METRO BANK PLC

Regulatory Filings • Mar 7, 2016

This document (the "Prospectus") comprises a prospectus relating to Metro Bank PLC (the "Company" or Metro Bank) prepared in accordance with the Prospectus Rules of the Financial Conduct Authority (the "FCA") made under section 73A of the Financial Services and Markets Act 2000 (as amended) (the "FSMA"). This Prospectus has been approved by the FCA in accordance with section 87A of FSMA and has been made available to the public in accordance with Section 3.2 of the Prospectus Rules.

Application has been made to the FCA in its capacity as competent authority under the FSMA (the "UK Listing Authority") for all of the ordinary shares in the Company (the "Shares") issued and to be issued to be admitted to the premium segment of the Official List of the FCA (the "Official List") and to trading on the main market for listed securities of the London Stock Exchange plc (the "London Stock Exchange") for listed securities (together "Admission"). Admission to trading on the London Stock Exchange's main market for listed securities constitutes admission to trading on a regulated market. Conditional dealings in the Shares are expected to commence on the London Stock Exchange on 7 March 2016. It is expected that Admission will become effective, and that unconditional dealings in the Shares will commence, on 10 March 2016. All dealings before the commencement of unconditional dealings will be of no effect if Admission does not take place and such dealings will be at the sole risk of the parties concerned. No application is currently intended to be made for the Shares to be admitted to listing or trading on any other exchange.

The directors of the Company, whose names appear on page 97 of this Prospectus (the "Directors"), and the Company accept responsibility for the information contained in this Prospectus. To the best of the knowledge of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and contains no omission likely to affect the import of such information.

You should read the entire Prospectus and, in particular, the factors described in Part II: "Risk Factors".

(incorporated under the Companies Act 2006 and registered in England and Wales with registered number 6419578)

Prospectus

Admission to the premium listing segment of the Official List and to trading on the main market for listed securities of the London Stock Exchange

Sponsor

RBC Capital Markets

Issued and fully paid ordinary share capital immediately following Admission

Number 80,260,640 Nominal Value per Share 0.0001p

RBC Europe Limited (trading as RBC Capital Markets) ("RBC") has been appointed as sponsor (the "Sponsor") and Moelis & Company UK LLP ("Moelis & Company") has been appointed as an adviser (the "Adviser"). RBC is authorised by the PRA and regulated in the UK by the PRA and the FCA. RBC and Moelis & Company are each acting exclusively for the Company and no one else in connection with Admission and they will not regard any other person (whether or not a recipient of this Prospectus) as a client in relation to Admission and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients nor for giving advice in relation to Admission or any transaction or arrangement referred to in this Prospectus.

The Sponsor and the Adviser and any of their respective affiliates may have engaged in transactions with, and provided various investment banking, financial advisory and other services for, the Company for which they would have received customary fees and may also do so in the future.

Recipients of this Prospectus are authorised solely to use it for the purpose of considering an investment in Shares and may not reproduce or distribute this Prospectus, in whole or in part, and may not disclose any of the contents of this Prospectus or use any information herein for any purpose other than considering an investment in the Shares. Such recipients of this Prospectus agree to the foregoing by accepting delivery of this Prospectus.

This Prospectus does not constitute an offer to sell or an invitation to subscribe for, or the solicitation of an offer to buy or to subscribe for, any Shares to any person in any jurisdiction.

Apart from RBC's responsibility as the Sponsor under the FSMA, neither RBC nor Moelis & Company accepts any responsibility whatsoever for, or makes any representation or warranty, express or implied, as to the contents of this document, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Shares or Admission and nothing in this Prospectus will be relied upon as a promise or representation in this respect, whether or not to the past or future. RBC and Moelis & Company accordingly disclaim all and any responsibility or liability, whether arising in tort, contract or otherwise (save as referred to above), which it might otherwise have in respect of this Prospectus or any such statement.

None of the U.S. Securities and Exchange Commission, any other U.S. federal or state securities commission or any U.S. regulatory authority has approved or disapproved of the Shares nor have such authorities reviewed or passed upon the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence.

Prior to making any decision as to whether to invest in Shares, prospective investors should read this Prospectus in its entirety. In making an investment decision, a prospective investor must rely upon his or her own examination, analysis and enquiries of the Company and the terms of this Prospectus, including the merits and risks involved.

The distribution of this Prospectus in certain jurisdictions may be restricted by law. No action has been or will be taken by the Company, the Sponsor or the Adviser to permit a public offering of the Shares or to permit the possession, issue or distribution of this Prospectus in any jurisdiction where action for that purpose may be required. Accordingly, neither this Prospectus nor any advertisement nor any offering material may be distributed or published in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Prospectus comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

In particular, no actions have been taken to allow a public offering of the Shares under the applicable securities laws of any jurisdiction, including Australia, Canada, Japan or South Africa. Subject to certain exceptions, the Shares may not be offered or sold in any jurisdiction, or to or for the account or benefit of any national, resident or citizen of any jurisdiction, including Australia, Canada, Japan or South Africa.

The Shares have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended, (the "Securities Act"), and may not be offered or sold in the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Shares have not been approved or disapproved by the U.S. Securities and Exchange Commission or other any U.S. federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this Prospectus. Any representation to the contrary is a criminal offence in the United States. There will be no public offering of the Shares in the United States.

Dated 7 March 2016.

TABLE OF CONTENTS

	Page
PART I SUMMARY INFORMATION 5
PART II RISK FACTORS 17
PART III PRESENTATION OF INFORMATION ON THE GROUP 35
PART IV DIRECTORS, SECRETARY, REGISTERED AND HEAD OFFICE AND ADVISERS 39
PART V EXPECTED TIMETABLE OF PRINCIPAL EVENTS 41
PART VI INDUSTRY OVERVIEW42
PART VII INFORMATION ON METRO BANK 70
PART VIII DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE 97
PART IX SUPERVISION AND REGULATION 104
PART X SELECTED FINANCIAL INFORMATION 121
PART XI OPERATING AND FINANCIAL REVIEW 124
PART XII SELECTED STATISTICAL INFORMATION 145
PART XIII RISK MANAGEMENT 149
PART XIV CAPITALISATION AND INDEBTEDNESS STATEMENT 160
PART XV HISTORICAL FINANCIAL INFORMATION 161
PART XVI A: UNAUDITED PRO FORMA FINANCIAL INFORMATION 218
PART XVI B: UNAUDITED PRO FORMA STATEMENT OF NET ASSETS 221
PART XVII TAXATION 223
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS 227
PART XVIII ADDITIONAL INFORMATION 232
PART XIX DEFINITIONS 255

PART I SUMMARY INFORMATION

Section A – Introduction and warnings

Summaries are made up of disclosure requirements known as "Elements". These Elements are numbered in Sections A to E (A.1 to E.7).

This summary contains all the Elements required to be included in a summary for this type of securities and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements.

Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case, a short description of the Element is included in the summary with the mention of "not applicable".

Annex and Element		Disclosure requirement
A.1	Introduction and warnings	This summary should be read as an introduction to this Prospectus. Any decision to invest in the Shares should be based on consideration of this Prospectus as a whole by the investor. Where a claim relating to the information contained in this Prospectus is brought before a court, the plaintiff investor might, under the national legislation of the Member States, have to bear the costs of translating this Prospectus before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary, including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus, or it does not provide, when read together with the other parts of this Prospectus, key information in order to aid investors when considering whether to invest in such securities.
A.2	Subsequent resale of securities or final placement of securities through financial intermediaries	Not applicable. The Company is not engaging any financial intermediaries for any resale of securities or final placement of securities after publication of this Prospectus.

Section B – Company and any guarantor

Annex and Element		Disclosure requirement
B.1	Legal and	Metro Bank PLC.
	commercial name
B.2	Domicile and legal	The Company is a public limited company, incorporated in England and Wales
	form of the with registration number 6419578 and its registered office situated in England
	Company	and Wales. The Company operates under the Companies Act 2006.

	Annex and Element	Disclosure requirement
B.3	Operations and principal activities	Metro Bank is a deposit-taking and lending institution with a focus on retail and small and medium-size commercial customers in London and the surrounding commuter areas.
B.4 a	Significant recent trends	and approximately 9,000 customer accounts as of 31 December 2010 to 40 stores and approximately 655,000 customer accounts as of 31 December 2015. Metro Bank's increasing pace of store expansion, with nine in 2015, is matched by increasing rates of customer account growth, with 54,000 net customer accounts added in the fourth quarter of 2015. Metro Bank has also grown account balances; as of 31 December 2013, 2014 and 2015, the average balance of Metro Bank's Commercial Segment deposits was £27,977, £31,529 and £40,407, respectively. As of the same dates, the average balance of Metro Bank's Retail Segment deposits was £2,610, £2,939 and £3,510, respectively. As a result, Metro Bank had £5,108 million in customer deposits as of 31 December 2015, representing 78% growth year-on-year and a record quarterly growth rate of 16%. Metro Bank's total gross loans and advances to customers has also grown significantly, from £754 million as of 31 December 2013 to £3,549 million as of 31 December 2015. Metro Bank's brand and reputation has also strengthened, both through recommendations and public recognition from industry, consumer advocacy and other community groups. For example, in 2015, Metro Bank was voted number one in customer service in a survey conducted by Fairer Finance. In addition, Metro Bank has also attracted international recognition for its commitment to providing its customers with unparalleled levels of service and convenience, winning the Best Branch Strategy award from the Retail Banker International for 2015. Metro Bank also received as a Microsoft "Visionary" award for innovative use of technology in 2015. Through engagement with customers in store and in the local community, Metro Bank has additionally achieved an average Net Promoter Score (a recognised market-standard marketing benchmark that gauges customer loyalty) of 80% throughout 2015, improving from 75% in 2014.
B.5	Group description	The Company is the operating company of the Group. The Company is a UK deposit-taking institution which is authorised by the PRA and regulated by the FCA and the PRA.
B.6	Major shareholders	As of the date of this Prospectus, insofar as is known to the Company, the following will, on Admission, be directly or indirectly interested in 3% or more of the Company's share capital:
		Shareholder	Number of Shares	Percentage holding as of Admission
		CPV Metro Investment, LLC	7,913,282	9.86%
		Wellington Funds	7,528,085	9.38%
		Fidelity Funds(1)	6,850,054	8.53%
		Vernon W. Hill, II and related parties	4,753,052	5.92%

		Disclosure requirement
		Shareholder	Number of Shares		Percentage holding as of Admission
		Abgrandkids LLC		4,583,027	5.71%
		Tom Smith and connected parties		4,318,172	5.38%
		Brave Warrior and connected parties		4,111,358	5.12%
		Toll Family(2)		3,095,786	3.86%
		Willett Advisors and connected parties		2,793,958	3.48%
		(1) Shares held by BBHISL:N ominees Limited (2) Comprises two holdings: Bruce Toll and Robert Toll Save as disclosed above, the Company is not aware of any person who, as of the date of this Prospectus, directly or indirectly has a holding which exceeds 3% of the Company's share capital. All Shares have the same voting rights.
B.7	Key financial	Consolidated Statement of Comprehensive Income
	information	The table below sets out the consolidated statement of comprehensive income of Metro Bank for the years ended 31 December 2013, 2014 and 2015.		Year ended 31
				December
			2015	2014	2013
				(£'000)
		Interest income	125,199	74,049	29,461
		Interest expense	(36,326)	(20,621)	(11,515)
		Net interest income	88,873	53,428	17,946
		Fee and commission income	15,713	12,055	3,777
		Net gains on sale of investment securities	6,377	5,122	6,508
		Other income	9,237	4,842	3,303
			120,200	75,447	31,534
		Operating expenses	(141,563)	(107,940)	(75,652)
		Depreciation and amortisation	(18,195)	(14,221)	(10,292)
		Fees associated with listing	(1,465)	—	—
		Impairment of property, plant & equipment and intangible assets	(8,744)	—	—
		Total operating expenses	(169,967)	(122,161)	(85,944)
		Credit impairment charges	(7,030)	(2,157)	(1,026)
		Loss before tax	(56,797)	(48,871)	(55,436)
		Taxation	7,600	7,759	9,000

Annex and Element	Disclosure requirement
			Year ended 31
			December
		2015	2014 (£'000)	2013
	Other comprehensive
	(expense)/ income for the year
	Items which will be reclassified
	subsequently to profit or loss where specific conditions are
	met:
	Available for sale investments (net of tax):
	- fair value (losses)/ gains	(1,327)	8,328	(9,583)
	- fair value gains transferred to
	the income statement on disposal	(6,377)	(5,122)	(6,508)
	Total other comprehensive (expense)/ income	(7,704)	3,206	(16,091)
	Total comprehensive loss for
	the year	(56,901)	(37,906)	(62,527)
	Loss per share
	Basic loss per share (pence)	83	70	158
	Diluted loss per share (pence)	83	70	158
	Consolidated balance sheet
	The table below sets out the consolidated balance sheet of Metro Bank as at 31
	December 2015, 2014 and 2013.
			Year ended 31
			December
		2015	2014	2013
			(£'000)
	Assets
	Cash and balances with the Bank
	of England	217,900	180,630	238,979
	Loans and advances to banks	64,248	35,040	24,205
	Loans and advances to customers	3,542,548	1,590,346	751,058
	Available for-sale investment securities	363,807	1,304,410	696,434
	Held to-maturity investment securities	1,635,985	307,041	—
	Property, plant and equipment	165,257	132,195	103,286
	Intangible assets	54,243	34,669	23,830
	Prepayments and accrued income	30,456	18,883	8,553
	Deferred tax asset	53,053	43,645	35,885
	Other assets	20,525	13,661	7,263

Annex and Element	Disclosure requirement
	Total assets	6,148,022	3,660,520	1,889,493
	Liabilities
	Deposits from customers	5,107,656	2,866,631	1,315,389
	Repurchase agreements	561,778	282,544	143,816
	Other liabilities	71,413	48,944	29,720
	Total liabilities	5,740,847	3,198,119	1,488,925
	Equity
	Called up share capital	—	—	—
	Share premium account	629,304	629,304	530,463
	Retained earnings	(213,440)	(164,243)	(123,131)
	Other reserves	(8,689)	(2,660)	(6,764)
	Total equity	407,175	462,401	400,568
	Total equity and liabilities	6,148,022	3,660,520	1,889,493
	The table below sets out extracts from the consolidated statement of cash flows of Metro Bank for the years ended 31 December 2015, 2014 and 2013.		Year ended 31 December
		2015	2014	2013
			(£'000)
	Net cash inflows from operating activities	546,036	810,211	248,502
	Net cash outflows from investing activities	(479,558)	(956,566)	(343,734)
	Net cash inflows from financing activities	—	98,841	284,308
	Net increase/ (decrease) in cash and cash equivalents	66,478	(47,514)	189,076
	Cash and cash equivalents at end of year	282,148	215,670	263,184
	The summary below presents certain significant changes in Metro Bank's financial condition and results of operations during the years ended 31 December 2015, 2014 and 2013. Metro Bank's net interest income for the year ended 31 December 2014 increased by £35.4 million, or 198%, from £17.9 million for the year ended 31 December 2013 to £53.4 million for the year ended 31 December 2014. The increase in net interest income was primarily due to an increase in interest income from loans and advances to customers. Metro Bank's net interest income for the year ended 31 December 2015 increased by £35.5 million, or 66%, from £53.4 million for the year ended 31 December 2014 to £88.9 million for the year ended 31 December 2015. The

Annex and Element	Disclosure requirement
	increase in net interest income was primarily due to an increase in loans and
	advances to customers and an increased LTD ratio.
	Metro Bank's fee and commission income for the year ended 31 December 2014 increased by £8.3 million, or 219%, from £3.8 million for the year ended 31 December 2013 to £12.1 million for the year ended 31 December 2014. The increase in fee and commission income was primarily due to an increase in customer numbers leading to an increase in transaction volumes and increased safe deposit box rentals.
	Metro Bank's fee and commission income for the year ended 31 December 2015 increased by £3.7 million, or 30%, from £12.1 million for the year ended 31 December 2014 to £15.7 million for the year ended 31 December 2015. The increase in fee and commission income was primarily due to the increase in transaction and other fees from customers and higher fee income from sales of safe deposit boxes.
	Metro Bank's net gains on sale of investment securities for the year ended 31 December 2014 decreased by £1.4 million, or 21%, from £6.5 million for the year ended 31 December 2013 to £5.1 million for the year ended 31 December 2014. The decrease in net gains on sale of investment securities was primarily due to a re-positioning of the portfolio, which resulted in a lower amount of sales of investment securities.
	Metro Bank's net gains on sale of investment securities for the year ended 31 December 2015 increased by £1.3 million, or 25%, from £5.1 million for the year ended 31 December 2014 to £6.4 million for the year ended 31 December 2015. The increase in net gains on sale of investment securities was primarily due to the periodic realignment of the investment portfolio.
	Metro Bank's operating expenses for the year ended 31 December 2014 increased by £32.3 million, or 43%, from £75.7 million for the year ended 31 December 2013 to £107.9 million for the year ended 31 December 2014. The increase in operating expenses was primarily due to the increased number of stores; higher numbers of customer-facing colleagues, including contact centre colleagues, private banking and lending relationship officers; and continued investment in customer delivery, as well as an increase in headcount of non store colleagues.
	Metro Bank's operating expenses for the year ended 31 December 2015 increased by £33.6 million, or 31%, from £107.9 million for the year ended 31 December 2014 to £141.6 million for the year ended 31 December 2015. The increase in operating expenses was primarily due to the continued expansion of the store network, investment in IT infrastructure and digitisation of Metro Bank and the increase in the number of customer facing colleagues in the lending, private banking and contact centre teams.
	Metro Bank had no cash inflows from financing activities in 2015. Net cash inflows from financing activities decreased by £185.5 million from £284.3 million in 2013 to £98.8 million in 2014. This decrease was primarily due to lower inflows from share issues, net of costs.
	There has been no significant change in the financial or trading position of

	Annex and Element	Disclosure requirement
		Metro Bank since 31 December 2015, the date to which the last audited
		consolidated interim accounts of Metro Bank PLC were prepared.
B.8	Key pro forma financial information	The unaudited pro forma statement of net assets set out below has been prepared to illustrate the effect of the Private Placement on Metro Bank's net assets as if the Private Placement had taken place on 31 December 2015. This unaudited pro forma statement of net assets has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and, therefore, does not represent Metro Bank's actual financial position or results. The unaudited pro forma statement of net assets is compiled on the basis set out below from the IFRS consolidated balance sheet of the Company as at 31 December 2015. It may not, therefore, give a true picture of the Company's financial position or results, nor is it indicative of the results that may, or may not, be expected to be achieved in the future. The pro forma financial information has been prepared on the basis set out in the notes below and in accordance with Annex II to the Prospectus Directive Regulation.
			Group as at 31 December 2015	Adjustment Net proceeds from Private Placement	Pro Forma Group
				£m
		Assets	(Note 1)	(Note 2)
		Cash and balances with the Bank of England	218	394	612
		Loans and advances to banks	64	—	64
		Loans and advances to customers	3,543	—	3,543
		Available for sale investment securities	364	—	364
		Held to maturity investment securities	1,636	—	1,636
		Property, plant and equipment	165	—	165
		Intangible assets	54	—	54
		Prepayment and accrued income	30	(3)	27
		Deferred tax asset	53	—	53
		Other assets	21	—	21
		Total assets	6,148	391	6,539

Annex and Element	Disclosure requirement
	Liabilities
	Deposits from customers	5,108	—	5,108
	Repurchase agreements	562	—	562
	Other liabilities	71	(3)	68
	Total liabilities	5,741	(3)	5,738
	Net assets	407	394	801
	Common Equity Tier 1 resources (Note 3)	300		694
	Common Equity Tier 1 ratio (Note 3)	13.3%		30.7%
	Leverage ratio (Note 3)	4.9%		10.6%
	Notes 1. 2. Placement comprising: Gross Proceeds from the Private Placement Less: Transaction Costs Plus Transaction Costs paid as at 31 December 2015 Net Proceeds from the Private Placement December 2015. 3. weighted assets.	The Group financial information as at 31 December 2015 has been extracted, without material adjustment, from the Group financial information in Part XV. The adjustment reflects the receipt by the Company of net proceeds from the Private This adjustment also reflects both the accrued transaction costs of £3 million and prepaid issue costs of £3 million unwinding based on the transaction taking place on 31 The common equity tier 1 ratio is the total common equity tier 1 resources to risk Common equity tier 1 resources are set out below on both an unadjusted and on a pro forma basis. Risk weighted assets as at 31 December 2015 are £2,261 million. Risk weighted assets are unaffected by the pro forma adjustments as the cash deposits are assumed to have a zero risk weighting. The leverage ratio is the ratio of total common equity tier 1 resources to total exposures. Common equity tier 1 resources are set out below on both an unadjusted and on a pro forma basis. Total Exposures, on an unadjusted basis and a pro forma basis are £6,147 million and £6,540 million respectively. The only adjustment being in respect to the net proceeds from the Private Placement set out in Note 2.		£400 million £(7) million £1 million £394 million

	Annex and Element	Disclosure requirement
	Common equity tier 1 resources are as follows:
				Adjustment
		Common Equity Tier 1	As of 31 December 2015	Net proceeds from the Private Placement	Pro forma Group
				(£m)
		Total Equity*	407	394	801
		less intangible assets	(54)	—	(54)
		less deferred tax asset	(53)	—	(53)
		Total Common Equity Tier 1	300	394	694
		* Total Equity includes share capital, share premium, retained earnings and other reserves. 4. No adjustment has been made to reflect to trading results of the Group since 31 December 2015.
B.9	Profit forecast or estimate	Not applicable. No profit forecast has been included in this Prospectus.
B.10	A description of the nature of any qualifications in the audit report on the historical financial information	Not applicable. There are no qualifications to the audit report on the historical financial information.
B.11	Explanation if there is insufficient working capital	In the opinion of the Company, taking into account the net proceeds receivable by the Company from the Private Placement, the working capital available to the Group is sufficient for the Group's present requirements, that is for the next 12 months following the date of this Prospectus.

Section C – Shares

Annex and Element		Disclosure requirement
C.1	Type and class of securities	When admitted to trading, the Shares will be registered with ISIN number GB00BZ6STL67 and SEDOL number BZ6STL6.
C.2	Currency of the issue of securities	The currency of the Shares is pounds sterling.
C.3	Issued share capital	Immediately prior to Admission there will be 80,260,640 Shares in issue. Each Share has a nominal value of 0.0001p.

	Annex and Element	Disclosure requirement
C.4	Description of the rights attaching to the securities	The Shares rank equally for voting purposes. On a show of hands, each Shareholder has one vote and on a poll each Shareholder has one vote per Share held. Each Share ranks equally for all dividends and distributions made.
C.5	Restrictions on the free transferability of the Shares	The Shares are freely transferable and there are no restrictions on transfer in the UK.
C.6	Admission	Application has been made to the FCA for the entire issued ordinary share capital of the Company to be admitted to the premium listing segment of the Official List of the FCA and to the London Stock Exchange for such Shares to be admitted to trading on the London Stock Exchange's main market for listed securities.
C.7	Dividends and dividend policy	As a growth company, the Company does not intend to pay a dividend in the near term.

Section D – Risks

Annex and Element		Disclosure requirement
D.1	Key information on the key risks that are specific to the Company	• Metro Bank is subject to risks arising from the global macroeconomic environment. Metro Bank's business is subject to inherent risks arising from macroeconomic conditions in the UK, the Eurozone and globally, both generally and as they specifically affect financial institutions.
	or its industry	• Metro Bank faces risks associated with interest rate levels and volatility. Interest rates, which are impacted by factors outside of Metro Bank's control, including the fiscal and monetary policies of governments and central banks, as well as UK and international political and economic conditions, affect Metro Bank's results, profitability and consequential return on capital in three principal areas: cost and availability of funding, margins and revenues, and impairment levels.
		• Metro Bank faces risks related to volatility in UK real estate. The value of Metro Bank's mortgage portfolio is influenced by UK house prices, and a significant portion of Metro Bank's revenue is derived from interest and fees paid on its mortgage portfolio.
		• Metro Bank is reliant on the success of its brand, and it is subject to reputational harm that could damage its brand. Metro Bank's success relies significantly on the strength of its brand. The Metro Bank brand is relatively new, and there can be no assurance that Metro Bank will be able to continue to successfully develop its brand's reach to grow its market share.
		• Metro Bank's business is subject to risks relating to the cost and availability of liquidity and funding. The availability of retail and commercial deposits, Metro Bank's primary source of funding, may be

Annex and Element		Disclosure requirement
		impacted by increased competition from other deposit-takers or factors that constrain the volume of liquidity in the market.
		• Metro Bank's risk management policies may not be effective. Metro Bank faces a wide range of risks in its core business activities, including credit risk and liquidity risk, conduct risk and interest rate risk. Metro Bank operates in a highly regulated industry that has come under increased regulatory scrutiny in recent years. Metro Bank, in common with other financial services firms, has in recent years faced increased levels of scrutiny from regulators in respect of the conduct of its business. Following the financial crisis, this scrutiny has been supplemented by additional powers intended to protect consumers and ensure redress.
		• Metro Bank is subject to prudential regulatory capital and liquidity requirements. The prudential regulatory capital and liquidity requirements applicable to banks have increased significantly over the last decade largely in response to the financial crisis but also as a result of continuing work undertaken by regulatory bodies in the financial sector subject to certain global and national mandates. The prudential requirements are likely to increase further in the short term, not least in connection with ongoing implementation and the possibility that further regulatory changes may be implemented in this area.
D.3 on the key risks to the Shares	Key information that are specific	• There has been no prior trading market for the Shares. • The value of the Shares may fluctuate significantly. • Shareholders may earn no return or lose money on their investment in Metro Bank.
		• Shareholders outside the United Kingdom may not be able to participate in future equity offerings.

Section E – Offer

	Annex and Element	Disclosure requirement
E.1	Net proceeds and costs of the offer	Not applicable. There is no offer of the Company's securities.
E.2a	Reasons for the offer and use of proceeds	Not applicable. There is no offer of the Company's securities.
E.3	Terms and conditions of the Offer	Not applicable. There is no offer of the Company's securities.
E.4	Material interests	Not applicable.
E.5	Selling Shareholder and details of lock up arrangements	Not applicable. There is no offer of the Company's securities and there are no selling shareholders.

Annex and Element		Disclosure requirement
E.6	Dilution	Not applicable. There is no offer of the Company's securities.
E.7	Estimated expenses charged to the investor	Not applicable. There are no commissions, fees or expenses to be charged to investors in connection with Admission.

PART II RISK FACTORS

Any investment in the Shares is subject to a number of risks. Prior to investing in the Shares, prospective investors should consider carefully the factors and risks associated with any investment in the Shares, Metro Bank's business and the industry in which it operates, together with all other information contained in this Prospectus, including, in particular, the risk factors described below. Prospective investors should note that the risks relating to Metro Bank, its industry and the Shares below are the risks that the Directors believe to be the most essential to an assessment by a prospective investor of whether to consider an investment in the Shares. However, the following is not an exhaustive list or explanation of all risks which investors may face when making an investment in the Shares and should be used as guidance only. Additional risks and uncertainties relating to Metro Bank that are not currently known to Metro Bank, or that it currently deems immaterial, may individually or cumulatively also have a material adverse effect on Metro Bank's business, prospects, results of operations and financial position and, if any of these risks should occur, the price of the Shares may decline and investors could lose all or part of their investment. Investors should consider carefully whether an investment in the Shares is suitable for them in the light of the information in this Prospectus and their personal circumstances.

Risks relating to the Macroeconomic Environment in which Metro Bank Operates

Metro Bank is subject to risks arising from the global macroeconomic environment

Metro Bank's business is subject to inherent risks arising from macroeconomic conditions in the UK, the Eurozone and globally, both generally and as they specifically affect financial institutions. As Metro Bank's revenue is derived almost entirely from customers based in the UK, Metro Bank is particularly exposed to the condition of the UK economy. During the global financial crisis that started in mid-2008, the UK economy experienced significant turbulence and periods of recession, adversely affecting, among other things, the state of the housing market, market interest rates, levels of unemployment, the cost and availability of credit and the liquidity of the financial markets. As Metro Bank opened its first store in 2010, it is not possible to assess the impact that the financial crisis would have had on its operations.

While economic indicators in the UK have improved considerably since the peak of the financial crisis, economic recovery remains sluggish and the outlook for the UK economy remains uncertain, with some forecasts predicting modest gross domestic product ("GDP") growth and continued low interest rates over the near to medium term. If UK economic conditions weaken, or if financial markets exhibit uncertainty or volatility, including, as a result of a downgrade in the credit rating of the UK Government or the outlook of the UK banking sector, Metro Bank's ability to grow its business could be materially adversely impacted.

In addition, deterioration in the economic conditions in the Eurozone and globally, including instability in financial markets, may pose a risk to Metro Bank's business, despite the fact that Metro Bank has no direct financial exposure outside of the UK. Furthermore, in recent years, the UK financial markets have been at times negatively impacted by a number of global macroeconomic events, including ongoing concerns surrounding the large sovereign debts and fiscal deficits of several countries in Europe, a weakening of the Chinese economy, the potential exit of member states from the European Monetary Union and a decline in global commodity prices such as crude oil. The effects of these events have been felt in the UK economy and by UK financial institutions in particular, and it has placed strains on funding markets at times when many financial institutions had material funding needs. Furthermore, given the interdependence between financial institutions, Metro Bank is and will continue to be subject to the risk of deterioration, or perceived deterioration, of the commercial and financial soundness of other financial services institutions, both in the UK and beyond. Within the financial services industry, the default of any institution could lead to defaults, liquidity problems and losses by other institutions, including Metro Bank.

As a High Street bank, Metro Bank's business performance is influenced in particular by the economic condition of its customers. With respect to its retail customer base, weak economic conditions in the UK could lead to higher levels of unemployment, which have historically resulted in a decrease in new mortgage borrowing and reduced or deferred levels of spending, as well as an increase in arrears, impairment provisions and defaults. Worsening economic and market conditions may also lead to lower levels of business investment in the UK, which could result in reduced demand for Metro Bank's products from its commercial customers, as well as a reduction in their deposits with Metro Bank, which could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank faces risks associated with interest rate levels and volatility

Interest rates, which are impacted by factors outside of Metro Bank's control, including the fiscal and monetary policies of governments and central banks, as well as UK and international political and economic conditions, affect Metro Bank's results, profitability and consequential return on capital in three principal areas: cost and availability of funding, margins and revenues, and impairment levels.

In recent years, the UK has experienced historically low, sustained interest rates. Low interest rates reduce incentives for consumers to save and, therefore, could reduce Metro Bank's customer deposits, its principal source of funding.

Increases in interest rates could also adversely affect Metro Bank. As of 31 December 2015, 68% of Metro Bank's deposits from customers were variable rate and instant access, and in an increasing interest rate environment, Metro Bank may be more exposed to re-pricing of its liabilities than competitors with higher levels of term deposits. In the event of sudden large or frequent increases in interest rates, Metro Bank also may not be able to re-price its floating rate assets and liabilities at the same time, giving rise to re-pricing gaps in the short term, which, in turn, can negatively affect its NIM and revenue.

Changes in interest rates also impact Metro Bank's loan impairment levels and customer affordability. As of 31 December 2015, 45% of Metro Bank's loans and advances to customers were variable rate. As a result, a rise in interest rates, without sufficient improvement in customer earnings or employment levels, could, for example, lead to an increase in default rates among customers with variable rate loans who can no longer afford their repayments, in turn leading to increased impairment charges and lower profitability for Metro Bank. A high interest rate environment also reduces demand for loan products generally, as individuals are less likely or less able to borrow when interest rates are high, thereby reducing Metro Bank's revenue. In addition, given that the majority of Metro Bank's loans and advances to customers are variable rate and repayable without penalty, there is a risk that a sudden rise in interest rates, or an expectation thereof, could encourage significant demand for fixed rate products. High levels of movement between products in a concentrated time period could put considerable strain on Metro Bank's business and operational capability, and Metro Bank may not be willing or able to price its fixed rate products as competitively as others in the market. This could lead to high levels of customer attrition and, consequently, a negative impact on Metro Bank's profitability.

In addition, changes in interest rates can affect Metro Bank's net interest income and margins. The Bank of England base rate has remained at 0.5% since March 2009, having fallen from 5.5% in December 2007. In the 30 years preceding December 2007, the lowest level of the base rate was 3.5%. This low interest rate environment has put pressure on NIMs throughout the UK banking industry. The sustained period of low interest rates has resulted in relatively low spreads being realised by Metro Bank between the rate it pays on customer deposits and the rate received on the loans and the structural hedges that Metro Bank enters into with respect to its equity and non-dated, interest rate insensitive liabilities, reducing Metro Bank's net interest income and NIM. Metro Bank's business and financial performance and net interest income and margin may continue to be adversely affected by the continued low interest rate environment.

The inability of Metro Bank to manage its exposure to interest rate volatility, whether through hedging, product pricing and maintenance of borrower credit quality or other means, could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank faces risks related to volatility in UK real estate

The value of Metro Bank's mortgage portfolio is influenced by UK house prices, and a significant portion of Metro Bank's revenue is derived from interest and fees paid on its mortgage portfolio. As of 31 December 2015, £2,156 million, or 61%, of Metro Bank's loans and advances to customers were mortgages. A decline in house prices in the UK could lead to a reduction in the recovery value of real estate assets held as collateral in the event of a customer default, and could lead to higher impairment provisions, which could reduce Metro Bank's capital and its ability to engage in lending and other income-generating activities. A significant increase in house prices over a short period of time could also have a negative impact on Metro Bank by reducing the affordability of homes for buyers, which could lead to a reduction in demand for new mortgages. Sustained volatility in house prices could also discourage potential homebuyers from committing to a purchase, thereby limiting Metro Bank's ability to grow its mortgage portfolio.

In addition, Metro Bank's mortgage portfolio, like its customer base, is concentrated in London and surrounding areas. Metro Bank has benefited from the fact that in London, prime residential property has been regarded as a preferred outlet for international capital, and residential property price growth has been largely sustained in recent years, in part due to continued growth in the buy-to-let market. Residential property prices in the South East of England generally also have been more resilient to macroeconomic pressures compared to other regions of the UK. However, there can be no assurance that real estate price growth will continue in these areas. The buy-to-let market in the UK is predominantly dependent upon yields from rental income to support mortgage interest payments and capital gains from capital appreciation. Falling or flat rental rates and decreasing capital values, whether coupled with higher mortgage interest rates or not, could reduce the potential returns from buy-to-let properties. In addition, the UK Government's 2015 summer budget (the "2015 Summer Budget") introduced proposals to reduce the tax relief on mortgage interest expense available to buy-to-let landlords, which may result in lower yields on buy-to-let property investments, and the Bank of England has also stated that it is considering increasing the regulatory capital requirements of banks holding buy-to-let mortgages on their balance sheets, although no specific proposals have been made. The UK Government also announced in the 2015 autumn budget statement (the "2015 Autumn Budget") that stamp duty payable on second homes and certain buy-to-let homes would increase by 3% from April 2016. These factors could make the purchase of buy-to-let properties and/or second homes a less viable investment proposition and reduce the demand for related mortgages.

The UK Government's intervention into the housing market, both directly through buyer assistance schemes and indirectly through the provision of liquidity to the banking sector under the Bank of England and HM Treasury's Funding for Lending scheme ("FLS"), may also contribute to volatility in house prices. This could occur; for example, as a result of the sudden end to buyer assistance schemes, which could lead to a decrease in house prices, or due to their continuation, which would maintain excess funding liquidity in the mortgage market which has supported a low mortgage interest rate environment, and which could lead to inflation in house prices. In addition, new rules promulgated by the FCA following the Mortgage Market Review ("MMR") that came into force in April 2014 may also negatively affect mortgage supply and demand. The future impact of these initiatives on the UK housing market and other regulatory changes or UK Government programmes, such as the implementation of the European Union Mortgage Credit Directive by March 2016, is difficult to predict. Volatility in the UK housing market occurring as a result of these changes, or for any other reason, could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

A UK exit from the European Union could impact Metro Bank's results

A referendum will be held in the UK on 23 June 2016 on whether the UK will remain in the EU, and Metro Bank faces risks associated with a vote to exit the EU. For example, because a significant proportion of the regulatory regime applicable to Metro Bank in the UK and anticipated regulatory reform is derived from EU directives and regulations, a vote in favour of the UK exiting the EU could materially change the legal framework applicable to Metro Bank's operations, including in relation to its regulatory capital requirements. In addition, a UK exit from the EU could result in restrictions on the movement of capital and the mobility of personnel. Any of these risks could result in higher operating costs and could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Risks relating to the Operation of Metro Bank's Business

Metro Bank is reliant on the success of its brand, and it is subject to reputational harm that could damage its brand

Metro Bank's success relies significantly on the strength of its brand. The Metro Bank brand is relatively new, and there can be no assurance that Metro Bank will be able to continue to successfully develop its brand's reach to grow its market share. This is particularly the case as Metro Bank's strategy has been, and is expected to continue to be, reliant on its direct distribution channels (comprising its highly visible, high-specification store environments, mobile and internet offerings, and local contact centres, together with its unique customer service proposition) to increase its brand awareness and foster deposit growth, rather than the more conventional (and costly) approach to media advertising and sponsorships adopted by other market participants.

In addition, the Directors believe that Metro Bank's brand is closely associated with the bank's values, which emphasise customer service, and which Metro Bank could be forced to compromise due to competitive pressures. Metro Bank's brand could also be damaged by reputational harm, which could arise by failing to address, or appearing to fail to address, a variety of issues, such as:

• poor customer service;
• technology failures;
• breaching, or facing allegations of having breached, legal and regulatory requirements;
• committing, or facing allegations of having committed, or being associated with those who have or are accused of committing, unethical practices, including with regard to sales and trading practices;
• the failure of intermediaries and other third parties on whom Metro Bank relies, such as clearing banks, third-party mortgage servicing agents or partners, to provide necessary services; and
• poor business performance.

Although Metro Bank has acquired the trademark "Metrobank" in the UK, the "Metro" name is widely used by a variety of businesses in the UK, including other FCA-authorised businesses, and in the rest of Europe. Consequently, there is a risk that Metro Bank's trademark registration for the word "Metrobank" and the wider use of the "Metro Bank" name (for which Metro Bank does not hold a trademark) might be challenged by the owner of another similar trademark. In the event that a challenge were to be successful, Metro Bank could be forced to re-brand under a new name at considerable cost and disruption to the business. In addition, the use of the "Metrobank" name by a bank which is not part of Metro Bank outside of the UK may confuse customers, and any damage to the reputation of banks operating with similar trade names (such as Metro Bancorp Inc. in the U.S.) could also be detrimental to Metro Bank.

An inability to manage risks relating to its brand for any reason could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank faces risks associated with the implementation of its business strategy

The implementation of Metro Bank's strategy is subject to a number of risks, including operational, financial, macroeconomic, market, pricing and technological challenges. See Part VII: "Information on Metro Bank – Strategy". For example, Metro Bank's business plan involves the expansion of its store network, number of customers, deposit base and loan book. There can be no guarantee that Metro Bank will be able to achieve these goals within the timescale envisaged. In relation to the expansion of its store network, which Metro Bank targets reaching approximately 110 stores by the end of 2020, there is a risk that new stores will not be as profitable as the more established stores. The success of Metro Bank's business model also requires obtaining significant numbers of new customer accounts, either through new customer acquisition or existing customers opening new accounts. Implementing Metro Bank's strategy will also require management to make complex judgements, including anticipating customer trends and needs across a range of financial products, identifying suitable borrowers for the expansion of its loan book, and structuring and pricing its products competitively. In addition, growth may negatively impact the continuity of Metro Bank's corporate culture and its ability to train staff to reflect its values. There also can be no guarantee that Metro Bank's technological infrastructure will be adequate to support its planned growth, or that Metro Bank will be able to successfully augment its systems if required in a timely manner, or at all.

Furthermore, Metro Bank's strategy is based on, among other things, certain financial expectations, including its ability to raise new capital and/or debt, which in turn, could be impeded by macroeconomic factors, including a downturn in the UK, European or global economies, increased competition in the retail banking sector and/or significant or unexpected changes in the regulation of the financial services sector in the UK or Europe. In addition, Metro Bank's current lack of a credit rating may further impede its ability to raise capital and/or debt in the future.

Moreover, in recent years, there has been an increased focus by UK regulators on the appropriateness and sustainability of the business models and growth strategies of regulated firms such as Metro Bank. Regulators no longer focus exclusively on the financial strength of regulated firms but also consider non-financial resources, including governance and infrastructure, available to the firm in assessing the sustainability of the business model and whether it continues to meet regulatory requirements. In addition, certain regulators have the power to restrict regulated firms' ability to develop products or make material acquisitions. If Metro Bank's regulators believe that it does not have a sustainable business model or does not meet any of the regulatory conditions, they could remove or restrict Metro Bank's operating licences and/or the way in which it conducts its business.

The inability of Metro Bank to implement its business strategy for any of these reasons could have a material adverse effect on its business, financial condition and results of operations.

Metro Bank's business is subject to risks relating to the cost and availability of liquidity and funding

The availability of retail and commercial deposits, Metro Bank's primary source of funding, may be impacted by increased competition from other deposit-takers or factors that constrain the volume of liquidity in the market. In addition, Metro Bank's access to FLS funding may be restricted if it fails to comply with the FLS' terms and conditions, as set out by the Bank of England. Metro Bank's ability to access retail and commercial funding sources on satisfactory economic terms is also subject to a variety of factors, a number of which are outside its control, including interest rates, liquidity constraints, general market conditions, increased competition, regulatory requirements and a loss of confidence in the UK banking system. In addition, because Metro Bank operates a "savings promise" that customers will have access to Metro Bank's "best rate available" for each personal savings account, and that new customers will not receive a more favourable rate than existing customers, the cost of Metro Bank's deposit funding may be higher than that of its competitors. A loss in customer confidence in Metro Bank could also significantly increase deposit withdrawals.

While Metro Bank does not intend to rely on wholesale funding, if access to retail and commercial deposit funding were constrained, Metro Bank may need to make use of the wholesale funding markets. If the wholesale funding markets were to be fully or partially closed, it is likely that funding would prove more difficult to obtain on commercially attractive terms. In addition, Metro Bank does not currently hold a credit rating, which, particularly in a period where liquidity may be scarce, could exacerbate its difficulty in obtaining funding from the wholesale or capital markets at attractive prices.

Liquidity constraints may impair Metro Bank's ability to meet regulatory liquidity requirements or financial and lending commitments. Failure to manage these or any other risks relating to the cost and availability of liquidity and funding may have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank faces risks from competition

The market for financial services in the UK is competitive, and competition may intensify in response to consumer demand, technological changes, the impact of market consolidation and new market entrants, regulatory actions and other factors. The financial services markets in which Metro Bank operates are mature, and growth by any bank typically requires obtaining market share from competitors.

Metro Bank faces competition from established providers of financial services, including banks and building societies, some of which have substantially greater scale and financial resources, broader product offerings and more extensive distribution networks than Metro Bank. In addition, while Metro Bank utilises the "standardised" approach for assessing credit risk, which tends to overestimate credit risk of lending portfolios, leading to higher risk-weighted assets, certain competitors may utilise the internal ratings-based approach, which allows them to hold less capital against their lending than the standardised approach, thus freeing up additional capital that could be used to lend to customers. Established banks may also be subject to less stringent capital adequacy requirements than Metro Bank.

Historically, Metro Bank has not incurred material traditional marketing expenditure on its products and services in order to raise its profile in the UK banking market. However, there can be no assurance that it will not have to do so in the future to compete more effectively, which could lead to increased costs associated with acquiring new customers. Also, due to their scale, many of Metro Bank's established competitors are able to cross-subsidise their product offerings more efficiently than Metro Bank, as profits in certain businesses allow them to absorb losses for longer periods to develop other business lines. In addition, as a result of their large established deposit and asset base, established banks are often better positioned to offer cash incentives to attract new customers, as well as higher temporary "teaser" interest rates for deposits or lower temporary rates for loans to attract new customers.

Metro Bank also faces potential competition from new banks in the UK, such as TSB, from banking businesses developed by large non-financial companies, such as Tesco and Virgin Money, from "challenger bank" entrants, such as Aldermore, and from fundamentally new entrants into the UK banking sector, such as peer-to-peer lending platforms.

Furthermore, Metro Bank faces competitive pressure in relation to the payment systems it uses in connection with its debit and credit cards from both established and non-traditional payments processors. Metro Bank relies on certain competitors to provide important payment clearing services, and these competitors could impose significant fees or restrictions on Metro Bank to access these systems. In addition, companies that promote disintermediation in payment systems, such as PayPal and Apple Pay, are increasingly used by customers to process merchant transactions, and these companies may capture payment transaction revenue that would otherwise be earned by Metro Bank.

Any failure to manage the competitive dynamics to which Metro Bank is exposed could have a material adverse effect on its business, financial condition and results of operations.

Metro Bank is exposed to risks relating to relationships with intermediaries

Metro Bank relies on its network of intermediaries, having derived approximately 84% of its mortgage portfolio and 61% and 75%, respectively, of its invoice and asset finance portfolios from intermediaries in 2015, with the top 10 brokers accounting for approximately 80% of all intermediary-originated loans in the same year. Metro Bank has limited oversight of intermediaries' interactions with prospective customers, and if intermediaries violate applicable regulations or standards when selling Metro Bank's products, Metro Bank's reputation could be harmed. In addition, Metro Bank may fail to develop products that are attractive to intermediaries or otherwise not succeed in developing relationships with intermediaries. Furthermore, Metro Bank could lose the services of intermediaries with whom it does business; for example, as a result of market conditions causing their closure or intermediaries switching to Metro Bank's competitors due to higher commissions or other incentives. The loss or deterioration of Metro Bank's relationships with its intermediaries could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank is subject to risks concerning customer and counterparty credit quality

Metro Bank has exposures to counterparties and obligors whose credit quality can have a significant adverse impact on Metro Bank's earnings and the value of assets on Metro Bank's balance sheet. As part of the ordinary course of its operations, Metro Bank estimates and establishes provisions for credit risks and the potential credit losses inherent in these exposures. This process, which is critical to Metro Bank's results and financial condition, requires expert judgements, including forecasts of how changing macroeconomic conditions might impair the ability of customers to repay their loans. Metro Bank may fail adequately to identify the relevant factors or accurately estimate the impact and/or magnitude of identified factors. In respect of Metro Bank's interest-only mortgage book, these assessments may be incomplete. For example, Metro Bank lacks information on customer repayment vehicles for certain of its interest-only mortgage holders. As a result, Metro Bank has reduced visibility of future repayment issues in respect of its interestonly mortgages, which limits Metro Bank's ability to estimate and establish reserves to cover exposures resulting from when customers are unable to repay interest-only loans at their maturity.

Furthermore, there is a risk that, despite Metro Bank's belief that it conducts an accurate assessment of customer credit quality, customers are unable to meet their commitments as they fall due as a result of customer-specific circumstances, macroeconomic disruptions or other external factors. The failure of customers to meet their commitments as they fall due may result in higher impairment charges or a negative impact on fair value in Metro Bank's lending portfolio. Because Metro Bank was established in 2010, its loans and advances to customers are relatively unseasoned, and it has limited experience in testing and tracking its impairment and loan loss provisioning strategies. Deterioration in customer credit quality and a resulting increase in impairments could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Concentration of credit risk could increase Metro Bank's potential for losses

Substantially all of Metro Bank's business relates to customers in the UK, and more specifically, predominantly those in London and the South East of England. If a disruption to the credit markets or an adverse change in economic or political conditions were to have a disproportionate effect on London and the South East of England, Metro Bank could be exposed to greater potential losses than some of its competitors, which could have a material adverse effect on its business, financial condition and results of operations.

Metro Bank's risk management policies may not be effective

Metro Bank faces a wide range of risks in its core business activities, including credit risk and liquidity risk, conduct risk and interest rate risk. See Part XIII: "Risk Management". Effective risk management requires, among other things, robust policies, processes and controls for the accurate identification and control of a large number of transactions and events, and Metro Bank's risk management policies, processes and controls may not prove to be adequate. Metro Bank has a range of tools designed to identify, assess and manage the various risks which it faces, some of which are based on historical market behaviour. These methods may be inadequate for predicting future risk exposure, which may prove to be significantly greater than what is suggested by historical experience. Other methods Metro Bank utilises for risk management are based on the evaluation of markets, customers or other information that is publicly known or otherwise available to Metro Bank. This information may not always be correct, updated or correctly evaluated. It is difficult to predict changes in economic or market conditions and to anticipate the effects that these changes could have on Metro Bank's financial performance and business operations, particularly in periods of unusual or extreme market conditions. If Metro Bank's risk management policies, processes and controls are ineffective for any reason, this could have a material adverse effect on its business, financial condition and results of operations

Metro Bank is exposed to operational risks in the event of a failure of its information technology ("IT") systems, and Metro Bank relies on third parties for significant elements of its IT and other middle and back office processes

Metro Bank's business is dependent on processing a high volume of complex transactions across numerous and diverse products and services accurately and efficiently. Metro Bank also depends on technology to maintain its reputation for quickly and seamlessly processing customer requests, including account openings, payments and transfers. As a result, any weakness in Metro Bank's IT systems, online or mobile banking platforms, or operational processes could have an adverse effect on its ability to operate its business and meet customer needs.

While Metro Bank has disaster recovery and business continuity contingency plans in place, an incident resulting in interruptions, delays, the loss or corruption of data or the cessation of systems can still occur. Metro Bank also periodically upgrades its existing systems, and problems implementing these upgrades may lead to delays or loss of service to Metro Bank's customers, as well as an interruption to its business, which could expose Metro Bank to potential liability.

In addition, Metro Bank outsources significant elements of its IT and network functions and some of its middle and back office processes, such as telephony infrastructure and data centre infrastructure, to third parties. Metro Bank also relies on certain third-party vendors, such as Temenos Group AG ("Temenos") for its core banking engine software, Pepper Group Limited ("Pepper") for its mortgage servicing software, Microsoft for a variety of operational software and a series of third parties to support the infrastructure for its debit and credit cards. In addition, Metro Bank relies on Barclays PLC as its clearing bank. If these third parties were unable to deliver their services to Metro Bank in a timely manner and in accordance with Metro Bank's specifications, Metro Bank's ability to meet its customer service levels could be compromised.

Metro Bank's systems are also vulnerable to damage or interruption from other factors beyond its control, such as floods, fires, power loss, telecommunications failures and other similar events. In addition, any breach in the security of Metro Bank's systems, for example from sophisticated attacks by cybercrime groups, could disrupt its business, result in the disclosure of confidential information and create significant financial and legal exposure, as well as damage to Metro Bank's reputation.

Metro Bank's operations must be considered in the light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. Metro Bank expects to continue to introduce new IT systems and upgrades as its business expands, and there can be no guarantee it will be able to efficiently implement these changes efficiently or cost effectively, or that its current IT systems will have sufficient scalability to support Metro Bank's planned growth. Any actual or perceived inadequacies, weaknesses or failures in Metro Bank's IT systems or processes could have a material adverse effect on its business, financial condition and results of operations.

Metro Bank must comply with data protection and privacy laws and may be targeted by cybercriminals

Metro Bank's operations are subject to a number of laws relating to data privacy, including the Data Protection Act 1998 and the Privacy and Electronic Communications (EC Directive) Regulations 2003. The requirements of these laws may affect Metro Bank's ability to collect and use personal data, transfer personal data to countries that do not have adequate data protection laws and also to utilise cookies in a way that is of commercial benefit to Metro Bank. Enforcement of data privacy legislation has become increasingly frequent and could result in Metro Bank being subjected to claims from its customers that it has infringed their privacy rights, and it could face administrative proceedings (including criminal proceedings) initiated by the Information Commissioner's Office in the UK. In addition, any enquiries made, or proceedings initiated by, individuals or regulators may lead to negative publicity and potential liability for Metro Bank. Metro Bank must also comply with the Payment Card Industry Data Security Standards in respect of any data collected, transferred or processed in respect of any customer payments from branded payment cards. Non-compliance with these standards may lead to Metro Bank facing fines, increased card handling fees or withdrawal of payment processing services in the future.

The secure transmission of confidential information over the internet and the security of Metro Bank's systems are essential to its maintaining customer confidence and ensuring compliance with data privacy legislation. If Metro Bank or any of its third-party suppliers fails to transmit customer information and payment details online securely, or if they otherwise fail to protect customer privacy in online transactions, or if third parties obtain and/or reveal Metro Bank's confidential information, Metro Bank may lose customers and potential customers may be deterred from using Metro Bank's products and services, which could expose Metro Bank to liability and could have a material adverse effect on its business, financial condition and results of operations.

Metro Bank may suffer loss as a result of fraud, theft or cybercrime

As a financial institution, Metro Bank is subject to a heightened risk that it will be the target of criminal activity, including fraud, theft or cybercrime. For example, Metro Bank is exposed to potential losses due to breaches of its terms of business by its customers (e.g., through the use of a false identity to open an account) or by customers engaging in fraudulent activities, including the improper use of legitimate customer accounts. In addition, losses arising from staff misconduct may result from, among other things, failure to document transactions properly or obtain proper internal authorisation in an attempt to defraud Metro Bank, or from physical theft at Metro Bank's stores. There also can be no assurance that Metro Bank's systems will not be subject to attack by cybercriminals, including through denial of service attacks, which could significantly disrupt Metro Bank's operations. Any of these activities may be difficult to prevent or detect, and Metro Bank's internal policies to mitigate these risks may be inadequate or ineffective. Metro Bank may not be able to recover the losses caused by these activities or events, and it could suffer reputational harm as a result of them, either of which could have a material adverse effect on its business, financial condition and results of operations.

Metro Bank is subject to risks associated with its hedging, treasury operations and investment securities portfolio, including potential negative fair value adjustments

Metro Bank faces risks related to its hedging operations. Metro Bank engages in hedging activities; for example, to limit the potential adverse effect of interest rate fluctuations on its results of operations. However, Metro Bank does not hedge all of its risk exposure and cannot guarantee that its hedging strategies will be successful due to factors such as behavioural risk, unforeseen volatility in interest rates or decreasing credit quality of hedge counterparties in times of market dislocation. If its hedging strategies are not effective, Metro Bank may be required to record negative fair value adjustments. Losses from the fair value of financial assets could also have a material adverse effect on Metro Bank's capital ratios.

Through its treasury operations, Metro Bank holds liquid asset portfolios for its own account, exposing Metro Bank to interest rate risk, basis risk and credit spread risk. Under volatile market conditions, the fair value of Metro Bank's liquid asset portfolios could fall more than estimated and cause Metro Bank to record mark-tomarket losses. In addition, as of 31 December 2015, Metro Bank had investment securities of £2,000 million, principally comprising conservative, low-interest paying instruments, such as AAA, AA and A-rated residential mortgage-backed securities, gilts, UK treasury bills, covered bonds and bonds issued by corporates and financial institutions. Metro Bank uses investment securities as a source of liquidity and an outlet to deploy customer deposits which have not been lent to customers. Metro Bank has also pledged £540 million in investment securities as collateral to the Bank of England for the £465 million it had drawn down from FLS as of 31 December 2015. Despite the conservative nature of its investment securities portfolio, there can be no guarantee that the value of Metro Bank's investment securities portfolio will not decrease. In a distressed economic or market environment, the fair value of certain of Metro Bank's holdings and exposures may be volatile and more difficult to estimate because of market illiquidity. Valuations in future periods, reflecting then prevailing market conditions, may result in significant negative changes in the fair value of Metro Bank's exposures and holdings.

Interest rate insensitive balances, for example current accounts, form a significant part of Metro Bank's funding. Metro Bank assumes that these balances will have a maturity in excess of five years. However, if customer behaviour were to change significantly, these balances may become more volatile, which could have a material adverse effect on the revenue generated by these balances.

Any inability of Metro Bank to effectively manage its hedging, treasury operations or investment securities could have a material adverse effect on its business, financial condition and results of operations.

Metro Bank could fail to attract or retain senior management or other key colleagues

Metro Bank's success depends on the continued service and performance of its key colleagues, particularly its senior management, and its ability to attract, retain and develop high-calibre talent. Metro Bank may not succeed in attracting and retaining key personnel if they do not identify or engage with Metro Bank's brand and values. In addition, as a relatively new market entrant, Metro Bank may not have sufficient scale to offer staff rates of compensation or opportunities to advance within the organisation comparable to its larger competitors, particularly at more senior levels. In addition, external factors such as macroeconomic conditions, the developing and increasingly rigorous regulatory environment, changes to work permit and visa rules, or negative media attention on the financial services industry may adversely impact attracting and retaining staff.

Furthermore, the successful launch and management of Metro Bank's early stage operations is a significant achievement for Metro Bank's senior management team. This unique experience may make them more attractive to Metro Bank's competitors or other institutions who may seek to hire them, and Metro Bank may be unable to find qualified replacements.

In addition, CRD IV requires the UK to impose restrictions on the remuneration of certain bank staff, including a cap on bonuses and a requirement that variable remuneration be subject to risk adjustment and be partially deferred. These restrictions have been implemented through a revised Prudential Regulation Authority ("PRA") Remuneration Code. There continues to be political pressure for further regulation of remuneration for individuals working in the financial services sector, including banking executives. Under the new regime for senior managers (introduced in the Financial Services (Banking Reform) Act 2013 (the "Banking Reform Act")), which comes into force on 7 March 2016, individuals carrying out positions of significant influence at banks are individually responsible for defined areas of the business and can be held to account by the PRA and FCA on that basis. The Banking Reform Act also introduced a new criminal offence applicable to senior managers of reckless mismanagement resulting in a bank failure (punishable by a maximum seven years' imprisonment). These types of legislation, regulation and rules (including the PRA Remuneration Code) may reduce the willingness of potential executive directors and senior colleagues to provide their services to Metro Bank.

Any failure to attract and retain key colleagues, including senior management, could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank's business model requires the lease or purchase of suitable premises for stores

Metro Bank's business strategy depends on securing leases, which are typically long term, or purchasing premises in prime locations for its store network. However, competition for these types of properties is likely to be significant, and Metro Bank cannot be certain it will be able to secure its premises of choice or necessary planning approvals. Any future inability to obtain additional suitable leases or purchases for its properties could have a material adverse effect on the success of Metro Bank's growth strategy and its business, financial condition and results of operations.

Claims and litigation could impact upon Metro Bank's reputation and earnings

Metro Bank is subject to legal and regulatory proceedings in the course of its business. Risks relating to these proceedings may arise for a number of reasons, including (i) Metro Bank's business may not be, or may not have been, conducted in accordance with applicable laws or regulations, (ii) contractual obligations may either not be enforceable as intended or may be enforced in a way that is adverse to Metro Bank or (iii) liability for damages may be incurred to third parties harmed by the conduct of Metro Bank's business. There can be no assurance that Metro Bank will prevail in any future litigation or regulatory proceedings. Any litigation or other proceedings, whether or not determined in Metro Bank's favour or settled by Metro Bank, could be costly and may divert the efforts and attention of Metro Bank's management and other personnel from normal business operations. In addition, any proceedings could adversely affect Metro Bank's reputation and the market's perception of Metro Bank and the products and services that it offers, as well as customer demand for those products and services, which could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank does not control certain internet domain names similar to its own

Metro Bank owns and uses the domain "metrobankonline.co.uk". Metro Bank purchased the registered trademark "Metrobank" from an individual who also owns the internet domain "www.metrobank.co.uk" (which was not acquired by Metro Bank). When Metro Bank bought the registered trademark, it entered into an agreement that provided Metro Bank would not attempt to use its rights in the registered trademark to gain control of the internet domain. As a result, Metro Bank cannot control who might purchase the domain or the purpose for which it might be used. In addition, the domain "metrobank.com" belongs to a third party and is used to provide links to a variety of financial and diverse services and offerings in the Philippines. Metro Bank's inability to control these domains, or others with similar names to that of its own, could have a material adverse effect on Metro Bank's reputation, business, financial condition and results of operations.

Metro Bank is subject to changes in taxation laws

Metro Bank's activities are conducted in the UK, and consequently, it is subject to a range of UK taxes. Revisions to tax legislation or to its interpretation could result in increased tax rates (including in relation to UK corporation tax rates) or additional taxes. For example, in November 2015, the UK Parliament passed a bank surcharge of 8% which will apply from 1 January 2016. In addition, Metro Bank is subject to periodic tax audits, which could result in additional tax assessments relating to past periods.

Adverse changes in tax laws, and any other reform amendment to, or changes in the interpretation or enforcement of, applicable tax legislation (including in relation to the recognition of deferred tax assets) that negatively impact Metro Bank or its customers could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Regulatory Risks

Metro Bank operates in a highly regulated industry that has come under increased regulatory scrutiny in recent years

Metro Bank, in common with other financial services firms, has in recent years faced increased levels of scrutiny from regulators in respect of the conduct of its business. Following the financial crisis, this scrutiny has been supplemented by additional powers intended to protect consumers and ensure redress. Metro Bank's principal regulators are the PRA (which is responsible for prudential regulation) and the FCA (which is responsible for conduct regulation). The PRA and FCA can apply a wide range of sanctions to firms (and individuals working for firms) found to be operating in breach of their regulations, or in a manner deemed to pose a significant risk to their statutory obligations, including public or private censure, fines, regulatory proceedings and, in extreme cases, suspension or withdrawal of authorisation to operate particular parts of their business or prosecution.

The FCA, Metro Bank's conduct regulator, has highlighted strengthening consumer protection as a key priority in its Business Plan for 2015 and 2016. In addition, the FCA is currently undertaking a series of thematic reviews, including in relation to the cash savings market, credit card market, early arrears management in unsecured lending and a "Responsible Lending Review". Metro Bank was requested to provide and has provided information disclosure in relation to the FCA's review of the cash savings and credit card markets. The FCA also announced in October 2015 a "Call for Inputs" on barriers to competition in the UK mortgage sector, with a view to launching a market study in the first quarter of 2016. Any recommendations that the FCA may make in relation to these or any of its other thematic reviews could impact Metro Bank's business, although given the early stages of the reviews, Metro Bank is unable to assess their potential impact, if any, on its business.

Since April 2014, the FCA has also been charged with oversight of regulated consumer credit activities, providing it with broad regulatory authority over a wide range of aspects of Metro Bank's lending business, such as the format and content of its customer communications and its terms of business. The FCA is empowered to require firms to operate a consumer redress scheme, under which the firm is required to make redress to customers where it has failed to carry on its activities in accordance with its legal or regulatory obligations. The FCA also has temporary product intervention powers, which enable it to restrict certain products, product features or their promotion for up to 12 months without consultation. Certain consumer bodies have the power to refer so-called "super-complaints" to the FCA for further investigation as well. Most banking customers are also entitled to refer complaints to the Financial Ombudsman Service (the "FOS"), and recent years have seen an increase both in the number of cases referred to the FOS and general public awareness regarding the ability to challenge firms.

Investigating and dealing with proceedings, making redress and the cost of any regulatory sanctions may involve significant expense. The use of product intervention powers by the FCA may restrict Metro Bank's operations and its ability to offer new products to its customers. In any case, adverse publicity relating to regulator action could undermine customer confidence in Metro Bank and reduce demand for its products and services, which could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank will be subject to new legislation on mortgages

The EU Directive on credit agreements relating to residential property, commonly known as the Mortgage Credit Directive ("MCD"), will enter into force in the UK from 21 March 2016. Changes to the UK's existing mortgage regulation include amendment of the definition of "regulated mortgage contract" to include second charge lending, bringing the regulation of second charge mortgage lending into line with first charge lending (rather than it being regulated under the FCA's consumer credit regime), and the establishment of a framework for regulating buy-to-let mortgage lending to consumers. The European Commission has also indicated that it will be carrying out further work around mortgage foreclosure, default and underwriting requirements and the MCD itself provides for a review after five years. These changes, as well as future changes to the way in which the mortgage market will be regulated in the UK, might adversely impact Metro Bank's mortgage underwriting business and, more generally, have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank is subject to prudential regulatory capital and liquidity requirements

The prudential regulatory capital and liquidity requirements applicable to banks have increased significantly over the last decade, largely in response to the financial crisis but also as a result of continuing work undertaken by regulatory bodies in the financial sector subject to certain global and national mandates. The prudential requirements are likely to increase further in the short term, not least in connection with ongoing implementation issues as noted further below, and it is possible that further regulatory changes may be implemented in this area in any event.

The prudential regulatory capital and liquidity requirements to which Metro Bank is subject are primarily set out in the Capital Requirements Directive IV 2013/36/EU (as implemented in the UK through applicable regulatory rules which, in relation to, Metro Bank will be set out in the PRA Rulebook and other PRA publications) and the Capital Requirements Regulation ("CRR" and together "CRD IV"). In addition Metro Bank is subject to additional requirements imposed by the PRA to the extent not inconsistent with CRD IV (see paragraph 2.2 of Part IX: "Supervision and Regulation" for more details of the prudential regime applicable to Metro Bank).

Although many of the measures in CRD IV took effect in the UK from 1 January 2014, some of the measures are to be phased in over a transitional period ending on 31 December 2018, though such phased implementation is in some cases subject to the PRA's right (which it has largely exercised) to apply an expedited timeframe. In particular, the liquidity regime is being phased in, though a significant part of it, the Net Stable Funding Ratio which is not expected to apply until 2018, is subject to further review and more detailed development.

In addition, CRD IV requirements adopted in the United Kingdom or the way those requirements are interpreted or applied may change, including as a result of binding regulatory or implementing technical standards or guidance to be developed by the European Banking Authority, changes to the way in which the PRA interprets and applies these requirements to UK banks or further changes to CRD IV agreed by EU legislators. Similarly there may be changes to national prudential requirements which apply to banks. These changes, either individually or in aggregate, may lead to further unexpected enhanced prudential requirements in relation to Metro Bank's capital, leverage, liquidity and funding ratios and requirements. It is noted that there are a number of initiatives underway which, if implemented, could also affect prudential capital and liquidity requirements in the future. For example, the Basel Committee has proposed changes to the market risk framework and and is also considering revisions to the calculation of credit risk under the standardised approach and the calculation of interest rate risk in the banking book.

Metro Bank sets its internal target amount of capital and liquidity based on PRA guidance and following an assessment of its risk profile, market expectations and regulatory requirements in relation to both capital and liquidity. Metro Bank may experience a depletion of its capital resources through increased costs or liabilities incurred as a result of the crystallisation of any of the other risks described elsewhere in this Part II: "Risk Factors". If, for example, market expectations as to capital levels increase, driven by, for example, the capital levels or targets among peer banks, or if new regulatory requirements are introduced, Metro Bank may experience pressure to increase its capital ratios. An analogous risk applies in relation to liquidity.

Due to its growth, Metro Bank's capital requirements are subject to increase. If Metro Bank fails to meet its minimum regulatory capital or liquidity requirements, it may be subject to administrative actions or sanctions. In addition, a shortage of capital or liquidity could affect Metro Bank's ability to pay liabilities as they fall due, pay future dividends and distributions, and could affect the implementation of its business strategy, impacting future growth potential. If, in response to any capital shortage, Metro Bank raises additional capital through the issuance of share capital or capital instruments, existing shareholders may experience a dilution of their holdings or reduced profitability and returns. Any inability of Metro Bank to maintain its regulatory capital or liquidity requirements, or any legislative changes that limit Metro Bank's ability to manage its capital effectively may have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank is subject to rules relating to regulatory action in the event of a bank failure

Under the Banking Act 2009 (the "Banking Act"), substantial powers were granted to HM Treasury, the Bank of England, the PRA and the FCA (together the "Authorities") as part of the special resolution regime (the "SRR"). These powers enable the Authorities to engage with and stabilise UK-incorporated institutions authorised to accept deposits that are failing or are likely to fail.

As discussed in more detail in Part IX: "Supervision and Regulation", the Banking Act was recently amended to give effect to aspects of the recently adopted EU-wide framework for the recovery and resolution of credit institutions and investment firms, commonly known as the Banking Recovery and Resolution Directive (the "BRRD"), including expanding the powers available to the Authorities thereunder. As a result, the SRR now consists of the following five stabilisation options, which could be imposed on any bank, including Metro Bank: (i) transfer of all or part of the business of the relevant bank entity or the shares of the relevant bank entity to a third-party private sector purchaser; (ii) transfer of all or part of the business of the relevant bank entity to a "bridge bank" established and wholly owned by the Bank of England; (iii) transfer of the assets, rights and liabilities of the relevant bank entity to an asset management vehicle created and part owned by the Bank of England or Treasury; (iv) temporary public ownership of the relevant bank entity; and (v) bail-in, which effectively allows the relevant bank entity to be recapitalised through the writing down or conversion of debt liabilities to equity (the "general bail-in" tool). In relation to the transfer stabilisation options in (i) to (iv) above, the Authorities also would have the ability to modify certain contractual arrangements of the relevant entity in certain circumstances.

In addition, as a result of the BRRD, the Banking Act was amended to require that loss absorbing capital instruments are written down or converted before or at the same time as any of the stabilisation options are implemented (the "mandatory bail-in" tool).

Subject to certain protections for limited liabilities, the mandatory bail-in tool and the general bail-in tool enable the Authorities to write down the claims of shareholders and unsecured creditors of a failing institution and to convert unsecured debt claims to equity. The bail-in rules were designed to help ensure that the shareholders and unsecured creditors of a failed institution (rather than taxpayers) meet the costs of an institution's failure. In the UK, a bail-in would be effected by the Bank of England as resolution authority with no need for court approval, and a bail-in order cannot be challenged in court (although it is subject to judicial review). The BRRD rules were largely implemented in the UK with effect from January 2015 (except in relation to certain requirements relating to the contractual recognitions of bail-in and MREL referred to below which came into force in January 2016). If Metro Bank were to become subject to bail-in or resolution powers, existing shareholders may experience a dilution or cancellation of their holdings. Some provision is made in the Banking Act for compensation orders to be made in certain specified circumstances but the extent of the compensation will be determined having regard to the particular fact matrix and the principles set out in the Banking Act. These essentially require that no shareholder or creditor should be worse off under an SRR process than it would have been under a hypothetical insolvency, which means that it is not certain that compensation would be received in a particular case.

Institutions subject to BRRD will also be required to meet a minimum requirement for own funds and eligible liabilities ("MREL") capable of being bailed-in. The MREL requirement will be equal to a percentage of total liabilities and own funds to be set by the Bank of England. The PRA is currently consulting on new rules in connection with the MREL requirements. The implementation of the MREL requirements may require Metro Bank to raise additional capital or adjust its current capital levels, which could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Finally, the BRRD requires that certain claims of certain depositors and the Financial Services Compensation Scheme (the "FSCS") (to the extent it covers claims of depositors in a bank insolvency) are given preferential status in the bank insolvency. Where Metro Bank has large numbers of depositors entitled to Financial Services Compensation Scheme protection, this means those depositors and the FSCS will get preferential treatment ahead of other unsecured creditors generally, but this will not affect amounts distributable to shareholders which rank last on any insolvency in any event.

Metro Bank must comply with anti-money laundering, anti-bribery and sanctions regulations

Metro Bank is subject to laws regarding money laundering and the financing of terrorism, as well as laws that prohibit Metro Bank, its staff or intermediaries from making improper payments or offers of payment to foreign governments and their officials and political parties for the purpose of obtaining or retaining business, including the UK Bribery Act 2010. Monitoring compliance with anti-money laundering and anti-bribery rules creates a significant financial and operational burden for banks and other financial institutions and requires significant technical capabilities. In recent years, enforcement of these laws and regulations against financial institutions has become more aggressive, resulting in several landmark fines against UK financial institutions. The FCA, in particular, has made financial crime a key topic to be addressed under its 2015/16 Business Plan. Furthermore, following the entry into force of the EU AML Directive and Transfers of Funds Regulation on 25 June 2015, new regulations will come into force before the deadline for national implementation of 26 June 2017, which will affect the scope of the regulatory requirements Metro Bank must comply with. While Metro Bank monitors its regulatory environment, it is not always possible to predict the nature, scope or effect of future regulatory requirements to which it might be subject, and in particular, the manner in which existing laws might be administered, interpreted or enforced. Although Metro Bank believes that its current policies, processes and procedures are adequate and effective, and therefore, comply with applicable anti-money laundering, anti-bribery and sanctions rules and regulations, it cannot guarantee that these policies eliminate the risk of money laundering, sanctions breaches or bribery, including actions by Metro Bank's staff, for which Metro Bank might be held responsible. Any of these events may have severe consequences, including criminal sanctions, fines, restrictions on its business operations and reputational damage, which could have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank is subject to recently implemented rules on deposit guarantee schemes

In Europe, the EU Deposit Guarantee Scheme Directive ("EU DGSD") required Member States to introduce at least one deposit guarantee scheme by 1 July 1995. The EU DGSD was reviewed and a new legislative proposal was published by the European Commission in July 2010 to recast and replace the current EU DGSD. The main aims of the recast EU DGSD are to restrict the definition of "deposit", to exclude deposits made by certain financial institutions and certain public authorities, to reduce time limits for payments of verified claims to depositors and to make provisions on how deposit guarantee schemes should be funded. In addition the recast EU DGSD allows for temporary increases in the coverage level in relation to deposits arising from certain events, such as the sale of a private residential property. The rules on depositor protection rules and supervisory statements took effect in the UK from 3 July 2015.

It is possible, as a result of the new directive and subsequent UK implementation, that future Financial Services Compensation Scheme ("FSCS") levies on Metro Bank may differ from those at present, and such reforms could result in Metro Bank incurring additional costs and liabilities. In particular, Metro Bank may have to update its IT systems to comply with the PRA's proposals for new system requirements, including requirements on firms to have systems that will allow accounts that do not contain eligible deposits to be frozen at the point of resolution while leaving marked deposits accessible and will be able to separate FSCScovered and uncovered balances. This may have a material adverse effect on Metro Bank's business, financial condition and results of operations.

Metro Bank is subject to regulatory changes in relation to payment services

In July 2013, the European Commission proposed a revised payment services directive ("PSD II") to take account of new types of payment services due to technological development and to harmonise the transposition of certain rules set out in the Payment Services Directive that had been transposed or applied by Member States in different ways, leading to regulatory arbitrage and legal uncertainty. The text of the Directive was published in the Official Journal of the EU (OJ) on 23 December 2015, and came into force on 12 January 2016.

There is uncertainty, particularly in relation to PSD II, as to how the directive will be interpreted and implemented nationally. PSD II may impose additional requirements on Metro Bank in relation to its dealings with counterparties who fall within the scope of PSD II, such as third-party service providers. The scoped payments and service providers caught by PSD II are likely to expand, meaning an additional compliance burden for Metro Bank, although at this stage, the exact ramifications remain unclear.

The powers of the new Payment Systems Regulator have recently come into force, following its creation by HM Treasury. Its numerous objectives include the promotion of effective competition in the markets for payment systems and services - between operators, payment service providers and infrastructure providers. There is therefore uncertainty as to the impact the Payment Systems Regulator will have on banks and interbank systems, which could impact on Metro Bank's future operations.

If the Company is a "passive foreign investment company" for U.S. federal income tax purposes, U.S. Holders of Shares could be subject to materially adverse U.S. federal income tax consequences

If the Company were a "passive foreign investment company" (a "PFIC") for any taxable year during which a U.S. Holder (as defined in Part XVII: "Taxation — Certain U.S. Federal Income Tax Considerations") holds Shares, certain adverse U.S. federal income tax consequences may apply to the U.S. Holder. The Company does not believe that it will be a PFIC for its current taxable year and does not expect to be a PFIC for U.S. federal income tax purposes in the foreseeable future. However, PFIC status depends on the composition of a company's income and assets and the fair market value of its assets from time to time, as well as on the application of complex statutory and regulatory rules that are subject to potentially varying or changing interpretations. Accordingly, there can be no assurance that the Company will not be considered a PFIC for any taxable year.

If the Company were a PFIC, U.S. Holders of Shares may be subject to adverse U.S. federal income tax consequences, such as taxation at the highest marginal ordinary income tax rates on capital gains and on certain actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements. If the Company were a PFIC and the Shares were "regularly traded" on a "qualified exchange" for U.S. federal income tax purposes, U.S. Holders would be able to make "mark-to-market elections" with respect to their Shares to mitigate some of the adverse consequences of holding stock of a PFIC; however, such elections would not mitigate the adverse implications of PFIC treatment with respect to any interest in a corporation treated as a PFIC held by the Company. See Part XVII: "Taxation — Certain U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations".

Risks relating to the Shares

There has been no prior trading market for the Shares

Prior to Admission, there was no public trading market for the Shares. Following Admission, Metro Bank can give no assurance that an active trading market for the Shares will develop or, if developed, can be sustained. If an active trading market is not developed or maintained, the liquidity and trading price of the Shares could be materially adversely affected.

The value of the Shares may fluctuate significantly

Following Admission, the value of the Shares may fluctuate significantly as a result of a large number of factors, including, but not limited to, those referred to in this Part II: "Risk Factors", as well as period-toperiod variations in operating results or change in revenue or profit estimates by Metro Bank, industry participants or financial analysts. The value of the Shares could also be affected by developments unrelated to Metro Bank's operating performance, such as the operating and share price performance of other companies that investors may consider comparable to Metro Bank, speculation about Metro Bank in the press or the investment community, strategic actions by competitors, including acquisitions and/or restructurings, changes in market conditions and regulatory changes in any number of countries, whether or not Metro Bank derives significant revenue therefrom.

The market price of the Shares could also be negatively affected by sales of substantial amounts of Shares in the public markets, or the perception that these sales could occur.

Metro Bank may not pay dividends, and future issuances of additional shares in Metro Bank could dilute existing shareholders

As a matter of applicable company law, Metro Bank may only pay dividends if and to the extent that, among other requirements, it has distributable reserves and sufficient cash available for this purpose. Any decision to declare and pay dividends in the future will be made at the discretion of the Board of Directors and with the approval of regulators and will depend on, among other things, Metro Bank's financial position, general economic conditions and other factors the Directors deem significant from time to time. As a result, there can be no assurance that Metro Bank will pay dividends in the future.

The issue of additional shares in Metro Bank in connection with future acquisitions, any share incentive or share option plan or otherwise may dilute all other shareholdings.

Metro Bank may seek to raise financing to fund future acquisitions and other growth opportunities. Metro Bank may, for these and other purposes, such as in connection with share incentive and share option plans, issue additional equity or convertible equity securities. As a result, Metro Bank's existing shareholders would suffer dilution in their percentage ownership if these issues were not done on a pre-emptive basis.

Shareholders outside the United Kingdom may not be able to participate in future equity offerings

The Articles of Metro Bank provide for pre-emptive rights to be granted to shareholders in Metro Bank, unless these rights are disapplied by a shareholder resolution. However, securities laws of certain jurisdictions may restrict Metro Bank's ability to allow participation by shareholders in future offerings. In particular, shareholders in the United States may not be entitled to exercise these rights unless either the rights and Shares are registered under the Securities Act, or the rights and Shares are offered pursuant to an exemption form, or transaction not subject to, the registration requirements of the Securities Act.

PART III PRESENTATION OF INFORMATION ON THE GROUP

General

Investors should only rely on the information in this Prospectus. No person has been authorised to give any information or to make any representations in connection with Admission other than the information and representations contained in this Prospectus and, if any other information or representations is or are given or made, such information or representations must not be relied upon as having been authorised by or on behalf of the Company, the Directors, the Sponsor, the or the Adviser. No representation or warranty, express or implied, is made by the Sponsor or the Adviser as to the accuracy or completeness of such information, and nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation by the Sponsor or the Adviser as to the past, present or future.

Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant to section 87G of the FSMA and paragraph 3.4.1 of the Prospectus Rules, the delivery of this Prospectus shall not, under any circumstances, create any implication that there has been no change in the business or affairs of the Company or of the Group taken as a whole since the date hereof or that the information contained herein is correct as of any time subsequent to its date.

The Company does not accept any responsibility for the accuracy or completeness of any information reported by the press or other media, nor the fairness or appropriateness of any forecasts, views or opinions expressed by the press or other media regarding Admission or the Group. The Company makes no representation as to the appropriateness, accuracy, completeness or reliability of any such information or publication.

The Company will update the information provided in this Prospectus by means of a supplement hereto if a significant new factor occurs prior to Admission or if this document contains any material mistake or inaccuracy. This Prospectus and any supplement hereto will be subject to approval by the FCA and will be made public in accordance with the Prospectus Rules.

The contents of this Prospectus are not to be construed as legal, business or tax advice. Each prospective investor should consult his or her own lawyer, financial adviser or tax adviser for legal, financial or tax advice in relation to any investment in Shares. In making an investment decision, each investor must rely on his or her own examination, analysis and enquiry of the Company, including the merits and risks involved.

Apart from the Sponsor's responsibility as a sponsor under the FSMA, neither the Sponsor nor the Adviser accepts any responsibility or liability whatsoever for the contents of this Prospectus, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Shares or Admission and nothing in this Prospectus will be relied upon as a promise or representation in this respect, whether or not in the past or future. Each of the Sponsor and the Adviser accordingly disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this Prospectus or any such statement.

No representation or warranty, express or implied, is made by the Sponsor or the Adviser as to the accuracy or completeness of information contained in this Prospectus and nothing in this Prospectus is, or shall be relied upon as, a representation by the Sponsor or the Adviser.

Presentation of financial information and non-financial operating data

Historical financial information

The historical financial information in this Prospectus has been prepared in accordance with the requirements of the Prospectus Directive Regulation, the UK Listing Rules and IFRS issued by the International Accounting Standards Board and as adopted for use in the EU. The basis of preparation is further explained in Part XV: "Historical Financial Information". The historical financial information presented in this Prospectus consists of audited consolidated financial information of the Group for the years ended 31 December 2013, 31 December 2014 and 31 December 2015.

Non-IFRS Financial Measures

The Group presents certain key performance measures that are not defined under IFRS but that it finds useful in analysing its results and that it believes are widely used by investors to monitor the results of banks generally. These measures include Common Equity Tier 1 ratio, debt-to-value ratio ("DTV Ratio"), loan-todeposit ratio ("LTD Ratio"), net interest margin ("NIM"), return-on-equity and Total Capital Ratio.

Common Equity Tier 1 ratio is defined as share capital, share premium, retained earnings and other reserves less specified regulatory adjustments as a percentage of year-end risk-weighted assets. DTV Ratio is defined as the ratio of the gross outstanding amount of a loan to the indexed value of its collateral. LTD Ratio is defined as the ratio of loans and advances to customers divided by customer deposits. NIM is calculated as net interest income as a percentage of monthly average interest-earning assets. Return-on-equity is defined as profit attributable to ordinary shareholders divided by monthly average shareholder's equity as a percentage. Total Capital Ratio is defined as the total of Tier 1 and Tier 2 capital as a percentage of year-end risk-weighted assets.

Some of these measures are defined by, and calculated in compliance with, applicable banking regulation, which often provides the Group with certain discretion in making its calculations.

Because of the discretion that the Group and other banks have in defining these measures and calculating the reported amounts, care should be taken in comparing these various measures with similar measures used by other banks. These measures should not be used as a substitute for evaluating the performance of the Group based on its audited balance sheet and results of operations.

Non-financial information operating data

The non-financial operating data included in this Prospectus has been extracted without material adjustment from the management records of the Company and is unaudited.

Currency presentation

Unless otherwise indicated, all references in this Prospectus to "sterling", "pounds sterling", "GBP", "£" or "pence" are to the lawful currency of the United Kingdom. The Company prepares its financial statements in pounds sterling. All references to the "Euro", "euro", "EUR" or "€" are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended. All references to "dollars", "\$" or "U.S.\$" are to the lawful currency of the United States

Unless otherwise indicated, the financial information contained in this Prospectus has been expressed in pounds sterling.

Rounding

Percentages and certain amounts in this Prospectus, including financial, statistical and operational information, have been rounded. As a result, the figures shown as totals may not be the precise sum of the figures that precede them.

Market, economic and industry data

Certain information in this Prospectus, in particular the information in Part VI: "Industry Overview", has been sourced from third parties. The Company confirms that all third-party information contained in this Prospectus has been accurately reproduced and, so far as the Company is aware and able to ascertain from information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading.

Where third-party information has been used in this Prospectus, the source of such information has been identified.

Information regarding forward-looking statements

Certain information contained in this Prospectus, including any information as to the Group's strategy, market position, plans or future financial or operating performance, constitutes "forward-looking statements". All statements, other than statements of historical fact, are forward-looking statements. The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intend", "continue", "budget", "project", "aim", "estimate", "may", "will", "could", "should", "schedule" and similar expressions identify forward-looking statements.

Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to:

• general economic and business conditions in the UK and internationally;
• inflation, deflation, interest rates and policies of the Bank of England, the European Central Bank and other central banks;
• fluctuations in exchange rates, stock markets and currencies;
• changing demographic developments, including consumer spending, saving and borrowing habits;
• changes in customer preferences;
• lack of historical operational data and growth management;
• adequacy of Metro Bank's internal risk management framework, systems and processes;
• the adequacy of loss reserves and access to liquidity;
• the ability to attract and retain senior management and other staff;
• changes to borrower or counterparty credit quality;
• dependence on IT systems and changing technological requirements;
• changes in laws, regulations, taxation, accounting standards or practices;

• adequacy of Metro Bank's insurance coverage;

• regulatory capital or liquidity requirements and similar contingencies outside Metro Bank's control;

• the policies and actions of governmental or regulatory authorities in the UK, the EU or elsewhere;
• exposure to regulatory scrutiny, legal proceedings, regulatory investigations or complaints, and potential regulatory sanctions or adverse judicial judgments as a result thereof; and
• changes in tax legislation.

See Part II: "Risk Factors" for more information.

In addition, certain of Metro Bank's 2020 targets assume, inter alia, no interest rate increases and, due to the nature of the 2020 targets and the dependence of their achievement on numerous factors outside of Metro Bank's control, they may not be achieved by 2020 or at all.

Investors are cautioned that forward-looking statements are not guarantees of future performance. Forwardlooking statements may, and often do, differ materially from actual results. Any forward-looking statements in this Prospectus speak only as of the date of this Prospectus, reflect the Company's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's operations, results of operations, growth strategy, liquidity, capital and leverage ratios and the availability of new funding. Investors should specifically consider the factors identified in this Prospectus that could cause actual results to differ before making an investment decision. All of the forwardlooking statements made in this Prospectus are qualified by these cautionary statements. Specific reference is made to Part II: "Risk Factors", Part VII: "Information on Metro Bank" and Part XI: "Operating and Financial Review".

Subject to the requirements of the Prospectus Rules, the Disclosure and Transparency Rules and the Listing Rules, or applicable law, the Company explicitly disclaims any intention or obligation or undertaking publicly to release the result of any revisions to any forward-looking statements in this Prospectus that may occur due to any change in the Company's expectations or to reflect events or circumstances after the date of it.

Definitions

Certain terms used in this Prospectus, including all capitalised terms and certain technical and other terms, are defined and explained in Part XIX: "Definitions".

No incorporation of website information

The contents of the Company's website, any website mentioned in this Prospectus or any website directly or indirectly linked to these websites have not been verified and do not form part of this Prospectus, and investors should not rely on such information.

PART IV DIRECTORS, SECRETARY, REGISTERED AND HEAD OFFICE AND ADVISERS

Directors	Vernon W. Hill, II (Chairman) Craig Donaldson (Chief Executive Officer) Michael Brierley (Chief Financial Officer) Alastair (Ben) Gunn (Senior Independent Director) Stuart Bernau (Non-Executive Director) Keith Carby (Non-Executive Director) Lord Flight (Non-Executive Director)
	Eugene Lockhart (Non-Executive Director) Roger Farah (Non-Executive Director) Sir Michael Snyder (Non-Executive Director)
Company Secretary	Michael Brierley
Registered and head office of the Company	One Southampton Row London WC1B 5HA United Kingdom
Sponsor	RBC Europe Limited (trading as RBC Capital Markets) Riverbank House 2 Swan Lane London EC4R 3BF United Kingdom
Adviser	Moelis & Company UK LLP Condor House 5 St. Paul's Churchyard London EC4M 8AA United Kingdom
English and U.S. legal advisers to the Company	Linklaters LLP One Silk Street London EC2Y 8HQ United Kingdom
English and U.S. legal advisers to the Sponsor	Clifford Chance LLP 10 Upper Bank Street London E14 5JJ United Kingdom
Auditors	PricewaterhouseCoopers LLP 7 More London Riverside London SE1 2RT

United Kingdom Reporting Accountants PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH United Kingdom Registrars Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA United Kingdom

PART V EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Expected timetable of principal events

Event	Time and Date
Publication of this Prospectus	7 March 2016
Commencement of conditional dealings on the London Stock Exchange	8.00am on 7 March 2016
Admission and commencement of unconditional dealings on the London Stock Exchange	8.00am on 10 March 2016

References to times are to London times. Each of the times and dates in the above timetable is subject to change without further notice.

It should be noted that, if Admission does not occur, all conditional dealings will be of no effect and any such dealings will be at the sole risk of the parties concerned.

PART VI INDUSTRY OVERVIEW

The following information relating to the banking industry in the United Kingdom has been provided for background purposes only. The information has been extracted from a variety of sources released by public and private organisations. The information has been accurately reproduced and, as far as Metro Bank is aware and is able to ascertain from information published by such sources, no facts have been omitted which would render the reproduced information inaccurate or misleading.

1 Economic Overview

1.1 UK Economic Overview

The economic environment in the UK has continued to improve following the global financial crisis in 2008 with real GDP growing by a compound annual growth rate ("CAGR") of 1.8% between 2009 and 2014. UK GDP, which has been increasing at a greater rate than that of its European peers, further grew by 2.2% in 2015and is forecast by the UK Office of Budget Responsibility to grow by 2.4% in 2016. Other UK macro-economic indicators have also shown improvement, as summarised in the table below.

	2011	2012	2013	2014	2015	2016E	2017E
	(% unless otherwise indicated)
Metric
GDP	1.6	0.7	1.7	2.9	2.2	2.4	2.5
Unemployment	8.3	7.8	7.2	6.2	5.4	5.2	5.2
Consumer Price Index	4.6	2.7	2.1	1.5	0.2	1.0	1.8
Bank of England base rate	0.5	0.5	0.5	0.5	0.5	0.7	1.0
Halifax House Price Index (% change)(1)	(1.3)	(0.3)	7.5	7.8	9.5	4.4	4.8
Source: OBR, ONS, World Bank

Note:

(1) Forecast data from Office of Budget Responsibility, November 2015

The unemployment rate decreased from 8.3% in 2011 to 5.4% in 2015, while the total number of people in employment has increased from 30.7 million to 31.4 million over the same period. The Consumer Price Index has remained within the Bank of England's target of 2% +/- one percentage point since 2012 with the exception of 2015 and is forecast to return to the targeted range from 2016. The Bank of England base rate has been maintained at 0.5% since 2009, contributing to a revival in the housing market with a 9.5% increase in the Halifax House Price Index in 2015. The favourable macroeconomic outlook has also contributed to increasing confidence in the SME sector (Source: FSB Small Business index Q2 2015), while unsecured lending is expected to surpass pre-crisis levels in 2016 (Source: PricewaterhouseCoopers Precious Plastics Report 2015).

1.2 Regional Economic Overview

The UK Government reports on economic data from twelve regions, including Metro Bank's core regions, London and the South East. The data reveals diverse demographics and divergent economic performances.

The demographics of the population differ between London and the rest of the UK. While the average age of the UK population is 40, London's population is notably younger, averaging 34 years of age. Average earnings also differ significantly between regions, with average earnings in Metro Bank's core regions being higher than the UK average. London is an outlier with average earnings of £39,600, compared to the UK average of £29,600, partly reflecting the higher cost of living. Further, average property prices in London increased by a CAGR of 8.1% between 2009 and 2015, resulting in average house prices reaching £530,000 in January 2016. London and the South East are forecast to be the two fastest growing regions in the UK with London accounting for almost a third of all UK forecast growth in the next five years (Source: Centre for Economics and Business Research).

1.3 SME Economic Overview

SMEs (using the Bank of England's definition as businesses with an annual turnover of up to £25 million) represent a large part of the UK economy, including 60% of all employees and 47% of the turnover of all private sector businesses (Source: Department for Business Innovation & Skills, Business Population Estimates 2014).

A European Commission study in 2015 found the UK to be among the most competitive environments for SMEs in the European Union, with a positive outlook for future growth. The UK scored particularly highly in business environment, skills and innovation and conditions for international business (Source: European Commission for Enterprise and Industry). Recently, the UK Government has introduced a range of measures to stimulate SME success. These include advice to boost exports, changes in public sector procurement to include more SMEs, improved broadband access and business rate relief (Source: Lord Young Report on Small Firms 2010 – 2015, February 2015).

Since 2004, the number of SMEs has increased from 3.9 million to 5.4 million, despite declining levels of lending from banks following the financial crisis (Source: UK Department for Business, Innovation and Skills – Business Population Estimates: 2014 statistical release). There are positive indications of further growth as 14% of SMEs plan to increase staff and 43% expect revenue growth in the next three months (Source: FSB Voice of Small Business Survey 2014).

2 UK Consumer Trends

In recent years, a number of disruptors have revolutionised the way customers are served across a number of industries. Uber has changed the way people can hail taxis and track its progress, WhatsApp has partially displaced telecom companies and Netflix has transformed the provision of home entertainment, while Amazon (retail) and Apple (technology) continue to disrupt other industries through their ongoing innovation and exceptional customer service.

Some common themes that run across the retail sectors, including banking, that are facing these disruptors include:

• (a) the importance of tangible delivery at point-of-sale;
• (b) reduced barriers to entry as a result of increasing digitisation and development of off-the-shelf modular IT platforms;

• (c) cloud computing reducing the cost of doing business;

• (d) the rise of eCommerce driving a need for online/multi-channel interaction;

• (e) technology-led services such as PayPal and e-wallets changing the way consumers transfer money and pay for goods and services;
• (f) increasing importance of brand identity as price transparency rises (e.g., the increasing use of price comparison websites); and
• (g) analysing social media data and trends to make it possible for firms to draw major insights into customers' lives, including their potential credit worthiness.

As a result of these trends, incumbent banks are facing increased competition from a range of sources, including peer-to-peer lenders, crowd-funding, specialist payment firms, non-bank lenders, as well as specialty lenders and other new entrants. For instance, Metro Bank, Britain's first new High Street bank in over 100 years, offers (i) a differentiated approach to customer service in banking through its tangible delivery through multiple channels (store, telephony, mobile and online) so that the customer can engage with Metro Bank in the way that best suits that customer, (ii) a full-service product offering across retail and SME customers and (iii) innovation (such as, the Directors believe, being the first bank globally to provide chip and pin and contactless cards at the point-of-sale and being awarded the Microsoft Technology Innovation Award in 2014 as well as the Financial Services Award at Microsoft's Visionary Awards for Outstanding Business Achievement in December 2015), disrupting the traditional banking model.

3 Overview of the UK Banking Industry

3.1 Introduction

The UK banking industry forms an important part of the UK economy and provides a range of services, including helping to facilitate day-to-day financial transactions and providing capital to both individuals and businesses for various purposes. The total UK banking market comprised of £2.2 trillion of gross lending assets in January 2016 (Source: Bank of England Datastream Series LPMB8Y9, LPMB9Y2 and LPMB9Y3) and £2.1 trillion in deposits (Source: Bank of England, Datastream Series LPMVRJX and LPMVRJV). The financial services industry is particularly concentrated in London and accounted for 19% of London's total gross value added (Source: Office of National Statistics, December 2014) compared to 8.2% for the UK as a whole.

UK bank lending is funded by customer deposits and the wholesale markets, with retail markets providing the majority of UK banks' funding. Following the financial crisis in 2008, there was an increase in the level of concentration as the larger banks acquired smaller players; for example, the acquisition of HBOS by Lloyds TSB in 2009. According to a Treasury Select Committee report from 2011, the top five UK banks controlled 75% of total gross new lending in mortgages, 85% of the personal current account market and 62% of the savings account market (Source: Treasury Committee report: Competition and choice in retail banking). This concentration has persisted, despite the entry of new players in the market, as illustrated by the chart below.

UK Banking Market Shares

Due to the losses sustained in the financial crisis as well as increased capital and liquidity requirements under the new Basel III and CRD IV regulatory regime, the larger UK banks have been forced to deleverage, rebuild capital and reduce their reliance on wholesale funding. UK banks deleveraged by £1.7 trillion in the five years to 2013 (Source: KPMG Reinvention of UK Banking Report 2013), resulting in a significant reduction in the availability of credit to the UK economy (see chart below).

Historical Evolution of UK Lending Stock by Product (Indexed to January 2006)

Source: Bank of England, Datastream Series LPMVTXH; LPMVZRE (Credit Card); LPMB4TT (Unsecured); LPMVWMQ (Corporate)

As well as deleveraging, a number of incumbent banks have been through major cost-cutting exercises, have scaled back their branch network and are continuing to spend significant amounts on improving their IT and operational capability. Additionally, several incumbent banks, such as LBG and RBS, continue to streamline their businesses and refocus their operations both geographically and by product.

Many of the larger UK banks have faced a number of alleged legacy and conduct issues arising from, inter alia, payment protection insurance and swap mis-selling, LIBOR scandals as well as prolonged underinvestment in their infrastructure. Total litigation, fines and customer redress have totalled more than £30 billion since 2011. Together with widespread customer dissatisfaction with the incumbent banks, this has presented an opportunity for new entrants such as Metro Bank. While the larger banks have sought to move away from bespoke underwriting and a relationship-based model towards a more commoditised product offering, the newer entrants have stepped in. A number of these new participants successfully listed their shares in the last two years (for example, Aldermore, OneSavings Bank, Shawbrook and Virgin Money) and continue to achieve strong growth and returns.

3.2 Market Participants

The main participants in the UK banking market can be grouped into a number of broad categories:

Large banks: These are long-established providers, which typically have national coverage and provide a fulsome range of banking products and services, including consumer and corporate lending, investment banking, current accounts, credit cards, mortgages and other personal banking services. Most have significant overseas operations with new business obtained via a variety of channels. There are five large national banks in the UK banking sector: Barclays, HSBC, LBG, RBS and Santander (Source: Bank of England: Evolution of the UK banking system).

Medium-sized banks: These are branch-led banks with an established customer base that compete with the larger banks in the mainstream retail and commercial markets. These include banks such as Virgin Money, Clydesdale and TSB (recently acquired by Banco Sabadell). The planned carve-out of Williams & Glyn from RBS would add another medium-sized bank.

Full-service banks: These are banks that operate across the retail and SME sectors and have a fullservice product offering. They typically have a strong emphasis on relationship banking and customer service with the branch at their core (such as Metro Bank and Handelsbanken).

Specialised banks: There are a number of specialised banks that typically focus on specific sub-sectors of the market. These include both newly established banks and others that have been in existence for a significant period of time. This category encompasses a wide-range of business models, including:

• banks that focus on a specific product range and/or customer segment that may be underserved by the large and medium-sized banks and building societies due to their specialised nature and need for bespoke underwriting processes (examples include Shawbrook and OneSavings Bank); and
• newer entrants, yet to launch, with a digital-only offering (such as Atom Bank and Starling Bank).

Building societies: Building societies are owned by, and run for the benefit of, their members, who form the majority of a society's mortgage and savings customers. Building societies are governed by the UK Building Societies Act 1986 with regards to the type of assets and liabilities that they can originate, which among other things specifies that at least 75% of a building society's loan assets must be secured on residential property and at least 50% of funding is required to be raised from retail depositors. Nationwide is by far the largest building society followed by Yorkshire and Coventry Building Societies.

Credit unions: These are usually smaller lending institutions which are owned by their members. They typically serve those customers who are unable to access standard retail bank products through the established High Street banks.

Non-bank specialist lenders: The UK financial services market includes a number of non-bank finance companies such as short-term (or "pay-day") lenders, online specialists, peer-to-peer lending facilitators, crowd-funding providers and specialist mortgage lenders. These participants are active within the consumer and corporate lending markets and focus on niche areas where larger banks have typically chosen not to operate.

A number of non-financial groups, including retailers such as Tesco, Sainsbury's, Marks & Spencer and the Post Office, have seen an opportunity to leverage their trusted brands and deep client databases to establish their presence in the market for lending and savings products, often through co-operation agreements with existing banks and insurance companies.

3.3 Recent Government Support Schemes and Measures

A number of government measures have been taken to promote greater competition and lending in the banking industry. The FLS was introduced in July 2012 and provided banks with an incentive to lend through reducing funding costs for participants and linking access to the scheme to the amount of lending to the real economy. Funding under the scheme has been extended and will now run until January 2018 and has been limited to business lending. The total drawings as of 30 September 2015 stood at £63.6 billion, representing a significant increase from £17.6 billion as of 30 June 2013. The FLS has led to reduced competition for retail deposits as banks could access an alternative cheaper cost of funding. Conversely, the cheaper cost of funding has driven increased competition in mortgages and Commercial Segment lending, resulting in reduced asset margins.

The Help to Buy scheme, initially introduced by the government in April 2013, is designed to promote mortgage lending with the UK Government providing a guarantee/equity loan of up to 20% of the property value, allowing buyers to secure a mortgage with only a 5% deposit. It is primarily targeted at first time buyers and was extended until 2020 in March 2014. The UK Government is making up to £12 billion of support available in the form of government guarantees (Source: UK Government), leading to the number of first time buyers rising to the highest level since 2007 (Source: CML Press release, February 2015).

In the 2015 budget, the UK Chancellor of the Exchequer announced the imposition of an annual 8% corporation tax surcharge on bank profits over £25 million, effective from 1 January 2016, driven by a desire to ensure that banks make a fair contribution to the UK economy. It was also announced that tax relief on buy to let mortgages would be restricted to the basic rate of tax (phased in gradually from 2017 to 2020) and that the bank levy, an annual charge on the value of all debts of the UK banks (including money deposited) on a global basis (with some exemptions), will gradually reduce from 0.21% to 0.10% over the next six years and subsequently only apply to the banks' UK balance sheet liabilities. The 2015 Autumn Budget further imposed a three percentage points increase in stamp duty on the purchase of second homes and buy-to-let properties effective from April 2016.

3.4 Customer Perception and Competitive Dynamics

The UK Government has emphasised the need to introduce more competition into the SME and retail banking market, in response to poor customer satisfaction. Various research data highlighted the customer dissatisfaction with the incumbent banks. Three-quarters of banking customers said they would consider switching providers of which 48% cited dissatisfaction with customer service or products as the key driver (Source: Yougov Banking Customer Experience 2014). In another survey, 63% said they "do not trust any bank" and 69% did not agree with the statement that "high street banks treat their customers fairly" (Source: YouGov Research, May 2013). Further, London-based account holders, Metro Bank's core market, were found to be the most dissatisfied customers in the UK (Source: GfK Financial 2014).

Similarly, only 13% of SMEs surveyed stated that they believe their bank acts in the customer's best interest (Source: A CMA and FCA market study – Banking services to small and medium-sized enterprises), indicating the high level of dissatisfaction with the major High Street lenders. According to Sir Andrew Large's report "RBS Independent Lending Review", the larger banks have struggled to keep up with evolving customer preferences and have moved from a relationship-based model with a personalised service for SME customers towards a more centralised, commoditised product offering in order to reduce costs. This has allowed new entrants such as Metro Bank to differentiate themselves through their emphasis on customer service and a fair, transparent product offering.

There have been a number of initiatives to increase competition in the SME and retail banking market. The divestment by LBG of 631 branches and their accounts into TSB and the planned divestment by RBS of 314 branches into Williams & Glyn is expected to increase competition, while there are a number of banks that have recently been authorised or are in the process of being authorised, including Atom Bank (digital-only personal current account ("PCA") and SME), Starling Bank (digital PCA) and Civilised Bank (SME).

The Competition and Markets Authority ("CMA") is engaged in an investigation into the lack of competition in the PCA and SME banking markets. In July 2014, the CMA announced that it had provisionally decided to commence a market investigation reference in relation to both the PCA and SME banking markets and on 22 October 2015, the CMA published its provisional findings, identifying a number of competition issues in both the PCA and SME banking markets, which have been highlighted in the relevant sections below. The CMA is expected to publish its provisional decision on remedies in February 2016.

3.5 Importance of Branch Network and Digitisation of the Banking Model

As customers increasingly turn towards digital banking channels, the branch network for incumbent banks in the UK has been in decline. Over the last 10 years, 2,153 branches have closed in the UK resulting in one of the lowest density branch networks in Europe at 180 branches per million customers (Source: Deloitte Bricks and Clicks Report 2014) with a total of 9,661 branches at the end of 2014 (Source: CMA, October 2015). Total branch visits by PCA customers fell by 15% between 2012 and 2014 whereas online or mobile banking is now used by 77% of customers at least once a month (Source: BBA: Promoting Competition in the UK Banking Industry, June 2014). It is estimated customers in the UK log on to their mobile banking applications 10.5 million times a day to transfer £2.9 billion each week (Source: CMA Retail Banking Investigation, October 2015).

However, the branch remains an important part of the banking model in both the retail and SME markets. Whereas customers previously used the branch to conduct transactions and learn about products, they now demand a multi-channel (branch, web, mobile and telephone), more tailored offering suited to their convenience rather than the bank's. Branch convenience (location and opening times) is considered the third most important feature of a PCA for customers after quality of staff and customer service as well as quality and speed of handling problems (Source: GfK: Personal Current Account Investigation, April 2015) with 78% of PCAs opened in the branch in 2014 (Source: CMA, October 2015). For "commuter zones", customers require branch flexibility and an efficient, tailored service to suit their busy schedules (Source: Deloitte Bricks and Clicks Report 2014). Further, 83% of customers use branch services at least once a year, as illustrated by the chart below.

Frequency of branch visits

Source: CMA, Branches: Barriers to entry and expansion August 2015. Respondents asked 'How often, if at all, do you go into a bank branch for anything to do with your main current account?'

Average branch opening hours, as illustrated by the chart below, are broadly consistent across banks with the exception of Metro Bank which is open for more than 70 hours per week.

Average Branch Opening Hours in January 2015

Source: CMA Retail Banking Investigation, October 2015

Deloitte's study on branch networks in the UK concludes that there are diminishing returns above approximately 8% branch share, beyond which only marginal improvements in population coverage are possible with additional branch numbers. Conversely, branch network expansion for a bank that has a lower than 4% branch share can lead to a more than proportionate increase in population coverage and potentially higher revenues (Source: Deloitte Bricks and Clicks Report 2014).

Branches are particularly important in the sale of core customer products (Source: BBA: Promoting Competition in the UK Banking Industry, June 2014), such as current accounts and mortgages. A survey conducted in June 2014 reported that 57% of banking customers agreed that branches were necessary for discussing banking issues, particularly for more detailed processes such as mortgage applications (Source: BBA – Promoting Competition in the UK Banking Industry, June 2014). In the SME market, at least 80% of SMEs had visited a branch counter service over the past year and 82% of SME start-ups open their business current account at a branch (Source: CMA, Retail banking Market Investigation October 2015), as illustrated by the chart below. After free banking, the most important factors behind the choice of business current account ("BCA") provider for an SME start-up were branch location and the bank being the SME owner's personal bank.

At the same time, the UK banking industry is increasingly adopting new technologies; for example, providing multi-channel services such as online and mobile banking which complement the in-branch services. Branches are also becoming more digitally focused with a migration towards self-service technology (including "smart ATMs" with enhanced functionality).

Source: Charterhouse Survey 2014, Base: 252 SMEs In response to the survey question 'What channels did you use to open your account?'

4 Retail Deposits

4.1 Market Overview

Retail customer deposits comprise the savings held by banks on behalf of their customers. Banks can pool together such funds on a short-term basis and facilitate a more efficient allocation of capital across the economy by lending the funds to selected borrowers for a longer term. The stability of the funding base and liquidity of financial institutions are thus critical for the financial system due to the role retail banks play in maturity transformation.

The UK retail deposit market is segmented into: (a) current accounts; (b) sight deposits, where the entire balance is accessible without penalty, either on demand or by close of business; and (c) time deposits/savings products, where deposits are not accessible without penalty, on demand or by close of business. Tax-free Individual Savings Accounts ("ISAs") accounted for 17% of the retail deposit market at £266 billion as of 31 January 2016. The UK Government, via the Financial Services Compensation Scheme (''FSCS'') provides a Government guarantee for retail deposits of up to £85,000 per person, reduced to £75,000 (sterling equivalent of €100,000 as required by the Deposit Guarantee Schemes Directive) from January 2016 due to movements in the EUR/GBP exchange rate.

The retail deposit market can be divided into ''primary'' and ''secondary'' markets. In the primary market, customers use the current account for everyday transactions, usually where there is a direct deposit of salary and use of direct debits for regular bills. In the secondary market, a customer opens a second account with another provider.

Primary market: Primary customers use the account for everyday transactions, such as the direct deposit of salaries and direct debits for bills. They are likely to hold further products, such as mortgages, credit cards and loans, and tend to be more sticky customers (Source: CMA – Personal Current Accounts). Larger banks hold a leading share of the primary market.

Secondary market: This segment is driven more by price and/or customer service, compared to the primary market.

Total household deposits (including PCA balances) stood at £1,232 billion as of 31 December 2015 (Source: Bank of England). Over the three years to December 2015, household deposit balances have grown at a CAGR of 3.9%.

The growth in household deposits is illustrated in the chart below:

Sterling Deposits from Households (£ billion)

Source: Bank of England, Datastream Series LPMVWLM

The distribution of retail deposit products in the market is through three primary channels:

• face-to-face sales to consumers by providers through their High Street branches;
• direct sales to consumers by providers through the telephone, internet and post; and

• sales to consumers through online price comparison sites.

4.2 Personal Current Accounts

(a) Introduction

A PCA is central to most retail customers' personal finances and it typically defines their primary relationship with a bank. PCAs provide customers with facilities to hold deposits, receive and make payments, and to use ATMs. Many PCAs provide overdraft facilities which grant customers a line of credit. The UK PCA market is a mature market with 97% of UK adults holding at least one PCA (Source: CMA, October 2015) and 40% having more than one (Source: Office of Fair Trading: Review of the Personal Current Account, January 2013).

There are various types of PCAs, including:

• "standard" accounts with no fixed charge (62% of all PCAs in 2014);
• "reward" accounts that offer a monthly cash payment or cashback and generally have a monthly fee of £2 to £5 (12% of all PCAs in 2014). The proportion of reward accounts has increased from 8% of new PCAs in 2011 to 25% in 2014;
• "packaged" accounts which provide additional products such as phone insurance for a fixed monthly charge (9% of all PCAs in 2014);
• "basic" accounts which provide a simple cash and payments facility without access to any overdraft (11% of all PCAs in 2014); and
• "student"/"youth" accounts (Source: CMA, October 2015).

(b) Key Metrics

The UK has approximately 67 million active PCAs (Source: CMA Personal Current Accounts Market Study, Retail Banking Market Investigation October 2015). Since 2007, the number of active PCA accounts in the UK has grown by approximately 24% (Source: OFT PCA Review). Annual new account opening has remained broadly consistent at 6.0 million in the UK since 2011 (Source: CMA, October 2015).

Approximately 75% of all PCAs in the UK in 2014 were "free if in credit" accounts. There were £183 billion of gross PCA deposit balances and £8 billion of outstanding PCA overdraft balances in the UK as of 30 June 2014 (Source: CACI). In terms of revenue for retail banks, a CMA investigation (October 2015) identified that income generated by providers of PCAs was £8.7 billion in 2014.

(c) PCA Distribution Channels

Historically, branches have been the most important channel for PCA sales and there is a strong correlation between a UK bank's national share of branches and its PCA market share. However, a growing trend is emerging for PCAs set up via online channels. Advancements in technology have resulted in an increase to the channels available for customers to manage their PCAs, increasing the number of online and mobile transactions.

(d) Competitive Landscape

The UK PCA market remains highly concentrated with the four largest providers (HSBC, Barclays, RBS and Lloyds) having a market share of more than 70% of active PCAs (Source: CMA October 2015) and losing only 5% market share since 2005 (Source: CMA, October 2015). A consumer survey conducted by the CMA found that in 2014, 57% of respondents had been with their main PCA provider for more than 10 years and 79% had neither searched nor switched in the last year (Source: CMA, October 2015). A CMA study on PCAs conducted in July 2015 found that among the smaller banks, only Metro Bank had increased its market share in recent years.

A number of recent developments have reduced concentration in the PCA market:

• (a) the introduction of the Current Account Switching Service ("CASS") in September 2013 by the UK Payments Council, which guarantees that an account can be switched within seven working days, with existing payment arrangements automatically transferred to the new account. Currently, 40 banks and building societies participate, including Metro Bank. In the 12 months following the introduction of the scheme, there was a 22% increase year-on-year in PCA switching volumes in the market to 1.2 million (Source: BACS). However, consumer awareness and annual switching levels remain low with only 3% of customers switching banks each year and 8% over the past three years, compared to switching levels of 13% in savings products and 31% in energy over the same three years (Source: CMA, October 2015). The branch-based sort code structure used for PCAs and the lack of catalysts (as PCAs have no contract end date) also contribute to the low switching rate;
• (b) new entrants such as Metro Bank; and
• (c) the required divestment (under state aid regulations) by LBG of 631 branches and their accounts into TSB bank, recently acquired by Banco Sabadell, and by RBS of 314 branches into Williams & Glyn.

There is limited price competition in the PCA switching market as PCAs are nominally "free if in credit" accounts and greater emphasis is placed on branch network, multi-channel offering and customer service.

The biggest immediate net gains as a result of CASS were made by Santander and Halifax (as illustrated by the chart below), as they offered various incentives such as a switching payment and monthly rewards (provided certain criteria were fulfilled). The Santander 123 account, launched three years ago, which offers cash back on selected household bills and an interest rate of up to 3%, has been popular among customers. However, the recently announced 150% increase in the annual fee from £2 a month to £5 from January 2016 on the Santander 123 current account is starting to lead to larger gains for the smaller market players.

The gains and losses by banks as a result of CASS are illustrated in the chart below:

Current Account Switches (using CASS) in 2014: Gains/(Losses) By Bank (000s)

Note: Data for Metro Bank and TSB for the above chart was not available from BACS for 2014

Recent research by the FCA, however, found that consumers lacked awareness of CASS and the UK Payments Council reported in December 2014 that less than 50% of consumers were confident that CASS would complete their switch without error. Further, overdraft consumers, despite having the most to potentially gain from switching, were less likely to switch than other customers (Source: CMA, October 2015).

A market survey conducted by GfK suggests an inverse relationship between quality of service and market share (illustrated by chart below). According to the survey, "quality of staff" and "customer service" were ranked as the most important feature of a bank account and 83% of customers rated it as either "essential" or "very important".

How Retail Banks make Money from PCAs

PCAs represent a low-cost source of funds for banks. The key source of income generated from PCAs is net interest income on deposits and overdraft balances, and fees and commissions from associated banking services. Fee income is also generated from packaged PCAs which incur a fixed monthly charge and are the most profitable type of PCAs (Source: CMA, October 2015).

According to the OFT, the total income earned by providers of PCAs decreased from £8.9 billion in 2011 to £8.7 billion in 2014 (Source: CMA PCA Market Study, July 2014, CMA Retail Banking Investigation, October 2015), driven by a fall in net credit interest and overdraft revenues, as illustrated by the chart below. The decline in net credit interest is attributable to a fall in wholesale interest rates, a trend that may reverse if interest rates rise in the future.

Total PCA Revenues for the UK Banking Industry

Source: CMA Information Requests Note: Account fees are shown net of cashback costs for providers

The rise in interchange fees has been driven by an increase in the number of debit card transactions for purchases in the UK and a rise in interchange fees per transaction. In July 2013, the European Commission published plans to cap interchange fees at 0.2% for debit card transactions and 0.3% for credit card transactions (Source: European Commission). On 29 April 2015, the European Parliament voted to adopt a multilateral interchange fee regulation. The interchange fee caps came into effect on 9 December 2015 and the majority of provisions relating to business rules come into effect on 9 June 2016. Figures from the British Retail Consortium estimate the cap could save UK merchants £480 million each year and may threaten the viability of "free if in credit" pricing for some PCA providers and 0% balance transfers (for several months) on credit cards.

The cost for a £100 cash withdrawal in Europe is illustrated below, with Metro Bank offering the cheapest services and the larger banks among the costliest.

Cost of £100 Cash Withdrawal in Europe

Source: CMA October 2015

4.3 Savings Accounts

(a) Introduction to Savings Accounts

Savings accounts allow customers to deposit cash funds and receive interest on those funds, which is typically higher than funds held in a PCA. Approximately 93% of adults in the UK have a cash savings account (Source: Mintel: Deposit and Savings Accounts UK). There are two main types of savings accounts:

• Fixed rate savings accounts (sometimes referred to as "time" or "term" deposits) offer a fixed interest rate for a fixed term; and
• Variable rate savings accounts pay a variable rate of interest (which may change at the discretion of the bank or building society but often moves in response to changes in the prevailing Bank of England base rate).

A subset of fixed and variable rate savings accounts are cash ISAs, the income generated from which is exempt from tax.

The chart below displays trends in the customer rates for time deposits (also known as "term" deposits) and instant-access savings deposits, as well as the official rate set by the Bank of England. The gap between the interest rates paid on time deposits compared to instant-access deposits reflects the premium banks attach to time deposits, which are held for longer periods.

Source: Bank of England, Datastream Series LPMZ3U9 (Time Deposits), LPMZ3U7 (Sight Deposits), IUDBEDR (Official Bank Rate)

Between 2008 and 2009, the decline in the Bank of England base rate was sharper than the decline in interest rates offered for customers' deposits. This has resulted in savings deposits becoming a relatively more expensive source of funding compared to the official rate than before the financial crisis. The two spikes in 2015 represent higher rates offered by newer entrants such as Charter Savings Bank which was paying 2.07% on its one year fixed rate account and 2.95% on its five year fixed rate account, leading to a "price war" among new online/digital-only entrants.

The UK savings ratio, the percentage of disposable income that is saved, is a key determinant of the growth of savings balances, as illustrated by the chart below. The UK savings ratio was 4.6% in the third quarter of 2015 and is currently below its average over the last 10 years as the low interest rate environment discourages savers. The savings market is expected to grow in line with economic growth, particularly in the context of a likely rising interest rate environment.

Q3

Source: ONS

(b) Savings Distribution Channels

Savings accounts are distributed through multiple channels. While the majority of savings accounts are still distributed through branches, an increasing number of people are using the internet and particularly price comparison websites to search for the best rates on offer (i.e., "best buy tables"). Some banks offer different savings rates through different channels.

(c) Savings Competitive Landscape

Over a hundred banks, building societies and credit unions currently offer cash savings products in the UK, with the six largest providers (HSBC, Barclays, RBS, LBG, Santander and Nationwide) holding approximately 68% of all cash savings balances. Estimates of market concentration show that while the cash savings market has remained relatively concentrated for a number of years, the divesture of TSB Bank from LBG and the increasingly influential presence of newer providers such as Tesco Bank and Metro Bank decreased market concentration in 2014 (Source: Financial Conduct Authority – Cash savings market study report: Part I: Final findings Part II: Proposed remedies).

In contrast to Metro Bank which offers the best available rate to all its customers, several providers generally pay lower interest rates on older accounts than on accounts opened more recently through "teaser"/bonus rate products (Source: FCA). There has been strong recent price competition among the newer entrants that raise their deposits online only as they seek additional deposits with rates of over 2% offered by some newer banks (such as Charter Savings Bank) on one-year fixed rate deposits.

5 Residential Mortgages

5.1 Introduction

The most common form of financing in the UK to purchase residential property is a loan secured by a mortgage, using the property as collateral against the amount borrowed.

There are two principal categories of mortgage product in the UK residential mortgage market:

• Owner-occupied mortgages: provide financing to owner-occupiers, including first-time buyers, home-movers and those wishing to re-mortgage. This is the largest segment of the mortgage market, with £1,071 billion of outstanding balances as of 31 December 2014, or 85% of outstanding balances in the market (Source: Council of Mortgage Lenders).
• Buy-to-let ("BTL") mortgages: provide financing for individuals who intend to rent out the purchased property. The BTL market had £188 billion of outstanding balances as of 31 December 2014, or 15% of outstanding balances in the market (Source: Council of Mortgage Lenders).

Within those categories, mortgage products can vary depending on:

• Interest rate type: variable rate mortgages, fixed rate mortgages and tracker mortgages; and
• Repayment type: "repayment", "interest-only" and "part repayment/part interest-only".

Mortgage interest rates vary depending on the size of the mortgage at origination relative to the value of the property on which the mortgage is secured (defined as Loan to Value or "LTV"), the size of mortgage relative to gross income of the borrower (defined as "LTI"), the category of mortgage (owner-occupied versus BTL), the borrower's credit history and the prevailing Bank of England base rate. Mortgage rates increase with LTVs and LTIs as the impairment risk increases and higher LTVs may be subject to higher regulatory capital requirements in the future. As of 30 September 2015, 66% of the outstanding residential mortgages had an LTV below 75% and 97% below 90% (Source: FCA). BTL mortgages tend to have higher rates than owner-occupied mortgages at comparable LTV ratios.

The residential mortgages market has experienced a strong recovery since 2010, expanding at a CAGR of 10% to £220 billion in gross advances in 2015 (Source: Council of Mortgage Lenders). In particular, the market for first-time buyers has seen a significant increase, with the number of first-time buyers rising to more than 300,000 in 2014, the highest since 2007 (Source: Council of Mortgage Lenders). This is partly as a result of the UK Government's ''Help to Buy'' scheme which was launched in 2013 and provides shared-equity schemes for first-time buyers. The scheme was originally intended to run until 2017, but was extended until 2020 in March 2014. The chart below illustrates the residential loans to individuals by purpose showing an increase in the proportion of first-time buyers and buy-to-let purchases since 2008.

Purpose of Residential Loans to Individuals

Source: FCA

Note: Represents residential loans to individuals

Average overall customer rate on residential mortgages has declined from 5.5% at the start of 2007 to 2.8% at the end of the third quarter of 2015 (see chart below), with the recent decline aided by government measures such as quantitative easing and the FLS.

Source: FCA

At the same time, as shown in the chart below, the proportion of residential mortgages that were securitised has declined from 18.9% in the first quarter of 2009 to 6.6% in the third quarter of 2015.

Proportion of Mortgages Securitised

Source: FCA

5.2 Mortgage Distribution

Mortgages are primarily distributed through two channels:

• intermediaries: provide advice to consumers and introduce mortgage business to lenders; and
• direct-to-consumer: by lenders through High Street branches, internet and telephone.

Intermediaries play an important and growing role in UK mortgage distribution, and accounted for 63% of mortgage origination in 2014, as shown in the chart below and continue to increase their share. The intermediary channel enables smaller lenders to compete for mortgage business on a national scale since it reduces the need to have an extensive branch network.

Mortgage Distribution Channels

Source: CML Regulated Mortgage Survey

The second distribution channel is direct-to-consumer. The larger established banks are more likely to rely on direct distribution though an existing network of branches and avoid paying commission to intermediaries. The telephone and internet are used to originate mortgages but without the cost associated with a physical branch network. Traditionally, customers sought face-to-face interaction when buying a mortgage, but there is an increasing presence of mortgage offerings online, partly due to the popularity of price comparison websites.

The recent Mortgage Market Review ("MMR") reforms came into force on 26 April 2014 and affect the UK mortgage distribution market. MMR has effectively shifted the responsibility for verifying income and assessing whether the customer can afford the loan to lenders and also prohibits nonadvised mortgage sales. As a result, lenders without sufficient in-house advisory capabilities are increasingly relying on intermediaries to provide such services.

5.3 Competitive Landscape

The competition has increased in the UK residential mortgage market recently. In 2009, the six largest lenders together accounted for 86% of gross mortgage advances, as illustrated in the chart below. In 2014, the proportion of gross mortgage advances made by the six largest lenders decreased to 72% (Source: Council of Mortgage Lenders).

Gross Lending Market Share of the Six Largest UK Mortgage Lenders

The six largest mortgage lenders and their respective share of gross advances in 2014 were LBG (19.8%), Santander (13.5%), Nationwide (13.2%), Barclays (10.0%), RBS (9.7%) and HSBC (6.2%) (Source: Council of Mortgage Lenders 2014).

The remaining part of the market is served by Yorkshire Building Society (3.7%), Coventry Building Society (3.6%), Virgin Money (2.9%), Clydesdale (2.5%) and other smaller lenders (Source: Council of Mortgage Lenders 2014).

Source: Council of Mortgage Lenders 2014

The market dominance of the largest lenders has decreased due to several factors described earlier in this section, including liquidity and capital constraints, deleveraging and an increase in lending by mutuals, challenger banks and smaller banks. These lenders have been less affected by the capital constraints and legacy issues facing a number of the larger banks.

5.4 Key Metrics

The total value of outstanding residential mortgage balances to individuals in the UK was £1,272 billion as of 30 June 2015 and has been relatively stable over recent years, with a CAGR of only 1.2% between 2007 and 2014 as shown in the chart below (Source: FCA Mortgage lending statistics).

Total Outstanding Residential Mortgage Balances (£ billion)

Source: FCA

There has been a significant reduction in gross lending from the pre-crisis peak, as shown in the chart below. Gross lending in 2007 was £357 billion compared to £220 billion in 2015. The mortgage market started recovering in 2010 and increased at a CAGR of 10% between 2010 and 2015 (Source: Council of Mortgage Lenders).

Total Gross Mortgage Lending (£ billion)

Source: CML

Customer demand for mortgages is affected by the strength of the housing market, among other factors. Average house prices in the UK fell by 17% from the peak in November 2007 to the trough in April 2009 (Source: Land Registry). However, there has been a recovery since and prices are generally higher than the pre-economic downturn peak, with particularly strong growth in London and the South East, Metro Bank's core market.

House price inflation has exceeded wage inflation, constraining customers' affordability for residential mortgages and raising concerns of a potential overheating of the UK housing market. The house price to earnings ratio (a measure used for mortgage affordability and calculated using average seasonally adjusted house prices, average disposable earnings and the Bank of England's monthly average rate for new advances) increased from 4.42x in the last quarter of 2012 to 6.09x at the end of 2015. Over the same period, the house price to earnings ratio in Greater London increased from 5.43x to 9.63x (Source: Halifax House Price Index).

5.5 How Lenders make Money from Mortgages

The key source of income for mortgage providers is the interest rate spread on the mortgage book, i.e., the difference between the rate charged to the customer and the cost of funding. As presented in the chart below, the spread has widened significantly since 2008. The interest rate charged to customers has decreased at a much slower rate than the base rate, which is directly correlated to the funding cost for banks, implying an improvement in the overall profitability of mortgage lending.

Source: FCA. Note: Customer rate represents weighted average interest rate on all new residential mortgages to individuals

As illustrated by the chart below, the increased spread has also been supported by an improvement in arrears and repossessions since their peak in 2009. According to the Council of Mortgage Lenders, repossessions decreased from a peak of 48,900 in 2009 to 21,000 in 2014, underpinned by strong economic fundamentals and a robust housing market.

UK Mortgage Arrears(1) and Repossessions

Source: FCA, CML Note: (1) Represents balances in arrears as a percentage of total loan balances for residential loans to individuals

6 SME Banking

6.1 Introduction

SMEs play a vital role in the UK economy and have seen a steady increase in number since the 2008 financial crisis. At the start of 2015, the number of SMEs in the UK exceeded 5.4 million, employing 60% of all private sector workers and accounting for nearly half the annual turnover of all private sector businesses (Source: BIS, October 2015). Total SME borrowing outstanding totalled £98 billion (see chart below) at the end of June 2015, a 2.3% decrease compared to the prior year, whereas total SME deposits increased by 9.7% in the year to June 2015 to £157 billion (Source: BBA: Bank Support for SMEs, Q2 2015).

The financial crisis and subsequent tightening regulatory requirements and deleveraging has contributed to the larger banks reducing their lending, particularly to the SME sector, forcing businesses to turn to other lenders and alternative forms of credit. In order to promote lending to the real economy, the UK Government (supported by the Bank of England) has taken several measures, including the establishment of the British Business Bank, the introduction of the FLS which links access to the amount of lending to SMEs, quantitative easing, the National Loan Guarantee Scheme and the Business Finance Partnership.

SMEs utilise external finance for a variety of reasons, including expanding the business (30%), covering cash flow shortfalls (28%) and purchasing new equipment (22%) (Source: CMA Retail Banking Investigation, October 2015). The products used by SMEs are principally BCAs, overdrafts, loans and credit cards. In 2014, 48% of SMEs had credit cards and 43% had overdraft facilities, compared to only 18% which held a loan in the last 12 months (see chart below).

Proportion of SMEs Holding Banking Products

Source: CMA, Retail Banking Investigation October 2015, Charterhouse BBS 2014 Base: All SMEs asked about other products (4,993)

Most lending is taken out by larger SMEs with greater than £2 million turnover. SMEs with a turnover below £2 million accounted for 95% of all SMEs but less than half of new loans by value in 2014 (Source: CMA Retail Banking Investigation, October 2015). There is a high level of natural turnover with a number of SMEs starting or ceasing to trade each year, reflected in the level of churn in BCAs. Approximately 12% of BCAs were opened and closed in 2014, and on average, only 60% of SMEs will be in business after three years (Source: CMA, October 2015).

6.2 Distribution

The main distribution channels used by SMEs are branches, online channels and by telephone (Source: YouGov). Relationship managers, who have an understanding of each business, provide a single point of contact for larger SMEs (Source: YouGov – SME Banking). SME customers use multiple channels, preferring digital options for simple interactions and using personal interaction for more complex banking needs (Source: YouGov).

Personal contact and branch banking are important to SMEs. The largest SMEs place significant value on personal service and face-to-face contact from banks. 54% of SME customers visit a branch at least once a month and SMEs' most preferred means of communication with a bank is over the telephone with a branch employee (Source: YouGov – SME Banking Data).

A strong digital presence is important for SME customers as they make frequent use of online banking, with 64% of SMEs using online banking as their main channel (Source: CMA, October 2015), up from 48% in 2010.

6.3 Competitive Landscape

The market for SMEs is relatively concentrated, with the share of the four largest banks remaining broadly stable at around 80% since 2012. It generated annual revenues of £7.1 billion in 2014 for the seven largest banks in the UK. BCA market share is similarly concentrated, with the four largest banks accounting for over 80% of main banking relationships. The Office of Fair Trading has previously highlighted the high barriers to entry in the SME sector.

Although the UK market is generally stable, there have been successful new entrants, such as Metro Bank, which emphasises its branch network and local, face-to-face relationships, as well as its transparent product offering to build customer trust and loyalty. Metro Bank and Handelsbanken are the only providers of cash management services to SMEs among the smaller banks which, along with BCAs, often forms the cornerstone of an SME relationship - see Section 6.5 Business Current Accounts and Deposits and Section 6.6 Cash Management for further details.

6.4 Trends in SME Lending

Demand for SME finance is driven by business confidence and hence investment. The growth in levels of business investment was 4.6% in 2014 and is expected to be 6.1% in 2015 and 7.4% in 2016 (Source: Office for Budget Responsibility – Economic and Fiscal Outlook, November 2015). Business investment increased 11% in the first half of 2015, compared to the same period in 2014 (Source: ONS, Q2 2015). The continued economic recovery has also led small business confidence to reach near multi-year highs, as illustrated by the chart below.

FSB Small Business Confidence Index

Source: Federation of Small Businesses Voice of Small Business Index Q2 2015

SMEs have generally experienced greater difficulty than larger corporates in accessing finance; however, acceptance rates have continued to improve over time with 79% of all applications in the last 18 months resulting in a facility being provided and 84% of overdraft applications being successful, the highest proportion recorded to date (Source: SME Finance Monitor, Q2 2015).

The use of external finance has remained lower than prior years with 36% of SMEs using external finance in the second quarter of 2015, compared to 46% in 2011 (Source: SME Finance Monitor, Q2 2015). SME products are often tailored to customers' individual requirements and incorporate a higher degree of customer interaction and service which larger banks are increasingly not able to, or unwilling to, provide for cost-efficiency reasons.

London and the South East, Metro Bank's core market, accounted for 32% of all outstanding SME loan balances of £98 billion and of the new loans approved in the second quarter of 2015 by value (Source: BBA, Bank Support for SMEs, Q2 2015).

Respondents to the Bank of England's Credit Conditions survey expected demand for bank lending to increase significantly from SMEs in the second quarter of 2015. However, despite the recent growth in demand, the growth rate in the stock of lending to SMEs has been negative for the past four years, according to data from the British Bankers' Association and Bank of England, although the rate of decline has decreased in recent months as confidence returns (see chart below).

Lending to SMEs(1)

Sources: BBA, Bank of England and calculations

Notes:

• (1) Rate of growth in the stock of lending. Data covers lending both sterling and foreign currency, expressed in sterling. Non-seasonally adjusted
• (2) Lending by a BBA panel of lenders to SMEs in Great Britain. SMEs are defined as businesses with turnover up to £25 million. Data are to December 2014
• (3) Lending to UK SMEs with annual debit account turnover less than £25 million
• (4) Lending to UK large businesses with annual debit account turnover over £25 million

As a result of the combination of growing demand through business confidence and lack of supply from incumbent banks, there has been a significant credit shortage in the SME segment. The Breedon Report, which was commissioned by the UK Government Department for Business, Innovation & Skills to specifically look at the topic of financing UK SMEs, estimated the SME credit gap between supply and demand could rise to c. £26 - £59 billion by 2016.

There have been signs of an SME market recovery recently. The decline in loans outstanding has slowed with a 1.0% decrease in total loans to UK private non-financial corporations ("PNFCs") in 2015 compared to a 5.6% decline in 2014, as illustrated by the chart below.

Total Outstanding Loans to UK PNFCs (£ billion)

Source: Bank of England, Datastream Series LPMVVPD

6.5 Business Current Accounts and Deposits

A BCA forms the basis of a broader banking relationship, as a majority of businesses borrow from their BCA provider. Unlike PCAs, there is little variation between types of BCAs. Banks typically either charge for each transaction or charge a monthly fee which will include a specific volume of transactions within the fee. The total size of the BCA market has remained relatively stable since 2012 at approximately 5.5 million accounts of which around 88% were active in 2014 (Source: CMA, October 2015).

The market is highly concentrated with the largest four providers (HSBC, Barclays, RBS and LBG) accounting for over 85% of BCAs and 90% of business loans. Switching levels remain extremely low with only 4% of SMEs switching banks each year, despite only 13% of SMEs saying that they trust their banks to act in their best interest (Source: CMA, July 2014). Further, approximately 51% of SMEs set up their BCA with their main PCA provider and 36% do so without searching at all (Source: Charterhouse Business Banking Survey 2014). A CMA survey found that awareness of CASS was low among SMEs with only 10% of BCAs switching through CASS in 2014.

As of 30 June 2015, cash held by PNFCs in current and deposit accounts totalled £324 billion, a 9.7% increase compared to the prior year (Source: BBA Bank Support for SMEs, Q2 2015). Deposits from businesses have continued to grow since 2011, as shown in the chart below.

Total Deposits from PNFCs (£ billion)

Source: Bank of England Dataseries LPMB6S3, LPMZ3TX and LPMZ3U5

Customer rates paid on business deposit products have, in recent years, been lower than those for individuals. Consequently, SME deposits are very valuable as a source of low cost funding for banks. As illustrated in the below chart, customer rates for SME savings have fallen considerably as a result of the reduction in interest rates, however, more liquidity must be held against them. Similar to PCAs, the key drivers for BCA profitability are the number of active customers, level for fees charged, level of credit balances, income from overdraft fees and interest, and NIM.

Customer Rate for Private Non-Financial Corporations (PNFCs) Instant Access Deposits

Source: Bank of England Dataseries CFMHSCT, IUMAAMIJ

6.6 Cash Management

Cash or treasury management services include a broad range of services relating to the collection, concentration and disbursement of cash offered to businesses. It includes wire transfers, direct debit collection, merchant services and liquidity management among other services. Metro Bank and Handelsbanken are the only providers of cash management services to SMEs among the smaller banks, allowing them to establish a strong relationship with businesses through their full service offering.

6.7 How Retail Banks Make Money from Business Banking

Similar to retail banking customers, banks generate net interest income, fees and commission income from business banking.

As shown in the chart below, customer rates for lending to SMEs fell rapidly as interest rates declined during the financial crisis, but have increased gradually since. Customer rates did not fall as much as funding costs and consequently, loan product NIM increased.

6.8 Indicative Customer Rate for New Lending to SMEs

Source: Bank of England, Trends in Lending April 2015

There are a number of different lending products utilised by SMEs. Outlined over the following sections is an overview of the key products.

7 Commercial Mortgages

Commercial mortgages are secured against commercial properties such as retail premises, offices, industrial units and commercial and residential investment property, for example, a shop unit with flats above it. Customers for commercial mortgages include large corporates, SMEs and private property investors. Mortgage brokers play an important role in the distribution of commercial mortgages.

The High Street banks are the largest players in the commercial property market. In the SME and professional property investor markets, both specialist lenders and larger banks are present: for example, participants include Aldermore, LBG, Shawbrook and Santander. Specialist lenders have increased their market share following the financial crisis.

Demand in the professional buy-to-let market has been increasing in recent years, with 19% (4.4 million) of households renting privately, up from 11% in 2003 (Source: English Housing Survey Report 2013 – 2014). The privately rented sector is forecast to continue to grow and account for more than a third of the UK's housing stock by 2032 (Source: Civitas: The Future of Private Renting, January 2015).

The commercial mortgages market is particularly strong in London and the South East, with London accounting for over a third of total commercial property by value. Overseas customers are also an important component of commercial mortgages demand.

8 Asset Finance

8.1 Introduction

Asset finance offers SMEs a secured finance alternative to a traditional bank loan and is the third most common source of finance for businesses, after bank overdrafts and loans (Source: FLA). It involves a business paying for use of an asset over a period of time with the two most common types being, (i) leasing, where the customer rents the equipment without owning it; and (ii) hire purchase, where the customer buys the equipment on credit.

According to the Financing & Leasing Association, total asset finance origination by its members was £29 billion in 2015 (see chart below), representing almost 32% of UK investment in machinery, equipment and purchase software and a 16% increase compared to 2014 (Source: FLA). Government efforts to increase funding for SMEs such as the FLS and an increase in the annual investment allowance from £250,000 to £500,000 for all qualifying investments between April 2014 and December 2015 have helped promote lending to the sector.

Source: Finance & Leasing Association ("FLA")

Asset finance agreements are secured against assets (e.g., vehicles, office equipment, manufacturing equipment, IT equipment and telephony systems) with cars and plant and machinery being the most popular assets due to their established liquid secondary markets (Source: FLA).

8.2 Competitive Landscape

The main providers of Asset Finance in the UK can be broken down into: (i) the larger banks (Barclays, RBS, LBG and HSBC) that accounted for approximately 65% of the value of outstanding loans in 2014 (Source: CMA, Retail Banking Investigation, October 2015); (ii) original equipment manufacturers and vendors such as General Electric and Siemens; and (iii) specialised banks and lenders such as Close Brothers, Aldermore and Hitachi.

A key development of the Asset Finance segment was the exit of a major player, ING, in 2012 which is estimated to have created a gap of unserved credit demand of c. £1 billion for the rest of the sector. The high yields available in the sector make it attractive for companies looking for superior returns – e.g., Paragon's acquisition of Five Arrows for £117 million in October 2015.

9 Invoice Finance

9.1 Introduction

Invoice financing enables SMEs to meet their working capital requirements through invoice discounting and factoring facilities. The total value of invoice financing in the UK as of the end of September 2015 was £20.0 billion, representing a 4% increase over the prior year. There were 44,100 customers in the market as of 30 September 2015, mainly small businesses with revenues below £5 million (Source: ABFA, March 2015).

The most common types of invoice finance are: (i) invoice discounting, which involves lending against unpaid invoices, typically at an agreed percentage of their total value, with the lender not directly interacting with the business's customers; and (ii) factoring, which involves the lender managing the credit control and interacting with the business's customers while retaining a percentage of the value in return.

9.2 Competitive Landscape

The market participants include larger banks, as well as some specialist providers such as Bibby Financial and Shawbrook, which are more focused on regional SME customers. The four largest banks (Barclays, RBS, LBG, HSBC) accounted for 80% of the value of outstanding loans in 2014 (Source: CMA, Retail Banking Investigation, October 2015).

PART VII INFORMATION ON METRO BANK

Investors should read this Part VII: "Information on Metro Bank" in conjunction with the more detailed information contained in this Prospectus, including the financial and other information in Part XV: "Historical Financial Information" and Part XI: "Operating and Financial Review". Where stated, financial information in this Part VII has been extracted or derived from Part XV: "Historical Financial Information".

The following discussion of Metro Bank's business contains forward-looking statements that reflect the current view of the Directors and involve risks and uncertainties. See Part II: "Risk Factors" and Part III: "Presentation of Information on the Group – Information regarding forward-looking statements" for a discussion of important factors that could cause Metro Bank's actual results to differ materially from the forward-looking statements contained herein.

Overview

Metro Bank was founded by Vernon W. Hill, II in 2010 as the first full-service, independent, new High Street bank to open in the UK in more than 100 years. Metro Bank uses a disruptive, deposit-driven funding model and a superior retail-focused customer service proposition that emphasises simple, straightforward banking in order to turn its customers into "FANS" (customers who recommend someone to bank with Metro Bank).

Metro Bank opened its first store in Holborn, central London, in July 2010, and since that time has established a strategically located network of 40 stores (not 'branches') across London and the surrounding commuter areas, with approximately 655,000 customer accounts, £5,108 million in deposits from customers and £3,549 million of gross loans and advances to customers as of 31 December 2015. Driven by and reflective of its customer service-led model and culture, Metro Bank's "stores" are open seven days a week, early morning until late. Metro Bank also supports 24/7 telephony, digital and mobile banking, and offers simple products and fair pricing.

Metro Bank's operating model is underpinned by its "AMAZE(ING)" values:

• A ATTEND to every detail
• M MAKE every wrong right
• A ASK if you're not sure Bump it up!
• Z ZEST is contagious Share it!
• E EXCEED expectations
• I INSPIRE colleagues to create FANS!
• N NURTURE colleagues so they grow
• G GAME CHANGE because this is a Revolution

In order to cultivate a culture that supports these values Metro Bank seeks first to hire "colleagues" (not "staff") with the right attitude and train them with the appropriate skills to AMAZE its customers. These colleagues attend Metro Bank University throughout their careers to learn and enhance the skills necessary to provide a customer service experience that matches or exceeds that of best-in-class specialist retailers.

Metro Bank's superior customer experience is supported by a scalable, innovative and flexible end-to-end technology infrastructure that equips Metro Bank's colleagues to focus on creating an "AMAZE(ING)" customer experience. For example, the speed at which Metro Bank opens accounts is believed to be industryleading by the Directors: following a robust 'Know Your Customer' process (which includes anti-money laundering, anti-fraud and, where appropriate, credit checks), Metro Bank was able to open 77% of accounts for new-to-bank customers in its retail segment (the "Retail Segment") within 15 minutes in 2015, and a further 10% within 20 minutes. In addition, Metro Bank's emphasis on delivery at the point-of-sale means that these new-to-bank customers leave a Metro Bank store with a fully functioning current account (including access to telephony, internet and mobile banking, with customers assisted in downloading the Metro Bank mobile app in store at the time of application) and an activated contactless debit card printed in store, for which they set their own pin number, thus requiring no repeat store visits or mailings to complete their account opening process. Metro Bank's existing customers are also typically able to open additional savings accounts in four to six clicks (depending on the product) on Metro Bank's website. Furthermore, customers have 24/7 access to a London-based contact centre staffed by Metro Bank colleagues that utilises real-time, skill-based routing for customer calls, removing the need for an interactive voice response ("IVR") system, simplifying the call experience and saving time for customers by quickly directing their call to a colleague well qualified to deal with their request.

Metro Bank has also invested heavily in its "back office" infrastructure, enhancing operational performance and resilience, including by implementing straight through processing and single customer view functionalities, leading cybersecurity controls, including web application firewalls to protect its external websites, malware detection tools to protect data, and a 24/7 managed security service to monitor its IT infrastructure.

Adding to its offering, Metro Bank entered into two new partnerships in 2015 with other brands that share Metro Bank's zeal for great service: an innovative partnership with peer-to-peer lender Zopa that allows Metro Bank to originate loans through their platform and an exclusive co-branded banking partnership with St. James's Place Wealth Management plc ("St. James's Place").

As of 31 December 2015, Metro Bank had total assets and liabilities of £6,148 million and £5,741 million, respectively.

History and development

Metro Bank was founded by Vernon W. Hill, II in 2010. Leveraging his experience as the founder of Commerce Bank in the U.S. (which he founded in 1973 as a one-branch bank in Philadelphia with a staff of nine, and which ultimately grew to have approximately 440 branches and \$50 billion in assets), Mr. Hill established Metro Bank with the belief that the value of a bank lies in its deposits, that customers in the UK would be willing to accept lower interest rates in exchange for a better banking experience, and that great companies and brands are built by creating "FANS" not simply "customers".

Selected key milestones in Metro Bank's history are set out below:

• March 2010: Initial seed capital of £75 million raised through a private placement of Shares.
• March 2010: FSA grants Metro Bank a full-service banking licence.
• July 2010: Metro Bank launches its first store in Holborn in London.
• December 2010: Further capital of £51.8 million raised through a private placement of Shares to further accelerate store roll-out.
• Fourth quarter 2011: Metro Bank opens its tenth store.

• June 2012: Further private placement of Shares of £126.5 million to support growth.

• Fourth quarter 2012: Metro Bank's deposit balances grow to £500 million and the number of customer accounts grows to 100,000.

• Third quarter 2013: Metro Bank's deposit balances grow to £1 billion, its lending balances grow to £500 million and the number of its stores grows to 20.
• November 2013: Metro Bank is named "Bank of the Year" at the City AM Awards 2013 in London.
• December 2013: £387.5 million private placement of Shares (including a £100 million follow-on offer in January 2014) to support further growth in risk assets and store network.
• Second quarter 2014: Metro Bank's deposit balances grow to £2 billion and its lending balances grow to £1 billion.
• Third quarter 2014: The number of Metro Bank's customer accounts grows to 400,000.
• Fourth quarter 2014: The number of Metro Bank's stores grows to 30.
• First quarter 2015: Metro Bank's deposit balances grow to £3 billion.
• Second quarter 2015: Metro Bank's lending balances grow to £2 billion.
• Third quarter 2015: The number of Metro Bank's customer accounts grows to 600,000.
• Third quarter 2015: Metro Bank's deposit balances grow to £4 billion, and Metro Bank is named top Gold winner in Fairer Finance's league table of bank accounts.
• Third quarter 2015: Metro Bank purchased a first charge prime residential mortgage loan portfolio for consideration of £344 million.
• Fourth quarter 2015: Metro Bank's deposit balances grow to £5 billion; its lending balances grow to £3.5 billion; and the number of its stores grows to 40.
• Fourth quarter 2015: Metro Bank is awarded a Microsoft "Visionary" award for innovative use of technology.

Strengths

Metro Bank is the UK's first new High Street bank offering a full service transactional platform focused on retail and commercial customers to have opened in the UK in the last 100 years. Adopting a growth retailing approach to banking, Metro Bank creates FANS through the tangible delivery of simple and transparent banking products. Metro Bank has built a completely new trusted consumer brand in the past five years, with the platform, capital and management in place to continue to expand its share of the UK banking market.

A disruptive growth retailing approach to banking; creating FANS through an AMAZE(ING) culture and fanatical execution

Metro Bank's AMAZE(ING) culture cultivates the provision of superior customer service, with the goal of transforming customers into long-term FANS. Metro Bank's focus on fanatical execution ensures customer needs are satisfied, and often exceeded, without delay via the channel of the customer's choosing. Metro Bank's culture is clear and pervasive across its colleagues, ensuring they are aligned with Metro Bank's customer-centric strategy. This promotes customer advocacy and brand strength through an association with a differentiated service. Metro Bank's stores, at the core of its multi-channel distribution capabilities, are designed to support its customer-centric culture, promote its brand proposition and drive customer engagement.

Metro Bank's pervasive customer-centric culture enables it to provide a differentiated service and convenience, which the Directors believe is comparable to that of some of the most admired brands in retail. A second colleague must be consulted before saying "no" to a customer (known as the "one to say yes, two to say no" rule), and high levels of engagement are encouraged to have a "surprise and delight" impact on customers. This is supported by the provision of services that are simple, and a strong focus on customer convenience. For example, legacy bank rules that restrict or frustrate customers have been replaced by unique policies such as "early until late" store opening hours, 362 days a year. Metro Bank is committed to providing face-to-face execution for almost twice as many hours throughout the year as incumbent banks, with services through its digital channels and contact centre offered 24/7. By championing the needs of customers, Metro Bank seeks to create "FANS for life", building long-term relationships and brand loyalty, having achieved 77% brand recognition in 2015 across London, with minimal annual external advertising expenditure.

Metro Bank's customer service is delivered by a highly motivated and engaged team of colleagues. This is reflected in the results of an internal survey, in which Metro Bank achieved high colleague engagement in 2015 for the quality of its training, review process, opportunities for promotion and appropriateness of salary. Metro Bank's customer-centric culture pervades its recruitment and training policies, and Metro Bank is committed to hiring colleagues with the right attitude as a priority and then training for skills. Metro Bank safeguards its culture by ensuring every colleague joining the Metro Bank team is enrolled in the same twoday induction training programme, "Visions", followed by up to nine months of initial customer engagement training for front-line roles, while promotions follow a '1-in-1-up' approach. Through regular AMAZE(ING) reviews, based on customer service rather than sales targets (store colleagues do not have sales targets), internal and professional training qualifications and a share-option scheme, colleagues are trained as custodians of the Metro Bank culture and business. Accordingly, Metro Bank colleagues are highly motivated to deliver superior customer service.

By successfully transforming customers into FANS, Metro Bank benefits from a powerful organic marketing engine. By fulfilling its promise of distinguished customer service and simple, transparent, value-for-money products, Metro Bank's brand and reputation has grown through recommendations and public recognition from industry, consumer advocacy and other community groups. For example, Metro Bank remains the only financial services brand to receive the Mumsnets Gold award (in 2012, 2013 and 2014) for resourceful and creative family friendly initiatives for customers and colleagues. In 2015, Metro Bank was also voted number one in customer service in a survey conducted by Fairer Finance. In addition, Metro Bank has also attracted international recognition for its commitment to providing its customers with unparalleled levels of service and convenience, winning the Best Branch Strategy award from the Retail Banker International for 2015.

Using its stores as a key part of its tangible gateway to customer engagement, Metro Bank has further enhanced its brand recognition through active engagement with the local community. Metro Bank supported more than 3,000 community events during 2015 and delivered its Money Zone financial education course, recognised as meeting UK national curriculum standards by the Personal Finance Education Group, to an estimated 21,000 children during 2015. Metro Bank also received the Technology Innovation Enterprise Award by Microsoft as part of the 2014 Microsoft Dynamics Customer Excellence Awards program, as well as a Microsoft "Visionary" award for innovative use of technology in 2015. Through engagement with customers in-store and in the local community, Metro Bank has achieved an average Net Promoter Score (a recognised market-standard marketing benchmark that gauges customer loyalty) of 80% throughout 2015, improving from 75% in 2014. With 83.9% of customers surveyed in 2015 saying they would recommend Metro Bank's services to a friend, Metro Bank's distinct culture, focus on customer service and growing brand have driven customer accounts growth period-on-period.

Highly differentiated and integrated multi-channel customer proposition providing tangible and innovative delivery of retail and commercial banking services at point-of-sale

Metro Bank provides a differentiated level of tangible convenience for customers through the increasingly seamless interaction between in-store, mobile, online and telephonic banking services. By providing its customers with increasingly seamless access to their banking services across channels, Metro Bank puts control with the customer to use the channel of their choice at a time of their convenience, at any point in the customer journey. Metro Bank's colleagues are able to access a "Single Customer View" for all products and services consumed by a given customer, as well as a customer photograph and real-time history of previous interactions across all channels, without having to use multiple systems. Metro Bank utilises a bank-wide Microsoft Dynamics CRM system to ensure that customer tasks move throughout the organisation quickly and seamlessly. As a result, Metro Bank is able to deliver a faster, more informed, and more secure, service to customers without friction across multiple channels and systems.

Store network

Metro Bank provides the tangible delivery of its customer service proposition through its network of strategically located stores. Modelled on contemporary retail outlets, Metro Bank's stores are situated on selected high-street locations to maximise customer convenience and engagement. Metro Bank's stores are typically larger and more spacious than traditional bank "branches", staffed with well-trained, highly engaged customer-focused colleagues, and have distinguishing high ceilings and vibrant, modern interiors. In addition, Metro Bank's stores are open seven days a week with longer hours than competitors (typically 8am to 8pm, with standard hours across the store network to help ensure dependability for customers). Metro Bank has purposefully designed its stores to create a welcoming environment and provide timely customer service at peak times. Metro Bank's innovative straight through and real time processing allows new and existing customers to open an account and receive a new or replacement card and PIN number (and cheque book, if requested) at the point-of-sale with no need for second day follow-up. With free wireless internet in store, Metro Bank's customers are able to set up their mobile and online banking before leaving the store on the day of opening their account.

Digital channels - online and mobile

Online

Metro Bank provides a wide range of innovative online banking services to customers. Existing customers are able to open additional accounts easily online in four to six clicks (depending on the product), including current accounts, cash accounts, instant access savings accounts, fixed term savings accounts, instant access ISA accounts and overdrafts. In the fourth quarter of 2015, Metro Bank introduced the online savings account opening capability for new-to-bank customers, with current account opening capability to follow in 2016. The online proposition provides a range of additional value-added services featuring innovative, user friendly functionality that meets customer needs. For credit and debit cards, customers can view transactions being processed to help understand their latest balance, cancel a card, order a new card or order a PIN reminder, as well as search transactions by date, category or keyword. Online banking also allows customers to rename accounts with 'nicknames' (for example, "Holiday Fund") which can be used consistently across every channel.

Throughout 2015, Metro Bank invested in propositions for online customer acquisition and product sales. Designed with the support and input of intermediaries, Metro Bank has structured a service that aligns the incentives of customers and intermediaries to retain a mortgage product with Metro Bank. Customers renewing via the "retention portal" benefit from reduced fees and the option of switching up to three months early without incurring an early repayment charge, while intermediaries are able to process a greater volume of applications with the process taking on average less than ten minutes.

Mobile

Mobile banking is a key part of Metro Bank's multi-channel distribution capability, with the number of customers that have activated the mobile application increasing by 148%, from 37.8 thousand in 2014 to 93.8 thousand by 31 December 2015. All customers can access their account information, check balances, make payments and manage cards through a personalised mobile banking application.

Metro Bank continues to invest and upgrade its mobile proposition. For example, in 2014, Metro Bank developed the capability to freeze and unfreeze misplaced cards in real-time. Metro Bank also continues to invest in the integration between its digital platforms. In the third quarter of 2015, Metro Bank started building its new "multi-channel" corporate digital banking platform, aiming to provide consistent design and functionality across desktop, mobile, tablet etc. Starting with the expected launch of its online proposition for Commercial Banking customers in the second quarter of 2016, followed by new mobile applications in the third quarter of 2016 for Retail Segment and Business Banking customers, as well as the expected introduction of Apple Pay functionality in the course of 2016, Metro Bank is committed to provide an increasingly seamless proposition to all customer segments.

Contact Centres

Metro Bank's customer network is supported by contact centres with colleagues, rather than IVR functionality, to provide assistance with banking queries and services. Centres are exclusively located onshore in the UK, above and behind stores. Metro Bank was commended by Moneywise for contact centre service in 2014. By seamlessly integrating the latest "In-In" technology with its Microsoft Dynamics CRM platform, Metro Bank has established real-time skill-based routing for customer calls. Removing the need for an IVR system, this has enabled automation and optimisation of call allocation, simplifying the experience and saving time for customers.

E-mail and social media customer interaction

Metro Bank actively monitors social media as a channel for customer engagement using the Microsoft Dynamics Social Engagement tool. For example, Twitter has become the principal channel for some customers to communicate with Metro Bank, and Metro Bank has begun to see an increasing number of regular customers use Twitter. Accordingly, Metro Bank monitors Twitter for both positive remarks on new propositions, such as the reaction to the launch of London's first drive-through bank in the third quarter of 2015, as well as customer complaints. Metro Bank also monitors trends on social media directed at competitors, such as complaints regarding customer service or digital banking applications, to inform Metro Bank's own differentiated customer proposition strategy.

Clear focus on core retail and commercial banking activities with simple and transparent products and services supported by innovative business partnerships

Metro Bank is the only new High Street bank offering a full service transactional platform focused on retail and commercial customers, specifically the underserved SME market, to have opened in the last 100 years in the UK. As of 31 December 2015, Metro Bank had a balanced exposure to both segments, with Retail Segment customers accounting for 47% of deposits and 64% of Metro Bank's loan book.

Metro Bank provides simple and transparent products, supported by a differentiated service and convenienceled proposition at point-of-sale across every channel. For example, Metro Bank offers one retail current account product and one cash account product, which can both be opened at point-of-sale end-to-end in-store within fifteen minutes with no day-two processing. The incumbent high-street banks in the UK offer, on average, five different current account products, which can take days or weeks to open. Retail Segment Customers are offered a "savings promise" on deposits to ensure customers have access to Metro Bank's best available rate for each account, and a uniform pricing policy that ensures new customers do not receive a more favourable rate than existing customers. The Directors believe that Metro Bank's policy of uniform, transparent and consistent pricing extended across all channels has helped Metro Bank build trust and loyalty with its customers, turning them into FANS.

Metro Bank further differentiates its product offering by providing a personalised service to its Retail Segment customers. For example, while all Metro Bank residential mortgage loans are initially assessed by automated underwriting software, each residential mortgage application also currently undergoes an element of manual (i.e., human) underwriting, with the view to providing its customers with the most suitable loan based on an analysis of their personal circumstances. This personalised service model has delivered a dualbenefit to Metro Bank: strong customer relationships that inspire high retention rates and enhanced underwriting outcomes.

Metro Bank's commercial customers benefit from the same simple and tailored approach. Metro Bank delivers a one-day account opening experience that is complemented by tailored product offerings. SMEs receive support on request from local business managers and industry credit specialists. Simple cash management products act as a gateway aimed at creating long-term customer relationships that allow Metro Bank to fulfil all of a customer's banking needs across a full suite of transactional products, including BCAs, savings accounts, term lending and asset finance. As of 31 December 2015, 53% of Metro Bank's customer deposits were from commercial customers.

Metro Bank strengthens its relationships with SMEs through valuable business partnership agreements. Metro Bank has successfully established partnerships with business service providers such as Xero and KPMG's small business accounting service, to generate a unique platform of services to support the SME ecosystem. Xero provides Metro Bank's customers with the ability to streamline their accounting and banking processes, reconcile their accounts with one click, manage their business data in one place and create smart reports and professional invoices on the move, through a state-of-the-art app. The partnership with KPMG provides small businesses with quick and easy access to expert advice and services such as bookkeeping – significantly reducing the burden presented by 'financial red tape'. Metro Bank also partners with local-area professionals, such as lawyers and accountants, in order to build relationships within communities and provide banking services meeting local needs. The Directors believe that such innovative initiatives differentiate Metro Bank from its peers, helping to build deep customer relationships that will support the growth franchise into the future.

An additional example of Metro Bank's successful partnerships include the deployment of its deposits platform into partnerships with institutions such as Rowanmoor and DP Pensions, which has generated more than £850 million in incremental trust deposits. In addition to deposits, these partnerships have generated additional interest and fee income from overdraft and short-term lending facilities offered to customers of these institutions, which are collateralised by their investment portfolios. Metro Bank has also partnered with peer-to-peer lender Zopa, benefitting from access to its consumer loans platform. While still in its infancy, Metro Bank has deployed approximately £4.4 million of lending per month through their platform since the partnership's first full month of operations in June 2015 (with Metro Bank extending credit to borrowers only if the proposed loan is within Metro Bank's credit risk appetite). The Directors believe that there remains substantial opportunity to utilise established partnerships to further grow the deposit base and extend the breadth of Metro Bank's customer and brand coverage.

High quality, low cost deposit base attracted through a differentiated service-led customer proposition creates a clear funding, cost and liquidity advantage

Through its growth in customer deposits, Metro Bank has built an efficient and high quality funding profile. As of 31 December 2015, Metro Bank had £5,108 million of customer deposits across approximately 655,000 customer accounts. By employing a deposit-driven funding model, Metro Bank derives a material economic benefit through lower than average funding costs and reduced regulatory liquidity requirements compared to other UK deposit-taking businesses. As Metro Bank has grown its customer base across retail and commercial markets, it has increased the percentage of deposits held in stable current accounts, further enhancing these benefits.

Through tangible delivery of superior service and convenience at point-of-sale publicised through customer advocacy, Metro Bank has achieved strong growth in both deposits and current accounts. From 2014 to 2015, deposits have grown 78% from £2.9 billion to £5.1 billion and current accounts have grown 61% from £0.9 billion to £1.4 billion. Congruent with its customer centric proposition, the interest rates offered by Metro Bank are simple, transparent and consistent across channels. Metro Bank has received industry-wide recognition for its current account proposition, having won Best Current Account for Branch Service (Moneywise, 2014) and the Best Overall Current Account (Moneynet, 2014). In addition, in 2015, Metro Bank won the Savings Champion award for Best Savings Provider for Existing Customers for the third year in a row.

Metro Bank's differentiated proposition has enabled it to reach an average cost of deposits of 82 basis points ("bps") across its funding book in 2015, down from 90 bps as of 31 December 2014. By the end of 2020, Metro Bank is targeting NIM (including fee income) of c. 3%, assuming no increase in interest rates.

The Directors believe that Metro Bank also benefits from a scalable operating platform, allowing it to grow its deposit base as it attracts both new customers and more deposits from existing customers at a decreasing cost per deposit. Average deposit growth per store per month grew to £5.3 million in 2015 – up from £4.9 million in 2014, while comparative store deposit growth (a measure of deposit growth using deposit numbers from stores that have been operating for more than a full year) was 69%. The Directors believe the average per store per month deposit growth will continue to rise in the short-term driven by additional investment in new stores, increased access to larger commercial, charity and local government deposits, utilisation of alternative delivery channels (such as the launch of online deposit generation), and the increased network effect. In the medium term, the Directors believe that higher competition in the savings market post-FLS and new entrants to the banking sector will lead to a long term average deposit growth per store per month of c. £5.25 million. If all stores were to achieve the same level of current account funding as they become more established, the Directors would expect Metro Bank to benefit from a lower cost of deposit acquisition over time.

Metro Bank also benefits from reduced liquidity reserve requirements due to the stable nature of its deposit base. Metro Bank has set its risk appetite in the context of the bank's stable deposit business model, with no wholesale funding (except for drawdowns under the FLS), virtually no "hot money" (i.e., funds controlled by investors actively seeking short-term returns and who frequently move funds in search of higher interest yields), and a conservative long-term target loan-to-deposit ratio of 80% (69% as of 31 December 2015). Based on five years of trading data, Metro Bank has been able to statistically demonstrate the stability of its deposit base through a core deposit stability analysis, dividing cohorts of seasoned deposits into "core" balances (the base level of deposits that has never been breached in a representative sample of accounts) and "non-core" balances. Products that exhibit a high core ratio, such as Metro Bank's retail current account at 99% as at 31 December 2015, are expected by the Directors to have a high longevity and be stable and sticky in the event of a liquidity stress. Metro Bank's high quality deposit base reduces the opportunity cost of funding its required liquidity reserve, while maintaining a prudent liquidity position.

Long-term growth supported by highly scalable, best-in-class, IT platform with a "pay-as-yougrow" cost structure and strong capital and liquidity positions

Metro Bank's growth trajectory is underpinned by a service-based approach to IT, utilising a unique 'pay-asyou-grow' cost structure model. Metro Bank's approach to utilising a 'Software as a Service' ("SaaS") model minimises the fixed capital investment in systems that will eventually become obsolete over time and be written off. This model enables the scalability and efficiency of Metro Bank's expansion.

The SaaS model has increased Metro Bank's flexibility to customise and easily upgrade its systems to benefit from best-in-class technology solutions from providers including Microsoft, DPR Back Base, Temenos and IBM, increasing customer convenience at a decreased cost. Metro Bank benefits from outsourcing the significant capital expenditure associated with its technology development, working closely with service providers as part of Microsoft's technology adoption program to customise the latest platform products to Metro Bank's needs, such as supporting its "Single Customer View" functionality across all channels.

Similarly, Metro Bank benefits from reducing the time and number of follow-ups required to open customer accounts. As the first bank in the UK to print contactless cards in store, Metro Bank has successfully established straight-through processing of new customer accounts, which is available seven days a week. Providing the ultimate convenience for the busy modern day customer, Metro Bank provides a new card, a customer-created PIN number (and cheque book, if requested) and the installation of online and mobile banking at the point-of-sale with no need for a second day follow-up for Retail Banking and Business Banking customers. 77% of first time Retail Segment customers have their account set up in less than 15 minutes, while for existing customers, setting up an additional account requires just four to six clicks (depending on the product) online. For SMEs, 63% of accounts are opened within 60 minutes, representing a significantly distinguished proposition versus peers. Powered by flexible, easily upgradeable IT, Metro Bank has achieved mutually beneficial propositions of differentiated customer service that is both cost-efficient and scalable.

Metro Bank's innovative cross-channel customer propositions have attracted international recognition from technology industry experts, enhancing Metro Bank's brand and reputation. Metro Bank received the Technology Innovation Enterprise Award by Microsoft as part of the 2014 Microsoft Dynamics Customer Excellence Awards program, recognising its innovative approach to combining the best technology across every channel. In addition, in the fourth quarter of 2015, Metro Bank was awarded a Microsoft "Visionary" award for innovative use of technology. Metro Bank was also described as the third most innovative Fin-Tech company in Europe by Business Insider. Metro Bank has also received economic benefit through recognition from the UK Government, receiving tax relief for its innovation to reflect the investment in the development of improved products and services for customers.

Strong capital position

Metro Bank has maintained a strong capital position with a comfortable buffer to regulatory requirements and headroom for further asset growth. Metro Bank has written off lending of only £4.7 million of capital over 5 years to date. The high quality of Metro Bank's loan book has also minimised the need to make provisions, with only £6.8 million provisioned for loan losses as of 31 December 2015, supporting Metro Bank's trajectory toward organic capital generation. As of 31 December 2015, Metro Bank had a Common Equity Tier 1 ratio of 13.3% and a leverage ratio of 5%. Assuming the proceeds of the Private Placement had been received as of 31 December 2015, Metro Bank's Common Equity Tier 1 ratio and leverage ratio would have been 30.7% and 10.6%, respectively. As Metro Bank continues to move towards profitability, the robust capital position has been supported by successful rounds of equity investment from a large number of highquality investors in 2012 and 2014.

Stand-out growth trajectory to date, with a tremendous market opportunity for continued gains in market share through delivery of a differentiated and disruptive model

Delivering Metro Bank's AMAZE(ING) culture through its multi-channel network, Metro Bank has benefited from a strong track record of growth of customer accounts, deposits and organically originated residential mortgage loans, representing a disruptive force in the UK banking market.

As Metro Bank has expanded its multi-channel platform, driven primarily through its 40 stores, it has acquired approximately 655,000 customer accounts as of 31 December 2015. Metro Bank's increasing pace of store expansion, with nine in 2015, is matched by increasing rates of customer account growth, with 54,000 net customer accounts added in the fourth quarter of 2015. Metro Bank has also grown account balances; as of 31 December 2013, 2014 and 2015, the average balance of Metro Bank's Commercial Segment deposits was £27,977, £31,529 and £40,407, respectively. As of the same dates, the average balance of Metro Bank's Retail Segment deposits was £2,610, £2,939 and £3,510, respectively. In addition, Metro Bank has experienced an increase of 49,516 accounts to 73,559 Commercial Segment accounts over the same time period. As a result, Metro Bank had £5,108 million in customer deposits as of 31 December 2015, representing 78% growth yearon-year and a record quarterly growth rate of 16%.

As of 31 December 2015, Metro Bank had achieved a total deposit market share of 0.2% of the total £2.1 trillion deposit base in the UK. Deposit growth has been matched by increasing geographic diversity, as Metro Bank has extended its physical network coverage through store expansion into further conurbations surrounding Greater London. To date, Metro Bank has been geographically focused in London and the surrounding commuter areas, having identified the area as having the greatest potential market opportunity. As of 1 November 2013 (the most recent date for which relevant Office for National Statistics data is available), London and the South East of England comprised approximately £1 trillion of deposits, representing the highest customer deposit per capita in the UK, and 27% of the UK's 60 million residents resided there as of the same date.

Free from the risks associated with volatile interbank wholesale funding, customer deposit growth has funded £3,549 million of gross loans and advances to customers as of 31 December 2015. The Directors believe that Metro Bank had approximately 0.4% market share in residential mortgages in the UK as of 31 December 2015. Of Metro Bank's total asset base as of 31 December 2015, 91% was organically originated through Metro Bank's full service retail and commercial transactional banking platform, with only one acquisition to date (the acquisition of SME Invoice Finance Limited and its subsidiaries, which specialise in invoice discounting and factoring and asset finance ("SME Invoice Finance") and the purchase of a first charge prime residential mortgage loan portfolio for consideration of £344 million).

Metro Bank's stand-out track record in asset growth has been matched by market-leading asset quality. Rapid asset accumulation has been achieved while maintaining strict risk thresholds. As of 31 December 2015, Metro Bank had an immaterial number of non-performing residential mortgage and commercial loans. The average LTV of Metro Bank's organic residential mortgages (i.e., excluding those acquired in the purchase of the £344 million first charge prime residential mortgage loan portfolio in 2015) has risen from 61.3% in 2014 to 62.7% in 2015. In Metro Bank's Commercial Segment, the average DTV Ratio of Metro Bank's commercial loan book has been stable and below 60% over the same period. Metro Bank's low average cost of risk to date has reflected Metro Bank's rigorous credit focus, supporting its trajectory to profitability.

The Directors believe there remains a significant opportunity for further growth in existing and new markets. With an established brand and growing network of customers in Greater London, the Directors expect to be able to fund asset expansion through Metro Bank's growing share of the Greater London deposit market. Growth is also expected to be boosted through the launch of the online customer acquisition capability, starting with savings accounts in the fourth quarter of 2015 followed by online current account acquisition in 2016. Until the fourth quarter of 2015, Metro Bank's growth in new customer accounts had been achieved solely through in-store account opening, with only existing customers able to open accounts online. Attracting just a small percentage of existing online accounts from other banks in the UK would represent a sizeable increase to Metro Bank's customer base. Supporting the tangible delivery of its multi-channel customer engagement proposition, Metro Bank expects to also continue to further its geographic expansion along commuter lines out of London to cover the UK market more widely, targeting approximately 110 stores by the end of 2020.

Best in class leadership and management with track record of proven success

Metro Bank has assembled a Board of Directors and Senior Management team with high-quality experience of leadership and operational positions in the banking and retail sectors.

Metro Bank's Chairman and founder, Vernon W. Hill, II, has a proven track record of launching and successfully growing a bank, having founded Commerce Bank in 1973 in the USA. Between 2001 and 2006, Commerce Bank achieved an annual average growth rate of 30% for deposits and 28% for loans (net), growing its number of stores from 184 to 428 during this period. Vernon has been recognised in Forbes' elite 20-20-20 club, a list of CEOs who have served for 20 years at the helm of a public company and have delivered at least a 20% annual return-on-equity for shareholders since their respective companies went public. Commerce Bank was sold to TD Bank Financial in 2007 for \$8.5 billion. Based on an economic model of maximising the number of deposits per branch from a fixed central cost base and a customer-centric culture focused on exceeding customer expectations, Commerce Bank established its brand as "America's most convenient bank". Metro Bank's business model is based on the proven model of Commerce Bank, with the same founder on board to deliver success.

Metro Bank's founding Chief Executive Officer ("CEO"), Craig Donaldson, has significant experience in the UK banking sector, with previous roles including Managing Director of Retail Products and Direct Channels at RBS, as well as senior roles with Barclays and HBOS. Aided by a deep understanding of the operations of a number of the largest incumbent banks, Craig is committed to providing a differentiated customer proposition and embedding Metro Bank's unique culture.

Metro Bank's Chief Financial Officer ("CFO"), Mike Brierley, is a chartered accountant with previous roles in the banking industry, including various senior finance and risk roles including CFO and Chief Risk Officer of Capital One Bank (Europe) and CFO for Royal Trust Bank, as well as Director of Business Risk at Barclaycard.

With a wealth of experience in UK banking, Metro Bank's Executive Directors and Senior Management have complementary experience and a wealth of industry knowledge, making them well equipped to drive Metro Bank's retailing approach to banking. The Executive Directors have an average of 27 years of industry experience and Senior Management have an average of 22 years of industry experience.

Strategy

Metro Bank is the only new High Street bank offering a full service transactional platform focused on retail and commercial customers to have opened in the UK in the last 100 years. Metro Bank intends to continue to take a retail approach to banking to create FANS through the tangible delivery of simple and transparent banking products and attract deposits below market interest rates to fund profitable scale expansion.

Tangible delivery of simple, great value products at point-of-sale across all channels

Metro Bank aims to "surprise and delight" customers across every channel they use through superior service and convenience, simple and transparent products and tangible delivery through every channel.

Store strategy: Metro Bank intends to continue providing real-time straight through processing to customers at the point-of-sale via its network of stores. Metro Bank is committed to continuing to offer the fastest and most convenient account opening experience in the UK market through all channels, with no day-two processing. Metro Bank aims to be able to "do everything" for customers, both existing customers and new-to-bank customers, in store, and intends to continue expanding the catchment area of its store network through strategic expansion around London, the South East of England and further west along the key commuter lines, delivering superior service and convenience to an increasing number of FANS.

Digital strategy: Metro Bank intends to continue to increase its digital capability, in mobile, tablets and online services, to achieve a seamless customer journey across channels, and give customers easy access to multiple products such as mobile wallets, as well as tools that save time and improve transparency, to make customers' lives easier. By enhancing mobile capabilities, Metro Bank aims to allow its customers to simplify their customer experience, providing them with the ability to customise account names and freeze and unfreeze account cards at will, for example after losing or misplacing debit or credit cards. With an active social media presence and a new public website, Metro Bank is investing to ensure that the digital engagement proposition is as distinctive and differentiating as the customer service received in stores. In the fourth quarter of 2015, Metro Bank launched the ability for new customers to open savings accounts online. This will be followed by the launch of online current account opening in 2016.

Partnering strategy: Metro Bank is committed to assessing the market environment continually to provide value to customers through innovative partnership agreements. Having already established partnership agreements with a range of financial institutions (including St. James's Place), Metro Bank has extended its asset and deposit base in response to entrepreneurial opportunities. Future opportunities with current partners could enable Metro Bank to exceed its planned growth expectations and generate additional fees, while Metro Bank remains open to entering new partnerships and new asset segments. Simultaneously, increasing competence in the cash management space, allied to planned IT, proposition and process enhancements, could enable Metro Bank to attract more trading Commercial Segment customers and generate additional, capitallight, fee revenue.

Metro Bank also uses business partnership agreements, such as those with Xero and KPMG, to generate a unique platform of services to support the SME ecosystem. Metro Bank intends to continue to expand its range of partnership agreements to further differentiate its customer proposition for its SME customers and create profitable long-term relationships with growing businesses of the future.

Mortgage strategy: Metro Bank intends to continue to utilise both direct and intermediary origination channels to grow its residential mortgage portfolio. Metro Bank also aims to maintain an efficient balance between manual underwriting for residential mortgages that account for individual customer circumstances, and automated underwriting that enables greater scalability as the business grows. Of the residential mortgages organically originated in 2015, more than 20% were directly originated by Metro Bank through its stores and Private Banking, evidencing Metro Bank's commitment to building strong customer relationships, enhancing retention rates. Metro Bank's recent launch of an online mortgage renewal platform is expected to enhance retention rates for intermediary and directly originated mortgages by aligning the incentives of customers and intermediaries to retain a mortgage product with Metro Bank.

Foster an AMAZE(ING) culture of fanatical execution through colleague engagement

Metro Bank is built around a customer-centric culture with clear strategic ambition to create FANS. Metro Bank is committed to maintain an "over-trained" and motivated team of colleagues to drive customer engagement across all channels to create profitable long-term relationships and grow the Metro Bank brand.

Customer engagement: "Revolutionising" the UK banking landscape, Metro Bank aims to provide a superior customer proposition designed to drive customer engagement and build long-term relationships. Metro Bank intends to drive increased customer engagement through differentiated customer service and convenience, the delivery of increasingly seamless distribution capabilities across all channels and continued offering of simple, fair and transparent products. As Metro Bank continues to expand its presence across all channels, the Directors believe that its brand awareness will continue to improve, from a strong position of 77% in London, to support increased customer acquisition.

Recruitment, training and incentivisation: As the tangible point of service delivery, the Directors believe that ensuring its colleagues are continuously well trained, motivated and immersed in the Metro Bank culture is central to providing a superior customer service. Accordingly, Metro Bank hires colleagues with the right attitude and trains for skill, ensuring Metro Bank colleagues act professionally and provide levels of service and engagement that match or exceed best-in-class retailers. Metro Bank intends to invest continuously in the development of its workforce, providing ongoing training through "Metro Bank University". Performance assessments will continue to be based on the effective delivery of Metro Bank's values and customer service standards rather than product sales targets, with tangible ownership given to every colleague through the variable reward programme. Motivated by meritocratic opportunities and equity ownership, the Directors expect colleagues to continue to deliver fanatical execution of the Metro Bank model.

Transform deep customer relationships into profitable balance sheet growth

Low cost funding model: As a deposit-driven institution, the Directors recognise the importance of acquiring and retaining customers, and their deposits, as a central component of the bank's profitability. Metro Bank intends to continue to deliver a customer service-led proposition for growing FAN numbers and, by association, deposit balances. The Directors expect funding costs to continue to benefit from this strategy as customers place significant value on service and convenience. As a 100% deposit funded institution (except for drawdowns under the FLS), Metro Bank has maintained a conservative loan to deposit ratio over recent years and expects to increase the ratio, up to approximately 80%, to support margin expansion.

Established customer base of FANS: By creating FANS through, among other things, what the Directors believe to be an unparalleled account opening experience, Metro Bank seeks to create customer loyalty and inspire customers to fulfil all of their retail and commercial banking needs through Metro Bank. For example, a key driver of growth is the provision of a broad suite of cash management solutions aligned to commercial customer needs. This allows Metro Bank to create an increasing incumbent commercial customer base to whom it can provide additional products upon request, supporting further balance sheet growth. By establishing a current account base of FANS, Metro Bank aims to lock-in the annuity value of its relationships, given the stickiness and transactional nature of the accounts.

Customer-centric underwriting processes: Metro Bank utilises its deep customer relationship to inform its risk assessment. For example, Metro Bank has established "three lines of credit defence" for Commercial Segment lending, comprising a relationship manager, credit partner and credit assurance (audit). Metro Bank's differentiated approach means that credit partners will often meet the borrower in person along with the relationship manager to assess more fully the individual customer circumstances, before deciding whether to recommend the credit for approval. This approach enables a more granular underwriting process, improving the quality of the loan book. As of 31 December 2015, Metro Bank had an immaterial number of nonperforming residential mortgages and commercial loans. The in-person contact with the credit partner also provides a personalised service to the customer improving customer satisfaction. Metro Bank intends to continue deploying the "Credit Partner Model" as the business expands.

Full service retail and commercial offering: Metro Bank intends to continue to offer a full service transactional banking platform to its customers. Metro Bank's Commercial Segment customers are a key driver of income growth and are characterised by typically larger deposit balances and more complex requirements. The Retail Segment proposition is core to Metro Bank, in particular for the support it provides to its brand and recognition.

Continued scalable expansion in current and new markets

Scalable IT platform: Metro Bank employs a SaaS model, paying an upfront licensing fee for best-in-class platforms and technology components with additional payments linked to usage per colleague. This enables Metro Bank to implement its high growth ambitions without having to invest significantly in systems. Metro Bank aims to achieve cost-efficient growth by further leveraging this scalable IT platform.

Geographic expansion: Metro Bank intends to access greater customer numbers through its multi-channel customer engagement capabilities. At the core of its growth strategy is the expansion of the store network, mainly in commuter areas outside of London. With 40 stores as of the date of this Prospectus, Metro Bank is targeting approximately 110 stores by the end of 2020. Metro Bank intends to expand the network "one store at a time". This prudent approach ensures Metro Bank invests only in the best sites that fulfil all of its strict internal criteria, being in visible and high traffic locations with sufficient space to install Metro Bank's distinct store design, generating significant growth in customer numbers without needing multiple stores in the same area. Metro Bank also employs an experienced "store delivery" team to ensure the store delivers Metro Bank's high standard of customer service from day 1, before handing over the store to the new store management. As of 31 December 2015, the Directors estimate that Metro Bank's share of deposits in the UK was 0.2% of the total £2.1 trillion deposit base in the UK, highlighting the significant growth opportunity in this market.

Going forward, Metro Bank aims to supplement its store growth further through additional channels, including online, mobile and intermediaries, presenting national growth opportunities. Since launching new online customer account opening for savings accounts in the fourth quarter of 2015, Metro Bank has already acquired 3,823 customers outside Greater London. Metro Bank is considering physical expansion outside of Greater London, including the assessment of other super conurbations in the UK, including Bristol and Hampshire.

New product expansion: Metro Bank, from time to time, assesses growth opportunities beyond those identified in its strategic plan, including among others, expanding into new complementary products. In 2013, Metro Bank acquired an asset and invoice discounting finance business providing important capabilities for its commercial franchise. Metro Bank will continue to consider potential acquisition opportunities of businesses, portfolios and teams as appropriate.

Delivering low-risk, profitable growth leading to enhanced shareholder returns

Metro Bank aims to continue to achieve market-leading growth in income and deposits with increasing cost efficiency to enhance returns to Shareholders. By providing tangible sites of customer engagement in convenient locations, supported by multi-channel capabilities that enable tangible delivery at the point-ofsale, Metro Bank has been able to achieve revenue per square foot in its stores comparable to leading retail brands such as Apple. To maximise the profitability of this model, Metro Bank intends to utilise its scalable IT platform and innovative customer propositions to enable cost-efficient growth across all channels, while maintaining a granular focus on store-level profitability and customer satisfaction.

Metro Bank intends to complement deposit growth through an expanding store network, with increasing acquisition of deposits through the online channel from both existing and new-to-bank customers. Metro Bank's scalable SaaS IT model supports this cost-effective growth by allowing it to service additional customer accounts, with only marginal increases in costs.

By the end of 2020, Metro Bank is targeting a return-on-equity of c. 18%, and a cost-to-income ratio of approximately 60% (in both cases assuming no increases in base interest rates). Metro Bank has minimised the operating cost per deposit of its store network through innovative customer propositions. In addition, Metro Bank offers safe deposit boxes for annual or monthly fees in all stores, which can be reserved in-store or online. Metro Bank covers a significant proportion of its store operating costs from safe deposit box income (an average of 80% of rental costs in stores in operation for at least 12 months, prior to any income from lending or account-related activities). As Metro Bank continues to expand its store network from Central London, the Directors expect safe deposit boxes to cover an increasing percentage of store rental costs.

Operating structure

Metro Bank is principally a deposit-taking and lending institution, which it services through two customer segments: Retail and Commercial (the "Commercial Segment"). Within its Retail Segment, Metro Bank offers products in its personal banking and private banking business lines ("Personal Banking" and "Private Banking", respectively), and within its Commercial Segment, offers business banking, commercial banking and partnership banking business lines ("Business Banking", "Commercial Banking" and "Partnership Banking", respectively).

Metro Bank provides simple and transparent mass-market deposit and lending products (consciously and strategically avoiding more complicated products and services that would detract from its culture and strengths and hence slow its growth), including current and savings accounts, retail and commercial mortgages, retail and commercial loans, overdrafts and credit cards. Metro Bank also uses its Private Banking business line to provide high net worth customers with the same range of simple banking products supported by a more personalised service model and access to a dedicated private banker. In addition to a strong Retail Segment offering, Metro Bank's Commercial Segment customers are offered a growing range of services to complement a relationship-driven offering, including invoice and asset finance and point-of-sale merchant services.

As of 31 December 2015, Metro Bank had 581,452 Retail Segment customer accounts and 73,559 Commercial Segment customer accounts, and deposits from customers of £5.1 billion, of which 47% and 53% was attributable to Retail Segment and Commercial Segment customers, respectively. As of the same date, it had loans and advances to customers of £3.5 billion, of which 36% and 64% was attributable to Commercial Segment and Retail Segment customers, respectively.

Culture and colleagues

Metro Bank places significant importance on the strength of its corporate culture, and seeks to attract a diverse colleague base that is aligned with its culture, customer service proposition and AMAZE(ING) values. The Directors believe that Metro Bank has been able to attract talent through a combination of its corporate culture, unique business model, compensation system focused on share ownership and by providing an opportunity to be a part of a dynamic and growing business, which provides it with a strong competitive advantage relative to other High Street banks.

The Directors believe that Metro Bank's growth has allowed it to offer its colleagues more career and promotion opportunities than larger competitors. For example, Metro Bank historically has promoted approximately 20-30% of its eligible colleagues each year. Metro Bank also provides a wide range of in-house and online training courses through 'Metro Bank University', which is designed to help colleagues learn new and enhance existing skills. Metro Bank University offers more than 70 classroom-based courses and employs more than 20 instructors as faculty.

Metro Bank's approach to reward is also simple. Metro Bank pays base salaries in line with market norms and pays a discretionary variable reward, which is composed of two elements: cash and share options. Share options form the main part of the discretionary variable reward to encourage colleagues to focus on the longterm growth and success of Metro Bank and to behave like owners. Eligibility for share options is based on an assessment of behaviours and performance and requires the colleague to have worked for Metro Bank for a minimum of six months at the time of the award. The level of award is also based on performance against objectives and behaviours, role and seniority. Options typically vest over five years after their grant. Colleagues are also allowed to exchange part or all of the cash element of any discretionary variable compensation into their pension or into immediate vesting share options.

Based on an internal survey conducted by Metro Bank in May 2015, the "Voice of the Colleague", 88% of Metro Bank's colleagues would recommend it as an employer to their friends and family.

Customer engagement and fulfilment

Metro Bank has historically avoided the use (and associated high costs) of traditional bank marketing channels, such as radio, print and television advertising, as these outlets are not aligned with the strategic importance it places on its tangible engagement with the communities in which it is based. Rather, Metro Bank focuses on the use of its direct distribution channels, comprising its highly visible, high-specification store environments, mobile and internet offerings, and local contact centres, together with its unique customer service proposition, to ensure that its customers become FANS of the bank, who then spread the word to their friends, family and business colleagues. Metro Bank also seeks to leverage the strength of its brand and the strategic location of its stores to become part of local communities. For example, through its store network, Metro Bank has worked with an estimated 21,000 children to promote financial education through its UK Key Stage 2 "Money Zone" programme in 2015 alone. In addition, Metro Bank is active in supporting charities, having participated in more than 3,000 charity and community events in 2015. Metro Bank also maintains an active social media presence, and it seeks to provide substantive replies to questions and comments submitted by customers on platforms such as Twitter.

In 2015, Metro Bank's Net Promoter Score, a recognised market-standard marketing benchmark that gauges customer loyalty, was 80%, with 83.9% of respondents designated as "promoters" of the Metro Bank brand, 12.3% as passive toward the brand and only 3.8% as "detractors" of the brand. The Directors believe that these scores are industry-leading among UK banking peers.

Stores

Metro Bank's store footprint has been, and continues to be, built organically through the opening of new stores placed in strategically selected prime commuter locations to ensure that Metro Bank's operating model is fully aligned with its customer proposition. Metro Bank seeks to open high-visibility (typically with large glass storefronts and designed in Metro Bank's recognisable red and blue colours), high-specification stores in prime locations where people live, work and play to achieve an interconnected "network effect" (i.e., an effect through which the visibility and brand awareness of each store enhances and complements that of other stores).

Consistent with its emphasis on retail-style customer service and tangible delivery, Metro Bank's stores are open seven days a week with longer hours than competitors (typically 8am to 8pm, with standard hours across the store network to help ensure dependability for customers), which the Directors believe resonates well with busy London commuters and the businesses that serve them. To promote an inviting environment, Metro Bank's stores also feature free coin counting services (through the "Magic Money" machine), pens and sweets, and are child and pet-friendly.

Metro Bank's first store opened in Holborn, London on 29 July 2010, and as of 31 December 2015, Metro Bank operated 40 stores, with a target to operate approximately 110 stores by the end of 2020. Store openings are highly publicised, and Metro Bank organises activities, games, prizes and events during store openings to attract customers and familiarise them with the Metro Bank brand and AMAZE(ING) values. To maintain cultural and operational continuity, when possible, Metro Bank seeks to staff new stores with a core of existing colleagues relocated from other stores.

Metro Bank generally targets new stores making a positive contribution to Metro Bank's net income within 24 months due to the strong net deposit growth per month being over £5.25 million throughout the planning period. Metro Bank manages the profitability (i.e., positive contribution before allocation of central overheads) for each store individually, with the store management teams accountable for their profit and loss. This approach provides Metro Bank with a number of benefits. For example, it allows a better understanding of the key drivers of profitability in each store and how these develop over time. In addition, Metro Bank is better equipped to assess market share taken by each store and assess the feasibility of additional growth. The approach also allows Metro Bank to draw lessons from experiences in one store and apply them to other stores.

Metro Bank leases all but two of its stores, with typical lease terms at commencement of 25 years.

Digital channels – online and mobile

Metro Bank enables its customers to access its products and services through a modern web-based and mobile banking interface. Significantly, in the fourth quarter of 2015, Metro Bank began offering new-to-bank savings account applications online, which the Directors believe will position it well for significant customer growth, given the historical customer and deposit growth rates achieved solely through Metro Bank's in-store applications previously.

Metro Bank provides its Retail Segment customers with online banking, which allows customers the ability to open new accounts, make payments and access other account functionality. For Commercial Banking and Business Banking customers, Metro Bank offers both a standard business internet banking function and an enhanced online business support system for more complex needs through its "Commercial Online" and "Business Online Plus" offerings, which allow Commercial Banking and Business Banking customers to set up advanced payment, transfer and account management functions for an additional fee.

In addition, in 2014, Metro Bank launched its mobile banking application to Retail Segment customers and extended its reach to Business Banking customers in 2015, allowing both groups to access their accounts through a variety of IOS, Android and Microsoft mobile operating systems. As of 31 December 2015, Metro Bank's online banking and mobile banking were accessed by approximately 205,900 and 118,600 customers, respectively. Metro Bank offers free wireless internet connection in all of its stores, thus providing customers with the option to download Metro Bank's mobile app in-store while opening an account. All of Metro Bank's customers benefit from a variety of innovative online and mobile features, such as the ability to customise account names and freeze and unfreeze cards at will, for example after losing debit or credit cards.

Telephony

Metro Bank provides a full-service telephone banking capability with four contact centres located around London, operating 24 hours a day and seven days a week to ensure consistency of performance and functionality. Metro Bank upgraded its telephony platform in 2015 to provide enhanced customer responsiveness and usability. For example, Metro Bank's contact centres use real-time, skill-based routing for customer calls, removing the need for an IVR system, simplifying the call experience and saving time for customers by quickly directing their call to a colleague well qualified to deal with their request. Metro Bank contact centre colleagues are also able to view photographs of the customer who has called, as well as their entire account status, recent interactions with Metro Bank and account history through Metro Bank's single customer view functionalities. As of 31 December 2015, Metro Bank's contact centres employed 210 colleagues (with additional call overflow support during particularly busy periods by a third party), who handled 1,159,559 calls in 2015.

Retail Segment

Metro Bank's Retail Segment includes its Personal Banking and Private Banking business lines. Metro Bank does not target a particular retail customer segment or profile and instead seeks to attract the business of mass market retail customers. Within Personal Banking, Metro Bank seeks to provide a simple, transparent and easy-to-understand product set to its customers, together with excellent customer service. In 2015, Metro Bank opened 77% of new-to-bank Personal Banking accounts within 15 minutes, and a further 10% within 20 minutes, including providing full online account access, contactless debit card functionality (and cheque book, if requested), an offering unmatched by UK bank competitors. In addition, existing customers are typically able to open additional accounts in four to six clicks (depending on the product) through Metro Bank's website.

In addition to traditional retail products such as current and cash (basic) accounts, credit cards, unsecured personal loans, overdrafts, savings accounts and mortgages, Metro Bank also offers customers safe deposit boxes for annual or monthly fees, illustrating its commitment to providing practical products designed to meet a wide range of retail-customer needs. For Private Banking clients, Metro Bank offers a similar range of simplified banking products, tailored to the needs of individual clients and supported by a bespoke service model and access to a dedicated private banker.

Personal Banking

Current accounts

As a deposit-driven bank, Metro Bank views retail current accounts as the heart of its product offering, providing Metro Bank with loyal customers and a source of resilient, low-cost and stable funding (relative to wholesale funding). As of 31 December 2015, Metro Bank held £465 million in retail current accounts.

Metro Bank's current accounts are available in GBP for Personal Banking customers, come with contactless MasterCard debit cards standard, are non-interest bearing and offer free cash withdrawals and card transactions in Europe. In addition, they have access to direct debit, standing order and direct payment features and can be supplemented with overdrafts and cheques. Metro Bank's more basic personal banking account, the cash account (typically for those with limited income or without an extensive credit history), offers customers basic banking day-to-day needs, providing contactless MasterCard debit cards and monthly statements. Metro Bank also offers the "Current Account Switch Service" (using the UK current account switch service system) that helps customers switch their current accounts from their existing bank to Metro Bank within seven days, including by transferring all outgoing payments (e.g., direct debits, standing orders, etc.) and redirecting incoming payments (for a period of 36 months), as well as typically matching overdraft limits from customers' previous current accounts. Historically, Metro Bank customers have been able to open current accounts in store only; however, during 2015, existing Metro Bank customers became able to open current accounts online as well.

Savings accounts

Many Personal Banking customers seek outlets for their deposits that will provide a higher rate of return than those provided by current accounts. Metro Bank offers a number of GBP-denominated savings account choices to Personal Banking customers to meet their various needs. While many competitor banks offer higher temporary "teaser" interest rates for new customers, cutting existing customers' rates at their expense, Metro Bank offers a "savings promise" that customers will have access to Metro Bank's "best rate available" to ensure that new customers will not receive a more favourable rate than existing customers. Savings accounts typically provide either fixed or variable interest rates (with variable interest rates changing at the discretion of Metro Bank, but often moving in response to changes in the Bank of England base rate) and are classified as either instant access, from which customers can withdraw their deposits at any time, or term deposits, from which customers can only withdraw deposits without penalty at the end of the term. In addition, Metro Bank offers both instant access and fixed rate ISAs, savings accounts that qualify for favourable tax status in the UK. Historically, Metro Bank customers have been able to open savings accounts in store only; however, during 2015, existing Metro Bank customers became able to open savings accounts online as well.

Residential mortgages

Metro Bank offers a series of mortgage products to Personal Banking customers. As of 31 December 2015, Metro Bank had total residential mortgage assets of £2,156 billion, and during the year ended 31 December 2015, Metro Bank's gross new residential mortgage lending was £1,025 million and net repayments were £99 million. As of 31 December 2015, Metro Bank's residential mortgage assets had an average DTV Ratio of 60%. As of the same date, the average residential mortgage held by Metro Bank was £374,000.

Consistent with its overall customer proposition, Metro Bank places significant emphasis on customer service and transparency throughout its residential mortgage process. For example, Metro Bank offers flexibility to customers through its retention process, allowing customers to move to a new mortgage three months before the expiry of their initial period. In addition, Metro Bank also enables customers to repay up to 20% of their mortgage each year without any early repayment charge. In addition, Metro Bank utilises both manual (to better account for a customer's personal circumstances) and automated underwriting, with the mix between the two approaches depending on the size of the mortgage and type of borrower. Borrowers are also provided with a single point of contact throughout the mortgage process, and Metro Bank offers mortgage customers current accounts and contactless debit cards at the same time as their mortgage offer.

Metro Bank's residential mortgage portfolio, consistent with its customer base, is particularly concentrated in London and the South East of England, with these areas representing 61% and 24%, respectively, of the portfolio as of 31 December 2015, with the remainder of mortgages distributed across other areas of the UK (although with the geographic expansion of Metro Bank's store network, and the recent expansion of Metro Bank's intermediary base across the UK, this geographic distribution has changed, and is expected to continue to change, over time). In addition, in 2015, Metro Bank purchased a first charge prime residential mortgage loan portfolio, for consideration of £344 million. The transaction was undertaken to help meet Metro Bank's goal of obtaining a loan-to-deposit ratio of 80% at maturity. The mortgage portfolio is administered through the Pepper Group Limited ("Pepper"), the mortgage servicer that administers Metro Bank's other mortgages. As of 31 December 2014, Metro Bank's geographic concentration of mortgages by gross mortgage value was split, with 61% in Greater London, 24% in the South East UK and 15% in other areas.

Metro Bank's residential mortgage portfolio consists of loans secured on properties by way of a first ranking charge on the property to which the mortgage loan relates on terms which allow for the repossession and sale of the property by Metro Bank if the borrower fails to comply with the terms of the loan. For Personal Banking customers, Metro Bank offers both borrower-occupier mortgage lending (where the borrower is occupier of the mortgaged property), with a maximum LTV Ratio of 85%, and buy-to-let lending (where the borrower purchases with the intention to let the mortgaged property), with a maximum LTV Ratio of 75%. For buy-to-let loans, borrowers must typically demonstrate rental coverage for the property in the amount of 125% of the mortgage payment assuming a current stressed interest rate of 5.5%.

Metro Bank offers both fixed rate and tracker rate residential mortgage loans. Fixed rate mortgage loans have a set rate for an initial period (typically two or five years), after which the rate reverts to Metro Bank's standard variable interest rate, set at Metro Bank's discretion (assuming the borrower does not refinance the loan). Tracker rate mortgage loans allow customers a variable payment structure that follows movements in market interest rates. Tracker rate mortgages charge a fixed percentage above the Bank of England's base rate (primarily determined by the LTV Ratio of the relevant mortgage) for an initial set period, typically two years, after which, as with Metro Bank's fixed rate mortgages, the rate reverts to Metro Bank's standard variable rate.

Metro Bank offers repayment and interest-only residential mortgages. Customers with repayment mortgages pay off both interest and capital, usually through monthly payments, while customers with interest-only mortgages (which are typically limited to loans with a maximum LTV Ratio of 70%) pay off interest only each month. In common with other residential mortgage lenders in the UK, Metro Bank imposes early repayment charges on certain of its residential mortgage products.

In the periods under review, Metro Bank has had very low levels of arrears in its mortgage portfolio. As of 31 December 2015, Metro Bank had £2.0 million in impaired (90 days+ past due) mortgages.

The Directors believe that Metro Bank also possesses a market-leading mortgage customer retention proposition. Metro Bank's mortgage retention portal, launched in September 2015, is designed to allow intermediary brokers and dealers to more quickly and easily help renew their customer's mortgage with Metro Bank. Metro Bank allows customers to change mortgage plans up to three months before the expiry of their mortgage without any early repayment charges, and by leveraging its technical capabilities, Metro Bank typically is able to facilitate mortgage renewals in less than 30 minutes by customers on its online portal. The Directors also believe that its mortgage renewal fees are significantly lower than those of most of its competitors.

Mortgage distribution

Metro Bank self-originates a significant proportion of its residential mortgages, having directly originated over 20% of residential mortgages organically acquired in 2015. The Directors believe that Metro Bank's ability to self-originate a proportion of its residential mortgage portfolio reflects the success of Metro Bank's efforts to develop close relationships with its customers and to provide them with a level of service and responsive product offerings that encourage them to obtain their mortgages through Metro Bank. As Metro Bank grows its direct mortgage network, the Directors believe it will also grow its direct mortgage fulfilment capabilities.

Metro Bank has also grown its residential mortgage portfolio by establishing relationships with a wide range of specialist mortgage intermediaries. Having significantly expanded its intermediary network across the UK in 2014 and 2015, this model is designed to meet the needs of its customers and provide Metro Bank with a scalable platform for future growth.

Unsecured lending

Metro Bank offers a range of unsecured lending products to Personal Banking customers, including unsecured loans, credit cards, overdrafts and professional studies loans. Metro Bank is developing a best-in-class loan application process both online and in-store, and the Directors believe that Metro Bank's customer relationship-focused lending strategy, supported by its automated underwriting credit assessment processes, can help it to significantly grow its unsecured loan portfolio in the short to medium term.

Because of the increased risk of loss for Metro Bank on unsecured lending compared to mortgage lending (due to the fact that Metro Bank holds no security that can be enforced if a customer defaults on the loan), interest rates on Metro Bank's unsecured lending are typically higher than those on mortgage products.

Credit cards: Metro Bank offers Metro Bank-branded contactless MasterCard credit cards for Personal Banking customers that provide free card transactions in Europe and no annual fee. As of 31 December 2015, Metro Bank had approximately 13,240 open retail credit card accounts, and Metro Bank's retail credit card portfolio had receivables of £6 million.

Unsecured loans: Metro Bank offers personal unsecured loans to Personal Banking customers that may be used for a variety of reasons such as home improvements, vehicle purchases or consolidating existing debt. Metro Bank endeavours to ensure that its personal unsecured loans are easy to arrange and customers in most cases can receive their money on the same day that they request it. As of 31 December 2015, Metro Bank's unsecured retail lending portfolio was £14 million.

In May 2015, demonstrating Metro Bank's willingness to consider and enter into non-traditional partnership models in the banking market, Metro Bank began a partnership with the UK peer-to-peer loan platform Zopa to lend to customers through their platform (with Metro Bank extending credit to borrowers only if the proposed loan is within Metro Bank's credit risk appetite). Peer-to-peer platforms are digital sites that match lenders to borrowers directly, typically in a more efficient way than traditional banking and with lower fees. Loan sizes range from £1,000 to £25,000, with an average size of £8,000. Borrowers typically use the loan to finance a car purchase, for home improvement, or to consolidate existing debts. As of 31 December 2015, Metro Bank had £28.9 million in outstanding loans on Zopa's platform.

Overdrafts: Metro Bank offers overdrafts to its Personal Banking customers. Overdrafts occur when a customer pays or withdraws money from their current account in excess of their credit balance. As of 31 December 2015, Metro Bank's retail overdraft receivables were £7 million.

Professional studies loans: Metro Bank's professional studies loan, currently available only to students at the University of Law in London, are designed to help students fund their course and living expenses. The loan can be repaid over a five-year period, with the borrower beginning repayment six months after the completion of studies. As of 31 December 2015, Metro Bank's professional studies loan portfolio was £17 million.

Safe deposit boxes

All of Metro Bank's stores offer safe deposit boxes for a monthly or annual fee, with a typical store having 1,400 boxes available. Safe deposit boxes are offered in a variety of sizes and price ranges and allow customers to store documents or valuables in a secure environment, with unlimited access available during store opening hours seven days a week, 362 days a year. As of 31 December 2015, 46% of Metro Bank's safe deposit boxes were utilised. For the more established stores more than 12 months old, 60% of safe deposit boxes were utilised as of the same date. The Directors believe that safe deposit boxes can transform the economics of its stores, particularly in the more established stores, where safe deposit box utilisation rates are typically high. Metro Bank covers a significant proportion of its store operating costs from safe deposit box income (an average of 80% of rental costs in stores in operation for at least 12 months, prior to any income from lending or account-related activities). In 2015, fee income from safe deposit boxes was £5.3 million, which was equivalent to 45% of Metro Bank's total rents from its opened stores.

Private Banking

Metro Bank's Private Banking business line offers traditional banking and lending to high net worth clients, providing them with the same range of simple banking products, but supported by a bespoke service model and unlimited free access to a dedicated private banker. Because Metro Bank does not offer wealth management or investment advice, it is able to partner with a broad range of investment managers, accountants and advisers who view Metro Bank as a complementary, rather than competitive, service provider, and who are, therefore, a significant source of referrals.

Although Metro Bank does not employ formal criteria in accepting Private Banking clients, customers typically have salaries of at least £250,000 or deposits and/or lending in excess of £1.5 million. As of 31 December 2015, Metro Bank's Private Banking clients represented £303 million, or 5.94%, of Metro Bank's deposits and £468 million, or 13.21%, of its loans.

Metro Bank does not provide wealth or investment management services to its Private Banking clients and instead offers them a range of banking products and services, with an emphasis on flexibility and speed of delivery. In particular, Metro Bank provides bespoke lending products to meet the special needs and circumstances of its Private Banking clients. Metro Bank employs sector specialists who provide tailored banking solutions for private clients with significant commercial interests, sports and entertainment figures, entrepreneurs, high net worth families and professionals and senior executives. Metro Bank continues to plan to invest in additional sectors teams in the short-term. These sector specialists work to take into account individual factors such as cash flow considerations, professional needs and personal timing constraints to craft individual banking solutions for clients. For example, leveraging Metro Bank's manual underwriting functions, sector specialists are able to analyse and understand the irregular income streams of certain customers, such as sports and entertainment stars, to structure lending solutions responsive to, and appropriate for, their financial situations.

In addition, Metro Bank's Private Banking clients are given access to personal account advisers, enhanced deposit rates, free card transactions in Europe and flexible overdraft terms. Private Banking clients are also offered accounts in Euro and U.S. dollars (in addition to GBP), as well as access to jumbo mortgage loans.

Commercial Segment

Metro Bank's Commercial Segment includes its Commercial Banking, Business Banking and Partnership Banking business lines.

Metro Bank's Commercial Banking customers typically fall into one of a number of sectors, including notfor-profits, local authorities, social housing organisations, hotels and leisure companies, franchises and healthcare companies, each of which are individually handled by sector specialists within the bank. Metro Bank offers these customers a wide range of commercial and mortgage lending products, as well as savings and deposits solutions.

Metro Bank's Business Banking customers are varied, but are typically SMEs based in London and the South East of England with a typical turnover of up to £5 million. From business current accounts, overdrafts, card payment solutions and cash management services to expansion funding and lending, Metro Bank aims to help its SME customers at all stages of a business' development, providing them with a local business manager with expertise and familiarity with their business. In addition, Metro Bank has partnered with Acceptcards, the UK's leading independent brokers in merchant services, to provide Commercial Segment customers access to innovative card payment technology.

Similar to its retail offering, Metro Bank emphasises customer care in servicing its Business Banking customers' current and deposit needs. Metro Bank is typically able to open a current or deposit account for a new-to-bank Business Banking customer in less than an hour (which the Directors believe is significantly faster than that offered by Metro Bank's main competitors), and for BCAs, allocates a local business manager or relationship team (depending on the size of the customer) dedicated to meeting the account holder's broader business needs.

The Directors believe that because of its own entrepreneurial development and corporate culture, Metro Bank is a particularly attractive banking partner for start-up and technology growth companies that seek a professional and trusted bank with a modern, results-oriented approach to service and speedy account opening.

Metro Bank's Partnership Banking is the bank's proposition for financial services intermediaries such as financial advisers, wealth managers, discretionary fund managers and pension companies, providing these entities with a range of services, including portfolio lending, partner loans and specialist pension deposit solutions, which the Directors believe is a key underserved market.

In February 2015, Metro Bank announced a partnership with Xero, an online accounting software specialist. Xero's software provides business customers with the ability to streamline their accounting and banking processes online. Through its partnership, Metro Bank's Business Banking customers using Xero are able to import and categorise their bank statements automatically, saving time by making manual uploads and downloads unnecessary. Metro Bank also announced a partnership with KPMG in September 2015. Metro Bank's customers have access to KPMG's new Small Business Accounting offering which provides unlimited access to a dedicated KPMG accountant which can reduce time spent by business owners on administration. The partnership builds on both KPMG Small Business Accounting's and Metro Bank's existing partnership with Xero.

Deposit accounts

Commercial Segment customers offer Metro Bank the opportunity to obtain large-scale deposit funding, and the Directors believe that commercial deposit accounts are an underserved segment of the UK banking market, and as a result are a particular area of potential growth for Metro Bank.

Current accounts are available in GBP, Euro and U.S. dollar denominations for commercial customers.

Metro Bank offers a broad range of deposit accounts for Commercial Banking customers, including fixed term and variable savings accounts, as well as a variety of specialised deposit accounts. For example, Metro Bank offers money market accounts, which require a minimum deposit of £50,000 and provide interest that varies daily (and is paid either daily, weekly, monthly, quarterly, yearly or at maturity) for terms between one month and five years. Metro Bank also offers "100 Day Notice" accounts, which require a minimum £5,000 deposit, and which allow Commercial Banking customers to earn higher interest rates by committing their money for 100 or more days.

For Commercial Banking customers holding significant amounts of client monies, Metro Bank offers "flexible bonds", fixed term deposits typically used by customers to hold client monies. These accounts, which require a minimum of £500,000 deposit, do not allow partial withdrawal, and offer fixed interest rates for either six-month, nine-month or one-year terms. For more flexible withdrawal needs for client monies, Metro Bank offers premium deposit accounts, which offer a single master holding account with sub-accounts for each customer client.

The table below sets forth a breakdown of Metro Bank's Commercial Segment deposits by interest type as of 31 December 2013, 2014 and 2015.

	As of 31 December
	2013	2014	2015
	(£ millions)
Variable rate deposits	218	440	650
Fixed rate deposits	178	398	1,069
Non-interest bearing deposits	271	580	977
Total	667	1,418	2,696

Lending

Metro Bank provides a variety of lending options for Commercial Banking customers.

When creating lending solutions for Commercial Banking customers, Metro Bank provides each borrower with a dedicated local business manager familiar with the customer's business, as well as efficient, manual underwriting of loan applications. Commercial Banking customers have access to Metro Bank's business loans, which can be obtained in amounts greater than £25,000 and are typically repayable in one to 15 years. These business loans, which also can be secured or unsecured, are available with fixed interest rates for periods of up to seven years and with tracker rates for longer terms. Metro Bank utilises its customer-focused "Credit Partner Model" for commercial underwriting, as well as to help ensure that, where possible, both an underwriter and relationship manager have met the applicant prior to the granting of a loan. In addition, Metro Bank provides Commercial Banking lending predominantly on a secured basis, and it is the general policy that personal guarantees are required for commercial loans. Metro Bank also offers overdrafts to Commercial Banking customers, with interest rates set on a customer-by-customer basis. In addition, Commercial Banking customers can access Metro Bank's mortgage products, including its "portfolio buy-to-let" offering, which allows customers to borrow against a portfolio of typically six to 25 properties up to an aggregate LTV Ratio of 75%.

In addition to the business loans typically offered to Commercial Banking customers, Metro Bank offers Business Banking customers "small business loans", which are made in amounts from £2,000 to £25,000, have fixed interest rates, can be both secured and unsecured and are typically offered for a term of one to five years.

In addition, Metro Bank offers Metro Bank-branded business MasterCard contactless credit cards for Business Banking customers. These credit cards carry the same interest rates as those offered to retail customers, and similarly offer free card transactions in Europe and no annual fee.

Asset finance and invoice finance

In 2013, Metro Bank acquired SME Invoice Finance and its subsidiaries, which specialises in invoice discounting and factoring and asset finance. Through the acquisition of this company, which has been rebranded as Metro Bank Invoice and Asset Finance, Metro Bank broadened its offering to Business Banking customers with a focus on the manufacturing, wholesale and transport and distribution markets. Since their acquisition, these portfolios have grown from £53 million to £123 million as of 31 December 2015.

Asset Finance: Through Metro Bank Invoice and Asset Finance, Metro Bank offers financing to fund purchases of certain assets such as plant, machinery and vehicles. Asset finance allows a Business Banking customer to enjoy the immediate use of purchased assets while spreading the cost of the purchase, helping customers improve their working capital and preserve existing lines of credit.

Metro Bank requires its Business Banking customers to make a down payment, typically 10% of the purchase price of the asset, and provides financing for the remaining cost over a term of up to five years, depending upon the nature of the asset. Metro Bank offers a mix of hire purchase and finance lease products for both new and used assets, taking security interests in the financed asset. Metro Bank typically seeks an independent expert valuation before determining the amount that it will finance. For Business Banking customers that already own unencumbered plant and machinery, Metro Bank offers borrowings of up to 75% of the asset's value.

Invoice finance: Through Metro Bank Invoice and Asset Finance, Metro Bank offers Business Banking customers the ability to lend against outstanding invoices issued by the borrower to its customer, both through factoring and invoice discounting. Under factoring arrangements, which are typically offered to smaller businesses without a dedicated sales ledger management function, Metro Bank will typically advance up to 85% of the value of approved invoices, with Metro Bank's credit control team taking responsibility for the collection of the borrower's outstanding invoices. Under invoice discounting arrangements, which are typically offered to larger businesses with an effective accounts management function, Metro Bank will typically advance up to 85% of the borrower's outstanding sales ledger, and the borrower remains responsible for collecting outstanding debt from its customers.

Invoice and asset financing have well-established broker-led markets in the UK, and Metro Bank works with a wide range of intermediaries in both of these businesses. In the year ended 31 December 2015, intermediaries originated 61% and 75% of Metro Bank's business in invoice and asset financing, respectively, with remaining business coming from its own internal channels.

In addition, Metro Bank is considering opportunities to increase cross-sales solutions between asset and invoice finance, as well as private banking solutions.

Partnership Banking

Through its Partnership Banking, one of Metro Bank's fastest-growing business lines, Metro Bank offers specialist banking products for the financial services intermediary market, including portfolio lending, partner loans and specialist pension deposit solutions. Metro Bank has a broad network of partnership relationships, including with leading companies such as St. James's Place, Standard Life, Flemings and Quilter Cheviot. As of 31 December 2013, 2014 and 2015, Metro Bank's Partnership Banking deposits were £120.0 million, £526.8 million and £860.4 million, respectively. As of the same dates, Metro Bank's Partnership Banking loan portfolio was £7.7 million, £43.4 million and £91.4 million, respectively.

Through its Partnership Banking business line, Metro Bank accepts specialist cash deposits from pension providers and provides Small Self-Administered Scheme ("SSAS") deposit solutions (typically instant access and deposit accounts), as well as customer portfolio lending to various wealth managers. The dedicated pension administration team at Metro Bank, which in recent years has gained customers such as Westerby Trustee Services and Rowanmoor Trustees Limited, comprises experienced banking administrators with expertise in the administration of cash deposits from pension providers and SSAS accounts. The Directors believe that funds held on behalf of pension trustee advisers are characteristically a stable source of funding, and as of 31 December 2015, these funds represented £567 million of Metro Bank's deposits.

Metro Bank also works closely with a range of partners who specialise in company formation, providing it with early access to offer these newly-established companies with business current accounts. Metro Bank also has developed a growing niche in client monies holding accounts for solicitors and other professional services organisations.

Money Management Account ("MMA")

Within Partnership Banking, Metro Bank offers MMAs, which combine current accounts with overdrafts secured against customers' investment portfolios held by their asset management partners, allowing its customers to borrow money against their investments. Available primarily to customers through Metro Bank's Partnership Banking business line (in partnership with asset managers St. James's Place, Quilter Cheviot and Killik & Co), as of 31 December 2015, Metro Bank held a total MMA lending balance of £42.7 million. In April 2015, Metro Bank launched a co-branded MMA with St. James's Place, and it also provides loans for St. James's Place partners.

Information technology

Metro Bank benefits from a relatively new IT infrastructure comprising industry-standard systems that are configured to meet Metro Bank's requirements, providing Metro Bank with a flexible, reliable and secure platform. The Directors believe that this infrastructure is scalable such that it can expand to support future growth with moderate ongoing investment, and the Directors expect to continue to invest in modern technology.

Metro Bank's IT infrastructure is crucial to the bank's customer proposition, particularly to its ability to open new customer accounts quickly and seamlessly while simultaneously performing necessary background checks on applicants. Metro Bank has an in-house IT team of approximately 98 colleagues who manage and evolve Metro Bank's systems. Metro Bank uses Temenos software for core banking services and Microsoft for CRM and Marketing (Dynamics), Management Information (PowerBI) and internal communications (Yammer).

Metro Bank's IT systems are hosted in two state-of-the-art data centres that have sufficient capacity to independently run all systems with zero degradation to service levels in the event of a data centre failure. Innovative architectural design principals have guided the build of a highly-available, stable, secure and performant infrastructure that seamlessly scales in-line with business growth. Wherever possible. business critical systems run continuously out of both data centres at the same time (live/live) to achieve the lowest possible recover times.

Metro Bank has carefully invested in key strategic technologies to support business growth. In addition, Metro Bank's scalable SaaS IT model supports this cost-effective growth by allowing it to service additional customer accounts, with only marginal increases in costs. Powerful Oracle platforms host critical application databases and enterprise class IBM software enables efficient system integration, as well as Operational Data Store and Data Warehousing capabilities. Metro Bank continues to invest in IT security, customer relationship management, payments, regulatory compliance, risk management and treasury capabilities. In addition, Metro Bank expects to make further investments in its customer-facing digital channels to support the growing use of mobile and tablet devices by consumers.

Competition

The table below sets forth a comparison of the product offerings of Metro Bank and certain of its competitors as of March 2016:

			Residential Mortgages:	Residential			Business Credit/
	Asset Finance	Invoice Finance	Owner Occupied	Mortgages: Buy to Let	Commercial Mortgages	Personal Loans	Secured Lending	Credit Cards	Car Finance	Current Accounts	Term Deposits
TSB			X	X	X	X	X	X		X	X
Clydesdale	X	$\mathbf X$	X	X	X	$\mathbf X$	X	X	X	X	X
Virgin Money			X	X		X		X		X	X
Metro Bank	X	$\mathbf X$	X	$\mathbf X$	X	X	X	X		X	X
OSB			X	$\mathbf X$	X	$\mathbf X$					X
Paragon	X		X	X	X	X			X		X
Aldermore	X	X	X	$\mathbf X$	X						X
Close Brothers	X	$\mathbf X$			X	X			X		X
Shawbrook	X	$\mathbf X$		X	X	X	$\mathbf X$				X
Secure Trust	X	$\mathbf X$			X	$\mathbf X$	$\mathbf X$		X	X	X
S&U						$\mathbf X$			X
Provident Financial						X		X	X		X

Intellectual property

The Metro Bank trade name, logo and website are key elements of Metro Bank's brand. Metro Bank has acquired the trademark "Metrobank" and its logo in the UK, but does not hold the trademark for the "Metro Bank" name.

Insurance

The principal risks covered by Metro Bank's insurance policies relate to property damage, business interruption, employers and public liability and certain other claims consistent with customary practice in the banking industry Metro Bank. Metro Bank purchases its insurance through well-known providers and has not had any material insurance claims, nor has it suffered any material loss following any uninsured claim, in the last three years.

Colleagues

As of 31 December 2015, Metro Bank had 2,025 colleagues, approximately 50% of whom worked in Metro Bank stores and approximately 10% of whom worked in Metro Bank customer contact centres.

Litigation

There are no governmental, legal or arbitration proceedings (including proceedings that are pending or threatened of which Metro Bank is aware) during the 12 months preceding the date of this Prospectus which may have, or have had, a significant effect on Metro Bank's financial position or profitability.

PART VIII DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE

Directors

The following table lists the names, positions and ages of the Directors:

Name	Age	Position	Date appointed
Vernon W. Hill, II	70	Chairman	18 August 2008
Craig Donaldson	44	Chief Executive Officer	5 March 2010
Michael Brierley	57	Chief Financial Officer	5 March 2010
Alastair (Ben) Gunn	65	Senior Independent Director	5 March 2010
Stuart Bernau	64	Non-Executive Director	5 March 2010
Keith Carby	69	Non-Executive Director	5 March 2010
Lord Flight	67	Non-Executive Director	5 March 2010
Eugene Lockhart	66	Non-Executive Director	5 March 2010
Roger Farah	63	Non-Executive Director	1 February 2014
Sir Michael Snyder	65	Non-Executive Director	22 September 2015

Directors

Vernon W. Hill, II – Chairman

Mr Hill was the founder and Chairman for 34 years (now retired) of Commerce Bancorp, Inc. (NYSE:CBH), which began as a start-up bank in 1973 and in 2007 was sold to The Toronto-Dominion Bank for approximately U.S.\$8.5 billion. Commerce Bancorp, Inc. began as a one branch new bank and grew to U.S.\$50 billion in assets, with 440 branches. Mr Hill is also involved in a number of different banking and non banking related businesses and voluntary ventures in the U.S.

Craig Donaldson – Chief Executive Officer

Mr Donaldson was Managing Director, Retail Products and Direct Channels, of RBS UK with responsibility for all retail and private products, including credit cards, current accounts, savings, investments and loans. He was also Chair of the Retail Asset and Liabilities Committee and Retail Product Board and a member of the Retail Board, Retail Risk Committee and RBS UK Asset & Liabilities Committee.

Michael Brierley – Chief Financial Officer

Mr Brierley joined Metro Bank in April 2009 and is responsible for Metro Bank's Finance, Treasury, Legal, Procurement and Company Secretarial functions. Mr Brierley is a Fellow of the Institute of Chartered Accountants, having qualified in 1984 while working for Ernst & Young. Immediately prior to joining Metro Bank in 2009, Mr Brierley was Director, Business Risk at Barclaycard. Prior to this role, Mr Brierley undertook various senior finance and risk roles in Capital One Bank (Europe) plc between 1999 and 2006, including being Chief Financial Officer UK & Europe (2000 to 2002) and Chief Risk Officer (2002 to 2006). Mr Brierley has also acted as Chief Financial Officer for Royal Trust Bank, a retail and commercial bank, Financial Controller at Industrial Bank of Japan and Chief Financial Officer of Gentra Limited, a vehicle created to purchase and manage residential and commercial property related debt.

Alastair (Ben) Gunn – Senior Independent Director

Mr Gunn was Chief Executive and, more recently, Chairman of Friends Provident Life and Pensions Ltd and a director of Friends Provident plc, a FTSE 100 company. In his role as Group Executive Director, he was responsible for all aspects of the Friends Provident group's life and pensions activities worldwide, covering some 3,800 of the Friends Provident group's c. 4,300 staff. More recently he was the Senior Independent Director at Aviva UK and chair of the audit committee at Avelo.

Stuart Bernau – Non-Executive Director

Mr Bernau has worked in financial services for 42 years, including 13 years as a main board director of Nationwide Building Society, during which time he had responsibility for retail operations, commercial lending, treasury and marketing. He served as chair and CEO of Chelsea Building Society and has chaired the Council of Mortgage Lenders and the Financial Services Sector Skills Council. He was appointed as a Special Adviser to the Treasury Select Committee from 2013 to 2015.

He has served on the Metro Bank Board since 2010 and is the chair of the Audit Committee and a member of the Risk Committee.

Keith Carby – Non-Executive Director

Mr Carby is CEO of the Caerus Capital Group Ltd and Non-Executive Chairman of Foster Denovo plc. He was joint founder and managing director of J. Rothschild Assurance (now St. James's Place plc.). Mr Carby was also joint founder of the Financial Services Forum and was a founding trustee of the 9/11 London Project.

Lord Flight – Non-Executive Director

Lord Flight was Conservative MP for Arundel and South Downs, West Sussex, from 1997 to 2005, during which time he held several Shadow posts, including Shadow Chief Secretary to the Treasury and was a member of the Shadow Cabinet from 2002 to 2004. Lord Flight was appointed to the House of Lords in January 2011. He was joint founder and managing director of Guinness Flight Global Asset Management. He is chairman of CIM Investment Management, Downing Four VCT plc and of Flight and Partners, a director of Investec Asset Management Limited and Commissioner of the Guernsey Financial Services Commission. Lord Flight also has a number of other non-executive board appointments.

Eugene Lockhart – Non-Executive Director

Mr Lockhart is a special adviser to General Atlantic, a leading global growth investment firm. Mr Lockhart is also chairman and managing general partner of MissionOG LLC, an early stage, growth equity investment firm which specialises in investing in hyper-growth, technology-oriented companies serving the financial services sector. He served as president and CEO of MasterCard Worldwide, where he led its transition to a for-profit enterprise. Subsequently, he worked as president of the Global Retail Bank at Bank of America, leading all of the bank's retail and commercial banking businesses globally until its sale to NationsBank. Prior to those experiences, Mr Lockhart was the CEO of Midland Bank UK and Chairman of First Direct and Thomas Cook. Over the last 15 years, Mr Lockhart has also been a successful private investor and adviser to several private equity firms. Mr Lockhart has served on many public company boards, including First Republic Bank, RJR/Nabisco, Huron Consulting, Cognizant, IMS Health and RadioShack.

Roger Farah – Non-Executive Director

Mr Farah is the co-CEO of Tory Burch. Mr Farah is the former Executive Vice Chairman of Ralph Lauren Corporation, having served in that position from November 2013 to May 2014. He previously served as Ralph Lauren Corporation's president and chief operating officer and as a member of its board of directors from April 2000 to October 2013. From 1994 to 2000, Mr Farah was chairman of the board and CEO of Footlocker Inc. Prior to that, he served as president and chief operating officer of Macy's Inc, chairman and CEO of Federated Merchandising Services and Chairman and CEO of Rich's Department Stores, and has also held executive positions at Saks Fifth Avenue. Mr Farah is on the board of directors of Aetna, Inc, and the Progressive Corporation.

Sir Michael Snyder – Non-Executive Director

Sir Michael has led Kingston Smith for the past 36 years as managing partner, and since 1990, also as senior partner. Over the past year, Sir Michael has primarily focused on the externally-facing role of the Senior Partner. During Sir Michael's tenure, the firm has grown from seven partners to 64, increased its headcount to more than 500 and reached a turnover that exceeds £43 million. He helped establish the National Business Angels Network and acted as its chairman between 1999 and 2002 and sat on the Small Business Council and Small Business Investment Taskforce. He is the current chairman of GLE Loan Finance Ltd, an alternative source of finance for growing small businesses based in the capital. Sir Michael is the chairman of the Association of Practising Accountants and is co-chairman of the Government's Professional Business Services Council. Sir Michael is an elected member of the City of London Corporation since 1986 and was Chairman of Policy and Resources, effectively the leader, between 2003 and 2008. In 2008, Sir Michael was knighted for his services to business and to the City of London.

Senior Management Team

Metro Bank's current senior management, in addition to the Executive Directors listed above, is as follows:

Name	Age	Position
Aileen Gillan	47	Chief Risk Officer
Aisling Kane	47	Chief Operating Officer
Paul Riseborough	37	Chief Commercial Officer
Danielle Harmer	48	Chief People Officer
Iain Kirkpatrick	43	MD – Retail Banking
Ian Walters	53	MD – Business Banking
Mark Stokes	53	MD – Commercial Banking
Chit Ghee Yeoh	45	Head of Internal Audit

Aileen Gillan – Chief Risk Officer

As Chief Risk Officer, Ms Gillan is responsible for management and oversight of the risk and control framework across the bank. This includes ensuring that Metro Bank fulfils its regulatory obligations, while lending safely and sustainably and continuing to deliver high levels of customer service. A qualified barrister, Ms Gillan spent the first ten years of her career in a number of advisory roles. Ms Gillan joined Metro Bank from Lloyds Banking Group plc, where most recently she was Chief Risk Officer for the Asset Finance businesses. Prior to that, she was accountable for the management of risk and compliance across a range of businesses in major financial institutions.

Aisling Kane – Chief Operating Officer

At Metro Bank, Ms Kane is responsible for everything that underpins the smooth running of the bank. This includes its 24/7 Contact Centre, IT, banking and lending operations, as well as facilities and property management. Trained as a chartered accountant with KPMG, Ms Kane has worked in the banking industry for more than 16 years. Ms Kane joined Metro Bank as the ninth colleague in December 2009 to help build the bank, which has given her a deep appreciation for working with like-minded people with a shared vision for success. Before joining Metro Bank, she held the role of Director of UK Operations for Anglo Irish Bank plc.

Paul Riseborough – Chief Commercial Officer

Mr Riseborough joined Metro Bank in December 2011 and is responsible for Metro Bank's retail, business and commercial products, Digital proposition, Change programme and Communications Team. He also runs Metro Bank's Customer insights programme. Prior to joining Metro Bank, Mr Riseborough held various roles at Lloyds Banking Group plc and HBOS plc, including Head of Strategy and Planning, Head of Acquisition and Head of Channel Planning in the banking products area of each business. He was also Business Manager to the Chairman of HBOS plc and Pearson plc. Mr Riseborough started his career in consultancy, working for the global policy and economics consultancy Oxford Analytica and management consultancy PA Consulting Group. He was educated at Nottingham, Oxford and Warwick Universities and is a Member of the Chartered Institute of Bankers in Scotland.

Danielle Harmer – Chief People Officer

Ms Harmer is responsible for all aspects of looking after Metro Bank's people and enabling its culture and values. A Chartered member of the Chartered Institute of Personnel and Development (CIPD), Ms Harmer has worked in retail banking for over 20 years both in business leadership and human resources roles. She joined the Halifax Building Society in 1992, which then merged with Bank of Scotland to become HBOS plc and latterly was acquired by Lloyds Banking Group plc. Her roles ranged from New Business Manager and Regional Director to HR Director for the Lloyds TSB, Halifax and Bank of Scotland branch networks. Before joining Metro Bank, she was responsible for human resources in the Corporate Functions in Barclays plc Retail and Business Banking. Ms Harmer has a degree in Economics and Business Economics from the University of Southampton and is also a Court Member for the Guild of HR Professionals.

Iain Kirkpatrick – MD – Retail Banking

Mr Kirkpatrick joined Metro Bank in August 2015, with the responsibility for ensuring that the stores deliver an experience attracting FANS not customers. He is a leading advocate of community banking and aims to ensure that every Metro Bank store is at the heart of its local area. Prior to joining Metro Bank, Mr Kirkpatrick led UK Private Banking at Lloyds Banking Group plc. He has held a number of senior roles, including Retail and Mortgage Director for Lloyds TSB Scotland and the running of retail branch networks for Lloyds and Halifax in London and the South East. He is a Fellow of the Chartered Institute of Bankers in Scotland.

Ian Walters – MD – Business Banking

Mr Walters is responsible for growing Metro Bank as a trusted adviser and lender to small businesses with additional responsibility for Partnerships, Private Banking, Asset Finance and Invoice Finance. Mr Walters joined Metro Bank in August 2015 with a strong background in business and commercial banking. He was recently Managing Director of Business Banking for RBS plc and NatWest, supporting several thousand relationship managers. He was previously responsible for Specialised Relationship Management across Business and Commercial Banking for RBS plc and NatWest.

Mark Stokes – MD –Commercial Banking

Mark joined Metro Bank in January 2016 and will oversee the bank's rapidly expanding commercial activity and champion small and medium-sized enterprises, which receive close to half of the bank's total lending. Mark has over 25 years of experience at Lloyds Banking Group where he held a number of senior positions, including managing director of its commercial banking division. Most recently, he led Williams & Glyn's corporate business banking unit.

Chit Ghee Yeoh – Head of Internal Audit

Ms Yeoh joined Metro Bank as Director of Internal Audit in March 2014. Before that, she led internal audit services for banks and securities houses at Deloitte. In that role, she has acted as interim Head of Audit at various banks, performed External Quality Assurance reviews for numerous financial institutions from global financial institutions to foreign banks operating in the UK, and led the relationships with banks for co-sourced and out-sourced internal audits. In addition to internal audit and other assurance projects, Chit Ghee has led various investigative projects supporting expert witness statements. The nature of this work included analysing documents, following cash and asset trails, working with criminal law enforcers and lawyers and preparing reports suitable for use in courts of law.

Corporate governance

UK Corporate Governance Code

The Board is committed to the highest standards of corporate governance. The Board complies and intends to continue to comply with the requirements of the UK Corporate Governance Code. The Company will report to its Shareholders on its compliance with the UK Corporate Governance Code in accordance with the Listing Rules.

As envisaged by the UK Corporate Governance Code, the Board has established an Audit Committee, a Nomination Committee and a Remuneration Committee. In addition, the Board has also established a Risk Oversight Committee. If the need should arise, the Board may set up additional committees as appropriate.

The UK Corporate Governance Code recommends that at least half the board of directors of a UK-listed company, excluding the chairman, should comprise non-executive directors determined by the Board to be independent in character and judgement and free from relationships or circumstances which may affect, or could appear to affect, the director's judgement. As of the date of this Prospectus, the Board consists of seven Non-Executive Directors. The Company regards each of these seven Non-Executive Directors as "independent non-executive directors" within the meaning of the UK Corporate Governance Code and free from any business or other relationship that could materially interfere with the exercise of their independent judgement. Grants of a limited number of options over Shares and B Ordinary Shares have been made to the Non-Executive Directors before Admission as set out in paragraph 9 of Part XVIII: "Additional Information" and paragraph 26 of Part XV: "Historical Financial Information". These grants are not considered by the Board to be material in the assessment of the independence of the Non-Executive Directors and no further options will be granted after Admission.

The UK Corporate Governance Code recommends that the board of directors of a company with a premium listing on the Official List of the FCA should appoint one of the Non-Executive Directors to be the Senior Independent Director to provide a sounding board for the Chairman and to serve as an intermediary for the other Directors when necessary. The Senior Independent Director should be available to shareholders if they have concerns which contact through the normal channels of the CEO has failed to resolve or for which such contact is inappropriate. Alastair (Ben) Gunn has been appointed Senior Independent Director.

The UK Corporate Governance Code further recommends that directors should be subject to annual reelection. The Company intends to comply with these recommendations.

Audit Committee

The Audit Committee's role is to assist the Board with the discharge of its responsibilities in relation to financial reporting, including reviewing Metro Bank's annual and half-year financial statements and accounting policies, internal and external audits and controls, reviewing and monitoring the scope of the annual audit and the extent of the non-audit work undertaken by external auditors, advising on the appointment of external auditors and reviewing the effectiveness of the internal audit, audit controls, whistleblowing and fraud systems in place within Metro Bank. The Audit Committee will meet normally not less than four times a year.

In compliance with the requirements of the UK Corporate Governance Code, the Audit Committee is made up of three members who are each independent Non-Executive Directors and includes one member with recent and relevant financial experience. The Audit Committee is chaired by Stuart Bernau who is considered by the Board to have recent and relevant financial expertise. The other members of the Audit Committee are Keith Carby and Eugene Lockhart.

Nomination Committee

The Nomination Committee assists the Board in reviewing the structure, size and composition of the Board. It is also responsible for reviewing succession plans for the Directors, including the Chairman and CEO and other senior executives.

The UK Corporate Governance Code recommends that a majority of the members of a nomination committee should be independent non-executive directors. The Nomination Committee is chaired by Lord Flight, and its other members are Vernon W. Hill, II, Roger Farah and Keith Carby. The Nomination Committee will normally meet not less than twice a year.

Remuneration Committee

The Remuneration Committee assists the Board in determining its responsibilities in relation to remuneration, including making recommendations to the Board on the Company's policy on executive remuneration, including setting the over-arching principles, parameters and governance framework of Metro Bank's remuneration policy and determining the individual remuneration and benefits package of each of the Company's Executive Directors. The Remuneration Committee will also ensure compliance with the UK Corporate Governance Code in relation to remuneration.

The UK Corporate Governance Code provides that a remuneration committee should comprise at least three members who are independent Non-Executive Directors. The Remuneration Committee is chaired by Lord Flight, and its other members are Roger Farah and Keith Carby. The Remuneration Committee will meet normally not less than twice a year.

Risk Oversight Committee

The Risk Oversight Committee is responsible for providing oversight and advice to the Board in relation to risk management systems, risk appetite, strategy and exposure, reviewing and approving risk policies, assessment processes and reporting within Metro Bank.

The Risk Oversight Committee is made up of four members, all of whom are independent Non-Executive Directors. The Risk Oversight Committee is chaired by Eugene Lockhart, and its other members are Stuart Bernau, Alastair (Ben) Gunn and Sir Michael Snyder. The Risk Oversight Committee will normally meet not less than four times a year.

Share dealing

The Company has adopted, with effect from Admission, a code of securities dealings in relation to the Shares which is based on, and is at least as rigorous as, the model code published in the Listing Rules. The code adopted will apply to the Directors and other relevant staff.

Conflicts of interest

A key component of Metro Bank's strategy is the use of a distinctive branding concept and reflecting this concept in the design of its stores. Architectural, design and branding services are provided to Metro Bank by InterArch, Inc. ("InterArch"), a firm which is owned by Shirley Hill, the wife of Vernon W. Hill, II and which has been tasked by Metro Bank with the creation and implementation of this concept. Metro Bank's stores are designed to be highly visible (typically with large glass storefronts and fitted out in Metro Bank's recognisable red and blue colours).

In order to ensure that the terms of any arrangements between InterArch and Metro Bank are consistent with those that could be obtained from an independent third party, the contractual arrangements with InterArch are subject to periodic review by the Company's Audit Committee using annual benchmarking reviews conducted by authoritative independent third parties. This process has been in place since the inception of Metro Bank and Metro Bank has disclosed its arrangements with InterArch in its annual report and accounts.

The Audit Committee has concluded that the arrangements with InterArch are on terms which are at least as beneficial to Metro Bank as those which could be obtained from an independent third party.

Further information on the services provided by InterArch to Metro Bank are set out in paragraph 18 (Related party transactions and other arrangements) of Part XVIII: "Additional Information" sets out information about the arrangements between Metro Bank and InterArch.

Save as disclosed above, there are no potential conflicts of interest between any duties owed by the Directors or Senior Managers to the Company and their private interests or other duties.

PART IX SUPERVISION AND REGULATION

1 UK Regulatory Bodies

Metro Bank, which is a retail bank operating in the UK, falls under the ambit of UK banking regulators and regulation.

1.1 The Prudential Regulation Authority, the Financial Conduct Authority and the Financial Policy Committee (the "FPC")

Under the Financial Services Act 2012 (the "FSA 2012"), a range of structural reforms to UK financial regulatory bodies was implemented, with the Financial Services Authority (for the purposes of this Part IX: "Supervision and Regulation", the "FSA") being replaced from 1 April 2013 by the following bodies: (i) the PRA; (ii) the FCA; and (iii) the FPC.

The PRA, a subsidiary of the Bank of England, has responsibility for micro-prudential regulation of deposit-takers (including banks, building societies and credit unions), insurers and investment firms that have the potential to present significant risks to the stability of the financial system and that have been designated for supervision by the PRA.

The FCA has responsibility for conduct of business regulation in relation to all authorised firms and the prudential regulation of firms not regulated by the PRA. The FCA has also inherited the majority of the FSA's market regulatory functions, and it represents the UK's interests in markets regulation at the European Securities and Markets Authority.

Metro Bank is authorised by the PRA and regulated by the FCA and the PRA.

The FPC, which is an independent committee within the Bank of England, is tasked with the primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The FPC has a secondary objective to support the economic policy of the UK Government, including its objectives for growth and employment.

For the purposes of this Part IX: "Supervision and Regulation", the terms "Relevant Regulator" and "Relevant Regulators" refer, as the context requires, to one or more of the PRA, the FCA and/or the FPC.

The PRA's general objective

In discharging its general functions, the PRA's general objective is promoting the safety and soundness of PRA-authorised firms. The PRA is required to advance this objective primarily by seeking to:

• ensure that the business of PRA-authorised firms is carried on in a way which avoids any adverse effect on the stability of the UK financial system; and
• minimise the adverse effect that the failure of a PRA-authorised firm could be expected to have on the stability of the UK financial system.

Additionally, the Financial Services (Banking Reform) Act 2013 (the "Banking Reform Act") has amended the PRA's general safety and soundness objective to incorporate certain matters related to ring-fencing requirements and the bodies subject to them.

When discharging its general functions in a way that advances its objectives, the PRA must, so far as is reasonably possible, act in a way which, as a secondary objective, facilitates effective competition in the markets for services provided by PRA-authorised firms carrying on regulated activities.

The FCA's objectives

When discharging its general functions of rule-making, preparing and issuing codes under the Financial Services and Markets Act 2000 (the "FSMA"), giving general guidance or determining general policy and principles, the FCA must, so far as is reasonably possible, act in a way which is compatible with its strategic objective of ensuring that relevant markets function well, and which advances one or more of its operational objectives of:

• (i) securing an appropriate degree of protection for consumers (the consumer protection objective);
• (ii) promoting effective competition in the interests of consumers in financial markets (the competition objective); and
• (iii) protecting and enhancing the integrity of the UK financial system (the integrity objective).

So far as is compatible with its consumer protection and integrity objectives, the FCA must discharge its general functions in a way which promotes effective competition in the interests of consumers.

1.2 The UK Government

The UK Government has no operational responsibility for the activities of the PRA, the FCA or the FPC. However, the PRA, the FCA and the FPC are accountable to the UK Parliament and, in addition to periodic reporting requirements, there are a variety of circumstances when the PRA, the FCA and the FPC will need to report to HM Treasury (as the representative of the UK Government) about certain events. For example, the PRA must report where events have occurred which had or could have had a significant adverse effect on the safety or soundness of one or more persons authorised by the PRA, and the FCA must report where there has been a significant regulatory failure to secure an appropriate degree of protection for consumers.

1.3 The Financial Ombudsman Service (the "FOS")

The FSMA established the FOS, which determines complaints by eligible complainants in relation to authorised financial services firms, consumer credit licensees and certain other businesses, in respect of activities and transactions under its jurisdiction. The FOS determines complaints on the basis of what, in its opinion, is fair and reasonable in all the circumstances of the case. The maximum level of money awarded by the FOS is £150,000 for complaints received by the FOS on or after 1 January 2012 (£100,000 for earlier complaints) plus interest and costs. The FOS may also make directions awards which direct the relevant business to take steps which the FOS considers just and appropriate.

2 UK Regulation

2.1 Overview of UK financial services regulation

2.1.1 Financial Services and Markets Act 2000

The cornerstone of the regulatory regime in the UK is the FSMA, which received Royal Assent on 14 June 2000 and came into force in 2001. However, the framework for supervision and regulation of banking and financial services in the UK has been, and continues to be, heavily influenced by European Union legislation.

The FSMA prohibits any person from carrying on a "regulated activity" (as defined in the FSMA) by way of business in the UK, unless that person is authorised or exempt under the FSMA (the "General Prohibition"). Regulated activities include deposit-taking, mortgage activities (such as entering into, administering, or advising or arranging in respect of, regulated mortgage contracts), effecting and carrying out contracts of insurance, insurance mediation, consumer credit activities and investment activities (such as dealing in investments as principal or as agent, arranging deals in investments and advising on or managing investments). The FSMA also prohibits the communication of an invitation or inducement to engage in investment activity (a "financial promotion") in the UK, unless the financial promotion is issued or approved by an authorised firm or is exempt from such requirements.

The Relevant Regulators are responsible for the authorisation and supervision of institutions that provide regulated activities in the UK. Metro Bank is authorised by the PRA and regulated by the FCA and the PRA with permission to undertake, among other things, deposit-taking and mortgage activities. Authorised firms must at all times meet certain "threshold conditions" specified by the FSMA, which were modified to reflect the new regulatory structure under the FSA 2012. Dual-regulated firms, such as Metro Bank, need to meet both the PRA's threshold conditions and the FCA's threshold conditions. The FCA threshold conditions applicable to PRA-authorised firms are, at a high level, that: (i) the firm is capable of being effectively supervised; (ii) the firm maintains appropriate non-financial resources; (iii) the firm itself is fit and proper, having regard to the FCA's operational objectives and (iv) the firm's strategy for doing business is suitable, having regard to the FCA's operational objectives. At a high level, the PRA threshold conditions require: (a) a firm's head office and, in particular, its mind and management to be in the UK if it is incorporated in the UK; (b) a firm's business to be conducted in a prudent manner and, in particular, that the firm maintains appropriate financial and non-financial resources; (c) the firm itself to be fit and proper, having regard to the PRA's objectives and appropriately staffed; and (d) the firm to be capable of being effectively supervised. Related to this, the PRA must formally approve persons who intend to become "controllers" of Metro Bank (or who intend to increase their control over Metro Bank in a way which results in them falling into a different threshold of control) and must be kept informed of the persons who are controllers of Metro Bank and closely-linked persons of Metro Bank. A controller of Metro Bank is broadly any person who, whether acting alone or "acting in concert" holds 10% or more of the shares or voting power in Metro Bank or a parent undertaking of Metro Bank or anyone who holds shares or voting power in Metro Bank or a parent undertaking of Metro Bank as a result of which they are able to exercise significant influence over the management of Metro Bank.

In addition, persons holding certain specified functions within Metro Bank (including governance functions) require the prior approval of the PRA or the FCA (depending on the particular function) before they can perform the role. A new Senior Managers Regime for individuals who are subject to regulatory approval comes into force on 7 March 2016 in the UK. It will require firms to allocate a range of responsibilities to these senior individuals and to regularly assess their fitness and propriety. In addition, a new Certification Regime is being introduced under which relevant firms will also be required to assess the fitness and propriety of certain employees who could pose a risk of significant harm to the firm or any of its customers.

The government is proposing to extend the senior managers and certification regime to all sectors of the financial services industry through the Bank of England and Financial Services Bill, as outlined in its policy paper of 15 October 2015. The aim of this is to ensure that the same standards apply in respect of both banking and other financial services.

2.1.2 Financial services regulatory source materials

The FSMA (as amended by the FSA 2012) imposes an ongoing system of regulation and control on banks. The detailed rules and guidance made by the FCA under the powers given to it by the FSMA are contained in the "FCA Handbook" which is based, to a large degree, on those provisions of the old FSA Handbook relevant for FCA regulated firms amended as necessary. The PRA has moved away from the legacy handbook material it adopted from the FSA and the detailed rules and guidance made by it under the powers given to it by the FSMA (which apply only to PRA authorised firms) are now largely contained in the new "PRA Rulebook", as well as the supervisory statements and statements of policy which the PRA issues from time to time. Many of these PRA and FCA source materials are shaped by European legislation, though certain regulatory aspects of European legislation are also directly applicable and so apply in addition to, and must be read with, the FCA and PRA published materials (in particular refer to the prudential regulatory regime under paragraph 2.2 below).

Once authorised, and in addition to continuing to meet the threshold conditions (the minimum standards for becoming and remaining authorised), firms are obliged to comply with the FCA's Principles and, if a dual-regulated firm, the PRA's Fundamental Rules, which include requirements to: conduct their business with due skill, care and diligence; treat customers fairly; and communicate with customers in a manner that is clear, fair and not misleading. The eleven Principles and eight Fundamental Rules are set out in the FCA Handbook and PRA Rulebook respectively.

Other parts of the FCA Handbooks and PRA Rulebook and other source materials which are of particular relevance to Metro Bank include the Senior Management Arrangements, Systems and Controls sourcebook, the Consumer Credit sourcebook (or "CONC"), the Banking Conduct of Business sourcebook (or "BCOBS"), the Mortgages and Home Finance: Conduct of Business sourcebook (or "MCOB"), the Supervision sourcebook (or "SUP") and the Dispute Resolution: Complaints sourcebook (or "DISP") and those materials which deal with prudential capital, liquidity and the leverage ratio requirements (see paragraph 2.2 below).

2.1.3 Supervision

Each of the PRA and the FCA has wide powers to supervise and, where necessary, intervene in the affairs of an authorised firm. These powers were extended under the FSA 2012.

The nature and extent of a Relevant Regulator's supervisory relationship with a firm depends on how much of a risk the Relevant Regulator considers that firm could pose to its statutory objectives. The PRA's supervisory interventions will focus on reducing the likelihood of a firm failing and on ensuring that it is prepared so that if it does fail, it does so in an orderly manner. The PRA has introduced the "Proactive Intervention Framework" to support early identification and response to risks to a firm's viability (and enable appropriate supervisory actions to be taken to address such risks if necessary) on the basis of information collected.

The Relevant Regulators will undertake a range of supervisory activities and have a range of statutory powers they can exercise in their work to promote the safety and soundness of authorised firms. For instance, they can require authorised firms to provide particular information or documents to them, require the production of a report by a "skilled person" (as defined in the glossary to the FCA Handbook and PRA Rulebook), appointed by either the authorised firm or the Relevant Regulator, or formally investigate an authorised firm. The PRA, where it will advance any of its objectives, and the FCA, where it will advance one or more of its operational objectives, have a broad power of direction over qualifying unregulated parent undertakings.

2.1.4 Enforcement

The Relevant Regulators have the power to take a range of enforcement actions, including the ability to sanction firms and individuals carrying out functions within them. The sanctions may include restrictions on undertaking new business, public censure, restitution, fines and, ultimately, revocation of permission to carry on regulated activities or of an individual's approval to perform particular roles within a firm. The Relevant Regulators can also vary or revoke the permissions of an authorised firm that has not engaged in regulated activities for twelve months (in certain cases, six months), or that fails to meet the threshold conditions (see Part II: "Risk Factors").

2.1.5 Challenging the PRA/FCA

If Metro Bank wanted to challenge enforcement or supervisory decisions of the PRA or FCA made in respect of Metro Bank, then in many cases it could make formal representations and also bring a case to the Upper Tribunal (Tax and Chancery Chamber). The new UK regulatory structure introduced under FSA 2012 made a number of amendments to the Tribunal's rules. Although the grounds for making a reference have remained unchanged, the courses of action available to the Tribunal in the event that it disagrees with the PRA or FCA have been changed. Under the previous system, the Tribunal had the power to make its own decision in place of one made by a regulator with which it disagreed. That remains the position for a disciplinary reference or a reference in connection with specific third party rights, but the Tribunal no longer has the power to substitute its own decision for that of the regulator in any other case and will instead be required to remit the decision to the Relevant Regulator with a direction to reconsider.

2.2 Capital adequacy, prudential regulation and the European regulatory landscape

Capital adequacy is the concept that a bank should have a certain amount of "regulatory capital" which is correlated to the risks associated with the business carried on by it and which provides a buffer of value that can, if necessary, absorb losses. This is generally calculated as minimum ratio of total capital to risk weighted assets and is expressed as a percentage. Broadly, capital adequacy regulation started with the Basel Accord, published by the Basel Committee on Banking Supervision in 1988. This was then implemented throughout the European Union by a number of EU Directives. Both the Basel Accord and the EU Directives have been amended over time, as noted below, both in response to general market developments and the financial crisis of 2007/2008. The regime which now applies is more complex, onerous and encompasses both capital and liquidity issues, as well as addressing other regulatory matters, such as the leverage ratio, all as summarised below and which together form part of the prudential regulatory framework.

Metro Bank is subject to prudential regulation in the UK, where the prudential regulator for banks is the PRA.

Recent background

By 2006, the European regulatory capital regime (which was largely implementing the revised Basel Accord known as Basel II) was set out in the recast Banking Consolidation Directive and the Capital Adequacy Directive (together the "Capital Requirements Directive" or "CRD"). The CRD prescribed minimum standards in key areas of mainly capital regulation and required Member States to give mutual recognition to each other's standards of regulation. CRD also permitted "passporting", which amounts to the freedom of a credit institution authorised in its "home" state (as defined in the CRD) to establish branches in, and to provide cross-border services into, other Member States. Although credit institutions are primarily regulated in their home state by a local prudential regulator, as suggested above, the CRD prescribed minimum criteria for regulation of the authorisation of credit institutions and the prudential supervision applicable to them.

The financial crisis of 2007/2008 highlighted a number of shortcomings in prudential regulation generally and resulted in a series changes to the CRD.

At the same time, the Basel Committee was undertaking a more fundamental and comprehensive review of the prudential capital regime which resulted in the "Basel III" proposals largely finalised in 2011. These proposals included imposing: increased quality and quantity requirements for capital generally; new capital buffer requirements; increased capital requirements for counterparty credit risk for exposures for derivative and certain other transactions; the introduction of a new leverage ratio, as well as a new prudential liquidity regime; and heightened requirements for global systemically important banks. The leverage ratio is, broadly, a ratio of capital against certain unweighted exposures and is a new prudential tool designed to prevent excessive leverage. The new liquidity regime introduced two liquidity ratios which a bank must meet: the liquidity coverage ratio ("LCR"), which addresses short-term liquidity issues and the Net Stable Funding Ratio ("NSFR"), which requires a bank to have long-term stable funding. The Basel Committee has undertaken further work on certain aspects of the Basel III proposals and, for example, its final rules on NSFR were published on 31 October 2014 and are to become binding in Basel Committee signatory states by 1 January 2018.

Current regulatory regime – some key details

The Basel III proposals were largely adopted (subject to certain detailed differences) in Europe through the Capital Requirements Regulation ("CRR"), which has direct effect, and the Capital Requirements Directive ("CRD IV") which had to be separately implemented by European Member States (together the CRR and CRD IV are also referred to as "CRD IV"). CRD IV now reflects the Basel III proposals as adopted and a recast version of the pre-existing CRD based regime to the extent not inconsistent with CRD IV.

The majority of the provisions of CRD IV apply from 1 January 2014, but in some cases are subject to a phased implementation timetable and in some areas implementation is subject to further review, reports, delegated regulations, technical standards and guidance. Currently, the intention is that all aspects of CRD IV will be fully implemented by 1 January 2019. In particular, the LCR came into effect as a reporting obligation on 1 January 2014 but only applied as a quantitative test from 1 October 2015 and, subject to a European Commission report due at the end of 2016 on the implementation of the NSFR, this ratio is expected to be adopted in some form by 1 January 2018. Similarly, the leverage ratio applies as a reporting obligation and a decision on whether it should apply as a quantitative test is expected to be taken in mid-2016 with the test then applying from 1 January 2018 (but see further below in relation to UK implementation).

However, it is noted that Member States can:

• implement some aspects of CRD IV which are subject to staggered implementation on an accelerated or more onerous timetable;
• in some cases, have separate national rules which supplement the CRD IV regime to the extent not inconsistent with it; and
• avail of some limited discretions in relation to implementation.

The PRA has already used this flexibility in a number of areas relating to capital and liquidity but has generally not availed of all the discretions available to it. For example, it has taken a more onerous approach to the implementation of certain capital requirements (as discussed in PRA Policy Statement PS 7/13) and, with effect from 1 October 2015, implemented a newly revised national liquidity regime to sit alongside the LCR (refer to Policy Statement PS 11/15 and Supervisory Statements SS 24/15 and SS 29/15). In particular, the UK's national liquidity regime requires a bank to have sufficient amounts of good quality liquidity resources to meet its liabilities as they fall due. This may require more liquidity resources to be held than those calculated under the LCR. All of these measures apply to Metro Bank.

Current regulatory regime – additional considerations (additional capital, buffers and stress tests)

The specific detailed technical rules for calculating capital as set out in CRD IV (and any implementing delegated regulations, technical standards and guidance) broadly require capital to be held against risks associated with credit risk, market risk and operational risk arising from a bank's activities. The PRA considers that in some cases the rules do not fully capture the risks involved and other risks not captured by such rules are also relevant when determining capital requirements. Accordingly, (as required under CRD IV) national supervisors (in the UK, the PRA) separately evaluate the activities, and risk profile, of a bank to determine whether it should hold higher levels of capital, such additional capital being referred to as Pillar 2 capital. The PRA has recently published its revised approach to Pillar 2 requirements which apply in full from 1 January 2016 (refer to PRA Policy Statement PS 17/15, Supervisory Statements SS31/15 and SS32/15 and its Statement of Policy 'The PRA's methodology for setting Pillar 2 Capital). Although part of the Pillar 2 capital requirement (Pillar 2A) can be met with a blend of regulatory capital, including Common Equity Tier 1 capital, the subset of Pillar 2 capital known as Pillar 2B (or the PRA buffer), which addresses risks due to the economic environment must be met solely with Common Equity Tier 1 capital.

CRD IV introduced certain new capital buffer requirements (the implementation of which is, in some cases, staggered) which have been implemented by the PRA. Failure to meet the CRD IV buffer requirements can result in restrictions on the ability to make certain specified distributions.

In October 2013, the Bank of England released a discussion paper proposing a new framework for annual, concurrent stress tests of participants in the UK banking system and from 2014 annual stress tests were implemented for the major UK banks and building societies. In October 2015, the Bank of England published its approach to stress testing the UK banking system, setting out the main features of its stress-testing framework up to 2018. The framework applies to PRA regulated banks and building societies with total retail deposits greater than £50 billion (on an individual or consolidated basis) and so does not currently apply to Metro Bank.

Current regulatory regime – leverage ratio

The PRA took early steps in December 2013 to apply a 3% leverage ratio as a quantitative test to certain major UK banks and building societies. This text was extended from 1 January 2016 to apply to PRA regulated banks and building societies with individual or consolidated retail deposits equal to or greater than £50 billion. It does not yet apply to Metro Bank. A further review of the issue by the FPC is scheduled for 2017 with the presumed intention of extending the framework to all PRA regulated firms, including Metro Bank and in any event the CRR leverage ratio is also expected to apply as a quantitative test from 1 January 2018.

Current regulatory regime – interpretation and change

CRD IV is a relatively new piece of European law and its interpretation and scope may change over time as, among other things, additional delegated regulations, technical standards and guidance are provided on it by relevant regulatory bodies, including the PRA and the European Banking Authority (the "EBA"). Therefore, the impact of CRD IV on the calculation of capital and liquidity and other prudential requirements may change over time to reflect such developments, which might also affect the way in which the PRA interprets or applies CRD IV to UK banks. In addition, it is noted that European legislators may implement changes in the future which would affect CRD IV and a number of proposals are being considered by the Basel Committee in this area.

For more information see Part II "Risk Factors – Regulatory Risks – Metro Bank is subject to prudential regulatory capital and liquidity requirements".

2.3 Recovery and resolution

Following the financial crisis of 2007/2008, the Banking Act 2009 was introduced in the UK to provide a bespoke framework to facilitate the resolution of banks which, broadly, are failing or are likely to fail to meet their regulatory threshold conditions and which cannot be assisted through normal regulatory action or market-based solutions. The legislation conferred significant new powers on HM Treasury, the Bank of England and, originally, the FSA but now the PRA and FCA to deal with and stabilise banks suffering financial difficulties by placing them into what is referred to as a resolution pursuant to the special resolution regime (the "SRR"). It also established two new insolvency procedures for banks.

Work in a similar vein was also ongoing at the European level and resulted in the Bank Resolution and Recovery Directive 2014/59/EU (the "BRRD") with an implementation timetable of 1 January 2015, except in relation to certain provisions (including bail-in) to be implemented by 1 January 2016. In summary, bail-in relates to the mandatory write-down or conversion of debt liabilities. However, full implementation (and interpretation) of the BRRD relies on the implementing regulations, regulatory technical standards, implementing technical standards and guidance which are still being produced in respect of it.

The Banking Act 2009 has been amended to reflect the BRRD and, in particular, now offers an extended range of stabilisation options under the SRR (including bail-in generally), as well as providing for the mandatory write-down or conversion of debt capital instruments in certain circumstances.

There have been a number of concerns around the scope of application the rules in BRRD relating to the contractual recognition of bail-in and lobbying is ongoing at an EU level. Though new rules have been adopted by the PRA to address the contractual recognition of bail-in, these are subject to an ongoing consultation and so firms can apply for a short-term waiver from the full rigour of the rules for particular liabilities in particular circumstances.

In connection with the implementation of the BRRD, the Bank of England published a report on 23 October 2014 outlining its approach to resolution of banks, building societies and certain investment firms from 1 January 2015. The report details the key phases to any resolution and the various stabilisation tools to be used at each stage in order to give greater clarity over how the Bank of England would likely approach a resolution.

For more information, see Part II: "Risk Factors – Regulatory Risks – Metro Bank is subject to rules relating to regulatory action in the event of a bank failure".

2.4 Consumer credit regulation

Responsibility for the oversight and regulation of consumer credit transferred from the Office of Fair Trading (the "OFT") to the FCA with effect from 1 April 2014. The new framework for consumer credit regulation comprises the FSMA and its secondary legislation (consumer credit activities are, therefore, now subject to the General Prohibition and the FSMA authorisation regime discussed earlier in this Part IX: "Supervision and Regulation"), retained provisions in the CCA and rules and guidance in the FCA Handbook, including the CONC (for the purposes of this section, collectively the "New Regime").

Under the New Regime, the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 has been amended so that consumer credit activities, including entering into a "regulated credit agreement" as lender, are "regulated activities" for the purposes of the FSMA. A "regulated credit agreement" is any "credit agreement" that is not an "exempt agreement". A "credit agreement" is any agreement between an individual or relevant recipient of credit ("A") and any other person ("B"), under which B provides A with "credit" of any amount. Credit is widely defined and includes cash loans and any other form of financial accommodation. Exempt agreements include certain agreements predominantly for the purposes of a business, certain agreements secured on land and agreements relating to the purchase of land where a local authority or other specified type of organisation is the lender. Other regulated consumer credit activities include credit broking, debt-related consumer credit activities, entering into a regulated consumer hire agreement as owner, operating an electronic system in relation to lending and providing credit information services and credit references.

Key changes to the UK consumer credit regime that have arisen from the New Regime include:

• (iv) Authorisation: application for full authorisation will, in general, be more complex than an application under the previous CCA regime. To become authorised, firms must meet the threshold conditions (the minimum standards for becoming and remaining authorised) and obtain pre-approval for individuals who will perform key roles in the applicant firm;
• (v) Supervision: under the New Regime there is a distinction between higher-risk and lower-risk consumer credit activities and different supervisory approaches for each. There will be close supervision of firms engaged in higher risk consumer credit activities and a less intensive supervision regime for lower risk firms. Firms are subject to regular reporting requirements in relation to their consumer credit activities and the FCA will engage in thematic work in response to systemic issues;
• (vi) Rules: the CCA requirements and OFT guidance were replaced by FCA rules (breaches of which can be penalised), guidance and retained provisions of the CCA. The FSMA financial promotions regime also applies, and the FCA has also imposed new financial promotion rules for high cost short-term credit, cold calling and debt management companies;
• (vii) Enforcement: the FCA has greater powers of enforcement than the OFT, including the power to: bring criminal, civil and disciplinary proceedings; withdraw authorisations; suspend authorised firms for 12 months; suspend individuals from performing certain roles for two years; and the power to issue unlimited fines. It is also able to use its product intervention powers in the consumer credit market, which can include restrictions on product features and selling practices or product bans; and
• (viii) Complaints and redress: consumers continue to have access to the FOS. The FCA also has the power to require authorised firms to reimburse consumers who have suffered loss due to the firm's actions.

2.4.1 Interim permission regime

To facilitate transition to the New Regime, the UK Government has introduced an interim permission regime, which is a transitional arrangement for regulation by the FCA.

Firms with a CCA licence from the OFT, including all High Street retail banks, were required to register with the FCA for "interim permission" to be able to continue carrying on regulated consumer credit activities after 1 April 2014. Metro Bank obtained interim permission for consumer credit, for entering into credit agreements and for credit broking from the FCA, and has applied for formal authorisation for its consumer credit activities. Metro Bank's application is currently in the process of being reviewed by the FCA. Metro Bank expects its application to be approved during the course of 2016. However, if its application is not approved, it may no longer be able to undertake regulated consumer credit activities, such as unsecured lending and credit card transactions.

2.4.2 European regulatory landscape

In April 2008, the European Parliament and the Council of the European Union adopted a second directive on consumer credit (Directive 2008/48/EC) which provided that, subject to exemptions, loans of between €200 and €75,000 inclusive must be regulated. This directive repealed and replaced the first consumer credit directive and required Member States to implement the directive by measures in force by 11 June 2010. Loan agreements secured by land mortgage are exempted from the consumer credit directives.

2.5 Mortgage lending

2.5.1 The FSMA regulates mortgage credit within the definition of "regulated mortgage contract" and also regulates certain other types of home finance. A credit agreement is a regulated mortgage contract if it is entered into on or after 31 October 2004 and, at the time it is entered into: (i) the credit agreement is one under which the lender provides credit to an individual or to trustees; (ii) the contract provides for the repayment obligation of the borrower to be secured by a first legal mortgage on land (other than timeshare accommodation) in the UK; and (iii) at least 40% of that land is used, or is intended to be used, as or in connection with a dwelling by the borrower or (in the case of credit provided to trustees) by an individual who is a beneficiary of the trust, or by a related person.

If prohibitions under the FSMA as to authorisation or financial promotions are contravened, then the relevant regulated mortgage contract (and, in the case of financial promotions, certain other credit secured on land) is unenforceable against the borrower without a court order. The MCOB sets out rules in respect of regulated mortgage contracts and certain other types of home finance. Under the MCOB rules, an authorised firm (such as Metro Bank) is subject to strict rules on arrears handling and repossessions and is restricted from repossessing a property unless all other reasonable attempts to resolve the position have failed, which can include the extension of the term of the mortgage, product type changes and deferral of interest payments.

In March 2009, the Turner Review, "A regulatory response to the global banking crisis", was published and set out a detailed analysis of how the global financial crisis began along with a number of recommendations for future reforms and proposals for consultation. As part of the Turner Review, the FSA published a discussion paper outlining proposals for reform of the mortgage market.

Subsequently, the FSA commenced a wide ranging consultation on mortgage lending: the FSA's Mortgage Market Review ("MMR"). The MMR concluded with the publication of final rules by the FSA on 25 October 2012 that amended the existing conduct rules for mortgage lending. The majority of the new rules came into effect on 26 April 2014.

Principal changes are to promote responsible lending and include:

• (i) more thorough verification of borrowers' income (no self-certification of income, mandatory third party evidence of income required);
• (ii) assessment of affordability of interest-only loans on a capital and interest basis unless there is a clearly understood and believable alternative source of capital repayment;
• (iii) application of interest rate stress tests lenders must consider likely interest rate movements over a minimum period of five years from the start of the mortgage term;
• (iv) when making underwriting assessments lenders must take account of future changes to income and expenditure that a lender knows of or should have been aware of from information gathered in the application process;
• (v) lenders may base their assessment of customers' income on actual expected retirement age rather than state pension age. Lenders will be expected to assess income into retirement to judge whether the affordability tests can be met;
• (vi) significant changes to mortgage distribution and advice requirements (including a requirement that advice must be given during most interactive sales); and
• (vii) changes in relation to arrears management and requirements on contract variations such as when additional borrowing is requested.

2.5.2 European regulatory landscape

The directive on credit agreements relating to residential property, commonly known as the Mortgage Credit Directive ("MCD") came into effect on 20 March 2014. The MCD was, to some extent, modelled on the second directive on consumer credit and requires, among other things, standard pre-contractual information to be provided to the borrower, calculation of the annual percentage rate of charge in accordance with a prescribed formula, and the borrower to have a right to make early repayment. In addition, the European Commission has indicated that it will be carrying out further work around mortgage foreclosure, default and underwriting requirements and the MCD itself provides for a review after five years.

The MCD is due to enter into force in the UK from 21 March 2016. Changes include amendment of the definition of "regulated mortgage contract" to include second charge lending, bringing the regulation of second charge mortgage lending into line with first charge lending (rather than it being regulated under the FCA's consumer credit regime), and the establishment of a framework for regulating buy-to-let mortgage lending to consumers.

2.6 Payment Services Regulation

Under the Payment Services Regulations 2009 (the "PSR"), the FCA is responsible for regulating payment services in the UK. The PSR establish an authorisation regime, requiring payment service providers (other than authorised credit institutions such as Metro Bank) to either be authorised or registered with the FCA. The PSR also contain certain rules about providing payment services that payment service providers must comply with, including in relation to consent for payment transactions, unauthorised or incorrectly executed transactions, liability for unauthorised payment transactions, refunds, execution of payment transactions, execution time, information to be provided to payment service users and liability of payment services providers if things go wrong.

The Banking Reform Act requires the FCA to establish a body corporate to regulate payment systems (the "Payment Systems Regulator"). The Payment Systems Regulator was established on 1 April 2014 and became fully operational in April 2015.

The general functions of the Payment Systems Regulator are:

• (i) giving general directions;
• (ii) giving general guidance; and
• (iii) determining the general policy and principles by reference to which it performs particular functions.

In discharging its general functions, the Payment Systems Regulator must, so far as is reasonably possible, act in a way which advances one or more of its payment systems objectives. The Payment Systems Regulator's payment systems objectives are:

• (i) to promote effective competition in the market for payment systems and the markets for services provided by payment systems;
• (ii) to promote the development of, and innovation in, payment systems in the interests of those who use, or are likely to use, services provided by payment systems, with a view to improving the quality, efficiency and economy of payment systems; and
• (iii) to ensure payment systems are operated and developed in a way that takes account of, and promotes, the interests of those who use, or are likely to use, services provided by payment systems.

2.6.1 European regulatory landscape

The UK payment services regulatory regime originates from European Union law. Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market (the "Payment Services Directive") was required to be transposed by Member States before 1 November 2009. The Payment Services Directive is implemented in the UK by the PSR and parts of the FCA Handbook.

In January 2016, a revised payment services directive ("PSD II") came into force. The aim of the directive is to take account of new types of payment services due to technological development and to harmonise the transposition of certain rules set out in the Payment Services Directive that had been transposed or applied by Member States in different ways, leading to regulatory arbitrage and legal uncertainty. A regulation on multilateral interchange fees also came into force on 9 December 2015. Taken together, these new pieces of legislation are designed to (i) extend the scope of the Payment Services Directive as regards geographical scope, currencies covered and payment services regulated, (ii) limit the scope of available exemptions under the Payment Services Directive, (iii) increase consumer rights and payment security and (iv) reduce interchange fees for card payments and prohibit surcharging. The deadline for Member States to transpose PSD II into national law is 13 January 2018.

The European Parliament and Council have sought to create an integrated market for electronic payments in euro, with no distinction between national and cross-border payments. This single euro payments area ("SEPA") project aims to develop common European Union-wide payment services to replace current national payment services. The Payment Services Directive provides a modern legal foundation for the creation of an internal market for payments and regulations of the European Parliament and Council have been adopted with a view to furthering this aim.

Regulation (EU) No 260/2012 of the European Parliament and of the Council of 14 March 2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009 (the "SEPA Regulation") lays down rules for credit transfer and direct debit transactions denominated in euro within the European Union. The implementation of the SEPA Regulation is staggered. The general date by which credit transfers and direct debits were to be carried out in accordance with the SEPA Regulation was 1 February 2014. However, an amendment to the SEPA Regulation introduced a transitional period of six months to 1 August 2014 to reflect the fact that it was unlikely that all market participants would be in compliance with the SEPA Regulation by 1 February 2014. Credit transfers and direct debit transactions denominated in euro in countries outside the euro area must be carried out in accordance with the SEPA Regulation from 31 October 2016.

In relation to payment accounts, on 28 August 2014, the text of Directive 2014/92/EU of the European Parliament and of the Council of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features (the "Payment Accounts Directive") was published in the Official Journal of the European Union. The Payment Accounts Directive is intended to enable consumers to make informed choices when opening a payment account by improving the transparency and comparability of information on account fees, while eliminating discrimination based on residency, and to enable consumers to switch accounts more easily. Member States will have to transpose the Payment Accounts Directive into their own national law by 18 September 2016. However, there are a few exceptions to this, including certain provisions of the Directive that apply to Member States from 17 September 2014.

2.7 UK ring-fencing regime

On 14 June 2012, HM Treasury issued a White Paper entitled "Banking reform: delivering stability and supporting a sustainable economy", on how the UK Government intends to implement the measures recommended by Sir John Vickers' Independent Commission on Banking's final report of 12 September 2011. Broadly, the White Paper covers the following areas: the ring-fencing of vital banking services from international and investment banking services; measures on loss absorbency and depositor preference; and proposals for enhancing competition in the banking sector.

On 19 June 2013, the Parliamentary Commission on Banking Standards published its final report, entitled "Changing banking for good". This was followed by the publication of the UK Government's response on 8 July 2013, accepting the overall conclusions of the report and its principal recommendations.

The UK Government published the Banking Reform Bill in October 2012 but, following the Parliamentary Commission on Banking Standards' final report published in June 2013, amendments to the Banking Reform Bill were tabled. The Banking Reform Bill received Royal Assent as the Financial Services (Banking Reform) Act 2013 on 18 December 2013. Two statutory instruments – the Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014 and the Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order 2014 – were enacted in July 2014 pursuant to HM Treasury's powers under the Banking Reform Act, and HM Treasury also exercised those powers to enact the Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations 2015 in March 2015.

This legislation, taken as a whole, mandates the 'ring-fencing' of certain core activities and services relating to the regulated activity of accepting deposits by a UK institution. Entities that meet the threshold for the UK ring-fencing regime (£25 billion of deposits, excluding deposits from financial institutions and certain corporates and high net worth individuals that "opt out") are required to separate the core activity of accepting deposits, together with the core services associated with that activity, into a separate ring-fenced body (an "RFB"). The legislation also prohibits an RFB from undertaking certain excluded activities, namely dealing in investments as principal and dealing in commodities. RFBs are also subject to certain prohibitions, which include prohibitions on incurring exposures to certain types of financial institutions, and on having branches or subsidiaries in non-EEA Member States. The excluded activities and prohibitions are subject in each case to limited exceptions.

In addition to the primary and secondary ring-fencing legislation, the PRA has issued consultation papers setting out proposed ring-fencing rules that govern the relationship between the RFB and the rest of its group, including entities that carry out excluded activities and activities that the RFB is prohibited from undertaking (such entities being non-ring-fenced bodies, or "NRFBs"). These ringfencing rules address areas such as the legal structure of the RFB sub-group, governance arrangements for RFBs, prudential requirements and requirements for intra-group transactions and distributions. The PRA and the FCA have also issued draft guidance on the use of ring-fencing transfer schemes under Part VII of the FSMA, which are a new form of statutory transfer mechanism to enable banking groups to reorganise their businesses so as to comply with the ring-fencing regime. Finally, the FCA has issued draft rules on the disclosures required to be made by NRFBs to individuals that opt to place deposits with such entities. The intention is that the ring-fencing rules and guidance will be finalised by the end of June 2016.

Banks that fall within the scope of this legislation will be expected to have implemented all relevant reforms by 1 January 2019 at the latest (other than in respect of pension arrangements, for which the deadline for implementing changes is 1 January 2026). While Metro Bank is not expected to be subject to the ring-fencing requirements, on the basis that it does not hold the minimum threshold of deposits to be required to ring-fence its business, the implementation of ring-fencing may affect its ability to transact with RFBs within banking groups that are subject to those requirements.

Looking forward, if Metro Bank increases the size of its deposit book over time, it may reach the threshold for deposits at which it is required to implement ring-fencing and separate its business on the basis described above. Effecting a reorganisation or introducing new policies and procedure to comply with the ring-fencing requirements is likely to give rise to implementation costs and may have other implications for Metro Bank's business model, as it will become subject to restrictions on its activities and to the other prohibitions outlined above.

2.8 FSCS and the EU Deposit Guarantee Scheme Directive ("EU DGSD")

2.8.1 FSCS

The FSMA established the FSCS, which pays compensation to eligible customers of authorised financial services firms which are unable, or are likely to be unable, to pay claims against them. There are different compensation limits for different categories of claim. For example, for claims against firms declared in default on or after 3 July 2015 the limits are: (i) for deposits, 100% of the first £75,000; (ii) for mortgage advice and arranging, 100% of the first £50,000; and (iii) for insurance, 100% of cover for all long-term policies, for professional indemnity insurance and claims arising from death or incapacity. The FSCS pays compensation for financial loss and the actual compensation a customer will receive depends on the basis of their claim. Compensation limits are per person, per firm and per type of claim.

2.8.2 EU DGSD

In Europe, the EU Deposit Guarantee Scheme Directive ("EU DGSD") required EU Member States to introduce at least one deposit guarantee scheme by 1 July 1995. Directive 2009/14/EC, amending Directive 94/19/EC, requires Member States to set the minimum level of compensation for deposits, for firms declared in default on or after 1 January 2011, at €100,000.

The recast EU DGSD was published in the Official Journal of the EU on 12 June 2014 and Member States had until 3 July 2015 to transpose the majority of the EU DGSD into national law. The changes include restricting the definition of "deposit", excluding deposits made by certain financial institutions and certain public authorities, reducing time limits for payments of verified claims by depositors and provisions on how deposit guarantee schemes should be funded. In addition, the recast EU DGSD seeks to harmonise eligibility for protection (including an extension of scope to protect deposits of most companies, whatever their size) and allows for temporary increases in the coverage level in relation to deposits arising from certain events, such as the sale of a private residential property.

The PRA's consultation on implementing the recast EU DGSD closed on 6 January 2015 (a second consultation closed on 27 February 2015) and on 3 July 2015, the PRA announced the proposed changes. These included the new limit of £75,000 while maintaining the existing limit of £85,000 until 31 December 2015, for depositors who were previously protected by the FSCS and continue to be protected (including individuals and small companies) and extending deposit protection to new categories of depositors that were not previously protected by the FSCS, such as large corporates.

The implementation of the recast EU DGSD may result in greater administrative and financial burdens on participating firms. Direct cost increases may result from increased contributions to the schemes and greater indirect costs may arise from necessary changes to procedures and IT systems.

2.9 Competition regulation

Metro Bank is subject to supervision and oversight by a number of competition regulators, including the CMA, sectoral regulators and the European Commission. The FCA and the Payment Systems Regulator have concurrent powers with the CMA to enforce competition rules in the UK insofar as they relate to the provision of financial services and participation in payment systems, respectively. These regulatory bodies have broad powers to launch market studies or conduct investigations.

On 18 July 2014, the CMA published an update on its market studies in respect of personal current accounts and SME banking (the SME banking market study is a joint project with the FCA). The market studies update identifies a number of areas of concerns (e.g., difficulties for customers in making comparisons between banks and low levels of switching between banks) and evidence that competition is not effectively serving the interests of SMEs or personal current account customers. Following this, on 6 November 2014 the CMA announced its decision to launch a joined up in-depth market investigation into the markets for personal current accounts and SME banking. The CMA's provisional findings were published on 22 October 2015. In its provisional report, the CMA identified numerous competition issues in the retail banking market, including low levels of customer switching, indicating that banks are not put under enough competitive pressure, and new products and new banks do not attract customers quickly enough. The CMA also published an initial list of remedies, setting out possible measures to enable account holders to search for and switch to the account that suits them, hoping to increase competition. These potential remedies will be developed over the coming months. The CMA's final report is expected to be published in April 2016.

The FCA has launched market studies in respect of general insurance add-ons, retirement income and cash savings plans and the operation of the credit card market. In July 2014, the FCA launched a review of competition in the wholesale sector to identify any areas that might merit further investigation through an in-depth market study and, following this, on 22 May 2015 the FCA set out the terms for its first wholesale market study into investment banking and corporate banking services, with interim findings and any proposed remedies to be published ahead of the final report in April 2016.

While the outcome of ongoing studies, and the scope of any future studies, is inherently uncertain, they may ultimately result in the application of behavioural and/or structural changes and remedies by the regulators.

2.10 Other relevant legislation and regulation

The UK Money Laundering Regulations 2007 place a requirement on Metro Bank to verify the identity and address of customers opening accounts with it, and to keep records to help prevent money laundering and fraud. In addition, the Proceeds of Crime Act 2002, Terrorism Act 2000, Counter-Terrorism Act 2008, Terrorist Asset-Freezing etc. Act 2010, Wire Transfer Regulation (EU Regulation 1781/2006) and Transfer of Funds (Information on the Payer) Regulations 2007/3298 collectively contain requirements and offences in relation to money laundering and the financing of terrorism that are applicable to Metro Bank. Guidance in respect of Metro Bank's anti-money laundering and counter-terrorist financing obligations is produced by the Joint Money Laundering Steering Group, which is made up of certain UK trade associations in the financial services industry.

The Bribery Act 2010 contains offences relating to bribing another person, being bribed and bribing foreign public officials. It also contains an offence for commercial organisations of failing to prevent bribery. The Ministry of Justice has published guidance about procedures which commercial organisations can put into place to help prevent against persons associated with them engaging in such activity.

The UK Data Protection Act 1998 regulates the processing of data relating to individual customers.

The UK Unfair Terms in Consumer Contracts Regulations 1999 (together with, insofar as applicable, the Unfair Terms in Consumer Contracts Regulations 1994) apply to consumer contracts entered into on or after 1 July 1995. The main effect of these regulations is that a contract term which is "unfair" will not be enforceable against a consumer. This applies to, among other things, mortgages and related products and services.

2.11 Proposed legislation

2.11.1 European structural reform proposals

At the same time as the UK has been implementing the ring-fencing regime set out in paragraph 2.7 above, there have been proposals at the European level to implement structural reform in the banking sector. In October 2012, a report was published by a high-level expert group of the European Union, chaired by Erkki Liikanen (the Governor of the Bank of Finland) (the "Liikanen Report"). The Liikanen Report recommended banking restructuring and a mandatory separation of proprietary trading and other "high-risk" trading activities into a separate legal entity within banking groups and the introduction of measures to strengthen governance and control of banks.

Following from the Liikanen Report, in January 2014 the European Commission published a legislative proposal of the European Parliament and of the Council on structural measures improving the resilience of EU credit institutions (the "BSR"). It was originally proposed that the BSR would apply to certain large banks and banking groups, and would require affected banks to separate their trading activities from their retail banking operations. The original proposals in the BSR also provided for a ban for those affected banks on proprietary trading and investment in alternative investment funds (subject to some limited exceptions).

Since the publication of the BSR in January 2014, there have been extensive discussions within the EU on the scope and form of the draft proposals and the nature of the proposed separation requirements and restrictions on activities. One element of the discussions focuses on whether the UK ring-fencing regime will be deemed to be equivalent to the requirements set out in the BSR, such that UK banks are not required to comply with an additional set of ring-fencing requirements at a European level. Agreement on the final form of the BSR is expected to be reached in mid-2016. Until the final form of the BSR is agreed, there will remain some uncertainty on the precise scope and form of these proposals.

Based on the scope of the original BSR, Metro Bank would not be subject to the proposals for structural reform at a European level; however, the restrictions on activities of larger banks and banking groups may affect Metro Bank when transacting with those entities.

2.11.2 Other

The UK's Consumer Rights Bill (the "Bill") seeks to reform and consolidate much of the consumer law in the UK and was formally introduced to the House of Commons on 23 January 2014. The Bill will entirely revoke the Unfair Terms in Consumer Contracts Regulations 1999 and will broadly implement the Law Commission's recommendations published in March 2013. These changes include that contract terms relating to the price or main subject matter of the contract may be assessed for fairness if they are not "transparent and prominent", all written terms of a consumer contract or consumer notice must be transparent and that rules on contract terms apply to any secondary contract in addition to the main contract. The Bill is being considered by the House of Commons and the House of Lords.

In February 2013, the European Commission adopted proposals for a directive on the prevention of the use of the financial systems for the purpose of money laundering and terrorism financing (the "Fourth Money Laundering Directive") and a regulation on information accompanying transfer of funds to secure due traceability of these transfers. The Fourth Money Laundering Directive was finalised and entered into force on 26 June 2015. Member States have two years to implement the changes in the directive, which include, among other things, extending the scope of the previous directive, requiring evidence based measures to be implemented and tighter rules on customer due diligence.

HM Treasury published a consultation paper on 28 March 2014 which sought views on whether the UK Government should take legislative action to help match SMEs that have been rejected for loans from other lenders with challenger banks and alternative finance providers. On 6 August 2014, HM Treasury published the responses it had received to the consultation paper and, in light of the support received, the Government tabled an amendment to the Small Business, Enterprise and Employment Bill in October 2014 (having received Royal Assent on 26 March 2015, the now Small Business, Enterprise and Employment Act), to allow HM Treasury the power to make regulations, including with respect to requiring certain banks to share information on SMEs they reject for finance. HM Treasury confirmed in its 2014 Autumn statement the list of designated banks to which these proposals would apply, which did not include Metro Bank.

For the financial services regulatory risks relating to Metro Bank's business, please see Part II: "Risk Factors – Regulatory Risks".

PART X SELECTED FINANCIAL INFORMATION

Selected financial and operating information relating to the Group set out below has been extracted, without material adjustment, from Part XV: "Historical Financial Information". Investors should read the whole of this Prospectus before making an investment decision and not rely solely on the summarised information in this Part X: "Selected Financial Information".

Selected Consolidated Income Statement Data

	Year ended 31 December
	2013	2014	2015
		(£'000)
Interest income	29,461	74,049	125,199
Interest expense	(11,515)	(20,621)	(36,326)
Net interest income	17,946	53,428	88,873
Fee and commission income	3,777	12,055	15,713
Net gains on sale of investment securities	6,508	5,122	6,377
Other income	3,303	4,842	9,237
	31,534	75,447	120,200
Operating expenses	(75,652)	(107,940)	(141,563)
Depreciation and amortisation	(10,292)	(14,221)	(18,195)
Fees associated with listing	—	—	(1,465)
Impairment of property, plant & equipment and intangible assets	—	—	(8,744)
Total operating expenses	(85,944)	(122,161)	(169,967)
Credit impairment charges	(1,026)	(2,157)	(7,030)
Loss before tax	(55,436)	(48,871)	(56,797)
Taxation	9,000	7,759	7,600
Loss for the year	(46,436)	(41,112)	(49,197)

Selected Consolidated Statement of Financial Position Data

	Year ended 31 December
	2013	2014	2015
Assets
Cash and balances with the Bank of England	238,979	180,630	217,900
Loans and advances to banks	24,205	35,040	64,248
Loans and advances to customers	751,058	1,590,346	3,542,548

Available for-sale investment securities	696,434	1,304,410	363,807
Held to-maturity investment securities	—	307,041	1,635,985
Property, plant and equipment	103,286	132,195	165,257
Intangible assets	23,830	34,669	54,243
Prepayments and accrued income	8,553	18,883	30,456
Deferred tax asset	35,885	43,645	53,053
Other assets	7,263	13,661	20,525
Total assets	1,889,493	3,660,520	6,148,022
Liabilities
Deposits from customers	1,315,389	2,866,631	5,107,656
Repurchase agreements	143,816	282,544	561,778
Other liabilities	29,720	48,944	71,413
Total liabilities	1,488,925	3,198,119	5,740,847
Equity
Called up share capital	—	—	—
Share premium account	530,463	629,304	629,304
Retained earnings	(123,131)	(164,243)	(213,440)
Other reserves	(6,764)	(2,660)	(8,689)
Total equity	400,568	462,401	407,175
Total equity and liabilities	1,889,493	3,660,520	6,148,022

Selected Consolidated Statement of Cash Flows Data

	Year ended 31 December
	2013	2014
	(£'000)
Net cash inflows from operating activities	248,502	810,211	546,036
Net cash outflows from investing activities	(343,734)	(956,566)	(479,558)
Net cash inflows from financing activities	284,308	98,841	—
Net (decrease)/increase in cash and cash equivalents	189,076	(47,514)	66,478
Cash and cash equivalents at start of year	74,108	263,184	215,670
Cash and cash equivalents at end of year	263,184	215,670	282,148

Non-IFRS Financial Information

		Year ended 31 December
--	--	------------------------

	2013	2014	2015
	(% (except for number of stores))
		(unaudited)
LTD Ratio	57	56	69
DTV Ratio for residential mortgages	61	61	60
DTV Ratio for Commercial Segment lending	61	57	57
NIM (including fees and commissions)	2.41	2.68	2.51
NIM (excluding fees and commissions)	1.73	2.06	2.00
Lending yields	4.75	4.52	4.01
Cost of deposits	1.18	0.90	0.82
Commercial yields	5.00	5.28	4.86
Residential mortgage yields	3.45	3.38	3.09
Consumer & other lending yields	7.29	6.06	5.39
Cost of risk	0.25	0.18	0.29
Number of stores	24	31	40

PART XI OPERATING AND FINANCIAL REVIEW

The following discussion summarises the significant factors and events affecting the results of operations and the financial condition of Metro Bank as of and for the years ended 31 December 2013, 2014 and 2015, and should be read in conjunction with Part III: "Presentation of Information on the Group" and Part XV: "Historical Financial Information" and the information relating to our business included elsewhere in this Prospectus. Selected financial information in this section has been derived from Part XV: "Historical Financial Information", in each case without material adjustment, unless otherwise stated. Investors should read the whole of this Prospectus and not just rely upon summarised information.

The following discussion of Metro Bank's results of operations and financial condition contains forwardlooking statements that reflect the current view of the Directors and involve risks and uncertainties. See Part II: "Risk Factors" and Part III: "Presentation of Information on the Group – Information regarding forwardlooking statements" for a discussion of important factors that could cause Metro Bank's actual results to differ materially from the forward-looking statements contained herein.

Overview

Metro Bank was founded by Vernon W. Hill, II in 2010 as the first full-service, independent, new High Street bank to open in the UK in more than 100 years. Metro Bank uses a disruptive, deposit-driven funding model and a superior retail-focused customer service proposition that emphasises simple, straightforward banking in order to turn its customers into "FANS" (customers who recommend someone to bank with Metro Bank).

Metro Bank opened its first store in Holborn, central London, in July 2010, and since that time has established a strategically located network of 40 stores (not 'branches') across London and the surrounding commuter areas, with approximately 655,000 customer accounts, £5,108 million in deposits from customers and £3,549 million of gross loans and advances to customers as of 31 December 2015. Driven by and reflective of its customer service-led model and culture, Metro Bank's "stores" are open seven days a week, early morning until late. Metro Bank also supports 24/7 telephony, digital and mobile banking, and offers simple products and fair pricing.

Metro Bank's operating model is underpinned by its "AMAZE(ING)" values:

• A ATTEND to every detail
• M MAKE every wrong right
• A ASK if you're not sure Bump it up!
• Z ZEST is contagious Share it!
• E EXCEED expectations
• I INSPIRE colleagues to create FANS!
• N NURTURE colleagues so they grow
• G GAME CHANGE because this is a Revolution

In order to cultivate a culture that supports these values Metro Bank seeks first to hire "colleagues" (not "staff") with the right attitude and train them with the appropriate skills to AMAZE its customers. These colleagues attend Metro Bank University throughout their careers to learn and enhance the skills necessary to provide a customer service experience that matches or exceeds that of best-in-class specialist retailers.

Metro Bank's superior customer experience is supported by a scalable, innovative and flexible end-to-end technology infrastructure that equips Metro Bank's colleagues to focus on creating an "AMAZE(ING)" customer experience. For example, the speed at which Metro Bank opens accounts is believed to be industryleading by the Directors: following a robust 'Know Your Customer' process (which includes anti-money laundering, anti-fraud and, where appropriate, credit checks), Metro Bank was able to open 77% of accounts for new-to-bank customers in its Retail Segment within 15 minutes in 2015, and a further 10% within 20 minutes. In addition, Metro Bank's emphasis on delivery at the point-of-sale means that these new-to-bank customers leave a Metro Bank store with a fully functioning current account (including access to telephony, internet and mobile banking, with customers assisted in downloading the Metro Bank mobile app in store at the time of application) and an activated contactless debit card printed in store, for which they set their own pin number, thus requiring no repeat store visits or mailings to complete their account opening process. Metro Bank's existing customers are also typically able to open additional accounts in four to six clicks (depending on the product) on Metro Bank's website. Furthermore, customers have 24/7 access to a London-based contact centre staffed by Metro Bank colleagues that utilises real-time, skill-based routing for customer calls, removing the need for an IVR system, simplifying the call experience and saving time for customers by quickly directing their call to a colleague well qualified to deal with their request.

Metro Bank has also invested heavily in its "back office" infrastructure, enhancing operational performance and resilience, including by implementing straight through processing and single customer view functionalities, leading cybersecurity controls, including web application firewalls to protect its external websites, malware detection tools to protect data, and a 24/7 managed security service to monitor its IT infrastructure.

Adding to its offering, Metro Bank entered into two new partnerships in 2015 with other brands that share Metro Bank's zeal for great service: an innovative partnership with peer-to-peer lender Zopa that allows Metro Bank to originate loans through their platform and an exclusive co-branded banking partnership with St. James's Place.

As of 31 December 2015, Metro Bank had total assets and liabilities of £6,148 million and £5,741 million, respectively.

Segmentation

For the purposes of its financial reporting, Metro Bank does not segment its business. References elsewhere in this Prospectus to Metro Bank's Retail and Commercial Segments refer to conventions that Metro Bank uses operationally to describe its business and are not reflected or discussed in this Part XI: "Operating and Financial Review" or in Part XV: "Historical Financial Information" of this Prospectus.

Key Factors Affecting Results of Operations

Set forth below are certain key factors which have historically affected Metro Bank's balance sheet growth and results of operations, and which may affect its balance sheet growth and results of operations in the future.

Deposit base and funding

Metro Bank is primarily funded by deposits from its commercial and retail customers and capital provided by shareholders and does not borrow money from the wholesale funding markets (except for repurchase agreements used to enable Metro Bank to utilise the FLS and to manage short-term liquidity). Metro Bank has expanded rapidly since its launch in July 2010, from four stores and approximately 9,000 customer accounts as of 31 December 2010 to 40 stores and approximately 655,000 customer accounts as of 31 December 2015. As a result, Metro Bank's deposits from customers increased from £1,315 million as of 31 December 2013 to £5,108 million as of 31 December 2015.

The following tables set out a breakdown of Metro Bank's deposits by category and yield as of 31 December 2013, 2014 and 2015:

	As of 31 December
	2013	2014	2015
	(£'000,000)
Commercial Segment	667	1,418	2,696
Retail Segment (excluding Pensions)	603	1,045	1,845
Pensions	45	404	567
Total deposits	1,315	2,867	5,108

	As of 31 December
	2013	2014	2015
	(£'000,000)
Demand – non-interest bearing	425	857	1,380
Demand – interest bearing	487	1,375	2,123
Fixed term	403	635	1,605
Total deposits	1,315	2,867	5,108

Deposits have been and are expected to continue to be driven by the expansion of Metro Bank's store network and its increasing use of the online channel, the increase of its Commercial Segment customer base, business bank accounts and niches such as cash deposits from pension providers and client monies from the legal and accounting sectors.

The ability of Metro Bank to expand its store network depends on a number of factors, including its ability to identify suitable prime sites, negotiate appropriate leases, obtain required planning permissions and successfully bring new stores into operation. The increase in stores and Retail Segment customers during the periods under review resulted in Metro Bank's deposits from Retail Segment customers rising from £603 million as of 31 December 2013 to £1,845 million as of 31 December 2015. The expansion of Metro Bank's online channel, in particular its ability to introduce online current account opening services, is dependent on requisite investment and IT infrastructure. Pension fund deposits, in particular, have also grown significantly, from £45 million as of 31 December 2013 to £567 million as of 31 December 2015.

The growth of Metro Bank's Commercial Segment deposit base is primarily driven by its ability to increase its commercial, charity and local authority sector customer bases, as well as its ability to continue to develop specialised business lines such as SSAS deposit solution accounts and client monies holding accounts for solicitors and other professional services organisations. These specialised business lines are important to Metro Bank's Partnership Banking business line, which has contributed significantly to the increase in Metro Bank's deposits from Commercial Segment customers, which rose from £667 million as of 31 December 2013 to £2.7 billion as of 31 December 2015.

The table below sets forth a breakdown of Metro Bank's Commercial Segment deposits by interest type as of 31 December 2013, 2014 and 2015.

	As of 31 December
	2013	2014	2015
	(£ millions)
Variable rate deposits	218	440	650
Fixed rate deposits	178	398	1,069
Non-interest bearing deposits	271	580	977
Total	667	1,418	2,696

In addition to its customer deposit base, Metro Bank drew down £465 million under the initial FLS tranche. In 2016, Metro Bank expects to be provided with an additional allowance under the second FLS tranche (the "FLS Extension"). Under the applicable terms of the FLS Extension, Metro Bank expects it would be able to draw down on any additional allowance, the available balance of which decreases 25% every six months over the period beginning 1 January 2016, until the end of 2017. If provided with an additional allowance under the FLS Extension, Metro Bank intends to draw down a portion of its available allowance, which it will use to further support its Commercial Segment lending activities, and intends to secure this drawdown by using a portfolio of its prime residential mortgages as collateral. Repayments for FLS funding are due four years after the relevant drawdown date, and Metro Bank has not yet made any repayments.

Loan portfolio growth

Metro Bank's loans and advances to customers comprise Commercial Segment loans and advances to customers (including business loans, commercial mortgages, SME lending and business credit cards and overdraft) and Retail Segment loans and advances to customers, which comprises residential mortgages and consumer and other loans (including unsecured personal loans, MMA loans, retail credit cards and retail overdrafts).

	As of 31 December
	2013	2014	2015
		(£'000,000)
Commercial Segment	362	715	1,273
Retail Segment	392	881	2,276
of which:
Residential mortgage	370	825	2,156
Consumer and other	21	56	119
Total gross loans and advances to customers	754	1,596	3,549

The table below sets forth a breakdown of Metro Bank's gross loans and advances to customers by segment.

Metro Bank had an LTD Ratio of 57%, 56% and 69% for the years ended 31 December 2013, 2014 and 2015, respectively. An increasing LTD Ratio is a significant driver of net interest income, and Metro Bank has targeted having an LTD Ratio of 80% by the end of 2020. As of 31 December 2015, the LTV Ratio of Metro Bank's Retail Segment and Commercial Segment loan portfolio was 66.2% and 58.6%, respectively. By the end of 2020, Metro Bank targets a cost of risk (defined as the ratio between Metro Bank's total impairment provision and its lending exposure) of c. 0.2% and a leverage ratio of greater than 4%.

Residential mortgages and Commercial Segment loans, which are secured on property or other tangible assets, account for substantially all of Metro Bank's loan book. In the periods under review, gross loans and advances to customers increased by 371%, from £754 million as of 31 December 2013 to £3,549 million as of 31 December 2015, primarily due to volume-driven growth and the acquisition of a £344 million first charge prime residential mortgage loan portfolio.

Net interest income

Net interest income is the largest component of Metro Bank's total operating income, accounting for 57%, 71% and 74% of total operating income in the years ended 31 December 2013, 2014 and 2015, respectively. Metro Bank's net interest income is affected by a number of factors, including, in particular, the size of its loan and investment portfolios, the level of customer deposits, product mix and the interest rates that Metro Bank pays on its sources of funding and the interest that it earns on its loans and investments.

Metro Bank is a deposit led bank, and its deposit base has grown significantly, from £1,315 million as of 31 December 2013 to £5,108 million as of 31 December 2015. This growth has been driven by the expansion of Metro Bank's stores and the increase in customer numbers, which increased from 24 and 275,000, respectively, as of 31 December 2013 to 40 and 655,000, respectively, as of 31 December 2015, as well as its ability to expand specialist deposit businesses (such as deposits from pension providers).

Metro Bank's interest-bearing liabilities consist principally of savings deposits from customers (it typically does not pay interest on current accounts). Furthermore, Metro Bank's deposit base historically has been, and is expected to be, significantly derived from Commercial Segment customers, which typically earn lower interest rates on their deposits than Retail Segment customers.

Metro Bank's interest-earning assets consist principally of residential mortgages, Commercial Segment lending and consumer and other lending (consisting primarily of unsecured current account overdrafts, credit card receivables and personal loans, including those originating from third-party platforms), as well as investment securities. These assets have grown significantly in the periods under review, as Metro Bank's store network and customer base have grown and its customers have increased their demand for its credit products. As of 31 December 2015, residential mortgages, Commercial Segment lending and unsecured consumer lending represented 61%, 36% and 3%, respectively, of Metro Bank's loan and advances to customers.

Metro Bank typically earns the highest average rate of interest on its consumer and other loans due to the higher credit risk associated with these products, while residential mortgages typically earn the lowest average rate of interest, which reflects the lower risk profile of the product, as well as the generally competitive nature of the marketplace. The effect of the FLS having provided substantial amounts of liquidity to the UK mortgage market has also had a recent impact. The average interest rate charged on Metro Bank's Commercial Segment loan portfolio exceeds that of its residential mortgage portfolio, due in part to the specialised SME focused customer base that it targets, which often has less access to competitively priced lending opportunities. Metro Bank is actively seeking to increase its consumer and other lending portfolio, and the Directors believe that Metro Bank's customer relationship-focused lending strategy, supported by its conservative underwriting credit processes, will support the growth of this portfolio in the medium term while appropriately managing its credit risk.

Metro Bank's net interest income is also affected by changes in interest rates, as most of Metro Bank's interest-bearing assets and liabilities are variable rate, with reference to the Bank of England's base rate, which, during the periods under review, has remained at historically low rates. See Part II: "Risk Factors – Risks relating to the Macroeconomic Environment in which Metro Bank operates – Metro Bank faces risks associated with interest rate levels and volatility" in the Private Placement Memorandum. For the year ended 31 December 2015, Metro Bank's average cost of deposits was 0.82%, compared to 0.90% and 1.18% for the years ended 31 December 2014 and 2013, respectively, and the average interest yield on its loans was 4.01% for the year ended 31 December 2015, compared to 4.52% and 4.75% for the years ended 31 December 2014 and 2013, respectively. Interest rates in the periods under review were at historical lows. The Directors believe that Metro Bank's NIM will increase by approximately 3bps for every 25bps increase in interest rates.

Residential mortgages

As of 31 December 2013, 2014 and 2015, Metro Bank's residential mortgage portfolio was £370 million, £825 million and £2,156 million, respectively. Metro Bank's residential mortgage portfolio has grown due to an increase in the store network and customers, as well as the expansion of its intermediary network across the UK and the acquisition of a £344 million first charge prime residential mortgage portfolio in July 2015. It may continue to consider other opportunities to increase the size of its loan portfolio through similar acquisitions. Metro Bank has employed, and intends to continue in the future to target, a combination of a store-based origination combined with an intermediary-led mortgage lending model. Metro Bank has access to a wide range of specialist lending intermediaries and brokers, having expanded its mortgage intermediary network across the UK in 2014 and 2015. In 2015, Metro Bank derived approximately 84% of its residential mortgages from intermediaries.

Since the global financial crisis in 2008, access to residential mortgage credit in the UK generally has been more restricted than before the crisis, particularly at higher loan-to-value ratios, due to a number of factors, including (i) a significant reduction in the number of available mortgage products, (ii) a more cautious approach to valuations of properties by surveyors (which in turn reduces the value of the mortgage that can be obtained on a given property), (iii) stricter underwriting standards by lenders that have resulted in more stringent mortgage application requirements for borrowers, including increased down payments, (iv) the introduction, under the FCA's 2014 Mortgage Market Review, of mandatory interest rate "stress testing" by lenders when assessing mortgage affordability by borrowers, (v) a desire by certain lenders to limit their lending exposure in relation to specific types of housing developments, (vi) the exit of a number of mortgage providers from the UK market.

In addition, Metro Bank's residential mortgage loan portfolio is affected by changes in interest rates, particularly given that 19% of the portfolio was variable rate as of 31 December 2015. As of 15 January 2016, the Bank of England base rate was 0.5%. Increases in the base rate have previously had a negative impact on the UK property market because interest rates charged on mortgages have increased correspondingly, thereby making it more expensive for prospective buyers to purchase residential property. Prospective buyers who can obtain a mortgage at current interest rates may also be deterred by the possibility of increased rates in the future and instead elect to remain in their current property or to continue renting. Higher interest rates (and, in turn, higher monthly interest payments) may also make mortgages unobtainable for some prospective buyers. Investor buyers also are sensitive to interest rate fluctuations, as higher interest rates negatively affect their investment returns.

Metro Bank's residential mortgage portfolio, like its customer base, is concentrated in London and the South East of England (although with the geographic expansion of Metro Bank's store network, and the recent expansion of Metro Bank's intermediary base across the UK, this geographic distribution has changed and is expected to continue to change over time). Metro Bank has benefited from the fact that in London, prime residential property has been regarded as a preferred outlet for international capital, and residential property price growth has been largely sustained in recent years, in part due to an increase in the buy-to-let market. Residential property prices in the South East of England generally also have been more resilient to macroeconomic pressures compared to other regions of the UK.

Metro Bank's residential mortgage portfolio may also be affected in the future by UK Government-backed property purchase assistance schemes, as well as changes to the FLS. In addition, although Metro Bank has not seen a significant effect on its loan portfolio as a result of the increase in stamp duty introduced on real estate transactions valued at £1 million and higher in 2015, there is a risk that mortgage lending volumes could decrease in the future as a result of these or other taxes imposed on the ownership and/or transfer of real estate in the UK. In addition, the UK Government's 2015 Summer Budget introduced proposals to reduce the tax relief on mortgage interest expense available to buy-to-let landlords, which may result in lower yields on buy-to-let property investments. These factors could make the purchase of buy-to-let properties a less viable investment proposition and reduce the demand for buy-to-let mortgages. The Bank of England has also stated that it is considering increasing the regulatory capital requirements of banks holding buy-to-let mortgages on their balance sheets, although no specific proposals have been made. The UK Government also announced in the 2015 Autumn Budget that stamp duty payable on second homes and certain buy-to-let homes would increase by 3% from April 2016. These factors could make the purchase of buy-to-let properties and/or second homes a less viable investment proposition and reduce the demand for related mortgages.

Commercial Segment lending

Metro Bank's Commercial Segment product offering, which primarily consists of term loans relating to secured fixed and variable rate business loans, portfolio buy-to-let lending, asset and invoice financing, and partner loans, represents an important driver of Metro Bank's lending growth during the periods under review, as well as its lending strategy going forward. Commercial Segment lending increased from £362 million as of 31 December 2013 to £1,273 million as of 31 December 2015. This growth has been driven by term loan volume growth, primarily business loans, as well as the introduction of the portfolio buy-to-let offering, as Metro Bank's brand awareness increased and its commercial team was expanded.

To complement the benefits realised from its expanding store network, Metro Bank has invested significant resources in developing specialist teams and relationship managers to increase its Commercial Segment lending business. Two central teams, a real estate team and a specialist sectors team (focusing on a number of priority sectors such as real estate, healthcare, hospitality and leisure), are complemented by commercial teams in each region that focus on meeting the needs of local businesses. However, as Metro Bank has grown its Commercial Segment lending, it has also experienced a degree of pricing pressure from larger High Street competitor banks, and it expects this competition to continue in the future.

Metro Bank's portfolio buy-to-let offering, which Metro Bank introduced in February 2015, has also demonstrated significant growth since its launch, accounting for £217 million in lending as of 31 December 2015.

In 2013, Metro Bank acquired SME Invoice Finance Limited and its subsidiaries, which specialises in invoice discounting and factoring and asset finance, further bolstering its Commercial Segment lending offering. Through the acquisition of this company, which has been rebranded as Metro Bank Invoice and Asset Finance, Metro Bank broadened its offering to commercial customers with a focus on the manufacturing, wholesale, and transport and distribution markets. Since their acquisition, these portfolios have grown from £50 million to £123 million as of 31 December 2015.

Partnerships and bilateral commercial relationships

As of 31 December 2013, 2014 and 2015, Metro Bank's Partnership Banking deposits were £120.0 million, £526.8 million and £860.4 million, respectively. As of the same dates, Metro Bank's Partnership Banking loan portfolio was £7.7 million, £43.4 million and £91.4 million, respectively.

In addition, Metro Bank has recently launched several significant bilateral commercial partnerships that, due to their relatively recent introduction, have had a limited impact on its results of operations, but are expected to be important drivers of Metro Bank's business going forward, including by increasing Metro Bank's brand visibility. For example, in April 2015, Metro Bank launched the co-branded MMA with St. James's Place. Through the arrangement, St. James's Place investors are given an MMA provided by Metro Bank, providing them with a fully functional current account banking service and allowing them to benefit from an integrated secured overdraft facility with immediate access to short-term funds, secured against the value of their eligible St. James's Place investment portfolio. In addition, Metro Bank provides loans to St. James's Place partners, and is exploring opportunities to expand the co-branded products it offers to St. James's Place clients. By partnering with St. James's Place, one of the most well-known wealth management businesses in the UK, Metro Bank expects to increase its profile in the market.

In May 2015, demonstrating Metro Bank's willingness to consider and enter into non-traditional partnership models in the banking market, Metro Bank began an innovative partnership with the UK peer-to-peer loan platform Zopa to lend to customers through their platform (with Metro Bank extending credit to borrowers only if the proposed loan is within Metro Bank's credit risk appetite). As of 31 December 2015, loans on Zopa's platform represented £28.9 million of Metro Bank's loan portfolio, or approximately 1%, with loans ranging from £1,000 to £25,000, and an average loan size of £8,000. The Directors anticipate that Metro Bank will gradually increase its funding to Zopa, benefitting from increased brand exposure from the relationship as well as a steady supply of lending.

Stores roll-out and maturity

Metro Bank has pursued and intends to continue to pursue a strategy of store expansion. Between launch in July 2010 and 31 December 2015, the number of Metro Bank's stores has increased to 40, and Metro Bank has targeted having approximately 110 stores by the end of 2020. Metro Bank generally targets new stores making a positive contribution to Metro Bank's net income in less than 24 months. This roll-out strategy affects Metro Bank's results of operations by increasing operating expenses, making period-on-period comparisons more difficult.

As of 31 December 2015, like-for-like store growth (for stores open longer than 12 months) of deposits was 69%.

Investment securities

As of 31 December 2013, 2014 and 2015, Metro Bank had investment securities of £696 million, £1,611 million and £2,000 million, respectively, principally comprising AAA-rated residential mortgage-backed securities, as well as gilts, UK treasury bills, covered bonds, AA and A-rated residential mortgage-backed securities and bonds issued by corporates and financial institutions.

Metro Bank uses investment securities both as a source of liquidity and to generate returns from customer deposits which have not been lent to customers. Deposits at the Bank of England, Gilts and UK treasury bills are held primarily for liquidity purposes to cover the first 30 days of a severe combined stress (market stress and idiosyncratic) event. Residential mortgage-backed securities and covered bonds, in addition to deposits at the Bank of England, Gilts and UK treasury bills, are held to cover a further 60 days of less severe combined stress. The remaining investment securities portfolio is relatively less liquid. In addition, as of 31 December 2015, Metro Bank had pledged £540 million in investment securities as collateral to the Bank of England through Metro Bank's participation in the FLS, to support the £465 million it had drawn down from the scheme.

While Metro Bank has historically invested surplus deposits in investment securities as a source of additional income, margins on these securities are typically less than that of lending, and as a result tend to suppress the overall NIM of Metro Bank. As Metro Bank moves toward achieving its goal of an LTD Ratio of 80%, the percentage of Metro Bank's total assets that comprise investment securities is expected to decline in favour of higher yielding interest rate bearing loans, although in absolute terms the size of Metro Bank's investment securities portfolio is expected to continue to increase.

Credit risk management, loan losses and impairment losses

Customers defaulting on their loan repayment obligations can adversely impact Metro Bank's financial results. Metro Bank seeks to mitigate its retail credit risk exposure through the use of collateral and guarantee arrangements. In the case of its residential mortgages, Metro Bank stratifies its credit exposures by DTV Ratio ranges. As of 31 December 2015, Metro Bank's DTV Ratio exposures across its mortgage and commercial loan portfolios (i.e., excluding unsecured retail loans) were as follows: less than 50%, £933 million; 51% to 70%, £1,393 million; and 71% to 90%, £651 million.

Metro Bank monitors its corporate credit risk concentration by industry sector, and it reassesses its exposure limits by sector at least annually. In 2015, Metro Bank's largest industry credit exposure was real estate (20%), health and social work (3%) and legal, accountancy, consultancy and other business activities (2%).

The Directors believe that Metro Bank's conservative credit risk management policies have allowed it to effectively manage its credit risk while growing the size of its loan portfolio. Consequently, as of 31 December 2013, 2014 and 2015, Metro Bank's allowance for impairment was £3.3 million, £5.4 million and £6.8 million, respectively. The Directors believe that the credit quality of Metro Bank's loan portfolio is high, with 92%, 93% and 74% of Metro Bank's lending secured by collateral as of 31 December 2015, 2014 and 2013, respectively, while its ratio of impairment provisions to gross loans was 0.2%, 0.3% and 0.4% as of the same dates, respectively. Metro Bank has written-off lending of only £4.7 million of capital over five years to date.

Nevertheless, Metro Bank's loan portfolio is relatively less seasoned compared to its major banking competitors. As a result, the Directors expect that Metro Bank's allowance for impairment is likely to increase as the maturity profile of its loan portfolio increases. For example, Metro Bank's expected expansion of its unsecured consumer loan portfolio over the medium term could increase its credit risk and loan losses. See "Net interest income".

Fee and commission income

Metro Bank earns fee and commission income through its range of commercial and retail banking services. In addition, safe deposit box fees alone make a significant contribution to the cost of the rent of Metro Bank's stores. In the years ended 31 December 2013, 2014 and 2015, Metro Bank earned £3.8 million, £12.1 million and £15.7 million in fee and commission income, respectively, of which £1.7 million, £3.2 million and £5.3 million, respectively, was attributable to the rental of safe deposit boxes by its customers. Although as part of its commitment to provide its customers with transparent pricing, Metro Bank charges lower fees on its products than many of its competitors, underlying fee and commission income has grown in the periods under review, primarily due to the increase in customer transactions and rollout of safe deposit boxes across Metro Bank's expanding network of stores. Metro Bank expects its safe deposit boxes to continue to be a significant driver of fee and commission income growth, together with increases in other fee-generating products that will result from further customer growth, particularly in trading businesses.

Taxation

Deferred income tax is recognised in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The largest element of the deferred tax asset represents the future tax impact of carried forward tax losses which will reduce the payment of future tax. This element of the deferred tax asset requires an element of management judgement in assessing its recoverability. Metro Bank recognised a deferred tax asset in respect of tax losses carried forward of £35.9 million, £43.6 million and £53.1 million as of 31 December 2013, 2014 and 2015, respectively. The increase reflects the taxable losses generated by the continued significant investment by Metro Bank in building stores, infrastructure and IT systems to enable future growth and scale to be achieved.

Accounting standards permit the recognition of a deferred tax asset to the extent that it is probable, more likely than not, that future taxable profits will be available to utilise the tax losses carried forward. The Directors are satisfied based on the progress of Metro Bank since launch, and the detailed projections which include stress tested scenarios, that sufficient taxable profits will be available to utilise the tax losses carried forward in full.

In November 2015, the UK Parliament passed a gradual decrease in the main rate of corporation tax from the current rate of 20% to 19% in 2017 and 18% in 2020, as well as introducing a bank surcharge of 8% on profit which will apply from 1 January 2016. Metro Bank anticipates an effective tax rate of 24% to 26% in the medium-term (including the banking surcharge announced in 2015).

Metro Bank has negotiated with the relevant tax authorities a Partial Exemption Special Method ("PESM"). This PESM sets out the method by which Metro Bank calculates the amount of recoverable value-added tax ("VAT"). As a bank most of the VAT incurred relates to exempt banking services and is therefore an income statement expense or capitalised with the fixed asset to which it relates. Some VAT (relating to taxable transactions) is, however, recoverable and a PESM is the mechanism by which this recoverable portion is agreed with HMRC. A receivable is held on the balance sheet representing Metro Bank's calculations of recoveries relating to prior periods which are owed to Metro Bank by HMRC.

Variable employee compensation costs

All variable employee compensation related to the raising of share capital through the Private Placement or to Metro Bank becoming a listed company will be taken through the consolidated statement of comprehensive income in the first quarter of 2016. These costs are estimated to be a maximum of £7 million.

Macroeconomic and market conditions

Since Metro Bank's establishment in 2010, the UK economy has experienced a significant degree of volatility, largely as a result of the consequences of the global financial crisis that began in 2008. Generally, periods of economic volatility historically have resulted in a decrease in new borrowing as individuals and corporate entities choose to save earnings, rather than spend or invest, and an increase in arrears, impairment provisions and defaults. Thus, in a future downturn, Metro Bank's NIM could be adversely affected by a decrease in the number of attractive loan opportunities.

However, despite volatility, during the periods under review, economic indicators in the UK have improved, with a gradual improvement in the labour market, increased consumer confidence and improved credit availability. The Directors believe that these positive economic indicators have assisted Metro Bank's rapid expansion. The Directors further believe that the economic recovery will help support (although it is not strictly necessary for) continued, sustainable growth in the market segments in which Metro Bank operates in the near and medium-term. In addition, the Directors believe that business investment is likely to improve in the coming years and, consequently, expects a greater demand by corporate customers for funding, which the Directors believe will be an important growth opportunity for Metro Bank's commercial and business lending operations. Furthermore, the Directors expect that improved economic conditions will support commercial and retail customers' general financial stability.

Financial Position

Assets

The following table sets out Metro Bank's total assets as of 31 December 2013, 2014 and 2015:

	As of 31 December
	2013	2014	2015
		(£'000)
Cash and balances with the Bank of England	238,979	180,630	217,900
Loans and advances to banks	24,205	35,040	64,248
Loans and advances to customers	751,058	1,590,346	3,542,548
Investment securities	696,434	1,611,451	1,999,792
Property, plant and equipment	103,286	132,195	165,257
Intangible assets	23,830	34,669	54,243
Prepayments and accrued income	8,553	18,883	30,456
Deferred tax asset	35,885	43,645	53,053
Other assets	7,263	13,661	20,525
Total assets	1,889,493	3,660,520	6,148,022

Total assets as of 31 December 2014 were £3,660.5 million, an increase of £1,771.0 million, or 94%, compared to £1,889.5 million as of 31 December 2013. The increase in total assets over this period was primarily due to increases in loans and advances to customers of £839.3 million, or 112%, from £751.1 million as of 31 December 2013 to £1,590.3 million as of 31 December 2014, as well as an increase in investment securities of £915.0 million, or 131%, from £696.4 million as of 31 December 2013 to £1,611.5 million as of 31 December 2014.

Total assets as of 31 December 2015 were £6,148.0 million, an increase of £2.487.5 million, or 68%, compared to £3,660.5 million as of 31 December 2014. The increase in total assets over this period was primarily due to an increase in loans and advances to customers of £1,952.2 million, or 123%, from £1,590.3 million as of 31 December 2014 to £3,542.5 million as of 31 December 2015 and an increase in the investment portfolio of £388.3 million, or 24%, from £1,611.5 million as of 31 December 2014 to £2,000.0 million as of 31 December 2015.

Loans and advances to banks

Metro Bank's loans and advances to banks as of 31 December 2014 were £35.0 million, an increase of £10.8 million, or 45%, compared to £24.2 million as of 31 December 2013. Loans and advances to banks primarily reflected the balances Metro Bank maintains with its clearing bank, Barclays PLC. The increase in Metro Bank's loans and advances to banks over this period was primarily driven by the operational requirements of increased customer payments through the "Faster Payments" mechanism.

Metro Bank's loans and advances to banks as of 31 December 2015 were £64.2 million, an increase of £29.2 million, or 83%, compared to £35.0 million as of 31 December 2014. The increase in Metro Bank's loans and advances to banks over this period was primarily driven by the operational requirements of increased customer payments through Metro Bank's "Faster Payments" mechanism.

Loans and advances to customers

Metro Bank's loans and advances to customers as of 31 December 2014 were £1,590.3 million, an increase of £839.3 million, or 112%, compared to £751.1 million as of 31 December 2013. The increase in Metro Bank's loans and advances to customers over this period was primarily driven by Metro Bank's store expansion from 24 as of 31 December 2013 to 31 as of 31 December 2014, as well as customer growth from 275,000 customer accounts as of 31 December 2013 to 447,000 customer accounts as of 31 December 2014. More specifically, the growth was driven by an increase in residential mortgage and Commercial Segment lending volumes, which rose from £370.5 million to £825.1 million, and from £362.4 million to £714.6 million, respectively.

Metro Bank's loans and advances to customers as of 31 December 2015 were £3,542.5 million, an increase of £1,952 million, or 123%, compared to £1,590.3 million as of 31 December 2014. The increase in Metro Bank's loans and advances to customers over this period was primarily driven by the continued expansion of the store network and increase in brand awareness; growth in the commercial lending team; continued expansion of Metro Bank's residential mortgage intermediary network as well as the acquisition of a £344 million portfolio of prime first charge residential mortgages.

Investment securities

Metro Bank's investment securities as of 31 December 2014 were £1,611.5 million, an increase of £915.1 million or 131% compared to £696.4 million as of 31 December 2013. The increase in Metro Bank's investment securities over this period was primarily driven by the increase in customer deposits.

Metro Bank's investment securities as of 31 December 2015 were £2,000.0 million, an increase of £388.3 million, or 24%, compared to £1,611.5 million as of 31 December 2014. The increase in Metro Bank's investment securities over this period was primarily driven by the absolute growth in customer deposits exceeding that of loans and the need to maintain adequate liquidity. The level of absolute growth reduced as the LTD Ratio increased in the year.

Liabilities

Deposits from customers

Deposits from customers as of 31 December 2014 were £2,866.6 million, a £1,551.2 million, or a 118% increase from £1,315.4 million as of 31 December 2013. The increase in deposits from customers' accounts over this period was primarily driven by Metro Bank's store expansion from 24 as of 31 December 2013 to 31 as of 31 December 2014, as well as its customer growth from 275,000 customer accounts as of 31 December 2013 to 447,000 customer accounts as of 31 December 2014. Deposits in Metro Bank's business current accounts grew particularly rapidly, from £270 million as of 31 December 2013 to £579 million as of 31 December 2014, as a result of continued brand and store expansion and increased focus of in-store relationship managers and commercial directors to target local businesses.

Deposits from customers as of 31 December 2015 were £5,107.7 million, a £2,241.0 million, or 78%, increase compared to £2,866.6 million as of 31 December 2014. The increase in deposits from customers over this period was primarily due to the continued expansion of the store network and increase in brand awareness, the expansion and deepening of commercial customer relationships, and a continued focus on targeting partnership deposits, including funds from SIPP pension providers and solicitors' funds.

Other liabilities

The following table sets out a breakdown of Metro Bank's other liabilities as of 31 December 2013, 2014 and 2015:

	As of 31 December
	2013	2014	2015
		(£'000)
Trade creditors	2,988	1,895	1,792
Other taxation and social security costs	4,796	5,566	6,592
Repurchase agreements	143,816	282,544	561,778
Accruals and deferred income	21,214	27,343	45,412
Other liabilities	722	14,140	17,617
	173,536	331,488	633,191

Other liabilities as 31 December 2015 were £633.2 million, which reflected a £301.7 million, or a 91%, increase compared to other liabilities as of 31 December 2014, which were £331.5 million, which reflected a £158.0 million, or a 91%, increase from £173.5 million as of 31 December 2013. The increase in other liabilities over this period was primarily due to an increase in repurchase agreements, which are primarily used to convert Treasury Bills received by Metro Bank through the FLS into cash as well as to manage Metro Bank's short-term liquidity.

Explanation of Certain Income Statement Line Items

Interest income

Interest income primarily comprises income earned on loans and advances to customers, as well as income earned on investment securities, principally gilts and residential mortgage-backed securities and bonds issued by corporates and financial institutions.

Interest expense

Interest expense comprises interest payable on customer deposit accounts and repurchase agreements.

Fee and commission income

Fee and commission incomes includes fees from a wide range of banking services charged to customers, including those for safe deposit boxes. Loan fee income, which forms an integral part of the effective interest rate of a financial instrument, is recognised as an adjustment to the effective interest rate and recorded in interest income.

Net gains on sale of investment securities

Net gains on sale of investment securities comprise gains less losses from the sale of investment securities.

Other income

Other income comprises net income earned from foreign exchange transactions with retail and commercial customers.

Impairment charges

Impairment charges comprise impairment provisions against individual assets and portfolios of assets where there is objective evidence that the asset is impaired.

Operating expenses

Operating expenses primarily include people costs, property costs, including rent and rates, legal and professional and other services, IT, money transmission costs and office costs.

Depreciation and amortisation

Depreciation and amortisation includes the depreciation of fixtures, fittings and equipment and computer hardware and the amortisation of intangible assets, including computer software and development costs.

Taxation

Taxation comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment in respect of previous years.

Results of Operations

The following table sets out Metro Bank's results of operations for the years ended 31 December 2013, 2014 and 2015:

	2013	2014	2015
		(£'000)
Interest income	29,461	74,049	125,199
Interest expense	(11,515)	(20,621)	(36,326)
Net interest income	17,946	53,428	88,873
Fee and commission income	3,777	12,055	15,713
Net gains on sale of investment securities	6,508	5,122	6,377
Other income	3,303	4,842	9,237
	31,534	75,447	120,200
Operating expenses	(75,652)	(107,940)	(141,563)
Depreciation and amortisation	(10,292)	(14,221)	(18,195)
Fees associated with listing	—	—	(1,465)
Impairment of property, plant & equipment and
intangible assets	—	—	(8,744)
Total operating expenses	(85,944)	(122,161)	(169,967)
Credit impairment charges	(1,026)	(2,157)	(7,030)
Loss before tax	(55,436)	(48,871)	(56,797)
Taxation	9,000	7,759	7,600
Loss for the year	(46,436)	(41,112)	(49,197)

For the year ended 31 December

Interest income

The following table sets out a breakdown of Metro Bank's interest income for the years ended 31 December 2013, 2014 and 2015:

	For the year ended 31 December
	2013	2014	2015
		(£'000)
Interest income
Investment securities	10,150	21,218	28,119
Loans and advances to customers	19,311	52,831	97,080
Total interest income	29,461	74,049	125,199

Metro Bank's interest income for the year ended 31 December 2014 increased by £44.6 million, or 151%, from £29.5 million for the year ended 31 December 2013 to £74.0 million for the year ended 31 December 2014. The increase in interest income was primarily driven by the volume growth of Metro Bank's loan portfolio. The average interest yield on its loans was 4.52% for the year ended 31 December 2014, compared to 4.75% for the year ended 31 December 2013.

Metro Bank's interest income for the year ended 31 December 2015 increased by £51.2 million, or 69%, from £74.0 million for the year ended 31 December 2014 to £125.2 million for the year ended 31 December 2015. The increase in interest income was primarily due to the increase in loans and advances to customers and a larger investment portfolio due to the increase in customer deposits being greater than the increase in customer loans. The average interest yield on its loans was 4.01% for the year ended 31 December 2015, compared to 4.52% for the years ended 31 December 2014.

Interest expense

Metro Bank's interest expense for the year ended 31 December 2014 increased by £9.1 million, or 79%, from £11.5 million for the year ended 31 December 2013 to £20.6 million for the year ended 31 December 2014. The increase in interest expense was primarily due to the increase in customer deposits, which was partially offset by a decrease in the average blended cost of deposits from 118 basis points in 2013 to 90 basis points in 2014.

Metro Bank's interest expense for the year ended 31 December 2015 increased by £15.7 million, or 76%, from £20.6 million for the year ended 31 December 2014 to £36.3 million for the year ended 31 December 2015. The increase in interest expense was primarily due to the increase in interest bearing customer deposits, partially offset by a decrease in the average blended cost of deposits from 90 basis points in 2014 to 82 basis points in 2015.

Net interest income

Metro Bank's net interest income for the year ended 31 December 2014 increased by £35.5 million, or 198%, from £17.9 million for the year ended 31 December 2013 to £53.4 million for the year ended 31 December 2014. The increase in net interest income was primarily due to an increase in interest income from loans and advances to customers.

Metro Bank's net interest income for the year ended 31 December 2015 increased by £35.4 million, or 66%, from £53.4 million for the year ended 31 December 2014 to £88.9 million for the year ended 31 December 2015. The increase in net interest income was primarily due to an increase in loans and advances to customers and an increased LTD ratio.

Fee and commission income

Metro Bank's fee and commission income for the year ended 31 December 2014 increased by £8.3 million, or 219%, from £3.8 million for the year ended 31 December 2013 to £12.1 million for the year ended 31 December 2014. The increase in fee and commission income was primarily due to an increase in customer numbers leading to an increase in transaction volumes and increased safe deposit box rentals.

Metro Bank's fee and commission income for the year ended 31 December 2015 increased by £3.7 million, or 30%, from £12.1 million for the year ended 31 December 2014 to £15.7 million for the year ended 31 December 2015. The increase in fee and commission income was primarily due to the increase in transaction and other fees from customers and higher fee income from sales of safe deposit boxes.

Net gains on sale of investment securities

Metro Bank's net gains on sale of investment securities for the year ended 31 December 2014 decreased by £1.4 million, or 21%, from £6.5 million for the year ended 31 December 2013 to £5.1 million for the year ended 31 December 2014. The decrease in net gains on sale of investment securities was primarily due to a repositioning of the portfolio, which resulted in a lower amount of sales of investment securities.

Metro Bank's net gains on sale of investment securities for the year ended 31 December 2015 increased by £1.3 million, or 25%, from £5.1 million for the year ended 31 December 2014 to £6.4 million for the year ended 31 December 2015. The increase in net gains on sale of investment securities was primarily due to the periodic realignment of the investment portfolio.

Other income

Metro Bank's other income for the year ended 31 December 2014 increased by £1.5 million, or 47%, from £3.3 million for the year ended 31 December 2013 to £4.8 million for the year ended 31 December 2014. The increase in other income was primarily due to an increase in Retail and Commercial Segment customer-driven foreign exchange transactions.

Metro Bank's other income for the year ended 31 December 2015 increased by £4.4 million, or 91%, from £4.8 million for the year ended 31 December 2014 to £9.2 million for the year ended 31 December 2015. The increase in other income was primarily due to increased Retail and Commercial Segment customer-driven foreign exchange transactions.

Credit impairment charges

Metro Bank's credit impairment charges for the year ended 31 December 2014 increased by £1.1 million, or 110%, from £1.0 million for the year ended 31 December 2013 to £2.2 million for the year ended 31 December 2014. The increase in impairment charges was primarily due to an increase in the size and maturity of the loan book.

Metro Bank's credit impairment charges for the year ended 31 December 2015 increased by £4.9 million, or 226%, from £2.2 million for the year ended 31 December 2014 to £7.0 million for the year ended 31 December 2015. The decrease in impairment charges was primarily due to an increase in the size and maturity of the loan portfolio.

Operating expenses

Metro Bank's operating expenses for the year ended 31 December 2014 increased by £32.3 million, or 43%, from £75.7 million for the year ended 31 December 2013 to £107.9 million for the year ended 31 December 2014. The increase in operating expenses was primarily due to the increased number of stores; higher numbers of customer-facing colleagues, including contact centre colleagues, private banking and lending relationship officers; and continued investment in customer delivery, as well as an increase in headcount of non-store colleagues.

Metro Bank's operating expenses for the year ended 31 December 2015 increased by £33.6 million, or 31%, from £107.9 million for the year ended 31 December 2014 to £141.6 million for the year ended 31 December 2015. The increase in operating expenses was primarily due to the continued expansion of the store network, investment in IT infrastructure and digitisation of Metro Bank and the increase in the number of customer facing colleagues in the lending, private banking and contact centre teams.

Depreciation and amortisation

Metro Bank's depreciation and amortisation for the year ended 31 December 2014 increased by £3.9 million, or 38%, from £10.3 million for the year ended 31 December 2013 to £14.2 million for the year ended 31 December 2014. The increase in depreciation and amortisation was primarily due to continued investment in new stores and IT.

Metro Bank's depreciation and amortisation for the year ended 31 December 2015 increased by £4.0 million, or 28%, from £14.2 million for the year ended 31 December 2014 to £18.2 million for the year ended 31 December 2015. The increase in depreciation and amortisation was primarily due to the continued expansion of the store network and investment in IT infrastructure and digitisation of Metro Bank.

Taxation

Metro Bank's tax credit for the year ended 31 December 2014 decreased by £1.2 million, or 14%, from £9.0 million for the year ended 31 December 2013 to £7.8 million for the year ended 31 December 2014. The decrease in tax credit was primarily due to a lower loss before tax for Metro Bank.

Metro Bank's tax credit for the year ended 31 December 2015 decreased by £0.2 million, or 2%, from £7.8 million for the year ended 31 December 2014 to £7.6 million for the year ended 31 December 2015. The reduction in tax credit was primarily due to a reduction in the rate of corporation tax for future periods as announced in 2015. The effect of this was an additional tax charge in the year of £2.7 million. The £1.8 million difference between the movement on the deferred tax asset in 2015 and the tax credit is due to the tax effect of losses on available for-sale investments and the tax effect of timing differences relating to share based payment schemes, which were recognised in other comprehensive income.

Liquidity and Capital Resources

Liquidity

The Directors manage liquidity risk by maintaining sufficient net liquid assets as a percentage of liabilities to cover cash flow imbalances and fluctuations in funding in order to retain full public confidence in the liquidity of Metro Bank and to ensure that financial and regulatory obligations are met.

Metro Bank had cash and cash equivalents of £282.1 million and investment securities of £2,000 million, including accrued interest, as of 31 December 2015. Metro Bank had total liabilities in respect of customers' accounts of £5,107.7 total million as of 31 December 2015.

Cash flows

The following table summarises Metro Bank's cash flows for the periods indicated:

	Year ended 31 December
	2013	2014	2015
		(£'000)
Net cash inflows from operating activities	248,502	810,211	546,036
Net cash outflows from investing activities	(343,734)	(956,566)	(479,558)
Net cash inflows from financing activities	284,308	98,841	—
Net increase/(decrease) in cash and cash equivalents	189,076	(47,514)	66,478
Cash and cash equivalents at start of year	74,108	263,184	215,670
Cash and cash equivalents at the end of the year	263,184	215,670	282,148

Net cash inflows from operating activities

Net cash inflows from operating activities increased by £561.7 million from £248.5 million in 2013 to £810.2 million in 2014. The principal factor contributing to the increase was an increase in customer deposits.

Net cash inflows from operating activities decreased by £264.2 million from £810.2 million in 2014 to £546.0 million in 2015. The principal factor contributing to the decrease was an increase in customer lending.

Net cash outflows from investing activities

Net cash outflows in investing activities increased by £612.8 million from £343.7 million in 2013 to £956.6 million in 2014. This increase was primarily driven by an increase in investment securities.

Net cash used in investing activities decreased by £477.0 million from £956.6 million in 2014 to £479.6 million in 2015. This increase was primarily driven by sales of investment securities.

Net cash inflows from financing activities

Metro Bank had no cash inflows from financing activities in 2015. Net cash inflows from financing activities decreased by £185.5 million from £284.3 million in 2013 to £98.8 million in 2014. This decrease was primarily due to lower inflows from share issues, net of costs.

Capital expenditure

In the years ended 31 December 2013, 2014 and 2015, Metro Bank's capital expenditure was £59.2 million, £41.0 million and £49.7 million respectively, and principally comprised expenditure in relation to new stores and IT development. Metro Bank estimates that it will have capital expenditure of approximately £50 million in 2016.

Capital management

Overview

The Directors are required to consider all material risks to which Metro Bank is exposed and determine the capital required to ensure that, under both normalised and stressed conditions, Metro Bank has sufficient capital to meet internal and regulatory capital requirements.

Metro Bank must maintain a certain level of capital to meet several requirements, including:

• to meet regulatory capital requirements;
• to ensure that Metro Bank can meet its business objectives, including its growth objectives;
• to ensure that Metro Bank can withstand future uncertainty, such as economic stress; and
• to provide assurance to depositors, customers, shareholders and other third parties.

Management produces regular assessments of the current and forecasted level of capital, as well as the results of stress testing, to the Directors and the Risk Oversight Committee. Metro Bank complied with all regulatory capital requirements throughout the year ended 31 December 2015.

CRD IV

In June 2013, the European Commission published the final regulation and directive (known collectively as CRD IV) to give effect to the Basel III framework. The objective of CRD IV is to improve the banking sector's ability to absorb shocks arising from financial and/or economic stress and, therefore, reduce the risk of spill-over from the financial sector into the rest of the economy. CRD IV was implemented in the UK with effect from 1 January 2014.

The key changes introduced by CRD IV include:

• Changes to the definition of capital resources—between 2014 and 2018, there will be changes and additions to capital deductions from Common Equity Tier 1 and Tier 2 capital;

• New limits and capital buffers—changes to minimum ratios for all forms of capital with an increased focus on Common Equity Tier 1 and with a requirement to hold capital conservation, countercyclical and systemic risk buffers;

• Introduction of the leverage ratio—the Basel Committee is testing and considering a minimum Tier 1 leverage ratio of between 3.0 and 4.0%;

• Counterparty credit risk—introduction of a credit valuation adjustment to the mid-market valuation on OTC derivatives;
• LCR—to ensure that banks hold sufficient liquid assets to cover net cash outflows under stressed conditions over a period of 30 days; and
• Net stable funding ratio (''NSFR'')—to ensure that banks have stable funding in place to support long-term obligations under both normal and stressed conditions over a period of one year.

Metro Bank's capital position as of 31 December 2015 is shown in the table below.

Capitalisation

Metro Bank has levels of capital in excess of the requirements set from time to time by the PRA. As of 31 December 2015:

• Metro Bank's fully loaded CRD IV Common Equity Tier 1 ratio was 13.3%;
• Metro Bank's Total Capital Ratio was 13.3%; and
• Metro Bank's Leverage Ratio was 4.9%

The table below sets forth Metro Bank's total capital, split by type of capital, as of 31 December 2015.

	As of 31 December 2015
Common Equity Tier 1 ratio	13.3%
Total regulatory capital	£300 million
Total risk weighted assets	£2,261 million

The table below sets forth the composition of Metro Bank's Common Equity Tier 1 capital, as of 31 December 2015.

As of 31
December
2015
(£ millions)

Share capital	0
Share premium	629
Retained earnings	(213)
less available for-sale and other reserves	9
less intangible assets	54

(£ millions)

less deferred tax asset	53
Total Common Equity Tier 1	300

Off-Balance Sheet Items

As of 31 December 2015, Metro Bank has not entered into any off-balance sheet transactions, other than those required to manage market risk in the ordinary course.

Liquidity

Liquidity is held by Metro Bank in a range of qualifying assets, including cash, gilts, treasury bills and a range of high quality investment securities. Metro Bank maintains levels of liquidity that are in excess of those required by the PRA. As of 31 December 2015, Metro Bank had an LCR of 126%.

Sources of funding

During the periods under review, Metro Bank's funding was principally generated through commercial and retail customer deposits, with additional funding provided by the FLS. See "Key Factors Affecting Results of Operations – Deposit base and funding".

Critical Accounting Policies

The discussion and analysis of Metro Bank's financial condition and results of operations are based upon Metro Bank's financial information, which has been prepared in accordance with IFRS. The preparation of this financial information requires management to make estimates and judgements that affect the reported amounts of income, expenses, assets and liabilities and the related disclosure of contingent assets and liabilities. Estimates are based on available information and experience. Actual results could differ from these estimates. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the Historical Financial Information are described in Note 3.18 (Critical accounting estimates and judgements) to the Historical Financial Information set out in Part XV: "Historical Financial Information". For a detailed description of Metro Bank's significant accounting policies, see Note 3 (Significant Accounting Policies) to the Historical Financial Information set out in Part XV: "Historical Financial Information".

PART XII SELECTED STATISTICAL INFORMATION

The following tables present certain of Metro Bank's selected statistical information for the periods indicated. The following information should be read in conjunction with the Historical Financial Information, as well as Part XI: "Operating and Financial Review" and Part XV: "Historical Financial Information". The statistical information and discussion and analysis presented below as of and for the years ended December 31, 2013, 2014 and 2015 is presented solely for the convenience of the reader for analytical purposes and on the basis of Industry Guide 3 under the Securities Act (Statistical Disclosure by Bank Holding companies ("Guide 3"). Limitations in Metro Bank's existing financial reporting system prevent it from generating certain information pursuant to Guide 3. Certain amounts and percentages included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different contexts may vary slightly and figures in certain other contexts may not be an exact arithmetic result of the figures shown herein.

Distribution of Assets, Liabilities, Stockholders' Equity and Interest Rates

		2013				2014			2015
	Closing spot balance	Daily average balance	Interest income/ (expense)	Average yield/rate paid	Closing spot balance	Daily average balance	Interest income/ (expense)	Average yield/ rate paid	Closing spot balance	Average daily balance	Interest income/ (expense)	Average yield/ rate paid
							(£ '000 (unless stated))
Cash and cash equivalents & investment securities	959,618	630,573	10,150		1.61% 1,827,121	1,420,406	21,218		1.49% 2,281,940	2,016,858	28,119	1.39%
Commercial	312,093	207,556	8,311	4.00%	636,993	480,841	20,893		4.35% 1,150,800	875,484	37,283	4.26%
Asset finance/invoice finance	50,284	22,164	3,179	14.34%	77,649	63,953	7,896	12.35%	122,644	97,679	10,007	10.24%
Residential mortgage	370,496	183,725	6,334	3.45%	825,135	588,061	19,881		3.38% 2,156,419	1,365,154	42,232	3.09%
Consumer & other	21,468	15,291	1,114	7.29%	56,009	36,684	2,222	6.06%	119,470	82,083	4,426	5.39%
Gross loans (excl. loan fees)	754,340	406,571	18,937		4.66% 1,595,785	1,169,539	50,892		4.35% 3,549,332	2,420,401	93,948	3.88%
Loan fees	—	—	373	—	—	—	1,939	—	—	—	3,131	—
Gross loans (incl. loan fees)	754,340	406,571	19,311		4.75% 1,595,785	1,169,539	52,831		4.52% 3,549,332	2,420,401	97,079	4.01%
Total interest earning assets	1,713,958	1,037,145	29,461		2.84% 3,422,906	2,589,945	74,049		2.86% 5,831,273	4,437,258	125,199	2.82%
Demand - non interest bearing	(424,954)	(297,905)	—	—	(856,777)	(684,621)	—			— (1,379,799 ) (1,076,935)	—	—
Demand - Interest Bearing	(487,053)	(375,007)	(3,381)		0.90% (1,374,555)	(824,164)	(8,739)			1.06% (2,123,450 ) (1,773,798)	(16,006)	0.90%
Fixed term	(403,382)	(234,449)	(7,171)	3.06%	(635,299)	(485,641)	(9,031)		1.86% (1,604,407 )	(972,385)	(15,511)	1.60%
Total deposits (1,315,389)		(907,361)	(10,552)			1.18% (2,866,631) (1,994,426)	(17,769)			0.90% (5,107,656 ) (3,823,118)	(31,517)	0.82%
Repo funding	(143,816)	(90,624)	(963)	1.06%	(282,544)	(292,276)	(2,851)	0.98%	(561,779 )	(392,308)	(4,809)	1.23%
Total interest bearing liabilities (1,459,205)		(997,985)	(11,515)			1.15% (3,149,174) (2,286,702)	(20,621)			0.90% (5,669,435 ) (4,215,426)	(36,326)	0.86%
Net interest earnings	—	—	17,946	—	—	—	53,428	—	—	—	88,873	—
Net interest margin	—	—	—	1.73%	—	—	—	2.06%	—	—	—	2.00%

Closing balances for year ending 31 December

Interest Differentials

	2013				2014		2015
	Change in interest income/ (expense)	Changes in volumes	Change in rates	Change in interest income/ (expense)	Changes in volumes	Change in rates	Change in interest income/ (expense)	Changes in volumes	Change in rates
					(£ '000) (unaudited)
Cash and cash equivalents & investment securities	4,234	6,170	(1,936)	11,068	12,714	(1,646)	6,901	8,910	(2,008)
Commercial	5,835	6,454	(619)	12,582	10,943	1,640	16,390	17,148	(757)
Asset finance/invoice finance	3,179	0	3,179	4,717	5,993	(1,276)	2,111	4,164	(2,053)
Residential mortgage	5,376	5,502	(127)	13,547	13,939	(392)	22,351	26,272	(3,921)
Consumer & other	775	513	262	1,108	1,559	(451)	2,204	2,750	(546)
Gross loans (excl. loan fees)	15,165	13,107	2,057	31,955	35,538	(3,583)	43,056	54,431	(11,375)
Loan fees	(649)	(649)	—	1,565	1,565	—	1,193	1,193	—
Gross loans (incl. loan fees)	15,515	12,458	2,057	33,520	37,103	(3,583)	44,249	55,624	(11,375)
Total interest earning assets	18,749	18,629	121	44,588	49,817	(5,229)	51,150	64,533	(13,383)
Demand - non interest bearing	—	—	—	—	—	—	—	—	—
Demand - interest bearing	(2,290)	(1,827)	(463)	(5,358)	(4,050)	(1,308)	(7,267)	(10,069)	2,803
Fixed term	(3,585)	(7,855)	4,269	(1,860)	(7,683)	5,823	(6,481)	(9,051)	2,571
Total deposits	(5,876)	(9,682)	3,806	(7,217)	(11,733)	4,516	(13,747)	(16,293)	2,546
Repo funding	(958)	(603)	(354)	(1,888)	(2,142)	254	(1,958)	(976)	(982)
Total interest bearing liabilities	(6,834)	(10,285)	3,451	(9,105)	(13,875)	4,770	(15,705)	(17,269)	1,563
Net interest earnings	11,916	—	—	35,483	—	—	35,445	—	—

For year ending 31 December

Investment Portfolio

For year ending 31 December 2013 2014 2015 Aggregate Book Value (£'000) (unaudited) Issuer Gilts .................................................................................................. 80,080 77,105 119,418 Due in one year or less ............................................................... — — — Due after one year through five years ......................................... 80,080 77,105 119,418 Due after five years through ten years ........................................ — — — Due after ten years ...................................................................... — — — RMBS ............................................................................................... 482,212 1,205,944 1,336,444 Due in one year or less ............................................................... — 25,601 125,088 Due after one year through five years ......................................... 379,648 821,296 872,670

For year ending 31 December

	2013	2014	2015
		Aggregate Book Value
		(£'000) (unaudited)
Due after five years through ten years	102,564	359,046	338,687
Due after ten years	—	—	—
Covered bonds	58,439	101,165	242,518
Due in one year or less	—	—	32,292
Due after one year through five years	58,439	101,165	210,225
Due after five years through ten years	—	—	—
Due after ten years	—	—	—
Corporate bonds	83,203	234,119	300,623
Due in one year or less	6,847	—	—
Due after one year through five years	46,582	121,125	300,623
Due after five years through ten years	29,774	112,994	—
Due after ten years	—	—	—
Cash portfolio	255,472	196,426	282,148
Other	211	12,361	789
Total	959,618	1,827,121	2,281,940
Due in one year or less	6,847	25,601	157,380
Due after one year through five years	564,749	1,120,692	1,502,936
Due after five years through ten years	132,338	472,040	338,687
Due after ten years	—	—	—
Other	255,683	208,788	282,937

Loan Portfolio

	Balances as of 31 December
	2013	2014	2015
		(£'000) (unaudited)
Types of Loans
Commercial
Due in one year or less	27,158	46,926	20,161
Due after one through five years	31,198	77,401	134,392
Due after five years	260,414	585,412	877,661
Other	(6,677)	(72,745)	118,587
Total commercial	312,093	636,993	1,150,800

	Balances as of 31 December
	2013	2014	2015
		(£'000) (unaudited)
Residential
Due in one year or less	7	—	2,622
Due after one through five years	18,899	52,948	111,851
Due after five years	347,319	717,274	2,129,063
Other	4,270	54,913	(87,117)
Total residential	370,496	825,135	2,156,419
Consumer & other
Due in one year or less	14,805	21,321	17,127
Due after one through five years	6,561	11,122	28,911
Due after five years	92	17	5,531
Other	10	23,549	67,901
Total consumer & other	21,468	56,009	119,470
Asset finance/invoice finance
Due in one year or less	55,448	79,631	127,573
Due after one through five years	—	—	—
Due after five years	—	—	—
Other	(5,164)	(1,982)	(4,929)
Total consumer & other	50,284	77,649	122,644
Total loans	754,340	1,595,785	3,549,332
Off-balance sheet commitments and contingencies	159,223	184,317	332,459

PART XIII RISK MANAGEMENT

Overview

A core objective for Metro Bank is the effective management of risk to protect its depositors, borrowers and shareholders, and to ensure Metro Bank has adequate capital and liquidity resources.

The risk management framework established by Metro Bank supports decision-making across the bank. Risk appetite, which is set by the Board and managed across the business, is subject to regular monitoring and review. Metro Bank's approach to risk management is supported by a robust risk culture which places the customer and delivering business objectives "the right way" at the heart of the business. Metro Bank seeks to adopt best practices in risk management and control that are appropriate to the size and complexity of the business. Metro Bank works to optimise risk and return while managing risk at an acceptable level of exposure.

Metro Bank's Chief Risk Officer is responsible for leading Metro Bank's risk function, which is independent from Metro Bank's operational and commercial functions. The risk function is responsible for ensuring that appropriate risk management processes and controls are in place, and that they are sufficiently robust, thereby ensuring that key risks are identified, assessed, monitored and mitigated.

Through Metro Bank's risk function, the Chief Risk Officer is responsible for providing assurance to the Board that Metro Bank's principal risks are appropriately managed and that it is operating within its risk appetite.

The risk management function provides independent reports monthly to the Board and at least quarterly to the Risk Oversight Committee (the "ROC") on Metro Bank's risk positions, risk management and performance against the risk appetite statements. The reporting and oversight process is designed to provide assurance to the Board and relevant committees regarding the identification, assessment and management of key risks and, in particular, that there are adequate and effective controls in place to manage these risks.

Metro Bank's risk management framework and infrastructure has developed in line with the growth of its customer base. With bespoke technology and a simple product set, Metro Bank's relationship and service focus help it to drive higher growth and lower risk lending.

Risk Management Framework

Metro Bank's risk management framework is outlined in the table below, which sets out the relevant governance and control structure for each of its key risks.

	Risk Management Framework
Principal risk:	Credit	Operational	Liquidity	Market & Interest rate	Financial Crime	Regulatory	Conduct
Control document:	Credit policy	Enterprise Risk Management policy	Liquidity policy Treasury & large exposures policy	Treasury Instruments and Dealing policy Market risk Policy	Anti-money laundering policy Sanctions policy	Compliance policy	Treating Customers Fairly policy
Risk reporting:	Credit & Risk Analytics reports	Operational Risk Reports	Assets & Liabilities Committee (ALCO) and Treasury Reports	Assets & Liabilities Committee (ALCO) and Treasury Reports	Anti-Money Laundering Steering Group reports	Regulatory Risk reports	Conduct and Voice of the Customer reporting

Monitoring Committee:	Credit sanctioning Committee Credit Policy & Appetite Committee Executive Risk Committee	Executive Risk Committee	Assets & Liabilities Committee	Assets & Liabilities Committee	Executive Risk Committee	Executive Risk Committee	Executive Risk Committee
Oversight Committee:	Risk Oversight Committee	Risk Oversight Committee	Risk Oversight Committee	Risk Oversight Committee	Risk Oversight Committee	Risk Oversight Committee	Risk Oversight Committee

The responsibility for managing Metro Bank's principal risks rests with the Board, with the ROC, the Audit Committee and the Executive Management Committees assisting it in this function.

Board

Based on the recommendations of the ROC, the Board has ultimate responsibility for setting Metro Bank's risk appetite, which takes into consideration the interests of depositors, customers and shareholders.

The Board approves the level of risk that Metro Bank is willing to accept, and ensures there is an adequate framework in place for the reporting and management of those risks. The Board is responsible for ensuring that management has established and maintains a robust control environment to manage the principal risks, and is responsible for ensuring the capital and liquidity resources are adequate to achieve Metro Bank's objectives without taking undue risk.

The Board also maintains close oversight of current and future activities, through a combination of monthly board reports, including financial results, operational reports, budgets and forecasts and periodic reviews of the main risks set out in the Internal Capital Adequacy Assessment Process ("ICAAP") and Individual Liquidity Adequacy Assessment ("ILAA") reports.

Risk Oversight Committee

The ROC assists the Board in providing leadership, direction and oversight with regard to Metro Bank's risk governance and management and also assists the Board in fostering a culture within Metro Bank that emphasises and demonstrates the benefits of a risk-based approach to risk management and internal control. The ROC meets at least five times a year, and works closely with the Audit Committee.

The ROC is chaired by a Non-Executive Director, and comprises a further three Non-Executive Directors. The Chief Executive Officer and the Chief Financial Officer attend as guests. The Chief Risk Officer also attends.

The ROC:

• recommends to the Board Metro Bank's risk appetite and regularly reviews Metro Bank's risk exposures in relation to the risk appetite;
• reviews Metro Bank's risk policies, and approves or recommends to the Board for approval; and
• monitors the effectiveness of Metro Bank's risk management processes and procedures.

The Chair of the ROC meets with the Chief Risk Officer and other senior leaders of Metro Bank regularly throughout the year to discuss risk management and control activity.

Audit Committee

The Board has delegated responsibility for reviewing the effectiveness of Metro Bank's internal controls to the Audit Committee. The Audit Committee meets at least five times a year and monitors and considers the internal control environment focusing on operational risks and internal and external audits.

The Audit Committee is chaired by a Non-Executive Director and comprises a further two non-executive Directors. The Chief Executive Officer, the Chief Financial Officer and the Chief Risk Officer also attend.

The Audit Committee:

• monitors the integrity of Metro Bank's financial statements, reviewing significant financial reporting issues and any judgements which they contain;
• monitors and reviews the effectiveness of the internal audit function and approves the appointment or removal of the Head of Internal Audit; and
• oversees the relationship with Metro Bank's external auditor, including reviewing the engagement terms and fees, monitoring their independence and quality control, as well as the audit findings, management letter and audited accounts.

The chair of the Audit Committee meets with both internal and external auditors regularly throughout the year.

Executive Management Committees

The CEO, supported by Metro Bank's executive management team, is responsible for executing the strategy of Metro Bank and making decisions and recommendations to the Board, as appropriate, through the following committees:

• Asset and Liabilities Committee;
• Executive Risk Committee;
• Credit Sanctioning Committee;
• Credit Policy and Appetite Committee; and
• Management Executive Committee.

Asset & Liabilities Committee ("ALCO")

The Board has delegated responsibility for managing and overseeing Metro Bank's exposure to liquidity, interest rate and market risk to ALCO.

ALCO meets monthly and is responsible for ensuring that:

• an appropriate balance is maintained between funding and lending activities, ensuring that Metro Bank meets internal liquidity targets as set out in the liquidity policy;
• an analysis of financial market trends is considered along with actual and projected business performance to assess the adequacy of funding to meet the projected targets;
• all pricing decisions are agreed at ALCO to ensure absolute visibility of trading, liquidity and market, and capital impact; and
• monitoring interest rate risk.

ALCO is chaired by the Chief Financial Officer; the Chief Executive Officer, Chief Risk Officer, Treasurer, Chief Operating Officer and the various heads of business are members of the committee. The Chairman of the ROC is a standing guest.

Executive Risk Committee

The Executive Risk Committee meets monthly and is responsible for:

• reviewing business performance in relation to risk appetite across credit, operational, regulatory and conduct risks;
• oversight of the operation of Metro Bank's Enterprise Risk Management ("ERM") framework (discussed below); and
• oversight of the performance of the key risk Indicators.

The Executive Risk Committee is chaired by the Chief Risk Officer. Its membership comprises the Chief Executive Officer, MD Commercial Banking, MD Regional Banking, Chief Commercial Officer, Chief Financial Officer, Chief Operating Officer, Chief People Officer, and the Head of Internal Audit.

Credit Sanctioning Committee

The Credit Sanctioning Committee is responsible for:

• sanctioning of higher value lending requests, and any exceptions to policy;
• monitoring Metro Bank's overdue accounts; and
• granting and reviewing delegated lending authorities.

The Credit Sanctioning Committee meets at least twice weekly and is chaired by the director of Commercial Credit. Its membership comprises the Chief Executive Officer, Chief Risk Officer, MD Commercial Banking and an independent head of a business line.

Credit Policy and Appetite Committee

The Credit Policy and Appetite Committee meets bi-monthly and is responsible for:

• overseeing Metro Bank's credit risk policies;
• reviewing proposals on risk appetite;
• approving significant exceptions to policy;
• monitoring portfolio performance against Metro Banks's set risk appetites; and
• (with the Chief Financial Officer) approving impairment levels.

The Credit Policy and Appetite Committee is chaired by the Chief Risk Officer. Its membership comprises the Chief Executive Officer, Chief Financial Officer, director of Commercial Credit, MD Commercial Banking and Chief Commercial Officer.

Management Executive Committee

The Management Executive Committee meets at least weekly and covers (in rotation) the following topics:

• Audit: reports on completed audits and the progress of existing audits, as well as audit findings.
• Trading Performance: responsible for reviewing trading performance across each of the business lines within Metro Bank.
• Finance: responsible for reviewing performance across actual and forecasted costs, income, capital, and provisions.

• Voice of the Customer: provides direction on actions required to help ensure Metro Bank delivers amazing customer service and consistently fair customer outcomes.

• Voice of the Colleague: responsible for embedding and strengthening Metro Bank's unique culture through people interventions, and for reviewing the performance of key colleague metrics.

• Change: responsible for prioritising and reviewing progress of current in-flight change initiatives and approving submitted business cases.
• IT & Operations: responsible for reviewing the IT and operational performance across Metro Bank, agreeing strategic direction and identifying any areas requiring remedial action.

Enterprise Risk Management

The Board is responsible for the approval of Metro Bank's ERM policy, the operation of which is overseen by the Executive Risk Committee.

The ERM policy is embedded in Metro Bank through the three lines of defence, which defines responsibilities and accountabilities in accordance with the following principles:

• First line of defence business areas (including support functions) are accountable for owning and managing, within the defined and agreed risk appetite, the risks which exist in their business area. Business areas are directed to conduct appropriate assurance activity to ensure controls are adequate and effective.
• Second line of defence Metro Bank's risk function provides independent monitoring, advice and assurance to the business area owning the process or the policy. It is accountable for developing the risk and control frameworks and supporting tools which business areas will use to discharge their risk management responsibilities.
• Third line of defence Metro Bank's internal audit function provides independent assurance that all significant risks are identified and appropriately reported and that they are adequately controlled. This includes an assessment of the effectiveness of the control and monitoring framework.

The Chief Risk Officer, alongside leaders within each business area, appoints "risk champions" (first line of defence) in each business area who are responsible for monitoring the management of risks within their business area, and for liaising with business heads to maintain appropriate risk management practices in their business area. Business heads manage their risk and control activities in the pursuit of business strategies and objectives.

The Chief Risk Officer leads and manages the risk monitoring and control function (second line of defence) and coordinates the implementation of the ERM policy, and the governance process to facilitate integrated risk management, across Metro Bank. This second line of defence evaluates the risk profile of Metro Bank against the risk appetite, monitors risk management practices, and reports on performance to the Executive Committee and Board. In addition, the compliance function carries out monitoring reviews to provide assurance regarding regulatory compliance across Metro Bank.

Principal Risks

Given the nature of the activities that Metro Bank undertakes, its principal risks are credit risk, liquidity risk, market risk, interest rate risk, regulatory risk, conduct risk, financial crime risk and operational risk. Each risk has a defined risk appetite which is reinforced though documented policies and overseen by a robust governance process.

All key risks have also been considered in detail as part of Metro Bank's capital adequacy assessment and are documented in its ICAAP document, which is approved by the Board. Liquidity risk is also separately considered in Metro Bank's annual Individual Liquidity Adequacy Assessment paper, which is also approved by the Board. Operational risk is also managed through Metro Bank's ERM policy.

Credit Risk

Credit risk is the risk of loss in the event of defaulting mortgage and loan contracts and is the most significant risk incurred by Metro Bank. Credit risk arises from Metro Bank's loan book but can also arise from other offbalance sheet activities. However, Metro Bank does not trade in financial instruments.

Credit risks associated with lending are managed through the use of detailed lending policies which outline the approach to lending, underwriting criteria, credit mandates, concentration limits and product terms. Metro Bank maintains a dynamic approach to credit management and will take necessary steps if the credit performance deteriorates due to economic or sector-specific weaknesses.

Metro Bank has a director of Commercial Credit with responsibility for underwriting and lending reviews for the key aspects of the lending portfolio. The Director also provides mentoring and business support, covenant monitoring, credit committee management, case credit grading and credit training delivery.

Metro Bank also seeks to mitigate credit risk by focusing on business sectors where it has specific expertise and limiting exposures on larger loans, certain sectors and other factors which can represent higher risk. Metro Bank also seeks to obtain security cover and, where appropriate, personal guarantees from borrowers.

Each business area has its own lending policy and a dedicated team which assesses credit risk, supported by a Head of Credit having oversight of lending activities. Further information is given below regarding the different lending areas.

Metro Bank's risk function, Credit Sanctioning Committee, Credit Policy and Appetite Committee and the ROC have oversight responsibility for credit risk; and credit assurance reviews are conducted by Metro Bank's internal audit function, the outputs of which are reported to the Audit Committee.

Metro Bank adopts a partnership approach to credit underwriting and sanctioning. Credit partners (i.e., underwriters) work alongside relationship managers (i.e., lenders), helping to shape proposals in a way that is acceptable for both Metro Bank and the customer. The independence of the credit function is maintained through the credit committee structure, and management oversight and review. This approach has a number of benefits: credit involvement at an early stage ensures the formal sanctioning process is more efficient; customers have the opportunity to meet with the individuals responsible for the credit decision, which distinguishes Metro Bank from other lenders and reinforces Metro Bank's credentials as a relationship-driven bank. In addition, this process leads to fewer formal rejections as weaker applicants are typically filtered out before significant time or resource is expended.

Residential Mortgages

All residential mortgage applications are reviewed by an experienced team of underwriters who manually assess each application. Applications are underwritten in accordance with the residential mortgage lending policy and each loan has to undergo an affordability assessment, which takes into account the specific circumstances of each borrower. Information is obtained on all loan applications from credit reference agencies, which provide a detailed insight into the applicant's credit history and indebtedness, and which is carefully reviewed by the underwriters.

Metro Bank has a conservative approach to lending and will typically only lend up to 85% of LTV. Metro Bank also undertakes a full valuation on all properties. Valuation reports are produced by an experienced panel of qualified external valuers.

Metro Bank offers advice to mortgage borrowers but does not sell payment protection insurance policies.

Commercial Mortgages

Metro Bank has a conservative approach to underwriting commercial property loans. A team of experienced underwriters carefully reviews all applications.

Properties are individually valued and a detailed report is produced to ensure the property is acceptable security and will present minimal problems in the event of default, where the asset has to be recovered and sold. Valuations are performed by experienced and qualified external firms. The valuers provide commentary on the tenancy/letting of properties where the commercial mortgages are connected to an investment property transaction.

Affordability assessments are performed on all loans and other forms of security are often obtained, such as a personal guarantee.

Loans to commercial mortgage customers are secured on properties solely located in the UK, principally in the South East of England. Credit exposures are well diversified by sector and geography and any concentration risks are closely monitored. Regular reviews are performed on loans in the portfolio, with particular attention paid to larger exposures.

Portfolio and Investments

Credit risk of bank and treasury counterparties is controlled through Metro Bank's Treasury Instruments and Dealing Policy, which limits the maximum exposure by entity where Metro Bank can deposit or invest. Metro Bank also performs stress testing to ensure that its treasury credit risk exposures are sufficiently robust. Credit limits are approved and monitored by Metro Bank's ALCO.

Non-performing Loans and Provisioning

Metro Bank maintains a provisioning policy which applies to all lending activities within Metro Bank. A small amount of provision is raised against performing balances (good book) once they are on the balance sheet and collective provision is raised against any non-performing loans that fall into arrears. A loan is classified by Metro Bank as non-performing once it is either 90 or 180 days in arrears, depending on the type of loan. Once an account defaults it is then fully impaired against the total balance in default. Specific provisioning is only raised against large size lending on a case by case basis.

Defaulted agreements are considered to be loans over 90 days in arrears for commercial lending and 180 days for retail unsecured products, where there is an event of agreement default or where the debtor is insolvent.

When specific provisions are made for defaulted agreements a loan-by-loan analysis is undertaken to understand the probability of recovery, whether the agreement can be restored to order or, if not, what the recovery is likely to be.

The majority of loans have good security, such as property, and this will lead in most cases to a full or high level of recovery. Any potential shortfall is calculated and this value forms the basis of the specific provision, taking into account the costs of recovery.

There is regular monitoring of the performance of loan assets, especially where there is any sign of potential or actual impairment. Late payments and arrears cases are reported in detail and reviewed regularly, and detailed credit reports are submitted for review to the monthly Management Credit Committee and to the ROC quarterly.

Liquidity Risk

Liquidity risk is the risk that Metro Bank is not able to meet its financial obligations as they fall due.

To protect Metro Bank and its depositors against liquidity risk, Metro Bank maintains a liquidity buffer. The liquidity buffer is monitored daily to ensure there are sufficient liquid assets at all times to cover cash flow imbalances and fluctuations in funding and to enable Metro Bank to meet all financial obligations and to support anticipated asset growth.

Through the ILAA process, Metro Bank has assessed the level of liquidity necessary to prudently cover systemic and idiosyncratic risks; and the ILAA process determines the appropriate liquidity buffer, taking into account the specific nature of the deposit base.

The ILAA requires Metro Bank to consider all material liquidity risks in detail, and the ILAA has documented Metro Bank's analysis of each key liquidity risk driver. Liquidity risks are specifically considered by the ALCO each month.

Based on the business model of funding via retail deposits, the liquidity risk appetite as set by Metro Bank is considered appropriate, and provides assurance to the Board that the relevant liquidity risk drivers have been considered and appropriately stressed and that Metro Bank is able to remain liquid beyond the targeted survival period.

Retail funding risk

Retail funding risk is the primary liquidity risk driver for Metro Bank, and this would occur if there was a concern by depositors over the current or future creditworthiness of Metro Bank. Although Metro Bank seeks to operate in such a way as to protect depositors, an extremely high proportion of deposits are protected by the UK FSCS, which protects customer deposits up to £75,000.

Wholesale Funding

Metro Bank does not fund its operations through wholesale markets, except for drawdowns under the FLS. However, Metro Bank has back-up access to secured funding ('Repo') lines. Metro Bank also has relationship banking facilities in place which are used to hedge against currency and interest rate exposures.

Payments Systems

Metro Bank is not a direct member of the UK payments system. However, in the event there are problems with one of the payment systems, Metro Bank has access to payment facilities with which to make payments to cover liabilities when due.

Pipeline Loan Commitments

Metro Bank needs to maintain liquidity to cover its outstanding pipeline of loan offers. Although certain pipeline offers may not be legally binding, the failure to adhere to an expression of intent to finance a loan contract brings reputational risk. Therefore, liquidity is held for offered contracts.

Cash Collateral Requirements

The swap Credit Support Annex requires Metro Bank or its swap counterparty to hold cash in a deposit account, depending on whether the swap is in or out of the money. As Metro Bank has no credit rating, its swap agreements are not credit rating sensitive, which removes the impact from a downgrade risk.

Contingency Funding Plan

As a regulated firm, Metro Bank is required to maintain a Contingency Funding Plan ("CFP"). The plan involves a two stage process, covering preventative measures and curative measures to be invoked when there is a potential or actual risk to Metro Bank's liquidity position. The CFP provides a plan for managing a liquidity situation or crisis within Metro Bank, caused by internal events, external events or a combination thereof. The plan outlines what actions Metro Bank will take to ensure it complies with the liquidity adequacy rule and operates within its risk appetite and limits, as set and approved by the Board.

Market Risk

Metro Bank does not carry out proprietary trading or hold any positions that are required to be regularly marked to market. Investments in assets are not actively traded. Exposure to foreign exchange risk are managed to within a low tolerance to facilitate customer transactions.

Metro Bank does, however, hold a portfolio of investment securities. Some of these securities are exposed to market price movements should any of the securities be sold. Monthly prices are obtained to ensure Metro Bank is aware of any material diminution in value.

Interest Rate Risk

Interest rate risk is the risk of loss through un-hedged or mismatched asset and liability positions sensitive to changes in interest rates. When possible, Metro Bank seeks to match the interest rate structure of assets with liabilities, or deposits, creating a natural hedge. When this is not possible, Metro Bank will enter into swap agreements to convert fixed interest rate liabilities into variable rate liabilities, which are then matched with variable interest rate assets. Interest rate risk is reviewed by ALCO on a monthly basis.

Interest rate risk in the banking book consists of asset-liability interest rate gap risk and basis risk.

Regulatory Risk

Metro Bank aims to comply with all relevant rules, regulations and sourcebooks. Metro Bank has policies and procedures in place to ensure compliance with its regulatory obligations, and robust oversight and monitoring to evidence compliance. Metro Bank regularly engages with the PRA, FCA and other regulators and industry bodies to manage this risk proactively.

In assessing this risk, management considers the control mitigants in place. Key mitigants are a strong, appropriately-resourced risk function, the simplicity of Metro Bank's product range and a culture of delivering unparalleled levels of service and convenience, to ensure the consistent delivery of fair customer outcomes.

Additional controls over regulatory risk include:

• regular reporting of regulatory compliance oversight by the Executive Risk Committee and ROC;
• compliance monitoring and outcomes testing programme in place and regularly reviewed;
• control around customer data and IT systems both internally and with outsourcing partners;
• mandatory monthly regulatory training for all colleagues;
• a culture built on transparency and service, focused on delivering consistently fair customer outcomes;
• reward and recognition for all colleagues focused on providing exceptional customer service and recognising risk, compliance and audit requirements;
• training and competency schemes for all customer-facing roles; and
• products and services that pose a low regulatory risk.

Conduct Risk

Metro Bank aims to provide customers with simple, fairly-priced products delivered through unparalleled levels of services and convenience.

In assessing its conduct risk, Metro Bank considers the control mitigants in place. In addition, the simplicity of Metro Bank's product range and culture of delivering high levels of service and convenience to its customers helps ensure the consistent delivery of fair customer outcomes.

Key controls over conduct risk include:

• a culture built on transparency and service;
• products and services offered being simple and transparent;
• no sales incentive schemes in place;
• training and competency schemes for all customer-facing roles;
• conduct risk training included in the mandatory training for all colleagues;
• close management of third-party relationships;
• a compliance monitoring programme in place and regularly reviewed;
• regular consideration of conduct risks at the business risk committees; and
• close and regular oversight of conduct risk by the Chief Executive Officer, Chief Risk Officer, Executive Risk Committee, Risk Oversight Committee and Board.

Financial Crime Risk

Metro Bank sets out its risk appetite and approach within its policies and procedures to ensure compliance with its regulatory obligations. Monitoring and oversight is in place to help ensure that systems and controls remain robust and effective. Metro Bank regularly engages with the FCA, other regulators and industry bodies proactively to manage its financial crime risks.

Key controls over financial crime risk include:

• financial crime training included in the mandatory training for all colleagues, and enhanced in customer-facing roles;
• financial crime oversight and assurance of the financial crime risk management framework in the business;
• the development of key risk indicators for management reporting, including the monitoring of risk appetite;
• regular consideration of financial crime risks through a dedicated committee, with monthly submissions to the Board;
• financial crime risk assessment, including impact assessment of each of the key financial crime risks to which Metro Bank is exposed; and
• risk and control assessment, evaluating the effectiveness of the control framework covering financial crime risks to which the business area is exposed.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, IT and other systems or from external events.

Metro Bank aims to accept a low level of operational risk, and seeks to minimise operational failures. Key risk indicators are used to provide an overview of the control environment and to assess performance against Metro Bank's operational risk appetite. As part of its ICAAP, Metro Bank's key operational risks are assessed and quantified.

Each business area within Metro Bank is required to conduct regular risk and control assessments which identify and analyse the core risks facing their business. These are maintained in conjunction with Metro Bank's Operational Risk Team, which oversees the process.

Business continuity plans are also in place for all operational locations. These plans are updated and tested to ensure that they are robust and fit for purpose. Metro Bank uses external disaster recovery sites as back up locations for both IT servers and colleagues.

Strategic Risk

Strategic Risk is the risk that Metro Bank fails to achieve short and long-term business objectives by failing to develop the products, capabilities and competitive positioning necessary to attract consumers, compete with competitors, withstand market volatility and sustain its AMAZE(ING) customer-focused culture. The result is a failure to deliver returns expected by stakeholders (customers, colleagues, shareholders, investors, communities, and regulators).

The Board uses a series of quantitative and qualitative measures regularly to monitor business performance against short and medium-term business plans.

PART XIV CAPITALISATION AND INDEBTEDNESS STATEMENT

The following table sets out the Group's capitalisation as of 31 December 2015.

	As of 31
	December 2015
	(£ millions)
Share capital	—
Share premium	629.3
Other reserves	(8.7)
Total capitalisation	620.6

As at 31 December 2015, the bank had issued 59.2 million A Ordinary Shares of 0.0001 pence. As at 31 December 2015, the bank had issued 1 million B Ordinary Shares of 0.0001 pence to employees and nonexecutive directors.

The capitalisation information has been extracted without adjustment from the Group's financial information included in Part XV: "Historical Financial Information" as of 31 December 2015. There has been no material change in the Group's capitalisation since 31 December 2015.

The following table sets out the Group's net indebtedness as of 31 December 2015.

	As of 31
	December 2015
	(£ millions)
Indebtedness
Repurchase agreements	561.8
Total indebtedness	561.8
Note – Customer deposits are not classified as indebtedness as the taking of deposits is part of the core business of the Group.
	As of 31
	December 2015
	(£ millions)
Indirect and contingent indebtedness
Securities pledged in the FLS (encumbered collateral)	540.0
Other encumbered collateral	483.0
Other contingent liabilities	—
Total indirect and contingent indebtedness	1,023.0

PART XV HISTORICAL FINANCIAL INFORMATION

Accountant's report on the historical financial information of Metro Bank

The Directors Metro Bank PLC One Southampton Row London WC1B 5HA United Kingdom

RBC Europe Limited Thames Court One Queenhithe London EC4V 3DQ

7 March 2016

Dear Sirs

Metro Bank PLC

We report on the financial information set out in section 2 of Part XV "Historical Financial Information" below (the "Financial Information Table"). The Financial Information Table has been prepared for inclusion in the prospectus dated 7 March 2016 (the "Prospectus") of Metro Bank PLC (the "Company") on the basis of the accounting policies set out in note to the Financial Information Table. This report is required by item 20.1 of Annex I to the PD Regulation and is given for the purpose of complying with that Schedule and for no other purpose.

Responsibilities

The Directors of the Company are responsible for preparing the Financial Information Table in accordance with International Financial Reporting Standards as adopted by the European Union.

It is our responsibility to form an opinion as to whether the Financial Information Table gives a true and fair view, for the purposes of the Prospectus and to report our opinion to you.

Save for any responsibility which we may have to those persons to whom this report is expressly addressed and for any responsibility arising under item 5.5.3R(2)(f) of the Prospectus Rules to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation, consenting to its inclusion in the Prospectus .

Basis of opinion

We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgments made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed.

We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error.

Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

Opinion

In our opinion, the Financial Information Table gives, for the purposes of the Prospectus dated 7 March 2016, a true and fair view of the state of affairs of the Company as at the dates stated and of its losses, cash flows and changes in equity for the periods then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Declaration

For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of Annex I to the PD Regulation.

Yours faithfully

PricewaterhouseCoopers LLP

Chartered Accountants

Metro Bank Historical Financial Information

Consolidated Statement of Comprehensive Income

		Year ended 31 December
	Notes	2015	2014	2013
			(£'000)
Interest income	5	125,199	74,049	29,461
Interest expense	6	(36,326)	(20,621)	(11,515)
Net interest income		88,873	53,428	17,946
Fee and commission income	7	15,713	12,055	3,777
Net gains on sale of investment securities	8	6,377	5,122	6,508
Other income	9	9,237	4,842	3,303
		120,200	75,447	31,534
Operating expenses	10	(141,563)	(107,940)	(75,652)
Depreciation and amortisation	18,19	(18,195)	(14,221)	(10,292)
Fees associated with listing		(1,465)	—	—
Impairment of property, plant & equipment and intangible assets		(8,744)	—	—
Total operating expenses		(169,967)	(122,161)	(85,944)
Credit impairment charges	16	(7,030)	(2,157)	(1,026)
Loss before tax		(56,797)	(48,871)	(55,436)
Taxation	15	7,600	7,759	9,000
Loss for the year		(49,197)	(41,112)	(46,436)
Other comprehensive (expense)/ income for the year
Items which will be reclassified subsequently to profit or loss where specific conditions are met:
Available for sale investments (net of tax):
- fair value (losses)/ gains		(1,327)	8,328	(9,583)
- fair value gains transferred to the income statement on disposal		(6,377)	(5,122)	(6,508)
Total other comprehensive (expense)/ income		(7,704)	3,206	(16,091)
Total comprehensive loss for the year		(56,901)	(37,906)	(62,527)
Loss per share
Basic loss per share (pence)	36	83	70	158
Diluted loss per share (pence)	36	83	70	158

Consolidated balance sheet

		Year ended 31 December
	Notes	2015	2014	2013
			(£'000)
Assets
Cash and balances with the Bank of
England		217,900	180,630	238,979
Loans and advances to banks	30,31	64,248	35,040	24,205
Loans and advances to customers	16,30,31	3,542,548	1,590,346	751,058
Available for-sale investment securities	17	363,807	1,304,410	696,434
Held to-maturity investment securities	17	1,635,985	307,041	—
Property, plant and equipment	18	165,257	132,195	103,286
Intangible assets	19	54,243	34,669	23,830
Prepayments and accrued income	21	30,456	18,883	8,553
Deferred tax asset	15	53,053	43,645	35,885
Other assets	22	20,525	13,661	7,263
Total assets		6,148,022	3,660,520	1,889,493
Liabilities
Deposits from customers	31,32	5,107,656	2,866,631	1,315,389
Repurchase agreements		561,778	282,544	143,816
Other liabilities	23	71,413	48,944	29,720
Total liabilities		5,740,847	3,198,119	1,488,925
Equity
Called up share capital	24	—	—	—
Share premium account	24	629,304	629,304	530,463
Retained earnings	26	(213,440)	(164,243)	(123,131)
Other reserves		(8,689)	(2,660)	(6,764)
Total equity		407,175	462,401	400,568
Total equity and liabilities		6,148,022	3,660,520	1,889,493

Consolidated statement of cash flows

		Year ended 31 December
	Notes	2015	2014	2013
			(£'000)
Reconciliation of loss before tax to net cash flows from operating activities:
Loss before tax		(56,797)	(48,871)	(55,436)
Adjustments for:
Impairment of property, plant and equipment and intangible assets		8,744	—	—
Depreciation and amortisation of intangible and tangible assets	18,19	18,195	14,221	10,292
Share option reserve	11	1,675	898	392
Gain on sale of securities and fair value gains on derivatives	8	(6,374)	(5,138)	(6,508)
Accrued interest on and amortisation of investment securities		8,510	(4,090)	(4,449)
Changes in operating assets		(1,970,639)	(856,019)	(590,691)
Changes in operating liabilities		2,542,722	1,709,210	894,902
Net cash inflows from operating activities		546,036	810,211	248,502
Cash flows from investing activities
Sales of investment securities		910,546	473,814	368,130
Purchase of investment securities		(1,310,529)	(1,376,411)	(638,480)
Purchase of property, plant and equipment	18	(49,668)	(41,035)	(59,161)
Purchase of intangible assets	19	(29,907)	(12,934)	(14,223)
Net cash outflows from investing		(479,558)	(956,566)	(343,734)
activities Cash flows from financing activities
Share issues		—	100,000	286,748
Cost of share issues	24	—	(1,159)	(2,440)
Net cash inflows from financing
activities		—	98,841	284,308
Net (decrease)/increase in cash and cash equivalents		66,478	(47,514)	189,076
Cash and cash equivalents at start of year		215,670	263,184	74,108
Cash and cash equivalents at end of
year		282,148	215,670	263,184
Loss before tax includes:
Interest received		121,316	67,538	27,747
Interest paid		(31,058)	(18,213)	(11,515)

	Notes	2015	2014	2013
			(£'000)
Cash and cash equivalent comprise of:
Cash and balances with the Bank of
England		217,900	180,630	238,979
Loans and advances to banks	16	64,248	35,040	24,205
		282,148	215,670	263,184

Year ended 31 December

Consolidated statement of changes in equity

	Share capital	Share premium	Retained earnings	Available for sale reserve	IFRS 2 share option reserve	Total equity
			(£'000)
Balance at 1 January 2013	—	246,155	(76,695)	8,571	364	178,395
Net loss for the year	—	—	(46,436)	—	—	(46,436)
Other comprehensive loss, net of tax, relating to available for-sale
investments	—	—	—	(16,091)	—	(16,091)
Total comprehensive loss	—	—	(46,436)	(16,091)	—	(62,527)
Share issue	—	284,308	—	—	—	284,308
Share options at fair value	—	—	—	—	392	392
Balance as at 31 December 2013	—	530,463	(123,131)	(7,520)	756	400,568
Balance at 1 January 2014	—	530,463	(123,131)	(7,520)	756	400,568
Net loss for the year	—	—	(41,112)	—	—	(41,112)
Other comprehensive income, net of tax, relating to available for-sale
investments	—	—	—	3,206	—	3,206
Total comprehensive (loss)/income	—	—	(41,112)	3,206		(37,906)
Share issue	—	98,841	—	—	—	98,841
Share options at fair value	—	—	—	—	898	898
Balance as at 31 December 2014	—	629,304	(164,243)	(4,314)	1,654	462,401
Balance at 1 January 2015	—	629,304	(164,243)	(4,314)	1,654	462,401
Net loss for the year	—	—	(49,197)	—	—	(49,197)
Other comprehensive loss, net of tax, relating to available for-sale investments	—	—	—	(7,704)	—	(7,704)
Total comprehensive (loss)/income	—	—	(49,197)	(7,704)	—	(56,901)
Share issue	—	—	—	—	—	—
Share options at fair value	—	—	—	—	1,675	1,675
Balance as at 31 December 2015	—	629,304	(213,440)	(12,018)	3,329	407,175
Notes	24	24	26

The available for-sale reserve represents the unrealised change in the fair value of available for-sale investments since initial recognition.

Notes to the historical financial information

1 General information

Metro Bank and its subsidiary undertakings provides retail and corporate banking services in the UK and is a public limited liability company incorporated and domiciled in England and Wales. The address of its registered office is: One Southampton Row, London WC1B 5HA.

The Historical Financial Information is presented in pounds sterling, which is the currency of the primary economic environment in which Metro Bank operates.

2 Basis of preparation

Accounting basis

Metro Bank's Historical Financial Information comprises the financial information of Metro Bank for the three years ended 31 December 2015. The Historical Financial Information has been prepared in accordance with the disclosure requirements of the Prospectus Directive Regulation and the Listing Rules and in accordance with the International Financial Reporting Standards ("IFRS") as adopted by the European Union.

The Historical Financial Information has been prepared on a historical cost basis, except for financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below.

Basis of consolidation

The Historical Financial Information incorporates the financial statements of the Company and entities controlled by the Company (its subsidiaries) for the three years ended 31 December 2015. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases.

Intercompany transactions, balances, unrealised gains and losses on transactions between Metro Bank entities are eliminated upon consolidation.

The consolidated statement of cash flows shows the changes in cash and cash equivalents arising during the year from operating activities, investing activities and financing activities.

The cash flows from operating activities are determined by using the indirect method. Net income is therefore adjusted by non-cash items, such as measurement gains or losses, changes in provisions, impairment of property, plant and equipment and intangible assets, as well as changes from receivables and liabilities. In addition, all income and expenses from cash transactions that are attributable to investing or financing activities are eliminated. Interest received or paid is classified as operating cash flows.

The cash flows from investing and financing activities are determined by using the direct method.

Adoption of new and revised standards

As of the date of authorisation of this Historical Financial Information, the following standards and interpretations, which have not been applied in this Historical Financial Information were in issue but not yet effective and in some cases, not yet adopted by the European Union:

• IFRS 9 Financial Instruments
• IFRS 14 Regulatory Deferral Accounts
• IFRS 15 Revenue from Contracts with Customers
• IFRS 11 (amendments) Accounting for Acquisitions of Interests in Joint Operations
• IAS 16 and IAS 38 (amendments) Clarification of Acceptable Methods of Depreciation and Amortisation

• IAS 27 (amendments) Equity Method in Separate Financial Statements

• IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

• Annual Improvements to IFRSs 2012-2014 Cycle: Amendments to: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting
• IAS 1 (amendments) Disclosure Initiative
• IFRS 10, IFRS 12 and IAS 28 (amendments) Investment Entities: Applying the Consolidation Exception
• IFRS 16 Leases

The directors do not expect that the adoption of the standards listed above will have a material impact on the financial information of Metro Bank in future periods, except for IFRS 9, which will impact both the measurement and disclosures of financial instruments, and IFRS 16, which will impact the lease accounting for the stores.

IFRS 9, 'Financial instruments', brings together the classification and measurement, impairment and hedge accounting phases of the IASB's project to replace IAS 39. The key elements of the standard are as follows:

Classification and measurement - IFRS 9 applies one classification approach for all types of financial assets. Two criteria are used to determine how financial assets should be classified and measured: (a) the entity's business model (i.e., how an entity manages its financial assets in order to generate cash flows by collecting contractual cash flows, selling financial assets or both); and (b) the contractual cash flow characteristics of the financial asset (i.e., whether the contractual cash flows are solely payments of principal and interest).

Impairment - the incurred loss model under IAS 39 is replaced with a new expected loss model. Impairment provisions are driven by changes in credit risk of instruments, with a provision for lifetime expected credit losses recognised where the risk of default of an instrument has increased significantly since initial recognition. Risk of default and expected credit losses must incorporate forward looking and macroeconomic information. Expected credit loss models will require more data and assumptions with impairment provisions potentially becoming more volatile.

Hedge accounting - the new requirements align hedge accounting more closely with risk management. The revised standard also establishes a more principles-based approach to hedge accounting.

Metro Bank is currently assessing the impact of IFRS 9.

IFRS 16 "Leases" provides guidance on the classification, recognition and measurement of leases to help provide useful information to the users of financial statements. The main aim of this standard is to ensure all leases will be reflected on the balance sheet, irrespective of substance over form. The new standard will replace IAS 17 "Leases" and is effective for annual periods beginning on or after 1 January 2019 unless adopted early. Metro Bank is currently reviewing the impact of IFRS 16.

IFRS 14 Regulatory Deferral Accounts is not applicable to Metro Bank as Metro Bank is not a first-time adopter of IFRS.

Going concern

The Historical Financial Information is prepared on a going concern basis, as the Directors are satisfied that Metro Bank has the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including the current state of the balance sheet, future projections of profitability, cash flows and capital resources and the longer term strategy of the business. Metro Bank's capital and liquidity plans, including stress tests, have been reviewed by the Directors. Metro Bank's forecasts and projections show that it will be able to operate at adequate levels of both liquidity and capital for the foreseeable future, including a range of stressed scenarios, taking into account the capital that has been provided by the Private Placement, the availability of alternative sources of capital if required and appropriate management actions. After making due enquiries, the Directors believe that Metro Bank has sufficient resources to continue its activities for the foreseeable future and to continue its expansion, and Metro Bank has sufficient capital to enable it to continue to meet its regulatory capital requirements as set out by the Prudential Regulation Authority.

3 Significant accounting policies

3.1 Foreign currency translation

(a) Functional and presentation currency

Items included in the Historical Financial Information are measured using the currency of the UK, which is the primary economic environment in which the entity operates ('the functional currency').

The Historical Financial Information is presented in pounds sterling, which is Metro Bank's presentation currency.

(b) Transactions and balances

Foreign currency transactions that are denominated, or that require settlement, in a foreign currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.

Monetary items denominated in foreign currency are translated using the closing rate as at the reporting date. Non-monetary items measured at historical cost denominated in a foreign currency are translated with the exchange rate as at the date of initial recognition; non-monetary items in a foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined.

Foreign currency differences arising on translation are recognised in profit or loss.

3.2 Business combinations

Metro Bank applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by Metro Bank. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

Acquisition-related costs are expensed as incurred.

Any contingent consideration to be transferred by Metro Bank is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.

Intercompany transactions, balances and unrealised gains on transactions between Metro Bank companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with Metro Bank's accounting policies.

3.3 Sale and repurchase agreements

Securities sold subject to repurchase agreements ('repos') are reclassified in the Historical Financial Information as pledged assets when the transferee has the right, by contract or custom, to sell or repledge the collateral; the counterparty liability is included in deposits from banks. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the Historical Financial Information.

3.4

3.4.1 Financial assets

Metro Bank allocates financial assets to the following IAS 39 categories: loans and receivables; held to-maturity financial assets and available-for-sale financial assets. Management determines the classification of its financial instruments at initial recognition.

(a) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that Metro Bank does not intend to sell immediately or in the near term.

Loans and receivables are initially recognised at fair value - which is the cash consideration to originate the loan including any transaction costs - and measured subsequently at amortised cost using the effective interest rate method. Loans and receivables are reported in the statement of financial position as loans and advances to banks or customers. Interest on loans is included in the income statement and is reported as 'Interest income'. In the case of impairment, the impairment loss is reported as a deduction from the carrying value of the loan and recognised in the income statement as 'Credit impairment charges'.

(b) Held to-maturity financial assets

Certain investment securities are classified as "held to-maturity". Held to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that Metro Bank has the positive intent and ability to hold to maturity and which are not designated as at fair value through profit or loss or as available-for-sale.

Held to-maturity investments are carried at amortised cost using the effective interest method, less any impairment losses. A sale or reclassification of more than an insignificant amount of held to maturity investments would result in the reclassification of all held to-maturity investments as available for-sale and would prevent Metro Bank from classifying investment securities as held to-maturity for the current and the two following financial years.

(c) Available-for-sale financial assets

Available-for-sale investments are financial assets that are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices or that are not classified as loans and receivables, held to-maturity investments or financial assets at fair value through profit or loss.

Available-for-sale financial assets are initially recognised at fair value, which is the cash consideration including any transaction costs, and measured subsequently at fair value with gains and losses being recognised in other comprehensive income, except for impairment losses and foreign exchange gains and losses, until the financial asset is derecognised. If an available-for-sale financial asset is determined to be impaired, the cumulative gain or loss previously recognised in the statement of comprehensive income is recognised in the income statement. Interest is calculated using the effective interest method, and foreign currency gains and losses on monetary assets classified as available for-sale are recognised in the income statement.

(d) Recognition

Metro Bank uses settlement date accounting when recording financial asset transactions where a trade is settled through the regular settlement cycle for that particular investment. Financial assets that are transferred to a third party but do not qualify for derecognition are presented in the statement of financial position as 'Assets pledged as collateral', if the transferee has the right to sell or repledge them.

3.4.2 Financial liabilities

Metro Bank's holding in financial liabilities are held at amortised cost. Financial liabilities measured at amortised cost are deposits from banks or customers and repurchase agreements. Financial liabilities are derecognised when extinguished.

3.4.3 Amortised cost measurement and determination of fair value

The "amortised cost" of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

"Fair value" is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which Metro Bank has access at that date. The fair value of a liability reflects its non-performance risk.

For financial instruments traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations. This includes quoted debt instruments on major exchanges and broker quotes.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, or pricing service and those prices represent actual and regularly occurring market transactions on an arm's length basis. If the above criteria are not met, the market is regarded as being inactive. Indications that a market is inactive are when there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few recent transactions.

If there is no quoted price in an active market, Metro Bank uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

3.4.4 Derecognition

Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, Metro Bank tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent derecognition). Financial liabilities are derecognised when they have been redeemed or otherwise extinguished.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of (i) the consideration received (including any new assets obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss. Any interest in transferred financial assets that qualify for derecognition that is created or retained by Metro Bank is recognised as a separate asset or liability.

Collateral furnished by Metro Bank under standard repurchase agreements and securities lending and borrowing transactions is not derecognised because Metro Bank retains substantially all the risks and rewards on the basis of the predetermined repurchase price, and the criteria for derecognition are therefore not met.

3.5 Reclassification of financial assets

Metro Bank may choose to reclassify financial assets that are classified in the available-for-sale category to the held to-maturity category if Metro Bank has the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification.

Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or amortised cost as applicable. Effective interest rates for financial assets reclassified to loans and receivables and held-to-maturity categories are determined at the reclassification date. Further increases in estimates of cash flows adjust effective interest rates prospectively.

3.6 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

3.7 Interest income and expense

Interest income and expense for all interest-bearing financial instruments are recognised within 'interest income' and 'interest expense' in the income statement using the effective interest rate method.

The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, Metro Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the original effective interest rate on the net balance.

3.8 Fee and commission income

Fees and commissions are earned from a wide range of services provided by Metro Bank to its customers. Fee income is accounted for as follows:

• (a) income earned on the execution of a significant act is recognised as revenue when the act is completed;
• (b) income earned from the provision of services, for example income relating to the provision of safety deposit boxes, account servicing fees and transaction fees, are recognised as revenue when the services are provided; and
• (c) income which forms an integral part of the effective interest rate of a financial instrument is recognised as an adjustment to the effective interest rate and recorded in interest income.

3.9 Impairment of financial assets

(a) Assets carried at amortised cost

Metro Bank assesses at each reporting date whether there is objective evidence that a financial asset is impaired. The impairment relating to loans and advances is calculated and assigned in accordance with the accounting standards for individual and collective impairment.

• Impairment of individual loans is designed to recognise specific risks identified by Metro Bank following the occurrence of a loss event; for example, a commercial customer whose business has gone into administration. If loans are considered to be at risk, an individual assessment will be performed.
• For loans that are not considered to be individually impaired (whether individually significant or not), a collective impairment assessment is performed. Collective provisions are intended to reflect the estimated amount of losses incurred on a collective basis, but which have yet to be individually identified. The lending exposure subject to collective impairment is assessed for each group of loans with similar credit risk characteristics.

Collective impairment models are based on analysis of historical arrears data and estimated loss rates, in order to derive the expected loss net of the recoverable value. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of the product risk profile: residential mortgage lending, commercial lending and consumer lending. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement.

When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. The maximum time a loan can remain in past due without being written off is 24 months. Impairment charges relating to loans and advances to banks and customers are classified in loan impairment charges whilst impairment charges relating to investment securities (held to-maturity) are classified in 'Net gains/losses on investment securities'.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement.

(b) Assets classified as available for-sale

Metro Bank assesses at each date of the statement of financial position whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment losses on available for-sale assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss.

3.10 Share-based payments

The grant date fair value of options granted to colleagues is recognised as an employee expense over the period in which the colleagues become unconditionally entitled to the options. The fair value of the services received is measured by reference to the fair value of the shares or share options granted on the date of the grant. The cost of the colleague services received in respect of the shares or share options granted is recognised in the consolidated income statement over the period that the services are received, which is the vesting period.

The fair value of the options granted is determined using an option pricing model, which takes into account the exercise price of the option, the current share price, the risk free interest rate, the expected volatility of the share price over the life of the option and other relevant factors.

Cash and cash equivalents

Cash and cash equivalents comprise balances with less than three months' maturity from the date of acquisition, including cash in hand, deposits held at call with bank.

3.11 Leases

Leases are accounted for in accordance with IAS 17 and IFRIC 4.

Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

The leases entered into by Metro Bank are operating leases. The total payments made under operating leases are charged to other operating expenses in the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

3.12 Property, plant and equipment

Property, plant and equipment comprises tangible assets which are held for use in the production or supply of goods or services and are expected to be used for more than one year.

Property and equipment is stated at cost less accumulated depreciation and provisions for impairment, if any. Additions and subsequent expenditures are capitalised only to the extent that they enhance the future economic benefits expected to be derived from the assets.

Depreciation is provided on the depreciable amount of items of property and equipment on a straightline basis over their estimated useful economic lives. The depreciable amount is the gross carrying amount, less the estimated residual value at the end of its useful economic life.

Metro Bank uses the following annual rates in calculating depreciation:

Leasehold property lower of the remaining life of the
	lease or the useful life of the asset
Land 0%
Fixtures and fittings and equipment 20%
Computer20% - 33%

Depreciation rates, methods and the residual values underlying the calculation of depreciation of items of property, plant and equipment are kept under review to take account of any change in circumstances.

When deciding on depreciation rates and methods, the principal factors Metro Bank takes into account are the expected rate of technological developments and expected market requirements for, and the expected pattern of usage of, the assets. When reviewing residual values, Metro Bank estimates the amount that it would currently obtain for the disposal of the asset after deducting the estimated cost of disposal if the asset were already of the age and condition expected at the end of its useful economic life.

Property, plant and equipment are assessed on an annual basis for impairment indicators. If impairment indicators are identified, these assets are subject to an impairment review, whereby the carrying value of the assets is compared with their recoverable amounts, which are defined as the higher of the fair value less costs to sell and their value in use. Where impairments are indicated, the carrying values of assets are written down by the amount of the impairment and the charge is recognised in profit or loss in the period in which it occurs. A previously recognised impairment charge on a fixed asset may be reversed in full or in part where a change in circumstances leads to a change in the estimates used to determine its recoverable amount. The carrying value of the asset will only be increased to the carrying value at which it would have been held had the impairment not been recognised.

When performing an impairment test, consideration is given to the recoverable amount of individual assets, unless the asset does not generate cash inflows that are largely independent of other assets or groups of assets. Where it does not generate such independent cash inflows, the recoverable amount should be determined for the cash generating unit (CGU) to which the asset belongs. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash flows of other assets or groups of assets.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement.

3.13 Intangible assets

Intangible assets are identifiable assets controlled by Metro Bank from which Metro Bank expects to derive future economic benefits and which have no physical substance.

Computer software: Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by Metro Bank are recognised as intangible assets when the following criteria are met:

• it is technically feasible to complete the software product so that it will be available for use;
• management intends to complete the software product and use or sell it;
• there is an ability to use or sell the software product;
• it can be demonstrated how the software product will generate future economic benefits;
• adequate technical, financial and other resources to complete the development and to use of sell the software product are available; and
• the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software product include the software development colleague costs.

Other development costs that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Costs associated with maintaining computer software programmes are recognised as an expense as incurred.

Intangible assets acquired as part of a business combination: Identifiable intangible assets acquired as part of a business combination are recognised as long as their fair value can be reliably measured.

Intangible assets are stated at cost less amortisation and provisions for impairment, if any, and are amortised over their useful lives in a manner that reflects the pattern to which they contribute to future cash flows, generally over 5-20 years. The useful life is reviewed annually to determine whether events and circumstances continue to support the useful life assessment.

At each date of the statement of financial position, intangible assets are reviewed for indications of impairment or changes in estimated future economic benefits. If such indications exist, the intangible assets are analysed to assess whether their carrying amount is fully recoverable. An impairment loss is recognised if the carrying amount exceeds the recoverable amount.

Metro Bank uses the following annual rates in calculating amortisation:

Core banking software used for recording banking transactions 5%
Other significant banking software 10%
Other banking software 20%
Software licences Licence period
Customer Contracts 10%

3.14 Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over Metro Bank's interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the Cash Generating Units (CGU), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. The CGU is defined in note 19.

Impairment testing is performed at least annually, and whenever there is an indication that the CGU may be impaired, by comparing the recoverable amount of a CGU with its carrying amount. The recoverable amount of a CGU is the higher of its fair value less cost to sell, and the present value of its expected future cash flows. If the recoverable amount is less than the carrying value, an impairment loss is charged to the income statement. Goodwill is stated at cost less accumulated impairment losses. Any impairment is recognised immediately as an expense and is not subsequently reversed.

3.15 Income tax

(a) Current income tax

Current income tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date.

Where Metro Bank has tax losses that can be relieved only by carry-forward against taxable profits of future periods, a deductible temporary difference arises. Those losses carried forward are set off against deferred tax liabilities carried in the statement of financial position.

(b) Deferred income tax

Deferred income tax is recognised in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Historical Financial Information. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the date of the statement of financial position and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

The principal differences arise from trading losses, depreciation of property, plant and equipment and relief on Research & Development expenditure.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which they can be used and deferred tax liabilities are provided on taxable temporary differences. Deferred tax assets and liabilities are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised or the deferred tax liability settled.

3.16 Colleague benefits

Metro Bank operates a defined contribution pension scheme. Metro Bank pays contributions to colleagues' individual personal pension plans on a contractual basis. Metro Bank has no further payment obligations once the contributions have been paid. The contributions are recognised as an expense when they are due.

3.17 Share capital

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

3.18 Critical accounting estimates and judgements

The preparation of Historical Financial Information in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management's best assessment of the outcome, actual results may ultimately differ from those estimates. Management believes that the underlying assumptions are appropriate and that Metro Bank's Historical Financial Information therefore present the financial position and results fairly.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Historical Financial Information are disclosed below.

(a) Deferred tax

The largest element of the deferred tax asset represents the future tax impact of carried forward tax losses which will reduce the payment of future tax. This element of the deferred tax asset requires management judgement in assessing its recoverability. At 31 December 2015, Metro Bank recognised a deferred tax asset of £53.1 million (31 December 2014: £43.6 million; 31 December 2013: £35.9 million) in respect of tax losses carried forward. The increase reflects the taxable losses generated by the continued significant investment by Metro Bank in building stores, infrastructure and systems to enable future growth and scale to be achieved.

Accounting standards permit the recognition of a deferred tax asset to the extent that it is probable, more likely than not, that future taxable profits will be available to utilise the tax losses carried forward. This assessment of future taxable profits has been performed over management's current planning horizon and involves significant estimation uncertainty, principally relating to projections of future taxable income based on business plans. These income projections include assumptions about the future strategy of Metro Bank and its ability to deliver expected performance against projections for new stores, deposit and loan growth, loan to deposit ratio, interest margins and operating costs.

The directors are satisfied based on the progress of Metro Bank since launch, and the detailed projections which include stress tested scenarios, that sufficient taxable profits will be available to utilise the tax losses carried forward in full.

(b) Impairment losses on loans and advances

Individual impairment losses on secured loans and advances are calculated based on an individual valuation of the underlying asset. Collective impairment losses on loans and advances are calculated using a statistical model. The key assumptions used in the model are the probability of default; the probability of this default resulting in possession and/or write-off; and the subsequent loss incurred. These key assumptions are monitored quarterly to ensure the impairment allowance is entirely reflective of the current portfolio. The accuracy of the impairment calculation would therefore be affected by unanticipated changes to the economic situation and assumptions which differ from actual outcomes. For mortgage loan receivables to the extent that:

• the loss given default differs by +/- 10%, for example if the loss given default is 10% then it is increased to 11%, the impairment allowance would be an estimated £0.4 million higher or lower respectively; and
• the level of house prices differs by +/- 10%, for example a property value of £100,000 is increased to £110,000, the impairment allowance would be an estimated £2.3 million lower or £6.7 million higher respectively.

(c) Impairment of non-financial assets

Non-financial assets (property, plant and equipment and intangible assets) are assessed for indications of impairment at each balance sheet date, or more frequently where required by events or changes in circumstances. Indications of impairment may include:

• indications that the market value of an asset has declined in the period more significantly than might be expected due to the passage of time;
• changes to the technological, market, economic or legal environment which impact the entity or its markets;
• obsolescence or physical damage;
• plans to discontinue or restructure parts of the business, e.g. a store closure; or
• cash flows for constructing or for maintaining or operating an asset being significantly higher than those budgeted.

If indications of impairment are found, these assets are subject to an impairment review. The impairment review compares the carrying value of the assets with their recoverable amounts, which are defined as the higher of the fair value less costs to sell and their value in use. Fair value less costs to sell is the amount at which the asset could be sold in a binding agreement in an arm's length transaction. Value in use is calculated as the discounted cash flows generated as a result of the asset's continued use, including those generated by its ultimate disposal, discounted at a market rate of interest on a pre-tax basis.

Where impairments are indicated, the carrying values of fixed assets are written down by the amount of the impairment and the charge is recognised in profit or loss in the period in which it occurs. A previously recognised impairment charge on a fixed asset may be reversed in full or in part where a change in circumstances leads to a change in the estimates used to determine its recoverable amount. The carrying value of the asset will only be increased to the carrying value at which it would have been held had the impairment not been recognised.

Through their assessment of non-financial assets and review for impairment indicators, management have identified assets with impairment and an impairment charge of £8.7 million (2014: £nil, 2013: £nil) has been recognised.

4 Operating segments

Metro Bank provides retail and corporate banking services. The Board considers the results of Metro Bank as a whole when assessing the performance of Metro Bank and allocating resources. Accordingly, Metro Bank has a single operating segment.

Metro Bank's revenue from external customers comprises interest income from its retail and corporate banking services, which was £125.2 million in 2015, £74.0 million in 2014 and £29.5 million in 2013.

Metro Bank operates solely in the UK and as such no geographical analysis is required.

5 Interest income

	2015	2014	2013
		(£'000)
Investment securities	28,119	21,218	10,150
Loans and advances to customers	97,080	52,831	19,311
Total interest income	125,199	74,049	29,461

6 Interest expense

	2015	2014	2013
		(£'000)
Interest on customer accounts	27,988	15,777	10,153
Interest on repurchase agreements	4,809	2,851	966
Other	3,529	1,993	396
Total interest expense	36,326	20,621	11,515

7 Fee and commission income

	2015	2014	2013
		(£'000)
Service charges and other fee income	9,072	8,024	1,992
Safe deposit box income	5,257	3,167	1,699
ATM and interchange fees	1,384	864	86
Total fee and commission income	15,713	12,055	3,777

8 Net gains on sale of investment securities

	2015	2014	2013
		(£'000)
Net gains on sale of investment securities	6,377	5,122	6,508
	6,377	5,122	6,508

9 Other income

	2015	2014	2013
		(£'000)
Gain on foreign currency transactions	6,846	3,832	1,865
Other	2,391	1,010	1,438
Total other income	9,237	4,842	3,303

10 Operating expenses

	2015	2014	2013
		(£'000)
Staff costs	74,418	55,000	35,874
Occupancy expense	22,577	16,259	11,710
Information technology costs	10,922	11,019	7,800
Marketing costs	3,467	3,468	2,571
Legal, regulatory and professional fees	4,502	3,834	2,023
Other expenses	25,677	18,360	15,674
Total operating expenses	141,563	107,940	75,652

11 Staff costs

	2015	2014	2013
		(£'000)
Wages and salaries	62,375	46,588	30,439
Social security costs	6,611	4,997	3,371
Other pension costs	3,757	2,517	1,672
Equity settled share based payments	1,675	898	392
Total staff costs	74,418	55,000	35,874

The average number of persons employed by Metro Bank in 2015 was 1,821 (2014: 1,323; 2013: 878).

	2015	2014	2013
Customer facing	1,200	917	628
Non-customer facing	621	406	250
Total	1,821	1,323	878

12 Directors' emoluments

The remuneration of the Directors of the company was:

	2015	2014	2013
		(£'000)
Aggregate emoluments	1,554	1,387	1,282
Share based payment cost	617	292	180
Contributions to individual personal pension plans	29	64	60
	2,200	1,743	1,522

During the year, Metro Bank made contributions to individual personal pension plans in respect of 1 director (2014: 2 directors; 2013: 2 directors).

The above amounts for remuneration include the following in respect of the highest paid director.

	2015	2014	2013
		(£'000)
Emoluments	544	415	447
Share based payment cost	286	152	91
Contributions to individual personal pension plan	29	41	39
	859	608	577

13 Pension costs and commitments

Metro Bank operates a defined contribution arrangement for colleagues. Metro Bank made payments amounting to £4.1 million in 2015 (2014: £2.8 million; 2013: £1.6 million) to colleagues' individual personal pension plans during the year.

14 Loss on ordinary activities before taxation

This is arrived at after charging/(crediting):

	2015	2014	2013
		(£'000)
Operating lease rental expense	15,108	11,420	7,986
Exchange differences	(8)	379	22
Fees payable by Metro Bank to PricewaterhouseCoopers LLP
For Metro Bank's statutory audit	720	372	191
For the audit of Metro Bank's subsidiaries	36	60	45
For the reporting accountant services provided in association with the listing	702	—	—
For tax compliance services	56	91	31
For tax advisory services	14	61	30

15 Taxation

	2015	2014	2013
		(£'000)
Current tax:
UK corporation tax	—	—	—
Adjustment in respect of prior years	—	—	—
Total current tax	—	—	—
Deferred tax:
Current year	7,600	7,759	9,000
Adjustment in respect of prior years	—	—	—
Total deferred taxation	7,600	7,759	9,000
Total taxation	7,600	7,759	9,000

Total tax paid in relation to income during 2015 was £nil (2014: £nil; 2013: £nil). The tax credit on Metro Bank's loss before tax differs from the theoretical amount that would arise using the statutory taxable rate applicable to the losses of the consolidated entities as follows:

	2015	2014	2013
		(£'000)
Loss before tax	(56,797)	(48,871)	(55,436)
Loss on ordinary activities multiplied by standard rate in the UK	11,359	9,774	11,087
Tax effects of:
Expenses not deductible for tax purposes – listing fees	(296)	—	—
Expenses not deductible for tax purposes – other	(453)	(2,015)	(2,087)
Re-adjustment of deferred tax - change in the UK tax
rate	(3,010)	—	—
Tax credit	7,600	7,759	9,000

A deferred tax asset must be regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not there will be suitable taxable profits from which the future of the underlying timing differences can be deducted. The entirety of the deferred tax asset recognised by Metro Bank is expected to be recovered after more than 12 months. There is no time limit on the recovery of the deferred tax asset.

Further information on the details of the judgements taken around deferred tax are discussed in Note 3.18.

Analysis of deferred tax assets and liabilities is as follows:

	2015	2014	2013
		(£'000)
Deferred tax assets to be recovered after more than 12 months	57,662	46,787	37,069
Deferred tax liabilities to be recovered after more than 12 months	(4,609)	(3,142)	(1,184)
Deferred tax assets (net)	53,053	43,645	35,885

The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

	Unused tax losses	Share options	Property, plant and equipment	Intangible assets
		(£'000)
2015
Deferred tax assets	56,163	1,499	—	—
Deferred tax liabilities	—	—	(1,861)	(2,748)
At 1 January	46,611	176	(1,001)	(2,141)
Income statement	7,747	1,323	(860)	(607)
Other comprehensive income	1,805	—	—	—
At 31 December	56,163	1,499	(1,861)	(2,748)
2014
Deferred tax assets	46,611	176	—	—
Deferred tax liabilities	—	—	(1,001)	(2,141)
At 1 January	36,834	166	69	(1,184)
Income statement	9,777	10	(1,071)	(957)
At 31 December	46,611	176	(1,001)	(2,141)
2013
Deferred tax assets	36,834	166	69	—
Deferred tax liabilities	—	—	—	(1,184)
At 1 January	25,505	147	1,020	—
Acquisition of subsidiary	333	—	—	(120)
Income statement	10,996	19	(951)	(1,064)
At 31 December	36,834	166	69	(1,184)

16 Loans and advances to customers and banks

Total loans and advances to customers

	2015	2014	2013
		(£'000)
Gross loans and advances to customers	3,549,331	1,595,785	754,340
Less: allowance for impairment	(6,783)	(5,439)	(3,282)
Net loans and advances to customers	3,542,548	1,590,346	751,058
Amounts include:
Repayable on demand or at short notice	38,385	97,264	15,336
Loans and advances to customers by category
	2015	2014	2013
		(£'000)
Individual (retail customers):
Overdraft	49,701	26,812	10,379
Credit cards	5,976	5,859	4,225
Term loans	63,793	23,338	6,863
Mortgages	2,156,419	825,135	370,495
Corporate:
Overdraft	24,566	15,017	6,808
Credit cards	887	671	330
Term loans	1,111,239	619,471	304,956
Asset and invoice financing	122,644	79,482	50,284
Senior secured lending	14,106	—	—
Total loans to customer	3,549,331	1,595,785	754,340

Credit quality of loans and advances to customers and banks

All loans and advances are categorised as either 'neither past due nor impaired', 'past due but not impaired', 'individually impaired' or 'collectively impaired'. For the purposes of the disclosures in the loan asset credit quality section below:

• A loan is considered past due when the borrower has failed to make a payment when due under the terms of the loan contract.

• The impairment allowance includes allowances against financial assets that have been individually impaired and those subject to collective impairment.

• Loans neither past due nor impaired and loans that are past due but not impaired consist predominantly of corporate and retail loans that are performing and whilst not individually impaired, may be subject to a collective impairment allowance.

• Impaired loans that are individually assessed consist predominantly of corporate loans that are past due and for which an individual allowance has been raised.
• Portfolio impaired loans, which are not included in the categories above, consist predominantly of retail loans that are 90 days or more past due and are subject to collective impairment.

2015

	Loans and advances to customers	Loans and advance to banks
	(£'000)
Neither past due nor impaired	3,473,856	64,248
Past due but not impaired	60,033	—
Individually impaired	4,562	—
Portfolio impaired	10,880	—
Total	3,549,331	64,248
Less: allowance for impairment	(6,783)	—
Total	3,542,548	64,248
Individually impaired	(3,282)	—
Portfolio impaired *	(3,501)	—
Total	(6,783)	—

2014

	Loans and advances to customers	Loans and advance to banks
	(£'000)
Neither past due nor impaired	1,537,128	35,040
Past due but not impaired	54,897	—
Individually impaired	3,760	—
Total	1,595,785	35,040
Less: allowance for impairment	(5,439)	—
Total	1,590,346	35,040
Individually impaired	(2,821)	—
Portfolio impaired *	(2,618)	—
Total	(5,439)	—

	2013
	Loans and advances to customers	Loans and advance to banks
	(£'000)
Neither past due nor impaired	701,588	24,205
Past due but not impaired	49,227	—
Individually impaired	3,525	—
Total	754,340	24,205
Less: allowance for impairment	(3,282)	—
Total	751,058	24,205
Individually impaired
	(1,970)	—
Portfolio impaired *	(1,312)	—
Total	(3,282)	—

* The Portfolio impaired provision total also includes provisions held against loans which are included in the neither past due nor impaired and the past due but not impaired categories shown above.

Movement in allowances for impairment

	2015	2014	2013
		(£'000)
Allowance for impairment at 1 January	(5,439)	(3,282)	(377)
Write-offs (see note below)	5,686	—	—
Reversal of impairment	—	15	—
Increase in impairment allowance	(7,030)	(2,172)	(2,905)
Allowance for impairment at 31 December	(6,783)	(5,439)	(3,282)

Further information about the credit quality of our loans is included in Note 30.

Past due but not impaired

Late processing and other administrative delays on the side of the borrower can lead to a financial asset being past due but not impaired. Therefore, loans and advances less than 90 days past due are not usually considered impaired, unless other information is available to indicate the contrary. Loans and advances over 90 days past due may not be considered impaired where delays do not relate to credit issues. Gross amount of loans and advances by class to customers that were past due but not impaired were as follows:

		31 December 2015
	(£'000)
	Mortgages	Corporate	Other	Total
Past due <30 days	24,128	30,534	1,762	56,424
Past due 31-60 days	1,223	425	427	2,075
Past due 61-90 days	745	189	265	1,199
Over 90 days	—	335	—	335
Total	26,096	31,483	2,454	60,033

31 December 2014

	(£'000)
	Mortgages	Corporate	Other	Total
Past due <30 days	8,010	38,402	—	46,412
Past due 31-60 days	—	1,500	—	1,500
Past due 61-90 days	—	1,744	—	1,744
Over 90 days	—	5,241	—	5,241
Total	8,010	46,887	—	54,897

31 December 2013

	Mortgages	Corporate	Total
		(£'000)
Past due <30 days	—	—	—
Past due 31-60 days	17,237	18,734	35,971
Past due 61-90 days	2,915	1,073	3,988
Over 90 days	—	6,173	6,173
Total	20,152	25,980	46,132

17 Investment securities

	Level 1	Level 2	Total
		(£'000)
Investment securities held at fair value (recurring fair value measurement)
As at 31 December 2015
Financial investments: available for-sale	189,309	174,498	363,807

	Level 1	Level 2	Total
		(£'000)
As at 31 December 2014
Financial investments: available for-sale	241,127	1,063,283	1,304,410
As at 31 December 2013
Financial investments: available for-sale	214,168	482,266	696,434

The classification of a financial instrument is based on the lowest level input that is significant to the fair value measurement in its entirety. The two levels of the fair value hierarchy are defined below.

Quoted market prices – Level 1

Financial instruments are classified as Level 1 if their value is observable in an active market. Such instruments are valued by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions on an arm's length basis. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis.

Valuation technique using observable inputs – Level 2

Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly (as prices) or indirectly (derived from prices).

Reclassifications between categories

On 15 June 2015, £732.2 million of financial assets classified as available for sale were reclassified as held to-maturity following the end of a prior tainting period. The carrying amount (including accrued interest) and fair value of the assets at 1 January 2015, 15 June 2015 and 31 December 2015 were as follows:

	Carrying amount	Fair value
	(£'000)
At 1 January 2015	649,421	649,421
At 15 June 2015	732,234	732,234
At 31 December 2015	653,992	660,542

A fair value gain of £82.8 million was recognised in other comprehensive income with respect to the reclassified assets up to the point of reclassification; had these assets not been reclassified, a fair value loss of £71.7 million would have been recognised in other comprehensive income from the point of reclassification to the end of the year. The effective interest rates on available for sale assets reclassified to held to-maturity at 1 January 2015 and 31 December 2015 ranged from 0.75% to 2.00% with all cash flows expected to be recoverable.

On 1 January 2014, £215.6 million of financial assets classified as available for-sale were reclassified as held to-maturity following the end of a prior tainting period. The carrying amount (including accrued interest) and fair value of the assets at 1 January 2014 and 31 December 2014 were as follows:

	Carrying
	amount	Fair value
	(£'000)
At 1 January 2014	215,580	215,580
At 31 December 2014	213,899	217,331

No fair value gain or loss was recognised with respect to the reclassified assets in 2014; had these assets not been reclassified, a fair value gain of £1.8 million would have been recognised in other comprehensive income. The effective interest rates on available for-sale assets reclassified to held to-maturity at 1 January 2014 and 31 December 2014 ranged from 0.68% to 1.89%, with all cash flows expected to be recoverable.

As at 31 December 2015, 2014 and 2013 financial investments classified as held to-maturity were as follows:

	Carrying amount	Fair value
	(£'000)
At 31 December 2015	1,635,985	1,629,527
At 31 December 2014	307,041	313,851
At 31 December 2013	—	—

18 Property, plant and equipment

	Leasehold property	Land*	Fixtures fittings and equipment (£'000)	Computers	Total
Cost or valuation
1 January 2013	44,202	0	6,395	11,918	62,515
Acquisition of subsidiary	6	0	8	53	67
Additions	40,292	8,273	4,634	5,895	59,094
31 December 2013	84,500	8,273	11,037	17,866	121,676
Accumulated depreciation
1 January 2013	3,337	0	1,565	4,534	9,436
Charge for the year	3,340	0	1,508	4,106	8,954
31 December 2013	6,677	0	3,073	8,640	18,390
Net book value	77,823	8,273	7,964	9,226	103,286

	Leasehold property	Land*	Fixtures fittings and equipment (£'000)	Computers	Total
Cost or valuation
1 January 2014	84,500	8,273	11,037	17,866	121,676
Additions	34,526	—	1,543	4,966	41,035
31 December 2014	119,026	8,273	12,580	22,832	162,711
Accumulated depreciation
1 January 2014	6,677	—	3,073	8,640	18,390
Charge for the year	4,520	—	1,996	5,610	12,126
31 December 2014	11,197	—	5,069	14,250	30,516
Net book value	107,829	8,273	7,511	8,582	132,195

	Leasehold property	Land*	Fixtures fittings and equipment (£'000)	Computers	Total
Cost or valuation
1 January 2015	119,026	8,273	12,580	22,832	162,711
Additions	38,503	—	4,844	6,321	49,668
Impairment	(1,291)	—	(24)	(1,714)	(3,029)
31 December 2015	156,238	8,273	17,400	27,439	209,350
Accumulated depreciation
1 January 2015	11,197	—	5,069	14,250	30,516
Impairment	(109)	—	(4)	(1,223)	(1,336)
Charge for the year	6,022	—	2,855	6,036	14,913
31 December 2015	17,110	—	7,920	19,063	44,093
Net book value	139,128	8,273	9,480	8,376	165,257

*Land is held under a 999 year lease with no further lease payments due. The building associated with the land is included within the leasehold property category.

19 Intangible assets

(£'000) 2013 Cost or valuation 1 January 2013 — — 12,902 12,902 Additions — — 9,483 9,483 Acquisition of subsidiary 4,140 600 — 4,740 31 December 2013 4,140 600 22,385 27,125 Accumulated amortisation 1 January 2013 — — 1,957 1,957 Charge for the year — 25 1,313 1,338 31 December 2013 — 25 3,270 3,295 Net book value 4,140 575 19,115 23,830 2014
Cost or valuation
1 January 2014 4,140 600 22,385 27,125
Additions — — 12,934 12,934
31 December 2014 4,140 600 35,319 40,059
Accumulated amortisation
1 January 2014 — 25 3,270 3,295
Charge for the year — 60 2,035 2,095
31 December 2014 — 85 5,305 5,390
Net book value 4,140 515 30,014 34,669
2015
Cost or valuation
1 January 2015 4,140 600 35,319 40,059
Additions — — 29,907 29,907
Impairment — (8,481) (8,481) —
31 December 2015 4,140 600 56,745 61,485
Accumulated amortisation
1 January 2015 85 5,305 5,390 —
Impairment — (1,430) (1,430) —
Charge for the year 60 3,222 3,282 —

	Goodwill	Customer contracts	Software	Total
		(£'000)
31 December 2015	—	145	7,097	7,242
Net book value	4,140	455	49,648	54,243

Intangible assets are amortised over their useful economic lives. The useful life is reviewed annually to determine whether events and circumstances continue to support the useful life assessment. Any change of estimate is accounted for prospectively with the effect of any change being recognised in the current and future periods.

Metro Bank performs a review of the intangible assets for impairment indicators annually, or more frequently where required by events of changes in circumstances. An impairment test is performed when impairment indicators are identified, or where assets have an indefinite life or are not yet ready for use. Impairment indicators include factors such as planned changes to software used by the business or project taking longer to complete than expected.

The goodwill held in Metro Bank's balance sheet is tested at least annually for impairment. For the purposes of impairment testing the goodwill is allocated to the appropriate cash generating unit; of the total balance of £4.1 million (2014: £4.1 million; 2013: £4.1 million), £4.1 million, or 100% of the total has been allocated to SME Invoice Finance.

The recoverable amount of SME Invoice Finance has also been based on a value-in-use calculation using pretax cash flow projections based on financial budgets and plans approved by management covering a five-year period and a discount rate of 14.3%. Cash flows beyond the five‑year period are extrapolated using a growth rate of 2.3%. The discount rate and growth rate are consistent with external sources of information reviewed by management. Based on these assumptions, the recoverable amount exceeded the carrying amount including goodwill by a significant amount. Management believes that any reasonably possible change in the key assumptions above would not cause the recoverable amount of SME Invoice Finance to fall below the balance sheet carrying value.

As Metro Bank continues to grow and invest in its enhanced digital infrastructure and customer offering, it has performed a review of its intangible assets. This has resulted in a write-off of assets worth £7.0 million, the majority of which related to assets which are currently being withdrawn and enhanced.

20 Future capital expenditure

At 31 December 2015, there was £12.7 million capital expenditure authorised but not contracted for or contracted but not provided for (31 December 2014: £14.1 million; 31 December 2013: £4.9 million).

21 Prepayments and accrued income

	2015	2014	2013
		(£'000)
Prepayments	13,636	7,878	3,342
Accrued income	8,998	5,295	1,285

	2015	2014	2013
		(£'000)
VAT receivable	7,144	5,281	3,600
Other assets	678	429	326
Prepayments and accrued income	30,456	18,883	8,553

22 Other assets

	31 December
	2015	2014	2013
Refundable collateral	8,878	6,070	4,563
Other	11,647	7,591	2,700
Total	20,525	13,661	7,263
Current portion	11,715	7,654	2,653
Non-current portion	8,810	6,007	4,610

23 Other liabilities

	2015	2014	2013
		(£'000)
Trade creditors	1,792	1,895	2,988
Other taxation and social security costs	6,592	5,566	4,796
Accruals and deferred income	45,412	27,343	21,214
Other liabilities	17,617	14,140	722
Total	71,413	48,944	29,720
Current portion	62,977	43,423	26,888
Non-current portion	8,436	5,521	2,832

24 Called up share capital

A Ordinary shares

As at 31 December 2015 and 31 December 2014, the Company had issued 59.2 million A Ordinary shares of 0.0001 pence.

In January 2014, the Company issued 7.69 million A Ordinary shares, for net consideration of £98.8 million. Related transaction costs of £1.16 million have been deducted from equity during the year.

As at 31 December 2013, the Company had issued 51,515,384 A Ordinary shares of 0.0001 pence. During the year, the Company issued 22.12 million A Ordinary shares, for net consideration of £284.3 million. Related transaction costs of £2.44 million were deducted from equity during the year.

B Ordinary shares

As at 31 December 2015, 31 December 2014 and 31 December 2013, Metro Bank had issued 1 million B Ordinary shares of 0.0001 pence to staff and non-executive directors.

B Ordinary Shares are part of the Company's long term incentive arrangements and give certain colleagues and non-executive Directors the opportunity to share in the value of Metro Bank to the extent that the value of Metro Bank at the time of a realisation event (being a listing, sale or takeover offer) exceeds the hurdle price. The hurdle price is the initial placing proceeds of £75 million raised in March 2010, plus a sum equal to interest on that amount at the rate of 8% per annum (compounded annually) until the date on which a realisation event occurs.

If the hurdle price is met at the time of a realisation event, the B Ordinary Shares will share in the value of Metro Bank in excess of the Hurdle Price on a pro rata basis with the A Ordinary Shares. This will be achieved by the conversion of an appropriate proportion of the B Ordinary Shares, by reference to the Hurdle Price, into Deferred B Shares with no value. On a listing, sale or takeover offer, each B Ordinary Share will therefore be worth the same price as an A Ordinary Share (following the conversion of some of the B Ordinary Shares into Deferred B Shares). If the hurdle price is not met at the time of a realisation event, the B Ordinary Shares will convert into Deferred B Shares with no value.

	31 December
	2015	2014	2013
		(£'000)
Called up ordinary share capital, issued and fully paid
At beginning of year	—	—	—
Issued	—	—	—
At end of year	—	—	—

	31 December
	2015	2014	2013
		(£'000)
Share premium account
At beginning of year	629,304	530,463	246,155
Issued	—	98,841	284,308
At end of year	629,304	629,304	530,463

25 Share options

Metro Bank offers share options to directors and colleagues. The exercise price of the granted options is equal to the estimated market price of the shares at the date of the grant. Options generally vest over five years (although some earlier grants vested over three years) and have a contractual option term of ten years. Share options acquired via 'exchange' of some or all of the cash element of variable reward, vest immediately. Metro Bank has no legal or constructive obligation to repurchase or settle the options in cash.

Movements in the number of share options outstanding are as follows (rounded to the nearest thousand):

	2015		2014		2013
	Number of share options	Weighted average exercise price (£)	Number of share options	Weighted average exercise price (£)	Number of share options	Weighted average exercise price (£)
At 1 January	1,492,000	12.3	644,000	10.9	334,000	9.7
Granted	1,140,000	15.5	907,000	13.4	345,000	12.0
Lapsed	(61,000)	13.7	(59,000)	12.5	(35,000)	9.9
As at 31 December	2,571,000	13.7	1,492,000	12.3	644,000	10.9

Share options outstanding at the end of 2015 were as follows:

Expiry	Exercise price	Number Vesting period		Vesting period ends
07-Oct-21	£9.00	91,000	Three years	07-Oct-14
31-Oct-22	£10.00	204,000	Three years	31-Oct-15
11-Nov-23	£12.00	306,000	Five years	11-Nov-18
21-Mar-24	£13.00	98,000	N/A	N/A
31-Oct-24	£13.50	745,000	Five years	31-Oct-19
N/A	£14.00	260,000	N/A	N/A
N/A	£16.00	867,000	Five years	04-Nov-20

260,000 share options were granted on 20 March 2015 at a price of £14.00 per share. The fair value of these options is determined by using the Black-Scholes valuation model. The significant inputs into the model were the exercise price of £14.00, volatility of expected share price returns of 24%, option life as disclosed above, a dividend yield of 0% and an annual risk-free interest rate of 0.40%. The volatility, measured at the standard deviation of expected share price returns, is based on statistical analysis of the share prices of other high street banks.

867,000 share options were granted on 4 November 2015 at a price of £16.00 per share. The significant inputs into the model were the exercise price of £16.00, volatility of expected share price returns of 25%, option life as disclosed above, a dividend yield of 0% and an annual risk-free interest rate of 0.86%. The volatility, measured at the standard deviation of expected share price returns, is based on statistical analysis of the share prices of other high street banks.

The share price is equal to the exercise price in all cases.

Expiry	Exercise price	Number	Vesting period	Vesting period Ends
07-Oct-21	£9.00	91,000	Three years	07-Oct-14
31-Oct-22	£10.00	205,000	Three years	31-Oct-15
11-Nov-23	£12.00	316,000	Five years	11-Nov-18
21-Mar-24	£13.00	98,000	Immediate	N/A
31-0ct-24	£13.50	782,000	Five years	31-0ct-19

Share options outstanding at the end of 2014 were as follows:

98,000 share options were granted on 21 March 2014 at a price of £13.00 per share and expire on 21 March 2024. The fair value of these options is determined by using the Black-Scholes valuation model. The significant inputs into the model were the exercise price of £13.00, volatility of expected share price returns of 36%, option life as disclosed above, a dividend yield of 0% and an annual risk-free interest rate of 1.05% The volatility, measured at the standard deviation of expected share price returns, is based on statistical analysis of the share prices of other High Street banks.

782,000 share options were granted on 31 October 2014 at a price of £13.50 per share and expire on 31 October 2024. The significant inputs into the model were the exercise price of £13.50, volatility of expected share price returns of 33%, option life as disclosed above, a dividend yield of 0% and an annual risk-free interest rate of 1.12% The volatility, measured at the standard deviation of expected share price returns, is based on statistical analysis of the share prices of other High Street banks.

Share options outstanding at the end of 2013 were as follows:

Expiry	Exercise price	Number	Vesting period	Vesting period Ends
07-Oct-21	£9.00	91,000	Three years	07-Oct-14
31-Oct-22	£10.00	210,000	Three years	31-Oct-15
11-Nov-23	£12.00	343,000	Five years	11-Nov-18

316,000 share options were granted on 11 November 2013 at a price of £12.00 per share and expire on 11 November 2023. The fair value of options granted during the year is determined by using the Black-Scholes valuation model and was £1.6 million. The significant inputs into the model were share prices of £12.00, the exercise price shown above, volatility of expected share price returns of 46%, option life as disclosed above, a dividend yield of 0% and an annual risk-free interest rate of 1.24% The volatility, measured at the standard deviation of expected share price returns, is based on statistical analysis of the share prices of other High Street banks.

The fair value of options granted during 2015 was determined by using the Black-Scholes valuation model and was £2.3 million (2014: £2.1 million; 2013: £1.6 million).

The weighted average life of share options outstanding at 31 December 2015 was 8.1 years (2014: 9.1 years; 2013: 9.4 years).

26 Reconciliation of movements in retained earnings

	2015	2014	2013
At 1 January	(164,243)	(123,131)	(76,695)
Loss for the year	(49,197)	(41,112)	(46,436)
At 31 December	(213,440)	(164,243)	(123,131)

27 Financial commitments

At 31 December 2015, Metro Bank had irrevocable undrawn loan facilities granted to retail and commercial customers of £332.5 million (2014: 147.8 million: 2013: £144.2 million).

In addition Metro Bank has, as part of its retail and commercial operations, commitments of £96.0 million (2014: £101.4 million; 2013: £42.6 million) in respect of credit card and overdraft facilities. These commitments represent agreements to lend in the future, subject to certain conditions. Such commitments are cancellable by Metro Bank, subject to notice requirements and given their nature are not expected to be drawn down to the full level of exposure.

28 Leasing commitments

Metro Bank leases various offices and stores under non-cancellable operating lease arrangements. The leases have various terms, escalation, renewal and rights. At the balance sheet date, future minimum payments under operating leases relating to land and buildings were as follows:

	2015	2014	2013
		(£'000)
Amounts falling due:
Within one year	16,304	12,811	9,953
Between one and five years	60,828	50,867	39,027
After five years	249,763	216,306	126,075
Total	326,895	279,984	175,055

29 Financial instruments

Metro Bank's financial instruments primarily comprise customer deposits, loans to customers, cash held at banks and investment securities. All of these arise as a result of Metro Bank's normal operations. Metro Bank does not enter into transactions for speculative purposes and there are no instruments held for trading. From time to time, Metro Bank may use interest rate derivatives such as swaps to manage part of its interest rate risk.

The main risks arising from Metro Bank's financial instruments are credit risk, liquidity risk and market risks (price and interest rate risk).

30 Credit risk

Credit risk is the risk of financial loss to Metro Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from Metro Bank's loans and advances to customers and other banks, and investment debt securities.

The Chief Risk Officer is responsible for managing Metro Bank's credit risks through the following:

• Defining the Enterprise Risk Management structure and quantifying Metro Bank's Risk Appetite.
• Formulating credit policies covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures and compliance with regulatory and statutory requirements.
• Establishing the authorisation structure for the approval and renewal of credit facilities.
• Limiting concentrations of exposure to counterparties and industries (for loans and advances and similar exposures) and by issuer, credit rating bands and market liquidity (for investment securities).

For details about our loans and advances to customers and the allowance for impairment/loss held by Metro Bank against those assets, please refer to Note 16.

Metro Bank invests in high quality liquid debt instruments as required by Metro Bank's Treasury Instruments and Dealing Policy. The analysis below details the credit rating of the securities as at 31 December 2015, 31 December 2014 and 31 December 2013. No allowance for impairment or loss was held against any of these assets at 31 December 2015, 31 December 2014 or 31 December 2013.

	2015 2014		2013
		(£'000)
Credit Rating
AAA	1,312,838	1,036,477	377,804
AA- to AA+	319,524	273,235	247,410
A- to A+	156,409	143,847	45,874
Lower than A-	211,021	157,892	25,346
Total	1,999,792	1,611,451	696,434

Metro Bank has pledged £1,023.0 million (2014: £574.6 million; 2013: £315.9 million) of AA/AAA rated securities as encumbered collateral which can be called upon in the event of default. £540.0 million of assets (2014: £551.1 million; 2013: £313.6 million) are pledged to the Bank of England through Metro Bank's participation in the FLS to support the £465.4 million T-bills it has drawn down from the scheme. The remaining £483.0 million of securities are pledged with market participants in the form of repurchase agreements (2014: £23.5 million).

Collateral held and other credit enhancements, and their financial effect

Metro Bank holds collateral against loans and advances to customers in the form of mortgages over residential and commercial real estate and guarantees which Metro Bank has the ability to call on in the event of default of the borrower. The value of collateral has been limited to the principal amount outstanding to eliminate effects of over-collateralisation. The table below details the maximum credit risk exposure of Metro Bank and effects of collateral.

	At 31 December 2015
	Maximum exposure	Collateral	Net exposure
		(£'000)
Loans and advances to banks	64,248	—	64,248
Loans and advances to customers:
• Loans to individuals (Note 16)	2,275,889	(2,221,469)	54,420
• Loans to corporate entities (Note 16)	1,273,442	(1,055,255)	218,187
Investment securities (Note 17)	1,999,792	—	1,999,792
Other assets (Note 22)	20,525	—	20,525
Total	5,633,896	(3,276,724)	2,357,172
Credit risk exposures relating to off-balance sheet items are as follows:
Loan commitments and other credit related obligations .	428,458	—	428,458
Total	6,062,354	(3,276,724)	2,785,630

At 31 December 2014

	Maximum exposure	Collateral	Net exposure
		(£'000)
Loans and advances to banks	35,040	—	35,040
Loans and advances to customers:
• Loans to individuals (Note 16)	881,144	(825,135)	56,009
• Loans to corporate entities (Note 16)	714,641	(654,132)	60,509
Investment securities (Note 17)	1,611,451	—	1,611,451
Other assets (Note 22)	13,661	—	13,661
	3,255,937	(1,479,267)	1,776,670
Credit risk exposures relating to off-balance sheet items are as follows:
Loan commitments and other credit related obligations	249,216	—	249,216
Total	3,505,153	(1,479,267)	2,025,886

	Maximum exposure	Collateral	Net exposure
		(£'000)
Loans and advances to banks	24,205	—	24,205
Loans and advances to customers:
• Loans to individuals (Note 16)	391,962	(312,235)	79,727
• Loans to corporate entities (Note 16)	362,378	(243,361)	119,017
Investment securities (Note 17)	696,434	—	696,434
Other assets (Note 22)	7,263	—	7,263
Total	1,482,242	(555,596)	926,646
Credit risk exposures relating to off-balance sheet items are as follows:
Loan commitments and other credit related obligations	193,434	—	193,434
Total	1,675,676	(555,596)	1,112,080

At 31 December 2013

As shown above, 59% (2014: 47%; 2013: 51%) of the total maximum exposure is derived from loans and advances to banks and customers, and 33% (2014: 46%; 2013: 42%) represents investments in high quality debt securities.

Residential mortgage lending

The table below stratifies credit exposures from mortgage loans and advances to customer by ranges of loanto-value (LTV) ratio. LTV is calculated as the ratio of the gross amount of the loan to the value of the collateral. The gross amounts exclude any impairment allowance. The value of the collateral for residential mortgage loans is based on the collateral value at origination updated based on changes in house price indices.

	2015	2014	2013
		(£'000)
LTV ratio
Less than 50%	594,444	314,059	86,308
51-70%	962,994	415,848	157,222
71-90%	495,921	95,228	126,965
91-100%	46,219	—	—
More than 100%	56,841	—	—
Total	2,156,419	825,135	370,495

Loans and advances to corporate customers

The general credit worthiness of a corporate customer tends to be the most relevant indicator of credit quality of a loan extended to it. However, collateral provides additional security and Metro Bank generally requests that corporate borrowers provide it. Metro Bank may take collateral in the form of a first charge over real estate, floating charges over all corporate assets and other liens and guarantees.

Metro Bank monitors concentrations of credit risk by industry sector for commercial term exposure. Metro Bank's risk appetite is set at the beginning of every year and monitored as part of the Board committee.

	2015			2014	2013
	Gross balance	Concentration	Gross balance	Concentration	Gross balance	Concentration
	(£'000)	%	(£'000)	%	(£'000)	%
Real estate (rent, develop, buy and sell)	627,904	56%	340,630	55%	177,047	59%
Legal, Accountancy & Consultancy	133,848	12%	68,015	11%	10,005	3%
Health & Social Work	95,722	9%	53,065	9%	15,285	5%
Hospitality	40,007	4%	39,749	6%	27,291	9%
Investment & Unit Trusts	—	0%	23,052	4%	351	0%
Retail	80,030	7%	13,461	2%	11,243	4%
Real estate (management of)	46,707	4%	8,575	1%	1,047	0%
Recreation, cultural & sport	6,859	1%	6,769	1%	3,806	1%
Construction	39,116	4%	8,698	1%	6,984	2%
Education	3,289	0%	4,184	1%	2,744	1%
Other	37,757	3%	53,273	9%	49,153	16%
At 31 December	1,111,239	100%	619,471	100%	304,956	100%

Commercial exposures represent a growing part of the total lending portfolio. The average debt-to-value ("DTV") of the commercial loan book is stable and below 60%. The proportion of lending with DTV above 80% has decreased over the last 3 years and collections performances continue to improve. DTV is calculated as the ratio of the gross outstanding amount of a loan to the indexed value of the collateral.

	31 December
	2015	2014	2013
		(£'000)
Total commercial lending	1,273,442	714,641	362,378
% of total lending	36%	45%	48%
Average DTV	57%	57%	61%
DTV > 80%	6%	10%	11%
NPL (non-performing-loan) ratio*	0.1%	0.7%	2.1%

* The non-performing-loan ratio is calculated as the ratio of the gross outstanding amount of loans with more than three instalments unpaid to the total gross outstanding amount.

Forbearance is in relation to when a concession on the contractual terms of a loan is made to a customer as a result of financial difficulties. Changes in terms in line with existing underwriting appetite result in an amended monthly cash flow from:

• payment holidays;

• term extensions; or
• payment concessions.

As at 31 December 2015, the exposure from forbearance arrangements was £7.7 million (31 December 2014: £0.2 million).

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to Metro Bank resulting from both its loans and advances portfolio and debt securities based on the following:

• 66% (2014: 64%; 2013: 54%) of the debt securities are AAA rated and 16% (2014: 17%; 2013: 35%) are AA rated;
• 92% (2014: 93%; 2013: 74%) of loans and advances to customers are backed by collateral; and
• Over 99% (2014: 99%; 2013: 99%) of the loans and advances portfolio is considered to be unimpaired.

31 Liquidity risk

Liquidity risk is the risk that Metro Bank will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Metro Bank's board of directors sets Metro Bank's risk appetite and policy for managing liquidity risk and delegates responsibility for oversight of the implementation of this policy to the Asset and Liability Management Committee (ALCO). The treasury function manages Metro Bank's liquidity position on a dayto-day basis under the oversight of the CFO and ALCO. Metro Bank's approach is to ensure that it can meet payments as they fall due – both in normal conditions and in the event of a severe liquidity stress, and that it can survive a severe liquidity stress event and continue as a going concern. The key elements of Metro Bank's liquidity strategy are as follows:

• Building a franchise that has a stable deposit funding base, free of short term unsecured wholesale funding;
• Maintaining, at all times, a stock of liquid assets that are of sufficient quality and quantity so as to be able to withstand these liquidity stress scenarios;
• Monitoring liquidity risk exposures on an ongoing basis under a variety of market wide and idiosyncratic liquidity stress scenarios; and
• Maintaining a diversified funding base.

Expected maturity dates of Metro Bank's financial instruments do not differ significantly from the contract dates except for retail deposits. These are repayable on demand or at short notice on a contractual basis. In practice, however, these instruments provide long term stable funding for Metro Bank's operations and liquidity needs because of the stable deposit nature of Metro Bank's business model.

The tables below set out the maturity structure of Metro Bank's financial instruments, which categorises liabilities by their earliest possible contractual maturity date; this differs from the behavioural maturity characteristics of the deposit base in both normal and stressed conditions, as the behavioural maturity is much longer than the contractual maturity.

	Repayable on demand	Up to 3 months	3-6 months	6-12 months	1-5 years	Over 5 years	No contractual maturity	Total
				(£'000)
Cash and balances with the Bank of England	217,900	—	—	—	—	—	—	217,900
Loans to banks	64,248	—	—	—	—	—	—	64,248
Loans to customers	—	220,180	163,034	314,439	2,239,748	1,109,481	83,852	4,130,734
Investments	—	22,466	27,147	137,337	1,580,056	377,339	—	2,144,345
Total financial assets	282,148	242,646	190,181	451,776	3,819,804	1,486,820	83,852	6,557,227
Other assets	—	—	—	—	—	—	—	—
Total assets	282,148	242,646	190,181	451,776	3,819,804	1,486,820	83,852	6,557,227
Customer accounts	(3,437,162)	(291,430)	(244,670)	(621,064)	(461,025)	—	(54,917)	(5,110,268)
Repurchase agreements	—	(92,540)	(329,624)	(110,476)	(32,268)	—	—	(564,908)
Other liabilities	—	—	—	—	—	—	—	—
Total financial liabilities	(3,437,162)	(383,970)	(574,294)	(731,540)	(493,293)	—	(54,917)	(5,675,176)
Capital	—	—	—	—	—	—	—	—
Total liabilities	(3,437,162)	(383,970)	(574,294)	(731,540)	(493,293)	-	(54,917)	(5,675,176)
Cumulative liquidity gap	(3,155,014)		(3,296,338) (3,680,451)	(3,960,215)	(633,704)	853,116	—	—

31 December 2015

	Repayable on demand	Up to 3 months	3-6 months	6-12 months	1-5 years	Over 5 years	No contractual maturity	Total
				(£'000)
Cash and balances with the
Bank of England	180,630	—	—	—	—	—	—	180,630
Loans to banks	35,040	—	—	—	—	—	—	35,040
Loans to customers	—	135,238	81,778	155,845	1,076,924	312,266	53,250	1,815,301
Investments	—	18,273	6,669	80,473	1,321,792	327,844	—	1,755,051
Total financial assets	215,670	153,511	88,447	236,318	2,398,716	640,110	53,250	3,786,022
Other assets	—	—	—	—	—	—	—	—
Total assets	215,670	153,511	88,447	236,318	2,398,716	640,110	53,250	3,786,022
Customer accounts	(2,208,961)	(186,385)	(107,496)	(257,616)	(91,552)	—	(20,298)	(2,872,308)
Repurchase agreements		(205,803)	(40,179)	(26,935)	—	—	—	(272,917)
Other liabilities	—	—	—	—	—	—	—	—
Total financial liabilities	(2,208,961)	(392,188)	(147,675)	(284,551)	(91,552)	—	(20,298)	(3,145,225)
Capital	—	—	—	—	—	—	—	—
Total liabilities	(2,208,961)	(392,188)	(147,675)	(284,551)	(91,552)	—	(20,298)	(3,145,225)
Cumulative liquidity gap .	(1,993,291)		(2,231,968) (2,291,196)	(2,339,429)	(32,265)	607,845	—	—

31 December 2014

	Repayable on demand	Up to 3 months	3-6 months	6-12 months	1-5 years	Over 5 years	No contractua l maturity	Total
				(£'000)
Cash and balances with the
Bank of England	231,496	—	—	—	—	—	7,483	238,979
Loans to banks	24,205	—	—	—	—	—	—	24,205
Loans to customers	23,615	80,854	32,574	56,530	395,985	164,782	(3,282)	751,058
Investments	—	301	4,749	34,374	487,065	169,945	—	696,434
Total financial assets	279,316	81,155	37,323	90,904	883,050	334,727	4,201	1,710,676
Other assets	—	—	—	—	—	—	179,552	179,552
Total assets	279,316	81,155	37,323	90,904	883,050	334,727	183,753	1,890,228
Customer accounts	(909,627)	(110,393)	(55,824)	(169,980)	(69,565)	—	—	(1,315,389)
Repurchase agreements	—	(34,890)	(54,193)	(54,733)	—	—	—	(143,816)
Other liabilities	—	—	—	—	—	—	(29,622)	(29,622)
Total financial liabilities	(909,627)	(145,283)	(110,017)	(224,713)	(69,565)	—	(29,622)	(1,488,827)
Capital	—	—	—	—	—	—	(401,401)	(401,401)
Total liabilities	(909,627)	(145,283)	(110,017)	(224,713)	(69,565)	—	(431,023)	(1,890,228)
Cumulative liquidity gap .	(630,311)	(694,439)	(767,133)	(900,942)	(87,457)	247,270	—	—

31 December 2013

32 Market risk

Market risk is the risk that changes in market prices, such as interest rates or prices of investment securities, will affect Metro Bank's income or the value of its holdings of financial instruments. The objective of Metro Bank's market risk management strategy is to manage and control market risk exposures within acceptable parameters to ensure Metro Bank's solvency while optimising the return on risk.

Investment price risk

Metro Bank does not undertake proprietary trading activities and holds only high grade investment securities which have been approved by ALCO. Management monitors the movements in Metro Bank's investments market value on a regular basis. In the event of a material detrimental movement in either the value or the credit quality of an asset, ALCO is advised and it is responsible to decide whether to retain or dispose of the asset, in conjunction with the Credit Committee in the case of corporate bonds.

Changes in the value of treasury assets accounted for as available for-sale (AFS) are taken to the AFS reserve, and under CRD IV, directly reduce Metro Bank's capital resources where negative. The table below is a projection of the impact on the market value of AFS securities held at 2015, 2014 and 2013 year-end, of a plus and minus 1.00% and 2.00% parallel shift in the yield curve (disregarding any interest rate floors). Stressed fair values are calculated on the same methodology as Metro Bank uses for calculating current fair values on its AFS investments. The sensitivity analysis is performed only on the fixed rate assets in the AFS portfolio excluding floating rate assets, on which changes in the yield curve would have a negligible effect.

	200bp decrease	100bp decrease	100bp increase	200bp increase
		(£'000)
Sensitivity of prices of investment securities to changes in yield curves
At 31 December 2015	14,840	7,230	(6,880)	(13,420)
	200bp decrease	100bp decrease	100bp increase	200bp increase
		(£'000)
Sensitivity of prices of investment securities to changes in yield curves
At 31 December 2014	15,176	10,659	(10,821)	(21,202)
	200bp decrease	100bp decrease	100bp increase	200bp increase
		(£'000)
Sensitivity of prices of investment securities to changes in yield curves
At 31 December 2013	22,674	12,071	(11,752)	(22,911)

Interest rate risk

Metro Bank is exposed to the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps which arise due to differences in time of the interest rate repricing of its financial instrument assets and liabilities. Metro Bank manages this risk by matching the timing of the interest rate repricing to within Metro Bank's interest rate risk appetite. Metro Bank seeks to do so primarily through the use of natural hedges, but may use derivatives for this purpose from time-to-time.

Metro Bank manages this risk within limits set and approved by the Board.

Limits are set for the market value of equity ("MVoE") and net interest income ("NII"). MVoE shall not drop more than £10 million (2014: £6 million) based on the worse of a +200bp or -200bp instantaneous symmetrical parallel shock to interest rates, and one-year NII shall not drop more than £7.5 million (2014: £4.5 million) based on the same shock. The MVoE limits are monitored daily by Risk, whilst the NII limits are monitored twice monthly. Performance against each limit is reported monthly to the ALCO (with exceptions communicated by email), and noted by the Risk Oversight Committee and the Board.

Furthermore, limits are set for asymmetrical movements between LIBOR and the Bank of England Base Rate. An increase in LIBOR of 100bps (2014: 83bps) or a decrease of 15 bps (2014: 29bps), each relative to the Base Rate, must not cause one-year NII to drop by more than £7.5 million (2014: £4.5 million).

Performance against these limits is set out below, noting that the limits changed during Q3 2015 as a result of discussions around the ICAAP. The old MVoE limit of £6.0 million applied up to and including June 2015, the NII limit of £4.5 million applied through to July 2015, and the basis risk scenario was +83bps/-29bps up to and including August 2015.

A positive interest rate sensitivity gap exists when more assets than liabilities reprice during a given period. A positive gap position tends to benefit net interest income in an environment where interest rates are rising; however, the actual effect will depend on a number of factors including actual repayment dates and interest rate sensitivities within the banding periods.

	31 December 2015
	Up to 3 months	3-6 months	6-12 months	1-5 years	Over 5 years	Non interest bearing	Total
				(£'000)
Loans to banks	64,248	—	—	—	—	—	64,248
Loans to customers	1,869,162	93,016	179,231	1,349,041	5,947	46,151	3,542,548
Other assets	1,458,138	544	19,552	656,257	16,027	390,708	2,541,226
Total assets	3,391,548	93,560	198,783	2,005,298	21,974	436,859	6,148,022
Customer accounts	(2,476,099)	(294,097)	(613,587)	(333,878)	(108,729)	(1,281,266)	(5,107,656)
Other liabilities	(294,939)	(247,638)	(9)	—	—	(90,605)	(633,191)
Shareholders' funds	—	—	—	—	—	(407,175)	(407,175)
Total equity and liabilities	(2,771,038)	(541,735)	(613,596)	(333,878)	(108,729)	(1,779,046)	(6,148,022)
Interest rate sensitivity gap	620,510	(448,175)	(414,813)	1,671,420	(86,755)	(1,342,187)	—
Cumulative gap	620,510	172,335	(242,478)	1,428,942	1,342,187	—	—

	Up to 3 months	3-6 months	6-12 months	1-5 years	Over 5 years	Non interest bearing	Total
				(£'000)
Loans to banks	33,432	—	—	—	—	1,608	35,040
Loans to customers	902,963	44,006	124,806	502,851	5,947	9,773	1,590,346
Other assets	1,261,483	—	—	314,175	79,989	379,487	2,035,134
Total assets	2,197,878	44,006	124,806	817,026	85,936	390,868	3,660,520
Customer accounts	(1,554,145)	(107,992)	(255,627)	(90,441)	0	(858,426)	(2,866,631)
Other liabilities	(287,103)	(1)	15,003	—	—	(59,387)	(331,488)
Shareholders' funds	—	—	—	—	—	(462,401)	(462,401)
Total equity and liabilities	(1,841,248)	(107,993)	(240,624)	(90,441)	0	(1,380,214)	(3,660,520)
Interest rate sensitivity
gap	356,630	(63,987)	(115,818)	726,585	85,936	(989,346)	—
Cumulative gap	356,630	292,643	176,826	903,411	989,347	—	—

31 December 2014

	Up to 3 months	3-6 months	6-12 months	1-5 years	Over 5 years	Non interest bearing	Total
				(£'000)
Loans to banks	24,205	—	—	—	—	—	24,205
Loans to customers	501,087	16,595	35,139	201,519	—	(3,282)	751,058
Other assets	638,813	-	6,866	206,603	83,131	178,817	1,114,230
Total assets	1,164,105	16,595	42,005	408,122	83,131	175,535	1,889,493
Customer accounts	(1,020,020)	(55,824)	(169,980)	(69,565)	—	—	(1,315,389)
Other liabilities	(34,890)	(54,193)	(54,733)	—	—	(29,720)	(173,536)
Shareholders' funds	—	—	—	—	—	(400,568)	(400,568)
Total equity and liabilities	(1,054,910)	(110,017)	(224,713)	(69,565)	—	(430,288)	(1,889,493)
Interest rate sensitivity
gap	109,195	(93,422)	(182,708)	338,557	83,131	(254,753)	—
Cumulative gap	109,195	15,773	(166,935)	171,622	254,753	—-	—
	24,205	—	—	—	—	—	—

31 December 2013

Large values at December 2013 year-end were due to the share issue.

The following is an analysis of Metro Bank's sensitivity to an increase or decrease in market interest rates, assuming a constant financial position.

	200bp increase	200bp decrease (floored at zero)
Sensitivity of projected net interest income to parallel interest rate shock	(£'000)
for a one-year forecasting period
2015
At 31 December	471	(882)
2014
At 31 December	(1,830)	(40)
2013
At 31 December	8,170	(2,160)

	+83bps LIBOR vs	-29bps LIBOR vs
	BBR	BBR
	(£'000)
Sensitivity of projected one-year net interest income to movements in the spread from Bank Base Rate to LIBOR
2015
At 31 December	7,536	(1,151)
2014
At 31 December	5,060	(1,750)
2013(1)
At 31 December	1,400	(480)

Note:

(1) Metro Bank began to calculate this projection in August 2013 and results are reported from then on.

33 Fair value of financial instruments

The fair values of financial instruments are based on market prices where available, or are estimated using other valuation techniques. Where they are short term in nature or re-price frequently, fair value approximates to carrying value. Apart from investment securities all other assets and liabilities are deemed to have a fair value hierarchy of level 3. Level 3 is defined as – inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components.

Fair value - valuation techniques

	Carrying value	Quoted market price Level 1	Using observable inputs Level 2 (£'000)	With significant unobservable inputs Level 3	Total fair value
31 December 2015
Assets
Cash and balances with the Bank of England	217,900	—	—	—	217,900
Loans and advances to banks	64,248	—	—	64,248	64,248
Loan and advances to customers	3,542,548	—	—	3,614,877	3,614,877
Investment securities	1,999,792	657,681	1,335,653	—	1,993,334
Liabilities
Deposits from customers	5,107,656	—	—	5,095,942	5,095,942
Repurchase agreements	561,778	—	—	—	561,778

				With
		Quoted	Using	significant
		market price Level 1	observable inputs Level 2	unobservable inputs Level 3
	Carrying value				Total fair value
			(£'000)
31 December 2014
Assets
Cash and balances with the Bank of England	180,630	—	—	—	180,630
Loans and advances to banks	35,040	—	—	35,040	35,040
Loan and advances to customers	1,590,346	—	—	1,588,309	1,588,309
Investment securities	1,611,451	417,332	1,200,930	—	1,618,262
Liabilities
Deposits from customers	2,866,631	—	—	2,866,631	2,866,631
Repurchase agreements	282,544	—	—	—	282,544
31 December 2013
Assets
Cash and balances with the Bank of England	238,979	—	—	—	238,979
Loans and advances to banks	24,205	—	—	24,205	24,205
Loan and advances to customers	751,058	—	—	750,001	750,001
Investment securities	696,434	214,168	482,266	—	696,434
Liabilities
Deposits from customers	1,315,389	—	—	1,298,050	1,298,050
Repurchase agreements	143,816	—	—	—	143,816

Fair value - valuation techniques

For the cash and balances with the Bank of England and repurchase agreements, the carrying value approximates to the fair value, and therefore no pricing level has been identified for them above.

Information on how fair values are calculated for the financial assets and liabilities noted above are explained below:

(a) Cash and balances with the Bank of England/Loans and advances to banks

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.

(b) 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.

(c) 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).

(d) 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.

(e) 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.

34 Related party transactions

Key management personnel

Metro Bank's 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 Metro Bank. The Directors and members of the Executive Committee are considered to be the key management personnel for disclosure purposes.

Key management compensation

Total compensation for key management personnel for the year by category of benefit was as follows:

	2015	2014	2013
		(£'000)
Salaries and other short-term benefits	3,205	3,102	2,973
Share based payment cost	990	514	286
Contributions to pension arrangements	136	176	167
	4,331	3,792	3,426

Banking transactions with key management

Metro Bank provides 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 2015, 31 December 2014 and 31 December 2013 were as follows:

	2015	2014	2013
		(£'000)
Loans payable to Metro Bank
Loans outstanding at 1 January	2,268	898	739
Loans relating to former key management personnel	(143)	—	—
Loans outstanding at 1 January for current key management personnel	2,125	898	739

	2015	2014	2013
		(£'000)
Loans issued during the year	982	1,402	482
Loan repayments during the year	(578)	(32)	(323)
Loans outstanding at 31 December	2,529	2,268	898
Interest expense on loans payable to Metro Bank	58	61	29

There were seven (31 December 2014: six; 31 December 2013: four) loans outstanding at 31 December 2015 totalling £2.5 million (31 December 2014: £2.3 million; 31 December 2013: £0.9 million). Of these, six are residential mortgages and one is an unsecured loan; all seven loans were provided on normal commercial terms.

Credit card balances outstanding at 31 December 2015 and 2014 were as follows:

	2015	2014	2013
		(£'000)
Credit card balances outstanding at 31 December	40	39	28

Deposit balances outstanding at 31 December 2015 and 2014 were as follows:

	2015	2014	2013
		(£'000)
Deposits outstanding at 1 January	4,151	5,548	6,326
Net amounts deposited/(withdrawn)	393	(1,397)	(778)
Deposits outstanding at 31 December	4,544	4,151	5,548

Other transactions with related parties

The following transactions were carried out with related parties:

	2015	2014	2013
	(£'000)
Purchases of services
– Entity connected to key management personnel	2,307	2,602	2,431
– Amounts outstanding as at 31 December owed by Metro Bank	151	165	123

Architecture, design and branding services are provided to Metro Bank by InterArch, a firm which is owned by Shirley Hill, the wife of Vernon W. Hill II, the Non-Executive Chairman.

In order to ensure that the terms of the InterArch arrangements are consistent with those that could be obtained from an independent third party and in accordance with the Articles, the contractual arrangements with InterArch are subject to periodic review by Metro Bank's Audit Committee using periodic benchmarking reviews conducted by independent third parties. The Audit Committee has concluded the arrangements are on terms which are at least as beneficial to Metro Bank as those which could be obtained from an alternative supplier.

Architectural Design Services

InterArch provide various architectural design services to Metro Bank, including pre-design, architectural design, interior design, facilities co-ordination, construction management, landscape architectural, signage, security design and layout, and procurement services. The fee structure for each project is based on a fixed percentage of projected hard costs. Certain additional services are provided on an hourly basis. The current agreement terminates on 31 December 2017 unless terminated prior to that in accordance with its terms.

Branding, Marketing and Advertising

InterArch also provides branding, marketing and advertising services to Metro Bank. The current agreement will terminate on 31 December 2016.

IPR Agreement

On 21 June 2010, Metro Bank entered into an agreement with InterArch in which InterArch agreed to transfer and assign to Metro Bank all UK intellectual property rights which arise from InterArch's provision of services to Metro Bank.

35 Capital management

Capital is held by Metro Bank to protect its depositors, cover its inherent risks, and provide a cushion for stress events and to support its business strategy. In assessing the adequacy of its capital resources, Metro Bank considers its risk appetite, the material risks to which it is exposed and the appropriate strategies required to manage those risks.

Metro Bank prepares an annual Internal Capital Adequacy Assessment Process document that sets out how Metro Bank identifies and manages the key risks to which it is exposed and details Metro Bank's capital requirements, capital resources, and capital adequacy over the planning period.

Metro Bank produces regular reports on the current and forecasted level of capital, as well as the results of stress scenarios, to the Board and the Executive Committee (chaired by the Chief Executive Officer). The key assumptions and risk drivers used to create the stress tests are regularly monitored and reported.

Metro Bank manages capital in accordance with prudential rules issued by the PRA and FCA, in line with the EU Capital Requirements Directive. In June 2013 the European parliament approved new capital reforms (referred to as CRD IV), which implements Basel III in Europe. CRD IV legislation has been effective from 1 January 2014. Metro Bank is committed to maintaining a strong capital base under both existing and future regulatory requirements. During the year Metro Bank has complied with all externally imposed capital requirements to which it is subject.

	2015	2014	2013
		(£'000)
Tier 1 capital
Ordinary share capital	—	—	—
Share premium	629,304	629,304	530,463
Retained earnings	(213,440)	(164,243)	(123,131)
Intangible assets	(54,243)	(34,669)	(23,830)
Deferred tax asset	(53,053)	(43,645)	(35,885)
Other reserves	(8,689)	(2,660)	(6,764)
Total regulatory capital	299,879	384,087	340,853

36 Loss per share

Basic loss per share is calculated by dividing the loss attributable to ordinary equity holders of Metro Bank by the weighted average number of ordinary shares in issue during the period.

	2015	2014	2013
		(£'000)
Loss attributable to ordinary equity holders of Metro Bank	(49,197)	(41,112)	(46,436)
Weighted average number of ordinary shares in issue (thousands)	59,208	58,567	29,400
Basic loss per share (pence)	83	70	158

The ordinary shares in issue used in the denominator of the basic loss per share calculation are the A ordinary shares. The B ordinary shares are excluded from the calculation on the basis that prior to a realisation event (listing, sale or takeover offer), the shares have no entitlement to dividends or other distributions of Metro Bank.

Diluted loss per share has been calculated based on the same loss attributable to ordinary equity holders of Metro Bank and weighted average number of ordinary shares in issue after the effect of adjustment for potential dilutive ordinary shares, which comprise share options granted to colleagues. Potential ordinary shares should only be treated as dilutive, when their conversion to ordinary shares results in a reduction in earnings per share or an increase in loss per share. As Metro Bank has a loss attributable to ordinary equity holders of Metro Bank in 2015, 2014 and 2013, for these years, the share options would be antidilutive, as they would reduce the loss per share. Therefore, they are disregarded in the calculation of dilutive earnings per share. However, the share options could potentially be dilutive in the future.

	2015	2014	2013
		(£'000)
Loss attributable to ordinary equity holders of Metro Bank	(49,197)	(41,112)	(46,436)
Weighted average number of ordinary shares in issue (thousands)	59,208	58,567	29,400
Diluted loss per share (pence)	83	70	158

37 Investment in subsidiaries

Metro Bank had the following subsidiaries at 31 December 2015, 31 December 2014 and 31 December 2013:

Name	Country of Incorporation and place of business	Nature of business	Proportion of ordinary shares directly held by parent (%)	Proportion of ordinary shares held by Metro Bank (%)
		Invoice finance
SME Invoice Finance Limited	UK	and factoring	100	—
SME Asset Finance Limited	UK	Asset finance	—	100

All subsidiary undertakings are included in the consolidation.

The proportion of the voting rights in the subsidiary undertakings held directly by the parent company do not differ from the proportion of ordinary shares held.

38 Business combinations

On 31 July 2013, Metro Bank acquired 100% of the share capital of SME Invoice Finance Limited ("SMEIF") for £15 million. The acquisition provides Metro Bank the ability to compete in the SME market by offering comprehensive invoice finance, factoring and asset finance capability.

Goodwill arising on acquisition was £4.1 million. This represents the value of the consideration in excess of the recognised tangible assets, liabilities and intangible assets attributable to acquired customer base and economies of scale expected from combining the operations of Metro Bank and SMEIF.

Under IFRS 3, businesses are required to place a fair value on any additional intangible assets as identified at the point of acquisition. The fair value of future discounted cash-flows have been derived from existing customer contracts. The fair value of customer contracts is £0.6 million.

The following table summarises the consideration paid for SMEIF, the fair value of assets acquired and liabilities assumed.

Consideration at date of acquisition 31 July 2013	(£'000)
Cash payment for 100% holding	15,000
Total consideration for 100% holding	15,000
Recognised amounts of identifiable assets transferred and liabilities assumed at fair value
Trade debtors subject to financing	45,757

Investment in finance agreements	2,709
Customer contracts	600
Tangible fixed assets	73
Other current assets	961
Bank loans and overdrafts	(38,326)
Other current liabilities	(914)
Total identifiable net assets	10,860
Goodwill arising on acquisition	4,140

Acquisition-related costs of £0.5 million have been charged to administrative expenses in the consolidated statement of comprehensive income for the year ended 31 December 2013.

The contingent consideration arrangement required Metro Bank to pay a price of £15 million for the entire share capital of SMEIF subject to adjustment under a locked box mechanism. This was be based on the management accounts balance sheet as at 31 July 2013. £2 million of the purchase price was paid into an escrow account as follows:-

• £0.5 million, to cover any shortfall in the net asset value below £10.5 million as at the locked box date. Subsequent to the 2013 year end this has been released from the escrow account.
• £1.5 million, to cover any credit losses for 24 months following completion above 0.5% for business written prior to completion of the transaction. Subsequently, £0.75 million was released on the First Release Date (31 July 2014) and the remaining £0.75 million is still in escrow and the subject of a dispute being considered by an ICAEW Independent Expert.

39 Post balance sheet events

On 26 January 2016 the Remuneration Committee confirmed that a number of senior executives would participate in a variable award contingent on both a successful Private Placement and the successful listing of Metro Bank (the "Project Revolution Awards"). In total awards are not expected to exceed £6 million and will be awarded in cash which will be used to subscribe for restricted Shares for the relevant individuals.

On 4 March 2016, Metro allotted 20,000,000 new Shares at £20 per Share, further to an offer for subscription on 26 January 2016, for gross consideration of £400 million. This capital raising will become unconditional when the Company's shares are admitted for trading on the London Stock Exchange, which is expected to be on 10 March 2016.

PART XVI A: UNAUDITED PRO FORMA FINANCIAL INFORMATION

1 Accountant's report on Pro Forma Financial Information

The Directors Metro Bank PLC One Southampton Row London WC1B 5HA United Kingdom

RBC Europe Limited Thames Court One Queenhithe London EC4V 3DQ United Kingdom

7 March 2016

Dear Sirs

Metro Bank PLC (the "Company")

We report on the pro forma financial information (the "Pro Forma Financial Information") set out in Part XVI B: Unaudited Pro Forma Statement of Net Assets of the Company's prospectus dated 7 March 2016 (the "Prospectus" ) which has been prepared on the basis described in the notes to the Pro Forma Financial Information, for illustrative purposes only, to provide information about how the Private Placement and Admission to the premium listing segment of the Official List and to trading on the London Stock Exchange might have affected the financial information presented on the basis of the accounting policies adopted by the Company in preparing the financial statements for the period ended 31 December 2015. This report is required by item 7 of Annex II to the PD Regulation and is given for the purpose of complying with that PD Regulation and for no other purpose.

Responsibilities

It is the responsibility of the Directors of the Company to prepare the Pro Forma Financial Information in accordance with Annex II of the PD Regulation.

It is our responsibility to form an opinion, as required by item 7 of Annex II to the PD Regulation as to the proper compilation of the Pro Forma Financial Information and to report our opinion to you.

In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro Forma Financial Information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue.

Save for any responsibility which we may have to those persons to whom this report is expressly addressed and for any responsibility arising under item 5.5.3R(2)(f) of the Prospectus Rules to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation, consenting to its inclusion in the Prospectus.

Basis of opinion

We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Financial Information with the Directors of the Company.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro Forma Financial Information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company.

Our work has not been carried out in accordance with auditing standards or other standards and practices generally accepted in the United States of America and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

Opinion

In our opinion:

• a) the Pro Forma Financial Information has been properly compiled on the basis stated; and
• b) such basis is consistent with the accounting policies of the Company.

Declaration

For the purposes of Prospectus Rule 5.5.3 R(2)(f), we are responsible for this report as part of the Prospectus and we declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of Annex I to the PD Regulation.

Yours faithfully

PricewaterhouseCoopers LLP

Chartered Accountants

2 Unaudited Pro Forma Financial Information

The unaudited pro forma statement of net assets ("Unaudited Pro Forma Financial Information") of the Group set out below has been prepared on the basis set out in the notes below to illustrate the impact of the Private Placement on the net assets of the Group as at 31 December 2015 as if it had taken place at that date.

The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and, by its nature, addresses a hypothetical situation and does not, therefore, represent the Group's actual financial position or results.

The Unaudited Pro Forma Financial Information does not constitute financial statements within the meaning of Section 434 of the Act. Shareholders should read the whole of this document and not rely solely on the summarised financial information contained in Part XVI B: "Unaudited Pro Forma Statement of Net Assets". PricewaterhouseCoopers LLP's report on the Unaudited Pro Forma Financial Information is set out in Part XVI B: "Unaudited Pro Forma Statement of Net Assets".

The Unaudited Pro Forma Financial Information does not purport to represent what the Group's financial position and results of operations actually would have been if the Private Placement had been completed on the dates indicated nor do they purport to represent the results of operations for any future period or the financial condition at any future date.

PART XVI B: UNAUDITED PRO FORMA STATEMENT OF NET ASSETS

	Adjustment
	Group as at 31 December 2015	Net proceeds from Private Placement	Pro Forma Group
		£m
Assets	(Note 1)	(Note 2)
Cash and balances with the Bank of England	218	394	612
Loans and advances to banks	64	—	64
Loans and advances to customers	3,543	—	3,543
Available for sale investment securities	364	—	364
Held to maturity investment securities	1,636	—	1,636
Property, plant and equipment	165	—	165
Intangible assets	54	—	54
Prepayment and accrued income	30	(3)	27
Deferred tax asset	53	—	53
Other assets	21	—	21
Total assets	6,148	391	6,539
Liabilities
Deposits from customers	5,108	—	5,108
Repurchase agreements	562	—	562
Other liabilities	71	(3)	68
Total liabilities	5,741	(3)	5,738
Net assets	407	394	801
Common Equity Tier 1 resources(Note 3)	300		694
Common Equity Tier 1 ratio (Note 3)	13.3%		30.7%
Leverage ratio (Note 3)	4.9%		10.6%

Notes

1. The Group financial information as at 31 December 2015 has been extracted, without material adjustment, from the Group financial information in Part XV.

2.	The adjustment reflects the receipt by the Company of net proceeds from the Private Placement comprising:
	Gross Proceeds from the Private Placement	£400 million
	Less: Transaction Costs	£(7) million
	Plus Transaction Costs paid as at 31 December 2015	£1 million

Net Proceeds from the Private Placement £394 million

This adjustment also reflects both the accrued transaction costs of £3 million and prepaid issue costs of £3 million unwinding based on the transaction taking place on 31 December 2015.

1. The common equity tier 1 ratio is the total common equity tier 1 resources to risk weighted assets. Common equity tier 1 resources are set out below on both an unadjusted and on a pro forma basis. Risk weighted assets as at 31 December 2015 are £2,261 million. Risk weighted assets are unaffected by the pro forma adjustments as the cash deposits are assumed to have a zero risk weighting.

The leverage ratio is the ratio of total common equity tier 1 resources to total exposures. Common equity tier 1 resources are set out below on both an unadjusted and on a pro forma basis. Total Exposures, on an unadjusted basis and a pro forma basis are £6,147 million and £6,540 million respectively. The only adjustment being in respect to the net proceeds from the Private Placement set out in Note 2.

Common equity tier 1 resources are as follows:

	Adjustment
	Net proceeds As of 31 from the Private
Common Equity Tier 1	December 2015	Placement
		(£m)
Total Equity *	407	394	801
less intangible assets	(54)	—	(54)
less deferred tax asset	(53)	—	(53)
Total Common Equity Tier 1	300	394	694

* Total Equity includes share capital, share premium, retained earnings and other reserves.

1. No adjustment has been made to reflect to trading results of the Group since 31 December 2015.

PART XVII TAXATION

GENERAL

The comments in this Part XVII: "Taxation" are of a general nature and are not intended to be exhaustive. Any prospective investors who are in any doubt about their tax position should consult their own professional advisers immediately.

UNITED KINGDOM

The comments set out below are based on current United Kingdom tax law and HM Revenue & Customs published practice (which is not binding on HM Revenue & Customs) as at the date of this Prospectus, both of which are subject to change at any time, possibly with retrospective effect. They are intended as a general guide and apply only to Shareholders resident and, in the case of an individual, domiciled for tax purposes in the United Kingdom and to whom "split year" treatment does not apply (except insofar as express reference is made to the treatment of non-United Kingdom residents), who hold Shares as an investment and who are the absolute beneficial owners thereof. The discussion does not address all possible tax consequences relating to an investment in the Shares. Certain categories of Shareholders, including those carrying on certain financial activities, those subject to specific tax regimes or benefitting from certain reliefs or exemptions, those connected with the Company or the Group, those who hold their Shares through an Individual Savings Account or SIPP, and those for whom the Shares are employment-related securities may be subject to special rules and this summary does not apply to such Shareholders.

Shareholders or prospective shareholders who are in any doubt about their tax position, or who are resident or otherwise subject to taxation in a jurisdiction outside the United Kingdom, should consult their own professional advisers immediately.

2.1 Taxation of Dividends

The Company will not be required to withhold amounts on account of United Kingdom tax at source when paying a dividend.

Dividends paid to UK resident individual shareholders before 6 April 2016

A United Kingdom resident individual Shareholder who receives a dividend from the Company before 6 April 2016 will generally be entitled to a tax credit which may be set off against the shareholder's total income tax liability. The tax credit will be equal to 10% of the aggregate of the dividend and the tax credit (the "gross dividend"), which is also equal to one-ninth of the cash dividend received.

Therefore, a United Kingdom resident individual Shareholder who is liable to income tax at the basic rate will be subject to tax on the dividend at the rate of 10% (2015/2016) of the gross dividend, so that the tax credit will satisfy in full such Shareholder's liability to income tax on the dividend.

In the case of a United Kingdom resident individual Shareholder who is liable to income tax at the higher rate, the tax credit will be set against but not fully match the Shareholder's income tax liability on the gross dividend and such Shareholder will have to account for additional income tax equal to 22.5% (2015/2016) of the gross dividend (which is also equal to 25% of the cash dividend received) to the extent that the gross dividend, when treated as the top slice of the Shareholder's income, falls above the threshold for higher rate income tax.

In the case of a United Kingdom resident individual Shareholder who is subject to income tax at the additional rate, the tax credit will also be set against but not fully match the Shareholder's liability on the gross dividend and such Shareholder will have to account for additional income tax equal to 27.5% (2015/2016) of the gross dividend (which is also equal to approximately 30.6% of the cash dividend received) to the extent that the gross dividend, when treated as the top slice of the Shareholder's income, falls above the threshold for additional rate income tax.

A United Kingdom resident individual Shareholder who is not liable to income tax in respect of the gross dividend and other United Kingdom resident taxpayers who are not liable to United Kingdom tax on dividends will not be entitled to the tax credit attaching to dividends paid by the Company (and accordingly will not be entitled to claim repayment of the tax credit).

Although Shareholders who are within the charge to corporation tax would strictly be subject to corporation tax on dividends paid by the Company (subject to special rules for such Shareholders that are small companies) generally such dividends will fall within an exempt class and will not be subject to corporation tax (provided certain conditions are met and anti-avoidance rules are satisfied). However, each Shareholder's position will depend on its own individual circumstances and Shareholders within the charge for corporation tax should consult their own professional advisers. Should the distribution exemption not apply, the dividends will be subject to corporation tax at the rate of 20%.

Non-United Kingdom resident shareholders will not generally be able to claim repayment of any part of the tax credit attaching to dividends paid by the Company. A Shareholder resident outside the United Kingdom may also be subject to foreign taxation on dividend income under local law. Shareholders who are not resident for tax purposes in the United Kingdom should obtain their own tax advice concerning tax liabilities on dividends received from the Company.

Future changes planned to the taxation of dividends paid to UK resident shareholders on or after 6 April 2016

The UK Government has announced that the income tax system for dividends is to be reformed. Draft Finance Bill 2016 clauses to implement these changes were published in December 2015. If the clauses are enacted in their current form, from 6 April 2016, the 10% tax credit described above will be abolished. A UK resident individual shareholder in receipt of a dividend from the Company on or after 6 April 2016 will instead receive a new annual dividend allowance in the form of a 0% tax rate on the first £5,000 of dividend income. The new rates of income tax on dividends received above the annual dividend allowance will be 7.5% (for basic rate taxpayers), 32.5% (for higher rate taxpayers) and 38.1% (for additional rate taxpayers). Dividend income that is within the dividend allowance will still count towards an individual's basic or higher rate limits. Dividend income will still be treated as the top slice of a shareholder's income. The above statements are based on draft legislation and other publicly available information to date, both of which could be subject to change. The Government issued a consultation document in December 2015 on the tax rules for company distributions.

2.2 Taxation of Capital Gains

Shareholders who are resident in the United Kingdom, and individual Shareholders who are temporarily non-resident for a period of five years or less and subsequently resume residence in the United Kingdom, may, depending on their circumstances and the availability of exemptions or reliefs (including, for example, the annual exempt amount for individuals and indexation allowance for corporate Shareholders), be liable to United Kingdom taxation on chargeable gains in respect of gains arising from a sale or other disposal (or deemed disposal) of the Shares.

2.3 Inheritance Tax

The Shares will be assets situated in the United Kingdom for the purposes of United Kingdom inheritance tax. A gift of such assets by, or the death of, an individual holder of such assets may (subject to certain exemptions and reliefs) give rise to a liability to United Kingdom inheritance tax, even if the holder is neither domiciled in the United Kingdom nor deemed to be domiciled there (under certain rules relating to long residence or previous domicile). Generally, United Kingdom inheritance tax is not chargeable on gifts to individuals if the transfer is made more than seven complete years prior to the death of the donor. For inheritance tax purposes, a transfer of assets at less than full market value may be treated as a gift, and particular rules apply to gifts where the donor reserves or retains some benefit. Special rules also apply to close companies and to trustees of settlements who hold Shares bringing them within the charge to inheritance tax. Holders of Shares should consult an appropriate professional adviser if they intend to make a gift of any kind or transfer Shares at less than market value, or intend to hold Shares through such a company or trust arrangement. They should also seek professional advice in a situation where there is potential for a double charge to United Kingdom inheritance tax and an equivalent tax in another country or if they are in any doubt about their United Kingdom inheritance tax position.

2.4 Stamp Duty and Stamp Duty Reserve Tax ("SDRT")

The statements in this section entitled "Stamp Duty and Stamp Duty Reserve Tax ("SDRT")" are intended as a general guide to the current United Kingdom stamp duty and SDRT position. Investors should note that certain categories of person are not liable to stamp duty or SDRT and others may be liable at a higher rate or may, although not primarily liable for tax, be required to notify and account for SDRT under the Stamp Duty Reserve Tax Regulations 1986.

Issue

No stamp duty or SDRT will arise on the issue of Shares by the Company. In the case of shares issued to a clearance service or depositary receipt system, this is as a result of case law which has been accepted by HM Revenue & Customs.

Transfer outside of Depositary Receipt Systems and Clearance Services

An agreement to transfer Shares will normally give rise to a charge to SDRT at the rate of 0.5% of the amount or value of the consideration payable for the transfer. SDRT is, in general, payable by the purchaser.

Instruments transferring Shares will generally be subject to stamp duty at the rate of 0.5% of the consideration given for the transfer (rounded up to the next £5). The purchaser normally pays the stamp duty. An exemption from stamp duty is available on an instrument transferring Shares in cases where the amount or value of the consideration provided is £1,000 or less and a certification is made on the instrument that the transaction effected by the instrument does not form part of a larger transaction or series of transactions in respect of which the aggregate amount or value of the consideration provided exceeds £1,000.

If a duly stamped (or exempt) transfer completing an agreement to transfer is produced within six years of the date on which the agreement is made (or, if the agreement is conditional, the date on which the agreement becomes unconditional), any SDRT already paid is generally repayable, normally with interest, and any SDRT charge yet to be paid is cancelled.

Transfers within CREST

Paperless transfers of Shares within the CREST system are generally liable to SDRT, rather than stamp duty, generally at the rate of 0.5% of the amount or value of the consideration payable. CREST is obliged to collect SDRT on relevant transactions settled within the CREST system. Deposits of shares into CREST will not generally be subject to SDRT or stamp duty, unless the transfer into CREST is itself for consideration, in which case a charge to SDRT will arise at the rate of 0.5% on the value of that consideration.

Transfers to and within Depositary Receipt Systems and Clearance Services

HM Revenue & Customs is of the view that where shares are transferred (a) to, or to a nominee or an agent for, a person whose business is or includes the provision of clearance services or (b) to, or to a nominee or an agent for, a person whose business is or includes issuing depositary receipts, stamp duty or SDRT will generally be payable at the higher rate of 1.5% of the amount or value of the consideration given or, in certain circumstances, the value of the shares.

There is an exception from the 1.5% charge on the transfer to, or to a nominee or agent for, a clearance service where the clearance service has made and maintained an election under section 97A(1) of the Finance Act 1986 which has been approved by HM Revenue & Customs and which applies to the Shares. In these circumstances, SDRT at the rate of 0.5% of the amount or value of the consideration payable for the transfer will arise on any transfer of shares into such an account and on subsequent agreements to transfer such shares within such account.

Any liability for stamp duty or SDRT in respect of a transfer into a clearance service or depositary receipt system, or in respect of a transfer within such a service, which does arise will strictly be accountable by the clearance service or depositary receipt system operator or their nominee, as the case may be, but will, in practice, be payable by the participants in the clearance service or depositary receipt system.

2.5 The proposed Financial Transactions Tax ("FTT")

On 14 February 2013, the European Commission published a proposal (the "Commission's Proposal") for a Directive for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the "participating Member States").

The Commission's Proposal has very broad scope and could, if introduced, apply to certain dealings in shares (including secondary market transactions) in certain circumstances.

Under the Commission's Proposal, the FTT could apply, in certain circumstances, to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in Shares where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, 'established' in a participating Member State in a broad range of circumstances, including (i) by transacting with a person established in a participating Member State or (ii) where the financial instrument which is subject to the dealings is issued in a participating Member State.

However, the FTT proposal still remains subject to negotiation between participating Member States and may be altered prior to any implementation, the timing of which remains unclear. Estonia has indicated a wish to withdraw from the Commission's proposal and additional EU Member States may decide to participate. Prospective holders of Shares are advised to seek their own professional advice in relation to the FTT.

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

1 General

The following is a summary of certain U.S. federal income tax consequences of the acquisition, ownership and disposition of Shares by a U.S. Holder (as defined below). This summary deals only with initial purchasers of Shares that are U.S. Holders that will hold the Shares as capital assets. The discussion does not cover all aspects of U.S. federal income taxation that may be relevant to, or the actual tax effect that any of the matters described herein will have on, the acquisition, ownership or disposition of Shares by particular investors (including consequences under the alternative minimum tax or the Medicare tax on net investment income), and does not address state, local, non-U.S. or other tax laws. This summary also does not address tax considerations applicable to investors that own (directly, indirectly or by attribution) 5% or more of the voting stock of the Company, nor does this summary discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under the U.S. federal income tax laws (such as financial institutions, insurance companies, individual retirement accounts and other tax-deferred accounts, tax-exempt organisations, dealers in securities or currencies, investors that will hold the Shares as part of straddles, hedging transactions or conversion transactions for U.S. federal income tax purposes, persons that have ceased to be U.S. citizens or lawful permanent residents of the United States, investors holding the Shares in connection with a trade or business conducted outside of the United States, U.S. citizens or lawful permanent residents living abroad or investors whose functional currency is not the U.S. dollar).

As used herein, the term "U.S. Holder" means a beneficial owner of Shares that is, for U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation created or organised under the laws of the United States or any State thereof, (iii) an estate the income of which is subject to U.S. federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or the trust has validly elected to be treated as a domestic trust for U.S. federal income tax purposes.

The U.S. federal income tax treatment of a partner in an entity or arrangement treated as a partnership for U.S. federal income tax purposes that holds Shares will depend on the status of the partner and the activities of the partnership. Prospective purchasers that are entities or arrangements treated as partnerships for U.S. federal income tax purposes should consult their tax advisers concerning the U.S. federal income tax consequences to them and their partners of the acquisition, ownership and disposition of Shares by the partnership.

Except as otherwise noted, the summary assumes that the Company will not be a PFIC for U.S. federal income tax purposes, which the Company believes to be the case for its current taxable year and for the foreseeable future. The Company's possible status as a PFIC must be determined annually and therefore may be subject to change. If the Company were to be a PFIC in any year, materially adverse consequences could result for U.S. Holders. This discussion does not consider the Company's potential status as a PFIC for prior taxable years. Purchasers who currently own shares in the Company should consult their own tax advisors regarding the potential application of the PFIC regime to them of acquiring, owning and disposing of the Shares.

This summary is based on the tax laws of the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as of the date hereof and all subject to change at any time, possibly with retroactive effect.

THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED TO BE RELIED UPON BY

PURCHASERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED UNDER THE U.S. INTERNAL REVENUE CODE. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING, AND DISPOSING OF THE SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.

2 Dividends

2.1 General

Distributions paid by the Company out of current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) generally will be taxable to a U.S. Holder as foreign source dividend income, and will not be eligible for the dividends received deduction allowed to corporations with respect to certain dividends. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the U.S. Holder's basis in the Shares and, thereafter, as capital gain. However, the Company does not maintain calculations of its earnings and profits in accordance with U.S. federal income tax accounting principles. U.S. Holders should therefore assume that any distribution by the Company with respect to Shares will be reported as ordinary dividend income. U.S. Holders should consult their own tax advisers with respect to the appropriate U.S. federal income tax treatment of any distribution received from the Company.

So long as the Shares are "regularly traded" on the London Stock Exchange within the meaning of the income tax treaty between the United States and the United Kingdom, and certain other requirements are met, dividends paid by the Company generally would be taxable to a non-corporate U.S. Holder at the reduced rate normally applicable to long-term capital gains. A U.S. Holder will not be able to claim the reduced rate on dividends received from the Company if the Company is treated as a PFIC in the taxable year in which the dividends are received or in the preceding taxable year. See "Passive Foreign Investment Company Considerations" below.

2.2 Dividends Paid in Sterling

Dividends paid in sterling will be included in income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the dividends are received by the U.S. Holder, regardless of whether the sterling are converted into U.S. dollars at that time. If dividends received in sterling are converted into U.S. dollars at the spot rate in effect on the day they are received, the U.S. Holder generally will not be required to recognise foreign currency gain or loss in respect of the dividend income.

3 Sale or other Disposition

Upon a sale or other disposition of Shares, a U.S. Holder generally will recognise capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount realised on the sale or other disposition and the U.S. Holder's adjusted tax basis in the Shares. This capital gain or loss will be long-term capital gain or loss if the U.S. Holder's holding period in the Shares exceeds one year. Any gain or loss generally will be U.S. source.

A U.S. Holder's tax basis in a Share generally will be its U.S. dollar cost. The U.S. dollar cost of a Share purchased with sterling generally will be the U.S. dollar value of the purchase price on the date of purchase, or, in the case of Shares traded on an established securities market, within the meaning of the applicable Treasury Regulations, that are purchased by a cash basis U.S. Holder (or an accrual-basis U.S. Holder that so elects), the settlement date for the purchase. The amount realised on a sale or other disposition of Shares for an amount in sterling generally will be the U.S. dollar value of this amount on the date of sale or disposition. On the settlement date, the U.S. Holder generally will recognise U.S. source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the U.S. dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date. However, in the case of Shares traded on an established securities market that are sold by a cash-basis U.S. Holder (or an accrual-basis U.S. Holder that so elects), the amount realised will be based on the exchange rate in effect on the settlement date for the sale, and no exchange gain or loss will be recognised at that time. The election by an accrual basis U.S. Holder discussed above must be applied consistently from year to year and cannot be revoked without the consent of the U.S. Internal Revenue Service (the "IRS").

4 Disposition of Sterling

Sterling received on the sale or other disposition of a Share will have a tax basis equal to the U.S. dollar value on the settlement date. Sterling that is purchased generally will have a tax basis equal to the U.S. dollar value of the sterling on the date of purchase. Any gain or loss recognised on a sale or other disposition of sterling (including its use to purchase Shares or upon exchange for U.S. dollars) will be U.S. source ordinary income or loss.

5 Passive Foreign Investment Company Considerations

A non-U.S. corporation will be a PFIC in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to applicable "look-through rules", either (i) at least 75% of its gross income is "passive income" or (ii) at least 50% of the average value of its assets is attributable to assets which produce passive income or are held for the production of passive income. The Company does not believe that it should be treated as a PFIC for its current taxable year or in the foreseeable future. Although interest income generally is passive income, a special rule allows banks to treat their income from an active banking business, including interest on loans to customers, as non-passive. To qualify for this rule, a bank must satisfy certain requirements regarding its licensing and activities. The Company believes that it currently meets these requirements. The Company's possible status as a PFIC must be determined annually, however, and may be subject to change. This determination will depend in part on whether the Company qualifies under this special rule for any year in which a U.S. Holder holds Shares, as well as on the composition and market valuation of the Company's assets and the Company's utilization of the proceeds of the Offer.

If the Company were to be treated as a PFIC in any year during which a U.S. Holder owns Shares and the U.S. Holder has not made a mark-to-market election (as described below), the U.S. Holder generally would be subject to special rules (regardless of whether the Company continued to be a PFIC) with respect to (i) any "excess distribution" (generally, any distributions received by the U.S. Holder on the Shares in a taxable year that are greater than 125% of the average annual distributions received by the U.S. Holder in the three preceding taxable years or, if shorter, the U.S. Holder's holding period for the Shares), (ii) any gain realised on the sale or other disposition of Shares, and (iii) additional reporting requirements regarding the U.S. Holder's ownership of Shares. Under these rules (a) the excess distribution or gain would be allocated rateably over the U.S. Holder's holding period, (b) the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which the Company is a PFIC would be taxed as ordinary income, and (c) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. If the Company were to be a PFIC, a U.S. Holder of Shares generally would be subject to similar rules with respect to distributions to the Company by, and dispositions by the Company of the stock of, any direct or indirect subsidiaries of the Company that are also PFICs. Additionally, dividends paid by the Company would not be eligible for the reduced rate of tax described above under "Dividends—General".

U.S. Holders could avoid the interest charge described above if the Company were to be treated as a PFIC by making a mark-to-market election with respect to the Shares, provided that the Shares are "marketable". The Company expects the Shares will be marketable so long as they are "regularly traded" on the London Stock Exchange. For these purposes, the Shares would be considered regularly traded during any calendar year during which they are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Any trades that have as their principal purpose meeting this requirement would be disregarded.

A U.S. Holder that makes a mark-to-market election must include in ordinary income for each year an amount equal to the excess, if any, of the fair market value of the Shares at the close of the taxable year over the U.S. Holder's adjusted basis in the Shares. An electing holder may also claim an ordinary loss deduction for the excess, if any, of the U.S. Holder's adjusted basis in the Shares over the fair market value of the Shares at the close of the taxable year, but this deduction is allowable only to the extent of any net mark-to-market gains for prior years. Gains from an actual sale or other disposition of the Shares would be treated as ordinary income, and any losses incurred on a sale or other disposition of the Shares would be treated as an ordinary loss to the extent of any net mark-to-market gains for prior years and any additional loss would be capital loss. Dividends paid by the Company still would not be subject to the favourable dividend rate discussed above with respect to dividends paid to certain non-corporate U.S. Holders. Once made, the election cannot be revoked without the consent of the IRS unless the Shares cease to be marketable. If the Company is a PFIC for any year in which the U.S. Holder owns the Shares but before a mark-to-market election is made, the interest charge rules described above would apply to any mark-to-market gain recognised in the year the election is made. Because a mark-to-market election cannot be made for equity interests in any lower-tier PFICs the Company holds an interest in, a U.S. Holder generally would continue to be subject to the PFIC rules with respect to its indirect interest in any investments held by the Company that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.

Prospective purchasers should consult their tax advisers regarding the potential application of the PFIC regime to the their investment in the Shares, including, for purchasers who currently own shares in the Company, the potential application of the PFIC regime to them if the Company was a PFIC for any prior year during which such purchasers held their shares in the Company.

6 Backup Withholding and Information Reporting

Payments of dividends and other proceeds with respect to Shares by a U.S. paying agent or other U.S. intermediary will be reported to the IRS and to the U.S. Holder as may be required under applicable regulations. Backup withholding may apply to these payments if the U.S. Holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to comply with applicable certification requirements. Certain U.S. Holders are not subject to backup withholding. U.S. Holders should consult their tax advisers about these rules and any other reporting obligations that may apply to the ownership or disposition of Shares, including requirements related to the holding of certain foreign financial assets.

7 Transfer Reporting Requirements

A U.S. Holder who purchases Shares may be required to file Form 926 (or similar form) with the IRS in certain circumstances. A U.S. Holder who fails to file any such required form could be required to pay a penalty equal to 10% of the gross amount paid for the Shares (subject to a maximum penalty of U.S.\$100,000, except in cases of intentional disregard). U.S. Holders should consult their tax advisers with respect to this or any other reporting requirement that may apply to an acquisition of the Shares.

8 FATCA Withholding

Pursuant to certain provisions of U.S. law, commonly known as FATCA, a "foreign financial institution" may be required to withhold on certain payments it makes ("foreign passthru payments") to persons that fail to meet certain certification, reporting, or related requirements. A number of jurisdictions (including the United Kingdom) have entered into, or have agreed in substance to, intergovernmental agreements with the United States to implement FATCA ("IGAs"), which modify the way in which FATCA applies in their jurisdictions. Certain aspects of the application of these rules to instruments such as the Shares, including whether withholding would ever be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Shares, are not entirely clear at this time. Even if withholding would be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Shares, such withholding would not apply to foreign passthru payments prior to 1 January 2019. Holders should consult their own tax advisers regarding how these rules may apply to their investment in the Shares.

PART XVIII ADDITIONAL INFORMATION

1 Responsibility

The Company and the Directors, whose names and principal functions are set out in Part VIII: "Directors, Senior Management and Corporate Governance", accept responsibility for the information contained in this Prospectus. To the best of the knowledge of the Company and the Directors (each of whom has taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.

2 Incorporation

• 2.1 The Company was incorporated and registered in England and Wales under the Companies Act 1985 on 6 November 2007, with the registered number 6419578, as a private company limited by shares under the name Metro Bank Limited. It re-registered as a public limited company under the name Metro Bank PLC on 29 September 2009.
• 2.2 The Company's registered office and principal place of business is at One Southampton Row, London WC1B 5HA, United Kingdom (telephone number: 0345 08 08 500).
• 2.3 The Company was granted authorisation by the Financial Services Authority in March 2010 and received a Consumer Credit Act licence from the Office of Fair Trading in August 2009.

3 Share capital

The share capital history of the Company is as follows:

• 3.1 On incorporation, the issued share capital of the Company was £100 consisting of 100 ordinary shares of £1 each.
• 3.2 On 17 September 2009, the Company, by ordinary resolution of the Board, resolved that the 100 ordinary shares of £1 each be sub-divided into 1,000,000 ordinary shares of 0.0001 pence each. 2,000,000 of those ordinary shares of 0.0001 pence each were then redesignated as 1,000,000 A Ordinary Shares of 0.0001 pence each and 1,000,000 Deferred A Shares of 0.0001 pence each. 97,000,000 of the 98,000,000 authorised but unissued shares of 0.0001 pence each were redesignated A Ordinary Shares and the remaining 1,000,000 authorised but unissued shares of 0.0001 pence each were redesignated as 1,000,000 B Ordinary Shares of 0.0001 pence each. The authorised share capital was increased from £100 to £50,100 by the creation of 50,000 new Preference Shares of £1 each.
• 3.3 In March 2010, the Company had an issued share capital of £50,012.945 consisting of 11,000,000 A Ordinary Shares of 0.0001 pence each, 945,000 B Ordinary Shares of 0.0001 pence each, 1,000,000 Deferred A Shares of 0.0001 pence each and 50,000 Preference Shares of £1 each. All issued Preference Shares were redeemed by the Company on 4 March 2010.
• 3.4 As of 31 December 2010, the Company had issued 16,750,000 A Ordinary Shares of 0.0001 pence, having issued 5,750,000 A Ordinary Shares during the year. As of the same date, the Company had issued 1,000,000 B Ordinary Shares, having issued these to staff and Non-Executive Directors.

• 3.5 On 22 February 2011, the Company cancelled the Deferred A Ordinary Shares of 0.0001 pence each.

• 3.6 On 8 June 2012, the Company allotted 12,650,000 A Ordinary Shares at a nominal value of 0.0001 pence each, having then overall issued 29,400,000 A Ordinary Shares of 0.0001 pence each.

• 3.7 On 16 December 2013, the Company allotted 22,115,384 A Ordinary Shares at a nominal value of 0.0001 pence each. At 31 December 2013, the Company had issued 51,515,384 A Ordinary Shares of 0.0001 pence each.
• 3.8 On 21 January 2014, the Company allotted 7,692,308 A Ordinary Shares of 0.0001 pence each. At 31 December 2014 the Company had issued 59,207,692 A Ordinary Shares of 0.0001 pence each.
• 3.9 As a result of Admission, 900,818 B Ordinary Shares will convert to A Ordinary Shares, following which the A Ordinary Shares will be redesignated as Shares. The remainder of the B Ordinary Shares will automatically be deferred.
• 3.10 In accordance with the terms of the Project Revolution Awards described in paragraph 12.13 of this Part XVIII: "Additional Information", the Directors have allotted 152,130 Shares conditional on Admission.
• 3.11 On Admission, the Company will have an issued share capital of 80,260,640 Shares.¹
• 3.12 On 4 March 2016, the following resolutions were passed by the Shareholders at a general meeting of the Company:
• 3.12.1 that, subject to and conditional upon Admission, in place of any existing authority conferred upon them for the purpose of Section 551 of the Companies Act, the Directors be generally and unconditionally authorised pursuant to and in accordance with Section 551 of the Act to exercise all powers of the Company to allot and to make offers or agreements to allot shares or grant rights to subscribe shares or convert any securities into shares (for a period expiring on 3 March 2021 (unless previously renewed, varied or revoked by the Company in general meeting)):
  • (a) up to an aggregate nominal amount of £28.37; and
  • (b) up to a further aggregate nominal amount of £28.37 in connection with an offer by way of a rights issue;
• 3.12.2 that, subject to and conditional upon Admission, the Directors be given power to make allotments of equity securities (as defined in Section 560(1) of the Act) wholly for cash (for a period expiring on 3 March 2021 (unless previously renewed, varied or revoked by the Company in general meeting)):
  • (a) pursuant to the authority given by paragraph 3.12.1(a) above and to sell shares which are held in treasury pursuant to Section 560(3) of the Act and, in each case:
  • (i) in connection with a pre-emptive offer; and
  • (ii) otherwise than in connection with a pre-emptive offer, up to an aggregate nominal amount of £8.51; and
  • (b) pursuant to the authority given by paragraph 3.12.1(b) above in connection with a preemptive rights issue,
• 3.12.3 as if Section 561(1) of the Act did not apply to any such allotment; and

¹ Taking into account the conversion of 900,818 B Shares into Shares and the issue of 152,130 Shares in connection with the Project Revolution Awards (as described in paragraph 12.13 below).

• 3.12.4 that, subject to and conditional upon Admission, the Company be generally and unconditionally authorised for the purposes of Section 701 of the Act, to make one or more market purchases (within the meaning of Section 693(4) of the Act) of Shares, subject to the following restrictions and provisions (for a period expiring on 3 March 2021 (unless previously renewed, varied or revoked by the Company in general meeting)):
• (a) the maximum number of Shares authorised to be purchased is the number equal to 10% of the Company's issued share capital at Admission;
• (b) the minimum price, exclusive of any expenses, which may be paid for a Share is 0.0001 pence;
• (c) the maximum price, exclusive of any expenses, which may be paid for a Share shall be the higher of:
  • (I) an amount equal to 5% above the average of the middle market quotations for Shares taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which such shares are contracted to be purchased; and
  • (II) the higher of the price of the last independent trade and the highest current independent bid on the London Stock Exchange Daily Official List at the time that the purchase is carried out.

4 Dividends

As a growth company, the Company does not intend to pay a dividend in the near term.

5 Articles of Association

The Articles have been adopted with effect from Admission and contain, among others, provisions to the following effect:

5.1 Shares

5.1.1 Share rights

The Company may issue shares with such rights or restrictions as determined by either the Company by ordinary resolution or, if authorised by the Company, the Directors. The Company may issue redeemable shares with such terms and conditions as the Directors may determine.

5.1.2 Voting rights

Where there is a vote on a show of hands, a Shareholder present at a meeting in person or by proxy has one vote. Where there is a poll, a Shareholder present in person or by proxy has one vote for every Share which they hold or represent. This is subject to any special rights or restrictions which are given to a class of shares and to the Articles. Unless the Directors resolve otherwise, no member shall be entitled to vote either in person or by proxy, or exercise any other right in relation to general meetings, if any call of other sum due from him to the Company in respect of that Share remains unpaid.

5.1.3 Variation of rights

Subject to the provisions of the Companies Act, all or any of the rights attached to any class of Shares may from time to time be varied either with the consent in writing of the holders of not less than 75% in nominal value of Shares of that class (excluding Shares held as treasury shares) or by special resolution of the holders of those Shares.

5.1.4 Transfer of Shares

The Shares shall be freely transferable. Transfers of certificated shares must be effected in writing and signed by or on behalf of the transferor. The Directors may decline to register any transfer of a certificated Share, unless the conditions set out in the Articles are complied with. Transfers of uncertificated shares may be effected by means of a relevant system (i.e. CREST) unless the CREST Regulations provide otherwise.

5.1.5 Restrictions where notice not complied with

Where the Company sends out a statutory notice under section 793 of the Companies Act requiring information about interests in Shares and the recipient of the notice fails to supply the information within the time specified in it, the Directors may take steps set out in the Articles, including, among others, preventing the recipient from attending or voting at a Shareholders' meeting.

5.1.6 Conditions governing the manner in which annual general meetings and general meetings are called

An annual general meeting shall be held in the six months' period following the Company's accounting reference date, at such place or places, date and time as may be decided by the Directors. The Directors may, whenever they think fit, call a general meeting.

Notice of general meetings shall include all information required by the Companies Act 2006 and shall be given to all members entitled to receive such notices under the provisions of the Articles. The Board can specify in the notice of meeting a time by which a person must be entered on the Company's share register in order to have the right to attend or vote at the meeting. The time specified must not be more than 48 hours before the time fixed for the meeting.

No business other than the appointment of a chairman shall be transacted at any general meeting unless a quorum is present at the time when the meeting proceeds to business. Two members present in person or by proxy shall constitute a quorum.

The Directors may decide that a general meeting shall be held at two or more locations to facilitate the administration of such meeting or may require attendees to submit to searches or put in place such arrangements or restrictions as they think fit to ensure the safety and security of attendees at a general meeting.

5.2 Directors

5.2.1 General powers

The Directors shall manage the business and affairs of the Company and may exercise all powers of the Company other than those that are required by the Companies Act 2006 or by the Articles to be exercised by the Company at a general meeting.

5.2.2 Number of Directors

The Directors shall not be less than two or more than 12 in number save that the Company may, by ordinary resolution, from time to time vary the minimum number and/or maximum number of Directors.

5.2.3 Share qualification

The Directors are not required to hold any Shares.

5.2.4 Directors' fees

Directors' fees are determined by the Directors from time to time except that they may not exceed £3 million per annum in aggregate or such higher amount as may from time to time be determined by ordinary resolution of the Shareholders. Directors who hold any executive office, or who serve on any committee of the Directors, or who otherwise perform services which in the opinion of the Directors are beyond the scope of the ordinary duties of a Director, may be paid extra remuneration as the Directors may determine.

5.2.5 Directors' retirement

Each Director shall retire at the annual general meeting held in the third calendar year initially following listing and subsequently, or for Directors appointed after listing, at the annual general meeting held in the third calendar year following the year in which he was elected or last reelected by the Company. Any Director who retires at an annual general meeting may offer himself for re-appointment by the Shareholders. In accordance with the UK Corporate Governance Code, each Director will be subject to annual re-election by Shareholders.

5.2.6 Removal of a Director by resolution of Company

The Shareholders may, by ordinary resolution of which special notice is given, remove any Director before the expiration of his period of office in accordance with the Companies Act, and elect another person in place of a Director so removed from office.

5.2.7 Proceedings of the Board

The Board can decide when and where to have meetings and how they will be conducted. If no other quorum is fixed by the Board, two Directors constitute a quorum. A Board meeting at which a quorum is present can exercise all the powers and discretions of the Board. The Board can appoint and remove any Director as chairman or as deputy chairman. Matters will be decided by a majority vote. If votes are equal, the chairman shall be entitled to a casting vote.

The Directors may delegate any of their powers or discretions, including those involving the payment of remuneration or the conferring of any other benefit to the Directors, to such person or committee and in such manner as they think fit.

5.2.8 Directors' interests

In accordance with the Companies Act, the Directors have the power to authorise matters giving rise to a breach of each Director's duty to avoid a situation in which he has an interest that conflicts (or might conflict) with the interests of the Company. The Articles set out the process through which this authorisation can be granted, as well as an exhaustive list of generally permissible interests for which specific authorisation is not required.

The Articles also provide that Directors have no voting rights in relation to matters in which they are interested and cannot count in the quorum at a meeting to consider a resolution on such a matter. There are limited exceptions such as where the Director's interest cannot reasonably by regarded as likely to give rise to a conflict of interest.

5.2.9 Restrictions on voting

Subject to certain exceptions set out in the Articles, a Director cannot vote on, or be counted in a quorum in relation to, any resolution of the Board on any matter in which he has an interest and, if he does vote, his vote will not be counted. Subject to the Companies Act, the Shareholders may by ordinary resolution suspend or relax to any extent the provisions relating to Directors' interests or restrictions on voting.

5.2.10 Confidential Information

If a Director obtains (otherwise than through his position as a Director) information that is confidential to a third party, the Director will not be obliged to disclose that information to the Company, or to use or apply the information in relation to the Company's affairs, where to do so would amount to a breach of that confidence.

5.2.11 Borrowing powers

The Directors may exercise all the powers of the Company to borrow money, mortgage or charge all or any part or parts of its undertaking, property and uncalled capital, and issue debentures and other securities whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

5.2.12 Directors' liabilities

As far as the Companies Act allows this, the Company can indemnify any Director or former Director of the Company or of any associated company against any liability and can purchase and maintain insurance against any liability for any Director or former Director of the Company or of any associated company.

5.3 Dividends

The Company may, by ordinary resolution, declare final dividends to be paid to the Shareholders. However, no dividend shall be declared unless it has been recommended by the Directors and does not exceed the amount recommended by the Directors. The Directors may also pay interim dividends in amounts and on dates and periods as they think fit.

6 Directors and Senior Managers of the Company

• 6.1 The Directors and Senior Managers and their functions within the Company and brief biographies are set out in Part VIII: "Directors, Senior Management and Corporate Governance".
• 6.2 The companies and partnerships of which the Directors and Senior Managers are, or have been, within the past five years, members of the administrative, management or supervisory bodies or partners (excluding the Company and its subsidiaries, and also excluding the subsidiaries of the companies listed below) are as follows:

Name	Current directorships/partnerships	Former directorships/partnerships
Vernon W. Hill, II	Site Development Inc. and various other related entities2	Hill-Townsend Capital, LLC
	US Restaurants Inc.	JVSW, LLC
	Fetch Inc. (Petplan North America)
	Galloway National Golf Club Inc.
	Interarch, Inc.
Craig Donaldson	THECITYUK	None
	Banking Standards Board
Michael Brierley	None	None
Stuart Bernau	Almericus LLP	Nationwide Pension Fund Nominee Ltd
	Bernau Consulting Limited	Nationwide Pension Fund Trustee Limited
	Bernau Estates LLP	Standard Financial Group Limited
		Minchinhampton Golf Club Limited
		Fantastic Tackle Group Ltd
Keith Carby	Caerus Capital Group Limited	None
	Foster Denovo plc
	AETNA, Inc.
	Progressive Corporation
Lord Flight	Investec Asset Management Limited	Arden Partners PLC
	Flight & Barr Limited	Arden Partners EBT Limited
	Gulf Overseas Investment Fund Limited	CorporActive Fund (Cayman)
	The EIS Association Limited	Loudwater Trust Limited (Guernsey)
	CIM Investment Management Limited
	Marechale Capital PLC
	Flight and Partners Limited

² Site Development Inc. is an umbrella company of a number of U.S. real estate single purpose vehicle entities of which Vernon W. Hill, II is also a director.

Name	Current directorships/partnerships	Former directorships/partnerships
	Downing Four VCT PLC
	Aurora Investment Trust plc
	AIT Trading Limited
	Edge Performance VCT Public Limited Company
	Investec Asset Management Holdings (Proprietary) Limited
	R5 FX Ltd.
Alastair (Ben) Gunn	Robert Owen Communities	Iress (UK) Limited
	The Gunn Pub Company Limited	Avelo plc
		Aviva Insurance UK Limited
		Aviva Life Holdings UK Limited
Eugene Lockhart	MissionOG LLC	First Republic Bank
	GAPCO LLC	MasterCard Inc
	Huron Consulting Gruo (NASD: HURN)	IMS Health
	Aaron's Inc (NASD: AAN)	Asset Acceptance
	Avant LLP	Electronic Clearing House
	Factor Trust LLP	Netspend Inc
	Accurate Information Group LLP	Argus Information LLP
	Acculynk LLP	Vesta LLP
	Pay 4 Later LLP	Harbor Payments LLP
	INGO LLP
	Community Choice Holdings LLP
	NuBank
	Behalf LLC
	Tory Burch	Ralph Lauren Corporation
Roger Farah
Sir Michael Snyder	Kingston Smith LLP	London Metropolitan University Limited
	Kingston Smith & Partners	London Business Loans

Name

Current directorships/partnerships

Devonshire Corporate Services LLP Kingston Smith Consulting LLP

Kingston Smith Pension Trustees LLP Balanced People Limited

Devonshire Group Services Ltd

Devonshire Publishing Ltd

Finsbury 123 Ltd

HR Insight Ltd

Kingston Smith Advisers Ltd

Kingston Smith Financial Advisers Ltd

Kingston Smith Financial Services Ltd

Kingston Smith Group Services Ltd

Kingston Sorel International

KSI Logo Ltd

KSLS Management Ltd

Letchford House Management Ltd

St Peter's Street Developments Ltd

VAT Agents Ltd

GLE Loan Finance Limited

Bramdean Consultants LLP

Crossrail Art Foundation

Former directorships/partnerships

LLP (Wholesale) Limited

Devonshire Corporate Finance Ltd

Kingston Smith Corporate Finance Ltd

Blacktower Financial Advisers Limited

Devonshire House (Nominees) Limited

Invest in Thames Gateway London Limited

St Peter's Homes Development Limited

Name Current directorships/partnerships Former

		directorships/partnerships
Aileen Gillan	None	None
Aisling Kane	None	None
Paul Riseborough	None	None
Danielle Harmer	None	None
Iain Kirkpatrick	None	None
Ian Walters	None	None
Mark Stokes	None	None
Chit Ghee Yeoh	None	None

Save as set out above, none of the Directors or the Senior Managers has any business interests, or perform any activities, outside Metro Bank which are significant with respect to Metro Bank.

• 6.3 There are no family relationships between any Directors or Senior Managers.
• 6.4 As of the date of this Prospectus, none of the Directors or Senior Managers has, at any time within the last five years:
• 6.4.1 had any prior convictions in relation to fraudulent offences;
• 6.4.2 been declared bankrupt or been the subject of any individual voluntary arrangement;
• 6.4.3 been associated with any bankruptcies, receiverships or liquidations when acting in the capacity of a member of the administrative, management or supervisory body or of a senior manager;
• 6.4.4 been subject to any official public incrimination and/or sanction by any statutory or regulatory authority (including designated professional bodies);
• 6.4.5 been disqualified by a court from acting in the management or conduct of the affairs of any issuer;
• 6.4.6 been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of any issuer;
• 6.4.7 been a partner or senior manager in a partnership which, while they were a partner or within 12 months of them ceasing to be a partner, was put into compulsory liquidation or administration or which entered into any partnership voluntary arrangement;
• 6.4.8 owned any assets which have been subject to a receivership or been a partner in a partnership subject to a receivership where they were a partner at the time or within the 12 months preceding such event; or

• 6.4.9 been an executive director or senior manager of a company which has been placed in receivership, compulsory liquidation, creditors' voluntary liquidation or administration or which entered into any company voluntary arrangement or any composition or arrangement with its creditors generally or any class of creditors, at any time during which they were an executive director or senior management of that company or within 12 months of them ceasing to be an executive director or senior manager.

• 6.5 Until July 2007, Mr Hill served as the President and Chief Executive Officer of Commerce Bank N.A. and its parent company, Commerce Bancorp, Inc., and as Chairman of the Board of Commerce Bancorp, Inc. (collectively "Commerce Bank"). During and after Mr Hill's tenure at Commerce Bank, the U.S. Office of the Comptroller of the Currency ("OCC") and the U.S. Securities and Exchange Commission made certain inquiries into transactions involving Commerce Bank and related parties to Mr Hill (including InterArch (see paragraph 18 below). Commerce Bank also appointed a special litigation committee to investigate allegations in shareholder actions that had been filed relating to similar issues. The shareholder actions were settled and the special litigation committee issued no finding of wrongdoing on the part of Mr Hill.

• 6.6 In November 2008, Mr Hill entered into a stipulation and consent order with the OCC (the "Order"). The Order requires that Mr Hill report future real estate transactions with any U.S. insured financial institution associated with him to the board and the audit committee of the relevant financial institution. Additionally, in certain circumstances, when Mr Hill is an officer, director or major shareholder of these institutions, the Order mandated that the financial institution must obtain an opinion from an independent accounting or other firm with appropriate expertise that any proposed real estate transaction involving a related party to Mr Hill is fair. The Order does not apply to Mr Hill's activities with Metro Bank. The Order also did not contain any adjudicatory finding of any violation of applicable U.S. law or regulation by Mr Hill and did not restrict Mr Hill's ability to serve as an officer or director of a U.S. insured financial institution.
• 6.7 The aggregate remuneration paid and benefits in kind granted to the Senior Managers by the Company and its subsidiaries during the financial year ended 31 December 2015 for services in all capacities was £1,914,888.01.

7 Directors' terms of employment

• 7.1 The Company has engaged Vernon W. Hill, II to act as Chairman under a letter of appointment. Mr Hill's annual fee is £285,000. Mr Hill has entered into a letter of appointment dated 23 February 2016 which provides that his appointment is for a fixed term of two years from the date of Admission. The fixed term is on its anniversary each year automatically replaced by a further two year fixed term. Either the Company or Mr Hill can stop this process of automatic renewal by giving at least two months' notice to the other before the next anniversary renewal date. Following such notice there would be no automatic renewal on that anniversary or on any subsequent anniversary. In accordance with the UK Corporate Governance Code Mr Hill is subject to annual re-election. If he were not reelected his engagement would be terminated without any notice but he would receive payment in lieu of notice for the outstanding period of his term.
• 7.2 Mr Hill's appointment is terminable without any notice or payment in certain circumstances, including (among others) if he materially or persistently breaches the terms of his appointment, has a bankruptcy order made against him, is disqualified from holding office as a director or ceases to hold any necessary regulatory approvals.
• 7.3 Mr Hill receives a monthly allowance of £10,000 as a contribution towards travel and living expenses. He is entitled to be reimbursed for all other reasonable and properly documented expenses incurred in performing the duties of his office, and may also be awarded cash to buy Shares annually in such amount as the Remuneration Committee shall in its sole discretion determine. These shares vest immediately and no lock up usually applies.
• 7.4 The Company originally entered into a service agreement with Craig Donaldson to act as CEO on 1 September 2009. The Company and Mr Donaldson entered into a new service agreement on 23

February 2016. Mr Donaldson is expected to expend such of his working time, attention and abilities to his duties under the agreement as is required for the proper performance of those duties. Mr Donaldson receives an annual salary of £545,000, subject to annual review and any increase which the Remuneration Committee may in its sole discretion determine. He also receives a pension contribution to his chosen personal pension equivalent to 10% of his fixed annual salary from time to time. Mr Donaldson is eligible to participate in the Metro Bank Deferred Variable Reward Plan and may receive an annual bonus, option or reward of such amount as the Remuneration Committee may in its sole discretion determine. His benefit package also includes private medical cover, life assurance cover, income protection and 30 days' paid holiday (in addition to normal public and bank holidays in England and Wales). His employment can be terminated by either the Company or by Mr Donaldson giving not less than 12 months' previous notice in writing. The Company also has the right (once notice has been served by either party) to terminate the employment by making a payment in lieu of any unexpired notice. The Company may elect to pay this in instalments, subject to reduction if Mr Donaldson finds alternative employment. Mr Donaldson's employment will be terminable without any payment in certain circumstances, including (among others) where Mr Donaldson: commits any act of serious misconduct; commits any material or persistent breach of any of the terms or conditions of his service agreement; has a bankruptcy order made against him; or acts in any way which may in the reasonable opinion of the Board bring the Company into disrepute or discredit.

• 7.5 The Company originally entered into a service agreement with Michael Brierley to act as Chief Financial Officer on 30 April 2009. The Company and Mr Brierley entered into a new service agreement on 23 February 2016. Mr Brierley is expected to perform the duties and exercise the powers which may be assigned to him by the Board consistent with his role, and to devote the whole of his time, ability and attention to his duties during normal office hours and at such other times as may reasonably be required for the proper performance of his duties. Mr Brierley receives an annual salary of £280,000, subject to annual review and any increase which the Remuneration Committee may at its sole discretion determine. He also receives a cash contribution in lieu of a pension contribution equivalent to 10% of his fixed annual salary from time to time. He also receives a travel allowance. Mr Brierley is eligible to participate in the Metro Bank Deferred Variable Reward Plan and may also receive an annual bonus, option or reward of such amount as the Remuneration Committee may in its sole discretion determine. His benefit package also includes private medical cover, life assurance cover, income protection and 30 days' paid holiday (in addition to normal public and bank holidays in England and Wales). His employment can be terminated by either the Company or by Mr Brierley giving not less than six months' previous notice in writing. The Company also has the right (once notice has been served by either party) to terminate the employment by making a payment in lieu of any unexpired notice. The Company may elect to pay this in instalments, subject to reduction if Mr Brierley finds alternative employment. Mr Brierley's employment shall in any event terminate on the date on which he reaches the age of 65. The statutory retirement procedure applies to Mr Brierley but does not form part of his terms and conditions of employment. Mr Brierley's employment will be terminable without any payment in certain circumstances, including (among others) where Mr Brierley: commits any act of serious misconduct; commits any material or persistent breach of any of the terms or conditions of his service agreement; has a bankruptcy order made against him; ceases to hold any necessary regulatory approvals, or acts in any way which may in the reasonable opinion of the Board bring the Company into disrepute or discredit.
• 7.6 In addition to the Chairman, the Company has also appointed seven Non-Executive Directors, with Alastair (Ben) Gunn serving as Senior Independent Director. The Non-Executive Directors are appointed by a letter of appointment and do not have service contracts. Under the letter of appointment, each Non-Executive Director is appointed for an initial term of two years, subject to

earlier termination, including (among others) provision for early termination by either the Company or the Non-Executive Director on one month's written notice or without any notice, payment in lieu of notice, or other compensation in limited circumstances including where a Non-Executive Director is not re-elected. Each Non-Executive Director will be entitled to an annual fee, which is subject to annual review by the Board, and all reasonable expenses incurred in performing their duties. Each Non-Executive Director receives a basic fee of £30,000 per annum (increasing in April 2016 to £45,000), with a further fee of £7,500 for those who sit on committees (increasing in April 2016 to £10,000). Stuart Bernau also receives an additional fee of £10,000 for his Chairmanship of the Audit Committee (increasing in April 2016 to £20,000). Lord Flight receives an additional fee of £10,000 for his Chairmanship of the Nomination Committee and Remuneration Committee, and Eugene Lockhart receives an additional fee of £10,000 for his Chairmanship of the Risk Oversight Committee (each of which fees will increase in April 2016 to £20,000). Alastair (Ben) Gunn receives an additional fee of £17,500 for his role as Senior Independent Director (increasing in April 2016 to £30,000). Grants of a limited number of options over Shares and B Ordinary Shares have been made to the Non-Executive Directors before Admission as set out in paragraph 9 of this Part XVIII: "Additional Information" and paragraph 26 of Part XV: "Historical Financial Information". These grants are not considered by the Board to be material in the assessment of the independence of the Non-Executive Directors and no further options will be granted after Admission.

8 Directors' Remuneration Policy

Appendix 1 sets out the Directors' Remuneration Policy which is currently intended to apply from Admission. This will form the basis of the policy for which formal approval will be sought from shareholders at the Company's Annual General Meeting in 2017 (in line with Companies Act requirements). The Directors' Remuneration Policy mainly focuses on the components of and criteria applicable to the remuneration of the Executive Directors but also describes the fee arrangements for Non-Executive Directors.

9 Directors' and Senior Managers' interests

The interests (all of which are or will be beneficial unless otherwise stated) of each Director and Senior Manager (and of persons connected with them) in the share capital of Metro Bank as of Admission are as follows:

Director	Number of Shares as of Admission	Percentage holding of Shares as of Admission	Number of options over Shares
Vernon W. Hill, II3 and related parties	4,753,052	5.92%	86,000
Craig Donaldson	288,342	0.36%	288,618
Michael Brierley	105,165	0.13%	89,137
Stuart Bernau and related parties	64,043	0.08%	33,500
Keith Carby and related parties	178,223	0.22%	33,500
Lord Howard Flight and connected persons	39,920	0.05%	33,500
Alastair (Ben) Gunn and connected persons	67,104	0.08%	33,500

3 Vernon W. Hill, II holds 2.1 million Shares in an account with a financial institution subject to security arrangements to support borrowings.

Eugene Lockhart	87,689	0.11%	33,500
Roger Farah and connected parties	650,523	0.81%	7,500
Sir Michael Snyder	12,500	0.02%	5,000

	Number of Shares	Percentage holding of Shares as of	Number of options over Shares
Senior Manager	as of Admission	Admission
Aileen Gillan	13,737	0.02%	70,123
Aisling Kane	79,073	0.10%	90,281
Paul Riseborough	12,720	0.02%	45,013
Danielle Harmer	13,356	0.02%	62,500
Iain Kirkpatrick	0	0	39,933
Ian Walters	0	0	26,350
Mark Stokes	0	0	10,000
Chit Ghee Yeoh	0	0	15,224

10 Advisory Board

In June 2015, Metro Bank announced the creation of the Metro Bank Advisory Board consisting of a group of prominent business people to act as advisers to Metro Bank and play an important role in strengthening its brand and developing its business and reach. The Metro Bank Advisory Board consists of Metro Bank's Chairman and CEO; Jamie Reuben, a principal at Reuben Brothers and managing partner at Melbury Capital; Andrew B. Cohen, co-founder and managing director of Cohen Private Ventures; Harrison LeFrak, vicechairman of LeFrak Property; John Roddan, founder of JMS Realty; Amit Bhatia, executive chairman of Hope Construction Materials and managing partner of Swordfish Investments; Jeff Dishner, senior management director of Starwood Capital Group; Tom Smith, founder of Prescott Investors; Denzyl Feigelson, adviser to Apple; Jacopo Pessina, director of M&A at Walgreens Boots Alliance; Mary Ricks, President and CEO of Kennedy Wilson; and Rachael Robathan, a Westminster City Councillor.

11 Interests of significant Shareholders

The following Shareholders have interests representing 3% or more of the share capital of the Company as of Admission:

		Percentage
	Number of	holding as of
Shareholder	Shares	Admission
CPV Metro Investment, LLC	7,913,282	9.86%
Wellington Funds	7,528,085	9.38%
Fidelity Funds(1)	6,850,054	8.53%
Vernon W. Hill, II and related parties	4,753,052	5.92%

Abgrandkids LLC	4,583,027	5.71%
Tom Smith and connected parties	4,318,172	5.38%
Brave Warrior and connected parties	4,111,358	5.12%
Toll Family(2)	3,095,786	3.86%
Willett Advisors and connected parties	2,793,958	3.48%

Notes:

(1) Shares held by BBHISL: Nominees Limited

(2) Comprises two holdings: Bruce Toll and Robert Toll

12 Deferred Variable Reward Plan

The Company has adopted the Deferred Variable Reward Plan 2016 (the "Deferred Variable Reward Plan"), the key terms of which are summarised below, to enable colleagues, after Admission to continue to defer some or all of their annual variable reward into options over Shares.

It replaces the Long Term Variable Reward Plan 2014 (the "Pre-IPO Plan") which is broadly similar but was operated prior to Admission.

On 4 March 2016, options were granted under the Deferred Variable Reward Plan over approximately 586,000 Shares, with an option price of £20 per Share. Of these, options over approximately 375,000 Shares would normally vest over five years from grant and options over approximately 6,000 shares would normally vest one year after grant. The balance were granted to participants who chose to receive some or all of their annual variable reward in the form of options so will vest on Admission.

12.1 Eligibility

Colleagues and Executive Directors of the Company and designated subsidiaries are eligible to participate in the Deferred Variable Reward Plan.

12.2 Invitation to participate

The Board may select any person to participate in the Deferred Variable Reward Plan in respect of their variable reward for any year. If selected, a participant will be allowed or required to receive some or all of their variable reward in the form of an award under the Deferred Variable Reward Plan.

12.3 Grant of awards

Awards can take the form of:

• rights to receive free Shares on vesting;
• an option to acquire shares at a price determined by the Board at grant (which may be nil); or
• restricted shares which are issued or transferred to the participant on grant on the basis that they must be given back to the extent that the award lapses before vesting.

Shortly after the amount of the cash element is calculated, the participant will be granted an award. The number of shares under award will have a market value, at the date of award, which is no more than the portion of the bonus which is to be received in the form of an award. If the award is an option, the option will have a fair value which is no greater than the portion of the bonus to be received as an award. The balance will be paid in cash or such other form as the Board may determine.

Awards will normally only be granted within 42 days of Admission, the Company's annual general meeting or the announcement of the Company's results for any period or at other times in exceptional circumstances.

No awards can be granted more than 10 years after Admission.

12.4 Performance conditions

Vesting of awards may be subject to performance conditions set by the Board at grant. The performance conditions may be waived or amended where the Board considers it is reasonable in the circumstances and the amended condition produces a fairer measure of performance and is not materially less difficult to satisfy.

12.5 Limits on newly issued Shares

In any 10-year period, not more than 10% of the issued ordinary share capital of the Company may be issued or be issuable under the Deferred Variable Reward Plan and all other colleagues' share plans adopted by the Company. These limits do not include awards which have lapsed or those granted on or before Admission such as the Project Revolution Awards described below.

Treasury shares transferred to satisfy an award will be counted as if new shares had been issued for so long as it is considered best practice to do so.

12.6 Clawback

The Board can reduce or delay the vesting of an award or clawback amounts already paid out in certain circumstances, including misstatement of financial figures, misconduct by the participant, failure of risk management, damage caused to the Company's reputation, or in other exceptional circumstances as determined by the Board.

12.7 Vesting of awards

Awards will normally vest, to the extent any performance condition is met over the deferral period on the vesting dates set by the Board on award.

Shares will be issued or transferred to the participant shortly after vesting or exercise in the case of an option. An option will become exercisable to the extent it vests and will lapse, at the latest, 10 years after grant. The Board can decide to satisfy an award in cash.

An award may also carry a right to additional shares or cash based on the value of dividends payable on the number of Shares in respect of which the award vests before vesting or exercise.

12.8 Leaving employment

An award will normally lapse if the participant leaves employment. But if the participant leaves in special circumstances such as ill-health, redundancy or a sale of their employer or other circumstances determined by the Board, their award will continue in effect and vest on the normal timeframe.

12.9 Takeovers and reorganisations

Awards will generally vest early on a takeover, merger or other corporate reorganisation. Alternatively, participants may be allowed or required to exchange their awards for awards over shares in the acquiring company.

Where an award vests in these circumstances, any performance condition will be tested to the date of the relevant event.

12.10 Rights issues, demergers etc.

The number of Shares subject to an award (and/or the exercise price of an option) may be adjusted to reflect a rights issue, demerger or any variation in the share capital of the Company.

12.11 General

Awards are not transferable (except to personal representatives on death) and are not pensionable and participants do not pay for the grant of an award.

Any Shares issued following the vesting of awards will rank equally with shares of the same class in issue on the date of allotment except in respect of rights arising by reference to a prior record date.

12.12 Amendments

The Board can amend the Deferred Variable Reward Plan in any way. However, shareholder approval will be required to amend certain provisions to the advantage of participants. These provisions relate to eligibility, individual and Deferred Variable Reward Plan limits, the rights attaching to awards and shares, the adjustment of awards on variation in the Company's share capital and the amendment powers.

The Board can, without shareholder approval, change performance conditions as described above, make minor amendments to benefit the administration of the Deferred Variable Reward Plan, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment.

The Board may also, without shareholder approval, establish further plans based on the Deferred Variable Reward Plan, but modified to take account of overseas securities laws, exchange controls or tax legislation. Shares made available under such further Deferred Variable Reward Plans will be treated as counting against any limits on individual or overall participation in the Deferred Variable Reward Plan.

12.13 Variable reward for 2015 for selected members of the management team

Selected members of the management team are eligible to receive a higher variable reward opportunity for 2015 for their contribution to the Private Placement, subject to a successful Private Placement and Admission and risk adjusted Company performance (the "Project Revolution Awards"). The Remuneration Committee will determine the amount to be awarded on the basis of the following criteria:

• organisational culture and delivery of the Private Placement and Admission overall;
• AMAZE(ING) review rating for the individual;
• successful contribution to, and criticality for, success of the Private Placement and Admission; and
• length of service.

The amount awarded could range from zero to a maximum of £3,488,000 for the CEO and £1,792,000 for the CFO. In total, for all eligible members of the management team awards are not expected to exceed £7 million (including the awards for the CEO and CFO). Normal annual variable reward recommendations for 2015 for individuals receiving Project Revolution Awards will be nil.

Project Revolution Awards will be awarded in cash but delivered in Shares. The cash awarded will be used to subscribe for Shares (after deduction of tax) at £20 each on 4 March 2016 (i.e. at the offer price of the Private Placement), conditional on Admission. 20% of the Shares issued will vest immediately with a further 16% vesting on each of the first five anniversaries of Admission.

Until vesting:

• the Shares cannot generally be sold (except, for example, on death or a takeover);
• the number of Shares can be reduced or vesting delayed as described in paragraph 12.6 above;
• the employee or Director will not receive any dividends on the Shares;
• if the employee or Director leaves the Company before vesting, the Shares will normally be forfeited unless he or she left in special circumstances such as ill-health, redundancy or a sale of his or her employer.

The Shares are not subject to any restrictions once they have vested except that they may be clawed back as described in paragraph 12.6 above.

12.14 Deferred Variable Reward Plan awards for Advisory Board

Pursuant to the Deferred Variable Reward Plan, on 4 March 2016 each member of the Metro Bank Advisory Board was granted Share options at £20 per Share (i.e. the offer price of the Private Placement), with the options vesting in five equal annual instalments starting on 30 April 2017. See paragraph 10 above for more information on the Metro Bank Advisory Board.

12.15 The Pre-IPO Plan

The Pre-IPO Plan is broadly similar to the Deferred Variable Reward Plan but will not be operated after Admission.

The main difference between the Pre-IPO Plan and the Deferred Variable Reward Plan is that Shares are only issued or transferred and options can only be exercised under the Pre-IPO Plan following a trade sale or flotation of the Company. A total of 2,556,489 Shares remain outstanding under option or are committed to be granted as options under the Pre-IPO Plan. Of these, options over 826,746 Shares have vested and will become exercisable on Admission. None of these options are subject to performance conditions.

13 Pensions

The Company operates and makes contributions for its colleagues to a defined contribution pension scheme (or equivalent pension arrangements). The Company makes employer contributions to the group personal pension plan of generally between 4% and 10% of basic salary.

The total pension cost in the year ending 31 December 2015 amounted to £3.8 million for the defined contribution pension scheme and certain colleagues' individual personal pension plans.

The assets of these arrangements are held separately from those of the Company in independently administered funds.

The total amount set aside or accrued by the Company or its subsidiaries to provide pension, retirement or similar benefits for the Directors for the financial year ended 31 December 2015 was £nil.

The total amount set aside or accrued by the Company or its subsidiaries to provide pension, retirement or similar benefits for the Senior Managers for the financial year ended 31 December 2015 was £136,838.

14 Sponsor Agreement

On 7 March 2016, the Company, the Directors and RBC (the Company's "Sponsor" in relation to Admission) entered into the Sponsor Agreement pursuant to which RBC has agreed to act as the Company's sponsor in relation to Admission.

The Sponsor Agreement is subject to certain conditions. These conditions include the absence of any breach of representation or warranty under the Sponsor Agreement and Admission occurring. In addition, the Sponsor has the right to terminate the Sponsor Agreement, exercisable in certain circumstances prior to Admission.

Each of the Company and the Directors have given certain representations, warranties and undertakings, subject to certain limits, to the Sponsor and the Company has given an indemnity to the Sponsor in a form that is typical for an agreement of this nature.

15 Lock Up Arrangements

On 7 March 2016, the Company entered into a lock-up agreement with the Private Placement Advisers undertaking that save for certain customary exceptions and other than pursuant to the Private Placement and the Project Revolution Awards or with the consent of the Private Placement Advisers, it will not offer, issue, lend, assign, charge or dispose of, or agree to offer, issue, lend, assign, charge or otherwise dispose of, or grant any option, right or warrant to acquire, directly or indirectly, any further Shares for a period of 180 days after the date of Admission.

On 7 March 2016, the Chairman entered into a lock-up agreement with the Private Placement Advisers undertaking that save for certain customary exceptions and any disposal which takes place solely in connection with the grant or enforcement of security in connection with the arrangements noted in paragraph 8 above or with the consent of the Private Placement Advisers, he will not offer, issue, lend, assign, charge or dispose of, or agree to offer, issue, lend, assign, charge or otherwise dispose of, or grant any option, right or warrant to acquire, directly or indirectly, any of the 2.1 million Shares he holds in his own name (which does not include the Shares held by his connected parties) for a period of 90 days after the date of Admission.

On 7 March 2016, each of the Executive Directors entered into a lock-up agreement with the Private Placement Advisers undertaking that save for certain customary exceptions or with the consent of the Private Placement Advisers, he will not offer, issue, lend, assign, charge or dispose of, or agree to offer, issue, lend, assign, charge or otherwise dispose of, or grant any option, right or warrant to acquire, directly or indirectly, in any Shares for a period of 90 days after the date of Admission.

16 Subsidiaries

The Company is the principal operating and holding company of Metro Bank. The direct and indirect subsidiaries of the Company are as follows:

Name	Jurisdiction of Incorporation	ownership interest (%)	Principal activity
SME Asset Finance Limited	England & Wales	100	Provider of asset based finance
SME Invoice Finance Limited	England & Wales	100	Provider of debt financing and invoice discounting

17 Material contracts

The only contract (not being a contract entered into in the ordinary course of business) that has been entered into by the Company or another member of Metro Bank within the two years immediately preceding the date of this Prospectus or is expected to be entered into prior to Admission, and that is or may be material is the Sponsor Agreement referred to in paragraph 14 above.

18 Related party transactions and other arrangements

A key component of Metro Bank's strategy is the use of a distinctive branding concept and reflecting this concept in the design of its stores. Architectural, design and branding services are provided to Metro Bank by InterArch, Inc. ("InterArch"), a firm which is owned by Shirley Hill, the wife of Vernon W. Hill, II, the Chairman, and which has been tasked by Metro Bank with the creation and implementation of this concept. Metro Bank's stores are designed to be highly visible (typically with large glass storefronts and fitted out in Metro Bank's recognisable red and blue colours).

In the 12 months ending 31 December 2015 the Company expensed £2.3 million in respect of these marketing services and architectural services.

In order to ensure that the terms of the InterArch arrangements are consistent with those that could be obtained from an independent third party, the contractual arrangements with InterArch are subject to periodic review by the Company's Audit Committee using annual benchmarking reviews conducted by authoritative independent third parties. The Audit Committee has concluded that the contracts are on terms which are at least as beneficial to Metro Bank as those which could be obtained from an independent third party. This process has been in place since the inception of Metro Bank and Metro Bank has disclosed its arrangements with InterArch in its annual report and accounts.

Any renewal of these contracts on their expiry will, following Admission, also be subject to the Audit Committee process mentioned above and the related party rules set out in Chapter 11 of the Listing Rules of the UK Listing Authority.

Details of the contracts entered into between InterArch and the Company are as follows.

18.1 Architectural design services

InterArch provide various architectural design services to the Company, including pre-design, architectural, interior design, facilities co-ordination, construction management, signage, security design and layout. The current agreement terminates on 31 December 2017 unless terminated prior to that in accordance with its terms. The fee structure for each project is based on a fixed percentage of projected hard costs. Certain additional services are provided on an hourly basis. The agreement also provides for reimbursement for disbursements up to £2,000 per month. The agreement will terminate on 31 December 2017 unless terminated prior to that in accordance with its terms.

18.2 Branding, marketing and advertising

On 1 January 2016, the Company entered into an agreement with InterArch pursuant to which InterArch provides branding, marketing and advertising services to the Company, including design and development of marketing and promotional materials for brochures, use in store and at key events. The agreement will terminate on 31 December 2016 unless terminated prior to that in accordance with its terms.

18.3 IPR agreement

On 21 June 2010, the Company entered into an agreement with InterArch pursuant to which InterArch agreed to transfer and assign to the Company all UK intellectual property rights in all Metro Bank banking systems elements, together with all copyright design and database rights which arise pursuant to InterArch's provision of services to the Company, and the right to take proceedings for any past infringements. Consideration was provided by the appointment of InterArch detailed above. The agreement also confirms the Company's ownership of the name "Metro" and other branding, logos or trademarks used by the Company. Outside of the UK, InterArch is granted the right to use, licence and sell the UK and U.S. Metro Bank banking systems elements, provided any third party agrees not to use such elements in the UK.

19 Litigation

There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which Metro Bank is aware) during the 12 months preceding the date of this Prospectus which may have, or have had, a significant effect on the Company's or Metro Bank's financial position or profitability.

20 Working capital

In the opinion of the Company, taking into account the net proceeds receivable by the Company from the Private Placement, the working capital available to Metro Bank is sufficient for Metro Bank's present requirements, that is for the next 12 months following the date of this Prospectus.

21 No significant change

There has been no significant change in the financial or trading position of Metro Bank since 31 December 2015, the date to which the last audited consolidated accounts of Metro Bank PLC were prepared.

22 Consents

PricewaterhouseCoopers LLP is a member firm of the Institute of Chartered Accountants in England and Wales and has given and has not withdrawn its written consent to the inclusion of the reports in Part XV: "Historical Financial Information", and Part XVI: A: "Unaudited Pro Forma Financial Information" in the form and context in which they appear, and has authorised the contents of its reports for the purposes of Rule 5.5.3R(2)(f) of the Prospectus Rules.

23 General

Metro Bank will incur transaction costs as a result of Admission (including the Private Placement). These costs include investment bank fees, fees for professional advice and other related fees and expenses and VAT. Metro Bank anticipates total transaction costs as a result of Admission (including the Private Placement) will be circa £15 million (including an estimated maximum £7 million of costs for variable employee compensation related to Admission and the Private Placement or to Metro Bank becoming a listed company. See Part XI: "Operating and Financial Review – Key Factors Affecting Results of Operations – Variable employee compensation costs"). £1.5 million of transaction costs relating to the listing was expensed in 2015.

The financial information contained in this Prospectus does not amount to statutory accounts within the meaning of section 434(3) of the Companies Act. Full audited accounts have been delivered to the Registrar of Companies for the Company for the accounting periods ended 31 December 2013 and 31 December 2014 and full audited accounts will be delivered for the accounting period ended 31 December 2015 once they have been signed.

24 Takeover regulation

Since Metro Bank is a public limited company, and has its place of central management and control in the UK, the City Code on Takeovers and Mergers (the "City Code") applies to the Company except to the extent that Shareholders agree to waive its provisions with the consent of the Takeover Panel.

Under Rule 9 of the City Code, any person who acquires an interest in shares which, taken together with the shares already held by him or acquired by persons acting in concert with him, carry 30% or more of the voting rights in a company which is subject to the City Code is normally required by the Takeover Panel to make a general cash offer to all of the remaining shareholders to acquire all of their shares. Similarly, when any person, or persons acting in concert, already holds an interest in shares carrying 30% or more but less than 50% of the voting rights in such a company, the Takeover Panel will normally require a general cash offer to be made to all of the remaining shareholders to acquire all of their shares if any further interest in shares are acquired.

25 Controller provisions of FSMA

The controller provisions in FSMA impose obligations on persons who are either proposing to become, or are already, controllers of a UK authorised firm (such as Metro Bank) to obtain FCA approval prior to acquiring or increasing control. A "controller", broadly, is any person who:

• 25.1 holds 10% or more of the shares or voting power in the authorised firm or any parent undertaking of that authorised firm; or
• 25.2 is able to exercise significant influence over the management of the authorised firm or any parent undertaking by virtue of such person's shareholding or voting power.

This definition of "controller" is broad and refers to terms which themselves are subject to detailed definitions (including "voting power" and "parent undertaking").

Potential investors should also be aware that, for the purposes of calculating the level of holding they have in determining whether or not they will be a "controller" of Metro Bank, their shareholding in Metro Bank will be aggregated with any shares or voting power held by any person with whom they are deemed to be "acting in concert". Guidance issued by the previous three Level 3 Committees of European Financial Supervisors (CEBS, CEIOPS and CESR, which have now been replaced by EBA, EIOPA and ESMA respectively) in relation to the EU Acquisitions Directive provides that persons are "acting in concert" when each of them decides to exercise his rights linked to the shares he intends to acquire in accordance with an implicit or explicit agreement made between them. Certain holdings may be disregarded under detailed provisions contained in FSMA.

26 Documents available for inspection

Copies of the following documents are available for inspection during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) for a period of 12 months following Admission at the offices of Linklaters LLP at One Silk Street, London EC2Y 8HQ, United Kingdom:

• (i) the Articles;
• (ii) the historical financial information for the Group in respect of the three financial years ended 31 December 2013, 31 December 2014 and 31 December 2015;
• (iii) service agreements of all of the Executive Directors and letters of appointment of the Chairman and all of the Non-Executive Directors;
• (iv) the consent letter referred to in "Consents" in paragraph 22 above;
• (v) the reports from PricewaterhouseCoopers LLP which are set out in Part XV: "Historical Financial Information" and Part XVI: A: "Unaudited Pro Forma Financial Information"; and
• (vi) this Prospectus.

Dated: 7 March 2016

PART XIX DEFINITIONS

Definitions

The following definitions apply throughout this Prospectus unless the context requires otherwise:

Admission	the admission of the Shares to the premium listing segment of the Official List and to trading on the London Stock Exchange's main market for listed securities becoming effective in accordance with, respectively the UK Listing Rules and the Admission and Disclosure Standards
Adviser	Moelis & Company
Articles	the articles of association of the Company to be adopted upon Admission
Audit Committee	the audit committee of the Board
Banking Act	the UK Banking Act 2009, as may be amended, modified or re enacted from time to time
Banking Reform Act	the UK Financial Services (Banking Reform) Act 2013
BCA	business current account
Board of Directors	the board of directors of the Company
BRRD	Directive 2014/59/EU – the Banking Resolution and Recovery Directive
CCA	the Consumer Credit Act 1974
CMA	the UK Competition and Markets Authority
Common Equity Tier 1 Capital	share capital, share premium, retained earnings and other reserves less specified regulatory adjustments as a percentage of year-end risk-weighted assets
Companies Act	the Companies Act 2006, as such act may be amended, modified or re-enacted from time to time
CRD IV	the legislative package implementing the Basel III proposals, consisting of: (i) Directive 2013/36/EU on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms; and (ii) Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms of the European Parliament and of the European Council of 26 June 2013
CREST	the UK-based system for the paperless settlement of trades in listed securities, of which Euroclear UK & Ireland is the operator
CREST Regulations	the Uncertified Securities Regulations 2001 (512001/3755)
Disclosure and Transparency Rules	the disclosure rules and transparency rules produced by the FCA and forming part of the FCA Handbook as, from time to time, amended

DTV Ratio	debt-to-value ratio, calculated as the ratio of the gross outstanding amount of a loan to the indexed value of the collateral
EEA Member States	the states of the European Economic Area
EU	the European Union
European Central Bank	the central bank of the European Union
European Economic Area	the EU, Iceland, Norway and Liechtenstein
Executive Directors	the executive Directors
FCA	the UK Financial Conduct Authority
FLS	HM Treasury's Funding for Lending scheme
FSCS	the Financial Services Compensation Scheme, a UK compensation fund set up under FSMA to provide compensation to customers of authorised financial services firms if a firm is unable, or likely to be unable, to pay claims against it
FSMA	the Financial Services and Markets Act 2000, as amended
Group	the Company and its consolidated subsidiaries and subsidiary undertakings from time to time
HMRC	HM Revenue and Customs in the UK
IFRS	the International Financial Reporting Standards, as adopted by the European Union
IPR	intellectual property rights
IRS	the U.S. Internal Revenue Service
Leverage Ratio	leverage ratio is the ratio of total common equity tier 1 resources to total exposures
LIBOR	London Interbank Offered Rate
Listing Rules	the listing relating to admission to the Official List made under section 73A(2) of FSMA
LTD Ratio	the ratio of total loans and advances to customers to deposits from customers
LTV or LTV Ratio	Loan-to-value ratio
Member States	the member states of the EU
Metro Bank or Company	Metro Bank PLC
Moelis & Company	Moelis & Company UK LLP
Nomination Committee	the nomination committee of the Board
Non-Executive Directors	the non-executive Directors
Official List	the Official List of the Financial Conduct Authority
Private Placement	the issue of Shares by the Company to "Accredited Investors" in the United States and institutional investors in the United Kingdom and elsewhere on Admission

Prospectus Directive	the EU Prospectus Directive (2003/71/EC) (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State and includes any relevant implementing measure in the Relevant Member State, and the expression "2010 PD Amending Directive" means Directive 2010/73/EU)
Prospectus Rules	the rules for the purposes of Part VI of FSMA in relation to offers of securities to the public and the admission of securities to trading on a regulated market
RBC or RBC Capital Markets	RBC Europe Limited, trading as RBC Capital Markets
Registrars	Equiniti Limited
Regulation S	Regulation S under the U.S. Securities Act
Remuneration Committee	the remuneration committee of the Board
Risk Oversight Committee	the risk oversight committee of the Board
Senior Independent Director	Alastair (Ben) Gunn, the senior independent Director
Senior Managers	Aileen Gillan, Aisling Kane, Paul Riseborough, Danielle Harmer, Iain Kirkpatrick, Ian Walters, Mark Stokes and Chit Ghee Yeoh
Shareholders	the holders of Shares in the capital of the Company
Shares	ordinary shares of 0.0001 pence each in the capital of the Company
SME	Small and Medium Sized Enterprises
Sponsor	RBC
Sponsor Agreement	the sponsor agreement entered into between the Company, the Directors and RBC described in paragraph 14 of Part XVIII: "Additional Information"
Total Capital Ratio	the total of Tier 1 and Tier 2 capital as a percentage of year-end risk-weighted assets
UK	the United Kingdom of Great Britain and Northern Ireland
UK Corporate Governance Code or Governance Code	the UK Corporate Governance Code published by the Financial Reporting Council and dated September 2014, as amended from time to time
UK Government	the Government of the United Kingdom
United States or U.S.	the United States of America, its territories and possessions, any State of the United States of America, and the District of Columbia
U.S. Securities Act	United States Securities Act of 1933, as amended
VAT	within the EU, such taxation as may be levied in accordance with (but subject to derogation from) the Directive 2006/112/EEC and, outside the EU, any taxation levied by reference to added value of sales

Appendix 1 Directors' Remuneration Policy

Metro Bank PLC

Directors Remuneration Policy

CONTENTS

1. FRAMEWORK	260
2. POLICY	260
3. COMPONENTS OF REMUNERATION FOR EXECUTIVE DIRECTORS	261
4. ADDITIONAL CRITERIA FOR EXECUTIVE DIRECTOR REMUNERATION	266
5. CONSIDERATION OF ANY OF OTHER COLLEAGUES	266
6. CHANGES TO POLICY	266
7. APPROACH TO REMUNERATION WHEN RECRUITING EXECUTIVE DIRECTORS	266
8. REMUNERATION OUTCOMES	267
9. REMUNERATION ON OR AFTER TERMINATION	268
10. COMPONENTS OF REMUNERATION FOR NON EXECUTIVE DIRECTORS	269

1 FRAMEWORK

This Policy outlines the overall approach Metro Bank PLC ("the Bank" or "Metro Bank") will adopt towards managing remuneration for Executive and Non-Executive Directors which is currently intended to apply from the date on which the shares in Metro Bank are admitted to trading on the London Stock Exchange. This will form the basis of the policy for which formal approval will be sought from shareholders at the Company's Annual General Meeting in 2017 (in line with Companies Act requirements). It is intended that the policy will formally apply for the three years beginning on the date of approval (although the Nomination and Remuneration Committee will consider the policy annually to ensure that it remains aligned with business strategy and the regulatory framework to which the Bank is subject).

It is the company's policy to honour any commitments made to a Director before they became a Director or before this policy took effect, even if it may not be consistent with this policy. For example Metro Bank will honour the stock awards made to the Executive Directors in relation to 'Project Revolution', the details of which are described in the Prospectus.

2 POLICY

Metro Bank offers banking, focused on the Customer, through unparalleled levels of service and convenience. We have a simple approach to compensation which reinforces our model by rewarding the right behaviours and outcomes for customers and the business, focusing on long term growth and discouraging unnecessary risk taking.

Our reward principles are to:

• Pay fair salaries and offer fantastic career and growth opportunities in an AMAZE(ING) culture
• Make everyone an owner; align them to our vision for the long term
• Reward people based on how Metro Bank performs and also on how they behave and deliver; both as part of the team and as an individual
• Keep reward as simple as possible with one approach for all
• Take a retail approach to variable reward we do not offer excessive cash bonuses or linear incentives which can skew behaviours and encourage unnecessary risk taking

This policy document has been developed taking into account a number of regulatory and governance principles, including:

• The UK Corporate Governance Code 2014
• The Listing Rules
• The regulatory framework applying to Financial Services Sector (including the PRA Remuneration Code and provisions of CRD IV)
• The Companies Act 2006

3 COMPONENTS OF REMUNERATION FOR EXECUTIVE DIRECTORS

BASE SALARY

Purpose and link to	We consider base pay as part of the total proposition that we can offer colleagues at Metro
strategy	Bank, including career and growth opportunities and also long term reward.
	We aim to set pay at a level which enables us to attract and retain the right calibre of colleagues, with the required level of skills, experience and cultural alignment to deliver and improve our model.
Operation	Base salaries for Executive Directors are normally reviewed annually by the Nomination and Remuneration Committee with any increase usually taking effect from 1 April in the following year. The following factors are taken into account, amongst others: company culture and delivery - individual behaviours and delivery as per AMAZE(ING) Reviews - relevant external market data - - scope and size of role individual's skills, expertise and experience and ability to grow with the role - and organisation
	- level of increases for all colleagues
	- internal relativity
	- economic factors such as inflation
	- affordability and available budget
	Subject to the maximum below, we position salary levels for Executive Directors within the median range of the market, with consideration also being given to total compensation and the long term growth focus of our model.
Maximum potential	Salary increases in percentage terms for Executive Directors will normally be in line with
	increases awarded to other colleagues, but there may be instances where a higher amount
	is agreed at the discretion of the Remuneration Committee, particularly where salary level
	is significantly below market for the size and scope of the role as the organisation grows.
Performance measures	Not applicable

PENSION

Purpose and link to strategy	Our pension policy aims to support Executive Directors in building long-term savings for their retirement, without exposing the Bank to any unnecessary financial risk or unacceptable cost.
Operation	Executive Directors are automatically enrolled into our Group Personal Pension Plan (GPPP) when they join the Bank. If they have exceeded the Life Time Allowance or the annual pension tax free contribution limit, they may elect to take cash in lieu of pension for all or some of the benefit.
	The amount received, before deduction of tax and NI, is broadly equivalent in value to the contribution that would have been made to the GPPP by Metro Bank.
Maximum potential	The maximum employer contribution (including cash in lieu) is 10% of salary
Performance measures	Not applicable

BENEFITS

Purpose and link to	Whilst we have a very simple approach to reward we also support the health, well-being
strategy	and security of our Executive Directors through additional core benefits.
Operation	Core benefits
	• Life Assurance of 4 x salary • Private Medical Insurance for the Executive Director, their partner and children • Holiday – 30 days
	Allowances
	We may choose to pay Executive Directors allowances as follows:
	• An allowance to enable us to hire someone who will need to live away from home in order to be employed by us which may include assistance with children's education, periodic trips home, spouse and children's travel amongst others • In other circumstances, related to travel and relocation, as we determine appropriate Legacy
	Income Protection is also in place for the two Executive Directors.
	Benefit Basis is: 50% of Basic Annual Salary (at date of incapacity) up to State Pension Age for a period of 60 months. Maximum benefit is £350,000
	Executive Directors also have access to voluntary employee funded benefits available to all colleagues.
Maximum potential	The maximum paid will be the cost to Metro Bank of providing the benefits noted above. The cost may fluctuate from year to year even if the level of benefit provided remains unchanged.
Performance measures	Not applicable

VARIABLE REMUNERATION

Purpose and link to strategy	Our discretionary variable reward scheme is made up of cash and Share Options, or by exception shares. As a growth model organisation, Share Options form the main part of our variable compensation to encourage Executive Directors to focus on the long term and to think and behave like owners. The purpose of variable reward is to recognise Executive Directors for demonstrating our AMAZE(ING) Behaviours and also for achievement against business priorities for the year.
Operation	We operate a discretionary variable reward scheme based on behaviours and performance over the year which is paid in the form of cash and Share Options, or by exception shares, for all colleagues including Executive Directors. We do not operate separate and additional Long Term Incentive Plans. Share Options or shares vest over five years and satisfy regulatory requirements around the deferral of variable reward. They are not subject to further performance conditions on
	vesting since the award itself was subject to the achievement of performance conditions, but may be reduced, delayed or clawed back as per the notes below. Variable compensation relating to the previous performance year is communicated to Executive Directors in the following February or March, annually. Cash bonuses are then paid in March and Share Options are usually granted later that year. 70% of variable reward, or more, is deferred into Options or Stock. We use the Black
	Scholes method to inform the fair value of Options at the time of award and the total value of Options or Stock awarded will never be more than the variable remuneration deferred. Through our Bonus Exchange Scheme, Executive Directors may be allowed to 'exchange' part or all of the cash element of any variable compensation into their Metro Bank pension, or into immediate vesting Share Options. This scheme is covered by salary sacrifice arrangements in line with HMRC guidelines. Cash bonus may be exchanged for
	Options at an exchange 'price' approved by the Nomination and Remuneration Committee. The exchange price offered to Executive Directors is on the same basis as for all other colleagues. The total value of Options awarded via Bonus Exchange will never be more than the cash bonus forfeited.
Maximum potential	Total variable remuneration, including Share Options, for each Executive Director for any year will not exceed 200% of their base pay at award.

Performance measures	The variable reward pool for any year is based on the overall performance of the organisation in terms of culture and delivery in line with the Balance Scorecard, the components of which are set out under 'Performance Measures' below. We also consider risk adjusted financial performance in setting the overall pool.
	Executive Directors are awarded variable remuneration for a year on a discretionary basis taking into account the following factors over the year amongst others:
	• individual behaviours and performance based on their AMAZE(ING) Reviews – these performance targets are agreed at the beginning of the year and are reflected in the Balanced Scorecard for Metro Bank and are detailed in the notes section below
	• overall contribution to the culture, performance and success of Metro Bank
	We are focused on the right outcomes for customers in line with our model and do not 'incentivise' the delivery of any specific targets in a linear way.

Measures:

We set standards for all colleagues both on their behaviours and also for their delivery and performance. These are the high level measures for Executive Directors.

Behavioural Framework	Balanced Scorecard Targets
AMAZE(ING) Behaviours framework covers the following	Fall into the following five categories:
behaviours:	• Financial
• Attend to every detail	• Risk
• Make every wrong right	• Operations and IT
• Ask if you are not sure, bump it up	• Customers
• Zest is contagious, share it	• People
• Exceed expectations
• Inspire colleague to create FANS
• Nurture colleagues so they grow
• Game change because this is a Revolution

Notes

• Malus and clawback apply to all deferred variable remuneration.
• The majority of our variable reward is focused on Share Options so we do not apply clawback to our relatively low cash bonuses. Deferred reward can be reduced or delayed and Share Options and, or, shares paid out clawed back including if there is a restatement of accounts or there is a material failure of risk management, a material downturn in financial performance or evidence of misconduct by the Executive Director.

4 ADDITIONAL CRITERIA FOR EXECUTIVE DIRECTOR REMUNERATION

Executive Directors are remunerated broadly in line with the same structures that apply across the wider population. The performance conditions for variable pay awards are very similar to those which apply to all colleagues.

5 CONSIDERATION OF PAY OF OTHER COLLEAGUES

Pay and employment conditions of other colleagues in the Bank were taken into account when setting the Remuneration Policy for Executive Directors. In particular, base pay of Executive Directors is limited by reference to colleague pay as described above. We do not specifically consult with colleagues when setting remuneration for Executive Directors.

6 CHANGES TO POLICY

As this is the first Remuneration Policy of Metro Bank, there is no policy against which changes in this policy can be identified.

7 APPROACH TO REMUNERATION WHEN RECRUITING EXECUTIVE DIRECTORS

When appointing a new Executive Director, the Nomination and Remuneration Committee seeks to align the remuneration package for the individual with Metro Bank's Remuneration Policy and takes into account the package as a whole.

The Committee has the flexibility to make compensatory awards to new Executive Directors which are intended to compensate the Executive Director for benefits they will lose as a result of joining Metro Bank.

These awards:

• will be made up of the same inputs as the normal variable compensation for Metro Bank colleagues and Executive Directors
• consider the value, at the time of grant, of the awards being lost
• will be in a similar form as the awards which are being lost, where possible
• vest over a similar or longer time period than the awards being lost; and
• are subject to comparable service and performance conditions and continued employment.

The limit on variable remuneration described above will not apply to these compensatory awards. The flexibility to offer a higher level of variable remuneration to new recruits is required to give the company flexibility when negotiating with potential new recruits.

8 REMUNERATION OUTCOMES

The graphs below illustrate the total remuneration each of the Executive Directors in office at the end of 2015 could receive for 2016 (payable in 2017) based on this policy (the first year in which this policy will apply) for minimum, on-target and maximum behaviours and performance. This is broken down into:

• The fixed element, which is:
• o base salary
• o pension contribution of 10%
• o benefits as outlined in the Policy Table for which we have assumed a value of 1.5% of salary
• The minimum (fixed), on-target and maximum potential annual variable remuneration that may be awarded

Notes

• 1) These illustrations include the proposed salary increases for 2016 which are due to be applied, subject to profitability.
• 2) Mike Brierley currently receives a travel allowance of £10,182 per annum, which is not included as fixed pay in the graph as it will be consolidated into base pay as part of the next review of his salary.

9 REMUNERATION ON OR AFTER TERMINATION

For each component of pay, the amount paid to an Executive on termination will be determined as follows:

Component of pay	Determination
Salary/fees	The Executive Director is entitled to be given notice of termination of the relevant length and receive their normal base salary and benefits in that time. The Bank has discretion to make a payment in lieu of base salary in respect of any unexpired notice period and may decide to pay this in instalments, subject to reduction if the Executive Director finds alternative employment. Benefits will continue until the last day of contractual employment and the accrued but unused holiday will be paid out.
Variable pay	Variable remuneration may accrue during a notice period however the Executive Director has to be employed at the date that any variable remuneration is awarded in order to be eligible to receive it. No variable compensation is payable after termination and previous unvested variable reward deferred into shares or share options will usually lapse. However, if the Executive Director leaves for the reasons detailed in the Deferred Variable Reward Plan Rules (e.g., ill health, retirement, redundancy or death) or in other circumstances at the discretion of the Remuneration Committee, their award under that plan will continue on the same terms (subject to reduction and clawback as described in the Policy Table and Notes) and vest at the normal time provided performance conditions are met.
Pension	Pension contributions continue to be made during the notice period. No further payment in lieu of pension or pension contributions can be made after termination. Any benefits will become payable in the normal course in accordance with the rules of the scheme. There is no right to early payment of benefits unless this can be done without additional contribution from the Bank.

The circumstances of an Executive Director's leaving and their behaviours and performance will be considered by the Remuneration Committee when deciding whether it should, in the circumstances, exercise its discretion to treat them in the same way as a 'good' leaver or not. For example someone voluntarily leaving to join a competitor is unlikely to be treated as a good leaver. As a general principle we do not reward failure.

The Bank's policy is that Executive Directors' contracts can be terminated by either party on giving no more than 12 months' notice.

Additional payments can be made by way of damages for breach of any legal obligation or by way of settlement or compromise of any claim raised by the Executive Director.

The Executive Directors' service contracts and letters of appointment are available for inspection on request at the Company's registered office.

10 COMPONENTS OF REMUNERATION FOR NON EXECUTIVE DIRECTORS

Fees	All Non-Executive Directors receive a basic annual fee for fulfilling their duties as a Board member.
	Additional fees are paid for added responsibilities such as chairmanship and membership of committees, or acting as the Senior Independent Director. Fees for committee chairmanship are paid in addition to any fees for committee membership.
	The Non-Executive Chairman receives an annual fee for the performance of their role. This fee is agreed by the Remuneration Committee.
	Fees for both the Non-Executive Directors and Non-Executive Chairman are paid in cash, subject to the appropriate deductions. The amount payable takes into account: the time commitment and requirements of the role; individual performance and experience; benchmark data from appropriate market sources and the financial performance of the Bank.
	The basic and additional fees are reviewed periodically, drawing on external market information for comparable financial services groups and companies. Any increase normally takes effect from April of a given year.
	The maximum aggregate annual fees that can be paid to the Chairman and Non-Executive Directors are capped at £3,000,000.
Benefits	Non-Executive Directors do not participate in any pension, bonus or long-term incentive arrangements or receive any other benefits. Travel and expenses incurred in the normal course of business i.e., in relation to attendance at Board and committee meetings are met by the Bank.
	The Chairman receives a monthly allowance of £10,000 as a contribution towards travel and living expenses. This is reviewed from time to time and has a maximum of £20,000 per month.
Fees on Recruitment	The fees payable to a new Non-Executive Director will be consistent with the current basic fee structure in place for all Non-Executive Directors and reflect any additional responsibilities as Chair or member of Board Committees.
	The fees payable to a new Non-Executive Chairman will be set with reference to external market data; internal relativity among other Executive and Non-Executive Directors and the requirements of the role.
Service Contracts and Notice Period	The Chairman is appointed for a fixed term of two years which renews automatically on each anniversary. Either party can stop the automatic renewal up to two months before the renewal but the company must pay out the balance of the fixed term if it terminates his appointment. In accordance with the UK Corporate Governance Code the Chairman is subject to annual re election. If he were not re-elected his engagement would be terminated without any notice but he would receive payment in lieu of notice for the balance of his fixed term. There is no provision for any other early termination compensation and no payment for loss of office.
	Appointment letters for the Non-Executive Directors provide for a notice period of one month during which time they are entitled to be paid their normal fees or payment in lieu without liability for compensation. There is no provision for any other early termination compensation and no payment for loss of office. Non-Executive Directors may be terminated without any notice, payment in lieu of notice, or other compensation where they are not re-elected.