Metro Bank plc (MTRO) Metro Bank plc: Results for Year ended 31 December 2022 02-March-2023 / 07:00 GMT/BST

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Metro Bank PLC

Full year results

Trading Update 2022

2 March 2023

Metro Bank PLC (LSE: MTRO LN)

Results for Year ended 31 December 2022

Highlights

-- Profitable in Q4 2022 on an underlying basis

-- Financials significantly improved year-on-year:? Underlying revenue increased 31% ? NIM improved by 52bps ? Underlying costs reduced 3%

-- Completed turnaround; 2023 is a transitional year

-- Targeting mid-single digit RoTE by 2024

-- Resuming store expansion in the North of England

Key Financials

                          31                               30 
                                   31 December Change from         Change from 
GBP in millions             December                         June 
                                   2021        FY 2021             H1 2022 
                          2022                             2022 
 
Assets                    GBP22,119  GBP22,588     (2%)        GBP22,566 (2%) 
Loans                     GBP13,102  GBP12,290     7%          GBP12,364 6% 
Deposits                  GBP16,014  GBP16,448     (3%)        GBP16,514 (3%) 
Loan to deposit ratio     82%      75%         7pps        75%     7pps 
 
CET1 capital ratio        10.3%    12.6%       (230bps)    10.6%   (30bps) 
Total capital ratio (TCR) 13.4%    15.9%       (250bps)    13.8%   (40bps) 
MREL ratio                17.7%    20.5%       (280bps)    18.3%   (60bps) 
Liquidity coverage ratio  213%     281%        (68pps)     257%    (44pps) 
                              FY      FY       Change from H2      H1      Change from 
GBP in millions 
                              2022    2021     FY 2021     2022    2022    H1 2022 
 
Total underlying revenue1     GBP522.1  GBP397.9   31%         GBP285.9  GBP236.2  21% 
Underlying loss before tax2   (GBP50.6) (GBP171.3) (70%)       (GBP2.6)  (GBP48.0) (95%) 
Statutory loss before tax     (GBP70.7) (GBP245.1) (71%)       (GBP10.5) (GBP60.2) (83%) 
Net interest margin           1.92%   1.40%    52bps       2.11%   1.73%   38bps 
Lending yield                 3.67%   3.07%    60bps       3.93%   3.40%   53bps 
Cost of deposits              0.20%   0.24%    (4bps)      0.25%   0.14%   11bps 
Cost of risk                  0.32%   0.18%    14bps       0.33%   0.29%   4bps 
Underlying EPS                (30.5p) (101.1p) (70%)       (2.0p)  (28.5p) (93%) 
Tangible book value per share GBP4.29   GBP4.59    (7%)        GBP4.29   GBP4.30   (0%) 1. Underlying revenue excludes income recognised relating to the Capability and Innovation Fund and themortgage portfolio sale. 2. Underlying loss before tax excludes the impairment and write-off of property, net BCR costs, plant &equipment (PPE) and intangible assets, transformation costs, remediation costs, business acquisition andintegration costs, mortgage portfolio sale and costs related to holding company insertion. Summary 
     --  Underlying profit in Q4 achieved as a result of the bank's commitment to strong cost control and the 
       successful balance sheet optimisation strategy. 
     --  Underlying revenue increased by 31% to GBP522.1 million reflecting the shift in deposit and asset mix, the 
       impact of the higher Bank of England base rate, and a recovery in customer activity. 
     --  Underlying costs reduced 3% to GBP532.8 million despite inflationary pressures, reflecting management 
       actions to control cost and leverage the fixed cost base for profitable growth. 
     --  Operating jaws3 for 2022 were 34%. 
 
     --  Underlying loss before tax for the year improved by 70% to GBP50.6 million as a result of the strong 
       income growth, cost discipline and prudent risk management. 
     --  Statutory loss before tax of GBP70.7 million, improved 71%, as legacy issues, and their associated 
       remediation costs, concluded. 
     --  Legacy PRA and FCA issues addressed regarding investigations into historical RWA reporting, and the OFAC 
       investigation was closed during the year. 
     --  Targeting mid-single digit ROTE by 2024. 
 
     --  Resuming store expansion in the important economic areas and communities that make up the North of 
       England, supported by funding from the Capability and Innovation Fund. 
               Continued commitment to customers, communities and colleagues, voted the highest rated high street bank 
     --  for overall service quality for personal customers and the best bank for service in-store for personal 
       and business customers4 for the 10th time in a row. Unique culture provides local communities with the 
               support they need and builds long-lasting and personal relationships with customers. 
     --  Pillar 2A capital requirement reduced to 0.50% in June 2022, further reduced to 0.36% effective January 
       2023. 
     --  The Resolution Directorate of the Bank of England adjusted the bank's existing GBP250 million 5.5% Tier 2 
       Notes to remain eligible for MREL until 26 June 2025, following implementation of the holding company. 
     --  2023 is a transitional year and the bank will focus on serving customers and maintaining cost discipline 
       whilst continuing to invest in infrastructure and build sustainably. 3. Operating jaws calculated as percentage change in underlying revenue growth less percentage change inunderlying cost growth. 4. Competition and Market Authority's Service Quality Survey February 2023. 

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

"I'm pleased with Metro Bank's performance over the past year and the successful completion of our transformation plan. We returned to profitability, resolved our legacy issues and further strengthened the foundations for future sustainable growth. While I remain confident in the underlying business, material headwinds do exist, including the macro-economic environment and increasing competition for liabilities. We have established the basis to transition back to being a profitable growth engine, committed to serving our communities through our network of stores, digital offerings and stand-out customer service, as seen in the latest CMA results."

A presentation for investors and analysts will be held at 9:00AM (UK time) on Thursday 2 March 2023. The presentation will be webcast on:

https://webcast.openbriefing.com/metrobank-mar23/

For those wishing to dial-in:

From the UK dial: +44 800 640 6441

From the US dial: +1 855 9796 654

Access code: 172474

Financial performance for the year ended 31 December 2022

Deposits

                                                       31                                       30 
                                                                  31 December    Change from              Change from 
GBP in millions                                          December                                 June 
                                                                  2021           FY 2021                  H1 2022 
                                                       2022                                     2022 
 
Demand: current accounts                               GBP7,888     GBP7,318         8%             GBP7,770    2% 
Demand: savings accounts                               GBP7,501     GBP7,684         (2%)           GBP7,817    (4%) 
Fixed term: savings accounts                           GBP625       GBP1,446         (57%)          GBP927      (33%) 
Deposits from customers                                GBP16,014    GBP16,448        (3%)           GBP16,514   (3%) 
 
Retail customers (excl. retail partnerships)           GBP5,797     GBP6,713         (14%)          GBP6,267    (7%) 
SMEs5                                                  GBP5,080     GBP4,764         7%             GBP4,892    4% 
                                                       GBP10,877    GBP11,477        (5%)           GBP11,159   (3%) 
Retail partnerships                                    GBP1,949     GBP1,814         7%             GBP1,871    4% 
Commercial customers (excluding SMEs5)                 GBP3,188     GBP3,157         1%             GBP3,484    (8%) 
                                                       GBP5,137     GBP4,971         3%             GBP5,355    (4%) 
 
 5. 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. 
               Current accounts increased by 8% in the year to GBP7,888 million, the underlying service-led core deposit 
               franchise continued to grow. The focus remained on increasing share of relationship deposits whilst 
     --  allowing the fixed term deposits to roll off. As a result, total deposits fell 3% to GBP16,014 million as 
       at 31 December 2022 (31 December 2021: GBP16,448 million). Current account and demand deposits now make up 
               96% of the total deposit base (31 December 2021: 91%). 
 
               Cost of deposits decreased to 20bps for the year (2021: 24bps) reflecting improvements in deposit mix 
     --  and the value of the service-led business model, partially offset by the recent trend of increased 
       competition and pricing in the market. 
 
               Customer account growth of 0.2 million in the year to 2.7 million (2021: 2.5 million) reflects continued 
     --  organic growth in the underlying franchise, with 188,000 personal current accounts and 42,000 business 
       current accounts opened in the year. 
 
               Stores remain at the heart of the bank's service offering and the network will continue to expand as 
               opportunity exists for further market penetration in significant locations where there are currently no 
     --  stores present. The bank remains committed to opening stores in the North of England, the operational 
       costs post-launch of which will be funded in part by the Capability and Innovation Fund. These stores 
               are expected to be opened in 2024 and 2025. 
 
               Future stores have been redesigned and will be built for significantly less cost than previous stores, 
     --  but will not lose the distinctive Metro Bank style. Our refreshed approach will incorporate appropriate 
       break clauses and will have less surplus floor space and more cost-effective fixtures and fittings. 
 Loans 
                                                   31                               30 
                                                            31 December Change from         Change from 
GBP in millions                                      December                         June 
                                                            2021        FY 2021             H1 2022 
                                                   2022                             2022 
 
Gross Loans and advances to customers              GBP13,289  GBP12,459     7%          GBP12,535 6% 
Less: allowance for impairment                     (GBP187)   (GBP169)      11%         (GBP171)  9% 
Net Loans and advances to customers                GBP13,102  GBP12,290     7%          GBP12,364 6% 
 
Gross loans and advances to customers consists of: 
Retail mortgages                                   GBP7,649   GBP6,723      14%         GBP6,785  13% 
Commercial lending6                                GBP2,847   GBP3,220      (12%)       GBP2,993  (5%) 
Consumer lending                                   GBP1,480   GBP890        66%         GBP1,269  17% 
Government-backed lending7                         GBP1,313   GBP1,626      (19%)       GBP1,488  (12%) 
 
 6. Includes CLBILS. 
 7. BBLS, CBILS and RLS. 
               Total net loans as at 31 December 2022 were GBP13,102 million, up 7% from GBP12,290 million as at 31 
               December 2021 reflecting growth in residential mortgages and consumer lending, offset by the targeted 
     --  reduction of commercial term loans including commercial real estate and portfolio buy-to-let exposures. 
       Focus remains on optimising the mix for risk-adjusted return on capital. 
 
               Retail mortgages increased by 14% during the year to GBP7,649 million as at 31 December 2022 (31 December 
               2021: GBP6,723 million) and remained the largest component of the lending book at 58% (31 December 2021: 
     --  54%). The DTV of the portfolio as at 31 December 2022 was 56% (31 December 2021: 55%) and 82% of 
       originations in 2022 were <80% LTV, compared to 59% in 2021. 
 
               Commercial loans (excluding BBLS, CBILS and RLS) decreased by 12% during the year to GBP2,847 million as 
               at 31 December 2022 (31 December 2021: GBP3,220 million) reflecting active portfolio management reducing 
     --  commercial real estate to GBP681 million (31 December 2021: GBP837 million) and portfolio buy-to-let to GBP731 
       million (31 December 2021: GBP950 million), as part of the balance sheet optimisation strategy to target 
               higher risk-adjusted return on capital. 
 
               Consumer lending increased by GBP590 million to GBP1,480 million in the year and now makes up 11% of the of 
               the total loan book (31 December 2021: 7%). The increase is driven by high quality new organic lending, 
     --  for originations in Q4 2022 the average customer income was GBP52,000. Non-performing loans for consumer 
       unsecured were 3.38% at 31 December 2022 (31 December 2021: 2.36%). The portfolio has a conservative ECL 
               coverage of 5.07% (31 December 2021: 4.72%). 
 
               Government-backed lending reduced by more than GBP300 million in the year to GBP1,313 million as at 31 
     --  December 2022 (31 December 2021: GBP1,626 million) as balances continued to roll off, following effective 
       collections management supported by the British Business Bank. 
 
               Capital constraints currently limit loan growth, asset originations were in line with replacement levels 
     --  in Q4 2022. 
 
 
               Cost of risk increased to 32bps for the year (2021: 18bps). Whilst the credit quality of new lending 
     --  remains strong, the movement reflects the bank's prudent approach to provisioning in response to the 
       uncertain macro-economic environment and the growth in the consumer unsecured portfolio. 
 
               Non-performing loans decreased to 2.65% (31 December 2021: 3.71%) driven by effective management of BBLS 
               collections and reduced commercial exposures. Overall arrears levels have remained broadly stable and 
     --  there have been no signs of increased stress. Excluding government-backed lending, non-performing loans 
       were 2.02% as at 31 December 2022 (31 December 2021: 2.65%). 
 
               The loan portfolio remains highly collateralised and conservatively provisioned. Average DTV for retail 
     --  mortgages was 56% (2021: 55%) and for commercial lending 55% (2021: 57%). The ECL provision as at 31 
       December 2022 is GBP187 million with a coverage ratio of 1.41%, compared to GBP169 million with a coverage 
               ratio of 1.36% as at the end of 2021. 

Profit and Loss Account

               Net interest margin (NIM) of 1.92% is up 52bps in the year (2021: 1.40%) reflecting the successful 
               balance sheet optimisation strategy of shifting towards higher yielding assets and rolling off more 
     --  expensive fixed term deposits, also supported by the higher Bank of England base rate. Exit-NIM for 
       December 2022 was 2.22%. 
 
               Underlying net interest income increased 37% to GBP404.2 million for the year (2021: GBP295.7 million) 
     --  driven by controlled asset growth and significant reshaping of lending and deposits supported by the 
       rising interest rate environment. 
 
               Underlying net fee and other income increased 16% to GBP117.9 million for the year (2021: GBP101.5 million) 
     --  driven largely by higher customer transactions, increased safe deposit box usage and foreign currency 
       activity, as volumes normalised following Covid-related restrictions in 2021. 
 
               Underlying costs reduced 3% to GBP532.8 million for the year (2021: GBP546.8 million) despite inflationary 
     --  pressures, reflecting management actions to control cost. 
 
 
               Positive operating jaws of 34% for 2022 (2021: 4%) underpinned a reduction in the underlying cost:income 
     --  ratio from 137% in 2021 to 102% in 2022. 
 
 
               Underlying loss before tax improved by 70% to GBP50.6 million for the year (2021: GBP171.3 million) as a 
     --  result of the strong income growth and continued cost discipline. Underlying profit before tax achieved 
       in Q4 2022. 
 
     --  Statutory loss before tax of GBP70.7 million, improved 71% as legacy issues, and their associated 
       remediation costs, concluded. 

Capital, Funding and Liquidity

                          31 
                                   31 December Change from 
GBP in millions             December                         Minimum capital requirement8 
                                   2021        FY 2021 
                          2022 
 
CET1 capital ratio        10.3%    12.6%       (230bps)    4.8% 
Total capital ratio (TCR) 13.4%    15.9%       (250bps)    8.5% 
MREL ratio                17.7%    20.5%       (280bps)    17.0% 
               While the bank continues to operate within capital buffers, the capital position has been managed above 
     --  all regulatory minimum requirements8 and the balance sheet continues to be actively managed within 
       capital constraints. 
 
               During the year, the Prudential Regulation Authority 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 requirement8 was reduced to 17.0%. 
 
               Effective 1 January 2023, the Prudential Regulation Authority has further reduced the bank's Pillar 2A 
               capital requirement from 0.50% to 0.36%, the reduction implies that the bank's MREL requirement8 would 
               therefore reduce from 17.0% to 16.7%. 
 
               The Bank of England's Resolution Directorate has agreed to provide a temporary, time-limited, adjustment 
     --  for the bank's existing GBP250 million 5.5% Tier 2 Notes with respect to MREL eligibility until 26 June 
       2025. 
 
               Common Equity Tier 1 (CET1) ratio of 10.3% as at 31 December 2022 (31 December 2021: 12.6%) compares to 
     --  a minimum CET1 requirement of 4.8%8 (or 8.3% including buffers9) and minimum Tier 1 requirement of 6.4%8 
       (or 9.9% including buffers9). 
 
               Total Capital ratio of 13.4% as at 31 December 2022 (31 December 2021: 15.9%) compares to a minimum 
     --  requirement of 8.5%8 (or 12.0% including buffers9). 
 
 
               Total Capital plus MREL ratio of 17.7% as at 31 December 2022 (31 December 2021: 20.5%) compares to a 
     --  minimum requirement of 17.0%8 (or 20.5% including buffers9). 
 
 
               Strong liquidity and funding position maintained. All customer loans are fully funded by customer 
               deposits with a loan-to-deposit ratio of 82% as at 31 December 2022 (31 December 2021: 75%). Strong 
     --  Liquidity Coverage Ratio (LCR) of 213% as at 31 December 2022 (31 December 2021: 281%) and a Net Stable 
       Funding Ratio (NSFR) of 134%, both far in excess of requirements. 
 
               Total RWAs as at 31 December 2022 were GBP7,990 million (31 December 2021: GBP7,454 million). The increase 
     --  reflects actions taken to improve the loan mix whilst managing loan growth within current capital 
       constraints. 
 
     --  UK leverage ratio10 was 4.2% as at 31 December 2022 (31 December 2021: 5.2%). 
 
 
               The bank's AIRB application continues to progress, and the requirement to implement a holding company 
     --  for 'bail in' purposes is on track to be completed by the deadline in June 2023. 
 
 8. Based on capital requirements at 31 December 2022, excluding all buffers. 9. Based on capital requirements at 31 December 2022 plus buffers, excluding any confidential PRA buffer, ifapplicable. 10. The PRA Policy Statement 21/21 took affect from 1 January 2022 which required the exclusion of certaincentral bank claims from the total exposure measure. 

Guidance

              2022    2023 
 
NIM           1.92%   NIM accretion limited by fewer anticipated base rate moves. 
Lending yield 3.67%   Continue optimising mix for maximum risk-adjusted return on regulatory capital. 
Cost of       0.20%   Pricing will reflect rate environment and competitive pressures, expect strong account 
deposits              acquisition to offset lower average customer balances. 
Underlying    GBP533m   Inflationary pressures expected to moderately outweigh cost initiatives. 
costs 
Cost of risk  0.32%   Watchful of economic cycle but not yet seeing signs of stress. 
RWA           GBP8.0b   Managed for optimal risk-adjusted return on regulatory capital as lending growth constrained by 
                      capital. 
MREL          17.7%   Continue to operate within buffers with increasing headroom to regulatory minima. 

Targeting mid-single digit RoTE by 2024. Metro Bank PLC

Summary Balance Sheet and Profit & Loss Account

(Unaudited)

                                 YoY      31-Dec    30-Jun    31-Dec 
Balance Sheet 
                                 change   2022      2022      2021 
                                          GBP'million GBP'million GBP'million 
Assets 
Loans and advances to customers  7%       GBP13,102   GBP12,364   GBP12,290 
Treasury assets11                         GBP7,870    GBP9,036    GBP9,142 
Other assets12                            GBP1,147    GBP1,166    GBP1,156 
Total assets                     (2%)     GBP22,119   GBP22,566   GBP22,588 
 
Liabilities 
Deposits from customers          (3%)     GBP16,014   GBP16,514   GBP16,448 
Deposits from central banks               GBP3,800    GBP3,800    GBP3,800 
Debt securities                           GBP571      GBP577      GBP588 
Other liabilities                         GBP778      GBP706      GBP717 
Total liabilities                (2%)     GBP21,163   GBP21,597   GBP21,553 
Total shareholder's equity                GBP956      GBP969      GBP1,035 
Total equity and liabilities              GBP22,119   GBP22,566   GBP22,588 11. Comprises investment securities and cash & balances with the Bank of England. 12. Comprises property, plant & equipment, intangible assets and other assets. 
                                                                                      Year ended 
                                                                               YoY    31-Dec    31-Dec 
Profit & Loss Account 
                                                                               change 2022      2021 
                                                                                      GBP'million GBP'million 
 
Underlying net interest income                                                 37%    GBP404.2    GBP295.7 
Underlying net fee and other income                                            16%    GBP117.9    GBP101.5 
Underlying net gains/(losses) on sale of assets                                       -         GBP0.7 
Total underlying revenue                                                       31%    GBP522.1    GBP397.9 
 
Total underlying costs                                                         (3%)   (GBP532.8)  (GBP546.8) 
 
Expected credit loss expense                                                   78%    (GBP39.9)   (GBP22.4) 
 
Underlying loss before tax                                                     (70%)  (GBP50.6)   (GBP171.3) 
 
 
 
Impairment and write-off of property plant & equipment and intangible assets          (GBP9.7)    (GBP24.9) 
Transformation costs                                                                  (GBP3.3)    (GBP8.9) 
Remediation costs                                                                     (GBP5.3)    (GBP45.9) 
Business acquisition and integration costs                                            -         (GBP2.4) 
Gain on mortgage portfolio sale (net of costs)                                        -         GBP8.3 
Holding company insertion                                                             (GBP1.8)    - 
Statutory loss before tax                                                      (71%)  (GBP70.7)   (GBP245.1) 
 
Statutory taxation                                                                    (GBP2.0)    (GBP3.1) 
 
Statutory loss after tax                                                       (71%)  (GBP72.7)   (GBP248.2) 
                                                       Year ended 
                                                       31-Dec  31-Dec 
Key metrics 
                                                       2022    2021 
 
Underlying earnings per share - basic and diluted      (30.5p) (101.1p) 
Number of shares                                       172.5m  172.4m 
Net interest margin (NIM)                              1.92%   1.40% 
Lending yield                                          3.67%   3.07% 
Cost of deposits                                       0.20%   0.24% 
Cost of risk                                           0.32%   0.18% 
Arrears rate                                           3.2%    4.1% 
Underlying cost:income ratio                           102%    137% 
Tangible book value per share                          GBP4.29   GBP4.59 
 
 
 
                                                                                        Half year ended 
                                                                             HoH change 31-Dec    30-Jun    31-Dec 
Profit & Loss Account 
                                                                                        2022      2022      2021 
                                                                                        GBP'million GBP'million GBP'million 
 
Underlying net interest income                                               23%        GBP223.3    GBP180.9    GBP162.1 
Underlying net fee and other income                                                     GBP62.6     GBP55.3     GBP54.8 
Underlying net gains/(losses) on sale of assets                                         -         -         GBP1.2 
Total underlying revenue                                                     21%        GBP285.9    GBP236.2    GBP218.1 
 
Total underlying costs                                                       -          (GBP266.5)  (GBP266.3)  (GBP271.6) 
 
Expected credit loss expense                                                            (GBP22.0)   (GBP17.9)   (GBP7.8) 
 
Underlying loss before tax                                                   (95%)      (GBP2.6)    (GBP48.0)   (GBP61.3) 
 
Impairment and write-off of property plant & equipment and intangible assets            (GBP1.5)    (GBP8.2)    (GBP17.4) 
Net BCR costs                                                                           -         -         GBP0.3 
Transformation costs                                                                    (GBP2.3)    (GBP1.0)    (GBP7.1) 
Remediation costs                                                                       (GBP2.3)    (GBP3.0)    (GBP20.5) 
Business acquisition and integration costs                                              -         -         (GBP0.1) 
Gain on mortgage portfolio sale (net of costs)                                          -         -         (GBP0.1) 
Holding company insertion                                                               (GBP1.8)    -         - 
 
Statutory loss before tax                                                    (83%)      (GBP10.5)   (GBP60.2)   (GBP106.2) 
 
Statutory taxation                                                                      (GBP0.5)    (GBP1.5)    (GBP0.9) 
 
Statutory loss after tax                                                     (82%)      (GBP11.0)   (GBP61.7)   (GBP107.1) 
                                                    Half year ended 
                                                    31-Dec 30-Jun  31-Dec 
Key metrics 
                                                    2022   2022    2021 
 
Underlying earnings per share - basic and diluted   (2.0p) (28.5p) (36.0p) 
Number of shares                                    172.5m 172.4m  172.4m 
Net interest margin (NIM)                           2.11%  1.73%   1.51% 
Lending yield                                       3.93%  3.40%   3.14% 
Cost of deposits                                    0.25%  0.14%   0.17% 
Cost of risk                                        0.33%  0.29%   0.20% 
Arrears rate                                        3.2%   3.1%    4.1% 
Underlying cost:income ratio                        93%    113%    125% 
Tangible book value per share                       GBP4.29  GBP4.30   GBP4.59 
 

Enquiries

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 2.7 million customer accounts and is celebrated for its exceptional customer experience. It is the highest rated high street bank for overall service quality for personal customers and the best bank for service in-store for personal and business customers, in the Competition and Markets Authority's Service Quality Survey in February 2023. Metro Bank has also been awarded "2023 Best Lender of the Year - UK" in the M&A Today, Global Awards, "Best Mortgage Provider of the Year" in 2022 MoneyAge Mortgage Awards, "Best Business Credit Card" in 2022 Moneynet Personal Finance Awards, "Best Business Credit Card 2022", Forbes Advisor, "Best Current Account for Overseas Use" by Forbes 2022 and accredited as a top ten Most Loved Workplace 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

Preliminary Announcement

(Unaudited)

For the year ended 31 December 2022

Chief executive officer's statement

I am very pleased that the Bank ended 2022 in its strongest position for several years. We completed our transformation plan, despite facing into a series of challenging economic and external headwinds, and have built the foundations to drive sustainable profitable growth. Perhaps the most significant proof point of our progress is recording in Q4 2022 our first full quarter of underlying profit since Q2 2019 and ahead of our announced intention to break even in Q1 2023.

We've achieved this as a result of ongoing cost control, building a wider suite of asset products and the rising interest rate environment, in parallel to maintaining our unwavering commitment to local communities and our focus on excellent customer service. We are proud to have kept our position for the tenth time in a row as the top rated high street bank for overall service quality to personal customers, plus ranking as the best high street bank for in-store personal and business service in the CMA service quality survey.

We have a solid platform on which to build in 2023, having established strong momentum in 2022, although we recognise the economic challenges which are expected. This is a testament to tireless work by all my colleagues right across the Bank, and I would like to take this opportunity to thank them for their ongoing skill, effort, dedication and laser-like focus on creating FANS. I am proud to lead such an inspiring and hardworking team, and look forward to serving our customers and creating more FANS in 2023.

Strong momentum towards a sustainably profitable community bank

By delivering our transformation plan, we have proved what we have always known - that our model works and can deliver sustainable growth and profitability. Our delivery of market-leading service helps us attract core deposits allowing us to grow lending, which we flex and balance across a range of asset classes, to generate high-quality earnings.

Community banking via our store network is integral to this and will remain a core component of our model and service offering. Our newest store opened in Leicester at the start of 2022 and is performing well. Our transformation plan has enabled newer stores to open at much reduced cost and in 2023 we will undertake planning work with a view to resuming store openings in 2024, focused on locations in the North of England with large local populations and strong SME presence. We remain committed to the elements that have always made our 76 stores stand out, including being open seven days a week, 362 days a year, from early until late.

We know we cannot succeed without investing in excellent digital services to complement our store network. As customers' digital expectations evolve, we will continue to invest in and refine our digital customer services while remaining true to our guiding customer promises.

Successful completion of our transformation plan

Our strategic priorities were launched three years ago with the objective of setting the Bank on a path back to sustainable profitability and growth, while staying true to our community banking model. Execution against the strategic priorities has been excellent throughout the transformation period and has been instrumental in returning us to profitability.

Revenue

In a more normalised interest rate environment our model has really come into its own with the combination of core deposits attracted by our excellent customer service proposition and a strategically rebalanced asset mix towards higher yield lending leading to improved net interest margin.

We have continued to expand the range of products we offer to meet our customers' needs. For example, our new enhanced business overdraft product was launched in March and has quickly become popular with our business customers, due to the fully digital journey. In December we launched our motor finance lending product, which operates under our RateSetter brand using the latest technology to ensure a market-leading, fast and efficient customer journey. We've also supported customers by growing our mortgage and invoice finance propositions, including developing new products, such as asset based lending.

Costs

We have retained tight control of our costs by further ingraining discipline across all business functions. Examples of this in practice include simplifying our IT processes; improvements to our online and mobile app which have reduced calls to our AMAZE Direct contact centres; freeing up time to focus on more complex calls. We've also continued to embed Agile working practices to deliver better products and services more efficiently and safely. We recognise the need to continue to target low marginal costs and efficient operations to support our future profitability.

Like any responsible retailer we regularly review our store estate, and during 2022 we completed the closure of three stores. This was a difficult decision, but we ensured the impacts were minimal with customers supported and there were no redundancies. We don't have any plans for further closures and are pleased with how our stores are performing.

Infrastructure

Our objective is to make the Bank safer, more resilient and fit for the future. We have continued to invest in core infrastructure, enhance risk management and integrate channels to further improve our service offering.

We have implemented a programme to identify and respond to the needs of our vulnerable customers with our customary AMAZEING service. We have also invested in regulatory reporting, sanctions compliance, anti-money laundering controls and in systems scalability and resilience.

To prepare for the introduction of the Consumer Duty, we are enhancing our products, services, communications and customer journeys, along with monitoring customer outcomes to align with the requirements.

Balance sheet optimisation

We continued to shift the balance towards assets with better risk-adjusted returns on regulatory capital, growing our unsecured consumer finance under the RateSetter brand along with higher-yielding residential mortgage lines and asset finance.

Communication

Our commitment to supporting our colleagues and communities is deep and enduring. Inclusion is at the heart of our culture and we demonstrate this through the local colleagues we employ, the market-leading service we deliver to all our customers and the local causes we support. Our new D&I strategy celebrates our achievements and further raises our ambitions for the future. Being named as one of the UK's Most Loved Workplaces is a great testament to how special our culture is.

I'm delighted to say that we promoted more than 600 colleagues in 2022 across all teams and levels, including the Executive Committee (ExCo). In response to the rising cost of living pressures, in the second half of the year we delivered a 2.75% salary increase to colleagues. This was made up of passing on to colleagues our saving as an employer from the Government's 1.25% National Insurance reduction and contributing a further 1.5% ourselves. This was on top of the average 5% salary increase delivered at the start of the year - meaning that 98% of colleagues have received on average a 7.75% salary increase during 2022. We decided to take this approach, as opposed to a one-off payment, to provide lasting support to help our colleagues with cost of living challenges.

We remain customer-focused

As a people-people relationship-based bank, creating FANS has always been and always will be our motivation for delivering superb customer service, and our commitment to delighting our customers is reflected in our recurring position on top of the high street customer service rankings. In 2022, initiatives such as local marketing around our stores and improved digital communications helped deliver strong growth in our personal and business accounts. In addition, our hands-on support for communities is unwavering, from our financial literacy programme, Money Zone, which we have expanded to include young adult care leavers, to our colleagues directly volunteering to help local causes.

We've drawn a line under the Bank's legacy issues

2022 has also seen us substantially close out the Bank's main legacy issues. This included the conclusion of the OFAC investigation into sanctions breaches, with no financial penalty.

Following the finalisation of the PRA's regulatory reporting investigation at the end of 2021, the FCA concluded its RWA investigation in December 2022. The outcome was within the range of outcomes we expected and we can now put this legacy issue firmly behind us, having greatly improved our reporting processes and controls.

Navigating through the economic cycle

2022 was a year of political turbulence and economic challenges which we expect to continue into 2023, with the economy slowing and inflation remaining elevated.

We now have engines to generate risk-adjusted returns through the economic cycle. Our lending continues to be conservative and our approach to provisioning for loan performance stands us in good stead to navigate economic fluctuations.

We will continue to manage our capital position carefully. We know our model can deliver more growth, but we are constrained by our capital and MREL requirements.

We will look to optimise our capital stack

Capital is a core focus for us, as while we meet all of our minimum requirements, we continue to operate within our capital buffers.

Our return to sustainable capital generation, and therefore our path to exiting capital buffers, will consist of our return to profitability combined with a continued focus on balance sheet optimisation, including actively managing lending. Alongside this we are progressing our application to adopt an Internal Ratings Based (IRB) approach to calculating credit risk with the regulator. We will also seek to access the capital markets to raise additional regulatory debt, as and when conditions allow.

Evolving our strategic priorities

As we come to the end of our transformation journey and are positioned for profitable growth, now is the time to increase focus on our strategic priorities so we can deliver on the things that are important for our stakeholders.

In achieving this, our headline priorities will remain unchanged during this transitional year. Our focus will, however, shift from fixing the problems of the past to leveraging the strengths of our business model for future growth.

While 2023 is going to be a transitional year, the following few years will see us place a renewed focus on growth, ensuring this is done in both a responsible and sustainable way. We will continue to operate above our minimum requirements although will remain within our capital buffers in the short term. If our capital constraints were to ease we know that we could grow more quickly and generate greater shareholder returns.

Momentum towards meeting our goals

We have built strong momentum over the last three years by successfully implementing our transformation plan: driving higher revenue, keeping costs firmly under control and optimising our balance sheet, while maintaining our service standards, protecting our culture and supporting communities. Maintaining this disciplined approach for future years instils confidence that our goals of achieving sustainable profitability and realising our ambition to be the number one community bank is within our sights.

Finance review

Summary of the year

2022 was a significant year for Metro Bank with continued momentum in financial performance, marked by a return to underlying profitability in the final quarter of the year, and the continued execution of our ambition to be the number one community bank. We now have a clear opportunity to deliver for our customers, colleagues and shareholders and build sustainable profitability in 2023 and beyond.

Underlying loss before tax for the year reduced to GBP50.6 million down from GBP171.3 million in 2021 as a result of strong income growth combined with continued tight cost discipline. On a statutory basis losses before tax reduced to GBP70.7 million (2021: GBP245.1 million) as we continued to put legacy issues, and their associated remediation costs, behind us.

The economic backdrop remains uncertain and during the year we recognised an ECL expense of GBP39.9 million (2021: GBP22.4 million). We continue to take a prudent approach to origination and our ECL reflect the quality of our lending.

Alongside this we remain deposit funded with a loan-to-deposit ratio as at 31 December 2022 of 82% (31 December 2021: 75%) and retain a strong liquidity position.

While we continue to operate in capital buffers we have remained above regulatory minima throughout 2022. We have taken active measures to protect our capital ratios by constraining asset origination to around replacement levels. This, combined with a return to profitability has seen our capital ratios start to stabilise in the fourth quarter. At 31 December 2022 our CET1, Tier 1 and total capital plus MREL ratios were 10.3%, 10.3% and 17.7% respectively (31 December 2021: 12.6%, 12.6% and 20.5%).

Income statement

                                    2022     2021     Change 
 
                                    GBPm       GBPm       % 
Underlying net interest income       404.2    295.7    37% 
Underlying non-net interest income   117.9    102.2    15% 
Total underlying revenue             522.1    397.9    31% 
Underlying operating expenses        (532.8)  (546.8)  (3%) 
ECL expense                          (39.9)   (22.4)   78% 
Underlying loss before tax           (50.6)   (171.3)  (70%) 
Non-underlying items                 (20.1)   (73.8)   (73%) 
Statutory loss before tax            (70.7)   (245.1)  (71%) 

Income

Underlying net interest income rose by 37% to GBP404.2 million (2021: GBP295.7 million), driven by an increase in net interest margin which rose 52 basis points (bps) to 1.92% (2021: 1.40%). This was a result of active management of the deposit base to maintain our low cost of deposits, continued balance sheet management including growing our mortgage and consumer finance books together with the benefits of the higher Bank of England base rates.

During the year our current account balances increased 8% or GBP570 million while we continued the managed reduction in higher rate fixed-term accounts. The result of these actions saw our cost of deposits remain significantly below base rate at 0.20% (2021: 0.24%). Our business model is service-led and is supported by a compelling store proposition and this has resulted in a cost of deposits significantly below the majority of sector peers.

Non-interest income

Non-interest income growth has reflected the normalisation of volumes following 2021 COVID-19 related restrictions. Underlying non-interest income increased to GBP117.9 million (2021: GBP102.2 million), driven largely by continued fee growth, in part by higher customer transaction fees. This included a 23% increase in income from customer foreign currency transactions which rose to GBP34.1 million from GBP27.7 million in 2021.

Service charges and other fee income also increased, rising to GBP30.9 million from GBP25.5 million in 2021, as we continued to grow our customer base and service their financial needs. This is particularly the case for SMEs, where we believe our service approach fills a need which is largely underserved by the wider market.

Safe deposit boxes income increased to GBP16.5 million (2021: GBP15.1 million), with new net box openings in existing stores offsetting the loss from the net stores reduction. Visits to safe deposit boxes are now above pre-pandemic levels.

Operating expenses

                              2022 2021 
Underlying cost:income ratio  102% 137% 
Statutory cost:income ratio   106% 153% 

Despite the rising inflation environment through the year, underlying operating expenses fell by 3% year-on-year to GBP532.8 million (2021: GBP546.8 million). This reduction in costs, combined with rising income, saw our underlying cost:income ratio improve from 137% in 2021 to 102% in 2022.

People costs remain the largest component of our cost base and during the year these fell by 1% to GBP236.6 million (2021: GBP239.0 million). This is despite an average 5% salary rise given to colleagues in March followed by a further cost of living increase for all but our most senior colleagues in December. In addition to this our active management of our underlying non-people related expenses has resulted in a 4% year-on-year reduction from GBP307.8 million to GBP296.2 million in these costs.

Inflation is still being felt across the UK. Despite achieving lower costs in 2022 than 2021, we expect the broad inflationary pressures in the economy will likely mean our costs will increase in 2023 across colleague and supplier costs.

Depreciation and amortisation charges fell during in the year, reducing from GBP80.2 million to GBP77.0 million as the pace of our investment slowed from the peak spending set out as part of our transformation plan.

Non-underlying items

                                                                           2022                2021          Change 
 
                                                                           GBPm                  GBPm            % 
Impairment and write-off of property, plant, equipment and intangible       (9.7)               (24.9)        (61%) 
assets 
Remediation costs                                                           (5.3)               (45.9)        (88%) 
Transformation costs                                                        (3.3)               (8.9)         (63%) 
Business acquisition and integration costs                                  -                   (2.4)         n/a 
Mortgage portfolio sale                                                     -                   8.3           n/a 
Holding company insertion costs                                             (1.8)               -             n/a 
Non-underlying items                                                                                 (245.1)      (92%) 
                                                                           (20.1) 

Non-underlying costs continued to fall as we closed out legacy issues and also delivered functionality prioritised under our transformation plan. This normalisation in non-underlying costs aided in total statutory operating expense falling from GBP641.2 million in 2021 to GBP554.3 million in 2022.

In 2022 we saw the conclusion of the OFAC investigation into sanctions breaches, with no financial penalty. In December, we also settled with the FCA in respect of the 2019 RWA matters for GBP10 million, within the range outlined last year and drawing this matter to a close. We had recognised a provision of GBP5 million in respect of this matter during 2021, with the remainder recognised within remediation costs during the year.

We have started to prepare for the implementation of our holding company which we are required to have in place by June 2023. The related costs are being treated as non-underlying due to their one-off nature. This was the only new non-underlying item during 2022.

Expected credit loss expense

                 ECL Allowance Coverage ratio Non-performing loan ratio 
31 December 2022 
                 GBPm            %              % 
Retail mortgages 20            0.26%          1.45% 
Consumer lending 75            5.07%          3.38% 
Commercial       92            2.21%          4.59% 
Total lending    187           1.41%          2.65% 
31 December 2021 
Retail mortgages 19            0.28%          1.70% 
Consumer lending 42            4.72%          2.36% 
Commercial       108           2.23%          6.75% 
Total lending    169           1.36%          3.71% 

Our ECL expense increased 78% during 2022 to GBP39.9 million (2021: GBP22.4 million). This reflects both the uncertain economic outlook and high inflationary environment that has emerged during the year, as well as increased consumer lending within our asset mix.

The majority of the ECL charge was due to a GBP33 million increase in consumer impairments. The consumer coverage ratio ended the year at 5.07% (31 December 2021: 4.72%) in line with our expectations as these balances start to mature.

As we potentially enter a more challenging phase of the credit cycle, we continue to monitor our portfolio for early signs of deterioration and where necessary take proactive action to both support our customers and ensure losses are minimised.

We continue to see very few early signs of deterioration in our lending book with non-performing loans (NPLs) representing 2.65% of gross lending (31 December 2021: 3.71%), reflecting the resilient nature of our balance sheet. Our mortgage portfolio is well collateralised with average debt-to-value (DTV) of 56% (31 December 2021: 55%) and our consumer portfolio is geared towards prime customers with an average borrower income for RateSetter loans in 2022 of GBP48,000.

Our new origination quality has remained strong and mortgage applicant quality, as measured through credit scorecards, has remained stable over the course of 2022. The proportion of new business with a loan-to-value (LTV) over 80% has reduced from 41% in 2021 to 18% in 2022. In the RateSetter loan portfolio the proportion of higher rated credit scoring applicants has increased during the year as has the average income of customers for new loans. This prudent lending approach should mean that these customers are less exposed to inflationary risks as the cost of living increases.

The impact of high inflation, exacerbated by the Russian invasion of Ukraine has led to deterioration in the economic outlook during the year. Within the retail mortgage portfolio, this deterioration and the increase in balances has contributed to a GBP1 million increase in impairments held. Despite the increases in provisions, the portfolio is well placed to provide resilience in the face of the economic outlook.

In the commercial portfolio we are actively rolling off older balances, in particular in the commercial real estate portfolio where balances fell to GBP681 million as at 31 December 2022 from GBP837 million in 2021. Across the commercial book our average DTV is 55% (31 December 2021: 57%) and we maintain appropriate coverage ratios. The reduction in commercial ECL stock from GBP108 million as at 31 December 2021 to GBP92 million as at year-end reflects the continued repayment of balances combined with the write-off of a number of individually assessed impairments on larger loans.

We continue to evolve our ECL models and where necessary apply expert judgements in the form of PMOs and PMAs to captured emerging factors not captured by the models. In the unsecured space this is aided by the 12 years of credit data that came with the acquisition of RateSetter. This has seen the proportion of our expected credit losses made up of PMOs and PMAs fall to 16% of as at 31 December 2022 down from 26% as at 31 December 2021.

Balance sheet

Lending

                  31 December 
                  2022    2021    Change 
 
                  GBPm      GBPm      % 
Retail mortgages   7,649   6,723   14% 
Consumer lending   1,480   890     66% 
Commercial         4,160   4,846   (14%) 
Gross lending      13,289  12,459  7% 
ECL allowance      (187)   (169)   11% 
Net lending        13,102  12,290  7% 

Net lending increased by 7% year-on-year ending the year at GBP13,102 million (31 December 2021: GBP12,290 million) with retail mortgages continuing to form the majority of lending at 58% of the portfolio (31 December 2021: 54%). During the year we received over GBP4 billion in mortgage applications, up 182% on 2021. We completed over GBP2.1 billion of mortgage lending (up 178% year-on-year), making us a top 20 mortgage lender.

Our retail mortgage portfolio continues to be primarily focused on owner occupied loans. These make up 72% of balances as at 31 December 2022 (31 December 2021: 75%) with the remainder consisting of retail buy-to-lets.

As at 31 December 2022 10% of our retail mortgages were variable rate (31 December 2021: 13%) with the remainder having an weighted average life of 2.45 years before they reprice (31 December 2021: 1.95 years).

We have continued to build our consumer lending proposition so that, as at 31 December 2022, consumer lending formed 11% of gross lending, up from 7% as at 31 December 2021. As well as providing greater risk-adjusted returns than some of our historic lending, our unsecured personal loans have relatively short lives, allowing us to replace this lending more regularly as interest rates rise.

Commercial balances fell 14% to GBP4,160 million (31 December 2021: GBP4,846 million) reflecting active portfolio management combined with the roll-off of COVID-19 related government-backed lending balances. As at 31 December 2022 government-backed lending made up 36% of our commercial term lending portfolio (31 December 2021: 37%), the majority consisting of amounts lent under the Bounce Back Loan Scheme (BBLS). During the year we claimed back GBP349 million (2021: n/a) in respect of defaulted BBLS loans. We continue to maximise recoveries on these loans to minimise taxpayer losses, and we received a green audit from the British Business Bank during the year for our collections and recovery activity.

Investment securities

In 2022 we took the opportunity presented by rising gilt yields to redeploy surplus cash balances into capital-efficient treasury assets.

As a result of this combined with our lending growth and the active reduction of high-cost fixed deposits, cash and balances at the Bank of England fell from GBP3,568 million at the end of 2021 to GBP1,956 million as at 31 December 2022, with investment securities rising to GBP5,914 million (31 December 2021: GBP5,574 million).

Interest income earned on investment securities during the year rose from GBP23.2 million to GBP67.6 million.

Our investment securities remain high quality with 68% having a AAA credit rating (31 December 2021: 73%). The remaining investment securities are all AA- or higher, the majority of which consists of UK gilts.

Other assets

Intangible assets reduced 11% as the pace of investment slowed, in line with our transformation plan.

Property, plant and equipment balances continued to fall as we retained our pause on future store growth. This led to depreciation charges for the year offsetting the small level of additions in respect of the Leicester store which opened at the start of 2022 and the purchase of two freeholds during the year. Over the course of our transformation plan we have added 10 freehold and long-lease stores, with these now making up 38% of our store estate; providing us with greater flexibility over these sites and reducing our long-term liabilities.

Deposits

                                                 31 December 
                                                 2022    2021    Change 
 
                                                 GBPm      GBPm      % 
Retail customer (excluding retail partnerships)   5,797   6,713   (14%) 
Retail partnership                                1,949   1,814   7% 
Commercial customers (excluding SMEs)             3,188   3,157   1% 
SMEs                                              5,080   4,764   7% 
Total customer deposits                           16,014  16,448  (3%) 
Of which: 
Demand: current accounts                          7,888   7,318   8% 
Demand: savings accounts                          7,501   7,684   (2%) 
Fixed term: savings accounts                      625     1,446   (57%) 

Deposit balances fell 3% year-on-year to GBP16,014 million (31 December 2021: GBP16,448 million) as we continued to allow fixed rate balances to roll-off while continuing to acquire more business and personal current accounts during the year.

As at 31 December 2022 current accounts made up 49% of deposits (31 December 2021: 44%). This aided in our cost of deposits falling from 0.24% to 0.20%. The base rates rises during the year have seen our interest expense on savings accounts increase, albeit at a lower rate than the base rate increases, reflecting the quality of our deposits and the value of our model.

Wholesale funding and liquidity

We remain largely deposit funded with a loan-to-deposit ratio as at 31 December 2022 of 82% (31 December 2021: 75%).

Alongside our deposit base we continue to utilise wholesale funding in the form of the Bank of England's Term Funding Scheme with additional incentives for SMEs (TFSME). The cost of this funding is linked directly to the base rate and therefore has risen from GBP4.0 million in 2021 to GBP55.5 million in 2022. Despite this increase, it remains an additional stable cost of funding and is accretive to net interest income. Our TFSME drawdowns will start to mature in 2024 and continue through until 2027.

Lease liabilities

                  Minimum lease payments as at 
                  31 December 2022 
                  GBPm 
Within one year    24 
One to five years  88 
Five to 10 years   92 
Over 10 years      80 

Lease liabilities fell by 8% during the year to GBP248 million as at 31 December 2022 (31 December 2021: GBP269 million) reflecting the continued pay down of our leases, combined with the freehold purchases in the year as well as the surrendering of the lease on one of the sites we closed.

Our leases have an average remaining minimum term of 11 years, with the majority of our minimum lease payments falling within the next 10 years, meaning as our estate matures our lease liabilities will continue to decrease.

Taxation

We recognised a statutory tax charge of GBP2.0 million (2021: charge of GBP3.1 million). The small tax charge results primarily from current year losses for which no deferred tax asset is being recognised as well as statutory loss being adjusted for non-deductible expenses.

We have a total of GBP859 million of brought forward tax losses on which we are not recognising a deferred tax asset of GBP215 million. We expect to re-recognise these assets on the balance sheet in the coming years as we establish a track record of sustainable profitability. The fact we are not currently recognising these tax losses does not limit our ability to utilise them and there is no time limit beyond which they expire.

In 2022 we made a total tax contribution of GBP143.7 million (2021: GBP152.5 million) made up of GBP76.0 million (2021: GBP91.6 million) taxes we paid and a further GBP67.7 million (2021: GBP60.9 million) of taxes we collected.

Liquidity

Our liquidity position continues to be strong and we continue to hold large amounts of high-quality liquid assets which totalled GBP4,976 million as at 31 December 2022 (31 December 2021: GBP6,900 million).

We ended the year with a liquidity coverage ratio of 213% (31 December 2021: 281%) and a net stable funding ratio of 134% (31 December 2021: n/a), both significantly ahead of requirements.

Capital

Overview

We ended the year with CET1, Tier 1 and total capital plus MREL ratios of 10.3%, 10.3% and 17.7% respectively (31 December 2021: 12.6%, 12.6% and 20.5%).

                                       2022  2021  Change 
 
                                       GBPm    GBPm    % 
CET1 capital                           819   936   (13%) 
RWAs                                   7,990 7,454 7% 
CET1 ratio                             10.3% 12.6% (230bps) 
Total regulatory capital ratio         13.4% 15.9% (250bps) 
Total regulatory capital + MREL ratio  17.7% 20.5% (280bps) 
UK regulatory leverage ratio           4.2%  5.2%  (100bps) 

In October 2021 the Bank of England's Financial Policy Committee and the PRA published their changes to the UK leverage ratio framework. The changes, which came into effect from 1 January 2022, mean we are now only subject to the UK leverage ratio. The comparative figure of 5.2% differs to the regulatory ratio of 4.4% disclosed last year as it reflects the revised basis of calculation, which excludes claims on central banks.

We continue to operate in capital buffers although we remained above regulatory minima throughout 2022 and our return to profitability combined with constraining lending growth should see us return to steady capital generation.

We remain engaged with the PRA in respect of our capital position as well as in relation to our IRB application, starting with our residential mortgage portfolio, which we continue to progress.

Capital requirements

                     Minimum requirement including buffers 
 
                     31 December 2022 
CET1                 8.3% 
Tier 1               9.9% 
Total Capital + MREL 20.5% 

Excludes any confidential buffer, where applicable.

Our capital requirement reduced during the year following the decision in June by the PRA to reduce our Pillar 2A capital requirement from 1.11% to 0.50% and the Bank of England agreeing that our binding MREL requirement applicable from 27 June 2022 would be equal to the lower of:

-- 18% of RWAs.

-- Two times the sum of our Pillar 1 and Pillar 2A.

In December the PRA confirmed a further reduction to our Pillar 2A capital requirement from 0.50% to 0.36% effective from 1 January 2023, meaning that our MREL requirement (excluding buffers) reduced further to 16.7%.

Capital movements

                                 Total regulatory capital + MREL ratio 
1 January 2022                   20.5% 
Lending volume & mix             (1.5%) 
Software add-back reversal       (0.8%) 
Profit & loss account ex-ECL     (0.4%) 
Profit & loss account ECL        (0.5%) 
Intangibles investment and other 0.4% 
31 December 2022                 17.7% 

On 1 January 2022 software assets reverted to being deducted from capital, reducing our CET1 and MREL ratios by 0.8% and 0.7% respectively.

At the same time the original IFRS 9 'Financial Instruments' transitional relief was reduced from 50% to 25% along with the COVID-19 transitionary relief which moved from 100% to 75%, reducing CET1 and MREL by 0.3%. A further 25% reduction in the transitional reliefs occurred on 1 January 2023, leading a further reduction in our CET1 and MREL ratios of 0.4% and 0.3% respectively.

Risk-weighted assets ended the period at GBP7,990 million up 7% from GBP7,454 million at 31 December 2021, reflecting our lending growth and change in asset mix during the year.

Holding company

We are working to implement our holding company (Metro Bank Holdings PLC) as part of our end-state MREL requirements. This will be in place by June 2023.

Upon implementation of the holding company the Bank of England's Resolution Directorate has agreed to provide a temporary, time-limited, adjustment for our Tier 2 Notes. This will see them continue to contribute to our MREL requirements up until 26 June 2025, although they will continue to be held by Metro Bank PLC.

Our Tier 2 Notes have a one-time call date in June 2023 and, given the adjustment we do not expect to exercise the call provision, unless it would be economically rational to do so. By not calling these notes their Tier 2 eligibility amortises at a rate of 20% per year.

In line with its conditions of issue, our existing MREL Notes will 'flip up' to Metro Bank Holdings PLC and be 'back-to-backed' by internal MREL issued down to Metro Bank PLC, which will remain our main operating company.

Other than owning Metro Bank PLC, being the new listed entity and holding our external capital, Metro Bank Holdings PLC will undertake limited activities.

Looking ahead

2022 has been a year of clear progress as our turnaround plan completed. I am delighted to have joined the Metro Bank team as we build on the hard work of the past three years.

From my first few months in the role I can see clearly that the Metro Bank model works. Our customer service focused model is ideally suited to a normalised rate environment, and with the acquisition of RateSetter we now have the asset flexibility to generate yield if interest rates fall again.

As we focus on our next set of strategic priorities our attention will be serving the needs of our customers, while continuing to optimise our balance sheet to both build and maximise our return on regulatory capital, and maintain our prudent approach to liquidity management.

Alongside this will be a renewed emphasis on achieving responsible and sustainable profitable growth through building front-book yields, carefully controlling deposit pricing and adopting a disciplined approach to managing the inflationary pressures in our cost base.

Although we will continue to operate within our capital buffers in the short-term, our return to profitability and our disciplined approach to asset origination will see us protect our capital ratios and position us for future growth, both of which will be important factors in allowing us to ultimately restore our capital levels back above buffers.

Aiding our delivery of this will be our continued investments in infrastructure. This includes preparing for the proposed enhancements to internal control requirements under the revised UK Corporate Governance Code which will see us continue to invest in our controls both within finance and across the Bank, building on the work that has already been undertaken over the past few years.

We remain cautious in our outlook, given the political and economic uncertainty, however, we believe the Bank is in a good place to be able to respond to any further headwinds in the form of market volatility or economic downturn.

Risk review

In line with the UK Corporate Governance Code requirements, we have performed a robust assessment of the principal and emerging risks we face, including those that could result in events or circumstances that might threaten our business model, future performance, solvency or liquidity, and reputation. In deciding on the classification of principal risks, we considered the potential impact and probability of the related events and circumstances and the timescale over which they may occur.

An overview of the principal risks and how they have changed over the year are set out below.

Principal     Definition                               Change in 2022 
risk 
                                                                 We continue to take a prudent approach to origination 
                                                                 and our arrears profile and ECL reflect the quality of 
                                                                 our lending. Arrears rates remain stable across both 
                                                                 unsecured consumer lending and residential mortgages, 
                                                                 which are both areas in which we have seen strong 
                                                                 growth in 2022. Our new asset quality is strong with a 
              The risk of financial loss should our              lower LTV profile for mortgages than 2021. Our 
              borrowers or counterparties fail to      Risk      consumer portfolio is geared towards prime customers 
Credit risk   fulfil their contractual obligations in  increased with strong borrower income. 
              full and on time. 
                                                                 We continue to focus on monitoring emerging trends 
                                                                 including the impact of cost of living pressures on 
                                                                 our customers. These trends have increased the level 
                                                                 of credit risk across the industry and are reflected 
                                                                 in our ECL. Given the ongoing macroeconomic 
                                                                 volatility, we have ensured we have processes in place 
                                                                 to support customers in financial difficulty. 
                                                                 We continue to ensure that we have enough capital to 
                                                                 meet the minimum regulatory requirements at all times, 
                                                                 although continue to operate within our capital 
                                                                 buffers. 
              The risk that we fail to meet minimum 
Capital risk  regulatory capital (and MREL)            Risk      We remain focused on returning to sustainable 
              requirements.                            stable    profitability, which combined with RWA optimisation 
                                                                 will see us start to generate additional capital. 
                                                                 Alongside this we are working to deliver our new 
                                                                 holding company, which will allow any future debt 
                                                                 issuances to be undertaken in line with regulatory 
                                                                 expectations. 
              The risk of financial loss or                      Overall, financial crime risk has remained stable 
              reputational damage due to regulatory              during the year, however, our inherent sanctions risk 
              fines, restriction or suspension of                exposure increased following Russia's invasion of 
Financial     business, or cost of mandatory           Risk      Ukraine and the subsequent sanctions which were 
crime risk    corrective action as a result of failing stable    imposed. While financial crime continues to present a 
              to comply with prevailing legal and                heightened risk, ongoing enhancements made to our 
              regulatory requirements relating to                anti-money laundering and sanctions controls enable us 
              financial crime.                                   to continue to improve our management of this risk. 
              The risk that events arising from                  Operational risk has remained broadly consistent 
              inadequate or failed internal processes,           through 2022, although we continue to observe elevated 
              people and systems, or from external               risks in certain areas. These include cyber attacks 
Operational   events cause regulatory censure,         Risk      and evolving modes of external fraud. During the year 
risk          reputational damage, financial loss,     stable    we focused on the technology and third party risks 
              service disruption and/or detriment to             that could impact our operational resilience as well 
              our FANS.                                          as people risk which has increased owing to higher 
                                                                 attrition rates in roles across the banking industry. 
                                                                 Regulatory risk remains unchanged and continues to be 
                                                                 a key area of focus as a result of the ongoing volume 
                                                                 and complexity of regulatory change. We continue to 
                                                                 place significant focus on overseeing and ensuring 
                                                                 compliance with regulatory requirements and continue 
              The risk of regulatory sanction,                   to have open and constructive dialogue with our 
Regulatory    financial loss and reputational damage   Risk      regulators. 
risk          as a result of failing to comply with    stable 
              relevant regulatory requirements.                  2022 has also seen us substantially close out our main 
                                                                 legacy issues. In December 2022 the FCA concluded its 
                                                                 investigation into announcements made in respect of 
                                                                 RWA. The outcome was within the range of outcomes we 
                                                                 expected and we can now put this legacy issue firmly 
                                                                 behind us, having greatly improved our reporting 
                                                                 processes and controls. 
                                                                 Our culture is focused on supporting our customer. 
                                                                 This sees us offer a relatively simple range of 
                                                                 products, which are easy for customers to understand. 
                                                                 Conduct risk increased in 2022 as customers became 
                                                                 increasingly vulnerable to the challenges of the 
              The risk that our behaviours or actions            economic and social impacts of the external 
              result in unfair outcomes or detriment   Risk      environment, driven by the macroeconomic headwinds 
Conduct risk  to customers and/or undermines market    increased 
              integrity.                                         The regulatory focus on the treatment of customers in 
                                                                 the retail banking sector remains heightened, 
                                                                 especially in relation to lending decisions, those at 
                                                                 risk of financial difficulty and potential 
                                                                 vulnerability. We are preparing to implement Consumer 
                                                                 Duty requirements in 2023 in order to further 
                                                                 strengthen our capabilities. 
                                                                 Strategic risk remained unchanged in the year. We have 
                                                                 considered the uncertainties and potential challenges 
                                                                 to our strategic risk in 2022 and beyond as part of 
              The risk of having an insufficiently               the annual strategic and financial planning process. 
              defined, flawed or poorly implemented 
              strategy, a strategy that does not adapt           We have also continued our work to understand how to 
Strategic     to political, environmental, business    Risk      define, monitor, manage and report the impact of 
risk          and other developments and/or a strategy stable    climate change on our strategy, business and 
              that does not meet the requirements and            sustainability aspirations. 
              expectations of our stakeholders. 
                                                                 We consider our strategic risks on an ongoing basis 
                                                                 via our risk governance structure, including a second 
                                                                 line review of the risks related to our annual Long 
                                                                 Term Plan. 
                                                                 We use models to support a broad range of business and 
                                                                 risk management activities, including informing 
              The risk of potential loss and                     business decisions and strategies, measuring, and 
              regulatory non-compliance due to                   mitigating risk, valuing exposures (including the 
              decisions that could be principally                calculation of impairment), conducting stress testing, 
              based on the output of models, due to    Risk      and measuring capital adequacy. Model risk remained 
Model risk    errors in the development,               stable    stable during the year as we continued to enhance our 
              implementation, or use of such models.             model governance and oversight to mitigate against the 
                                                                 risk from model changes, including those arising from 
                                                                 the impacts and uncertainties related to the cost of 
                                                                 living crisis. 
 
              Liquidity risk is the risk that we fail            Liquidity and funding risk remained stable throughout 
              to meet our obligations as they fall               2022, with liquidity management and funding levels 
              due. Funding Risk is the risk that we              remaining strong. We ended the year with our liquidity 
Liquidity and cannot fund assets that are difficult to Risk      coverage ratio at 213% (31 December 2021: 281%) and 
funding risk  monetise at short notice (i.e. illiquid  stable    our net stable funding ratio at 134% (31 December 
              assets) with funding that is                       2021: n/a). 
              behaviourally or contractually long-term 
              (i.e. stable funding). 
              The risk of loss arising from movements            Market risk remained stable throughout the year. In 
              in market prices. Market risk is the               2022 we continued to effectively manage the risk of 
Market risk   risk posed to earnings, economic value   Risk      mismatches between our fixed rate assets and 
              or capital that arises from changes in   stable    liabilities with this risk remaining low. 
              interest rates, market prices or foreign 
              exchange rates. 
                                                                 Legal risk remained stable throughout 2022. We remain 
              The risk of loss, including to                     exposed to a range of legal risks in relation to our 
              reputation that can result from lack of            normal business activities. We minimise legal risk via 
              awareness or misunderstanding of,                  a range of mitigants, including the use of in house 
Legal risk    ambiguity in or reckless indifference    Risk      and external legal expertise, appropriate policy 
              to, the way law applies to the           stable    documentation and training related to specific legal 
              Directors, the business, its                       requirements and monthly reporting of metrics to 
              relationships, processes, products and             measure compliance with our Legal Risk Appetite. 
              services. 
 

Consolidated statement of comprehensive income

For the year ended 31 December 2022

                                                                                               Years ended 31 December 
                                                                                               2022        2021 
                                                                                         Notes 
                                                                                                GBP'million   GBP'million 
Interest income                                                                          2      563.7       405.7 
Interest expense                                                                         2      (159.6)     (110.4) 
Net interest income                                                                             404.1       295.3 
Fee and commission income                                                                3      84.4        71.2 
Fee and commission expense                                                               3      (2.6)       (1.6) 
Net fee and commission income                                                                   81.8        69.6 
Net gains on sale of assets                                                                     -           9.4 
Other income                                                                                    37.6        44.2 
Total income                                                                                    523.5       418.5 
General operating expenses                                                               4      (467.6)    (536.1) 
Depreciation and amortisation                                                            9, 10  (77.0)      (80.2) 
Impairment and write-offs of property, plant, equipment and intangible assets            9, 10  (9.7)       (24.9) 
Total operating expenses                                                                        (554.3)     (641.2) 
Expected credit loss expense                                                             12     (39.9)      (22.4) 
Loss before tax                                                                                 (70.7)      (245.1) 
Taxation                                                                                 5      (2.0)      (3.1) 
Loss for the year                                                                               (72.7)     (248.2) 
Other comprehensive expense for the year 
Items which will be reclassified subsequently to profit or loss: 
Movement in respect of investment securities held at FVOCI (net of tax): 
     -- changes in fair value                                                     (7.6)       (8.1) 
     -- fair value changes transferred to the income statement on disposal        -           (0.3) 
Total other comprehensive expense                                                               (7.6)      (8.4) 
Total comprehensive loss for the year                                                           (80.3)     (256.6) 
Loss per share 
Basic (pence)                                                                            16     (42.2)      (144.0) 
Diluted (pence)                                                                          16     (42.2)      (144.0) 

Consolidated balance sheet

As at 31 December 2022

                                                                                  Years ended 31 December 
                                                                                  2022        2021 
                                                                            Notes 
                                                                                   GBP'million  GBP'million 
Cash and balances with the Bank of England                                          1,956     3,568 
Loans and advances to customers                                             7       13,102    12,290 
Investment securities held at fair value through other comprehensive income 8       571       798 
Investment securities held at amortised cost                                8       5,343     4,776 
Financial assets held at fair value through profit and loss                         1         3 
Derivative financial assets                                                         23        1 
Property, plant and equipment                                               9       748       765 
Intangible assets                                                           10      216       243 
Prepayments and accrued income                                                      85        68 
Assets classified as held for sale                                                  1         - 
Other assets                                                                        73        76 
Total assets                                                                        22,119    22,588 
Deposits from customers                                                             16,014      16,448 
Deposits from central banks                                                         3,800       3,800 
Debt securities                                                                     571         588 
Repurchase agreements                                                               238         169 
Derivative financial liabilities                                                    26          11 
Lease liabilities                                                           11      248         269 
Deferred grants                                                                     17          19 
Provisions                                                                          7           15 
Deferred tax liability                                                      5       12          12 
Other liabilities                                                                   230         222 
Total liabilities                                                                   21,163      21,553 
Called-up share capital                                                            -          - 
Share premium                                                                     1,964       1,964 
Retained losses                                                                    (1,015)    (942) 
Other reserves                                                                    7           13 
Total equity                                                                      956          1,035 
Total equity and liabilities                                                      22,119       22,588 

Consolidated statements of changes in equity

For the year ended 31 December 2022

                                                            Called-up                               Share 
                                                                      Share     Retained  FVOCI               Total 
                                                            share                                   option 
                                                                      premium   losses    reserve             equity 
                                                            capital                                 reserve 
                                                                      GBP'million GBP'million GBP'million           GBP'million 
                                                            GBP'million                               GBP'million 
Balance as at 1 January 2022                                -         1,964     (942)     (5)       18        1,035 
Loss for the year                                           -         -         (73)      -         -         (73) 
Other comprehensive expense (net of tax) relating to        -         -         -         (8)       -         (8) 
investment securities held at FVOCI 
Total comprehensive loss                                    -         -         (73)      (8)       -         (81) 
Net share option movements                                  -         -         -         -         2         2 
Balance as at 31 December 2022                              -         1,964     (1,015)   (13)      20        956 
Balance as at 1 January 2021                                -         1,964     (694)     3         16        1,289 
Loss for the year                                           -         -         (248)     -         -         (248) 
Other comprehensive expense (net of tax) relating to        -         -         -         (8)       -         (8) 
investment securities held at FVOCI 
Total comprehensive loss                                    -         -         (248)     (8)       -         (256) 
Net share option movements                                  -         -         -         -         2         2 
Balance as at 31 December 2021                              -         1,964     (942)     (5)       18        1,035 

Consolidated cash flow statement

For the year ended 31 December 2022

                                                                                     Years ended 31 December 
                                                                                     2022       2021 
                                                                               Notes 
                                                                                     GBP'million  GBP'million 
Reconciliation of loss before tax to net cash flows from operating activities: 
Loss before tax                                                                      (71)       (245) 
Adjustments for non-cash items                                                 17    (273)      (182) 
Interest received                                                                     553        409 
Interest paid                                                                         (124)      (126) 
Changes in other operating assets                                                     (852)      2,649 
Changes in other operating liabilities                                                (418)      349 
Net cash (outflows)/inflows from operating activities                                 (1,185)    2,854 
Cash flows from investing activities 
Sales, redemptions and paydowns of investment securities                              857       1,269 
Purchase of investment securities                                                     (1,206)   (3,438) 
Purchase of property, plant and equipment                                      9      (29)      (42) 
Purchase and development of intangible assets                                  10     (24)      (39) 
Net cash outflows from investing activities                                           (402)     (2,250) 
Cash flows from financing activities 
Repayment of capital element of leases                                         11     (25)      (29) 
Net cash outflows from financing activities                                           (25)      (29) 
Net (decrease)/increase in cash and cash equivalents                                  (1,612)    575 
Cash and cash equivalents at start of year                                            3,568      2,993 
Cash and cash equivalents at end of year                                              1,956      3,568 

1. Basis of preparation and significant accounting policies

Basis of preparation

The Group's consolidated financial statements have been prepared in accordance with UK adopted International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and the Companies Act 2006 applicable to companies reporting under IFRS. They were authorised by the Board for issue on 2 March 2023.

Changes in accounting policy and disclosures

During the period there have not been any changes in accounting policy or disclosures that have had a material impact on our financial statements.

2. Net interest income

Interest income

                                                                    2022      2021 
 
                                                                    GBP'million GBP'million 
Cash and balances held with the Bank of England                      33.0     4.4 
Loans and advances to customers                                      462.2    382.3 
Investment securities held at amortised cost                         62.9     20.6 
Investment securities held at FVOCI                                  4.7      2.6 
Interest income calculated using the effective interest rate method 562.8     409.9 
Derivatives in hedge relationships                                  0.9       (4.2) 
Total interest income                                               563.7     405.7 

Interest expense

                                                                     2022       2021 
 
                                                                      GBP'million GBP'million 
Deposits from customers                                               32.9      40.1 
Deposits from central banks                                           55.5      4.0 
Debt securities                                                       48.7      48.7 
Lease liabilities                                                     14.4      16.7 
Repurchase agreements                                                 3.4       2.2 
Interest expense calculated using the effective interest rate method 154.9      111.7 
Derivatives in hedge relationships                                   4.7        (1.3) 
Total interest expense                                               159.6      110.4 

3. Net fee and commission income

                                      2022      2021 
 
                                      GBP'million GBP'million 
Service charges and other fee income  30.9      25.5 
Safe deposit box income                16.5     15.1 
ATM and interchange fees               37.0     30.6 
Fee and commission income             84.4      71.2 
Fee and commission expense            (2.6)     (1.6) 
Total net fee and commission income    81.8     69.6 

4. General operating expenses

                                                    2022      2021 
 
                                                    GBP'million GBP'million 
People costs                                        236.6     239.0 
Information technology costs                         62.2     57.2 
Occupancy costs                                      30.8     32.9 
Money transmission and other banking-related costs   48.7     50.6 
Transformation costs                                 3.3      8.9 
Remediation costs                                    5.3      45.9 
Capability and Innovation Fund costs                 1.3      8.1 
Legal and regulatory fees                            7.0      6.6 
Professional fees                                    38.4     52.2 
Printing, postage and stationery costs               6.2      5.6 
Travel costs                                         1.6      1.1 
Marketing costs                                      5.0      4.7 
Business acquisition and integration costs           -        2.4 
Holding company insertion costs                      1.8      - 
Other                                                19.4     20.9 
Total general operating expenses                     467.6    536.1 

5. Taxation

Tax expense

                                                   2022      2021 
 
                                                   GBP'million GBP'million 
Current tax 
Current tax                                         -        (0.5) 
Adjustment in respect of prior years                -         0.6 
Total current tax credit                           -          0.1 
Deferred tax 
Origination and reversal of temporary differences   (1.5)     3.4 
Effect of changes in tax rates                      (0.7)     (5.4) 
Adjustment in respect of prior years                0.2       (1.2) 
Total deferred tax expense                          (2.0)     (3.2) 
Total tax expense                                   (2.0)     (3.1) 

Reconciliation of the total tax expense

                                                                                         Effective            Effective 
                                                                              2022                 2021 
                                                                                         tax rate             tax rate 
                                                                               GBP'million            GBP'million 
                                                                                         %                    % 
Accounting loss before tax                                                     (70.7)              (245.1) 
Tax expense at statutory tax rate of 19% (2021: 19%)                           13.4      19.0%      46.6       19.0% 
Tax effects of: 
Non-deductible expenses - depreciation on non-qualifying fixed assets          (2.5)      (3.5%)    (2.7)      (1.1%) 
Non-deductible expenses - investment property impairment                       (0.1)      (0.1%)   (1.8)      (0.8%) 
Non-deductible expenses - remediation                                          (0.6)      (0.8%)    (7.1)      (2.9%) 
Non-deductible expenses - other                                                (0.4)      (0.6%)    (0.1)      - 
Impact of intangible asset write-off on research and development deferred tax  0.3        0.4%     3.0        1.2% 
liability 
Share-based payments                                                           0.1        0.1%     (0.3)      (0.1%) 
Adjustment in respect of prior years                                           0.2        0.2%     (0.6)      (0.3%) 
Current year losses for which no deferred tax asset has been recognised        (11.7)     (16.5%)   (34.7)     (14.1%) 
Effect of changes in tax rates                                                 (0.7)      (1.0%)    (5.4)      (2.2%) 
Tax expense reported in the consolidated income statement                      (2.0)      (2.8%)    (3.1)      (1.3%) 

Deferred tax assets

                               31 December 2022 
                                          Investment 
                                                      Share-    Property, 
                               Unused     securities                      Intangible 
                                                      based     plant and            Total 
                               tax losses and                             assets 
                                                      payments  equipment            GBP'million 
                               GBP'million  impairments                     GBP'million 
                                                      GBP'million GBP'million 
                                          GBP'million 
Deferred tax assets             12         3           1         -         -          16 
Deferred tax liabilities        -          4           -         (26)      (6)        (28) 
Deferred tax liabilities (net)  12         7           1         (26)      (6)        (12) 
1 January                       13         5           -         (23)      (7)        (12) 
Income statement                (1)        -           1         (3)       1          (2) 
Other comprehensive income      -          2           -         -         -          2 
31 December                     12         7           1         (26)      (6)        (12) 
                               31 December 2021 
                                          Investment 
                                                      Share-    Property, 
                               Unused     securities                      Intangible 
                                                      based     plant and            Total 
                               tax losses and                             assets 
                                                      payments  equipment            GBP'million 
                               GBP'million  impairments                     GBP'million 
                                                      GBP'million GBP'million 
                                          GBP'million 
Deferred tax assets             13         3           -         -         -          16 
Deferred tax liabilities        -          2           -         (23)      (7)        (28) 
Deferred tax liabilities (net)  13         5           -         (23)      (7)        (12) 
1 January                      12          2           -         (16)      (10)       (12) 
Income statement                1          -           -         (7)       3          (3) 
Other comprehensive income      -          3           -         -         -          3 
31 December                     13         5           -         (23)      (7)        (12) 

Unrecognised deferred tax assets

We have total unused tax losses of GBP859 million for which a deferred tax asset of GBP215 million has not been recognised. The impact of recognising the deferred tax asset in the future would be material.

Although there is an expectation for profits in the near future, the tax benefits would be spread over a number of years. In addition, the 50% corporate loss restriction in place extends the timeline over which we can offset losses against future profits. This will be reassessed for the year ending 31 December 2023 in light of actual performance against our forecasts and prevailing market conditions. There is no time limit beyond which these losses expire.

6. Financial instruments

Our financial instruments primarily comprise customer deposits, loans and advances to customers and investment securities, all of which arise as a result of our normal operations.

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

The financial instruments we hold are simple in nature and we do not consider that we have made any significant or material judgements relating to the classification and measurement of financial instruments under IFRS 9.

Cash and balances with the Bank of England, trade and other receivables, trade and other payables and other assets and liabilities which meet the definition of financial instruments are not included in the following tables.

Classification of financial instruments

                                                            31 December 2022 
                                                            Fair value 
                                                            through              Amortised 
                                                                       FVOCI               Total 
                                                            profit and           cost 
                                                                       GBP'million           GBP'million 
                                                            loss                 GBP'million 
                                                            GBP'million 
Assets 
Loans and advances to customers                             -          -         13,102    13,102 
Investment securities                                       -           571       5,343     5,914 
Financial assets held as fair value through profit and loss 1          -         -         1 
Derivative financial assets                                 23         -         -         23 
Liabilities 
Deposits from customers                                     -          -         16,014    16,014 
Deposits from central bank                                  -          -         3,800     3,800 
Debt securities                                             -          -         571       571 
Derivative financial liabilities                             26        -         -         26 
Repurchase agreements                                       -          -         238       238 
                                                            31 December 2021 
                                                            Fair value 
                                                            through              Amortised 
                                                                       FVOCI               Total 
                                                            profit               cost 
                                                                       GBP'million           GBP'million 
                                                            and loss             GBP'million 
                                                            GBP'million 
Assets 
Loans and advances to customers                              -          -         12,290    12,290 
Investment securities                                        -          798       4,776     5,574 
Financial assets held as fair value through profit and loss 3          -         -         3 
Derivative financial assets                                  1          -         -         1 
Liabilities 
Deposits from customers                                      -          -         16,448    16,448 
Deposits from central bank                                   -          -         3,800     3,800 
Debt securities                                              -          -         588       588 
Derivative financial liabilities                            11          -         -         11 
Repurchase agreements                                        -          -         169       169 

7. Loans and advances to customers

                                                         31 December 2022              31 December 2021 
                                                         Gross               Net       Gross                Net 
                                                                   ECL                            ECL 
                                                         carrying            carrying  carrying             carrying 
                                                                   allowance                      allowance 
                                                         amount               amount   amount               amount 
                                                                   GBP'million                      GBP'million 
                                                         GBP'million           GBP'million  GBP'million           GBP'million 
Consumer lending                                          1,480     (75)      1,405     890        (42)      848 
Retail mortgages                                          7,649     (20)      7,629    6,723      (19)      6,704 
Commercial lending (excluding asset and invoice finance)  3,748     (84)      3,664     4,526      (102)     4,424 
Asset and invoice finance                                 412       (8)       404       320        (6)       314 
Total loans and advances to customers                     13,289    (187)     13,102    12,459     (169)     12,290 

An analysis of the gross loans and advances by product category is set out below:

 
                                            31 December 31 December 
 
                                            2022        2021 
                                            GBP'million   GBP'million 
Overdrafts                                   60          66 
Credit cards                                 19          13 
Term loans                                   1,401       811 
Total consumer lending                       1,480       890 
Residential owner occupied                   5,507       5,022 
Retail buy-to-let                            2,142       1,701 
Total retail mortgages                       7,649       6,723 
Total retail lending                         9,129       7,613 
Professional buy-to-let                      731         950 
Bounce back loans                            801         1,304 
Coronavirus business interruption loans      127         165 
Recovery loan scheme                         385        157 
Other term loans                             1,578       1,791 
Commercial term loans                        3,622       4,367 
Overdrafts and revolving credit facilities   122         156 
Credit cards                                 4           3 
Asset and invoice finance                    412         320 
Total commercial lending                     4,160       4,846 
Gross loans and advances to customers        13,289      12,459 
Amounts include: 
Repayable at short notice                    156         181 Recovery loan scheme includes GBP97 million acquired from third parties under forward flow arrangements (31 December 2021: GBP66 million). The loans are held in a trust arrangement in which we hold 99% of the beneficial interest, with the issuer retaining the remaining 1% (the trust retains the legal title loans). 

8. Investment securities

 
                                                          31 December 
                                              31 December 
                                                          2021 
                                              2022 
                                                          GBP'million 
                                              GBP'million 
Investment securities held at FVOCI           571         798 
Investment securities held at amortised cost   5,343       4,776 
Total investment securities                    5,914       5,574 

Investment securities held at FVOCI

 
                                           31 December 31 December 
 
                                           2022        2021 
                                           GBP'million   GBP'million 
Sovereign bonds                             215         566 
Residential mortgage-backed securities      38          38 
Covered bonds                               152         156 
Multi-lateral development bank bonds        166         38 
Total investment securities held at FVOCI   571         798 

Investment securities held at amortised cost

 
                                                   31 December 
                                                               31 December 
                                                   2022 
                                                               2021 
                                                   GBP'million 
                                                               GBP'million 
Sovereign bonds                                     1,717      1,198 
Residential mortgage-backed securities              1,095      1,687 
Covered bonds                                       542        442 
Multi-lateral development bank bonds                1,821      1,289 
Asset backed securities                             168        160 
Total investment securities held at amortised cost  5,343      4,776 

9. Property, plant and equipment

                                                 Freehold  Fixtures, 
                         Investment Leasehold                                       Right-of-use 
                                                 land and  fittings and IT Hardware              Total 
                         property   improvements                                    assets 
                                                 buildings equipment    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                -          -            22        -            7           1            30 
Disposals                -          -            -         -            -           (13)         (13) 
Write-offs               -          (10)         -         (2)          -           -            (12) 
Moved to held for sale   (6)        -            -         -            -           -            (6) 
Transfers                -          (9)          9         -            -           -            - 
31 December 2022         12         261          372       22           8           283          958 
Accumulated depreciation 
1 January 2022           12         68           28        19           -           67           194 
Depreciation charge      -          12           5         3            2           13           35 
Impairments              1          -            -         -            -           -            1 
Disposals                -          -            -         -            -           (3)          (3) 
Write-offs               -          (10)         -         (2)          -           -            (12) 
Moved to held for sale   (5)        -            -         -            -           -            (5) 
Transfers                -          (1)          1         -            -           -            - 
31 December 2022         8          69           34        20           2           77           210 
Net book value           4          192          338       2            6           206          748 
                                                 Freehold  Fixtures, 
                         Investment Leasehold                                       Right-of-use 
                                                 land and  fittings and IT Hardware              Total 
                         property   improvements                                    assets 
                                                 buildings equipment    GBP'million                GBP'million 
                         GBP'million  GBP'million                                       GBP'million 
                                                 GBP'million  GBP'million 
Cost 
1 January 2021            18         292          298       25           11          330          974 
Additions                 -          12           29        -            1           (4)          38 
Disposals                 -          -            -         -            -           (29)         (29) 
Write-offs                -          (10)         -         (1)          (11)        (2)          (24) 
Transfers                 -          (14)         14        -            -           -            - 
31 December 2021          18         280          341       24           1           295          959 
Accumulated depreciation 
1 January 2021            12         66           21        15           7           47           168 
Depreciation charge       -          14           4         4            2           18           42 
Impairments               -          -            -         -            -           6            6 
Disposals                 -          -            -         -            -           (4)          (4) 
Write-offs                -          (9)          -         -            (9)         -            (18) 
Transfers                 -          (3)          3         -            -           -            - 
31 December 2021          12         68           28        19           -           67          194 
Net book value            6          212          313       5            1           228          765 

10. Intangible assets

                          Goodwill  Brands     Software   Total 
 
                          GBP'million  GBP'million  GBP'million  GBP'million 
Cost 
1 January 2022             10        2          336        348 
Additions                  -         -          24         24 
Write-offs                 -         -          (22)       (22) 
31 December 2022           10        2          338        350 
Accumulated amortisation 
1 January 2022             -         -          105        105 
Amortisation charge        -         -          42         42 
Write-offs                 -         -          (13)       (13) 
31 December 2022           -         -          134        134 
Net book value             10        2          204        216 
                          Goodwill   Brands    Software   Total 
 
                           GBP'million GBP'million  GBP'million  GBP'million 
Cost 
1 January 2021             10         2         328        340 
Additions                  -          -         39         39 
Write-offs                 -          -         (32)       (32) 
Deferred grant             -          -         1          1 
31 December 2021           10         2         336        348 
Accumulated amortisation 
1 January 2021             -          -         86         86 
Amortisation charge        -          -         38         38 
Impairments                -          -         7          7 
Write-offs                 -          -         (26)       (26) 
31 December 2021           -          -         105        105 
Net book value             10         2         231        243 

11. Leases

Lease liabilities

 
                               2022      2021 
                               GBP'million GBP'million 
1 January                      269       327 
Additions and modifications    1         (6) 
Disposals                       (11)     (40) 
Lease payments made             (25)     (29) 
Interest on lease liabilities   14       17 
31 December                     248      269 

Minimum lease payments

 
                             31 December 31 December 
 
                             2022        2021 
                             GBP'million   GBP'million 
Within one year               24          25 
Due in one to five years      88          92 
Due in more than five years   172         219 
Total                         284         336 

12. Expected credit losses and credit risk

Expected credit loss expense

                                                           2022      2021 
 
                                                           GBP'million GBP'million 
Retail mortgages1                                           1        (7) 
Consumer lending1                                           33       17 
Commercial lending (excluding asset and invoice finance) 1  (18)     4 
Asset and invoice finance1                                  2        1 
Investment securities                                      1         - 
Write-offs and other movements                             21        7 
Total expected credit loss expense                         40        22 

1. Represents the movement in ECL stock during the year and therefore excludes write-offs which are shown separately.

The write-offs and other movements during 2022 primarily related to the write-off of a small number of large commercial single name exposures. These amounts had previously been fully provided for.

Loss allowance

Total loans and advances to customers

                   Gross carrying amount               Loss allowance                 Net carrying amount 
GBP'million          Stage 1 Stage  Stage POCI Total     Stage Stage Stage POCI Total   Stage 1 Stage  Stage POCI Total 
                           2      3                    1     2     3                          2      3 
1 January 2022      10,071  1,925  462   1    12,459    (47)  (49)  (73)  -            10,024  1,876  389   1    12,290 
                                                                              (169) 
Transfers to/       517     (504)  (13)  -    -         (13)  13    -     -    -       504     (491)  (13)  -    - 
(from) Stage 11 
Transfers to/       (451)   458    (7)   -    -         2     (2)   -     -    -       (449)   456    (7)   -    - 
(from) Stage 2 
Transfers to/       (124)   (73)   197   -    -         1     7     (8)   -    -       (123)   (66)   189   -    - 
(from) Stage 3 
Net remeasurement   -       -      -     -    -         10    (10)  (15)  -    (15)    10      (10)   (15)  -    (15) 
due to transfers2 
New lending3        3,157   742    31    -    3,930     (30)  (15)  (11)  -    (56)    3,127   727    20    -    3,874 
Repayments, 
additional 
drawdowns           (604)   (107)  (26)  (1)  (738)     -     -     -     -    -       (604)   (107)  (26)  (1)  (738) 
and interest 
accrued 
Derecognitions4             (353)        -              7     10    34    -    51              (343)        - 
                   (1,717)        (292)      (2,362)                                  (1,710)        (258)      (2,311) 
Changes to model    -       -      -     -    -         4     (5)   3     -    2       4       (5)    3     -    2 
assumptions5 
31 December 2022    10,849  2,088  352   -    13,289    (66)  (51)  (70)  -            10,783  2,037  282   -    13,102 
                                                                              (187) 
Off-balance sheet 
items 
Commitments and                              1,115                            -                                 1,115 
guarantees 
                     Gross carrying amount              Loss allowance                 Net carrying amount 
GBP'million            Stage 1 Stage Stage POCI Total     Stage Stage Stage POCI Total   Stage 1 Stage Stage POCI Total 
                             2     3                    1     2     3                          2     3 
1 January 2021       10,175  1,812 257   -    12,244    (30)  (69)  (55)  -    (154)   10,145  1,743 202   -    12,090 
Transfers to/(from)  559     (537) (22)  -    -         (16)  16    -     -    -       543     (521) (22)  -    - 
Stage 1 
Transfers to/(from)  (772)   787   (15)  -    -         2     (3)   1     -    -       (770)   784   (14)  -    - 
Stage 2 
Transfers to/(from)  (202)   (110) 312   -    -         -     6     (6)   -    -       (202)   (104) 306   -    - 
Stage 3 
Net remeasurement    -       -     -     -    -         11    (11)  (19)  -    (19)    11      (11)  (19)  -    (19) 
due to transfers 
New lending          2,157   357   18    1    2,533     (23)  (13)  (10)  -    (46)    2,134   344   8     1    2,487 
Repayments, 
additional drawdowns (318)   (57)  (16)  -    (391)     -     -     -     -    -       (318)   (57)  (16)  -    (391) 
and interest accrued 
Derecognitions       (1,528) (327) (72)  -    (1,927)   5     11    20    -    36      (1,523) (316) (52)  -    (1,891) 
Changes to model     -       -     -     -    -         4     14    (4)   -    14      4       14    (4)   -    14 
assumptions 
31 December 2021     10,071  1,925 462   1    12,459    (47)  (49)  (73)  -    (169)   10,024  1,876 389   1    12,290 
Off-balance sheet 
items 
Commitments and                               1,245                            -                                1,245 
guarantees 

1. Represents stage transfers prior to any ECL remeasurements.

2. Represents the remeasurement between the 12 month and lifetime ECL due to stage transfer. In addition it includes any ECL change resulting from model assumptions and forward-looking information on these loans.

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

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

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

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 
1 January 2022        5,546  1,063  114   -    6,723     (2)   (12)  (5)   -    (19)    5,544  1,051  109   -    6,704 
1 January 2022        293    (281)  (12)  -    -         (4)   4     -     -    -       289    (277)  (12)  -    - 
Transfers to/(from)   (199)  205    (6)   -    -         -     -     -     -    -       (199)  205    (6)   -    - 
Stage 1 
Transfers to/(from)   (16)   (22)   38    -    -         -     1     (1)   -    -       (16)   (21)   37    -    - 
Stage 2 
Transfers to/(from)   -      -      -     -    -         4     (1)   -     -    3       4      (1)    -     -    3 
Stage 3 
Net remeasurement     1,666  549    1     -    2,216     (3)   (7)   -     -    (10)    1,663  542    1     -    2,206 
due to transfers 
New lending           (130)  (22)   (5)   -    (157)     -     -     -     -    -       (130)  (22)   (5)   -    (157) 
Repayments, 
additional drawdowns  (965)  (149)  (19)  -   (1,133)    (1)   2     3     -    4       (966)  (147)  (16)  -   (1,129) 
and interest accrued 
Derecognitions        -      -      -     -    -         -     2     -     -    2       -      2      -     -    2 
31 December 2022      6,195  1,343  111   -    7,649     (6)   (11)  (3)   -    (20)    6,189  1,332  108   -    7,629 
                     Gross carrying amount              Loss allowance                 Net carrying amount 
GBP'million            Stage 1 Stage Stage POCI Total     Stage Stage Stage POCI Total   Stage 1 Stage Stage POCI Total 
                             2     3                    1     2     3                          2     3 
1 January 2021       5,911   863   118   -    6,892     (5)   (17)  (4)   -    (26)    5,906   846   114   -    6,866 
Transfers to/(from)  362     (345) (17)  -    -         (8)   8     -     -    -       354     (337) (17)  -    - 
Stage 1 
Transfers to/(from)  (469)   477   (8)   -    -         1     (1)   -     -    -       (468)   476   (8)   -    - 
Stage 2 
Transfers to/(from)  (19)    (26)  45    -    -         -     1     (1)   -    -       (19)    (25)  44    -    - 
Stage 3 
Net remeasurement    -       -     -     -    -         7     (1)   -     -    6       7       (1)   -     -    6 
due to transfers 
New lending          894     233   -     -    1,127     (1)   (4)   -     -    (5)     893     229   -     -    1,122 
Repayments, 
additional drawdowns (131)   (17)  (2)   -    (150)     -     -     -     -    -       (131)   (17)  (2)   -    (150) 
and interest accrued 
Derecognitions       (1,002) (122) (22)  -    (1,146)   1     1     1     -    3       (1,001) (121) (21)  -    (1,143) 
Changes to model     -       -     -     -    -         3     1     (1)   -    3       3       1     (1)   -    3 
assumptions 
31 December 2021     5,546   1,063 114   -    6,723     (2)   (12)  (5)   -    (19)    5,544   1,051 109   -    6,704 

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 
1 January 2022             786    82    21    1    890      (18)  (8)   (16)  -    (42)    768    74    5     1    848 
Transfers to/(from) Stage  19     (19)  -     -    -        (2)   2     -     -    -       17     (17)  -     -    - 
1 
Transfers to/(from) Stage  (96)   96    -     -    -        1     (1)   -     -    -       (95)   95    -     -    - 
2 
Transfers to/(from) Stage  (21)   (6)   27    -    -        1     2     (3)   -    -       (20)   (4)   24    -    - 
3 
Net remeasurement due to   -      -     -     -    -        2     (3)   (15)  -    (16)    2      (3)   (15)  -    (16) 
transfers 
New lending                806    156   12    -    974      (15)  (7)   (9)   -    (31)    791    149   3     -    943 
Repayments, additional 
drawdowns                  (144)  (41)  (6)   (1)  (192)    -     -     -     -    -       (144)  (41)  (6)   (1)  (192) 
and interest accrued 
Derecognitions             (170)  (18)  (4)   -    (192)    5     1     1     -    7       (165)  (17)  (3)   -    (185) 
Changes to model           -      -     -     -    -        5     2     -     -   7        5      2     -     -    7 
assumptions 
31 December 2022           1,180  250   50    -    1,480    (21)  (12)  (42)  -    (75)    1,159  238   8     -    1,405 
                            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 
1 January 2021              149   43    12    -    204     (6)   (9)   (10)  -    (25)    143   34    2     -    179 
Transfers to/(from) Stage 1 8     (8)   -     -    -       (1)   1     -     -    -       7     (7)   -     -    - 
Transfers to/(from) Stage 2 (6)   6     -     -    -       -     -     -     -    -       (6)   6     -     -    - 
Transfers to/(from) Stage 3 (2)   (3)   5     -    -       -     2     (2)   -    -       (2)   (1)   3     -    - 
Net remeasurement due to    -     -     -     -    -       1     -     (2)   -    (1)     1     -     (2)   -    (1) 
transfers 
New lending                 697   66    12    1    776     (16)  (7)   (9)   -    (32)    681   59    3     1    744 
Repayments, additional 
drawdowns                   (20)  (9)   (1)   -    (30)    -     -     -     -    -       (20)  (9)   (1)   -    (30) 
and interest accrued 
Derecognitions              (40)  (13)  (7)   -    (60)    1     2     7     -    10      (39)  (11)  -     -    (50) 
Changes to model            -     -     -     -    -       3     3     -     -    6       3     3     -     -    6 
assumptions 
31 December 2021            786   82    21    1    890     (18)  (8)   (16)  -    (42)    768   74    5     1    848 

Commercial lending (excluding asset and invoice finance)

Our top 10 commercial exposures total GBP310 million (2021: GBP326 million), representing 8% (2021: 7%) of our total 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 
1 January 2022             3,425  775   326   -    4,526    (23)  (28)  (51)  -            3,402  747   275   -    4,424 
                                                                                  (102) 
Transfers to/(from) Stage  202          (1)   -    -        (7)   7     -     -    -       195          (1)   -    - 
1                                (201)                                                           (194) 
Transfers to/(from) Stage  (148)  149   (1)   -    -        1     (1)   -     -    -       (147)  148   (1)   -    - 
2 
Transfers to/(from) Stage  (85)   (45)  130   -    -        -     4     (4)   -    -       (85)   (41)  126   -    - 
3 
Net remeasurement due to   -      -     -     -    -        4     (5)   -     -    (1)     4      (5)   -     -    (1) 
transfers 
New lending                485    36    17    -    538      (9)   (1)   (1)   -    (11)    476    35    16    -    527 
Repayments, additional 
drawdowns                  (275)  (42)  (14)  -    (331)    -     -     -     -    -       (275)  (42)  (14)  -    (331) 
and interest accrued 
Derecognitions             (532)              -    (985)    2     6     29    -    37      (530)              -    (948) 
                                 (184) (269)                                                     (178) (240) 
Changes to model           -      -     -     -    -        (1)   (9)   3     -    (7)     (1)    (9)   3     -    (7) 
assumptions 
31 December 2022           3,072  488   188   -    3,748    (33)  (27)  (24)  -    (84)    3,039  461   164   -    3,664 
                            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 
1 January 2021              3,843 906   125   -    4,874   (15)  (43)  (40)  -    (98)    3,828 863   85    -    4,776 
Transfers to/(from) Stage 1 189   (184) (5)   -    -       (7)   7     -     -    -       182   (177) (5)   -    - 
Transfers to/(from) Stage 2 (292) 299   (7)   -    -       1     (2)   1     -    -       (291) 297   (6)   -    - 
Transfers to/(from) Stage 3 (179) (81)  260   -    -       -     3     (3)   -    -       (179) (78)  257   -    - 
Net remeasurement due to    -     -     -     -    -       3     (9)   (16)  -    (22)    3     (9)   (16)  -    (22) 
transfers 
New lending                 427   58    6     -    491     (4)   (2)   (1)   -    (7)     423   56    5     -    484 
Repayments, additional 
drawdowns                   (120) (31)  (12)  -    (163)   -     -     -     -    -       (120) (31)  (12)  -    (163) 
and interest accrued 
Derecognitions              (443) (192) (41)  -    (676)   2     8     11    -    21      (441) (184) (30)  -    (655) 
Changes to model            -     -     -     -    -       (3)   10    (3)   -    4       (3)   10    (3)   -    4 
assumptions 
31 December 2021            3,425 775   326   -    4,526   (23)  (28)  (51)  -    (102)   3,402 747   275   -    4,424 

Asset and invoice finance

                            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 
1 January 2022               314   5     1     -    320     (4)   (1)   (1)   -    (6)     310   4     -     -    314 
Transfers to/(from) Stage 1  3     (3)   -     -    -       -     -     -     -    -       3     (3)   -     -    - 
Transfers to/(from) Stage 2  (8)   8     -     -    -       -     -     -     -    -       (8)   8     -     -    - 
Transfers to/(from) Stage 3  (2)   -     2     -    -       -     -     -     -    -       (2)   -     2     -    - 
Net remeasurement due to     -     -     -     -    -       -     (1)   -     -    (1)     -     (1)   -     -    (1) 
transfers 
New lending                  200   1     1     -    202     (3)   -     (1)   -    (4)     197   1     -     -    198 
Repayments, additional 
drawdowns                    (55)  (2)   (1)   -    (58)    -     -     -     -    -       (55)  (2)   (1)   -    (58) 
and interest accrued 
Derecognitions               (50)  (2)   -     -    (52)    1     1     1     -    3       (49)  (1)   1     -    (49) 
Changes to model             -     -     -     -    -       -     -     -     -    -       -     -     -     -    - 
assumptions 
31 December 2022             402   7     3     -    412     (6)   (1)   (1)   -    (8)     396   6     2     -    404 
                            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 
1 January 2021              272   -     2     -    274     (4)   -     (1)   -    (5)     268   -     1     -    269 
Transfers to/(from) Stage 1 -     -     -     -    -       -     -     -     -    -       -     -     -     -    - 
Transfers to/(from) Stage 2 (5)   5     -     -    -       -     -     -     -    -       (5)   5     -     -    - 
Transfers to/(from) Stage 3 (2)   -     2     -    -       -     -     -     -    -       (2)   -     2     -    - 
Net remeasurement due to    -     -     -     -    -       -     (1)   (1)   -    (2)     -     (1)   (1)   -    (2) 
transfers 
New lending                 139   -     -     -    139     (2)   -     -     -    (2)     137   -     -     -    137 
Repayments, additional 
drawdowns                   (47)  -     (1)   -    (48)    -     -     -     -    -       (47)  -     (1)   -    (48) 
and interest accrued 
Derecognitions              (43)  -     (2)   -    (45)    1     -     1     -    2       (42)  -     (1)   -    (43) 
Changes to model            -     -     -     -    -       1     -     -     -    1       1     -     -     -    1 
assumptions 
31 December 2021            314   5     1     -    320     (4)   (1)   (1)   -    (6)     310   4     -     -    314 

Credit risk exposures

Retail mortgages

                       31 December 2022                           31 December 2021 
                       Stage 1  Stage 2  Stage 3  POCI            Stage 1  Stage 2  Stage 3  POCI 
GBP'million              12-month Lifetime Lifetime Lifetime Total  12-month Lifetime Lifetime Lifetime Total 
                       ECL      ECL      ECL      ECL             ECL      ECL      ECL      ECL 
Up to date              6,194    1,289    33       -        7,516 5,544    1,010    38       -        6,592 
1 to 29 days past due   1        21       7        -        29    2        27       9        -        38 
30 to 89 days past due  -        33       15       -        48    -        26       16       -        42 
90+ days past due       -        -        56       -        56    -        -        51       -        51 
Gross carrying amount   6,195    1,343    111      -        7,649 5,546    1,063    114      -        6,723 

Consumer lending

                       31 December 2022                           31 December 2021 
                       Stage 1  Stage 2  Stage 3  POCI            Stage 1  Stage 2  Stage 3  POCI 
GBP'million              12-month Lifetime Lifetime Lifetime Total  12-month Lifetime Lifetime Lifetime Total 
                       ECL      ECL      ECL      ECL             ECL      ECL      ECL      ECL 
Up to date              1,172    235      3        -        1,410 786      71       2        -        859 
1 to 29 days past due   8        2        -        -        10    -        2        -        -        2 
30 to 89 days past due  -        13       5        -        18    -        9        3        -        12 
90+ days past due       -        -        42       -        42    -        -        16       1        17 
Gross carrying amount   1,180    250      50       -        1,480 786      82       21       1        890 

Commercial lending (excluding asset and invoice finance)

                       31 December 2022                           31 December 2021 
                       Stage 1  Stage 2  Stage 3  POCI            Stage 1  Stage 2  Stage 3  POCI 
GBP'million              12-month Lifetime Lifetime Lifetime Total  12-month Lifetime Lifetime Lifetime Total 
                       ECL      ECL      ECL      ECL             ECL      ECL      ECL      ECL 
Up to date              3,052    412      64       -        3,528 3,414    654      117      -        4,185 
1 to 29 days past due   20       36       5        -        61    11       43       2        -        56 
30 to 89 days past due  -        40       20       -        60    -        78       23       -        101 
90+ days past due       -       -         99       -        99    -        -        184      -        184 
Gross carrying amount   3,072    488      188      -        3,748 3,425    775      326      -        4,526 

Asset and invoice finance

                       31 December 2022                          31 December 2021 
                       Stage 1  Stage 2  Stage 3  POCI           Stage 1  Stage 2  Stage 3  POCI 
GBP'million              12-month Lifetime Lifetime Lifetime Total 12-month Lifetime Lifetime Lifetime Total 
                       ECL      ECL      ECL      ECL            ECL      ECL      ECL      ECL 
Up to date              401      7        3        -       411   313      2        1        -        316 
1 to 29 days past due   1        -        -        -       1     1        3        -        -        4 
30 to 89 days past due  -        -        -        -        -    -        -        -        -        - 
90+ days past due       -        -        -        -        -    -        -        -        -        - 
Gross carrying amount   402      7        3        -       412   314      5        1        -        320 

Credit risk concentration

Retail mortgage lending by repayment type

                           31 December 2022                                31 December 2021 
                           GBP'million                                       GBP'million 
                           Retail owner        Retail     Total            Retail owner        Retail     Total 
                           occupied            buy-to-let retail           occupied            buy-to-let retail 
                                                          mortgages                                       mortgages 
Interest only               2,005               2,047      4,052           2,113               1,620      3,733 
Capital and repayment       3,502               95         3,597           2,909               81         2,990 
Total retail mortgage       5,507               2,142      7,649           5,022               1,701      6,723 
lending 

Retail mortgage lending by geographic exposure

                           31 December 2022                                31 December 2021 
                           GBP'million                                       GBP'million 
                           Retail owner        Retail     Total            Retail owner        Retail     Total 
                           occupied            buy-to-let retail           occupied            buy-to-let retail 
                                                          mortgages                                       mortgages 
Greater London              1,937               1,201      3,138           2,130               1,048      3,178 
South east                  1,435               408        1,843           1,157               283        1,440 
South west                  476                 99         575             434                 82         516 
East of England             531                 163        694             309                 69         378 
North west                  263                 68         331             264                 62         326 
West Midlands               226                 76         302             190                 61         251 
Yorkshire and the Humber    184                 34         218             139                 34         173 
East Midlands               168                 54         222             140                 25         165 
Wales                       109                 18         127             110                 20         130 
North east                  63                  10         73              62                  10         72 
Scotland                    115                 11         126             87                  7          94 
Total retail mortgage       5,507               2,142      7,649           5,022               1,701      6,723 
lending 

Retail mortgage lending by DTV

                           31 December 2022                                31 December 2021 
                           GBP'million                                       GBP'million 
                           Retail owner        Retail     Total            Retail owner        Retail     Total 
                           occupied            buy-to-let retail           occupied            buy-to-let retail 
                                                          mortgages                                       mortgages 
Less than 50%               2,007               568        2,575           1,907               524        2,431 
51-60%                      961                 463        1,424           767                 415        1,182 
61-70%                      1,088               660        1,748           1,092               564        1,656 
71-80%                      990                 434        1,424           805                 188        993 
81-90%                      374                 13         387             400                 3          403 
91-100%                     87                  -          87              51                  3          54 
More than 100%              -                   4          4               -                   4          4 
Total retail mortgage       5,507               2,142      7,649           5,022               1,701      6,723 
lending 

Commercial lending - excluding BBLS by repayment type

                        31 December 2022                                 31 December 2021 
                        GBP'million                                        GBP'million 
                        Professional Other                               Professional Other 
                                               Total commercial term                            Total commercial term 
                        buy-to-let   term      loans                     buy-to-let   term      loans 
                                     loans                                            loans 
Interest only            691          253       944                      897          230       1,127 
Capital and repayment    40           1,837     1,877                    53           1,883     1,936 
Total commercial term    731          2,090     2,821                    950          2,113     3,063 
loans 

Commercial term lending - excluding BBLS by geographic exposure

                        31 December 2022                                 31 December 2021 
                        GBP'million                                        GBP'million 
                        Professional Other                               Professional Other 
                                               Total commercial term                            Total commercial term 
                        buy-to-let   term      loans                     buy-to-let   term      loans 
                                     loans                                            loans 
Greater London           472          1,052     1,524                    676          1,186     1,862 
South east               149          377       526                      160          390       550 
South west               22           143       165                      28           151       179 
East of England          45           147       192                      39           71        110 
North west               13           153       166                      18           150       168 
West Midlands            8            112       120                      9            84        93 
Yorkshire and the        3            23        26                       3            17        20 
Humber 
East Midlands            12           43        55                       9            27        36 
Wales                    3            11        14                       4            12        16 
North east               3            19        22                       3            17        20 
Scotland                 -            7         7                        -            6         6 
Northern Ireland         1            3         4                        1            2         3 
Total commercial term    731          2,090     2,821                    950          2,113     3,063 
loans 

Commercial term lending - excluding BBLS by sector exposure

                            31 December 2022                               31 December 2021 
                            GBP'million                                      GBP'million 
                            Professional Other                             Professional Other 
                                                  Total commercial term                          Total commercial term 
                            buy-to-let   term     loans                    buy-to-let   term     loans 
                                         loans                                          loans 
Real estate (rent, buy and   731          681      1,412                   950          837      1,787 
sell) 
Hospitality                  -            372      372                     -            361      361 
Health and social work       -            334      334                     -            225      225 
Legal, accountancy and       -            196      196                     -            206      206 
consultancy 
Retail                       -            161      161                     -            136      136 
Real estate (develop)        -            6        6                       -            46       46 
Recreation, cultural and     -            87       87                      -            88       88 
sport 
Construction                -             62       62                      -            85       85 
Education                    -            17       17                      -            17       17 
Real estate (management of)  -            9        9                       -            9        9 
Investment and unit trusts   -            11       11                      -            6        6 
Other                       -             154      154                     -            97       97 
Total commercial term loans  731          2,090    2,821                   950          2,113    3,063 

Commercial term lending - excluding BBLS by DTV

                         31 December 2022                                 31 December 2021 
                         GBP'million                                        GBP'million 
                         Retail owner        Retail     Total             Retail owner        Retail     Total 
                         occupied            buy-to-let retail            occupied            buy-to-let retail 
                                                        mortgages                                        mortgages 
Less than 50%             278                 817        1,095            306                 770        1,076 
51-60%                    158                 433        591              232                 483        715 
61-70%                    219                 112        331              282                 158        440 
71-80%                    62                  76         138              112                 63         175 
81-90%                    3                   53         56               8                   30         38 
91-100%                   5                   12         17               6                   27         33 
More than 100%            6                   587        593              4                   582        586 
Total commercial term     731                 2,090      2,821            950                 2,113      3,063 
loans 

13. Legal and regulatory matters

As part of the normal course of business we are subject to legal and regulatory matters. The matters outlined below represent contingent liabilities and as such at the reporting date no provision has been made for any of these cases within the financial statements. This is because, based on the facts currently known, it is not practicable to predict the outcome, if any, of these matters or reliably estimate any financial impact. Their inclusion does not constitute any admission of wrongdoing or legal liability.

Financial Crime

The FCA is currently undertaking enquiries regarding our financial crime systems and controls. We continue to engage and co-operate fully with the FCA in relation to these matters.

Magic Money Machine litigation

In 2022 Arkeyo LLC, a software company based in the United States, filed a civil suit with a stated value of over GBP24 million against us in the English High Court alleging, among other matters, that we infringed their copyright and misappropriated their trade secrets relating to money counting machines (i.e. our Magic Money Machines).

We believe Arkeyo LLC's claims are without merit and are vigorously defending the claim.

14. Fair value of financial instruments

                                                                  31 December 2022 
                                                                                                 With 
                                                                            Quoted    Using 
                                                                                                 significant  Total 
                                                                  Carrying  market    observable              fair 
                                                                                                 unobservable 
                                                                  value     price     inputs                  value 
                                                                                                 inputs 
                                                                  GBP'million Level 1   Level 2                 GBP'million 
                                                                                                 Level 3 
                                                                            GBP'million GBP'million 
                                                                                                 GBP'million 
Assets 
Loans and advances to customers                                    13,102   -         -           12,321       12,321 
Investment securities held at fair value through other             571       533       38        -             571 
comprehensive income 
Investment securities held at amortised cost                       5,343     3,834     1,135      40           5,009 
Financial assets held at fair value through profit and loss        1        -         -          1            1 
Derivative financial assets                                       23        -         23         -            23 
Liabilities 
Deposits from customers                                            16,014   -         -           16,004       16,004 
Deposits from central bank                                         3,800    -         -          3,800        3,800 
Debt securities                                                    571      423       -          -            423 
Derivative financial liabilities                                   26       -         26         -            26 
Repurchase agreements                                              238      -         -          238          238 
                                                                  31 December 2021 
                                                                                                 With 
                                                                            Quoted    Using 
                                                                                                 significant  Total 
                                                                  Carrying  market    observable              fair 
                                                                                                 unobservable 
                                                                  value     price     inputs                  value 
                                                                                                 inputs 
                                                                  GBP'million Level 1   Level 2                 GBP'million 
                                                                                                 Level 3 
                                                                            GBP'million GBP'million 
                                                                                                 GBP'million 
Assets 
Loans and advances to customers                                   12,290    -         -          12,356       12,356 
Investment securities held at fair value through other            798       760       38         -            798 
comprehensive income 
Investment securities held at amortised cost                      4,776     2,977     1,710      60           4,747 
Financial assets held at fair value through profit and loss       3         -         -          3            3 
Derivative financial assets                                       1         -         -          1            1 
Liabilities 
Deposits from customers                                           16,448    -         -          16,452       16,452 
Deposits from central bank                                        3,800     -         -          3,800        3,800 
Debt securities                                                   588       495       -          -            495 
Derivative financial liabilities                                  11        -         11         -            11 
Repurchase agreements                                             169       -         -          169          169 

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 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. They are measured at the fair value of the amounts that we expect to recover on these loans.

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 either short-dated or are on a variable rate which aligns to the current market rate.

Derivative financial liabilities

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

15. Related party transactions

Key management personnel

Our key management personnel, and persons connected with them, are considered to be related parties. Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group. The Directors and members of the Executive Committee are considered to be the key management personnel for disclosure purposes.

Key management compensation

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

                                                 2022      2021 
 
                                                 GBP'million  GBP'million 
Short-term benefits                              6.2       5.4 
Post-employment benefits                          0.1      0.1 
Termination benefits                             0.3       - 
Share-based payment costs                         1.8      1.3 
Total compensation for key management personnel  8.4       6.8 

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

Banking transactions with key management personnel

We provide banking services to Directors and other key management personnel and persons connected to them.

Deposit transactions during the year and the balances outstanding as at 31 December 2022 and 31 December 2021 were as follows:

                                                                                2022      2021 
 
                                                                                GBP'million GBP'million 
Deposits held at 1 January                                                       1.5      2.1 
Deposits relating to persons and companies newly considered related parties      0.2      0.1 
Deposits relating to persons and companies no longer considered related parties  (0.3)    (0.1) 
Net amounts deposited/(withdrawn)                                                0.1      (0.6) 
Deposits held as at 31 December                                                  1.5      1.5 

Loan transactions during the year and the balances outstanding as at 31 December 2022 and 31 December 2021 were as follows:

                                                                             2022      2021 
 
                                                                             GBP'million GBP'million 
Loans outstanding at 1 January                                                3.2      1.9 
Loans relating to persons and companies no longer considered related parties -         (0.5) 
Loans issued during the year                                                  0.2      1.8 
Net repayments during the year                                                (1.3)    - 
Loans outstanding as at 31 December                                           2.1      3.2 
Interest received on loans (GBP'000)                                            60       30 

There were two (31 December 2021: three) loans outstanding at 31 December 2022 totalling GBP2.1 million (31 December 2021: GBP3.2 million). Both are residential mortgages secured on property; all loans were provided on our standard commercial terms.

In addition to the loans detailed above, we have issued credit cards and granted overdraft facilities on current accounts to Directors and key management personnel.

Credit card balances outstanding as at 31 December 2022 and 31 December 2021 were as follows:

                                            2022  2021 
 
                                            GBP'000 GBP'000 
Credit cards outstanding as at 31 December  7     5 

As with all of our lending we recognise an ECL on loans and credit card balances outstanding with key management personnel. As at 31 December 2022 the only ECL recognised on the balances above was our standard modelled ECL with no individual impairments recognised (31 December 2021: GBPnil). We have not written-off any balances to key management personnel in either 2021 or 2022.

16. Loss per share

Basic loss per share 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.

                                                                   2022     2021 
Loss attributable to our ordinary equity holders (GBP'million)        (72.7)  (248.2) 
Weighted average number of ordinary shares in issue - basic ('000)  172,464 172,421 
Basic loss per share (pence)                                        (42.2)  (144.0) 

Diluted loss per share 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 made a loss during both the years to 31 December 2022 and 31 December 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 loss per share.

                                                                     2022     2021 
Loss attributable to our ordinary equity holders (GBP'million)          (72.7)  (248.2) 
Weighted average number of ordinary shares in issue - diluted ('000)  172,464 172,421 
Diluted loss per share (pence)                                        (42.2)  (144.0) 

There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of the completion of these financial statements which would require the restatement of loss per share.

17. Non-cash items

                                                                              2022      2021 
 
                                                                              GBP'million GBP'million 
Interest income                                                                (564)     (406) 
Interest expense                                                               160       110 
Depreciation and amortisation                                                  77        80 
Impairment and write-offs of property, plant, equipment and intangible assets  10        25 
Expected credit loss expense                                                   40        22 
Share option charge                                                            2         2 
Grant income recognised in the income statement                                (2)       (11) 
Amounts provided for (net of amounts released)                                 4         5 
Gain on sale of assets                                                        -          (9) 
Total adjustments for non-cash items                                          (273)     (182) 

18. Post balance sheet events

There have been no material post balance sheet events.

Reconciliation from statutory to underlying results

                                                  Impairment 
                                                  and 
                                     Business     write-off 
                                     acquisition  of         Net C&I                  Mortgage  Remediation Holding   Underlying 
              Year ended   Statutory and          property,            Transformation portfolio costs       company   basis 
              31 December  basis     integration  plant,     costs     costs          sale                  insertion 
              2022         GBP'million costs        equipment  GBP'million GBP'million      GBP'million GBP'million   costs      GBP'million 
                                                  and                                                       GBP'million 
                                     GBP'million    intangible 
                                                  assets 
                                                  GBP'million 
              Net interest  404.1    -            -           0.1      -              -         -           -          404.2 
              income 
              Net fee and 
              commission    81.8     -            -          -         -              -         -           -          81.8 
              income 
              Net gains on 
              sale of       -        -            -          -         -              -         -           -          - 
              assets 
              Other income  37.6     -            -           (1.5)    -              -         -           -          36.1 
              Total income  523.5    -            -           (1.4)    -              -         -           -          522.1 
              General 
              operating     (467.6)  -            -           1.4       3.3           -          5.3         1.8       (455.8) 
              expenses 
              Depreciation 
              and           (77.0)   -            -          -                        -         -           -          (77.0) 
              amortisation 
              Impairment 
              and 
              write-offs    (9.7)    -             9.7       -         -              -         -           -          - 
              of PPE and 
              intangible 
              assets 
              Total 
              operating     (554.3)  -             9.7        1.4       3.3           -          5.3         1.8       (532.8) 
              expenses 
              Expected 
              credit loss   (39.9)   -            -          -         -              -         -           -          (39.9) 
              expense 
              Loss before   (70.7)   -             9.7       -          3.3           -          5.3         1.8       (50.6) 
              tax 
                                                  Impairment 
                                                  and 
                                     Business     write-off 
                                     acquisition  of         Net C&I                  Mortgage  Remediation Holding   Underlying 
              Year ended   Statutory and          property,            Transformation portfolio costs       company   basis 
              31 December  basis     integration  plant,     costs     costs          sale                  insertion 
              2022         GBP'million costs        equipment  GBP'million GBP'million      GBP'million GBP'million   costs      GBP'million 
                                                  and                                                       GBP'million 
                                     GBP'million    intangible 
                                                  assets 
                                                  GBP'million 
              Net interest 295.3     -            -          0.4       -              -         -           -         295.7 
              income 
              Net fee and 
              commission   69.6      -            -          -         -              -         -           -         69.6 
              income 
              Net gains on 
              sale of      9.4       -            -          -         -              (8.7)     -           -         0.7 
              assets 
              Other income 44.2      -            -          (9.4)     -              (2.9)     -           -         31.9 
              Total income 418.5     -            -          (9.0)     -              (11.6)    -           -         397.9 
              General 
              operating    (536.1)   2.4          -          9.0       8.9            3.3       45.9        -         (466.6) 
              expenses 
              Depreciation 
              and          (80.2)    -            -          -         -              -         -           -         (80.2) 
              amortisation 
              Impairment 
              and 
              write-offs   (24.9)    -            24.9       -         -              -         -           -         - 
              of PPE and 
              intangible 
              assets 
              Total 
              operating    (641.2)   2.4          24.9       9.0       8.9            3.3       45.9        -         (546.8) 
              expenses 
              Expected 
              credit loss  (22.4)    -            -          -         -              -         -           -         (22.4) 
              expense 
              Loss before  (245.1)   2.4          24.9       -         8.9            (8.3)     45.9        -         (171.3) 
              tax 

Capital information

The information set out within this section does not form part of the statutory accounts for the years ended 31 December 2022 or 31 December 2021.

Key metrics

The table below summarises our key regulatory metrics as at 31 December 2022 and 31 December 2021.

 
                                                 31 December         31 December 
 
                                                 2022                2021 
                                                 GBP'million           GBP'million 
Available capital 
CET1 capital                                                     819                   936 
Tier 1 capital                                                   819                   936 
Total capital                                                  1,069                1,184 
TCR + MREL                                                     1,416                1,527 
Risk weighted assets (RWAs) 
Total risk weighted assets                                     7,990                7,454 
 
Risk-based capital ratios as % of RWAs 
CET1 ratio                                       10.3%               12.6% 
Tier 1 ratio                                     10.3%               12.6% 
Total capital ratio                              13.4%               15.9% 
MREL ratio                                       17.7%               20.5% 
Additional CET1 buffer requirements as % of RWAs 
Capital conservation buffer requirement          2.5%                2.5% 
Countercyclical buffer requirement               1.0%                - 
Total of bank CET1 specific buffer requirements  3.5%                2.5% 
 
Leverage ratio 
UK leverage ratio                                4.2%                5.2% 
 
Liquidity coverage ratio 
Liquidity coverage ratio (LCR)                   213%                281% 

In October 2021 the Bank of England's Financial Policy Committee and the PRA published their changes to the UK leverage ratio framework. The changes, which came into effect from 1 January 2022, mean we are now only subject to the UK leverage ratio. The comparative figure of 5.2% differs to the regulatory ratio of 4.4% disclosed last year as it reflects the revised basis of calculation, which excludes claims on central banks.

Leverage ratio

The table below shows our Tier 1 Capital and Total Leverage Exposure that are used to derive the UK leverage ratio. The UK leverage ratio is the ratio of Tier 1 Capital to Total Leverage exposure.

 
                              31 December         31 December 
 
                              2022                2021 
                              GBP'million           GBP'million 
Common equity tier 1 capital                  819                   936 
Additional tier 1 capital     -                    - 
Tier 1 capital                                819                   936 
 
CRD IV leverage exposure      19,348              17,869 
 
UK leverage ratio             4.2%                5.2% 

In October 2021 the Bank of England's Financial Policy Committee and the PRA published their changes to the UK leverage ratio framework. The changes, which came into effect from 1 January 2022, mean we are now only subject to the UK leverage ratio. The comparative figure of 5.2% differs to the regulatory ratio of 4.4% disclosed last year as it reflects the revised basis of calculation, which excludes claims on central banks.

Our UK leverage ratio is 4.2% which is in excess of the minimum requirement of 3.0% and our strategic target of maintaining a UK leverage ratio of greater than 4.0%.

Liquidity coverage ratio

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

 
                          31 December 31 December 
 
                          2022        2021 
                          GBP'million   GBP'million 
Total HQLA                4,976                      6,754 
Total net cash outflow    2,342                      2,406 
Liquidity coverage ratio  213%        281% 

Overview of RWAs and capital requirements

The table below sets out the risk weighted assets and Pillar 1 capital requirements for Metro Bank. The bank has applied the standardised approach to measure credit risk and the basic indicator approach to measure operational risk. Under the approach the bank calculates its Pillar 1 capital requirement based on 8% of total RWAs. This covers credit risk, operational risk, market risk and counterparty credit risk.

 
 
                                                                                                Pillar 1 capital 
                                                                        31 December 31 December required 
 
                                                                        2022        2021        31 December 
                                                                        GBP'million   GBP'million   2022 
                                                                                                GBP'million 
Credit risk (excluding counterparty credit risk (CCR))                  7,237       6,704       579 
Of which the standardised approach                                      7,237       6,704       579 
CCR                                                                     9           6           0.7 
Of which mark to market                                                 7           3           0.6 
Of which CVA                                                            2           3           0.1 
Market risk                                                             -           9           0.0 
Operational risk                                                        739         729         59 
Of which basic indicator approach                                       739         729         59 
Amounts below the thresholds for deduction (subject to 250% risk        5           5           - 
weight) 
Total                                                                   7,990       7,454       639 

Credit risk exposures by exposure class

Our Pillar 1 capital requirement for credit risk is set out in the table below.

                                                               31 December 2022              31 December 2021 
 
                                                               GBP'million                     GBP'million 
                                                               Exposure     Capital          Exposure     Capital 
                                                               value        required         value        required 
Central governments or central banks                           5,326        -                6,847        -- 
Exposures to multilateral development banks                    1,663        -                1,327        - 
Institutions                                                   10           -                167          3 
Corporates                                                     703          50               507          35 
Retail                                                         1,870        107              1,320        74 
Secured by mortgages on immovable property                     9,424        308              8,898        305 
Covered bonds                                                  693          6                597          5 
Claims on institutions and corporates with a short-term credit 97           3                -            - 
assessment 
Securitisation position                                        1,223        13               1,804        21 
Exposure at default                                            179          15               209          17 
Items associated with particularly high risk                   18           2                8            1 
Collective investment undertakings                             59           -                -            - 
Other exposures                                                1,021        75               1,032        76 
Total                                                          22,286       579              22,716       537 

Capital resources

The table below summarises the composition of regulatory capital.

 
                                31 December 31 December 
 
                                2022        2021 
                                GBP'million   GBP'million 
Share capital and premium       1,964       1,964 
Retained earnings               (942)       (694) 
Loss for the year               (73)        (248) 
Available for sale reserve      (13)        (5) 
Other reserves                  20          18 
Intangible assets               (216)       (243) 
Other regulatory adjustments    79          144 
CET 1 capital                   819         936 
 
Tier 1 capital                  819         936 
Tier 2 capital                  250         249 
Total capital resources         1,069       1,184 
 
MREL eligible debt              347         342 
TCR + MREL                      1,416       1,527 

Our capital adequacy was in excess of the minimum required by the regulators at all times.

----------------------------------------------------------------------------------------------------------------------- Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.

-----------------------------------------------------------------------------------------------------------------------

ISIN:          GB00BZ6STL67 
Category Code: FR 
TIDM:          MTRO 
LEI Code:      213800X5WU57YL9GPK89 
Sequence No.:  226824 
EQS News ID:   1572577 
 
End of Announcement  EQS News Service 
=------------------------------------------------------------------------------------
 

Image link: https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=show_t_gif&application_id=1572577&application_name=news

 

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