TIDMMTRO
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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END
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