TIDMMTRO
RNS Number : 5407C
Metro Bank PLC
23 February 2022
Metro Bank PLC
Full year results
Trading Update 2021
23 February 2022
Metro Bank PLC (LSE: MTRO LN)
Results for Year ended 31 December 2021
Highlights
-- Turnaround plan successfully delivering momentum and sustainable
growth, underpinning the path to profitability
* Improving lending mix and maximising risk-adjusted
returns on capital
* Margin expansion, NII growth and fee recovery driving
revenue growth
* Enabling sustainable growth through strong cost
control and improving operating jaws
* Targeted infrastructure development to improve
resilience and protect the Bank
* Management remains focused on execution with clear
steps to breakeven
-- Continued focus on customers, communities and colleagues,
voted #1 high street bank for overall service, supported
local communities with government-backed loans and successfully
transitioned colleagues to a hybrid working model whilst
maintaining the Bank's strong culture
-- Underlying revenue increased by 17% to GBP397.9 million
reflecting the shift towards higher yielding assets, lower
cost of deposits and a recovery in customer activity.
-- Underlying costs of GBP546.8 million reflect management
actions to control cost, deliver positive operating jaws
and leverage the fixed cost base, underlying operating costs
reduced 1% in the second half
-- Underlying loss before tax reduced by 37% to GBP171.3 million,
a second half underlying loss of GBP61.3 million is down
44% on the first half, highlighting the momentum towards
profitability
-- Statutory loss before tax of GBP245.1 million following
settlement of the PRA investigation, provisioning for the
FCA investigation, sanctions related remediation and non-recurring
expense items that underpin the path to profitability such
as restructuring and legacy fixed asset impairment
Daniel Frumkin, Chief Executive Officer at Metro Bank, said:
"Two years into the turnaround, our strategy is delivering
meaningful results as we move towards profitability. In a changing
macro-economic environment, we have accelerated the shift of our
balance sheet, with improved yields and lower cost of deposits.
This has had a material impact on underlying revenue, which
improved 42% (1) when adjusting for the mortgage portfolio
disposal. Encouragingly, the second half of the year delivered even
stronger revenue and exit-NIM performances, providing ongoing
momentum into 2022. There is still more to do, but our focus on
delivering higher margins through unsecured and specialist mortgage
lending, as well as tight cost control, is enabling
transformational change. We remain committed to delivering on the
strategy we set out, including supporting the communities in which
we operate."
1. Adjusts total underlying revenue by excluding loan income
from the mortgage portfolio disposal announced in December
2020.
Outlook and Guidance
-- The return to profitability gathered momentum in the year
despite continued volatility in the macro-economic environment,
with 4Q21 rates reflecting the Bank's improved lending
and deposit mix:
2021 Average 4Q21 Average
Cost of Deposits 0.24% 0.15%
Lending Yield 3.07% 3.19%
Net Interest
Margin 1.40% 1.56%
-- Given the economic uncertainty resulting from the pandemic
it is too early to provide medium term guidance. However,
the Bank remains focused on execution and guides directionally
for the next 12 months as follows.
Balance sheet: Higher growth than 2021 with continued
focus on mix improvement.
Margin: A strong exit-NIM holds us in good stead for 2022
with continued focus on lending mix and improved yields
as a result of the base rate rises, potentially tempered
by higher cost of deposits.
Fees: Transaction-driven revenue streams influenced by
the pace of recovery.
Costs: Low single digit % reduction in total underlying
operating expenses. Non-underlying items are expected to
be less than 20% of 2021 as remediation costs fall away.
Capital: Will operate in buffers but remain above regulatory
minima. The Bank's AIRB application is progressing.
A presentation for investors and analysts will be held at 8.30AM
(UK time) on 23 February 2022.
The presentation will be webcast on:
https://onlinexperiences.com/Launch/QReg/ShowUUID=B1193A94-7E98-424E-B793-627EE9765A05
For those wishing to dial-in:
From the UK dial: 0800 358 9473
From the US dial: +1 855 85 70686
Participant Pin: 89517228#
URL for other international dial in numbers:
https://events-ftp.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
Key Financials:
31 31 December Change 30 Change
GBP in millions December 2020 from June from
2021 FY 2020 2021 H1 2021
Assets GBP22,587 GBP22,579 0% GBP23,013 (2%)
Loans GBP12,290 GBP12,090 2% GBP12,325 0%
Deposits GBP16,448 GBP16,072 2% GBP16,620 (1%)
Loan to deposit ratio 75% 75 % 0 pps 74% 1 pps
CET1 capital ratio 12.6% 15.0 % (2.4 pps) 13.9 % (1.3 pps)
Total capital ratio
(TCR) 15.9% 18.1% (2.2 pps) 17.2% (1.3 pps)
MREL ratio 20.5% 22.4 % (1.9 pps) 21.7 % (1.2 pps)
Liquidity coverage
ratio 281% 187 % 94 pps 309 % (28 pps)
---------- ------------ ---------- ---------- ----------
FY FY Change H2 H1 Change
from from
GBP in millions 2021 2020 FY 2020 2021 2021 H1 2021
Total underlying revenue(2) GBP397.9 GBP340.9 17% GBP218.1 GBP179.8 21%
Underlying loss before
tax(3) (GBP171.3) (GBP271.8) (37%) (GBP61.3) (GBP110.0) (44%)
Statutory loss before
tax (GBP245.1) (GBP311.4) (21%) (GBP106.2) (GBP138.9) (24%)
Net interest margin 1.40% 1.22% 18bps 1.51% 1.28% 23bps
(144.0p
Underlying EPS ) (151.7p) (5%) (78.9p) (65.1p) (21%)
----------- ----------- --------- ----------- ----------- ---------
2. Underlying revenue excludes income recognised relating to the
Capability & Innovation fund and the mortgage portfolio
sale.
3. Underlying loss before tax excludes the Listing Share Awards,
impairment and write-off of property, plant & equipment (PPE)
and intangible assets, net BCR costs, transformation costs,
remediation costs, business acquisition and integration costs and
mortgage portfolio sale. Statutory loss after tax is included in
the Profit and Loss Account.
Progress on strategic plan
Metro Bank continues to successfully deliver transformational
change against all five pillars of the strategic plan set out
in February 2020.
-- Balance sheet optimisation: Improving mix, maximising risk-adjusted
returns on capital. Decisive action taken in response to
the changing environment. The mortgage disposal and RateSetter
back book acquisition accelerated the shift to higher yielding
assets followed by strong organic growth in consumer unsecured
and specialist mortgages.
-- Revenue: Margin expansion, NII growth and fee recovery.
More products launched in store including RateSetter loans
and insurance offerings. Government-backed lending through
the Bounce Back Loan Scheme (BBLS) top-up and the Recovery
Loan Scheme (RLS) to support communities. Investment in
digital capability improves the multi-channel presence.
-- Cost: Enabling sustainable growth. Investment in automation,
IT platforms and the customer service proposition supports
cost efficient growth. Agreed the acquisition of three further
store freeholds at attractive yields and selectively closing
three stores. Reduced central London office space and the
hybrid working model utilises office space around stores.
-- Infrastructure : Protecting the Bank. The enhancements
to IT, regulatory reporting, financial crime, cyber security
and digital channels all improve the Bank's resilience and
customer journeys.
-- Internal and external communications: Delivering clear
messages. Continued support for customers, colleagues and
communities through the pandemic with a range of bank wide
and hyper local brand and PR campaigns, as well as launching
an SME marketing campaign showcasing the Bank's FANS.
Financial performance for the year ended 31 December 2021
Deposits
GBP in millions 31 31 December Change 30 Change
December 2020 from June from
2021 FY 2020 2021 H1 2021
Demand: current accounts GBP7,318 GBP6,218 18% GBP6,749 8%
Demand: savings accounts GBP7,684 GBP6,430 20% GBP7,402 4%
Fixed term: savings
accounts GBP1,446 GBP3,424 (58%) GBP2,469 (41%)
----------- ------------- --------- ---------- ---------
Deposits from customers GBP16,448 GBP16,072 2% GBP16,620 (1%)
----------- ------------- --------- ---------- ---------
Retail customers (excl.
retail partnerships) GBP6,713 GBP7,364 (9%) GBP6,964 (4%)
SMEs GBP4,764 GBP4,420 8% GBP4,605 3%
----------- ------------- --------- ---------- ---------
GBP11,477 GBP11,784 (3%) GBP11,569 (1%)
----------- ---------------------------------------- --------- ---------- ---------
Retail partnerships GBP1,814 GBP1,596 14% GBP1,697 7%
Commercial customers
(excluding SMEs(4)
) GBP3,157 GBP2,692 17% GBP3,354 (6%)
GBP4,971 GBP4,288 16% GBP5,051 (2%)
----------- ---------------------------------------- --------- ---------- ---------
4. SME defined as enterprises which employ fewer than 250 persons
and which have an annual turnover not exceeding EUR50 million,
and/or an annual balance sheet total not exceeding EUR43 million,
and have aggregate deposits less than EUR1 million.
-- Total deposits grew by over GBP370 million in the year
to GBP16,448 million as at 31 December 2021 (31 December
2020: GBP16,072 million ). Continued growth in current and
savings accounts was offset by a GBP2.0 billion reduction
in fixed term deposit (FTD) accounts following action taken
to reduce prices. FTD accounts now make up 9% of total deposits
(2020: 21%). Growth largely resulted from an increase in
commercial deposits, reflecting customers' continued preference
for increased liquidity.
-- Cost of deposits was 24bps for the year, a decrease of
41bps compared to 65bps in 2020, reflecting the managed
roll-off of higher cost FTD accounts with a corresponding
mix improvement in favour of non-interest-bearing current
accounts and demand savings accounts, the Q4 2021 cost of
deposits was 0.15%.
-- Customer account growth of 0.3 million in the year to 2.5
million (2020: 2.2 million) reflects continued organic growth,
with account growth from the RateSetter back book acquisition
offsetting the managed reduction in fixed term deposits.
Loans
GBP in millions 31 31 December Change 30 Change
December 2020 from June from
2021 FY 2020 2021 H1 2021
Gross Loans and advances
to customers GBP12,459 GBP12,244 2% GBP12,491 0%
Less: allowance for (GBP 154
impairment (GBP169) ) 10% (GBP 166) 2%
----------- ------------- --------- ---------- ---------
Net Loans and advances
to customers GBP12,290 GBP12,090 2% GBP12,325 0%
----------- ------------- --------- ---------- ---------
Gross loans and advances
to customers consists
of:
----------- ------------- --------- ---------- ---------
Commercial lending(5) GBP3,220 GBP3,681 (13%) GBP3,416 (6%)
Government-backed lending(6) GBP1,626 GBP1,467 11% GBP1,556 4%
Retail mortgages GBP6,723 GBP6,892 (2%) GBP6,815 (1%)
Consumer lending GBP890 GBP204 336% GBP704 26%
----------- ------------- --------- ---------- ---------
5. Includes CLBILS.
6. BBLS, CBILS and RLS.
-- Total net loans as at 31 December 2021 were GBP12,290 million,
up 2% from GBP12,090 million as at 31 December 2020 reflecting
growth in government-backed lending and the strong organic
growth in consumer lending supported by the integration
of the RateSetter platform, which offset the attrition of
lower-yielding residential mortgages and commercial term
loans.
-- Commercial loans (excluding BBLS and CBILS) decreased by
13% during the year to GBP3,220 million as at 31 December
2021 (31 December 2020: GBP3,681 million), as large transactional
lending rolled off.
-- Government-backed lending increased by more than GBP150
million in the year to GBP1,626 million as at 31 December
2021 (31 December 2020: GBP1,467 million) . Growth was primarily
driven by BBLS top-up applications and Recovery Loan Scheme
(RLS) lending .
-- Retail mortgages remained the largest component of the
lending book at 54% (31 December 2020: 56%), with mortgage
applicants benefitting from enhancements to the existing
mortgage offering and the launch of further specialist mortgage
products during the year.
-- Consumer lending increased to 7% of the of the total loan
book from 2% as at 31 December 2020 , resulting from the
RateSetter back book acquisition and strong increase in
organic lending as the RateSetter platform was rolled-out
across all of Metro Bank's channels. Consumer originations
continue to average more than GBP50 million per month compared
to less than GBP2 million per month a year earlier.
-- Loan to deposit ratio held at 75% (31 December 2020: 75%)
reflecting the impact of the mortgage portfolio disposal
in December 2020 and capital constraints on lending.
-- Cost of risk was 18bps for the year, a decrease of 68bps
compared to 86bps in 2020, reflecting the more favourable
macro-economic outlook. Non-performing loans increased to
3.71% (31 December 2020: 2.10%) driven by BBLS and a limited
number of single name commercial exposures. The loan portfolio
remains highly collateralised with average debt to value
(DTV) of the residential mortgage book at 55% (31 December
2020: 56%), while DTV in the commercial book was 57% (31
December 2020: 56%).
Profit and Loss Account
-- Net interest margin (NIM) of 1.40% is an increase of 18bps
in the year (2020: 1.28%) and reflects an improved lending
mix and lower cost of deposits, the Q4 2021 NIM was 1.56%.
-- Underlying net interest income increased by 18% to GBP295.7
million (2020: GBP250.3 million), despite the mortgage portfolio
disposal in H2 2020.
-- Underlying net fee and other income increased 18% to GBP101.5
million (2020: GBP86.3 million). The lifting of COVID-19
lockdowns and other social restrictions in H2 led to growth
in transaction-driven revenue streams.
-- Total underlying operating costs increased 13% to GBP546.8
million (2020: GBP486.0 million) despite reducing 1% in
the second half, reflecting a full year of RateSetter costs.
'Change the Bank' spend has now passed its peak, reducing
15% in the second half. The closure of three selected stores
in Windsor, Milton Keynes and Earl's Court also reduce cost
run-rate into 2022, offset by the opening of a new store
in Leicester in Q1 2022.
-- Underlying loss before tax was GBP171.3 million, a 37% reduction
from the GBP271.8 million loss in 2020.
-- Statutory loss before tax of GBP245.1 million in 2021 (2020:
loss of GBP311.4 million) includes remediation costs of
(GBP45.9 million), and impairment of RateSetter peer-to-peer
technology and the exit of three stores (GBP24.7 million),
partially offset by the residual gain on sale in respect
of the mortgage portfolio (GBP8.1 million). The remediation
costs include (GBP5.4 million) relating to settlement of
the PRA investigation and a (GBP5.3 million) provision for
the FCA investigation.
-- Statutory loss after tax of GBP248.2 million in 2021 (2020:
loss of GBP301.7 million) after a GBP 3.1 million corporation
tax charge.
Capital, Funding and Liquidity
-- Strong liquidity and funding position maintained , supported
by the settlement of the mortgage portfolio disposal in
February. As a result, the Bank's Liquidity Coverage Ratio
(LCR) remained elevated at 281% as of 31 December 2021 (31
December 2020: 187%). Whilst NIM dilutive, this excess liquidity
is earnings neutral and in a rising rate environment has
the potential to be earnings accretive.
In 2021, GBP3,250 million of Term Funding Scheme (TFS) drawings
were refinanced into Term Funding Scheme with additional
incentives for SMEs (TFSME), equating to total TFSME drawings
of GBP3.8bn, maturing in 2024/2025.
-- Common Equity Tier 1 (CET1) ratio of 12.6% (31 December
2020: 15.0%) compares to a minimum CET1 requirement of 7.6%
(7) and minimum Tier 1 requirement of 9.3%(7) .
-- Total Capital ratio of 15.9% (31 December 2020: 18.1%)
compares to a minimum requirement of 11.6%(7) .
-- Total Capital plus MREL ratio of 20.5% (31 December 2020:
22.4%) compares to a minimum interim requirement of 20.5%(7)
.
-- As expected, the PRA have announced that from 1 January
2022 the following capital benefits will be reversed, as
such the Bank's capital ratios will reduce on 1 January
2022 to reflect these adjustments:
* Reversal of GBP64 million of relief provided through
the EBA's treatment of software assets, equivalent to
0.8% of CET1 and 0.7% of MREL.
* Amortisation of the IFRS9 Transitional Relief,
equivalent to 0.3% of CET1 and MREL.
-- Total RWA as at 31 December 2021 was GBP7,454 million (31
December 2020: GBP7,957 million). The reduction reflects
changes to the lending mix and settlement of a receivable
related to the mortgage portfolio sale (9) . The result
is a loan risk weight density of 48% as at 31 December 2021
(31 December 2020: 47%).
-- Regulatory leverage ratio was 4.4%.
-- Extension of HoldCo implementation deadline to June 2023
agreed with BoE.
7. Based on current capital requirements plus buffers, including
P2A requirement of 1.11% (of which 0.8% must be met with Tier 1) ,
excluding any confidential PRA buffer, if applicable.
Metro Bank PLC
Summary Balance Sheet and Profit & Loss Account
(Unaudited)
Balance Sheet YoY 31-Dec 30-Jun 31-Dec
change 2021 2021 2020
GBP'million GBP'million GBP'million
Assets
Loans and advances to customers 2% GBP12,290 GBP12,325 GBP12,090
Treasury assets(8) GBP9,142 GBP9,474 GBP6,406
Assets classified as held - - GBP295
for sale
Other assets(9) GBP1,155 GBP1,214 GBP3,788
------------ ------------ ------------
Total assets 0% GBP22,587 GBP23,013 GBP22,579
------------ ------------ ------------
Liabilities
Deposits from customers 2% GBP16,448 GBP16,620 GBP16,072
Deposits from central banks GBP3,800 GBP3,800 GBP3,808
Debt securities GBP588 GBP596 GBP600
Other liabilities GBP716 GBP850 GBP810
------------ ------------ ------------
Total liabilities 1% GBP21,552 GBP21,866 GBP21,290
------------ ------------ ------------
Total shareholder's equity GBP1,035 GBP1,147 GBP1,289
------------ ------------ ------------
Total equity and liabilities GBP22,587 GBP23,013 GBP22,579
------------ ------------ ------------
8. Comprises investment securities and cash & balances with the Bank of England.
9. Comprises property, plant & equipment, intangible assets
and other assets. Other assets at 31 December 2020 include GBP2.6
billion receivable from NatWest. This was received post year-end
upon the completion of the transaction.
Year ended
Profit & Loss Account YoY 31-Dec 31-Dec
change 2021 2020
GBP'million GBP'million
Underlying net interest income 18% GBP295.7 GBP250.3
Underlying net fee and other 18% GBP101.5 GBP86.3
income
Underlying net gains/(losses) GBP0.7 GBP4.3
on sale of assets
------------ ------------
Total underlying revenue 17% GBP397.9 GBP340.9
------------ ------------
'Run the Bank' costs 12% (GBP435.5) (GBP390.4)
'Change the Bank' costs(10) (GBP111.3) (GBP95.6)
------------ ------------
Total underlying costs 13% (GBP546.8) (GBP486.0)
------------ ------------
Expected credit loss expense (GBP22.4) (GBP126.7)
Underlying loss before tax (37%) (GBP171.3) (GBP271.8)
------------ ------------
Listing Share Awards - GBP0.2
Impairment and write-off of (GBP24.9) (GBP40.6)
property plant & equipment
and intangible assets
Transformation costs (GBP8.9) (GBP16.7)
Remediation costs (GBP45.9) (GBP40.8)
Business acquisition and integration (GBP2.4) (GBP5.4)
costs
Gain on mortgage portfolio GBP8.3 GBP63.7
sale (net of costs)
Statutory loss before tax (21%) (GBP245.1) (GBP311.4)
------------ ------------
Statutory taxation (GBP3.1) GBP9.7
Statutory loss after tax (18%) (GBP248.2) (GBP
301.7
)
------------ ------------
Year ended
Key metrics 31-Dec 31-Dec
2021 2020
Underlying earnings per share -
basic and diluted (144.0p) (151.7p)
Number of shares 172.4m 172.4m
Net interest margin (NIM) 1.40% 1.22%
Cost of deposits 0.24% 0.65%
Cost of risk 0.18% 0.86%
Underlying cost:income ratio 137% 143%
HoH change Half year ended
Profit & Loss Account 31-Dec 30-Jun 31-Dec
2021 2021 2020
GBP'million GBP'million GBP'million
Underlying net interest income 21% GBP162.1 GBP133.6 GBP134.1
Underlying net fee and other GBP54.8 GBP46.7 GBP50.2
income
Underlying net gains/(losses) GBP1.2 (GBP0.5) GBP3.3
on sale of assets
------------ ------------ ------------
Total underlying revenue 21% GBP218.1 GBP179.8 GBP187.6
------------ ------------ ------------
'Run the Bank' costs (GBP220.6) (GBP214.9) (GBP206.3)
'Change the Bank' costs(10) (GBP51.6) (GBP60.3) (GBP55.0)
------------ ------------ ------------
Total underlying costs (1%) (GBP271.6) (GBP275.2) (GBP261.3)
Expected credit loss expense (GBP7.8) (GBP14.6) (GBP14.7)
Underlying loss before tax (44%) (GBP61.3) (GBP110.0) (GBP88.4)
------------ ------------ ------------
Listing Share Awards - - GBP0.4
Impairment and write-off of (GBP17.4) (GBP7.5) (GBP14.0)
property plant & equipment
and intangible assets
Net BCR costs GBP0.3 (GBP0.3) -
Transformation costs (GBP7.1) (GBP1.8) (GBP4.3)
Remediation costs (GBP20.5) (GBP25.4) (GBP23.0)
Business acquisition and integration (GBP0.1) (GBP2.3) (GBP5.4)
costs
Gain on mortgage portfolio (GBP0.1) GBP8.4 GBP63.7
sale (net of costs)
Statutory loss before tax (24%) (GBP106.2) (GBP138.9) (GBP71.0)
------------ ------------ ------------
Statutory taxation (GBP0.9) (GBP2.2) GBP8.6
Statutory loss after tax (24%) (GBP107.1) (GBP141.1) (GBP 62.4
)
------------ ------------ ------------
Half year ended
Key metrics 31-Dec 30-Jun 31-Dec
2021 2021 2020
Underlying earnings per share -
basic and diluted (36.0p) (65.1p) (42.9p)
Number of shares 172.4m 172.4m 172.4m
Net interest margin (NIM) 1.51% 1.28% 1.28%
Cost of deposits 0.17% 0.31% 0.49%
Cost of risk 0.20 % 0.24 % 0.20 %
Underlying cost:income ratio 125 % 153 % 139%
10. Change the Bank costs consists of investment spend, including amortisation
Enquiries
For more information, please contact:
Metro Bank PLC Investor Relations
Jo Roberts
+44 (0) 20 3402 8900
IR@metrobank.plc.uk
Metro Bank PLC Media Relations
Tina Coates / Mona Patel
+44 (0) 7811 246016 / +44 (0) 7815 506845
pressoffice@metrobank.plc.uk
Teneo
Charles Armitstead / Haya Herbert Burns
+44 (0)7703 330269 / +44 (0) 7342 031051
metrobank@teneo.com
S
About Metro Bank
Metro Bank services more than two million customer accounts and
is celebrated for its exceptional customer experience. It is the
highest rated high street bank for overall service quality and best
bank for service in-store for personal and business customers, in
the Competition and Market Authority's Service Quality Survey in
February 2022. It was recognised as 'Bank of the Year' at the 2020
MoneyAge Awards and 'Banking Brand of The Year' at the Moneynet
Personal Finance Awards 2021, received Gold Award in the Armed
Forces Covenant's Employer Recognition Scheme 2021 and won Best
Open Banking Partnership - Commercial at the inaugural Open Banking
Expo Awards 2021.
The community bank offers retail, business, commercial and
private banking services, and prides itself on giving customers the
choice to bank however, whenever and wherever they choose, and
supporting the customers and communities it serves. Whether that's
through its network of 78 stores open seven days a week, 362 days a
year; on the phone through its UK-based 24/7 contact centres; or
online through its internet banking or award-winning mobile app:
the Bank offers customers real choice.
Metro Bank PLC. Registered in England and Wales. Company number:
6419578. Registered office: One Southampton Row, London, WC1B 5HA.
'Metrobank' is the registered trademark of Metro Bank PLC.
It is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and Prudential
Regulation Authority. Most relevant deposits are protected by the
Financial Services Compensation Scheme. For further information
about the Scheme refer to the FSCS website www.fscs.org.uk. All
Metro Bank products are subject to status and approval.
Metro Bank PLC is an independent UK bank - it is not affiliated
with any other bank or organisation (including the METRO newspaper
or its publishers) anywhere in the world. Please refer to Metro
Bank using the full name.
Chief executive officer's statement
2021 saw the Bank complete the second year of its turnaround
plan and despite the external headwinds it was a year of
significant progress. I'm pleased to report the Bank ends the year
in a significantly stronger position than when I took over the
reins as CEO in 2020.
Our commitment to being the UK's best community bank continues
to set us apart from our banking peers and our model continues to
resonate with our FANS. Our personal and business customers have
depended on Metro Bank to help them navigate what for many has been
another difficult 12 months. They have also relied on the Bank to
be their partner in the local communities they live. Whether that
is through supporting local community activities, donating
colleagues' time and expertise, fundraising for good causes,
providing space in our stores, or helping young people learn about
money, Metro Bank has been there every step of the way, hand in
hand.
We are proud to remain the UK's highest rated high street bank
for customer service for the eighth time running. When you combine
this relentless focus on exceptional customer service with our
desire to continually surprise and delight to create FANS, it's
easy to see why we are the Bank of choice for 2.5 million customer
accounts.
Our strategy
In early 2020, we identified the five strategic pillars that
formed our turnaround strategy, designed to deliver improved
shareholder returns and sustainable profitable growth. These
comprise:
-- Revenue
-- Cost
-- Infrastructure
-- Balance sheet optimisation
-- Communication
Our strategy is driven by an unwavering focus on customer
service which we believe enables us to build deeper, more
meaningful relationships with our customers. We achieve this with
well-informed colleagues in our stores, our market leading digital
services, an easily accessible store footprint in the major cities
and towns of England and Wales and offering a wide range of
products to meet customers' banking needs.
Progress
Revenue
We've made great progress in filling our shelves by adding new
products that meet more of our customers' needs. Most notably, we
strengthened our consumer lending operation with customers now able
to take a loan through the RateSetter platform in-store, online and
via our mobile app, as well as under the RateSetter brand on the
main aggregator sites, as well as its own website. We have also
reinvigorated our credit card offer via our stores.
Also, in the lending space, we supported small businesses by
offering the UK Government-funded BBLS top-ups and later in the
year the Recovery Loan Scheme. In Specialist Mortgages we have
introduced new products. We also entered the insurance market,
providing SME business insurance and pet insurance.
Cost initiatives
While the Bank continues to operate with a high fixed cost base
in the form of its store footprint, we have worked hard to contain
business as usual ('Run the Bank') costs which grew 3% on a like
for like basis in the year. Costs to transform the Bank ('Change
the Bank') have fallen by 15% in the second half of the year as
this transformation programme has now passed its peak. The bank
continues to optimise its property footprint and has adopted a
hybrid way of working for office-based colleagues, utilising space
above and alongside our existing store network. We have purchased
the freehold of seven stores since 2020, lowering our occupancy
costs and consolidated our call centre operations into three main
sites in Bristol, Slough and Ilford.
We have also made the difficult decision to close three of our
stores - Earl's Court, Milton Keynes Midsummer and Windsor. Our
stores are fundamental to our customer and community proposition,
culture and brand, but like any good retailer we regularly review
how our stores are doing. While we are happy with our store estate
overall, these three stores have certain unique challenges: Earl's
Court was a fantastic billboard when Metro Bank first opened, but
it's in a low footfall area; Windsor has high footfall, but much of
this is driven by tourists rather than residents; and we have two
stores in Milton Keynes - one with a lease break coming up, and
we're confident we can meet our customers' needs with one store.
While our colleagues have done a great job of trying to make these
three stores successful, this is the right decision for the Bank
and we're pleased to be able to make these closures without any
colleague redundancies.
Furthermore, we have worked hard to simplify complex processes
and systems and to work more efficiently. We have also transformed
the way we deliver our change agenda by introducing Agile
methodology, which centres around value streams, to help IT,
Change, and Product teams design and deliver new products and
solutions more quickly.
Infrastructure
Throughout the year we invested in the Bank's IT resilience and
delivered upgrades and improvements that have reduced
vulnerability. The bank has focused on its regulatory requirements
and introduced Secure Customer Authentication and card migration to
meet PSD2 requirements. There has also been progress on our
financial crime improvement, GDPR and cyber programmes, which have
all delivered a range of improvements further protecting the
Bank.
During the year we recruited colleagues to ensure that customers
in financial difficulties received the support they needed; we
launched a service to support the new Debt Respite Scheme
(Breathing Space) guidance to alleviate pressure from customers
with financial or mental health difficulties; and we delivered
Pay-as-You-Grow functionality in line with BBLS requirements to
support businesses beyond the pandemic.
All of these initiatives have helped make the Bank safer, more
resilient and fit for the future.
Balance Sheet Optimisation
During the year we have made meaningful strides in reshaping the
Bank's balance sheet. We acquired the RateSetter back book,
significantly increased the volume of consumer lending and ramped
up specialist mortgages. In tandem we actively managed down
high-cost fixed term deposits and increased the proportion of
current accounts and low-cost instant access savings accounts.
These activities have resulted in increased yield and a lower cost
of deposits. At the end of the period, RateSetter has established
itself as a leading provider of consumer credit in the open
market.
Culture and Communication
We've done lots of work to showcase what makes Metro Bank stand
out from the crowd, from our small business banking campaign to our
refreshed RateSetter website. Our colleagues in-store have embraced
being Champions of our Community through educating children with
our Money Zone Programme, our in-store events, and the work we have
done with local charities. This year saw us increase our spend on
digital and performance marketing. We have also invested in
hyper-local marketing to drive footfall into stores across England
and Wales and highlight our community credentials.
Results
The bank has shown year on year, half on half and quarter on
quarter improvements throughout the year. The financial performance
is in line with our expectations and demonstrates promising
momentum in the business.
The bank reported a loss before tax of GBP245.1 million, an
improvement on last year's loss (2020: loss of GBP311.4 million).
Underlying loss before tax reduced by 37% to GBP171.3 million, and
second half underlying loss of GBP61.3 million is down 44% on the
first half, highlighting the momentum towards profitability. While
good progress is being made to return to sustainable profitability,
I fully understand that these losses need to be minimised swiftly
and I am confident our strategy will achieve that.
The future
The bank's strategic pillars, transformation plan and relentless
focus on the provision of superior customer service will continue
into 2022. We were once again rated the top high street bank for
overall service for personal and business customers in the latest
Competition and Markets Authority Service Quality rankings and
number one for store service for the eighth time running. This is
welcome external validation of the continued efforts of our
colleagues across the business.
2021 saw the Bank complete much of the heavy lifting required to
transform the Bank from loss-making towards sustainable
profitability. Metro Bank is a business to be proud of, with
colleagues who are dedicated to meeting the needs of their
customers and communities.
As I come to the end of my second year in role, after another
challenging year, I am proud of the achievements of 2021, the
progress we have made in the Bank's turnaround and most of all the
support we have provided to our local communities. There is still
much to do in the coming months, but we start 2022 with real
momentum.
Finally
Metro Bank's success is directly attributable to my fantastic
colleagues who I am blessed to lead. Their brilliance, dedication,
customer focus, caring natures and focus on others inspires me
every day. While it doesn't seem like enough, all I can do is say a
huge thank you.
Finance review
Our financial performance in 2021 reflects where we are in our
strategic turnaround, it shows strong momentum within the business
and positive signs that our approach is working. When adjusting for
the sale of the GBP3.1 billion mortgage portfolio disposal in
December 2020, the underlying momentum in the business is even
clearer.
2021 2020
GBP'million GBP'million Change
----------------------------- ------------ ------------ ------
Net interest income 295.7 250.3 18%
----------------------------- ------------ ------------ ------
Fee and other income 101.5 86.3 18%
----------------------------- ------------ ------------ ------
Net gains on sale of assets 0.7 4.3 (84%)
----------------------------- ------------ ------------ ------
Total underlying revenue 397.9 340.9 17%
----------------------------- ------------ ------------ ------
Operating costs (546.8) (486.0) 13%
----------------------------- ------------ ------------ ------
Expected credit loss expense (22.4) (126.7) (82%)
----------------------------- ------------ ------------ ------
Underlying loss before tax (171.3) (271.8) (37%)
----------------------------- ------------ ------------ ------
Non-underlying items (73.8) (39.6) 86%
----------------------------- ------------ ------------ ------
Statutory loss before tax (245.1) (311.4) (21%)
----------------------------- ------------ ------------ ------
We recognised a statutory loss before tax for the period of
GBP245.1 million, down from the GBP311.4 million loss recognised in
2020, with the decrease primarily due to the GBP104.3 million lower
charge for expected credit losses.
We entered 2021 well positioned for the prevailing economic
climate, with the recently signed GBP3.1 billion mortgage portfolio
divestment providing both regulatory capital headroom and liquidity
at a time of uncertainty with the country in lockdown. The disposal
supported our strategic goal of maximising risk adjusted returns on
capital, as we reinvested GBP377 million of the proceeds to acquire
the RateSetter back book of consumer loans with an average total
gross yield of c.8%; that compared to the divested mortgage
portfolio which had a weighted average rate of 2.1%.
The bank has continued to make strong progress against the
turnaround plan, delivering considerable improvement in balance
sheet mix at an accelerated pace that can now clearly be seen in
improved net interest income.
On an underlying basis, the loss for the period of GBP171.3
million was down 37% compared to the prior year (2020: GBP271.8
million), driven by lower expected credit losses and positive
operating jaws. Operating expenses increased 13% year-on-year and
income increased 17%, despite GBP63 million of lost income as a
result of the mortgage portfolio sale.
2021 has seen us continue to focus on shifting our deposit mix,
which has led to the cost of deposits falling from 0.65% in 2020 to
0.24% in the current period. Alongside this we have delivered an
increasing lending yield and our approach of optimising the balance
sheet is now seeing us generate a greater level of interest income
as a proportion of risk weighted assets.
We ended the year with a CET1 capital ratio of 12.6% and a Total
Capital plus MREL ratio of 20.5%. These compare to the regulatory
minima of 5.1% and 18.0% respectively, or 9.3% and 20.5%
respectively including buffers (excluding any confidential buffer,
if applicable). We continue to take a proactive, measured approach
to capital management and are focused on building a greater risk
adjusted return on regulatory capital.
Our primary focus remains the transformation of the Bank and in
doing so we are taking a prudent approach in our assessment of the
pace of economic recovery. We recognised an expected credit loss
expense of GBP22.4 million for the period which is a significant
improvement on the prior year (2020: GBP126.7 million).
2021
GBPmillion
----------------------------------------------- -----------
Underlying loss before tax (171.3)
----------------------------------------------- -----------
Impairment and write-off of PPE and intangible
assets (24.9)
----------------------------------------------- -----------
Remediation costs (45.9)
----------------------------------------------- -----------
Transformation costs (8.9)
----------------------------------------------- -----------
Business acquisition costs (2.4)
----------------------------------------------- -----------
Portfolio sale 8.3
----------------------------------------------- -----------
Statutory loss before tax (245.1)
----------------------------------------------- -----------
Income
Underlying net interest income increased 18% year-on-year to
GBP295.7 million (2020: GBP250.3 million), reflecting increased
front book yields, including our meaningful entry into the personal
lending market, combined with actions we have taken to reduce cost
of deposits.
NIM at 1.40% is 18 bps above 2020 (1.22%) reflecting the higher
yielding asset mix and lower cost of deposits. The average lending
yield increased to 3.07% from 2.68% a year earlier benefitting from
high consumer lending yields and an improvement in the blended
mortgage lending yield reflecting our focus on specialist mortgage
products. Meanwhile our emphasis on current accounts and instant
access deposits combined with the roll-off of higher-rate fixed
term accounts reduced the cost of deposits meaningfully to 0.24%
compared to 0.65% a year earlier.
A strong Q4 2021 NIM at 1.56% holds us in good stead for 2022
with continued focus on lending mix and improved yields as a result
of the base rate rises, potentially tempered by higher cost of
deposits.
Fee, commission and other income
Fee, commission and other income remain below pre-pandemic
levels as the lockdowns at the start of the year continued to
constrain activity. However, as restrictions started to be lifted
in the second half we saw an uptick in activity particularly in
areas such as foreign exchange, where volumes had been
significantly depressed throughout the pandemic.
Fees and commission income is an area where we believe that we
can deliver strong capital efficient returns by building on our
expanding account base and leading customer service, however the
growth of these income streams will be influenced by the pace of
recovery from the pandemic.
Operating expenses
Underlying operating expenses grew to GBP546.8 million from
GBP486.0 million in 2020. The year-on-year increase is impacted by
several factors, including the acquisition of RateSetter which
occurred in September 2020.
As expected, expenditure on the 'Change the Bank' investment
programme began to reduce in the second half of the year. This
trend is anticipated to continue, contributing to an expected low
single digit percentage reduction in total underlying operating
costs in 2022.
On a statutory basis total operating expenses increased by less
than 4% to GBP641.2 million compared to GBP617.3 million in 2020 as
the underlying cost increase, including the additional RateSetter
running costs, was partially offset by lower write downs and BCR
costs together with reduced transformation and integration
expenditure.
Depreciation and amortisation remained largely unchanged at
GBP80.2 million (2020: GBP74.4 million).
2021 2020
GBP'million GBP'million Change
------------------------------------ ------------ ------------ ------
Depreciation and amortisation 80.2 74.4 8%
------------------------------------ ------------ ------------ ------
Total operating expense 641.2 617.3 4%
------------------------------------ ------------ ------------ ------
Total non-underlying operating
expense 94.4 131.3 (28%)
------------------------------------ ------------ ------------ ------
Total underlying operating expenses 546.8 486.0 13%
------------------------------------ ------------ ------------ ------
'Run the Bank' costs 435.5 390.4 12%
------------------------------------ ------------ ------------ ------
'Change the Bank' costs 111.3 95.6 16%
------------------------------------ ------------ ------------ ------
Statutory cost:income ratio 153% 143%
------------------------------------ ------------ ------------ ------
Underlying cost:income ratio 137% 143%
------------------------------------ ------------ ------------ ------
Remediation programmes continue to be a significant expense with
associated costs of GBP45.9 million recognised in the period (2020:
GBP40.8 million). These costs include the penalty resulting from
the PRA investigation, which was concluded in December, as well as
a provision for the settlement of the related FCA investigation. We
are continuing to work closely with the regulators on the
outstanding regulatory matters.
Non-underlying costs also reflect the decision taken to close
three stores in 2022. We regularly review how our existing stores
are performing as well as assess new markets where there is
potential for growth in the longer term. The three stores have
consistently underperformed compared to other locations and
upcoming lease events provided us with an opportunity to close. We
still remain committed to stores and continue to invest in them. In
2021 we opened our 78(th) store in Bradford, alongside preparing to
launch our new store in Leicester.
We also acquired four further freeholds during the year; which
means a third of our store estate is now freehold. By trading right
of use assets for freeholds at attractive prices we can both reduce
costs and gain flexibility for minimal additional risk weighted
assets. Whilst we will continue to take advantage of opportunities
where these arise and there is a strong commercial rationale for
doing so, the stabilisation of commercial property prices will
likely limit these opportunities in the near term.
Non-underlying items in 2022 are expected to be less than 20% of
the GBP73.9 million total in 2021 as remediation costs fall
away.
Expected credit loss expense
Although the macroeconomic environment has improved in 2021,
uncertainty remains, particularly in respect of new COVID variants
and the sustainability of recently lifted public health
restrictions. The expected credit loss charge for the year of
GBP22.4 million (2020: GBP126.7 million) is primarily driven by
growth in unsecured lending origination, the purchase of RateSetter
back book and a small number of large single name commercial
cases.
A fourth severe downside macroeconomic scenario was introduced
in 2021 across all portfolios, with associated changes in the
probability weightings. This aligns our approach to market best
practice and further captures the potential risks associated with a
more extreme downside scenario.
We continue to maintain a prudent level of post model overlays
to capture factors that are not fully reflected in the scenarios.
These reflect our cautious outlook driven by the impact of higher
energy prices, increase in national insurance contributions, and
inflationary pressures on individual customer affordability. During
the year we have reduced the overall number of post model overlays
applied through the continued development of our models.
Unsecured lending has increased significantly in the year, in
line with our strategy. We manage this exposure within a defined
risk appetite, with a focus on prime lending, underpinned by strong
credit scoring criteria to limit losses, which to date remain
low.
Deposits
2021 2020
Customer deposits GBP'million GBP'million Change
----------------------------------- ------------ ------------ ------
Retail customers (excluding retail
partnerships) 6,713 7,364 (9%)
----------------------------------- ------------ ------------ ------
Retail partnerships 1,814 1,596 14%
----------------------------------- ------------ ------------ ------
Commercial customers (excluding
SMEs) 3,157 2,692 17%
----------------------------------- ------------ ------------ ------
SMEs 4,764 4,420 8%
----------------------------------- ------------ ------------ ------
Total customer deposits 16,448 16,072 2%
----------------------------------- ------------ ------------ ------
Deposits grew by 2% from 31 December 2020 to GBP16,448 million
at 31 December 2021 (31 December 2020: GBP16,072 million). The
increase was primarily driven by commercial and SME customers which
were up 17% and 8% respectively from the start of the year.
2021 2020
Customer deposits GBP'million GBP'million Change
----------------------------- ------------ ------------ ------
Demand: current accounts 7,318 6,218 18%
----------------------------- ------------ ------------ ------
Demand: savings accounts 7,684 6,430 20%
----------------------------- ------------ ------------ ------
Fixed term: savings accounts 1,446 3,424 (58%)
----------------------------- ------------ ------------ ------
Total customer deposits 16,448 16,072 2%
----------------------------- ------------ ------------ ------
Current account balances grew by 18% during the year and make up
43% of total customer deposits as at 31 December 2021 (31 December
2020: 39%). We continue to see customer preference moving towards
having instant access to funds, leading to growth of current
accounts and instant access savings accounts, whilst at the same
time we have proactively let higher cost fixed term deposits roll
off as we continue to manage cost of deposits down.
In 2022 we anticipate higher growth in deposits than in 2021
with continued focus on mix improvement.
Assets
2021 2020
GBP'billion GBP'billion Change
-------------------------------- ------------ ------------ ------
Loans and advances to customers 12.3 12.1 2%
-------------------------------- ------------ ------------ ------
Total assets 22.6 22.6 -
-------------------------------- ------------ ------------ ------
Loan to deposit ratio 75% 75%
-------------------------------- ------------ ------------ ------
Cost of risk 0.18% 0.86%
-------------------------------- ------------ ------------ ------
Net lending ended the period at GBP12,290 million, up 2% from
GBP12,090 million at 31 December 2020. The GBP200 million increase
has been driven by a GBP686 million growth in consumer lending,
offset by a moderate reduction in the commercial loans and retail
mortgage books. The growth in consumer lending is a result of both
organic origination through the RateSetter platform, and the
purchase of the GBP337 million back book from peer-to-peer
investors. Our investment in consumer lending, including
integrating the RateSetter lending capabilities in store, provides
a strong base on which we can capitalise as the economy continues
to recover and we are ready to serve a consumer-led recovery.
Retail mortgages remained the largest component of the lending
book at 54% of gross lending (31 December 2020: 56%), down GBP169
million to GBP6,723 million at 31 December 2021 from GBP6,892
million at 31 December 2020. The decrease reflects the attrition of
older loans, offset by our continued penetration through our
specialist mortgage products into underserved areas of the mortgage
market, which has replaced some of these balances.
Commercial loans, which now comprise 39% of our lending, saw a
GBP302 million reduction from GBP5,148 million at 31 December 2020.
The decrease is down to older term loans repaying combined with a
slowdown and the start of repayments of BBLS loans in the second
half, partially offset by government-backed Recovery Loan Scheme
lending.
We anticipated a higher rate of growth in overall lending in
2022 compared to 2021, with expansion in existing categories with
higher risk adjusted returns including consumer unsecured and
specialist mortgages, complemented by the expected launch of new
products including automotive finance and digital lending products
for SMEs.
Non-current assets have decreased during the period, driven by a
reduction in our PPE balance, reflecting the scaling back of our
store opening programme.
Intangibles remained flat during the year as continued
investment, albeit at a slower rate, was offset by amortisation and
impairment charges.
Taxation
During 2021 we made a total tax contribution of GBP152.5 million
(2020: GBP132.9 million), which comprised GBP91.6 million (2020:
GBP86.5 million) of taxes we paid and a further GBP60.9 million
(2020: GBP46.4 million) of taxes we collected.
Taxes paid 2021 2020
------------------------------ -------- --------
Business rates 15.0% 13.5%
------------------------------ -------- --------
Land transaction tax 1.6% 1.3%
------------------------------ -------- --------
Employer NICs 23.7% 20.4%
------------------------------ -------- --------
Irrecoverable VAT and customs
duty 59.4% 64.5%
------------------------------ -------- --------
Other 0.3% 0.3%
------------------------------ -------- --------
Total taxes paid GBP91.6m GBP86.5m
------------------------------ -------- --------
Taxes collected on behalf of HMRC 2021 2020
---------------------------------- -------- --------
Employer NICs 22.3% 25.1%
---------------------------------- -------- --------
PAYE 64.0% 65.5%
---------------------------------- -------- --------
Net VAT 13.7% 9.1%
---------------------------------- -------- --------
Other 0.0% 0.4%
---------------------------------- -------- --------
Total taxes paid GBP60.9m GBP46.4m
---------------------------------- -------- --------
In 2021 our tax expense recognised in the income statement was
GBP3.1 million (2020: credit of GBP9.7 million).
Capital and liquidity
2021 2020
GBP'million GBP'million Change
------------------------- ------------ ------------ --------
CET1 capital 936 1,192 (21%)
------------------------- ------------ ------------ --------
Risk-weighted assets
(RWAs) 7,454 7,957 (6%)
------------------------- ------------ ------------ --------
CET1 ratio 12.6% 15.0% (240bps)
------------------------- ------------ ------------ --------
Total regulatory capital
ratio 15.9% 18.1% (220bps)
------------------------- ------------ ------------ --------
Total regulatory capital
plus MREL ratio 20.5% 22.4% (190bps)
------------------------- ------------ ------------ --------
Regulatory leverage
ratio 4.4% 5.6%
------------------------- ------------ ------------ --------
Our CET1, Tier 1 and MREL ratios at 31 December 2021 were 12.6%,
12.6% and 20.5% respectively, compared to the minimum capital
requirement including buffers (excluding any confidential buffer,
if applicable) of 7.6%, 9.3% and 20.5%, respectively. On 1 January
2022 software assets will revert to being deducted from capital,
reducing our CET1 by c0.8%. At the same time, IFRS9 transitionary
relief will move from 100% to 75%, reducing CET1 by c0.3%. From 13
December 2022, the Bank of England has announced that that the
countercyclical buffer will increase from 0% back to its pre
pandemic level of 1%.
Risk weighted assets ended the period down 6% to GBP7,454
million (31 December 2020: GBP7,957 million) reflecting our change
in asset mix and our focus on improving return on regulatory
capital. The reduction was also supported by the settlement of the
final tranche of the mortgage portfolio in February 2021.
Reconciliation
---------------------------------------------------- --------------
Total capital plus MREL ratio at 1 January 2021 22.4%
---------------------------------------------------- --------------
Annual operational risk adjustment (0.1%)
---------------------------------------------------- --------------
Intangibles investment and other 0.1%
---------------------------------------------------- --------------
RateSetter back book acquisition (0.3%)
---------------------------------------------------- --------------
Profit and loss account (excluding ECL and mortgage
sale) (3.1%)
---------------------------------------------------- --------------
Profit and loss account - ECL (0.3%)
---------------------------------------------------- --------------
Quick-fix ECL add back (0.1%)
---------------------------------------------------- --------------
Lending volume and mix (0.1%)
---------------------------------------------------- --------------
Mortgage book disposal completion 2.0%
---------------------------------------------------- --------------
Total capital plus MREL ratio at 31 December 2021 20.5%
---------------------------------------------------- --------------
Our liquidity position continues to be strong owing to the
liquidity freed up from the mortgage portfolio sale. We ended the
year with a Liquidity Coverage Ratio (LCR) of 281%. We will
continue to prudently manage our investments and to invest in high
quality securities while maintaining a strong cash position.
We will operate in buffers but remain above regulatory minima.
The Bank's AIRB application is progressing.
Following discussion with the BOE, post the publication of the
BOE's December 2021 MREL Policy Statement, the BOE has provided
Metro Bank with a 6 month adjustment to the point in time at which
the BOE's revised policy on MREL eligibility is implemented. As
such, the requirement to establish a Holding Company has moved to
26 June 2023, which is line with the call date of the existing T2
debt instrument. For the avoidance of doubt, there has been no
change to Metro Bank's end-state MREL deadline of 1 January
2023.
Risk report
In line with the UK Corporate Governance Code requirements, we
have performed a robust assessment of the principal and emerging
risks we face, including those that could result in events or
circumstances that might threaten our business model, future
performance, solvency or liquidity, and reputation. In deciding on
the classification of principal risks, we considered the potential
impact and probability of the related events and circumstances and
the timescale over which they may occur.
An overview of the principal risks and how they have changed
over the year are set out below.
During the year, we have continued to support our customers and
minimise the negative impact of COVID-19 for businesses and
households across the UK, maintaining our customer service
operations and store distribution with minimal interruption.
However, COVID-19 continues to impact all of our principal risks.
The measures introduced to support the economy have created
operational, conduct and financial risks for the Bank. These risks
are being managed and monitored in line with our risk management
framework.
Capital Risk stable The continued tightening of the regulatory
risk capital framework and economic uncertainty
relating to COVID-19 have been the primary
drivers of capital risk during 2021.
We continue to take a proactive, measured
approach to capital management and are
focused on building a greater risk adjusted
return on regulatory capital. Capital
risk is primarily managed through the
ICAAP which is based upon the Long Term
Plan. The Long Term Plan remained on
track during the year.
------------- ---------------- ----------------------------------------------
Credit risk Risk increasing During 2021, the impact of COVID-19
and the potential for economic downturn
has remained the primary factor impacting
credit risk performance and outlook.
The lending portfolio has remained resilient
despite the disruption faced by our
customers. However, there continues
to be a high level of uncertainty within
the external environment due to the
potential longer-term impacts of the
pandemic which is reflected through
our ECL position. We continue to rebalance
our lending mix in line with our strategy,
increasing the proportion of unsecured
consumer lending and developing our
specialist mortgage portfolio.
------------- ---------------- ----------------------------------------------
Model risk Risk stable Model risk remains stable with enhancements
to model risk governance, risk appetite
metrics and scope mitigating potential
increases in model risk from the impact
of COVID-19 and the resulting uncertain
economic environment. We continue to
monitor and assess model risk closely
through the model lifecycle.
------------- ---------------- ----------------------------------------------
Liquidity Risk stable Liquidity and funding risk remained
and funding low through the year, with prudent liquidity
risk and funding levels.
------------- ---------------- ----------------------------------------------
Market risk Risk stable Market risk remained low throughout
the year, following a temporary increase
resulting from the mortgage portfolio
sale.
------------- ---------------- ----------------------------------------------
Strategic Risk stable There have continued to be significant
risk macroeconomic headwinds in 2021, notably
the ongoing effects of COVID-19. We
have considered this uncertainty and
potential challenges as part of the
annual strategic and financial planning
process. We have also continued our
work to understand how to define, monitor,
manage and report the impact of climate
change on our strategy, business and
sustainability aspirations.
------------- ---------------- ----------------------------------------------
Financial Risk stable Financial crime risk has decreased residually
crime risk during the year. Whilst Financial Crime
continues to present a heightened risk
external to the Bank, enhancements made
to our AML and sanctions controls enable
the Bank to better manage this risk.
------------- ---------------- ----------------------------------------------
Operational Risk stable Operational risk has remained largely
risk consistent this year. The impacts of
COVID-19 on our operations, colleagues
and customers have stabilised as we
have effectively transitioned into new
working patterns. Elevated risk has
been observed in certain areas including
cyber-attacks and evolving modes of
external fraud. Targeted and strategic
responses continue to be applied.
------------- ---------------- ----------------------------------------------
Regulatory Risk stable Regulatory risk remains unchanged and
risk continues to be a key focus due to the
complexity, pace and volume of regulatory
change to be managed. During 2021, there
was ongoing regulatory oversight by
supervisory bodies as a result of COVID-19
which focused on the key areas of business
model and profitability risk, credit
risk, impairment provisioning, capital
adequacy, business continuity management
and operational resilience. Existing
programmes continued and new programmes
were established during the year to
continue preparations for the significant
regulatory change agenda over the coming
years.
------------- ---------------- ----------------------------------------------
Conduct Risk stable Conduct risk remains unchanged but elevated,
risk where customers are increasingly vulnerable
to the challenges of the economic and
social impacts of the external environment,
driven by the COVID-19 pandemic. This
is leading to increased regulatory focus
on the treatment of customers in the
retail banking sector, especially in
relation to lending decisions, those
at risk of financial difficulty and
potential vulnerability.
------------- ---------------- ----------------------------------------------
Legal risk Risk stable There continue to be uncertainties around
the UK legal framework as Brexit is
implemented, however, we have not faced
any significant additional legal risks
in 2021.
------------- ---------------- ----------------------------------------------
Consolidated statement of comprehensive income
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Notes GBP'million GBP'million
------------------------------------------------ ----- ------------ ------------
Interest income 2 405.7 426.3
----- ------------ ------------
Interest expense 2 (110.4) (176.6)
------------------------------------------------ ----- ------------ ------------
Net interest income 295.3 249.7
----- ------------ ------------
Fee and commission income 71.2 61.1
----- ------------ ------------
Fee and commission expense (1.6) (1.2)
------------------------------------------------ ----- ------------ ------------
Net fee and commission income 69.6 59.9
----- ------------ ------------
Net gains on sale of assets 9.4 73.3
----- ------------ ------------
Other income 44.2 49.7
------------------------------------------------ ----- ------------ ------------
Total income 418.5 432.6
------------------------------------------------ ----- ------------ ------------
General operating expenses (536.1) (502.3)
------------------------------------------------ ----- ------------ ------------
Depreciation and amortisation 7,8 (80.2) (74.4)
------------------------------------------------ ----- ------------ ------------
Impairment and write-offs of property, plant,
equipment and intangible assets 7,8 (24.9) (40.6)
------------------------------------------------ ----- ------------ ------------
Total operating expenses (641.2) (617.3)
----- ------------ ------------
Expected credit loss expense (22.4) (126.7)
------------------------------------------------ ----- ------------ ------------
Loss before tax (245.1) (311.4)
------------------------------------------------ ----- ------------ ------------
Taxation 3 (3.1) 9.7
------------------------------------------------ ----- ------------ ------------
Loss for the year (248.2) (301.7)
------------------------------------------------ ----- ------------ ------------
Other comprehensive income for the year
----- ------------ ------------
Items which will be reclassified subsequently
to profit or loss:
----- ------------ ------------
Movement in respect of investment securities
held at fair value through other comprehensive
income (net of tax):
----- ------------ ------------
- changes in fair value (8.1) 5.6
----- ------------ ------------
- fair value changes transferred to the income
statement on disposal (0.3) (0.1)
------------------------------------------------ ----- ------------ ------------
Total other comprehensive income (8.4) 5.5
------------------------------------------------ ----- ------------ ------------
Total comprehensive loss for the year (256.6) (296.2)
------------------------------------------------ ----- ------------ ------------
Loss per share
------------------------------------------------ ----- ------------ ------------
Basic (pence) 15 (144.0) (175.0)
------------------------------------------------ ----- ------------ ------------
Diluted (pence) 15 (144.0) (175.0)
------------------------------------------------ ----- ------------ ------------
Consolidated balance sheet
As at 31 December 2021
31 December 31 December
2021 2020
Notes GBP'million GBP'million
------------------------------------------------- ----- ------------ ------------
Assets
----- ------------ ------------
Cash and balances with the Bank of England 3,568 2,993
----- ------------ ------------
Loans and advances to customers 5 12,290 12,090
----- ------------ ------------
Investment securities held at fair value through
other comprehensive income 6 798 773
----- ------------ ------------
Investment securities held at amortised cost 6 4,776 2,640
----- ------------ ------------
Financial assets held at fair value through
profit and loss 3 30
----- ------------ ------------
Property, plant and equipment 7 765 806
----- ------------ ------------
Intangible assets 8 243 254
----- ------------ ------------
Prepayments and accrued income 68 77
----- ------------ ------------
Assets classified as held for sale - 295
----- ------------ ------------
Other assets 76 2,621
------------------------------------------------- ----- ------------ ------------
Total assets 22,587 22,579
------------------------------------------------- ----- ------------ ------------
Liabilities
----- ------------ ------------
Deposits from customers 16,448 16,072
----- ------------ ------------
Deposits from central banks 3,800 3,808
----- ------------ ------------
Debt securities 588 600
----- ------------ ------------
Financial liabilities held at fair value through
profit and loss - 30
----- ------------ ------------
Repurchase agreements 169 196
----- ------------ ------------
Derivative financial liabilities 10 8
----- ------------ ------------
Lease liabilities 9 269 327
----- ------------ ------------
Deferred grants 19 28
----- ------------ ------------
Provisions 10 15 11
----- ------------ ------------
Deferred tax liability 3 12 12
----- ------------ ------------
Other liabilities 222 198
------------------------------------------------- ----- ------------ ------------
Total liabilities 21,552 21,290
------------------------------------------------- ----- ------------ ------------
Equity
----- ------------ ------------
Called-up share capital 11 - -
----- ------------ ------------
Share premium 11 1,964 1,964
----- ------------ ------------
Retained losses (942) (694)
----- ------------ ------------
Other reserves 13 19
------------------------------------------------- ----- ------------ ------------
Total equity 1,035 1,289
------------------------------------------------- ----- ------------ ------------
Total equity and liabilities 22,587 22,579
------------------------------------------------- ----- ------------ ------------
Consolidated statement of changes in equity
For the year ended 31 December 2021
Called-up Share
share Share Retained FVOCI option Total
capital premium losses reserve reserve equity
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Balance as at 1 January 2021 - 1,964 (694) 3 16 1,289
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Loss for the year - - (248) - - (248)
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Other comprehensive income
(net of tax) relating to
investment
securities designated at FVOCI - - - (8) - (8)
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total comprehensive loss - - (248) (8) - (256)
------------ ------------ ------------ ------------ ------------ ------------
Net share option movements - - - - 2 2
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Balance as at 31 December 2021 - 1,964 (942) (5) 18 1,035
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Balance as at 1 January 2020 - 1,964 (392) (3) 14 1,583
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Loss for the year - - (302) - - (302)
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Other comprehensive income
(net of tax) relating to
investment
securities designated at FVOCI - - - 6 - 6
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total comprehensive loss - - (302) 6 - (296)
------------ ------------ ------------ ------------ ------------ ------------
Net share option movements - - - - 2 2
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Balance as at 31 December 2020 - 1,964 (694) 3 16 1,289
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Notes 11 11
---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Consolidated cash flow statement
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Notes GBP'million GBP'million
--------------------------------------------------- ----- ------------ ------------
Reconciliation of loss before tax to net cash
flows from operating activities:
----- ------------ ------------
Loss before tax (245) (311)
----- ------------ ------------
Adjustments for:
----- ------------ ------------
Impairment and write-offs of property, plant,
equipment and intangible assets 7,8 25 41
----- ------------ ------------
Interest on lease liabilities 9 17 19
----- ------------ ------------
Depreciation and amortisation 7,8 80 74
----- ------------ ------------
Share option charge 2 2
----- ------------ ------------
Grant income recognised in the income statement (11) (24)
----- ------------ ------------
Amounts provided for (net of amounts released) 5 8
----- ------------ ------------
Gain on sale of assets and fair value gains
on derivatives (9) (73)
----- ------------ ------------
Accrued interest on and amortisation of investment
securities 5 3
----- ------------ ------------
Changes in operating assets and liabilities
----- ------------ ------------
Changes in loans and advances to customers (200) 2,591
----- ------------ ------------
Changes in deposits from customers 376 1,595
----- ------------ ------------
Changes in other operating assets 2,847 (2,820)
----- ------------ ------------
Changes in other operating liabilities (38) (64)
--------------------------------------------------- ----- ------------ ------------
Net cash inflows from operating activities 2,854 1,041
--------------------------------------------------- ----- ------------ ------------
Cash flows from investing activities
----- ------------ ------------
Sales of investment securities 1,269 615
----- ------------ ------------
Purchase of investment securities ( 3,438) (1,460)
----- ------------ ------------
Purchase of property, plant and equipment 7 (42) (29)
Purchase and development of intangible assets 8 (39) (81)
Acquisition of subsidiary, net of cash acquired - (1)
--------------------------------------------------- ----- ------------ ------------
Net cash outflows from investing activities (2,250) (956)
--------------------------------------------------- ----- ------------ ------------
Cash flows from financing activities
----- ------------ ------------
Grant repaid - (50)
----- ------------ ------------
Repayment of capital element of leases 9 (29) (31)
--------------------------------------------------- ----- ------------ ------------
Net cash outflows from financing activities (29) (81)
--------------------------------------------------- ----- ------------ ------------
Net increase in cash and cash equivalents 575 4
----- ------------ ------------
Cash and cash equivalents at start of year 2,993 2,989
--------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at end of year 3,568 2,993
--------------------------------------------------- ----- ------------ ------------
Loss before tax includes:
--------------------------------------------------- ----- ------------ ------------
Interest received 409 407
--------------------------------------------------- ----- ------------ ------------
Interest paid 126 176
--------------------------------------------------- ----- ------------ ------------
Notes to the financial statements
1. Basis of preparation and significant accounting policies
Basis of preparation
The Group's consolidated financial statements have been prepared
in accordance with UK adopted International
Accounting Standards (IAS), International Financial Reporting
Standards (IFRS) as issued by the International Accounting
Standards Board (IASB) and the Companies Act 2006 applicable to
companies reporting under IFRS. They were authorised by the Board
for issue on 23 February 2022.
The financial statements are prepared on a going concern basis,
the Directors are satisfied that the Group has the resources to
continue in business for the foreseeable future.
Changes in accounting policy and disclosures
The accounting policies and methods of computation are
consistent with those applied and disclosed in the Group's 2020
Annual Report and Accounts.
2. Net interest income
Interest income
2021 2020
GBP'million GBP'million
--------------------------------------------- ------------ ------------
Cash and balances held with central banks 4.4 6.1
Loans and advances to customers 378.1 393.3
Investment securities held at amortised cost 20.6 24.8
Investment securities held at FVOCI 2.6 2.1
--------------------------------------------- ------------ ------------
Total interest income 405.7 426.3
--------------------------------------------- ------------ ------------
Interest expense
2021 2020
GBP'million GBP'million
---------------------------- ------------ ------------
Deposits from customers 40.1 99.1
Deposits from central banks 4.0 8.7
Debt securities 47.4 47.8
Lease liabilities 16.7 18.7
Repurchase agreements 2.2 2.3
---------------------------- ------------ ------------
Total interest expense 110.4 176.6
---------------------------- ------------ ------------
3. Taxation
Tax expense
The components of the tax (expense)/credit for the year are:
2021 2020
GBP'million GBP'million
-------------------------------------------------- ------------ ------------
Current tax
Current tax (0.5) (0.1)
Adjustment in respect of prior years 0.6 (0.5)
-------------------------------------------------- ------------ ------------
Total current tax credit/(expense) 0.1 (0.6)
-------------------------------------------------- ------------ ------------
Deferred tax
Origination and reversal of temporary differences 3.4 3.6
Effect of changes in tax rates (5.4) 2.1
Adjustment in respect of prior years (1.2) 4.6
-------------------------------------------------- ------------ ------------
Total deferred tax (expense)/credit (3.2) 10.3
-------------------------------------------------- ------------ ------------
Total tax (expense)/credit (3.1) 9.7
-------------------------------------------------- ------------ ------------
Reconciliation of the total tax expense
The tax expense shown in the income statement differs from the
tax expense that would apply if all accounting profits had been
taxed at the UK corporation tax rate.
A reconciliation between the tax expense and the accounting
profit multiplied by the UK corporation tax rate is as follows:
Effective Effective
2021 tax rate 2020 tax rate
GBP'million % GBP'million %
------------------------------------------ ------------ --------- ------------ ---------
Accounting loss before tax (245.1) (311.4)
------------------------------------------ ------------ --------- ------------ ---------
Tax expense at statutory tax rate of
19% 46.6 19.0% 59.2 19.0%
Tax effects of:
Non-deductible expenses - depreciation
on non-qualifying fixed assets (2.7) (1.1%) (2.4) (0.8%)
Non-deductible expenses - investment
property impairment (1.8) (0.8%) (3.2) (1.0%)
Non-deductible expenses - remediation (7.1) (2.9%) (6.6) (2.1%)
Non-deductible expenses - other (0.1) - (0.7) (0.2%)
Impact of intangible asset impairment
on R&D deferred tax liability 3.0 1.2% 0.2 0.1%
Share based payments (0.3) (0.1%) (0.2) (0.1%)
Adjustment in respect of prior years (0.6) (0.3%) 4.1 1.3%
Current year losses for which no deferred
tax asset has been recognised (34.7) (14.1%) (42.8) (13.7%)
Effect of changes in tax rates (5.4) (2.2%) 2.1 0.7%
------------------------------------------ ------------ --------- ------------ ---------
Tax (expense)/credit reported in the
consolidated income statement (3.1) (1.3%) 9.7 3.2%
------------------------------------------ ------------ --------- ------------ ---------
The effective tax rate for this year is (1.3%) (2020: 3.2%). The
main reasons for this, in addition to the reported accounting loss
before tax for the year, are set out below:
Deferred tax
The following table shows deferred tax recorded in the statement
of financial position and changes recorded in the tax expense:
Investment Property,
Unused securities Share-based plant Intangible
tax losses and impairments payments and equipment assets Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
2021
Deferred tax assets 13 3 - - - 16
Deferred tax liabilities - 2 - (23) (7) (28)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
Deferred tax liabilities
(net) 13 5 - (23) (7) (12)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
At 1 January 2021 12 2 - (16) (10) (12)
Income statement 1 - - (7) 3 (3)
Other comprehensive
income - 3 - - - 3
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
At 31 December 2021 13 5 - (23) (7) (12)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
Investment Property,
Unused securities Share-based plant Intangible
tax losses and impairments payments and equipment assets Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
2020
Deferred tax assets 12 3 - - - 15
Deferred tax liabilities - (1) - (16) (10) (27)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
Deferred tax assets
(net) 12 2 - (16) (10) (12)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
At 1 January 2020 - 4 - (15) (4) (15)
Income statement 12 (1) - (1) - 10
Other comprehensive
income - (1) - - - (1)
Acquisition - - - - (6) (6)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
At 31 December 2020 12 2 - (16) (10) (12)
------------------------- ------------ ---------------- ------------ -------------- ------------ ------------
4. Financial instruments
Our financial instruments primarily comprise customer deposits,
loans and advances to customers, cash held at banks and investment
securities, all of which arise as a result of our normal
operations.
The main financial risks arising from our financial instruments
are credit risk, liquidity risk and market risks (price and
interest rate risk).
The financial instruments we hold are simple in nature and we do
not consider that we have made any significant or material
judgements relating to the classification of financial instruments
under IFRS 9.
Cash and balances with the Bank of England, trade and other
receivables, trade and other payables and other assets and
liabilities which meet the definition of financial instruments are
not included in the table below as the carrying value of those
assets are a close approximation of their fair value.
Fair value
through Fair value Amortised Total
profit and loss through other comprehensive income cost fair value
GBP'million GBP'million GBP'million GBP'million
--------------------------------- ---------------- ----------------------------------- ------------ ------------
31 December 2021
Assets
Loans and advances to customers - - 12,290 12,290
Investment securities - 798 4,776 5,574
Financial assets held at FVTPL 3 - - 3
--------------------------------- ---------------- ----------------------------------- ------------ ------------
Liabilities
Deposits from customers - - 16,448 16,448
Deposits from central bank - - 3,800 3,800
Debt securities - - 588 588
Derivative financial liabilities 10 - - 10
Repurchase agreements - - 169 169
--------------------------------- ---------------- ----------------------------------- ------------ ------------
Fair value
through Fair value Amortised Total
profit and loss through other comprehensive income cost fair value
GBP'million GBP'million GBP'million GBP'million
----------------------------------- ---------------- ----------------------------------- ------------ ------------
31 December 2020
Assets
Loans and advances to customers - - 12,090 12,090
Investment securities - 773 2,640 3,413
Financial assets held at FVTPL 30 - - 30
Assets classified as held for sale - - 295 295
----------------------------------- ---------------- ----------------------------------- ------------ ------------
Liabilities
Deposits from customers - - 16,072 16,072
Deposits from central bank - - 3,808 3,808
Debt securities - - 600 600
Financial liabilities held at FVTPL 30 - - 30
Derivative financial liabilities 8 - - 8
Repurchase agreements - - 196 196
----------------------------------- ---------------- ----------------------------------- ------------ ------------
5. Loans and advances to customers
31 December 2021
------------------------------------------
Gross carrying ECL Net carrying
amount allowance amount
GBP'million GBP'million GBP'million
-------------------------------------- -------------- ------------ ------------
Consumer lending 890 (42) 848
Retail mortgages 6,723 (19) 6,704
Commercial lending 4,846 (108) 4,738
-------------------------------------- -------------- ------------ ------------
Total loans and advances to customers 12,459 (169) 12,290
-------------------------------------- -------------- ------------ ------------
31 December 2020
------------------------------------------
Gross carrying ECL Net carrying
amount allowance amount
GBP'million GBP'million GBP'million
-------------------------------------- -------------- ------------ ------------
Consumer lending 204 (25) 179
Retail mortgages 6,892 (26) 6,866
Commercial lending 5,148 (103) 5,045
-------------------------------------- -------------- ------------ ------------
Total loans and advances to customers 12,244 (154) 12,090
-------------------------------------- -------------- ------------ ------------
Further information on the movements in gross carrying amounts
and ECL can be found in note 11. An analysis of the gross loans and
advances by product category is set out below:
31 December 31 December
2021 2020
GBP'million GBP'million
-------------------------------------- ------------ ------------
Overdrafts 66 73
Credit cards 13 10
Term loans 811 121
-------------------------------------- ------------ ------------
Total consumer lending 890 204
-------------------------------------- ------------ ------------
Residential owner occupied 5,022 5,051
Retail buy-to-let 1,701 1,841
-------------------------------------- ------------ ------------
Total retail mortgages 6,723 6,892
-------------------------------------- ------------ ------------
Total retail lending 7,613 7,096
-------------------------------------- ------------ ------------
Professional buy-to-let 950 1,117
Bounce back loans 1,304 1,353
Coronavirus business interruption
loans 165 114
Recovery loan scheme(1) 157 -
Other term loans 1,791 2,138
-------------------------------------- ------------ ------------
Total commercial term lending 4,367 4,722
-------------------------------------- ------------ ------------
Overdrafts and revolving credit
facilities 156 149
Credit cards 3 3
Asset and invoice finance 320 274
-------------------------------------- ------------ ------------
Total commercial lending 4,846 5,148
-------------------------------------- ------------ ------------
Gross loans and advances to customers 12,459 12,244
-------------------------------------- ------------ ------------
1. Recovery loan scheme includes GBP66 million acquired from
third parties under forward flow arrangements (31 December 2020:
GBPnil)
6. Investment securities
31 December 31 December
2021 2020
GBP'million GBP'million
--------------------------------------- ------------ -------------
Fair value through other comprehensive
income 798 773
Amortised cost 4,776 2,640
--------------------------------------- ------------ -------------
Total investment securities 5,574 3,413
--------------------------------------- ------------ -------------
Fair value through other comprehensive income
31 December 31 December
2021 2020
GBP'million GBP'million
--------------------------------------- ------------ -------------
Sovereign bonds 566 386
Residential mortgage backed securities 38 50
Covered bonds 156 337
Multi-lateral development bank bonds 38 -
Total investment securities held at
FVOCI 798 773
--------------------------------------- ------------ -------------
Amortised cost
31 December 31 December
2021 2020
GBP'million GBP'million
--------------------------------------- ------------ -------------
Sovereign bonds 1,198 495
Residential mortgage backed securities 1,687 1,624
Covered bonds 442 521
Multi-lateral development bank bonds 1,289 -
Asset backed securities 160 -
--------------------------------------- ------------ -------------
Total investment securities held at
amortised cost 4,776 2,640
--------------------------------------- ------------ -------------
7. Property, plant and equipment
Right
of use
assets
relating
Freehold Fixtures, to leased
Investment Leasehold land fittings stores
property improvements and buildings and equipment IT hardware and offices Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
Cost
1 January 2021 18 292 298 25 11 330 974
Additions and
modifications - 12 29 - 1 (4) 38
Disposals - - - - - (29) (29)
Write-offs - (10) - (1) (11) (2) (24)
Transfers - (14) 14 - - - -
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
31 December
2021 18 280 341 24 1 295 959
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
Accumulated
depreciation
1 January 2021 12 66 21 15 7 47 168
Charge for the
year - 14 4 4 2 18 42
Impairments - - - - - 6 6
Disposals - - - - - (4) (4)
Write-offs - (9) - - (9) - (18)
Transfers - (3) 3 - - - -
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
31 December
2021 12 68 28 19 - 67 194
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
Net book value 6 212 313 5 1 228 765
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
Right
of use
assets
relating
Freehold Fixtures, to leased
Investment Leasehold land fittings stores
property improvements and buildings and equipment IT hardware and offices Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
Cost
1 January 2020 18 314 262 26 10 332 962
Additions and
modifications - 6 18 3 2 4 33
Recognised in
business
combinations - 1 - - 1 3 5
Disposals - - - - - (9) (9)
Write-offs - (11) - (4) (2) - (17)
Transfers - (18) 18 - - - -
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
31 December
2020 18 292 298 25 11 330 974
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
Accumulated
depreciation
1 January 2020 10 49 14 12 5 16 106
Charge for the
year - 11 5 5 4 16 41
Recognised in
business
combinations - 1 - - - - 1
Impairments 2 9 - 1 - 16 28
Disposals - - - - - (1) (1)
Write-offs - (2) - (3) (2) - (7)
Transfers - (2) 2 - - - -
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
31 December
2020 12 66 21 15 7 47 168
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
Net book value 6 226 277 10 4 283 806
--------------- ------------ ------------- -------------- -------------- ------------ ------------ ------------
Impairments
During the year impairments were recognised in relation to the
right of use assets on the three stores announced for closure.
Prior to impairment, the right of use assets and lease liabilities
were remeasured through to the next break clause. The leasehold
improvements, fixtures and fittings associated with these stores
have been written off on the basis that they will not provide the
Group with any economic benefit post closure.
Write-offs
As well as the write-offs relating to the store closures
outlined above during the year we wrote-off a number of items of IT
hardware that are no longer being used or no longer providing the
Group with any economic benefit.
Transfers
Transfers represent costs associated with the improvements made
to previously leased stores which have been purchased. These stores
were purchased where there was a strong commercial rationale for
doing so.
8. Intangible assets
Goodwill Brand Software Total
GBP'million GBP'million GBP'million GBP'million
-------------------- ------------ ------------ ------------ ------------
Cost
1 January 2021 10 2 328 340
Additions - - 39 39
Write-offs - - (32) (32)
Deferred grant - - 1 1
-------------------- ------------ ------------ ------------ ------------
31 December 2021 10 2 336 348
-------------------- ------------ ------------ ------------ ------------
Amortisation
1 January 2021 - - 86 86
Charge for the year - - 38 38
Impairment - - 7 7
Write-offs - - (26) (26)
31 December 2021 - - 105 105
-------------------- ------------ ------------ ------------ ------------
Net book value 10 2 231 243
-------------------- ------------ ------------ ------------ ------------
Goodwill Brand Software Total
GBP'million GBP'million GBP'million GBP'million
------------------------------------ ------------ ------------ ------------ ------------
Cost
1 January 2020 4 - 224 228
Additions - - 81 81
Recognised in business combinations 6 2 32 40
Write-offs - - (10) (10)
Deferred grant - - 1 1
------------------------------------ ------------ ------------ ------------ ------------
31 December 2020 10 2 328 340
------------------------------------ ------------ ------------ ------------ ------------
Amortisation
1 January 2020 - - 60 60
Charge for the year - - 33 33
Write-offs - - (7) (7)
31 December 2020 - - 86 86
------------------------------------ ------------ ------------ ------------ ------------
Net book value 10 2 242 254
------------------------------------ ------------ ------------ ------------ ------------
Impairments
Following the purchase of the RateSetter back book in April 2021
an impairment was recognised in relation to the peer-to-peer
component of the RateSetter lending platform.
Write-offs
The write-offs in the year consisted primarily of software and
applications that are no longer being used and are no longer
providing any further economic benefits.
9. Leases
Lease liabilities
2021 2020
GBP'million GBP'million
------------------------------------ --------------- ------------
1 January 327 341
Additions and modifications (6) 4
Recognised in business combinations - 3
Disposals (40) (9)
Lease payments made (29) (31)
Interest on lease liabilities 17 19
------------------------------------ --------------- ------------
31 December 269 327
------------------------------------ --------------- ------------
Right of use assets
All disclosures relating to right of use assets, including
accounting policy can be found in note 7.
Additions and modifications
As part of our decision to close three stores the lease
liabilities on these stores were remeasured out to their first
break clause (where available). This led to a modification of the
lease liabilities of GBP6 million, with a corresponding adjustment
made to the associated right of use assets.
Disposals
The disposals during year relate to the four stores where we
purchased the freehold or long-lease during the year (2020: three
stores). Following the purchase both the lease liabilities and
right of use assets relating to these stores were derecognised.
Additionally we disposed of the majority of our leases at Old
Bailey office space, which we vacated during 2020. We had already
impaired the right of use assets related during 2020 following our
decision to no longer use this space.
Low value and short leases
During the year ended 31 December 2021 GBP0.7 million (year
ended 31 December 2020: GBP0.2 million) was recognised in the
income statement with respect to assets of low value or a lease of
less than12 months. The lease for the Bishopsgate office was
transferred over to Metro Bank in October 2021 from RateSetter.
This amounted to an immaterial amount (less than GBP0.1 million)
therefore has been excluded from the note.
Future income due under non-cancellable operating leases
The Group leases out surplus space in some of its properties.
The table below sets out the cash payments expected over the
remaining non-cancellable term of each lease, exclusive of any
VAT.
31 December 31 December
2021 2020
GBP'million GBP'million
---------------------------- --------------- ------------
Within one year 1 1
Due in one to five years 4 4
Due in more than five years 4 5
---------------------------- --------------- ------------
Total 9 10
---------------------------- --------------- ------------
10. Provisions
Customer Onerous Legal
remediation Dilapidations contracts and regulatory Other Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
----------------- ------------ ------------- ------------ --------------- ------------ ------------
1 January 2021 2 3 6 - - 11
Additions - 2 5 5 1 13
Released - (2) (4) - - (6)
Utilised (1) - (2) - - (3)
----------------- ------------ ------------- ------------ --------------- ------------ ------------
31 December 2021 1 3 5 5 1 15
----------------- ------------ ------------- ------------ --------------- ------------ ------------
Customer Onerous Legal
remediation Dilapidations contracts and regulatory Other Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
----------------------- ------------ ------------- ------------ --------------- ------------ ------------
1 January 2020 12 3 - - 2 17
Additions 1 - 9 - - 10
Recognised in business
combinations - - 3 - - 3
Released - - - - (2) (2)
Utilised (11) - (6) - - (17)
----------------------- ------------ ------------- ------------ --------------- ------------ ------------
31 December 2020 2 3 6 - - 11
----------------------- ------------ ------------- ------------ --------------- ------------ ------------
All additions have been recognised in the income statement, with
the exception of GBP2 million provision for dilapidations. This has
been recognised as an addition to the right of use assets (see note
7).
Dilapidations
The amounts provided in respect of dilapidations are calculated
based on assessments by an independent qualified valuer. They
represent the best estimate of the present value to restore the
site to the condition required under the lease. As the date
restoration is required may be up to 25 years in the future, there
is uncertainty in this estimation. Additionally, for sites that are
outside the Landlord and Tenant Act 1954, should we be successful
in renewing the lease at the end of its term, it is possible that
the provision recognised may not be utilised.
The additional provision for dilapidations during the year
relate to the three stores we will be closing in 2022 (where a
provision had not already been recognised). A provision for the
restoration of the Old Bailey office space was substantially
released in the year following the disposal of the majority of this
site.
The provision made in relation to these sites is expected to be
utilised within the next two years.
Onerous contract
Onerous contracts primarily relate to the non-rental costs of
fulfilling property contracts from which we will no longer benefit.
The additions in year primarily relate to the three stores
announced for closures and have been determined with reference to
the occupancy costs from the date of closure through to the next
lease event. Rental costs on these sites from which we will receive
no future economic benefits are represented by an impairment to the
right of use asset (see note 7 for further details). The
utilisation and releases in the year relate to both occupancy costs
at Old Bailey, a previous head office site, the majority of which
has now been disposed of as well as a provision in relation to
negative margin peer-to-peer loans, which is no longer required
following the acquisition of the RateSetter back book in April
2021.
The majority of our current onerous contract provisions are
anticipated to be utilised within the next two years.
Legal and regulatory
Provision for regulatory matters consists of GBP5 million
provided in respect of the FCA investigation into potential rule
breaches in the period prior to the announcements made on 23
January 2019 and 26 February 2019 in relation to risk-weighted
assets and AIRB accreditation respectively.
As at 31 December 2021 we believe there to be sufficient
certainty in the outcome of this investigation to make a provision
against the likely penalty. The actual level of penalty remains
uncertain. Management expects that the outcome will sit within a
range up to GBP13 million. The provision reflects Management's best
estimate of the outcome at this stage.
11. Called-up share capital
The Group has a single class of shares. As at 31 December 2021
172.4 million ordinary shares of 0.0001p (31 December 2020: 172.4
million) were authorised and in issue.
Called-up ordinary share capital, issued and fully paid
The called-up share capital reserve is used to record the
nominal share capital. At the 31 December 2020 the Group's called
up share capital was GBP172.42 (31 December 2019: GBP172.42).
2021 2020
GBP'million GBP'million
----------- ------------ ------------
31 December - -
----------- ------------ ------------
Share premium
The share premium reserve is used to record the excess
consideration of any shares issued over the nominal share
value.
2021 2020
GBP'million GBP'million
------------ ------------ ------------
31 December 1,964 1,964
------------ ------------ ------------
12. Credit Risk
Credit risk concentration
Retail mortgage lending by DTV banding
31 December 2021 31 December 2020
GBP'million GBP'million
---------------------------------- ----------------------------------
Retail Total Retail Total
owner Retail retail owner Retail retail
occupied buy-to-let mortgages occupied buy-to-let mortgages
--------------------- --------- ----------- ---------- --------- ----------- ----------
DTV ratio
Less than 50% 1,907 524 2,431 1,855 502 2,357
51-60% 767 415 1,182 842 390 1,232
61-70% 1,092 564 1,656 836 533 1,369
71-80% 805 188 993 1,084 407 1,491
81-90% 400 3 403 359 4 363
91-100% 51 3 54 74 - 74
More than 100% - 4 4 1 5 6
--------------------- --------- ----------- ---------- --------- ----------- ----------
Total retail mortgage
lending 5,022 1,701 6,723 5,051 1,841 6,892
--------------------- --------- ----------- ---------- --------- ----------- ----------
Retail mortgage lending by geographic exposure
31 December 2021 31 December 2020
GBP'million GBP'million
------------------------------------------ ------------------------------------------
Retail Retail Total retail Retail Retail Total retail
owner occupied buy-to-let mortgages owner occupied buy-to-let mortgages
---------------------- --------------- ----------- ------------ --------------- ----------- ------------
Region
Greater London 2,130 1,048 3,178 2,213 1,147 3,360
South east 1,157 283 1,440 1,157 309 1,466
South west 434 82 516 433 91 524
East of England 309 69 378 298 73 371
North west 264 62 326 265 63 328
West Midlands 190 61 251 179 58 237
Yorkshire and the
Humber 139 34 173 139 37 176
East Midlands 140 25 165 131 25 156
Wales 110 20 130 102 21 123
North east 62 10 72 62 10 72
Scotland 87 7 94 72 7 79
---------------------- --------------- ----------- ------------ --------------- ----------- ------------
Total retail mortgage
lending 5,022 1,701 6,723 5,051 1,841 6,892
---------------------- --------------- ----------- ------------ --------------- ----------- ------------
Retail mortgage lending by repayment type
31 December 2021 31 December 2020
GBP'million GBP'million
---------------------------------- ----------------------------------
Retail Total Retail Total
owner Retail retail owner Retail retail
occupied buy-to-let mortgages occupied buy-to-let mortgages
---------------------- --------- ----------- ---------- --------- ----------- ----------
Repayment
Interest 2,113 1,620 3,733 2,337 1,751 4,088
Capital and interest 2,909 81 2,990 2,714 90 2,804
---------------------- --------- ----------- ---------- --------- ----------- ----------
Total retail mortgage
lending 5,022 1,701 6,723 5,051 1,841 6,892
---------------------- --------- ----------- ---------- --------- ----------- ----------
Commercial term lending (exc. BBLS) by DTV banding
31 December 2021 31 December 2020
GBP'million GBP'million
-------------------------------------- --------------------------------------
Professional Other Total Professional Other Total
buy-to-let term loans commercial buy-to-let term loans commercial
term loans term loans
---------------- ------------ ----------- ----------- ------------ ----------- -----------
DTV ratio
Less than 50% 306 770 1,076 353 876 1,229
51-60% 232 483 715 261 546 807
61-70% 282 158 440 351 255 606
71-80% 112 63 175 133 100 233
81-90% 8 30 38 9 51 60
91-100% 6 27 33 6 13 19
More than 100% 4 582 586 4 411 415
---------------- ------------ ----------- ----------- ------------ ----------- -----------
Total commercial
term loans 950 2,113 3,063 1,117 2,252 3,369
---------------- ------------ ----------- ----------- ------------ ----------- -----------
Commercial term lending (exc. BBLS) by geographic exposure
31 December 2021 31 December 2020
GBP'million GBP'million
------------------------------------------ ------------------------------------------
Professional Other term Total commercial Professional Other term Total commercial
buy-to-let loans term loans buy-to-let loans term loans
------------------ ------------ ---------- ---------------- ------------ ---------- ----------------
Region
Greater London 676 1,186 1,862 780 1,358 2,138
South east 160 390 550 205 399 604
South west 28 151 179 31 156 187
East of England 39 71 110 48 67 115
North west 18 150 168 20 146 166
West Midlands 9 84 93 10 66 76
Yorkshire and the
Humber 3 17 20 3 13 16
East Midlands 9 27 36 11 18 29
Wales 4 12 16 5 10 15
North east 3 17 20 3 18 21
Scotland 1 2 3 1 - 1
Northern Ireland - 6 6 - 1 1
------------------ ------------ ---------- ---------------- ------------ ---------- ----------------
Total commercial
term loans 950 2,113 3,063 1,117 2,252 3,369
------------------ ------------ ---------- ---------------- ------------ ---------- ----------------
Commercial term lending (exc. BBLS) by repayment type
31 December 2021 31 December 2020
GBP'million GBP'million
-------------------------------------- --------------------------------------
Professional Other Total Professional Other Total
buy-to-let term loans commercial buy-to-let term loans commercial
term loans term loans
--------------------- ------------ ----------- ----------- ------------ ----------- -----------
Repayment
Interest 897 230 1,127 1,058 281 1,339
Capital and interest 53 1,883 1,936 59 1,971 2,030
--------------------- ------------ ----------- ----------- ------------ ----------- -----------
Total commercial
term loans 950 2,113 3,063 1,117 2,252 3,369
--------------------- ------------ ----------- ----------- ------------ ----------- -----------
A Commercial term lending (exc. BBLS) by industry exposure
31 December 2021 31 December 2020
GBP'million GBP'million
------------------------------------------ ------------------------------------------
Professional Other term Total commercial Professional Other term Total commercial
buy-to-let loans term loans buy-to-let loans term loans
-------------------------- ------------ ---------- ---------------- ------------ ---------- ----------------
Industry sector
Real estate (rent,
buy and sell) 950 837 1,787 1,117 1,032 2,149
Hospitality - 361 361 - 376 376
Health and social
work - 225 225 - 248 248
Legal, accountancy
and consultancy - 206 206 - 208 208
Retail - 136 136 - 107 107
Real estate (development) - 46 46 - 60 60
Recreation, cultural
and sport - 88 88 - 53 53
Construction - 85 85 - 36 36
Education - 17 17 - 30 30
Real estate (management
of) - 9 9 - 10 10
Investment and unit
trusts - 6 6 - 9 9
Other - 97 97 - 83 83
-------------------------- ------------ ---------- ---------------- ------------ ---------- ----------------
Total commercial
term loans 950 2,113 3,063 1,117 2,252 3,369
-------------------------- ------------ ---------- ---------------- ------------ ---------- ----------------
Credit risk exposures
Retail mortgages
31 December 2021 31 December 2020
GBP' million GBP' million
--------- ---------------------------------------------------------- ----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Stage 1 Stage 2 Stage 3 POCI
12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL 12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL
--------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Up to
date 5,544 1,010 38 - 5,911 802 47 -
1 to 29
days
past due 2 27 9 - - 18 8 -
30 to 89
days
past due - 26 16 - - 43 13 -
90+ days
past due - - 51 - - - 50 -
--------- ------------- ------------- ------------- -------------
Gross
carrying
amount 5,546 1,063 114 - 5,911 863 118 -
--------- ------------- ------------- ------------- -------------
Consumer lending
31 December 2021 31 December 2020
GBP' million GBP' million
----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Stage 1 Stage 2 Stage 3 POCI
12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL 12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL
------------- ------------- ------------- ------------- ------------- ------------- -------------
Up to
date 786 71 2 - 149 38 - -
1 to 29
days
past due - 2 - - - 3 - -
30 to 89
days
past due - 9 3 - - 2 - -
90+ days
past due - - 16 1 - - 12 -
------------- ------------- ------------- ------------- -------------
Gross
carrying
amount 786 82 21 1 149 43 12 -
------------- ------------- ------------- -------------
Commercial lending
31 December 2021 31 December 2020
GBP' million GBP' million
--------- ---------------------------------------------------------- ----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI Stage 1 Stage 2 Stage 3 POCI
12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL 12 month ECL Lifetime ECL Lifetime ECL Lifetime ECL
--------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Up to
date 3,727 656 118 - 4,115 863 96 -
1 to 29
days
past due 12 46 2 - - 21 2 -
30 to 89
days
past due - 78 23 - - 22 11 -
90+ days
past due - - 184 - - - 18 -
--------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Gross
carrying
amount 3,739 780 327 - 4,115 906 127 -
--------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Loss allowance
The following tables explain the changes in both the gross
carrying amount and loss allowances of the Group's loans and
advances during the period. Significant changes in the gross
carrying amount which contributed to changes in the loss allowance
are explained below. Other movements consist of changes to model
assumptions and forward looking information.
Retail mortgages
Gross carrying amount Loss allowance Net carrying amount
------------------------------------ -------------------------------- ------------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
1 January
2021 5,911 863 118 - 6,892 (5) (17) (4) - (26) 5,906 846 114 - 6,866
Transfers
to/(from)
stage 1(1) 362 (345) (17) - - (8) 8 - - - 354 (337) (17) - -
Transfers
to/(from)
stage 2 (469) 477 (8) - - 1 (1) - - - (468) 476 (8) - -
Transfers
to/(from)
stage 3 (19) (26) 45 - - - 1 (1) - - (19) (25) 44 - -
Net remeasurement
due to
transfers(2) - - - - - 7 (1) - - 6 7 (1) - - 6
New lending(3) 894 233 - - 1,127 (1) (4) - - (5) 893 229 - - 1,122
Repayments,
additional
drawdowns
and interest
accrued (131) (17) (2) - (150) - - - - - (131) (17) (2) - (150)
Transfer - - - - - - - - - - - - - - -
to held for
sale(4)
Derecognitions(5) (1,002) (122) (22) - (1,146) 1 1 1 - 3 (1,001) (121) (21) - (1,143)
Changes to
model
assumptions(6) - - - - - 3 1 (1) - 3 3 1 (1) - 3
31 December
2021 5,546 1,063 114 - 6,723 (2) (12) (5) - (19) 5,544 1,051 109 - 6,704
Gross carrying amount Loss allowance Net carrying amount
------------------------------------ -------------------------------- ------------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
1 January
2020 9,874 502 54 - 10,430 - (3) (5) - (8) 9,874 499 49 -- 10,422
Transfers
to/(from)
stage 1(1) 109 (106) (3) - - (1) 1 - - - 108 (105) (3) - -
Transfers
to/(from)
stage 2 (559) 560 (1) - - - - - - - (559) 560 (1) - -
Transfers
to/(from)
stage 3 (55) (22) 77 - - - 1 (1) - - (55) (21) 76 - -
Net remeasurement
due to
transfers(2) - - - - - 1 (8) (1) - (8) 1 (8) (1) - (8)
New lending(3) 522 48 1 - 571 (3) (3) - - (6) 519 45 1 - 565
Repayments,
additional
drawdowns
and interest
accrued (122) (11) - - (133) - - - - - (122) (11) - - (133)
Transfer
to held for
sale(4) (289) (7) - - (296) 1 - - - 1 (288) (7) - - (295)
Derecognitions(5) (3,569) (101) (10) - (3,680) 3 1 1 - 5 (3,566) (100) (9) - (3,675)
Changes to
model
assumptions(6) - - - - - (6) (6) 2 - (10) (6) (6) 2 - (10)
31 December
2020 5,911 863 118 - 6,892 (5) (17) (4) - (26) 5,906 846 114 - 6,866
1. Represents stage transfers prior to any ECL
remeasurements
2. Represents the remeasurement between the twelve month and
lifetime ECL due to stage transfer, including any changes to the
model assumptions and forward looking information.
3. Represents the increase in balances resulting from loans and
advances that have been newly originated, purchased or renewed.
4. Represents the loans and advance reclassified as held for
sale at year end.
5. Represents the decrease in balances resulting from loans and
advances that have been fully repaid, disposed of or written
off.
6. Represents the change in loss allowances resulting from
changes to the model assumptions, forward looking information and
changes in the customers risk profile
Consumer lending
Gross carrying amount Loss allowance Net carrying amount
-------------------------------- -------------------------------- --------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
1 January
2021 149 43 12 - 204 (6) (9) (10) - (25) 143 34 2 - 179
Transfers
to/(from)
stage 1 8 (8) - - - (1) 1 - - - 7 (7) - - -
Transfers
to/(from)
stage 2 (6) 6 - - - - - - - - (6) 6 - - -
Transfers
to/(from)
stage 3 (2) (3) 5 - - - 2 (2) - - (2) (1) 3 - -
Net
remeasurement
due to
transfers - - - - - 1 - (2) - (1) 1 - (2) - (1)
New lending 697 66 12 1 776 (16) (7) (9) - (32) 681 59 3 1 744
Repayments,
additional
drawdowns
and interest
accrued (20) (9) (1) - (30) - - - - - (20) (9) (1) - (30)
Derecognitions (40) (13) (7) - (60) 1 2 7 - 10 (39) (11) - - (50)
Changes to
model
assumptions - - - - - 3 3 - - 6 3 3 - - 6
31 December
2021 786 82 21 1 890 (18) (8) (16) - (42) 768 74 5 1 848
Gross carrying amount Loss allowance Net carrying amount
-------------------------------- -------------------------------- --------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
1 January
2020 223 - 10 - 233 (3) (1) (9) - (13) 220 (1) 1 - 220
Transfers - - - - - - - - - - - - - - -
to/(from)
stage 1
Transfers
to/(from)
stage 2 (62) 62 - - - 1 (1) - - - (61) 61 - - -
Transfers
to/(from)
stage 3 (3) (1) 4 - - - - - - - (3) (1) 4 - -
Net
remeasurement
due to
transfers - - - - - - (7) (3) - (10) - (7) (3) - (10)
New lending 55 2 - - 57 (2) - - - (2) 53 2 - - 55
Repayments,
additional
drawdowns
and interest
accrued (14) (20) (1) - (35) - - - - - (14) (20) (1) - (35)
Derecognitions (50) - (1) - (51) - - 1 - 1 (50) - - - (50)
Changes to
model
assumptions - - - - - (2) - 1 - (1) (2) - 1 - (1)
31 December
2020 149 43 12 - 204 (6) (9) (10) - (25) 143 34 2 - 179
Commercial lending
Gross carrying amount Loss allowance Net carrying amount
-------------------------------- -------------------------------- --------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
1 January
2021 4,115 906 127 - 5,148 (19) (43) (41) - (103) 4,096 863 86 - 5,045
Transfers
to/(from)
stage 1 189 (184) (5) - - (7) 7 - - - 182 (177) (5) - -
Transfers
to/(from)
stage 2 (297) 304 (7) - - 1 (2) 1 - - (296) 302 (6) - -
Transfers
to/(from)
stage 3 (181) (81) 262 - - - 3 (3) - - (181) (78) 259 - -
Net
remeasurement
due to
transfers - - - - - 3 (10) (17) - (24) 3 (10) (17) - (24)
New lending 566 58 6 - 630 (6) (2) (1) - (9) 560 56 5 - 621
Repayments,
additional
drawdowns
and interest
accrued (167) (31) (13) - (211) - - - - - (167) (31) (13) - (211)
Derecognitions (486) (192) (43) - (721) 3 8 12 - 23 (483) (184) (31) - (698)
Changes to
model
assumptions - - - - - (2) 10 (3) - 5 (2) 10 (3) - 5
31 December
2021 3,739 780 327 - 4,846 (27) (29) (52) - (108) 3,712 751 275 - 4,738
Gross carrying amount Loss allowance Net carrying amount
-------------------------------- -------------------------------- --------------------------------
Stage Stage Stage Stage Stage Stage Stage Stage Stage
GBP'million 1 2 3 POCI Total 1 2 3 POCI Total 1 2 3 POCI Total
1 January
2020 3,929 72 51 - 4,052 (6) (1) (6) - (13) 3,923 71 45 - 4,039
Transfers
to/(from)
stage 1 13 (11) (2) - - - - - - - 13 (11) (2) - -
Transfers
to/(from)
stage 2 (678) 679 (1) - - - - - - - (678) 679 (1) - -
Transfers
to/(from)
stage 3 (84) (20) 104 - - - 1 (1) - - (84) (19) 103 - -
Net
remeasurement
due to
transfers - - - - - - (28) (30) - (58) - (28) (30) - (58)
New lending 1,562 199 9 - 1,770 (6) (13) (3) - (22) 1,556 186 6 - 1,748
Repayments,
additional
drawdowns
and interest
accrued (201) 1 (9) - (209) - - - - - (201) 1 (9) - (209)
Derecognitions (426) (14) (25) - (465) 1 1 2 - 4 (425) (13) (23) - (461)
Changes to
model
assumptions - - - - - (8) (3) (3) - (14) (8) (3) (3) - (14)
31 December
2020 4,115 906 127 - 5,148 (19) (43) (41) - (103) 4,096 863 86 - 5,045
13. Legal and regulatory matters
As part of the normal course of business we are subject to legal
and regulatory matters which, with the exception of the matters set
out below, are not considered to have a material impact on the
business.
The matters outlined below represent contingent liabilities and
as such at the reporting date no provision has been made for any of
these cases within the financial statements (details of our
provisions are set out in note 10). This is because, based on the
facts currently known, it is not practicable to predict the outcome
of any of these matters or reliably estimate any financial impact.
Their inclusion does not constitute any admission of wrongdoing or
legal liability.
Financial crime
In 2017 and 2019 initial disclosures were made to the US Office
of Foreign Assets Control (OFAC) in relation to Cuba and Iran. We
completed our review in respect of these matters in December 2021
and have submitted our findings to OFAC. We continue to engage and
co-operate fully with our regulators. At this stage it is not
practicable to identify the likely outcome or to estimate the
potential financial impact with any certainty.
In addition, we continue to engage and co-operate fully with the
FCA's enquiries regarding the Bank's financial crime systems and
controls. These enquiries remain at a relatively early stage.
14. Fair value of financial instruments
Quoted Using With significant
market observable unobservable
price inputs inputs Total
Carrying Level Level Level fair
value 1 2 3 value
GBP'million GBP'million GBP'million GBP'million GBP'million
31 December 2021
Assets
Loans and advances to customers 12,290 - - 12,356 12,356
Investment securities held
at FVOCI 798 760 38 - 798
Investment securities held
at amortised costs 4,776 2,977 1,710 60 4,747
Financial assets held at FVTPL 3 - - 3 3
Liabilities
Deposits from customers 16,448 - - 16,452 16,452
Deposits from central bank 3,800 - - 3,800 3,800
Debt securities 588 495 - - 495
Derivative financial liabilities 10 - 10 - 10
Repurchase agreements 169 - - 169 169
Quoted Using With significant
market observable unobservable
price inputs inputs Total
Carrying Level Level Level fair
value 1 2 3 value
GBP'million GBP'million GBP'million GBP'million GBP'million
31 December 2020
Assets
Loans and advances to customers 12,090 - - 11,892 11,892
Investment securities held
at FVOCI 773 723 50 - 773
Investment securities held
at amortised costs 2,640 1,021 1,567 66 2,654
Financial assets held at FVTPL 30 - - 30 30
Liabilities
Deposits from customers 16,072 - - 16,147 16,147
Deposits from central bank 3,808 - - 3,808 3,808
Debt securities 600 483 - - 483
Financial liabilities held
at FVTPL 30 - - 30 30
Derivative financial liabilities 8 - 8 - -
Repurchase agreements 196 - - 196 196
Information on how fair values are calculated for the financial
assets and liabilities noted above are explained below:
Loans and advances to customers
Fair value is calculated based on the present value of future
principal and interest cash flows, discounted at the market rate of
interest at the balance sheet date, adjusted for future credit
losses and prepayments, if considered material.
Investment securities
The fair value of investment securities is based on either
observed market prices for those securities that have an active
trading market (fair value level 1 assets),or using observable
inputs (in the case of fair value level 2 assets).
Deposits from customers
Fair values are estimated using discounted cash flows, applying
current rates offered for deposits of similar remaining maturities.
The fair value of a deposit repayable on demand is approximated by
its carrying value.
Debt securities
Fair values are determined using the quoted market price at the
balance sheet date.
Deposits from central banks/repurchase agreements
Fair values are estimated using discounted cash flows, applying
current rates. Fair values approximate carrying amounts as their
balances are generally short dated.
15. Loss per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary equity holders of Metro Bank by the
weighted average number of ordinary shares in issue during the
year.
2021 2020
Earnings attributable to ordinary equity holders
of Metro Bank (GBP'million) (248.2) (301.7)
Weighted average number of ordinary shares in
issue - basic ('000) 172,421 172,420
Basic earnings per share (pence) (144.0) (175.0)
Diluted earnings per share has been calculated by dividing the
earnings attributable to ordinary equity holders of Metro Bank by
the weighted average number of ordinary shares in issue during the
year plus the weighted average number of ordinary shares that would
be issued on the conversion to shares of options granted to
colleagues. As the Group made a loss during the years to 31
December 2021 and 31 December 2020 the share options would be
antidilutive, as they would reduce the loss per share. Therefore
all the outstanding options have been disregarded in the
calculation of dilutive earnings per share.
2021 2020
Earnings attributable to ordinary equity holders
of Metro Bank (GBP'million) (248.2) (301.7)
Weighted average number of ordinary shares in
issue - diluted ('000) 172,421 172,420
Diluted earnings per share (pence) (144.0) (175.0)
There have been no transactions involving ordinary shares or
potential ordinary shares between the reporting date and the date
of the completion of these financial statements which would require
the restatement of EPS.
16. Related parties
Key management personnel
Our key management personnel, and persons connected with them,
are considered to be related parties for disclosure purposes. Key
management personnel are defined as those persons having authority
and responsibility for planning, directing and controlling the
activities of the Group. The Directors and members of the Executive
Leadership Team are considered to be the key management personnel
for disclosure purposes.
Key management compensation
Total compensation cost for key management personnel for the
year by category of benefit was as follows:
2021 2020
GBP'million GBP'million
Short-term benefits 5.4 5.3
Post-employment benefits 0.1 0.1
Share-based payment costs 1.3 0.7
Total compensation for key management personnel 6.8 6.1
Short-term employee benefits include salary, medical insurance,
bonuses and cash allowances paid to key management personnel. The
share based payment cost consists of the IFRS 2 charge for the year
(including charges associated with share options awarded in
previous years.
Banking transactions with key management personnel
We provide banking services to Directors and other key
management personnel and persons connected to them. Loan
transactions during the year and the balances outstanding at 31
December were as follows:
2021 2020
GBP'million GBP'million
Loans outstanding at 1 January 1.9 0.7
Loans relating to persons and companies newly considered
related parties - 1.8
Loans relating to persons and companies no longer
considered related parties (0.5) (0.6)
Loans issued during the year 1.8 -
Loans outstanding as at 31 December 3.2 1.9
Interest expense on loans payable to the Group (GBP'000) 30 34
There were three (31 December 2020: three) loans outstanding at
31 December 2021 totalling GBP3.2 million (31 December 2020: GBP1.9
million). Of these, two are residential mortgages secured on
property and one is an asset finance loan; all loans were provided
on our standard commercial terms.
In addition to the loans detailed above, we have issued credit
cards and granted overdraft facilities on current accounts to
Directors and key management personnel.
Credit card balances outstanding at 31 December were as
follows:
2021 2020
GBP'000 GBP'000
Credit cards outstanding as at 31 December 5 22
Deposit balances outstanding at 31 December were as follows
2021 2020
GBP'million GBP'million
Deposits held at 1 January 2.1 3.3
Deposits relating to persons and companies newly
considered related parties 0.1 0.2
Deposits relating to persons and companies no longer
considered related parties (0.1) (0.3)
Net amounts withdrawn (0.6) (1.1)
Deposits outstanding as at 31 December 1.5 2.1
17. Post balance sheet events
There have been no material post balance sheet events.
Underlying to statutory results reconciliation
Impairment
and
write-off
of
property,
plant, Business
equipment acquisition
Listing and and Mortgage
Statutory Share intangible C&I fund Transformation Remediation integration portfolio Underlying
Year ended 31 basis Awards assets costs costs costs costs sale basis
December 2020 GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
Net interest
income 295.3 - - 0.4 - - - - 295.7
Net fee and
commission
income 69.6 - - - - - - - 69.6
Net gains on
sale of
assets 9.4 - - - - - - (8.7) 0.7
Other income 44.2 - - (9.4) - - - (2.9) 31.9
Total income 418.5 - - (9.0) - - - (11.6) 397.9
General
operating
expenses (536.1) - - 9.0 8.9 45.9 2.4 3.3 (466.6)
Depreciation
and
amortisation (80.2) - - - - - - - (80.2)
Impairment
and
write-offs
of PPE and
intangible
assets (24.9) - 24.9 - - - - - -
Total
operating
expenses (641.2) - 24.9 9.0 8.9 45.9 2.4 3.3 (546.8)
Expected
credit loss
expense (22.4) - - - - - - - (22.4)
Loss before
tax (245.1) - 24.9 - 8.9 45.9 2.4 (8.3) (171.3)
Impairment
and
write-off
of
property,
plant, Business
equipment acquisition
Listing and and Mortgage
Statutory Share intangible C&I fund Transformation Remediation integration portfolio Underlying
Year ended 31 basis Awards assets costs costs costs costs sale basis
December 2020 GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
Net interest
income 249.7 - - 0.6 - - - - 250.3
Net fee and
commission
income 59.9 - - - - - - - 59.9
Net gains on
sale of
assets 73.3 - - - - - - (69.0) 4.3
Other income 49.7 - - (23.3) - - - - 26.4
Total income 432.6 - - (22.7) - - - (69.0) 340.9
General
operating
expenses (502.3) (0.2) - 22.7 16.7 40.8 5.4 5.3 (411.6)
Depreciation
and
amortisation (74.4) - - - - - - - (74.4)
Impairment
and
write-offs
of PPE and
intangible
assets (40.6) - 40.6 - - - - - -
Total
operating
expenses (617.3) (0.2) 40.6 22.7 16.7 40.8 5.4 5.3 (486.0)
Expected
credit loss
expense (126.7) - - - - - - - (126.7)
Loss before
tax (311.4) (0.2) 40.6 - 16.7 40.8 5.4 (63.7) (271.8)
Key capital disclosures
The information set out within this section does not form part
of the statutory accounts for the years ended 31 December 2021 or
31 December 2020.
Key Metrics
The table below summarises our key regulatory metrics as at 31
December 2021 and 31 December 2020.
31 December 31 December
2021 2020
GBP'million GBP'million
Available capital
CET1 capital 936 1,192
Tier 1 capital 936 1,192
Total capital 1,184 1,441
Total capital plus MREL 1,527 1,783
Risk weighted assets (RWAs)
Total risk weighted assets 7,454 7,957
Risk-based capital ratios as %
of RWAs
CET1 ratio 12.6% 15.0%
Tier 1 ratio 12.6% 15.0%
Total capital ratio 15.9% 18.1%
Total capital plus MREL 20.5% 22.4%
Additional CET1 buffer requirements
as % of RWAs
Countercyclical capital conservation
buffer requirement 2.5% 2.5%
Countercyclical buffer requirement 0.0% 0.0%
Total of bank CET1 specific buffer
requirements 2.5% 2.5%
Leverage ratio
Leverage ratio 4.41% 5.62%
Liquidity coverage ratio
Liquidity coverage ratio (LCR) 281% 187%
Leverage Ratio
The table below shows the Bank's Tier 1 Capital and Total
Leverage Exposure that are used to derive the Leverage Ratio. The
leverage ratio is the ratio of Tier 1 Capital to Total Leverage
exposure.
31 December 31 December
2021 2020
GBP'million GBP'million
Common equity tier 1 capital 936 1,192
Additional tier 1 capital - -
Tier 1 capital 936 1,192
CRD IV Leverage exposure 21,230 21,211
Leverage ratio 4.41% 5.62 %
Our leverage ratio is 4.41% which is in excess of the minimum
capital requirement of 3.00% as at 31 December 2021.
Liquidity coverage ratio
The table below shows the Bank's Total HQLA and total net cash
outflow that are used to derive the liquidity coverage ratio.
31 December 31 December
2021 2020
GBP'million GBP'million
Total HQLA 6,754 3,762
Total net cash outflow 2,406 2,011
Liquidity coverage ratio (LCR) 281% 187%
Our LCR was 281% at 31 December 2020 which exceeds the Basel Committee's minimum of 100%.
Overview of RWAs and capital requirements
The table below sets out the risk weighted assets and Pillar 1
capital requirements for Metro Bank. The bank has applied the
standardised approach to measure credit risk and the basic
indicator approach to measure operational risk. Under the approach
the Bank calculates its Pillar 1 capital requirement based on 8% of
total RWAs. This covers credit risk, operational risk, market risk
and counterparty credit risk.
Pillar 1
capital
required
31 December 31 December 31 December
2021 2020 2021
GBP'million GBP'million GBP'million
Credit risk (excluding counterparty
credit risk (CCR)) 6,709 7,251 537
Of which the standardised
approach 6,709 7,251 537
CCR 6 7 0.5
Of which mark to market 3 5 0.3
Of which CVA 3 2 0.2
Market risk 10 14 0.8
Operational risk 729 686 58
Of which basic indicator approach 729 686 58
Amounts below the thresholds - - -
for deduction (subject to
250% risk weight)
Total 7,454 7,957 596
Credit risk exposures by exposure class
Metro Bank's Pillar 1 capital requirement for Credit Risk is set
out in the table below.
Exposures subject to the standardised Exposure RWA Capital
approach Value GBP'million Required
GBP'million GBP'million
Central governments or central
banks 6,847 - -
Multi-lateral development banks 1,327 - -
Institutions 167 33 3
Corporates 507 437 35
Retail 1,320 931 74
Secured by mortgages on immovable
property 8,898 3,808 305
Covered bonds 597 60 5
Claims on institutions and corporates - - -
with a short-term credit assessment
Securitisation position 1,804 261 21
Exposure at default 209 211 17
Items associated with particularly
high risk 8 12 1
Other exposures 1,032 956 76
Total 22,716 6,709 537
Credit risk exposures by exposure class 2020
Capital
Exposures subject to the standardised Exposure Value RWA Required
approach GBP'million GBP'million GBP'million
Central governments or central
banks 5,131 - -
Institutions 2,767 553 44
Corporates 521 406 32
Retail 572 376 30
Secured by mortgages on immovable
property 9,895 4,338 347
Covered bonds 860 86 7
Claims on institutions and - - -
corporates with a short-term
credit assessment
Securitisation position 1,611 240 19
Exposure at default 247 248 20
Items associated with particularly
high risk 14 21 2
Other exposures 1,045 987 79
Total 22,663 7,251 580
Capital Resources
The table below summarises the composition of regulatory
capital.
31 December
31 December 2021 2020
GBP'million GBP'million
Share capital and premium 1,964 1,964
Retained earnings (694) (392)
(Loss)/profit for the year (248) (302)
Available for sale reserve (5) 3
Other reserves 18 16
Intangible assets (243) (254)
Other regulatory adjustments 144 157
CET 1 capital 936 1,192
Tier 1 capital 936 1,192
Tier 2 capital 249 249
Total capital resources 1,184 1,441
The Bank's capital adequacy was in excess of the minimum
required by the regulators at all times.
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END
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(END) Dow Jones Newswires
February 23, 2022 02:01 ET (07:01 GMT)
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