Earnings Release • Feb 23, 2022
Earnings Release
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National Storage Mechanism | Additional information 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 ��397.9 million reflecting the shift towards higher yielding assets, lower cost of deposits and a recovery in customer activity. �� Underlying costs of ��546.8 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 ��171.3 million, a second half underlying loss of ��61.3 million is down 44% on the first half, highlighting the momentum towards profitability �� Statutory loss before tax of ��245.1 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: �� in millions 31 December 2021 31 December 2020 Change from FY 2020 30 June 2021 Change from H1 2021 Assets ��22,587 ��22,579 0% ��23,013 (2%) Loans ��12,290 ��12,090 2% ��12,325 0% Deposits ��16,448 ��16,072 2% ��16,620 (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) �� in millions FY 2021 FY 2020 Change from FY 2020 H2 2021 H1 2021 Change from H1 2021 Total underlying revenue2 ��397.9 ��340.9 17% ��218.1 ��179.8 21% Underlying loss before tax3 (��171.3) (��271.8) (37%) (��61.3) (��110.0) (44%) Statutory loss before tax (��245.1) (��311.4) (21%) (��106.2) (��138.9) (24%) Net interest margin 1.40% 1.22% 18bps 1.51% 1.28% 23bps Underlying EPS (144.0p) (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 �� in millions 31 December 2021 31 December 2020 Change from FY 2020 30 June 2021 Change from H1 2021 Demand: current accounts ��7,318 ��6,218 18% ��6,749 8% Demand: savings accounts ��7,684 ��6,430 20% ��7,402 4% Fixed term: savings accounts ��1,446 ��3,424 (58%) ��2,469 (41%) Deposits from customers ��16,448 ��16,072 2% ��16,620 (1%) Retail customers (excl. retail partnerships) ��6,713 ��7,364 (9%) ��6,964 (4%) SMEs ��4,764 ��4,420 8% ��4,605 3% ��11,477 ��11,784 (3%) ��11,569 (1%) Retail partnerships ��1,814 ��1,596 14% ��1,697 7% Commercial customers (excluding SMEs4) ��3,157 ��2,692 17% ��3,354 (6%) ��4,971 ��4,288 16% ��5,051 (2%) 4. SME defined as enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding ���50 million, and/or an annual balance sheet total not exceeding ���43 million, and have aggregate deposits less than ���1 million. �� Total deposits grew by over ��370 million in the year to ��16,448 million as at 31 December 2021 (31 December 2020: ��16,072 million). Continued growth in current and savings accounts was offset by a ��2.0 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 �� in millions 31 December 2021 31 December 2020 Change from FY 2020 30 June 2021 Change from H1 2021 Gross Loans and advances to customers ��12,459 ��12,244 2% ��12,491 0% Less: allowance for impairment (��169) (��154) 10% (��166) 2% Net Loans and advances to customers ��12,290 ��12,090 2% ��12,325 0% Gross loans and advances to customers consists of: Commercial lending5 ��3,220 ��3,681 (13%) ��3,416 (6%) Government-backed lending6 ��1,626 ��1,467 11% ��1,556 4% Retail mortgages ��6,723 ��6,892 (2%) ��6,815 (1%) Consumer lending ��890 ��204 336% ��704 26% 5. Includes CLBILS. 6. BBLS, CBILS and RLS. �� Total net loans as at 31 December 2021 were ��12,290 million, up 2% from ��12,090 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 ��3,220 million as at 31 December 2021 (31 December 2020: ��3,681 million), as large transactional lending rolled off. �� Government-backed lending increased by more than ��150 million in the year to ��1,626 million as at 31 December 2021 (31 December 2020: ��1,467 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 ��50 million per month compared to less than ��2 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 ��295.7 million (2020: ��250.3 million), despite the mortgage portfolio disposal in H2 2020. �� Underlying net fee and other income increased 18% to ��101.5 million (2020: ��86.3 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 ��546.8 million (2020: ��486.0 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 ��171.3 million, a 37% reduction from the ��271.8 million loss in 2020. �� Statutory loss before tax of ��245.1 million in 2021 (2020: loss of ��311.4 million) includes remediation costs of (��45.9 million), and impairment of RateSetter peer-to-peer technology and the exit of three stores (��24.7 million), partially offset by the residual gain on sale in respect of the mortgage portfolio (��8.1 million). The remediation costs include (��5.4 million) relating to settlement of the PRA investigation and a (��5.3 million) provision for the FCA investigation. �� Statutory loss after tax of ��248.2 million in 2021 (2020: loss of ��301.7 million) after a ��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, ��3,250 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 ��3.8bn, 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 ��64 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 ��7,454 million (31 December 2020: ��7,957 million). The reduction reflects changes to the lending mix and settlement of a receivable related to the mortgage portfolio sale9. 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 change 31-Dec 2021 30-Jun 2021 31-Dec 2020 ��'million ��'million ��'million Assets Loans and advances to customers 2% ��12,290 ��12,325 ��12,090 Treasury assets8 ��9,142 ��9,474 ��6,406 Assets classified as held for sale - - ��295 Other assets9 ��1,155 ��1,214 ��3,788 Total assets 0% ��22,587 ��23,013 ��22,579 Liabilities Deposits from customers 2% ��16,448 ��16,620 ��16,072 Deposits from central banks ��3,800 ��3,800 ��3,808 Debt securities ��588 ��596 ��600 Other liabilities ��716 ��850 ��810 Total liabilities 1% ��21,552 ��21,866 ��21,290 Total shareholder's equity ��1,035 ��1,147 ��1,289 Total equity and liabilities ��22,587 ��23,013 ��22,579 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 ��2.6 billion receivable from NatWest. This was received post year-end upon the completion of the transaction. Year ended Profit & Loss Account YoY change 31-Dec 2021 31-Dec 2020 ��'million ��'million Underlying net interest income 18% ��295.7 ��250.3 Underlying net fee and other income 18% ��101.5 ��86.3 Underlying net gains/(losses) on sale of assets ��0.7 ��4.3 Total underlying revenue 17% ��397.9 ��340.9 'Run the Bank' costs 12% (��435.5) (��390.4) 'Change the Bank' costs10 (��111.3) (��95.6) Total underlying costs 13% (��546.8) (��486.0) Expected credit loss expense (��22.4) (��126.7) Underlying loss before tax (37%) (��171.3) (��271.8) Listing Share Awards - ��0.2 Impairment and write-off of property plant & equipment and intangible assets (��24.9) (��40.6) Transformation costs (��8.9) (��16.7) Remediation costs (��45.9) (��40.8) Business acquisition and integration costs (��2.4) (��5.4) Gain on mortgage portfolio sale (net of costs) ��8.3 ��63.7 Statutory loss before tax (21%) (��245.1) (��311.4) Statutory taxation (��3.1) ��9.7 Statutory loss after tax (18%) (��248.2) (��301.7) Year ended Key metrics 31-Dec 2021 31-Dec 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 2021 30-Jun 2021 31-Dec 2020 ��'million ��'million ��'million Underlying net interest income 21% ��162.1 ��133.6 ��134.1 Underlying net fee and other income ��54.8 ��46.7 ��50.2 Underlying net gains/(losses) on sale of assets ��1.2 (��0.5) ��3.3 Total underlying revenue 21% ��218.1 ��179.8 ��187.6 'Run the Bank' costs (��220.6) (��214.9) (��206.3) 'Change the Bank' costs10 (��51.6) (��60.3) (��55.0) Total underlying costs (1%) (��271.6) (��275.2) (��261.3) Expected credit loss expense (��7.8) (��14.6) (��14.7) Underlying loss before tax (44%) (��61.3) (��110.0) (��88.4) Listing Share Awards - - ��0.4 Impairment and write-off of property plant & equipment and intangible assets (��17.4) (��7.5) (��14.0) Net BCR costs ��0.3 (��0.3) - Transformation costs (��7.1) (��1.8) (��4.3) Remediation costs (��20.5) (��25.4) (��23.0) Business acquisition and integration costs (��0.1) (��2.3) (��5.4) Gain on mortgage portfolio sale (net of costs) (��0.1) ��8.4 ��63.7 Statutory loss before tax (24%) (��106.2) (��138.9) (��71.0) Statutory taxation (��0.9) (��2.2) ��8.6 Statutory loss after tax (24%) (��107.1) (��141.1) (��62.4) Half year ended Key metrics 31-Dec 2021 30-Jun 2021 31-Dec 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 [email protected] Metro Bank PLC Media Relations Tina Coates / Mona Patel +44 (0) 7811 246016 / +44 (0) 7815 506845 [email protected] Teneo Charles Armitstead / Haya Herbert Burns +44 (0)7703 330269 / +44 (0) 7342 031051 [email protected] ENDS 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 ��245.1 million, an improvement on last year's loss (2020: loss of ��311.4 million). Underlying loss before tax reduced by 37% to ��171.3 million, and second half underlying loss of ��61.3 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 ��3.1 billion mortgage portfolio disposal in December 2020, the underlying momentum in the business is even clearer. 2021 ��'million 2020 ��'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 ��245.1 million, down from the ��311.4 million loss recognised in 2020, with the decrease primarily due to the ��104.3 million lower charge for expected credit losses. We entered 2021 well positioned for the prevailing economic climate, with the recently signed ��3.1 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 ��377 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 ��171.3 million was down 37% compared to the prior year (2020: ��271.8 million), driven by lower expected credit losses and positive operating jaws. Operating expenses increased 13% year-on-year and income increased 17%, despite ��63 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 ��22.4 million for the period which is a significant improvement on the prior year (2020: ��126.7 million). 2021 ��million 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 ��295.7 million (2020: ��250.3 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 ��546.8 million from ��486.0 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 ��641.2 million compared to ��617.3 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 ��80.2 million (2020: ��74.4 million). 2021 ��'million 2020 ��'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 ��45.9 million recognised in the period (2020: ��40.8 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 78th 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 ��73.9 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 ��22.4 million (2020: ��126.7 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 Customer deposits 2021 ��'million 2020 ��'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 ��16,448 million at 31 December 2021 (31 December 2020: ��16,072 million). The increase was primarily driven by commercial and SME customers which were up 17% and 8% respectively from the start of the year. Customer deposits 2021 ��'million 2020 ��'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 ��'billion 2020 ��'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 ��12,290 million, up 2% from ��12,090 million at 31 December 2020. The ��200 million increase has been driven by a ��686 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 ��337 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 ��169 million to ��6,723 million at 31 December 2021 from ��6,892 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 ��302 million reduction from ��5,148 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 ��152.5 million (2020: ��132.9 million), which comprised ��91.6 million (2020: ��86.5 million) of taxes we paid and a further ��60.9 million (2020: ��46.4 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 ��91.6m ��86.5m 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 ��60.9m ��46.4m In 2021 our tax expense recognised in the income statement was ��3.1 million (2020: credit of ��9.7 million). Capital and liquidity 2021 ��'million 2020 ��'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 ��7,454 million (31 December 2020: ��7,957 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 Risk stable The continued tightening of the regulatory 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 and funding risk Risk stable Liquidity and funding risk remained low through the year, with prudent liquidity 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 Risk stable There have continued to be significant 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 crime risk Risk stable Financial crime risk has decreased residually 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 Risk stable Operational risk has remained largely 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 Risk stable Regulatory risk remains unchanged and 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 Risk stable Conduct risk remains unchanged but elevated, 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 Notes Year ended 31 December 2021 ��'million Year ended 31 December 2020 ��'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 Notes 31 December 2021 ��'million 31 December 2020 ��'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 capital ��'million Share premium ��'million Retained losses ��'million FVOCI reserve ��'million Share option reserve ��'million Total equity ��'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 Notes Year ended 31 December 2021 ��'million Year ended 31 December 2020 ��'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 ��'million 2020 ��'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 ��'million 2020 ��'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 ��'million 2020 ��'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: 2021 ��'million Effective tax rate % 2020 ��'million Effective tax rate % 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: Unused tax losses ��'million Investment securities and impairments ��'million Share-based payments ��'million Property, plant and equipment ��'million Intangible assets ��'million Total ��'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) Unused tax losses ��'million Investment securities and impairments ��'million Share-based payments ��'million Property, plant and equipment ��'million Intangible assets ��'million Total ��'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 profit and loss ��'million Fair value through other comprehensive income ��'million Amortised cost ��'million Total fair value ��'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 profit and loss ��'million Fair value through other comprehensive income ��'million Amortised cost ��'million Total fair value ��'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 amount ��'million ECL allowance ��'million Net carrying amount ��'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 amount ��'million ECL allowance ��'million Net carrying amount ��'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 2021 ��'million 31 December 2020 ��'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 scheme1 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 ��66 million acquired from third parties under forward flow arrangements (31 December 2020: ��nil) 6. Investment securities 31 December 2021 ��'million 31 December 2020 ��'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 2021 ��'million 31 December 2020 ��'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 2021 ��'million 31 December 2020 ��'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 Investment property ��'million Leasehold improvements ��'million Freehold land and buildings ��'million Fixtures, fittings and equipment ��'million IT hardware ��'million Right of use assets relating to leased stores and offices ��'million Total ��'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 Investment property ��'million Leasehold improvements ��'million Freehold land and buildings ��'million Fixtures, fittings and equipment ��'million IT hardware ��'million Right of use assets relating to leased stores and offices ��'million Total ��'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 ��'million Brand ��'million Software ��'million Total ��'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 ��'million Brand ��'million Software ��'million Total ��'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 ��'million 2020 ��'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 ��6 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 ��0.7 million (year ended 31 December 2020: ��0.2 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 ��0.1 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 2021 ��'million 31 December 2020 ��'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 remediation ��'million Dilapidations ��'million Onerous contracts ��'million Legal and regulatory ��'million Other ��'million Total ��'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 remediation ��'million Dilapidations ��'million Onerous contracts ��'million Legal and regulatory ��'million Other ��'million Total ��'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 ��2 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 ��5 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 ��13 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 ��172.42 (31 December 2019: ��172.42). 2021 ��'million 2020 ��'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 ��'million 2020 ��'million 31 December 1,964 1,964 12. Credit Risk Credit risk concentration Retail mortgage lending by DTV banding 31 December 2021 ��'million 31 December 2020 ��'million Retail owner occupied Retail buy-to-let Total retail mortgages Retail owner occupied Retail buy-to-let Total retail 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 ��'million 31 December 2020 ��'million Retail owner occupied Retail buy-to-let Total retail mortgages Retail owner occupied Retail buy-to-let Total retail 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 ��'million 31 December 2020 ��'million Retail owner occupied Retail buy-to-let Total retail mortgages Retail owner occupied Retail buy-to-let Total retail 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 ��'million 31 December 2020 ��'million Professional buy-to-let Other term loans Total commercial term loans Professional buy-to-let Other term loans Total commercial 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 ��'million 31 December 2020 ��'million Professional buy-to-let Other term loans Total commercial term loans Professional buy-to-let Other term loans Total commercial 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 ��'million 31 December 2020 ��'million Professional buy-to-let Other term loans Total commercial term loans Professional buy-to-let Other term loans Total commercial 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 ��'million 31 December 2020 ��'million Professional buy-to-let Other term loans Total commercial term loans Professional buy-to-let Other term loans Total commercial 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 ��' million 31 December 2020 ��' million Stage 1 12 month ECL Stage 2 Lifetime ECL Stage 3 Lifetime ECL POCI Lifetime ECL Stage 1 12 month ECL Stage 2 Lifetime ECL Stage 3 Lifetime ECL POCI 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 ��' million 31 December 2020 ��' million Stage 1 12 month ECL Stage 2 Lifetime ECL Stage 3 Lifetime ECL POCI Lifetime ECL Stage 1 12 month ECL Stage 2 Lifetime ECL Stage 3 Lifetime ECL POCI 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 ��' million 31 December 2020 ��' million Stage 1 12 month ECL Stage 2 Lifetime ECL Stage 3 Lifetime ECL POCI Lifetime ECL Stage 1 12 month ECL Stage 2 Lifetime ECL Stage 3 Lifetime ECL POCI 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 ��'million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 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�� 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�� - - - - - 7 (1) - - 6 7 (1) - - 6 New lending�� 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 sale4 - - - - - - - - - - - - - - - Derecognitions5 (1,002) (122) (22) - (1,146) 1 1 1 - 3 (1,001) (121) (21) - (1,143) Changes to model assumptions6 - - - - - 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 ��'million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 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�� 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�� - - - - - 1 (8) (1) - (8) 1 (8) (1) - (8) New lending�� 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 sale4 (289) (7) - - (296) 1 - - - 1 (288) (7) - - (295) Derecognitions5 (3,569) (101) (10) - (3,680) 3 1 1 - 5 (3,566) (100) (9) - (3,675) Changes to model assumptions6 - - - - - (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 ��'million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 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 ��'million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 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 ��'million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 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 ��'million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 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 Carrying value ��'million Quoted market price Level 1 ��'million Using observable inputs Level 2 ��'million With significant unobservable inputs Level 3 ��'million Total fair value ��'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 Carrying value ��'million Quoted market price Level 1 ��'million Using observable inputs Level 2 ��'million With significant unobservable inputs Level 3 ��'million Total fair value ��'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 (��'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 (��'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 ��'million 2020 ��'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 ��'million 2020 ��'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 (��'000) 30 34 There were three (31 December 2020: three) loans outstanding at 31 December 2021 totalling ��3.2 million (31 December 2020: ��1.9 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 ��'000 2020 ��'000 Credit cards outstanding as at 31 December 5 22 Deposit balances outstanding at 31 December were as follows 2021 ��'million 2020 ��'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 Year ended 31 December 2020 Statutory basis ��'million Listing Share Awards ��'million Impairment and write-off of property, plant, equipment and intangible assets ��'million C&I fund costs ��'million Transformation costs ��'million Remediation costs ��'million Business acquisition and integration costs ��'million Mortgage portfolio sale ��'million Underlying basis ��'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) Year ended 31 December 2020 Statutory basis ��'million Listing Share Awards ��'million Impairment and write-off of property, plant, equipment and intangible assets ��'million C&I fund costs ��'million Transformation costs ��'million Remediation costs ��'million Business acquisition and integration costs ��'million Mortgage portfolio sale ��'million Underlying basis ��'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 2021 ��'million 31 December 2020 ��'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 2021 ��'million 31 December 2020 ��'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 2021 ��'million 31 December 2020 ��'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. 31 December 2021 ��'million 31 December 2020 ��'million Pillar 1 capital required 31 December 2021 ��'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 approach Exposure Value ��'million RWA ��'million Capital Required ��'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 Exposures subject to the standardised approach Exposure Value ��'million RWA ��'million Capital Required ��'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 2021 ��'million 31 December 2020 ��'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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