TIDMMTRO
RNS Number : 0026U
Metro Bank PLC
28 July 2022
Metro Bank PLC
Interim results
Trading update H1 2022
28 July 2022
Metro Bank PLC (LSE: MTRO LN)
Interim results for half year ended 30 June 2022
Highlights
-- Strategic plan remains on track and monthly breakeven expected
during Q1 2023(1) . The liability-led strategy and accelerated
asset mix shift has successfully widened margins, further
supported by the rising rate environment.
-- Total underlying revenue grew 31% YoY to GBP236.2 million
(H1 2021: GBP179.8 million ), demonstrating margin expansion
and continued momentum in revenue growth as lending is optimised
for return on regulatory capital.
-- Total underlying operating expenses fell 3% YoY to GBP266.3
million (H1 2021: GBP275.2 million) reflecting cost actions
taken to reduce run-rate in the near term and limit future
cost growth.
-- Cost of deposits reduced 17bps YoY to 0.14% (H1 2021: 0.31%)
with the impact of rate rises offset by the continued focus
on mix improvement, 47% of deposits are current accounts
(H1 2021: 41%).
-- Underlying loss before tax of GBP48.0 million (H1 2021:
loss of GBP110.0 million ) reflects the significant growth
in revenue and actions taken to reduce cost, offset marginally
by increased expected credit loss provisions.
-- Statutory loss before tax of GBP60.2 million (H1 2021:
loss of GBP138.9 million) includes one off items relating
to capital neutral intangible asset write downs and remediation
costs. Remediation costs of GBP3.0m (H1 2021: GBP25.4m)
have reduced significantly as programs successfully conclude.
-- Announced appointment of James Hopkinson as CFO.
1. Assuming no material deterioration in the macro-economic environment.
Daniel Frumkin, Chief Executive Officer at Metro Bank, said:
"We have delivered a strong first-half performance and I am
encouraged by the continued momentum we are seeing across the bank.
Initiatives we have put in place have helped us to improve NIM and
lending yield, and drive record revenue growth. We have also
maintained our cost discipline and improved our cost to income
ratio, with the focus on generating greater earnings from our
capital base. As a result, we have built a sustainable business and
we now expect to reach monthly breakeven during Q1 2023.
"All of this has been made possible by focusing on our
turnaround strategy over the past two years. We also retain, at our
core, fantastic colleagues delivering highly-rated customer service
and we remain committed to being the UK's best community bank.
Collectively, we remain resolutely focused on continuing to execute
our strategy and supporting our customers in the face of an
increasingly complex macroeconomic environment."
Key Financials:
30 31 December Change 30 Change
GBP in millions June 2021 from June from
2022 FY 2021 2021 H1 2021
Assets GBP22,555 GBP22,587 - GBP23,013 (2%)
Loans GBP12,364 GBP12,290 1% GBP12,325 -
Deposits GBP16,514 GBP16,448 - GBP16,620 (1%)
Loan to deposit ratio 75% 75% - 74% 1 pps
CET1 capital ratio 10.6% 12.6% (2.0 pps) 13.9% (3.3 pps)
Total capital ratio
(TCR) 13.8% 15.9% (2.1 pps) 17.2% (3.4 pps)
MREL ratio 18.3% 20.5% (2.2 pps) 21.7% (3.4 pps)
Liquidity coverage
ratio 257% 281% (24 pps) 309% (52 pps)
---------- ------------ ---------- ---------- ----------
H1 H2 Change H1 Change
from from
GBP in millions 2022 2021 H2 2021 2021 H1 2021
Total underlying
revenue(2) GBP236.2 GBP218.1 8% GBP179.8 31%
Underlying loss before
tax(3) (GBP48.0) (GBP61.3) (22%) (GBP110.0) (56%)
Statutory loss before
tax (GBP60.2) (GBP106.2) (43%) (GBP138.9) (57%)
Net interest margin 1.73% 1.51% 22 bps 1.28% 45 bps
Underlying EPS (28.5p) (36.0p) (21%) (65.1p) (56%)
---------- ----------- ---------- ----------- ----------
2. Underlying revenue excludes grant income recognised relating
to the Capability & Innovation fund.
3. Underlying loss before tax is an alternative performance
measure and excludes impairment and write-off of property, plant
& equipment (PPE) and intangible assets, net Banking
Competition Remedies Limited (BCR) costs, transformation costs,
remediation costs, business acquisition and integration costs and
net income resulting from the mortgage portfolio sale when
comparing to our statutory loss.
Financial performance for the half year ended 30 June 2022
Deposits
GBP in millions 30 31 December Change 30 Change
June 2021 from June from
2022 FY 2021 2021 H1 2021
Demand: current accounts GBP7,770 GBP7,318 6% GBP6,749 15%
Demand: savings accounts GBP7,817 GBP7,684 2% GBP7,402 6%
Fixed term: savings
accounts GBP927 GBP1,446 (36%) GBP2,469 (62%)
----------- ------------- --------- ---------- -----------
Deposits from customers GBP16,514 GBP16,448 - GBP16,620 (1%)
----------- ------------- --------- ---------- -----------
Deposits from customers includes:
Retail customers (excluding
retail partnerships) GBP6,267 GBP6,713 (7%) GBP6,964 (10%)
SMEs(4) GBP4,892 GBP4,764 3% GBP4,605 6%
----------- ------------- --------- ---------- -----------
GBP11,159 GBP11,477 (3%) GBP11,569 (4%)
----------- ------------- --------- ---------- -----------
Retail partnerships GBP1,871 GBP1,814 3% GBP1,697 10%
Commercial customers
(excluding SMEs(4)
) GBP3,484 GBP3,157 10% GBP3,354 4%
GBP5,355 GBP4,971 8% GBP5,051 6%
----------- ------------- --------- ---------- -----------
4. SME defined as enterprises which employ fewer than 250
persons and which have an annual turnover not exceeding EUR50
million, and/or an annual balance sheet total not exceeding
EUR43 million, and have aggregate deposits less than EUR1
million.
-- Total deposits held broadly flat in the first six months
at GBP16,514 million as at 30 June 2022 (31 December 2021:
GBP16,448 million ), focus remained on mix improvement as
current accounts increased by GBP452 million and fixed term
deposit (FTD) accounts fell by GBP519 million.
-- Cost of deposits was 14bps in the first half, a decrease
of 3bps compared to 17bps in H2 2021 despite the rising
rate environment, the reduction continues to reflect the
managed roll-off of higher cost FTD accounts and focus on
mix improvement in favour of non-interest-bearing current
accounts and demand savings accounts.
-- Customer account growth of 0.1 million (H2 2021: 0.1 million)
in the last six months to 2.6 million, reflects stable growth
in account openings and incremental growth from the RateSetter
acquisition offset by the roll-off of FTDs.
Loans
GBP in millions 30 31 December Change 30 Change
June 2021 from June from
2022 FY 2021 2021 H1 2021
Gross loans and advances GBP12,535 GBP12,459 1% GBP12,491 -
to customers
Less: allowance for
impairment (GBP171) (GBP169) 1% (GBP166) 3%
----------- ------------- --------- ---------- -------------
Net loans and advances
to customers GBP12,364 GBP12,290 1% GBP12,325 0%
----------- ------------- --------- ---------- -------------
Gross loans and advances
to customers consists
of:
----------- ------------- --------- ---------- -------------
Commercial lending(5) GBP2,993 GBP3,220 (7%) GBP3,416 (12%)
Government-backed lending(6) GBP1,488 GBP1,626 (8%) GBP1,556 (4%)
Retail mortgages GBP6,785 GBP6,723 1% GBP6,815 -
Consumer lending GBP1,269 GBP890 43% GBP704 80%
----------- ------------- --------- ---------- -------------
5. Includes CLBILS.
6. BBLS, CBILS and RLS.
-- Total net loans as at 30 June 2022 were GBP12,364 million,
broadly flat from GBP12,290 million at 31 December 2021
reflecting continued growth in consumer lending and specialist
mortgages, offset by the attrition of lower-yielding residential
mortgages and commercial term loans including commercial
real estate. Total net loans are expected to increase in
the second half of the year, with continuing mix shift towards
higher yielding assets.
-- Commercial loans including commercial real estate (excluding
BBLS, CBILS and RLS) decreased by 7% during H1 to GBP2,993
million at 30 June 2022 and are 12% below a year earlier
following the attrition of lower-yielding commercial and
commercial real estate term loans that provide a lower return
on regulatory capital.
-- Retail mortgages remained the largest component of the
lending book at 54%, with lower-yielding residential mortgages
rolling off and focus shifting to specialist mortgages as
part of the balance sheet optimisation strategy. Mortgage
application volumes in Q2 2022 were 87% higher than Q1 and
133% higher than Q4 2021.
-- Consumer lending increased to 10% of the loan book from
7% at 31 December 2021 , resulting from continued growth
across all channels. Consumer originations averaged GBP105
million per month during H1 2022 and this trajectory is
expected to continue. An approval rate of less than a third
(29%) during the period shows the focus on selective credit
quality.
-- Loan to deposit ratio remained stable at 75% (31 December
2021: 75%) reflecting the mix improvements in deposits and
actions taken to optimise the balance sheet for accretive
new lending despite current capital constraints.
-- Government-backed lending decreased 8% in the first half
to GBP1,488 million at 30 June 2022 and is down 4% from
a year earlier.
-- Annualised cost of risk at 0.29% (2H 2021: 0.12%) included
recognition of ECL expense associated with organic growth
in consumer lending. Non-performing loans reduced to 2.76%
(31 December 2021: 3.71%) reflecting an improvement in Commercial
single name exposures. The loan portfolio remains highly
collateralised with average debt to value (DTV) of the residential
mortgage book at 56% (31 December 2021: 55%), while DTV
in the commercial book was 55% (31 December 2021: 57%).
Profit and Loss Account
-- Net interest margin (NIM) at 1.73% has increased 22 bps
in the first half , reflecting the impact of lower cost
of deposits, improved lending mix and higher lending yields.
-- Underlying net interest income increased 12% in H1 2022
to GBP180.9 million (H2 2021: GBP162.1 million), and increased
35% YoY, highlighting the strong momentum in revenue following
improvements in lending mix and the impact of rate rises.
-- Underlying net fee and other income increased 1% sequentially
to GBP55.3 million (H2 2021: GBP54.8 million) driven by
growth in Safe Deposit Boxes, Services Charges and Interchange
partially offset by a reduction in FX, gains and other.
Fees are expected to continue recovering.
-- Underlying cost:income ratio reduced to 113% in the first
half of 2022, from 125% in the prior six months , reflecting
the actions taken to reduce costs as well as the momentum
gained in underlying revenue.
-- Underlying loss before tax was GBP48.0 million, a reduction
of 22% from the GBP61.3 million loss in H2 2021 and a reduction
of 56% from the GBP110.0 million loss in H1 2021 , highlighting
the trajectory towards sustainable profitability.
-- Statutory loss before tax of GBP60.2 million in H1 2022
(H2 2021: loss of GBP106.2 million) includes the capital
neutral impairment of intangible assets (GBP8.2 million)
and remediation costs (GBP3.0 million). Remediation costs
have sharply reduced as we continue to close out legacy
issues. For example, we concluded the matter with US Office
of Foreign Assets Control (OFAC) in relation to Cuba and
Iran without fine or penalty.
-- Statutory loss after tax of GBP61.7 million in H1 2022
(H2 2021: loss of GBP107.1 million) after a GBP1.5 million
corporation tax charge.
Capital, Funding and Liquidity
-- Strong liquidity and funding position maintained, the
Bank's Liquidity Coverage Ratio (LCR) remains elevated
at 257% as of 30 June 2022 (31 December 2021: 281%). Whilst
NIM dilutive, this excess liquidly is earnings neutral
and provides flexibility and optionality.
-- Common Equity Tier 1 (CET1) ratio of 10.6% as at 30 June
2022 (31 December 2021: 12.6%) compares to a minimum CET1
requirement of 4.8%(7) and minimum Tier 1 requirement of
6.4%(7) .
-- Total capital ratio of 13.8% as at 30 June 2022 (31 December
2021: 15.9%) compares to a minimum requirement of 8.5%(7)
.
-- MREL ratio of 18.3% as at 30 June 2022 (31 December 2021:
20.5%) compares to a minimum requirement of 17.0%(7) .
-- The PRA reduced the Bank's Pillar 2A capital requirement
from 1.11% to 0.50% effective as of 27 June 2022. The Resolution
Directorate of the Bank of England also agreed that the
Bank's binding MREL applicable from 27 June 2022 shall
be equal to the lower of:
i) 18% of the Bank's RWAs; or
ii) Two times the sum of the Bank's Pillar 1 and Pillar
2A
Therefore the Bank's minimum MREL requirement(7) has been
reduced to 17.0%.
-- Total RWA as at 30 June 2022 was GBP7,702 million (31
December 2021: GBP7,454 million). The increase reflects
the mix improvement towards higher yielding assets. The
result is a loan risk weight density of 49% as at 30 June
2022 (31 December 2021: 48%).
-- Regulatory leverage ratio(8) was 4.3%.
7. Minimum capital requirement excluding buffers.
8. The PRA Policy Statement 21/21 took affect from 1 January
2022 which required the exclusion of certain central bank
claims from the total exposure measure. Had the central bank
exposures been included the Leverage Ratio would have been
3.8%.
Outlook and Guidance
-- The path to profitability is supported by the continued
mix improvements and balance sheet growth alongside ongoing
cost control and benefits from rate rises.
Profitability: Monthly breakeven is expected during Q1
2023, assuming no material deterioration in the macroeconomic
environment.
-- Momentum continues towards profitability as margins widen: FY21 FY21 Exit Rate H1 2022
Cost of deposits 0.24% 0.15% 0.14%
Lending yield 3.07% 3.19% 3.40%
Net interest
margin 1.40% 1.56% 1.73%
-- Guidance provided in February 2021 for 2022 full year, as
set out below, is re-affirmed although we remain cognisant
of the potential for unexpected adverse macroeconomic developments,
which may impact our ability to deliver on guidance. Loan
growth expectations are now higher for the year as the Bank
continues to optimise balance sheet growth within capital
constraints.
Balance sheet: Higher growth than 2021 (2021: 2%) with
continued focus on mix improvement.
Margin: A 1.56% FY21 exit NIM holds us in good stead for
2022 with continued focus on lending mix and improved yields
as a result of the base rate rises, potentially tempered
by higher cost of deposits.
Fees: Transaction-driven revenue streams influenced by
the pace of recovery.
Costs: Low single digit % reduction in total underlying
operating expenses. Non-underlying items are expected to
be less than 20% of 2021 (2021: GBP73.8 million) as remediation
costs fall away.
Capital: As previously stated we are comfortable operating
in buffers and remain above regulatory minima (currently
17.0% for MREL). The Bank's AIRB application is progressing.
Alternative capital actions remain available.
A presentation for investors and analysts will be held at 8.30AM
(UK time) on 28 July 2022. The presentation will be webcast on:
https://webcast.openbriefing.com/metrobank22/
For those wishing to dial-in:
From the UK dial: 0800 640 6441
From the US dial: +1 855 9796 654
Access code: 828004
Metro Bank PLC
Summary Balance Sheet and Profit & Loss Account
(Unaudited)
Balance Sheet YoY change 30-Jun 31-Dec 30-Jun
2022 2021 2021
GBP'million GBP'million GBP'million
Assets
Loans and advances to customers - GBP12,364 GBP12,290 GBP12,325
Treasury assets(9) GBP9,036 GBP9,142 GBP9,474
Other assets(10) GBP1,155 GBP1,155 GBP1,214
------------ ------------ --------------
Total assets (2%) GBP22,555 GBP22,587 GBP23,013
------------ ------------ --------------
Liabilities
Deposits from customers (1%) GBP16,514 GBP16,448 GBP16,620
Deposits from central banks GBP3,800 GBP3,800 GBP3,800
Debt securities GBP577 GBP588 GBP596
Other liabilities GBP695 GBP716 GBP850
------------ ------------ --------------
Total liabilities - GBP21,586 GBP21,552 GBP21,866
------------ ------------ --------------
Total shareholder's equity GBP969 GBP1,035 GBP1,147
------------ ------------ --------------
Total equity and liabilities GBP22,555 GBP22,587 GBP23,013
------------ ------------ --------------
9. Comprises investment securities and cash & balances with the Bank of England.
10. Comprises property, plant & equipment, intangible assets and other assets.
YoY Half year ended
change
Profit & Loss Account 30-Jun 31-Dec 30-Jun
2022 2021 2021
GBP'million GBP'million GBP'million
Underlying net interest income 35% GBP180.9 GBP162.1 GBP133.6
Underlying net fee and other 18% GBP55.3 GBP54.8 GBP46.7
income
Underlying net gains/(losses) - GBP1.2 (GBP0.5)
on sale of assets
------------ ------------ ------------
Total underlying revenue 31% GBP236.2 GBP218.1 GBP179.8
------------ ------------ ------------
Underlying operating costs (3%) (GBP266.3) (GBP271.6) (GBP275.2)
Expected credit loss expense (GBP17.9) (GBP7.8) (GBP14.6)
Underlying loss before tax (56%) (GBP48.0) (GBP61.3) (GBP110.0)
------------ ------------ ------------
Impairment and write-off of property (GBP8.2) (GBP17.4) (GBP7.5)
plant & equipment and intangible
assets
Net BCR costs - GBP0.3 (GBP0.3)
Transformation costs (GBP1.0) (GBP7.1) (GBP1.8)
Remediation costs (GBP3.0) (GBP20.5) (GBP25.4)
Business acquisition and integration - (GBP0.1) (GBP2.3)
costs
Mortgage portfolio sale - (GBP0.1) GBP8.4
Statutory loss before tax (57%) (GBP60.2) (GBP106.2) (GBP138.9)
------------ ------------ ------------
Statutory taxation (GBP1.5) (GBP0.9) (GBP2.2)
Statutory loss after tax (56%) (GBP61.7) (GBP107.1) (GBP141.1)
------------ ------------ ------------
Half year ended
Key metrics 30-Jun 31-Dec 30-Jun
2022 2021 2021
Underlying earnings per share -
basic and diluted (28.5p) (36.0p) (65.1p)
Number of shares 172.4m 172.4m 172.4m
Net interest margin (NIM) 1.73% 1.51% 1.28%
Cost of deposits 0.14% 0.17% 0.31%
Cost of risk 0.29% 0.12% 0.24%
Underlying cost:income ratio 113% 125% 153%
For more information, please contact:
Metro Bank PLC Investor Relations
Jo Roberts
+44 (0) 20 3402 8900
IR@metrobank.plc.uk
Metro Bank PLC Media Relations
Tina Coates / Mona Patel
+44 (0) 7811 246016 / +44 (0) 7815 506845
pressoffice@metrobank.plc.uk
Teneo
Charles Armitstead / Haya Herbert Burns
+44 (0) 7703 330269 / +44 (0) 7342 031051
Metrobank@teneo.com
S
About Metro Bank
Metro Bank services 2.6 million customer accounts and is
celebrated for its exceptional customer experience. It is the
highest rated high street bank for overall service quality and best
bank for service in-store for personal and business customers, in
the Competition and Market Authority's Service Quality Survey in
February 2022. This year it has been awarded "Best Mortgage
Provider of the Year" in 2022 MoneyAge Mortgage Awards, "Best
Business Credit Card" in 2022 Moneynet Personal Finance Awards and
"Best Current Account for Overseas Use" by Forbes 2022. It was
"Banking Brand of The Year" at the Moneynet Personal Finance Awards
2021 and received the Gold Award in the Armed Forces Covenant's
Employer Recognition Scheme 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 76 stores open seven days a week, 362 days a
year; on the phone through its UK-based 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
INTERIM REPORT
Six months ended 30 June 2022
Forward-looking statements
This document contains forward-looking statements.
Forward-looking statements are not historical facts but are based
on certain assumptions of management regarding our present and
future business strategies and the environment in which we will
operate, which the Group believes to be reasonable but are
inherently uncertain, and describe the Group's future operations,
plans, strategies, objectives, goals and targets and expectations
and future developments in the markets. Forward-looking statements
typically use terms such as "believes", "projects", "anticipates",
"expects", "intends", "plans", "may", "will", "would", "could" or
"should" or similar terminology. Any forward-looking statements in
this presentation are based on the Group's current expectations
and, by their nature, forward-looking statements are subject to a
number of risks and uncertainties, many of which are beyond the
Group's control, that could cause the Group's actual results and
performance to differ materially from any expected future results
or performance expressed or implied by any forward-looking
statements. As a result, you are cautioned not to place undue
reliance on such forward-looking statements. Past performance
should not be taken as an indication or guarantee of future
results, and no representation or warranty, express or implied, is
made regarding future performance. The Group undertakes no
obligation to release the results of any revisions to any
forward-looking statements in this presentation that may occur due
to any change in its expectations or to reflect events or
circumstances after the date of this presentation and the parties
named above disclaim any such obligation.
Company Information
About Metro Bank
Metro Bank services 2.6 million customer accounts and is celebrated
for its exceptional customer experience. It is the highest rated
high street bank for overall service quality and best bank for service
in-store for personal and business customers, in the Competition
and Market Authority's Service Quality Survey in February 2022. This
year it has been awarded "Best Mortgage Provider of the Year" in
2022 MoneyAge Mortgage Awards, "Best Business Credit Card" in 2022
Moneynet Personal Finance Awards and "Best Current Account for Overseas
Use" by Forbes 2022. It was "Banking Brand of The Year" at the Moneynet
Personal Finance Awards 2021 and received the Gold Award in the Armed
Forces Covenant's Employer Recognition Scheme 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 76 stores open seven days a week, 362 days a year; on
the phone through its UK-based contact centres; or online through
its internet banking or award-winning mobile app, the bank offers
customers real choice.
------------------------------------------------------------------------------------
Board of Directors Registered Office
Chair One Southampton Row
London
WC1B 5HA
Robert Sharpe (N*)
Non-Executive Directors Independent Auditors
Catherine Brown (N O R*) PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
7 More London Riverside
London
SE1 2RT
Monique Melis (A N)
Paul Thandi (N R)
Ian Henderson (A O*)
Anne Grim (R)
Nick Winsor (O)
Michael Torpey (A*) (O) Registered Number
6419578
(A) Member of the audit committee www.metrobankonline.co.uk
(N) Member of the nomination committee
(O) Member of the risk oversight committee
(R) Member of the remuneration committee
* Chair of the committee
Executive Directors
Daniel Frumkin - Chief Executive Officer
Company Secretary
Melissa Conway
Metro Bank PLC. Registered in England and Wales. Company number:
6419578. Registered office: One Southampton Row, London, WC1B 5HA.
'Metrobank' is the registered trade-mark 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.
sumMarised interim results
Half year Half year Change Half Change
to to year
30 June 31 December to
2022 2021 30 June
2021
Profit and loss
Underlying loss before
tax(1) (GBP48.0m) (GBP61.3m) (22%) (GBP110.0m) (56%)
Statutory loss before
tax (GBP60.2m) (GBP106.2m) (43%) (GBP138.9m) (57%)
Total income (statutory) GBP236.5m GBP222.2m 6% GBP196.3m 20%
Total operating expenses
(statutory) GBP278.8m GBP320.6m (13%) GBP320.6m (13%)
Net interest margin 1.73% 1.51% 22 bps 1.28% 45 bps
Average cost of deposits 0.14% 0.17 % (3 bps) 0.31% (17 bps)
30 June 31 December Change 30 June Change
2022 2021 2021
Balance sheet
Customer deposits GBP16,514m GBP16,448m 0% GBP16,620m (1%)
Customer loans GBP12,364m GBP12,290m 1% GBP12,325m 0%
Loan to deposit ratio 75% 75% 0 pps 74% 1 pps
Total assets GBP22,555m GBP22,587m 0% GBP23,013m (2%)
Asset quality
Coverage ratio 1.36% 1.36% 0 bps 1.33% 3 bps
Cost of risk (annualised) 0.29% 0.12% 17 bps 0.24% 5 bps
Capital ratios
Common Equity Tier
1 (CET1) ratio 10.6% 12.6% 13.9%
Regulatory leverage
ratio(2) 4.3% 4.4% 4.9%
MREL ratio 18.3% 20.5% 21.7%
Customer metrics
Customer accounts 2.6m 2.5m 2.4m
Stores 76 78 77
1. Underlying loss before tax is an alternative performance
measure and excludes impairment and write-off of property, plant
& equipment (PPE) and intangible assets, net Banking
Competition Remedies Limited (BCR) costs, transformation costs,
remediation costs, business acquisition and integration costs and
net income resulting from the mortgage portfolio sale when
comparing to our statutory loss.
2. The PRA Policy Statement 21/21 took affect from 1 January
2022 which required the exclusion of certain central bank claims
from the total exposure measure. Had the central bank exposures
been included the Leverage Ratio would have been 3.8%.
BUSINESS review
The first six months of 2022 mark a turning point in our
transformation journey. The delivery of our strategic priorities
over the past two years combined with a slow return towards a more
normalised interest rate environment are seeing us meaningfully
advance toward achieving sustainable profitability.
This progress clearly demonstrates the value of our proposition
and underlines our commitment to becoming the UK's best community
bank. Our continued reign as the highest rated high street bank for
service combined with our low cost and stable deposit base shows
that even in a rising rate environment our model continues to
resonate; with customers willing to trade price for service. This
approach continues to set us apart from our peers and will see us
deliver long term value for all stakeholders.
Progress against strategic priorities
During the six month period to 30 June 2022 we recognised an
underlying loss before tax of GBP48.0 million (half year to 30 June
2021: loss of GBP110.0 million, half year to 31 December 2021: loss
of GBP61.3 million) which reflects the continued momentum in
revenue as well as our disciplined approach to costs. We have also
made strong progress in reducing statutory loss before tax for the
period, which fell to GBP60.2 million (half year to 30 June 2021:
loss of GBP138.9 million, half year to 31 December 2021: loss of
GBP106.2 million) as we addressed legacy challenges and continue to
finalise our transformation programme.
Revenue
Underlying revenue for the first six months continued its
upwards trend to GBP236.2 million from GBP218.1 million in the
second half of 2021 (half year to 30 June 2021: GBP179.8 million)
as a result of the rebalancing of our lending portfolio as well as
higher interest rates over the first six months of the year.
The Metro Bank business model has always been built for a
normalised interest rate environment and the continued rise in the
Bank of England base rates to 1.25% now sees it at a level we have
not seen in our 12 year history. On lending, we are seeing these
increases flow through to our front book pricing as well as
variable rates, and this trend will continue as older fixed rate
balances continue to attrite. At the same time as increasing
lending yields we have held cost of deposits broadly flat, as
current accounts make up 47% of our deposit base and higher
yielding fixed rate balances continue to fall. These factors have
driven a 45bps increase in net interest margin to 1.73% (half year
to 30 June 2021: 1.28%, half year to 31 December 2021: 1.51%).
The rebalancing of our lending portfolio continued over the
first half of 2022 and strong originations of RateSetter personal
loans saw our gross consumer term lending exceed GBP1 billion for
the first time. Credit standards are set high given our focus on
prime customers leading to non-performing loans comprising only
2.75% of the portfolio. Consumer lending now makes up 10% of our
portfolio and is a larger component of book than professional
buy-to-let mortgages. Whilst residential mortgage lending remained
broadly flat over the first six months of the year it remains the
largest constituent of our lending at 54% (31 December 2021: 54%)
and the first six months of the year has seen us replace older
balances with higher-yielding specialist products.
Alongside this we continued to issue government backed lending
schemes, growing Recovery Loan Scheme balances by GBP200 million
since the start of the year. These continue to provide a strong
return on risk-adjusted returns in line with our wider strategy as
well as supporting our customers during this uncertain period.
Our revenue for the period has also benefited from an increase
in investment yields, particularly noticeable in gilt pricing. This
is allowing us to generate an increased return from the excess
liquidity we carry. This additional liquidity also affords us the
opportunity to quickly accelerate mortgage lending in the future,
post successful AIRB accreditation, without having to aggressively
grow deposits.
Fee income remained flat as customer activity was impacted by
lockdowns and other social restrictions earlier in the year, with
moderate customer accounts growth of 0.1 million during the first
six months of the year. We continue to invest in initiatives to
expand fee income and aim to see growth in the second half of 2022,
although we are mindful of the economic outlook and the effects
this has on consumer confidence which is a driver.
Costs
Underlying operating expenses fell 3% year-on-year to GBP266.3
million (half year to 30 June 2021: GBP275.2 million; half year to
31 December 2021: GBP271.6 million) despite inflationary pressures,
reflecting the actions we have taken over the past couple of years
to reduce both short term run-rate and longer-term growth. Our
underlying cost income remains on a clear downward trajectory,
reducing to 113% for the period, down from 125% in the half year to
31 December 2021 and 153% for the half year to 30 June 2021. On a
statutory basis we are also seeing a reduction in costs following
the conclusion of a large number of transformation initiatives and
closure of legacy remediation issues. For example, we concluded the
matter with US Office of Foreign Assets Control (OFAC) in relation
to Cuba and Iran without fine or penalty.
We recognised an expected credit loss expense of GBP17.9 million
for the period, which largely reflects the change in the shape of
our lending towards unsecured. Although this shift naturally incurs
a higher cost of risk than some other areas of lending, we remain
focused on the prime segments of the market and our observed levels
of losses remain low. We do however continue to adopt a cautious
economic outlook given that 2022 has seen heightened levels of
global insecurity including the Russian invasion of Ukraine. As a
solely focused UK bank we have no direct exposure to Ukraine or
Russia, however like the majority of the customers and communities
we serve, we are exposed to second order impacts, noticeably the
increase in inflation that has in part resulted from the conflict.
We have applied management overlays to our expected credit loss
calculation to reflect these risks, offsetting the release of
COVID-19 related adjustments.
The current inflationary environment is the highest we have
witnessed in a generation however a tight cost discipline has
helped us weather this headwind. A clear example of this is the
action we have undertaken over the past couple of years to take
advantage of the depressed commercial property market to buy the
freeholds to a number of our stores. This saw us buy out the
majority of our inflation linked leases with us now having only two
sites remaining where rent is subject to inflation linked
increases. The total number of freehold stores is now 28
representing 37% of our portfolio.
The largest increased in costs we have encountered is in
relation to wage price inflation with the market for talent
remaining fiercely competitive in particular in head-office and
customer facing roles, and we provided colleagues on average with
an above inflation increase in our pay review, effective 1 April
2022. This increase was offset by a reduction in change spend which
as guided fell back during the period.
Infrastructure
The first half of 2022 has continued to see us develop our
physical and digital infrastructure, although the pace has slowed
as we return to normalised levels from the elevated investment we
undertook in the first two years of our turnaround plan. The focus
of change continues to be centred on enhancing our propositions and
expanding our capacity to allow us to absorb the anticipated rate
of balance sheet growth we envisage over the coming years.
The start of the year saw us open our newest store in Leicester,
which is trading in line with expectations. We have also seen the
continued recovery of the rest of our stores post-pandemic as
footfall returns to the high street. It has been particularly
pleasing to see the strong performance of our store in Bradford
which we opened during 2021; this was designed with a significantly
lower build cost than our previous stores, although retains
distinct Metro Bank characteristics. The fact it is performing both
in line with the rest of the estate demonstrates that significant
savings can be achieved without compromising what our customers
love about us. This should therefore allow us to deliver a
significantly higher return on investment for future stores as we
look to grow into new markets.
Alongside our physical footprint, we continue to invest in
expanding our product offering with investment in building our
motor finance proposition, which will be launched later in the year
under the RateSetter brand. This builds upon the strong demand for
prime unsecured lending and continues to leverage the skills and
capabilities of the RateSetter acquisition.
As well as customer facing investments we are continuing to
invest in back office infrastructure, with noticeable investments
in financial crime. Protecting our customers and our communities
from financial crime will continue to be an area of investment as
we seek to remain ahead of this evolving landscape.
The first six months of the year saw continued progress on our
AIRB application for residential mortgages. This remains a key
strategic priority for us as it provides the potential to gain
greater capital efficiencies and allow us to be more competitive in
the mortgage market. We continue to engage with the PRA in respect
of the application with the ambition of achieving accreditation in
the near term, although the timing of any approval remains
uncertain.
Balance Sheet optimisation
The balance sheet optimisation actions we have taken to date,
noticeable our shift in lending mix, are now starting to bear
fruit, with the effects clearly showing in our revenue growth.
Following the successful entry into the consumer unsecured
market through RateSetter, we believe the motor finance product can
also generate strong risk adjusted returns. However, given the
uncertain economic outlook we retain a cautious approach to our
roll-out and, as with our unsecured lending, will ensure that we
target the prime end of the market.
Our RateSetter proposition has been highly effective in allowing
to quickly and efficiently transition into higher yielding assets.
The quick turnover of balances due to the short duration of lending
also allows us to take advantage of rising interest rates as old
balances attrite and are replaced with higher yielding front book
loans. This approach will also allow us to quickly pivot back
toward a focus on mortgage lending should rates to return to more
normalised levels and appropriate risk-adjusted returns be made
following successful AIRB accreditation.
Internal and External Communications
2022 has seen a positive start to the year in respect of our
continued communications agenda. We undertook a brand campaign
targeted at small businesses which showcased our incredible
colleagues. The campaign was highly targeted, focused on Cardiff,
Kingston, Clapham, Oxford and Manchester allowing us to maximise
our impact in these important markets whilst containing costs. We
have been able to track and measure the success of the campaign and
have been pleased with the impact we have seen this deliver.
Colleagues and leadership
The key to our success remains our colleagues. The start of 2022
has seen the market for talent remain fiercely competitive and as
such we remain focused on retaining and attracting colleagues
through ensuring Metro Bank is a place that people want to join and
can thrive whilst here.
In June we had the opportunity to celebrate colleagues from
around the business at our AMAZE award ceremony; the first time we
have been able to host the event since 2018 due to the pandemic.
This provided a fantastic platform for us to be able to remind
ourselves of the great work we undertake in serving our communities
and how we go above and beyond to ensure we create and maintain
FANS.
We also announced early this month that we have appointed James
Hopkinson as our new Chief Financial Officer. James will be joining
us in early September and we look forward to welcoming him at this
exciting juncture. James joins us from ClearBank where he was Chief
Financial Officer for the past few years and before that he spent
almost 20 years at Standard Chartered in a variety of senior
roles.
During the second half of the year, executive committee members
Richard Lees, Cheryl McCuaig and Jessica Myers will be leaving the
Bank. I would like to take the opportunity to extend my thanks to
them for all their efforts and their contribution to my leadership
team. They have provided immense support in helping get us to this
stage of our turnaround journey and I wish them all the best in
their future endeavours.
The first six months also saw Sally Clarke step down from the
Board to pursue other opportunities and I thank her for her
contribution over the past two years. Nick Winsor will become the
designated NED for workforce engagement, a crucial role in helping
maintain our colleague centric approach. Over the coming months our
Chair, Robert Sharpe, will evaluate whether any further changes are
required to committee compositions as a result of Sally's departure
to maintain a strong and robust governance structure.
Capital
Capital remains the largest constraint on the business and we
continue to utilise regulatory buffers. As we advance towards
profitability this will allow us to return to growing our risk
weighted assets, utilise some of our excess liquidity and maintain
our positive momentum on income growth.
In June 2022 the PRA reduced our Pillar 2A requirements from
1.11% to 0.50% and the Resolution Directorate of the Bank of
England agreed for our binding MREL requirement to be set as the
lower of 18% and two times the sum of Pillar 1 and Pillar 2A. These
changes had the effect of reducing our minimal MREL requirements
(excluding buffers) to 17.0%, and reflect the credit quality of our
lending portfolio as well as the strength of our balance sheet.
We are currently working on the implementation of a holding
company which we are required to have in place by 26 June 2023,
which is in line with the call date of our Tier 2 bond. Under the
terms of the Bank of England's December 2021 MREL Policy Statement,
the operating company issued Tier 2 bond will lose MREL eligibility
upon the holding company implementation. Management will work with
regulators, debt holders and advisers with a view to addressing
this MREL eligibility aspect before the implementation of the
holding company. Our Senior Non-Preferred bond includes an option
for the issuer to be substituted to the holding company once it is
established and so will remain fully MREL eligible.
Outlook
Thanks to the hard work of our colleagues through unprecedented
times, we have reached an inflection point and can clearly
demonstrate our trajectory back towards profitability. Although we
continue to have significant work to do, with the momentum in the
business I expect to achieve monthly breakeven during the first
quarter of 2023.
We remain resolutely focused on the delivery of our strategic
priorities and I would like to thank all of our stakeholders - our
customers, colleagues, shareholders and regulators - for their
continued support.
Daniel Frumkin
Chief Executive Officer
27 July 2022
Finance review
The continued momentum we have seen in the business is reflected
in our results for the first six months of the year with underlying
loss before tax decreasing from GBP110.0 million to GBP48.0 million
from the same period in 2021 (half year to 31 December 2021:
GBP61.3 million). On a statutory basis losses before tax reduced to
GBP60.2 million for the same period (half year to 30 June 2021:
GBP138.9 million, half year to 31 December 2021: GBP106.2 million)
as a result of the continued reduction in non-underlying items as
we close out legacy remediation projects and finalise our
transformation agenda.
The results were underpinned by strong income growth combined
with a reduction in costs helping to drive positive operating jaws.
Net interest income grew to GBP180.8 million (half year to 30 June
2021: GBP133.3 million, half year to 31 December 2021: GBP162.0
million) driven by actions taken on lending mix, rising base rates
and a continued low-cost deposit base. Net interest Margin of 1.73%
(half year to 30 June 2021: 1.28%, half year to 31 December 2021:
1.51%) also continued to increase as a result of these factors
although it remains diluted by the excess liquidity we continue to
hold.
We ended the period with CET1 capital ratio of 10.6% and an MREL
ratio of 18.3%. These compare to the regulatory minima including
buffers (excluding any confidential buffer) of 7.3% for CET1, 8.9%
for Tier 1 and 19.5% for MREL.
Income statement review
Table 1: Summary income statement
Half Half
Half year year
year to to to
30 June 31 December 30 June
2022 2021 2021
(unaudited) (unaudited) (unaudited) Year-on-year
GBP'million GBP'million GBP'million growth
--------------------------------- ------------- ------------- ------------- -------------
Net interest income 180.8 162.0 133.3 36%
Net fee, commission and other
income 55.7 59.0 54.8
Net gains on sale of assets - 1.2 8.2
--------------------------------- ------------- ------------- ------------- -------------
Total income 236.5 222.2 196.3 20%
--------------------------------- ------------- ------------- ------------- -------------
General operating expenses (233.2) (263.3) (272.8) (15%)
Depreciation and amortisation (37.4) (39.9) (40.3)
Impairment and write-off of PPE
and intangible assets (8.2) (17.4) (7.5)
Expected credit loss expense (17.9) (7.8) (14.6)
--------------------------------- ------------- ------------- ------------- -------------
Loss before tax (60.2) (106.2) (138.9) (57%)
--------------------------------- ------------- ------------- ------------- -------------
Taxation (1.5) (0.9) (2.2)
--------------------------------- ------------- ------------- ------------- -------------
Loss after tax (61.7) (107.1) (141.1) (56%)
--------------------------------- ------------- ------------- ------------- -------------
Net interest income
Net interest income for the period was GBP180.8 million up from
GBP162.0 million in the second half of 2021 and GBP133.3 million
for the same period last year. This has been driven by increasing
yield on our front book lending and repricing of variable rate
products as base rates continued to rise alongside the continued
rebalancing of our lending portfolio as we continue to execute on
our strategic priorities.
2022 has seen four base rate rises, from 0.25% to 1.25%,
following the increase from the historic low of 0.1% in December
2021. Further base rates are expected in the second half of the
year and although the market remains fiercely competitive we should
continue to see a strong pass through of these increases into our
front book loan pricing.
At the same time our focus on retail and business current
accounts should help to insulate the impact of these rate rises on
our costs of deposits. Cost of deposits for the first six months of
2022 was 0.14%, three basis points down from the cost in the second
half of 2021 (half year to 30 June 2021: 0.31%, half year to 31
December 2021: 0.17%).
Net interest income has also benefited from increases in the
returns from the treasury portfolio where the impact of rate rises
often filters through more quickly than in our lending portfolio,
noticeably through the balances we hold at the Bank of England.
Finally, we have continued to see the incremental impacts of the
actions we have taken in respect of our store lease portfolio to
reduce the interest expense we recognise on IFRS 16 lease
liabilities. The interest expense on lease liabilities has fallen
from GBP8.8 million in the six months to 30 June 2021 to GBP8.3
million for the same period this year. This is largely as a result
of the continued actions we took last year to purchase the
freeholds of some of our stores. Alongside this, the disposal of
our lease on a site at the Old Bailey, previous remeasurement of
lease liabilities in respect of the stores announced for closure,
the slowed pace of new store growth and continued maturation of the
existing lease portfolio should all continue to push this expense
down going forward.
Fee, commission and other income
Subdued customer activity in the first half of the year led
underlying net fee and other income to remain broadly flat at
GBP55.3 million (half year to 30 June 2021: GBP46.7 million, half
year to 31 December 2021: GBP54.8 million). Growth in service
charges, driven by continued current account growth, offset
depressed foreign exchange volumes, with income from safe deposit
boxes, interchange fees and ATMs remaining stable.
Operating expenses
Underlying operating expenses slightly decreased to GBP266.3
million from GBP271.6 million in the second half of 2021 and down
from GBP275.2 million in the first six months of 2021. The
reduction reflects the benefits realised from our transformation
programme aided by a reduction in change expenditure, offset
slightly by an increase from wage inflation.
Statutory costs also were down, falling 12% to GBP233.2 million
from GBP263.3 million in the final six months of 2021 (half year to
June 2021: GBP272.8 million), as a result of a marked reduction in
transformation costs, reflecting where we are in our journey.
Similarly, remediation costs have sharply reduced as we continue to
close out legacy issues. Offsetting this was a GBP8.2 million
write-off on intangible assets, although this item was capital
neutral.
Expected credit loss expense
We recognised an expected credit loss expense of GBP17.9 million
for the period (half year to 30 June 2021: GBP14.6 million, half
year to 31 December 2021: GBP7.8 million), reflecting the change in
make-up of the lending portfolio as well as our cautious
macroeconomic outlook. Despite the worsening economic outlook, the
credit performance of our portfolio during the first half of 2022
has remained stable with both non-performing loans and arrears both
reducing in the first half of the year.
Whilst the portfolio continues to be resilient, we continue to
adopt a cautious outlook given the macro-economic uncertainties and
as such retain a material level of management overlay within our
expected credit loss assessment.
Balance sheet review
Table 2: Summary balance sheet
30 June 31 December
2022 2021
(unaudited) (audited)
GBP'million GBP'million Growth
--------------------------------------------- -------------- -------------- --------
Assets
Cash and balances with the Bank of England 2,862 3,568 (20%)
Loans and advances to customers 12,364 12,290 1%
Investment securities held at fair value
through other comprehensive income 781 798 (2%)
Investment securities held at amortised
cost 5,393 4,776 13%
Financial assets held at fair value through
profit and loss 2 3 (33%)
Property, plant and equipment 749 765 (2%)
Intangible assets 227 243 (7%)
Prepayments and accrued income 80 68 18%
Other assets 97 76 28%
--------------------------------------------- -------------- -------------- --------
Total assets 22,555 22,587 -
--------------------------------------------- -------------- -------------- --------
Liabilities
Deposits from customers 16,514 16,448 -
Deposits from central banks 3,800 3,800 -
Debt securities 577 588 (2%)
Repurchase agreements 166 169 (2%)
Derivative financial liabilities 8 10 (20%)
Lease liabilities 264 269 (2%)
Deferred grant 19 19 -
Provisions 14 15 (7%)
Deferred tax liability 12 12 -
Other liabilities 212 222 (5%)
--------------------------------------------- -------------- -------------- --------
Total liabilities 21,586 21,552 -
--------------------------------------------- -------------- -------------- --------
Total equity 969 1,035 (7%)
--------------------------------------------- -------------- -------------- --------
Deposits
Deposits of GBP16,514 million at 30 June 2022 were broadly flat
compared to GBP16,448 million at 31 December 2021. Given the amount
of excess liquidity we carry we have continued to focus on deposit
quality and pricing rather than volume. This manifested itself in
the high proportion of current accounts, which made up 47% of total
customer deposits as at 30 June 2022 (31 December 2021: 44%).
Lending
Net lending remained flat during the first six months ending the
period at GBP12,364 million (31 December 2021: GBP12,290 million).
However, we continued to shift our lending mix as legacy balances
ran off and capital was redeployed into more capital efficient
lending. Consumer lending, primarily in the form of term lending
delivered under the RateSetter brand, now makes up 10% of total
lending balances up from 6% a year ago and 7% at year end. Term
lending now makes up a larger proportion of lending than
professional buy-to-let mortgages, reflecting our transition away
from this area of the market to focus on lending which is more
relationship driven.
We also continued to grow Recovery Loan Scheme lending during
the first six months of the year to over GBP357 million, up from
GBP157 million at last year end. This lending benefits from an 80%
guarantee and as such aligns with our aim of improving returns on
regulatory capital at the same time as being able to support small
and medium sized trading businesses during a difficult time.
Balances on the closed government backed lending schemes continued
to attrite, reflecting the maturity of this portfolio; the majority
of these loans are now entering the second year of their five year
term.
Property, plant & equipment and intangibles
Non-current assets and intangible asset balances continued to
decrease during the period. Property, plant and equipment ended the
first half of the year at GBP749 million, down from GBP765 million
at year end, as additions continue to fall. The opening of our
store in Leicester was the only planned store opening of the year
and as such we should continue to see asset balances decrease in
the second half.
Intangible assets also continued to decrease reflecting the
slowing pace of investment, which was lower than amortisation
charges recognised, reflecting where we are in our transformation
journey. Although the rate of intangible additions has slowed, we
continue to invest in enhancing our proposition and expanding our
capacity to allow us to efficiently scale the balance sheet in the
years ahead. This has seen us focus on such areas as our AIRB
application and continued investment in financial crime as well as
new propositions including auto-financing.
Capital
Our CET1, Tier 1 and MREL ratios at 30 June 2022 were 10.6%,
10.6% and 18.3% respectively, compared to the regulatory minimum of
4.8%, 6.4% and 17.0%, respectively, (excluding buffers). The MREL
requirement of 17.0% reflects the reduction of our Pillar 2A
requirements from 1.11% to 0.50% and the move to our binding MREL
requirement being the lower of 18% and two times the sum of Pillar
1 and Pillar 2A, which were announced in June 2022. Including
buffers (excluding any confidential buffer, where applicable) our
CET1, Tier 1 and MREL requirements are 7.3%, 8.9% and 19.5%
respectively.
Our capital ratios were impacted in 2022 from changes in
relation to the capital treatment of software assets. On 1 January
2022 the capital treatment of software assets reverted to the
previous treatment of being deducted from capital, following
changes implemented by the PRA.
We continue to operate within our publicly disclosed MREL
buffers and will continue to do so for a period of time. The
continued delivery of our strategic priorities will expect us to
see a return above these requirements in the medium term.
Risk weighted assets ended the period at GBP7,702 million (31
December 2021: GBP7,454 million) reflecting the continued change in
asset mix. We continue to optimise our risk weighted assets to
ensure we are maximising our return on regulatory capital and
remain committed to achieving AIRB accreditation which would free
up risk-weighted assets and allow us to grow lending further.
Liquidity and wholesale funding
Our liquidity position continues to be strong, owing to our
conservative lending approach. We ended 30 June 2022 with a
Liquidity Coverage Ratio (LCR) of 257%, which continues to be
significantly in excess of regulatory requirements. This is also
reflected in the maintenance of a robust loan to deposit ratio
which remained stable at 75% as at 30 June 2022 (31 December 2021:
75%). As we grow our regulatory capital, these elevated levels of
liquidity will allow us to continue to grow lending without having
to aggressively expand our deposit base.
We maintained our level under the Bank of England's Term Funding
Scheme (TFSME) at GBP3.8 billion, also contributing to our
liquidity. As this cost of funding is linked to the base rate, this
has led to a noticeable increase in the cost of this funding during
the period, rising from GBP2.1 million in the second half of 2021
to GBP13.1 million in the first half of this year (half year to 30
June 2021: GBP1.9 million). The cost of servicing the TFSME now
exceeds the total interest expense paid on customer deposits.
Although the use of this funding source is NIM dilutive, however,
it is still overall income accretive as it is deployed into high
quality securities which have also seen an increase in yield, in
addition to the liquidity benefit it provides.
Going concern
These condensed consolidated interim financial statements are
prepared on a going concern basis, as the Directors are satisfied
that the Group has the resources to continue to operate for a
period of at least twelve months from when the interim financial
statements are authorised for issue. In making this assessment, the
Directors considered a wide range of information relating to
present and future conditions, including future projections of
profitability, liquidity and capital resources as well as factoring
in the uncertainties relating to the economic outlook.
RISK review
As at 30 June 2022, there had been no significant change to the
business model, risk management framework or risk appetites we
outlined in our 2021 Annual Report and Accounts. We have reassessed
the principal and emerging risks we face, including those that
could result in events or circumstances that might threaten our
business model, future performance, solvency or liquidity, and
reputation. The principal risk categories remain the same to those
outlined in the 2021 Annual Report and Accounts.
A detailed description of our principal risks and uncertainties
to which we are exposed, along with our approach to mitigating
these risks, is set out in the Risk Report which can be found on
pages 52 to 92 of our 2021 Annual Report and Accounts. These risks
consist of:
-- Credit risk - The risk of financial loss should our borrowers
or counterparties fail to fulfil their contractual obligations
in full and on time.
-- Operational risk - The risk that events arising from inadequate
or failed internal processes, people and systems, or from
external events cause regulatory censure, reputational damage,
financial loss, service disruption and/or detriment to our
FANS.
-- Liquidity and Funding risk - The risk that we fail to meet
our short-term obligations as they fall due or that we cannot
fund assets that are difficult to monetise at short notice
(i.e. illiquid assets) with funding that is behaviourally
or contractually long term (i.e. stable funding).
-- Market risk - The risk of loss arising from movements in
market prices. Market risk is the risk posed to earnings,
economic value or capital that arises from changes in interest
rates, market prices or foreign exchange rates.
-- Financial crime - The risk of financial loss or reputational
damage due to regulatory fines, restriction or suspension
of business, or cost of mandatory corrective action as a
result of failing to comply with prevailing legal and regulatory
requirements relating to financial crime.
-- Regulatory risk - The risk of regulatory sanction, financial
loss and reputational damage as a result of failing to comply
with relevant regulatory requirements.
-- Conduct risk - The risk that our behaviours or actions
result in unfair outcomes or detriment to customers and/
or undermines market integrity.
-- Model risk - The risk of potential loss, poor strategic
decision making and regulatory non-compliance due to decisions
that could be principally based on the output of models,
due to errors in the assumptions, development, implementation
or use of such models.
-- Capital risk - The risk that we fail to meet minimum regulatory
capital (and MREL) requirements.
-- Strategic risk - The risk of having an insufficiently defined,
flawed or poorly implemented strategy, a strategy that does
not adapt to political, environmental, business and other
developments and/or a strategy that does not meet the requirements
and expectations of our stakeholders.
-- Legal risk - The risk of loss, including to reputation,
which can result from lack of awareness or misunderstanding
of, ambiguity in, or reckless indifference to, the way law
applies to the Directors, the business, its relationships,
processes, products and services.
Further information on credit, liquidity, operational and
conduct risks are outlined below.
Credit risk
Despite the challenging economic environment, the credit
performance of our portfolio during the first half of 2022 has
remained stable. Non-performing loans and early arrears have both
reduced in the first half of the year and we have observed a
reduction in commercial exposures under our Early Warning and Close
Monitoring processes. We have observed modest growth in the balance
sheet overall with originations in retail mortgages offsetting the
reduction in our legacy acquired portfolios, and strong organic
growth in consumer lending through the RateSetter platform. Whilst
the portfolio continues to show resilience, we have retained a
prudent level of management overlay within our expected credit loss
assessment, reflecting the high level of macroeconomic uncertainty,
following the Russian invasion of Ukraine, and the high inflation
environment and cost of living pressures.
Total loans and advances to customers have increased by GBP76
million to GBP12.5 billion during the first half of 2022. This is
reflective of our strategic focus with 43% growth in consumer
balances which now contributes to 10.0% of total loans and advances
to customers (31 December 2021: 7.0%). Retail mortgages and
commercial balances remained relatively unchanged. However, whilst
net commercial balances are relatively stable, there has been a
change in composition which reflects our strategic growth of asset
finance and invoice finance and new RLS lending, offset by
repayments in BBLS and commercial real estate.
Expected credit losses
The below table provides a breakdown of IFRS 9 Expected credit
losses (ECL) stock in the period by portfolio.
Table 3: Expected credit loss allowances
30 June 2022 31 December Change
GBP'million 2021 GBP'million
GBP'million
--------------------------------------- ------------- ------------- -------------
Retail mortgages 18 19 (1)
Consumer lending 56 42 14
Commercial lending 97 108 (11)
--------------------------------------- ------------- ------------- -------------
Total expected credit loss allowances 171 169 2
--------------------------------------- ------------- ------------- -------------
Expected credit losses (ECL) have increased during the year by
GBP2 million to GBP171 million (2021: GBP169 million, 2020: GBP154
million) predominantly driven by originations in consumer lending,
offset by repayments in commercial, particularly on some large
single named cases. Management overlays are broadly flat compared
to year end due the addition of overlays to reflect continued
macroeconomic uncertainty following the Russian invasion of Ukraine
and the high inflation and cost of living pressures offsetting
releases of those relating to COVID-19 uncertainty.
Non-performing loans
The below table provides information on non-performing loans by
portfolio.
Table 4: Non-performing loans
31 December 2021
30 June 2022 (unaudited) (unaudited)
--------------------------- -------------------------
NPLs NPL ratio NPLs NPL ratio
GBP'million % GBP'million %
-------------------- --------------- ---------- ------------- ----------
Retail mortgages 101 1.50% 114 1.70%
Consumer lending 32 2.53% 21 2.36%
Commercial lending 212 4.73% 327 6.75%
-------------------- --------------- ---------- ------------- ----------
Total 345 2.75% 462 3.71%
-------------------- --------------- ---------- ------------- ----------
NPLs have reduced to GBP345 million (2021: GBP462 million). This
decrease is primarily driven by repayments and write-offs in
commercial, particularly on a small number of large commercial
single name cases, and BBLS where the bank has successfully claimed
against the government guarantee. NPLs for mortgages have also
moderately reduced primarily driven by customers returning to
contractual repayments. The NPL ratio for consumer lending has
increased slightly to 2.5% (2021: 2.4%) driven by maturation of the
portfolio, in line with expectations, following strong growth
through the RateSetter platform.
Cost of risk
The below table provides information on the Cost of Risk (CoR).
CoR is the credit impairment charge expressed as a percentage of
average gross lending.
Table 5: Cost of risk
Half year
to Full year
30 June 2022 31 December
annualised 2021
(unaudited) (unaudited)
% %
-------------- --------------- -------------
Cost of risk 0.29% 0.18%
-------------- --------------- -------------
The change in overall cost of risk (CoR) is primarily driven by
increased lending in consumer lending which now equates to 10% of
the bank's portfolio and carries a higher CoR than retail mortgages
and commercial. The decrease in CoR for consumer lending is the
result of new originations through the RateSetter platform and the
reduction in the legacy consumer portfolio.
In retail mortgages, the increase in CoR is driven by the
deterioration in the majority of the macroeconomic factors feeding
into the IFRS 9 models offset by improvements in the HPI forecast
reflecting the continued increase in observed house prices. The
increase in CoR for commercial is also driven by deterioration in
macroeconomic scenarios.
Retail mortgage lending
Mortgage balances have increased slightly in the first six
months of 2022 to GBP6,785 million (31 December 2021: GBP6,723
million) with originations offsetting the reduction in our legacy
acquired portfolios.
Despite the challenging economic environment, the credit
performance of the portfolio during the first half of 2022 has
remained stable. DTV has increased slightly by 1% to 56% as at 30
June 2022 (31 December 2021: 55%) and the total ECL stock position
has reduced by GBP1 million to GBP18 million (31 December 2021:
GBP19 million). Arrears are stable with a moderate improvement
observed in non-performing loans (30 June 2022: 1.5%; 31 December
2021: 1.7%).
Origination volumes have been strong in the first half of the
year at GBP675 million in (half year to 31 December 2021: GBP510
million) and we have continued to adjust our credit policy and
lending criteria in late 2021 and early 2022. Additional controls
have been implemented to support these changes to ensure the credit
risk profile remains within appetite.
Table 6: Retail mortgage lending by DTV banding
30 June 2022 (unaudited) 31 December 2021 (audited)
------------------------------------------- -------------------------------------------
Retail Retail Total Retail Retail Total
owner buy-to-let retail owner buy-to-let retail
occupied GBP'million mortgages occupied GBP'million mortgages
GBP'million GBP'million GBP'million GBP'million
---------------------- ------------- -------------
Less than 50% 1,863 536 2,399 1,907 524 2,431
51-60% 787 416 1,203 767 415 1,182
61-70% 1,112 607 1,719 1,092 564 1,656
71-80% 806 241 1,047 805 188 993
81-90% 362 2 364 400 3 403
91-100% 47 3 50 51 3 54
More than 100% - 3 3 - 4 4
---------------------- ------------- ------------- ------------- ------------- ------------- -------------
Total retail mortgage
lending 4,977 1,808 6,785 5,022 1,701 6,723
---------------------- ------------- ------------- ------------- ------------- ------------- -------------
Table 7: Residential mortgage lending by repayment type
30 June 2022 (unaudited) 31 December 2021 (audited)
------------------------------------------- -------------------------------------------
Retail Retail Total Retail Retail Total
owner buy-to-let retail owner buy-to-let retail
occupied GBP'million mortgages occupied GBP'million mortgages
GBP'million GBP'million GBP'million GBP'million
----------------------- ------------- -------------
Interest 2,017 1,723 3,740 2,113 1,620 3,733
Capital and interest 2,960 85 3,045 2,909 81 2,990
----------------------- ------------- ------------- ------------- ------------- ------------- -------------
Total retail mortgage
lending 4,977 1,808 6,785 5,022 1,701 6,723
----------------------- ------------- ------------- ------------- ------------- ------------- -------------
Table 8: Residential mortgage lending by geographic exposure
30 June 2022 (unaudited) 31 December 2021 (audited)
Retail Retail Total Retail Retail Total
owner buy-to-let retail owner buy-to-let retail
occupied GBP'million mortgages occupied GBP'million mortgages
GBP'million GBP'million GBP'million GBP'million
-------------------------- ------------- -------------
Greater London 1,802 1,035 2,837 2,130 1,048 3,178
South East 1,251 338 1,589 1,157 283 1,440
South West 432 83 515 434 82 516
East of England 470 120 590 309 69 378
North West 238 60 298 264 62 326
West Midlands 204 67 271 190 61 251
Yorkshire and the Humber 170 31 201 139 34 173
East Midlands 152 39 191 140 25 165
Wales 100 17 117 110 20 130
North East 62 9 71 62 10 72
Scotland 96 9 105 87 7 94
-------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Total retail mortgage
lending 4,977 1,808 6,785 5,022 1,701 6,723
-------------------------- ------------- ------------- ------------- ------------- ------------- -------------
The geographic distribution of our retail mortgages customer
balances is set out above. All of our loan exposures which are
secured on property are secured on UK-based assets. Our current
retail mortgages portfolio is concentrated within London and the
South-East, which is representative of our original customer base
and store footprint. We are expanding our footprint over time which
will reduce the geographical concentration of lending.
Consumer lending
Consumer balances have increased to GBP1.27 billion as at June
2022 (31 December 2021: GBP890 million) driven by strong growth
through the RateSetter platform.
The majority (84%) of the portfolio now comprises new lending
through the RateSetter platform. The performance of this portfolio
is aligned with expectations, with moderate increases in arrears
and non-performing loans in line with the growth of the book and
normal portfolio maturation.
The total stock position has increased in 2022 by GBP14.6m to
GBP56.0 million as at 30th June 2022. This relates to the new
originations through the RateSetter platform and the expected
maturation of the book, partially offset by the reduction in the
legacy portfolio, and a post model overlay to reflect the
uncertainty due to high inflation.
The total ECL coverage position for consumer has reduced
slightly to 4.4% as a result of the continued growth in new lending
in the first half of the year (31 December 2021: 4.7%).
Commercial lending
Table 9: Summary of commercial lending
30 June 31 December
2022 2021
(unaudited) (audited)
GBP'million GBP'million
--------------------------------------------- -------------- -------------
Professional buy-to-let 853 950
Other term loans 1,638 1,791
--------------------------------------------- -------------- -------------
Non-Government backed commercial term loans 2,491 2,741
--------------------------------------------- -------------- -------------
Bounce back loans 984 1,304
Coronavirus business interruption loans 145 165
Recovery loan scheme 357 157
Government backed commercial term loans 1,486 1,626
Total commercial term loans 3,977 4,367
Overdrafts and revolving credit facilities 110 156
Credit cards 4 3
Asset and invoice finance 390 320
Total commercial lending 4,481 4,846
--------------------------------------------- -------------- -------------
Our commercial lending remains largely comprised of term loans
secured against property and Government supported lending. In
addition, commercial lending includes facilities secured by other
forms of collateral (such as debentures and guarantees), and Asset
Finance and Invoice Finance.
Our commercial balances have decreased from GBP4,846 million to
GBP4,481 million in the first six months of 2022. This reflects the
business strategy to reduce our Portfolio Buy to Let and Real
Estate lending, and reductions in bounce back loans. New commercial
business over 2022 includes RLS lending to support customers
impacted by COVID-19, with government supported RLS lending
balances increasing to GBP357 million as of 30 June 2022.
Commercial customers are managed through an early warning
categorisation where there are early signs of financial difficulty,
thereby allowing timely engagement and appropriate corrective
action to be taken. Early Warning categories support our IFRS 9
stage classification. Total lending in Early Warning categories has
fallen since December 2021.
Table 10: Commercial term lending (exc. BBLS) by DTV banding
30 June 2022 (unaudited) 31 December 2021 (audited)
------------------------------------------- -------------------------------------------
Total Total
Professional Other commercial Professional Other commercial
buy-to-let term loans term loans buy-to-let term loans term loans
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
---------------------- ------------- -------------
Less than 50% 295 836 1,131 306 770 1,076
51-60% 209 377 586 232 483 715
61-70% 242 193 435 282 158 440
71-80% 86 51 137 112 63 175
81-90% 9 37 46 8 30 38
91-100% 6 29 35 6 27 33
More than 100% 6 617 623 4 582 586
---------------------- ------------- ------------- ------------- ------------- ------------- -------------
Total commercial term
lending 853 2,140 2,993 950 2,113 3,063
---------------------- ------------- ------------- ------------- ------------- ------------- -------------
As of June 2022, 76% of property secured lending had a DTV of
80% or less, reflecting the prudent risk appetite historically
applied. Lending with DTV >100% includes loans which benefit
from additional forms of collateral, such as debentures. The value
of this additional collateral is not included in the DTV or the
estimation of expected credit losses but does provide an additional
level of credit risk mitigation. The guarantees supporting CBILS
and RLS lending is not included in the debt to value assessment,
and DTV >100% also includes government backed lending where the
facility does not also benefit from property collateral. The
increase in DTV>100% in 2022 reflects the increase in lending
under the government's recovery loan scheme.
Table 11: Commercial term lending (exc. BBLS) by industry
exposure
30 June 2022 (unaudited) 31 December 2021 (audited)
Total Total
Professional Other commercial Professional Other commercial
buy-to-let term loans term loans buy-to-let term loans term loans
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
---------------------------- ------------- -------------
Real estate (rent, buy
and sell) 853 807 1,660 950 837 1,787
Hospitality - 359 359 - 361 361
Health & Social Work - 243 243 - 225 225
Legal, Accountancy &
Consultancy - 208 208 - 206 206
Retail - 139 139 - 136 136
Real estate (management
of) - 8 8 - 46 46
Construction - 94 94 - 88 88
Recreation, cultural and
sport - 87 87 - 85 85
Investment and unit trusts - 12 12 - 17 17
Education - 19 19 - 9 9
Real estate (development) - 8 8 - 6 6
Other - 156 156 - 97 97
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Total commercial term
lending 853 2,140 2,993 950 2,113 3,063
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
We manage credit risk concentration to individual borrowing
entities and sectors. Our credit risk appetite includes limits for
individual sectors where we have higher levels of exposure.
The sector profile for commercial term lending is broadly
consistent with the position as at 31 December 2021. There has been
an overall reduction in commercial real estate of approximately
7%.
Table 12: Commercial term lending (exc. BBLS) by repayment
type
30 June 2022 (unaudited) 31 December 2021 (audited)
------------------------------------------- -------------------------------------------
Total Total
Professional Other commercial Professional Other commercial
buy-to-let term loans term loans buy-to-let term loans term loans
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
----------------------- ------------- -------------
Interest 809 259 1,068 897 230 1,127
Capital and interest 44 1,881 1,925 53 1,883 1,936
----------------------- ------------- ------------- ------------- ------------- ------------- -------------
Total commercial term
lending 853 2,140 2,993 950 2,113 3,063
----------------------- ------------- ------------- ------------- ------------- ------------- -------------
Table 13: Commercial term lending (exc. BBLS) by geographic
exposure
30 June 2022 (unaudited) 31 December 2021 (audited)
--------------------------------------------- -------------------------------------------
Total Total
Professional Other commercial Professional Other commercial
buy-to-let term loans term loans buy-to-let term loans term loans
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
-------------------------- ------------- --------------- ------------- ------------- ------------- -------------
Greater London 554 1,102 1,656 676 1,186 1,862
South East 169 365 534 160 390 550
South West 24 159 183 28 151 179
East of England 58 150 208 39 71 110
North West 18 168 186 18 150 168
West Midlands 9 96 105 9 84 93
Yorkshire and the Humber 3 23 26 3 17 20
East Midlands 11 34 45 9 27 36
Wales 3 12 15 4 12 16
North East 3 20 23 3 17 20
Northern Ireland 1 3 4 1 2 3
Scotland - 8 8 - 6 6
-------------------------- ------------- --------------- ------------- ------------- ------------- -------------
Total commercial term
lending 853 2,140 2,993 950 2,113 3,063
-------------------------- ------------- --------------- ------------- ------------- ------------- -------------
Liquidity and funding risk
Our liquidity position continues to be strong, with our LCR
standing at 257% as at 30 June 2022 (31 December 2021: 281%). This
reflects our capital position and our conservative approach to
lending.
We ended the period with a loan to deposit ratio of 75% (31
December 2021: 75%) and we continue to be deposit funded with no
reliance on the wholesale markets although we continue to have
access to, and have made use of, the Bank of England's TFSME both
of which provide us with additional cost-efficient liquidity
without creating reliance as a primary source of funding. Although
the use of this funding is NIM dilutive, it is still overall income
accretive as it is deployed into high quality securities which have
also seen an increase in yield, in addition to the liquidity
benefit it provides.
Capital risk
We manage capital in accordance with prudential rules issued by
the Prudential Regulation Authority (PRA) and Financial Conduct
Authority (FCA) and we are committed to maintaining a strong
capital base, under both existing and future regulatory
requirements.
Our CET1 capital ratio decreased to 10.6% at 30 June 2021 from
12.6% as at 31 December 2021. This was primarily due to the losses
incurred during the period as well as the changes in relation to
the capital treatment of software assets. On 1 January 2022 the
capital treatment of software assets reverted to the previous
treatment of being deducted from capital, following changes
implemented by the PRA.
Capital remains the largest constraint on the business and we
continue to operate within our publicly disclosed MREL buffers and
will continue to do so for a period of time. The continued delivery
of our strategic priorities and a return to profitability will
allow us to return above these requirements in the medium term.
In June 2022 the PRA reduced our Pillar 2A requirements from
1.11% to 0.50% and the Resolution Directorate of the Bank of
England agreed for our binding MREL requirement to be set as the
lower of 18% and two times the sum of Pillar 1 and Pillar 2A. These
changes had the effect of reducing our minimal MREL requirements
(excluding buffers) to 17.0%, and reflect the credit quality of our
lending portfolio as well as the strength of our balance sheet.
We are currently working on the implementation of a holding
company which we are required to have in place by 26 June 2023,
which is in line with the call date of our Tier 2 bond. Under the
terms of the Bank of England's December 2021 MREL Policy Statement,
the operating company issued Tier 2 bond will lose MREL eligibility
upon the holding company implementation. Management will work with
regulators, debt holders and advisers with a view to addressing
this MREL eligibility aspect before the implementation of the
holding company. Our Senior Non-Preferred bond includes an option
for the issuer to be substituted to the holding company once it is
established and so will remain fully MREL eligible.
Risk weighted assets ended the period at GBP7,702 million (31
December 2021: GBP7,454 million) reflecting the continued change in
asset mix. We continue to optimise our risk weighted assets to
ensure we are maximising our return on regulatory capital and
remain committed to achieving AIRB accreditation which would free
up risk-weighted assets and allow us to grow lending further.
Table 14: Capital resources
31 December
30 June 2022 2021
(unaudited) (audited)
GBP'million GBP'million
------------------------------ -------------- -------------
Ordinary share capital - -
Share premium 1,964 1,964
Retained earnings (1,004) (942)
Other reserves 9 13
Intangible assets (227) (243)
Other regulatory adjustments 74 144
------------------------------ -------------- -------------
Total Tier 1 capital (CET1) 816 936
------------------------------ -------------- -------------
Debt securities (Tier 2) 249 249
------------------------------ -------------- -------------
Total Tier 2 capital 249 249
------------------------------ -------------- -------------
Total regulatory capital 1,065 1,184
------------------------------ -------------- -------------
Operational risk
Fraud risk
We continue to work hard in a constantly evolving environment to
minimise the impact of fraud. Across the industry there has been a
notable increase in Authorised Push Payment fraud which has driven
a significant rise in fraud losses. The overall level of
fraud-related losses has increased but this is in proportion to the
increase seen across the industry. Across the entire fraud
landscape, we have taken significant steps to mitigate the risk to
both the Bank and our customers, including but not limited to;
enhanced fraud screening capability, implementation of Secure
Customer Authentication and changes to core fraud detection tools
to help better identify scams. We are also providing support to
vulnerable customers who have been victims of fraud and are seeking
to raise customer awareness of evolving fraud tactics via a range
of initiatives as well as training our front-line colleagues.
Cyber threat
The impact which a successful cyber-attack could have on our
customers remains a very significant focus of attention, as we both
manage our current IT systems and plan to deliver new technology
for the future, recognising the changing cyber landscape and the
increased focus on digital capabilities. This is mitigated by
ongoing investment in our cyber and information security
infrastructure, enabling us to make constant improvements to our
monitoring, control and response capabilities to protect customer
data and minimise the risk of disruption. We have refined our
objectives and principles and realigned our work plan to the global
standard NIST Cyber Security Framework (CSF), allowing us to
measure our maturity and benchmark more easily against peer
organisations. The outcomes observed from simulated cyber-attacks
undertaken by our cybersecurity teams provided further indication
of improvements.
Operational resilience
We have identified and mapped our Important Business Services,
set impact tolerances for the disruption of each service, carried
out preliminary scenario testing to identify vulnerabilities and
prepared a self-assessment of our resilience. Work to address our
vulnerabilities and show that we can meet impact tolerances for
each Important Business Service is well underway. Additionally, we
have identified and assessed the materiality of our third party
relationships and continue to apply this increased emphasis on
operational resilience when assessing these relationships. All
material supplier contracts since 1st April 2021 are compliant with
the PRA requirements. This will enhance our capability to
proactively prevent, respond to, recover and learn from operational
resilience events and to minimise the impact to customers where
these do occur.
Conduct risk
We continue to focus on the steps being taken to consistently
demonstrate and evidence the consideration of customer outcomes as
a key part of decision-making processes. We have taken significant
steps to begin to address areas of conduct risk (particularly where
there is elevated risk of customer detriment) and continue to
invest funding and resource into these areas, including the
identification and ongoing management of vulnerable customers,
complaints management and retail arrears management.
Emerging risks
We consider emerging risks to be evolving threats which cannot
yet be quantified, with the potential to significantly impact our
strategy, financial performance, operational resilience and/or
reputation. The emerging risks are continually assessed and
reviewed through a horizon scanning process, with escalation and
reporting to the Risk Oversight Committee and Board as necessary.
The horizon scanning process fully considers all relevant internal
and external factors and is designed to capture those risks which
are present but have not yet fully crystallised, as well as those
which are expected to crystallise in the future.
The emerging risk classifications reported in our 2021 Annual
Report and Accounts have been retained. Talent has been added as an
emerging risk, reflecting the importance of training and retaining
a resilient talent pool. Additionally, the emerging risks relating
digitalisation and climate change have already been shaping the
future regulatory environment prior to the pandemic, but the
pandemic has accelerated them - the former by increasing
regulators' expectations around the need for resilient systems and
controls in the face of a faster adoption of digitised solutions.
And the latter around new obligations concerning reporting,
disclosures and governance on all aspects of sustainability, where
the pandemic has been a catalyst for the awareness of the
importance of sustainable - or resilient - operations.
Emerging trend description mitigating actions
risks
-------------------- ------- ---------------------------------- ------------------------------
ExternaL
MACROECONOMIC ì Along with COVID-19's We continue to monitor
ENVIRONMENT long-term effects and economic and political
scope, the recent geopolitical developments in light
tensions in Europe due of the ongoing uncertainty,
to the Russia-Ukraine considering potential
conflict has had a substantial consequences for our
impact on both domestic customers, products
and international markets. and operating model.
There is also the spectre We actively monitor
of rising ransomware our credit portfolios
attacks emanating from and undertake robust
Russian State-sponsored internal stress testing
cyber-criminals targeting to identify sectors
UK infrastructure. that may come under
Inflation and the gradually stress as a result
rising interest rates of an economic slowdown
have also had a significant in the UK.
impact on the cost of
living in the UK.
Furthermore, there is
lingering uncertainty
over the ability of economies
and society to adapt
to future variants of
existing viruses or new
strains. An increase
in restrictions could,
therefore, pose a range
of social, economic,
and technological risks.
Regulatory è The regulatory landscape We continue to monitor
change continues to evolve, emerging regulatory
with the requirement initiatives to identify
to respond to ongoing potential impacts
prudential and conduct on our business model
driven initiatives. and ensure we are
well placed to respond
with effective regulatory
change management.
We continue to work
with regulators to
ensure we meet all
regulatory obligations,
with identified implications
of upcoming regulatory
activity incorporated
into the strategic
planning cycle.
Digitalisation ì COVID-19 has accelerated Our strategy is now
the digitalisation of predicated on new
the banking industry and exciting digital
and will continue to propositions, with
lead to rapid change the implications of
over the coming years the pandemic both
as the industry rapidly supporting that ambition,
adapts to customers' but also accelerating
evolving behaviours. the timeframe for
This is spurring an acceleration delivery. Our rapid
of investment and delivery response to the pandemic
by both incumbent banks has demonstrated our
and neo-banks to provide ability to implement
enhanced digital propositions change and digital
to customers in both solutions swiftly.
the consumer and business We are continuing
markets. with our investment
and digital development
in the near term to
position us for the
future.
CLIMATE CHANGE ì Unlike in the past where Work continues to
& ESG this risk revolved mainly build our capability
around climate risk, and enhance our policies
the current, broader and processes to ensure
definition of ESG risk these risks are identified,
acknowledges the uncertainty measured, monitored
around the exact nature and managed. We are
and impact of climate committed to working
change on our strategy, together with customers,
performance, and operating colleagues and communities
model, as well as capturing to support the transition
the increased focus on to a Net Zero economy
how we report the impact by 2050, in line with
of its activities on the UK government's
the environment and on ambitions and actions.
social challenges as We have also set a
well as the broader governance target to make our
surrounding such risks. own operations Net
Zero by 2030 and to
build our own resilience
by embedding climate-related
impacts in lending
and investment decisions.
INTERNAL
Technology è COVID-19 has highlighted Our IT resilience
& CYBER Resilience the extent to which technology programme has continued
underpins our ability to deliver strategic
to serve its customers, enhancements throughout
as well as promoting 2022. We are investing
a hybrid approach to in flexible, resilient
work for our employees. cloud-based solutions
Progressive deployment and working with our
of new technologies will strategic technology
change our risk profile, partners to simplify
including increased supplier and streamline. Where
risks, evolved data risks, technology disruption
and enhanced cost risks does arise, we continue
where new technologies to undertake detailed
are running in parallel analysis of the underlying
with existing architecture. causes and rapidly
Due to digital asset take action to prevent
and transaction innovation, recurrence. We continue
future digital customer to invest in our cyber
proposition and market security and resilience
landscape will become capabilities in response
more competitive and to these rapidly evolving
uncertain. threats. Key areas
of focus relate to
access controls, network
security, disruptive
technology and the
denial of service
capability. Progress
has continued in patching
and upgrading our
IT platforms and we
operate advanced technology
solutions to detect
and prevent criminal
attacks. We actively
participate in the
sharing of threat
information with other
organisations, helping
to ensure the continued
availability of our
exceptional service
offering whilst also
making banking safer
for all.
TALENT ì Technological change, We are investing sensibly
coupled with fast-changing in talent acquisition
customer requirements, and retention, together
places inordinate pressure with more learning
on the resilience of and development programmes
our personnel as well to keep colleagues'
as its system, further skills in line with
exacerbated by the transition the demands of the
to digitalisation. marketplace and give
them the time to take
advantage of those
opportunities.
We are also looking
at new, flexible work
arrangements, location
strategies, and different
ways of measuring
colleague contributions
to the success of
the Bank.
STATEMENT OF DIRECTOR'S RESPONSIBILITIES
The Directors confirm to the best of their knowledge these
condensed interim financial statements have been prepared in
accordance with UK adopted International Accounting Standard 34,
'Interim Financial Reporting' giving a true and fair view of the
assets, liabilities, financial position and profit or loss as and
as required by DTR 4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during
the first six months ended 30 June 2022 and their impact
on the condensed set of financial statements, and a description
of the principal risks and uncertainties for the remaining
six months of the financial year; and
-- Material related-party transactions in the first six months
ended 30 June 2022 and any material changes in the related-party
transactions described in the last annual report.
Signed on its behalf by:
Robert Sharpe Daniel Frumkin
Chairman Chief Executive Officer
INDEPENT REVIEW REPORT TO METRO BANK PLC
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Metro Bank PLC's condensed consolidated interim
financial statements (the "interim financial statements") in the
interim report of Metro Bank PLC for the 6 month period ended 30
June 2022 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
-- the Condensed consolidated balance sheet as at 30 June 2022;
-- the Condensed consolidated statement of comprehensive income for the period then ended;
-- the Condensed consolidated cash flow statement for the period then ended;
-- the Condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim report
of Metro Bank PLC have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with this ISRE.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim report, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the interim report in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. In
preparing the interim report, including the interim financial
statements, the directors are responsible for assessing the group's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the interim report based on our review. Our
conclusion, including our Conclusions relating to going concern, is
based on procedures that are less extensive than audit procedures,
as described in the Basis for conclusion paragraph of this report.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
27 July 2022
CONDENSED Consolidated statement of comprehensive income
(unaudited)
For the half year to 30 June 2022
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
Note GBP'million GBP'million GBP'million
------------------------------------------------- ----- ------------- ------------- -------------
Interest income 2 239.7 211.5 194.2
Interest expense 2 (58.9) (49.5) (60.9)
------------------------------------------------- ----- ------------- ------------- -------------
Net interest income 180.8 162.0 133.3
------------------------------------------------- ----- ------------- ------------- -------------
Net fee and commission income 39.5 36.9 32.7
Net gains on sale of assets - 1.2 8.2
Other income 16.2 22.1 22.1
------------------------------------------------- ----- ------------- ------------- -------------
Total income 236.5 222.2 196.3
------------------------------------------------- ----- ------------- ------------- -------------
General operating expenses 3 (233.2) (263.3) (272.8)
Depreciation and amortisation 7,8 (37.4) (39.9) (40.3)
Impairment and write offs of PPE and intangible
assets 7,8 (8.2) (17.4) (7.5)
------------------------------------------------- ----- ------------- ------------- -------------
Total operating expenses (278.8) (320.6) (320.6)
Expected credit loss expense (17.9) (7.8) (14.6)
------------------------------------------------- ----- ------------- ------------- -------------
Loss before tax (60.2) (106.2) (138.9)
------------------------------------------------- ----- ------------- ------------- -------------
Tax expense 5 (1.5) (0.9) (2.2)
------------------------------------------------- ----- ------------- ------------- -------------
Loss for the period (61.7) (107.1) (141.1)
------------------------------------------------- ----- ------------- ------------- -------------
Other comprehensive expense for the period
------------------------------------------------- ----- ------------- ------------- -------------
Items which will be reclassified subsequently
to profit or loss where specific conditions
are met:
Movements in respect of investment securities
held at fair value through other comprehensive
income (net of tax):
- changes in fair value (6.7) (6.9) (1.2)
- changes in fair value transferred to
the income statement on disposal - 0.1 (0.4)
------------------------------------------------- ----- ------------- ------------- -------------
Total other comprehensive expense (6.7) (6.8) (1.6)
------------------------------------------------- ----- ------------- ------------- -------------
Total comprehensive loss for the period (68.4) (113.9) (142.7)
------------------------------------------------- ----- ------------- ------------- -------------
Earnings per share
Basic earnings per share (pence) 12 (35.8) (62.1) (81.8)
Diluted earnings per share (pence) 12 (35.8) (62.1) (81.8)
------------------------------------------------- ----- ------------- ------------- -------------
CONDENSED Consolidated balance sheet (unaudited)
30 June 31 December 30 June
2022 2021 2021
Note GBP'million GBP'million GBP'million
----------------------------------------- ----- ------------- ------------- -------------
Assets
Cash and balances with the Bank
of England 2,862 3,568 5,111
Loans and advances to customers 6 12,364 12,290 12,325
Investment securities held at FVOCI 781 798 1,198
Investment securities held at amortised
cost 5,393 4,776 3,165
Financial assets held at fair value
through profit and loss 2 3 5
Property, plant and equipment 7 749 765 786
Intangible assets 8 227 243 253
Prepayments and accrued income 80 68 75
Other assets 97 76 95
----------------------------------------- ----- ------------- ------------- -------------
Total assets 22,555 22,587 23,013
----------------------------------------- ----- ------------- ------------- -------------
Liabilities
Deposits from customers 16,514 16,448 16,620
Deposits from central banks 3,800 3,800 3,800
Debt securities 577 588 596
Repurchase agreements 166 169 212
Derivative financial liabilities 8 10 8
Lease liabilities 9 264 269 310
Deferred grants 10 19 19 22
Provisions 14 15 5
Deferred tax liabilities 5 12 12 13
Other liabilities 212 222 280
----------------------------------------- ----- ------------- ------------- -------------
Total liabilities 21,586 21,552 21,866
----------------------------------------- ----- ------------- ------------- -------------
Equity
Called up share capital 11 - - -
Share premium account 11 1,964 1,964 1,964
Retained earnings (1,004) (942) (835)
Other reserves 9 13 18
----------------------------------------- ----- ------------- ------------- -------------
Total equity 969 1,035 1,147
----------------------------------------- ----- ------------- ------------- -------------
Total equity and liabilities 22,555 22,587 23,013
----------------------------------------- ----- ------------- ------------- -------------
As at 30 June 2022
The notes below form part of the condensed consolidated interim
financial statements.
These condensed consolidated interim financial statements were
approved and authorised for issue by the Board of Directors on 27
July 2022 and were signed on its behalf by:
Robert Sharpe Daniel Frumkin
Chairman Chief Executive Officer
CONDENSED Consolidated cash flow STATEMENT (unaudited)
For the half year to 30 June 2022
Half Half year Half
year to year
to 31 December to
30 June 2021 30 June
2022 GBP'million 2021
Note GBP'million GBP'million
------------------------------------------------------ ----- ------------- ------------- -------------
Reconciliation of loss before tax to net cash
flows from operating activities:
Loss before tax (60) (106) (139)
Adjustments for:
Impairment and write offs of property, plant
and equipment and intangible assets 7,8 8 17 8
Interest on lease liabilities 9 8 8 9
Depreciation and amortisation 7,8 37 40 40
Share option award charges 4 2 1 1
Grant income recognised in the income statement - (4) (7)
Amounts provided for - 5 -
Gain on sale of assets - (1) (8)
Accrued interest on and amortisation of investment
securities 3 4 1
Changes in operating assets and liabilities
Changes in loans and advances to customers (74) 35 (235)
Changes in deposits from customers 66 (172) 548
Changes in operating assets (35) 30 2,817
Changes in operating liabilities (28) (115) 77
------------------------------------------------------ ----- ------------- ------------- -------------
Net cash (outflows)/inflows from operating
activities (73) (258) 3,112
------------------------------------------------------ ----- ------------- ------------- -------------
Cash flows from investing activities
Net purchase of investment securities (607) (1,216) (953)
Purchase of property, plant and equipment (1) (42) -
Purchase and development of intangible assets 8 (12) (13) (26)
Net cash outflows from investing activities (620) (1,271) (979)
------------------------------------------------------ ----- ------------- ------------- -------------
Cash flows from financing activities
Repayment of capital element of leases 9 (13) (14) (15)
Net cash outflows from financing activities (13) (14) (15)
------------------------------------------------------ ----- ------------- ------------- -------------
Net (decrease)/increase in cash and cash equivalents (706) (1,543) 2,118
Cash and cash equivalents at start of period 3,568 5,111 2,993
------------------------------------------------------ ----- ------------- ------------- -------------
Cash and cash equivalents at end of period 2,862 3,568 5,111
------------------------------------------------------ ----- ------------- ------------- -------------
Loss before tax includes:
------------------------------------------------------ ----- ------------- ------------- -------------
Interest received 235 206 203
Interest paid 65 52 74
------------------------------------------------------ ----- ------------- ------------- -------------
CONDENSED Consolidated statement of changes in EQUITY
(unaudited)
For the half year to 30 June 2022
Called-up Share
Share Share Retained FVOCI option Total
capital premium earnings reserve reserve equity
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
Balance at 1 January 2022 - 1,964 (942) (5) 18 1,035
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Loss for the period - - (62) - - (62)
Other comprehensive
expense
(net of tax) relating to
investment
securities designated at
fair
value through other
comprehensive
income - - - (6) - (6)
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive
expense - - (62) (6) - (68)
Net share option movements - - - - 2 2
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Balance at 30 June 2022 - 1,964 (1,004) (11) 20 969
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Balance at 1 July 2021 - 1,964 (835) 1 17 1,147
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Loss for the period - - (107) - - (107)
Other comprehensive
expense
(net of tax) relating to
investment
securities designated at
fair
value through other
comprehensive
income - - - (6) (1) (7)
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive
expense - - (107) (6) (1) (114)
Net share option movements - - 2 2
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Balance at 31 December
2021 - 1,964 (942) (5) 18 1,035
Balance at 1 January 2021 - 1,964 (694) 3 16 1,289
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Loss for the period - - (141) - - (141)
Other comprehensive
expense
(net of tax) relating to
investment
securities designated at
fair
value through other
comprehensive
income - - - (2) - (2)
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive
expense - - (141) (2) - (143)
Net share option movements - - - - 1 1
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Balance at 30 June 2021 - 1,964 (835) 1 17 1,147
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of preparation and accounting policies
1 General information
Metro Bank PLC ("our" or "we") provides retail and commercial
banking services in the UK, is a public limited liability company
incorporated and domiciled in England and Wales and is listed on
the London Stock Exchange (LON:MTRO). The address of its registered
office is: One Southampton Row London WC1B 5HA.
2 Basis of preparation
The condensed consolidated interim financial statements of Metro
Bank and its subsidiaries for the six months ended 30 June 2022
were authorised for issue in accordance with a resolution of the
Directors on 27 July 2022.
These condensed consolidated interim financial statements for
the six months ended 30 June 2022 have been prepared in accordance
with UK adopted International Accounting Standards (IAS 34 Interim
Financial Reporting) and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority. Whilst the change from IFRS as adopted by EU to
UK-adopted IAS constitutes a change in accounting framework, there
is no impact on recognition, measurement or disclosure from this
transition.
In the year to 31 December 2022 our annual financial statements
will be prepared in accordance with IFRS as adopted by the UK
Endorsement Board.
The comparative financial information as at and for the periods
ending 31 December 2021 and 30 June 2021 do not constitute
statutory accounts as defined in section 434 of the Companies Act
2006. A copy of the statutory accounts for the year ended 31
December 2021 has been delivered to the Registrar of Companies.
The auditor's report on those accounts was not qualified, did
not include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying the report and did
not contain statements under section 498(2) or (3) of the Companies
Act 2006.
Going concern
The Directors have adopted the going concern basis in preparing
these condensed consolidated interim financial statements. This
assessment has been reached after assessing the Group's principal
risks, which remain unchanged from those disclosed in the risk
report of the 2021 Annual Report and Accounts. As with the
assessment undertaken at the year end the Directors placed
additional consideration on capital risk given that the Group
continues to utilise its regulatory buffers. Further details on the
Group's capital risk can be found in the risk report.
In reaching their conclusion the Directors reviewed an updated
central projection to reflect the changes in outlook since the full
year. The projection remains in line with the delivery of the
Group's strategic priorities as outlined within the 2021 Annual
Report and Accounts and on which an update is provided within the
Business Review section of this report. As well as considering the
Group's central forecast the Directors considered associate
scenarios and sensitivities which included severe but plausible
downside risks. These scenarios and sensitivities focused on areas
where the greatest level of judgement had been applied in the
forecast assumptions. On top of this consideration was given to the
possibility of a worsened economic environment over the forecast
period leading to an increase in expected credit losses, costs as
well as a reduction in income.
Under all scenarios considered, the Directors believe the Group
to remain a going concern on the basis that it maintains sufficient
resources to be able to continue to operate for a period of at
least twelve months from when the interim financial statements are
authorised for issue. In the most severe scenarios this would
require making reasonable adjustments to the Group's operating
plans, including slowing down the pace of future originations to
limit risk weighted asset growth.
The Directors did not deem there to be any material
uncertainties with regards to the assessment on going concern.
Accounting policies
The accounting policies applied in these condensed consolidated
interim financial statements are the same as those applied in the
Group's consolidated financial statements as at and for the year
ended 31 December 2021.
Future accounting developments
There are no known future accounting developments that are
likely to have a material impact on the Group.
3 Critical accounting judgements
In our 2021 Annual Report and Accounts we identified the
following critical accounting judgements:
-- Recognition of provisions
-- Measurement of the expected credit loss allowance - significant increase in credit risk
-- Measurement of the expected credit loss allowance - use of
post model overlays and adjustments
Following the conclusion of matters with the US Office of
Foreign Assets Control (OFAC) in relation to Cuba and Iran without
fine or penalty, the recognition of provisions is no longer
considered a critical accounting judgement.
Further details on the remaining critical accounting judgements
are set out below. No new critical accounting judgements have been
identified during the period.
Measurement of the expected credit loss allowance -significant
increase in credit risk
IFRS 9 requires accounts to be allocated into one of three
stages. Stage 3 reflects accounts in default. Stage 2 are the
accounts which have shown a significant increase in credit risk
since origination (SICR), and Stage 1 is everything else. IFRS 9
requires a higher level of expected credit loss to be recognised
for underperforming loans. For loans in Stage 2 and Stage 3 a
lifetime ECL is recognised compared to a 12-month ECL for
performing loans (Stage 1).
Judgement is required to determine when a significant increase
in credit risk has occurred. An assessment of whether credit risk
has increased significantly since initial recognition is performed
at each reporting period by considering the change in the
Probability of Default (PD) over the remaining life of the
financial instrument. The assessment explicitly or implicitly
compares the PD occurring at the reporting date to that at initial
recognition, considering reasonable and supportable information,
including information about past events, current conditions, and
future economic conditions.
IFRS 9 requires a higher level of expected credit loss to
be recognised for underperforming loans. This is considered
based on a staging approach:
Stage Description ECL recognised
---------------- -------------------------------------- -----------------------------------
Stage 1 Financial assets that have 12-month expected credit
had no significant increase losses
in credit risk since initial Total losses expected on
recognition or that have low defaults which may occur
credit risk (high quality within the next 12 months.
investment securities only) Losses are adjusted for
at the reporting date. probability-weighted macroeconomic
scenarios.
---------------- -------------------------------------- -----------------------------------
Stage 2 Financial assets that have Lifetime expected credit
had a significant increase losses
in credit risk since initial Losses expected on defaults
recognition but that do not which may occur at any
have objective evidence of point in a loan's lifetime.
impairment. Losses are adjusted for
Financial instruments that probability-weighted macroeconomic
are classified in Early Warning scenarios.
List 1 and 2 will be reported
in Stage 2.
The IFRS 9 standard also provides
a rebuttable presumption which
states that financial instruments
falling 30 DPD due on contractually
defined payments are to be
considered as having deteriorated
significantly since origination.
---------------- -------------------------------------- -----------------------------------
Stage 3 Financial assets that are Lifetime expected credit
credit impaired at the reporting losses
date. A financial asset is Losses expected on defaults
credit impaired when it has which may occur at any
met the definition of default. point in a loan's lifetime.
We define default to have Losses are adjusted for
occurred when a loan is greater probability-weighted macroeconomic
than 90 days past due (non-performing scenarios.
loan) or where the borrower
is considered unlikely to Interest income is calculated
pay, this includes customers on the carrying amount
who are categorised as Early of the loan net of credit
Warning List 3. allowance.
---------------- -------------------------------------- -----------------------------------
Purchased Financial assets that have Lifetime expected credit
or originated been purchased and had objective losses
credit impaired evidence of being 'non-performing' At initial recognition,
(POCI) assets or 'credit impaired ' at the POCI assets do not carry
point of purchase. an impairment allowance.
Lifetime expected credit
losses are incorporated
into the calculation of
the asset's effective interest
rate. Subsequent changes
to the estimate of lifetime
expected credit losses
are recognised as a loss
allowance.
---------------- -------------------------------------- -----------------------------------
In light of the classification outlined above, our stage
allocation criteria must include:
-- A relative measure of creditworthiness deterioration since origination.
-- An absolute measure of creditworthiness deterioration since origination.
There are two main criteria driving the SICR assessment
identified as follows:
-- Quantitative criteria - where the numerically calculated
probability of default on a loan has increased significantly since
initial recognition. This is determined when the lifetime PD at
observation is greater than the lifetime PD at origination by a
portfolio specific threshold. Given the different nature of the
products and the dissimilar level of lifetime PDs at origination,
different thresholds are used by sub-products within each portfolio
(term loans, revolving loan facilities and mortgages). The
threshold is set at three times the median PD of the portfolio at
origination.
-- Qualitative criteria - instruments that are 30 days past due
or more are allocated to Stage 2, regardless of the results of the
quantitative analysis. In addition, instruments classified on the
Early Warning List as higher risk, are allocated to Stage 2,
regardless of the results of the quantitative analysis.
There are additional SICR rules utilised across portfolios.
These rules, as well as more granular detail of both quantitative
and qualitative criteria, are captured within the IFRS 9 model
methodology and are approved as part of the annual model review
process at Model Governance and Model Oversight Committees. The low
credit risk exemption allowed under IFRS 9 has not been applied
across the retail mortgage or consumer portfolios to identify
SICR.
Measurement of the expected credit loss allowance -use of post
model overlays and adjustments
We have applied Post Model Adjustments (PMAs) and Post Model
Overlays (PMOs) in the assessment of ECL. PMAs supplement the
models to account for where there are limitations in model
methodology or data inputs and PMOs accounts for downsides risks
which are not fully captured through the economic scenarios. The
appropriateness of PMAs and PMOs is subject to rigorous review and
challenge, including review by our Model Governance, Impairment
Committee and Audit Committee.
PMAs and PMOs are defined as follows:
-- Post model adjustments (PMAs): Post model adjustments (PMAs)
refer to increases/decreases in ECL to address known model
limitations, either in model methodology or model inputs. These
rely on analysis of model inputs and parameters to determine the
change required to improve model accuracy. These may be applied at
an aggregated level however, they will usually be applied at
account level.
-- Post model overlays (PMOs): Post model overlays (PMOs)
reflect management judgement. These rely more heavily on expert
judgement and will usually be applied at an aggregated level. For
example, where recent changes in market and economic conditions
have not yet been captured in the macroeconomic factor inputs to
models.
Given the ongoing economic uncertainty, we continue to maintain
prudent levels of PMOs. The level of PMAs/PMOs has remained stable
during 2022 with the total percentage of ECL stock comprised of
PMAs/PMOs remaining at 26.4% (2021: 26.3%).
PMAs contribute GBP7.9 million of ECL stock as at 30 June 2022
(31 December 2021: GBP9.1 million) and are held in anticipation of
IFRS 9 commercial models planned for implementation in the second
half of 2022.
-- IFRS 9 commercial secured LGD model (30 June 2022: GBP7.6
million; 31 December 2021: GBP9.8 million).
-- IFRS 9 commercial business loans lifetime PD model scope
extended to commercial revolving facilities (30 June 2022: (GBP0.5)
million; 31 December 2021: (GBP0.7) million).
-- IFRS 9 commercial fixed term EAD model (30 June 2022: GBP0.8
million; 31 December 2021: GBPnil).
PMOs have been reassessed during the period to ensure an
appropriate level of ECL to account for the high level of
macroeconomic uncertainty, following the Russian invasion of
Ukraine, high inflation environment and cost of living
pressures.
PMOs make up GBP37.1 million of the ECL stock for the half year
ending 30 June 2022 (31 December 2021: GBP35.0 million) and
comprise of:
-- High inflation environment and cost-of-living risks -
Management overlay has been introduced in the period to reflect
high inflation and cost of living pressures, which are not fully
captured through the economic scenarios and IFRS 9 models (30 June
2022: GBP29.6 million; prior period COVID-19 overlays of GBP28.7
million have been released). This reflects the associated risks
across retail mortgage, consumer, and commercial portfolios.
-- Climate change impact - An expert judgement overlay raised in
2021 has been maintained for 30 June 2022 and reflects the impact
of climate change on property values for the mortgage and
commercial portfolios (30 June 2022: GBP5.1 million; 31 December
2021: GBP5.1 million).
-- Concentration risk adjustment - An overlay raised in 2021 has
been maintained for the first half of 2022 to reflect Metro Bank's
geographical concentration risk on the retail mortgage and
commercial property portfolios (30 June 2022: GBP1.2 million; 31
December 2021: GBP1.2 million).
-- Commercial impairment calculation enhancements - An overlay
of GBP1.2 million raised in anticipation of refinements to the
impairment calculation for the commercial portfolio in the second
half of 2022 (30 June 2022: GBP1.2 million; 31 December 2021:
GBPnil).
4 Critical accounting estimates
The ECL recognised in the financial statements reflects the
effect on expected credit losses of a range of possible outcomes,
calculated on a probability-weighted basis, based on a number of
economic scenarios, and including management overlays where
required. These scenarios are representative of our view of
forecasted economic conditions, sufficient to calculate unbiased
ECL, and are designed to capture material 'non-linearities' (i.e.,
where the increase in credit losses if conditions deteriorate,
exceeds the decrease in credit losses if conditions improve).
In line with our approved IFRS 9 models, macroeconomic scenarios
provided by Moody's Analytics are used in the assessment of
provisions. The use of an independent supplier for the provision of
scenarios helps to ensure that the estimates are unbiased. Since
the inception of COVID-19, the macroeconomic scenarios are assessed
and reviewed monthly to ensure appropriateness and relevance to the
ECL calculation. The weightings of these scenarios reflect the
latest UK economic outlook. The selection of scenarios and the
appropriate weighting to apply are considered and discussed
internally and proposed recommendations for use in the IFRS 9
models are made to the monthly Impairment Committee (designated
Executive Risk Committee for impairments) for formal approval.
Our credit risk models are subject to internal model governance
including independent validation. We undertake annual model reviews
and have regular model performance monitoring in place. The
impairment provisions recognised during the year reflect our best
estimate of the level of provisions required for future credit
losses as calibrated under our conservative weighted economic
assumptions and following the application of expert credit risk
judgement overlays.
Scenarios and probability weights used as at 30 June 2022 are as
follows are as follows:
Half year Half year Half year
to to to
30 June 31 December 30 June
Scenario weighting 2022 2021 2021
-------------------- ---------- ------------- ----------
Baseline 40% 40% 40%
Upside 20% 20% 20%
Downside 30% 30% 30%
Severe Downside 10% 10% 10%
-------------------- ---------- ------------- ----------
The macroeconomic scenarios reflect the current macroeconomic
environment as follows:
-- Baseline scenario (40% weight): Reflects the projection of
the median, or '50%' scenario, meaning that in the assessment there
is an equal probability that the economy might perform better or
worse than the baseline forecast.
-- Upside scenario (20% weight): This above-baseline scenario is
designed so there is a 10% probability the economy will perform
better than in this scenario, broadly speaking, and a 90%
probability it will perform worse.
-- Downside scenario (30% weight): In this recession scenario,
in which a deep downturn develops, there is a 90% probability the
economy will perform better, broadly speaking, and a 10%
probability it will perform worse.
-- Severe Downside scenario (10% weight): In this recession
scenario, in which a deep downturn develops, there is a 96%
probability the economy will perform better, broadly speaking, and
a 4% probability it will perform worse.
The following variables are the key drivers of ECL:
-- UK interest rate (five-year mortgage rate)
-- UK unemployment rate
-- UK HPI change, year-on-year (adjusted in the downside scenarios for regional concentration)
-- UK GDP change, year-on-year
Macroeconomic scenarios impact the ECL calculation through
varying the probability of Default (PD) and Loss Given Default
(LGD). We use UK HPI to index mortgage collateral which has a
direct impact on LGD. A wide range of potential metrics were
initially considered, representing drivers which capture trends in
the economy at large, and may indicate economic trends which will
impact UK borrowers. This included variables which impact economic
output, interest rates, inflation, stock prices, borrower income
and the UK housing market. Statistical methods were then used to
choose the subset of drivers which had the greatest significance
and predictive fit to our data.
Macroeconomic variable Scenario 2023 2024 2025 2026
----------------------------- ----------------- -------- ------- ------- -------
UK five year mortgage
interest rates (%) Baseline 3.6% 4.0% 4.1% 4.2%
----------------------------- ----------------- -------- ------- ------- -------
Upside 3.9% 4.2% 4.3% 4.3%
----------------------------------------------- -------- ------- ------- -------
Downside 2.3% 2.8% 3.0% 3.1%
----------------------------------------------- -------- ------- ------- -------
Severe Downside 2.2% 2.8% 2.9% 3.0%
----------------------------------------------- -------- ------- ------- -------
Unemployment (%) Baseline 4.4% 4.6% 4.7% 4.8%
----------------------------- ----------------- -------- ------- ------- -------
Upside 3.7% 3.8% 4.0% 4.2%
----------------------------------------------- -------- ------- ------- -------
Downside 7.1% 7.4% 7.2% 6.6%
----------------------------------------------- -------- ------- ------- -------
Severe Downside 8.4% 8.1% 8.2% 7.7%
----------------------------------------------- -------- ------- ------- -------
House price index (YoY%)(1) Baseline 2.9% 4.8% 2.2% 0.9%
----------------------------- ----------------- -------- ------- ------- -------
Upside 13.1% 4.6% (1.8%) (2.5%)
----------------------------------------------- -------- ------- ------- -------
Downside (8.8%) 0.3% 3.7% 4.4%
----------------------------------------------- -------- ------- ------- -------
Severe Downside (15.7%) (0.5%) 3.3% 3.0%
----------------------------------------------- -------- ------- ------- -------
UK GDP (YoY%) Baseline 1.6% 1.4% 1.2% 1.0%
----------------------------- ----------------- -------- ------- ------- -------
Upside 2.7% 1.2% 1.0% 1.2%
----------------------------------------------- -------- ------- ------- -------
Downside (2.2%) 2.9% 1.7% 0.9%
----------------------------------------------- -------- ------- ------- -------
Severe Downside (4.0%) 2.6% 2.9% 1.3%
----------------------------------------------- -------- ------- ------- -------
The period-end assumptions used for the ECL estimate as at 31
December 2021 are as follows:
Macroeconomic variable Scenario 2022 2023 2024 2025
----------------------------- ----------------- -------- -------- ------- -----
UK five year mortgage
interest rates (%) Baseline 2.7% 3.3% 3.7% 4.1%
----------------------------- ----------------- -------- -------- ------- -----
Upside 3.0% 3.6% 4.2% 4.6%
----------------------------------------------- -------- -------- ------- -----
Downside 2.3% 2.8% 3.1% 3.1%
----------------------------------------------- -------- -------- ------- -----
Severe Downside 2.1% 2.6% 2.9% 3.1%
----------------------------------------------- -------- -------- ------- -----
Unemployment (%) Baseline 4.7% 4.4% 4.4% 4.5%
----------------------------- ----------------- -------- -------- ------- -----
Upside 3.9% 3.3% 3.5% 3.8%
----------------------------------------------- -------- -------- ------- -----
Downside 6.2% 6.6% 6.5% 6.3%
----------------------------------------------- -------- -------- ------- -----
Severe Downside 7.2% 7.5% 7.2% 7.1%
----------------------------------------------- -------- -------- ------- -----
House price index (YoY%)(1) Baseline 3.4% 6.0% 5.2% 3.7%
----------------------------- ----------------- -------- -------- ------- -----
Upside 14.2% 8.5% 4.8% 2.1%
----------------------------------------------- -------- -------- ------- -----
Downside (12.8%) (8.1%) (1.9%) 4.4%
----------------------------------------------- -------- -------- ------- -----
Severe Downside (16.3%) (10.3%) (2.5%) 4.3%
----------------------------------------------- -------- -------- ------- -----
UK GDP (YoY%) Baseline 3.9% 3.1% 1.4% 1.0%
----------------------------- ----------------- -------- -------- ------- -----
Upside 7.7% 1.7% 1.2% 1.1%
----------------------------------------------- -------- -------- ------- -----
Downside (2.3%) 5.7% 2.4% 1.7%
----------------------------------------------- -------- -------- ------- -----
Severe Downside (3.9%) 5.4% 2.2% 1.8%
----------------------------------------------- -------- -------- ------- -----
1. The HPI economic forecast has been stressed on the downside
and more severe downside scenarios to reflect Metro Bank's
geographical concentration risk.
Key assumptions underpinning the baseline June 2022
scenarios:
-- The U.K. economic outlook has darkened following Russia's
invasion of Ukraine and the resulting increase in energy and food
commodity prices, as well as the exacerbation of global
supply-chain disruptions. The pace of growth remains subdued for
the remainder of the year.
-- Global oil prices remain elevated for several months before
they start reducing to prior levels. European natural gas and
electricity prices remain high for the next 12 months.
-- Global supply-chain bottlenecks ease but fail to abate by the end of the year.
-- U.K. headline CPI inflation continues to increase in the
coming months owing to higher energy, food, and manufactured goods
prices. Higher wages and strong services demand add to the price
pressures, ensuring inflation remains far above target throughout
2022.
-- Volatility in financial markets remains contained despite the
tightening financial conditions, and the U.K. government bonds do
not lose their risk-free status.
The June 2022 base case macroeconomic estimates and assumptions
reflect a more negative economic outlook compared to December 2021,
with the exception of HPI. Deterioration has been observed in the
majority of the macroeconomic factors in the course of 2022, such
as Unemployment rate, GDP, CPI and Wage Growth, and reflect the
rising inflation and cost of living pressures exacerbated as a
result of the war in Ukraine. The HPI forecast has improved since
the start of the year reflecting the continued increase in observed
house prices. A comparison of the base case macroeconomic estimates
across the forecast period between 31 December 2021 and 30 June
2022 is shown in the tables above. Following the initial four-year
projection period, the Upside, Downside and Severe Downside
scenarios converge to the Baseline scenario. The rate of
convergence varies based on the macroeconomic factor, but at a
minimum convergence takes place three years from the initial
four-year projection period. We note that the scenarios applied
comprise our best estimate of economic impacts on the ECL, and the
actual outcome may be different.
We have also assessed the IFRS 9 ECL sensitivity impact at a
total portfolio level, by applying a 100% weighting to each of the
four chosen scenarios.
Variance to reported
ECL weighted ECL
Scenario GBP'million at 30 June 2022
----------------- ------------- ---------------------
Weighted 171 100%
Baseline 155 (9%)
Upside 144 (16%)
Downside 193 13%
Severe Downside 223 31%
----------------- ------------- ---------------------
We note that the sensitivities disclosed above represent example
scenarios and may not represent actual scenarios which occur in the
future. If one of these scenarios did arise then at that time the
ECL would not equal the amount disclosed above, as the amounts
disclosed do not take account of the alternative possible scenarios
which would be considered at that time. We also note that the
sensitivities disclosed above do not consider movements in
impairment stage allocations that would result under the different
scenarios.
5 Operating segments
We provide retail and commercial banking services. The Board
considers the results of the Group as a whole when assessing the
performance of the business and allocating resources. Accordingly,
we have only a single operating segment.
We operate solely in the UK and as such no geographical analysis
is required
2. Net interest income
Interest income
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
GBP'million GBP'million GBP'million
------------------------------------------------- ------------- ------------- -------------
Cash and balances held with the Bank of England 9.5 2.1 2.3
Loans and advances to customers 208.0 195.9 182.2
Investment securities held at amortised cost 21.9 11.5 9.1
Investment securities held at FVOCI 0.3 2.0 0.6
------------------------------------------------- ------------- ------------- -------------
Total interest income 239.7 211.5 194.2
------------------------------------------------- ------------- ------------- -------------
Interest expense
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
GBP'million GBP'million GBP'million
----------------------------- ------------- ------------- -------------
Deposits from customers 12.4 14.6 25.5
Deposits from central banks 13.1 2.1 1.9
Repurchase agreements 0.8 1.1 1.1
Debt securities 25.0 23.8 23.6
Lease liabilities 7.6 7.9 8.8
Total interest expense 58.9 49.5 60.9
----------------------------- ------------- ------------- -------------
3. General operating expenses
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
GBP'million GBP'million GBP'million
---------------------------------------------- ------------- ------------- -------------
People costs 119.9 117.5 121.5
Information technology costs 29.9 29.9 27.3
Occupancy expenses 15.0 16.7 16.2
Money transmission and other banking related
costs(1) 24.5 24.2 26.4
Transformation costs 1.0 7.1 1.8
Remediation costs 3.0 20.5 25.4
Capability & Innovation fund (C&I) costs 0.3 2.3 5.8
Legal and Regulatory fees 3.3 3.2 3.4
Professional Fees 20.2 22.7 27.4
Contractor costs - - 2.1
Printing, postage and stationery costs 3.1 3.2 2.4
Travel costs 0.8 0.6 0.5
Marketing and advertising costs 3.5 3.2 1.5
Business acquisition and integration costs - 0.1 2.3
Other(1) 8.7 12.1 8.8
Total general operating expenses 233.2 263.3 272.8
---------------------------------------------- ------------- ------------- -------------
1. During the second half of 2021 we reclassified certain costs
from money transmission and other banking related costs to other
costs to better reflect their nature. The half year to 30 June 2021
comparator figure has been updated to reflect this changes.
4. People costs
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
GBP'million GBP'million GBP'million
------------------------------------- ------------- ------------- -------------
Wages and salaries 99.2 98.1 103.1
Social security costs 11.5 10.8 11.2
Pension costs 6.8 6.9 6.5
Equity-settled share based payments 2.4 1.7 0.7
Total people costs 119.9 117.5 121.5
------------------------------------- ------------- ------------- -------------
5. Taxation
Tax expense for the period
The components of tax expense for the six months ended 30 June
2022, 31 December 2021 and 30 June 2021 are:
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
GBP'million GBP'million GBP'million
--------------------------------------------------- ------------- ------------- -------------
Current tax
Current tax - (0.5) -
Adjustment in respect of prior years - 0.7 (0.1)
--------------------------------------------------- ------------- ------------- -------------
Total current tax credit/(expense) - 0.2 (0.1)
--------------------------------------------------- ------------- ------------- -------------
Deferred tax
Origination and reversal of temporary differences (0.9) 1.1 2.3
Effect of changes in tax rates (0.6) (1.0) (4.4)
Adjustment in respect of prior periods - (1.2) -
--------------------------------------------------- ------------- ------------- -------------
Total deferred tax expense (1.5) (1.1) (2.1)
--------------------------------------------------- ------------- ------------- -------------
Total tax expense (1.5) (0.9) (2.2)
--------------------------------------------------- ------------- ------------- -------------
Reconciliation of the total tax expense
The tax expense shown in the income statement differs from the
tax expense that would apply if all accounting profits had been
taxed at the UK corporation tax rate.
A reconciliation between the tax expense and the accounting
profit multiplied by the UK corporation tax rate for the half year
ended 30 June 2022, 31 December 2021 and 30 June 2021 are as
follows:
Half
year Half
to Half year
30 year to Effective to
June Effective 31 December tax 30 June Effective
2022 tax rate 2021 rate 2021 tax rate
GBP'million % GBP'million % GBP'million %
------------------------------------- ------------- ---------- ------------- ---------- ------------- ----------
Loss before tax (60.2) (106.2) (138.9)
------------------------------------- ------------- ---------- ------------- ---------- ------------- ----------
Tax credit at statutory income tax
rate of 19% 11.4 19.0% 20.2 19.0% 26.4 19.0%
------------------------------------- ------------- ---------- ------------- ---------- ------------- ----------
Tax effects of:
Non-deductible expenses -
depreciation
on non-qualifying fixed assets (0.9) (1.5%) (1.9) 1.8% (0.8) (0.6%)
Non-deductible expenses - investment
property impairment - - (1.8) 1.7% - -
Non-deductible expenses -
remediation (0.5) (0.8%) (2.5) 2.4% (4.6) (3.3%)
Non-deductible expenses - other 0.5 0.8% - - (0.1) (0.1%)
Impact of intangible asset
impairment
on R&D deferred tax liability 0.2 0.3% 1.1 (1.0%) 1.9 1.4%
Share based payments (0.1) (0.2%) (0.1) 0.1% (0.2) (0.1%)
Adjustment in respect of prior years - - (0.5) 0.5% (0.1) -
Losses for the period for which no
deferred tax asset has been
recognised (11.5) (19.1%) (14.4) 13.6% (20.3) (14.6%)
Derecognition of tax losses arising - - - - - -
in prior years
Effect of changes in tax rates (0.6) (0.9%) (1.0) 0.9% (4.4) (3.2%)
------------------------------------- ------------- ---------- ------------- ---------- ------------- ----------
Tax expense reported in the
consolidated
income statement (1.5) (2.4%) (0.9) (0.8%) (2.2) (1.5%)
------------------------------------- ------------- ---------- ------------- ---------- ------------- ----------
Effective tax rate
The effective tax rate for the period is (2.4%) (half year to 30
June 2021: (1.5%); half year to 31 December: (0.8%)). This has been
calculated by applying the effective tax rate which is expected to
apply to the Group for the half year ended 30 June 2022 using rates
substantively enacted by 30 June 2022 as required by IAS34 'Interim
Financial Reporting'.
Effect of changes in tax rates
This relates to the remeasurement of deferred tax rates
following a change to the main UK corporation tax rate.
An increase in the UK corporation rate from 19% to 25% for
taxable profits over GBP250,000 (effective 1 April 2023) was
substantively enacted on 24 May 2021.
Losses for which no deferred tax asset has been recognised
The tax effected value of losses for which no deferred tax asset
has been recognised is GBP11.5 million (half year to 30 June 2021:
GBP20.3 million). This is due to our long term investment in cost,
revenue and infrastructure transformation impacting the Bank's
profits in the short term.
Deferred tax
A deferred tax asset must be regarded as recoverable and
therefore recognised only when, on the basis of all available
evidence, it can be regarded as more likely than not there will be
suitable tax profits from which the future of the underlying timing
differences can be deducted.
The following table shows deferred tax recorded in the statement
of financial position and changes recorded in the tax expense:
Investment Property,
Unused securities plant & Intangible
tax losses & impairments equipment assets Total
GBP'million GBP'million GBP'million GBP'million GBP'million
-------------------------- ------------- --------------- ------------- ------------- -------------
30 June 2022
Deferred tax assets 12 4 - - 16
Deferred tax liabilities - 3 (24) (7) (28)
-------------------------- ------------- --------------- ------------- ------------- -------------
Deferred tax liabilities
(net) 12 7 (24) (7) (12)
-------------------------- ------------- --------------- ------------- ------------- -------------
At 1 January 2022 13 5 (23) (7) (12)
Income statement (1) - (1) - (2)
Other comprehensive
income - 2 - - 2
-------------------------- ------------- --------------- ------------- ------------- -------------
At 30 June 2022 12 7 (24) (7) (12)
-------------------------- ------------- --------------- ------------- ------------- -------------
31 December 2021
Deferred tax assets 13 3 - - 16
Deferred tax liabilities - 2 (23) (7) (28)
-------------------------- ------------- --------------- ------------- ------------- -------------
Deferred tax liabilities
(net) 13 5 (23) (7) (12)
-------------------------- ------------- --------------- ------------- ------------- -------------
At 1 July 2021 13 3 (21) (8) (13)
Income statement - - (2) 1 (1)
Other comprehensive
income - 2 - - 2
At 31 December
2021 13 5 (23) (7) (12)
-------------------------- ------------- --------------- ------------- ------------- -------------
30 June 2021
-------------------------- ------------- --------------- ------------- ------------- -------------
Deferred tax assets 13 3 - - 16
Deferred tax liabilities - - (21) (8) (29)
-------------------------- ------------- --------------- ------------- ------------- -------------
Deferred tax liabilities
(net) 13 3 (21) (8) (13)
-------------------------- ------------- --------------- ------------- ------------- -------------
At 1 January 2021 12 2 (16) (10) (12)
Income statement 1 - (5) 2 (2)
Other comprehensive
income - 1 - - 1
At 30 June 2021 13 3 (21) (8) (13)
-------------------------- ------------- --------------- ------------- ------------- -------------
Unrecognised deferred tax assets
The Group had total unused tax losses of GBP918.2 million for
which a deferred tax asset of GBP217.6 million has not been
recognised as we continue to be loss making in the short term. The
impact of recognising the deferred tax asset in the future would be
material although tax benefits would be spread over a number of
years. In addition the 50% corporate loss restriction in place
extends the timeline over which the Bank can offset losses against
future profits. This will be reassessed for the year ending 31
December 2022 in light of actual performance against management
forecasts and prevailing market conditions. There is no time limit
beyond which these losses expire.
Due to an investment property impairment being unrealised there
is an unrecognised deferred tax asset of GBP2.6 million (30 June
2021: GBP3.1 million).
6. Loans and advances to customers
30 June 2022
-------------------------------------------
Gross
carrying ECL Net carrying
amount allowance amount
GBP'million GBP'million GBP'million
--------------------------------------- ------------- ------------- -------------
Retail mortgages 6,785 (18) 6,767
Consumer lending 1,269 (56) 1,213
Commercial lending 4,481 (97) 4,384
--------------------------------------- ------------- ------------- -------------
Total loans and advances to customers 12,535 (171) 12,364
--------------------------------------- ------------- ------------- -------------
31 December 2021
---------------------------------------------
Gross carrying ECL Net carrying
amount allowance amount
GBP'million GBP'million GBP'million
--------------------------------------- --------------- ------------- -------------
Retail mortgages 6,723 (19) 6,704
Consumer lending 890 (42) 848
Commercial lending 4,846 (108) 4,738
--------------------------------------- --------------- ------------- -------------
Total loans and advances to customers 12,459 (169) 12,290
--------------------------------------- --------------- ------------- -------------
30 June 2021
---------------------------------------------
Gross carrying ECL Net carrying
amount allowance amount
GBP'million GBP'million GBP'million
--------------------------------------- --------------- ------------- -------------
Retail mortgages 6,815 (15) 6,800
Consumer lending 704 (42) 662
Commercial lending 4,972 (109) 4,863
--------------------------------------- --------------- ------------- -------------
Total loans and advances to customers 12,491 (166) 12,325
--------------------------------------- --------------- ------------- -------------
Loans and advances to customers by category
30 June 31 December 30 June
2022 2021 2021
GBP'million GBP'million GBP'million
-------------------------------------------- ------------- ------------- -------------
Residential owner occupied 4,977 5,022 5,028
Retail buy-to-let 1,808 1,701 1,787
-------------------------------------------- ------------- ------------- -------------
Total retail mortgages 6,785 6,723 6,815
-------------------------------------------- ------------- ------------- -------------
Overdrafts 70 66 71
Credit cards 16 13 11
Term loans 1,183 811 622
-------------------------------------------- ------------- ------------- -------------
Total consumer lending 1,269 890 704
-------------------------------------------- ------------- ------------- -------------
Total retail lending 8,054 7,613 7,519
-------------------------------------------- ------------- ------------- -------------
Professional buy-to-let 853 950 1,037
Bounce back loans 984 1,304 1,394
Coronavirus business interruption loans 145 165 162
Recovery loan scheme 357 157 -
Other term loans 1,638 1,791 1,963
Commercial term loans 3,977 4,367 4,556
Overdrafts and revolving credit facilities 110 156 133
Credit cards 4 3 3
Asset and invoice finance 390 320 280
Total commercial lending 4,481 4,846 4,972
-------------------------------------------- ------------- ------------- -------------
Total gross loans to customers 12,535 12,459 12,491
-------------------------------------------- ------------- ------------- -------------
Credit risk exposures
The following tables show the loans for each of our portfolios
by days past due along with their corresponding staging. Where
payment deferrals have been given as a result of COVID-19 the days
past due figure exclude the deferral period. Overall COVID-19 has
impacted a number of our customers, and this is reflected in the
deterioration in the proportion of loans which are past due. We
have provisioned for higher levels of expected credit losses to
reflect this risk.
Retail mortgages
30 June 2022
----------------------------------------------------------
Stage Stage Stage
1 2 3 POCI(1)
GBP'million GBP'million GBP'million GBP'million
------------------------ ------------- ------------- ------------- -------------
Up to date 5,420 1,226 27 -
1 to 29 days past due 1 18 10 -
30 to 89 days past due - 19 14 -
90+ days past due - - 50 -
------------------------ ------------- ------------- ------------- -------------
Gross carrying amount 5,421 1,263 101 -
------------------------ ------------- ------------- ------------- -------------
1. Purchase or originated credit impaired
31 December 2021
----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
GBP'million GBP'million GBP'million GBP'million
------------------------ ------------- ------------- ------------- -------------
Up to date 5,544 1,010 38 -
1 to 29 days past due 2 27 9 -
30 to 89 days past due - 26 16 -
90+ days past due - - 51 -
------------------------ ------------- ------------- ------------- -------------
Gross carrying amount 5,546 1,063 114 -
------------------------ ------------- ------------- ------------- -------------
30 June 2021
----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
GBP'million GBP'million GBP'million GBP'million
------------------------ ------------- ------------- ------------- -------------
Up to date 5,917 751 32 -
1 to 29 days past due 1 17 10 -
30 to 89 days past due - 18 17 -
90+ days past due - - 52 -
------------------------ ------------- ------------- ------------- -------------
Gross carrying amount 5,918 786 111 -
------------------------ ------------- ------------- ------------- -------------
Consumer lending
30 June 2022
----------------------------------------------------------
Stage Stage Stage
1 2 3 POCI
GBP'million GBP'million GBP'million GBP'million
------------------------ ------------- ------------- ------------- -------------
Up to date 1,089 133 2 -
1 to 29 days past due 3 2 - -
30 to 89 days past due - 10 4 -
90+ days past due - - 26 -
------------------------ ------------- ------------- ------------- -------------
Gross carrying amount 1,092 145 32 -
------------------------ ------------- ------------- ------------- -------------
31 December 2021
----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
GBP'million GBP'million GBP'million GBP'million
------------------------ ------------- ------------- ------------- -------------
Up to date 786 71 2 -
1 to 29 days past due - 2 - -
30 to 89 days past due - 9 3 -
90+ days past due - - 16 1
------------------------ ------------- ------------- ------------- -------------
Gross carrying amount 786 82 21 1
------------------------ ------------- ------------- ------------- -------------
30 June 2021
----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
GBP'million GBP'million GBP'million GBP'million
------------------------ ------------- ------------- ------------- -------------
Up to date 641 34 1 -
1 to 29 days past due 1 1 - -
30 to 89 days past due - 8 1 -
90+ days past due - - 16 1
------------------------ ------------- ------------- ------------- -------------
Gross carrying amount 642 43 18 1
------------------------ ------------- ------------- ------------- -------------
Commercial lending
30 June 2022
----------------------------------------------------------
Stage Stage Stage
1 2 3 POCI
GBP'million GBP'million GBP'million GBP'million
------------------------ ------------- ------------- ------------- -------------
Up to date 3,646 510 89 -
1 to 29 days past due 8 46 17 -
30 to 89 days past due - 56 14 -
90+ days past due - 3 92 -
------------------------ ------------- ------------- ------------- -------------
Gross carrying amount 3,654 615 212 -
------------------------ ------------- ------------- ------------- -------------
31 December 2021
----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
GBP'million GBP'million GBP'million GBP'million
------------------------ ------------- ------------- ------------- -------------
Up to date 3,727 656 118 -
1 to 29 days past due 12 46 2 -
30 to 89 days past due - 78 23 -
90+ days past due - - 184 -
------------------------ ------------- ------------- ------------- -------------
Gross carrying amount 3,739 780 327 -
------------------------ ------------- ------------- ------------- -------------
30 June 2021
----------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
GBP'million GBP'million GBP'million GBP'million
------------------------ ------------- ------------- ------------- -------------
Up to date 3,985 765 165 -
1 to 29 days past due 1 8 2 -
30 to 89 days past due - 27 10 -
90+ days past due - - 9 -
------------------------ ------------- ------------- ------------- -------------
Gross carrying amount 3,986 800 186 -
------------------------ ------------- ------------- ------------- -------------
Loss allowance
The following tables explain the changes in both the gross
carrying amount and loss allowances of our loans and advances
during the period.
Retail mortgages
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
------------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance
at 1 January
2022 5,546 1,063 114 - 6,723 (2) (12) (5) - (19) 5,544 1,051 109 - 6,704
Transfers
to/from stage
1(1) 199 (189) (10) - - (3) 2 1 - - 196 (187) (9) - -
Transfers
to/from stage
2(1) (343) 346 (3) - - - - - - - (343) 346 (3) - -
Transfers
to/from stage
3(1) (3) (10) 13 - - - - - - - (3) (10) 13 - -
Net remeasurement
due to
transfers(2) - - - - - 2 (1) - - 1 2 (1) - - 1
New lending(3) 511 147 - - 658 (3) (2) - - (5) 508 145 - - 653
Repayments,
additional
drawdowns
and interest
accrued (57) (13) (1) - (71) - - - - - (57) (13) (1) - (71)
Derecognitions(4) (432) (81) (12) - (525) 1 - 1 - 2 (431) (81) (11) - (523)
Changes
to
assumptions(5) - - - - - - 3 - - 3 - 3 - - 3
------------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance
at 30 June
2022 5,421 1,263 101 - 6,785 (5) (10) (3) - (18) 5,416 1,253 98 - 6,767
------------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
1. Represents the stage transfers prior to any ECL remeasurement
2. Represents the remeasurement between the twelve month and
lifetime ECL due to stage transfer, including any changes to the
model assumptions and forward looking information
3. Represents the increase in balances resulting from loans and
advances that have been newly originated, purchased or renewed
4. Represents the decrease in balances resulting from loans and
advances that have been fully repaid, disposed of or written
off
5. Represents the change in loss allowances resulting from
changes to assumptions notably forward looking macro-economic
information and changes in the customer's risk profile
Gross carrying amount Loss allowance Net carrying amount
---------------------------------------- ------------------------------------- ----------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------ ------- ------- ------ ----- -------
Balance at
1 July 2021 5,918 786 111 - 6,815 (4) (6) (5) - (15) 5,914 780 106 - 6,800
Transfers
to/from stage
1 (7) 7 - - - (1) 2 (1) - - (8) 9 (1) - -
Transfers
to/from stage
2 (189) 189 - - - - - - - - (189) 189 - - -
Transfers
to/from stage
3 (10) (5) 15 - - - - - - - (10) (5) 15 - -
Net
remeasurement
due to
transfers - - - - - 1 (1) - - - 1 (1) - - -
New lending 349 156 - - 505 - (3) - - (3) 349 153 - - 502
Repayments,
additional
drawdowns
and interest
accrued (39) (6) (1) - (46) - - - - - (39) (6) (1) - (46)
Derecognitions (476) (64) (11) - (551) - - 1 - 1 (476) (64) (10) - (550)
Changes
to
assumptions - - - - - 2 (4) - - (2) 2 (4) - - (2)
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------ ------- ------- ------ ----- -------
Balance at
31 December
2021 5,546 1,063 114 - 6,723 (2) (12) (5) - (19) 5,544 1,051 109 - 6,704
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------ ------- ------- ------ ----- -------
Gross carrying amount Loss allowance Net carrying amount
---------------------------------------- ------------------------------------- ----------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------ ------- ------- ------ ----- -------
Balance at
1 January
2021 5,911 863 118 - 6,892 (5) (17) (4) - (26) 5,906 846 114 - 6,866
Transfers
to/from stage
1 369 (352) (17) - - (7) 6 1 - - 362 (346) (16) - -
Transfers
to/from stage
2 (280) 288 (8) - - 1 (1) - - - (279) 287 (8) - -
Transfers
to/from stage
3 (9) (21) 30 - - - 1 (1) - - (9) (20) 29 - -
Net
remeasurement
due to
transfers - - - - - 6 - - - 6 6 - - - 6
New lending 545 77 - - 622 (1) (1) - - (2) 544 76 - - 620
Repayments,
additional
drawdowns
and interest
accrued (92) (11) (1) - (104) - - - - - (92) (11) (1) - (104)
Derecognitions (526) (58) (11) - (595) 1 1 - - 2 (525) (57) (11) - (593)
Changes to
assumptions - - - - - 1 5 (1) - 5 1 5 (1) - 5
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------ ------- ------- ------ ----- -------
Balance at
30 June 2021 5,918 786 111 - 6,815 (4) (6) (5) - (15) 5,914 780 106 - 6,800
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------ ------- ------- ------ ----- -------
Consumer lending
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance
at 1 January
2022 786 82 21 1 890 (18) (8) (16) - (42) 768 74 5 1 848
Transfers
to/from stage
1 16 (16) - - - (2) 2 - - - 14 (14) - - -
Transfers
to/from stage
2 (108) 108 - - - 1 (1) - - - (107) 107 - - -
Transfers
to/from stage
3 (9) (4) 13 - - - 2 (2) - - (9) (2) 11 - -
Net
remeasurement
due to
transfers - - - - - 1 (5) (9) - (13) 1 (5) (9) - (13)
New lending 583 10 2 - 595 (10) (1) (1) - (12) 573 9 1 - 583
Repayments,
additional
drawdowns
and interest
accrued (93) (26) (2) (1) (122) - - - - - (93) (26) (2) (1) (122)
Derecognitions (83) (9) (2) - (94) 4 1 1 - 6 (79) (8) (1) - (88)
Changes
to
assumptions - - - - - 4 1 - - 5 4 1 - - 5
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance
at 30 June
2022 1,092 145 32 - 1,269 (20) (9) (27) - (56) 1,072 136 5 - 1,213
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
1 July 2021 642 43 18 1 704 (20) (5) (17) - (42) 622 38 1 1 662
Transfers
to/from stage
1 (6) 6 - - - 1 (1) - - - (5) 5 - - -
Transfers
to/from stage
2 (2) 2 - - - - - - - - (2) 2 - - -
Transfers
to/from stage
3 (1) (1) 2 - - - - - - - (1) (1) 2 - -
Net
remeasurement
due to
transfers - - - - - - - (1) - (1) - - (1) - (1)
New lending 185 42 7 - 234 1 (4) (6) - (9) 186 38 1 - 225
Repayments,
additional
drawdowns
and interest
accrued (9) (3) - - (12) - - - - - (9) (3) - - (12)
Derecognitions (23) (7) (6) - (36) 1 1 6 - 8 (22) (6) - - (28)
Changes
to
assumptions - - - - - (1) 1 2 - 2 (1) 1 2 - 2
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
31 December
2021 786 82 21 1 890 (18) (8) (16) - (42) 768 74 5 1 848
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
1 January
2021 149 43 12 - 204 (6) (9) (10) - (25) 143 34 2 - 179
Transfers
to/from stage
1 14 (14) - - - (2) 2 - - - 12 (12) - - -
Transfers
to/from stage
2 (4) 4 - - - - - - - - (4) 4 - - -
Transfers
to/from stage
3 (1) (2) 3 - - - 2 (2) - - (1) - 1 - -
Net
remeasurement
due to
transfers - - - - - 1 - (1) - - 1 - (1) - -
New lending 512 24 5 1 542 (17) (3) (3) - (23) 495 21 2 1 519
Repayments,
additional
drawdowns
and interest
accrued (11) (6) (1) - (18) - - - - - (11) (6) (1) - (18)
Derecognitions (17) (6) (1) - (24) - 1 1 - 2 (17) (5) - - (22)
Changes
to
assumptions - - - - - 4 2 (2) - 4 4 2 (2) - 4
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
30 June 2021 642 43 18 1 704 (20) (5) (17) - (42) 622 38 1 1 662
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Commercial lending
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance
at 1 January
2022 3,739 780 327 - 4,846 (27) (29) (52) - (108) 3,712 751 275 - 4,738
Transfers
to/from stage
1 164 (163) (1) - - (6) 6 - - - 158 (157) (1) - -
Transfers
to/from stage
2 (135) 137 (1) - 1 1 (1) - - - (134) 136 (1) - 1
Transfers
to/from stage
3 (98) (108) 206 - - - 4 (4) - - (98) (104) 202 - -
Net
remeasurement
due to
transfers - - - - - 3 (4) - - (1) 3 (4) - - (1)
New lending 427 54 2 - 483 (7) (2) (1) - (10) 420 52 1 - 473
Repayments,
additional
drawdowns
and interest
accrued (180) (25) (5) - (210) - - - - - (180) (25) (5) - (210)
Derecognitions (263) (60) (316) - (639) 1 1 22 - 24 (262) (59) (294) - (615)
Changes
to
assumptions - - - - - 2 (8) 4 - (2) 2 (8) 4 - (2)
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance
at 30 June
2022 3,654 615 212 - 4,481 (33) (33) (31) - (97) 3,621 582 181 - 4,384
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Gross carrying amount Loss allowance Net carrying amount
---------------------------------------- -------------------------------------- ----------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------- ------- ------- ------ ----- -------
Balance at
1 July 2021 3,986 800 186 - 4,972 (21) (37) (51) - (109) 3,965 764 134 - 4,863
Transfers
to/from stage
1 63 (63) - - - (2) 2 - - - 61 (61) - - -
Transfers
to/from stage
2 (173) 174 (1) - - - - - - - (173) 174 (1) - -
Transfers
to/from stage
3 (163) (3) 166 - - - 1 (1) - - (163) (2) 165 - -
Net
remeasurement
due to
transfers - - - - - (1) (6) (6) - (13) (1) (6) (6) - (13)
New lending 299 (1) 1 - 299 (3) 4 (1) - - 296 3 - - 299
Repayments,
additional
drawdowns
and interest
accrued (26) (22) - - (48) - - - - - (26) (22) - - (48)
Derecognitions (247) (105) (25) - (377) 1 4 8 - 13 (246) (101) (17) - (364)
Changes
to
assumptions - - - - - (1) 2 - - 1 (1) 2 - - 1
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------- ------- ------- ------ ----- -------
Balance at
31 December
2021 3,739 780 327 - 4,846 (27) (29) (52) - (108) 3,712 751 275 - 4,738
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------- ------- ------- ------ ----- -------
Gross carrying amount Loss allowance Net carrying amount
---------------------------------------- -------------------------------------- ----------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------- ------- ------- ------ ----- -------
Balance at
1 January
2021 4,115 906 127 - 5,148 (19) (44) (40) - (103) 4,096 863 86 - 5,045
Transfers
to/from stage
1 126 (121) (5) - - (5) 5 - - - 121 (116) (5) - -
Transfers
to/from stage
2 (124) 130 (6) - - 1 (2) 1 - - (123) 128 (5) - -
Transfers
to/from stage
3 (18) (78) 96 - - - 2 (2) - - (18) (76) 94 - -
Net
remeasurement
due to
transfers - - - - - 4 (4) (11) - (11) 4 (4) (11) - (11)
New lending 267 59 5 - 331 (3) (6) - - (9) 264 53 5 - 322
Repayments,
additional
drawdowns
and interest
accrued (141) (9) (13) - (163) - - - - - (141) (9) (13) - (163)
Derecognitions (239) (87) (18) - (344) 2 4 4 - 10 (237) (83) (14) - (334)
Changes to
assumptions - - - - - (1) 8 (3) - 4 (1) 8 (3) - 4
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------- ------- ------- ------ ----- -------
Balance at
30 June 2021 3,986 800 186 - 4,972 (21) (37) (51) - (109) 3,965 764 134 - 4,863
---------------- ------- ------- ------ ----- ------- ------ ------ ------ ----- ------- ------- ------- ------ ----- -------
7. Property, plant and equipment
Freehold Fixtures Right
Investment Leasehold land & fittings of use
property improvements buildings & equipment IT hardware assets Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
Cost
1 January
2022 18 280 341 24 1 295 959
Additions - - 1 - - - 1
Write-offs - (10) - (2) - - (12)
30 June 2022 18 270 342 22 1 295 948
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
Accumulated
depreciation
1 January
2022 12 68 28 19 - 67 194
Charge for
the period - 6 3 1 - 7 17
Write-offs - (10) - (2) - - (12)
30 June 2022 12 64 31 18 - 74 199
Net book value
at
30 June 2022 6 206 311 4 1 221 749
Cost
1 July 2021 18 300 290 25 11 330 974
Additions - 4 37 - 1 (4) 38
Disposals - - - - - (29) (29)
Write-offs - (10) - (1) (11) (2) (24)
Transfers - (14) 14 - - - -
31 December
2021 18 280 341 24 1 295 959
Accumulated
depreciation
1 July 2021 13 72 23 18 8 54 188
Charge for
the period (1) 8 2 1 1 11 22
Impairments - - - - - 6 6
Disposals - - - - - (4) (4)
Write-offs - (9) - - (9) - (18)
Transfers - (3) 3 - - - -
31 December
2021 12 68 28 19 - 67 194
Net book value
at
31 December
2021 6 212 313 5 1 228 765
Cost
1 January
2021 18 292 298 25 11 330 974
Additions - 8 (8) - - - -
30 June 2021 18 300 290 25 11 330 974
Accumulated
depreciation
1 January
2021 12 66 21 15 7 47 168
Charge for
the period 1 6 2 3 1 7 20
30 June 2021 13 72 23 18 8 54 188
Net book value
at
30 June 2021 5 228 267 7 3 276 786
8. Intangible assets
Goodwill Brands Software Total
GBP'million GBP'million GBP'million GBP'million
Cost
1 January 2022 10 2 336 348
Additions - - 12 12
Write-offs - - (16) (16)
30 June 2022 10 2 332 344
Accumulated amortisation
1 January 2022 - - 105 105
Charge for the period - - 20 20
Write-offs - - (8) (8)
30 June 2022 - - 117 117
Net book value at 30 June
2022 10 2 215 227
Cost
1 July 2021 10 2 355 367
Additions - - 13 13
Write-offs - - (32) (32)
31 December 2021 10 2 336 348
Accumulated amortisation
1 July 2021 - - 114 114
Charge for the period - - 18 18
Impairment (1) (1)
Write-offs - - (26) (26)
31 December 2021 - - 105 105
Net book value at 31 December
2021 10 2 231 243
Cost
1 January 2021 10 2 328 340
Additions - - 26 26
Deferred grant (see note
10) - - 1 1
30 June 2021 10 2 355 367
Accumulated amortisation
1 January 2021 - - 86 86
Charge for the period - - 20 20
Impairment - - 8 8
30 June 2021 - - 114 114
Net book value at 30 June
2021 10 2 241 253
9. Lease liabilities
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
GBP'million GBP'million GBP'million
At beginning of the period 269 310 327
Additions and modifications - (6) -
Disposals - (29) (11)
Lease payments made (13) (14) (15)
Interest on lease liabilities 8 8 9
At the end of the period 264 269 310
10. Deferred grants
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
GBP'million GBP'million GBP'million
At beginning of the period 19 22 28
Released to the income statement - (3) (7)
Offset against capital expenditure (see note
8) - - 1
At the end of the period 19 19 22
Our only deferred grant relates to amounts awarded in relation
to the Capability and Innovation Fund which formed part of the RBS
alternative remedies programme. The programme was aimed to increase
competition in the UK business banking marketplace.
As part of the grant we are subject to delivering a number of
public commitments. These commitments can be found on BCR's (the
awarding body) website. As at 30 June 2022 we are currently on
track with the delivery of these commitments.
11. Share capital
As at 30 June 2022 we had 172.4 million ordinary shares of
0.0001 pence (31 December 2021: 172.4 million, 30 June 2021: 172.4
million) in issue.
Called up ordinary share capital (issued and fully paid)
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
GBP'million GBP'million GBP'million
At beginning of the period - - -
At end of the period - - -
Share premium
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
GBP'million GBP'million GBP'million
At beginning of the period 1,964 1,964 1,964
At end of the period 1,964 1,964 1,964
12. Earnings per share
Basic earnings per share (EPS) is calculated by dividing the
loss attributable to our ordinary equity holders by the weighted
average number of ordinary shares in issue during the year.
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
(Loss) attributable to ordinary equity holders
(GBP'million) (61.7) (107.1) (141.1)
Weighted average number of ordinary shares
in issue (thousands) 172,421 172,421 172,420
Basic earnings per share (pence) (35.8) (62.1) (81.8)
Diluted EPS has been calculated by dividing the loss
attributable to our ordinary equity holders 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 we
were loss making during the six month periods to 30 June 2022 31
December 2021 and 30 June 2021, 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 EPS.
Half year Half year Half year
to to to
30 June 31 December 30 June
2022 2021 2021
(Loss)/profit attributable to ordinary equity
holders (GBP'million) (61.7) (107.1) (141.1)
Weighted average number of ordinary shares
in issue (thousands) 172,421 172,421 172,420
Diluted earnings per share (pence) (35.8) (62.1) (81.8)
13. Fair value of financial instruments
Quoted Using With significant
market observable unobservable
price inputs inputs
Carrying Level Level Level Total
value 1 2 3 fair value
GBP'million GBP'million GBP'million GBP'million GBP'million
30 June 2022
Assets
Loan and advances to customers 12,364 - - 12,498 12,498
Investment securities held
at FVOCI 781 743 38 - 781
Investment securities held
at amortised cost 5,393 3,685 1,482 53 5,220
Financial assets held at FVTPL 2 - - 2 2
Liabilities
Deposits from customers 16,514 - - 16,377 16,377
Deposits from central banks 3,800 - - 3,800 3,800
Debt securities 577 447 - - 447
Derivative financial liabilities 8 - - 8 8
Repurchase agreements 166 - - 166 166
31 December 2021
Assets
Loan and advances to customers 12,290 - - 12,356 12,356
Investment securities held
at FVOCI 798 760 38 - 798
Investment securities held
at amortised cost 4,776 2,977 1,710 60 4,747
Financial assets held at FVTPL 3 - - 3 3
Liabilities
Deposits from customers 16,448 - - 16,452 16,452
Deposits from central banks 3,800 - - 3,800 3,800
Debt securities 588 495 - - 495
Derivative financial liabilities 10 - 10 - 10
Repurchase agreements 169 - - 169 169
30 June 2021
Assets
Loan and advances to customers 12,325 - - 12,287 12,287
Investment securities held
at FVOCI 1,198 1,198 - - 1,198
Investment securities held
at amortised cost 3,165 1,480 1,632 64 3,176
Financial assets held at FVTPL 5 - - 5 5
Liabilities
Deposits from customers 16,620 - - 16,663 16,663
Deposits from central banks 3,800 - - 3,800 3,800
Debt securities 596 503 - - 503
Derivative financial liabilities 8 - - 8 8
Repurchase agreements 212 - - 212 212
Cash and balances with the Bank of England, trade and other
receivables, trade and other payables, assets classified as held
for sale and other assets and liabilities which meet the definition
of financial instruments are not included in the tables. Their
carrying amount is a reasonable approximation of fair value.
Information on how fair values are calculated 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 at fair value through profit and loss
relate to the loans and advances previously assumed by the
RateSetter provision fund. Following the purchase of the RateSetter
back book from peer-to-peer investors in April 2021 the provision
fund ceased to have liability for further claims which resulted in
a net release of GBP18 million of assets and liabilities held at
fair value through profit and loss.
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.
14. Legal proceedings and regulatory matters
As part of the normal course of business we are subject to legal
and regulatory matters, the majority of which are not considered to
have a material impact on the business.
The only contingent liability which we have, which could
potentially have a material impact, is the FCA's enquiries
regarding our financial crime systems and controls. We continue to
engage and co-operate fully with the FCA on these matters and their
enquiries remain at a relatively early stage.
The inclusion of these enquiries does not constitute any
admission of wrongdoing or legal liability. The outcome and timing
of these matters is inherently uncertain and based on the facts
currently known, it is not possible to predict the outcome or
reliably estimate any financial impact. As such, at the reporting
date no provision has been made within the financial
statements.
15. Post balance sheet events
There have been no material post balance sheet events.
OF the condensed consolidated interim financial statements
RECONCILIATION OF STATUTORY TO UNDERLYING RESULTS
(UNAUDITED)
Underlying loss represents an adjusted measure, excluding the
effect of certain items that are considered to distort year-on-year
comparisons, in order to provide readers with a better and more
relevant understanding of the underlying trends in the business.
Details of the item that are considered to be non-underlying and
their reasons for exclusion can be found on page 225 of our 2021
Annual Report and Accounts.
A reconciliation from our statutory to underlying results for
the period is set out below:
Impairment
and write
offs
of PPE Net
Statutory and intangible BCR Transformation Remediation Underlying
Half year to 30 basis assets costs costs costs basis
June 2022 GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
Interest income 239.7 - - - - 239.7
Interest expense (58.9) - 0.1 - - (58.8)
Net interest income 180.8 - 0.1 - - 180.9
Net fee and commission
income 39.5 - - - - 39.5
Net gains on sale - - - - - -
of assets
Other income 16.2 - (0.4) - - 15.8
Total income 236.5 - (0.3) - - 236.2
General operating
expenses (233.2) - 0.3 1.0 3.0 (228.9)
Depreciation and
amortisation (37.4) - - - - (37.4)
Impairment and write
offs of property,
plant & equipment
and intangible assets (8.2) 8.2 - - - -
Total operating
expenses (278.8) 8.2 0.3 1.0 3.0 (266.3)
Expected credit loss
expense (17.9) (17.9)
Loss before tax (60.2) 8.2 - 1.0 3.0 (48.0)
Details of our other alternative performance measures including
the methodology used to calculating them can be found on page 224
of our 2021 Annual Report and Accounts.
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