Retail mortgages repayment type Retail mortgages geographical split 9.1% 58% 57% Greater London 3.9% 43% South East 42% 5.3% 44.3% South West £1.9b FY19 6.1% East of England 18% 1H20 8.1% North West West Midlands Interest only Capital and interest Rest of UK £10.2b 23.3% ECL coverage ratio Balance by IFRS9 stage 82% £8.3b ECL Coverage 0.01% 0.2% 0.6% 1.6% 6.7% 7.7% 0.40% Ratio 95% 92% Residential Mortgages 0.10% 0.07% BTL Mortgages 7% 5% 0.5% 0.8% FY19 1H20 Stage 1 Stage 2 Stage 3 Underlying COVID-19 scenario FY19 1H20 6,419 retail mortgage payment deferrals active at 30 June, Retail mortgages debt-to-value totalling £1.8bn, representing 16% Average retail DTV 1 : 59% of the portfolio. 30% 30% 23% 23% 19% 18% 17% 17% Active deferrals have since 12% 11% reduced by >45% 0% 0% 0% 0% < 50% 51-60% 61-70% 71-80% 81-90% 91-100% > 100% FY19 1H20 1H20 Financial results 13 (1) Debt-to-value
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