CYBG Plc (ASX: CYB) has reported its first quarter result to 31 December 2018, here’s how it’s saving £150 million a year.

CYBG is one of the challenger banks in the UK, it operates Clydesdale Bank, Yorkshire Bank and Virgin Money. It was spun out of National Australia Bank Ltd (ASX: NAB).

CYBG’s First Quarter Result

The acquisition of Virgin Money completed on 15 October 2018, the numbers mentioned below are shown as in the merger had been effective since 1 October 2017.

Customer lending

The headline figure was that customer lending grew by 1.4% to £71.9 billion. Within this, mortgage growth came in at 1.5% to £60 billion, benefiting from a “strong pipeline coming into the quarter and good customer retention.”

Small and medium-sized enterprises (SME) growth was 12% to £7.6 billion

Net Interest Margin (NIM)

The first quarter reflected NIM of 1.72%, with the guidance for FY19 being narrows to 1.65% to 1.7%, which is at the higher end of the previous guidance range.

Management were expecting a lower NIM than FY18 due to sustained pricing pressure in the UK mortgage market.

Cost savings

CYBG has been working with the integrated Virgin Money to realise the transaction benefits.

Management said that the integration programme is going well and the bank is pleased with the progress having achieved the initial milestones. The bank’s underlying cost income ratio in the first quarter was below 60%.

After confirming the initial synergy plan assumption, CYBG now expects to deliver a minimum of £150 million of annual net run-rate cost synergies by the end of FY21, compared to the £120 million previously announced.

CET1 Ratio

The bank said that it had a CET1 ratio of 14.5% at the end of December 2018. The decrease of 0.6% from September 2018 was due to the dividend, AT1 distributions and “exceptional charges.”

CYBG management comments

CYBG CEO David Duffy said: “In a highly competitive environment, we have delivered ahead-of-market lending growth for our customers and improved our NIM guidance for 2019.

Is CYBG a buy?

Investors sure seem to think so with the CYBG share price rising 15% in early trade.

Aside from uncertainty and worries surrounding Brexit, it seems there’s a lot to like about CYBG. The cost synergies are going very well and the joint business should be able to attract more business than if they were separate.

However, Brexit is such an unknown factor that until we know what’s going to happen either way I think there is too much short term downside risk if the UK leaves the EU without a deal, which could happen.

That’s why I’d prefer to invest in one of the reliable ASX shares below instead.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).