ME Bank provided an update on its transition to a conventional banking structure in a 2011/12 financial report released yesterday. The bank has moved most of its mortgages on to its balance sheet, switched from a securitisation-only funding model to become a deposit taker and closed all of its branches in favour of a workplace distribution model.As a result, its profit metrics don't bear much comparison with prior periods.Net profit was $4.7 million - down 82 per cent on the previous year. Underlying profit was $24.4 million. Return on equity was five per cent and the cost-to-income ratio was 78 per cent.The bank spent $6.2 million on branch closures during the year. It now provides face-to-face banking services through a network of 35 workplaces. ME Bank's chief executive, Jamie McPhee, said the bank started a trial in July last year with six sites. The goal was to get a minimum of 15 per cent of the workers at each site to buy an ME Bank product.McPhee said: "At the end of 12 months the take-up rate was 18.5 per cent We felt that showed there was an opportunity.He said there would be 60 workplace banking sites in operation by the end of the year and some of them would have permanent physical structures."We think we have a genuinely alternative banking proposition, although we also distribute online, through phone centres, brokers and mobile bankers," he said."This has always been a workplace bank. We are going back to the future."The bank also spent $1.5 million closing down decentralised credit operations. The credit department is now located in Melbourne.Another part of the business plan is for the bank to capitalise on its relationships with the superannuation funds that own it. The bank's chief financial officer, Nick Vamvakas, said ME Bank has won mandates with a number of super funds to be the term deposit provider on their investment platform. It is also aiming to be their provider of cash management services. Three big challenges for the bank will be to increase its net interest margin, which has been falling since 2009, to produce a higher return on equity and to get its cost-to-income ratio down to a competitive level.Vamvakas said the cost-to-income ratio and revenues were moving in the right direction, and would continue to improve as the business transformation was bedded down.The bank has increased deposits from around $2 billion, in 2009, to more than $7 billion, and lending assets on the balance sheet are worth more than $10 billion.In 2008, 95 per cent of the bank's funding came from securitisation, four per cent from customer deposits and one per cent from the wholesale funding. Today, customer deposits make up 30 per cent of funding, securitisation 57 per cent and wholesale funding 13 per cent.