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Metro Bank Plc LSE:MTRO London Ordinary Share GB00BZ6STL67 ORD 0.0001P
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  0.70 0.61% 115.50 115.10 115.40 119.10 113.00 113.00 705,133 16:35:24
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Banks 426.3 -311.4 -175.0 - 199

Metro Bank PLC Results for Year ended 31 December 2020

24/02/2021 7:00am

UK Regulatory (RNS & others)


Metro Bank (LSE:MTRO)
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RNS Number : 1097Q

Metro Bank PLC

24 February 2021

Metro Bank PLC

Full year results

Trading Update 2020

24 February 2021

Metro Bank PLC (LSE: MTRO LN)

Results for Year ended 31 December 2020

Highlights:

   --    Continued support for customers, communities and colleagues through COVID-19 
   --    Accelerated transition to higher yielding assets 
   o     GBP3.1 billion mortgage disposal 
   o     RateSetter platform and back book acquisitions drive growth in unsecured lending 
   o     Shift towards specialist mortgages (>80% of applications) 
   --    Extended over 36,000 government-backed business loans totalling GBP 1.5 billion 
   --    11% growth in deposits; meaningful mix shift to more current accounts 
   --    #1 high street bank for service for the sixth time in a row 
   --    10% growth in customer accounts 

Summary

 
  --   Continued support for customers, communities and colleagues 
        during COVID-19 , demonstrating that community banking has 
        never been more relevant. 
  --   Transformation plan is on track, although financial performance 
        impacted by COVID-19. 
  --   Strategic pillars unchanged. The liability-led strategy 
        has been supplemented by an acceleration of asset mix shift 
        in response to longer term impacts of COVID-19. 
  --   Underlying loss before tax of GBP271.8 million for the year 
        (2019: loss of GBP11.7 million) 
  --   Estimated GBP124 million of impact from COVID-19 , comprising 
        c.GBP100million COVID-19 expected credit loss (ECL) expense 
        and lower transaction fee income. 
  --   Underlying loss halved H2 vs H1 , with improved net interest 
        margin (NIM) and fee income combined with significantly lower 
        ECL charge. 
  --   Statutory loss before tax of GBP311.4 million (2019: loss 
        of GBP130.8 million) reflecting the underlying loss and a 
        number of one-off items including the exit from a central 
        London office and remediation costs. 
  --   11% year-on-year growth in deposits to GBP16.1 billion (2019: 
        GBP14.5 billion) and 3% growth in H2, with mix improved as 
        fixed term deposit accounts reduced to 21% (31 December 2019: 
        32%) and the share of retail (excluding partnerships) and 
        SME customers increased to 73% (31 December 2019: 70%). Cost 
        of deposits exited the year at 39bps. 
  --   GBP3.1 billion residential mortgage portfolio disposal removes 
        current need to issue MREL qualifying debt and creates headroom 
        for growth in higher-yielding assets. 
  --   Completion of RateSetter platform acquisition and announcement 
        of back book purchase accelerating rebalancing of lending 
        mix towards unsecured lending. 
  --   Pro forma Common Equity Tier 1 (CET1) ratio of 16.3%(1) 
        (31 December 2019: 15.6%) , including c.0.8% of software 
        assets. Pro forma total capital plus MREL of 24.4%(1) (31 
        December 2019: 22.1%). 
  --   Strong liquidity position , pro forma liquidity coverage 
        ratio (LCR) 331% (1) . 
  --   Continued to attract new customers , reaching 2.2 million 
        customer accounts (31 December 2019: 2.0 million). 
  --   Awarded Moneynet Banking Brand of Year 2021 and MoneyAge 
        Bank of the Year 2020. 
  --   Strengthened the Board and Executive Committee including 
        appointment of Robert Sharpe as Chair on 1 November 2020. 
 

Key Financials:

 
                            31-Dec      31-Dec      Change     30-Jun      Change 
   GBP in millions           2020         2019       from        2020       from 
                                                    FY 2019                HY 2020 
 
 Assets                   GBP 22,579   GBP21,400     6 %      GBP22,134     2 % 
 Loans                    GBP 12,090   GBP14,681    (18 %)    GBP14,857    (19 %) 
 Deposits                 GBP 16,072   GBP14,477     11 %     GBP15,577     3 % 
 Loan to deposit ratio       75 %        101%      (26 pps)      95%      (20 pps) 
 
 CET1 capital ratio         15.0 %       15.6%     (60 bps)     14.5%      50 bps 
 Total capital ratio 
  (TCR)                     18.1%        18.3%     (20bps)      17.3%      80 bps 
 TCR plus MREL              22.4 %       22.1%      30bps       21.3%      110bps 
 Liquidity coverage 
  ratio                     187 %        197%      (10 pps)     226%      (39 pps) 
                         -----------  ----------  ---------  ----------  --------- 
 
 
                                   Year         Year                   Half         Half 
   GBP in millions                 ended        ended        YoY        year        year        HoH Change 
                                  31-Dec       31-Dec       Change     ended        ended 
                                   2020         2019                   31-Dec      30-Jun 
                                                                        2020        2020 
 
 Total underlying revenue(2)     GBP340.9     GBP400.1     (15%)     GBP187.6     GBP153.3        22% 
 Underlying loss before         (GBP271.8)   (GBP11.7)               (GBP88.4)   (GBP183.4) 
  tax (3) 
 Statutory loss before          (GBP311.4)   (GBP130.8)              (GBP71.0)   (GBP240.6) 
  tax 
 Net interest margin              1.22%        1.51%      (29bps)      1.28%       1.15%         13bps 
 
                                  (151.7 
 Underlying EPS- basic              p)        (10.8p)                 (42.9p)     (108.8p) 
                                  (151.7 
 Underlying EPS- diluted            p)        (10.8p)                 (42.9p)     (108.8p) 
                               -----------  -----------  ---------  ----------  -----------  ------------- 
 

1. Pro forma on completion of the residential mortgage portfolio sale, including the settlement of a receivable outstanding at year end

2. Underlying revenue excludes amounts grant income recognised relating to the Capability & Innovation fund and the gain on the mortgage portfolio sale

3. Underlying loss before tax excludes the FSCS levy (for half year figures only), Listing Share Awards, impairment and write-off of property, plant & equipment (PPE) and intangible assets, net BCR costs, transformation costs, remediation costs, business acquisition and integration costs and mortgage portfolio sale. Statutory loss after tax is included in the Profit and Loss Account.

Daniel Frumkin, Chief Executive Officer at Metro Bank, said:

"It has been a truly unprecedented year for our business, colleagues and customers. Never has the role of a community bank been more important for people across the UK and I am incredibly proud of the way Metro Bank has continued to support and deliver for our customers. Whether through our colleagues who have kept all stores open and been available on the phone throughout national and regional lockdowns, or through our back office colleagues who have helped business and personal customers access much-needed government backed loan schemes, Metro Bank has made a real difference to the communities we serve.

"The pandemic has clearly impacted performance, leading to significant expected credit losses, but our transformation strategy is firmly on track and we have accelerated initiatives to shift our asset mix, bringing higher yield and improving net interest margin, as evidenced in the second half. The purchase of the RateSetter platform has allowed us to enter the unsecured lending market. In addition, we have made progress against each of our strategic pillars, including the sale of part of our residential mortgage portfolio to further optimise our balance sheet, the launch of higher yielding products including specialist mortgages, and we have grown customer accounts to 2.2 million.

"2020 marked Metro Bank's 10th anniversary and whilst challenging, the strategic actions we have taken, supported by our incredible team of dedicated colleagues, means we remain on track to achieve our transformation plan as the UK's best community bank."

   A presentation for investors and analysts will be held at 11:30AM   (UK Time) on 24 February 2021. 

The presentation will be webcast on:

https://onlinexperiences.com/Launch/QReg/ShowUUID=581E4973-0E91-467D-A85E-8C23D1FCA10D

For those wishing to dial-in:

From the UK dial: 0800 358 9473

From the US dial: +1 855 85 70686

Participant Pin: 78468426#

URL for other international dial in numbers: https://event.sharefile.com/share/view/s7bae1d9235d495a8

Progress on strategic plan

Differentiated customer proposition and customer centric model has once again been recognised in the CMA Service Quality Survey, with Metro Bank the highest rated high street bank for overall service quality for personal and business customers. We were also awarded Moneynet Banking Brand of Year 2021 and MoneyAge Bank of the Year 2020.

Strategic pillars unchanged. The liability-led strategy supplemented by the acceleration of asset mix shift, in response to the significant reduction in treasury yields resulting from COVID-19. The actions taken in 2020 reflect this change of emphasis.

Driving profitable revenue growth through m eeting more customer needs by better executing and enhancing product offerings remains a key part of our strategy which in turn supports our acceleration towards higher yielding assets.

Committed to leveraging our existing network of 77 stores , with no expansion beyond stores in Bradford and Leicester in 2021. Future expansion is subject to review, with no new stores planned in 2022 or 2023.

2020 actions

 
 Balance 
  sheet optimisation         *    GBP3.1 billion residential mortgage portfolio 
                                  disposal with an average yield of 2.1% 
 
 
                             *    Acquisition and integration of RateSetter platform 
                                  accelerates growth in consumer unsecured lending 
 
 
                             *    Re-entered high LTV mortgage market as part of 
                                  specialist mortgages strategy, specialist mortgage 
                                  applications accounted for >80% of all mortgage 
                                  applications in 4Q20 
 Revenue 
                             *    Launched Bounce Back Loan Scheme (BBLS) and 
                                  Coronavirus Business Interruption Loan Scheme (CBILS) 
                                  government backed loans including BBLS top-ups 
 
 
                             *    New products launched enhancing both retail and 
                                  business customer propositions, including Business 
                                  Account Online (BAO) 
 
 
                             *    Unsecured consumer lending now originating through 
                                  the RateSetter platform 
 Cost 
                             *    Accelerated property strategy; exited central London 
                                  property, purchased three freeholds of existing 
                                  stores and shift to continued remote working 
 
 
                             *    Procurement transformation and IT outsourcing 
                                  transformed 
 
 
                             *    E-forms and process automation across the Bank 
 
 
                             *    Leveraging the existing store estate is a key driver 
                                  and future store plans are always under evaluation 
 Infrastructure 
                           *    RateSetter platform integrated and originating 
                                unsecured consumer lending 
 
 
                           *    Regulatory requirements delivered including PSD2, 
                                high cost of credit and cross border regulation 
 
 
                           *    IT landscape enhanced with a security operations 
                                centre and platform upgrades 
 

2021 priorities and outlook

 
 Balance 
  sheet optimisation         *    Accelerate unsecured lending and specialist mortgages 
                                  to drive improved yields and reduce the lag effect on 
                                  NIM 
 
 
                             *    Remain dynamic and opportunistic to seek capital 
                                  efficiencies 
 Revenue 
                           *    Further proposition enhancements for both retail and 
                                business customers including insurance, credit cards, 
                                small business loans and enhanced business overdrafts 
 
 
                           *    Focus on opportunity to reach more customers through 
                                digital channels 
 
 
                           *    Furthering range of specialist mortgage products 
 Cost 
                             *    Customer service transformation 
 
 
                             *    Continued development of a strategic collections 
                                  capability for the Bank including meeting BBLS 
                                  requirements 
 
 
                             *    Management focus on cost discipline, review of cost 
                                  performance and discretionary spend 
 Infrastructure 
                           *    Product delivery through digital channels 
 
 
                           *    Delivery of regulatory requirements and enhancements 
                                to regulatory reporting 
 
 
                           *    IT and operational resilience programmes 
 

2021 economic and market outlook remains uncertain but commitment to customers, colleagues and communities is unwavering.

Financial performance for the year and six months ended 31 December 2020

Deposits

 
 GBP in millions               31-Dec        31-Dec      Change     30-Jun      Change 
                                 2020         2019        from        2020       from 
                                                         FY 2019                HY 2020 
 
 Demand: current accounts     GBP 6,218     GBP4,278      45 %     GBP5,274      18 % 
 Demand: savings accounts     GBP 6,430     GBP5,593      15 %     GBP5,982      7 % 
 Fixed term: savings 
  accounts                    GBP 3,424     GBP4,606     (26 %)    GBP4,321     (21 %) 
                            ------------  -----------  ---------  ----------  --------- 
 Deposits from customers     GBP 16,072    GBP14,477      11 %     GBP15,577     3 % 
                            ------------  -----------  ---------  ----------  --------- 
 
 Deposits from customers includes: 
 Retail customers (excl.      GBP 7,364     GBP6,891      7 %      GBP7,355       -% 
  retail partnerships) 
 SMEs                         GBP 4,420     GBP3,261      36 %     GBP4,093      8 % 
                            ------------  -----------  ---------  ----------  --------- 
  GBP 11,784                  GBP10,152                   16 %     GBP11,448     3 % 
 ------------  --------------------------------------  ---------  ----------  --------- 
 Retail partnerships          GBP 1,596     GBP1,839     (13 %)    GBP1,705     (6 %) 
 Commercial customers 
  (excluding SMEs(4) 
  )                           GBP 2,692     GBP2,486      8 %      GBP2,424      11 % 
   GBP 4,288                  GBP4,325                   (1 %)     GBP4,129      4 % 
 ------------  --------------------------------------  ---------  ----------  --------- 
 
 4. SME defined as enterprises which employ fewer than 250 
  persons and which have an annual turnover not exceeding EUR50 
  million, and/or an annual balance sheet total not exceeding 
  EUR43 million, and have aggregate deposits less than EUR1 
  million. 
 
 
  --   Customer account growth of 0.2 million (2019: 0.4 million) 
        in the year to 2.2 million, despite lockdown restrictions 
        for much of the period and supported by the launch of Business 
        Current Account Online. 
  --   Total deposits grew by over GBP1.5 billion to GBP16,072 
        million as at 31 December 2020 (31 December 2019: GBP14,477 
        million ) , following an increase in SME and retail deposits, 
        that together comprise 73% (2019: 70%) of the total . SME 
        balances were boosted by the deposit of BBLSs loans provided. 
        Action taken to reduce pricing of fixed term deposit (FTD) 
        accounts to be more in line with high street competitors 
        combined with a change in customer preference for current 
        accounts and instant access (demand) savings improved the 
        deposit mix during the year. Current accounts comprised 
        39% of total deposits at 31 December 2020, increased from 
        30% a year earlier, while FTD accounts reduced from 32% 
        to 21% over the same period. 
 
        Following higher than anticipated growth in 2020, deposit 
        expansion will have less of a focus in 2021 with balances 
        reflecting the transitory nature of the BBLS-related deposits 
        together with the roll-off of high cost FTD accounts. Focus 
        will remain on maintaining a high-quality mix of deposits. 
  --   Cost of deposits was 65bps for the year, a decrease of 
        13bps compared to 78bps in 2019, reflecting the 65bps base 
        rate reductions to 10bps and the roll-off of higher cost 
        FTD accounts. The reduction in cost of deposits from 82bps 
        in H1 to 49bps in H2 and the year-end exit rate of 39bps 
        reflects the timing of the base rate cut in March and the 
        progressive roll off of FTD accounts. The favourable impact 
        on cost of deposits from FTD roll off and repricing is 
        expected to continue into 2021. 
 

Loans

 
  --   Total net loans as at 31 December 2020 were GBP12,090 
        million, down 18% from GBP14,681 million at 31 December 
        2019 primarily reflecting the GBP3.1 billion residential 
        mortgage portfolio sale in December partially offset by 
        capital-efficient government-supported new SME/business 
        lending. Total net loans are expected to increase in the 
        year ahead, with accelerating mix shift towards higher 
        yielding assets benefitting from the actions taken in 2020. 
  --   Commercial loans increased GBP1,096 million to GBP5,148 
        million at 31 December 2020 from GBP4,052 million at 31 
        December 2019. Commercial lending included GBP1,353 million 
        of BBLS and GBP114 million of Coronavirus Business Interruption 
        Loan Scheme (CBILS) lending at 31 December 2020. 
  --   Retail mortgages remained the largest component of the 
        lending book at 56% of gross lending down from 71% a year 
        earlier, reflecting the GBP3.1 billion mortgage portfolio 
        disposal in December. Higher yielding speciality mortgages 
        comprised more than 80% of retail mortgage applications 
        in the fourth quarter, a trend that is expected to continue. 
  --   Consumer lending remained at 2% of the loan book , with 
        a marginal decline in H1 reversed in Q4 following the start 
        of Metro Bank funded lending through the RateSetter platform. 
 
        Consumer lending is set to increase substantially in 2021, 
        benefitting from the acquisition of the RateSetter back 
        book (GBP384 million as at 29 January 2021) and the continued 
        roll out of lending through the RateSetter platform across 
        all of the Bank's channels. 
  --   Loan to deposit ratio ended the year at 75% (December 
        2019: 101%), reflecting the mortgage portfolio disposal 
        and the increase in deposits. 
 
 
 GBP in millions               31-Dec        31-Dec      Change     30-Jun      Change 
                                 2020         2019        from        2020       from 
                                                         FY 2019                HY 2020 
 
 Gross Loans and advances 
  to customers               GBP 12,244    GBP14,715     (17 %)    GBP15,002    (18 %) 
 Less: allowance for          (GBP 154                    >100 
  impairment                      )         (GBP34)         %      (GBP145)      6 % 
                            ------------  -----------  ---------  ----------  --------- 
 Net Loans and advances 
  to customers               GBP 12,090    GBP14,681     (18 %)    GBP14,857    (19 %) 
                            ------------  -----------  ---------  ----------  --------- 
 
 Gross loans and advances 
  to customers consists 
  of: 
                            ------------  -----------  ---------  ----------  --------- 
 Commercial lending           GBP 5,148     GBP4,052      27 %     GBP4,614      12 % 
 Retail mortgages             GBP 6,892    GBP10,430     (34 %)    GBP10,190    (32 %) 
 Consumer lending              GBP 204       GBP233      (12 %)     GBP198       3 % 
                            ------------  -----------  ---------  ----------  --------- 
 

Expected Credit Loss

 
 --   ECL expense of GBP126.7 million of which GBP112.0 million 
       was incurred in H1 primarily reflected a deterioration 
       in macro-economic assumptions and single name charges resulting 
       from COVID-19. In H2, the ECL expense reduced to GBP14.7 
       million attributable to portfolio changes and single name 
       charges. 
 
       Macro-economic assumptions 
        Baseline scenario            2020      2021     2022    2023    2024 
        Unemployment rate - 
         %                           5.8%     9.2 %    9.3 %    8.3 %   7.6 % 
        House price index - 
         YoY%                        2.1%     (9.8%)   (1.9%)   4.7 %   6.8 % 
        UK GDP - YoY%               (11.1%)   1.8 %    7.0 %    3.0 %   1.0 % 
        Mortgage 5 year interest 
         rates - %                   2.0%     1.7 %    2.3 %    2.6 %   2.7 % 
 
 
       Source: Moody's Analytics December 2020 
 --   Less than 1% of residential mortgage customers by value 
       had active payment deferrals as at 31 December 2020 , significantly 
       below the 17% of customers who had active deferrals as 
       at 30 June 2020. 
 --   Average debt to value (DTV) of the residential mortgage 
       book as at 31 December 2020 was 56% (2019: 59%), while 
       DTV in the commercial book was 56% (2019: 60%). 
 --   Non-performing Loans increased to 2.10% (31 December 2019: 
       0.53%) primarily driven by customers who have received 
       temporary COVID-19 support measures and now require further 
       forbearance support. 
 

Profit and Loss Account

 
 --   Net interest margin (NIM) of 1.22% compared to 1.51% for 
       the year ended 31 December 2019 , reflected continued margin 
       compression following the 65bps base rate cut, a reduction 
       in the loan-to-deposit ratio and a significant volume of 
       new lending comprising lower yielding, although capital-efficient, 
       government-backed schemes. NIM in the first half of 1.15% 
       absorbed the lag effect of deposits repricing more slowly 
       than lending in response to the March base rate cuts, while 
       H2 gained momentum from lower cost of deposits, increasing 
       to 1.28%. 
 
       Continued reduction in cost of deposits combined with a 
       favourable asset mix shift is expected to improve NIM performance 
       in the year ahead compared to H2 NIM. 
 --   Underlying net interest income down 19% year-on-year to 
       GBP250.3 million (2019: GBP308.1 million), with H2 at GBP134.1 
       million higher than H1 (GBP116.2 million) following the 
       movements in NIM described above. 
 --   Underlying net fee and other income decreased 5% to GBP86.3 
       million (2019: GBP90.4 million) primarily reflecting the 
       impact of lockdowns on customer activity. This effect was 
       evident within the year with a weaker performance in the 
       first half (GBP36.1 million) than the second half when 
       fewer social restrictions were in place. The outlook for 
       2021 will be significantly affected by the path towards 
       the exit from the current lockdown. 
 --   Underlying cost:income ratio increased to 143% in 2020 
       from 100% in the prior year , largely reflecting net interest 
       income headwinds and planned higher investment opex. 'Run 
       the Bank' (RTB) cost growth was 1% on a like for like basis, 
       adjusting for items including RateSetter acquisition, COVID-19 
       related costs, six store openings, and colleague reward, 
       or 9% in total. 'Change the Bank' (CTB) expenditure increased 
       to GBP63m plus GBP33m of amortisation, with the new investment 
       spend at a lower average capitalisation rate, in line with 
       previous guidance. 
 
       RTB is expected to deliver low to mid-single digit percentage 
       growth in 2021, in addition to the annualisation of RateSetter 
       costs. Expect marginally higher CTB spend in 2021 with 
       the pace of expenditure dependent on capacity of the Bank 
       to absorb the rate of change, plus amortisation. 
 --   Underlying loss before tax was GBP271.8 million, an increase 
       from the GBP11.7 million loss in 2019 , reflecting ECL 
       expense and income challenges including those arising from 
       COVID-19. Within the year, the return towards profitability 
       gathered momentum as the underlying loss in H2 was half 
       the loss in the first six months. 
 --      Statutory loss before tax of GBP311.4 million in 2020 
          (2019: loss of GBP130.8 million) including: 
           *    Impairment and write-off of property plant & 
                equipment and intangible assets (GBP40.6 million): 
                primarily relates to the accelerated exit from the 
                Central London Office at Old Bailey and intangible 
                asset impairment. 
 
 
           *    Remediation costs (GBP40.8 million): reflect 
                primarily the ongoing remediation programme in 
                relation to a previously disclosed review of the 
                Bank's sanctions procedures and to the January 2019 
                risk weighted assets (RWA) adjustment, and associated 
                regulatory investigations. 
 
 
           *    Transformation costs (GBP16.7 million): costs 
                associated with the delivery of the cost 
                transformation programme and includes some costs 
                related to the Old Bailey exit. 
 
 
           *    Business acquisition and integration costs (GBP5.4 
                million): costs associated with acquisition of the 
                RateSetter platform, completed in September. 
 
 
           *    Net gain on Mortgage portfolio sale (GBP63.7 
                million): relates to the 90% of the GBP3.1 billion 
                disposal derecognised upon signing in December, net 
                of costs. The transaction completed on 2 February 
                2021, consequently the remaining gain on sale will be 
                recognised in H1 2021. 
 --   Statutory loss after tax of GBP 301.7 million in 2020 
       (2019: GBP182.6 million) after a GBP 9.7 million corporation 
       tax credit. 
 

Capital, Funding and Liquidity

 
 --   Strong liquidity and funding position maintained , supported 
       by 2020 deposit growth. As a result, the Bank's Liquidity 
       Coverage Ratio (LCR) was 187% as of 31 December 2020, compared 
       to the requirement of 100%. Following the settlement of 
       a receivable on completion of the mortgage portfolio disposal 
       in February 2020, pro forma LCR was estimated at 331%. 
 
       We continue to use funds from the BoE's Term Funding Scheme 
       (TFS) which was 
       closed to further drawdowns in February 2018. In 2020 we 
       rolled over GBP550 million of maturing TFS drawings into 
       TFSME (Term Funding Scheme with additional incentives for 
       SMEs) which provides access to significant additional funding 
       and further flexibility to the Bank's funding plans. 
 --   CET1 capital of GBP1,192 million as at 31 December 2020 
       (31 December 2019: GBP1,427) was 15.0% of RWA (31 December 
       2019: 15.6%), including GBP75 million related to software 
       assets, equivalent to 0.8%, this compares to our minimum 
       requirement of 9.3%(5) . 
 
       The Bank's capital ratios include the application of the 
       Capital Requirements Regulation 'Quick Fix' package, of 
       this the revised IFRS9 transitional agreement contributes 
       c. 1.1% to CET1 and a further c. 0.6% is derived from changes 
       to the SME supporting factor. In addition, further capital 
       relief has been provided through the EBA's changes to the 
       capital treatment of software, although the PRA has announced 
       their intention in CP5/21 to modify the regulatory requirements 
       and we expect that software will return to being fully 
       deducted prior to 1 January 2022. We are therefore not 
       considering the benefit when making capital decisions today 
       or in our longer-term strategic planning. 
 --   Total capital as a percentage of RWA was 18.1% reflecting 
       the statutory loss reported in the period. Total capital 
       plus MREL resources were GBP1,783 million with a total 
       capital plus MREL ratio of 22.4% of RWA at 31 December 
       2020, this compares to our minimum interim requirement 
       of 20.5%(5) . 
 
       The requirement to meet the end-state MREL threshold is 
       now 1 January 2023, as is the requirement to implement 
       a HoldCo structure. 
 --   Total RWA as at 31 December 2020 was GBP7,957 million 
       (31 December 2019: GBP9,147 million). The reduction in 
       2020 reflects the mortgage portfolio disposal and capital-efficient 
       lending through government-backed BBLS and CBILS together 
       with lending discipline in other areas. The result is a 
       loan risk weight density of 47% as at 31 December 2020 
       (31 December 2019: 48%). 
 --   On completion of the residential mortgage portfolio sale, 
       including the settlement of a receivable outstanding at 
       the year-end, the 31 December pro forma CET1 ratio is estimated 
       at 16.3% and the pro forma total capital plus MREL ratio 
       at 24.4%. 
 --   Regulatory leverage ratio of 5.6%. 
 5. Based on current capital requirements, excluding any confidential 
  PRA buffer, if applicable 
 

Board and Executive Committee Changes

 
 --   Since the last full year results in February 2020, Robert 
       Sharpe joined the Board as Chair on 1 November 2020, while 
       Anne Grim, Ian Henderson, and Nicholas Winsor were appointed 
       as independent Non-Executive Directors. Following these 
       changes, the Board is comprised of nine Non-Executive Directors 
       in addition to the Chair, all of whom are independent, 
       and two Executive Directors. 
 --   In the same period, a number new appointments completed 
       changes to the Executive Committee: Martin Boyle as Chief 
       Transformation Officer; Carol Frost as Chief People Officer; 
       and Richard Lees as Chief Risk Officer. 
 

Metro Bank PLC

Summary Balance Sheet and Profit & Loss Account

(Unaudited)

 
 Balance Sheet                      Year-on-year         31-Dec        30-Jun        31-Dec 
                                       change              2020          2020          2019 
                                                    GBP'million   GBP'million   GBP'million 
 Assets 
 Loans and advances to customers       (18%)             12,090        14,857        14,681 
 Treasury assets(6)                                       6,406         6,101         5,554 
 Assets classified as held                                  295             -             - 
  for sale 
 Other assets(7)                                          3,788         1,176         1,165 
                                                   ------------  ------------  ------------ 
 Total assets                           6 %              22,579        22,134        21,400 
                                                   ------------  ------------  ------------ 
 
 Liabilities 
 Deposits from customers                11 %             16,072        15,577        14,477 
 Deposits from central banks                              3,808         3,801         3,801 
 Debt securities                                            600           599           591 
 Other liabilities                                          810           810           948 
                                                   ------------  ------------  ------------ 
 Total liabilities                                       21,290        20,787        19,817 
                                                   ------------  ------------  ------------ 
 Total shareholder's equity                               1,289         1,347         1,583 
                                                   ------------  ------------  ------------ 
 Total equity and liabilities                            22,579        22,134        21,400 
                                                   ------------  ------------  ------------ 
 
 
   6         Comprises investment securities and cash & balances with the Bank of England 

7 Comprises property, plant & equipment, intangible assets and other assets. Other assets at 31 December 2020 include GBP2.6 billion receivable from NatWest. This was received post year-end upon the completion of the transaction.

 
 
 Profit & Loss Account             Year-on-year        31-Dec            31-Dec 
                                      change             2020              2019 
                                                  GBP'million       GBP'million 
 
 Underlying net interest income       (19%)             250.3             308.1 
 Underlying net fee and other 
  income                                                 86.3              90.4 
 Underlying net gains on sale 
  of assets                                              4 .3               1.6 
                                                 ------------  ---------------- 
 Total underlying revenue             (15%)             340.9             400.1 
                                                 ------------  ---------------- 
 
                                                     ( 39 0.4 
 'Run the Bank' costs                                       )           (358.6) 
 'Change the Bank' costs(8)                          ( 95.6 )            (41.5) 
                                                 ------------  ---------------- 
                                                      ( 486.0 
 Underlying operating costs            21%                  )           (400.1) 
                                                     ( 1 26.7 
 Expected credit loss expense                               )            (11.7) 
 
                                                     ( 27 1.8 
 Underlying loss before tax          (>100%)                )            (11.7) 
                                                 ------------  ---------------- 
 
 
 Listing Share Awards                                     0.2             (0.6) 
 Impairment and write-off of 
  property plant & equipment 
  and intangible assets                              ( 40.6 )            (77.7) 
 Net BCR costs                                              -             (2.6) 
 Transformation costs                                ( 16.7 )            (11.5) 
 Remediation costs                                   ( 40.8 )            (26.8) 
 Business acquisition and                               (5.4)                 - 
  integration costs 
 Gain on mortgage portfolio                              63.7                 - 
  sale (net of costs) 
 
 Statutory loss before tax           (>100%)          (311.4)           (130.8) 
                                                 ------------  ---------------- 
 
 Statutory taxation                                       9.7            (51.8) 
 
                                                      ( 301.7 
 Statutory loss after tax            (>100%)                )           (182.6) 
                                                 ------------  ---------------- 
 
 
 
 
 Key metrics                                   31-Dec           31-Dec 
                                                 2020             2019 
 Underlying earnings per share 
  - basic                                    (151.7p)          (10.8p) 
 Underlying earnings per share 
  - diluted                                  (151.7p)          (10.8p) 
 Number of shares - undiluted                  172.4m           147.4m 
 Number of shares - diluted                    172.4m           147.4m 
 Net interest margin (NIM)                      1.22%            1.51% 
 Cost of deposits                               0.65%            0.78% 
 Cost of risk                                   0.86%            0.08% 
 Underlying cost:income ratio                    143%             100% 
 
 
   8         Change the Bank costs consists of investment spend, including amortisation 
 
                                         Year-on-year               Half year ended 
                                            change 
 Profit & Loss Account                                       31-Dec        30-Jun        31-Dec 
                                                               2020          2020          2019 
                                                        GBP'million   GBP'million   GBP'million 
 
 Underlying net interest income              (5%)             134.1         116.2         141.9 
 Underlying net fee and other 
  income                                                       50.2          36.1          44.0 
 Underlying net gains/(losses) 
  on sale of assets                                             3.3           1.0         (2.5) 
                                                       ------------  ------------  ------------ 
 Total underlying revenue                     2%              187.6         153.3         183.4 
                                                       ------------  ------------  ------------ 
 
 'Run the Bank' costs                                       (206.3)       (184.1)       (179.7) 
 'Change the Bank' costs(8)                                  (55.0)        (40.6)        (21.5) 
                                                       ------------  ------------  ------------ 
 Underlying operating costs                  30%            (261.3)       (224.7)       (201.2) 
 Expected credit loss expense                                (14.7)       (112.0)         (7.3) 
 
 Underlying loss before tax                 >100%            (88.4)       (183.4)        (25.1) 
                                                       ------------  ------------  ------------ 
 
 FSCS levy                                                        -         (0.2)           0.4 
 Listing Share Awards                                           0.4         (0.2)         (0.2) 
 Impairment and write-off of 
  property plant & equipment 
  and intangible assets                                      (14.0)        (26.6)        (76.7) 
 Net BCR costs                                                    -             -         (1.3) 
 Transformation costs                                         (4.3)        (12.4)         (6.8) 
 Remediation costs                                           (23.0)        (17.8)        (24.5) 
 Business acquisition and integration                         (5.4)             -             - 
  costs 
 Gain on mortgage portfolio                                    63.7             -             - 
  sale (net of costs) 
 
 Statutory loss before tax                  (47%)            (71.0)       (240.6)       (134.2) 
                                                       ------------  ------------  ------------ 
 
 Statutory taxation                                             8.6           1.1        (49.7) 
 
                                                             ( 62.4 
 Statutory loss after tax                   (66%)                 )       (239.5)       (183.9) 
                                                       ------------  ------------  ------------ 
 
 
                                                    Half year ended 
 Key metrics                                  31-Dec     30-Jun      31-Dec 
                                                2020       2020        2019 
 Underlying earnings per share 
  - basic                                    (42.9p)   (108.8p)     (14.9p) 
 Underlying earnings per share 
  - diluted                                  (42.9p)   (108.8p)     (14.9p) 
 Number of shares - undiluted                 172.4m     172.4m      172.4m 
 Number of shares - diluted                   172.4m     172.4m      172.4m 
 Net interest margin (NIM)                     1.28%      1.15%       1.40% 
 Cost of deposits                              0.49%      0.82%       0.85% 
 Cost of risk                                 0.20 %      1.55%       0.10% 
 Underlying cost:income ratio                   139%       147%        110% 
 
 
 

For more information, please contact:

Metro Bank PLC Investor Relations

Jo Roberts

+44 (0) 20 3402 8900

jo.roberts@metrobank.plc.uk

Metro Bank PLC Media Relations

Tina Coates / Abigail Whittaker

+44 (0) 7811 246016 / +44 (0) 7989 876136

pressoffice@metrobank.plc.uk

Teneo

Charles Armitstead / Haya Herbert Burns

+44 (0)7703 330269 / +44 (0) 7342 031051

Metrobank@teneo.com

S

About Metro Bank

Metro Bank serves more than two million customer accounts and is celebrated for its exceptional customer experience. It is the highest rated high street bank for overall service quality for personal and business customers and the number one bank for service in stores in the Competition and Market Authority's Service Quality Survey in February 2021. It was recognised as 'Bank of the Year' at the 2020 MoneyAge Awards and 'Banking Brand of The Year' at the Moneynet Personal Finance Awards 2021.

The community bank offers retail, business, commercial and private banking services, and prides itself on giving customers the choice to bank however, whenever and wherever they choose, and supporting the customers and communities it serves. Whether that's through its network of 77 stores open seven days a week, early until late, 362 days a year; on the phone through its UK-based 24/7 contact centres; or online through its internet banking or award-winning mobile app: the bank offers customers real choice.

Metro Bank PLC. Registered in England and Wales. Company number: 6419578. Registered office: One Southampton Row, London, WC1B 5HA. 'Metrobank' is the registered trademark of Metro Bank PLC.

It is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Most relevant deposits are protected by the Financial Services Compensation Scheme. For further information about the Scheme refer to the FSCS website www.fscs.org.uk.

All Metro Bank products are subject to status and approval.

Metro Bank PLC is an independent UK bank - it is not affiliated with any other bank or organisation (including the METRO newspaper or its publishers) anywhere in the world. Please refer to Metro Bank using the full name.

Metro Bank PLC

Preliminary Announcement

(Unaudited)

For the year ended 31 December 2020

Chief executive officer's statement

In February 2020, shortly after being appointed as CEO and having completed a comprehensive review of the business, we launched our strategic priorities with a clear plan to return the Bank to sustainable profitability built around a community banking model.

It's hard to believe that only a few weeks later the country was in lockdown, and the world entered the most difficult social and economic crisis of a generation. It has been a truly unprecedented year for our business, colleagues and customers. But never has the role of a community bank been more important for people across the UK and I'm incredibly proud of the way colleagues have stepped up to support each other, our customers and the communities we serve.

Our community banking model has proven itself over the past 12 months, with the Competition and Market Authority's Service Quality Survey once again confirming that Metro Bank is number one for store service and number one on the high street for overall service. We pride ourselves on giving customers the choice to bank however, whenever and wherever they choose by delivering full-service banking across stores, digital and telephony - and customers continue to choose us, with customer accounts growing to more than 2.2 million by the end of 2020.

Despite the pandemic weighing on our financial performance during the course of the year, we've made good progress delivering against the strategic priorities we set out in February 2020 and while there is still much to do, we remain on track to achieve our transformation plan as the UK's best community bank.

COVID-19

The response of Metro Bank colleagues to the pandemic has left me humbled, and the resilience they have shown has been inspiring. The unique culture that we have built and our unwavering focus on serving customers has shone through. Whether it be our front line colleagues who have kept stores and been available on the phone open throughout national and regional lockdowns, through our back office colleagues who have helped business and personal customers access much-needed government backed loan schemes, those who have worked remotely to keep our essential services running while continuing to launch new products, or those that have volunteered and fundraised for local causes in need of support.

Our colleagues have made a real difference to the communities we serve. I want to say a huge thank you to them for all their efforts during 2020 to look after our customers, our communities and most importantly each other.

OUR STRATEGY

In February 2020 we identified five strategic drivers to help return us to delivering adequate shareholder return in line with our ambition to become the UK's best community bank.

In spite of the challenges that the pandemic brings, those drivers remain unchanged and the business has remained resilient. Our underlying performance and the foundations on which our turnaround plan is built are strong.

Fundamentally we have seen, and continue to see, a significant opportunity to deepen relationships with existing customers by improving our product offering, enhancing our channels and by continuing to remain completely focused on delivering excellent customer service.

STRATEGIC RESPONSE TO THE PANDEMIC

While the key strategic drivers and the transformation plan we set out last year remain appropriate, the pandemic's impact on the macro-economic environment meant we've clearly had to adapt and accelerate the delivery of some strategic initiatives.

Starting in April, alongside the significant operational response and initiatives put in place to support customers, colleagues and communities, we worked to understand the impact of the pandemic on our plan. It is clear that the pandemic has caused both shorter term effects and more systemic medium term effects that influence our plans. Shorter term effects arise from lower customer activity, for example with notable impact on interchange fees, ATM and foreign exchanges volumes. However these are transitory, evidenced by a strong bounce back in activity during the period of lockdown easing over the summer.

Clearly the resulting fall in economic activity has in turn created pressure on our customers leading to a rise in credit provisioning. While we have seen limited actual losses to date, the underlying impact of the pandemic cannot yet be fully understood as a result of the appropriate government support schemes that remain in place. We therefore anticipate the impact on our customers will become clearer over the next 12-18 months. We remain committed to supporting consumers and businesses as we navigate the months ahead.

In line with the government support measures announced during the course of 2020, we worked hard to support our customers through these government backed lending schemes, notably BBLS, CBILS and CLBILS. These loans provide lending with little capital and credit risk impact due to them being partly or fully underwritten by the Government. To date, we have helped more than 36,000 customers and lent out GBP1.5 billion.

The more systemic medium term effects of the pandemic revolve around lower interest rates and quantitative easing measures taken by the Bank of England that have meaningfully depressed yields on investible assets. In February 2020, we were clear that our transformation agenda would be driven by a liability-led strategy given Metro Bank's proven ability to grow deposits. The deposits would then be invested in low risk weight investments which, while weighing on net interest margin, would have meaningfully improved our return on tangible equity.

While shifting our asset mix and the associated yield enhancement alongside this was a core part of our plan, these activities were not due to be a focus until the latter years of our plan. However, in an enduring lower for longer interest-rate environment, and given there is less inherent value in excess liquidity, we have accelerated some initiatives to deliver a different asset mix quicker - with higher yielding assets and improving net interest margin. As a result, the Executive team took several actions during the course of the year including:

-- Purchasing the RateSetter platform bringing technology and talented colleagues with deep expertise in the unsecured lending market to accelerate our entry into this area.

-- Continuing the use of the RateSetter brand on aggregator sites, opening up a new distribution channel that was not in our plans a year ago with the Metro Bank brand not present on aggregators.

-- An immediate shift away from prime residential mortgages into more specialist offerings generating higher yield.

-- Repricing fixed term deposits, moving from best on high street rates and bringing us into line with incumbent providers.

While it is still early days, and acknowledging that it will take time to change the shape of the balance sheet to ultimately improve net interest margin, the early results are encouraging.

For example, RateSetter lending is now available through the Metro Bank website and app, and ready to launch in Metro Bank stores when lockdown restrictions ease. Since launch, we have extended more than GBP120 million unsecured consumer loans to customers; this is more than twelve times the value of consumer lending that Metro Bank has delivered organically in any year since launch.

Furthermore, following the decision to more quickly focus on specialist products, more than 80% of applications in the last six months of 2020 were for specialist mortgages. Cost of deposits and our deposit mix at the year-end show the results of our focus on repricing fixed term deposits during the course of the year, and it should be expected that we will remain disciplined on deposit mix, deposit pricing and deposit growth - given the lower inherent value of excess liquidity going forward.

As a result of the impact of the pandemic on financial performance, capital has been reduced more quickly than anticipated and access to capital markets has been more volatile. Given this, and the desire to shift our asset mix more quickly to enhance yield, we were swift to identify and deliver on opportunities presented by the current climate with the sale of a portfolio of residential mortgages in December 2020. We are pleased with the outcome of this transaction, with both the gain on sale and the resulting release of risk-weighted assets removing the need to raise additional capital as well as allowing us to increase our lending in higher yielding areas. In February 2021 we announced our intention to deploy some of this capital to acquire the RateSetter back book from peer-to-peer investors, to accelerate the optimisation of our balance sheet.

STRATEGIC PROGRESS

Alongside the actions taken to support customers through COVID-19 and to react to the changing external environment, as outlined above, we have continued to make solid progress on delivering against our strategic pillars. We're continuing to deliver what we said we would do, and the business has demonstrated its resilience with the pandemic having limited effect on our ability to drive and deliver change.

1) Cost initiatives

Despite the high fixed cost base nature of retail banking, we have controlled business as usual ('Run the Bank') costs. Co st growth was 1% on a like for like basis, adjusting for the RateSetter acquisition, COVID-19 related costs, six store openings, and colleague reward, or 9% in total. Costs to transform the business ('Change the Bank') have increased 130%. We always anticipated these change costs would be frontloaded and remain focused on keeping these appropriately contained.

We are taking a more proactive management approach to our property estate. In our interim results we announced we had taken the decision to vacate our office at Old Bailey, London. The success of our working from home arrangements as well as feedback from colleagues is leading us to explore other opportunities for office space rationalisation, including better utilising excess space in our store network rather than occupying standalone office space. An example of this is our new operations centre in our Bristol store, using previously underused space.

We have also taken the opportunity to capitalise on our strong liquidity position to take advantage of the current commercial property market. This has seen us buy the freeholds of certain stores at an attractive yield and either at, or close to, the carrying amount of their right of use asset - meaning only a marginal upfront capital impact in exchange for longer-term run rate savings and flexibility.

2) Revenue initiatives

Despite various national and regional lockdowns throughout the year, we have continued to grow our customer accounts - increasing to 2.2 million as at the year-end (31 December 2019: 2.0 million). During 2020 we opened six stores, including two, in Sheffield and Cardiff, following the initial COVID-19 outbreak. We will open two further stores in 2021.

In August 2020, we launched the Bank's first switching offer, helping us give something back to our existing customers by rewarding them for referring friends to open an account whilst welcoming new customers too. In September we launched Business Account Online (BAO) that enables new customers to open a business account on their mobile or online, 24 hours a day, and taking just 15 minutes from application to approval. We had to pause applications temporarily due to the overwhelming demand received, but we started to resume openings in 2021. We have also continued to see a meaningful share of the business switching market join us from RBS through the Incentivised Switching Scheme.

Furthermore, this year we will begin to make insurance products available to better serve Metro Bank customers and drive incremental revenue - initially through a partnership with Churchill Expert providing SME insurance, and with further partnerships to follow during the course of 2021.

3) Infrastructure

Alongside building the digital application system for BBLS in less than six weeks, we have continued to launch digital initiatives throughout the year including launching Business Account Online (BAO); account sweeping; Direct Debit origination in partnership with Bottomline Technologies; in-app receipt management technology in partnership with Sensibill; and an accounting software partnership with Clear Books.

We have also demonstrated the operational resilience of the bank - moving a significant proportion of colleagues to home-based working almost overnight, alongside delivering a significant programme of mandatory, regulatory and discretionary change.

4) Balance sheet optimisation

Our main focus this year has been on increasing our return on regulatory capital. We continue to explore corporate transactions where there are attractive opportunities that would be strategically advantageous to us, although our predominant focus remains on growing organically. We have accelerated the delivery of this pillar of our strategy in particular as outlined in our strategic response to the pandemic above.

5) Internal and external communications

The start of the year saw us launch our first marketing campaign - people-people banking - which showcased our incredible colleagues and was designed to help customers and potential customers understand Metro Bank's differentiators.

Following the success of our first advertising campaign, we are planning to launch a new advertising campaign focusing on business banking for SMEs. This is an area we see as key for future growth enabling us to deepen relationships, earn greater levels of fee income and is an area that remains underserved by larger competitors.

As well as a greater level of communications with customers we have continued to remain fully engaged with colleagues, regulators and shareholders. As a large proportion of colleagues have been working fully from home, maintaining effective communication has been critical in preserving our culture. This will continue to be important moving forward as we move towards a more flexible model with regard to location.

RESULTS

COVID-19 has weighed heavily on our financial performance during 2020, with us making a loss before tax of GBP311.4 million (2019: loss of GBP130.8 million). Adjusted for non-underlying items the loss for the year was GBP271.8 million (2019: loss of GBP11.7 million).

The loss has primarily been driven by an increase in our expected credit loss expense which rose from GBP11.7 million in 2019 to GBP126.7 million in 2020, reflecting the worsened economic outlook. The results also reflect the low interest rate environment and competitive marketplace as well as the costs of delivering our turnaround plan.

However, excluding the impact of COVID-19, financial performance is on track and in line with our expectations one-year into our turnaround plan. And half-on-half P&L performance demonstrates the momentum of the transformation plan - with underlying loss before tax halving in H2 compared with H1.

BUILDING THE TEAM

In April 2020, I also began making a series of changes to our Executive Committee (ExCo) in order to ensure we were best set up with the right skills and experience to support customers and colleagues in executing our strategy. This included bringing onboard a number of external hires - Richard Lees joined as Chief Risk Officer, Martin Boyle as Chief Transformation Officer, and Carol Frost as Chief People Officer.

With our refreshed ExCo now established, I am confident they will help me and the Bank to navigate the ongoing choppy waters and deliver our ambition to be the UK's best community bank.

THE FUTURE

This year marked the 10-year anniversary of our first store in Holborn, as the first high street bank to open in more than 100 years. We've since grown from 79 colleagues and one location to more than 3,500 colleagues, 77 stores and more than 2.2 million customer accounts today.

In February 2021, we were rated the top high street bank for overall service for personal and business customers in the latest Competition and Market Authority's Service Quality Service and number one for store service for the 6th time running. This is a huge endorsement to all our colleagues and the professionalism they have shown through very trying times.

Whilst the past decade had not been without its challenges, and there is plenty of heavy lifting still to do, we have built a business to be proud of. The level of dedication amongst my colleagues, the strong start we have made in executing our strategic plan, and our relentless focus on delivering great customer service across all channels gives me every confidence we can deliver on our growth ambitions and meet more customer needs.

One year into my role I am continually reminded what an amazing group of colleagues I work alongside. Their dedication to our FANS, communities and each other allows us to drive Metro Bank forward. It has been an extremely challenging year, but I could not ask more from our colleagues.

Finally, it would be remiss not to remember the real cost of the pandemic and extend my deepest sympathies to anyone who has lost a loved one.

Daniel Frumkin

Chief Executive Officer

24 February 2021

Finance review (unaudited)

 
                                          2020          2019 
                                   GBP'million   GBP'million            Change 
--------------------------------  ------------  ------------  ---------------- 
Net interest income                      250.3         308.1             (19%) 
--------------------------------  ------------  ------------  ---------------- 
Underlying fee and other income           86.3          90.4              (5%) 
--------------------------------  ------------  ------------  ---------------- 
Underlying net gains on sale of 
 assets                                    4.3           1.6             >100% 
--------------------------------  ------------  ------------  ---------------- 
Total underlying revenue                 340.9         400.1             (15%) 
--------------------------------  ------------  ------------  ---------------- 
Operating costs                        (486.0)       (400.1)               21% 
--------------------------------  ------------  ------------  ---------------- 
Expected credit loss expense           (126.7)        (11.7)             >100% 
--------------------------------  ------------  ------------  ---------------- 
Underlying loss before tax             (271.8)        (11.7)             >100% 
--------------------------------  ------------  ------------  ---------------- 
Non-underlying items                    (39.6)       (119.1)             (67%) 
--------------------------------  ------------  ------------  ---------------- 
Statutory loss before tax              (311.4)       (130.8)             >100% 
--------------------------------  ------------  ------------  ---------------- 
 

Our financial performance in 2020 reflects the challenging year we have faced, as the anticipated costs of our turnaround have been compounded by a difficult operating environment.

Notwithstanding these challenges, we have made good progress against our turnaround plan, whilst at the same time maintaining a strong balance sheet. Our underlying performance is on track against our expectations, once adjusted for the impacts of COVID-19.

Entering 2020, the main constraint on the business remained regulatory capital. In response to this, and in line with our strategy, we took the decision in December 2020 to divest GBP3.1 billion of residential mortgages (90% were derecognised at year-end). The sale increased total capital plus MREL resources by 4%, removing the need to raise additional capital in the near term, as well as allowing us to continue to shift our product portfolio towards higher yielding segments.

Further supporting this strategy, in September 2020 we acquired RateSetter which provided immediate capabilities to accelerate our reach into the unsecured lending. In February 2021 we further announced our intention to utilise some of the capital freed up from the mortgage sale to buy the back book of peer-to-peer loans from the RateSetter investors. Additionally, during 2020 we significantly increased the proportion of mortgage lending in speciality segments.

Our statutory loss before tax for the year was GBP311.4 million, up from the loss of GBP130.8 million we made in 2019. A key driver of the increased loss was a higher expected credit loss expense which was GBP126.7 million compared to GBP11.7 million in 2019. Non-underlying items, particularly transformation and remediation costs, remained a significant component during 2020 reflecting the costs of the turnaround plan.

However, these costs were partly offset by a GBP63.7 million gain recognised on the mortgage sale (net of costs) in 2020. A further gain of GBP8.0 million for this sale (net of costs) was recognised in 2021.

 
                                                                         2020 
                                                                  GBP'million 
-----------------------------------------------  ---------------------------- 
Underlying loss before tax                                            (271.8) 
-----------------------------------------------  ---------------------------- 
Gain on mortgage portfolio sale (net of costs)                           63.7 
-----------------------------------------------  ---------------------------- 
Listing Share Awards                                                      0.2 
-----------------------------------------------  ---------------------------- 
Impairment and write-off of PPE and intangible 
 assets                                                                (40.6) 
-----------------------------------------------  ---------------------------- 
Remediation costs                                                      (40.8) 
-----------------------------------------------  ---------------------------- 
Transformation costs                                                   (16.7) 
-----------------------------------------------  ---------------------------- 
Business acquisition and integration costs                              (5.4) 
-----------------------------------------------  ---------------------------- 
Statutory loss before tax                                             (311.4) 
-----------------------------------------------  ---------------------------- 
 

Income

 
NIM Reconciliation                   Reconciliation 
-----------------------------------  -------------- 
2019 Full Year Net Interest Margin            1.51% 
-----------------------------------  -------------- 
Treasury assets (disposal)                  (0.07%) 
-----------------------------------  -------------- 
Lending mix                                   0.02% 
-----------------------------------  -------------- 
Lending yield                               (0.19%) 
-----------------------------------  -------------- 
Cost of deposits                              0.10% 
-----------------------------------  -------------- 
Loan-to-deposit ratio and other             (0.15%) 
-----------------------------------  -------------- 
2020 Full Year Net Interest Margin            1.22% 
-----------------------------------  -------------- 
 

Total statutory income increased 4% year-on-year to GBP432.6 million from GBP415.6 million. This was driven by the GBP69.0 million gain recognised in relation to the mortgage sale. Adjusting for this and for grant income relating to the C&I programme, underlying income reduced by 15% year-on-year from GBP400.1 million to GBP340.9 million. This principally reflects margin compression due to the timing lag on asset and liability pricing following the 65bps base reduction in March, as well as the reduction in the loan to deposit ratio. These effects were most keenly felt in the first half of the year with net interest margin (NIM) reducing to 1.15% in H1.

NIM recovered somewhat in H2 to 1.28%, due to repricing actions taken on the deposit book, improved deposit mix benefiting from an 11% reduction in fixed term deposits and a 9% increase in non-interest bearing current accounts, plus improved asset mix. While the full year cost of deposits was 0.65%, the exit rate was 0.39%. In 2021, we anticipate further improvements in NIM as we continue to reprice deposits and move to higher yielding assets.

Fee income was materially impacted by lower volumes due to the various COVID-19 lockdowns and regional restrictions implemented throughout the year. Despite this, underlying fee and other income only fell 5%, reflecting continued account growth, as well as fee optimisation and other initiatives. Of note is the material recovery we saw in H2, with a 39% increase in underlying fees and other income from H1 as lockdown restrictions were eased over the summer and autumn. At the timing of writing it is difficult to predict when the current lockdown will end, however we do expect to see a normalisation of fee levels over the course of 2021, supported by current account growth and our SME propositions, as well as the introduction of new products during 2021.

COSTS

Total statutory costs grew by 15% during the year to GBP617.3 million (2019: GBP534.7 million). This reflects continued growth in non-underlying expenditure, most notably ongoing remediation costs, as well as previously communicated front-loaded 'Change the Bank' investment spend. 'Run the Bank' costs, which exclude investments and reflect our core operating expenses, grew 9% year-on-year. However, this growth includes the increased store footprint, the acquired costs from RateSetter, as well as COVID-19 related costs. Excluding these items, 'Run the Bank' cost increases were contained to 1% on a like for like basis, demonstrating improved cost discipline within the business.

The majority of 'Change the Bank' expenditure has been focused on required infrastructure and regulatory programmes during 2020. While this will continue into 2021, we do anticipate focusing more spend on revenue and cost avoidance initiatives.

During the year we took the decision to vacate one of our central London offices. The costs of this exit are reflected within transformation and impairment and write-off of PPE and intangible assets lines.

 
                                                      2020          2019 
                                               GBP'million   GBP'million            Change 
------------------------------------  --------------------  ------------  ---------------- 
Depreciation and amortisation                         74.4          76.4              (3%) 
------------------------------------  --------------------  ------------  ---------------- 
Total operating expense                              617.3         534.7               15% 
------------------------------------  --------------------  ------------  ---------------- 
Total underlying operating expenses                  486.0         400.1               21% 
------------------------------------  --------------------  ------------  ---------------- 
'Run the bank' costs                                 390.4         358.6                9% 
------------------------------------  --------------------  ------------  ---------------- 
'Change the bank' costs                               95.6          41.5             >100% 
------------------------------------  --------------------  ------------  ---------------- 
Statutory cost:income ratio                           143%          129% 
------------------------------------  --------------------  ------------  ---------------- 
Underlying cost:income ratio                          143%          100% 
------------------------------------  --------------------  ------------  ---------------- 
 

Alongside this we have taken advantage of the opportunities afforded to us by our strong liquidity position and a weakened commercial property market to buy the freeholds of three of our stores. The stores purchased were on 25-year leases with no break clauses and were bought at amounts close or equal to their right of use asset - meaning only a marginal upfront capital impact in exchange for longer-term savings and flexibility. Freeholds now make up 30% of our store estate.

2021 will also see us start to realise synergies from the integration of RateSetter as well as focus on other areas where costs can be reduced across the business.

Depreciation and amortisation remained flat at GBP74.4 million during 2020 (2019: GBP76.4 million) reflecting reduced amortisation as a result of the write-offs made in 2019, offset by the increased store presence and new digital initiatives.

EXPECTED CREDIT LOSS EXPENSE

Expected credit losses were severely impacted by the deteriorating macro-economic conditions resulting from the COVID-19 pandemic, increasing GBP115.0 million to GBP126.7 million (2019: GBP11.7 million) representing a cost of risk of 0.86% (2019: 0.08%).

Balance sheet expected credit loss provisions were GBP154 million at the year-end (31 December 2019: GBP34 million) which represents coverage ratio of 1.30% of our total gross lending.

The increase in expected credit losses has been driven by deteriorating macro-economic scenarios which have primarily increased the probability of default. Observed losses still remain relatively low, however will likely increase through 2021 as COVID-19 related government support measures roll off.

We have applied a number of post-model adjustments and overlays to reflect the continued uncertainties in the economic environment, particularly in relation to sectors heavily impacted by the COVID-19 pandemic.

Throughout the course of the pandemic we have been committed to supporting customers and, in line with regulatory requirements, we offered payment deferrals to mortgage and personal customers who required support. This was initially for a three-month period from March to June, however this has been subject to extensions. In addition, we offered support measures to commercial customers and in total offered support arrangements on 29% of our commercial lending portfolio (based on gross exposure).

In line with regulatory guidance, the use of a support measure by a customer does not in itself signify an increase in credit risk for that loan.

At 31 December 2020 less than 1% of the mortgage portfolio were subject to support measures with weighted average debt-to-values of 64% on these loans.

Deposits

Deposits from customers ended the year at GBP16.1 billion up 11% from GBP14.5 billion at the end of 2019. The increase has primarily been driven by an 10% increase in new accounts as well as higher savings levels during the pandemic, a trend that has been seen across the market. Deposits have also increased as a result of the BBLS loans being redeposited, where businesses have secured funding but are yet to fully utilise the loan. These effects are particularly prevalent in our core deposit base of retail customers and SMEs.

 
                                             2020          2019 
Customer deposits                     GBP'billion   GBP'billion            Change 
-----------------------------------  ------------  ------------  ---------------- 
Retail customers (excluding retail 
 partnerships)                                7.4           6.9                7% 
-----------------------------------  ------------  ------------  ---------------- 
Retail partnerships                           1.6           1.8             (13%) 
-----------------------------------  ------------  ------------  ---------------- 
Commercial customers (excluding 
 SMEs)                                        2.7           2.5                8% 
-----------------------------------  ------------  ------------  ---------------- 
SMEs                                          4.4           3.3               36% 
-----------------------------------  ------------  ------------  ---------------- 
Total customer deposits                      16.1          14.5               11% 
-----------------------------------  ------------  ------------  ---------------- 
 

We continue to use funds from the BoE's Term Funding Scheme (TFS) which was closed to further drawdowns in February 2018. In 2020 we rolled over GBP550 million of TFS drawing that matured into TFSME - a similar style scheme aimed at supporting lending to SMEs.

Assets

Total assets increased to GBP22.6 billion from GBP21.4 billion at the end of 2019.

Loans and advances to customers fell to GBP12.1 billion from GBP14.7 billion, this decrease primarily reflects the GBP3.1 billion mortgage sale to NatWest. Following the sale, retail mortgages now make up 56% of our gross lending (31 December 2019: 71%).

Following the acquisition of RateSetter in September, unsecured personal loans ended the year at GBP121 million. Whilst this still only represents a small part of our lending, this will increase as we scale up the volumes over the course of 2021.

During the year we also grew our commercial lending by 27% to GBP5.1 billion (31 December 2019: GBP4.1 billion). The increase has been driven by government-backed lending schemes in the form of BBLS, CBLS and CLBLS which totalled GBP1.5 billion at year end.

 
                                          2020          2019 
                                   GBP'billion   GBP'billion            Change 
--------------------------------  ------------  ------------  ---------------- 
Loans and advances to customers           12.1          14.7             (18%) 
--------------------------------  ------------  ------------  ---------------- 
Total assets                              22.6          21.4                6% 
--------------------------------  ------------  ------------  ---------------- 
Loan to deposit ratio                      75%          101% 
--------------------------------  ------------  ------------  ---------------- 
Cost of risk                             0.86%         0.08% 
--------------------------------  ------------  ------------  ---------------- 
 

Our loan to deposit ratio returned to below 100% ending the year at 75% (31 December 2019: 101%). The sale of the mortgage portfolio in December lowered the ratio. Excluding the mortgage sale, the loan to deposit ratio would have been 94%.

Taxation

During 2020 we made a total tax contribution of GBP132.9 million (2019: GBP123.1 million), which comprised GBP86.5 million (2019: GBP78.2 million) of taxes we paid and a further GBP46.4 million (2019: GBP44.9 million) of taxes we collected.

 
Taxes paid                          2020      2019 
------------------------------  --------  -------- 
Corporation tax                     0.0%      1.6% 
------------------------------  --------  -------- 
Business rates                    13. 5%     12.9% 
------------------------------  --------  -------- 
Land transaction tax                1.3%      3.3% 
------------------------------  --------  -------- 
Employer NICs                      20.4%     20.6% 
------------------------------  --------  -------- 
Irrecoverable VAT and Customs 
 duty                              64.5%     61.3% 
------------------------------  --------  -------- 
Other                               0.3%      0.3% 
------------------------------  --------  -------- 
Total taxes paid                GBP86.5m  GBP78.2m 
------------------------------  --------  -------- 
 
 
Taxes collected on behalf of HMRC       2020      2019 
----------------------------------  --------  -------- 
Employer NICs                          25.1%     23.6% 
----------------------------------  --------  -------- 
PAYE                                   65.5%     62.1% 
----------------------------------  --------  -------- 
Net VAT                                 9.1%     14.3% 
----------------------------------  --------  -------- 
Other                                   0.4%         - 
----------------------------------  --------  -------- 
Total taxes collected               GBP46.4m  GBP44.9m 
----------------------------------  --------  -------- 
 

In 2020 our tax credit recognised in the income statement was GBP9.7 million (2019: expense GBP51.8 million).

Acquisition of RateSetter

In September 2020 we acquired Retail Money Market Ltd ('RateSetter'). The acquisition was in line with our strategy to shift our lending mix and the acquisition provided a quicker and more cost-efficient route to market than building out the capability in-house. As part of the acquisition we recognised GBP32 million of intangible assets in respect of RateSetter's unsecured lending platform.

RateSetter was bought for consideration of GBP12 million, of which GBP0.5 million was deferred for 12 months from purchase and GBP9 million is payable up to three years from purchase subject to certain lending volumes being met. Goodwill of GBP6 million was recognised in relation to the purchase.

Prior to acquisition by Metro Bank, the RateSetter peer-to-peer business was put into run off, which closed the platform to new investors and started the process of running down the back book of loans.

Since the acquisition we have injected further capital into the business allowing it to repay GBP21 million of external debt, on which it was paying an average of 7% interest. Whilst RateSetter will continue to be loss making in the short term, in the near term we anticipate achieving cost synergies as it becomes more closely integrated into the Group and as we increase lending volumes.

On 2 February 2021 we announced our intention to purchase the back book of loans from the RateSetter peer-to-peer investors, in line with our strategy of increasing this area of lending.

Capital

 
                                   2020          2019 
                            GBP'million   GBP'million   Change 
-------------------------  ------------  ------------  ------- 
CET1 capital                      1,192         1,427    (16%) 
-------------------------  ------------  ------------  ------- 
Risk-weighted assets 
 (RWAs)                           7,957         9,147    (13%) 
-------------------------  ------------  ------------  ------- 
CET1 ratio                        15.0%         15.6%  (60bps) 
-------------------------  ------------  ------------  ------- 
Total regulatory capital 
 ratio                            18.1%         18.3%  (20bps) 
-------------------------  ------------  ------------  ------- 
Total regulatory capital 
 plus MREL ratio                  22.4%         22.1%    30bps 
-------------------------  ------------  ------------  ------- 
Regulatory leverage 
 ratio                             5.6%          6.6% 
-------------------------  ------------  ------------  ------- 
 

As a result of the pandemic the regulator took a number of measures in relation to regulatory capital. These included a reduction in the countercyclical buffer to 0% from 1% (previously expected to increase to 2% in December 2020) and the Capital Requirements Regulation (CRR) 'Quick Fix' package including a revised IFRS 9 transitional agreement and changes to the SME supporting factor.

In addition, further capital relief has been provided through the EBA's changes to the capital treatment of software, although the PRA has announced through CP5/21 their intention to modify the regulatory requirements and we expect that software will return to being fully deducted prior to 1 January 2022. We are therefore not considering this benefit when making capital decisions today or in our longer term strategic planning.

We ended the year with a CET1 ratio of 15.0% (2019: 15.6%) and a total capital ratio plus MREL 22.4% (2019: 22.1%). On a pro forma basis adjusting for the mortgage portfolio sale which was in the process over the year end these ratios would be 16.3% and 24.4% respectively.

 
                                                           Reconciliation 
---------------------------------------------------------  -------------- 
Total capital plus MREL ratio at 31 December 2019                   22.1% 
---------------------------------------------------------  -------------- 
Annual operational risk adjustment                                 (0.4)% 
---------------------------------------------------------  -------------- 
Movement in lending (excl. portfolio sale)                           1.8% 
---------------------------------------------------------  -------------- 
Mortgage portfolio sale                                              2.0% 
---------------------------------------------------------  -------------- 
Intangible assets (excluding RateSetter)                           (1.1)% 
---------------------------------------------------------  -------------- 
EBA software add back                                                0.8% 
---------------------------------------------------------  -------------- 
SME supporting factor                                                0.9% 
---------------------------------------------------------  -------------- 
Expected credit losses                                             (1.6)% 
---------------------------------------------------------  -------------- 
IFRS9 add-back                                                       1.0% 
---------------------------------------------------------  -------------- 
Loss for the year (ex ECL and gain on mortgage portfolio 
 sale)                                                             (3.1)% 
---------------------------------------------------------  -------------- 
Total capital plus MREL ratio at 31 December 2020                   22.4% 
---------------------------------------------------------  -------------- 
Completion of mortgage portfolio sale                                2.0% 
---------------------------------------------------------  -------------- 
Total capital plus MREL ratio at 31 December 2020 
 (pro forma)                                                        24.4% 
---------------------------------------------------------  -------------- 
 

Looking ahead

Despite the clear challenges resulting from the COVID-19 pandemic, 2020 brought many encouraging signs which demonstrate our turnaround is beginning to take effect.

Whilst the external challenges we face will inevitably continue into 2021, we are now in a stronger position to tackle these. The sale of the residential mortgage portfolio has removed the immediate need to raise additional capital, as well as allowing us to reinvest the proceeds in higher yielding assets to maximise capital efficiency.

The capabilities and systems obtained via our acquisition of RateSetter will allow us to accelerate a shift in our product mix to focus on yield over volume.

We will continue to focus on cost control and ensure that we can return to sustainable profitability. That remains our key focus.

David Arden

Chief Financial Officer

24 February 2021

risk report

Effective risk management underpins everything we do and is critical to realising our strategic priorities. We have an established risk management framework to manage and report the various risks that we face over the course of our daily business. The framework:

-- is the totality of systems, structures, policies, processes and people that identify, measure, evaluate, control, mitigate, monitor, and report all internal and external sources of material risk;

-- ensures all principal and emerging risks are identified, assessed, mitigated, monitored and reported;

   --      ensures risk appetite is clearly articulated and influences the strategic plan; 

-- promotes a clearly defined risk culture that emphasises risk management across all areas of the Bank; and

-- undertakes ongoing analysis of the environment in which we operate and proactively address potential risk issues as they arise.

We have a structured risk governance framework to support the Board of Directors' aim of achieving long-term and sustainable growth. The risk governance structure strengthens risk evaluation and management, while also positioning us to manage the changing regulatory environment in an efficient and effective manner.

Principal risks

As at 31 December 2020 we had the following principal risk:

 
 Principal risk                   Risk movement in 2020           Impact of COVID-19 
-------------------------------  ------------------------------  ------------------------------- 
 Credit risk                      Increased                       We have participated 
  The risk of financial            Although the impacts            in regulatory and 
  loss should our borrowers        on our retail and               government support 
  or counterparties                business credit portfolios      schemes, with a priority 
  fail to fulfil their             are yet to fully manifest,      focus on supporting 
  contractual obligations          it is clear that the            existing customers 
  in full and on time.             level of risk has               through COVID-19. 
                                   increased, with levels          Capital repayment 
                                   of defaults expected            holidays, interest 
                                   to increase over time,          free overdrafts (for 
                                   particularly once               retail customers) 
                                   government support              and extensions of 
                                   schemes come to an              credit, as well as 
                                   end.                            other flexible supporting 
                                                                   measures, continue 
                                                                   to be provided and 
                                                                   monitored. 
 
                                                                   Policies, risk appetite, 
                                                                   credit decisioning 
                                                                   and supporting frameworks 
                                                                   have been reviewed 
                                                                   and updated to reflect 
                                                                   the changing environment 
                                                                   and risk profiles. 
-------------------------------  ------------------------------  ------------------------------- 
 Operational risk                 Increased                       COVID-19 brought heightened 
  The risk that events             The risk has increased,         people risk as some 
  arising from inadequate          driven by increased             of our colleagues 
  or failed internal               remote working, the             worked to keep our 
  processes, people                implementation of               Stores open, whilst 
  and systems, or from             new processes and               others worked from 
  external events cause            pressure on customer            home. It also necessitated 
  regulatory censure,              support areas arising           changes to working 
  reputational damage,             from changing customer          practices, which are 
  financial loss, service          needs, which could              managed closely via 
  disruption and/or                lead to increased               an enhanced governance 
  detriment to our FANS.           errors or delays and            structure. We are 
                                   subsequent losses.              now investigating 
                                                                   permanent improvements 
                                                                   that can be made. 
-------------------------------  ------------------------------  ------------------------------- 
 Liquidity and funding            Decreased 
  risk                             Liquidity and funding            The impact of COVID-19 
  The risk that we fail            risk has decreased               has resulted in an 
  to meet our short                during the year, increasing      overall improvement 
  term obligations as              stability.                       to our overall liquidity 
  they fall due.                                                    profile through improved 
                                                                    deposit balances and 
  The risk that we cannot                                           participation in the 
  fund assets that are                                              Bounce Back Loan Scheme, 
  difficult to monetise                                             with clients placing 
  at short notice (i.e.                                             funds drawn-down on 
  illiquid assets) with                                             deposit, prior to 
  funding that is behaviourally                                     their utilisation. 
  or contractually long 
  term (i.e. stable 
  funding). 
-------------------------------  ------------------------------  ------------------------------- 
 Market risk                      No change 
  The risk of loss arising         Market risk has remained         Not directly impacted 
  from movements in                stable through the               by COVID-19, we are 
  market prices. Market            year.                            able to manage and 
  risk is the risk posed                                            hedge interest rate 
  to earnings, economic                                             risk through different 
  value or capital that                                             rate environments. 
  arises from changes 
  in interest rates, 
  market prices or foreign 
  exchange rates. 
-------------------------------  ------------------------------  ------------------------------- 
 Financial crime risk             Decreased 
  The risk of financial            The risk has decreased           New government support 
  loss or reputational             during the year due              schemes have provided 
  damage due to regulatory         to enhancements made             opportunities for 
  fines, restriction               to our AML and Sanctions         fraudsters and we 
  or suspension of business,       controls through the             have implemented controls 
  or cost of mandatory             Financial Crime Improvement      to counter their attempts. 
  corrective action                Programme 
  as a result of failing 
  to comply with prevailing        Overall fraud attacks 
  legal and regulatory             continue to significantly 
  requirements relating            increase in line with 
  to financial crime.              what is being seen 
                                   across the industry, 
                                   year on year; albeit, 
                                   in 2020, fraud losses 
                                   have reduced from 
                                   2019. 
-------------------------------  ------------------------------  ------------------------------- 
 Regulatory compliance            No change 
  risk                             We remain exposed                We have deployed multiple 
  The risk of: failing             to regulatory and                new policies and processes 
  to understand and                compliance risk as               to implement government, 
  comply with relevant             a result of significant          regulatory and central 
  laws and regulatory              ongoing and new regulatory       bank COVID-19 support 
  requirements; not                change. We will seek             measures. Additional 
  keeping regulators               to comply with all               regulatory and compliance 
  informed of relevant             regulations as they              risks are associated 
  issues; not responding           evolve, and as customer          with adherence to 
  effectively to information       expectations continue            both COVID-19-specific 
  requests or failing              to develop.                      regulatory guidance 
  to meet regulatory                                                and with existing 
  deadlines; or obstructing                                         regulation. Consequently, 
  the regulator.                                                    additional risk assessments, 
                                                                    governance processes 
                                                                    and assurance activities 
                                                                    have been deployed 
                                                                    across the Bank. 
-------------------------------  ------------------------------  ------------------------------- 
 Conduct risk                     Increased 
  The risk of treating             The risk has increased           COVID-19 has generally 
  customers unfairly               driven by the impact             had a detrimental 
  and delivering poor              of the external environment,     impact on customers' 
  outcomes that lead               namely COVID-19 and              financial stability 
  to customer detriment,           the UK economy, where            and affordability 
  such as financial                customers are increasingly       due to income loss 
  loss and/or distress             more vulnerable to               caused by furlough 
  and inconvenience.               dramatic income changes,         and/or complete job 
  This can also result             job losses and behavioural       loss. This has resulted 
  in wider adverse impacts,        changes driven by                in increased reliance 
  for example, loss                social/political agendas.        on savings, inability 
  of our FANS, reputational                                         to meet repayment 
  damage, regulatory                                                demands and the need 
  and/or legal action.                                              for the regulator 
                                                                    and lenders to introduce 
                                                                    enhanced forbearance 
                                                                    measures, such as 
                                                                    payment deferrals. 
                                                                    We have now sought 
                                                                    to include some of 
                                                                    these measures as 
                                                                    part of our ongoing 
                                                                    collections strategy 
                                                                    . 
-------------------------------  ------------------------------  ------------------------------- 
 Model risk                       Increased 
  The risk of potential            The risk has increased           The uncertain economic 
  loss and regulatory              as a result of the               environment has affected 
  non-compliance due               rapid application                all model components 
  to decisions that                of COVID-19 model                including input data, 
  could be principally             adjustments.                     default markers, outputs, 
  based on the output                                               model accuracy and 
  of models, due to                                                 performance. 
  errors in the development, 
  implementation or 
  use of such models. 
-------------------------------  ------------------------------  ------------------------------- 
 Capital risk                     No change 
  The risk that we fail            Our capital ratios               There have been several 
  to meet minimum regulatory       were broadly flat                regulatory capital 
  capital (and MREL)               year-on-year. We took            developments in the 
  requirements. Management         action to strengthen             UK and Europe in response 
  of capital is essential          our MREL resources               to COVID-19, which 
  to the prudent management        through the sale of              have reduced certain 
  of our balance sheet,            a portfolio of owner             capital requirements 
  ensuring our resilience          occupied residential             for banks across the 
  under stress, and                mortgages, which is              industry. Additionally, 
  the maintenance of               in line with our strategy        in order to provide 
  the confidence of                to enhance risk-adjusted         operational capacity 
  our current and potential        returns on capital               for banks to respond 
  creditors (including             through the ongoing              to the immediate financial 
  bond holders, the                focus on balance sheet           stability priorities 
  bond market, and customers)      optimisation. We also            resulting from the 
  and key stakeholders             purchased the peer-to-peer       impact of COVID-19, 
  in the pursuit of                lender RateSetter,               both the PRA and Basel 
  our business strategy            to provide unsecured             communicated revised 
                                   personal loans direct            timelines across key 
                                   to customers.                    regulatory initiatives. 
-------------------------------  ------------------------------  ------------------------------- 
 

Consolidated statement of comprehensive income (unaudited)

For the year ended 31 December 2020

 
                                                           Year ended    Year ended 
                                                          31 December   31 December 
                                                                 2020          2019 
                                                  Notes   GBP'million   GBP'million 
------------------------------------------------  -----  ------------  ------------ 
Interest income                                     2           426.3         496.2 
                                                  -----  ------------  ------------ 
Interest expense                                    2         (176.6)       (188.1) 
------------------------------------------------  -----  ------------  ------------ 
Net interest income                                             249.7         308.1 
                                                  -----  ------------  ------------ 
Fee and commission income                                        61.1          67.4 
                                                  -----  ------------  ------------ 
Fee and commission expense                                      (1.2)         (6.4) 
------------------------------------------------  -----  ------------  ------------ 
Net fee and commission income                                    59.9          61.0 
                                                  -----  ------------  ------------ 
Net gains on sale of financial assets                            73.3           1.6 
                                                  -----  ------------  ------------ 
Other income                                                     49.7          44.9 
------------------------------------------------  -----  ------------  ------------ 
Total income                                                    432.6         415.6 
------------------------------------------------  -----  ------------  ------------ 
 General operating expenses                                   (502.3)       (380.6) 
------------------------------------------------  -----  ------------  ------------ 
 Depreciation and amortisation                     7,8         (74.4)        (76.4) 
------------------------------------------------  -----  ------------  ------------ 
 Impairment and write-offs of property, plant, 
  equipment and intangible assets                  7,8         (40.6)        (77.7) 
------------------------------------------------  -----  ------------  ------------ 
Total operating expenses                                      (617.3)       (534.7) 
                                                  -----  ------------  ------------ 
Expected credit loss expense                                  (126.7)        (11.7) 
------------------------------------------------  -----  ------------  ------------ 
Loss before tax                                               (311.4)       (130.8) 
------------------------------------------------  -----  ------------  ------------ 
Taxation                                            3             9.7        (51.8) 
------------------------------------------------  -----  ------------  ------------ 
Loss for the year                                             (301.7)       (182.6) 
------------------------------------------------  -----  ------------  ------------ 
Other comprehensive income for the year 
                                                  -----  ------------  ------------ 
Items which will be reclassified subsequently 
 to profit or loss: 
                                                  -----  ------------  ------------ 
Movement in respect of investment securities 
 held at fair value through other comprehensive 
 income (net of tax): 
                                                  -----  ------------  ------------ 
- changes in fair value                                           5.6           2.7 
                                                  -----  ------------  ------------ 
- fair value changes transferred to the income 
 statement on disposal                                          (0.1)         (2.4) 
------------------------------------------------  -----  ------------  ------------ 
Total other comprehensive income                                  5.5           0.3 
------------------------------------------------  -----  ------------  ------------ 
Total comprehensive loss for the year                         (296.2)       (182.3) 
------------------------------------------------  -----  ------------  ------------ 
Loss per share 
------------------------------------------------  -----  ------------  ------------ 
Basic (pence)                                      14         (175.0)       (123.9) 
------------------------------------------------  -----  ------------  ------------ 
Diluted (pence)                                    14         (175.0)       (123.9) 
------------------------------------------------  -----  ------------  ------------ 
 

Consolidated balance sheet (unaudited)

As at 31 December 2020

 
                                                           31 December   31 December 
                                                                  2020          2019 
                                                   Notes   GBP'million   GBP'million 
-------------------------------------------------  -----  ------------  ------------ 
Assets 
                                                   -----  ------------  ------------ 
Cash and balances with the Bank of England                       2,993         2,989 
                                                   -----  ------------  ------------ 
Loans and advances to customers                      5          12,090        14,681 
                                                   -----  ------------  ------------ 
Investment securities held at fair value through 
 other comprehensive income                          6             773           411 
                                                   -----  ------------  ------------ 
Investment securities held at amortised cost         6           2,640         2,154 
                                                   -----  ------------  ------------ 
Financial assets held at fair value through 
 profit and loss                                    15              30             - 
                                                   -----  ------------  ------------ 
Property, plant and equipment                        7             806           856 
                                                   -----  ------------  ------------ 
Intangible assets                                    8             254           168 
                                                   -----  ------------  ------------ 
Prepayments and accrued income                                      77            66 
                                                   -----  ------------  ------------ 
Assets classified as held for sale                   9             295             - 
                                                   -----  ------------  ------------ 
Other assets                                                     2,621            75 
-------------------------------------------------  -----  ------------  ------------ 
Total assets                                                    22,579        21,400 
-------------------------------------------------  -----  ------------  ------------ 
Liabilities 
                                                   -----  ------------  ------------ 
Deposits from customers                                         16,072        14,477 
                                                   -----  ------------  ------------ 
Deposits from central banks                                      3,808         3,801 
                                                   -----  ------------  ------------ 
Debt securities                                                    600           591 
                                                   -----  ------------  ------------ 
Financial liabilities held at fair value through 
 profit and loss                                    15              30             - 
                                                   -----  ------------  ------------ 
Repurchase agreements                                              196           250 
                                                   -----  ------------  ------------ 
Derivative financial liabilities                                     8             8 
                                                   -----  ------------  ------------ 
Lease liabilities                                   10             327           341 
                                                   -----  ------------  ------------ 
Deferred grants                                     11              28            50 
                                                   -----  ------------  ------------ 
Provisions                                                          11            17 
                                                   -----  ------------  ------------ 
Deferred tax liability                               3              12            15 
                                                   -----  ------------  ------------ 
Other liabilities                                                  198           267 
-------------------------------------------------  -----  ------------  ------------ 
Total liabilities                                               21,290        19,817 
-------------------------------------------------  -----  ------------  ------------ 
Equity 
                                                   -----  ------------  ------------ 
Called-up share capital                             12               -             - 
                                                   -----  ------------  ------------ 
Share premium                                       12           1,964         1,964 
                                                   -----  ------------  ------------ 
Retained losses                                                  (694)         (392) 
                                                   -----  ------------  ------------ 
Other reserves                                                      19            11 
-------------------------------------------------  -----  ------------  ------------ 
Total equity                                                     1,289         1,583 
-------------------------------------------------  -----  ------------  ------------ 
Total equity and liabilities                                    22,579        21,400 
-------------------------------------------------  -----  ------------  ------------ 
 

Consolidated statement of changes in equity (unaudited)

For the year ended 31 December 2020

 
                                       Called-up                                                   Share 
                                           share         Share      Retained         FVOCI        option         Total 
                                         capital       premium        losses       reserve       reserve        equity 
                                     GBP'million   GBP'million   GBP'million   GBP'million   GBP'million   GBP'million 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
Balance as at 1 January 2020                   -         1,964         (392)           (3)            14         1,583 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
 Loss for the year                             -             -         (302)             -             -         (302) 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
 Other comprehensive income 
  (net of tax) relating to 
  investment 
  securities designated at FVOCI               -             -             -             6             -             6 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
Total comprehensive loss                       -             -         (302)             6             -         (296) 
                                    ------------  ------------  ------------  ------------  ------------  ------------ 
Net share option movements                     -             -             -             -             2             2 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
Balance as at 31 December 2020                 -         1,964         (694)             3            16         1,289 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
Balance as at 1 January 2019                   -         1,605         (209)           (3)            10         1,403 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
 Loss for the year                             -             -         (183)             -             -         (183) 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
 Other comprehensive income 
 (net of tax) relating to 
 investment 
 securities designated at FVOCI                -             -             -             -             -             - 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
Total comprehensive loss                       -             -         (183)             -             -         (183) 
                                    ------------  ------------  ------------  ------------  ------------  ------------ 
Shares issued                                  -           375             -             -             -           375 
                                    ------------  ------------  ------------  ------------  ------------  ------------ 
Cost of shares issued                          -          (16)             -             -             -          (16) 
                                    ------------  ------------  ------------  ------------  ------------  ------------ 
Net share option movements                     -             -             -             -             4             4 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
Balance as at 31 December 2019                 -         1,964         (392)           (3)            14         1,583 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
Notes                                         12            12 
----------------------------------  ------------  ------------  ------------  ------------  ------------  ------------ 
 

Consolidated cash flow statement (unaudited)

For the year ended 31 December 2020

 
                                                              Year ended    Year ended 
                                                             31 December   31 December 
                                                                    2020          2019 
                                                     Notes   GBP'million   GBP'million 
---------------------------------------------------  -----  ------------  ------------ 
Reconciliation of loss before tax to net cash 
 flows from operating activities: 
                                                     -----  ------------  ------------ 
Loss before tax                                                    (311)         (131) 
                                                     -----  ------------  ------------ 
Adjustments for: 
                                                     -----  ------------  ------------ 
Impairment and write-offs of property, plant,           7, 
 equipment and intangible assets                         8            41            78 
                                                     -----  ------------  ------------ 
Interest on lease liabilities                           10            19            18 
                                                     -----  ------------  ------------ 
                                                        7, 
Depreciation and amortisation                            8            74            76 
                                                     -----  ------------  ------------ 
Share option charge                                                    2             4 
                                                     -----  ------------  ------------ 
Grant income recognised in the income statement                     (24)          (16) 
                                                     -----  ------------  ------------ 
Amounts provided for (net of releases)                                 8            12 
                                                     -----  ------------  ------------ 
Gain on sale of assets                                              (73)           (2) 
                                                     -----  ------------  ------------ 
Accrued interest on and amortisation of investment 
 securities                                                            3           (8) 
                                                     -----  ------------  ------------ 
Changes in operating assets and liabilities                            - 
                                                     -----  ------------  ------------ 
Changes in loans and advances to customers                         2,591         (445) 
                                                     -----  ------------  ------------ 
Changes in deposits from customers                                 1,595       (1,184) 
                                                     -----  ------------  ------------ 
Changes in other operating assets                                (2,820)          (26) 
                                                     -----  ------------  ------------ 
Changes in other operating liabilities                              (64)          (31) 
---------------------------------------------------  -----  ------------  ------------ 
Net cash inflows/(outflows) from operating 
 activities                                                        1,041       (1,655) 
---------------------------------------------------  -----  ------------  ------------ 
Cash flows from investing activities 
                                                     -----  ------------  ------------ 
Sales and redemptions of investment securities                       615         2,193 
                                                     -----  ------------  ------------ 
Purchase of investment securities                                (1,460)         (618) 
                                                     -----  ------------  ------------ 
Purchase of property, plant and equipment                7          (29)         (120) 
Purchase and development of intangible assets            8          (81)          (79) 
Acquisition of subsidiary (net of cash acquired)                     (1)             - 
---------------------------------------------------  -----  ------------  ------------ 
Net cash (outflows)/inflows from investing 
 activities                                                        (956)         1,376 
---------------------------------------------------  -----  ------------  ------------ 
Cash flows from financing activities 
                                                     -----  ------------  ------------ 
Shares issued                                           12             -           375 
                                                     -----  ------------  ------------ 
Cost of shares issued                                   12             -          (16) 
                                                     -----  ------------  ------------ 
Debt issued                                                            -           350 
                                                     -----  ------------  ------------ 
Cost of debt issued                                                    -           (8) 
                                                     -----  ------------  ------------ 
Grant received                                          11             -           120 
                                                     -----  ------------  ------------ 
Grant repaid                                                        (50)             - 
                                                     -----  ------------  ------------ 
Repayment of capital element of leases                  10          (31)          (25) 
---------------------------------------------------  -----  ------------  ------------ 
Net cash (outflows)/inflows from financing 
 activities                                                         (81)           796 
---------------------------------------------------  -----  ------------  ------------ 
Net increase in cash and cash equivalents                              4           517 
                                                     -----  ------------  ------------ 
Cash and cash equivalents at start of year                         2,989         2,472 
---------------------------------------------------  -----  ------------  ------------ 
Cash and cash equivalents at end of year                           2,993         2,989 
---------------------------------------------------  -----  ------------  ------------ 
 
Loss before tax includes: 
---------------------------------------------------  -----  ------------  ------------ 
Interest received                                                    407           493 
---------------------------------------------------  -----  ------------  ------------ 
Interest paid                                                        176           174 
---------------------------------------------------  -----  ------------  ------------ 
 

Notes to the financial statements (unaudited)

1. Basis of preparation and significant accounting policies

Basis of preparation

The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, the IFRS Interpretations Committee (IFRS IC) and the Companies Act 2006 applicable to companies reporting under IFRS. They were authorised by the Board for issue on 24 February 2021.

The financial statements are prepared on a going concern basis, the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future.

Changes in accounting policy and disclosures

The accounting policies and methods of computation are consistent with those applied and disclosed in the Group's 2019 Annual Report and Accounts, other than where specifically disclosed within these notes.

2. Net interest income

Interest income

 
                                                          2020          2019 
                                                   GBP'million   GBP'million 
------------------------------------------------  ------------  ------------ 
Cash and balances held with the Bank of England            6.1          17.0 
Loans and advances to customers                          393.3         435.0 
Investment securities held at amortised cost              24.8          40.6 
Investment securities held at FVOCI                        2.1           3.6 
------------------------------------------------  ------------  ------------ 
Total interest income                                    426.3         496.2 
------------------------------------------------  ------------  ------------ 
 

Interest expense

 
                                      2020          2019 
                               GBP'million   GBP'million 
----------------------------  ------------  ------------ 
Deposits from customers               99.1         112.4 
Deposits from central banks            8.7          28.5 
Lease liabilities (note 9)            18.7          17.7 
Debt securities                       47.8          22.1 
Repurchase agreements                  2.3           7.4 
----------------------------  ------------  ------------ 
Total interest expense               176.6         188.1 
----------------------------  ------------  ------------ 
 

3. Taxation

Tax expense

The components of the tax credit/(expense) for the year are:

 
                                                            2020          2019 
                                                     GBP'million   GBP'million 
--------------------------------------------------  ------------  ------------ 
Current tax 
Current tax                                                (0.1)           3.5 
Adjustment in respect of prior years                       (0.5)         (0.3) 
--------------------------------------------------  ------------  ------------ 
Total current tax (expense)/credit                         (0.6)           3.2 
--------------------------------------------------  ------------  ------------ 
Deferred tax 
Origination and reversal of temporary differences            3.6        (52.0) 
Effect of changes in tax rates                               2.1         (2.8) 
Adjustment in respect of prior years                         4.6         (0.2) 
--------------------------------------------------  ------------  ------------ 
Total deferred tax credit/(expense)                         10.3        (55.0) 
--------------------------------------------------  ------------  ------------ 
Total tax credit/(expense)                                   9.7        (51.8) 
--------------------------------------------------  ------------  ------------ 
 

Reconciliation of the total tax expense

The tax credit/(expense) shown in the income statement differs from the tax expense that would apply if all accounting losses had been taxed at the UK corporation tax rate.

A reconciliation between the tax expense and the accounting loss multiplied by the UK corporation tax rate is as follows:

 
                                                          Effective                Effective 
                                                    2020   tax rate          2019   tax rate 
                                             GBP'million          %   GBP'million          % 
------------------------------------------  ------------  ---------  ------------  --------- 
Accounting loss before tax                       (311.4)                  (130.8) 
------------------------------------------  ------------  ---------  ------------  --------- 
Tax expense at statutory tax rate of 
 19% (2019: 19%)                                    59.2      19.0%          24.9      19.0% 
Tax effects of: 
Non-deductible expenses - depreciation 
 on non-qualifying fixed assets                    (2.4)     (0.8%)         (3.0)     (2.3%) 
Non-deductible expenses - property 
 impairment                                        (3.2)     (1.0%)         (1.1)     (0.9%) 
Non-deductible expenses - remediation              (6.6)     (2.1%)         (4.4)     (3.3%) 
Non-deductible expenses - other                    (0.7)     (0.2%)         (0.7)     (0.5%) 
Impact of intangible asset impairment 
 on R&D deferred tax liability                       0.2       0.1%           1.8       1.4% 
Share based payments                               (0.2)     (0.1%)         (1.9)     (1.5%) 
Adjustment in respect of prior years                 4.1       1.3%         (0.5)     (0.3%) 
Current year losses for which no deferred 
 tax asset has been recognised                    (42.8)    (13.7%)        (11.4)     (8.7%) 
Derecognition of tax losses arising 
 in prior years                                        -          -        (52.7)    (40.2%) 
Effect of changes in tax rates                       2.1       0.7%         (2.8)     (2.2%) 
------------------------------------------  ------------  ---------  ------------  --------- 
Tax credit/(expense) reported in the 
 consolidated income statement                       9.7       3.2%        (51.8)    (39.5%) 
------------------------------------------  ------------  ---------  ------------  --------- 
 

Deferred tax

A deferred tax asset is 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 tax profits from which the future of the underlying timing differences can be deducted.

 
                                               Investment                     Property, 
                                 Unused        securities   Share-based           plant    Intangible 
                             tax losses   and impairments      payments   and equipment        assets         Total 
                            GBP'million       GBP'million   GBP'million     GBP'million   GBP'million   GBP'million 
-------------------------  ------------  ----------------  ------------  --------------  ------------  ------------ 
2020 
Deferred tax assets                  12                 3             -               -             -            15 
Deferred tax liabilities              -               (1)             -            (16)          (10)          (27) 
-------------------------  ------------  ----------------  ------------  --------------  ------------  ------------ 
Deferred tax liabilities 
 (net)                               12                 2             -            (16)          (10)          (12) 
-------------------------  ------------  ----------------  ------------  --------------  ------------  ------------ 
At 1 January 2020                     -                 4             -            (15)           (4)          (15) 
Income statement                     12               (1)             -             (1)             -            10 
Other comprehensive 
 income                               -               (1)             -               -             -           (1) 
Acquisition                           -                 -             -               -           (6)           (6) 
-------------------------  ------------  ----------------  ------------  --------------  ------------  ------------ 
At 31 December 2020                  12                 2             -            (16)          (10)          (12) 
-------------------------  ------------  ----------------  ------------  --------------  ------------  ------------ 
 
 
                                               Investment                     Property, 
                                 Unused        securities   Share-based           plant    Intangible 
                             tax losses   and impairments      payments   and equipment        assets         Total 
                            GBP'million       GBP'million   GBP'million     GBP'million   GBP'million   GBP'million 
-------------------------  ------------  ----------------  ------------  --------------  ------------  ------------ 
2019 
Deferred tax assets                   -                 6             -               -             -             6 
Deferred tax liabilities              -               (2)             -            (15)           (4)          (21) 
-------------------------  ------------  ----------------  ------------  --------------  ------------  ------------ 
Deferred tax liabilities 
 (net)                                -                 4             -            (15)           (4)          (15) 
-------------------------  ------------  ----------------  ------------  --------------  ------------  ------------ 
At 1 January 2019                    53                 5             1            (11)           (7)            41 
Income statement                   (53)               (1)           (1)             (4)             3          (56) 
At 31 December 2019                   -                 4             -            (15)           (4)          (15) 
-------------------------  ------------  ----------------  ------------  --------------  ------------  ------------ 
 

4. Financial instruments

The Group's financial instruments primarily comprise customer deposits, loans and advances to customers, cash held at banks and investment securities, all of which arise as a result of normal operations. Information on loans and advances to customers can be found in note 5, and on investment securities in note 6.

The main financial risks arising from financial instruments are credit risk, liquidity risk and market risks (price and interest rate risk).

The financial instruments the Group holds are simple in nature and no significant or material judgments have been made relating to the classification of financial instruments under IFRS 9.

5. Loans and advances to customers

 
                                                     31 December 2020 
                                        ------------------------------------------ 
                                        Gross carrying           ECL  Net carrying 
                                                amount     allowance        amount 
                                           GBP'million   GBP'million   GBP'million 
--------------------------------------  --------------  ------------  ------------ 
Consumer lending                                   204          (25)           179 
Retail mortgages                                 6,892          (26)         6,866 
Commercial lending                               5,148         (103)         5,045 
--------------------------------------  --------------  ------------  ------------ 
Total loans and advances to customers           12,244         (154)        12,090 
--------------------------------------  --------------  ------------  ------------ 
 
 
                                                     31 December 2019 
                                        ------------------------------------------ 
                                        Gross carrying           ECL  Net carrying 
                                                amount     allowance        amount 
                                           GBP'million   GBP'million   GBP'million 
--------------------------------------  --------------  ------------  ------------ 
Consumer lending                                   233          (13)           220 
Retail mortgages                                10,430           (8)        10,422 
Commercial lending                               4,052          (13)         4,039 
--------------------------------------  --------------  ------------  ------------ 
Total loans and advances to customers           14,715          (34)        14,681 
--------------------------------------  --------------  ------------  ------------ 
 

Further information on the movements in gross carrying amounts and ECL can be found in note 13. An analysis of the gross loans and advances by product category is set out below:

 
                                         31 December   31 December 
                                                2020          2019 
                                         GBP'million   GBP'million 
--------------------------------------  ------------  ------------ 
Overdrafts                                        73            77 
Credit cards                                      10            11 
Term loans                                       121           145 
--------------------------------------  ------------  ------------ 
Total consumer lending                           204           233 
--------------------------------------  ------------  ------------ 
Residential owner occupied                     5,051         8,493 
Retail buy-to-let                              1,841         1,937 
--------------------------------------  ------------  ------------ 
Total retail mortgages                         6,892        10,430 
--------------------------------------  ------------  ------------ 
Total retail lending                           7,096        10,663 
--------------------------------------  ------------  ------------ 
Professional buy-to-let                        1,117         1,219 
Bounce back loans                              1,353             - 
Coronavirus business interruption 
 loans                                           114             - 
Other term loans                               2,138         2,327 
--------------------------------------  ------------  ------------ 
Total commercial term lending                  4,722         3,546 
--------------------------------------  ------------  ------------ 
Overdrafts and revolving credit 
 facilities                                      149           202 
Credit cards                                       3             3 
Asset and invoice finance                        274           301 
--------------------------------------  ------------  ------------ 
Total commercial lending                       5,148         4,052 
--------------------------------------  ------------  ------------ 
Gross loans and advances to customers         12,244        14,715 
--------------------------------------  ------------  ------------ 
 

6. Investment securities

 
                                          31 December    31 December 
                                                 2020           2019 
                                          GBP'million    GBP'million 
---------------------------------------  ------------  ------------- 
Fair value through other comprehensive 
 income                                           773            411 
Amortised cost                                  2,640          2,154 
---------------------------------------  ------------  ------------- 
Total investment securities                     3,413          2,565 
---------------------------------------  ------------  ------------- 
 

Fair value through other comprehensive income

 
                                            31 December    31 December 
                                                   2020           2019 
                                            GBP'million    GBP'million 
-----------------------------------------  ------------  ------------- 
Sovereign bonds                                     386            283 
Residential mortgage backed securities               50              - 
Covered bonds                                       337            128 
-----------------------------------------  ------------  ------------- 
Total investment securities held at 
 f air value through other comprehensive 
 income                                             773            411 
-----------------------------------------  ------------  ------------- 
 

Amortised cost

 
                                          31 December    31 December 
                                                 2020           2019 
                                          GBP'million    GBP'million 
---------------------------------------  ------------  ------------- 
Sovereign bonds                                   495             61 
Residential mortgage backed securities          1,624          1,752 
Covered bonds                                     521            341 
---------------------------------------  ------------  ------------- 
Total investment securities held at 
 amortised cost                                 2,640          2,154 
---------------------------------------  ------------  ------------- 
 

7. Property, plant and equipment

 
                                                                                                   Right 
                                                                                                  of use 
                                                                                                  assets 
                                                                                                relating 
                                                    Freehold       Fixtures,                   to leased 
                   Investment      Leasehold            land        fittings                      stores 
                     property   improvements   and buildings   and equipment   IT hardware   and offices         Total 
                  GBP'million    GBP'million     GBP'million     GBP'million   GBP'million   GBP'million   GBP'million 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
Cost 
1 January 2020             18            314             262              26            10           332           962 
Additions                   -              6              18               3             2             4            33 
Recognised in 
 business 
 combinations 
 (note 
 17)                        -              1               -               -             1             3             5 
Disposals                   -              -               -               -             -           (9)           (9) 
Write-offs                  -           (11)               -             (4)           (2)             -          (17) 
Transfers                   -           (18)              18               -             -             -             - 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
31 December 
 2020                      18            292             298              25            11           330           974 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
Accumulated 
depreciation 
1 January 2020             10             49              14              12             5            16           106 
Charge for the 
 year                       -             11               5               5             4            16            41 
Recognised in 
 business 
 combinations 
 (note 
 17)                        -              1               -               -             -             -             1 
Impairments                 2              9               -               1             -            16            28 
Disposals                   -              -               -               -             -           (1)           (1) 
Write-offs                  -            (2)               -             (3)           (2)             -           (7) 
Transfers                   -            (2)               2               -             -             -             - 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
31 December 
 2020                      12             66              21              15             7            47           168 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
Net book value              6            226             277              10             4           283           806 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
 
 
                                                                                                   Right 
                                                                                                  of use 
                                                                                                  assets 
                                                                                                relating 
                                                    Freehold       Fixtures,                   to leased 
                   Investment      Leasehold            land        fittings                      stores 
                     property   improvements   and buildings   and equipment   IT hardware   and offices         Total 
                  GBP'million    GBP'million     GBP'million     GBP'million   GBP'million   GBP'million   GBP'million 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
Cost 
1 January 2019             10            275             199              33            39           313           869 
Additions                   -             51              62               5             2            26           146 
Disposals                   -              -               -               -             -           (7)           (7) 
Write-offs                  -            (3)               -            (12)          (31)             -          (46) 
Transfers                   8            (9)               1               -             -             -             - 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
31 December 
 2019                      18            314             262              26            10           332           962 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
Accumulated 
depreciation 
1 January 2019              3             39               9              18            33             -           102 
Charge for the 
 year                       -             11               4               6             3            16            40 
Impairments                 7              -               -               -             -             -             7 
Write-offs                  -              -               -            (12)          (31)             -          (43) 
Transfers                   -            (1)               1               -             -             -             - 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
31 December 
 2019                      10             49              14              12             5            16           106 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
Net book value              8            265             248              14             5           316           856 
---------------  ------------  -------------  --------------  --------------  ------------  ------------  ------------ 
 

Impairment

During 2020 following the decision to vacate its offices at Old Bailey, London the Group tested the related assets for impairment and recognised an impairment loss.

Additionally due to the decline in the commercial property market an impairment indicator was identified in relation to the Group's investment property. The Group's investment property consists of shops and offices which are located within the same buildings as some of its stores, where it has acquired the freehold interest. An impairment loss of GBP2 million was recognised against these assets. At 31 December 2020 the Group's investment property had a fair value of GBP6 million (31 December 2019: GBP7 million). The fair value has been provided by a qualified independent valuer.

Impairment indicators were also identified in respect of other items of property, plant and equipment. The assets, which included the Group's stores, were tested for impairment. The recoverable amount of the cash generating units to which these assets were allocated was found to be in excess of their carrying amount and as such no impairment was recognised.

Write-offs

The write-offs in the year consist primarily of fit out costs of office space that have been, or is planned, be stripped out either as a result of these spaces being refitted to allow future flexible working. Additionally write-offs includes a number of fixtures, fittings and equipment and IT hardware with a nil book value which are no longer being used as well costs relating to work undertaken on future store sites, which the Group has now decided not to proceed with

Transfers

Transfers represent costs associated with the improvements made to previously leased stores which have been purchased. These stores were purchased where there was a strong commercial rationale for doing so.

8. Intangible assets

 
                                          Goodwill         Brand      Software         Total 
                                       GBP'million   GBP'million   GBP'million   GBP'million 
------------------------------------  ------------  ------------  ------------  ------------ 
Cost 
1 January 2020                                   4             -           224           228 
Additions                                        -             -            81            81 
Recognised in business combinations 
 (note 17)                                       6             2            32            40 
Write-offs                                       -             -          (10)          (10) 
Deferred grant (note 11)                         -             -             1             1 
------------------------------------  ------------  ------------  ------------  ------------ 
31 December 2020                                10             2           328           340 
------------------------------------  ------------  ------------  ------------  ------------ 
Amortisation 
1 January 2020                                   -             -            60            60 
Charge for the year                              -             -            33            33 
Write-offs                                       -             -           (7)           (7) 
31 December 2020                                 -             -            86            86 
------------------------------------  ------------  ------------  ------------  ------------ 
Net book value                                  10             2           242           254 
------------------------------------  ------------  ------------  ------------  ------------ 
 
 
                                             Customer 
                               Goodwill     contracts      Software         Total 
                            GBP'million   GBP'million   GBP'million   GBP'million 
-------------------------  ------------  ------------  ------------  ------------ 
Cost 
1 January 2019                        4             1           249           254 
Additions                             -             -            79            79 
Write-offs                            -           (1)         (100)         (101) 
Deferred grant (note 10)              -             -           (4)           (4) 
-------------------------  ------------  ------------  ------------  ------------ 
31 December 2019                      4             -           224           228 
-------------------------  ------------  ------------  ------------  ------------ 
Amortisation 
1 January 2019                        -             1            56            57 
Charge for the year                   -             -            36            36 
Write-offs                            -           (1)          (32)          (33) 
31 December 2019                      -             -            60            60 
-------------------------  ------------  ------------  ------------  ------------ 
Net book value                        4             -           164           168 
-------------------------  ------------  ------------  ------------  ------------ 
 

Write-offs

The write-offs in the year consisted primarily of software and applications that are no longer being used and are no longer providing any further economic benefits.

Goodwill

Goodwill is assessed for any impairment on an annual basis.

For the purpose of impairment testing goodwill is allocated to the following cash generating units:

 
                                       31 December 
                                              2020 
                                       GBP'million 
-----------------------------------  ------------- 
Asset and invoice finance business               4 
Retail bank                                      6 
-----------------------------------  ------------- 
Total goodwill                                  10 
-----------------------------------  ------------- 
 

No impairment losses were recognised in the year ended 31 December 2020 (2019: nil).

9. Assets classified as held for sale

On 18 December 2020 the Group agreed to sell a portfolio of GBP3.1 billion of loans to NatWest. The portfolio of mortgages sold was subject to a 10% carve out, which related to a group of specifically identified loans on which NatWest would undertake further due diligence prior to completion.

In the period between the sale agreement and completion, NatWest had the ability to exclude loans from the 10% carve out, subject to pre-set criteria. Due to the ability for loans to be excluded, loans specified within the carve out did not meet the threshold to be derecognised at year end, however were deemed by Management to meet the definition of comprising a disposal group held for sale under IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'. The disposal group was held at its carrying amount of GBP295 million as at 31 December 2020 and as such the gain relating to the carve out is not included within 2020 income statement.

The sale of these loans was accounted for in 2021 at which point a gain of GBP8.2 million was recognised (GBP8.0 million, net of costs). Further detail are provided in note 19.

10. Leases

Lease liabilities

 
                                                       2020          2019 
                                                GBP'million   GBP'million 
------------------------------------------  ---------------  ------------ 
1 January                                               341           328 
Additions and modifications                               4            23 
Recognised in business combinations (note 
 16)                                                      3             - 
Disposals                                               (9)           (3) 
Lease payments made                                    (31)          (25) 
Interest on lease liabilities                            19            18 
------------------------------------------  ---------------  ------------ 
31 December                                             327           341 
------------------------------------------  ---------------  ------------ 
 

Right of use assets

All disclosures relating to right of use assets can be found in note 7.

Low value and short leases

During the year ended 31 December 2020 GBP0.2 million (year ended 31 December 2019: GBP0.4 million) was recognised in the income statement with respect to assets of low value of a lease less 12 months.

Future income due under non-cancellable operating leases

The Group leases out surplus space in some of its properties. The table below sets out the cash payments expected over the remaining non-cancellable term of each lease, exclusive of any VAT.

 
                               31 December   31 December 
                                      2020          2019 
                               GBP'million   GBP'million 
----------------------------  ------------  ------------ 
Within one year                          1             1 
Due in one to five years                 4             3 
Due in more than five years              5             7 
----------------------------  ------------  ------------ 
Total                                   10            11 
----------------------------  ------------  ------------ 
 

11. Deferred grants

 
                                                          2020          2019 
                                                   GBP'million   GBP'million 
------------------------------------------------  ------------  ------------ 
1 January                                                   50             - 
Grants received                                              -           120 
Released to the income statement                          (23)          (16) 
Offset against capital expenditure (see note 8)              1           (4) 
Element of grant awaiting repayment                          -          (50) 
------------------------------------------------  ------------  ------------ 
31 December                                                 28            50 
------------------------------------------------  ------------  ------------ 
 

As at the 31 December 2020 no provision has been made for the return of any further funds on the basis the Group is on track to deliver our commitments agreed with BCR.

12. Called-up share capital

The Group has a single class of shares. As at 31 December 2020 172.4 million ordinary shares of 0.0001p (31 December 2019: 172.4 million) were authorised and in issue.

Called-up ordinary share capital, issued and fully paid

The called-up share capital reserve is used to record the nominal share capital. At the 31 December 2020 the Group's called up share capital was GBP172.42 (31 December 2019: GBP172.42)

 
                     2020          2019 
              GBP'million   GBP'million 
-----------  ------------  ------------ 
1 January               -             - 
Issued                  -             - 
-----------  ------------  ------------ 
31 December             -             - 
-----------  ------------  ------------ 
 

Share premium

The share premium reserve is used to record the excess consideration of any shares issued over the nominal share value.

 
                                 2020          2019 
                          GBP'million   GBP'million 
-----------------------  ------------  ------------ 
1 January                       1,964         1,605 
Issued                              -           375 
Costs of shares issued              -          (16) 
-----------------------  ------------  ------------ 
31 December                     1,964         1,964 
-----------------------  ------------  ------------ 
 

13. Expected credit losses

Credit risk exposures

Retail mortgages

 
                                             31 December 2020 
                                                GBP' million 
                        ----------------------------------------------------------- 
                                 Stage 1              Stage 2               Stage 3 
                            12 month ECL         Lifetime ECL          Lifetime ECL 
----------------------  ----------------  -------------------  -------------------- 
Up to date                         5,911                  802                    47 
1 to 29 days past due                  -                   18                     8 
30 to 89 days past 
 due                                   -                   43                    13 
90+ days past due                      -                    -                    50 
----------------------  ----------------  -------------------  -------------------- 
Gross carrying amount              5,911                  863                   118 
----------------------  ----------------  -------------------  -------------------- 
 
 
                                     31 December 2019 
                                        GBP' million 
                        ------------------------------------------- 
                              Stage 1        Stage 2        Stage 3 
                         12 month ECL   Lifetime ECL   Lifetime ECL 
----------------------  -------------  -------------  ------------- 
Up to date                      9,873            449             16 
1 to 29 days past due               1             21              4 
30 to 89 days past 
 due                                -             32             10 
90+ days past due                   -              -             24 
----------------------  -------------  -------------  ------------- 
Gross carrying amount           9,874            502             54 
----------------------  -------------  -------------  ------------- 
 

Consumer lending

 
                                              31 December 2020 
                                                GBP' million 
                        ------------------------------------------------------------ 
                                  Stage 1               Stage 2              Stage 3 
                             12 month ECL          Lifetime ECL         Lifetime ECL 
----------------------  -----------------  --------------------  ------------------- 
Up to date                            149                    38                    - 
1 to 29 days past due                   -                     3                    - 
30 to 89 days past 
 due                                    -                     2                    - 
90+ days past due                       -                     -                   12 
----------------------  -----------------  --------------------  ------------------- 
Gross carrying amount                 149                    43                   12 
----------------------  -----------------  --------------------  ------------------- 
 
 
                                     31 December 2019 
                                        GBP' million 
                        ------------------------------------------- 
                              Stage 1        Stage 2        Stage 3 
                         12 month ECL   Lifetime ECL   Lifetime ECL 
----------------------  -------------  -------------  ------------- 
Up to date                        213              -              - 
1 to 29 days past due              10              -              - 
30 to 89 days past 
 due                                -              -              - 
90+ days past due                   -              -             10 
----------------------  -------------  -------------  ------------- 
Gross carrying amount             223              -             10 
----------------------  -------------  -------------  ------------- 
 

Commercial lending

 
                                       31 December 2020 
                                         GBP' million 
                        ---------------------------------------------- 
                              Stage 1         Stage 2          Stage 3 
                         12 month ECL    Lifetime ECL     Lifetime ECL 
----------------------  -------------  --------------  --------------- 
Up to date                      4,115             863               96 
1 to 29 days past due               -              21                2 
30 to 89 days past 
 due                                -              22               11 
90+ days past due                   -               -               18 
----------------------  -------------  --------------  --------------- 
Gross carrying amount           4,115             906              127 
----------------------  -------------  --------------  --------------- 
 
 
                                       31 December 2019 
                                         GBP' million 
                        -------------  ----------------  ------------- 
                              Stage 1           Stage 2        Stage 3 
                         12 month ECL      Lifetime ECL   Lifetime ECL 
----------------------  -------------  ----------------  ------------- 
Up to date                      3,900                 -              7 
1 to 29 days past due              29                18              4 
30 to 89 days past 
 due                                -                54              9 
90+ days past due                   -                 -             31 
----------------------  -------------  ----------------  ------------- 
Gross carrying amount           3,929                72             51 
----------------------  -------------  ----------------  ------------- 
 

Loss allowance

The following tables explain the changes in both the gross carrying amount and loss allowances of the Group's loans and advances during the period. Significant changes in the gross carrying amount which contributed to changes in the loss allowance are explained below. Other movements consists of changes to model assumptions and forward looking information.

Retail mortgages

 
                                Gross carrying 
                                    amount                    Loss allowance              Net carrying amount 
                        ------------------------------  --------------------------  -------------------------------- 
                          Stage  Stage  Stage           Stage  Stage  Stage           Stage  Stage  Stage 
GBP'million                   1      2      3    Total      1      2      3  Total        1      2      3    Total 
----------------------  -------  -----  -----  -------  -----  -----  -----  -----  -------  -----  -----  ------- 
1 January 2020            9,874    502     54   10,430      -    (3)    (5)    (8)    9,874    499     49   10,422 
Transfers to/(from) 
 stage 1(1)                 109  (106)    (3)        -    (1)      1      -      -      108  (105)    (3)        - 
Transfers to/(from) 
 stage 2                  (559)    560    (1)        -      -      -      -      -    (559)    560    (1)        - 
Transfers to/(from) 
 stage 3                   (55)   (22)     77        -      -      1    (1)      -     (55)   (21)     76        - 
Net remeasurement 
 due to transfers(2)          -      -      -        -      1    (8)    (1)    (8)        1    (8)    (1)      (8) 
New lending(3)              522     48      1      571    (3)    (3)      -    (6)      519     45      1      565 
Repayments, 
 additional 
 drawdowns and 
 interest accrued         (122)   (11)      -    (133)      -      -      -      -    (122)   (11)      -    (133) 
Transfer to 
 held for sale(4)         (289)    (7)      -    (296)      1      -      -      1    (288)    (7)      -    (295) 
Derecognitions(5)       (3,569)  (101)   (10)  (3,680)      3      1      1      5  (3,566)  (100)    (9)  (3,675) 
Changes to 
 model assumptions(6)         -      -      -        -    (6)    (6)      2   (10)      (6)    (6)      2     (10) 
----------------------  -------  -----  -----  -------  -----  -----  -----  -----  -------  -----  -----  ------- 
31 December 
 2020                     5,911    863    118    6,892    (5)   (17)    (4)   (26)    5,906    846    114    6,866 
----------------------  -------  -----  -----  -------  -----  -----  -----  -----  -------  -----  -----  ------- 
 
   1.             Represents stage transfers prior to any ECL remeasurements 

2. Represents the remeasurement between the twelve month and lifetime ECL due to stage transfer. In addition it includes any ECL change resulting from model assumptions and forward looking information on these loans.

3. Represents the increase in balances resulting from loans and advances that have been newly originated, purchased or renewed as well as any ECL that has been recognised in relation to these loans during the year.

4. Represents the loans and advance reclassified as held for sale at year end.

5. Represents the decrease in balances resulting from loans and advances that have been fully repaid, sold or written off.

6. Represents the change in ECL to those loans that remain within the same stage through the year.

 
                        Gross carrying amount                   Loss allowance                   Net carrying amount 
                 ------------------------------------  --------------------------------  ------------------------------------ 
                   Stage  Stage  Stage                 Stage  Stage  Stage                 Stage  Stage  Stage 
GBP'million            1      2      3  POCI    Total      1      2      3  POCI  Total        1      2      3  POCI    Total 
---------------  -------  -----  -----  ----  -------  -----  -----  -----  ----  -----  -------  -----  -----  ----  ------- 
1 January 
 2019              9,245    336     39     5    9,625      -    (5)    (4)   (2)   (11)    9,245    331     35     3    9,614 
Transfers 
 to/(from) 
 stage 1             169  (162)    (7)     -        -    (1)      1      -     -      -      168  (161)    (7)     -        - 
Transfers 
 to/(from) 
 stage 2           (369)    370    (1)     -        -      -      -      -     -      -    (369)    370    (1)     -        - 
Transfers 
 to/(from) 
 stage 3            (22)   (16)     38     -        -      -      -      -     -      -     (22)   (16)     38     -        - 
Net 
 remeasurement 
 due to 
 transfers             -      -      -     -        -      1    (1)    (2)     -    (2)        1    (1)    (2)     -      (2) 
New lending        2,122     77      -     -    2,199      -      -      -     -      -    2,122     77      -     -    2,199 
Repayments, 
 additional 
 drawdowns 
 and interest 
 accrued           (244)    (9)    (3)     -    (256)      -      -      -     -      -    (244)    (9)    (3)     -    (256) 
Derecognitions   (1,027)   (94)   (12)   (5)  (1,138)      -      2      2     2      6  (1,027)   (92)   (10)   (3)  (1,132) 
Changes to 
 model 
 assumptions           -      -      -     -        -      -      -    (1)     -    (1)        -      -    (1)     -      (1) 
---------------  -------  -----  -----  ----  -------  -----  -----  -----  ----  -----  -------  -----  -----  ----  ------- 
31 December 
 2019              9,874    502     54     -   10,430      -    (3)    (5)     -    (8)    9,874    499     49     -   10,422 
---------------  -------  -----  -----  ----  -------  -----  -----  -----  ----  -----  -------  -----  -----  ----  ------- 
 

Consumer lending

 
                            Gross carrying 
                                amount                  Loss allowance           Net carrying amount 
                      --------------------------  --------------------------  -------------------------- 
                      Stage  Stage  Stage         Stage  Stage  Stage         Stage  Stage  Stage 
GBP'million               1      2      3  Total      1      2      3  Total      1      2      3  Total 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
1 January 2020          223      -     10    233    (3)    (1)    (9)   (13)    220    (1)      1    220 
Transfers to/(from)       -      -      -      -      -      -      -      -      -      -      -      - 
 stage 1 
Transfers to/(from) 
 stage 2               (62)     62      -      -      1    (1)      -      -   (61)     61      -      - 
Transfers to/(from) 
 stage 3                (3)    (1)      4      -      -      -      -      -    (3)    (1)      4      - 
Net remeasurement 
 due to transfers         -      -      -      -      -    (7)    (3)   (10)      -    (7)    (3)   (10) 
New lending              55      2      -     57    (2)      -      -    (2)     53      2      -     55 
Repayments, 
 additional 
 drawdowns and 
 interest accrued      (14)   (20)    (1)   (35)      -      -      -      -   (14)   (20)    (1)   (35) 
Derecognitions         (50)      -    (1)   (51)      -      -      1      1   (50)      -      -   (50) 
Changes to 
 model assumptions        -      -      -      -    (2)      -      1    (1)    (2)      -      1    (1) 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
31 December 
 2020                   149     43     12    204    (6)    (9)   (10)   (25)    143     34      2    179 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
 
 
                            Gross carrying 
                                amount                  Loss allowance           Net carrying amount 
                      --------------------------  --------------------------  -------------------------- 
                      Stage  Stage  Stage         Stage  Stage  Stage         Stage  Stage  Stage 
GBP'million               1      2      3  Total      1      2      3  Total      1      2      3  Total 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----         -----  -----  ----- 
1 January 2019          275      8      5    288    (3)    (3)    (3)    (9)    272      5      2    279 
Transfers to/(from) 
 stage 1                  5    (5)      -      -      -      -      -      -      5    (5)      -      - 
Transfers to/(from) 
 stage 2                (1)      1      -      -      -      -      -      -    (1)      1      -      - 
Transfers to/(from) 
 stage 3                (3)    (3)      6      -      -      2    (2)      -    (3)    (1)      4      - 
Net remeasurement 
 due to transfers         -      -      -      -      -      -    (4)    (4)      -      -    (4)    (4) 
New lending              39      -      -     39      -      -      -      -     39      -      -     39 
Repayments, 
 additional 
 drawdowns and 
 interest accrued      (37)      -    (1)   (38)      -      -      -      -   (37)      -    (1)   (38) 
Derecognitions         (55)    (1)      -   (56)      -      -      -      -   (55)    (1)      -   (56) 
Changes to                -      -      -      -      -      -      -      -      -      -      -      - 
 model assumptions 
31 December 
 2019                   223      -     10    233    (3)    (1)    (9)   (13)    220    (1)      1    220 
-------------------- 
 

Commercial lending

 
                            Gross carrying 
                                amount                  Loss allowance           Net carrying amount 
                      --------------------------  --------------------------  -------------------------- 
                      Stage  Stage  Stage         Stage  Stage  Stage         Stage  Stage  Stage 
GBP'million               1      2      3  Total      1      2      3  Total      1      2      3  Total 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
1 January 2020        3,929     72     51  4,052    (6)    (1)    (6)   (13)  3,923     71     45  4,039 
Transfers to/(from) 
 stage 1                 13   (11)    (2)      -      -      -      -      -     13   (11)    (2)      - 
Transfers to/(from) 
 stage 2              (678)    679    (1)      -      -      -      -      -  (678)    679    (1)      - 
Transfers to/(from) 
 stage 3               (84)   (20)    104      -      -      1    (1)      -   (84)   (19)    103      - 
Net remeasurement 
 due to transfers         -      -      -      -      -   (28)   (30)   (58)      -   (28)   (30)   (58) 
New lending           1,562    199      9  1,770    (6)   (13)    (3)   (22)  1,556    186      6  1,748 
Repayments, 
 additional 
 drawdowns and 
 interest accrued     (201)      1    (9)  (209)      -      -      -      -  (201)      1    (9)  (209) 
Derecognitions        (426)   (14)   (25)  (465)      1      1      2      4  (425)   (13)   (23)  (461) 
Changes to 
 model assumptions        -      -      -      -    (8)    (3)    (3)   (14)    (8)    (3)    (3)   (14) 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
31 December 
 2020                 4,115    906    127  5,148   (19)   (43)   (41)  (103)  4,096    863     86  5,045 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
 
 
                            Gross carrying 
                                amount                  Loss allowance           Net carrying amount 
                      Stage  Stage  Stage         Stage  Stage  Stage         Stage  Stage  Stage 
GBP'million               1      2      3  Total      1      2      3  Total      1      2      3  Total 
1 January 2019        4,265     77     14  4,356    (6)    (3)    (5)   (14)  4,259     74      9  4,342 
Transfers to/(from) 
 stage 1                 43   (43)      -      -    (1)      1      -      -     42   (42)      -      - 
Transfers to/(from) 
 stage 2               (64)     64      -      -      -      -      -      -   (64)     64      -      - 
Transfers to/(from) 
 stage 3               (17)    (9)     26      -      -      1    (1)      -   (17)    (8)     25      - 
Net remeasurement 
 due to transfers         -      -      -      -      1    (1)    (2)    (2)      1    (1)    (2)    (2) 
New lending             513      2     15    530    (1)      -    (2)    (3)    512      2     13    527 
Repayments, 
 additional 
 drawdowns and 
 interest accrued     (203)    (3)      6  (200)      -      -      -      -  (203)    (3)      6  (200) 
Derecognitions        (608)   (16)   (10)  (634)      -      -      3      3  (608)   (16)    (7)  (631) 
Changes to 
 model assumptions        -      -      -      -      1      1      1      3      1      1      1      3 
31 December 
 2019                 3,929     72     51  4,052    (6)    (1)    (6)   (13)  3,923     71     45  4,039 
 

Credit risk concentration

Residential mortgage lending by DTV banding

 
                                31 December 2020                    31 December 2019 
                                   GBP'million                         GBP'million 
                          Retail                    Total     Retail                    Total 
                           owner       Retail      retail      owner       Retail      retail 
                        occupied   buy-to-let   mortgages   occupied   buy-to-let   mortgages 
DTV ratio 
Less than 50%              1,855          502       2,357      2,647          464       3,111 
51-60%                       842          390       1,232      1,383          393       1,776 
61-70%                       836          533       1,369      1,422          505       1,927 
71-80%                     1,084          407       1,491      1,813          554       2,367 
81-90%                       359            4         363      1,201           13       1,214 
91-100%                       74            -          74         23            -          23 
More than 100%                 1            5           6          4            8          12 
Total retail mortgage 
 lending                   5,051        1,841       6,892      8,493        1,937      10,430 
 

Residential mortgage lending by repayment type

 
                                 31 December 2020                    31 December 2019 
                                    GBP'million                         GBP'million 
                        ----------------------------------  ---------------------------------- 
                           Retail                    Total     Retail                    Total 
                            owner       Retail      retail      owner       Retail      retail 
                         occupied   buy-to-let   mortgages   occupied   buy-to-let   mortgages 
Repayment 
Interest                    2,337        1,751       4,088      2,573        1,834       4,407 
Capital and interest        2,714           90       2,804      5,920          103       6,023 
Total retail mortgage 
 lending                    5,051        1,841       6,892      8,493        1,937      10,430 
 

Residential mortgage lending by geographic exposure

 
                                     31 December 2020                            31 December 2019 
                                        GBP'million                                 GBP'million 
                        ------------------------------------------  ------------------------------------------ 
                                 Retail       Retail  Total retail           Retail       Retail  Total retail 
                         owner occupied   buy-to-let     mortgages   owner occupied   buy-to-let     mortgages 
Region 
Greater London                    2,213        1,147         3,360            3,424        1,197         4,621 
South east                        1,157          309         1,466            2,094          337         2,431 
South west                          433           91           524              738           97           835 
East of England                     298           73           371              570           76           646 
North west                          265           63           328              482           66           548 
West Midlands                       179           58           237              340           62           402 
Yorkshire and the 
 Humber                             139           37           176              275           37           312 
East Midlands                       131           25           156              243           26           269 
Wales                               102           21           123              169           21           190 
North east                           62           10            72               93           11           104 
Scotland                             72            7            79               65            7            72 
Total retail mortgage 
 lending                          5,051        1,841         6,892            8,493        1,937        10,430 
 

Commercial term lending (exc. BBLS) by DTV banding

 
                             31 December 2020                        31 December 2019 
                                GBP'million                             GBP'million 
                  Professional        Other        Total  Professional        Other        Total 
                    buy-to-let   term loans   commercial    buy-to-let   term loans   commercial 
                                      (inc.   term loans                              term loans 
                                     CBILS) 
DTV ratio 
Less than 50%              353          876        1,229           363          911        1,274 
51-60%                     261          546          807           283          535          818 
61-70%                     351          255          606           404          343          747 
71-80%                     133          100          233           135           86          221 
81-90%                       9           51           60            10           31           41 
91-100%                      6           13           19            12           37           49 
More than 100%               4          411          415            12          384          396 
Total commercial 
 term loans              1,117        2,252        3,369         1,219        2,327        3,546 
 

Commercial term lending (exc. BBLS) by repayment type

 
                                  31 December 2020                        31 December 2019 
                                     GBP'million                             GBP'million 
                       --------------------------------------  -------------------------------------- 
                       Professional        Other        Total  Professional        Other        Total 
                         buy-to-let   term loans   commercial    buy-to-let   term loans   commercial 
                                           (inc.   term loans                              term loans 
                                          CBILS) 
Repayment 
Interest                      1,058          281        1,339         1,155          328        1,483 
Capital and interest             59        1,971        2,030            64        1,999        2,063 
Total commercial 
 term loans                   1,117        2,252        3,369         1,219        2,327        3,546 
 

Commercial term lending (exc. BBLS) by geographic exposure

 
                                  31 December 2020                             31 December 2019 
                                     GBP'million                                  GBP'million 
                    --------------------------------------------  ------------------------------------------ 
                    Professional    Other term  Total commercial  Professional  Other term  Total commercial 
                      buy-to-let   loans (inc.        term loans    buy-to-let       loans        term loans 
                                        CBILS) 
Region 
Greater London               780         1,358             2,138           850       1,414             2,264 
South east                   205           399               604           224         424               648 
South west                    31           156               187            52         156               208 
East of England               48            67               115            35         104               139 
North west                    20           146               166            21         115               136 
West Midlands                 10            66                76            11          49                60 
Yorkshire and the 
 Humber                        3            13                16            11          26                37 
East Midlands                 11            18                29             5          12                17 
Wales                          5            10                15             4          10                14 
North east                     3            18                21             4           9                13 
Northern Ireland               -             1                 1             1           5                 6 
Scotland                       1             -                 1             1           3                 4 
Total commercial 
 term loans                1,117         2,252             3,369         1,219       2,327             3,546 
 

Commercial term lending (exc. BBLS) by industry exposure

 
                                          31 December 2020                             31 December 2019 
                                             GBP'million                                  GBP'million 
                            Professional    Other term  Total commercial  Professional  Other term  Total commercial 
                              buy-to-let   loans (inc.        term loans    buy-to-let       loans        term loans 
                                                CBILS) 
Industry sector 
Real estate (rent, 
 buy and sell)                     1,117         1,032             2,148         1,219       1,155             2,374 
Hospitality                            -           376               376             -         308               308 
Health & social work                   -           248               248             -         263               263 
Legal, Accountancy 
 & Consultancy                         -           208               208             -         236               236 
Retail                                 -           107               107             -         100               100 
Real estate (development)              -            60                60             -          62                62 
Recreation, cultural 
 and sport                             -            53                53             -          51                51 
Construction                           -            36                36             -          35                35 
Education                              -            30                30             -          30                30 
Real estate (management 
 of)                                   -            10                10             -          11                11 
Investment and unit 
 trusts                                -             9                 9             -           8                 8 
Other                                  -            83                83             -          68                68 
Total commercial 
 term loans                        1,117         2,252             3,368         1,219       2,327             3,546 
 

Non-performing loans and cost of risk

 
 
  Non-performing loans             31 December 2020         31 December 2019 
                                        NPLs  NPL ratio          NPLs  NPL ratio 
                                 GBP'million          %   GBP'million          % 
Retail mortgages                         118      1.70%            25      0.24% 
Consumer lending                          13      6.13%            10      4.30% 
Commercial lending (including 
 asset and invoice finance)              127      2.48%            42      1.12% 
Total                                    258      2.10%            77      0.53% 
 

Cost of risk

 
                                            Year ended    Year ended 
                                           31 December   31 December 
                                                  2020          2019 
                                                     %             % 
Retail mortgages                                 0.19%             - 
Consumer lending                                 5.97%         1.92% 
Commercial lending (including asset and 
 invoice finance)                                1.99%         0.11% 
Average cost of risk                             0.86%         0.08% 
 

14. Loss per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary equity holders of Metro Bank by the weighted average number of ordinary shares in issue during the year.

 
                                                   2020     2019 
Loss attributable to ordinary equity holders 
 of Metro Bank (GBP'million)                    (301.7)  (182.6) 
Weighted average number of ordinary shares in 
 issue - basic ('000)                           172,420  147,420 
Basic loss per share (pence)                    (175.0)  (123.9) 
 

Diluted earnings per share has been calculated by dividing the earnings attributable to ordinary equity holders of Metro Bank by the weighted average number of ordinary shares in issue during the year plus the weighted average number of ordinary shares that would be issued on the conversion to shares of options granted to colleagues. As the Group made a loss during the years to 31 December 2020 and 31 December 2019 the share options would be antidilutive, as they would reduce the loss per share. Therefore all the outstanding options have been disregarded in the calculation of dilutive earnings per share.

 
                                                   2020     2019 
Loss attributable to ordinary equity holders 
 of Metro Bank (GBP'million)                    (301.7)  (182.6) 
Weighted average number of ordinary shares in 
 issue - diluted ('000)                         172,420  147,420 
Diluted loss per share (pence)                  (175.0)  (123.9) 
 

15. Fair value of financial instruments

 
                                                       Quoted         Using  With significant 
                                                       market    observable      unobservable 
                                                        price        inputs            inputs         Total 
                                       Carrying         Level         Level             Level          fair 
                                          value             1             2                 3         value 
                                    GBP'million   GBP'million   GBP'million       GBP'million   GBP'million 
31 December 2020 
Assets 
Loans and advances to customers          12,090             -             -            11,892        11,892 
Investment securities held 
 at FVOCI                                   773           723            50                 -           773 
Investment securities held 
 at amortised costs                       2,640         1,021         1,567                66         2,654 
Financial assets held at FVTPL               30             -             -                30            30 
Liabilities 
Deposits from customers                  16,072             -             -            16,147        16,147 
Deposits from central banks               3,808             -             -             3,808         3,808 
Debt securities                             600           483             -                 -           483 
Financial liabilities held 
 at FVTPL                                    30             -             -                30            30 
Derivative financial liabilities              8             -             8                 -             8 
Repurchase agreements                       196             -             -               196           196 
 
31 December 2019 
Assets 
Loans and advances to customers          14,681             -             -            14,652        14,652 
Investment securities held 
 at FVOCI                                   411           411             -                 -           411 
Investment securities held 
 at amortised costs                       2,154           508         1,647                 -         2,155 
Liabilities 
Deposits from customers                  14,447             -             -            14,448        14,448 
Deposits from central bank                3,801             -             -             3,801         3,801 
Debt securities                             591           602             -                 -           602 
Derivative financial liabilities              8             -             8                 -             8 
Repurchase agreements                       250             -             -               250           250 
 

Information on how fair values are calculated for the financial assets and liabilities noted above are explained below:

Loans and advances to customers

Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date, adjusted for future credit losses and prepayments, if considered material.

Investment securities

The fair value of investment securities is based on either observed market prices for those securities that have an active trading market (fair value Level 1 assets), or using observable inputs (in the case of fair value Level 2 assets).

Financial assets and liabilities held at fair value through profit and loss

The financial assets and liabilities held at fair value through profit and loss relate to the provision fund operated by RateSetter for the benefit of its peer-to-peer investors. The provision fund assets are measured based on the present value of future income receivable into the fund.

At 31 December 2020 the total assets and liabilities of the provision fund were equal due to it having fewer assets compared to its expected future liabilities (which are measured based on the lifetime expected losses of the loans the fund is providing protection against) and as such the provision fund liabilities are capped at the value of its total assets.

On 2 February 2020 the Group announced our intention to purchase the RateSetter back book (see note 18 for further details).

Deposits from customers

Fair values are estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities. The fair value of a deposit repayable on demand is approximated by its carrying value.

Debt securities

Fair values are determined using the quoted market price at the balance sheet date.

Deposits from central banks/repurchase agreements

Fair values are estimated using discounted cash flows, applying current rates. Fair values approximate carrying amounts as their balances are generally short-dated.

Derivative financial liabilities

The fair values of derivatives are obtained from discounted cash flow models or option pricing models as appropriate.

16. Legal and regulatory matters

As part of the normal course of business the Group is subject to legal and regulatory matters, the majority of which are not considered to have a material impact on the business.

The contingent liabilities detailed below are those which could potentially have a material impact, although their inclusion does not constitute any admission of wrongdoing or legal liability. The outcome and timing of these matters is inherently uncertain. Based on the facts currently known, it is not possible at the moment to predict the outcome of any of these matters or reliably estimate any financial impact. As such, at the reporting date no provision has been made for any of these cases within the financial statements.

PRA and FCA investigations into RWA Adjustment and AIRB Accreditation

The Group is currently subject to enforcement investigations by both the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA).

-- The PRA's investigation relates to potential breaches of the PRA's Fundamental Rules 2 and 6. The PRA is investigating whether there were failures to conduct regulatory reporting with due skill, care and diligence, to remedy an issue identified by the PRA in a timely fashion and/or to provide effective oversight and control to comply with its regulatory reporting obligations. These issues relate to the Group's assessment and reporting of its risk-weighted assets. The Group is co-operating with the PRA's investigation. As yet, the PRA has given no indication of the likely timeframe for completing their investigation or of the action that might be taken as a result. At this stage it is not practicable to identify the likely outcome or estimate the potential financial impact with any certainty.

-- The current scope of the FCA's investigation concerns potential breaches of articles 15 and 17 of the Market Abuse Regulation (EU 596/2014), Principle 11 of the FCA's Principles for Business, and Listing Principle 1, Premium Listing Principle 6 and Rule 1.3.3 of the Listing Rules, in the period between 1 June 2017 and 26 February 2019. The investigations relate to the announcements made on 23 January 2019 and 26 February 2019 in relation to risk-weighted assets and AIRB accreditation respectively and the impact these announcements had on the Group's share price. The Group is co-operating with the FCA's investigation. As yet, the FCA has given no indication of the likely timeframe for completing their investigation or of any action that might be taken as a result. At this stage it is not practicable to identify the likely outcome or estimate the potential financial impact with any certainty.

Financial Crime

In 2017 and 2019 initial disclosures were made to the United State's Office of Foreign Assets Control (OFAC) in relation to Cuba and Iran. The Group continues a review in respect of these matters, together with a review of its sanctions screening and transaction monitoring systems and controls, with the support of external advisers. The Group is continue to engage and fully co-operate with its regulators in relation to these matters. At this stage it is not practicable to identify the likely outcome or estimate the potential financial impact with any certainty.

17. Business combinations

 
Accounting policy 
 The Group accounts for business combinations using the acquisition 
 method when control is transferred. The consideration transferred 
 in the acquisition is generally measured at fair value, as 
 are the identifiable net assets acquired. Any contingent consideration 
 is measured at fair value at the date of acquisition. If an 
 obligation to pay contingent consideration that meets the 
 definition of a financial instrument is classified as equity, 
 then it is not remeasured and settlement is accounted for 
 within equity. Otherwise, other contingent consideration is 
 remeasured at fair value at each reporting date and subsequent 
 changes in the fair value of the contingent consideration 
 are recognised in profit or loss. 
 
 Any goodwill that arises is tested annually for impairment. 
 
 Transaction costs are expensed as incurred. 
 

On 14 September 2020 the Group acquired 100% of Retail Money Market LTD, a peer-to-peer platform specialising in unsecured lending and trading under the RateSetter brand. As a peer-to-peer platform, RateSetter connects investors and borrowers and therefore does not hold deposits or loans on its balance sheet. The acquisition formed part of delivering the Group's strategy to increase its unsecured lending. As part of the acquisition the Group started the process of winding down the peer-to-peer business, with no new investors being accepted. In February 2021, the Group announced the acquisition of the peer-to-peer lending portfolio from investors who had invested through the RateSetter platform. Since acquisition the Group has resumed lending under the RateSetter brand with all lending being funded by ourselves.

The purchase consideration was GBP12 million cash, consisting of GBP2.5 million that was paid upon completion with GBP0.5 million of deferred and GBP9 million of contingent consideration.

The deferred consideration is payable one year from the acquisition date and the contingent consideration is payable three years from the acquisition date based on the certain lending targets being achieved through the RateSetter platform.

The fair value of the consideration has been determined to be GBP11 million.

The assets and liabilities recognised as a result of the acquisition are:

 
                          Fair value at 14 September 2020 
                                              GBP'million 
Cash                                                    2 
Financial assets held 
 at FVTPL                                              29 
Property, plant and 
 equipment                                              4 
Intangible assets                                      34 
Prepayments and accrued 
 income                                                 1 
Other assets                                            2 
Total assets                                           72 
 
Debt securities                                      (21) 
Provisions                                            (3) 
Deferred tax liability                                (6) 
Financial liabilities 
 held at FVTPL                                       (29) 
Other liabilities                                     (8) 
Total liabilities                                    (67) 
Net assets                                              5 
Goodwill arising on 
 consolidation                                          6 
Total consideration                                    11 
 

Of the assets and liabilities above the financial assets and liabilities held at FVTPL relate to the RateSetter provision fund operated by RateSetter for the benefit of its peer-to-peer investors.

The liabilities of the provision fund are capped at the value of its total assets and at the acquisition date were equal due to the fund having fewer assets than the lifetime expected losses anticipated on the peer-to-peer lending.

The goodwill arising on the transaction is attributable to the workforce and organisational capability acquired. The Group will reconsider the valuation of the consideration and the provisional goodwill figures up to the end of the applicable measurement period to 14 September 2021. If changes identified represent additional information about facts and circumstances that existed as at the acquisition date, adjustments will be made to the original acquisition accounting.

18. Related parties

Key management personnel

The Group'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 the Group. The Directors and members of the Executive Leadership Team are considered to be the key management personnel for disclosure purposes.

Key management compensation

Total compensation cost for key management personnel for the year by category of benefit was as follows:

 
                                                          2020          2019 
                                                   GBP'million   GBP'million 
Short-term benefits                                        5.3           5.8 
Post-employment benefits                                   0.1             - 
Share-based payment costs                                  0.7           1.7 
Total compensation for key management personnel            6.1           7.5 
 

Short-term employee benefits include salary, medical insurance, bonuses and cash allowances paid to key management personnel. The share-based payment cost includes the IFRS 2 charge for the year which includes awards granted in prior years that have not yet vested.

Banking transactions with key management personnel

The Group 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 were as follows:

 
                                                                   2020          2019 
                                                            GBP'million   GBP'million 
Loans outstanding at 1 January                                      0.7           3.8 
Loans relating to persons and companies newly considered 
 related parties                                                    1.8             - 
Loans relating to persons and companies no longer 
 considered related parties                                       (0.6)         (3.1) 
Loans issued during the year                                          -           0.2 
Loan repayments during the year                                       -         (0.2) 
Loans outstanding as at 31 December                                 1.9           0.7 
Interest expense on loans payable to the Group (GBP'000)             34            90 
 

There were three (31 December 2019: five) loans outstanding at 31 December 2020 totalling GBP1.8 million (31 December 2019: GBP0.7 million). Of these, two are residential mortgages secured on property and one is an asset finance loan; all loans were provided on our standard commercial terms.

In addition to the loans detailed above, the Group has issued credit cards and granted overdraft facilities on current accounts to Directors and key management personnel. Credit card balances outstanding at 31 December were as follows:

 
                                                 2020      2019 
                                              GBP'000   GBP'000 
Credit cards outstanding as at 31 December         22        16 
 

Deposit balances outstanding at 31 December were as follows

 
                                                               2020          2019 
                                                        GBP'million   GBP'million 
Deposits held at 1 January                                      3.3           4.5 
Deposits relating to persons and companies newly 
 considered related parties                                     0.2           2.1 
Deposits relating to persons and companies no longer 
 considered related parties                                   (0.3)         (1.8) 
Net amounts withdrawn                                         (1.1)         (1.5) 
Deposits outstanding as at 31 December                          2.1           3.3 
 

Other transactions with related parties

During the period, architecture, design and branding services were provided to the Group by InterArch, Inc., ('InterArch') a firm which is owned by Shirley Hill, the wife of Vernon W. Hill II. Vernon W. Hill II was Chairman until 23 October 2019 and a Board member until17 December 2019 when he stepped down.

He retains an honorary role as Chairman Emeritus. By virtue of his previous position within the Group, as well as status of founder, InterArch continues to be considered a related party. The creative and brand services contract and architectural design service contract ended on 27 February 2020. In order to ensure the smooth transition to new providers, the Group entered into a short agreement with InterArch to support the transition until the end of June 2020. This process has now fully completed.

The following transactions were carried out with InterArch during the year:

 
                                                          2020      2019 
                                                       GBP'000   GBP'000 
Architectural design services                              388     4,885 
Creative and brand services                                333       428 
Total purchase of services with entities connected 
 to key management personnel                               721     5,313 
Amounts outstanding as at 31 December owed by Metro 
 Bank                                                        -        82 
 

19. Post balance sheet events

Completion of sale of residential mortgage portfolio

On 2 February 2021 the Group completed the sale of the residential mortgage portfolio to NatWest including the GBP295 million assets that were held for sale as at 31 December 2020. A further gain on sale of GBP 8.2 million (GBP8.0 million, net of costs) was recognised in 2021 in relation to the transaction.

Acquisition of RateSetter back book

On 2 February 2021 the Group announced the acquisition of a portfolio of primarily unsecured consumer loans from peer-to-peer investors who have invested through the RateSetter platform for a cash consideration of up to 384 million. The exact amount is expected to be less as the Portfolio will continue to amortise between announcement and expected completion in April 2021, following a two month notice period for retail investors.

No adjustment has been made to the financial statements in respect of either of these transactions.

Underlying to statutory results reconciliation

 
 GBP'million   Statutory  Listing     Business  Impairment     Net  Transformation       Gain  Remediation  Underlying 
                   basis    Share  acquisition         and     BCR           costs         on        costs       basis 
                           Awards        costs   write-off   costs                   mortgage 
                                                        of                          portfolio 
                                                 property,                               sale 
                                                    plant,                               (net 
                                                 equipment                          of costs) 
                                                       and 
                                                intangible 
                                                    assets 
Year ended 
 31 December 
 2020 
Net interest 
 income            249.7        -            -           -     0.6               -          -            -       250.3 
Net fee and 
 commission 
 income             59.9        -            -           -       -               -          -            -        59.9 
Net gains 
 on sale of 
 financial 
 assets             73.3        -            -           -       -               -     (69.0)            -         4.3 
Other income        49.7        -            -           -  (23.3)               -          -            -        26.4 
Total income       432.6        -            -           -  (22.7)               -     (69.0)            -       340.9 
General 
 operating 
 expenses        (502.3)    (0.2)          5.4           -    22.7            16.7        5.3         40.8     (411.6) 
Depreciation 
 and 
 amortisation     (74.4)        -            -           -       -               -          -            -      (74.4) 
Impairment 
 and 
 write-offs 
 of PPE and 
 intangible 
 assets           (40.6)        -            -        40.6       -               -          -            -           - 
Total 
 operating 
 expenses        (617.3)    (0.2)          5.4        40.6    22.7            16.7        5.3         40.8     (486.0) 
Expected 
 credit loss 
 expense         (126.7)        -            -           -       -               -          -            -     (126.7) 
Loss before 
 tax             (311.4)    (0.2)          5.4        40.6     0.0            16.7     (63.7)         40.8     (271.8) 
 
 
 GBP'million   Statutory  Listing     Business  Impairment     Net  Transformation       Gain  Remediation  Underlying 
                   basis    Share  acquisition         and     BCR           costs         on        costs       basis 
                           Awards        costs   write-off   costs                   mortgage 
                                                        of                          portfolio 
                                                 property,                               sale 
                                                    plant,                               (net 
                                                 equipment                          of costs) 
                                                       and 
                                                intangible 
                                                    assets 
Year ended 
 31 December 
 2019 
Net interest 
 income            308.1        -            -           -       -               -          -            -       308.1 
Net fee and 
 commission 
 income             61.0        -            -           -       -               -          -            -        61.0 
Net gains 
 on sale of 
 financial 
 assets              1.6        -            -           -       -               -          -            -         1.6 
Other income        44.9        -            -           -  (15.5)               -          -            -        29.4 
Total income       415.9        -            -           -  (15.5)               -          -            -       400.1 
General 
 operating 
 expenses        (380.6)      0.6            -           -    18.1            11.5          -         26.8     (323.7) 
Depreciation 
 and 
 amortisation     (76.4)        -            -           -       -               -          -            -      (76.4) 
Impairment 
 and 
 write-offs 
 of PPE and 
 intangible 
 assets           (77.7)        -            -        77.7       -               -          -            -           - 
Total 
 operating 
 expenses        (534.7)      0.6            -        77.7    18.1            11.5          -         26.8     (400.1) 
Expected 
 credit loss 
 expense          (11.7)        -            -           -       -               -          -            -      (11.7) 
Loss before 
 tax             (130.8)      0.6            -        77.7     2.6            11.5          -         26.8      (11.7) 
 

Key capital disclosures

Key Metrics

The table below summarises our key regulatory metrics as at 31 December 2020 and 31 December 2019.

 
                                           31 December   31 December 
                                                  2020          2019 
                                           GBP'million   GBP'million 
Available capital 
CET1 capital                                     1,192         1,427 
Tier 1 capital                                   1,192         1,427 
Total capital                                    1,441         1,676 
 
Risk weighted assets (RWAs) 
Total risk weighted assets                       7,957         9,147 
 
Risk-based capital ratios as % 
 of RWAs 
CET1 ratio                                       15.0%        15.6 % 
Tier 1 ratio                                     15.0%        15.6 % 
Total capital ratio                              18.1%        18.3 % 
 
Additional CET1 buffer requirements 
 as % of RWAs 
Capital conservation buffer requirement           2.5%         2.5 % 
Countercyclical buffer requirement               0.00%        0.99 % 
Total of bank CET1 specific buffer 
 requirements                                    2.50%        3.49 % 
 
Leverage ratio 
Leverage ratio                                   5.62%        6.64 % 
 
Liquidity coverage ratio 
Liquidity coverage ratio (LCR)                    187%         197 % 
 

Leverage Ratio

The table below shows the bank's Tier 1 Capital and Total Leverage Exposure that are used to derive the Leverage Ratio. The leverage ratio is the ratio of Tier 1 Capital to Total Leverage exposure.

 
                                31 December   31 December 
                                       2020          2019 
                                GBP'million   GBP'million 
Common equity tier 1 capital          1,192         1,427 
Additional tier 1 capital                 -             - 
Tier 1 capital                        1,192         1,427 
 
CRD IV Leverage exposure             21,211        21,506 
 
Leverage ratio                        5.62%        6.64 % 
 

Our leverage ratio is 5.62% which is in excess of the Basel Committee's minimum capital requirement of 3.0% and our strategic target of maintaining a UK leverage ratio of greater than 4.0%.

Liquidity coverage ratio

The table below shows the bank's Total HQLA and total net cash outflow that are used to derive the liquidity coverage ratio.

 
                                  31 December   31 December 
                                         2020          2019 
                                  GBP'million   GBP'million 
Total HQLA                              3,762         3,356 
Total net cash outflow                  2,011         1,708 
Liquidity coverage ratio (LCR)           187%         197 % 
 
   Our LCR was 187% at 31 December 2020 which exceeds the Basel Committee's   minimum of 100%. 

Overview of RWAs and capital requirements

The table below sets out the risk weighted assets and Pillar 1 capital requirements for Metro Bank. The bank has applied the standardised approach to measure credit risk and the basic indicator approach to measure operational risk.

 
                                                                                Pillar 1 
                                                                                 capital 
                                                                                required 
                                                 31 December   31 December   31 December 
                                                        2020          2019          2020 
                                                 GBP'million   GBP'million   GBP'million 
Credit risk (excluding counterparty 
 credit risk (CCR))                                    7,251         8,591           579 
            Of which the standardised 
             approach                                  7,251         8,591           579 
CCR                                                        7             5             1 
            Of which mark to market                        5             3             1 
            Of which CVA                                   2             1             - 
Market risk                                               14             5             1 
Operational risk                                         686           546            55 
            Of which basic indicator approach            686           546            55 
            Amounts below the thresholds                                 - 
             for deduction (subject to 
             250% risk weight)                             -                           - 
Total                                                  7,957         9,147           636 
 

Credit risk exposures by exposure class 2020

Metro Bank's Pillar 1 capital requirement for Credit Risk is set out in the table below.

 
                                                                           Capital 
Exposures subject to the standardised   Exposure Value           RWA      Required 
 approach                                  GBP'million   GBP'million   GBP'million 
Central governments or central 
 banks                                           5,131             -             - 
Institutions                                     2,767           553            44 
Corporates                                         521           406            32 
Retail                                             572           376            30 
Secured by mortgages on immovable 
 property                                        9,895         4,338           347 
Covered bonds                                      860            86             7 
Claims on institutions and 
 corporates with a short-term 
 credit assessment                                   -             -             - 
Securitisation position                          1,611           240            19 
Exposure at default                                247           248            20 
Items associated with particularly 
 high risk                                          14            21             2 
Other exposures                                  1,045           987            79 
Total                                           22,659         7,251           580 
 

Credit risk exposures by exposure class 2019

 
                                                                           Capital 
Exposures subject to the standardised   Exposure Value           RWA      Required 
 approach                                  GBP'million   GBP'million   GBP'million 
Central governments or central 
 banks                                           3,200             -             - 
Institutions                                       212            42             3 
Corporates                                         764           683            55 
Retail                                             569           381            30 
Secured by mortgages on immovable 
 property                                       13,565         6,039           483 
Covered bonds                                      469            47             4 
Claims on institutions and                           -             -             - 
 corporates with a short-term 
 credit assessment 
Securitisation position                          1,580           316            25 
Exposure at default                                 92            95             8 
Items associated with particularly 
 high risk                                          18            27             2 
Other exposures                                   1000           961            77 
Total                                           21,469         8,591           687 
 

Capital Resources

The table below summarises the composition of regulatory capital.

 
                                31 December   31 December 
                                       2020          2019 
                                GBP'million   GBP'million 
Share capital and premium             1,964         1,964 
Retained earnings                     (392)         (210) 
Loss for the year                     (302)         (183) 
FVOCI reserve                             3           (2) 
Share option reserve                     16            14 
Intangible assets                     (254)         (168) 
Other regulatory adjustments            157            11 
CET 1 capital                         1,192         1,427 
 
Tier 1 capital                        1,192         1,427 
Tier 2 capital                          249           249 
Total capital resources               1,441         1,676 
 

The Bank's capital adequacy was in excess of the minimum required by the regulators at all times.

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