A FALL in the cost of the funds lent on to customers and good growth in fee income enhanced pre tax profits at TSB Bank by 12.5 per cent to £20.04 million for the year to October 31st, 1996.
With the stimulus of a healthy economy, the bank achieved strong loan growth and stable margins on its core deposit and lending business. A fall in the provision for bad debts also assisted the figures.
Despite the rise in pretax profits, post tax earnings slipped to £12.8 million from £13.8 million because of a higher effective tax charge. TSB became liable for corporation tax at the full rate from April 1996, having been gradually eased into the tax net since 1993. Its effective tax rate jumped to 36.3 per cent from 22.3 per cent in 1995.
The bank reported loan growth of 20.6 per cent, bringing total loans outstanding to £728 million. Mortgage advances rose by 23 per cent and the bank now has more than 5 per cent of the residential mortgage market, according to its chief executive, Mr Harry Lorton.
Current accounts increased by about 23 per cent, boosted by reciprocal arrangements with other banks on the use of ATM networks - TSB customers will have access to 800 ATMs by the end of March. Lending to personal customers and small and medium sized businesses, including farmers, showed good growth, he said.
With the bank still "relatively underlent" compared with its competitors - TSB has funds with the Minister for Finance and in Government bonds which are available for lending to customers - there is considerable potential for increasing its share of the mortgage and other markets, according to Mr Lorton.
However, with a "competitive" lending market and low interest, rates, interest earned on loans rose by only 0.46 per cent to £96.2 million.
The bank's results reflected the lower cost of the funds it lends on to customers. Funding from customer deposits increased by 5.3 per cent to £1.27 billion, while interest paid for all funds was 4.4 per cent lower at £39.6 million. This was created by strong growth in lower cost current account balances, as well as lower interest rates.
Net interest income was 4.2 per cent per cent higher at £56.6 million, with the net interest margin, virtually unchanged at 4.29 per cent.
The profit on lending and funding was boosted by more switching of funds from the National Treasury Management Agency to higher interest customer lending. Only about 15 per cent of funds remain with the NTMA, according to Mr Lorton.
Income from fees and commissions rose by 8.6 per cent to £14.6 million. The bank reported a 5.7 per cent rise in operating income to £72.3 million. On the costs side, administrative expenses were 4.4 per cent higher at £45.4 million, the depreciation charge was unchanged a million and the bad and doubtful debts charge was £0.26 million lower at £2.68 million.
The depreciation charge was unchanged, despite an increase in capital investment from £3.3 million to £6 million. Most of the investment last year was loaded towards the end of the year and involved no depreciation cost.
The lower bad debt charge reflected the "conservative nature of our lending and very good loan controls", according to Mr Lorton. The charge was down to 0.37 per cent of average loans from 0.49 per cent. Mr Lorton said he was very pleased with the quality of his loan book.
TSB managed to nudge down its cost/income ratio from 69.6 per cent to 68.6 per cent. "We would like it to be lower but we are a retail personal bank and on strict comparison with purely retail banks we are not out of line." Mr Lorton pointed out that because TSB is in a development phase, laying the foundations for future profits, its costs are going to be high.
TSB reported a surplus of £12.8 million after tax, bringing its year end surplus to £96.3 million. TSB had total assets of £1.4 billion at the end of October.
