Statutory profits before tax fell by more than 10 per cent to £162.7m, from the £182m seen last year mainly because of increased outsourcing fees, TSB reported today in a full-year update.
The bank, which spun out of Lloyds in 2013 to create more competition following the financial crisis, still relies on its former owner to operate its legacy banking platform.
Paul Pester, TSB's chief executive, told City A.M. he expects the full migration away from the Lloyds platform will likely be carried out in April. The annual cost of ongoing support will be pro-rated, meaning that TSB will save a portion of the £100m cost savings expected in future years.
"I'd love to get it out of the way as soon as possible," Pester said.
The increase in the contractual fees drove TSB’s operating costs up by 16.7 per cent year-on-year to £821.3m, driven primarily by the £122m increase in outsourcing fees paid to Lloyds.
At the end of last year TSB, owned by Spain’s Banco Sabadell, launched its own new banking platform, which will allow it to stop paying Lloyds this year. 2,000 bank employees are currently using TSB products in beta testing.
TSB’s measure of underlying profits, excluding the Lloyds costs and other one-offs, grew by £110.2m, a 62 per cent year-on-year increase.
Pester greeted the bank's underlying performance as "fantastic", striking a confident note ahead of a planned push to expand its small business banking.
TSB last month hired former HSBC and Oaknorth executive Richard Davies to build its business banking, ahead of the announcement of the award of remedies imposed on Royal Bank of Scotland to boost competition. Pester said he hoped to win some of the millions on offer to "break the shackles the big banks have" on the market.
"It would be a travesty if any of it ends up in the pockets of the Big Five," he added, referring to the possibility that Santander could be in contention for some of the money.
The bank also announced bonuses for its staff of 12.5 per cent of their annual salaries, adding up to a total of £30m. TSB awards a flat bonus across the business, with performance based on customer service rather than sales incentives.
TSB said it was “confident in the strength of the UK economy”, although “mindful of the challenges ahead” as the Brexit process continues, pointing to its 20 per cent tier one capital ratio, among the largest buffers in the UK.
Pester said the excess capital above the ratio of around 10 to 12 per cent – a more usual level of bank capital holdings – represents a "war chest to invest in growing the bank".
Meanwhile, TSB also announced Richard Meddings will take over as chairman of the board with immediate effect, after Will Samuel stepped down after four years in the role. Meddings's succession was widely expected after he joined the bank in September last year.