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Annual Report
and Accounts 2022
People-
banking
people
Read more
about our purpose and strategy on pages 3 to 5
At Metro Bank we want to
change the face of retail
banking by building a bank
that puts customers at the
heart of what we do.
This is helping us achieve our
ambition to be the number
one community bank – a bank
that is deeply rooted within
local communities, allowing us
to serve customers brilliantly
in person, digitally and over
the phone.
Statutory (loss)/profit before tax
(£m)
40.6
(130.8)
(311.4)
(245.1)
(70.7)
2018
2019
2020
2021
2022
91
101
75
75
82
Loan to deposit ratio
(%)
2018
2019
2020
2021
2022
Deposits
(£bn)
15.7
14.5
16.1
16.4
16.0
2018
2019
2020
2021
2022
Underlying (loss)/profit before tax
(£m)
50.0
(11.7)
(271.8)
(171.3)
(50.6)
(50.6)
2018
2019
2020
2021
2022
Loans and advances
(£bn)
14.2
14.7
12.1
12.3
13.1
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
Assets
(£bn)
21.6
21.4
22.6
22.6
22.1
Summary of the year
Our results for the final year of our transformation plan reflect our
progress against the priorities we set out three years ago. The execution
of this strategy has seen us markedly reduce our losses for the year and
return to profitability on an underlying basis in the fourth quarter,
aswell as continue to put legacy issues behind us. The next stage
ofourjourney will see us focus on continued growth and delivering
sustainable profitability.
Strategic report
1 Summary of the year
2 Metro Bank at a glance
3 Our purpose and strategy framework
6 Chair’s statement
8 Operating environment
10 Chief Executive Officer’s statement
14 Strategic progress
15 Business model
18 Store strategy
19 Strategic priorities
20 Key performance indicators
22 Financial review
28 Environmental, social and
governancereview
43 Section 172 statement
44 Task Force on Climate-related
FinancialDisclosures
54 Risk report
Governance
99 Corporate governance introduction
102 Board of Directors
105 Executive Committee
106 2022 governance at a glance
108 Board activity and stakeholder
engagement
112 Stakeholder engagement
115 Letter from the Designated Non-
Executive Director forColleague
Engagement
118 Board leadership and company purpose
120 Board roles and responsibilities
121 Board effectiveness
124 Audit Committee report
130 Risk Oversight Committee report
134 Nomination Committee report
138 People and Remuneration Committee
report
142 Remuneration at a glance
143 People and Remuneration Committee
governance
148 Annual report on remuneration
166 Directors’ report
Financial statements
171 Independent auditors’ report to
themembers of Metro Bank PLC
181 Consolidated statement of
comprehensive income
182 Consolidated and company
balancesheets
183 Consolidated and company
statementsof changesin equity
184 Consolidated and company
cashflowstatement
185 Notes to the financial statements
Additional information
236 Country-by-country report
237 Independent auditors’ report to
theDirectors of Metro Bank PLC
240 Other disclosures
241 Alternative performance measures
246 Abbreviations
247 Shareholder information
1
Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Metro Bank at a glance
Our service is what makes us special. Putting FANS first is, and
always will be, the key to our success. Through our energised
anddedicated colleagues, we build long-lasting and personal
relationships with our customers and our communities,
givingthemthe banking they need.
Who we are
We opened our doors in the summer of 2010 and
were the first high street bank to open in the UK
inover 100 years. Since then, we’ve built a business
that is providing meaningful competition against
larger incumbents and offering a compelling
alternative for retail, private, small business
andcommercial customers.
Our approach
Our approach is centred on our colleagues,
customers and communities. This allows
ustodeliver our ambition to be the number
onecommunity bank and create FANS.
Ourcommunity-centric model and focus
onourlocalness informs everything
wedoandthedecisions we make.
Key statistics
As at 31 December 2022
£13.1bn
Loans and advances
2.7m
Customer accounts
#1
Rated for store service
1
24/7
Customer service centre
76
Stores
1 Independent Competition and
Markets Authority (CMA) survey
carried out in Great Britain by
IpsosMORI between January
2022 and December 2022 –
Services inbranches. Results
atipsos-mori.com.
£16.0bn
Customer deposits
2
Metro Bank PLC Annual Report and Accounts 2022
Our purpose and strategy framework
Our ambition
is to be the
number one
community bank
Community banking means being embedded in
the local communities we serve and prioritising
local decision-making. It also means we provide
simple and straightforward retail, business and
commercial banking services that meet the
needs of our customers in the area.
3 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Our purpose and strategy framework Continued
It’s achieved
through...
Delivered
via...
Strengthened
by...
To create FANS
FANS are customers created through delivering
exceptional customer service and who then
champion us through actively recommending
ustofriends and family.
We attract customers and create FANS by focusing
onour business model. Our business model involves
combining stores and digital channels with
exceptionalcustomer service to generate sustainable
long-term value and tangible book growth.
Unique culture
Our colleagues deliver superior service and are the
heartof our people-people banking approach.
Integrated model
Our model combines delivery through physical and
digital channels.
Service-led core deposits
We attract core deposits through our service-led
community banking model with an emphasis on our
core retail and small and medium-sized enterprises
(SME) franchise.
Risk-adjusted returns
We balance our lending mix through a broad yet simple
product offering that is priced proportionate to risk.
Our purpose
Our behaviours
Our business
model
Our behaviours strengthen everything we do and
are ingrained throughout our organisation helping
us drive our customer centric approach.
A ttend to every detail
M ake every wrong right
A sk if you’re not sure – bump it up
Z est is contagious, share it
E xceed expectations
I nspire colleagues to create FANS
N urture colleagues so they grow
G ame-change because this is a revolution
4 Metro Bank PLC Annual Report and Accounts 2022
Our purpose and strategy framework Continued
We have refreshed our strategic priorities for the next
stage of our journey.
Revenue
Create FANS to deliver strong growth.
Balance sheet optimisation
Continued focus on risk-adjusted returns.
Cost
Target low marginal costs to support profitable growth
and reinvestment.
Infrastructure
Protect value through safe, scalable infrastructure.
Communications
Engage colleagues, communities and other
stakeholders to push forward our story.
Our approach to remuneration for management is
based on a simple and clear scorecard in addition
to a Long Term Incentive Plan (LTIP). Scorecard
measures are aligned to the four components of
our business model with the LTIP based upon the
successful generation of sustainable long-term
value and tangible book growth.
Our key performance indicators (KPIs) are the
metrics we monitor to check we are on track
withthe delivery of our strategy as well as
assesshow our business model is performing.
Supported
by...
Our strategic
priorities
Measured
by...
Our key performance
indicators
Aligned
with...
Performance based
remuneration
5 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Chair’s statement
Having delivered on
ourtransformation
planand returned to
underlying profitability
inthe final quarter, our
focus is on achieving
sustainable growth
Dear stakeholder
It gives me great pleasure to introduce
Metro Bank’s 2022 Annual Report and
Accounts. This has been a pivotal year for
the Bank in which we have made significant
strides towards our goal of sustainable
profitability. The successful delivery of our
transformation plan means the Bank now
looks to the future with renewed
confidence.
While remaining COVID-19 restrictions were
fully lifted in early 2022, the anticipated
economic recovery proved short-lived as
war in Ukraine and rising inflation provided
new challenges for our customers and the
communities in which we operate. It is truly
impressive how people across the Bank
once again stepped up to demonstrate
unwavering support, with significant
numbers of colleagues going beyond
expectations. Not only have we continued
to deliver the exceptional customer service
that characterises Metro Bank, but on top of
this colleagues have proactively extended
additional help to our communities whether
by raising funds for local good causes,
coordinating collections for community
food banks, or volunteering their time
andskills to make a direct and practical
difference to local support schemes.
I am immensely proud to be part of a team
that is so deeply and genuinely committed
to supporting customers and communities
through thick and thin.
Results
The operating environment was challenging
throughout 2022. Despite the economic
headwinds, Daniel Frumkin, Chief Executive
Officer (CEO) and his management team
have achieved a great milestone in
delivering our transformation plan.
Thefruits of the successful turnaround
arereflected in our results for the year,
which saw us markedly reduce losses
withstatutory loss before tax reducing
to£70.7million (2021: £245.1 million).
Crucially, we returned to profitability on an
underlying basis for the fourth quarter of
2022, establishing momentum that I look
forward to continuing into 2023 as we seek
to meet our primary objective of returning
the Bank to sustainable profitability.
We have continued our strategy of ensuring
highly efficient use of capital and
transitioning to an asset mix that generates
higher risk-adjusted returns against
regulatory capital. We continue to meet our
regulatory requirements, although we are
currently still operating in buffers. We
ended the year with a total capital plus
MREL ratio of 17.7% (31 December 2021:
20.5%) against a regulatory minimum
of17%. During the year the Prudential
Regulation Authority (PRA) reduced our
Pillar 2A capital requirement, which has had
a positive impact on our capital headroom.
We also announced in 2022 that our Pillar
2A requirement would reduce again in
January 2023 meaning our MREL minimum
requirement is 16.72% from 1 January 2023.
Robert Sharpe
Chair
6 Metro Bank PLC Annual Report and Accounts 2022
Chair’s statement Continued
Legacy issues
I am pleased we have now drawn a line
under the Financial Conduct Authority’s
(FCA) risk-weighted assets (RWA)
investigation, following its conclusion and
outcome at the end of 2022. The significant
improvements we’ve made to our
regulatory reporting processes and
controls, risk management and governance
stand us in good stead for the future.
In 2022 we also saw the conclusion of the
US Office of Foreign Assets Control (OFAC)
investigation into sanctions breaches, with
no financial penalty.
Governance
In September, we welcomed James
Hopkinson to the Board as our new Chief
Financial Officer (CFO). James has a wealth
of experience in banking, including growing
businesses and managing finance teams.
Also in September, Dorita Gilinski joined the
Board as a shareholder appointed Non-
Executive Director (NED). Dorita brings
valuable finance industry perspective and
banking expertise. Her appointment further
enhances the Board’s commitment to
ensure that investor views are considered in
all aspects of strategy and decision-making
to maximise shareholder value. I am
delighted that James and Dorita agreed to
join the Board and their arrival is well timed
as the Bank enters the next stage of its
strategic journey.
During the year Sally Clarke stepped down
from the Board after two years. Sally served
as the Board’s designated NED for
Colleague Engagement (DNED), ensuring
that views and experiences of colleagues
were shared with the Board throughout the
COVID-19 lockdowns and both during and
after the successful integration of
RateSetter. On behalf of the Board, I would
like to thank Sally for her contribution to
colleague engagement during this time. I
was pleased that in the summer, Nick
Winsor agreed to become the DNED
following Sally’s departure.
Additionally, at the end of the year we
saidfarewell to our Company Secretary,
Melissa Conway. Melissa made a significant
contribution during her six years at
MetroBank and on behalf of the Board,
Iwould like to thank her for her service.
Stephanie Wallace, the Bank’s General
Counsel, has taken over the responsibility
for the Company Secretarial Team and I
look forward to working with her as we
continue to embed good governance
throughout the Bank. I wish Sally and
Melissa all the best for the future.
Community banking and sustainability
Our commitment to community banking
runs through every aspect of our
proposition. From relationship-based
banking and market-leading customer
service, to our culture of diversity and
inclusion (D&I) throughout our workforce –
and our Board – which means we reflect the
very communities we serve.
Being a community bank also means being
environmentally responsible. I am proud of
our policy not to finance extraction of fossil
fuels nor their use for power generation,
and to reaffirm our commitment to
reducing our own carbon footprint on
theway to becoming net zero across our
operations by 2030.
Outlook
The completion of our transformation
strategy is a necessary prerequisite to
sustained growth alongside continuing to
deliver on our ambition to be the number
one community bank. I would like to extend
my thanks to all my colleagues for their
hard work in making this happen, as well as
shareholders and other stakeholders for
their ongoing support.
At the time of writing the economic outlook
remains uncertain, but our strategic
priorities ensure that Daniel and his
management team’s focus remains on
continuous performance improvement,
ondelivering for our customers and on
supporting our communities.
Robert Sharpe
Chair
15 March 2023
Case study
People-people banking in action
Helping Northampton’s
businesses thrive
I oversee Metro Bank’s network
across the East Midlands region and
am based in our Northampton store.
I cover all aspects of our full-service
customer proposition from personal
accounts to commercial lending, to
private banking. Like many of our
Local Directors, I am integrally
involved in developing and
promoting the local town centre
asa vibrant hub for the community
and I chair the local Business
Improvement District, which brings
together key local stakeholders.
Inaddition, I lead the work across
the Bank and our network of
in-store Local Business Managers,
tosupport female business leaders
through every step of their journey
as they start and scale up their
businesses, including our
commitment to the Investing
inWomen Code.
Kerry Reynolds
Area Director
7 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Operating environment
CompetitionEconomic and
political outlook
Consumer
behaviour
The environment we operate in is both competitive and rapidly changing.
This presents us with challenges but also creates exciting opportunities for us as we grow.
How we see it
2022 has been a year of political and economic
turbulence and this is forecast to continue, with the Bank
of England predicting the UK will enter a recession during
2023. Alongside this, unemployment is forecast to rise,
albeit from a historic low level, and house prices are
predicted to fall back.
While it is anticipated that inflation will fall, levels are still
likely to be high compared to recent history adding to
pressure on household finances.
The political and central bank response to these issues
continues to evolve and the continued inflationary
environment will likely see base rates rise through the first
half of 2023. As the country enters a period of recession
we anticipate further volatility within financial markets,
particularly in respect of yields and asset pricing.
How we are responding
We continue to take a prudent approach to our new
lending, particularly in our consumer and mortgage
portfolios.
In measuring our expected credit losses (ECL) we use
independent forecasts, which incorporate the majority
ofthese uncertainties, and where appropriate use post
model overlays (PMOs) and adjustments (PMAs) to
capture any additional risk.
We closely monitor all of our lending for signs of
deterioration and where necessary work with our
customers to offer support.
How we see it
Competition in the UK banking market remains strong,
notably in the current account and mortgage spaces.
Newer digital-only Fintechs continue to win market share
and are performing strongly in customer satisfaction
rankings, including the bi-annual CMA service quality
surveys.
In the lending market, larger incumbent players are
continuing to benefit from large legacy deposit bases
andexcess liquidity freed up from ring-fencing to
competitively price mortgages.
In other areas of the market, specialist lenders continue
tomake inroads into non-relationship driven segments,
often delivered via intermediaries or aggregators.
We also continue to see competition in other areas of our
operations, notably for talent across the organisation as
the UK continues to experience historic low levels of
unemployment.
How we are responding
Our service-driven business model continues to resonate
with customers; allowing us to continue to grow both
personal and business current accounts and compete
effectively in this market.
Over the past three years we have re-optimised our
balance sheet, focusing on more underserved and
higher-yielding areas of the markets, including consumer
lending. Most recently this has seen us launch a motor
finance product late in 2022.
We continue to invest in our colleagues and ensuring we
remain an attractive place to work. We were pleased to
be voted as one of the UK’s top 10 Most Loved
Workplaces in 2022.
How we see it
We are continuing to see a shift in consumer behaviour to
more digital offerings, with banks and retailers continuing
to reduce their physical presence.
Despite this shift, customers place a strong value on the
ability to deal with issues in person, even where a digital
alternative is available. We have seen high street footfall
recover to pre-pandemic levels in key areas although the
level of recovery differs between locations.
Customers are more willing to switch current account
providers and in doing so are putting greater value on
both service levels and innovative approaches to banking,
particularly amongst SMEs, which remain underserved
inthe marketplace.
We are also seeing customers starting to shift balances
from current accounts into savings accounts as interest
rates have risen, and therefore the opportunity cost of
these deposits has increased.
How we are responding
While we have slowed the pace of our store openings,
and closed three stores during the year, we remain
committed to a physical presence and plan to resume
store openings in 2024. These will be focused on key
markets which have strong footfall. At the same time
wewill continue to build out a strong digital offering.
We refrain from the excessive use of marketing
campaigns and switching incentives, instead focusing on
our service-led proposition to expand our deposit base.
As well as working to attract new customers, we continue
to listen to our existing customers and respond to their
changing needs, ensuring we provide a competitive
proposition and high levels of customer service.
8 Metro Bank PLC Annual Report and Accounts 2022
Operating environment Continued
Capital and
funding regime
Regulatory
environment
Focus on
sustainability
How we see it
COP 26 has continued to shine a light on the need for
climate action as well as a wider focus on sustainability.
Although climate change remains a key focus,
sustainability is much wider than this. Sustainability in all
its forms continues to be important for our stakeholders.
These trends include a desire to shift away from over
consumption and increase support towards local and
independent businesses; a trend accelerated by the
COVID-19 pandemic.
As with most companies, our stakeholders continue to
expect more from us, and customers are increasingly
choosing to interact with companies and brands that
theysee as being focused on sustainability.
How we are responding
We are working to deliver our 2030 net zero carbon
emissions goal, as part of which we have reaffirmed our
promise of not financing the extraction of fossil fuels or
their use in power generation. Alongside this, as we grow
we will minimise the resources we use – an approach that
is good for all of our stakeholders as well as the planet.
This includes reducing the amount of plastic we use,
which in 2023 will see us change our in-store free pens
toa significantly more environmentally friendly version.
We are also focused on sustainability in its wider forms
and continue to apply our ethical approach to doing
business.
We believe our ambition to be the number one
community bank is an important part of helping build
sustainable communities with thriving local economies
that our stakeholders desire.
How we see it
The UK continues to adopt a rigorous approach to
capitalmanagement with financial institutions, including
ourselves, that have total assets greater than
£15-25billion, subject to the most stringent MREL
‘bail-in’requirements. A review of these requirements
wasundertaken by the regulator, but banks, including
ourselves, will still be required to issue MREL debt.
Therise in interest rates, as well as political and economic
uncertainty during 2022, has made funding more
expensive with corporate bond yields rising over the
course of the year, a trend that is expected to continue
into 2023.
In December 2022, the Government proposed the
‘Edinburgh reforms’ – a package of over 30 regulatory
reforms aimed at unlocking investment and growth
across the UK. These proposals included changes
tothering-fencing requirements, which would see
retail-focused banks, like ourselves, exempt from the
requirement to separate out our retail activities.
How we are responding
We continue to work to fulfil all of our minimum capital
requirements required under the MREL and resolvability
regime. This includes work on inserting a holding
company, which will be in place by June 2023.
Our current growth ambitions will see us needing to
access the debt capital markets during our planning
horizon. Given the rising rate environment the cost of this
funding will have increased, although the yields we are
able to generate from this have also improved. We
remainfocused on delivering a reliable track record of
profitability, which should allow us access to fresh debt
capital at a reasonable funding cost.
We welcome the ‘Edinburgh reforms’ proposed by the
Government, particularly in respect of ring-fencing; which
given our growth plans may impact us in the future.
How we see it
The UK regulatory environment continues to evolve,
withmultiple changes on the horizon from key
regulatorybodies.
At the end of 2022, the PRA issued a consultation paper
in respect of the implementation of Basel 3.1. Separately
the FCA has issued its guidance on fair treatment
of vulnerable customers and Consumer Duty, which are
aimed at driving better customer outcomes through the
setting of higher standards for firms. Both of these
initiatives will see significant changes across the financial
services sector, with firms being required to make
changes to many of their existing processes and systems.
During the year the Government published its final
proposals for reforms to the UK’s audit and corporate
governance regimes (colloquially referred to as ‘UK SOx’),
which will have significant consequences for large firms
and their directors.
How we are responding
We continue to monitor and respond to the evolving
regulatory landscape. We are currently working through
the potential impacts on our capital requirements from
the Basel 3.1 changes.
Alongside this we are continuing to identify and respond
to the needs of our vulnerable customers. Our customer
focus puts us in a strong position to deliver for vulnerable
customers, including ensuring appropriate customer
outcomes. We are currently working to enhance our
processes and systems where needed.
During the year, we have also continued work to enhance
our control environment, particularly in respect of
financial and regulatory reporting, ahead of any
introduction of UK SOx requirements.
9 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Daniel Frumkin
Chief Executive Officer
Chief Executive Officer’s statement
Our ambition
to be the number
onecommunity
bank continues
to set us apart
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.
10 Metro Bank PLC Annual Report and Accounts 2022
Chief Executive Officer’s statement Continued
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.
Case study
People-people banking in action
Always putting our
customers first
Great service and going the extra
mile for our customers has always
been at the heart of everything we
do, right from the day we opened
the doors of our first store in 2010.
Since then we’ve grown our network
to 76 stores, with every one of them
delivering relationship-based
banking to the local community
from early until late, 362 days per
year, supported by our digital and
phone channels.
It’s a big source of pride for my
colleagues and I – and particularly
those that interact with our
customers directly – that our
in-store service for personal
customers has been independently
rated number one ten times in a row
in the CMA customer survey.
Our commitment to our community
banking model remains as strong as
ever, and is a key differentiator for
our customers and communities.
Tamsin Byrne
Director Distribution Delivery
11 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Chief Executive Officer’s statement Continued
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.
Case study
People-people banking in action
Supporting vulnerable
customers
From the pandemic to the soaring
cost of living, the past few years
have brought tough challenges for
all our customers, but the impact
has been particularly felt by those
who are potentially vulnerable
because of personal circumstances
relating to their health, financial
capability or life events.
I coordinate strategy and action
across the Bank to ensure that we
identify potentially vulnerable
customers, understand their specific
needs, and provide appropriate
support and care across all our
channels and touch points.
This has included ensuring access to
cash during COVID-19 lockdowns,
introducing accessibility services
forhearing and speech impaired
customers and training our
colleagues on financial abuse. Our
people-people banking ethos puts
our customers and communities at
the heart of everything we do.
Lucy Birch
Lead Vulnerable Customer
Development Manager
12 Metro Bank PLC Annual Report and Accounts 2022
Our strategic priorities for 2023
Chief Executive Officer’s statement Continued
Revenue
Meeting more customer needs and development
of new capabilities.
Balance sheet optimisation
Enhanced focus on risk-adjusted returns
andgrowing tangible book value.
Cost
Tight cost control through back-office efficiencies,
organisational simplification and disciplined
property footprint.
Infrastructure
Investment in integrated channels and core
infrastructure.
Communication
Improve our approach to engagement.
2019-2022 Transformation strategy
2023+ Transition to growth strategy
about our strategic priorities on page 19
Read more
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.
Daniel Frumkin
Chief Executive Officer
15 March 2023
Revenue
Create FANS to deliver strong income growth.
Balance sheet optimisation
Continued focus on risk-adjusted returns.
Cost
Target low marginal costs to support
profitable growth and reinvestment.
Infrastructure
Protect value through safe, scalable
infrastructure.
Communication
Engage colleagues, communities and other
stakeholders to push forward our story.
13 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Strategic progress
2020
SEPTEMBER
2
4
Acquisition of RateSetter,
providing us with the digital
capability todeliver unsecured
lending atscale.
DECEMBER
1
4
Sale of £3.1 billion mortgage
portfolio to NatWest freeing up
capital to redeploy into lending
with better risk-adjusted returns.
Decision to exit our offices
atOldBailey and move to
permanent hybrid-working.
FEBRUARY
Daniel Frumkin appointed as CEO
Launched our strategic priorities
with a clear plan to return the
Banktosustainableprofitability
builtaroundacommunity
bankingmodel.
JULY
4
Granted first loans under the
government-backed lending
schemes introduced following
the COVID-19 pandemic
allowing us to support our
customers while being a capital
efficient form of lending.
2022
FEBRUARY
1
3
Announced closure of three
stores.
Opening of latest store
inLeicester.
NOVEMBER
2
4
Launch of motor finance
product under the RateSetter
brand, broadening our
consumer lending capabilities.
DECEMBER
Settlement with FCA in respect
of their investigation.
APRIL
1
4
Acquisition of RateSetter back
book, utilising some of the capital
freed up by the mortgage sale
andallowing closure of legacy
peer-to-peer business.
JUNE
1
Rationalisation of call centre
sites, including opening of
AMAZE Direct contact centre
inBristol.
JUNE
5
Launched first SME focused
brandand marketing campaign
– demonstrating our commitment
toempowering the UK’s SMEs
anddemonstrating ourbusiness
banking offering.
2021
Our transformation strategy has helped uscreate a strong platform for growth.
DECEMBER
Settlement with PRA in respect
of their investigation into
regulatory reporting.
Agreement of net zero target
by2030.
Completion of
transformation plan
1
Costs
2
Revenue
3
Infrastructure
4
Balance sheet optimisation
5
Internal and external communications
14 Metro Bank PLC Annual Report and Accounts 2022
is underpinned by... Our model
Environmental and social priorities
We ensure that our business model and
approach is focused on the areas that
matter most to our stakeholders.
on pages 28 to 53
Read more
CREATING
LONG-TERM
VALUE ALLOWING
INVESTMENT IN...
ALLOWING US
TO GENERATE...
COMBINED
WITH...
Service-led
core deposits
Risk-adjusted
returns
Integrated
model
Unique
culture
CREATING
FANS WHO
BRING...
Risk management
We continue to focus on enhancing our
control environment and risk capabilities,
ensuring we balance the risks that need
tobe taken to deliver our strategy against
ensuring this is done in a managed and
appropriate manner.
on pages 54 to 97
Read more
Governance
We are continually improving our
approach to governance. Ensuring we
maintain a robust governance framework
is important in allowing all stakeholders
tohave confidence that we are making
decisions in the right way.
on pages 98 to 169
Read more
Business model
As set out in our purpose and strategy framework on pages 3 to 5 we are delivering
onour ambition to be the number one community bank through our business model.
delivers value for...
over
2.7m customer accounts
over
4,000 colleagues
our retail and institutional
investors
our regulators, including the
FCA and PRA
over
600 suppliers
the
76 communities we serve
How we make money
We make money through the difference we charge on the loans
we issue and the deposits we take, less our operating costs and
changes in ECL.
on pages 22 to 27
Read more
on pages 108 to 114
Read more
15 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Progress in 2022 Operating environment Priorities Risks KPIs
Integrated
model
Our integrated
model aims to
combine delivery
through physical and
digital channels.
During the year we opened our
latest store in Leicester and
havebeen encouraged by its
performance. Overall we have
seen footfall recover to pre-
pandemic levels, although with
variability between markets.
Alongside our stores we continued
to invest in our digital channels,
launching new digital products
inthe year, including our digital
business overdrafts.
These investments saw us
continue to grow. During 2022 we
processed 106 million payments,
equating to 1% of all domestic UK
payments.
Competition
The UK banking market
continues to be very
competitive with high
levelsofinnovation.
To remain competitive we need
to continue to invest in all of our
channels to ensure they meet
our customer needs.
Consumer behaviour
Customers are continuing
toplace a strong reliance on
in-person service, although
themove to digital continues.
Focus on sustainability
We continue to see strong
pressure from all of our key
stakeholders to ensure all of
ouroperations are sustainable.
The idea that bank branches
have no value in the modern
world is highly exaggerated and
there continues to be immense
value in a targeted and modern
physical offering. We continue
to remain committed to stores
and are working on site
identification and planning for
new stores in the North of
England; targeting key markets
with a strong SME presence.
Although we see value in stores,
there is a clear growth in digital
adoption and we will continue
tobuild our digital proposition,
giving customers the choice of
how they bank with us, rather
than forcing them through
asingle channel.
Our principal risks in respect
ofdelivering our integrated
model are:
• Conduct risk.
• Operational risk.
• Strategic risk.
We continue to enhance our
processes and systems to both
minimise the risk of operational
issues.
Alongside this we remain
focused on our strategy and
ensuring this is effectively
delivered to meet the
expectations of our
stakeholders.
Number of accounts (m)
2.5
2.7
2021
2022
Customer satisfaction
90
85
2021
2022
New to bank
42
33
2021
2022
Existing
Unique
culture
Our colleagues
deliver superior
service and are at
the heart of our
people-people
banking approach.
We continued to focus on
sustaining our unique culture. In
2022 we were thrilled to be voted
in the top 10 of the UK’s Most
Loved Workplaces as well as being
named a top 10 inclusive company
at the British LGBT Awards.
During the year we supported
colleagues with the cost of living
through via a 2.75% salary increase
to over 90% of colleagues in the
second half the year, in addition to
an average salary increase of 5%.
We remain focused on retaining
and attracting talent and our
continued adoption of flexible
working has allowed us to attract
colleagues from all over the UK.
Competition
A contraction of the UK
workforce post COVID-19
combined with historic low
levels of unemployment are
continuing to keep the market
for talent highly competitive.
Economic and political outlook
The high inflationary
environment is continuing to put
pressure on wages. This is
putting additional cost pressure
on firms of all sizes in order to
be able to help colleagues and
retain talent.
We remain focused on
maintaining and enhancing our
unique culture and creating
avibrant environment where
colleagues enjoy working and
we can attract the best talent.
Central to this is building a
diverse and inclusive workforce
where colleagues can be
themselves. Alongside this we
continue to invest in training
and, where possible, encourage
promotion from within.
We continue to explore
opportunities to deploy
increased automation to help
free up colleague time and allow
them to focus on what they
dobest – creating FANS.
Our principal risks in respect
ofdelivering our unique
cultureare:
• Conduct risk.
• Legal risk.
• Operational risk.
• Strategic risk.
We focus on delivering simple
and easy to understand
products and a foster a culture
that ensures we put our
customers first; minimising the
risk of unfair customer
outcomes and delivers our
purpose of creating FANS.
Colleague engagement (%)
69
75
2021
2022
Senior leadership diversity
20
19
2021
2022
BAME
43
41
2021
2022
Female
Business model Continued
about our operating environment
on pages 8 to 9
Read more
about risk on
pages 54 to 97
Read more
about KPIs on
pages 20 to 21
Read more
16 Metro Bank PLC Annual Report and Accounts 2022
Progress in 2022 Operating environment Priorities Risks KPIs
Service-led
core deposits
We seek to attract
core deposits
through our service-
led community
banking model with
specific emphasis
onour core retail
and SME franchise.
2022 saw us maintain our
service-led core deposit base in a
rising rate environment. This was
driven by our continued growth
ofpersonal and business current
accounts openings of 188,000
and42,000 respectively.
We continue to deepen our
relationships with customers
notably in the commercial space,
which has aided greater deposit
and fee growth. During 2022 we
attracted over 700 commercial
switchers, which will help generate
over £4 million of additional
income each year.
Competition
As interest rates have risen
competition for deposits has
increased, both from challenger
banks and larger incumbents.
Alongside this newer digital-
only Fintechs continue to grow.
Regulatory environment
The regulatory environment
continues to work towards
ensuring the fair treatment of
customers with a particular
focus on vulnerable customer
and Consumer Duty. This trend
is seeing deposit-taking
institutions, like ourselves,
implement an increasing
amount of regulatory
requirements.
The strength of our approach is
our ability to attract a stable
core deposit base and our focus
will be on maintaining this as
rates continue to rise. Central to
this will be a continued focus on
personal and business current
accounts, which as well as
providing low-cost funding offer
fee-earning opportunities.
To aid this growth we will
continue to focus on attracting
switchers especially in the
commercial space. These
customers typically have large
stable deposits and are
particularly underserved in the
wider market, allowing us to
clearly differentiate our offering
from our competitors.
Our principal risks in respect
ofdelivering service-led core
deposits are:
• Conduct risk.
• Liquidity and funding risk.
• Market risk.
• Financial crime risk.
• Regulatory risk.
• Legal risk.
We continue to actively manage
our balance sheet to ensure we
retain high levels of liquidity and
appropriately hedge our interest
rate risk.
Alongside this we continue to
enhance our controls and review
our products to both protect
our customers and ensure we
are delivering fair outcomes.
Cost of deposits (%)
0.24
0.20
2021
2022
Risk-adjusted
returns
We seek to balance
our lending mix
through abroad
yetsimple product
offering that
ispriced
proportionate
torisk.
Our lending during the year
benefited from the rising rate
environment combined with the
rebalancing of our portfolio over
the transformation period.
During the year we launched new
lending products, including a
motor finance product under the
RateSetter brand and a digital
business overdraft.
Our core lending remains centred
around mortgages and consumer.
2022 saw us receive £4 billion
inmortgage applications, with
£2.2billion completed, alongside
£1.0 billion of unsecured lending.
Competition
Competition in the lending
space remains strong notably in
the mortgage space from larger
competitors as well as specialist
lenders in other key segments.
Capital and funding regime
The UK’s rigorous capital regime
continues to see large financial
firms, including ourselves,
dependent on capital markets to
support regulatory requirements.
Economic and political outlook
The economic outlook remains
uncertain with the UK forecast
to enter recession in 2023. This
will continue to put pressure
onhousehold and business
finances, likely increasing
default levels.
Our current capital levels
constrain our ability to grow
lending balances significantly
inthe near term and as such
ourfocus will be on efficiently
redeploying older legacy
balances when they roll-off.
Over the past three years we
have built a strong lending
platform particularly in respect
of unsecured lending which we
will continue to leverage in the
coming years. Alongside this
wewill explore opportunities
tolaunch new products which
provide strong returns on
regulatory capital.
Our principal risks in respect
ofdelivering risk-adjusted
returns are:
• Conduct risk.
• Credit risk.
• Market risk.
• Financial crime.
• Regulatory risk.
• Model risk.
• Capital risk.
We take a prudent approach to
lending to minimise the risk of
losses. We continue to review
and update our credit models
tosupport this.
Cost of risk (%)
0.18
0.32
2021
2022
Loan-to-deposit ratio (%)
75
82
2021
2022
Total capital plus MREL
ratio (%)
20.5
17.7
2021
2022
Business model Continued
about our operating environment
on pages 8 to 9
Read more
about risk on
pages 54 to 97
Read more
about KPIs on
pages 20 to 21
Read more
17 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
as at 31 December 2022
We are committed to opening
at least another 11 in the North
of England by the end of 2025.
Store strategy
We continue to firmly believe that stores have a vital part to
play in modern day banking. While it is clear that the role of
bank branches are evolving they remain an important delivery
channel and continued to be valued by customers.
We operate our store estate in large population centres
andthey consist a mix of main city centre and out of town
locations with parking. This, combined with our longer
andmore convenient opening hours, mean our stores are
accessible to, and provide coverage for, large geographic
areas. In the medium-term we will look to expand into key
cities including Exeter, Norwich and Nottingham.
Over the next three years our focus will be the delivery of
11new stores in the North of England, delivering on our
commitments under the Capability and Innovation Fund (C&I)
grant. This will see us reach new communities including Hull,
Leeds, Newcastle, Teesside and York.
Priorities for our store programme
Our priorities for our store expansion will centre around:
• Less expensive, more sustainable builds.
• Long leases with multiple and frequent breaks – providing
security of occupation whilst retaining flexibility.
• Freehold ownership where available and providing there
is a strong commercial rationale.
• Continuing to review and refresh the estate as any
responsible retailer would do.
• Building a greater mix of high street and out of town
locations, adapting to consumer trends.
Our network of stores places us at the
heart of the communities we serve.
76 Stores
Existing locations
Target locations
18 Metro Bank PLC Annual Report and Accounts 2022
Strategic priorities
2019-2022
Transformation priorities
Progress over transformation period 2023
Transition to growth priorities
Focus for 2023
Revenue
Meeting more customer
needsand development
ofnewcapabilities
• Growth of core higher-yielding residential mortgages
and unsecured lending.
• Disciplined deposit pricing.
• Growth of fee earning products.
Revenue
Create FANS to deliver strong
franchise growth
• Maintain service delivery.
• Expansion on higher-yielding product range including
growth of motor finance.
• Grow personal and business current accounts.
• Enhance fee earning opportunities.
Balance sheet
optimisation
Enhanced focus on risk-
adjusted returns and growing
tangible book value
• Sale of £3.1 billion mortgage portfolio.
• Purchase of RateSetter.
• Investment in IRB.
• Delivery of over £1.8 billion of government-backed
lending schemes.
Balance sheet
optimisation
Continued focus on
risk-adjusted returns
• Disciplined approach to maximising risk-adjusted
returns on regulatory capital to aid return to steady
capital generation.
• Continue to review portfolio mix to reflect changing
macro-context.
• Fill key gaps in proposition (e.g. ISA switching).
• Ambition to achieve IRB accreditation.
Costs
Tight cost control through
back-office efficiencies,
organisational simplification
and disciplined property
footprint
• Freehold purchases of nine leasehold stores taking
these to 38% of our estate.
• Move to remote working allowing reduction
inCentralLondon office space.
• Resolving of expensive legacy issues.
• Transformation of procurement processes.
• Rationalisation of call centre sites.
Costs
Target low marginal costs
tosupport profitable growth
and reinvestment
• Maintain cost discipline.
• Leverage economies of scale in relation to savings,
mortgage and unsecured platforms as we continue
togrow.
• Greater use of artificial intelligence and automation
toreduce costs.
Infrastructure
Investment in integrated
channels and core
infrastructure
• Reduced capital spend on new stores to allow for
investment in back office infrastructure.
• Delivery of key regulatory initiatives including PSD2
and high cost of credit.
• Implementation of regulatory reporting system.
• Enhanced control environment across the Bank.
• Increased use of artificial intelligence and automation.
Infrastructure
Protect value through safe,
scaleable infrastructure
• Start work on expansion of store network in the
Northof England.
• Continued investment in key areas including regulatory
compliance and financial crime.
• Embedding of Agile approach to change projects
which we adopted in 2022.
• Delivery of holding company.
Communications
Improve our approach
toengagement
• Transformed approach to colleague communication.
• Delivery of first mainstream brand campaign focused
on SMEs.
• Regular meetings with all key stakeholders.
• Refresh of KPIs and approach to executive
remuneration to be clearer and transparent.
• Introduction of 2030 net zero target.
• Clear focus on community bank credentials post-
pandemic, including Money Zone.
Communications
Engage colleagues,
communities and other
stakeholders to push forward
our story
• Continue to invest in our training and development
programmes, including apprenticeships.
• Support customers who may be experiencing financial
difficulty as the economy weakens.
• Drive towards 2030 net zero target.
• Expansion of Money Zone, our financial education
programme.
• Continued focus on our communities through Days to
AMAZE, fundraising and supporting local businesses.
We have refreshed our strategic priorities for the next stage of our journey, shifting our focus
fromfixingtheproblemsof the past to leveraging our strengths as a platform for growth.
19 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Key performance indicators
Our KPIs are the metrics we monitor to check we are on
track with the delivery of our strategy as well as assess
how our business model is performing.
Link to business model
Components of our business model
Our business model is set out on page 15.
Further details of each component of our
business model can be found on pages 16
to 17, including how our KPIs link to
measureour performance for each
ofthesecomponents.
Output of our business model
The output of our business model is to
generate long-term value and create
tangible book growth, measured through:
• Total shareholder return.
• Return on tangible equity.
Link to remuneration approach
Our approach to remuneration for
management is based on a simple and clear
scorecard. The scorecard measures are
aligned to the four components of our
business model to ensure management are
focused on these. In addition to this we
provide an LTIP which is linked to our
scorecard outcomes of long-term value
generation and tangible book growth.
KPI performance during 2022
The majority of our financial metrics
during the year showed improvement in
line with our overall 2022 performance.
Anexception to this was cost of risk which
increased from 0.18% to 0.32% reflecting
both the economic outlook and our
increased unsecured lending. Equally our
CET1 continued to decline largely as a
result of the losses incurred in the year.
Aswe return to profitability and
rebalancelending growth we envisage
this stabilising.
While we continued to grow our customer
accounts we had a decrease in customer
satisfaction. During 2023 we will focus on
reversing this trend given its importance
in attracting and retaining customers.
Our colleague engagement score reached
a record high in 2022, up six points on
2021. Our diversity metrics remained
broadly flat year-on-year. D&I remains
important part of our culture and
duringthe year we launched our new
D&Istrategy.
Alternative performance measures
Where a financial KPI is an alternative
performance measure a reconciliation
tothe nearest statutory measure can
befound on pages 241 to 245.
Key
S
Scorecard measure
L
LTIP measure
Alternative performance measure
Non-financial
Customer accounts (m) Colleague engagement
S
2.2
2.5
2.7
2020
2021
2022
73
69
75
2020
2021
2022
How we define it
Number of active customer accounts.
Why it is important
Growing our customer accounts is key to our
franchise and validates that our approach is
working and that our proposition resonates
withcustomers.
How we define it
The result is taken from our annual Voice of the
Colleague survey.
Why it is important
Attracting and retaining talent is vital to
delivering superior service and preserving
ourculture and therefore we want to ensure
colleagues enjoy working for us.
Customer satisfaction (%)
S
Senior leadership diversity (%)
S
86
90
85
2020
2021
2022
New account openings
38
43
41
2020
2021
2022
Female
45
42
33
2020
2021
2022
Continuing relationships
11
20
19
2020
2021
2022
Black, Asian and minority ethnic (BAME)
How we define it
Net promoter score for new account openings
and continuing customer relationships.
Why it is important
Our purpose is to create FANS and as such
ensuring strong ongoing levels of customer
satisfaction is important in measuring this.
How we define it
Proportion of female/BAME colleagues amongst
our senior leadership team (ExCo and their
directreports).
Why it is important
Ensuring diversity amongst our senior
management ensures we are representative
ofthe communities we serve and our colleagues
as a whole. This means we are more likely to
make decisions that are beneficial to all our
stakeholders and help us deliver on our strategy.
20 Metro Bank PLC Annual Report and Accounts 2022
Key performance indicators Continued
Financial
Statutory loss before tax (£m) Underlying loss before tax (£m)
S
Total capital plus MREL ratio (%)
S
(311.4)
(245.1)
(70.7)
2020
2021
2022
(271.8)
(171.3)
(50.6)
2020
2021
2022
22.4
20.5
17.7
2020
2021
2022
How we define it
Our earnings before tax as defined by International
Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS).
Why it is important
Achieving sustainable profitability is the key financial
measure to demonstrate we are creating long-term value.
How we define it
Our statutory earnings adjusted for certain items that
distort year-on-year comparisons.
Why it is important
It provides further understanding of the underlying trends
in the business.
How we define it
Our total capital plus MREL expressed as a percentage
ofRWAs.
Why it is important
While we measure capital at multiple levels our biggest
current constraints are at our total capital plus MREL level,
where we continue to operate within our capital buffers.
Cost of deposits (%)
Cost of risk (%)
Statutory cost:income ratio (%)
0.65
0.24
0.20
2020
2021
2022
0.86
0.18
0.32
2020
2021
2022
143
153
106
2020
2021
2022
How we define it
Interest expense on customer deposits divided by the average
deposits from customers for the year.
Why it is important
Our ability to attract service-led core deposits is a component of
our business model with cost of deposits being a key determinant
in measuring this.
How we define it
ECL expense divided by average gross loans for the year.
Why it is important
We seek to minimise our cost of risk, balanced with the
interest received, to ensure we are optimising our lending.
How we define it
Total costs (excluding ECL expense) expressed as proportion
oftotal income.
Why it is important
Achieving tangible book growth involves achieving profitability
and therefore creating positive operating jaws is vital. Statutory
cost:income ratio is a useful metric in measuring this.
Return on tangible equity (%)
L
Loan-to-deposit ratio (%) Total shareholder return (%)
L
(22)
(28)
(10)
2020
2021
2022
75
75
82
2020
2021
2022
(96)
(94)
(41)
2020
2021
2022
How we define it
Earnings for the year divided by average tangible
shareholders’ equity (total equity less intangible assets).
Why it is important
This is the strategic output of our business model and how
we judge success.
How we define it
Net loans and advances to customers expressed
asapercentage of total deposits.
Why it is important
As we seek to be a deposit funded bank, ensuring we
maintain an appropriate loan-to-deposit ratio is a key
measure in managing this.
How we define it
Total capital gains and dividends returned to investors over
a three-year rolling period.
Why it is important
We want to ensure shareholders are rewarded for their
continued investment in us.
21 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Finance review
Our performance in
2022 has improved
significantly from the
continued execution
ofour strategy in a
changeable external
environment
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 £50.6 million down from £171.3
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 £70.7 million
(2021:£245.1 million) as we continued to
put legacy issues, and their associated
remediation costs, behind us.
H1 20 H2 20
H1 21 H2 21 H1 22 H2 22
50
(50)
(150)
(100)
0
(88.4)
(183.4)
(110.0)
(61.3)
(48.0)
(2.6)
The economic backdrop remains uncertain
and during the year we recognised an
ECLexpense of £39.9 million (2021:
£22.4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%).
Statutory and underlying results
Financial information in this report is
prepared on a statutory (taken from our
financial statements on pages 181 to 234)
and underlying basis (which we use to
assess performance on a management
basis). Further details on how we calculate
underlying performance, as well as our
other alternative performance measures
can be found on pages 241 to 245.
James Hopkinson
Chief Financial Officer
22 Metro Bank PLC Annual Report and Accounts 2022
Finance review Continued
Income statement
2022
£m
2021
£m
Change
%
Underlying net
interest income 404.2 295.7 37%
Underlying non-net
interest income 117.9 102.2 15%
Total underlying
income 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 £404.2 million (2021: £295.7 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 £570 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 £117.9
million (2021: £102.2 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£34.1 million from £27.7 million in 2021.
Service charges and other fee income also
increased, rising to £30.9 million from £25.5
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
£16.5 million (2021: £15.1 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 £532.8
million (2021: £546.8 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 £236.6 million (2021: £239.0
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 £307.8 million to £296.2
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 £80.2
million to £77.0 million as the pace of our
investment slowed from the peak spending
set out as part of our transformation plan.
Non-underlying items
2022
£m
2021
£m
Change
%
Impairment and
write-off of property,
plant, equipment and
intangible assets (9.7) (24.9) (61%)
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 (20.1) (73.8) (73%)
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
£641.2 million in 2021 to £554.3 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 £10 million, within the
range outlined last year and drawing this
matter to a close. We had recognised a
provision of £5 million in respect of this
matter during 2021, with the remainder
recognised within remediation costs during
the year.
23 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Finance review Continued
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
31 December 2022
ECL
Allowance
£m
Coverage
ratio
%
NPL ratio
%
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 £39.9 million (2021: £22.4 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 £33 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 £48,000.
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 £1 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 £681 million as at
31December 2022 from £837 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 allowance from
£108million as at 31 December 2021
to£92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
£m
2021
£m
Change
%
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 £13,102 million
(31December 2021: £12,290 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 £4 billion in mortgage
applications, up 182% on 2021. We
completed over £2.1 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.
24 Metro Bank PLC Annual Report and Accounts 2022
Finance review Continued
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 £4,160
million (31 December 2021: £4,846 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 37%
of our commercial term lending portfolio
(31 December 2021: 38%), the majority
consisting of amounts lent under the
Bounce Back Loan Scheme (BBLS). During
the year we claimed back £349 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 £3,568
million at the end of 2021 to £1,956 million
as at 31 December 2022, with investment
securities rising to £5,914 million
(31December 2021: £5,574 million).
Interest income earned on investment
securities during the year rose from
£23.2million to £67.6 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.
1 January
2020
Openings
Closures Freehold
purchase
2022
4
55
75
76
20
47
29
(3)
(9)
9
Deposits
31 December
2022
£m
2021
£m
Change
%
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
£16,014 million (31 December 2021: £16,448
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.
25 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Finance review Continued
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 £4.0 million in 2021 to £55.5
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
Lease
liability
Impact of
discounting
Lease payments
outside of
minimum term
Minimum
lease
payments
248
149
(113)
284
Minimum lease
payments as at
31 December 2022
£m
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£248 million as at 31 December 2022
(31December 2021: £269 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
£2.0 million (2021: charge of £3.1 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 £859 million of brought
forward tax losses on which we are not
recognising a deferred tax asset of £215
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
£143.7 million (2021: £152.5 million) made
up of £76.0 million (2021: £91.6 million)
taxes we paid and a further £67.7 million
(2021: £60.9 million) of taxes we collected.
Further details can be found on page 41.
Liquidity
Our liquidity position continues to be strong
and we continue to hold large amounts of
high-quality liquid assets which totalled
£4,976 million as at 31 December 2022
(31December 2021: £6,754 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
£m
2021
£m
Change
%
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 plus MREL
ratio 17.7% 20.5% (280bps)
UK regulatory
leverage ratio 4.2% 5.2% (100bps)
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
1
31 December 2022
CET1 8.3%
Tier 1 9.9%
Total Capital plus MREL 20.5%
1. Excluding 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%.
26 Metro Bank PLC Annual Report and Accounts 2022
Finance review Continued
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 and other 0.4%
31December 2022 17.7%
On 1 January 2022 software assets reverted
to being fully 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 transitional 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.
RWAs ended the period at £7,990 million
up 7% from £7,454 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.
James Hopkinson
Chief Financial Officer
15 March 2023
27 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Environmental, social and governance review
Our ambition to be the
number one community
bankgoes hand in hand
withacting sustainably and
responsibly towards our
customers, our communities,
our colleagues and
ourenvironment.
We were founded to be a different kind of
bank – a bank with the community at its heart,
built around colleagues delivering fantastic
customer service.
As we have grown, we have incorporated
environmental, social and governance (ESG)
priorities into our business to ensure we
continue to build it in the right way. In doing
this, we are committed to being open and
transparent about what we are doing and why.
This approach has seen us become known as a
bank that embraces diversity and champions
inclusivity; a bank that values sustainability
and acts responsibly towards the environment;
a bank that makes a positive difference
through the local colleagues we employ, the
local businesses we work with and the local
causes we support. A bank that simply aims
todo the right thing by our stakeholders.
Non-financial information
This statement is prepared in compliance with sections 414CA and 414CB of the Companies Act 2006 and explains
where you can find further information about how we do the right thing in relation to our customers, communities,
colleagues and the environment. A description of our business model and strategy, as well as the non-financial KPIs
relevant to our business can be found on pages 15 to 21.
Reporting requirement Where to find further information for an
understanding of our business and our impacts,
including outcomes of our activities
Relevant policies and standards that govern
our approach (please see policy list on pages
30 to 31 for a description of each policy)
Environmental
matters
Page 42 – Our planet.
Page 43 – Task Force on Climate-related
FinancialDisclosures.
• Climate pledges.
• Supplier management.
• Business and commercial lending.
Colleagues
Page 35 – Our colleagues.
Page 37 – Gender pay gap.
Page 115 –Letter from the Designated Non-
Executive Director for Colleague Engagement.
Page 148 – Annual report on remuneration.
• Diversity and inclusion.
• Recruitment and selection.
• Health and safety.
• Whistleblowing.
• Conflicts of interest.
Social matters
Page 32 – Our FANS and communities.
Page 39 – Data privacy and security.
Page 41 – Governance and reliance.
Page 42 – Our planet.
• Climate pledges.
• Supplier management.
• Business and commercial lending.
• Vulnerable customers.
• Data protection.
• Anti-tax evasion.
• Anti-money laundering/counter terrorist
financing.
• Business continuity.
• Complaints.
Human rights
Page 40 – Our suppliers. • Modern slavery.
• Outsourcing.
• Diversity and inclusion.
Anti-bribery
andcorruption
Page 41 – Governance and reliance.
Page 97 – Financial crime risk.
• Anti-bribery and corruption.
28 Metro Bank PLC Annual Report and Accounts 2022
Environmental, social and governance review
Continued
Our environmental, social and
governance priorities
The Board and ExCo have oversight of our
strategy and priorities. They are supported
by a new internal ESG structure which
became operational in 2022, including an
ExCo-level ESG Steering Committee which
coordinates all our ESG activities.
In Q1 2022 we completed a review of our
approach towards current and emerging
ESG issues. To obtain deeper understanding
of our external and internal stakeholders’
views regarding the importance of
ESGissues we undertook a materiality
assessment, which was carried out using
the Global Reporting Initiative approach.
Extensive research identified a longlist
ofESG issues, which was consolidated
toashortlist of 19 issues that we believe
aremost important to our stakeholders.
Weasked stakeholders to rank the
19issues, and we mapped the results
againstsix overarching priority themes.
The diagram on the right of this page shows
the outcome of the stakeholder ranking
exercise, with the shortlisted issues mapped
against the six priority themes.
We continued to take account of the
resultsof the materiality assessment in our
considerations of ESG issues throughout
2022. Each of the six priority themes is
discussed in detail in the pages that follow.
Our FANS and communities
Turning customers and the communities
weserve into FANS is central to
everythingwe do.
Topics identified via materiality assessment:
• Customer service and experience –
creating FANS.
• Financial inclusion, literacy and education.
• Supporting vulnerable customers.
• Community engagement, investment
andfundraising.
on pages 32
to 34
Read more
Our suppliers
We work with suppliers who uphold our
values and actively assess and monitor
thecontrols they put in place.
Topics identified via materiality assessment:
• Supply chain engagement and responsible
procurement.
• Human rights and modern slavery.
• Anti-bribery and corruption.
on page 40
Read more
Our colleagues
We are committed to an AMAZEING
colleague experience, based on an
inclusive culture.
Topics identified via materiality assessment:
• Colleague attraction training and
development.
• Colleague engagement, health, safety
andwellbeing.
• Diversity, equality and inclusion.
on pages 35
to 38
Read more
Governance and resilience
Good governance, compliance and
riskmanagement practices make sure
weremain a sustainable, strong and
resilient business.
Topics identified via materiality assessment:
• Good governance practices.
• Ethics and compliance.
• Risk management and business resilience.
on page 41
Read more
Data privacy and security
We continue to assess evolve and mature
our data privacy and cyber security
capabilities.
Topics identified via materiality assessment:
• Data privacy and cyber security.
• Financial crime and fraud.
on page 39
Read more
Our planet
We are taking the actions required to make
positive changes and reduce our impact
onthe environment.
Topics identified via materiality assessment:
• Climate change.
• Operational environmental efficiency.
• Responsible investment and stewardship.
• Sustainable product innovation.
on page 42
Read more
29 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Environmental, social and governance review
Continued
Policy Description ESG priorities
Vulnerable customer The policy sets out our approach to identifying and interacting with vulnerable customers to ensure we deliver fair
customeroutcomes.
1
2
Lending and arrears management
policies(including retail, business
&commercial lending)
These policies set our approach to making lending decisions in a structured, consistent and fair way that is compliant with all
relevant regulatory requirements. They define the way we safeguard both our FANS and the Bank in pursuit of our goals and
how we support our customers during periods of financial difficulty.
1
Anti-money laundering/
Counter terrorist financing
The policy sets out the systems and controls to identify, assess, monitor and manage financial crime risks and the procedures
in place to assess their effectiveness.
1
2
5
Diversity and inclusion The policy means that we treat our colleagues fairly. It sets out our commitment to having a diverse workforce which reflects
our customer base and to employment policies which follow best practice, based on equal opportunities for all colleagues.
1
2
Recruitment and selection The policy relates to all recruitment-related activities and is relevant for all colleagues and any third-party recruitment
partners. The policy outlines responsibilities for hiring aligned to our Company objectives/ethos and in accordance with the
relevant legislation and regulation.
2
Health and safety The policy protects our customers and colleagues. It recognises our statutory duties and responsibilities under the relevant
Health and Safety and Welfare legislation.
1
2
Physical security The policy protects our customers and colleagues. It defines the measures to protect Metro Bank premises security threats
and to ensure the personal safety and security of all customers, colleagues and visitors.
1
2
Whistleblowing The policy encourages colleagues to disclose information, in good faith and without fear of unfair treatment, when they
suspect any illegal or unethical conduct or wrongdoing affecting the Bank.
2
5
Anti-bribery and corruption The policy outlines our approach to managing the risk of bribery and corruption and to ensure we conduct business in an
honest and ethical way, with a zero-tolerance approach to bribery and corruption.
2
5
Conflicts of interest The policy provides consistent practical guidance to all relevant parties in relation to the identification, recording and
maintenance of actual and perceived conflicts of interest.
2
5
Anti-tax evasion The policy sets out our zero-tolerance approach to tax evasion.
1
5
Business continuity The policy makes sure we are able to continue delivering services to our customers at acceptable levels if something
unexpected were to happen. It addresses impacts to the continuity of critical business activities in the case of man-made
disasters, natural disasters or other material events.
1
2
3
4
5
1
Our FANS and communities
2
Our colleagues
3
Data privacy and security
4
Our suppliers
5
Governance and resilience
6
Our planet
Policy list
30 Metro Bank PLC Annual Report and Accounts 2022
Environmental, social and governance review
Continued
Policy Description ESG priorities
Data governance The policy sets out our objectives and expectations in managing data and data governance practices. It makes sure that
data is managed, governed, accessed, protected, utilised and disclosed appropriately. It also focuses on the quality of key
data elements and their ongoing maintenance.
1
2
3
5
Data protection The policy is in place to ensure that the Bank is complying with its data protection obligations and has the adequate level
ofdata protection as prescribed by the General Data Protection Regulation.
1
2
3
5
Supplier management The policy ensures that when we rely on an external supplier for key processes and activities, we take the reasonable steps
toidentify, monitor and mitigate the external supplier risks.
1
4
5
6
Modern slavery The policy describes our approach towards preventing slavery, servitude, forced and compulsory labour and human
trafficking in any of our operations or at any of our suppliers and, through them, our supply chains.
1
5
Records management The policy sets out Metro Bank’s objectives and expectations for managing records responsibly and efficiently from creation
to disposal, complying with legal and regulatory obligations.
1
2
3
5
Complaints The policy sets the way in which customer complaints are handled promptly and effectively, with a focus on fair outcomes
forour customers and meeting our regulatory obligations when things go wrong.
1
2
Information security The policy sets objectives, expectations, roles and responsibilities and requirements for protecting Metro Bank and
customerinformation.
3
5
Conflicts of interest The policy looks to provide consistent and practical guidance in relation to the identification of actual and perceived
conflicts of interest to limit the Banks’ exposure to: regulatory action, loss of revenue, damage to reputation, poor customer
outcomes and/or legal action against the Bank.
2
4
5
Sanctions The policy sets the requirements and approach to managing financial sanctions risks in compliance with applicable sanctions
regimes including the prevention, detection and investigation of potential sanctions evasion.
1
5
Fraud The policy sets a consistent approach to the deterrence, detection and prevention of internal and external fraud.
1
2
5
Product governance The policy sets requirements to ensure products and services are developed to address customer needs, have a defined
target market, are designed to deliver good customer outcomes and are understood by customers.
1
5
31 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
We are proud to have been awarded Bank
Mortgage Provider of the Year at the
MoneyAge Mortgage Awards; Business
Leader Intermediary Lender at The British
Mortgage Awards; and the ‘Treating
Customers Fairly’ Champion award for our
RateSetter team at the British Bank Awards,
voted by customers.
Service quality
Turning customers and the communities
weserve into FANS has always been at the
heart of everything we do. Since our launch
in 2010, we have been unwavering in our
commitment to great customer service,
asdemonstrated repeatedly in the CMA’s
Service Quality Surveys where, for the tenth
time running, we’re ranked number one
high street bank for overall service quality
for personal current accounts – plus we are
the highest rated high street bank for our
personal and business service in stores
andbusiness service centres.
Our FANS help shape our products
andservices
We channel feedback from our Voice of the
Customer surveys back into our product
and service development processes,
ensuring we meet customer needs.
Newfeatures we launched in 2022 included
information on credit scores and ways
customers can improve their score, digital
customer self-service (for example, to
change a registered email address or
activate a new bank card), and extra
support when logging into online banking.
Our FANS and
communities
Making every wrong right
An essential part of delivering AMAZEING
service is doing our best to make every
wrong right and resolving complaints
quickly. Our latest customer complaints
data is published on our website at:
metrobankonline.co.uk/help-and-support/
forms/give-us-feedback/complaints-data.
Cost of living
To help our customers navigate cost of
living pressures, we launched a new online
hub that centralises information about the
support we offer, provides money tips from
an independent personal finance journalist,
and signposts a number of specialist
organisations that can help.
Grand Opening of our store
inLeicester
In February 2022 we opened our newest
store in the centre of Leicester, delivering
our renowned Metro Bank service, from
early until late, seven days per week
topeople and businesses across the
localcommunity.
The store’s Grand Opening was a
MetroBank-style two-day celebration
with local residents and businesses
thatfeatured a performance by a local
Dholdrummer group, face painting
forchildren and free hot drinks for
thelocal community.
The ribbon was cut by the Lord Mayor
ofLeicester and Metro Bank super FAN
Oliver Benghiat, who set himself a
challenge to visit every Metro Bank
storeby his 13th birthday.
Environmental, social and governance review
Continued
32 Metro Bank PLC Annual Report and Accounts 2022
Environmental, social and governance review
Continued
Vulnerable customers
The cost of living crisis is particularly
challenging for vulnerable customers.
Toensure we are able to provide the right
support we have delivered training to all
colleagues and across our frontline teams,
including specific training on financial abuse
and on the non-financial impacts that loan
arrears have on customers. In addition, we
are proactively contacting customers who
may need extra support or are at risk of
falling into arrears. Our specialist team
helping customers experiencing financial
difficulty can tailor support to their
individual circumstances.
In 2022 we enhanced our understanding of
vulnerable customers’ needs in order to
identify where further improvements to our
product and service provisions can be
made. We created a new website hub for
customers who require extra support,
offering guidance on issues such as third
party account access, avoiding scams and
financial abuse, and how to access specialist
money support. We also delivered
enhancements to make it easier for
customers to bank with us including
RelayUK – a free, easy to use service to
helphearing and speech impaired people
communicate over the phone.
Ukrainian refugees
We supported the Government’s Homes for
Ukraine and Ukraine Family schemes by
amending our account opening procedures
for Ukrainian refugees entering the UK
under the schemes. In addition, we ensured
that our mortgage customers are able to
accommodate Ukrainian families in their
homes, should they choose to do so.
Volunteering
Colleagues dedicated more than 4,000
hours of their time to volunteer in support
of local good causes in 2022. This is an
increase of 60% compared to 2021, during
which our volunteering activity was
impacted by COVID-19 restrictions.
Money Zone: helping
children improve their
financial literacy
Money Zone is a programme of free
financial education lessons we offer
toschool children and young adult
care leavers, both virtually and via
ourstores.
The programme for school children
links to the Government’s curriculum
guidelines for Key Stages 2 and 3 and
comprises four sessions: budgeting,
saving, banking plus a visit to the local
Metro Bank store. The in-store session
gives children a behind-the-scenes
look at the bank, including the vault,
plus the opportunity to try out our
Magic Money Machines which
automatically count and deposit
loosecoins.
Our colleagues, customers
and communities raised
more than £194,000 for
good causes in 2022
Fundraising
In 2022 our colleagues, customers and
localcommunities raised the fantastic
totalof £194,000 for local, national
andinternational good causes through
sponsorship, activities and events, and via
the Magic Money Machines in our stores.
33 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Environmental, social and governance review
Continued
Financial education
Since our launch we have always
championed financial literacy for kids.
Specially trained colleagues in all our
storesdeliver our free financial education
programme, Money Zone, to local schools
and children’s clubs. In 2022 we began work
to extend the Money Zone programme
beyond schools, in response to the wider
needs in our communities. Our ambition
isfor further expansion in 2023, assisting
young adults in sixth forms and colleges.
This year we also became a signatory to the
National Literacy Trust’s Vision for Literacy
Business Pledge, which aims to improve
literacy and boost social mobility. Several
ofour store teams are helping raise literacy
levels in their local communities.
Care leavers
As a supporter of the Care Leaver
Covenant, to assist care leavers live
independently we have made changes
toour account opening and recruitment
processes. In the autumn, we also
re-designed, piloted and rolled out our
virtual Money Zone programme to young
adult care leavers.
Armed forces
We are committed to the Armed Forces
Covenant and we achieved the Gold
Awardin July 2021. In 2022 we hired four
ex-services colleagues and held numerous
webinars over the year supporting
serviceleavers.
Our focus remains integrating within the
armed forces community and central to this
is delivering our Money Zone programme in
military schools and engaging with armed
forces bases through our ‘Bank at Work’
initiative that brings banking directly
intoworkplaces to boost accessibility.
Backing female-led businesses
As a founding signatory to the Investing
inWomen Code, and recognising that as
acommunity bank we can be a catalyst
forunlocking the economic potential of
female entrepreneurs, in 2022 we hosted
networking events for more than 350
female business leaders across nine of our
stores. We plan to build on this in 2023.
Weare also using the digital display screens
in all our stores to highlight our support for
female entrepreneurs.
Supporting local businesses
In March 2022 we launched our enhanced
business overdraft to help our business
customers with their short-term cash flow
and working capital needs. Accessed
in-store, via phone or on our App, delivering
a market-leading customer experience and
taking only ten minutes to apply for an
overdraft of up to £60,000, we have
beenbowled over by its popularity.
Our relationship-based approach to
business banking sets us apart from other
banks and reflects our community banking
ethos. Every one of our stores has one or
more Local Business Manager(s) whose role
is specifically to provide support, guidance
and deliver exceptional service to
businesses in the local community.
Helping local business
communities succeed
andgrow
In September 2022, our Birmingham
store hosted an event for local
manufacturers in partnership with
anindependent professional business
advice firm, the University of
Birmingham’s AMTECCA programme
and Made Smarter.
The event was aimed at small and
medium-sized manufacturers in the
Greater Birmingham area that are
seeking to grow. Information was
provided on a range of topics
including better banking, taxation,
plus the latest technology and
grantsavailable for manufacturers.
The store also hosts the bi-weekly
Birmingham Central Breakfast
Networking Group, where local
business professionals meet to
connect, build relationships and help
one another grow their businesses.
Alongside this we host regular in-store
business events. These help local
businesses build their own community
networks and aid in the development
ofthelocal economy.
Case study
People-people banking in action
Helping small businesses
manage their cash flow
It’s widely recognised that small
businesses are the backbone of the
UK’s economy and they are also an
essential part of the fabric of our
local communities. As a community
bank, Metro Bank is known for our
relationship-based approach to
business banking.
The development in 2022 of our
market-leading Enhanced Business
Overdraft is truly a game-changer
for businesses – it’s an innovative
facility available to all our business
customers that provides a handy
cushion to help manage cash flow.
We have combined the best
features of technology with our
relationship-based approach to
offer an in-app or in-store
application process that only takes a
few minutes, with instant eligibility
checking and funds up to £60,000
available the same day.
Laura Shields
Local Business Manager
34 Metro Bank PLC Annual Report and Accounts 2022
Our 2022 AMAZE Awards celebrated everything that is AMAZEING about
ourcolleaguesand recognised outstanding service delivered to our customers
andcommunities.
Environmental, social and governance review
Continued
Health and wellbeing
Colleague wellbeing remains a key priority.
Colleagues have access to a wide range of
tools to support wellbeing including our
Employee Assistance Programme, Mental
Health First Aiders, support through our
health partner Vitality and the Bank
Workers Charity. Colleagues inspire each
other with articles and blogs, which are
shared on a weekly basis. This is in addition
to training and awareness sessions and
online support materials. We also offer
flexible working options, including our
recently introduced four-day and weekend
only shifts in our stores.
Leaders in diversity and inclusion
We are proud that our workforce reflects
the communities we operate in. We want
every colleague to feel that they belong, are
included and valued. Our commitment to
being a leader in D&I helps us to bring out
the best in our colleagues, attract new
talent, thrive as a business and ultimately
create more FANS. It’s the reason we were
named as a top ten inclusive company at
the British LGBT Awards 2022, nominated
for Company of the Year at the European
Diversity Awards and a finalist at the
BritishRecruitment Awards.
D&I has always been an important part
ofour AMAZEING culture and we have
worked hard to elevate our position as
anemployer of choice.
Award winning people-people
Colleague engagement and wellbeing are
at the heart of our culture. We want every
colleague to be a fan of Metro Bank, so that
they enthusiastically make FANS of our
customers. We were delighted to be named
in Newsweek’s top ten Most Loved
Workplaces UK 2022 and to achieve
ourbest ever engagement results in our
annual Voice of the Colleague survey.
Recognition and celebration
We relaunched our colleague recognition
approach and saw a 110% increase in
colleagues thanking each other and
celebrating amazing work. 2022 also saw
the return of our fabulous AMAZE Awards,
which recognised particularly outstanding
work across categories including
community champion, one team
(forcollaborative working), hidden
hero,colleague inclusion network
andAMAZEING leader.
Our colleagues
2022 was a milestone year with the launch
of our new D&I strategy. This built on
thestrong foundations we had already
established and set ambitions to boost
ourculture and positively differentiate our
colleague experience. These ambitions
formthe three pillars of our strategy:
• Connection and community.
• Equity for all.
• Inclusive culture.
We were delighted
tobenamed in the
toptenMost Loved
Workplaces UK
35 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Environmental, social and governance review
Continued
Connection and community
As a community bank, we believe it is
essential that our team represents the
diverse communities we serve. This year
65% of our apprentices come from the most
deprived communities in England.
We offer all colleagues a paid ‘Day to
AMAZE’, to spend time volunteering in their
local community or working with charities.
The number of colleagues taking up this
opportunity increased by 75% in 2022
withthe number of hours of volunteering
increasing as already mentioned.
Our Money Zone financial education
programme is also an important element
ofour connection with local communities
asdescribed above.
Growing capability and careers
We want colleagues to feel that their career
is as important to us as it is to them. Our
Voice of the Colleague survey scores show
that we’re well on the way to achieving
that.We saw an eight point increase in
perception around ability to learn and grow
and this has trended upwards over the past
three years.
During 2022, we hired and trained more
than 1,500 colleagues due in part to an
increase in internal promotions and new
roles. We also won Best Onboarding
Activity at the British Recruitment Awards
for the work that we did in partnership
withour contact centres.
Working closely with subject matter experts
from across the business, we’ve created
more than 150 new learning items, ranging
across topics such as risk, leadership and
culture, plus a two-week Agile-working
festival attended by 800 colleagues.
Our technical training was further
strengthened by a partnership with Go1,
anexternal learning provider, and we are
piloting this additional offer to further
develop technical capability within risk,
consumer finance, IT and people teams.
Internal mobility and apprentices
We promoted over 600 colleagues during
the year. This included three promotions
toExCo. 18% ofpromotions were moves
from customer facing areas into to
corporate functions and42% were
colleagues of Black, Asian orminority
ethnicity. Colleagues tell us theyfeel that
regardless of background, everyone has
anequal opportunity to succeed.
We promoted over
600 colleagues
during the year
Case study
People-people banking in action
A simply FANtastic place
towork
I’m so proud to work for a company
with such a strong, positive and
inclusive culture where everyone
feels valued, where colleagues,
customers and community are
atthe heart of everything we do.
We’re thrilled to be ranked 7th in
theNewsweek list of the UK’s top
100 Most Loved Workplaces®.
MetroBank is the only UK high
street bank to feature in the top 100.
The fact that the ranking is based on
colleague feedback, with more than
1.4 million people surveyed, makes
itall the more meaningful.
As Newsweek themselves said,
“Talkabout valuing your employees.
Metro Bank filled 40 per cent of all
vacancies with internal candidates.
The company also offers
opportunities for personal
development: The ‘Days to Amaze’
programme encourages employees
to contribute to their greater
community”.
Swati Modha
Head of People Partners
Our Voice ofthe Colleague survey score for
this hasincreased to eight points above the
global benchmark.
Our internal talent programmes have
developed 34 colleagues for promotion
toLocal Directors and Business Managers.
We run a Level 2 and 3 Financial Services
Customer Advisor Apprenticeship
Programme to support people starting a
career in banking and have 41 colleagues
across the two programmes. We are proud
that in 2022 our apprenticeship programme
achieved an overall effectiveness rating
ofgood from Ofsted.
We offer all our customer-facing colleagues
the opportunity to gain a Chartered Banker
Institute professional qualification.
36 Metro Bank PLC Annual Report and Accounts 2022
Environmental, social and governance review
Continued
Within our corporate functions, 43
colleagues started new apprenticeships,
these now include professional
qualifications in HR, Finance, Marketing
andFacilities. Ten of these colleagues
arecompleting accountancy or taxation
qualifications through Level 7 Professional
apprenticeships.
Our Masters-level apprenticeship for senior
banking professionals, run in partnership
with Cranfield School of Management, saw
12 colleagues graduate with an MSc in Retail
and Digital Banking in 2022 and a further
14colleagues started this programme
inOctober 2022.
Developing leaders
Our Voice of the Colleague engagement
survey results show confidence in our
senior leadership population, with a
six-point increase year on year. Colleagues
also tell us that they feel cared for
(increased by five points) and have regular
conversions about their performance
(current score of 81, and one of our top
fivequestions).
In 2022 we defined a clear set of leadership
behaviours, aligned with our cultural values,
that bring to life what leadership means
atevery level of the organisation.
Nearly 80 colleagues graduated from our
Learning to Lead programme in 2022 and
we also launched a speaker series for senior
leaders to provide an external perspective,
as well as build greater connection within
our hybrid working environment.
Rewards, benefits and supporting
costof living
Our simple reward principles support
colleagues to fulfil their potential and
provide the best service to our customers,
rewarding the right behaviours and
outcomes, focusing on long term growth
and discouraging unnecessary risk-taking.
During the year we enhanced our benefits
offering, including giving our colleagues
access to retail discounts. The Board also
approved a one-off pay increase for all but
our most senior colleagues in the light of
the cost-of-living challenges. Further details
on our approach to remuneration can be
found in the Annual report on remuneration
on pages 148 to 165.
Gender pay gap
We are pleased to be making good
progress in reducing our gender pay gap,
on both a mean and median basis. Our
gender pay gap is due to a lower proportion
of women in senior positions which causes
lower average levels of pay compared
tothe male population.
This is common within financial services
organisations, however, we are addressing
this through our D&I strategy to increase
diversity in senior leadership roles which,
inturn, should help reduce our gender pay
gap. That said, our median gender pay gap
of 12.2% compares with a national average
gender pay gap of 14.9% across all
industries, calculated by the Office for
National Statistics in October 2022.
Equity for all
We have empowered diverse talent
progression and ensure that access to
learning and development is open to all
colleagues. Launching our Opportunities
Programme to junior and middle
management colleagues has supported
equity at all levels. The pilot helped 47%
ofcolleagues on the programme achieve
arole move or promotion in the first year
andnine out of ten participants would
recommend the programme to others.
Weplan to build on this success in the
coming year.
In partnership with our colleague inclusion
networks we continue to raise awareness of
D&I in career progression. We regularly run
events for all colleagues which in 2022
covered topics including ‘Combatting Self
Disqualification’, ‘The ‘Inspired’ Middle’,
‘Allyship’ and ‘Stress and Burnout’.
We have also committed to standards
thatraise the bar, including the Women in
Finance Charter, Gold Award in the Armed
Forces Covenant, the Parents Promise
Charter, the Fertility Workplace Pledge
andNeurodiversity in Business Charter.
Voice of the Colleague
It’s our third annual survey using a new
robust approach to measuring
colleague engagement, and our
strongest results yet.
• Our overall measure of engagement,
“How happy are you working at
Metro Bank?”, saw a six point
improvement and meets the
globalbenchmark.
• Every question scored either
betteror the same as the 2021 results,
and 95% of scores exceeded external
benchmarks.
• Colleagues would also recommend
Metro Bank as a great place to
work,andthiswas one of our
strongest scores.
12.2%
Median pay gap
Gender pay gap
As at April 2022
20.1%
Mean pay gap
on our gender pay at
metrobankonline.co.uk
Read more
65% of our apprentices
come from the most
deprived communities
inEngland
37 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Environmental, social and governance review
Continued
Inclusive culture
Inclusivity is embedded throughout our
culture, leadership, training and our
colleague induction process. We encourage
colleagues and our ExCo to keep up the
conversation by sharing their own D&I
‘moments’ with each other. The result is that
our Voice of the Colleague survey recorded
a five point improvement in how inclusive
our leaders are.
A key feature of our inclusive culture are our
five colleague networks, which support us
in embedding our strategy.
Our Women on Work network raises
awareness and discusses topics relevant to
colleagues who identify as women and their
allies. A key highlight for 2022 was a session
for International Women’s Day on ‘Creating
a workplace free from bias, stereotypes and
discrimination’ which attracted more than
150 colleagues, and explored how micro-
aggressions can prevent women’s career
progression and retention.
Our Mbrace network encourages everyone
to bring their cultural and ethnic differences
to work with pride. Our biggest challenge is
to reach and educate colleagues: while they
cannot walk in another person’s shoes, they
can instead seek to learn and appreciate
other perspectives.
Our annual Black History Month event
offered such an opportunity: a truly
inspirational evening giving colleagues
fromall backgrounds pause for thought,
showcasing a powerful range of black
voices using poetry, speech and song
totelltheir stories.
During Mental Health Awareness Week in
May 2022, our network for physical and
mental wellbeing, Mbody, brought mental
health issues to life by sharing inspiring
personal stories and experiences through
blogs and vlogs from colleagues, including
a series of ExCo fireside chats. Mbody
raised awareness of International Day of
Persons with Disabilities in December,
promoting equity for people with visible
and non-visible disabilities, and hosted
colleague podcasts, blogs and a lunch and
learn session on the topic of neurodiversity.
Our Mpride colleague network is focused
on inclusion and equality for LGBTQ+
colleagues and customers. The work this
network does is a key part of why we were
recognised as a Top Ten Inclusive Employer
at the 2022 British LGBT Awards.
The network has raised awareness for all
aspects of the LGBTQ+ community, publicly
celebrating key days both externally and
with internal training, including trans day
ofvisibility; lesbian day of visibility; pan
visibility day; non-binary day; and bisexual
day of visibility, to name just a few!
Mparents rebranded in May 2022 with a
new, inclusive name – Mfamily – and new
purpose to reflect its mission to support
working parents and carers. Mfamily has
hosted specialist events for parents
struggling with sleep, stepfamilies working
through the challenges of blended family
settings, keeping children safe online, and
fertility. The network curated a variety of
blogs for World Parents’ Day, Father’s Day,
Breastfeeding and Baby Loss Awareness.
Gender diversity
As at 31 December 2022
FEMALE
50%
MALE
50%
FEMALE
36%
MALE
64%
FEMALE
41%
MALE
59%
FEMALE
46%
MALE
54%
Senior Leadership Team
Executive Committee
Board
All business
38 Metro Bank PLC Annual Report and Accounts 2022
Environmental, social and governance review
Continued
Information and cyber security
Recognising the ever-evolving nature
ofcyber risk, we run a continuous
improvement programme to ensure that
our capability keeps pace. We regularly
conduct simulation exercises and testing
tofine tune our detection capability and
response processes.
We constantly monitor for emerging threats
and new attack methods using multiple
intelligence feeds to update our tooling to
block and detect attacks. Our rigorous and
mature vulnerability management process
measures our risk score and time to
remediate and we consistently beat the
benchmark for our sector in these areas.
Our comprehensive policies and minimum
standards align to ISO27001 best practice,
and we benchmark ourselves against the
National Institute of Standards and
Technology framework.
Data privacy
and security
We are active members of a number of
industry forums, such as the Information
Security Forum, Cyber Defence Alliance,
plus UK Finance, and we provide regular
briefings to colleagues in addition to annual
mandatory cyber security training that all
colleagues must pass.
Fraud and cyber-crime prevention
In recent years, the UK has experienced
anincrease in fraud and scams over the
internet, email and mobile phones. Our
dedicated fraud and cyber crime prevention
teams work closely with the wider financial
services and law enforcement community
to track activity, identify new trends and
techniques used by criminals and share
intelligence. We act quickly to protect
bothour FANS and ourselves, and provide
advice via our website and social media
onhow customers can protect themselves
and reduce their risk of fraud.
We were one of the first banks to sign up
tothe authorised push payment voluntary
code – giving customers significantly
increased protections against authorised
push payment scams – and we are always
working to enhance our security, while
ensuring that customers enjoy a convenient
banking experience. We are active
supporters of the Take Five fraud
awareness campaign and in 2022 we
joinedStop Scams UK’s 159 service, which
connects our FANS safely and securely
toour contact centre if they receive
asuspicious or fraudulent call about
afinancial matter.
Data privacy
Safe management of personal data is taken
seriously and remains a priority for us.
Wehave continued to strengthen our data
privacy team, continuing our approach
ofmaintaining a strong commitment to
promote internal candidates but also
recognising the need to bring in external
experience where appropriate.
We have continued to make improvements
to our data privacy impact assessment
processes and our records management
team has enhanced our internal data
governance through the development
ofadedicated Records Management
Framework which will inform our direction
with respect to management of records.
Our data protection operations team
continues to respond quickly and efficiently
to information rights requests and our data
protection advisory team continues to
provide timely and effective advice to the
business with respect to the management
of personal data within the organisation.
Case study
People-people banking in action
Protecting customers
fromfraud
Keeping our customers safe
fromfraudsters and scammers
isnaturally one of our
highestpriorities.
This is a dynamic and often fast-
moving area – scammers never
missan opportunity to try to trick
people. Whether that is pretending
to be part of Government schemes
to help people with energy bills,
sending scam texts about parcel
deliveries to try to obtain bank
details, or even going door to door
posing as tradesmen to rip off
vulnerable people by charging over
the odds.
With fraud and scams continuing to
increase, we’ve kept our customers
updated on the latest threats along
with advice on how they can protect
themselves. We have also joined
theStop Scams UK 159 hotline
soit’s easier and faster than ever
forour customers to report
fraudulent activity.
Sheherouz Fallil
Lead Fraud Strategy
andAnalyticsManager
39 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
It is important to us that we work with
suppliers who uphold our values. We take
this seriously – starting from when we
select a supplier during our procurement
processes, then throughout the entire
life-cycle of our business relationships.
In 2022, we launched our first Supplier
Code of Conduct (available on our website
at: metrobankonline.co.uk/globalassets/
documents/customer_documents/
business-and-commercial/supplier-code-
of-conduct-2022.pdf) setting out the
expectations we have of our suppliers.
Wewill refresh this annually.
We are gathering more and more
information on our suppliers’ approach
toESG and we are doing that proactively
through our tendering and contracting
activities as well as in quarterly business
reviews with our most important suppliers.
We continually review the controls put
inplace by our suppliers to prevent and
detect data security breaches, bribery,
corruption, modern slavery, child trafficking,
unfair wages, unacceptable working
conditions and labour rights abuses.
Our suppliers
We remain committed to using the
Financial Services Supplier Qualification
System (FSQS) for our suppliers to share
information with us and we encourage all
our suppliers to become members.
FSQS helps our suppliers by reducing
duplication of effort in responding to buyer
due diligence requests, and benefits us by
sharing resources and best practice with
other buyers.
In 2022, a new set of ESG questions
wasadded to the standard set of FSQS
questions and we continuously assess our
suppliers’ responses and use these in our
conversations with them.
Modern slavery
Slavery, servitude, forced labour and human
trafficking (modern slavery) is a crime and
violation of fundamental human rights.
Wehave zero tolerance of modern slavery
and remain committed to conducting all
ourbusiness professionally, fairly and
withintegrity across all our relationships,
including enforcing appropriate systems
and controls to ensure, on a risk basis,
thatmodern slavery is not taking place
inour business or supply chains.
During 2022 we:
• Published our sixth Modern Slavery
Statement, approved by the Board and
signed by the CEO (available on our
website at: metrobankonline.co.uk/
about-us/modern-slavery/).
• Delivered the fifth report of the Modern
Slavery Champion to the Board. The
report included the annual review of our
Modern Slavery Policy; an update on
progress against the Modern Slavery
Statement and Action Plan; and an
update on our internal Modern Slavery
Working Group, which was reconstituted
in 2022 with our General Counsel as chair.
• As part of our Modern Slavery Policy we
undertake increased due diligence in
respect of our business and supply chains
on a risk basis.
We continue to leverage the FSQS to
support due diligence on suppliers before
contracting and ongoing during the
relationship, on a risk basis.
In 2022, we engaged 1,636 active third
parties. 30 (1.83%) were either based
inriskier countries (where the 2018
Measurement Action Freedom score, an
independent assessment of government
progress towards UN Sustainable
Development Goal 8.7, is less than 50)
orwere more likely to be exposed to
modern slavery risk due to the nature
oftheservices.
In accordance with our Modern Slavery
Policy further investigation was
conducted,following which all 30
suppliersdemonstrated adequate
controlsto mitigate modern slavery risk.
We continue to support our suppliers
inrelation to the risk of modern slavery,
toclearly explain our approach to
modernslavery and our expectations
ofoursuppliers.
All colleagues were required to undertake
modern slavery computer based training
during 2022.
Prompt payment of suppliers
Strong relationships with suppliers support
delivery of market-leading products and
customer service, and part of this is paying
suppliers promptly.
We have driven a material improvement in
our supplier payment statistics, with the
percentage of invoices paid within 30 days
increasing from 74% in the second half of
2021 to 84% in the second half of 2022 and
average time taken to pay falling to 21 days.
Environmental, social and governance review
Continued
Our first Supplier Code
of Conduct sets out the
expectations we have
ofour suppliers
40 Metro Bank PLC Annual Report and Accounts 2022
Taxes paid (2022)
Taxes collected (2022)
£m %
1. Irrecoverable VAT
and customs duty 41.1 54.2
2. Employer NICs 23.4 30.7
3. Business rates 10.3 13.5
4. Land transaction tax 0.9 1.2
5. Other taxes 0.3 0.4
£m %
1. PAYE 40.9 60.4
2. Employee NICs 13.8 20.4
3. Net VAT 13.0 19.2
1
2
3
1
2
3
ESG structure
In 2022, we implemented a new ESG
management and governance structure
overseen by an ExCo and Senior Leadership
Team-level ESG Steering Committee.
TheSteering Committee has responsibility
for ensuring our approach and activity is
strategic and coordinated. The Steering
Committee reports into the Board, which is
responsible for setting our overall direction
on ESG.
Remuneration approach
Executive Directors’ variable reward
outcomes are based on key financial, risk,
customer and colleague objectives,
balanced with personal behaviours and
performance of the individual. This
approach is consistent with the standards
we apply to all colleagues.
Further details on our approach to
remuneration can be found in the Annual
report on remuneration on pages 148
to165.
Governance
andresilience
Product development
We are refreshing our product development
process to ensure ESG considerations are
appropriately and routinely documented.
Anti-bribery and corruption
We have a zero tolerance approach to
bribery and corruption. To maintain the
highest standards of integrity we deliver
regular training for colleagues on our
Anti-Bribery and Corruption Policy. All
colleagues are encouraged to raise any
concerns they may have about conduct
ofothers or the way the business is run
without fear of unfair treatment under
ourWhistleblowing Policy.
Financial crime
We comply with all applicable sanctions
regimes and in response to the invasion
ofUkraine by Russia we adjusted our risk
appetite for activity connected to Russia.
We also comply with UK anti-money
laundering and combating terrorist
financing legislation and have a framework
in place to support the implementation
ofthese.
We do not give or receive improper
financial or other benefits in our business
operations, nor do we help facilitate tax
evasion in any way.
We will not tolerate any deliberate breach
of financial crime laws and regulations that
apply to our business and the transactions
we undertake, and continue to invest
inourprocesses and systems in respect
ofmonitoring these.
Taxation
As a community bank, we recognise
thebenefits to society from our full
participation in the tax system. As with
everything we do, we are committed to
acting with integrity and honesty in our
taxstrategy, policies and practices.
During 2022 our total tax contribution was
£143.7 million, made up of £76.0 million
taxes paid and £67.7 million of taxes we
collected on behalf of the UK government.
Taxes paid in the period were charged to
our income statement or capitalised as
partof an asset’s cost. Taxes collected
aregenerated by our business activity,
including the taxes of employees and
customers collected in the usual course of
business and administered on behalf of the
UK government.
Further information can be found in our Tax
Strategy document available on our website
at: metrobankonline.co.uk/globalassets/
documents/customer_documents/
intermediaries/2022-tax-strategy.pdf.
Environmental, social and governance review
Continued
£67.7m
5
4
£76.0m
41 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Environmental, social and governance review
Continued
Taking a responsible approach towards
theenvironment goes hand in hand with
our ambition to be the number one
community bank.
Our commitment to reducing our carbon
footprint – and supporting our colleagues,
suppliers, customers and communities in
doing so too – is demonstrated by our
climate pledges:
• To make our operations net zero by 2030.
• To make our operations and value chain
net zero by 2050.
We reaffirm our commitment
tothesepledges.
Our planet
The following table shows how we have
delivered against the four additional climate
pledges we made in 2021.
Pledge Result
10% YOY
reduction in
Scope 1 and
2 emissions
from 2021
to2022.
Actual YOY reduction in
Scope 1 and 2 emissions
of 17% from 2021 to 2022,
driven by transition to full
REGO-backed electricity.
82% reduction
in Scope 1 and
2 emissions
by 2026 from
2019 baseline.
At the end of 2022 our
reduction in Scope 1 and
2 emissions since 2019
stood at 93%, again
driven by our transition to
REGO-backed electricity.
25% reduction
in paper use
by 2026 from
2019 baseline.
At the end of 2022,
emissions generated
from paper use across
our stores and offices has
reduced by over 90%.
Maintain travel
emissions
below 70% of
pre-COVID
levels.
At the end of 2022
emissions generated from
business travel were 78%
lower than our baseline
year of 2019.
To build on this progress and continue
toreduce emissions, we will:
• Work on eliminating residual Scope 1
and2 emissions in advance of our
2030target.
• Transition our vehicles to electric ahead
of 2030.
We are working to develop a roadmap
towards realising our 2030 net-zero
commitment.
Our Metro Bank pen
Our Metro Bank pen has been with us since
day one, for customers to take and pass
onto their family and friends. We have
refreshed its magic by making the pen
moresustainable.
Our new pen will be made from 87%
recycled plastic, giving used plastic a new
lease of life and taking it out of landfill
(onlythe ink cartridge can’t currently be
recycled). Our pen caddy has also received
a fresh new look using 100% recycled
plastic and comes with a second use of life
being repurposed as a plant pot or storage
after use, and we are providing strawberry
seed-sticks for planting in the base of the
caddy or in local communities as symbol of
Metro Bank helping communities bloom.
In addition, we are refreshing our
MetroBank-branded water bottles, with
new bottles being made from prevented
oceanplastic, which is recycled plastic
collected from coastal areas at risk
ofoceanplastic pollution.
Energy use
We are reviewing energy efficiency
measures across all our sites, looking at
alloptions and ideas regarding lighting,
heating and cooling with the objective
ofdelivering the best value for money.
We have also transitioned fully to only
purchasing electricity generated from
renewable sources.
Renewable electricity
The Renewable Energy Guarantee of
Origin (REGO) scheme denotes energy
that is generated from renewable
sources. Since 2021 we have been
progressing towards full REGO-backed
electricity and since autumn 2022
allelectricity used across our stores
andoffices is delivered from 100%
renewable sources.
Electricity purchased (%)
Oct '20-'21
Oct '21-'22
Oct '22-'23
Non REGO backed
REGO backed
100%
100%
26%
74%
Lending policy
In line with our community banking ethos
and overall approach to ESG, our policy is
not to extend lending directly to businesses
that undertake:
• Metal ore mining, coal mining, peat
extraction, oil and gas extraction.
• Fossil fuel power generation.
• Deforestation.
• Arms manufacture or military activities.
New stores and ESG
As we have grown, we’ve taken the
opportunity to incorporate ESG priorities
into our business. This continues to be
ourapproach, and we are building ESG
considerations into the planning process
forour new stores.
All electricity used
across our stores and
offices is from 100%
renewable sources
42 Metro Bank PLC Annual Report and Accounts 2022
Section 172 statement
Stakeholder engagement is essential to the execution of our purpose to be the number one community bank.
Our six key stakeholders:
The Board must act in accordance with the
duties set out in the Companies Act 2006
(‘the Act’). Under section 172 of the Act, the
Board has a duty to promote the success of
the Company for the benefit of its members
as a whole. When making decisions, the
Board ensures that it acts in the way it
considers, in good faith, would most likely
promote our success for the benefit of our
members, and in doing so have regard to
matters set out in Section 172(1) of the Act.
The different needs of stakeholders are
considered throughout the whole decision-
making process. The Board at all times has
regard to the impact of material decisions
on the different stakeholder groups.
However, it is not always feasible to provide
pragmatic outcomes for all stakeholders
and the Board at times has to make
decisions based on the competing priorities
of stakeholders and the needs of the Bank.
S.172 factor Relevant disclosures Pages
(a) the likely consequences of any decision
inthe long-term
• Our purpose and strategy framework.
• Business model.
• Strategic priorities.
• Risk report.
3 to 5
15 to 17
19
54 to 97
(b) the interests of the Company’s employees • Non-financial information statement.
• Our colleagues.
• Board activity and stakeholder engagement.
• Letter from the Designated Non-Executive Director for Colleague Engagement.
28
35 to 38
108 to 114
115 to 117
(c) the need to foster the Company’s business
relationships with suppliers, customers,
andothers
• Board activity and stakeholder engagement.
• Environmental, social and governance review.
• Our suppliers.
108 to 114
28 to 42
40
(d) the impact of the Company’s operations
onthe community and the environment
• Board activity and stakeholder engagement.
• Task Force on Climate-related Financial Disclosures.
• Environmental, social and governance review.
108 to 114
44 to 53
28 to 42
(e) the desirability of the Company
maintaining a reputation for high standards
ofbusiness conduct
• Whistleblowing.
• Anti-bribery and corruption.
• Audit Committee report.
• Modern slavery.
129
41
124 to 129
40
(f) the need to act fairly between members
ofthe Company
• Board activity and stakeholder engagement.
• 2023 Annual General Meeting.
• Share capital.
108 to 114
249
209
Our FANS
Our business model
depends upon attracting
customers and turning them
into FANS. Our reputation
and creating FANS is at the
core of our values.
Our investors
We engage openly and
transparently with our
investors who help us
togrow.
Our colleagues
As a growing business we
need to attract new talent.
We also want to ensure our
colleagues are happy and
engaged so that they
provide excellent service to
each and every customer.
Our regulators
Following our regulators’
principles, rules and
guidance helps us to put
FANS at the heart of
everything we do.
Our communities
We are proud to be an
integral part of the
communities we serve.
Our suppliers
We pride ourselves on
doingthe right thing, and
maintaining the highest
values in everything we
do,and this extends to the
suppliers we work with.
43 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Task Force on Climate-related Financial Disclosures
We are committed to
reporting the impact of
climate change on our
business in a transparent
manner, and taking
responsibility for the actions
required to make positive
changes to reduce our
impact on the environment.
This section of our annual report includes
our climate-related financial disclosures,
consistent with the recommendations of
theTask Force on Climate-related Financial
Disclosures (TCFD) and the requirements
ofPRA’s Supervisory Statement 3/19, and
provides an update on our current progress
and areas of futurefocus.
We have made good progress during
2022to update our governance and risk
management framework to consider
climate change, analysing climate risks and
opportunities and developing our scenario
analysis capability. We’ve been working
hard to overcome some of the challenges,
especially around data, tools and metrics.
There remains work to do to assess the
impact of climate-related risks and
opportunities on our businesses, strategy,
and financial planning, and to refine and
enhance coverage and application of
climate-related metrics as our tools
andmethodologies mature.
TCFD recommendation Key achievements Future developments
Strategy
• Conducting a materiality assessment to identify
the our priority ESG issues.
• Established climate scenario analysis to quantify
physical and transition risk.
• Introduced Supplier Code of Conduct and
targeted ESG questionnaire.
• Transitioned to 100% REGO-backed electricity
across all operations.
• Continue to refresh our ESG strategy, with new
aspirations, aligned to our overall strategy.
• Develop scenario analysis capabilities to inform
future strategy refreshes, evolving origination
strategies and extending the range of
productofferings.
• Expand dialogue with customers on climate-
related risks and opportunities.
Governance
• Established climate risk governance, including
refreshed ToRs for Board and Executive-level
committees.
• Maintained responsibility for climate risk
withtheCRO under the Senior Managers
CertificationRegime.
• Refresh product development process to ensure
climate considerations are appropriately and
routinely documented.
Risk management
• Embedded climate change as a cause in our
Enterprise Risk Management Framework.
• Created internal modelling capabilities to track
the exposure of our lending portfolios to climate
risk, including initial flood risk and transition
riskanalysis.
• Became signatories to the Partnership for Carbon
Accounting Financials (PCAF) and assessed
financed emissions from residential mortgages
using PCAF methodology.
• Update credit risk policies and standards to
reflect any changes to origination strategies.
• Evolve scenario analysis tools in line with industry
benchmarks and regulatory guidance.
• Undertake climate scenario analysis to
additionalportfolios.
• Assess financed emissions from in-scope
portfolios via PCAF methodology.
Metrics andtargets
• Eliminated all market-based Scope 2 emissions.
• Set short-term targets for reductions
inelectricity, paper and water usage.
• Submitted emissions-related data to Carbon
Disclosure Project.
• Develop roadmap and interim milestones to
move towards 2030 net-zero commitment.
• Evolve climate risk appetite and metrics,
withongoing climate risk MI.
• Participate in industry-led forums to advance our
carbon accounting and the setting of science-
based targets.
44 Metro Bank PLC Annual Report and Accounts 2022
Task Force on Climate-related Financial Disclosures
Continued
Strategy
While the changes associated with the
transition to a lower-carbon economy
poserisks, they also present significant
opportunities for organisations focused on
climate change mitigation and adaptation
solutions. In line with our ambition to be the
number one community bank, we have an
important role to play in facilitating the
UK’stransition to a low-carbon economy,
leveraging the opportunities and managing
the risks we are exposed to from
climatechange.
We are committed to supporting customers
and businesses as they transition to a
low-carbon economy, and to continuing to
build our own resilience by identifying and
managing the impact of climate change on
the business, and reducing the impact that
the business has on the environment.
We recognise that climate change presents
both risks and opportunities to our business
model and strategy over short, medium and
long-term horizons:
• Short-term (0-1 years): The time horizon
for annual financial planning.
• Medium-term (1-5 years): The time
horizon for strategic and financial
planning cycles.
• Long-term (>5 years): This timeframe
isconsidered through the use of
scenarioanalysis.
We see these emerging as follows:
1. Business opportunities arising as
economies and customers transition
toalow-carbon economy.
2. Transition risks arising from potential
disruptions and shifts associated with
thetransition to a low-carbon economy.
3. Physical risks arising from the physical
impacts of climate change which could
disrupt the business, operations,
orsupply chains of theBank and
itscustomers.
Identifying and managing theimpact
ofclimate change onthebusiness
The ability to identify, understand and
manage risk is critical to our long-term
strength and stability. Climate risk is
nodifferent in this regard, although it
requires us to address risks that may be
present over a much longer period of time
than that covered by more traditional
approaches to risk management. As set out
above, we broadly categorise climate risks
into two types: transition risk and physical
risk. Within these broad categories we
identify a number of factors arising from
climate change which we monitor over the
short, medium and long term.
Our initial focus has been to identify and
quantify risks to the business. We have
continued to progressively embed climate
risk into our key risk processes throughout
2022. We continue to develop our own
internal climate scenario analysis and stress
testing capability in line with emerging
industry methodologies.
We have used outputs from initial
methodology developments to formulate
an initial impact assessment to inform
considerations in developing our
strategicresponse.
Risks to us in the medium-term primarily
result from transition risks, with physical
risks representing a longer-term risk
(primarily from our mortgage portfolio)
andthe most material risks expected
tocrystallise over the long term.
• Changes in extreme variability inweather
patterns may lead to increased incidence
and severity ofphysical risks which,
inaddition tothedisruption felt by
customers, can lead to a decrease in the
valuations ofproperty taken as collateral
to mitigate credit risk. Inaddition,
tightening minimum energy efficiency
standards for domestic buildings may
lead to transition risks which could impact
the value of mortgaged properties orthe
ability of borrowers to servicedebt.
• Exposures to physical and transition risks
may also arise through our commercial
lending portfolio due tochanges in policy,
consumer preferences or technology. As
a retail bank, we are not heavily exposed
to certain carbon-intensive industries.
• Operational risk exposures arise
fromphysical damage to key office
locations and physical and transition risks
via key suppliers, which could result in
business disruption or increased costs.
Given our low exposure to carbon-intensive
industries within our commercial lending
portfolio, we start from a strong place.
Wehave a robust credit decisioning
process on carbon-related commercial
lending. We recognise the significant
challenge of improving the energy
efficiency ofthe UK’s housing stock, which
will support the transition to net zero.
Achieving net zero across the economy will
require a combination ofindustry initiatives
and cooperation, government policy and
regulation, a change in consumer behaviour
and the development of products and
services from lenders.
In 2023, we will continue to review and
assess the risks and opportunities that
could have a material impact on the
business and environment, and refine our
approach to climate change scenario
analysis, taking into account what we have
learned in our initial development work.
Asthese methodologies continue to
develop, we will be progressively drawing
on our scenario analysis to inform
strategicplanning; providing insight
into/forour strategy, business model
andfinancial plans. At present we do not
believe climate risk to have a material
impact on the Bank.
45 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Task Force on Climate-related Financial Disclosures
Continued
Supporting our customers’ transition
toa low-carbon economy
We recognise the importance of climate
change to our customers and are actively
addressing the risks and exploring the
opportunities with them in mind. We will
continue to enhance and extend our
support for customers as the UK makes the
transition to a greener future, by launching
new customer propositions that will support
a more sustainable future and calculating
preliminary estimates of our financed
emissions. This work will support future
planning and setting science-based targets
to reduce these emissions over time.
As retail customers become more
influenced bygreen issues, we expect there
to be opportunities to explore the potential
development of green retail propositions
tohelp support customers in achieving
reductions in their carbon footprint. In
addition, we will continue to work with
ourcommercial customers to help them
understand what the transition means for
them, and then help deliver the financing
needed to achieve it.
The increasing public focus on climate-
related issues may create reputational risks
as we balance the speed of transition to
alow-carbon economy against the costs
ofdoing so. However, it also creates
opportunities to enhance our reputation by
demonstrating that we understand both the
importance and urgency of climate change,
and have a clear sense of our role
inaccelerating the transition to a
low-carboneconomy.
We will also adapt our strategy to respond
to external developments, particularly those
in governmental policy and their adoption.
We are supportive of a cross-industry
sectorapproach, underpinned by
government strategy, guidance
andassistance for customers to helpthem
to improve the efficiency oftheir homes.
Reducing the impact that the business
has on the environment
During 2022, we have continued to make
significant progress in managing the
environmental impact of our own
operations and remain on target to deliver
on our 2021 pledge to achieve net zero
operational emissions by 2030. Wehave
maintained a strong position in managing
our emissions from colleague business
travel and property, and we continued
investing in energy efficiency measures,
sending zero waste to landfill, supplying
from renewable sources, and recycling
wherever possible.
Operations
2022 saw us achieve the important
milestone of our electricity being fully
sourced from renewable sources,
throughout the year, with full backing
byRenewal Energy Guarantee of Origin
(REGO) certificates. We have continued
toreduce waste as far as possible and
maximise recycling rates. We delivered zero
waste to landfills, which we have achieved
consistently since 2020. This has helped us
to achieve a reduction of more than 90%
across our market-based Scope 1 and 2
emissions from the 2019 baseline. We will
continue to closely monitor the quality of
REGO certificates backing our electricity
consumption. We continue to review our
residual Scope 1 and 2 emissions and
develop strategies to further mitigate them
and deliver on our 2030 pledge to achieve
operational net zero.
Our post COVID-19 way of working has
enabled us to design a future way of
working that permanently reduces the
needfor people to travel into and between
office locations. Our new model provides
colleagues with the flexibility to design the
way of working that suits them and their
team best, enabling the majority of
colleagues to work remotely. As this model
has become more embedded across 2022,
we have achieved a 77% reduction in
business travel against our benchmark
yearof 2019.
Suppliers
We are focused on better understanding
our indirect (Scope 3) emissions across all
categories and – unlike banking industry
peers – reported emissions across all 15
Scope 3 categories in 2021. We have
donethe same in this year’s report.
We are working with those of our suppliers
with the largest carbon footprint to
understand and support their plans
toembed sustainability into their
organisations. To that end, we have
takensteps to build climate change
considerations into our procurement and
supply chain management processes – both
in the selection and ongoing management
of suppliers. We continue to cooperate with
c.50 other banks and financial institutions
on ESG due diligence through the Financial
Services Supplier Qualification System
through which we are starting to collect
detailed supplier level emissions data.
We introduced a Supplier Code of Conduct
and shared it with our key suppliers. This
document will be updated annually. The
Code has a specific focus on environmental
management requirements, including
establishing operational practices that
minimise the impacts on the environment,
and deploying measures to prevent and
reduce environmental harm. Through
theCode of Conduct, we also expect
suppliers to track performance and
reportenvironmental improvements,
aswellassetting environmental targets
andcommitments.
46 Metro Bank PLC Annual Report and Accounts 2022
Task Force on Climate-related Financial Disclosures
Continued
We have also introduced a question set
requesting specific information on ESG
criteria such as emissions, which we will use
in our supplier assessments and introduced
related contract clauses which will be
included in all new supply contracts.
Governance
Board oversight of climate-relatedrisks
and opportunities
The Board has ultimate accountability for all
climate change risk-related matters. During
2022, the Board has been engaged in the
development ofour approach to ESG and
has received updates on the execution
ofthis strategy from members of ExCo
andSenior Leadership Team. The Board
willconsider climate-related risks and
opportunities as part of the annual strategic
and financial planning process to ensure our
approach to these matters evolves with
emerging developments.
The Risk Oversight Committee (ROC) has
oversight of the framework for managing
and reporting the risks fromclimate
change, as set out in the Enterprise Risk
Management Framework. The Committee
can escalate any climate-related risk matter
to the Board.
The Audit Committee approved the
approach to disclosures and the TCFD
requirements, and reviews climate-related
financial disclosures as part of its wider
rolein reviewing our Annual Report
andAccounts.
Management’s role in assessing
andmanaging climate-related risks
andopportunities
Climate risk responsibilities extend across
the organisation, based on a‘three lines
ofdefence’ approach, inline with the
Enterprise Risk Management Framework.
As climate risk impacts through existing risk
channels, it requires integration across
multiple risk frameworks. With coordination
from second-line risk oversight, Risk owners
are integrating climate into existing risk
control frameworks, policies and strategies.
The accountability for our approach to
ESGsits with the CEO and is devolved
torelevant members of ExCo.
The Chief Risk Officer (CRO) has Senior
Management Function responsibility under
the Senior Managers and Certification
Regime forour approach to managing
financial risks from climate change,
whichincludes:
• Embedding the consideration of
financialrisks from climate change
intogovernance arrangements.
• Incorporating the financial risks from
climate change into risk management
practices.
• Using long-term scenario analysis to
inform strategy setting, risk identification
and assessment.
• Developing approaches to disclose the
financial risks from climate change in line
with the TCFD framework.
Board
ESG Steering Committee Executive Risk Committee
Environment Working Group
Audit Committee
Risk Oversight
Committee
Board oversight
Executive
oversight
Advisory forums
47 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Task Force on Climate-related Financial Disclosures
Continued
The Enterprise Risk Management framework
and Climate Change Credit Risk Standard
also articulate clear roles andresponsibilities
for managing and monitoring climate change
risk with asummary provided in the table.
Executive Risk Committee
The Executive Risk Committee (ERC)
hasdelegated authority from ROC for
overseeing our exposures and approach to
managing the financial risks from climate
change. During the year, the Committee
received updates on the progress of the
climate change risk management plan,
including the outputs of the relevant stress
tests and scenario analysis.
Credit Risk Oversight Committee
The Credit Risk Oversight Committee has
specific responsibility for oversight of
climate-related aspects of credit risk
including recommending strategies to
adjust the credit risk portfolio to react to
change in the prevailing market or physical
environmental conditions. During the year,
the Committee received updates on the
credit risk aspects of climate change,
including climate risk specific analysis
relating to lending portfolios.
Asset and Liability Committee
The Asset and Liability Committee (ALCO)
focuses on our financial risks including
capital, funding, liquidity and interest rate
risk to ensure that the activity complies
withregulatory and corporate governance
requirements and also delivers our policy
objectives. As appropriate, this includes the
impact of climate change on aspects under
its remit.
Environment Working Group
The Environment Working Group was
established in 2022 as part of the Bank’s
new internal ESG structure, to bring
together key stakeholders from across the
first and second lines of defence to support
work to help embed climate risk into the
RMF and support our wider ESG goals
andambitions.
The Environment Working Group is
accountable for delivering our net zero
strategy and objectives across three
strategic focus areas:
• Managing the impact of climate change
on the business.
• Supporting our customers’ transition
toalow-carbon economy.
• Reducing the impact that the business
has on the environment.
The Environment Working Group has
focused on building out the foundations
ofa 5-year roadmap across core business
areas and risk management disciplines. It
will continue to update and engage with the
Board, ESG Steering Committee and other
committees as the ESG agenda, data
capabilities and our analysis of financial
risks and opportunities from climate change
evolve. This will help to accelerate progress
and prioritisation, particularly in relation
toour climate change response.
Team Roles and responsibilities
First-line
• Integration of climate considerations into product
development process.
• Engagement of customers on climate-related topics.
Treasury
• Ownership of the climate change risk stress testing scenarios.
Second-line
oversight
• Ownership of climate-driven policy elements.
• Development of climate change scenario analysis capabilities.
• Ownership climate change risk governance and reporting.
• Ownership of climate-related financial disclosures.
• Identification, assessment and management of climate
changerisks.
• Monitoring and reporting of climate change risk.
• Enhancing decision-making to embed climate change.
Internal Audit
• Independent assurance of activity to embed climate
riskmanagement.
Risk management
Identification and assessment
We classify climate-related risks as either
physical risks – those that arise from the
physical effects associated with changes to
the climate such as extreme weather events
– or transition risks – those that may arise
from the shift to a low-carbon economy.
We are exposed to physical and transition
risks arising from climate change. Risks
arising from climate change materialise
through various channels:
1) through the financial services and
support we provide to customers who
may themselves be exposed to the risks
ofclimate change.
2) the operation of our own infrastructure,
business and premises which may
beexposed to both transition and
physical risk.
3) through a deteriorated perception of our
brand if we do not adequately support
atransition to a low carboneconomy.
48 Metro Bank PLC Annual Report and Accounts 2022
Task Force on Climate-related Financial Disclosures
Continued
Credit risk
Physical risk examples Transition risk examples Time horizon
Repayment challenges from obligors due to
reduced profitability or asset devaluation
because of climatic shifts.
Failure to adapt to changes inpolicy,
regulation, and technology resulting
innegative impact to FANS.
Medium term to long term.
Mortgages
We have controls in place to mitigate against flood risk, subsidence,
and landslip in our residential mortgage portfolio. Where it is
identified that a property has previously been affected by flooding
or is situated on a flood plain, new or increased lending is no longer
provided where the risk could render a property uninsurable.
Specific requirements are in place on lending to buy-to-let
properties which have an Energy Performance Certificate (EPC)
rating below E. In accordance with the Minimum Energy Efficiency
Standards Regulations, all buy-to-let properties must have
aminimum EPC rating of E.
All physical valuations must be completed by registered valuers
toutilise their local knowledge and expertise, including the
assessment of physical risks and climate-related information.
Thevaluation methodology used in vulnerable areas, for example,
properties in areas with a high potential for flood risk does use
automated valuations but does not include digital valuations.
During 2021, we engaged a third-party provider and started to
receive open-source property data for our mortgage portfolio to
enhance our portfolio risk identification and monitoring processes.
Our secured lending policies and standards will continue toevolve
in response to the external environment, increasing regulation,
investor and other stakeholder interest. Work is underway to
planhow climate risks will be incorporated into credit decisioning
in the future.
Commercial lending
Our approach to commercial lending and collateral management
incorporates environmental risk considerations. We have additional
credit risk assessment requirements for customers operating in
carbon-intensive industries. Our Commercial Lending Policy also
outlines the prohibited and restricted industries where we have
either no or limited appetite to lend.
A large proportion of our business lending customers are privately
owned and/or SMEs. Very few lending customers therefore report
against voluntary disclosure initiatives such as Carbon Disclosure
Project, Sustainability Accounting Standards Board or TCFD. Our
focus will be on how we can support customers with adaptation
andmitigation, and have started engaging in conversations with
commercial customers with regard to ESG and sustainability.
Thisissupported by third party reports, which signify the nature
ofand the extent to which ESG issues either provide an opportunity
to enhance or hinder firms’ business performance.
A top-down assessment of sectors (and sub-sectors) which may
have a higher likelihood of being impacted by transition risks has
been performed. It highlighted that our direct exposure to
commercial lending segments with high emissions is relatively low.
We continue to enhance and refine this work at both counterparty
and sector level, considering both risks and opportunities as
welookto support our customers’ responses to climate change.
Theoutput will be used to inform the evolution of our credit policies
and risk appetite measures to monitor the portfolio exposure
totransition risk.
To form a view on materiality, and
tounderstand the broad financial impacts
across different time horizons, the
Enterprise Risk Management Framework
was assessed through a climate change
lensto identify how climate change could
manifest in eachof our principal risks.
Dueto the longer timeframes associated
with climate impacts, a short, medium and
long-term horizon is being applied tothe
consideration of impacts. Thisassessment
has been included inthe 2022 Internal
Capital Adequacy Assessment Process
(ICAAP) and identified our top three
climate change risks as: credit, capital and
operational. Credit risk is the most material
climate change risk due to our mortgage
portfolio exposures.
49 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Task Force on Climate-related Financial Disclosures
Continued
Capital and liquidity risk
Risk examples Time horizon
• The Bank’s capital position is indirectly subject to
climate risk through Bank-wide exposures across
allrisktypes.
• Longer-term climate change risks may adversely
impact the Bank’s future revenue through customer
behaviour, balance sheet or strategy changes over the
longer term in response to climate change risk factors.
• Market dislocation could also impact the value or the
ability to monetise liquidity buffers or incremental client
deposits run-off resulting from transition risk drivers.
Medium term to long term.
Climate change risk has been considered as part of the 2022 ICAAP. This includes a
qualitative assessment of the potential financial implications of climate-related risk.
TheICAAP is a key planning process for the Bank and facilitates the Board and senior
management in identifying, measuring and monitoring our risks and ensures that we
hold adequate capital to support our risk profile. Based on our current assessment the
capital requirement for physical risk would be immaterial. Consideration of climate risk
will continue to be further embedded in key processes where investment decisions are
made and the level of climate risk being taken is material. The output of the climate
scenario analysis and stress test is used to inform the understanding of how capital
management may be impacted.
Climate risk and broader ESG considerations are now reflected in the bank’s Treasury
portfolio investment strategy, with implications for securities that can be included in
theLiquidity Pool. The 2022 Internal Liquidity Adequacy Assessment Process (ILAAP)
outlined the potential funding and liquidity risks that may arise as a result of certain
physical risks or transition risks.
The impacts of climate change will continue to be assessed within both the ICAAP
andILAAP.
Operational risk
Physical risk examples Time horizon
Business interruptions due to extreme weather events
and damage to facilities. Disruptions in supply chain.
Medium term.
Transition risk examples
Increased operating costs for facilities and higher
capitalexpenditures for resiliency and carbon
reductionmeasures.
Climate change is included as part of existing Risk Control Self-Assessment. All loss
events are recorded in our incident management system, enabling the identification
ofclimate-related risk events.
Scenario analysis is performed to assess the potential effects of climate-driven events
including disruption to business services, damage to physical assets, and health and
safety. Physical risk data has been obtained in relation to key data centres and office/
store locations to support our assessment of future risk. The results of the scenario
analysis are used to plan, prepare and respond to potential disruptions. There are
alsoplans in place to help resume business operations as quickly as possible in the
aftermath of an extreme climate event to minimise operational disruptions.
We continue to take steps to embed climate change considerations into procurement
and supply chain management processes, including exploring different methods
tocollect environmental performance data from third parties. More broadly, the
Operational Resilience programme outlines the requirements (including requirements
of suppliers) to respond to business disruption.
We will continue to identify, manage and disclose material sustainability and climate-
related risks and their impacts on us and our financial planning processes, in line with
the TCFD framework.
50 Metro Bank PLC Annual Report and Accounts 2022
Task Force on Climate-related Financial Disclosures
Continued
Our RiskAppetite Statement includes
aqualitative statement in relation to
climaterisk.Insupport of this appetite,
complementary quantitative key risk
indicators are being developed, with a view
to integrating into risk appetite, where
appropriate. Metrics will be further
enhanced as data and capability evolves
and will leverage scenario analysis outputs.
Response
Climate change has been embedded as a
cause into the Enterprise Risk Management
Framework, together with the frameworks,
policies and standards for these principal
risks. ForCredit risk, we have also
integrated climate risk considerations into
both the Business and Commercial Lending
Policy and the Collateral Management
Policy to aid the embedding, management
and monitoring of climate change risk
asacause to our credit risks.
Scenario analysis
As the understanding and importance of
climate risk progresses, climate scenario
analysis is becoming an essential capability
and risk management tool. Scenario analysis
assists the identification, measurement and
ongoing assessment of climate risks over
the longer-term, and the potential threats
toour strategic objectives. In 2021, we
undertook climate scenario analysis for our
retail mortgages and commercial real estate
portfolios using scenarios published by the
Bank of England as part of the 2021 Biennial
Exploratory Scenario on the Financial Risks
from Climate Change.
Throughout 2022, we have used the analysis
from the Biennial Exploratory Scenario
work, leveraging the results of that analysis
in the corresponding period and used this to
inform a PMO which is incorporated within
our IFRS 9 ECL calculation. In addition, a
Climate Risk scenario was formally assessed
as part of the 2022 ICAAP, reviewing the
potential impact of an extreme weather
event causing prolonged physical damage
to our stores and a breakdown in the
transport infrastructure servicing the stores.
Outcomes from these pieces of analysis
have indicated the we are considered to
have sufficient capital to withstand the
losses associated with the climate scenarios
that have been assessed. As this capability
is established and further developed, the
assessment will be run on an ongoing basis
to inform scenario planning and monitoring
of the portfolio composition to ensure no
undue concentrations. The results of the
scenario analysis will be used to support the
evolution of origination strategies in line
with our overarching strategic objectives
and risk appetite to factor in climate change
risks and opportunities. It will also inform
product opportunity assessment and
extending the range of product offerings to
support customers’ transition to improved
energy efficiency or reduce exposure
tophysical risks.
Metrics and targets
Our climate change metrics are anchored to
our ambitions to make ourown operations
net zero by 2030, and to drive material
reductions in the climate impact of our
financing activity and value chain by 2050.
Recognising that there is more to do to fully
understand the impact of climate change
across our business, we areworking on
developing further metrics as our and the
industry’s understanding continues to
mature. These metrics will aid discussions
and inform strategic decisions made by
management and the Board. The metrics
will be shared in various committees,
through the climate change governance
model, to support committee
responsibilities.
Operational emissions
Greenhouse gas (GHG) reporting is
undertaken in line with our obligations
under The Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations
2013, and the UK’s recently released
Streamlined Energy and Carbon Reporting
regulations. GHG emissions are reported in
accordance with the GHG Protocol, which
sets a global standard for how to measure,
manage and report emissions.
We report GHG emissions in accordance
with the operational control approach,
todefine our boundary ofresponsibility.
The only material data limitation in the
GHGemission data relate to employee
commuting, where data for all individuals
was not available; to account for this,
average population values were used
toperform the calculation.
We have seen a further reduction in Scope 1
and 2 emissions this year as detailed in the
table below. As the decision to procure
100% renewable-backed electricity has now
been fully embedded across our operations,
the majority of our residual Scope 1 and 2
emissions are now derived from the use of
our vehicle fleet, gas usage and refrigerant
and coolant leaks (referred to as fugitive
emissions). Our new working model has
enabled the majority of our non-customer
facing colleagues to work from home for
asignificant portion of their week. This has
caused a significant reduction in energy
consumption across our buildings and
through reduced travel, resulting in lower
carbon emissions.
We recognise that the climate impact of our
operations goes beyond carbon emissions
from fuel consumption and electricity and
that we have a responsibility to understand
and address emissions across our wider
value chain.
51 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Task Force on Climate-related Financial Disclosures
Continued
Therefore, we have measured our Scope 3
emissions from our own operations in 2022
which is also laid out in the table below. To
enhance our reporting, we have specifically
disclosed Scope 3 emissions arising from
suite of “core” Scope 3 categories which
arein line with those reported by peer
institutions. Alongside this, we have
maintained our disclosure across the full
suite of Scope 3 categories to track our
progress towards achieving our stated aim
of being net zero across our full value chain
by 2050.
In addition to tracking the emissions for
buildings, water and waste consumption are
measured across our sites. We continue
todivert 100% of our waste from landfill.
We have continued to see a reduction in
emissions from these sources both year-on-
year and from our baseline in 2019. We have
also seen concurrent reductions in paper
usage. These reductions can be reasonably
attributed in part to our decision to
transition to a hybrid working model.
We are fully committed to achieving our
stated pledge of making our own operations
net zero by 2030 and continue to make
strong progress against this target. We
havealready met our 2026 target of 82%
reductions in Scope 1 and 2 emissions from
our 2019 baseline, as well exceeding our
2026 target of 25% reduction in paper use
from the same baseline. Our ambition in
2023 is to set out a more detailed roadmap
on how our 2030 target will be achieved.
We will ensure that these targets comply
with guidance from the Science-Based
Targets Initiative (SBTi), although initially
they will not have been officially reviewed
by SBTi.
Financed emissions
We remain fully committed to our pledge
tomaking our financing activity and value
chain net zero by 2050 and to do what is
necessary to achieve alignment with the
2015 Paris Agreement. Financing activity
refers tothe loans and investments on
ourbalance sheet. We recognise that
measuring financed emissions is
fundamental to analyse scenarios, set
targets, inform actions and disclose
progress.
We will use financed emissions as a key
metric to estimate the climate impact of our
financing activity on the real economy.
Financed emissions are absolute GHG
emissions that we finance through its
lending and investment activity.
We are still in the early stages of our
journey and need to continue to develop
the data and technology required to
accurately assess and manage our carbon-
related assets and exposures. Becoming a
signatory to the PCAF has been a positive
step in our development and helps to
ensure that we evolve our calculation
methodologies in line with market practices
and will enable us to assess data quality
challenges and recognise areas for
improvement. Accounting for 49% of our
customer lending as at December 2022, the
residential mortgage portfolio has been
identified as an area of material climate-
related risk and opportunity for the Bank,
andhence a priority for calculating
emissions baselines and developing green
propositions. While progress hasbeen
made, we will continue to develop climate-
related data across the portfolios, to enable
more in-depth analysis and reporting, which
will support our efforts to achieve net zero
by 2050 or sooner.
2022 2021 2020 2019
Scope 1 emissions 179 336 67 319
Scope 2 emissions (location based) 2,855 3,327 3,799 4,247
Scope 2 emissions (market based) – 1,194 729 3,256
Scope 3 emissions (core)
1
1,397 n/a n/a n/a
Scope 3 emissions (enhanced) 129,363 155,182 190,333 248,979
Total GHG emissions (location based) 132,397 158,845 194,199 253,538
Total GHG emissions (market based) 129,542 156,712 n/a n/a
Full-time equivalent colleagues (FTE) 4,040 4,184 3,850 3,555
Total emissions per FTE 32.8 38.0 50.4 71.3
1. This measure covers emissions arising from purchased paper (Cat. 1), Fuel and energy related activities (Cat.3),
Waste Generated in Operations (Cat.5) and Business Travel (Cat. 6).
52 Metro Bank PLC Annual Report and Accounts 2022
Task Force on Climate-related Financial Disclosures
Continued
Physical risks
Physical climate risk data was matched for
95% of the properties in the portfolio, with
the incremental impact of river, coastal and
surface flooding assessed to 2050. The
assessment shows that the flood risk of the
properties in our residential mortgages
portfolio is broadly in line with the national
average. Our scenario analysis results
suggest physical risks arising from climate
change should have a low impact on our
mortgage portfolio over the next 30 years.
Flood risk rating
% of
properties
Negligible 94.3%
Low 3.2%
Medium 1.7%
High 0.6%
Transition risks
The use of EPC data has been critical to our
understanding of the impact oftransition
risk. EPC ratings of the mortgage portfolio
are monitored toprovide a view on the
energy efficiency of our housing stock.
Thetable below shows a summary of
EPCratings on the mortgage book. 75%
ofmortgaged properties were matched
toan EPC rating. The most common EPC
rating in our mortgage book is D, which
isslightlylower than the UK average,
withapproximately 36% of the book
currently rated EPC C or better on
aninterpolated basis.
EPC rating
% of
properties
A 0%
B 10%
C 26%
D 42%
<E 22%
2022 2021
£m % lending £m % lending
Energy – coal mining – – – –
Oil and gas – – – –
Utilities – electric and gas – – – –
Agriculture, forestry and fishing – – 9 0.4%
Construction 36 1.8% 67 2.7%
Transportation 29 1.5% 49 1.9%
Concrete, chemicals and metal manufacture 2 0.1% 1 0.02%
Commercial real estate 694 35.2% 912 36.1%
We may also be exposed to future transition
risks through commercial lending portfolios.
The table below summarises exposures to
sectors identified as exposed to heightened
climate-related risk impacts. In terms of
portfolio mix, we have minimal direct
exposure to fossil fuels in energy and
extraction, and as a predominantly retail
lending bank. This sees the key risk
mitigation strategy relating to supporting
our customers’ transition to the green
economy with sustainable financing to
improve the energy efficiency of their
properties and business operations, and
adapting to climate change through,
forexample, flood protection measures
ataproperty or community level.
Whilst we have not yet set science-based
targets for Scope 1, 2 and 3 emissions, there
are plans to explore this to enable the Bank
to track our progress towards a carbon
emissions target aligned to Net Zero. In line
with the Science Based Targets Initiative, for
key portfolios, respective targets and time
horizons will be set and progress tracked
and monitored against interim targets.
These activities form the foundation of
future risk analysis and target setting
activities, leading to mitigating activities to
help reduce risks to the Group in the future.
All metrics and targets will be developed
inline with the Science-Based Targets
methodology to ensure consistency,
accountability and achievability.
We have never financed
the extraction of fossil
fuels nor their use for
power generation and
arecommitted to a policy
of never doing so
53 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Risk report
Credit 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 lower LTV profile for
mortgages than 2021. Our consumer
portfolio is geared towards prime
customers with strong borrower income.
Our focus on monitoring emerging trends
includes the impacts of cost of living
pressures on our customers, which have
increased the level of credit risk across
the industry and we have ensured that
wehave processes in place to support
customers in financial difficulty.
We also lend to high-quality business
customers via our stores and relationship
management teams.
Capital risk
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.
We remain focused on returning to
sustainable 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.
Increased risk Reduced riskNo change
Effective risk management is critical to realising
our strategy. We have an established risk
management framework to manage and
mitigate the various risks that we face.
This risk report sets out our approach to
how we manage and monitor risk, including
a full analysis of the key risks we face (our
‘principal risks’). As at 31 December 2022
our principal risks consisted of:
• Credit risk.
• Capital risk.
• Financial crime risk.
• Operational risk.
• Regulatory risk.
• Conduct risk.
• Strategic risk.
• Model risk.
• Liquidity and funding risk.
• Market risk.
• Legal risk.
Definitions of each of these risks can be
found on pages 62 to 67.
Changes in principal risks and
riskprofile
On an ongoing basis, we assess the
principal risks we face against our risk
appetite, including those that could result
inevents or circumstances that might
threaten our business model, future
performance, solvency or liquidity, and
reputation. In assessing these risks we
consider the potential impact and likelihood
of internal and external risk events and
circumstances, and the timescale over
which they may occur.
An overview of our principal risks and how
they have changed over the year is set out
to the right and on page 55. Although the
threat presented by COVID-19 has
diminished over the year, macroeconomic
and geopolitical headwinds have been
driven by the war in the Ukraine, UK
domestic factors and inflationary pressures.
We have taken steps to respond to these
changes via our governance structure and
strong risk culture.
Financial crime risk
Overall, financial crime risk has remained
elevated but stable during the year.
Ourinherent sanctions risk exposure
increased following Russia’s invasion of
Ukraine and the subsequent sanctions
which were imposed. However, ongoing
enhancements made to our anti-money
laundering and sanctions controls enable
us to continue to improve our overall
management of financial crime risk.
Operational risk
Operational risk has remained broadly
consistent through 2022, although we
continue to observe elevated risks in
certain areas. These include cyber attacks
and evolving modes of external fraud.
During the year we focused on the
technology and third party risks that
could impact our operational resilience
aswell as people risk which has increased
owing to higher attrition rates in roles
across the banking industry.
54 Metro Bank PLC Annual Report and Accounts 2022
Regulatory risk
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 to
have open and constructive dialogue with
our regulators.
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.
Conduct risk
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 economic and social
impacts of the external environment,
driven by the macroeconomic headwinds.
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.
Risk report Continued
Strategic risk
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 annual strategic and financial
planning process. This took into account
all of the factors set out in the ‘operating
environment’ on pages 8 to 9.
We have also continued our work to
understand how to define, monitor,
manage and report the impact of climate
change on our strategy, business and
sustainability aspirations.
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.
Model risk
We use models to support a broad
rangeof business and risk management
activities, including informing business
decisions and strategies, measuring,
andmitigating risk, valuing exposures
(including the calculation of impairment),
conducting stress testing, and measuring
capital adequacy. Model risk remained
stable during the year as we continued
toenhance our 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 and funding risk
Liquidity and funding risk remained stable
throughout 2022, with liquidity levels in
excess of the regulatory minimum. We
ended the year with our liquidity coverage
ratio at 213% (31 December 2021: 281%)
which was higher in 2021 due to the
proceeds the mortgage sale to NatWest,
which have been invested into loans and
advances throughout 2022. Our funding
base continues to be underpinned by
retail and SME deposits.
Market risk
Market risk remained stable throughout
the year. In 2022 we continued to manage
mismatches between our fixed rate assets
and liabilities effectively, benefitting
fromnatural offsetting between certain
assets and liabilities, which may be
basedon both the contractual and
behavioural characteristics with this
riskremaining low.
Legal risk
Legal risk remained stable throughout
2022. We remain exposed to a range of
legal risks in relation to our normal
business activities. We minimise legal risk
via a range of mitigants, including the use
of in house and external legal expertise,
appropriate policy documentation
andtraining related to specific legal
requirements and monthly reporting of
metrics to measure compliance with our
Legal Risk Appetite.
55 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Risk report Continued
Emerging risks
Emerging risks are continually assessed and
reviewed via our risk governance structure,
which includes both ‘top down’ and ‘bottom
up’ approaches. These are regularly
reviewed at our ERC and ROC.
We consider emerging risks to be evolving
threats which cannot yet be fully quantified,
with the potential to significantly impact our
strategy, financial performance, operational
resilience or reputation or result in
intolerable harm to our customers.
Rapidly changing macroeconomic
and geopolitical environment
2022 has been a year of political and
economic turbulence and this is forecast to
continue into 2023 with the Bank of England
the UK will enter a recession during 2023.
Alongside this, unemployment is forecast
torise, albeit from an historic low level, and
house prices are predicated to fall back.
While it is anticipated that inflation will fall,
levels are still likely to be high compared
torecent history, adding to pressure on
household finances. The political and central
bank response to these issues continues
toevolve and the continued inflationary
environment will likely see base rates rise
through the first half of 2023. As the country
enters a period of recession we anticipate
further volatility within financial markets,
particularly in respect of yields and
assetpricing.
Mitigating actions
We continue to monitor economic and
political developments in light of the
ongoing uncertainty, considering potential
consequences for our customers, products
and operating model. We actively monitor
our credit portfolios and undertake internal
stress testing to identify sectors that may
come under stress as a result of an economic
slowdown in the UK. We continue to
focuson affordability and cost of living
assumptions for new lending, on back book
monitoring, as well as focus on potential
impacts on our customers. The latter
includes pro-active engagement with
vulnerable customers and those that are
considered most at risk of payment
difficulties prior to the emergence of arrears.
Cyber risk
Cyber attacks continue to grow in intensity
and complexity, meaning that continuing to
evolve our ability and methodologies used
tosafeguard the confidentiality, integrity and
availability and our customers’ information
and services remains crucial.
Mitigating actions
We continue to invest in our cyber security
and resilience capabilities in response to
these rapidly evolving threats. Key areas
offocus relate to access controls, network
security, disruptive technology and the
denial of service capability. We actively
participate in the sharing of threat
information with other organisations,
helpingto ensure the continued availability
of our exceptional service offering while
alsomaking banking safer for all.
Technological change
Changes in the use of technology by our
customers, along with rapid changes to
technology provided by third parties,
requires us to continually assess the need to
upgrade our technology estate. This in turn
drives increasing demands on our people
and our ability to remain operationally
resilient, in order to avoid causing harm
toour customers.
Mitigating actions
We continue to review our use of technology
to prioritise enhancements where required.
We follow an Agile change methodology
and remain focused on building out a strong
digital offering.
56 Metro Bank PLC Annual Report and Accounts 2022
Risk report Continued
Regulatory change
The regulatory landscape continues to
evolve with the requirement to respond
toboth prudential and conduct driven
initiatives requiring ongoing prioritisation
and implementation. Regulatory business
plans and supervisory priorities are regularly
assessed to identify emerging themes
andensure our control framework
remainsappropriate.
Mitigating actions
We continue to monitor the regulatory
landscape for emerging regulatory initiatives
and to identify potential impacts on our
business model and ensure we are well
placed to respond effectively to regulatory
change. Regular monthly reporting on
material regulatory change programmes
ensures appropriate visibility and escalation
where required.
Fraud risk
We are faced with an increasing volume and
complexity of scams perpetrated on our
customers by threat actors who continue
todevelop more sophisticated tactics to
commit fraud. The uncertain economic
environment may also result in increased
fraud as companies and individuals
struggle.This has resulted in increased
regulatory expectations across the financial
services industry.
Mitigating actions
We continue to enhance our approach to
identifying and preventing potential fraud
and are proactive in educating our
customers and colleagues in fraud
prevention measures, alerting them
tochanges in the threat landscape
astheyoccur.
ESG risk
There remain significant uncertainties
around the time horizon over which climate
risks will materialise, as well as the exact
nature and impact of climate change on our
strategy, performance and operating model.
There are also risks associated with changing
societal and political requirements from
awide range of stakeholders to which our
risk and governance frameworks must
evolve responses.
Mitigating actions
Our ESG working groups and steering
committee meet regularly to ensure our
responses to emerging ESG risks are
continually enhanced. We continue to focus
on sustainability in all forms and take an
ethical approach to doing business,
remaining committed to the communities
weserve.
57 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Risk management framework
Approach to risk management
Effective risk management is critical to realising our strategic priorities and underpins
day-to-day operational activities and strategic change initiatives. We have an
established Enterprise Risk Management Framework to manage and report the
variousrisks that we face over the course of our daily business.
Culture, capability and process
Policy framework and
three lines of defence
Executive
leadership
committees
Board of
directors
The Board sets the risk appetite,
approves the risk management
framework policies and maintains
an appropriate control environment.
The Executive leadership committees
over see the risk management
framework and policies, and the Bank’s
strategy for addressing critical risks.
The Bank operates a ‘three lines of
defence’ model for risk management.
Pol
icies are aligned with the Bank’s
principal risks and risk appetite.
The Bank uses procedures, standards
and training to develop a robust and
eective control environment – one
where all colleagues understand their
obligations and that we all collectively
own the risks the Bank faces.
Risk management process and governance overview
The following diagrams provide an overview of the risk
management process and activities undertaken within our
business that allow the Board to fulfil its obligations under
theCorporate Governance Code 2018.
2
3
4
1
Ongoing
communication
and feedback
1
Risk identification
2
Risk assessment
3
Risk response
4
Risk monitoring and reporting
Risk report Continued
Risk appetite, policies and procedures
We define risk appetite as the aggregate
level and types of risk that we are willing to
accept in our pursuit of our stated business
objectives. Qualitative statements are in
place which articulate our risk appetite to
stakeholders and provide a view on the
risk-taking activities with which the Board
iscomfortable, guiding decision-makers
intheir strategic and business decisions.
The risk appetite statements detail the risk
parameters within which we operate,
promoting good customer outcomes and
protecting us from excessive risk exposures.
The statements include quantitative metrics
which inform strategies, targets, policies,
procedures and other controls that
collectively ensure we remain within the
Board’s approved risk appetite. Information
on performance against risk appetite,
aswell as any breaches and significant
trends are reported to ERC, ROC and
Boardregularly.
Alongside our risk appetite statements,
aPolicy Governance Framework is in place
to provide structure and governance for the
consistent and effective management of
the policies we develop in order to manage
risk within our risk appetite. These policies
define the minimum control requirements
that we must be observed across to
manage material sources of risk and we
actively monitor compliance with them.
Risk management process
Our risk management process comprises
the following key stages:
• Identification of the risks we are exposed
to at various levels.
• Assessment or measurement of the
identified risks using suitable risk
management tools.
• Response to the risk exposure, including
risk mitigation strategies (controls) where
appropriate.
• Monitoring and reporting of these
riskstoensure that they remain within
riskappetite.
58 Metro Bank PLC Annual Report and Accounts 2022
Risk governance and oversight
Risk report Continued
Risk management framework
First line Second line Third line
Lines of
defence
• Own and manage the risks
weface and agree, establish,
embed and comply with
appropriate frameworks,
policies and standards
(keyexecutives).
• Design, implement and
maintain effective controls.
• Align strategy with, and
monitor exposure against,
riskappetite.
• Ensure adequate resources,
tools and training are in place.
• Promote and maintain an
appropriate risk culture.
• Establish and communicate
the framework, governance
structure and underlying
policies and standards.
• Provide oversight, review
andchallenge the first line via
review, enquiry and discussion.
• Report/escalate to executive
management and the Board.
• Facilitate the development
ofrisk appetite, tools
andtraining.
• Independently verify that
theframework is operating
effectively.
• Validate the first and second
line approach to risk
management.
• Assess against regulatory
developments and leading
practices.
Risk
governance
committees
• Executive Committee.
• Business risk committees.
• Risk Oversight Committee.
• Executive Risk Committee.
• Other executive level risk
committees.
• Audit Committee.
We operate a ‘Three Lines of Defence’
risk model based on the overriding
principle that risk capability must be
embedded within the first line of defence
(Business) teams to be most effective.
Responsibility for risk management
resides at all levels within the Bank and is
supported by Board and Executive-level
committees. The table sets out how
responsibility for risk management is
allocated and how that responsibility
isdischarged.
59 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Risk report Continued
Board
Sets risk appetite and strategy
• Sets our strategy, corporate objectives,
riskappetite.
• Ensures an adequate framework is in place
for reporting and managing risk.
• Maintains an appropriate control environment
to manage risk effectively.
• Ensures capital, liquidity and other resources
are adequate to achieve our objectives within
risk appetite.
Risk Oversight Committee
Oversees risk governance and management
• Recommends risk appetite statement
measures to the Board.
• Reviews risk exposures in relation to the
riskappetite.
• Reviews risk frameworks and policies,
andapproves or recommends to the Board
for approval.
• Monitors the effectiveness of risk
management processes and procedures putin
place by management.
Audit Committee
Oversees financial reporting
• Reviews our annual and half-year financial
statements and accounting policies.
• Reviews the effectiveness of the internal
audit, audit controls, whistleblowing and
fraud systems in place.
• Advises on the appointment
ofexternalauditors.
• Reviews internal and external audits and
controls, monitors the scope of the annual
audit and the extent of the non-audit
workundertaken by external auditors.
Executive-level committees
Oversee the risk management framework
Executive Risk Committee
• Endorses the risk appetite for approval by the Board and monitors performance against
riskappetite.
• Reviews and recommends risk frameworks for approval by the Board or ROC.
• Oversees the quality and composition of the credit risk portfolio, and recommends strategies
toadjust the portfolio.
• Oversees and advises on financial and non-financial risk matters, including those escalated
fromoversight committees.
Asset and Liability Committee
• Monitors performance against the Board capital/funding plans.
• Ensures that we meet internal liquidity and capital targets.
• Agrees pricing decisions to ensure visibility of capital and liquidity impacts.
• Monitors interest rate risk.
Credit Approval Committee
• Approves higher value lending requests.
Impairment Committee
• Reviews and approves monthly portfolio level impairment results.
60 Metro Bank PLC Annual Report and Accounts 2022
Risk culture
Culture
Strategy
Appetite
Culture
Culture
Governance
Risk operating model
Identification
Assesment
Monitoring
& reporting
Incidents,
losses
Treatment
Evaluation
Risk management process
Risk report Continued
Risk culture
Everything we do starts with our culture,
which supports risk awareness by
encouraging every colleague to think about
the relationship between their role and our
purpose of creating FANS and growing
safely and sustainably. Our risk culture
aligns our people, processes, and systems
to the way we manage the risks inherent
inour business activities.
This culture begins with our executive team,
which leads by example with consistent and
clear communication of our commitment
tomanaging risk at all levels of the
organisation. Enabled through operation
ofthe Senior Managers and Certification
Regime, personal accountability is at the
heart of our risk culture.
Risk management is a key aspect of every
colleague’s objectives, and is embedded
within our scorecard, against which
performance is measured. Colleagues are
recruited with the core skills, abilities and
attitude required to fulfil their role. They are
provided with training and development
toensure they develop and maintain the
required levels of competence. This
supports colleagues in making decisions
and judgements with risk in mind.
We know that a culture that truly focuses
on creating FANS by exceeding customers’
expectations will reduce the risk of
customer harm and deliver consistently
good outcomes. Managing risk is a key part
of our AMAZEING values which are at the
heart of everything we do. We continually
seek to enhance and embed our risk
management framework to ensure effective
risk ownership and management within risk
appetite, supporting appropriate customer
outcomes, and the delivery of our strategic
plan. We promote an environment of
effective challenge in which decision-
making processes stimulate a range
ofviews.
This year, we have continued to embed
theprinciples, tools and techniques of the
Enterprise Risk Management Framework.
Inaddition to structured training, we have
designed and delivered learning campaigns
for all colleagues on the importance of
managing risk, our collective responsibility
and the ways in which it benefits our
customers and ourselves. We held a series
of Bank-wide events in October to promote
awareness of risk, including internal and
external live events, webinars, videos and
focused training.
61 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Exposures Mitigation Future focus
Credit risk
The risk of financial loss
shouldour borrowers or
counterparties fail to fulfil their
contractual obligations in full
and on time.
Our primary source of credit risk is through the
loans,limits and advances we make available to
ourcustomers. We have exposures across three
keyareas, retail mortgages, consumer lending,
andcommercial.
We continue to take a prudent approach to
origination and our arrears profile and our ECLs
reflect the high-quality of our lending. We have
continued to rebalance our lending mix in line with
our strategy, with strong growth in both unsecured
consumer lending and residential mortgages in 2022.
Our new asset quality in these growth portfolios is
strong with a lower new LTV profile for mortgages
than 2021, and a consumer portfolio geared towards
prime customers with strong average borrower
income. This strength is reflected in the overall
portfolio, with the mortgage portfolio well
collateralised with average DTV of 56%
(31December2021: 55%).
In the commercial portfolio we have been actively
reducing some areas of lending, particularly
professional buy-to-let and commercial real estate.
Across the commercial loan book our average DTV
is55% (31 December 2021: 57%).
We have a strong credit risk framework in place
thatmanages lending within risk appetite limits,
provides a comprehensive set of policies and
lendingstandards, and sets out a clear set of
procedures for managing our portfolios and
customers in financial difficulty.
Individual credit decisions are controlled through
both quantitative models and underwriter review
depending on the product, materiality, and
complexity of the exposure. These assessments
takeinto account the potential for future stress
incustomer’s financial positions. All commercial
exposures are approved by an independent
commercial underwriting team. We mitigate credit
risk through holding collateral against our retail
mortgage and commercial term loan portfolios.
Credit risk is overseen by the CRO (supported by
theChief Credit Officer), Credit Risk Oversight
Committee, ERC and ROC. The credit risk function
monitors the risk profile using a broad range of risk
metrics, reporting against risk appetite limits and
regular portfolio reviews. This includes oversight
ofcredit risk performance indicators such as arrears
levels, modelled risk measures, such as probability
ofdefault (PD) and loss given default (LGD), and
measures of concentration risk. Stress testing is
conducted to assess the impact on ECL and RWAs.
This robust framework continues to support
underlying portfolio resilience as cost of living
andinterest rate pressures have emerged.
Our overall approach to credit risk management,
levelof provisions and portfolio shape has put us in
astrong position to remain resilient throughout 2023.
We remain focused on monitoring emerging trends
and the impact of high inflation and interest rate
pressures on our customers. We have taken a
numberof steps to further enhance our support for
customers that may be facing into financial difficulty
through this period, and will continue to work with
our customers to support them where needed.
As we develop our future product offering, we will
continue to update our credit risk policies and
processes to ensure that these remain appropriate
forthe developing balance sheet.
We are also focusing on ensuring that we have the
models and broader capabilities in place to support
our journey toward IRB status.
Increased
Change from 2021
on our approach to this
risk on pages 68 to 83
Read more
Increased risk Reduced riskNo change
Principal risks
These are the risks in our Risk Taxonomy for which both qualitative and quantitative
measures are set at Board level and reported throughout our risk governance structure
asset out in its Enterprise Risk Management Framework.
Risk report Continued
Risk management overview
62 Metro Bank PLC Annual Report and Accounts 2022
Exposures Mitigation Future focus
Capital risk
The risk that we fail to meet
minimum regulatory capital
(and MREL) requirements.
Capital risk exposures arises from the depletion
ofour capital resources which result from:
• Increases in our RWAs.
• Continued losses.
• Unfavourable changes to regulatory minima
orother regulatory rule changes.
Our capital risk management approach is therefore
centred around ensuring we can maintain
appropriate levels of capital to both meet regulatory
minima and support our objectives, both under
normal and stress conditions.
Our capital risk mitigation is focused on three
keycomponents:
• A return to sustainable profitability that will allow
us to generate organic capital growth.
• The continued optimisation of our balance sheet
toboth ensure we are maximising our return on
regulatory capital and prudently manage our RWA
growth. This includes the continued advancement
of our IRB application.
• Raising external regulatory debt capital,
asandwhen market conditions allow.
As at 31 December 2022 we are operating within
ourcapital buffers, although remain above
regulatoryminima.
We will continue to ensure that we have enough
capital to meet the minimum regulatory requirements
at all times. Our return to profitability and disciplined
approach to asset origination will see us protect our
capital ratios.
We are continuing to progress our IRB application
with the regulator. We will also seek to access the
capital markets to raise additional regulatory debt,
asand when conditions allow.
A combination of these factors will allow us to return
to sustainable capital generation, and therefore our
path to exiting our capital buffers.
Stable
Change from 2021
on our approach to this
risk on pages 84 to 86
Read more
Financial crime risk
The risk of financial loss or
reputational damage due to
regulatory fines, restriction or
suspension of business, or cost
of mandatory corrective action
as a result of failing to comply
with prevailing legal and
regulatory requirements
relating to financial crime.
The nature of our business model as a UK retail bank
inherently exposes us to financial crime risk.
Our inherent sanctions risk exposure also increased
following Russia’s invasion of Ukraine and the
subsequent sanctions which were imposed.
Ongoing enhancements made to our anti-money
laundering and sanctions controls enable us to
continue to improve our overall management
offinancial crime risk.
Our Financial Crime Improvement Programme, which
was mobilised in 2019, has and continues to deliver
enhancements to our financial crime systems and
controls to ensure that they remain fit for purpose as
well as delivering the our Financial Crime Strategy.
Relationships with customers where it is felt that
thefinancial crime risks are too great to manage
effectively will be ended and continual investment
will be made in our expertise, partnerships and
systems to improve our management of risk in
thisarea.
We continue to enhance our financial crime controls
to ensure that they are appropriate to manage the
risk posed by our customers and transactions and are
aligned to our legal and regulatory requirements.
Resourcing continues to be a significant focus with
investment into the first and second lines of defence.
on our approach to
this risk on page 87
Read more
Stable
Change from 2021
Risk report Continued
63 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Exposures Mitigation Future focus
Operational risk
The risk that events arising
from inadequate or failed
internal processes, people
andsystems, or from external
events cause regulatory
censure, reputational
damage,financial loss,
servicedisruption and/or
detriment toour FANS.
We are exposed to a broad range of operational risks
across a number of distribution channels, businesses
and functions. Our operational risks include:
• Information security and cyber – The risk that
theconfidentiality, integrity or availability of
thedata we hold and/or systems we operate
iscompromised.
• Fraud – The risk of direct or indirect loss to
bothourselves and our customers as a result
ofcriminal activity.
• Technology (including Third Parties) – The risk
thatperformance of IT infrastructure (including
that supported by third-parties) impairs our
performance and operational resilience.
• People – The risk that we fail to have the right
colleagues, in the right place, at the right time
withthe right skillset to create FANS.
Business Risk Committees manage operational risks
at business and support area level, supported by
anumber of forums and working groups. These
escalate to the Non-Financial Risk Oversight
Committee which further escalates to ERC and
ROCwhere appropriate.
We aim to minimise incidents and losses arising
fromoperational risk events by maintaining a
resilientinfrastructure, including robust systems
andemploying and training the right colleagues.
Weconsider and prepare for a range of potential
disruption events and when they do occur, we
respond effectively and ensure that operational
riskevents and losses are recorded, assessed and
corrective steps taken to avoid recurrence.
In accordance with regulatory requirements, we hold
capital appropriate to potential severe yet plausible
operational risk exposures, informed by assessment
of a range of operational risk scenarios.
Programmes of work to further enhance our
management of operational risk will continue in 2023.
Recent investments in our risk management
technology will generate enhanced risk insights and
further strengthen our governance and reporting.
Particular focus will remain on operational resilience.
The management of risks associated with our
Important Business Services and our risk to third
party suppliers are key priorities, as is management
of attrition risks related to our colleagues.
on our approach to
this risk on page 88
Read more
Stable
Change from 2021
Regulatory risk
The risk of regulatory sanction,
financial loss and reputational
damage as a result of failing
tocomply with relevant
regulatory requirements.
We remain exposed to regulatory risk as a result of
our normal day to day business activities, as well
assignificant ongoing and new regulatory change.
We manage regulatory risk through a combination of
clearly defined risk frameworks covering our principal
risks, a comprehensive set of risk appetite measures
and limits together with appropriate compliance
policies and standards. We undertake a range of
mitigating actions to manage regulatory risk,
including a risk-based assurance programme
designed to assess areas of the control framework
underpinning regulatory compliance, oversight of
keyregulatory developments and proactive and
coordinated engagement with our key regulators.
Our risk oversight committees monitor and assess
compliance with our regulatory requirements.
We continue to place significant focus on
overseeingand ensuring compliance with regulatory
requirements. We undertake regular reviews of
ourrisk frameworks, appetite limits and monitoring
processes in order to ensure these remain up to
dateand reflect current regulatory priorities.
During 2023, we will focus on key developments
suchas Basel 3.1, enhancements to internal control
requirements under the revised UK Corporate
Governance Code and Consumer Duty.
on our approach to
this risk on page 89
Read more
Stable
Change from 2021
Risk report Continued
64 Metro Bank PLC Annual Report and Accounts 2022
Exposures Mitigation Future focus
Conduct risk
The risk that our behaviours
oractions result in unfair
outcomes or detriment to
customers and/or undermines
market integrity.
We are built on a people-focused culture of
supporting our customers, offering them a range of
relatively simple retail products. We remain exposed
to conduct risk as a result of our normal day to day
business activities and the provision of services and
products to customers. Our key focus remains on
those customers with additional support needs who
may be increasingly vulnerable as a result of specific
life events, financial difficulties due to the cost of
living pressures or who may be the victim of
fraudulent activity.
We have enhanced our conduct risk management
framework to improve oversight of the conduct
agenda and have implemented programmes to
address the key drivers of potential customer
harmtofurther support the delivery of good
customer outcomes.
We will continue to ensure our products and services
meet customer expectations and can deliver good
outcomes, enabling customers to pursue their
financial objectives. We will continually assess our
internal processes in-line with regulatory changes,
ensuring we meet our regulatory requirements and
can reasonably prevent customer harm. We will
continue to work with the FCA on the customer
agenda and will implement the changes resulting
from the FCA’s new Consumer Duty requirements.
Increased
Change from 2021
on our approach to
this risk on page 90
Read more
Strategic risk
The risk of having an
insufficiently defined, flawed
or poorly implemented
strategy, a strategy that does
not adapt to political,
environmental, business and
other developments and/or a
strategy that does not meet
the requirements and
expectations of our
stakeholders.
Strategic risk arises if we design or implement an
inappropriate strategic plan, design an appropriate
plan but fail to implement it as intended, and/or
failto take account of a change in external
circumstances. The current macroeconomic
challenges in the UK continue to create an uncertain
outlook. In addition, we operate in an increasingly
competitive environment, with the pace of change
and complexity posing risks to strategic initiatives.
Although there remain existing and emerging
macroeconomic and geopolitical uncertainties, our
strategy remains essentially unchanged, focusing on
our ambition to be the number one community bank
attracting core deposits through a service-driven
offering to retail and SME customers.
Strategic risk is addressed through the Board-
approved strategy and long-term financial plan.
Weconsider strategic risk as part of ongoing risk
reporting and an annual review of our strategy
andLong Term Plan.
We will continue to oversee execution of our strategy
through risk, business performance and change
governance mechanisms in order to ensure that the
key risks are understood and proactive management
action is taken if required. This will consider both the
impact of external macroeconomic and competitive
factors as well as effectiveness of internal delivery.
We will continue to develop and embed our
sustainability agenda in managing environmental,
climate, social and governance-related risks.
on our approach to
this risk on page 91
Read more
Stable
Change from 2021
Risk report Continued
65 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Exposures Mitigation Future focus
Model risk
The risk of potential loss and
regulatory non-compliance
due to decisions that could be
principally based on the output
of models, due to errors in the
development, implementation,
or use of such models.
We use models to support a broad range of business
and risk management activities, including informing
business decisions and strategies, measuring, and
mitigating risk, valuing exposures (including the
calculation of impairment), conducting stress
testing,and assessing capital adequacy.
Model risk remains stable, while closely managed
with ongoing enhancements to risk governance,
riskappetite metrics and scope having been
implemented. This has in turn helped to mitigate
potential increased risk from the impacts and
uncertainties arising from macroeconomic
challenges.
The main mitigant to model risk is the robust
governance process that is followed, including two
dedicated model committees, the Model Oversight
Committee, and the Model Governance Committee.
There is also an expert panel to opine on contentious
issues. The committees evaluate the appropriateness
of the Model Risk Management Framework and
monitor progress on the implementation of an
enhanced modelling infrastructure. This includes
areview of findings in relation to specific
modellingprocesses, escalating to ERC and
ROCasappropriate.
We have in place a well-qualified independent model
validation function that performs model validations
prior to model implementation, when a model
ischanged and on a periodic basis.
We continue to develop our IRB models as we
progress with our application for the use of internal
models for our capital adequacy calculation
andreporting.
We continue to enhance and evolve governance of
model risk, including reviewing the requirements of
the Bank of England’s consultation paper CP6/22
“model risk management principles for banks”,
weplan to implement any principles within the
required timeline.
Stable
Change from 2021
on our approach to
this risk on page 91
Read more
Liquidity and
funding risk
Liquidity risk is the risk that we
fail to meet our obligations as
they fall due. Funding Risk is
the risk that we cannot fund
assets that are difficult to
monetise at short notice (i.e.
illiquid assets) with funding that
is behaviourally or contractually
long-term (i.e. stable funding).
Liquidity risk concerns our ability to meet short term
obligations as they fall due. This requires liquidity
management to maintain investor and market
confidence in both business-as-usual and stressed
environments.
Funding risk concerns any mismatch between asset
liquidity and how the assets are funded. The primary
aim is to ensure assets that are slow to monetise are
supported by funding which is behaviourally or
contractually stable.
Both liquidity and funding risk are the subject of
prudential regulation and we must meet our liquidity
coverage ratio and net stable funding ratio to
asatisfactory standard.
Our liquidity and funding risk mitigation is focused
onthree key components:
• We retain a deposit-funded approach, with a broad
customer deposit base covering both retail and
commercial customers. This means we are not
reliant on wholesale funding, although we continue
to utilise the Bank of England’s TFSME as an
additional stable cost of funding, which is also
accretive to net interest income.
• We continue to maintain prudent liquidity levels
through the holding of high-quality liquid assets
inthe form of investment securities with strong
credit ratings as well as cash balances held at the
Bank of England.
• We monitor and manage the behavioural maturity
of our assets and liabilities on an ongoing basis
toensure we are not taking undue risk.
We will continue to assess both the underlying
liquidity risks and the potential management actions
on an ongoing basis, as part of the ILAAP. This
includes, amongst other things, consideration of
idiosyncratic and market wide stress scenarios and
whether our funding and liquidity positions remain
well calibrated.
Stable
Change from 2021
on our approach to this
risk on pages 92 to 93
Read more
Risk report Continued
66 Metro Bank PLC Annual Report and Accounts 2022
Exposures Mitigation Future focus
Market risk
The risk of loss arising from
movements in market prices.
Market risk is the risk posed to
earnings, economic value or
capital that arises from changes
in interest rates, market prices
or foreign exchange rates.
We do not have a trading book and we do not
actively seek to create value through taking interest
rate positions. While we support our customers to
make payments or hold accounts in foreign currency,
we actively avoid exposing our own balance sheet
toforeign exchange risk.
The primary source of our market risk exposure arises
from structural interest rate risk in the banking book
mismatch between the fixed rate assets and liabilities
and any differences in bases. Interest rate risk in the
banking book crystallises in, and is measured
through, the sensitivity of our current and future
netinterest income and our economic value
tomovements in market interest rates.
We have a low appetite for those market risks which
we do take, with clear limits set for net interest
income and economic value. These limits are
sufficient to allow proper management of operational
and financial hedging, but low enough to prevent
active use of open positions.
We benefit from natural offsetting between certain
assets and liabilities, which may be based on both
contractual and behavioural characteristics of these
positions. Where natural hedging is insufficient, we
hedge net interest rate risk exposures appropriately,
including, where necessary, with the use of interest
rate derivatives (derivatives are used only for hedging
purposes and not as part of customer transactions
orfor speculative purposes).
We have very limited exposure to foreign exchange
risk. Foreign exchange assets and liabilities are
matched off closely in each of the currencies we
operate in and the Board has set a strict limit, with
exposure not to exceed 2% of capital resources.
Wedo not have any operations outside the UK.
We will manage our market risk in line with policy,
while mitigating interest rate risk in the banking
bookwhich remains our main source of market risk.
We re-evaluate our market risk appetite, exposure
and control on an ongoing basis, which includes
aprocess (Market Risk Assessment Process),
analogous to the regulatory requirements
foranICAAP or ILAAP.
on our approach to this
risk on pages 94 to 95
Read more
Stable
Change from 2021
Legal risk
The risk of loss, including
toreputation that can result
from lack of awareness
ormisunderstanding of,
ambiguity in or reckless
indifference to, the way
lawapplies to the Directors,
the business, its relationships,
processes, products
andservices.
We remain exposed to a range of legal risks in
relation to our normal business activities. These risks
may arise from:
• Defective contracts.
• Claims and litigation against us.
• Failure or inability to take appropriate measures
toprotect Intellectual Property.
• Failure to comply with specific legislation
(e.g.Market Abuse).
We minimise legal risk via a range of mitigants,
including:
• In house legal expertise, maintained via
appropriate training and development and
specialist recruitment.
• Selective use of expert external legal advice
viaanapproved panel of lawyers.
• Appropriate policy documentation and training
related to specific legal requirements.
• Monthly reporting of metrics to measure
compliance with our legal risk appetite.
In 2022, we successfully enhanced our approach
further by updating our Enterprise Risk Management
Framework to clarify the role of the legal function in
helping the business manage and mitigate legal risk.
We will continue to ensure that we work within legal
parameters for all aspects of our activities and
measure compliance with risk appetite. Further
totheenhancements made to the Enterprise Risk
Management Framework in respect of legal risk,
arefreshed risk appetite statement and suite of
riskappetite metrics will be established in 2023.
on our approach to
this risk on page 96
Read more
Stable
Change from 2021
Risk report Continued
67 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Risk appetite (audited)
We control credit risk through a set of quantitative limits that measure the aggregate level
and type of credit risk that we are willing to accept in order to support our business
objectives. These limits, which are set at total portfolio and product level, are supported
bya suite of product-level policies and lending criteria which define the parameters within
which individual exposures can be approved and which manage new lending within the
risk appetite. Credit risk is further controlled through the use of automated decision
toolswithin our retail business, and underwriter approval and monitoring of individual
transactions. Independent oversight is provided by the credit risk function and includes
independent underwriting of commercial lending, monitoring of performance against
limits, ongoing portfolio monitoring and regular portfolio reviews.
The 2022 credit risk appetite limits were set with reference to the appetite for credit
impairments as well as analysis of past performance, peer comparisons and qualitative
approaches using expert judgement. These limits reflect our strategy as well as the
macroeconomic outlook.
We continue to develop and enhance our climate change risk management capabilities.
We have developed a model to estimate the impact on credit losses over a forecast
horizon out to 2080. The requirements for this model were developed in line with guidance
issued by the Bank of England as part of its Climate Biennial Exploratory Scenario Exercise,
with results being based on three climate scenarios: early policy action, late policy action,
and no additional policy action. Our policies outline prohibited commercial sectors which
are of particular concern for climate change. In addition our policies provide for enhanced
borrower assessment where borrowers operate in other carbon intensive industries.
Inretail mortgages, there are policies in place to mitigate property risk, including the
risksthat could result from climate change. These include requirements concerning the
durability of the property for the lifetime of the loan, the requirement that properties must
be insurable, and limits for lending on certain products where the property has received
alow EPC rating.
Assessment and monitoring (audited)
We manage credit risk throughout the lending activity lifecycle and within clear risk
appetite limits via a comprehensive set of policies and lending criteria. Individual credit
decisions are controlled through both quantitative models and underwriter review
depending on the product, materiality, and complexity of the exposure.
Prior to approval of a new or amended credit facility, the risk of the customer and
transaction must be assessed and approved through an automated decision engine or
though delegated lending authority using procedures in compliance with the relevant
lending policy. Retail lending decisions are made in the first instance through an
automated process. This includes a quantitative credit scorecard to assess likelihood of
arrears, an affordability model to assess capacity to pay and assign a credit limit, and a
setof rules that set credit criteria and automate credit policy. This assessment is further
subject to verification of information such as financials, and valuation of collateral.
Insomecircumstances, a manual underwriter review is also performed as part of the
creditapproval process. Commercial exposures are individually assessed under delegated
lending authority.
Credit risk appetite metrics are measured and reported regularly to oversight committees
to ensure we remain within risk appetite and continue to support our strategic objectives.
These metrics focus on particular segments of the portfolio which may be susceptible to
orindicative of increased levels of risk, and which are crucial to our strategy. These include
modelled risk parameters and performance metrics such as PD and LGD, as well as
concentration metrics such as sector or geographical concentration. More granular
performance metrics are also tracked to assess the likelihood of potential breaches and
their drivers. The limit framework includes early warning thresholds which identify where
action may need to be taken to avoid a breach of appetite limits. If necessary, a plan is
presented to bring the measurements back to approved levels.
A monthly portfolio insight report is presented to ERC and ROC to provide oversight
ofkeyindicators and performance trends. This is supplemented by a detailed suite of
portfolio-level reports which are reviewed by Credit Risk Oversight Committee. In addition,
we perform regular portfolio asset quality reviews as well as monitoring and reporting on
our credit decisioning. We have developed statistical models that utilise both internal and
external data for the purposes of estimating ECL under IFRS 9, as well as IRB models as
part of our journey to seek permission to use the IRB approach to calculate RWA exposure
amounts for credit risk.
Risk report Continued
Credit risk
68 Metro Bank PLC Annual Report and Accounts 2022
Commercial customers are also monitored through our Closer Monitoring and Early
Warning List. The objective is to identify the potential risks at an individual level before
they materialise and mature. Customers are categorised into one of four categories.
Thefirst is “closer monitoring”, followed by early watch list categories one to three.
CloserMonitoring and Early Warning List categories support IFRS 9 stage classification.
We monitor the effectiveness of our policies and management framework through the
various credit risk committees outlined. These committees provide oversight of portfolio
quality and help inform on where changes to our strategy or policies are required in
response to ongoing developments in the external environment. In addition, we assess
andestimate the risks associated with climate change through developed models and
wecontinue to develop our quantitative capabilities to further support our longer-term
objectives and increased focus in this area.
Governance
Credit risk is managed within our Enterprise Risk Management Framework, as part of our
overarching three lines of defence model. Management of credit risk is split primarily into
first and second lines of defence. The first and second lines are operationally independent
and have separate reporting lines. The first line management of credit risk is shared across
our lending functions that design, distribute, approve and service credit facilities. These
arethe functions under the management of the Managing Director Consumer Finance,
theManaging Director Banking Products and Digital, Managing Director Distribution, and
the Chief Operating Officer. The first line lending functions are responsible for proposing
and implementing lending propositions and are responsible for conducting lending
activityin accordance with credit risk appetite and credit policies and standards.
The second line credit risk function reports to the Chief Credit Officer who, in turn,
reportsto the CRO.
The Chief Credit Officer, supported by the credit risk team, is responsible for:
• Recommending and overseeing credit risk appetite limits.
• Developing and overseeing credit risk policies and standards.
• Overseeing credit risk strategies in accordance with policies and risk appetite.
• Developing and monitoring credit risk models.
• Providing an independent review and approval of individual commercial credit
proposalsand renewals of loan facilities.
• Developing and overseeing retail arrears management strategies.
• Managing commercial and business support strategy and activities.
• Ensuring appropriate IFRS 9 credit provisions are held.
• Monitoring and reporting credit risk performance.
Mitigation
We mitigate risk through regular monitoring and analysis of our customers and their
abilityto maintain contractual obligations, as well as the external factors that can impact
customer credit risk. We have established credit risk policies and lending criteria, and
assess customer affordability under different scenarios where appropriate. We employ
specialist expert underwriters in our assessments of our commercial customers, and
categorise customer risk as part of our Closer Monitoring and Early Warning List as
described above. This allows for the early identification of customers who may be
experiencing financial difficulties, which have not yet fully materialised. Monthly analysis
and reporting provide insight into portfolio credit performance and highlight where
deterioration is taking place or is likely to occur.
In addition to active management and monitoring of our portfolios and customer
affordability, we mitigate credit risk through holding collateral against our retail mortgage
and commercial term loan portfolios. Collateral is usually held in the form of real estate,
guarantees, debentures and other liens that we can call upon in the event of the borrower
defaulting. The management of this is governed by our collateral management policy.
At31December 2022, 79% (31 December 2021: 79%) of our loans consisted of retail
mortgages and commercial term loans secured on collateral, with average DTV of 56%
(31December 2021: 55%) and 55% (31 December 2021: 57%) respectively.
Our exposure to retail mortgages of greater than 100% DTV remains low at less than 1%
oflending (31 December 2021: less than 1%). These loans have principally been part of
portfolios we have acquired. For commercial term loans, 21% of our lending has either a
DTV of greater than 100% or does not have any real estate collateral (31 December 2021:
19%). For these loans additional forms of collateral (such as debentures or unsupported
guarantees giving recourse to our customers) are usually present, however are excluded
when calculating the DTV figures. In addition, Government guarantees are also excluded
from these DTV figures, so the true credit risk exposure on these loans is lower.
Commercial lending is underwritten on the strength of all types of collateral. For our retail
mortgage portfolio, our policy is to accept standard applications with an LTV of up to
95%.In addition, further limits covering both LTV and value are in place and are specific
toproduct type and loan amount.
Subject matter experts further mitigate the risk of credit losses through regular review and
assessment of cases at an individual level. Specialist teams provide customers with support
where financial difficulties are identified, and the use of automated and manual credit
assessments help to ensure good customer outcomes and to maximise the likelihood
thatcustomers maintain the ability to meet their contractual obligations.
Risk report Continued
69 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Supporting our customers
We work with our customers who are in arrears, have payment shortfalls or are in financial
difficulties to obtain the most appropriate outcome for both ourselves and the customer.
The primary objectives of our policy are to ensure that appropriate mechanisms and tools
are in place to support customers during periods of financial difficulty, and to minimise the
duration of the difficulty and the consequence, costs and other impacts arising.
We will always seek to understand the customer’s individual circumstances and ensure
aconsidered, measured, and consistent approach is taken which is, to the best of our
knowledge, appropriate for their individual circumstances. Where a customer’s financial
difficulty is due to them being impacted by a vulnerable situation, we will seek to provide
tailored and flexible solutions and services appropriate to the circumstances of the
vulnerability. As part of this process, we have a range of treatments that may be
considered to support the customer through the period of financial difficulty, alongside
working with them to understand and agree how to return their account to good standing
where possible. This includes the forbearance options outlined below.
Commercial customers who are showing signs of potential financial difficulty are
supported through our relationship teams, and where appropriate, our business and credit
support team. Each situation is individually assessed, and our preference is to provide
flexibility where possible to help a customer avoid financial difficulty and to resume normal
contractual obligations. Forbearance may be offered where this is sustainable and
appropriate to the nature of the customer’s financial distress.
Forbearance
When our customers show signs of financial difficulties, we may seek to continue our
support through the provision of a concession such as a modification of the terms and
conditions of the loan, or a total or partial refinancing of an existing loan. Concessions
canoften result in more favourable terms than those offered or available under normal
circumstances. Such events are considered to be acts of forbearance and are dealt with
and monitored in accordance with our forbearance policies and regulatory guidelines.
Government initiatives and temporary support measures to assist customers with the
challenges posed by COVID-19 were not considered to be forbearance in line with
regulatory guidelines.
Measurement
We use a wide range of measures to assess, control and monitor credit risk including
asuite of reports covering performance against risk appetite limits and key credit risk
metrics such as new business flow, portfolio quality, early warning indicators, arrears and
recovery performance, sector and geographical concentration, and exceptions to lending
policy. Reports are provided periodically to ERC, ROC and the Board. Where required,
further insight on credit risk performance is obtained through portfolio reviews and deep
dives on material portfolios and key credit risk themes.
In addition, we measure credit risk through the application of models that use internal and
external data to calculate ECL. These calculations are based on the application of IFRS 9
models and staging to determine the relevant term of the calculation and incorporate
assessments of the PD, LGD, and exposure at default (EAD). There are individual
assessments of defaulted commercial exposures and where relevant management
judgement via PMOs and PMAs. The impairment assessment for year-end 2022 has been
undertaken in line with our Impairment Policy. Model changes have taken place as a result
of Annual Model Review cycle and these have been implemented into production.
All models are subject to independent validation and are approved through Model
Governance Committee and Model Oversight Committee. PMAs have also been reviewed
and approved at Model Governance and Model Oversight Committees. The overall ECL
position and methodology is reviewed and approved by the Impairment Committee which
is a sub-committee of ERC. Individual impairments for defaulted commercial customers
are approved by the Individual Impairment Committee, a sub-committee of the
Impairment Committee.
In order to assess the reasonableness of the impairment calculations, these undergo
rigorous internal challenge to ensure we are adequately provided for.
Risk report Continued
70 Metro Bank PLC Annual Report and Accounts 2022
IFRS 9 staging and ECL recognition
IFRS 9 requires accounts to be allocated
into one of three stages. Stage 3 reflects
accounts in default. Stage 2 are the
accounts which have shown a significant
increase in credit risk since origination
(SICR). All other lending falls into Stage 1.
IFRS 9 requires a higher level of ECL to be
recognised for underperforming loans. For
loans in Stage 2 and Stage 3 a lifetime ECL
is recognised compared to a 12-month ECL
for performing loans (Stage 1).
Judgement is required to determine
whenSICR has occurred. An assessment
ofwhether credit risk has increased
significantly since initial recognition is
performed at each reporting period by
considering the change in the PD over the
remaining life of the financial instrument.
The assessment for a retail financial
instrument explicitly or implicitly compares
the PD occurring at the reporting date to
that at initial recognition, considering
reasonable and supportable information,
including information about past events,
current conditions, and future economic
conditions. The assessment for a
commercial financial instrument is based
onquantitative and qualitative assessment,
including current and forecast financial
performance, future economic conditions
and our internal credit risk rating grade.
IFRS 9 requires a higher level of ECL to be recognised for underperforming loans. This is considered based on a staging approach:
Stage Description ECL recognised
Stage 1 Financial assets that have had no significant
increase in credit risk since initial recognition or
thathave low credit risk (high-quality investment
securities only) at the reporting date.
12-month ECL
Total losses expected on defaults which may occur
within the next 12 months. Losses are adjusted for
probability-weighted macroeconomic scenarios.
Stage 2 Financial assets that have had a significant increase
in credit risk since initial recognition but that do
nothave objective evidence of impairment.
For Commercial counterparties, Early Warning List
isused to inform qualitative triggers for SICR.
The IFRS 9 standard also provides a rebuttable
presumption which states that financial instruments
falling 30 days past due on contractually defined
payments are to be considered as having
deteriorated significantly since origination.
Lifetime ECL
Losses expected on defaults which may occur at
anypoint in a loan’s lifetime. Losses are adjusted for
probability-weighted macroeconomic scenarios.
Stage 3 Financial assets that are credit impaired at the
reporting date. A financial asset is credit impaired
when it has met the definition of default. We define
default to have occurred when a loan is greater
than90 days past due or where the borrower is
considered unlikely to pay, this includes customers
who are categorised as Early Warning List 3.
Lifetime ECL
Losses expected on defaults which may occur at any
point in a loan’s lifetime. Losses are adjusted for
probability-weighted macroeconomic scenarios.
Interest income is calculated on the carrying amount
of the loan net of credit allowance.
Purchased or originated credit-
impaired (POCI) assets
Financial assets that have been purchased and
hadobjective evidence of being non-performing
orcredit impaired at the point of purchase.
Lifetime ECL
At initial recognition, POCI assets do not carry an
impairment allowance. Lifetime ECL is incorporated
into the calculation of the asset’s effective interest
rate. Subsequent changes to the estimate of lifetime
ECL is recognised as part of the ECL expense.
Risk report Continued
71 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Risk report Continued
In light of the classifications set out on page 71, our stage allocation criteria must include:
• A relative measure of creditworthiness deterioration since origination.
• An absolute measure of creditworthiness deterioration since origination.
There are two main criteria driving the SICR assessment identified as follows:
• Quantitative criteria – where the numerically calculated PD on a retail financial
instrument has increased significantly since initial recognition. This is determined when
the lifetime PD at observation is greater than the lifetime PD at origination by a portfolio
specific threshold. Given the different nature of the products and the dissimilar level of
lifetime PDs at origination, different thresholds are used by sub-products within each
portfolio (term loans, revolving loan facilities and mortgages). The assessment for
acommercial financial instrument uses the internal credit risk rating grade. The
commercial approach recognises that historic credit rating grades are not available.
• Qualitative criteria – Early Warning List is used to inform allocation to Stage 2,
regardless of the results of the quantitative analysis.
• Backstop criteria – instruments that are 30 days past due or more are allocated to Stage
2, regardless of the results of the quantitative and qualitative analysis.
There are additional SICR rules utilised across portfolios. These rules, as well as more
granular detail of both quantitative and qualitative criteria, are captured within the IFRS 9
model methodology and are approved as part of the annual model review process at
Model Governance and Model Oversight Committees.
Non-performing loans
A loan will be considered to be non-performing or credit impaired when it meets our
definition of default. A loan will be classed as in default when the loan is greater than
90days past due, or the borrower is considered unlikely to pay without realisation of
collateral. Unlikeliness to pay is assessed through the presence of triggers including
evidence of financial distress leading to forbearance. the customer having been declared
bankrupt, or the loan being in repossession. This definition of default is aligned with
internal credit risk management, accounting, and regulatory definitions.
A loan is also considered to be non-performing when it is subject to forbearance measures,
consisting of concessions in relation to either:
• A modification of the previous terms and conditions of the loan which the borrower
isnot considered able to comply with.
• A total or partial refinancing of a troubled debt contract that would not have been
granted had the borrower not been in financial difficulties.
In some cases it may not be possible to identify a single discrete event which defines an
asset as non-performing or credit impaired. Instead, the combined effect of several events
may cause financial assets to become credit impaired.
Where an asset which has been classified as Stage 3 is showing improving trends and is
nolonger considered non-performing or credit impaired, a probation period of 12 months
is implemented before transferring a financial instrument from Stage 3 to Stage 2, with
abackstop to ensure that the instrument should meet the Stage 2 criteria for twelve
consecutive months.
Credit exposure summary
Our primary source of credit risk is through the loans, limits and advances we make
available to our customers. To ensure effective management and monitoring, our loans and
exposures are categorised in to three portfolios based upon shared risk characteristics:
retail mortgages, consumer lending, and commercial.
The following provides an overview of the performance of these portfolios during 2022.
Table 1: Total expected credit losses by portfolio (audited)
31 December 2022 31 December 2021
Gross
carrying
amount
£’million
ECL
allowance
£’million
Net
carrying
amount
£’million
Gross
carrying
amount
£’million
ECL
allowance
£’million
Net
carrying
amount
£’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 4,160 (92) 4,068 4,846 (108) 4,738
Total loans and advances
tocustomers 13,289 (187) 13,102 12,459 (169) 12,290
72 Metro Bank PLC Annual Report and Accounts 2022
Table 2: Total portfolio credit performance
31
December
2022
31
December
2021
Coverage ratio 1.41% 1.36%
% loans in Stage 2 16% 15%
% loans in Stage 3 3% 4%
90+ days past due 1% 2%
Our retail mortgages and consumer lending portfolios grew significantly in 2022.
Theconsumer lending growth followed the successful roll out of consumer lending using
the RateSetter loans platform and purchase of the RateSetter portfolio. Our commercial
balances have decreased from £4.8 billion to £4.2 billion in 2022 reflecting the continued
reduction in our professional buy-to-let and commercial real estate lending portfolio,
inlinewith our business strategy.
New business risk profile
Changes made to retail mortgage credit policy and criteria implemented in 2021 and 2022
have supported growth in the retail mortgage portfolio whilst managing our risk profile.
During 2021 we expanded our retail mortgage lending policy to allow lending up to a LTV
of 95% (previously maximum 90%) and we launched our near prime product that is subject
to a maximum LTV of 80%. In December 2021 we expanded buy-to-let lending to 80% LTV,
and in April 2022 we expanded our loan-to-income (LTI) thresholds to allow higher
LTIratios to customers with higher incomes. LTV thresholds have subsequently and
temporarily been reduced to 75% for buy-to-let and 85% for owner occupied in order
tomanage lending volumes and build protection against economic risks.
Where credit policy and criteria have been expanded, additional controls have been
implemented to support the changes and ensure the credit risk profile remains within
appetite. Despite the expansion in maximum LTV allowed under policy, the proportion of
new business with an LTV greater than 80% reduced in 2022 to 18%, from 41% in 2021, and
the average LTV of originations is 69% (2021: 73%). Application credit scores remain in line
with 2021 for both owner occupied and buy-to-let. Volumes of near prime lending remain
low (£33 million total lending making up 0.43% of total portfolio).
The performance of the consumer portfolio has aligned with expectations, with new
origination credit quality improving through 2022. The average net monthly income of
customers increased by around 18% year on year supported by continual optimisation
ofour decisioning strategies. Improvements in credit score profile have additionally
beenobserved.
Commercial balances have reduced over 2022, reflecting the continued reduction in
professional buy-to-let and commercial real estate, in line with strategy, as well as the
repayment of BBLS lending.
Non-performing loans
The below table provides information on NPLs by portfolio.
Table 3: Non-performing loans
31 December 2022 31 December 2021
Group
NPLs
£’million NPL ratio
NPLs
£’million NPL ratio
Retail mortgages 111 1.45% 114 1.70%
Consumer 50 3.38% 21 2.36%
Commercial 191 4.59% 327 6.75%
Total 352 2.65% 462 3.71%
NPLs reduced to £352 million (31 December 2021: £462 million). This decrease was
primarily driven by successful BBLS claims and repayments as well as the write-off of a
small number of large commercial single name exposures. NPLs for mortgages have also
reduced due to accounts repaying or curing out of NPL. The NPL ratio for consumer
customers has increased to 3.38% (31 December 2021: 2.36%) driven by the maturation
ofthe current RateSetter portfolio together with the run off of the legacy portfolio.
Expected credit loss
ECL has increased during the year by £18 million (31 December 2022: £187 million,
31December 2021: £169 million) predominately driven by new originations in the consumer
lending portfolio and the deterioration in the macroeconomic outlook. The increase has
been partly offset by three main drivers; the repayment and write-off of a small number of
large commercial single name cases, portfolio reductions primarily driven by the run-off of
the legacy consumer and commercial professional buy-to-let portfolios, and the reduction
in management overlays.
A cautious level of overlays continues to be retained given the continued economic
uncertainty, more details of which can be found on pages 217 to 218.
Risk report Continued
73 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Credit risk exposure by internal PD rating
The below table summarises balances by PD bandings and IFRS 9 stage for the Group, excluding BBLS as these are 100% guaranteed by the Government. All PDs include forward
looking information and are based on 12-month values for Stage 1 and Lifetime values for Stage 2 and 3.
Table 4: Credit risk exposure, by IFRS 9 12-month PD rating and stage allocation (audited)
31 December 2022
Gross carrying amount
£’million
Loss allowance
£’million
Group PD range Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
Coverage
ratio
Band 1 0.00-2.99 8,042 549 – – 8,591 32 5 – – 37 0.43%
Band 2
3.00-16.99 2,209 1,313 – – 3,522 33 29 – – 62 1.76%
Band 3
17.00-99.99 598 226 – – 824 1 17 – – 18 2.18%
Band 4
100 – – 352 – 352 – – 70 – 70 19.89%
Total 10,849 2,088 352 – 13,289 66 51 70 – 187 1.41%
31 December 2021
Gross carrying amount
£’million
Loss allowance
£’million
Group PD range Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
Coverage
ratio
Band 1 0.00-2.99 8,371 813 – – 9,184 32 15 – – 47 0.51%
Band 2
3.00-16.99 762 852 – – 1,614 13 19 – – 32 1.98%
Band 3
17.00-99.99 938 260 – – 1,198 2 15 – – 17 1.42%
Band 4
100 – – 462 1 463 – – 73 – 73 15.77%
Total 10,071 1,925 462 1 12,459 47 49 73 – 169 1.36%
There has been minimal deterioration in the overall risk profile of our customers. The migration observed across bandings, in particular Band 2, is primarily driven by the deterioration
inmacroeconomic scenarios feeding through the IFRS 9 models resulting in customers moving to higher PD bands.
Risk report Continued
74 Metro Bank PLC Annual Report and Accounts 2022
Cost of risk
The below table provides information on the cost of risk. Cost of risk is the credit
impairment charge expressed as a percentage of average gross lending.
Table 5: Cost of risk
Group 2022 2021
Retail mortgages 0.02% (0.11%)
Consumer 2.26% 3.68%
Commercial 0.11% 0.16%
Average cost of risk 0.32% 0.18%
The higher cost of risk in 2022 compared to the prior year is as a result of the higher
impairment charges required in response to the deterioration in the macroeconomic
outlook. The decrease in consumer lending cost of risk to 2.26% (2021: 3.68%) is the
resultof new originations in consumer finance and the reduction in the legacy consumer
portfolio. The decrease in cost of risk for commercial is due to the successful BBLS claims
and repayments of a small number of large commercial single name cases over the period.
Stage 2 balances
Stage 2 balances are identified using quantitative and qualitative tests that determine the
SICR criteria. In addition, customers that trigger the 30 days back stop classification are
also reported in Stage 2, in line with IFRS 9 standards. 97% of Stage 2 is driven by a SICR
threshold being triggered compared to 3% being in arrears for the total portfolio.
Table 6: Stage 2 balances
31 December 2022
£’million
31 December 2021
£’million
Gross
Carrying
Amount
Loss
Allowance
Gross
Carrying
Amount
Loss
Allowance
Quantitative 1,845 38 1,473 32
Qualitative 189 7 366 11
30 days past due backstop 54 6 86 6
Total Stage 2 2,088 51 1,925 49
Where an account satisfies more than one of the stage 2 criteria above, the gross carrying amount and loss allowance
has been assigned in the order presented. For example, an account that triggers both Quantitative and Qualitative
SICR criteria will only be reported as Quantitative SICR.
Stage 2 balances have increased in 2022, with the quantitative SICR criteria continuing
tobe the primary driver due to deterioration in macroeconomic outlook resulting in
morecustomers triggering SICR into Stage 2. This is offset by, marginal reductions in the
qualitative and 30 days past due backstop criteria. As at year end 2022, 88% (31 December
2021: 77%) of Stage 2 balances triggered quantitative SICR criteria, 9% (31 December 2021:
19%) triggered qualitative SICR and the remaining 3% (31 December 2021: 4%) triggered
the 30 days past due backstop criteria.
The reduction in qualitative SICR stage 2 balances in 2022 is driven by reductions in
balances in our Early Warning List in commercial. Total lending in Early Warning categories
has reduced over 2022 after the material increases driven by COVID-19.
Risk report Continued
75 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Portfolio level analysis – Retail mortgages
Table 7 summarises key credit performance metrics for the retail mortgages portfolio.
Table 7: Retail mortgage credit performance
Group
31
December
2022
£’million
31
December
2021
£’million
Loans and advances 7,649 6,723
Loss allowance 20 19
Coverage ratio 0.26% 0.28%
% loans in Stage 2 18% 16%
% loans in Stage 3 1% 2%
90+ days past due 1% 1%
Portfolio and credit risk profile
Total retail mortgage balances increased in 2022 to £7,649 million (2021: £6,723 million)
with the associated impairment charge increasing by £1 million to £20 million in the year
to31 December 2022. This increase was driven by deterioration in the macroeconomic
outlook feeding into the IFRS 9 models as well as new business volumes. The total
coverage ratio for mortgages is 0.26% (31 December 2021: 0.28%). This reduction reflects
the volume of new lending which has increased Stage 1 assets, and the lower LTV of this
new lending compared to 2021.
Arrears remained low and stable with little deterioration seen across the year. The
repossessions moratorium, whilst now ceased, has meant that we still see a small number
of cases demonstrating arrears for longer than they would under normal circumstances.
Early indicators of portfolio performance, such as behavioural scores, also show stable
trends with no current sign of emerging risk.
Impairment
There has been an increase in coverage ratio for Stage 1 (Stage 1: 0.04% in 2021 to 0.10%
in2022) driven by new business lending and deterioration in macroeconomic scenarios.
There has been a decrease in coverage ratio in Stage 2 (1.13% in 2021 to 0.82% in 2022)
driven by a deterioration in macroeconomic outlook resulting in a higher proportion of
better quality customers triggering SICR into Stage 2 and improvements made in the
measurement of SICR in the IFRS 9 lifetime PD model, introduced as an overlay in 2022,
resulting in an overall reduction in modelled ECL. There has been a decrease in Stage 3
coverage ratio (Stage 3: 4.39% in 2021 to 2.70% in 2022) due to customers repaying and
curing out of NPL.
Risk report Continued
Payment performance
Despite the challenging economic environment, arrears have remained low and stable.
Wehave observed little deterioration in arrears measures across the year, including
earlyarrears or within our more vulnerable segments. The proportion of the portfolio
demonstrating arrears has decreased from 1.95% to 1.74% of the total retail mortgage
portfolio, and the proportion of the portfolio with three or more missed payments has
decreased from 0.76% to 0.73%. Forbearance levels also remain low and stable with 0.02%
of our non-arrears portfolio subject to forbearance measures, there has been no increase
in forbearance during the year.
Interest-only lending
We have exposure to interest only lending. Customers who are subject to a bullet or
balloon payment at contractual maturity may find themselves unable to refinance or
otherwise make this payment. At 31 December 2022, this risk arises principally in the
mortgage book where the exposure to interest-only loans stands at £4.1 billion
(31December 2021: £3.7 billion).
All borrowers of interest-only lending are assessed as being able to refinance the lending
at the end of the term or have an appropriate repayment plan in place. These loans are
alsoappropriately collateralised, ensuring we have a first charge in the event of default
bythe borrower.
The table below shows the amounts of the retail mortgage that are subject to either
interest only, or capital and interest payments.
Table 8: Retail mortgage lending by repayment type (audited)
31 December 2022
£’million
31 December 2021
£’million
Group
Retail
owner
occupied
Retail
buy-to-let
Total
retail
mortgages
Retail
owner
occupied
Retail
buy-to-let
Total
retail
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 lending 5,507 2,142 7,649 5,022 1,701 6,723
76 Metro Bank PLC Annual Report and Accounts 2022
Risk report Continued
Geographic exposure
The geographic balance distributions of our retail mortgages customers is set out below.
All of our loan exposures which are secured on property are secured on UK-based assets.
Our current retail mortgages portfolio is concentrated within London and the South East,
which is representative of our customer base and store footprint. We are expanding
ourfootprint over time which reduces geographical concentration of lending.
The below table reflects the geographic distribution of the retail mortgages portfolio.
Table 9: Retail mortgage lending by geographic exposure (audited)
31 December 2022
£’million
31 December 2021
£’million
Group
Retail
owner
occupied
Retail
buy-to-let
Total
retail
mortgages
Retail
owner
occupied
Retail
buy-to-let
Total
retail
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 lending 5,507 2,142 7,649 5,022 1,701 6,723
Collateral
Table 10 shows the distribution of the retail mortgage portfolio by DTV.
Table 10: Retail mortgage lending by DTV (audited)
31 December 2022
£’million
31 December 2021
£’million
Group
Retail
owner
occupied
Retail
buy-to-let
Total
retail
mortgages
Retail
owner
occupied
Retail
buy-to-let
Total
retail
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 lending 5,507 2,142 7,649 5,022 1,701 6,723
High volumes of new lending alongside increasing house prices during the first half of
theyear, has meant that the overall DTV of our portfolio has remained similar to that at
31December 2021 (31 December 2022: 56%, 31 December 2021: 55%) with 94% of our
portfolio having a DTV of 80% or less.
Portfolio growth and credit quality
Portfolio growth in 2022 has been achieved though high-quality lending. Mortgage
applicant quality as measured through credit scorecards has improved over the course of
2022, and the proportion of new business with an LTV over 80% has reduced from 41% in
2021 to 18% in 2022. Buy-to-let lending has increased to support growth. The buy-to-let
portfolio consists of simple retail loans on prime residential housing stock, there is no
cross-collateralisation and there are no houses in multiple occupation. Landlord portfolios
are a small proportion of lending.
We expect that our owner-occupied customers have a degree of protection against
increasing interest rates; all of our organically originated owner-occupied portfolio (93%
ofportfolio) was underwritten at a stressed interest rate allowing for at least a 2% increase,
and in the majority of cases (86%) customers did not borrow the maximum lending
amount that was available creating an additional buffer against interest rate and
inflationary rises. Rental coverage for buy-to-let lending is strong, providing capacity
toabsorb increases in mortgage payment. All organic buy-to-let mortgages have been
underwritten at a 140% rental cover and a stressed interest rate.
77 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Portfolio level analysis – Commercial
Table 12 summarises key credit performance metrics for the commercial portfolio.
Table 12: Commercial credit performance
31
December
2022
£’million
31
December
2021
£’million
Loans and advances 4,160 4,846
Loss allowance 92 108
Coverage ratio 2.21% 2.23%
% loans in Stage 2 12% 16%
% loans in Stage 3 5% 7%
90+ days past due 2% 4%
Portfolio and credit risk profile
Our commercial lending remains largely comprised of term loans secured against property
and Government supported lending. In addition, commercial lending includes facilities
secured by other forms of collateral (such as debentures and guarantees), and asset
finance and invoice finance. Our commercial balances have decreased from £4.8 billion
to£4.2 billion in 2022 reflecting the continued reduction in our professional buy-to-let and
commercial real estate lending in line with business strategy, alongside the repayment of
BBLS lending. The professional buy-to-let product is no longer available and balances are
expected to continue to reduce over 2023. Real estate lending in commercial remains a
core part of our business, albeit our business strategy is currently to reduce total lending
inthis sector as we manage sector concentration. This concentration has reduced in 2022.
Lending under the Government’s Recovery Loan Scheme (RLS) has increased to £385
million at 31 December 2022 (31 December 2021: £157 million).
Asset quality has improved with 84% of total commercial lending in Stage 1 (2021: 77%).
We continue to see low levels of 90+ days past due, and defaults remain limited with 5%
inStage 3 (31 December 2021: 7%).
Commercial customers are managed through an early warning categorisation where there
are early signs of financial difficulty, thereby allowing timely engagement and appropriate
corrective action to be taken. Total lending in Early Warning categories has reduced
over2022 after the material increases driven by COVID-19. Although we continue to see
reducing balances in our Early Warning categories, there is a risk of increasing financial
difficulty, arrears and default as a consequence of the current challenging economic
environment. An impairment overlay is held to cover this risk.
Portfolio level analysis – Consumer
Table 11 summarises key credit performance metrics for the consumer lending portfolio.
Table 11: Consumer credit performance
Group
31
December
2022
£’million
31
December
2021
£’million
Loans and advances 1,480 890
Loss allowance 75 42
Coverage ratio 5.07% 4.72%
% loans in Stage 2 17% 9%
% loans in Stage 3 3% 2%
90+ days past due 3% 2%
Portfolio and credit risk profile
Consumer lending balances have increased to £1.5 billion in 2022 (2021: £890 million) due
to the growth in lending through the RateSetter personal loans platform. RateSetter loans
account for 94% of total consumer lending balances at December 2022. The performance
of this portfolio has aligned with expectations with credit quality improving through 2022.
New business average net monthly income has increased by around 18% year on year as a
result of continual optimisation of our decisioning. Additionally, improvements have been
observed in our credit risk score profile. We anticipate balances in consumer lending
through 2023 to reach a steady state with new lending supported by the new Secured
Motor lending product. Additionally, through 2022 we have seen increased demand for
revolving products generated through customer conversations in store.
To ensure we continue to lend responsibly in light of the macroeconomic environment
wehave reviewed and enhanced our affordability assessment at the acquisition stage
throughout 2022 and boosted our reporting capabilities. As a result, we have observed
nosigns of stress in the portfolio in light of the economic environment as we continue
tomonitor arrears balances closely. The increases seen in Stage 2 balances are primarily
being driven as a result of maturation of the unsecured loans portfolio.
Impairment
ECL allowance has increased to £75 million in the year to 31 December 2022 (31 December
2021: £42 million) primarily driven by portfolio growth and maturation. The majority of this
increase relates to the new originations through RateSetter, offset by release due to the
legacy portfolio reducing.
Risk report Continued
78 Metro Bank PLC Annual Report and Accounts 2022
Risk report Continued
Geographic exposure
The below table summarises the geographic distribution of the commercial term loans
portfolio. 73% of commercial term loans are to companies in London and the South east
(31 December 2021: 79%), which reflects our the historical concentration of our
storenetwork.
The following table reflects the geographic distribution of the commercial term loans
portfolio excluding BBLS.
Table 14: Commercial term lending – excluding BBLS by geographic exposure (audited)
31 December 2022
£’million
31 December 2021
£’million
Group
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
Professional
buy-to-let
Other term
loans
Total
commercial
term 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 Humber 3 23 26 3 17 20
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 loans 731 2,090 2,821 950 2,113 3,063
Impairment
The ECL allowance has reduced to £92 million in 2022 (31 December 2021: £108 million)
with coverage remaining stable at 2.21% (31 December 2021: 2.23%). The proportion
ofcommercial lending in Stage 2 has reduced from 16% in 2021 to 12% in 2022 as a
percentage of total balances. This reflects repayment and reduction of cases with higher
coverage, including conclusion of some larger single name cases offset by forecast
deterioration in macroeconomic outlook.
Our commercial book consists predominately of SME lending which is reflected in the
coverage. Commercial customers may be impacted by increasing inflation, increasing
energy costs, increasing interest rates and the impact of inflationary increases on
discretionary spending. We continue to hold ECL to reflect the higher risk of default.
Interest-only lending
Interest only lending in our commercial lending is concentrated towards professional
buy-to-let lending where interest only lending makes up 95% of lending (31 December
2021: 94%).
Table 13: Commercial term lending – excluding BBLS by repayment type (audited)
31 December 2022
£’million
31 December 2021
£’million
Group
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
Professional
buy-to-let
Other term
loans
Total
commercial
term 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 loans 731 2,090 2,821 950 2,113 3,063
79 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Risk report Continued
Collateral
The following table shows distribution of the commercial portfolio DTV.
Table 16: Commercial term lending – excluding BBLS by DTV (audited)
31 December 2022
£’million
31 December 2021
£’million
Group
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
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 loans 731 2,090 2,821 950 2,113 3,063
Our commercial lending remains largely comprised of term loans secured against property.
DTV covers property and cash backed lending in commercial. At December 2022, 76%
ofterm lending had DTV less than 80% reflecting the prudent risk appetite historically
applied. Lending with DTV >100% includes loans which benefit from additional forms of
collateral, such as debentures. The value of this additional collateral is not included in the
DTV. DTV >100% also includes Government backed lending where the facility does not also
benefit from property collateral. The increase in DTV>100% in 2022 reflects the increase in
RLS lending.
For commercial there have not been any changes to the collateral management or lending
policies that significantly impact the quality of our collateral in 2022.
Sector exposure
We manage credit risk concentration to individual borrowing entities and sector. Our credit
risk appetite includes limits for individual sectors where we have higher levels of exposure.
The sector profile for commercial term lending is broadly consistent with the position as
at31 December 2021. There has been an overall reduction in commercial real estate and
professional buy-to-let.
The following table shows distribution of the commercial portfolio across business sectors.
Table 15: Commercial term lending – excluding BBLS by sector exposure (audited)
31 December 2022
£’million
31 December 2021
£’million
Group
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
Real estate (rent, buy and sell) 731 681 1,412 950 837 1,787
Hospitality – 372 372 – 361 361
Health and social work – 334 334 – 225 225
Legal, accountancy and
consultancy – 196 196 – 206 206
Retail – 161 161 – 136 136
Real estate (develop) – 6 6 – 46 46
Recreation, cultural and sport – 87 87 – 88 88
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 lending 731 2,090 2,821 950 2,113 3,063
80 Metro Bank PLC Annual Report and Accounts 2022
Risk report Continued
These commitments represent agreements to lend in the future, subject to certain
conditions. We mitigate credit risk in respect of these undrawn balances by regular
customer monitoring to allow undrawn limits to be removed if we observe credit quality
deterioration. We also have exposure to invoice finance assets where the amount drawn
iscapped both by the discounted value of available invoices and a set relationship cap.
Similarly, we have a small exposure to commercial real estate development finance, where
a limit to draw down is agreed in principle and funds are released in stages, throughout the
development and following satisfactory surveyor reports. In commercial lending, undrawn
commitments are regularly reviewed to ensure relationship limits remain appropriate.
Investment securities
As well as our loans and advances, the other main area where we are exposed to credit risk
is within our Treasury portfolio. At 31 December 2022 we held £5.9 billion (31 December
2021: £5.6 billion) of investment securities, which are used for balance sheet and liquidity
management purposes.
We hold investment securities at amortised cost or fair value through other comprehensive
income (FVOCI) depending on our intentions regarding each asset. We do not hold
investment securities at fair value through profit and loss.
Table 18: Investment securities by credit rating (audited)
31 December 2022
£’million
31 December 2021
£’million
Group
Investment
securities held at
amortised cost
Investment
securities held at
FVOCI Total
Investment
securities held at
amortised cost
Investment
securities held at
FVOCI Total
AAA 3,649 356 4,005 3,675 376 4,051
AA- to AA+ 1,694 215 1,909 1,101 422 1,523
Total 5,343 571 5,914 4,776 798 5,574
We have a robust securities investment policy which requires us to invest in high-quality
liquid debt instruments. At 31 December 2021, 68% of our investment securities were rated
as AAA (31 December 2021: 73%) with the remainder rated AA- or higher, the majority
ofwhich comprises of UK gilts.
Additionally, we hold £2.0 billion (31 December 2021: £3.6 billion) in cash balances,
whichiseither held by ourselves or at the Bank of England.
Supporting our commercial customers
The external environment has been challenging for commercial customers over the past
few years, and current inflationary pressures, interest rate increases, supply chain
challenges and staffing issues add to the existing pressure businesses face.
Our commercial book is predominately managed on a relationship basis with at least
annual credit reviews by the relationship manager, and credit risk oversight through
second line credit risk. Credit risk assessment focuses on affordability. Commercial
customers who are showing signs of potential financial difficulty are supported through
our relationship teams, and where appropriate, our business and credit support team.
Eachsituation is individually assessed, and our preference is to provide flexibility where
possible to help a customer avoid financial difficulty and resume normal contractual
obligations. Forbearance may be offered where this is sustainable and appropriate
tothenature of the customer’s financial distress.
Government-backed lending
The table below summarises government-backed lending.
Table 17: Government-backed lending
31 December 2022 31 December 2021
Group
Drawn
balance
£’million
Number
of loans
Average loan
amount
£’000
Drawn
balance
£’million
Number
of loans
Average loan
amount
£’000
Bounce Back Loan Scheme 801 26,824 30 1,304 36,116 36
Coronavirus Business
Interruption Loan Scheme 127 279 455 165 319 517
Coronavirus Large Business
Interruption Loan Scheme 26 4 6,580 37 4 9,364
Recovery Loan Scheme 385 1,349 285 157 675 233
Total government-backed
lending 1,339 28,456 47 1,663 37,114 44
1. Recovery loan scheme includes £97 million acquired from third parties under forward flow arrangements
(31December 2021: £66 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).
Undrawn commitments
At 31 December 2022, we had undrawn loan facilities of £1,120 million (31 December 2021:
£1,245 million). The reduction from 2021 to 2022 reflects the reduction in pipeline RLS
lending as at 31 December 2022. In addition we have commitments of £250 million
(31December 2021: £302 million) in respect of credit card and overdraft facilities.
81 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Scenarios and probability weights used as at 31 December 2022 are as follows:
Table 19: Macroeconomic Scenario Weightings
31
December
2022
31
December
2021
Baseline 50% 40%
Upside 20% 20%
Downside 25% 30%
Severe Downside 5% 10%
The macroeconomic scenarios reflect the current macroeconomic environment as follows:
• Baseline scenario (50% weight): Reflects the projection of the median, or ‘50%’ scenario,
meaning that in the assessment there is an equal probability that the economy might
perform better or worse than the baseline forecast.
• Upside scenario (20% weight): This above-baseline scenario is designed so there is a 10%
probability the economy will perform better than in this scenario, broadly speaking, and
a 90% probability it will perform worse.
• Downside scenario (25% weight): In this recession scenario, in which a deep downturn
develops, there is a 90% probability the economy will perform better, broadly speaking,
and a 10% probability it will perform worse.
• Severe Downside scenario (5% weight): In this recession scenario, in which a deep
downturn develops, there is a 96% probability the economy will perform better, broadly
speaking, and a 4% probability it will perform worse.
Macroeconomic scenarios impact the ECL calculation through varying the PD and LGD
models. We note that the scenarios applied comprise our best estimate of economic
impacts on the ECL.
IFRS 9 macroeconomic scenarios and use of expert judgement
Macroeconomic scenarios and probability weightings
The ECL recognised in the financial statements reflects the effect on ECL of a range of
possible outcomes, calculated on a probability-weighted basis. This is based on a number
of economic scenarios, and includes management overlays where required. These
scenarios are representative of our view of forecasted economic conditions, sufficient to
calculate unbiased ECL, and are designed to capture material ‘non-linearities’ (i.e., where
the increase in credit losses if conditions deteriorate, exceeds the decrease in credit losses
if conditions improve).
In line with our approved IFRS 9 models, macroeconomic scenarios provided by Moody’s
Analytics are used in the assessment of provisions. The use of an independent supplier
forthe provision of scenarios helps to ensure that the estimates are unbiased. Since the
inception of COVID-19, the macroeconomic scenarios are assessed and reviewed monthly
to ensure appropriateness and relevance to the ECL calculation.
During Q4 2022, management performed an annual review of the appropriateness of the
macroeconomic scenarios and associated probability weights feeding into the IFRS 9
models. As a result, the current macroeconomic scenarios (i.e. Baseline, Upside, Downside
and Severe Downside) have been maintained, however changes have been made to the
associated probability weights as shown in table 19. The scenario probability weighting for
the Baseline scenario has been increased and reducing the probability weightings for the
downside scenarios. This reflects our view that the Baseline scenario now reflects the
forecasted UK economic recession and a reduction in the degree of uncertainty of the
future economic path.
The selection of scenarios and the appropriate weighting to apply are considered and
discussed internally and proposed recommendations for use in the IFRS 9 models are
made to the monthly Impairment Committee (designated ERC for impairments) for
formalapproval.
Our credit risk models are subject to internal model governance including independent
validation. We undertake annual model reviews and have regular model performance
monitoring in place. The impairment provisions recognised during the year reflect our
bestestimate of the level of provisions required for future credit losses as calibrated under
our weighted economic assumptions and following the application of expert credit risk
judgement overlays.
Risk report Continued
82 Metro Bank PLC Annual Report and Accounts 2022
Risk report Continued
Key assumptions underpinning the baseline December 2022 scenarios:
• The UK economy is already in recession, and GDP remains in contraction territory
untilthe second quarter of 2023. The economy slowly recovers after that.
• Inflation peaks in the fourth quarter of 2022 but remains above target until the end
of2025 because of elevated wage pressures and second-round effects.
• Global oil prices remain around current high levels until mid-2023. Natural gas prices
alsoremain at extremely high levels, but below their summer peaks. Businesses and
households conserve energy but there is no need for gas rationing.
• Global supply-chain bottlenecks do not completely abate before 2023.
• Volatility in financial markets remains elevated, but the new UK Government regains
some of its lost credibility.
The following variables are the key drivers of ECL:
• UK interest rate (five-year mortgage rate).
• UK unemployment rate.
• UK HPI change, year-on-year (adjusted across all scenarios to reflect further uncertainty
in residential property values).
• UK GDP change, year-on-year.
• UK commercial real estate change, year-on-year (adjusted across all scenarios to reflect
further uncertainty in commercial property values).
Sensitivity analysis
We have also assessed the IFRS 9 ECL sensitivity impact at a total portfolio level,
byapplying a 100% weighting to each of the four chosen scenarios. This sensitivity
assessment has also been split by stages and is reflected in the table below. For 2022, the
ECL for each scenario is more sensitive to changes in the economic conditions compared
to 2021. This is due to the enhancement in the ECL sensitivity to macroeconomic scenario
framework in 2022 which more accurately captures the changes in the economic
scenarios. Further details on this sensitivity can be found on page 219.
Use of post model adjustments and overlays
During the year we have continued to apply expert judgement to the measurement of the
ECL in the form of PMOs and PMAs. As at 31 December 2022 PMOs and PMAs made up
£0.4 million and £30.5 million of the ECL allowance respectively (31 December 2021:
£9.1million and £35.0 million). Further details on these can be found on pages 217 to 218.
Macroeconomic variables
A wide range of potential economic variables have been considered in our ECL models,
representing drivers of credit losses on our lending portfolios. Statistical methods are
usedto choose the subset of drivers which have the greatest significance and predictive
fittoour data. This includes variables which impact gross domestic product (GDP),
unemployment, interest rates, inflation, share prices, borrower income and the UK
housingmarket.
The period-end assumptions used for the ECL estimate as at 31 December 2022 are
asfollows:
Table 20: Macroeconomic variable assumptions
31 December 2022
2023 2024 2025 2026
Interest rates (%) –
five-year mortgage rate
Baseline
5.5% 4.4% 4.0% 4.0%
Upside 5.3% 4.3% 4.0% 4.0%
Downside 5.5% 4.4% 3.6% 3.1%
Severe downside 5.8% 4.0% 3.4% 3.0%
UK unemployment (%)
Baseline
4.3% 4.5% 4.5% 4.6%
Upside 3.9% 3.6% 3.7% 4.0%
Downside 6.2% 7.2% 7. 2% 6.8%
Severe downside 7.4% 8.3% 8.2% 7.9%
UK house price index (HPI) –
% change year-on-year
Baseline
(4.4%) 2.3% 4.8% 2.9%
Upside 9.0% 5.4% 2.1% (1.2%)
Downside (14.9%) (7.0%) 4.0% 5.7%
Severe downside (20.7%) (10.9%) 4.4% 4.3%
UK GDP – % change
Baseline
(0.8%) 1.2% 1.4% 1.2%
Upside 1.9% 1.2% 1.1% 1.2%
Downside (6.9%) 1.3% 2.5% 1.2%
Severe downside (8.3%) (0.3%) 3.5% 2.1%
UK commercial real estate index,
year-on-year – % change
Baseline
(8.2%) (6.0%) 2.0% 1.4%
Upside 3.2% (3.6%) (0.3%) (2.2%)
Downside (23.2%) (11.9%) 5.1% 4.2%
Severe downside (30.5%) (14.8%) 6.9% 3.5%
Macroeconomic variable assumptions used as at 31 December 2021 can be found in note 30 to the financial
statements on page 216.
83 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Mitigation (audited)
Sustainable profit growth
The main long-term mitigation to capital risk is the sustainable generation of additional
capital, through the accumulation of profits. The Board and ExCo are focused on ensuring
the successful delivery of a return to sustainable profitability. Core to this is the continued
delivery of our strategic priorities (as set out on page 19). Our return to profitability in Q4
2022 on an underlying basis is an important milestone here, as is our focus on returning
tostatutory profitability in 2023.
Balance sheet optimisation
Another key mitigation used to manage capital risk is efficient deployment of our existing
capital resources. One of our strategic priorities is ensuring we continue to optimise our
balance sheet to ensure we maximise our risk-adjusted returns, while remaining above
regulatory requirements. This approach saw us take active measures during the year
toprotect our capital ratios by matching originations to the level of asset run off.
Raising of additional capital
As we grow, we will need to raise additional regulatory capital in the form of qualifying
debt to support lending growth. The ability to raise additional capital, as well as the
associated cost, is dependent upon market conditions and perceptions.
In December 2022 the Bank of England’s Resolution Directorate has agreed to provide
atemporary, time-limited, adjustment for our existing Fixed Rate Reset Callable
Subordinated Notes (the ‘Notes’) with respect to MREL eligibility, until 26 June 2025.
Thiswill come into effect upon the implementation of a holding company, which we are
required to implement by 26 June 2023. Our Tier 2 note has a one-time call date in June
2023. 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.
Measurement
We measure our capital resources in line with regulatory requirements in order to
appropriately manage our capital resources. The PRA expects prudential reporting, which
includes capital reporting, to be as rigorous as that for financial reporting. Over the past
few years we have invested in our regulatory reporting systems as well as made
enhancements to our control environment to ensure we are continuing to produce
accurate and reliable capital reporting and deliver against these expectations.
Appetite (audited)
We have a low appetite for capital risk. The Board has determined that we will maintain
asurplus of regulatory capital resources above our total regulatory capital requirement,
asidentified through our risk identification process, summarised in the ICAAP and agreed
with the regulator.
Assessment and monitoring (audited)
Capital risk is a core focus and our capital position is regularly monitored in ALCO and
ExCo and reported to ROC and the Board. Currently we are operating within our capital
buffers. Consequently our capital risk remains elevated, albeit stable year-on-year as we
continue to target profitable growth.
Capitalisation is a core component of our annual planning process, involving the creation
of our budget and multi-year Long Term Plan. This sets our forecast of our capital position
and considers adequacy both a ‘base’ and ‘downside’ (stressed) scenarios. Mitigating
actions to preserve capital are identified and applied, where necessary. Further details
onthis process are set out in our Viability statement on pages 96 and 97.
We monitor capital on an ongoing basis, which includes performance against our
forecasts. This involves the production of regular reports including updated forecast levels
of capital for the Board and management, which are compared to our risk appetite and
limits for acceptable capitalisation.
The scale of risks to capital is also considered in the ICAAP, a mandated regulatory
document, which expands stress testing and allows both the bank and the PRA to make
informed judgments on risks, the adequacy of capital carried to support them and the
overall robustness of our capital risk management approach.
As set out in our Operating environment on page 9, the regulatory environment in which
we operate continues to evolve. Consequently a core component of our capital risk
thinking involves horizon scanning of prudential developments, to ensure we continue
tomonitor potential future capital impacts and anticipate appropriate capital resources.
Risk report Continued
Capital risk
84 Metro Bank PLC Annual Report and Accounts 2022
On 1 January 2022 software assets reverted to being fully deducted from capital, reducing
our CET1 and MREL ratios by 0.8% and 0.7% respectively.
At the same time the original IFRS 9 transitional relief reduced from 50% to 25% along with
the COVID-19 transitional relief which moved from 100% to 75%, reducing CET1 and MREL
by 0.3%. A further step down in the transitional reliefs occurred on 1 January 2023
(including an end to the IFRS 9 static relief came to an end and the transitional factor
applied to IFRS 9 dynamic relief reduced by a further 25 per cent), leading a further
reduction in our CET1 and MREL ratios of 0.4% and 0.3% respectively. Details of how these
transitional reliefs would look on a fully loaded basis are set out in table 23.
Table 23: Transitional arrangements
Transitional relief
31 December
2022
1 January
2023
1 January
2024
1 January
2025
CET1 ratio 10.3% 9.9% 9.6% 9.2%
Total regulatory capital ratio 13.4% 13.0% 12.7% 12.4%
Total regulatory capital plus MREL ratio 17.7% 17.4% 17.1% 16.8%
Capital requirement
We calculate our capital requirement in line with the regulatory requirements set out in the
PRA Rulebook. This consists of a Pillar 1 calculation of RWAs and a Pillar 2A assessment
that captures point in time risks not covered by the Pillar 1 calculation. The Pillar 2A
assessment is conducted through the ICAAP process, which is documented and approved
by the Board on an annual basis and discussed with the PRA as part of the Supervisory
Review and Evaluation Process.
During the year our capital requirement reduced 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 applicable from June 2022 would be equal to the lower of:
• 18% of RWAs.
• Two times the sum of our Pillar 1 and Pillar 2A.
Additionally, 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%.
Table 21: Key regulatory metrics and ratios
31
December
2022
£’million
31
December
2021
£’million
RWAs 7,990 7,454
CET1 ratio 10.3% 12.6%
Total regulatory capital ratio 13.4% 15.9%
Total regulatory capital plus MREL ratio 17.7% 20.5%
UK regulatory leverage ratio 4.2% 5.2%
1. 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.
Capital resources
We ended the year with CET1, Tier 1 and MREL ratios of 10.3%, 10.3% and 17.7% respectively
(31 December 2021: 12.6%, 12.6% and 20.5%).
We continue to operate in capital buffers although we remained above regulatory minima
throughout 2022 and our return to underlying profitability in the fourth quarter combined
with constraining lending growth should see us return to steady capital generation.
Our capital resources position as at 31 December 2022 is summarised below:
Table 22: Regulatory capital (audited)
31
December
2022
£’million
31
December
2021
£’million
Ordinary share capital – –
Share premium 1,964 1,964
Retained earnings (1,015) (942)
Other reserves 7 13
Intangible assets (216) (243)
Other regulatory adjustments 79 144
Total Tier 1 capital (CET1) 819 936
Debt securities (Tier 2) 250 249
Total Tier 2 capital 250 249
Total regulatory capital 1,069 1,184
Risk report Continued
85 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Ring-fencing
In 2019 legislation came into force for banks with greater than £25 billion of ‘core deposits’,
requiring them to separate their retail banking from other parts of their business including
investment and international activities.
Given our current level of deposits we are not subject to this separation (referred to as
‘ring-fencing’), although our planned level of growth could see us become subject to it in
the future. As we are purely a UK-focused retail bank the impacts of ring-fencing should
have limited consequences, beyond the costs of ensuring compliance.
In December 2022 the Government proposed the ‘Edinburgh reforms’ – a package of over
30 regulatory reforms aimed at unlocking investment and growth across the UK. These
proposals included changes to the ring-fencing requirements, which would see retail-
focused banks like ourselves exempt from the regime.
Risk-weighted assets
Our RWAs increased over the course of 2022 to £7,990 million (31 December 2021:
£7,454million).
Table 25: Risk-weighted assets
31 December 2022 31 December 2021
£’million Exposure Risk Density RWAs Exposure Risk Density RWAs
Loans and advances 13,102 45% 5,949 12,290 42% 5,204
Treasury portfolio 7,870 3% 265 9,142 4% 353
Other assets 1,147 75% 859 1,156 83% 965
Total assets 22,119 32% 7,073 22,588 29% 6,522
Off-balance sheet 169 188
Credit risk (exc. CRR) 7, 242 6,710
CRR, Market risk and
operational risk 748 744
Total RWAs 7,990 7,454
1. Includes cash, balances at the Bank of England and investment securities.
A full reconciliation of our statutory balance sheet to our RWAs can be found on page 240
and further details on our capital position as at 31 December 2022 can be found in our
Pillar 3 report (available on our website at: metrobankonline.co.uk/investor-relations/)
Table 24: Capital requirements
31 December 2022
CET1
Total
capital
Pillar 1 4.5% 8.0%
Pillar 2A 0.3% 0.5%
Total capital requirement 4.8% 8.5%
Capital conservation buffer 2.5% 2.5%
UK countercyclical capital buffer 1.0% 1.0%
Total (excluding PRA buffer, if applicable) 8.3% 12.0%
Capital landscape
Basel 3.1
In 2022 the PRA published its Consultation Paper on the UK implementation of Basel 3.1.
Amendments arising from this change include revisions to the standardised approaches
for credit and operational risks as well as the introduction of a new RWA output floor.
We are currently working through the proposed changes, including assessing their impact
and are engaged with the PRA as part of their consultation process.
Resolvability regime
The UK continues to adopt a rigorous approach to capital management. Financial
institutions, with total assets greater than £15-25 billion, are subject to the most stringent
MREL ‘bail-in’ requirements, which applies to ourselves. The requirements mean that we
will need to continue to issue MREL eligible debt. In order to give further effect to the
resolvability regime, the bank is in the process of establishing a holding company – further
details of which can be found page 27.
Resolvability Assessment Framework
The Bank of England has introduced its Resolvability Assessment Framework, with
implementation for UK mid tier firms from 1 January 2023. We fall into this category.
Inlight of the proportionate requirements for mid-tier firms, we have conducted an internal
resolution readiness assessment as at 1 January 2023. The assessment concluded that we
have put in place capabilities to facilitate the management of a potential resolution event,
ifrequired, acknowledging that the firm’s capabilities will continue to be enhanced as the
Resolvability Assessment Framework is embedded into our business as usual activities.
Risk report Continued
86 Metro Bank PLC Annual Report and Accounts 2022
Resourcing and training
Resourcing continues to be a significant focus to ensure our Financial Crime Framework
isimplemented effectively. During 2022, we continued to invest in skilled resource with
headcount increasing across operational, first and second line financial crime teams.
All colleagues have a key role to play in our management of financial crime risk. To this
extent, all colleagues receive financial crime training, ensuring they are able to meet their
personal obligations as well performing effectively in role. For colleagues in specialist
financial crime roles, we continue to invest in their development to improve capabilities
through industry-recognised financial crime qualifications.
Sanctions compliance
We comply with all applicable sanctions regimes. In response to the invasion of Ukraine by
Russia we adjusted our risk appetite for activity connected to Russia and uplifted systems
and controls to respond accordingly. We continue to closely monitor the situation along
with our risk exposure, ensuring we’re fully compliant with all applicable sanctions.
We will not tolerate any deliberate breach of financial crime laws and regulations
(includingSanctions) that apply to our business and the activity we undertake and we
continue to review and enhance our sanctions controls to improve their effectiveness.
During the year we concluded the matter with OFAC in relation to Cuba and Iran without
fine or penalty.
Anti-money laundering and combating terrorist financing prevention
We comply with all relevant UK anti-money laundering and combating terrorist financing
legislation and have a framework in place to support the implementation of these
requirements into our systems and controls.
Anti-bribery and corruption and anti-tax evasion compliance
We are committed to acting professionally, fairly and with integrity in all our business
dealings and relationships and comply fully with the UK Bribery Act 2010 and Criminal
Finances Act 2017. We do not give or receive improper financial or other benefits in our
business operations, nor to we help facilitate tax evasion.
We will not tolerate any deliberate breach of financial crime laws and regulations that
apply to our business and the transactions we undertake.
Measurement
Our financial crime risk appetite is reflected in key risk appetite metrics – a set of
quantitative metrics, reported monthly through our governance. Where control
performance is assessed as outside of our risk appetite, the issue plus remediation activity
is escalated and tracked through our risk committees.
Appetite
We have a low appetite for customer relationships or activity that pose a high financial
crime risk and have no appetite for customer relationships or activity that violate our
sanctions obligations. The nature of our business model as a UK retail bank inherently
exposes us to financial crime risk and as a result of this exposure, strong and effective
controls are required to mitigate this. We have defined a set of quantitative and qualitative
key risk appetite metrics against which we monitor performance. We do not accept
customers outside of our financial crime risk appetite and likewise where customers
arereassessed and found to be outside of appetite (i.e. where the risks are too great
tomanage effectively) they are exited.
Assessment and monitoring
We monitor compliance with policies and standards through a range of activities
completed by specialist colleagues. These include quality checking and assurance within
operational and first line risk teams, supported by assurance and internal audit reviews of
key financial crime controls carried out by second and third line team. The results of these
reviews and the status of follow up actions are escalated through our governance.
We currently consider our overall inherent financial crime risk to be medium based on
our2022 risk assessment (anti-money laundering/combating terrorist financing, anti-tax
evasion facilitation and sanctions inherent risks are rated medium, anti-bribery and
corruption inherent risk is rated low).
Mitigation
We have implemented a set of systems and controls, based on the requirements set out
inour policies, to ensure that the financial crime risk that we are exposed to is adequately
mitigated in line with our risk appetite.
Investment in our systems and controls
We continue to deliver enhancements to our financial crime controls. Our Financial Crime
Improvement Programme continued to deliver strategic enhancements to our financial
crime systems throughout 2022, supported by business led enhancements. This approach
ensures that our approach to financial crime risk management remains effective.
Our financial crime systems and controls are currently the subject of an FCA investigation,
further details of which can be found on page 228.
Horizon scanning
We continue to identify emerging trends and typologies through conducting horizon
scanning activity, through information obtained from investigative and intelligence teams
and through attending key industry forums (or associations) such as those hosted by UK
Finance. As required, we continue to update our control framework to ensure emerging
risks are identified and mitigated.
Risk report Continued
Financial crime risk
87 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Fraud
The safety and security of our customers and their funds is of the highest importance.
Ourdedicated teams monitor the rapidly-evolving threats posed to both ourselves and
ourcustomers and quickly respond by deploying a range of preventative and detective
measures. Authorised and unauthorised payment fraud attempts and scams continue
topresent a threat. We share fraud prevention trends and best practice via our various
communication channels to help protect our customers against such attacks.
People
Our ambition is to be the number one community bank will be delivered by our people.
Similar to our peers, this year has presented risks related to the recruitment and retention
of colleagues driven in large part by post-COVID dynamics and inflationary pressures. This
is turn has put pressure on our operational capabilities. In response, our dedicated people
team provides business support in resource management, talent identification, training and
development to ensure that we have the right colleagues, in the right place, at the right
time with the right skillset to create FANS.
Measurement
Material operational risk events are identified, reviewed and escalated in line with criteria
set out in the Enterprise and Operational Risk Management Frameworks. Incidents and
losses are recorded and root-cause analysis is undertaken with action plans implemented
to prevent recurrence and continually improve our processes. Quantitative metrics are
used to measure our material operational risks and assess our exposure against our stated
risk appetite. We conduct regular operational risk scenario workshops to identify severe
yet plausible events which could impact us. This enables us to quantify the potential
lossesthat such events could cause and hold sufficient capital against them, as well as
highlighting potential areas for ongoing enhancements to our operational risk capabilities.
Appetite
We maintain a cautious appetite for operational risk and aim to minimise incidents,
lossesand adverse customer impacts arising from operational risk issues. We do this by
maintaining a resilient infrastructure, including robust systems, employing and training the
right colleagues, minimising the impact of external events and having a framework in place
to ensure that operational risks are identified, assessed, responded to and monitored.
Operational risk events and losses are recorded and assessed, corrective actions
completed and steps taken to avoid recurrence.
Assessment and monitoring
The Operational Risk Management Framework sets our approach to the management of
operational risks including through the performance of Risk and Control Self-Assessments
and consideration of a variety of disruption scenarios. Operational risk is overseen by
theCRO and teams in the first and second lines of defence, monitored via reporting
totheBusiness Risk Committees, second-line Non-Financial Risk Oversight Committee,
ERCandROC.
Mitigation
We have put in place detailed policies, standards and controls to mitigate the variety of
operational risks to which we are exposed. These are designed to both minimise impacts
suffered in the normal course of business (expected losses) and to avoid or reduce the
likelihood of suffering a large extreme (or unexpected) loss.
Information Security and Cyber
We recognise that all colleagues have an important responsibility to safeguard the systems
and sensitive information we hold. We continuously invest in our cyber and information
security infrastructure to identify and respond to threats, protect customer data and
minimise the risk of disruption. We also take pre-emptive actions to safeguard the end-to-
end resilience of critical processes. We continue to enhance the control environment,
recognising the rapidly changing cyber landscape, increased importance of digital
channels and reliance on home working, as well as the changing risk profile of the business.
Operational resilience
Operational resilience is an outcome of our ability to proactively prevent, adapt, respond,
recover, and learn from operational disruption events. By identifying and monitoring our
important business services, we continue to ensure that adequate controls remain in place,
including management of the technology upon which they rely, to minimise disruption and
avoid causing intolerable harm to our customers.
Risk report Continued
Operational risk
88 Metro Bank PLC Annual Report and Accounts 2022
Mitigation
Investment in our systems and controls
We continue to invest in and develop are core systems that allow us to meet regulatory
requirements, including in the regulatory reporting space where we have implemented
anew system during the year.
The PRA expects our regulatory reporting, which includes capital and liquidity reporting,
tobe as rigorous as that for financial reporting. In achieving this we have continued to
enhance our control environment to ensure we are continuing to produce accurate and
reliable reporting and deliver against these expectations. Alongside this we have enhanced
our first, second and third line oversight. We are currently preparing for the proposed
enhancements to internal control requirements under the revised UK Corporate
Governance Code requirements which will see us continue to invest in our controls
acrossthe Bank.
Horizon scanning
We undertake ongoing horizon scanning to identify and address upcoming regulatory
change. As part of this process we engage proactively with our regulatory authorities
aswell as industry bodies in respect of any proposed changes.
Measurement
Regulatory risk is measured on a quantitative and qualitative basis, which includes a
progress review of top risks and issues under management against material regulatory
initiatives and our relationship with our regulators, as well as a defined set of Board-
approved risk appetite metrics relating to our key principal risks. This includes measures
around major/critical regulatory, financial crime and operational impacts, impairment
provisioning, credit, model and capital risk exposure, regulatory breaches, high risk
assurance and audit findings, incidents and implementation of material regulatory change.
Appetite
We have a low appetite for regulatory risk and seek to minimise this risk by maintaining
robust systems and controls that are designed to meet existing regulatory requirements
and to ensuring we comply with future changes to the regulatory landscape.
Assessment and monitoring
Regulatory Risk is considered by all three lines of defence as part of their oversight and
assurance activities. Our Combined Risk Assurance plan independently assesses areas
ofthe control framework underpinning compliance with laws and regulations.
Additionally, a clear governance structure is in place which enables escalation of regulatory
risks from the first line risk committees through to the relevant second line oversight
committees, including track and challenge of adherence to our risk appetite through
ourRisk Report. ERC, ROC and the Board in turn monitor and oversee our focus on
maintaining regulatory compliance. As well as our Risk Report, this also includes periodic
reporting on regulatory themes and key focus areas aligned to the regulators strategic
priorities, regulatory changes on the horizon and the regulatory environment, alongside
supporting key risk appetite measures and Board-approved frameworks.
Risk report Continued
Regulatory risk
89 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Mitigation
The following controls and procedures help to mitigate conduct risk:
• A Conduct Risk Framework (with supporting policy and standards), sets out our
Conduct Risk Appetite Statement, key regulatory requirements, principles and
expectations including drivers of customer harm, defined governance and approach
torisk identification and monitoring.
• Ongoing development, maintenance and reporting of conduct risk appetite measures
(aligned to the risk taxonomy) inclusive of customer outcome measures, to ERC, ROC
and the Board.
• Oversight and ongoing review of conduct risks and issues in relevant business risk
andoversight risk committees, including progress against key customer remediation
projects, conduct related regulatory change initiatives, complaints, vulnerable customers
and arrears management.
• Maintenance of proactive and coordinated engagement with our regulators around key
customer initiatives.
• Consideration of customer profiles, target markets, fair value, and customer needs and
vulnerability in the context of product and proposition development, ongoing review,
and associated appropriate governance.
• Ongoing quality assurance and review measures to assess delivery of good customer
outcomes, supported and embedded through training.
• A risk-based assurance framework, designed to monitor compliance with regulation
andassess customer outcomes.
Measurement
Conduct risk is measured on a quantitative and qualitative basis, which includes a progress
review of top risks and issues under management against key conduct priorities set by
theregulators, as well as a defined set of Board-approved risk appetite metrics relating to
complaints, arrears management, product performance, colleague training and customer
outcome delivery.
Appetite
We are built around a culture of supporting our customers, offering them a range of
relatively simple retail products. We have a low appetite for conduct risk and seek to
minimise risks which may result in unfair outcomes or lead to customer detriment.Where
unfair outcomes are identified we ensure these are remediated effectively to minimise risk,
prevent recurrence and reduce customer harm.
Assessment and monitoring
Conduct risk is considered by all three lines of defence as part of their oversight and
assurance activities. A Combined Risk Assurance plan, approved by the Audit Committee
on an annual basis, independently assesses our ability to appropriately mitigate this risk.
Additionally, a clear governance structure is in place which enables escalation of conduct
risks from the first line risk committees through to the relevant second line oversight
committees, including track and challenge of adherence to our risk appetite through our
Risk Report. ERC, ROC and the Board in turn monitor and oversee our focus on managing
appetite against this risk. As well as the Bank Risk Report, this also includes periodic
reporting on key conduct themes, alongside supporting key risk appetite measures
andBoard-approved frameworks.
Risk report Continued
Conduct risk
90 Metro Bank PLC Annual Report and Accounts 2022
Appetite
We adopt a cautious appetite for risk due to errors in the development, implementation
oruse of models, which it mitigates via effective governance over the specification
anddesign, implementation and running of its models and over model input data.
Assessment and monitoring
Our model risk assessment starts with an overarching Model Risk Management
Framework, setting out the roles and responsibilities of the various stakeholders,
underpinned by a comprehensive model risk governance policy supported by model
development, monitoring, validation, implementation, and risk appetite standards.
Mitigation
Governance
The main mitigant to model risk is the robust governance process that is followed,
including two dedicated model committees: the Model Oversight Committee and the
Model Governance Committee, as well as an expert panel to opine on contentious issues.
The Committees evaluate the appropriateness of the Model Risk Management Framework
and monitor progress on the implementation of an enhanced modelling infrastructure,
including a review of findings in relation to specific modelling processes, escalating to ERC
and ROC as appropriate.
We have in place a well-qualified independent model validation function that performs
model validations prior to model implementation, both when a model is changed and
onaperiodic basis.
Measurement
Model risk is assessed across a number of key risk indicators including regulatory
reporting, materiality, complexity, impact, impairment computations, periodicity of review
and data sources incorporated, reporting into the model risk committees, ERC and ROC.
Appetite
We have not set a separate risk appetite for strategic risk and instead monitor it via the full
range of reporting via our governance structure and direct risk input into the formulation
of our strategy and Long Term Plan and its ongoing monitoring at ExCo, ERC and ROC.
Assessment, monitoring, mitigation and measurement
Strategic risk is addressed through the Board-approved strategy and long-term financial
plan. We consider strategic risk as part of ongoing risk reporting and an annual review
ofour strategy and Long Term Plan, as well as ongoing monitoring and management via
ourrisk governance structure and ExCo oversight of execution, including oversight and
challenge by the second line of defence.
Risk report Continued
Strategic risk Model risk
91 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Liquidity management (audited)
We continue to hold a prudent level of liquidity to cover unexpected outflows, ensuring
that we are able to meet financial commitments for an extended period. We recognise the
potential difficulties in monetising certain assets, so set higher quality targets for liquid
assets for the earlier part of a stress period. We have assessed the level of liquidity
necessary to cover both systemic and idiosyncratic risks and maintain an appropriate
liquidity buffer at all times. Our internal liquidity stress test ensures that we comply
withour own risk appetite as well as regulatory requirements.
Assets and liabilities by maturity (audited)
Table 26 sets out the maturity structure of our assets and liabilities, by their earliest possible
contractual maturity date. The contractual maturity will differ from the behavioural maturity
characteristics in both normal and stressed conditions. The behavioural maturity of
customer deposits is much longer than their contractual maturity. On a contractual basis,
such deposits are repayable on demand or at short notice. In reality, they are static in nature
and provide long-term stable funding for our operations and liquidity. Equally, our loans and
advances to customers, specifically mortgages, are lent on longer contractual terms, but
may be redeemed or re-mortgaged earlier. The total balances set out in the analysis do not
reconcile with the carrying amounts as disclosed inthe consolidated balance sheet. The
difference arises from the maturity analysis incorporating all the expected future cash flows
(including interest), on an undiscounted basis.
Measurement
We measure our liquidity and funding resources in line with regulatory requirements, with
the key metric for liquidity being the liquidity coverage ratio and for funding, the net stable
funding requirement. This is supported by monitoring of the encumbrance ratio and other
balance sheet metrics.
In order to appropriately manage our liquidity and funding resources, we run an ILAAP
exercise which considers the risks that we are exposed to in both normal and stressed
conditions. The ILAAP process also set appropriate limits and determines the Bank’s
liquidity risk appetite, and internal liquidity stress scenario. We produce regular reports
onthe current and forecasted level of liquidity and capital, which are tracked against
limitsboth at the operational level in Treasury and at the Executive level at ALCO.
As at 31 December 2022 our liquidity coverage ratio was 213% (31 December 2021: 281%)
and our net stable funding ratio was 134% (31 December 2021: n/a).
Appetite
Our liquidity and funding risk appetite is set though a number of sub-risk appetites:
Liquidity – We have a cautious appetite for liquidity risk. The Board has determined that
we should be able to survive a combined name-specific and market-wide liquidity stress
event for at least three months, at a level of severity determined by our internal risk
appetite stress test, utilising the liquidity pool.
Funding – We have a cautious appetite for funding risk. The Board has determined that
weshould maintain a prudent funding profile by using stable funding to fund illiquid assets,
without undue reliance on wholesale funding markets. As an additional safeguard to the
quality of funding, limits are set to ensure that funding is not inappropriately concentrated
by customer, sector or term, as identified during our liquidity stress testing.
Encumbrance – We have a cautious appetite for encumbrance risk. The Board has
determined that encumbrance of our balance sheet should be no greater than 30% of
ourtotal assets in business-as-usual conditions. However, encumbrance is not limited in
relation to any repo or use of Bank of England facilities since this might prevent the bank
from taking appropriate action to manage through a liquidity stress situation, or testing
theadequacy of those facilities from time to time.
Assessment and monitoring
We consider the effective and prudent management of liquidity to be fundamental to our
ongoing strength and viability. The Board has overall responsibility for establishing and
maintaining an adequate risk management framework, including risk appetites that enable
the management of our liquidity and funding risks. We are committed to ensuring that
atall times we have sufficient liquidity resources – in terms of both quantity and quality –
toensure we can meet payments as they fall due.
The treasury function has responsibility for our compliance with liquidity policy and
strategy. We have a dedicated prudential risk team who monitor our liquidity and funding
risk daily including ensuring compliance with the policies we have developed.
Theregulatory reporting team also monitors compliance with relevant metrics.
Mitigation
Deposit-funded approach
We aim to attract service-led core deposits which are less sensitive to competition within
the deposit market. At 31 December 2022, 51% of our deposits came from commercial
customers (31 December 2021: 48%) with the remaining 49% (31 December 2021: 52%)
coming from retail customers. Additionally, 49% of deposits at year end (31 December
2021: 44%) were in the form of current accounts, with the remainder split between
acombination of instant access and fixed-term savings products.
Risk report Continued
Liquidity and funding risk
92 Metro Bank PLC Annual Report and Accounts 2022
Table 26: Contractual maturity (audited)
31 December 2022
£’million
31 December 2021
£’million
Carrying
amount
Repayable
on demand
Up to 3
months
3-6
months
6-12
months
1-5
years
Over
5 years
No
contractual
maturity Total
Carrying
amount
Repayable
on demand
Up to 3
months
3-6
months
6-12
months
1-5
years
Over
5 years
No
contractual
maturity Total
Cash and balances
with the Bank of
England 1,956 1,956 – – – – – – 1,956 3,568 3,568 – – – – – – 3,568
Loans and advances
tocustomers 13,102 – 573 507 942 5,472 17,525 341 25,360 12,290 – 489 427 791 4,740 10,850 349 17,646
Investment securities 5,914 – 576 206 951 4,312 164 59 6,268 5,574 – 123 9 672 4,488 451 30 5,773
Other assets 1,147 – – – – – – 1,147 1,147 1,155 – – – – – – 1,147 1,147
Total assets 22,119 1,956 1,149 713 1,893 9,784 17,689 1,547 34,731 22,587 3,568 612 436 1,463 9,228 11,301 1,526 28,134
Deposits from
customers (16,014) (15,310) (139) (136) (201) (162) – (75) (16,023) (16,448) (14,910) (348) (350) (458) (303) – (122) (16,491)
Deposits from central
banks and repurchase
agreements (4,038) – (215) (41) (147) (4,147) – – (4, 550) (3,969) – (23) (3) (110) (3,987) – – (4,123)
Debt securities (571) – – (272) (17) (383) – – (672) (588) – – (23) (24) (672) – – (719)
Other liabilities (540) – (6) (6) (12) (111) (263) (292) (690) (547) – (6) (6) (13) (94) (224) (214) (557)
Total liabilities (21,163) (15,310) (360) (455) (377) (4,803) (263) (367) (21,935) (21,552) (14,910) (377) (382) (605) (5,056) (224) (336) (21,890)
Equity (956) – – – – – – (956) (956) (1,035) – – – – – – (1,034) (1,034)
Total equity and
liabilities (22,119) (15,310) (360) (455) (377) (4,803) (263) (1,323) (22,891) (22,587) (14,910) (377) (382) (605) (5,056) (224) (1,370) (22,924)
Derivative cash flows – (2) (1) (3) – – – (6) – (3) – (2) (6) – – (11)
Cumulative liquidity
gap (13,354) (12,567) (12,310) (10,797) (5,816) 11,610 (11,342) (11,107) (11,053) (10,195) (6,023) 5,054
Risk report Continued
93 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Risk report Continued
Appetite (audited)
Our market risk appetite is determined by reference to a number of sub-risk appetites:
Earnings – We have a low appetite for earnings risk, with the Board determining a limit
calibrated to ensure net interest income does not exceeding an amount recommended
andscrutinised by the ALCO and approved by ROC. The limit is calibrated using a 2%
instantaneous shock in both directions.
Economic value – We have a low appetite for economic value risk, with the Board
determining a limit calibrated to ensure that a change to the present value of our balance
sheet does not exceed an amount as recommended and scrutinised by ALCO and
approved by ROC. The limit is calibrated by calculating the impact of a 2% instantaneous
shock in both directions.
Revaluation risk – We have a low appetite for revaluation risk, with the Board prescribing
that we should avoid situations where the potential losses caused by changes in market
prices shall not exceed capital held under standard risk weights, taking account of any
offsets, determined by our Revaluation Risk stress scenario.
Foreign exchange risk – We have no appetite for foreign exchange risk, with the Board
determining that exposures in foreign currencies should not represent a material portion
ofour capital resources.
Assessment and monitoring (audited)
Our market risk is driven by interest rate risk in the banking book. It is encountered by all
banks due to intermediation activities, which lead to maturity mismatches and mismatches
between fixed and floating rate assets and liabilities. The Board is responsible for setting
market risk appetite. Market risk is mitigated through a risk management framework that
allows it to be monitored and managed by first line management and second line risk, with
oversight from ALCO. Accordingly, ALCO ensures that steps are taken to identify, measure,
monitor and control the interest rate risk in the banking book is consistent with the
approved strategies and policies.
Management limits are set at the ALCO for economic value and net interest income
sensitivity to ensure prompt action and escalation. Limits and the relevant metrics are
alsoreported to ROC and the Board.
The treasury function has responsibility for our compliance with market risk policy and
strategy. We have a dedicated prudential risk team who monitor our market risk daily
including ensuring compliance with the policies we have developed. The prudential risk
function run additional interest rate risk simulations monthly to assess other threats that
may not be evident in the standard parallel shock metrics.
Mitigation (audited)
Interest rate risk
We benefit from natural offsetting between certain assets and liabilities, which may be
based on both the contractual and behavioural characteristics of these positions. Where
natural hedging is insufficient, we hedge net interest rate risk exposures appropriately,
including, where necessary, with the use of derivatives. We enter into derivatives only for
hedging purposes and not as part of customer transactions or for speculative purposes.
Our treasury and prudential risk teams work closely together to ensure that risks are
managed appropriately – and that we are well-positioned to avoid losses outside our
appetite, in the event of unexpected market moves.
Foreign exchange exposure
We have very limited exposure to foreign exchange risk. Foreign currency denominated
assets and liabilities are matched off closely in each of the currencies we operate, and we
eliminate our foreign exchange exposure as far as is practical on a daily basis. In any event
the risk is strictly capped at 2% of our capital base. We offer business current accounts in
foreign currency and foreign exchange facilities to facilitate customer requirements only.
Measurement
We measure interest rate risk exposure using methods including the following:
• Interest rate gaps: calculating the net difference between total assets and total liabilities
across a range of time buckets.
• Economic value sensitivity: calculating repricing mismatches across our assets and
liabilities over the horizon of our balance sheet and then evaluating the change in value
arising from an instantaneous 2% change in the yield curve in both directions, taking into
consideration any embedded customer optionality. Our economic value sensitivity risk
appetite scenario is based on an instantaneous parallel rate movement of 2% at all
maturities, which is widely considered severe but plausible. Additionally, we evaluate
thePRA’s outlier test in line with regulatory requirements.
• Net interest income sensitivity: calculating repricing mismatches across our assets and
liabilities over a one-year horizon and then evaluating the change in net income arising
from an instantaneous 2% change in the yield curve in both directions. Our net interest
income risk appetite scenario is based on an instantaneous parallel rate movement of 2%
at all maturities, which is widely considered severe but plausible. We also assess basis
risk by considering divergences between Bank of England base rate and the Sterling
Overnight Index Average (SONIA), which replaced the London Inter-Bank Offered Rate
(LIBOR) from January 2022.
Market risk
94 Metro Bank PLC Annual Report and Accounts 2022
Risk report Continued
Table 28: Interest rate sensitivity (audited)
Sensitivity of projected net interest income to parallel interest
rate shock for a one-year forecasting period
200bps increase
£’million
200bps decrease
(not floored at zero)
£’million
31 December 2022 (8.3) 8.4
31 December 2021 5.7 (5.3)
During the year we took advantage of the rising interest rate environment to redeploy
some of our excess variable rate cash balances held at the Bank of England into higher-
yielding assets. At the same time we continued to let higher cost fixed term deposits roll
off. A combination of these factors increased the fixed interest components of our assets,
while at the same time the fixed interest component of our liabilities decreased. This has
the effect of reversing the impact of a hypothetical +200bps interest rate shock, compared
to the position last year. As our pass through rate on deposits is typically lower than
increases to base rate, overall this scenario would unlikely materialise and overall we
remain geared towards a rising interest rate environment.
Interest rate risk
Table 27 set out the interest rate risk repricing gaps of our balance sheet in the specified
time buckets, indicating how much of each type of asset and liability reprices in the
indicated periods, after applying expected pre-repayments in line with our policy.
A positive interest rate sensitivity gap exists, when more assets than liabilities reprice
during a given period. A positive gap tends to benefit net interest income in an
environment where interest rates are rising; however, the actual effect will depend on
multiple factors, including actual repayment dates and interest rate sensitivities within
theperiods. The converse is true for a negative interest rate sensitivity gap.
Table 28 shows the sensitivity arising from the standard scenario of a +200bps and
-200bps parallel interest rate shock upon projected net interest income for a one-year
forecasting period. This is a hypothetical scenario based on a constant balance sheet as
well as a full pass through of the increase to all of our variable rate assets and liabilities.
Table 27: Repricing analysis (audited)
31 December 2022
£’million
31 December 2021
£’million
Up to 3
months
3-6
months
6-12
months
1-5
years
Over
5 years
Non-
interest
bearing Total
Up to 3
months
3-6
months
6-12
months
1-5
years
Over
5 years
Non-
interest
bearing Total
Cash and balances with the Bank of England 1,881 – – – – 75 1,956 3,472 – – – – 96 3,568
Loans and advances tocustomers 4,154 915 2,010 5,850 173 – 13,102 4,335 635 1,479 5,666 175 – 12,290
Investment securities 2,163 – 539 3,052 160 – 5,914 2,282 – 273 2,667 352 – 5,574
Other assets – – – – – 1,147 1,147 – – – – – 1,156 1,156
Total assets 8,198 915 2,549 8,902 333 1,222 22,119 10,089 635 1,752 8,333 527 1,252 22,588
Deposits from customers (6,186) (613) (1,154) (7,456) (605) – (16,014) (7,023) (747) (1,251) (6,904) (523) – (16,448)
Deposits from central banks and repurchase agreements (3,978) – (60) – – – (4,038) (3,800) – (99) (70) – – (3,969)
Debt securities – (249) – (322) – – (571) – – – (588) – – (588)
Other liabilities – – – – – (540) (540) – – – – – (548) (548)
Total liabilities (10,164) (862) (1,214) (7,778) (605) (540) (21,163) (10,823) (747) (1,350) (7, 562) (523) (548) (21,553)
Equity (760) (10) (21) (165) – – (956) (759) (28) (55) (193) – – (1,035)
Total equity and liabilities (10,924) (872) (1,235) (7,943) (605) (540) (22,119) (11,582) (775) (1,405) (7,755) (523) (548) (22,588)
Interest rate derivatives (68) 40 (62) 105 (15) – – 264 (90) (429) 255 – – –
Interest rate sensitivity gap (2,794) 83 1,252 1,064 (287) 682 – (1,229) (230) (82) 833 4 704 –
Cumulative gap (2,794) (2,711) (1,459) (395) (682) – (8,041) (1,229) (1,459) (1,541) (708) (704) – –
95 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Risk report Continued
Appetite
We have a low appetite for legal risk, limited to those events where there is a minimal
chance of material financial, reputational or commercial negative consequences.
Assessment and monitoring
Given the pervasive and fundamental nature of legal risk, rather than having a separate
framework, the methodology for the robust management of legal risk is set out in
reporting to ERC and ROC.
Mitigation
We minimise legal risk via a range of mitigants, including:
• In house legal expertise, maintained via appropriate training and development
andspecialist recruitment.
• Selective use of expert external legal advice via an approved panel of lawyers.
• Appropriate policy documentation and training related to specific legal requirements.
• Monthly reporting of metrics to measure compliance with our legal risk appetite.
In 2022, we successfully enhanced our approach further by updating our Enterprise Risk
Management Framework to clarify the role of the legal function in helping the business
manage and mitigate legal risk.
Measurement
A range of key risk indicators is used to measure our exposure to legal risk, including the
risk of defective contracts and claims made against us. Details of our material legal and
regulatory matters can be found in note 32 to the financial statements on page 228.
This Strategic Report was approved by the Board and was signed on its behalf by:
Daniel Frumkin
15 March 2023
Legal risk Viability statement
Assessment of principal and
emergingrisks
The Board is responsible for monitoring
the nature and extent of the principal
risks we face as well as determining the
level of appetite we are willing to take in
order to achieve our strategic objectives.
Our principal risks, which we actively
monitor and manage, are described
onpages 54 to 96 which includes
ourappetite, assessment, monitoring,
mitigation and measurement approaches.
As part of this process the Board consider
the emerging risks we face (which are set
out on pages 56 and 57).
In line with the requirements of the
Corporate Governance Code (‘the Code’),
the Directors have performed a robust
assessment of the principal and emerging
risks we face, including those that would
threaten our business model and impact
our performance, capital or liquidity. Our
business model is set out on pages 15 to
17 which also show how this links to our
principal risks.
Risk management and internal
controls
As described in the Corporate
governance and Risk reports, our risk
management and internal control systems
are monitored at Board level. A review of
the effectiveness of those systems has
been performed incorporating all material
controls, including financial, operational
and compliance controls.
Assessment of prospects
The Directors have an obligation in
accordance with provision 31 of the Code
to confirm that they believe that we will
be able to continue in operation, and to
meet their liabilities as they fall due. Our
prospects are assessed primarily through
our strategic planning process (our Long
Term Plan), the first year of which reflects
the our 2023 budget. This process
includes an annual review of the ongoing
plan, led by the CEO and CFO through
ExCo and Board. The Board participates
fully in the annual process and is
responsible for signing off the plan and
indoing so consider whether the plan
continues to take appropriate account of
the external environment (see operating
environment on pages 8 to 9 for further
details). The latest updates to the Long
Term Plan (covering the period 2023 to
2027) were formally approved by the
Board in February 2023.
Our business model (see pages 15 to 17)
are central to an understanding of our
prospects. The nature of the our activities
is long term and our business model has
remained unchanged since we were
founded. At the end of 2022 we refreshed
our strategy for the next stage of our
growth (see page 19). This strategy will be
subject to ongoing monitoring to ensure
it remains appropriate.
96 Metro Bank PLC Annual Report and Accounts 2022
Risk report Continued
Our new strategy continues to be based
on a combination of balance sheet
optimisation, revenue growth and cost
control, alongside ongoing infrastructure
investment, with decisions on new
investment being taken based on the
long-term benefits they will provide.
Although decisions are taken for the long
term any investment has to align with our
appetite for risk as well as be able to
demonstrate an appropriate payback
period. The Directors have reviewed the
assumptions underpinning our plan and
have determined they are appropriate.
Although our Long Term Plan covers a five
year period to 31 December 2027, the
Directors have assessed prospects and
viability for the four years through to
31December 2026. This is felt appropriate
as this is the period over which forecasts
have a greater level of certainty (although
the fifth year still provides a robust
planning tool against which strategic
decisions can be made). The assessment
has included reviewing the plan against
our principal risks to examine those
matters that could prevent us from
delivering on our strategy.
Of our principal risks only operational
failure (operational risk), a lack of liquidity
(liquidity and funding risk); or insufficient
capital (capital risk) were felt could directly
lead to us not being able to continue in our
current form if they were to occur
(although a failure of our other principal
risks could lead to one of these events).
Of these three risks, insufficient capital
iswhere there is most uncertainty and
where extra consideration was given
bythe Directors in their assessment
ofourviability.
One of the key assumptions in the Long
Term Plan is the our ability to raise
qualifying debt over the forecast period
tofund anticipated growth and to continue
to meet regulatory requirements. In order
to be able to issue certain regulatory
debtinstruments we will need to create
distributable reserves in order to pay the
required dividend payments on these.
Weare currently undertaking a process
toinsert a holding company, to meet our
regulatory requirements, part of which
involves a process to create distributable
reserves. This remains subject to various
regulatory and legal approvals. Further
details on this can be found on page 27.
Assessment of viability
Although our Long Term Plan reflects the
Directors’ best estimate of the future
prospects of the business, they have also
tested the potential impact by examining
our sensitivity to a ‘severe but plausible’
downside. This has been undertaken via
the creation of a scenario that reflects
additional downside risks. This ‘severe but
plausible’ consisted of a stressed economic
downturn that led to increased ECL,
deposit outflows, reduced fee income,
increased costs as well as the removal of
our ability to raise incremental regulatory
capital (alongside forecasting increased
coupons on the refinancing of existing
regulatory debt) during the early years
ofthe plan.
In this scenario we fell below regulatory
minima at a total regulatory capital +
MREL level. The Directors considered the
actions that could reasonably be deployed.
This involved making reasonable
adjustments to our operating plans,
although these were within what would
typically be done in the normal course of
business and therefore these mitigating
actions did not in of themselves constitute
any additional risk, although would involve
us operating in our capital buffers for
longer than envisaged. These actions
centred around cost reductions, reducing
lending origination as well as not seeking
to raise any further regulatory capital
(other than refinancing existing debt) that
would have supported future growth.
In addition to the scenario outlined above
we also undertake routine stress testing
(including reverse stress tests) for both
management and regulatory purposes
including as part of the ICAAP and
ILAAP.The results are then assessed to
understand the likelihood of such events
occurring and what mitigating actions
could be taken. The results of the stress
testing performed to date are in line with
the assessment outlined above and has
not given rise to any additional factors that
would impact either our viability or going
concern.
Assessment of going concern
In line with the work undertaken in respect
of viability the Directors also undertook an
assessment of going concern, which they
consider to cover a period of at least 15
months from the date of approval of the
financial statements.
Consistent with their approach to
considering viability, the Directors
assessed whether we continued to
maintain sufficient liquidity and capital for
the period of assessment. This combined
with the fact the Directors do not intend to
liquidate or to cease our operations, they
concluded that there was a reasonable
expectation that we have adequate
resources to continue as a going concern.
They have also concluded that there are
no material uncertainties that could cast
significant doubt over this assessment.
Viability statement
Based on their assessment of prospects
and viability above, the Directors confirm
that they have a reasonable expectation
that we will be able to continue in
operation and meet our liabilities as they
fall due over the four year assessment
period to 31 December 2026.
Going concern
The Directors also considered it
appropriate to prepare the financial
statements on the going concern basis,
asexplained further in the Basis of
preparation paragraph in note 1 to the
financial statements.
97 Metro Bank PLC Annual Report and Accounts 2022
Strategic report Governance Financial statements Additional information
Governance
In this section
99 Corporate governance introduction
102 Board of Directors
105 Executive Committee
106 2022 governance at a glance
108 Board activity and stakeholder engagement
112 Stakeholder engagement
115 Letter from the Designated Non-Executive
Director forColleague Engagement
118 Board leadership and company purpose
120 Board roles and responsibilities
121 Board effectiveness
124 Audit Committee report
130 Risk Oversight Committee report
134 Nomination Committee report
138 People and Remuneration Committee report
142 Remuneration at a glance
143 People and Remuneration Committee
governance
148 Annual report on remuneration
166 Directors’ report
98 Metro Bank PLC Annual Report and Accounts 2022
Robert Sharpe
Chair
I am pleased to set out Metro Bank’s
Corporate governance report on behalf of
the Board. The purpose of this section is to
explain how we, as a Board, considered and
made decisions that are in the best interests
of shareholders, customers, colleagues
andall stakeholders in 2022. The Board is
committed to adhering to high standards of
corporate governance which is reflected in
the decisions we take, the transparency of
the standards we set, our culture and how
we communicate with stakeholders.
In 2022, the Board continued to focus on
the Bank’s transformation journey, delivered
by our ExCo and centred on our five
strategic priorities. Despite significant
internal and external headwinds faced
during the year, the Bank markedly
reducedlosses with statutory loss
beforetax reducing to £70.7 million
(2021:£245.1million). This was a fantastic
achievement and I’m hugely proud of what
we accomplished during the year and the
momentum in the business. Moving forward
the Board are focused on how the Bank can
deliver sustainable profitability and growth
for our stakeholders while navigating
anuncertain economic environment.
Weremain committed to our community
banking model.
The Board held its annual away days in
September. These sessions provide an
excellent opportunity for the Board to
engage in deep, extended sessions with
theBank’s senior leaders about the future
strategy for the Bank.
The Bank continues to operate in capital
buffers and capital management was
afocus of discussions. The Board also
discussed how the Bank could return to
profitability, could grow in a sustainable
way and forward our ambition to be the
number one community bank. More
information on the strategy away days
canbe found on page 107.
As part of our end-state MREL
requirements set by the Bank of England,
the Bank is advanced in its plans to
introduce a new holding company, to
beinserted into the Group, subject to
shareholder approval. The Board have been
overseeing the progress of these plans and
more information on this will be shared in
due course.
As announced in late 2022, upon
implementation of a holding company, the
Bank of England’s Resolution Directorate
has agreed to provide a temporary,
time-limited, adjustment for the Company’s
existing £250 million 5.5% Tier 2 Notes
(the‘Notes’) with respect to MREL eligibility
until 26 June 2025. The adjustment permits
the Notes to remain eligible to count
towards the holding company’s MREL
requirement until 26 June 2025, while
remaining within the operating company.
The Board will continue to work with
management to ensure we are managing
our capital requirements prudently whilewe
continue to optimise our balance sheetto
maximise our return on regulatory capital.
The Board is committed
to adhering to high
standards of corporate
governance, which
isreflected in the
decisions we take
Corporate governance introduction
99 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Corporate governance introduction Continued
As well as this news on capital, we also
announced in 2022 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. I am pleased that these
legacy issues have been brought to a close
as the Bank moves into its next phase
ofgrowth. The Board looks forward to
continuing to support and challenge
management on its business model as
wetake the Bank through the next stage
ofits journey.
Leadership
There were changes to the membership of
the Board in 2022. David Arden and Sally
Clark stepped down from the Board
on15February 2022 and 30 June 2022
respectively. On behalf of the Board,
Iwould like to take this opportunity to
thank David and Sally for their contributions
to the Bank.
James Hopkinson joined the Bank as CFO
and Executive Director on 5 September
2022. Dorita Gilinski was appointed to the
Board as a shareholder-nominated NED
on26 September 2022.
In the short period since joining, both have
embraced the unique culture of the Bank
and are providing valuable insight and
experience to the Board. They have both
been through a detailed induction process
and continue to build their knowledge of
the business while building positive rapport
with fellow Board members and the ExCo.
I am pleased that the Board has retained its
gender diversity and improved its ethnic
diversity in light of membership changes
during the year. We recognise the benefits
of having a balanced and diverse Board
thatrepresents the views, experiences
andbackgrounds of our customers and
colleagues. We are committed to increasing
the diversity of our Board over time and
inline with our Board succession plan.
There were a number of changes to the
membership of the ExCo in 2022. Kirsten
McLeod was promoted to CRO, replacing
Richard Lees. Faisal Hussain was promoted
to Chief Information Officer, replacing
Cheryl McCuaig. Both appointments were
overseen by the Nomination Committee
and the Committee is delighted that the
strong pipeline and succession planning
wehave in place for our senior leaders
isbearing fruit.
These two appointments, as well as the
appointment of James Hopkinson, reflect
our continuing commitment to creating
astrong, experienced and diverse
leadership team.
As part of the agenda for 2022, the Board
received regular updates on culture,
including current and future initiatives to
define, measure and sustain culture at the
Bank. The Board also received updates
from our DNED. At Metro Bank, our unique
culture is what sets us apart. The latest
results from our Voice of the Colleague
survey have shown that Colleagues
continue to feel a strong sense
ofbelongingat the Bank.
Governance
Our aim in this Corporate Governance
Report is to provide a clear and meaningful
explanation of how the Bank applies
theprinciples of the 2018 UK Corporate
Governance Code (the ‘Code’) and how our
Board provides oversight of the Bank and
discharges our governance duties.
The Board assessed our effectiveness and
performance through an internal evaluation
in 2022, facilitated by the Company
Secretary. I am pleased to report that the
Board is operating very effectively, despite
the many headwinds we have seen during
2022. We feel that the Board has the right
composition, resources and forward
planning processes in place to effectively
lead the Bank. In line with Code
requirements we will appoint an external
facilitator for the 2023 evaluation. The
Board and I welcome this opportunity
toassess our performance, to ensure we
continue to be effective in our role, which
isto the benefit of all our stakeholders.
More information about the outputs of the
2022 evaluation can be found on page 121.
100 Metro Bank PLC Annual Report and Accounts 2022
Corporate governance introduction Continued
Following the hiatus during the COVID-19
pandemic, the Board and I were delighted
to hold the 2022 Annual General Meeting
(AGM) in person. I would like to thank
shareholders for the overwhelming support
received for all resolutions. I look forward to
welcoming shareholders again to the 2023
AGM and the face-to-face engagement
thisprovides.
One of the more significant governance
developments this year has been the
changes to the remit of the Bank’s
Remuneration Committee, which is now the
People and Remuneration Committee. We
have added to the remit of this Committee,
so that it now includes oversight of talent
development, succession plans for our
Material Risk Takers, and the Bank’s D&I
Strategy. This allows the Committee to take
a more holistic view across our people and
remuneration practices ensuring that we
are aligned to the highest standards of best
practice. More details of these changes are
included in our People and Remuneration
Committee Report on page 138.
Future priorities
As we move forwards, both the Board and
Management still fundamentally believe
that to be successful we must continue
tooffer both physical and digital services
andwe know the value this creates for our
customers and our communities. The Bank
remains committed to the community
banking model, with our store presence
being the differentiator for our FANS. We
continue to be rated the top high street
bank for overall service quality for personal
and business customers in the latest CMA
Service Quality rankings and number one
for store service for the tenth time running.
Iwas delighted to see the successful grand
opening of our newest store in Leicester in
late February 2022. We have made great
advances in our digital products for both
retail and business customers and we
continue to invest further into creating
products and services that meet the needs
of our diverse customer base and create
aneven better consumer experience for
ourFANS. Looking forwards to 2023,
Iremain very positive about the future of
the Bank.As a Board, our focus will be on
continuing to provide effective oversight
ofmanagement as they deliver our evolved
strategic priorities of revenue, balance
sheet optimisation, cost, infrastructure
andcommunication.
Robert Sharpe
Chair
15 March 2023
Compliance with the UK corporate governance code
Good corporate governance is essential to our ambition in becoming the UK’s best
communitybank.
The table below details where key content on the compliance with the Code can be found in
thisreport. During 2022, there was one instance of non-compliance with a provision of the Code,
which has been complied with since February 2022, and we have set out our explanation below.
From 15February 2022 and as at the date of this report, the Bank was fully compliant with the
requirements of the Code.
Board leadership and company purpose
Corporate governance introduction – page 99
Section 172 statement – page 43
Board of Directors – page 102
2022 governance at a glance – page 106
Strategic priorities – page 19
Business model – page 15
Division of responsibilities
Board roles and responsibilities – page 120
Board and Board Committee attendance –
page106
Board independence – page 106
Composition, succession and evaluation
Board of Directors – page 102
Board effectiveness – page 121
Nomination Committee Report – page 134
Audit, risk and internal controls
Audit Committee Report – page 124 Risk Report – page 130
Remuneration
People and Remuneration Committee Report –
page 138
Annual Report on Remuneration – page 148
Code non-compliance
Provision 38 – The pension contribution rates for
Executive Directors, or payments in lieu, should
bealigned with those available to colleagues.
Explanation – As per the Bank’s Remuneration
Policy, any new Executive Director hire will have
amaximum pension contribution at a level
alignedwith those available to colleagues,
whichiscurrently at a rate of 8% of base salary.
The pension contribution rate for the former CFO,
who resigned from the Board on 15 February 2022,
was 10% of base salary during the year under
review. The pension contribution rate for the
current CFO is 8%, so the Bank now complies
withthe Code provision.
101 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Board of Directors
As at the date of publication
Robert Sharpe
Chair
Daniel Frumkin
Chief Executive Officer
James Hopkinson
Chief Financial Officer
Anna (Monique) Melis
Senior Independent Director
Appointed to the Board:
1 November 2020
Appointed to the Board:
1 January 2020
Appointed to the Board:
5 September 2022
Appointed to the Board:
20 June 2017
Robert has over 45 years’ experience in retail
banking. He is currently Chair at Hampshire Trust
Bank plc, Pollen Street plc and Aspinall Financial
Services Limited. He has had an extensive
number of appointments both in the UK and the
Middle East including Chair of Bank of Ireland
(UK) plc, Vaultex Limited and RIAS plc. He has
also been a NED at Aldermore Bank plc, George
Wimpy plc, Barclays Bank UK Retirement Fund,
LSL Properties plc, and several independent NED
roles at banks in Qatar, UAE, Oman and Turkey.
Robert was previously CEO at West Bromwich
Building Society, a role he took to chart and
implement its rescue plan. Prior to this, he was
CEO at Portman Building Society, Bank of Ireland
(UK)’s consumer business in the UK and Bank
ofAmerica’s UK retail banking business.
Daniel is responsible for leading the Bank – with a
focus on driving long-term growth by delivering
great customer service at the right cost, to create
even more FANS. Prior to joining Metro Bank,
Daniel worked in America, the UK, Eastern
Europe and Bermuda. He has performed
business, risk, product and commercial executive
level roles throughout his career. Most recently,
Daniel was Group Chief Operating Officer at
Butterfield Bank, with responsibility for eight
jurisdictions across the globe covering a range
ofbusiness and support areas.
James’s career started at PricewaterhouseCoopers
where he specialised in tax accounting and
consultancy and qualified as a Chartered
Accountant with the Institute of Chartered
Accountants of England and Wales. He worked
for Standard Chartered Bank from2001 to 2019
in a variety of roles ranging fromheading up
corporate and institutional businesses, to Group
Head of Investor Relations and most recently
performing the role as ChiefFinancial Officer
forthe Group’s countries, regions and business
segments. James was also the CFO for the Global
Retail Banking business and the co-leader of the
global finance function. In 2019, James joined
ClearBank as CFO and Executive Director.
Monique is a Managing Director and the Global
Service Line Leader of the Financial Services
Compliance and Regulatory practice at KROLL
Advisory Ltd. She is also a Director of the KROLL
Luxembourg Management Company Board.
Withextensive financial services and regulatory
experience across established and growth
markets, her appointments have included
Executive Board member at Kinetic Partners and
roles at the Cayman Islands Regulator and Stock
Exchange, the Financial Services Authority and
the Securities and Futures Authority. Monique
isalso a NED at The Bank of London.
N A N
Audit
Risk Oversight
A
O
N
R
Key to committees
Nomination
Remuneration
102 Metro Bank PLC Annual Report and Accounts 2022
Anne Grim
Independent Non-Executive Director
Nicholas Winsor MBE
Independent Non-Executive Director
and Designated Non-Executive Director
for Colleague Engagement
Ian Henderson
Independent Non-Executive Director
Catherine Brown
Independent Non-Executive Director
Appointed to the Board:
20 April 2020
Appointed to the Board:
20 April 2020
Appointed to the Board:
20 April 2020
Appointed to the Board:
1 October 2018
Anne is an experienced executive turned advisor,
consultant and Board Director with more than 30
years in senior financial services leadership roles
at Barclays, Wells Fargo, American Express,
Mastercard and most recently as Chief Customer
Officer at Fidelity International, prior to
embarking on her Board portfolio career. Her
expertise is in customer experience, strategic
planning and execution, technology innovation
and business transformation. Anne is an
independent non-executive Board member
forInsight Investment, where she chairs Insight
Investment Fund Management Ltd and the
Insight Investment Strategic Technology
Committee; Plus500 Ltd, where she is Senior
Independent Director and chairs the
Remuneration Committee; and Openwork
Holdings Ltd. where she chairs the Risk and
Compliance Committee. Anne holds a Bachelor’s
degree in Mathematics and Computer Science
and a Master’s of Business Administration in
Strategic Management and Finance, both from
the University of Illinois.
Nick is an independent consultant and NED.
Heisa NED of Schroder Oriental Income Limited,
Chair of its Nomination and Remuneration
Committee and a member of its Audit and
Management Engagement committees. He is
alsoSenior Independent Director of the States
ofJersey Development Company, Chair of its
Remuneration and Nomination Committee and
amember of the Deal Advisory Panel. Nick has
more than 35 years of international banking
experience with HSBC Group in a number of
markets: Brunei; Channel Islands; Hong Kong;
India; Japan; Qatar; Singapore; Taiwan; United
Arab Emirates and the United Kingdom. He
wasChief Executive Officer of HSBC Group’s
businesses in Channel Islands and Taiwan and a
Director of HSBC Bank Middle East Limited. Nick
is also Chair of Autism Jersey and was awarded
an MBE for services to the community in the
Queen’s 2020 Birthday Honours List. He holds
aMasters in Physics from Oxford University
andis a Fellow of the Institute of Directors.
Ian is currently CEO of Kyckr, a RegTech business
providing global KYC solutions to banks,
payments services providers and other regulated
businesses. He joined Kyckr after a 30-year
career in retail and business banking and wealth
management. Ian is also a Member Trustee of the
Chartered Bankers Institute. Since 2012, he has
been actively involved in the UK challenger bank
sector holding CEO roles at Arbuthnot Latham &
Co Limited, Kensington Mortgages, and
Shawbrook Bank. Prior to this, he was Chief
Operating Officer of the Private Banking
Businesses in Barclays Wealth and before that he
was with RBS for 21 years. His final role there was
as CEO of RBS International. He also held the
positions of Chief Operating Officer Retail
Banking and Marketing Director RBS & NatWest.
Ian holds degrees in Economics and Finance
from Scottish and Canadian universities and
anMBA.
Catherine holds various NED roles including:
NEDof FNZ (UK) Limited and NED of QBE
Underwriting Limited and QBE UK Limited, and
Chair and NED of Additive Flow Limited and The
Plastic Economy Limited. Until 31 March 2020,
she was a NED at the Cabinet Office. In mid-2019,
she joined QBE Underwriting Limited (QBE UK
Ltd), one of the world’s leading international
insurers, as a NED for the UK. She is a Trustee
ofCancer Research UK, one of the UK’s largest
charities. Catherine has extensive experience in
organisational transformation in financial services
and a wide range of experience in leadership and
operations. Her previous appointments include:
Group Strategy Director at Lloyds Banking
Group, Executive Director of Human Resources at
the Bank of England and Chief Operating Officer
at Apax Partners.
Board of Directors Continued
R O R N OO A
103 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Board of Directors Continued
Paul Thandi CBE
Independent Non-Executive Director
Michael Torpey
Independent Non-Executive Director
Dorita Gilinski
Shareholder-Nominated
Non-Executive Director
Stephanie Wallace
General Counsel and
Company Secretary
Appointed to the Board:
1 January 2019
Appointed to the Board:
1 September 2019
Appointed to the Board:
26 September 2022
Appointed:
31 December 2022
Paul is an experienced CEO, Chair and NED
withdiverse international media and service-led
experience with an emphasis on people,
innovation, data and culture. Paul is CEO of the
NEC Group in Birmingham and has successfully
steered the NEC on a journey from public sector
ownership, to a £307 million management buyout
in 2015, and then an acquisition of the NEC Group
by Blackstone in 2018. In addition, Paul sits on the
Board of the West Midlands Growth Company
Limited, the British Allied Trades Federation,
isapatron of Marie Curie and sits on the Advisory
Board of Bowel Cancer UK. Paul is Deputy
Lieutenant of West Midlands Lieutenancy,
representing the Queen in the region, and was
awarded a CBE for services to the economy in
The Queen’s New Year’s Honours List 2020.
Michael retired from the position of Chief
Executive of the Corporate & Treasury division
and Member of the Group Executive Committee
at Bank of Ireland in August 2018. He has
extensive experience in senior roles across
financial services. He is currently a Non-Executive
Director of Studio Retail Ltd and Shelbourne
Bidco Ltd (Finance Ireland Group). His past
appointments include: Head of Banking at the
National Treasury Management Agency in
Ireland; Group Treasurer at Irish Life and
Permanent plc; Senior Treasury Adviser at
IrishFinancial Regulator; Finance Director
atUlster Bank Group; and Finance Director
atFirstActiveplc.
Dorita is the President of JGB Financial Holding
Company and a member of the Board of
Directors and the Audit Committee of Banco
GNB Paraguay. Dorita co-led the launch of Lulo
Bank, the first fully digitalised bank in Colombia.
She brings significant experience in banking,
including digital banking and marketing, as
wellas strategic planning and stakeholder
engagement to her Non-Executive Director role.
Prior to these roles, Dorita founded the Dori
Gilinski Gallery and Libros Para Niños, a non-
profit organisation that connects UK volunteers
with Latin American schools and charities. Dorita
is a graduate of the University of Oxford and
holds an MBA from Harvard Business School.
Dorita is a shareholder-nominated Non-Executive
Director, nominated by her father Jaime Gilinski
Bacal, a significant shareholder of Metro Bank,
through his Spaldy Investments Limited vehicle.
Prior to her role at Metro Bank, Stephanie led
thelegal function at RateSetter and joined the
MetroBank team as part of the acquisition of
RateSetter in 2020. She was appointed General
Counsel in 2021. Stephanie began her career in
private practice, qualifying as a solicitor at Hogan
Lovells in London and spent several years there
as a financial services regulatory specialist.
NR O A
104 Metro Bank PLC Annual Report and Accounts 2022
Executive Committee
As at date of publication
Daniel Frumkin
Chief Executive Officer
Daniel is responsible for our
overall leadership and our focus
on driving long-term growth
bydelivering great customer
service at the right cost,
tocreate even more FANS.
Kirsten McLeod
Chief Risk Officer
Kirsten is responsible for
management and oversight of
our risk and control framework.
James Hopkinson
Chief Financial Officer
James is responsible for
planning, implementing,
managing and controlling all of
our financial, treasury, strategy
and investor relations activities.
Aisling Kane
Chief Operations Officer
Aisling looks after everything
that makes us run smoothly,
including our call centres,
allbanking and lending
operations, customer support,
financial crime prevention,
procurement and property.
Tina Coates
Director of Corporate Affairs
Tina is responsible for
ourinternal and external
communication, public affairs,
reputation management and
setting our ESG agenda.
David Thomasson
Managing Director, Banking
Products and Digital
David is responsible for
providing current accounts,
savings and mortgages
products to our customers as
well as the channels to interact
with us digitally. David also
leads our Brand and Marketing
and Customer Analytics
functions.
Carol Frost
Chief People Officer
Carol is responsible for all
aspects of our people function,
with a focus on developing
diverse talent and capability
across every level to build
onour unique culture.
Ian Walters
Managing Director,
Distribution
Ian is responsible for our
front-line teams serving retail,
business, private and
commercial customers.
Thisincludes our stores and
relationship teams who are
focused on delivering great
customer service.
Faisal Hussain
Chief Information Officer
Faisal is responsible for running
and developing our IT. He is
also responsible for developing
and delivering our
transformation and
changeagenda.
Chit Ghee Yeoh
Chief Internal Auditor
Chit Ghee is responsible for
providing assurance to ensure
that we operate in a safe
andsustainable way.
Richard Saulet
Managing Director,
Consumer Finance
Richard is responsible for
ourunsecured lending to
consumers and businesses
under both our Metro Bank
andRateSetter brands and
driving our customer
experience agenda.
105 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
2022 governance at a glance
NON-
INDEPENDENT
DIRECTORS
30%
FEMALE
36%
3 – 6 YEARS
5
MALE
64%
INDEPENDENT
DIRECTORS
70%
Board gender diversity
As at 31 December 2022
Board Independence
As at 31 December 2022
Board Tenure
As at 31 December 2022
0 – 1 YEARS
2
1 – 3 YEARS
4
Highlights
2022 Board changes
David Arden stepped down from
the Board in February 2022. Sally
Clark stepped down from the
Board in June 2022 and was
replaced as Designated NED for
Colleague Engagement by Nick
Winsor. In September 2022, James
Hopkinson was appointed as
Executive Director and CFO and
Dorita Gilinski was appointed as
ashareholder-nominated NED.
AGM
We held our first face-to-face
AGMsince 2019. All resolutions
were passed with a significant
majority of votes in favour.
Wethank shareholders for
theircontinued support.
Board training
Sessions held during the year
included, Technology, Regulation,
Cost of Living, MREL and the
requirements to introduce a
Holding Company. Additional
training sessions were also held
foreach committee, including
topics such as audit reform,
Consumer Duty and remuneration
specific regulatory changes
anddevelopments.
2022 Board and Committee attendance
Board
8 meetings
Audit
8 meetings
ROC
8 meetings
PRem
5 meetings
Nom
3 meetings
Robert Sharpe
8 3
Daniel Frumkin
1
7
James Hopkinson
2
3
David Arden
3
1
Catherine Brown
4
8 8 5 2
Monique Melis
5
7 6 2
Paul Thandi
6
6 4 3
Michael Torpey
8 8 8
Sally Clark
7
4 5 3
Nick Winsor
8 8
Ian Henderson
8 8 8
Anne Grim
8 5
Dorita Gilinski
8
3
1. Daniel Frumkin was not able to attend one Board meeting for personal reasons.
2. James Hopkinson was appointed to the Board on 5 September 2022.
3. David Arden resigned from the Board on 15 February 2022.
4. Catherine Brown was not able to attend one Nomination Committee meeting for personal reasons.
5. Monique Melis was not able to attend one Board meeting, two Audit Committee meetings and one Nomination Committee meeting due to
personalreasons.
6. Paul Thandi was not able to attend one Board meeting and one People and Remuneration Committee meeting for personal reasons.
7. Sally Clark resigned from the Board on 30 June 2022.
8. Dorita Gilinski was appointed to the Board on 26 September 2022.
106 Metro Bank PLC Annual Report and Accounts 2022
2022 governance at a glance Continued
Highlights
The Board considered the
followingareas at its strategy
awayday in September 2022:
Actions, considerations, and
prioritiesfor theBoard, the
Bank,and senior leadership
teamfor2023:
What does it truly mean to be a
communityBank and how does this deliver
sustainable competitive advantage and
shareholder value?
Commit to community banking as our
visionwith service as our differentiator.
What is the impact of the changing market
context on our customers and strategy?
Close monitoring and management
oftheimpacts of the macroeconomic
environment on our business performance
and oncustomers, colleagues and
widerstakeholders.
How do we ensure our service model
remains differentiated?
Maintain robust cost discipline and capital
management whilst focusing on delivering
great customer outcomes. Support the
planfor future store openings, subject
toindividual store business cases.
What capabilities do we need to develop
aswe continue to grow?
Continue to review talent gaps in our
organisation and the plans in place
toaddressthese.
How do we attract, retain, and motivate our
people to deliver on our transformation?
Continue to focus on voice of the
colleagueactivities.
Employee engagement scores for 2022
Our overall measure of engagement was 75,
whichisup six points from 2021.
Our colleagues feel they can be themselves at work,
this measure scored 83 which is up four points
from2021.
Our colleagues feel that regardless of background,
they have an equal opportunity to succeed. This
measure scored 81, which is five points up from 2021.
Colleague engagement 2022
69
75
2021
2022
Colleagues feel they can be
themselves at work 2022
79
83
2021
2022
Colleagues feel that regardless
ofbackground, they have an equal
opportunity to succeed 2022
76
81
2021
2022
107 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Board activities and stakeholder engagement
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Boards
and Board
Committee
meetings
• Board
• AuditCo
• PRemCo
• ROC
• Board
• AuditCo
• NomCo
• ROC
• AuditCo
• PRemCo
• Board
• ROC
• Board
• AuditCo
• NomCo
• PRemCo
• ROC
• Board
• AuditCo
• ROC
• Board
• ROC
• Board
• AuditCo
• PRemCo
• ROC
• Board
• AuditCo
• NomCo
• PRemCo
• ROC
Key
announcements,
decisions and
Board activity
Reviewed and
approved the Bank’s
Long Term Plan,
including capital and
reviewed an update
onthe Operations
function who continue
to go the extra mile for
customers despite a
number of challenges
internally and
externally.
2021 year-end results
Received an update on
the measures we use
to assess the health
ofour Culture and
Colleague experience
and engagement.
Approved the Risk
Appetite for the Bank
ensuring that we
canmaximise
returnsinasafe and
sustainableway.
Approved the Bank’s
Operational Resilience
assessment in line
withregulatory
requirements.
Q1 2022 results
Received an update on
customer insights and
strategic implications,
as we continue to
further understand
theevolving consumer
base of the Bank and
the relationships
wehave.
Received an update
onthe Bank’s D&I
strategy, ensuring that
we are able to attract
and retain high calibre
diverse talent.
Welcomed shareholders
to our first face-to-face
AGM since 2019.
Reviewed and approved
the appointment of
NickWinsor as the
dedicated DNED
replacing Sally Clark.
H1 2022 results
Following
recommendation
fromthe Nomination
Committee, reviewed
and approved the
appointment of James
Hopkinson as CFO, and
Kirsten McLeod as CRO,
subject to regulatory
approval.
Reviewed and
monitored the Bank’s
capital planning.
Approved the purchase
of the freehold of the
Oxford store.
Received updates in
relation the Bank’s
response to the cost
ofliving crisis.
Following
recommendation
fromthe Nomination
Committee, reviewed
and approved the
appointment of Faisal
Hussain as CIO, subject
to regulatory approval
and the appointment
ofDorita Gilinski
asashareholder-
nominated NED.
Held our annual away
day to agree our vision
of the Bank’s strategic
objectives for 2023.
Q3 2022 results
Reviewed the Bank’s
ESG roadmap and the
progress made against
the agreed milestones.
Reviewed the Bank’s
plans for the
implementation
oftheConsumer
DutyRegime.
Following
recommendation
fromthe Nomination
Committee, reviewed
and approved the
appointment of
RichardSaulet as MD
ofConsumer Finance.
Reviewed and approved
the 2023 budget and
capital management
planning.
Received an update on
Culture and Colleague
engagement.
Received an update
onthe Bank’s cloud
strategy.
Agreed the Bank’s
response to the
outcome of the FCA
investigation.
Agreed the
appointment of
Stephanie Wallace as
Company Secretary.
Board activities
The Board has a forward plan for its meetings, which includes
regular updates from the ExCo and on financial, strategic, risk
management, people and culture, and operational matters. Each
Board Committee has a defined Terms of Reference with delegated
specific areas of responsibility to ensure that all areas for which
theBoard has responsibility are addressed and reviewed during
theyear.
Reports from the CEO, CFO and CRO are standing items on every
Board agenda. The Company Secretary, or her delegate, reports
ongovernance matters and updates the Board on any changes
totheir statutory duties or the regulatory environment which are
pertinent to their role. The Chair of each Board Committee reports
on the proceedings of the previous Board Committee meeting at
the next Board meeting, and minutes of the Disclosure Committee
are included in the Board papers.
The ExCo, senior management and advisors are invited to attend
Board and Board Committee meetings to present, contribute to the
discussion, and advise members of the Board or Board Committees
on particular matters. The involvement of the ExCo and senior
management in Board and Board Committee discussions
strengthens the relationship between the Board and senior
management and helps to provide the Board with a greater
understanding of operations and strategic direction.
Furthermore, it enables the Board to scrutinise and challenge
management on the delivery of strategic objectives. The Chair,
assisted by the Company Secretary and her team, is responsible for
ensuring that the Directors receive accurate and timely information.
The Company Secretary compiles the Board and Board Committee
papers, which are circulated to Directors in advance of meetings.
The Company Secretary and her team ensures that feedback
onBoard papers is relayed to senior management. The Company
Secretary prepares minutes of each meeting and is responsible
forfollowing up on any action items.
108 Metro Bank PLC Annual Report and Accounts 2022
Board activities and stakeholder engagement Continued
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Boards
and Board
Committee
meetings
• Board
• AuditCo
• PRemCo
• ROC
• Board
• AuditCo
• NomCo
• ROC
• AuditCo
• PRemCo
• Board
• ROC
• Board
• AuditCo
• NomCo
• PRemCo
• ROC
• Board
• AuditCo
• ROC
• Board
• ROC
• Board
• AuditCo
• PRemCo
• ROC
• Board
• AuditCo
• NomCo
• PRemCo
• ROC
Key
announcements,
decisions and
Board activity
Reviewed and
approved the Bank’s
Long Term Plan,
including capital and
reviewed an update
onthe Operations
function who continue
to go the extra mile for
customers despite a
number of challenges
internally and
externally.
2021 year-end results
Received an update on
the measures we use
to assess the health
ofour Culture and
Colleague experience
and engagement.
Approved the Risk
Appetite for the Bank
ensuring that we
canmaximise
returnsinasafe and
sustainableway.
Approved the Bank’s
Operational Resilience
assessment in line
withregulatory
requirements.
Q1 2022 results
Received an update on
customer insights and
strategic implications,
as we continue to
further understand
theevolving consumer
base of the Bank and
the relationships
wehave.
Received an update
onthe Bank’s D&I
strategy, ensuring that
we are able to attract
and retain high calibre
diverse talent.
Welcomed shareholders
to our first face-to-face
AGM since 2019.
Reviewed and approved
the appointment of
NickWinsor as the
dedicated DNED
replacing Sally Clark.
H1 2022 results
Following
recommendation
fromthe Nomination
Committee, reviewed
and approved the
appointment of James
Hopkinson as CFO, and
Kirsten McLeod as CRO,
subject to regulatory
approval.
Reviewed and
monitored the Bank’s
capital planning.
Approved the purchase
of the freehold of the
Oxford store.
Received updates in
relation the Bank’s
response to the cost
ofliving crisis.
Following
recommendation
fromthe Nomination
Committee, reviewed
and approved the
appointment of Faisal
Hussain as CIO, subject
to regulatory approval
and the appointment
ofDorita Gilinski
asashareholder-
nominated NED.
Held our annual away
day to agree our vision
of the Bank’s strategic
objectives for 2023.
Q3 2022 results
Reviewed the Bank’s
ESG roadmap and the
progress made against
the agreed milestones.
Reviewed the Bank’s
plans for the
implementation
oftheConsumer
DutyRegime.
Following
recommendation
fromthe Nomination
Committee, reviewed
and approved the
appointment of
RichardSaulet as MD
ofConsumer Finance.
Reviewed and approved
the 2023 budget and
capital management
planning.
Received an update on
Culture and Colleague
engagement.
Received an update
onthe Bank’s cloud
strategy.
Agreed the Bank’s
response to the
outcome of the FCA
investigation.
Agreed the
appointment of
Stephanie Wallace as
Company Secretary.
109 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Board activities and stakeholder engagement Continued
ESG
The Board remains focused on doing the
right thing for our colleagues, customers,
shareholders and other stakeholders.
During the year, the Board reviewed our
progress against our ESG roadmap and
waspleased to see increased coordination
and good progress in this area. More
information on our environmental, social
and governance priorities can be found in
the environmental, social and governance
review on page 28.
Stakeholders considered:
Consumer Duty
As a bank it is our responsibility to ensure
we are delivering good customer outcomes.
Recently the FCA introduced a new
Consumer Duty which comes into effect
on31 July 2023 for our open products and
services, and 31 July 2024 for our closed
products. We are working hard to review
our products and services, customer
communications and interactions, and
end-to-end customer journeys to align
withthe requirements of the Consumer
Duty. We are looking at how we monitor
outcomes for our customers and how we
report on those internally. We have also
appointed an independent NED, Catherine
Brown, to provide oversight and challenge
of our implementation of the Consumer
Duty regulations.
Stakeholders considered:
Cost of living
In response to the rising cost of living
pressures, in the second half of the year
theBoard endorsed Management’s
decisiontogive all colleagues below senior
management, an additional 2.75% salary
increase. This was on top of the average 5%
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 the increased cost
ofliving challenges. We are aware of the
impact increased living costs can have
onour customers, we therefore keep the
lending books and signs of financial distress
under close review. We have a range of
support mechanisms in place for both our
colleagues and customers during these
difficult times.
Stakeholders considered:
Focus on Strategic Priorities
Costs
Throughout the year, the Board considered
cost priorities.
We’ve seen great momentum across the
Bank to reduce costs while enhancing
customer experience, including the delivery
of functionality in the mobile app and online
platform. These enhancements enable
customers to self-serve, access information
quickly and easily, and reduce the number
of calls into AMAZE Direct.
We made the decision not to renew the
AMAZE Central Bishopsgate lease when
itexpires in 2023. Colleagues based in
Bishopsgate will re-locate to AMAZE
Central Holborn. We remain committed to
having a presence in London, but we felt
this was the right decision given the
moreflexible ways colleagues work.
Weanticipate this will allow for more
collaboration with colleagues working
atone central London location.
Despite the difficult decision to close three
stores in 2022, we remain committed to our
store model.
The Board oversaw the purchases of the
freehold and long-leasehold of our
Bradford and Oxford stores.
Stakeholders considered:
Our stakeholders are considered
at all times throughout the decision-
making process:
Our FANS
Our colleagues
The communities we serve
Our suppliers
Our regulators
Our investors
110 Metro Bank PLC Annual Report and Accounts 2022
Board activities and stakeholder engagement Continued
Revenue
Throughout the year the Board had
oversight of our efforts to deploy valuable
deposits into more lending for our
customers. To do this we developed new
lending products as well as refreshed our
existing ones.
The Board has had oversight as we adapted
to the market changes throughout the
year,ensuring our service proposition,
communication and products have stayed
relevant to the needs of our brokers
andcustomers. The Board supported
management as they made enhancements
to our product range and criteria, expanded
into the interest-only space, and expanded
lending coverage in Scotland. The Board
was also pleased to see growth in the
lending portfolio driven by the RateSetter
acquisition and the launch of a motor
finance lending product during the year.
A key focus for the Board has been to
ensure that growth has been delivered in
asustainable way while ensuring that we
keep both our customers and the Bank safe
by working together to ensure we have
theappropriate controls and monitoring
inplace.
Stakeholders considered:
Infrastructure
The Board considered throughout the year
which parts of our infrastructure would
benefit from investment or upgrade. It was
recognised that significant investment has
been made in recent years and that we
arenow seeing the benefits: notably our
investment to provide greater digital and
automation capability; and our investments
in IT resilience and improved controls
andrisk management capabilities.
Going forward, it was acknowledged
investment spend would need to be lower
to deliver on our profitability targets,
butthat an appropriate level of spend was
required to enable colleagues to do their
job better, support our products and
services and keep the Bank safe and
secure,as well as making life easier
forourcustomers.
The Board has had regular updates on our
preparation for the introduction of the
Consumer Duty and is pleased with the
progress to date, ensuring that products,
services, communications and customer
journeys, along with monitoring customer
outcomes, align with the requirements.
Stakeholders considered:
Balance sheet
Capital remains a core constraint and
assuch was a focus for the Board. While
wemeet all of our minimum requirements,
wecontinue to operate within our
capitalbuffers.
The Board had oversight of how we will
return to sustainable capital generation,
andas such our path to exiting capital
buffers. This will be achieved through
areturn to profitability combined with
acontinued focus on balance sheet
optimisation, including actively managing
lending. This also included reviewing
progress on our IRB application.
As we continued to shift the balance
towards assets with higher yields, growing
our unsecured consumer finance under the
RateSetter brand along with higher-yielding
residential mortgage lines and asset
finance, the Board has been maintaining
oversight of how we manage credit risk.
Stakeholders considered:
Communication
We continuously communicate with our
internal stakeholders, our colleagues,
andexternally to our customers, investors,
communities, regulators, and suppliers – all
with the aim to strengthen our relationships
and engagement. We’ve done lots of work
to showcase what makes us stand out from
the crowd in 2022, from our Local Area
Marketing campaign to the work we are
doing through digital marketing channels,
where we have made significant account
growth. 2022 has been a great year for
ourpeople-people approach and our
AMAZEING culture remains as strong as
ever. We are proud to have been recognised
as one of the top 10 places to work in
theUK.
Stakeholders considered:
111 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Stakeholder engagement
Our FANS
Our diverse range of FANS all have their own individual needs, but what binds them together
isthe desire for AMAZEING service and a range of banking services. We are rated the top high
street bank for overall service quality for personal and business customers in the latest CMA
rankings and number one for store service for the tenth time running.
What matters most to them
• All of our stores are open seven days a week, 362 days a year.
• A wide range of banking services and products that are easily accessed.
• AMAZEING service.
• Product enhancements.
How we engage
• Voice of the Customer programme allows us to monitor customer service delivery.
• Creating FANS and meeting their needs is one of our core values and the Board takes
ourcustomers into account in every decision it makes.
• Regular external communications, social media and advertising.
This year we have invested into our digital channels by upgrading our online banking platform
andenhancing self-serve options online and via our mobile app. We’ve introduced QR codes
tothe personal account online journey, so that FANS can pass our identification and verification
requirements by switching to their smartphone.
A new Products and Services Hub is available in the mobile app to show customers all the
AMAZEING products we offer. Customers can now search and filter transactions, and there is a
duplicate payee pop up so customers know if they’re adding a payee who has already been added
to their account.
We have continued our programme of launching new products and services for our SME
community. In March 2022, we launched the Enhanced Business Overdraft, which has cut the time
it takes our SME FANS to get an overdraft from weeks to less than 30 minutes, wherever they
want, whenever they want. We also introduced Enabled Advanced Search online for our SME
customers, so they are able to search and export transactions by date, time, and amount, or
bydebit and credit, making it easier for them to find the information they need. We’ve also
reinvigorated business lending by using automated decision-making to expand our SME
lendingportfolio.
2022 outcomes and highlights
• Investment into our digital infrastructure – all to heighten the consumer experience.
• Launched a Creating FANS hub for colleagues, providing a central source of information
tohelpcolleagues support customers.
• Upgraded our online banking platform and enhanced self-serve options online and via
ourmobile app.
Our colleagues
We understand that our colleagues are what makes the Bank different. We do people-people
banking and to live up to that ethos we ensure we support and invest in our people.
What matters most to them
• Health, safety and culture.
• Development and career opportunities.
• Inclusion, diversity and culture.
• Fair pay, reward and opportunity to make a difference.
• Agile and flexible working practices.
How we engage
• Voice of the Colleague surveys.
• Have your say cafés and colleague meetings with leaders.
• Revolution Updates with ExCo members.
• Remuneration working groups.
• Face-to-face and virtual opportunities to meet and provide feedback to our DNED,
NicholasWinsor.
The Board reviews Voice of the Colleague survey results and receives updates on people and
culture to ensure we keep track of how our culture is evolving and that it continues to be strong,
healthy and reflects our purpose and beliefs. The surveys assist the Board in understanding the
feedback from our colleagues and the actions taken by management to address this.
We engage with our colleagues through our internal networks, including: Women on Work
(WOW), Mpride for our LGBTQ+ colleagues, Mbrace for our Black, Asian and Ethnic Minority
colleagues, Mfamily for all working parents, parents-to-be or non-parents, and MBody which
isfocused on colleague wellbeing. During the year, the Board and Exco were invited to attend
andspeak at colleague network events.
Our ‘MAGIC Yammer’ page allows our colleagues to share their ideas, individually or as a team,
onhow the Bank can improve its customer experience. The ideas are reviewed by the MAGIC
committee, which assesses the ideas and puts them through to the next stage – Zest Den. The
selected colleagues going through to Zest Den, have the chance to work alongside an ExCo
nominated sponsor, to prepare and build the concept into an AMAZEING pitch to our ExCo panel.
The Board received colleague engagement updates throughout the year. More information
onhow we engaged with our colleagues is on page 35.
2022 outcomes and highlights
• Engagement score of 75,meeting the new global benchmark.
• ‘Natter with Nick’ on Teams.
• Online Q&As with senior leadership.
• We welcomed over 1,450 of new colleagues to the bank this year.
• Promoted over 600 colleagues.
112 Metro Bank PLC Annual Report and Accounts 2022
Stakeholder engagement Continued
Our investors
Engaging with our investors to keep them up to date on our performance, share our vision for the
future and understand their views continues to be very important to us. We engage openly and
transparently with our investors, who are helping us to grow and shape the Bank for the future.
What matters most to them
• Successful delivery of the strategic plan.
• The path to sustained profitability.
• Ability to maintain cost discipline and leverage the cost base for revenue growth.
• ESG.
• Progress towards IRB accreditation.
• Capital management and ability to lend more to our FANS.
How we engage
• 2022 AGM and Annual Report and Accounts.
• Quarterly trading updates and investor presentation at half/full year.
• Investor roadshows and conferences.
• Proxy advisor and institutional investors meetings.
We ensure the needs and views of our shareholders are brought into the boardroom and are
considered at all times throughout the decision-making process. The Board regularly receives
updates from the Investor Relations team to remain informed on investor views, the market and
latest trends. The Board appointed a shareholder-nominated NED in 2022, with the purpose of
further enhancing the existing rigorous Board discussions to ensure that shareholder views are
considered as part of Board decision-making.
We provide comprehensive updates to the market at half and full year, with condensed trading
statements at Q1 and Q3. The results presentation and Q&A with management provides
stakeholders with clear guidance on our capital planning priorities alongside strategic updates
and financial results. The announcements are reviewed and approved by the Board.
2022 outcomes and highlights
• Appointment of a shareholder-nominated NED.
• All resolutions at the 2022 AGM passed with 90% or more votes in favour – most passed at99%.
Our regulators
We are subject to financial services regulations and approvals in the markets in which we operate.
We engage with our regulators to ensure we meet all the relevant regulations and ensure we do
the right thing. The Bank is committed to promoting integrity, transparency and engaging in a
collaborative and open manner with our regulators. The financial services regulatory landscape
continues to evolve, and the Board ensures the Bank’s strategic priorities are in line with
regulatory requirements and new initiatives. For example, the new standards relating to Consumer
Duty, evolving capital standards and corporate reforms are all areas in which the Bank will engage
with our regulators in the year ahead.
What matters most to them
• Compliance with relevant laws and regulations.
• Governance and accountability.
• Transparent and constructive communication.
How we engage
• Annual PRA presentation to the Board.
• Regular meetings with our regulators and certain Board directors and ExCo members.
We aim to maintain our positive relationship with regulators through an approach of early and
regular engagement, particularly on areas of critical importance. The FCA and PRA receive copies
of our Board papers.
We have engaged constructively with our regulators during 2022 with respect to key initiatives
and will continue this engagement across upcoming changes to the regulatory landscape in
2023and beyond. The CRO reports regularly to the Risk Oversight Committee and the Board
onmaterial matters of regulatory engagement including an assessment of the status of our
regulatory relationships.
The Board has reviewed and engaged with the FCA in relation to the investigation into the
RWAadjustment and is pleased that this matter is now concluded. The Bank continues to make
improvements to, and substantial investment in, its regulatory reporting processes and controls.
Ithas also strengthened its broader risk management and governance, demonstrating our
commitment to improving our regulatory reporting controls.
The Board spent a considerable amount of time reviewing the Bank’s capital position.
Weunderstand that this is important to our investors and all stakeholders. The Bank’s IRB
accreditation application is progressing.
113 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Stakeholder engagement Continued
Our suppliers
Our supply chain helps us to deliver banking products and services to all of our stakeholders.
What matters most to them
• Collaboration.
• Open and fair terms of business, including payment terms and practices.
• Social and ethical business relationship.
• Long-term partnerships.
How we engage
• Report on supplier payment practices.
• Supplier Code of Conduct.
• Consistent supplier feedback loop.
• Dedicated relationship manager with the Bank.
• Supplier surveys.
We are committed to paying our suppliers within clearly defined terms and we have processes for
dealing with any payment issues that may arise. The Audit Committee reviews and approves the
Bank’s disclosure on supplier payment practices, and, as required by law, we publicly report this
information on a bi-annual basis.
For the last reporting period between 1 July 2022 to 31 December 2022 we reduced our average
invoice payment turnaround to 21 days. We continue to review and improve our processes
withthe aim of ensuring all of our suppliers are consistently paid within defined terms.
We understand the risks posed by our suppliers and ensure that they are appropriately
managedby the Bank. All suppliers have a relationship owner within the Bank and a Supplier
Commercial Manager within the Procurement, Supplier Risk and Commercial Management teams.
We maintain effective relationships with our suppliers and consider their interests when making
relevant decisions.
We actively solicit suppliers’ feedback on their relationship with Metro Bank and act on it as
appropriate. We work closely with our key third party partners. We held our second supplier
conference in 2022 to build on communication, and launched our first Supplier Code of Conduct.
We have also ensured that climate change considerations are embedded in engagement with new
suppliers and our conversations with existing suppliers. We also substantially bolstered our
oversight of material supplier risk and controls.
2022 outcomes and highlights
• Supplier conference.
• Our new Supplier Code of Conduct took effect in 2022.
• Further steps to ensure climate change considerations are imbedded in the
procurementprocess.
The communities we serve
We are proud to be an integral part of the communities we serve and they are at the heart of
ourambition to be the number one community bank. Our communities bring Metro Bank to life,
providing vital services to local people and businesses, as well as employment opportunities
whenwe expand into new locations. The people and businesses close to our stores are crucially
important to us, as we deliver on our ambition to become the UK’s best community bank.
What matters most to them
• Effective engagement and communication.
• Safe and friendly environment in store and outside.
• Impact on the local economies.
How we engage
• Money Zone, our financial educational programme for school children and young adult
careleavers. The programme will be expanded in 2023.
• Networking and community events.
• Days to AMAZE volunteering.
• Fundraising for charities.
The Board understands how important it is to have a physical presence in our communities and
was pleased to open a new store in Leicester in 2022. In deciding where to build a new store,
wetake into account where we can reach the most people so that we can continue to offer
convenient banking at a time that suits our FANS and will be looking at opportunities to open
more stores in the North of England in 2023.
We have supported our colleagues in joining a Community Champion Group of their choice.
Champions give back by helping our local communities and registered charities.
2022 outcomes and highlights
• Opened a new store in Leicester.
• 177 events at stores in the year.
• 2,460 children through Money Zone.
114 Metro Bank PLC Annual Report and Accounts 2022
Letter from the Designated Non-Executive
Director for Colleague Engagement
Nicholas Winsor
Designated Non-Executive Director
for Colleague Engagement
Our Board continues to welcome
our colleagues’ views, recognising
the benefit of a colleague base
thatis the bedrock of our business
model, ensuring we can deliver
overand above for our customers,
the communities we serve and for
eachother
I’m very pleased to set out my letter
toMetro Bank’s stakeholders as the
designated Non-Executive Director for
Colleague Engagement (DNED). I would like
to take this opportunity to thank Sally Clark,
who was the DNED until 30 June 2022, for
her efforts in the role during the first half
ofthe year. I am delighted to have been
appointed and I am looking forward to
meeting even more colleagues and hearing
their views as I take the role forwards
into2023.
The Board continues to be of the opinion
that appointing a DNED is the most
appropriate engagement mechanism
forthe Bank to ensure there is effective,
two-way engagement between colleagues
and the Board, with the ultimate objective
of aiding and informing Board decision-
making. I have seen first-hand how much
our colleagues value access to the Board.
Inturn, the Board strongly values the
feedback provided and we are open
andtransparent in how we consider
andaddress this.
The Board recognises that the DNED role
doesn’t replace existing engagement
channels. The ExCo already plays a key
rolein communicating Board decisions
tocolleagues and we have a number of
established networks and forums which
help us to understand the views of
ourdiverse colleague population.
The Bank also seeks colleague views
through other mechanisms including the
Voice of Colleague surveys and feedback
via our internal social media channel,
Yammer. My role is to garner the views of
colleagues and escalate these to the Board
as a whole in order to inform effective
decision-making. I formally report on
engagement activities and the feedback
Ihave gathered to the Board throughout
the year.
The Board reviewed the Terms of Reference
for the DNED role in 2022 to ensure that
itwas made explicit that the role also
included engaging with colleagues
regarding remuneration, including executive
remuneration, as appropriate. I also provide
a report to the People and Remuneration
Committee each year on the outcome
ofthis engagement ahead of the
PeopleandRemuneration Committee’s
year-end decisions.
Colleagues were able to connect in person
more frequently in 2022 compared to recent
years. Hybrid working continues for many
colleagues, so it is important that they have
opportunities to come together and have
meaningful engagements, regardless of
whether they work in a MetroBank Store,
AMAZE Central or an AMAZE Direct site.
The Board also discusses and seeks
assurance that colleagues working remotely
continue to feel connected to the Bank,
listened to and supported. We want
colleagues to be empowered to come
together, so they feel engaged, productive
and can provide maximum impact
inwhatever they are doing.
115 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Letter from the Designated Non-Executive
Director for Colleague Engagement Continued
We are proud of the culture we have at
Metro Bank, which we recognise as one
ofthe main reasons that colleagues want
towork here. It was great to hear from
colleagues that our AMAZEING values
continue to inspire and motivate them.
TheBoard plays an active role in defining
and monitoring culture, particularly in the
context of evolving work practices, and
weare pleased to see a strong sense of
belonging and inclusion as we embed
hybrid working.
2022 DNED engagement activities
andfeedback
The DNED Working Group, comprising of
myself, the Director of Corporate Affairs,
the Chief People Officer and members
ofthe Company Secretarial team, meet
periodically throughout the year to discuss
the DNED schedule of events, feedback
from colleagues, and the strategy
forengagement.
Throughout 2022, I had many opportunities
both face to face and remotely to speak to
colleagues. I met colleagues in a range of
settings, from store visits, to attending
anoperations team leadership event, to
attending Yammer sessions. These events
provided an excellent opportunity to listen
to what our colleagues like about working
at Metro Bank and also as to what
leadership can do to enhance
theirexperiences.
The general consensus is that our
colleagues love the culture at the Bank,
theyfeel they can be themselves, and that
we all work together as one team towards
acommon goal of being the number one
community bank.
Colleagues have also expressed an interest
in more in-person training. As part of the
induction process all colleagues attend a
‘Visions’ event, and we are pleased that
these sessions have returned to being
in-person events in 2022, so new colleagues
can see and live our culture at the start of
their Metro Bank careers. Graduation events
have also returned to being held in-person.
Following career development feedback,
management has refreshed Mentor Bank,
ahead of the AMAZE review period, when
objective setting and development planning
is agreed. In 2022, one in five of our
colleagues were promoted demonstrating
our commitment to growing and promoting
our talent.
Training on unconscious bias was identified
as an area of focus to help managers better
consider their interactions with their teams.
An unconscious bias training module
hasbeen developed. It is available to all
colleagues, and will form part of our
induction learning. Plans are being
developed to roll out the training module to
existing colleagues as part of the objective
setting and development planning process.
Having met a number of store-based
colleagues at recent engagement events,
there was a strong sense that colleagues
value Metro Bank’s customer focus and this
drives colleague engagement. Colleagues
also value the number of career
opportunities available at Metro Bank.
There is an overall positive energy in the
stores and colleagues are looking forward
to connecting in-person post-COVID-19.
I was delighted to attend the Bank’s black
history month event. Our Black, Asian and
Ethnic Minority network, Mbrace hosted
anight of Afro-Caribbean food,
entertainment from young Black artists,
and networking at AMAZE Central Holborn.
The evening was both emotional and
impactful and it was well supported by
abroad cross-section of colleagues. The
event also coincided with Faisal Hussain’s
appointment as Chief Information Officer
which got special mention on the evening
and was well received by our colleagues.
Alongside this, I regularly log into Yammer,
an internal social media tool for colleagues
to share information, ideas and socialise.
The platform is self-moderating, rather
thantop-down, and is used as a solutions
tool when colleagues have a question.
Colleagues are very active on the platform,
which reinforces my view that our
colleagues feel engaged. There are
colleagues that are ‘Yammer Champions’,
they are very active and support the wide
ranging questions that colleagues submit.
The Bank also has a platform called
‘Recognise’ that allows colleagues to call
out each other’s achievements and it was
great to see colleagues celebrating one
another’s successes during the year.
Looking forwards
The Board recognises that the role of DNED
will continue to evolve, particularly as a
result of changing working practices, as
new areas of colleague focus are identified,
and as fresh opportunities for engagement
arise. I am pleased to already have an
interesting schedule of engagement
opportunities with colleagues in 2023.
The Board continues to welcome all of our
colleagues’ views, recognising the benefit
ofa colleague base that is the bedrock of
our business model, ensuring we can deliver
over and above for our customers, the
communities we serve and for each other.
Ilook forward to meeting even more of
ourAMAZEING colleagues in the future.
Nicholas Winsor
Independent Non-Executive Director
15 March 2023
116 Metro Bank PLC Annual Report and Accounts 2022
Letter from the Designated Non-Executive
Director for Colleague Engagement Continued
Summary of key activities undertaken by DNEDs during 2022
2022 Q1 (Jan to Mar) Q2 (Apr to Jun) Q3 (Jul to Sep) Q4 (Oct to Dec)
Colleague contact
• Sally Clark and Anne Grim
(asformer NED of RateSetter)
metconsumer finance colleagues
atourBishopsgate Office.
• Robert Sharpe attended
theAMAZE Awards.
• Nick Winsor attended a COO
leadership event to discuss their
‘People-People Plan’ & ‘Leadership
Programme’ at the Holborn Office.
• Nick Winsor participated in a walk
of the floor at Holborn to introduce
himself to various teams in
thebuilding.
• Nick Winsor attended a virtual
Revolution update.
• Nick Winsor visited Holborn and
Tottenham Court Road stores.
• Nick Winsor visited Edgware
andBorehamwood stores.
• Nick Winsor hosted a ‘Natter with
Nick’ virtual event with a selection of
colleagues from across the business.
Colleague insight
• Voice of the Colleague
Surveyupdate.
• Voice of the Colleague
Surveyupdate.
Formal/informal reporting
• DNED update to the Board
atFebruary meeting.
• DNED letter published in 2021
annual report.
• DNED update to Board. • DNED update to Board.
Key inclusion network events
• Sally Clark attended the
International Women’s Day virtual
event ‘Creating a workspace
freefrom bias, stereotypes
anddiscrimination’.
• Nick Winsor attended the Pride
Month virtual event lunch and learn:
‘History and Allyship’.
• Nick Winsor attended an Mbrace
event for Black History Month.
117 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Board leadership and company purpose
The Board has a robust and coherent corporate
governance structure with clearly defined responsibilities
and accountabilities. These have been designed to provide
prudent oversight of the strategic and operational
direction of the Bank.
Board leadership and company purpose
Role of the Board
The Board is accountable to our
shareholders and sets our strategy for
achieving long-term success. The Board is
ultimately responsible for the oversight of
management, governance, controls, risk
management, direction and performance
ofthe Bank. The importance we place on
the interests of our wider stakeholders,
andhaving the customer at the heart of
everything we do, is always at the forefront
of the Board’s agenda.
Composition of the Board
As at the date of this report, the Board
consists of the independent Non-Executive
Chair, the CEO, the CFO, seven independent
NEDs and one shareholder-nominated
Non-Executive Director. The Board has
formally documented the separate roles
and responsibilities of the Chair and CEO.
More information on the composition of the
Board can be found on pages 102 to 104
and information on the responsibilities
ofthe Board can be found on page 120.
Matters reserved for the Board
The Board is responsible for setting and
managing our strategic direction. The
Board has a formally documented schedule
of matters that are reserved for our
approval. This includes decisions
concerning our strategic aims and long-
term objectives, the structure and capital of
the Group, financial reporting and controls,
risk management, and various statutory
andregulatory matters. The Board is also
responsible for effective communication
with shareholders, the Bank’s culture,
purpose and values, any changes to Board
or Board Committee membership or
structure, and has the authority to
recommend the Directors’ Remuneration
Policy to shareholders. The Board delegates
responsibility for day-to-day management
of the business to the CEO and sets out the
basis for delegation of authorities from the
Board to the Board Committees.
Board Committees
The Board has delegated specific
responsibilities to each of the Audit, Risk
Oversight, Nomination, and People and
Remuneration Committees, and reports
foreach are set out on pages 124, 130, 134
and138. Each Committee has a Terms of
Reference setting out its duties, authority
and reporting responsibilities. Copies of all
the Board Committee Terms of Reference
are available on our website:
metrobankonline.co.uk.
Governance framework
Executive
committees
CEO
Risk Oversight
Committee
People and
Remuneration
Committee
Disclosure
Committee
Nomination
Committee
Audit
Committee
Board
The Board’s core role is to promote the long-term success of the
Bank for the benefit of its shareholders. This requires us to:
• Determine and review
riskappetite.
• Monitor management
performance in delivering
ourstrategy.
• Ensure that risk management
measures and internal controls
are appropriate and effective.
• Oversee and monitor the
embedding of and adherence
tothe Bank’s business values.
• Ensure that the Bank’s financial
structure, resources, talent and
culture will support long-term
growth. In discharging thisrole,
the Board must also have regard
to and engage with the interests
of a wide range of stakeholders,
including colleagues, customers,
suppliers and broader
communities, in order to build
mutual trust and support
thelong-term sustainability
ofthebusiness.
118 Metro Bank PLC Annual Report and Accounts 2022
Board leadership and company purpose Continued
The Board also delegates the review of the
Bank’s disclosure obligations to a Disclosure
Committee, formed of the CEO, CFO and
General Counsel and Company Secretary.
The Disclosure Committee has an approved
Terms of Reference.
The Terms of Reference of each Board
Committee are kept under regular review to
ensure they remain appropriate and reflect
any changes in legislation, regulation or
best practice. These documents are also
reviewed formally every year by the
relevant Board Committee, ultimately
approved by the Board, along with a
self-assessment of how each Board
Committee discharged their duties during
the year. The composition of each Board
Committee can be found at the beginning
of each Committee’s individual report. Any
changes to Board Committee memberships
are based on the recommendation of the
Nomination Committee to the Board.
Effectiveness
A clear record of the time commitments
ofeach NED is maintained and reviewed
annually by the Nomination Committee
andthe Board is satisfied that the Chair
andeach of the NEDs are able to devote
sufficient time to the Company’s business.
Each Director has committed to dedicate as
much time as is necessary to the Company
and the NEDs’ letters of appointment set
Directors’ continuing professional
development
The Company Secretary ensures that all
Directors are kept abreast of changes in
relevant legislation and regulations. In 2022,
the Board and Board Committees received
internal training sessions on regulatory
developments on corporate governance
and audit reform, remuneration, Consumer
Duty and the cost of living crisis, as well
asanumber of treasury-related matters
including recovery and resolvability in line
with regulatory requirements. NEDs attend
seminars and briefings in areas considered
to be appropriate for their own professional
development, including governance and
issues relevant to the Board Committees
onwhich they sit.
Induction of new Directors
New Directors undergo a formal, robust
and tailored induction programme upon
appointment, which is agreed with the Chair
and coordinated by the Company Secretary
and her team. NEDs meet the Chair and the
CEO as part of the Nomination Committee’s
selection process and again on
appointment for a thorough briefing on
allrelevant aspects of the Company.
Theyalso meet other Directors, the
Company Secretary, senior management
and our advisors for briefings on their
responsibilities as Directors and on
ourbusiness, finances, risks, strategy,
procedures and the markets where
weoperate.
out that they should be prepared to
dedicate at least 25 to 30 days per year to
the Company, with increased time required
for additional duties such as Board
Committees. Directors are expected to
attend all meetings of the Board, and the
Board Committees on which they sit, and
todevote sufficient time to the Company’s
affairs to enable them to fulfil their duties.
IfDirectors are unable to attend a meeting,
their comments on matters being
considered at the meeting are discussed
inadvance with the Chair or Company
Secretary, so that their contribution can
beincluded in the wider discussion.
Board skills
As part of how the Board plans for
succession, it maintains and reviews a clear
record of the skillset that each Director
provides. The Directors’ skills and
experience span a wide range of sectors
and specialisms. The experience and
knowledge of each Director gives them the
ability to constructively challenge strategy
and scrutinise performance.
Independence of Directors
The Board is satisfied that, as at
31December 2022, seven NEDs and the
Chair were independent.
Directors receive an electronic induction
pack upon appointment, which includes
relevant Bank policies and corporate
andfinancial information. New Directors
alsoreceive listed company director
responsibilities training from our
legaladvisors.
External appointments
In appropriate circumstances, the Board
may authorise Executive Directors to take
non-executive positions in other companies
and organisations. Such appointments
should broaden their experience, provided
the time commitment does not conflict with
their fiduciary duties to the Company. Any
appointment is subject to the prior approval
of the Board. During the year ended
31December 2022, none of the Bank’s
Executive Directors held directorships
inany other quoted company.
The Board reviews the external
appointments of new NEDs before
appointing them to the Board. The Board
also authorises additional external
appointments that NEDs may wish to take
up, following due consideration of conflicts,
regulatory requirements, other guidance,
and assurances provided that the
individualwon’t be over-boarded.
Externaltime commitments of our
NEDsisreviewed onan annual basis
bytheNominationCommittee.
119 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Board roles and responsibilities
Role Name Responsibilities
DNED Nicholas
Winsor
(appointed
30June 2022)
The DNED is responsible for bringing the views and experiences
ofcolleagues into the boardroom.
Working with the Board, as a whole, and particularly the Executive
Directors, he takes reasonable steps to evaluate the impacts of
Board proposals and developments on colleagues. He engages
with the ExCo regarding colleague engagement and steps taken
toaddress colleague concerns arising out of business-as-usual
activities. He provides feedback to colleagues on steps taken
inresponse to their feedback.
He engages with colleagues on remuneration concerns, including
colleague views on executive remuneration as appropriate.
He reports regularly to the Board on activities undertaken and
feedback, as well as presenting the annual update for the inclusion
in the Annual Report and Accounts.
Consumer
Duty
Champion
Catherine
Brown
(appointed
18October
2022)
The Consumer Duty Champion supports the Chair and CEO in
ensuring that Consumer Duty is raised regularly in all relevant
discussions, and the Board is challenging management on how
itisembedding the Duty and focusing on consumer outcomes.
Shewill consider and challenge management on the quality
ofproduct reviews, the effectiveness of fair value assessments,
communication standards and testing, the ability to meet customer
needs (including those considered vulnerable) through the support
the Bank provides, the prioritisation of delivering customer
outcomes when considering this alongside other internal and
external challenges, and how effectively management embeds
theDuty into our culture and governance.
Independent
NEDs
Catherine
Brown
Anne Grim
Ian
Henderson
Paul Thandi
Michael
Torpey
Nicholas
Winsor
The role of the NED is to constructively challenge the ExCo on
matters such as strategic direction. Each NED brings specific
experience and knowledge to the Board and its Committees. The
NEDs as a whole have a broad and complementary set of technical
skills, educational and professional experience, personalities,
cultures and perspectives. A skills matrix for the Board can be
found on page 122. Their contributions provide independent views
on matters of strategy, performance, risk, conduct and culture.
Independent NEDs were previously appointed for an initial
two-year term, subject to annual shareholder re-election, however
thishas changed to three-year terms following a review of terms
ofappointment during 2022.
Shareholder-
nominated
NED
Dorita Gilinski
(appointed
26September
2022)
Over and above the requirements set out above, the shareholder-
nominated NED is to assist the Board in continuing to ensure that
shareholder views are considered in Board decision-making and
that there is a shareholder voice in the Boardroom.
Role Name Responsibilities
Chair Robert
Sharpe
The Chair leads the Board and is responsible for its effectiveness
and governance. He sets the tone for the Bank, including
overseeing the development of culture and standards in relation
tothe conduct of business and the behaviour of colleagues. He is
responsible for ensuring that there are strong links between the
Board and management and between the Board and shareholders.
He sets the Board agenda and ensures that sufficient time is
allocated to important matters, in particular those relating to our
strategic direction. He reports to the Board and is responsible for
the leadership and overall effectiveness of the Board, including
responsibility for fostering a positive Board culture that reflects
thevalues of the business.
CEO Daniel
Frumkin
The CEO is responsible for the day-to-day management of our
operations, for recommending our strategic direction to the Board
and for implementing the strategic direction agreed by the Board.
He is supported by the ExCo. The CEO reports to the Chair and to
the Board directly and is responsible for all executive management
matters of the Bank.
CFO James
Hopkinson
(appointed
5September
2022)
The CFO has responsibility for planning, implementing, managing
and controlling all financial-related activities of the Bank, both
day-to-day and for the long term. He is responsible for managing
the Bank’s financial position, including allocation and maintenance
of capital, funding and liquidity. He is responsible for producing
and ensuring the integrity of the Bank’s financial information and
regulatory reporting. The CFO also has oversight of the Treasury,
Strategy and Investor Relations functions.
Company
Secretary
Stephanie
Wallace
(appointed
31December
2022)
The Company Secretary is responsible for advising and supporting
the Chair and the Board on good corporate governance and best
boardroom practice. She leads the Company Secretarial function.
Senior
Independent
Director
Monique
Melis
The Senior Independent Director’s (SID) role is to act as a sounding
board for the Chair and to serve as an intermediary for Directors
when necessary. She is also available to shareholders if they have
concerns that have not been resolved through the normal channels
of Chair, CEO or CFO. She will attend meetings with, and listen
tothe views of, major shareholders to help to develop a balanced
understanding of their issues and concerns, if contact with the
Chair, CEO or CFO is inappropriate. She also acts as the conduit,
asrequired, for the views of other NEDs on the performance of
theChair and conducts the Chair’s annual performance evaluation.
The composition of the Board Committees can be found at the beginning of each of their individual reports.
120 Metro Bank PLC Annual Report and Accounts 2022
Board effectiveness
2022 Board and Board Committee
effectiveness evaluation
The Board carried out an internal
effectiveness evaluation in 2022. The
purpose of the evaluation was so the Board
and Board Committees could reflect on the
previous 12 months, including identifying
matters relating to how we operate as a
cohesive team, the discussions with, and
challenges put to management and external
advisors, the information and support
wereceive, and a horizon scan of matters
we will deal with in the next 12 months
andbeyond.
The last external effectiveness evaluation
was carried out in 2021 and all areas of
feedback were addressed ahead of the
publication of the 2022 Annual Report.
Inline with the requirements of the Code,
our next external evaluation will be in 2023.
The feedback provided during the
evaluation was consistent with feedback
received by the Company Secretary
atmeetings held throughout the year
withthe Chair, NEDs, and the Senior
Independent Director.
The Chair and NEDs met without the
Executive Directors and management to
discuss executive performance. The Senior
Independent Director met with the
Boardwithout the Chair to discuss
hisperformance during the year.
Overall, the collective view is that the Board
continues to work productively following a
number of Board changes during the year.
The Chair continues to manage meetings
effectively and seeks contribution and
insights from every Director. There is
productive discussion and challenge on the
key topics of importance including strategy.
Directors feel they are able to effectively
contribute to discussions at meetings. There
were no matters that NEDs had needed to
raise with the Senior Independent Director
during the year, and they continue feel able
to raise matters via this route if needed.
NEDs continue to have confidence in the
CEO’s ability to lead the organisation, and
they agree that the new CFO is making
strong contributions as a Board member
and is effectively leading the finance
function and the wider organisation.
A summary of the progress made on the key actions identified during the 2021 evaluation:
Board
Agreed actions Progress
Board and Board Committee
packs to be circulated earlier
The Company Secretariat, working closely with Management have
issued papers as early as possible.
Review the frequency of
Board and ROC meetings
The number of standard Board and ROC meetings reduced in
2022. However, given the Bank’s position a number of short notice
meetings were held.
Training on specific areas as
identified by the Board and
Board Committees to be
provided to Directors
Sessions held during the year included, technology, regulation,
cost of living, MREL and the requirements to introduce a holding
company. Additional training sessions were also held for each
committee, including audit reform, Consumer Duty and
remuneration specific regulatory changes and developments.
Internal evaluation process
Step 1: Step 2: Step 3:
• Questionnaires for
the Board and Board
Committees were
developed by the
Company Secretary
in consultation with
the Board and Board
Committee Chairs.
• Questions
considered the
recommendations
and actions from
theprevious Board
evaluation, best
practice guidance
and the Code.
Questions also
factored in areas
ofspecific interest
for each Board
Committee.
• Questionnaires were issued to all Board and
Board Committee members electronically.
• Responses were collated by the Company
Secretary and the findings analysed.
• Detailed feedback was discussed
withtheBoard Chair and each Board
CommitteeChair.
• Individual meetings were held between
theChair and each NED and the Senior
Independent Director and the Chair
todiscuss feedback on:
• how the Board operated in 2022 and
anyimprovements that could be made
in2023;
• each NED’s contribution during 2022;
• feedback on Executive performance
during 2022; and
• anything the Chair could do to
maximisefunctionality of the Board.
• The Company
Secretary presented
the findings to the
Board and Board
Committees in late
2022/early 2023.
• Actions agreed with
the Board and Board
Committees as
appropriate, and
fullfindings made
available to
allDirectors.
121 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Systems of internal control and
riskmanagement
The Board believes that effective risk
management is crucial to the Bank’s
strategic objectives and long-term success.
The Board has overall responsibility for
ensuring risk is effectively managed.
Our approach to risk is further detailed
onpages 54 to 97. The Risk Oversight
Committee (ROC) reviews the effectiveness
of the risk management process on the
Board’s behalf, and its approach can be
found in the ROC Report on pages 130 to
133. The Board confirms that there is an
ongoing process for identifying, evaluating
and managing the emerging and principal
risks faced by the Company.
The Board has delegated responsibility to
the Audit Committee for the review of the
effectiveness of internal control systems.
More detail can be found in the Audit
Committee Report on pages 124 to 129.
The Board is ultimately responsible for
theBank’s internal control and risk
management systems, and in discharging
this duty they regularly receive updates
from the Chairs of both Board Committees
as well as updates from the Chief Risk
Officer (CRO). The Board also approves the
Internal Audit Plan on the recommendation
of the Audit Committee. The Board is
satisfied that the internal control and risk
management systems are operating
effectively and that they have been in place
for the year under review and up to the date
of approval of the Annual Report.
Conflicts of interest
At each meeting, the Board considers
Directors’ conflicts of interest. The
Company’s Articles of Association provide
for the Board to authorise any actual
orpotential conflicts of interest.
Prior to a new Director being appointed,
potential conflicts of interest are disclosed
and assessed to ensure that there are no
matters which would prevent the incoming
Director from taking the appointment and,
during their tenure, Directors are asked to
consult with the Company Secretary and
the Board Chair before taking up any
external appointment or responsibilities.
Conflicts are considered by the Nomination
Committee annually and additional training
was provided to our new shareholder
nominated NED before joining.
Independent professional advice
Directors have access to independent
professional advice at the Company’s
expense. In addition, they have access to
the advice and services of the Company
Secretary, who is responsible for advice
oncorporate governance matters
totheBoard.
Board effectiveness Continued
2022 internal evaluation feedback and responses/actions
The feedback on Board effectiveness was mostly positive but, as expected when
undertaking a balanced assessment, there were opportunities for continuous improvement.
Feedback Response/Action
Board agenda and meetings
The Board welcomed the return of face-to-face
meetings, which enhance effective debate.
Hybrid meetings can work well for short notice
meetings. The Board agenda is well balanced
and appropriate for the Bank’s current position.
Looking forwards, members feel that the Board
could benefit from further focus on the below
topics as the Bank enters its next growth phase:
• Marketing and consumer strategy.
• Product and store performance.
• The investment programme underpinning
thestrategy.
• Culture.
The Board is in agreement as to the value
provided from the Strategy Away Day and
theopportunity this brings to have free
form,forward-looking strategic discussions.
These items have been factored in the 2023
forward plan as appropriate.
Board composition and skills
The current composition of the Board is strong
in terms of the mix of skills, experience, diversity
and independence, there are strong levels of
banking and regulatory experience amongst
members, which is appropriate. In the longer
term and as the Bank continues to grow and
harness sustained profitability, the Board
couldbenefit from some broader business
perspectives including technology.
No changes are expected to the current
make-up of the Board in the short term.
Tobeconsidered as part of broader succession
planning via the Nomination Committee in the
medium to longer term.
Board papers
Although the quality of papers is strong,
theBoard asked Management look for
opportunities to refine papers to ensure focus
concentrated on the most pertinent topics.
Some committee report templates have already
been updated and Management will continue to
look for ways to refine papers as we go through
the 2023 Board cycle.
122 Metro Bank PLC Annual Report and Accounts 2022
Board effectiveness Continued
Indemnities and insurance
We provide Directors and Officers of the
Bank with appropriate insurance during
thecourse of their appointment, which is
reviewed annually. In addition, Directors
receive an indemnity from the Bank against:
(a) any liability incurred by or attaching
tothe Director in connection with any
negligence, default, breach of duty, or
breach of trust by them in relation to the
Bank or any associated company; and
(b)any other liability incurred by or
attaching to the Director in the actual or
purported execution and/or discharge of
their duties and/or the exercise or
purported exercise oftheir powers and/or
otherwise in relation to/or in connection
with their duties, powers or office other
than certain excluded liabilities, including
tothe extent that such an indemnity is not
permitted bylaw.
Appointment and retirement of
Directors
The Board may appoint Directors to the
Board. Newly appointed Directors must
stand for election by shareholders at the
AGM following their appointment. In
accordance with the provisions of the Code,
all continuing Directors of the Company will
offer themselves for annual re-election
atthe 2023 AGM. Under the Articles of
Association, shareholders may remove
aDirector before the end of their term
bypassing an ordinary resolution
atageneral meeting.
Colleague engagement
For information on how the Directors have
engaged with colleagues, had regard for
colleague interests and what the effect of
this has been, including on the principal
decisions taken by the Company during
thefinancial year, see pages 108 to 112.
Other stakeholder engagement
For further information on how the
Directors had regard to the need to foster
the Company’s business relationships with
suppliers, customers and others, and what
the effect of this consideration has been,
including on the principal decisions taken
by the Company during the financial year,
see pages 108 to 114.
Relations with investors
The Board continues to place great
importance on regular two-way
engagement with investors. We welcome
engagement and dialogue throughout
theyear as part of an ongoing process.
Weconnect with our investors on an
ongoing basis through a variety of channels
including face-to-face meetings, telephone
calls, presentations, webcasts and
onlinecontent.
Investor meetings are undertaken by the
Chair, CEO and CFO, supported by the
Director of Investor Relations. Institutional
investors have the opportunity to meet with
the Chair, Senior Independent Director and
other NEDs to discuss any areas of concern.
In addition, the Board Committee Chairs
seek engagement with shareholders on
significant matters related to the areas
oftheir responsibility.
During 2022 the Bank appointed a
shareholder-nominated NED. This reflects
the strong relationships the Bank has with
its shareholder base and assists the Board
in continuing to ensure that shareholder
views are reflected in decision-making.
The Investor Relations function reports to
the Board on a regular basis on matters
including share price performance, changes
in the shareholder register, analyst and
investor feedback and significant market
updates, with the assistance of the Bank’s
corporate brokers. The Investor Relations
team is responsible for ongoing
communication with shareholders, analysts
and investors. All financial and regulatory
announcements, as well as other important
business announcements, are published
inthe Investor Relations section of our
website and stakeholders can subscribe
toreceive news updates by email by
registering online on the website at:
metrobankonline.co.uk/investor-relations/.
Contact details for the Investor Relations
and Company Secretary are available on
the website for any shareholders, analysts
or investors who wish to ask a question.
123 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Audit Committee report
Committee composition and attendance for 2022
Members
Meetings attended
Meetings held during
Director’s tenure
Michael Torpey (Chair) 8 8
Ian Henderson 8 8
Monique Melis 6 8
Sally Clark 5 5
1. Monique Melis did not attend the Committee meetings on 21 February 2022
and10 March 2022 due to personal reasons.
2. Sally Clark stepped down from the Committee on 30 June 2022.
In addition to the Committee Chair, Michael Torpey, there are two
members of the Audit Committee: Ian Henderson and Monique
Melis. Both are independent NEDs with a range of relevant business
experience. Michael has recent and relevant financial experience and
the Committee as a whole has competence in the banking sector.
For further details of their skills and experience, please refer to their
biographies on pages 102.
The Committee meets at least four times a year at appropriate times
in the reporting and audit cycle, and otherwise as required.
Regular attendees at the Audit Committee include the Chief Internal
Auditor, CRO, CFO, CEO, Board Chair and senior members of the
Finance team, and the Assistant Company Secretary who is the
Committee Secretary. The Committee Chair also sits on the ROC
andworks closely with Ian Henderson, its Chair.
2022 highlights
• Assessed going concern and viability.
• Reviewed key accounting judgements in respect of legal and regulatory matters,
andimpairments of non-current assets.
• Challenged management’s accounting judgements, particularly in respect of measurement
oftheECL allowance.
• Reviewed the Bank’s published financial information.
• Reviewed internal audit reports and regular updates from the Chief Internal Auditor.
Dear shareholders
I am pleased to present the Audit
Committee (the ‘Committee’) report for the
year ended 31 December 2022. This report
aims to provide a comprehensive picture
ofthe work we have undertaken as
aCommittee during the year.
Sally Clark stepped down from the
Committee on her departure from the
Board on 30 June 2022. On behalf of the
Committee, I would like to thank Sally for
her valued contributions during her tenure.
During the year, the Committee’s core
dutyremained unchanged; reviewing
theintegrity and quality of the Group’s
published financial information; supporting
the Bank’s governance framework; and
maintaining focus on evaluating the
effectiveness of the Bank’s control
environment.
The Committee continued to challenge and
scrutinise financial reporting throughout the
year, fulfilling our role of assisting the Board
in determining the appropriateness
offinancial reporting.
One of the Committee’s main
responsibilities is to inform the Board
whether we believe the 2022 annual
reportand accounts are fair, balanced, and
understandable, and that it contains all of
the information essential for shareholders to
evaluate the Group’s position, performance,
business model and strategy.
To form our opinion we scrutinise the work
undertaken by the Financial and Regulatory
Reporting Assurance team, who provide
details on the process undertaken to ensure
a balanced disclosure of developments
throughout the year. We make sure that
management’s disclosures reflect the
supporting facts, we urge them to explain
and justify their interpretation and, if
required, re-present the data. The External
Auditor, PricewaterhouseCoopers LLP
(PwC), assist this process by examining
theGroup’s accounting records against
approved accounting practices, relevant
laws and regulations as part of the statutory
audit. The audit report by PwC can be read
on pages 171 to 180.
Michael Torpey
Audit Committee Chair
124 Metro Bank PLC Annual Report and Accounts 2022
Audit Committee report Continued
During the year, the Committee continued
its oversight of the areas of judgement
andestimation in the Group’s results. This
included scrutiny of portfolio level credit
impairments to ensure they were adequate
given the UK’s transition away from
COVID-19 pandemic measures and the
ongoing effects of inflation and interest rate
increases on consumers and businesses.
The Committee received papers on this
athalf-year and full-year and will continue
to keep this under close review.
In addition, the Committee continued to
provide close oversight on key regulatory
reporting matters including oversight
oftheBank’s committees for regulatory
reporting and interpretation, and the
Bank’sprogress towards advanced IRB
accreditation for calculating credit risk
forresidential mortgages.
We continue to ensure that the Committee
is kept abreast of UK audit and corporate
governance reforms that will affect the
Bank in the future, including considering
thestatements made in 2022 by the
Department of Business, Energy and
Industrial Strategy (BEIS) and the Financial
Reporting Council (FRC) following the BEIS
consultation in 2021 on ‘Restoring Trust
inAudit and Corporate Governance’.
Wewillbe keeping a watching brief on
thisto ensure we are implementing any
necessary or desirable changes to our
auditand governance frameworks.
Committee evaluation
During the year the Committee has
continually reflected on our effectiveness,
considered how we discharged our duties
as set out in our Terms of Reference, and
reviewed and recommended changes to
this document to the Board for approval.
The Committee was satisfied that it
addressed all of its duties during 2022
andis well placed to deliver on the same
in2023. There is a continuing close
collaboration with ROC, and both Board
Committees’ Terms of References were
reviewed to ensure that each had distinct
responsibilities, and where we collaborate,
responsibilities are clearly articulated.
At the end of 2022, the Committee
performed an internal effectiveness
evaluation to assess our performance, how
we are supported and a horizon scan of
future matters that we may need to
consider. In line with feedback from the
evaluation, management will work to refine
the drafting of papers and will include more
horizon scanning into the forward plan.
Outlook for 2023
As the Bank continues into 2023 the
Committee will continue to focus on
management’s approach to key accounting
estimates and judgements, enhancements
to the Group’s risk and control framework,
remaining abreast of any updates to
corporate governance reforms and
continued oversight of financial reporting.
Michael Torpey
Audit Committee Chair
15 March 2023
Throughout the year the Chief Internal Auditor, Chit Ghee Yeoh updates
theAuditCommittee Chair Michael Torpey on the outcomes of key audits.
125 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Audit Committee report Continued
Significant financial
reporting areas
Review, challenge and conclusion by the Committee
Going concern
andviability
The Committee considered management’s approach to assessing and concluding on both going concern
and viability. The assessment undertaken by management focused on operational risks, liquidity and
capital, with a particular emphasis on the latter.
The Committee also considered the Group’s strategy and Long Term Plan with a review of potential
downside scenarios to management’s central view and any mitigating actions that could be taken.
After consideration, the Committee supported the approach adopted by management, which is set
outin the viability statement on pages 96 to 97.
Legal and
regulatorymatters
The Committee regularly examined the accounting assessment made in respect of the Group’s legal and
regulatory matters, including specifically whether a need for any provision in the financial statements
was required. This included approving the decision at the half year to no longer consider this area a
critical accounting judgement following the conclusion of key legacy legal and regulatory matters.
Measurement of
theECLallowance
The Committee regularly reviewed management’s assessment of the adequacy of the allowance for
ECL.The review included governance arrangements over provisioning and models, the use of post-
model adjustment and overlays, a benchmark of the Group’s ECL against its peers as well as reviewing
the components of the calculation (including SICR, definition of default, macroeconomic scenarios and
scenario weightings).
The Committee agreed with management’s assessment that the measurement of the ECL allowance
remain both a critical accounting estimate and judgement. Further details are set out on pages 217 to 219.
Deferred tax assets During the year the Committee considered the need to reassess whether a deferred tax asset should
berecognised in relation to the Group’s unused tax losses (which were written off in 2019), following
theimproved financial outlook. Whilst the Committee were encouraged by the short and near-term
profitability projections for the Group, they agreed with management’s assessment that the criteria
forre-recognising these had not been met. The Committee concluded that the Group should be
abletodemonstrate at least a full year of statutory profitability before these should considered
beingrecognised.
Impairment review The Committee has kept impairment indicators in relation to the Group’s property, plant, equipment
andintangible assets under review during the year. Management ran an impairment assessment as
required by IAS 36 ‘Impairment of Assets’ and the Committee considered the results of this including
associated sensitivities.
The Committee concurred with management’s view that no impairment was necessary in relation
tothese assets.
Alternative performance
measures
The Group continues to use alternative performance measures as it believes this provides readers
withagreater understanding of underlying trends in the business. The Committee reviewed whether
management’s basis for underlying results remained appropriate, including reviewing assets classified
asnon-underlying. Details on the Group’s alternative performance measures can be found on
pages241to 245.
The Audit Committee in brief
The Audit Committee is accountable to the
Board and will assist the Board in fulfilling
its oversight responsibilities by reviewing
and monitoring the financial reporting
process, the system of internal control,
theinternal and external audit processes,
and the Bank’s process for monitoring
compliance with laws and regulations
andthe code of conduct.
Significant financial reporting areas
considered by the Audit Committee
A key role of the Audit Committee is
toreview the integrity of the financial
reporting for the Bank. This includes:
• Monitoring the integrity of the
financialstatements and formal
announcements relating to the
Bank’sfinancial performance.
• Reviewing and reporting to the
Boardonsignificant financial issues
andmaterialjudgements.
• Reviewing and challenging accounting
policies, methods used to account for
significant and unusual transactions,
clarity and completeness of disclosure.
• Overseeing the regulatory reporting
framework to ensure it is strong
andeffective.
• Advising whether the Annual Report
andAccounts are fair, balanced and
understandable.
The Committee considered a number of
significant reporting areas which are set
outin the table to the right.
126 Metro Bank PLC Annual Report and Accounts 2022
Audit Committee report Continued
Fair, balanced and understandable
In line with the Code, the Committee
considered whether the 2022 annual report
and accounts are ‘fair, balanced and
understandable and provides the
information necessary for shareholders
toassess the Group’s position and
performance, business model and strategy’.
The Committee is satisfied that the 2022
annual report and accounts meet this
requirement and, in particular, that there
are appropriate disclosures for relevant
developments in the year. The process
supporting this goal included:
• The compilation of the 2022 annual
report and accounts was undertaken on
across-functional basis including input
from senior managers in Finance, Risk,
People, Legal, Investor Relations and
business lines. A review was undertaken
by the Financial and Regulatory
Reporting Assurance team and
outcomesreported to the Committee.
• A formal review and challenge by the
Committee of the draft 2022 annual
report and accounts, along with a review
of any issues raised in the External
Auditor’s report, in advance of final
signoff.
• A final review, performed by the Board
ofDirectors.
• The preparation of a going concern and
viability statement that highlighted the
profitability, capital and liquidity position
of the Bank over the planning period
to2026.
Internal Audit
Internal Audit is a critical component of the
Group’s governance, risk management and
control functions, providing independent
assurance over key controls.
TheCommittee:
• Monitored the objectivity and
competence of the Internal Audit
function, and the adequacy of Internal
Audit resources and skills and were
satisfied that Internal Audit had adequate
resources available during the year.
• Assessed the effectiveness of the Internal
Audit function throughout the year,
including an internal evaluation process
that involved a range of stakeholders.
• Monitored the delivery of the 2022
Internal Audit Plan, through reports
provided by the Chief Internal Auditor,
and discussed areas of significance.
identified in audits with management.
• Recommended the 2023 Internal
AuditPlan to the Board for approval.
• Approved changes to the Internal
AuditCharter.
The Committee Chair also met regularly
with the Chief Internal Auditor and ensured
she had access to the Board if needed.
The 2023 Internal Audit Plan focuses on
areas that present the greatest risk to the
Bank, are most impacted by further growth,
and are of regulatory importance. The
Committee will monitor the resources
available to Internal Audit to make sure they
can effectively deliver the 2023 Internal
Audit Plan. Following the recommendation
of the Committee, the Board approved
the2023 Internal Audit Plan, as well as the
level of risk assurance contained within it.
In line with best practice, the Committee
reviewed the Chief Internal Auditor
succession plan during the year.
Systems of internal control and
riskmanagement
Details of the Bank’s risk management
framework are provided on pages 54 to 97.
In considering the effectiveness of internal
controls, the Committee received and
discussed reports from Internal Audit
andthe External Auditor. In addition,
management were invited to discuss
significant issues raised by Internal Audit.
Management action plans to resolve the
issues raised were monitored by the
Committee. The Committee also challenged
management where appropriate on the
timeframe of the delivery of these actions.
In conjunction with ROC, the Committee
reviewed and approved the statements
inthe Annual Report concerning internal
controls and risk management.
Financial risk management processes
andcontrols are in place and there are
assessments of the effectiveness of our
internal controls on an ongoing basis. The
internal controls framework encompasses
all key controls, including those relating to:
financial reporting processes; preparation
of consolidated Group accounts;
formulation of the Group’s strategic plans,
budgets and forecasts; accounting policies
and levels of delegated authority.
Assurance work within Finance is carried
out by the Financial and Regulatory
Reporting Assurance team. The team’s
remit is to ensure that processes are
supported by robust systems and controls,
and to ensure high quality output with risks
and issues being identified, highlighted and
rectified appropriately. Assurance provided
during 2022 included business as usual
assurance, such as review of core
deliverables and external reporting, as
wellas performing deep dive reviews into
processes where risks or issues have been
observed, and focusing on providing an
appropriate level of input into key projects
being undertaken within finance and
regulatory reporting. The team has
provided regular written updates to the
Audit Committee throughout 2022.
127 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Audit Committee report Continued
The Finance function adopts a continuous
improvement approach to internal controls.
During the year, there was a project to
undertake an end-to-end review of the
riskand control processes within Finance.
This included working toward ensuring the
Group is prepared for any changes resulting
from the proposed BEIS reforms in relation
to corporate governance. There were a
number of deliverables and alongside the
project, a cloud based portal has been
created as an efficient way to monitor
thecontrols environment during the year.
Regulatory reporting framework
The Committee has continued to focus
onensuring that a strong and effective
regulatory reporting framework remains
embedded within the Group. We focused
on the oversight of the new regulatory
reporting system that went live in 2022 and
oversight of the Group’s IRB application for
residential mortgages.
The Committee has established a
Regulatory Reporting Committee and
aRegulatory Interpretation Committee
tofurther enhance the Bank’s governance
and control of regulatory reporting.
External audit
The Committee reviews and makes
recommendations to the Board with
regardto the appointment of the External
Auditor, their remuneration and terms
ofengagement.
The Committee is also responsible for
theoversight of the relationship with the
External Auditor and the effectiveness
ofthe audit process. During the year we:
• Reviewed and approved the scope of
the2022 External Audit Plan in advance
of the annual audit.
• Reviewed and approved the audit
engagement terms and proposed
auditfee.
• Reviewed and approved in advance
non-audit services provided by the
External Auditor.
• Considered the continued independence
and objectivity of the External Auditor.
• Reviewed and discussed the reports
provided by the External Auditor and
thequality of work undertaken.
• Met regularly with the External Auditor
without management present.
The Committee is satisfied that the External
Auditors demonstrated appropriate
professional scepticism and challenged the
key focus of the financial statements,
including material and judgemental areas.
The External Auditors have effectively
provided advice in relation to the financial
assessment of the business throughout
theyear and their insights have been
appropriately investigative and valuable,
and their expertise welcomed.
The Committee confirms that PwC
continues to be effective. The Committee
has recommended the reappointment of
PwC as the Bank’s External Auditors to the
Board, and the Board has recommended
the reappointment to shareholders for
thenext financial year at the 2023 AGM.
The Bank confirms that for the purposes
ofcompliance with Article 7.1 of the CMA
Order, it has complied with Articles 3, 4 and
5 of the CMA Order for the financial year
under review.
Independence
External Auditor independence is a key
principle and contributing factor to audit
quality. Independence is reviewed as part
ofthe audit scope, as part of reports PwC
presented to the Committee, and is further
scrutinised prior to the accounts being
approved and signed by the Board.
The Committee
continuedto challenge
and scrutinise financial
reporting throughout
theyear, fulfilling our
roleof assisting the
Boardin determining
theappropriateness
offinancial reporting
128 Metro Bank PLC Annual Report and Accounts 2022
PwC has been appointed as the Bank’s
External Auditor since 2009. The Bank is
required under law to put its audit out to
tender at least every 10 years and to change
its External Auditor at least every 20 years.
Our last formal competitive tender exercise
took place during 2018. In relation to the
audit for the year ended 31 December 2022,
the Board approved the Committee’s
recommendation to put a resolution to
shareholders at the 2022 AGM to reappoint
PwC, which shareholders approved.
In line with the FRC’s Revised Ethical
Standard 2019, the lead audit partner for
the Bank rotates every five years. Jon
Holloway has led the Bank’s external audit
since the start of the 2021 financial year. The
Committee maintained a good rapport with
Jon and the PwC team throughout 2022.
Non-audit services
The Committee carefully monitors the level
of non-audit services provided by PwC
andconsidered and approved the Bank’s
Non-Audit Services Policy during the year.
During 2022, in instances where PwC were
engaged for non-audit services, they were
chosen due to their unique position and
knowledge of areas within the Bank and
theservices were in respect of audit or
assurance-related matters consistent with
the principles of independent assurance
provision. All non-audit services provided
tothe Bank by the External Auditor must
beapproved in advance by the Committee
subject to the guidelines and thresholds
detailed in the policy.
Audit Committee report Continued
Details of services provided and the fees
paid to the External Auditor during the
yearcan be found in note 8 to the financial
statements on page 190.
The FRC’s Ethical Standard sets out a
specific list of permitted non-audit services
for UK incorporated public interest entities
and the Committee was satisfied that the
Non-Audit Services Policy aligns to the
ethical standard concerning auditor
independence, and that the Bank
compliedwith its policy during 2022.
Modern slavery
The Bank has a Modern Slavery Policy that
is accessible to all colleagues via the Bank’s
intranet. The policy outlines the Bank’s zero
tolerance approach to modern slavery.
TheChair of the Committee is the Bank’s
Modern Slavery Champion and reports
tothe Board at least annually on the
effectiveness and integrity of the systems
and controls in place to ensure compliance
with the Modern Slavery Policy. In 2022,
wecontinued to follow and progress our
processes to support our policy. We
continue to publish our Modern Slavery
Statement yearly and the General Counsel
provides regular updates to the Committee
on progress against our statement and
action plan.
Whistleblowing
The Committee is responsible for the
reviewof the adequacy and security of
whistleblowing systems and controls and
reviews these at least annually. The Bank
has a Whistleblowing Policy that is
accessible to all colleagues via the Bank’s
intranet and there is regular e-learning
training for colleagues. The Chair of the
Committee is the Bank’s Whistleblowing
Champion. The policy outlines the Bank’s
whistleblowing process which enables
colleagues of the Bank to raise concerns
about possible improprieties in financial
reporting, other operational matters
orinappropriate personal behaviours
intheworkplace.
129 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
2022 highlights
• Ongoing review of the changing macroeconomic environment and the effect of this on credit risk.
• Reviewed results from the Bank’s Vulnerable Customer Programme.
• Reviewed and endorsed the ICAAP, ILAAP, Recovery Plan and Market Risk Assessment Process.
• Reviewed and endorsed the Bank’s Resolvability Assessment Framework.
• Gave consideration to and endorsed the Operational Resilience Self-Assessment.
Dear shareholders
It has been another busy year for the Bank
and in addition to the Committee’s
oversight of the Bank’s risk governance
andmanagement, the Committee has been
focused on the changing macroeconomic
environment and the effect of this on credit
risk. The Committee had regular updates
onarrears management and customer
outcomes in this area and will keep this
under close review as the Bank supports
itsstakeholders through 2023.
In line with our ongoing commitment to
support our customers, the Committee
asked for regular updates during the year
on customer outcomes, in particular those
for vulnerable customers. I was heartened
to see the results from the Bank’s
Vulnerable Customer Programme and the
Committee will continue to have oversight
of this area as the Bank seeks to help
support customers who may face difficulty
in managing the increasing cost of living.
Committee composition and attendance for 2022
Members
Meetings attended
Meetings held during
Director’s tenure
Ian Henderson (Chair) 8 8
Catherine Brown 8 8
Michael Torpey 8 8
Nicholas Winsor 8 8
The Committee met regularly throughout the year. It also had
additional shorter meetings and briefing sessions to discuss topics
such as the ILAAP, ICAAP, Recovery Plan, Resolvability Assessment
Framework and Market Risk Assessment Process.
In addition to the Committee Chair, Ian Henderson, there are three
members of the Risk Oversight Committee (ROC): Catherine Brown,
Michael Torpey and Nicholas Winsor. NEDs who are not ROC
members were also permitted to attend meetings. The CEO, CFO
and CRO had standing invitations to attend as guests, unless the
Chair of the Committee asked them to excuse themselves from
aparticular meeting or discussion.
Other Directors and colleagues attended as guests by invitation
ofthe Chair to present and report on relevant topics. The Company
Secretary and her team acted as Secretary to the Committee.
The Committee continued to focus on
capital and liquidity and during the year
took part in tailored deep-dive sessions
before endorsing the ICAAP, ILAAP,
Recovery Plan and Market Risk Assessment
Process to the Board for approval.
Alongside the Board and Audit Committee,
ROC has also continued to have oversight
of progress on the Bank’s IRB application.
As in previous years, regulatory capital
management has been a constraint for the
Bank and this has been kept under very
close review.
The Committee also received regular
updates on the progress to implement a
Resolvability Assessment Framework and
following a thorough review endorsed
theFramework for Board approval.
Oversight of financial crime risk continued
to be a priority during 2022 and
followingsignificant additional sanctions
requirements related to the conflict
inUkraine, the Committee kept the
monitoring of the increase to sanctions risk
exposure under close review with regular
updates from the business.
Ian Henderson
Risk Oversight
Committee Chair
Risk Oversight Committee report
130 Metro Bank PLC Annual Report and Accounts 2022
Risk Oversight Committee report Continued
The Committee had two deep dive sessions
on Cyber, Information Security and IT
resilience and was pleased to see the
initiatives being put in place to further
strengthen the Bank’s defences in
theseareas.
The Committee considered and endorsed
the Operational Resilience Self-Assessment
at the start of 2022 and had oversight of
progress against delivery of the Bank’s
operational resilience strategic priorities.
The Committee was pleased to see the
progress made so far and will keep this
under review in 2023.
Evaluation
The Committee conducted an internal
evaluation in 2022. The results of the
evaluation showed that the Committee
continues to work well. Management
agreed to continue to send papers out as
early as possible and more time will be
devoted to horizon scanning in 2023. In line
with best practice there will be an external
evaluation in 2023.
Outlook for 2023
The Committee will continue to have
oversight of the Bank’s risk governance and
management in a changing macroeconomic
environment with a focus on:
• Capital.
• IRB.
• Customer outcomes, including Consumer
Duty requirements.
• Credit risk.
• Operational resilience.
• Technology and cyber risk.
• Fraud risk.
• Climate risk.
• Financial crime.
The following sections explain the role of
the Committee and summarise the main
areas of oversight for each of the Bank’s
keyrisks.
Ian Henderson
Risk Oversight Committee Chair
15 March 2023
The Committee has been
focused on the changing
macroeconomic
environment and the
effect of this on credit risk
As Chair of the Risk Oversight Committee, Ian Henderson receives regular updates
ontheBank’s key risks from the Chief Risk Officer, Kirsten McLeod.
131 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Risk Oversight Committee report Continued
Oversight of the Bank’s key risks
Treasury and prudential risk
The Treasurer’s commentary is presented
ateach ROC meeting and the Treasurer
provides a summary of relevant Treasury
matters, including balance sheet
performance and each of the principal
treasury risks i.e. liquidity and funding,
capital and market risks. The Treasurer
alsosubmits relevant Treasury policies
forapproval and notes the minutes of the
Assets and Liability Committee, which is
theprimary venue for in-depth discussion
onTreasury matters. The report to the
Committee includes high-level MI on
liquidity, funding, capital and market risks.
Inaddition, the Treasurer’s report includes
updates on relevant regulatory matters.
The Committee also receives a regular
update from the second line Risk team
ontreasury risk, treasury risk appetite
performance and model risk.
During the year, ROC also reviewed and
recommended to the Board for approval the
ICAAP, ILAAP, Recovery Plan, Resolvability
Assessment Framework, and Market Risk
Assessment Process and relevant policies.
Operational risk
The Committee receives reports concerning
risk appetite and risk assessment for a
number of key operational risks including
information security and systems availability,
operational resilience, fraud, and the
execution risk of change. Summaries of the
material incidents which occur during the
year and the related root cause analysis are
presented to demonstrate how the Bank
captures learnings and takes action to
prevent or mitigate any potential
recurrences.
The Committee also receives reports from
management on emerging non-financial
risks and how these risks are monitored
and,where appropriate, mitigated.
Deep dives and In-depth reviews
The Committee received in-depth reviews
on areas of emerging risk and regulatory
interest throughout the year and the key
areas looked at in 2022 were:
• Data Governance.
• Resolvability Assessment Framework.
• Outsourcing and Third Party Risk.
• Cyber, Information security and
ITresilience.
• Vulnerable Customer Outcomes.
• Outcomes for Customers in Arrears.
• People and Culture.
• Sanctions.
Compliance and conduct risk
The Committee is updated regularly on
regulatory developments and changes that
could impact the Bank and measures taken
to monitor and mitigate regulatory risk. The
Committee receives updates on compliance
and conduct risk in the areas of culture and
governance, product governance, customer
treatment and feedback from ‘Voice of
theCustomer’ surveys. The Committee is
also updated on how the Bank manages
expressions of dissatisfaction, and on
theongoing compliance assurance work
performed by the second line of defence.
Credit risk
Execution of strategy requires prudent and
controlled management of credit risk. To
support this, one of the roles of ROC is to
oversee credit underwriting and ensure
thatthe Bank has effective processes and
controls to monitor and manage credit risk,
including where the risk position associated
with a particular customer or loan has
deteriorated. This ensures that lending
remains within risk appetite and policy
exceptions are monitored. The Committee
regularly review the performance of the loan
portfolio including assessing the impacts
ofa changing macroeconomic environment.
The Committee also oversee the
performance of the suite of government
financial support measures.
Bank risk report
This includes a summary from the CRO
setting out items of note and assessing the
Bank’s performance against its risk appetite
and risk metrics. The report also includes
asummary of top risks, summary of issues
under management, performance against
risk appetite, regulatory engagement,
operational incidents overview and credit
portfolio insights.
Financial crime risk
Given the level of risk posed by financial
crime to all banks, the Committee reviews
management information and performance
against the Bank’s financial crime key
riskindicators.
132 Metro Bank PLC Annual Report and Accounts 2022
Risk Oversight Committee in brief
The ROC is a sub-committee of the Board.
Its specific responsibilities are set out
initsTerms of Reference which are
reviewed annually and available on the
Bank’s website.
The ROC provides oversight of risk and
advises the Board, as appropriate, on the
risks posed to the Bank from its continuing
business activities and future strategy.
Accountable to the Board, the ROC
provides leadership, oversight and direction
regarding the Bank’s risk governance and
management. It is charged with helping the
Board create an appropriate risk culture
across the Bank, which emphasises and
demonstrates the benefits of a risk-based
approach to risk management and internal
controls. The ROC is responsible for
reviewing, challenging and recommending
to the Board the Bank’s risk appetite,
ICAAP document, ILAAP document,
Recovery Plan and major risk policies.
TheROC oversees risk management
procedures and reviews risk reports
onkeybusiness areas.
Risk Oversight Committee report Continued
As a key part of the Bank’s governance
framework, the ROC ensures that the CRO
has unfettered access to the Committee
and its Chair.
The ROC receives regular management
information and reports concerning the
Bank’s performance against risk appetite
and the measures set by it and by the
Board. Regular updates are received
onregulatory developments, and
consideration is given to how these
willaffect plans, processes, systems
andcontrols.
Key policy documents considered by
the Risk Oversight Committee in 2022
• Pillar 3 Disclosure Policy.
• Operational Risk Management
Framework.
• Conduct Risk Framework.
• Credit Risk Framework.
• Policy Governance Framework.
• Regulatory Risk Framework.
• Model Risk Management Framework.
• Legal Risk Framework.
Policies reviewed and recommended
tothe Board:
• Anti-Bribery and Corruption Policy.
• Anti-Tax Evasion Policy.
• Capital Management Policy.
• Liquidity Policy.
• Sanctions Policy.
• Anti-Money Laundering and Combating
Terrorist Financing Policy.
• Market Risk Policy.
• Resolvability Assessment Framework.
133 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
2022 highlights
• The Committee had oversight of the external search process for the CFO/Executive Director
position and recommended James Hopkinson to the Board for approval.
• The Committee considered the appointment of a shareholder-nominated NED, including
theprocess for managing any conflicts of interest and recommended the appointment
ofDoritaGilinski to the Board for approval.
• The Committee discussed non-executive succession planning to ensure the Board has the
appropriate mix of skills, knowledge, experience, independence and diversity, having given
dueconsideration to length of service of Board members.
• Reviewed the Board skills matrix and updated this to include ESG related skills.
• The Committee reviewed the Board’s diversity against targets in the Board Diversity Policy
andassessed the objectives against the market to ensure they remain appropriate.
Committee composition and attendance for 2022
Members
Meetings attended
Meetings held during
Director’s tenure
Robert Sharpe (Chair) 3 3
Catherine Brown
1
2 3
Monique Melis
2
2 3
Paul Thandi 3 3
1. Catherine Brown did not attend the Committee meeting on 22 February 2022
due to personal reasons.
2. Monique Melis did not attend the Committee meeting on 22 February 2022
dueto personal reasons.
In addition to the Committee Chair, Robert Sharpe, the Committee
consists of three other members, Catherine Brown, Monique Melis
and Paul Thandi. The CEO and the Chief People Officer attend
meetings by invitation. The Chief People Officer provides support
tothe Committee Chair and Committee as needed and the Company
Secretary or their delegate acts as Secretary to the Committee.
Following each meeting the Chair provides an update to the Board.
The Committee minutes are also included in future Board papers,
aswell as papers that require a Board decision or are of particular
interest to the Board such as the Board Diversity Policy and
succession plans.
Dear shareholders
I am pleased to present the Nomination
Committee Report. During 2022, the Bank
has continued to make progress against
itsobjectives. There were several changes
tothe membership of the Board in 2022
following recommendations from the
Committee. David Arden stepped down
from the Board as Executive Director on
15February 2022. James Hopkinson
joinedthe Bank as CFO and as an Executive
Director on 5 September and has extensive
experience within the banking industry.
Sally Clark stepped down as an
independent NED from the Board
on30June 2022. Following the
recommendation of a candidate by a
shareholder and consideration by the
Committee and the Board, Dorita Gilinski
was appointed to the Board as a
shareholder-nominated NED on
26September 2022.
In line with the ever evolving landscape
inwhich we operate, the Committee has
continued to focus on diversity at all levels
of the Bank, including our Board, Board
Committees and the ExCo.
The FCA introduced a new listing rule that
will require the Bank to provide a statement
on new diversity targets in our next
financial reporting period, so the
Committee continues to consider how this
impacts the succession planning for the
Bank and our broader D&I initiatives.
Inclusion at all levels of the organisation
underpins our ambition to be the number
one community bank and the Committee
remains committed to ensuring the Bank
comprises a diverse and thriving colleague
base. The Committee will also assess
non-executive and executive succession
plans and the Board Diversity Policy
againstthe FCA’s new diversity targets.
Robert Sharpe
Nomination Committee
Chair
Nomination Committee report
134 Metro Bank PLC Annual Report and Accounts 2022
Nomination Committee report Continued
The Committee acknowledges the self-
identified gap in technology skills and this is
something that we will continue to monitor
and prioritise in any future NEDs searches.
However, at present no changes to the
Board are expected, as the current Board
continues to embed and build strong
working relationships following the
appointment of both James Hopkinson
andDorita Gilinski in late 2022. One future
consideration for the Committee, is the
length of tenure of NEDs and progressively
refreshing the Board, as some of our longer
standing NEDs move towards nine years
oftenure.
During the year, the Committee enhanced
its review of executive succession planning
by looking in further detail at the pipeline
for senior roles within the organisation
andassessing the development plans of
these individuals. It is important for the
Committee to understand how our talented
colleagues are developing in their careers
and where the Bank would need to look
externally for any recruitment needs that
the business may require in the future.
Outlook for 2023
During 2023 the Committee will review the
terms of appointment for Board members,
including expected time commitments for
NEDs, to ensure these reflect current Board
priorities and workloads, including the
creation of a new holding company for
Metro Bank.
The Committee will also review the long-
term succession planning for the Board to
ensure there is the right balance of skills,
knowledge, experience and independence
to support the Bank’s growth.
The Committee will also focus on reviewing
the Board Diversity Policy in light of the
FCA Listing Rule changes to ensure the
Bank is prepared for the new targets.
I look forward to overseeing the work of
theCommittee in 2023 and in particular
ensuring this supports the next steps of
theBank during a transitional year.
Robert Sharpe
Nomination Committee Chair
15 March 2023
The Committee regularly reviewed the
membership and composition of our Board
Committees, in light of changes to the
Board during 2022 and the medium and
long-term plans, to ensure the Board
continues to have the right mix of skills and
experience. The Committee also reflected
on the time commitment of each NED to
carry out their respective responsibilities,
and increased their expected time
commitments to a minimum of 25-30 days
per year. This reflects the amount of time
the Board spends meeting to ensure the
Bank is delivering upon its strategic
objectives and the milestones set out
intheturnaround plan.
The Committee discussed long-term
succession planning during the year.
Reflecting on Board membership changes
during 2022, the Committee and I consider
the current makeup of the Board to be well
balanced and has the appropriate skills,
knowledge and experience to continue to
lead the Bank as we grow. We will continue
to keep Board membership under review,
noting the importance of diversity in
effective decision-making, the benefits
ofretained knowledge and relationships
ofcurrent Board members, and the value
offresh skills and opinions.
Inclusion at all levels
ofthe organisation
underpins our ambition
to be the number one
community bank
135 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Nomination Committee report Continued
The Nomination Committee in brief
The Nomination Committee leads the
process for identifying and making
recommendations to the Board for new
Board appointments and Board Committee
memberships. Its duties include:
• Reviewing the structure, size and
composition (including the balance
ofskills, knowledge, experience,
independence, diversity and critical skills)
of the Board as a whole and making
recommendations to the Board
asrequired.
• Considering succession planning for
members of the Board, including the
length of service of members and
theneed to regularly refresh Board
membership, taking into account the
Bank’s strategic priorities, market trends,
regulatory requirements, and factors
affecting the long-term success and
future viability of the Bank and the skills
and expertise needed on the Board
inthefuture.
• Reviewing and assessing the Board skills
matrix against the skills required by the
Bank as part of its strategy.
• Reviewing the terms of appointment for
Board members, including expected time
commitments for NEDs to ensure these
reflect current Board priorities and
workloads, and to ensure that NEDs can
dedicate sufficient time to their role
taking responsibility for identifying and
nominating candidates to fill Board
vacancies as and when they arise,
fortheapproval of the Board.
• Reviewing the Board Diversity Policy and
recommending any changes to the Board.
• Considering Board candidates on merit,
against objective criteria, with due regard
for the benefits of diversity and taking
care that appointees have time available
to devote to the position.
• Reviewing the results of the Board
performance evaluation process
relatingto Board composition
andsuccession planning.
• Reviewing the talent and progression
ofcolleagues for succession to ExCo.
Committee performance evaluation
The Committee conducted an internal
evaluation in 2022. The Committee
members considered that the Committee
isworking effectively and the members
understand the skills required of Board
members to oversee the delivery of the
Bank’s strategic objectives.
Board composition
The Committee’s role in the Bank’s strategy
is to ensure that the Directors appointed
have the skills, knowledge and experience
required by the Bank to provide effective
challenge and oversight of the delivery of
the strategic objectives and to ensure there
is a strong pipeline for ExCo and senior
management positions. The Committee
assessed the composition of the Board in
2022 as part of the changes made to its
membership and concluded that the Board
has the skills, leadership and each NED has
the time to provide the necessary oversight
and proper challenge to the ExCo and
senior management. The Committee
discussed the Board skills that may need
tobe strengthened as the Bank’s strategy
progresses, as well as keeping the tenure
ofNEDs under review, to ensure orderly
succession. The Board Chair conducts
individual appraisals of performance and
time commitments with each NED on an
annual basis.
The evaluations of each Board Committee
show that they are working effectively in
carrying out their duties and a summary of
each evaluation is included in each of the
Board Committees’ reports. The Committee
will continually review the memberships
ofour Board Committees to ensure that
themembers appointed have the skills,
knowledge and experience required.
The process for appointments to the Board
is contained within the Committee’s Terms
of Reference. The Committee recognises
the importance of conducting a transparent
and fair process for interviewing, assessing
and appointing candidates to the Board.
There is a requirement for the list of
candidates to be diverse and the
Committee is fully committed to improving
the diversity of the Board and Board
Committees over the long term. For the
CFO search in 2022, the Bank engaged with
executive search firm Egon Zehnder who
have no other connection with the Bank
orany of the directors.
136 Metro Bank PLC Annual Report and Accounts 2022
Nomination Committee report Continued
Objective Status
Considering candidates for appointment
as NEDs from a wide and diverse pool,
which include a combination of skills,
experience, ethnicity, age, gender,
social,educational and professional
background and other relevant personal
attributes such as cognitive and
personal strengths to provide
arangeofperspectives.
The Board appointed one NED in 2022 and gave due consideration to her skills,
diversityand personal attributes. The Committee is therefore meeting this objective.
Ensuring the female representation
onthe Board meets and remains at a
minimum of 33% as per the Hampton-
Alexander objective.
As at the date of publication of this report, there were four female Directors appointed
tothe Board, which correlates to 36% of the total Board membership. We are therefore
meeting this objective. The Committee will review the Diversity Policy in 2023, to ensure
that this is compliant with the most recent updates to the UK Listing Rules.
Ensuring the Board’s ethnic diversity
meets and maintains a minimum
oneDirector from an ethnic minority
background by 2024.
As at the date of publication of this report, we have two Directors from an ethnic minority
background appointed to the Board. We are therefore meeting this objective.
Only engaging executive search firms
who are committed to sourcing diverse
candidates and who have signed up
tothe voluntary Code of Conduct on
gender diversity and best practice.
We engaged executive search firm Egon Zehnder for the CFO recruitment in 2022.
Theysigned up to the voluntary Code of Conduct on gender diversity and best practice.
Akey focus of the recruitment process had been to source a diverse longlist of candidates.
Reporting annually against our
objectives and other initiatives
takingplace within the Bank
whichpromote diversity.
More information on Diversity initiatives can be found on pages 35 to 38 in the ESG report.
Reporting annually on the outcome
ofthe Board evaluation including the
composition, structure and diversity
ofthe Board.
We have included a disclosure on our internal evaluation that the Board carried out
in2022 on pages 121 and 122.
Diversity
The Committee understands and
recognises the importance of diversity in
assisting decision-making and avoiding
groupthink within our Board and Board
Committees. The Committee is committed
to using search firms that source a diverse
longlist of candidates for consideration
forthe Board. The gender balance on our
Board, and of those in senior leadership
andtheir direct reports, can be found
onpage 38.
Board Diversity Policy
The Committee continued to track diversity
against our Board Diversity Policy. We will
update the policy in 2023 to ensure it is in
line with best practice recommendations
and meets the expectations of our
stakeholders. A summary of the objectives
of the Board Diversity Policy and the
progress made against these is listed
inthefollowing table.
137 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Committee composition and attendance for 2022
Members
Meetings attended
Meetings held during
directors’ tenure
Catherine Brown (Chair) 5 5
Sally Clark
1
3 3
Paul Thandi
2
4 5
Anne Grim 5 5
1. Sally Clark stepped down from the Committee on 30 June 2022.
2. Paul Thandi did not attend the Committee meeting on 1 March 2022 due
toaprior arrangement.
In addition to the Committee Chair, Catherine Brown, the Committee
consists of two other members, Anne Grim and Paul Thandi. The
Board Chair, the CEO and the Chief People Officer attend meetings
by invitation.
The Chief People Officer provides support to the Committee Chair
and Committee as needed and the Company Secretary acts as
Secretary to the Committee. Following each meeting the Chair
provides an update to the Board. The Committee minutes are also
included in future Board papers, as well as papers that require a
Board decision such as the Remuneration Policy and NED fees.
Catherine Brown
People and Remuneration
Committee Chair
People and Remuneration Committee report
2022 highlights
• Increased the remit of the Committee to have oversight of the succession of colleagues under the
Senior Managers and Certification Regime.
• Approved increase to colleague salaries to address the rising cost of living.
• Reviewed progress made by the Bank on the D&I strategy.
Dear shareholders
I am pleased to present the People and
Remuneration Committee Report. We have
continued to make improvements to the
effectiveness of the Committee this year,
most notably extending the remit of the
Committee to include oversight of people-
related matters, which was approved by
theBoard in October 2022. The expanded
remit has added additional duties that
assistthe Committee with gaining greater
understanding of the working environment
experienced by the Bank’s colleagues and
provide greater challenge to the decisions
made by the executives that impact
ourcolleagues.
The additional duties include having
oversight of the Bank’s D&I strategy to
ensure the Bank continues to move in the
right direction towards a more diverse
andinclusive organisation; reviewing the
talent development and succession plans
ofMaterial Risk Takers and Certified
Rolesin scope of Senior Managers
Certification Regime, which is an increase
inscope beyond what the Nomination
Committee already reviews; and seeking
feedback from the Bank’s DNED regarding
their engagement withcolleagues on all
aspects of the Committee’s responsibilities,
including remuneration. The Committee will
review how these new duties improve its
effectiveness during 2023.
Our approach to Executive Directors’
and Executive Committee members’
remuneration
ExCo (including Executive Directors)
remuneration comprises a salary,
reasonable benefits, pension provisions and
variable reward which is delivered through
an annual bonus with deferral and an LTIP.
Full details of our Remuneration Policy can
be found on our website at:
metrobankonline.co.uk/globalassets/
documents/investor_documents/
remuneration-policy.pdf
138 Metro Bank PLC Annual Report and Accounts 2022
People and Remuneration Committee report
Continued
Appropriateness of Executive
Remuneration
The Committee believes it is right to reward
strong performance by the Bank’s executive
team, balanced with the interests of all of
our stakeholders. This includes considering
investor expectations, so that the interests
of the executives are aligned to the interests
of our shareholders, and our continued
compliance with the regulatory
requirements including CRD V, which the
Bank must observe as a proportionality
level 2 firm.
Board changes and implications for
remuneration
A number of Board changes are mentioned
elsewhere in the Annual Report and
Accounts; I will summarise them here in
thecontext of reporting on the implications
for remuneration.
David Arden stepped down as CFO on 15
February 2022. Details of the termination
arrangements were outlined initially in last
year’s directors’ remuneration report and
more fully in the remuneration statement
posted on the Bank’s website on 7 March
2022. The Committee determined that
these termination arrangements were
fairand reasonable, consistent with the
Directors’ Remuneration Policy and in line
with his contractual entitlements.
On 5 September 2022, James Hopkinson
was appointed CFO (and became an
Executive Director). His remuneration is in
accordance with the Remuneration Policy
approved by the shareholders and was set
out in an announcement to the London
Stock Exchange on 15 July 2022. James was
appointed with a salary of £500,000, with
maximum annual variable reward and LTIP
opportunity each of 100% of salary. He
receives a pension entitlement of 8% of
salary, which is aligned with the pension
benefit provided to other Bank colleagues.
Review of RWA issue
The FCA concluded its RWA investigation
in December 2022. The Committee has now
had the opportunity to consider, in light of
the FCA’s conclusions and those of the
PRA, the implications in respect of deferred
variable remuneration awards, which had
been frozen pending the outcome of the
relevant regulatory investigations. The
Committee determined that awards for
some colleagues not implicated in the
regulators’ conclusions no longer needed to
be frozen. However, awards for one former
executive director remain frozen for the
time being pending the completion of other
proceedings. In respect of another former
executive director, David Arden, his awards
which had been frozen have now lapsed as
part of his leaving arrangements (as set out
on page 159).
Looking back on 2022
During 2022, we had a change to the
Committee’s membership with the
departure of Sally Clark who left the Bank
halfway through the year. Sally contributed
to the performance of the Committee and
the formulation of the Policy approved by
shareholders in 2021, particularly with her
insights from being the Board’s DNED.
To ensure that the Committee does not lose
the benefit of these insights, Nick Winsor,
asthe new DNED, attends the Committee
annually, with Nick presenting to the
Committee on his engagement with the
Bank’s Colleagues in November 2022.
Supporting junior colleagues
During the year the Bank acted quickly to
assist colleagues affected by the cost of
living crisis. The Bank increased colleagues’
salaries during the remuneration review in
Q1 2022. The Committee was also pleased
that most colleagues (excluding the
leadership population) received an
additional increase of 2.75% in December
2022. The increase in December was partly
funded by passing on the saving as an
employer from the Government’s 1.25%
National Insurance reduction. Colleagues
were appreciative of the Bank making this
increase at a challenging time for them
withthe rising energy costs. My Committee
colleagues and I were particularly
supportive of this being a permanent
increase to the remuneration of the Bank’s
lowest paid colleagues.
2022 Variable remuneration
The formulaic outcome under the balanced
scorecard for 2022 was 97%. However,
management asked the Committee to
exercise its discretion to reduce this
outcome to 67%, believing that a lower
pay-out was appropriate as the Bank
focused on returning to profitability and
maintaining its capital position. The
Committee accepted this recommendation,
notwithstanding the broader achievements
by the Bank and its colleagues in 2022.
The Committee noted that, following our
announcement of 23 January 2019
regarding the RWA adjustment, it had
reduced individual variable awards for 2018
and had frozen unvested executive share
awards. Having finalised the treatment of
frozen awards following the conclusion
ofFCA proceedings in December 2022,
theCommittee decided that there was
norationale for a further adjustment to
variable remuneration relating to the
FCAfine in respect of 2022.
The CEO and CFO were awarded annual
variable reward of £451,000 and £54,500
respectively, of which 60% is deferred for
up to seven years. More information on
thebalanced scorecard outcomes and
assessment of individual performance
issetout on pages 149 to 151.
Looking forward to 2023
Shareholder engagement and review
ofthe Directors’ Remuneration Policy
We were very pleased that the
Remuneration Report was strongly
supported in May 2022, with over 91%
voting in favour. We look forward to
continuing our discussions with investors
inthe coming months in the run up to this
year’s AGM. The Committee will need to
determine a new Directors’ Remuneration
Policy during 2023 for shareholder approval
at the 2024 AGM. Therefore, we anticipate
engaging with shareholders about any
changes to our remuneration approach
inlate 2023 and early 2024.
139 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
People and Remuneration Committee report
Continued
2023 Annual variable remuneration
andour scorecard measures
Our simplified approach to variable reward,
applied across the organisation, focuses on
all colleagues, on growth, and the long-term
sustainable success of the business.
The Committee has agreed an appropriate
Bank-wide balanced scorecard to inform
our variable reward outcomes for 2023,
based on financial, risk, customer and
people objectives. Our scorecard for 2023
continues to have a 60% weighting on
financial measures, with the balance of 40%
reflecting social and governance measures
which underpin our ESG commitments.
Our aim is to build a sustainably profitable
business to support our customers and
communities. With this in mind, the 60%
financial measures in the scorecard will
reflect the Bank’s progress in delivering the
financial outcomes of its strategy. Within
the remaining 40%, managing our risk levels
within our risk appetite and maintaining
positive relationships with our regulators
remain important aspects, weighted at
20%. Customer satisfaction remains central
to the success of the Bank and remains
weighted at 10%. Our colleagues and
communities matter to us and we wanted
toreflect this in our scorecard. We have
enhanced our measures for colleague
satisfaction, diversity and the reach of our
financial literacy Money Zone programme
into the community, with a combined
weighting of 10%.
The Committee is aware of investor
sentiment for ESG measures to be relevant
to strategy, measurable and quantifiable.
Inthe coming year, the Committee will
consider whether to amend the Bank’s
incentive plans to incorporate further ESG
measures. This review will form part of the
broader review of the Bank’s Remuneration
Policy scheduled for renewal next year.
We will disclose the specific targets and
measures contained in the scorecard in the
Directors’ Remuneration Report of next
year’s annual report.
2023 Executive Directors’ variable
remuneration
Variable reward for Executive Directors for
2023 will be awarded through an annual
bonus – consisting of a cash bonus, retained
shares and deferred shares under the
Deferred Variable Reward Plan (DVRP)
andthe LTIP.
Executive Directors’ variable reward will
bebased on the 2023 scorecard outcome
balanced with the personal behaviours
andperformance of the individual.
Thisapproach is consistent with the
approach we apply to all colleagues.
Salaries from 1 April 2023
All colleagues
The increase in our budget for salaries this
year has been used to support the cost of
living challenges experience by colleagues,
maintaining the increase in real living wage
while continuing our fair pay approach
across the Bank, and salary progression.
In response ExCo has approved a budget
that results in an average pay rise across
theorganisation of 5% effective April 2023,
prioritised for customer facing and junior
colleagues. This, together with a one-off
salary increase of 2.75% in December 2022
for 98% of our colleagues results in
anoverall average increase of 7.5%.
Executive Directors
Since his appointment in 2020, Daniel
Frumkin has received one salary increase.
External benchmarking showed that his
remuneration is increasingly out of line with
others in the market. Daniel has performed
strongly during the year in delivering the
strategic repositioning of the Bank, despite
significant and unprecedented external
challenges, and put the Bank on a path
towards sustainable profitability.
Under his leadership, the Bank has made
positive, measurable progress against
itsfive strategic priorities. This context
provided the Committee with a strong
rationale to give a salary increase to Daniel
this year, and it decided to increase his
salary from £769,600 to £925,000.
Thisbrings him in line with the market,
acknowledges the criticality of his role
indelivering the next phase of the Bank’s
strategic plan and retains his talent and
expertise for the organisation.
Given the continuing external pressures
facing the Bank, the Chair and CEO have
agreed that he would waive the increase
forthe forthcoming financial year, and the
salary increase would take effect from
1January 2024.
Delaying the implementation of the
increase, in effect, saves £130,000 in salary
and pension, and up to an additional
£155,000 in annual bonus opportunity for
2023. Any LTIP in 2024 would be based
onthe higher salary.
The Committee acknowledges that the
salary adjustment, once implemented in
2024, will increase the variable reward
opportunity for which the CEO is eligible.
This was something that the Committee
considered as part of its deliberations and
will bear in mind when determining future
variable rewards.
There is no planned increase to the salary
ofJames Hopkinson, the CFO, given that
hehas been in the organisation for less
thana year, and his role was externally
benchmarked within the last 12 months.
Chair and Non-Executive Director fees
The annual fee for the Chair and NED fees
are unchanged.
I very much hope that you will support the
resolution to approve the Remuneration
report at the forthcoming AGM.
Onbehalfof the Committee,
thankyouforyour support.
Catherine Brown
People and Remuneration Committee Chair
15 March 2023
140 Metro Bank PLC Annual Report and Accounts 2022
People and Remuneration Committee report
Continued
Committee performance evaluation
The Committee conducted an internal
evaluation in 2022 and concluded that the
Committee continues to work effectively.
There was one area highlighted for
improvement that concerned the Bank’s
peer group that is used as benchmarking
data for the Committee. The Committee has
considered changes to update the Bank’s
peer group so that it better reflects the
increasing size and complexity of the Bank.
In 2023, the Committee will conduct
anexternal evaluation alongside the
Boardevaluation.
Advisors to the Committee
The Committee has had Aon McLagan
acting as its independent advisors on
executive remuneration since October 2021.
Aon McLagan have no other connection to
the Bank of any of its Directors. The
Committee conducted an annual review
ofthe performance of Aon McLagan in
October 2022 and determined that the
Committee was broadly happy with the
support provided. The fees paid for services
provided to the Committee in 2022
were£51,410 (2021: £81,673) and were
determined on a time and expenses basis.
The Committee is satisfied that the advice
itreceives is objective and independent,
and that there are no conflicts of interest
resulting from Aon’s appointment. As the
Committee will be determining a new Policy
during 2023 for shareholder approval in
2024, it is the right time to conduct a
market review of independent advisors to
ensure that the Committee is receiving the
best value from its advisors over this period.
The People and Remuneration Committee in brief
The People and Remuneration Committee leads the process for reviewing the remuneration practices of the Bank and
approving the executive remuneration structure and outcomes. It also has oversight of other activities of the Bank’s
People function, such as the Bank’s D&I strategy and talent development. Its duties include to:
• determine the Directors’ Remuneration Policy (the ‘Policy’) and recommend its approval to the Bank’s Board
andthen the Bank’s shareholders;
• review and have regard to the pay and employment conditions across the Company and the alignment of incentives
and rewards with the Bank’s culture;
• engage with the Bank’s Colleagues on remuneration matters through the Board’s DNED;
• approve the design of, and determine the targets for, any performance-related reward schemes operated bytheBank
and approve the total annual payments under such schemes;
• oversee the Bank’s D&I strategy;
• exercise independent judgement and discretion when authorising any remuneration outcomes;
• oversee the Bank’s Senior Managers Certification Regime, including appropriate competencies and Material Risk
Takers and Certified Roles;
• seek advice from the CRO and Chair of the Risk Oversight Committee on risk adjustment as it applies
toexecutiveremuneration; and
• engagement with the Bank’s shareholders, and other stakeholders, on the Bank’s remuneration decisions.
2023 priorities
• Review of the Directors’ Remuneration Policy ahead of its renewal at the AGM in 2024.
• Retain a focus on lower paid Colleagues in the context of ongoing cost of living challenges.
• Oversee remuneration related implications (such as share plans) as a consequence of the creation of a new
holdingcompany.
• Review of the ongoing alignment between the Bank’s incentives and any changes in strategic priorities including
considering the future types of ESG related measures in incentive plans.
• Review of Remuneration Committee advisors.
141 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Remuneration at a glance
Reflects the value of the
individual’s skills, expertise and
experience and ability to grow
with the role and organisation.
Executive director pay at Metro Bank
The remuneration of Executive Directors at MetroBank consists of the following elements.
Salary
Incentivises the delivery of the
annual financial and strategic
objectives which contribute
towards the delivery of longer
term strategy. Aligns interests
with shareholders by delivering
a portion in shares.
Supports the health, wellbeing
and security of our Executive
Directors. Offering is aligned
with all colleagues.
Motivates key individuals and
rewards the creation of long
term shareholder value thereby
creating shareholder alignment.
Supports Executive Directors in
building long term savings for
their retirement. Offering is
aligned with all colleagues.
Sum of the fixed and variable
elements of remuneration.
Benefits Pension Annual bonus LTIP Total remuneration
2022
£0.5m
£0.0m
£1.0m
£0.5m £1.0m
£1.5m
£825,161 £360,800
£90,200
Daniel Frumkin, Chief Executive Ocer (£’000)
£0.0m
2022
£1.5m
£173,268
£43,600 £10,900
James Hopkinson, Chief Financial Ocer
(£’000)
Deferred Share AwardRetained Share AwardFixed remuneration
2022
£0.5m£0.0m £1.0m
£0.5m £1.0m
£1.5m
£825,161 £360,800
£90,200
Daniel Frumkin, Chief Executive Ocer (£’000)
£0.0m
2022
£1.5m
£173,268
£43,600 £10,900
James Hopkinson, Chief Financial Ocer (£’000)
Deferred Share AwardRetained Share AwardFixed remuneration
60.00%
Underlying loss before tax (£’million)
Statutory cost: income ratio (%)
Capital including MREL
Cost of risk and relationship with regulator
Net promoter score and expressions
of dissatisfaction
Diversity and colleague engagement
Financial
Risk &
Regulatory
Customer
People
5.50%
0.00%
10.00%
8.25%
11.60%
Threshold Target Maximum
2022 weighted
outcome
Actual performance Range from threshold to maximum
No cash bonuses were awarded for the 2022 performance year. There were no long-term
incentive plan vestings for either executive director. All share awards are subject to a minimum
12month holding period.
2022 remuneration outcomes for Executive Directors Pay for performance at a glance
The following table shows the 2022 balanced scorecard outcomes used to inform annual variable reward. Although the
formulaic outcome was 95.35%, the Committee accepted the Management’s recommendation that discretion be
applied to adjust the outcome to 67%.
Fixed Variable
=++++
142 Metro Bank PLC Annual Report and Accounts 2022
People and Remuneration Committee governance
How does our Directors’ Remuneration Policy address the key features set out in the UK Corporate Governance Code (‘the Code’)
The following table summarises how the Remuneration Policy fulfils the factors set out in provision 40 of the 2018 UK Corporate Governance Code.
Clarity
Remuneration arrangements should be transparent and
promote effective engagement with shareholders and
theworkforce.
The Committee is committed to providing open and transparent disclosures to shareholders and colleagues with regard to Executive Director
remuneration arrangements.
Colleagues are able to express their views on pay through regular surveys and feedback, as well as through our DNED.
Simplicity
Remuneration structures should avoid complexity
andtheir rationale and operation should be easy
tounderstand.
Our approach to remuneration for Executive Directors is simple and transparent. It is consistent with structures used widely across the financial
services industry.
Risk
Remuneration arrangements should ensure reputational
and other risks from excessive rewards, and behavioural
risks that can arise from target-based incentive plans,
areidentified and mitigated.
In line with regulatory requirements, our remuneration practices promote sound and effective risk management while supporting our
businessobjectives.
For 2023, 20% of our balanced scorecard which informs variable reward will be based on risk and regulatory measures, and variable reward
isalso subject to a risk adjustment process and input from the CRO and the Chief People Officer.
The deferred portion of any bonus awards granted to Executive Directors vest between years three and seven, during which our malus policy
can be applied.
Awards made under the separate LTIP also vest over a seven year period, assuming performance conditions (of which one is a risk-based
measure) have been met. Our malus policy can be applied to the LTIP throughout the vesting.
All variable pay awards that have vested are subject to our clawback policy for a period of up to seven years from the award date
(extendingto10 years where an investigation is ongoing).
Predictability
The range of possible values of rewards to individual
directors and any other limits or discretions should
beidentified and explained at the time of approving
thepolicy.
Variable reward is delivered primarily through share based awards. The value of awards are therefore closely aligned to share price movements
and the shareholder experience.
The potential value and composition of the Executive Directors’ remuneration packages at below threshold, target and maximum scenarios
areprovided later in the report.
Proportionality
The link between individual awards, the delivery
ofstrategy and the long-term performance of the
Company should be clear. Outcomes should not
rewardpoor performance.
Variable reward payments require robust performance against challenging measures and targets. Performance conditions have been designed
to drive the delivery of our business strategy and consist of a number of financial and non-financial metrics, as well as individual performance
based on the individual’s AMAZEING review.
The Committee has discretion to override formulaic scorecard outcomes to ensure that they are appropriate and reflective
ofoverallperformance.
Alignment to culture
Incentive schemes should drive behaviours consistent
with company purpose, values and strategy.
The primary objective of our remuneration framework is to support growth and our long-term success while reinforcing our unique culture.
The variable reward pool for any year is based on the overall performance of the Bank in terms of culture and delivery in line with the
balancedscorecard.
All colleagues are able to participate in our HMRC approved share incentive plan, which supports our ethos of colleague buy-in and ownership.
143 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
People and Remuneration Committee governance
Continued
In accordance with Code Provision 41, the Directors’ Remuneration Report describes the work of the Committee, including those areas mentioned in that Provision. The table below
highlights some of those areas:
Provision Approach
Operation of policy The Committee believes that the Remuneration Policy operates as intended in terms of Company performance and the quantum of remuneration delivered.
Shareholder engagement We undertook substantial engagement with our shareholders as part of the development of a new remuneration policy in the run up to the 2021 AGM. We are grateful for
thisfeedback and subsequent input received that has shaped our thinking and decision-making. We also engaged leading investors in the run up to the 2022 AGM on our
remuneration approach.
Workforce engagement An outline of our approach to workforce engagement in set out on page 146.
The Directors’ Remuneration Policy – summary
This section of the report summarises the remuneration policy for our Directors, how it was implemented in 2022 and how it is intended to operate in 2023. The policy was approved by
shareholders at the AGM on 18 May 2021 and took effect from that date, in accordance with section 439A of the Companies Act 2006. It is intended that approval of the Remuneration
Policy will be sought at three-year intervals, unless amendments to the policy are required, in which case further shareholder approval will be sought; no changes are proposed for 2023.
The approved Remuneration Policy can be found in the Governance section on our website.
Key elements of
remuneration
Key features of the Policy Implementation for 2022 Planned for 2023
Salary • Reviewed annually and increases will be in line with increases awarded to other colleagues.
• There may be instances where a higher amount is agreed at the discretion of the
Remuneration Committee, for example where the size scope of a particular role is increasing
organisation grows.
• Daniel Frumkin (CEO): £769,600.
• James Hopkinson (CFO): £500,000
(appointment salary).
• No change. An increase to
£925,000 has been approved and
will be deferred until January 2024
(see page 140 for more detail).
• No change for the CFO.
Benefits Core benefits include:
• Life assurance of 4x salary.
• Private medical insurance for the Exec their partner and children.
• Additional benefits may be provided in circumstances such as on relocation.
Benefits are provided in line with the
approved Policy.
Core benefits will be unchanged
from previous year.
Pension • Executive Directors are automatically enrolled to the Group Personal Pension Plan when they
join. If they have exceeded the lifetime allowance or annual pension tax-free contribution
amount they can elect to take cash in lieu of pension for the benefit.
• We do not operate any discretionary pension benefits.
Company contributions:
• Daniel Frumkin (CEO): 8% of salary.
• James Hopkinson (CFO): 8% of salary.
Unchanged for the CEO and CFO.
144 Metro Bank PLC Annual Report and Accounts 2022
People and Remuneration Committee governance
Continued
Key elements of
remuneration
Key features of the Policy Implementation for 2022 Planned for 2023
Annual Bonus • Variable reward will be limited to 200% in a financial year. Within this overall limit, the annual
bonus will be limited to 100% of salary for a financial year.
• Deferral of all variable reward (annual bonus will be in line with regulatory requirements).
• Subject to malus and clawback.
• Executive Directors must undertake no personal hedging strategies or take out insurance
toundermine the risk alignment in their remuneration.
Scorecard measures for 2022 outlined
onpages 149 to 150.
The maximum award levels remain
unchanged for 2023. The balanced
scorecard measures are outlined
onpage 165, and reflect strategic
priorities.
LTIP • Variable remuneration will be limited to 200% of salary for a financial year. Within this
anoverall limit of 100% for LTIP within a financial year.
• Performance to be measured ordinarily over a three-year period, with vesting between three
and seven years. LTIP shares will be subject to a post-vesting retention period.
• The performance conditions have been aligned to the strategic plan and the performance
targets will be set to be stretching.
• Subject to malus and clawback.
• Executive Directors must not undertake personal hedging strategies or take out insurance
toundermine the risk alignment to their remuneration.
• Daniel Frumkin (CEO): 100%.
• James Hopkinson (CFO): n/a.
Details of the approach set out on
page 164.
Proposed awards to be granted in
2023 in respect of 2022 performance
are as follows:
• Daniel Frumkin (CEO): 100%.
• James Hopkinson (CFO): 100%.
All employee Share
Incentive Plan
• Tax-efficient all employee plan to encourage employee share ownership.
• Executive Directors are eligible to participate in the all-employee Share Incentive Plan.
The lower of £1,800 or 10% of salary
pertax-year can be used to purchase
Metro Bank shares.
No change in policy approach
in2023.
Shareholding
guidelines
• Executive Directors are subject to a minimum shareholding requirement equivalent to 200%
of salary.
• Executive Directors are expected to retain all share vesting under the Deferred Plan and LTIP
(net of tax) until such time as this shareholding has been met. Build up is expected over five
years commencing with the later commencement date or the date the Director joins the
Company.
• Executive Directors are expected to maintain the shareholding requirement (or their actual
shareholding at date of leaving, if lower) for at least two years post-employment. For awards
granted from the commencement of this policy, the Company will enforce this by way of
acontractual requirement.
Current shareholdings and progress
toward shareholding requirement set out
on page 161.
No change in policy approach
in2023.
NEDs • All NEDs receive a fee for fulfilling their duties as a Board.
• Additional fees are paid for added responsibilities such as chairship and membership
ofacommittee of or acting as the Senior Independent Director.
• The basic and additional fees are review periodically, drawing on external mark
forcomparable financial services group companies.
Our NEDs are paid in line with the
approved Policy.
The basic annual fee paid to all NEDs
changed to £65,500, with an increase
infees for additional responsibilities.
Theannual fee for the Chair remained
unchanged at £350,000.
No change in policy approach
in2023.
Fees remains unchanged going
into2023.
145 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
People and Remuneration Committee governance
Continued
Remuneration for colleagues below Board level
Metro Bank is committed to ensuring our workforce has the diversity of talent and expertise that it needs for the business to continue to grow and innovate. Our people are critical
tousachieving our strategy and the Remuneration Committee is committed to ensuring our people are rewarded fairly and competitively for their contribution to our success.
Our approach to remuneration for colleagues below Board and ExCo level is similar for all colleagues. Whilst remuneration for the ExCo is structured differently to that of the wider
colleague population, it is consistent across this small group of colleagues. The focus is on simplicity, rewarding the right behaviours and outcomes for customers and the business whilst
discouraging unnecessary risk taking.
Summary of the Remuneration Structure for colleagues below Board level
Salary Benefits Pension Variable Remuneration
• The quantum of salary increases are primarily
driven by the external market and capability.
• We also review salaries for roles that we deem
are growing rapidly in scale and/or complexity
and are critical to the business and for those
colleagues which market data suggests are
falling behind the market rates for their roles.
• All colleagues are eligible for private medical
insurance funded at different rates of cover
depending on their level.
• All colleagues, including the ExCo, receive life
assurance cover of four times their base
annual salary.
• All colleagues can participate in our Group
Personal Pension Plan when they join the
Bank. If they have exceeded the lifetime
allowance or the annual pension tax-free
contribution limit, they may elect to take cash
in lieu of pension for all or some of the benefit.
• Employer pension contributions payable by
Metro Bank are up to 10%.
• We apply the same Company performance
adjustment factor to all colleagues.
• For all colleagues whose personal behaviours
and delivery are as expected or better, we
apply an adjustment factor up to a maximum
of 200%.
• Where appropriate and required by
regulations, variable remuneration is deferred
and delivered in share.
Consideration of employment conditions elsewhere in the Bank
We offer a simple approach to reward for all colleagues which supports our unique culture and strategy as well as being aligned to shareholder needs. Our approach to remuneration
isconsistent for all colleagues including our Executive Directors. The focus is on simplicity, rewarding the right behaviours and outcomes for customers and the business, focusing
onlong-term growth and discouraging unnecessary risk-taking.
During the year, the Remuneration Committee received updates on overall pay and conditions for colleagues across the Bank and this was taken into account when setting pay for
Directors. In particular, the base salary for Executive Directors is limited by reference to colleague pay, and ahead of our annual reward review process, the Remuneration Committee
opines on the quantum to be made available for salary increases, annual bonus awards, awards under the DVRP and the LTIP. Colleagues are able to express their views on pay through
regular surveys and feedback, as well as through our DNED.
Workforce engagement
Metro Bank runs annual employee engagement surveys, as well as more regular ‘pulse’ surveys which provides colleagues with the opportunity to give feedback and express their views
on a variety of topics including their own remuneration, working environment and workforce policies and practices. Any comments relating to Executive Directors’ remuneration are
fedback to the Remuneration Committee. Nick Winsor, as the new DNED, attends the Committee annually, with Nick presenting to the Committee on his engagement with the Bank’s
Colleagues once per annum. People diversity in all its forms is a core element of our talent strategy and succession planning.
Approach to recruitment remuneration for Executive Directors
The Remuneration Committee’s overarching principle for recruitment remuneration is to pay reasonably to attract an Executive Director of the calibre required to shape and deliver the
business strategy, from a diverse talent pool. The Committee will seek to align any remuneration package with our remuneration policy as laid out above but retains the discretion to
offer a remuneration package which is necessary to meet the individual circumstances of the recruited Executive Director and to enable the hiring of an individual with the necessary
skills and expertise.
146 Metro Bank PLC Annual Report and Accounts 2022
People and Remuneration Committee governance
Continued
Loss of office policy
The Bank’s policy is that Executive Directors’ contracts can be terminated by either party on giving no more than 12 months’ notice. Additional payments can be made by way of
damages for breach of any legal obligation or by way of settlement or compromise of any claim raised by the Executive Director. The Executive Directors’ service contracts and letters
ofappointment are available for inspection on request at our registered office.
Projected total remuneration scenarios
The graphs below illustrate scenarios for the projected total remuneration of Executive Directors at four different levels of performance: minimum, target, maximum, and maximum
including assumed share price appreciation of 50% (in accordance with the Corporate Governance Code). The impact of potential share price movements is excluded from the other
three scenarios. These charts reflect projected remuneration for the financial year ending 31 December 2023.
Daniel Frumkin Chief Executive Officer
(£’000)
James Hopkinson Chief Financial Officer
(£’000)
£0m
£0.5m £1.0m £1.5m £2.0m £2.5m £3.0m
£2,756,207
£2,371,407
£1,601,807
£832,207
Fixed pay Annual bonus
Long-term incentives
Minimum
M
aximum
T
arget
M
aximum +50% growth
832
832
832
770
770
385
1,154
770
385
832
£0m
£0.5m £1.0m £1.5m £2.0m £2.5m £3.0m
£1,791,039
£1,541,039
£
1,041,039
£541,039
Minimum
M
aximum
T
arget
M
aximum +50% growth
541
541
541
500
500
250
750
500
250
541
Note
1. These illustrations are based on salaries as at 1 April 2023 and consider the cash amount of annual variable remuneration before conversion into share awards. No account is taken of the effect of share price changes (other than under
the “Maximum +50% growth” scenario) or dividends on the value received from share awards or shares received under them.
147 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Annual report on remuneration
Annual report on remuneration
This section sets out how the Remuneration Policy for our Executive and Non-Executive Directors was implemented during the financial year ending 31 December 2022. This section will,
together with the annual statement by the Chair of the Remuneration Committee on pages 138 to 140, be put to shareholders for an advisory vote at the 2023 AGM.
Single total figure of remuneration – Executive Directors (audited)
Annual remuneration (£)
The following sets out the remuneration for the individuals who served as Executive Directors in the year. Daniel Frumkin was the highest paid director in 2022.
Daniel Frumkin James Hopkinson David Arden
3
2022 2021 2022 2021 2022 2021
Salary £762,200 £740,000 £162,879 n/a £52,313 £405,000
Taxable benefits
1
£1,039 £1,001 £173 n/a £52 £400
Pension benefits
1
£60,975 £59,200 £10,000 n/a £5,231 £40,500
Other
1
£947 £875 £216 n/a £107 £787
Total fixed remuneration £825,161 £801,076 £173,268
n/a £57,703 £446,687
Annual variable pay awarded in retained shares £360,800 £547,600 £43,600
n/a n/a £103,275
Annual variable pay awarded in deferred shares £90,200 £81,400 £10,900
n/a n/a £154,913
Total variable remuneration £451,000 £629,000 £54,500
n/a n/a £258,188
Total remuneration £1,276,161 £1,430,076 £227,768
n/a £57,703 £704,875
Details of the single figure salary (audited)
Salary as at
1 January 2022
Salary as at
1 April 2022
Total salary
paidin 2022
Daniel Frumkin £740,000 £769,600 £762,200
James Hopkinson
2
n/a £500,000 £162,879
David Arden
3
£405,000 £405,000 £52,313
1. Taxable benefits includes the cost of private medical cover. Pension benefits is the amount of cash in lieu of participating in a pension plan. Other includes the premium for life assurance cover.
2. In the case of James Hopkinson, salary as at date of appointment to the Board.
3. David Arden’s remuneration in the above table reflects his period as a director to 15 February 2022. He remained in employment up to 1 April 2022.
2022 variable reward outcomes (audited)
Variable reward outcomes across all colleagues is determined as follows:
Salary x
On target variable
remuneration
x
Bank-wide balanced scorecard outcome
‘Company performance adjustment factor’
(0%–120%)
x
Individual AMAZEING Review rating
multiplier ‘Individual adjustment factor’
(0%–200%)
=
Proposed variable
remuneration
The annual bonus in relation to performance during 2022, for all colleagues including Executive Directors was based on a balanced scorecard of performance measures and objectives,
weighted between financial (60%), risk and regulatory (20%), customer (10%) and people (10%). At its February 2023 meeting, the Committee approved a balanced scorecard outcome
of 67%.
148 Metro Bank PLC Annual Report and Accounts 2022
Annual report on remuneration Continued
The tables below illustrate performance against each of the balanced scorecard measures. This approach and adjustment factor are consistent with that applied for all colleagues across
the Bank. The performance adjustment factor can range from 0% to 120%.
Amounts shown reflect the total annual bonus paid in 2023, based on performance in the financial year ending 31 December 2022, including the value of any retained shares and
deferred shares under the DVRP.
Financial performance
Performance measure Weighting
Threshold
performance
Target
performance
Maximum
performance
Actual
performance
outcome
Adjustment
factor
Weighted
performance
outcome
Underlying loss before tax (£’million) 50% (71.0) (65.0) (58.0) (50.6) 1.2x 60.0%
Statutory cost: income ratio (%) 5% 124.3% 113.0% 101.7% 105.9% 1.1x 5.5%
Capital including MREL 5% Qualitative assessment See below n/a 0.0%
Total for financial measures 60% 65.5%
While capital remains above regulatory minima, the Committee accepted a recommendation from Management that no pay-out was afforded to this item. The minimum requirement for
own funds and eligible liabilities (MREL) remained close to the regulatory minima (as at the end of 2022).
Non-financial performance
Objectives Key achievements in 2022 Weighting
Adjustment
factor
Weighted
performance
outcome
Risk and regulatory Cost of risk (Impairment) Cost of risk exceeded the target range. However, the overall risk profile and quality of lending has
remained strong.
10.0% 0.00x 0.00%
Relationship with regulator Regulatory risk has remained broadly stable throughout 2022 with the Bank operating within its
appetite limits. The relationship with the regulators was assessed as supportive and collaborative,
while remaining robust. There were no new regulatory enforcement actions on conduct in the year.
10.0% 1.00x 10.00%
Customer Net promoter score account
opening
Account openings received high performing scores ending above the target for the year end. 5.0% 1.05x 5.25%
Net promoter score
relationship
Scores were below expectations, and missed the year-end target. 2.5% 0.00x 0.00%
Expressions of dissatisfaction H1 2022 saw an improvement but overall performance deteriorated during H2 2022 mainly due
toincidents impacting digital platforms.
2.5% 1.20x 3.00%
People Measures relating to diversity
and colleague engagement
Colleague engagement scores were well above threshold with notable achievements compared
tothe global benchmarks and in the number of colleague comments.
4.0% 1.1x 4.40%
The Bank remained broadly stable in its target for ethnic minority representation at a leadership
level notwithstanding changes in the colleague population as the business reorganised. Significant
increase in ethnic minority internal promotions into the leadership group with further progress
being made at the middle management level.
6.0% 1.2x 7. 20%
Note: 80% of weighting is applied for threshold performance with a step progression of 5% in the adjustment factor of the weighted performance outcome from 80% to 120% (maximum performance).
149 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Annual report on remuneration Continued
Overall Balanced Scorecard Outcome prior to the exercise of Committee discretion.
Weighting
Weighted
performance
outcome
Financial 60% 65.50%
Risk and regulatory 20% 10.00%
Customer 10% 8.25%
People 10% 11.60%
Total 100% 95.35%
Adjusted outcome (after discretion) 67.00%
Management asked the Committee to exercise its discretion to reduce this formulaic outcome to 67%, believing that a lower pay-out was appropriate as the Bank focussed on returning
to profitability and maintaining its capital position. The Committee accepted this recommendation, notwithstanding the broader achievements by the Bank and its colleagues in 2022.
As such the adjusted balanced scorecard outcome was 67%.
150 Metro Bank PLC Annual Report and Accounts 2022
Annual report on remuneration Continued
Individual behaviours and performance adjustment factor
A discretionary adjustment factor was applied to variable reward for all eligible colleagues, by reference to each colleague’s individual behaviours and performance for the year.
Setoutbelow are details of the individual adjustment factor in respect of the Executive Directors as determined by the Remuneration Committee.
Key objectives in 2022 Key achievements in 2022
Individual
behaviours and
performance
adjustment factor
Daniel Frumkin
– Financial
– Customer
– People
– Risk and regulatory
Daniel has continued his strong performance in 2022. He has led the business to deliver, and in some areas exceed, expectations on all elements
of the strategic plan he set out three years ago. Despite the continued headwinds of the prevailing economic climate, performance across the
scorecard has been strong. The Bank has remained true to its ethos, focusing on customers and colleagues providing help and support through
the cost of living crisis.
He has orchestrated the Bank’s turnaround and put the organisation back on the path of sustainable profitability.
A summary of his performance is set out below:
Financial: Underlying loss before tax was £50.6 million favourable to target and an improvement on last year. There was also a year on year
improvement in total income to £522.1 million (on an underlying basis), and continued demonstrably improved focus on cost efficiency
anddiscipline.
Customer: Maintained again our number one high street bank ranking for customer service in the recent CMA results, which provides evidence
the Bank’s customer focused culture has remained strong. Visited all of our store locations to better understand the customer and colleague
experience.
People: Continued strong colleague engagement scores from the Voice of the Colleague survey which are aligned with the external global
benchmark. Metro Bank recognised as one of the UK’s top 10 most Loved Workplaces (by Newsweek).
Risk and regulatory: Resolution of outstanding historical regulatory matters. Continued improvement in the Bank’s risk and control
environment creating a stronger foundation to build upon. Growing confidence in the Bank’s risk and regulatory maturity demonstrated
bysuccessful achievement of Pillar 2A and Tier 2 MREL relief. Relationships with regulators remained strong.
175%
James Hopkinson
– Financial
– Customer
– People
– Risk and regulatory
James has made a good start to his role.
His leadership ensured that the Bank could record its first full quarter of underlying profit since Q2 2019.
In a short space of time he:
– Reorganised the finance function into more sustainable organisational structure without the need for a deputy CFO role.
– Identified and then delivered a number of improvements to the regulatory reporting system without disrupting delivery of key activities.
– Successfully delivered a critical budgeting process, gaining swift Board support for his proposed approach.
100%
151 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Annual report on remuneration Continued
Determination of variable reward for the Executive Directors
In recognition of the corporate balanced scorecard outcome and a holistic review of personal performance and contribution for 2022, the Remuneration Committee agreed the following
annual bonus outcomes for the CEO and CFO.
Executive Director
Salary for variable
reward
Company
performance
adjustment
factor
Individual
behaviours and
performance
adjustment
factor
Company
and individual
performance
adjustment
outcome
Outcome after
any discretionary
adjustment
Target
opportunity
(as % of salary)
Annual variable
Reward
1
Daniel Frumkin £769,600 67% 175% 117% 117% 50% £451,000
James Hopkinson
2
£162,879 67% 100% 67% 67% 50% £54,500
Notes
1. Annual variable reward amounts are rounded to the nearest £500.
2. James Hopkinson was eligible for a pro rata annual variable reward reflecting his start date of 5 September 2022.
In addition, each Executive Director is eligible to receive an LTIP award of 100% of their salary. Awards are expected to be granted in late March 2023. Under the LTIP, the Committee
hasfull discretion to ensure that the final outcomes are warranted based on the performance of the Bank in light of all relevant factors and that there have not been any windfall gains.
The factors considered in making this assessment will be described at the time of vesting.
These awards contribute to the Executive Directors building up their shareholding requirement. All share awards are subject to malus and clawback provisions.
152 Metro Bank PLC Annual Report and Accounts 2022
Annual report on remuneration Continued
How variable reward is paid
Executive Director
Total 2022
variable reward
Element of
variable reward Value Method of delivery
Daniel Frumkin £1,220,600 Cash £0 – Paid immediately in cash.
Retained share award £360,800 – Shares that are granted immediately and subject to a mandatory 12-month retention period.
Deferred share award £90,200 – Shares that vest over a seven-year period, pro-rata.
– No vesting is permitted before the third anniversary with pro-rata vesting from year three to year seven.
Vesting is subject to continued service.
– Each vest is subject to a mandatory 12-month retention period.
– No performance conditions attached.
– The sum of the deferred share award and the LTIP award equals 60% to satisfy regulatory requirements.
LTIP award £769,600 – Shares that are subject to the satisfaction of performance conditions over a 3 year performance period.
– Pro-rata vesting from year three to year seven.
– Each vest is subject to a mandatory 12-month retention period.
– The sum of the deferred share award and the LTIP award equals 60% to satisfy regulatory requirements.
James Hopkinson £554,500 Cash £0 – Paid immediately in cash.
Retained share award £43,600 – Shares that are granted immediately and subject to a mandatory 12-month retention period.
Deferred share award £10,900 – Shares that vest over a seven-year period, pro-rata.
– No vesting is permitted before the third anniversary with pro-rata vesting from year three to year seven.
Vesting is subject to continued service.
– Each vest is subject to a mandatory 12-month retention period.
– No performance conditions attached.
– The sum of the deferred share award and the LTIP award equals 60% to satisfy regulatory requirements.
LTIP award £500,000 – Shares that are subject to the satisfaction of performance conditions over a 3 year performance period.
– Pro-rata vesting from year three to year seven.
– Each vest is subject to a mandatory 12-month retention period.
– The sum of the deferred share award and the LTIP award equals 60% to satisfy regulatory requirements.
153 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Annual report on remuneration Continued
2023 2024 2025 2026 2027 2028 2029 2030 2031
Retained shares
(vest immediately)
Deferred shares
(pro-rata vesting between
years 3 to 7)
Tranche 1 (20%)
Tranche 2 (20%)
Tranche 3 (20%)
Tranche 4 (20%)
Tranche 5 (20%)
LTIP
(pro-rata vesting between
years 3 to 7)
Tranche 1 (20%)
Tranche 2 (20%)
Tranche 3 (20%)
Tranche 4 (20%)
Tranche 5 (20%)
12 month mandatory retention period after each vesting dateVesting period
The UK Corporate Governance Code (paragraph 36) provides that LTIPs should be subject to a total vesting and holding period of five year or more.The LTIP vests in five equal
instalments over five years (years three to year seven), with a 12-month holding period then applying post each vesting. This means that, in aggregate, the combined vesting/holding
period is on average six years.
Change in Directors’ remuneration compared with colleagues
We monitor year-on-year changes between the movement in remuneration for executives between performance years compared with the wider colleague population.
The table on page 155 sets out the year-on-year percentage change in different elements of remuneration for individual Directors, ExCo members and the wider colleague population.
154 Metro Bank PLC Annual Report and Accounts 2022
Annual report on remuneration Continued
Annual percentage change in remuneration
The percentage increases or decreases in the table below reflect changes in populations year-on-year or, in the case of Directors, changes in responsibilities, e.g. Committee
memberships, or that the individual was not a Director for the whole year. Percentage for Directors are calculated using the respective figures in the single total figure for
theremuneration.
Salary/Fees % change Taxable benefits % change Annual variable reward
2022 vs 2021 2021 vs 2020 2020 vs 2019 2022 vs 2021 2021 vs 2020 2020 vs 2019 2022 vs 2021 2021 vs 2020 2020 vs 2019
All colleagues 3.7% 5.6% 4.7% (4.10%) 4.4% 23.9% 12.9% 23.8% 41.1%
Daniel Frumkin 3.0% 3.5% (4.7%) 3.8% 0.0% 12.5% (28.3%) 20.2% 100.0%
David Arden (74.6%) 2.6% (2.2%) (73.8%) 0.0% 12.5% n/a (10.7%) 150.4%
James Hopkinson n/a n/a n/a n/a n/a n/a n/a n/a n/a
Executive Committee 8.4% 3.8% 3.0% (3.1%) (11.5%) 8.5% (45. 5%) 33.8% 266.5%
Robert Sharpe 0.0% 500.0% n/a 0.0% 0.0% n/a n/a n/a n/a
Catherine Brown 10.7% 7. 9% 13.8% 0.0% 0.0% n/a n/a n/a n/a
Sally Clark (50.0%) 16.9% n/a 0.0% 0.0% n/a n/a n/a n/a
Dorita Gilinski n/a n/a n/a 0.0% 0.0% n/a n/a n/a n/a
Anne Grim
7
(17.4%) 104.6% n/a 0.0% 0.0% n/a n/a n/a n/a
Ian Henderson 2.03% 65.2% n/a 0.0% 0.0% n/a n/a n/a n/a
Monique Melis
8
27.6% (20.7%) 40.6% 0.0% 0.0% n/a n/a n/a n/a
Paul Thandi 6.4% 0.0% 6.6% 0.0% 0.0% n/a n/a n/a n/a
Michael Torpey 2.0% 3.0% 246.6% 100.0% 0.0% n/a n/a n/a n/a
Nicholas Winsor 35.0% 56.3% n/a 0.0% 0.0% n/a n/a n/a n/a
1. Daniel Frumkin volunteered salary reductions in May, June and July 2020 in light of the COVID-19 pandemic. Daniel’s percentage change in salary also reflects his time as Interim CEO between 1 January and 18 February 2020. Executive
Directors did not receive a salary increase in 2021.
2. David Arden volunteered salary reductions in May, June and July 2020 in light of the COVID-19 pandemic. David stepped down from the Board on 15 February 2022, hence why his remuneration between 2021 and 2022 fell.
3. James Hopkinson was appointed to his role on 5 September 2022.
4. Robert Sharpe became Chair of the Board on 1 November 2020, hence why his remuneration is recorded as increasingly by 500% between 2020 and 2021.
5. Sally Clark stepped down from the Board on 30 June 2022.
6. Dorita Gilinski was appointed to the Board on 26 September 2022.
7. The year-on-year movement for Anne Grim is largely a function of changes in responsibilities and her appointment to the Board in 2020.
8. Monique Melis was interim Senior Independent Director in 2020.
9. The data for ‘all colleagues’ and ‘Exco’ is based on the population employed as at the relevant December year end. Average is calculated on a mean basis. Provisional 2022 annual variable awards figures have been used as the year end
performance management process for colleagues remains ongoing as at the date of this report.
155 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Annual report on remuneration Continued
CEO to colleague pay ratio disclosure
Year
Calculation
methodology
25th
percentile
pay ratio
Median
pay ratio
75th
percentile
pay ratio
CEO
salary
25th
percentile
salary
Median
salary
75th
percentile
salary
CEO total
pay
25th
percentile
total pay
Median
total pay
75th
percentile
total pay
2022 A 49:1 35:1 19:1 £762,200 £23,860 £32,570 £56,520 £1,276,161 £26,282 £36,929 £65,938
2021 A 55:1 40:1 22:1 £740,000 £23,000 £30,400 £55,000 £1,430,100 £25,800 £36,100 £64,700
2020 A 55:1 40:1 23:1 £714,800 £21,100 £27,400 £47,000 £1,297,000 £23,800 £32,200 £57,000
2019 A 36:1 27:1 16:1 £750,000 £20,700 £26,700 £43,400 £828,600 £22,900 £30,300 £51,200
Notes:
Salary and total pay figures have been rounded to the nearest £100.
We have not diverged from the single total figure methodology when calculating employee pay and benefits.
The 2021 quartile salary and total pay figures have been restated after an error was identified in the calculation of the quartile colleague remuneration figures. The 2021 pay ratio figures was unaffected.
The respective quartiles were calculated using the Option A methodology which the Committee considers the most straight forward approach. Colleagues are included in the 2022 data
set if employed as at 31 December 2022. Three colleagues were identified whose full-time equivalent total remuneration places them at the 25th, 50th and 75th percentiles. Colleague
total remuneration includes salary, allowances, employer pension contributions, Company-funded health and risk benefits and incentives in respect of the relevant performance year.
For2022 provisional annual variable awards figures have been used as the year end performance management process for colleagues remains ongoing as at the date of this report.
Weare confident that the colleagues identified at the lower, median and upper quartiles are remunerated in line with our wider policies on colleague pay, reward and progression.
There has been a small percentage point reduction in the pay ratio between 2021 and 2022. The primary reason for this is the lower variable reward outcome for the CEO in 2022.
TheCommittee is satisfied that the individuals identified within each relevant percentile appropriately reflect the employee pay profiles at those quartiles and that the overall picture
presented by the ratios is consistent with our approach to colleague reward. It is important to note that a high proportion of the CEO remuneration is based on performance against
theshort- and long-term incentive plans, and that payouts can vary significantly year-on-year, affecting the ratio going forward.
Relative importance of spend on pay
The table below shows total remuneration of all colleagues for 2022 compared to 2021.
2022
£’million
2021
£’million
%
change
Employee costs 196.8 201.2 (2%)
The costs above are wages and salaries, and exclude social security, pension costs, equity-settled share-based payments and costs capitalised or offset against the C&I grant.
Theyear-on-year reduction reflects a small reduction in the average headcount during 2022.
We did not make any distributions by way of dividend or share buy-back during the year, or any other significant distributions. We therefore consider that at this time there is no
information or data which would assist shareholders in understanding the relative importance of spend on pay.
156 Metro Bank PLC Annual Report and Accounts 2022
Annual report on remuneration Continued
Total shareholder return
The chart shows our total shareholder return relative to the FTSE 250 and the FTSE 350 banks (which is the capitalisation-weighted index of all bank stocks in the FTSE 100 and
FTSE250) since our listing on the London Stock Exchange in March 2016. These indices have been chosen as they represent a cross-section of UK companies and banks.
Mar 2016 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2022Dec 2021
0
50
100
150
200
250
Total shareholder return (%)
Metro Bank FTSE 250 FTSE Banks
CEO historic remuneration
Daniel Frumkin Craig Donaldson
CEO historic remuneration 2022 2021 201 2020 2019 2018 2017 2016
Total remuneration (including any Listing awards) £1,276,161 £1,430,076 £1,297,176 £828,565 £800,944 £1,518,893 £1,304,919
Variable reward outcome as a percentage of the maximum that could have been paid 59% 85% 35.7% 0% 0% 62% 52%
157 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Annual report on remuneration Continued
Non-Executive Directors’ remuneration
Chair’s fees
The fees for the Chair remain unchanged at £350,000.
Non-Executive Directors’ fees
The NEDs are paid a basic fee, with further fees payable to reflect Board Committee memberships and chairships and/or additional responsibilities such as Senior Independent Director.
Role
Annual fee as at 31
December 2022
(£’000)
Non-Executive Director – basic fee 65
Senior Independent Director 30
Designated NED for Colleague Engagement 10
Chair Member
Audit Committee 20 5
Nomination Committee n/a 5
People and Remuneration Committee 15 5
Risk Committee 25 10
Non-Executive Directors’ fees and taxable benefits (audited)
The table below shows the actual fees paid to our Chair and NEDs in 2022 and 2021.
Robert Sharpe (Chair) Catherine Brown
1
Sally Clark Dorita Gilinski
1,2
Anne Grim
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
Fees £350,000 £350,000 £96,875 £87, 500 £46,250 £92,500 £– n/a £68,125 £82,500
Taxable benefits £– £– £– £– £– £– £– n/a £– £–
Total £350,000 £350,000 £96,875 £87,500 £46,250 £92,500 £– n/a £68,125 £82,500
Ian Henderson Anna (Monique) Melis Paul Thandi Michael Torpey
2
Nicholas Winsor
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
Fees £94,375 £92,500 £103,125 £80,833 £73,125 £68,750 £94,375 £92,500 £84,441 £62,500
Taxable benefits £– £– £– £– £– £– £4,677 £– £– £–
Total £94,375 £92,500 £103,125 £80,833 £73,125 £68,750 £99,052 £92,500 £84,441 £62,500
1. Effective 1 April 2022 Catherine Brown and Nicholas Winsor received an additional annual fee of £5,000 for their role of chair of internal steering committees. This is included in the fees shown above.
2. Dorita Gilinski has waived her entitlement to fee.
3. Michael Torpey was reimbursed expenses in respect of his NED duties including travelling from overseas to attend Board and committee meetings, which are included in the benefits section above. Although these expenses
arenecessary and reasonable, under HMRC rules these are deemed taxable in the UK. The Bank therefore paid the tax on the above expenses, which amounted to £3,455.
158 Metro Bank PLC Annual Report and Accounts 2022
Annual report on remuneration Continued
Service contracts and letters of appointment
Both Executive Directors have service contracts. Our NEDs do not have service contracts but are bound by letters of appointment which are available for inspection on request at our
registered office.
NEDs are appointed for fixed terms not exceeding two years, which may be renewed subject to their re-election by shareholders at AGMs.
The effective dates of the current Directors’ appointments disclosed in their service contracts are shown in the table below.
Executive Director Notice period Date of service contract
Daniel Frumkin 12 months 18 February 2020
James Hopkinson 12 months 5 September 2022
Executive Director fees from external positions (unaudited)
The Executive Directors are entitled to receive fees from external appointments. Daniel Frumkin and James Hopkinson did not hold any external appointments at other listed companies
for the last reported financial year during the period they were appointed to the Board.
Payments to past Directors and payments for loss of office (audited)
David Arden stepped down from the Board and the role of CFO on 15 February 2022. Details about his remuneration arrangements relating to his termination were published on our
website on 7 March 2022.
The Committee determined that the following termination arrangements were fair and reasonable, consistent with the Directors’ Remuneration Policy and in line with his contractual
entitlements. He received his normal salary and contractual benefits up until his cessation of employment on 1 April 2022. Following his cessation and in line with the Bank’s approved
Directors’ Remuneration Policy, he received £405,000 (in monthly instalments) in lieu of his 12-month notice period.
Historical share awards granted to David in 2018, 2019, 2020 and the 2021 LTIP lapsed in full.
As disclosed in last year’s remuneration report, David received a variable reward of £258,188 in respect of the 2021 performance year, part of which was deferred in shares. The
Committee determined that he would treated as a good leaver for the purposes of both this deferred share award (granted in 2022) and a deferred share award granted to him in 2021
(in respect of 2020). These awards will continue to vest over the original vesting period i.e. there is no acceleration of vesting and the awards remain subject to malus. The Committee
decided this was appropriate as the awards related to prior performance years and has already been earned.
David received his reasonable legal fees in relation to his termination arrangements.
159 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Annual report on remuneration Continued
Dilution limits
The rules of the Metro Bank DVRP and LTIP contain limits on the dilution of capital. These limits are monitored to ensure that we do not exceed 5% or 10% (where applicable) of the
issued share capital in any rolling 10-year period. For awards granted since the AGM in 2021, discretionary awards under the DVRP and the LTIP must also not exceed 5% of the issued
share capital in any rolling 10-year period, in line with guidance.
Shareholder voting and consideration of shareholder views
At the 2022 AGM on 13 May 2022, shareholders approved the 2021 Directors’ Remuneration Report, receiving a strong vote in favour. The most recent vote on the Remuneration Policy,
which was effective from the date of the 2021 AGM for up to three years, also received shareholder support in excess of 90%.
Item For no. For % Against no. Against % Votes withheld
2022 Directors’ Remuneration Report 69,619,984 91.23 6,692,221 8.77 2,780
2021 Directors’ Remuneration Policy 62,150,543 95.11 3,193,940 4.89 22,200
The Committee greatly values the continued dialogue with our shareholders and regularly engages with shareholders and representative bodies to take their views into account when
setting and implementing our remuneration policies. The Directors have regular open discussions with investors and are available for feedback on reward matters. The Committee looks
forward to engaging with shareholders in the run up to our policy’s renewal in 2024. In the meantime, the Committee Chair and Chair of the Board will continue to maintain contact
asrequired with the Company’s key shareholders about relevant remuneration issues.
160 Metro Bank PLC Annual Report and Accounts 2022
Annual report on remuneration Continued
Shareholding levels (audited)
Directors’ shareholding
These are the total shareholdings as at 31 December 2022 for each Director and any related connected persons.
Director No. of shares
1,2,4
Percentage of
share capital
Robert Sharpe 46,000 0.03%
Daniel Frumkin 2,350,000 1.36%
David Arden 18,400 0.01%
James Hopkinson
3
168,152 0.10%
Catherine Brown 100 0.00%
Sally Clark 0 0.00%
Dorita Gilinski 0 0.00%
Anne Grim 22,500 0.01%
Ian Henderson 15,000 0.01%
Monique Melis 1,690 0.00%
Paul Thandi 30,000 0.02%
Michael Torpey 20,000 0.01%
Nicholas Winsor 150,000 0.09%
1. This table includes vested shares where the Director has beneficial ownership, shares independently acquired in the market and those held by a spouse or civil partner or dependent child under the age of 18 years.
2. For Directors who have stepped down from the Board during the year, the number of shares owned is shown as at the date they stepped down.
3. For James Hopkinson, the total of beneficially owned shares includes shares acquired through our ShareBuy share plan, an HMRC regulated staff share incentive plan. Between the end of the financial year and 2 March 2023,
Jamesacquired a further 346 shares through the ShareBuy arrangement.
4. Except as stated above, there has been no change in the Directors’ shareholding interests between the end of the financial year and 15 March 2023.
161 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Shareholding guidelines
Executive Directors are required to build up a holding of shares equivalent to 200% of their annual salary. With the DVRP and introduction of an LTIP, a five year timeframe was
formalised as part of the new Remuneration Policy for the build-up of the Executive Director Shareholding Requirement. Until this level is achieved, there is a requirement to retain 50%
of net shares in the DVRP and those which vest under the LTIP.
Executive Directors are required to retain 100% of their shareholding requirement (or actual shareholding if lower) for two years post-cessation of employment.
Base Salary
Requirement
as a % of
base salary
Wholly
owned shares Value
1
Shareholding
requirement
met?
Daniel Frumkin £769,600 200% 2,350,000 £2,843,500 Yes
James Hopkinson £500,000 200% 168,152 £203,464 No
1. Value of beneficial shareholding based on 30 December closing share price (121 pence). The value includes vested shares which remain subject to a retention period.
Outstanding Share Awards (audited)
Options have an exercise price that is equal to market value at the date of grant; share options awarded under the Company Share Option Plan (CSOP) from CSOP 2016 onwards are
based on the Volume Weighted Average Share Price for Metro Bank on a date determined by the Remuneration Committee.
We have not awarded share options to NEDs since 2015 (relating to the 2014 performance year). No dividends or dividend equivalents are payable on any share options or on any
unvested share awards held.
The tables below show for each Executive Director any outstanding share awards as at 31 December 2022 (or if earlier the date they stepped down from the Board).
Daniel Frumkin
Share Plan Name
Shares and
share options
granted Award date Exercise price
Face Value of
award
First vesting
date
Last vesting
date
Share options
vested
Share options
lapsed
Share options
still subject to
conditions
Exercised in
year
DVRP 2022 – deferred shares
1
91,153 31/03/2022 £0.00 £81,400 31/03/2025 31/03/2029 – – 91,153 –
DVRP 2022 – retained shares
1
613,214 31/03/2022 £0.00 £547,600 31/03/2022 31/03/2022 613,214 – – –
DVRP 2021 – deferred shares
1, 3
477,821 01/06/2021 £0.00 £523,214 01/06/2024 01/06/2028 – – 477,821 –
LTIP 2022
1, 2, 3
828,667 31/03/2022 £0.00 £740,000 31/03/2025 31/03/2029 – 828,667 –
LTIP 2021
1, 2, 3
675,799 01/06/2021 £0.00 £740,000 01/06/2025 01/06/2028 – – 675,799 –
CSOP 2020 – Hiring Agreement
1
100,000 31/03/2020 £0.93 £93,000 30/04/2023 30/04/2027 – – 100,000 –
Total 2,786,654 613,214 – 2,173,440 –
1. Awards are normally subject to continued employment.
2. 100% of salary was awarded under the 2021 LTIP and 2022 LTIP respectively as nominal cost options that are subject to performance conditions.
3. The number of shares was determined using the relevant closing price prior to the grant date. For 2021 and 2022 awards the price was 109.5p and 89.3p respectively.
Annual report on remuneration Continued
162 Metro Bank PLC Annual Report and Accounts 2022
David Arden
Share Plan Name
Shares and
share options
granted Award date Exercise price
Face Value of
award
First vesting
date
Last vesting
date
Share options
vested
Share options
lapsed
Share options
still subject to
conditions
Exercised in
year
DVRP 2022 – deferred shares
1, 3
173,475 31/03/2022 £0.00 £154,913 31/03/2025 31/03/2029 – – 173,475 –
DVRP 2022 – retained shares
1
115,649 31/03/2022 £0.00 £103,275 31/03/2022 31/03/2022 115,649 – – –
DVRP 2021 – deferred shares
1, 3
263,897 01/06/2021 £0.00 £288,968 01/06/2024 01/06/2028 – – 263,897 –
LTIP 2021
1, 2, 3
369,893 01/06/2021 £0.00 £405,000 01/06/2025 01/06/2028 – 369,893 – –
CSOP 2020
1
76,947 31/03/2020 £0.93 £71,561 30/04/2023 30/04/2027 – 76,947 – –
CSOP 2019 Deferred Cash 1 Year
1
9,600 02/04/2019 £7.94 £76,224 30/04/2020 30/04/2020 – 9,600 – –
CSOP 2019
1
19,200 02/04/2019 £7.94 £152,448 30/04/2020 30/04/2024 – 19,200 – –
CSOP 2018
1
30,000 31/03/2018 £35.36 £1,060,800 30/04/2019 30/04/2023 – 30,000 – –
Total 1,058,661 115,649 505,640 437,372 –
1. Awards are normally subject to continued employment.
2. 100% of salary was awarded under the 2021 LTIP as nominal cost options that are subject to performance conditions.
3. The number of shares was determined using the relevant closing price prior to the grant date. For 2021 and 2022 awards the price was 109.5p and 89.3p respectively.
LTIP performance conditions and targets
Performance conditions and targets together with corresponding weightings for LTIP awards. Unless otherwise stated, performance is measured over the relevant three-year
performance period. The threshold for LTIP vesting is set at 25% of the award with maximum vesting at 100% of the award and straight-line vesting between threshold and maximum
Measure Weighting Threshold
3
Maximum
3
2021 LTIP (granted on 1 June 2021)
Total shareholder return relative to the FTSE 250 (excluding investment trusts) 40% Median against peers Upper quartile or above
Statutory return on tangible equity for FY 2024 40% Threshold: 4% Maximum 7%
Risk and regulatory 20% See notes below
2022 LTIP (granted on 31 March 2022) See notes below
Total shareholder return relative to the FTSE 250 (excluding investment trusts) 40% Median against peers Upper quartile or above
Statutory return on tangible equity for FY 2024 40% Threshold: 4% Maximum 7%
Risk and regulatory 20% See notes below
1. The tangible equity performance target is being disclosed following the Bank resuming provision of medium-term guidance to the market. To date the Bank has not been providing medium-term guidance to the market, so disclosing the
LTIP targets was deemed commercially sensitive.
2. The Committee shall determine the extent to which 20% of the award may vest by reference to a discretionary assessment of risk management over the performance period based on qualitative and quantitative inputs against a number
of risk factor.
Annual report on remuneration Continued
163 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Executive Director proposed Share-Based Awards
The following share-based awards will be made in respect of the 2022 performance year. The DVRP values have already included in the single figure table for 2022.
Daniel Frumkin
Share Option Plan Name
1
Face Value
of award
First vesting
date
Last vesting
date
DVRP 2023 – Retained Shares £360,800 Immediately n/a
DVRP 2023 – Deferred Shares £90,200 Three years post grant Seven years post grant
LTIP 2023
2
£769,600 Three years post grant Seven years post grant
Total £1.220,600
James Hopkinson
Share Option Plan Name
1
Face Value
of award
First vesting
date
Last vesting
date
DVRP 2023 – Retained Shares £43,600 Immediately n/a
DVRP 2023 – Deferred Shares £10,900 Three years post grant Seven years post grant
LTIP 2023
2
£500,000 Three years post grant Seven years post grant
Total £554,500
Notes:
1. All awards are subject to a 12-month retention period.
2. Awards under the LTIP are subject to performance conditions as outlined below.
3. The number of shares will be determined using the closing price on the date before the grant date.
Performance conditions and targets in relation to the 2023 LTIP awards
Performance conditions and targets together with corresponding weightings for LTIP awards to be granted in 2023 are set out below. The measures are aligned to our strategy,
incentivising the creation of long-term value for our stakeholders. Incentive targets are set annually by the Committee considering the medium-term financial plans, and priorities for the
next few years within the context of the economic environment.
Weighting Threshold
3
Maximum
3
Total shareholder return (TSR) relative to the FTSE 250 (excluding investment trusts) 40% Median against peers Upper quartile or above
Statutory return on tangible equity
1
40% Threshold 5% Maximum 8%
Risk and regulatory
2
20% See notes below
1. Return on tangible equity is in respect of Financial Year 2025.
2. The Committee shall determine the extent to which 20% of the award may vest by reference to a discretionary assessment of risk management over the performance period based on qualitative and quantitative inputs against a number
of risk factors.
3. The threshold for LTIP vesting is set at 25% of the award with maximum vesting at 100% of the award and straight-line vesting between threshold and maximum.
4. In addition to the above formal performance conditions, the Committee has full discretion to adjust the outcomes at vest to ensure the outcomes reflect the broader Bank’s performance and that there have not been any windfall gains.
5. A formal underpin will also apply to these awards. It will provide that, if the awards are being satisfied by the purchase of shares in the market, awards are scaled back by the Committee on vesting to the extent to which there is, at that
time, insufficient available distributable reserves and/or net assets.
Annual report on remuneration Continued
164 Metro Bank PLC Annual Report and Accounts 2022
2023 Balanced Scorecard: measures and weightings
The 2023 scorecard reflects our strategic priorities. The targets are set annually by the Committee considering the Bank’s annual financial plan, strategy and its priorities for the next few
years within the context of the economic environment. The Committee considers financial and operational targets to be commercially sensitive and that it would be detrimental to the
Bank’s interests to disclose them before the end of the financial year.
Financial measures make up 60% of the scorecard. Social and Governance related measures are assessed by the Committee using a combination of quantitative and qualitative
assessment. The Committee will, prior to reviewing scorecard performance, assess whether specific capital and liquidity gateways have been met and that the payment of annual
variable awards is affordable.
Measure Weighting Measure type Target
Underlying earnings 50% Financial Disclosed retrospectively
Deposit growth 5% Financial Disclosed retrospectively
Organic MREL accretion 5% Financial Disclosed retrospectively
Sub-total 60%
Risk and regulatory
– Relationship with regulators (qualitative)
– breaches of red limits for tier 1 appetite metrics
20% ESG Disclosed retrospectively
Customer including
– Net promoter score
– EODs per 1000 accounts
10% ESG Disclosed retrospectively
Colleague and Community including
– Colleague engagement
– Diversity in leadership positions
– Reach of Money Zone financial literacy programme
10% ESG Disclosed retrospectively
Total 100%
Annual report on remuneration Continued
165 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Directors’ report
The Directors have the pleasure of presenting their Annual Report and Accounts for the
year ended 31 December 2022. As set out fully in the summary of significant accounting
policies within note 1 to the financial statements, this report for the consolidated Group has
been prepared in accordance with IFRS and includes the Corporate Governance Report
set out on pages 99 to 165.
The Directors consider the Annual Report for the year ended 31 December 2022, taken
asa whole, is fair, balanced and understandable, and provides the information necessary
for shareholders to assess the Group’s position and performance, business model
andstrategy.
Principal activities
Our principal activities during 2022 were the provision of banking and related services.
Weare a deposit-taking and lending institution with a focus on retail, private, SME and
commercial customers, offering consistent fair pricing and excellent customer service.
Weare authorised to accept deposits under the Financial Services and Markets Act 2000,
have a Consumer Credit Act licence and are members of the Financial Services
Compensation Scheme.
Results and dividend
The results for the year are set out in the consolidated statement of comprehensive income
on page 162.
No dividend was declared or paid during 2022 (2021: £nil). The Directors do not anticipate
declaring a dividend in the near future.
Significant event
In December 2022, the FCA published the findings of its investigation into the RWA legacy
issues that took place in 2018.
Articles of Association
The Articles of Association can be found on our website at: metrobankonline.co.uk.
Share capital
As at 31 December 2022, our issued share capital was £172.54 comprising 172,537,631
ordinary shares of 0.0001p each. Further details of our called-up share capital, together
with details of shares allotted during the year, are shown in note 26 to the financial
statements on page 209.
There are no restrictions on the transfer of our share capital and there are no shares
orstock which carry specific rights with regards to control of the Group.
The Directors seek annual authority from shareholders to allot new ordinary shares and
todisapply pre-emption rights of existing shareholders in accordance with the Investment
Association Share Capital Management Guidelines.
Holders of ordinary shares are entitled to receive dividends when declared, to receive
theGroup’s Annual Report, to attend and speak at general meetings of the Company,
toappoint proxies and to exercise voting rights.
2023 Annual General Meeting
We expect to hold the 2023 AGM in person. More information will be published in the
Notice of Meeting.
Directors
Details of the Directors who served during the year and continue to serve at the date of
approval of the Directors’ Report are set out on pages 103 to 104. David Arden resigned as
an Executive Director, effective 15 February 2022. Sally Clark resigned as an independent
NED, effective 30 June 2022. James Hopkinson was appointed as an Executive Director
on5 September 2022. Dorita Gilinski was appointed as a shareholder nominated NED
on26 September 2022.
Directors are appointed and replaced in accordance with the Company’s Articles,
theCompanies Act 2006 and the UK Corporate Governance Code. The powers of the
Directors are set out in the Company’s Articles and the Companies Act 2006.
Directors who served on the Board during the year ended 31 December 2022
Appointment date Resignation date
Robert Sharpe (Chair) 1 November 2020
Daniel Frumkin (CEO) 1 January 2020
James Hopkinson (CFO) 5 September 2022
David Arden (CFO) 29 March 2018 15 February 2022
Catherine Brown (Independent NED) 1 October 2018
Sally Clark (Independent NED) 1 January 2020 30 June 2022
Dorita Gilinski (Shareholder Nominated NED) 26 September 2022
Anne Grim (Independent NED) 20 April 2020
Ian Henderson (Independent NED) 20 April 2020
Anna (Monique) Melis (Senior Independent Director) 20 June 2017
Paul Thandi (Independent NED) 1 January 2019
Michael Torpey (Independent NED) 1 September 2019
Nicholas Winsor (Independent NED) 20 April 2020
166 Metro Bank PLC Annual Report and Accounts 2022
Directors’ report Continued
Directors’ interests
Details of the Directors’ beneficial interests are set out in the Annual Report
onRemuneration on page 161.
Directors’ indemnities and Directors’ and Officers’ liability insurance
Details regarding deeds of indemnity and Directors’ and Officers’ liability insurance are set
out in the Corporate Governance Report on page 123.
The Company’s existing share plans contain provisions relating to a change of control.
Outstanding options and awards may vest and become exercisable on a change of control
subject to the People and Remuneration Committee’s discretion. As at 31 December 2022,
save in respect of provisions of the Company’s share plans, there are no other agreements
between the Company and its Directors or colleagues providing for compensation for
lossof office or employment that occur following a takeover. Certain of the Company’s
third party supplier agreements may become terminable upon a change of control of
theCompany.
Major interests in shares
Information provided to the Group by substantial shareholders pursuant to the Disclosure
Guidance and Transparency Rules (DTR) is published via a Regulatory Information Service.
As at 10 March 2023, being the last practical date before publication of this report,
theGroup has been notified under DTR 5 of the interests in its issued share capital,
andthese are set out in the table below. All such shareholders have the right to vote in all
circumstances at general meetings. The information provided below was correct at the
date of notification; however, the date received may not have been within the current
financial year. It should be noted that these holdings are likely to have changed since the
Group was notified. However, notification of any change is not required until the next
notifiable threshold is crossed.
Shareholder
Ordinary
shares held
% of total
ordinary
shares
Direct/
indirect
interest
Spaldy Investments Limited 15,549,496 9.02% Direct
Spruce House Partnership 15,500,000 8.99% Direct
Davis Selected Advisers 9,191,516 5.33% Indirect
683 Capital Management 8,977, 587 5.21% Indirect
Ruane, Cunniff and Goldfarb 5,020,755 5.15% Direct
Kernow Asset Management Limited 5,522,224 3.20% Direct
Greenhouse gas emissions
Our energy consumption and associated GHG emissions during 2022 are set out in the
Strategic report on page 52.
Colleague involvement
We encourage colleague involvement in the Bank. Increasing colleague awareness of
thefinancial and economic factors that affect us plays a major role in maintaining our
customer focus. More information on our colleagues and how we engaged with them
canbe found in the Corporate governance report on pages 108 to 112.
Engagement with stakeholders
The Board recognises that the long-term success of the Bank will depend upon the
interests of all our stakeholders and this view is intrinsic in our decision making. More
information on our stakeholders, how we engaged with them and how the Board took
them into consideration when making decisions are set out in the Corporate governance
report on pages 112 to 114.
Diversity
Our D&I Policy outlines our commitment to employment policies which follow best
practice, based on equal opportunities for all colleagues. We aim for our workforce to
reflect the diverse communities in which we operate and recognise that diversity is not
only a key part of a responsible business strategy, but also supports a strong customer
experience. We give full and fair consideration to all applications for employment.
Our Board Diversity Policy, which sets out our commitment to D&I for the Board can
befound on our website at: metrobankonline.co.uk/investor-relations.
We believe that a diverse Board, appointed on merit, with a broad range of skills,
backgrounds, knowledge and experience, is a more effective and responsible Board.
More information on our performance against our objectives within the policy can
befound in the Nomination Committee report on page 137.
Disabled employees
For all colleagues and candidates we always look to make reasonable adjustments to
ensure equality. In the event of colleagues identifying as disabled, we make every effort to
ensure that their employment continues and to provide appropriate training and support.
Our policy is that the training, career development and promotion of disabled persons
should, as far as possible, be identical to that of other colleagues.
167 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Directors’ report Continued
Modern slavery
We are committed to supporting the communities in which we operate in order to enable
them to develop both socially and economically. Our policy is to conduct all business in
anappropriate manner and we have zero tolerance for modern slavery. We continue to be
committed to acting professionally and fairly in all our business dealings and relationships
wherever we operate, including enforcing appropriate systems and controls to ensure,
onarisk basis, that modern slavery is not taking place in our business or supply chains.
The initiatives and how we have developed them during 2022 can be found on page 40.
We have also appointed a member of the Board as our Modern Slavery Champion,
whowith the CEO monitors ongoing compliance with the Modern Slavery Policy.
Our Modern Slavery Statement is available at: metrobankonline.co.uk.
Internal control and risk management systems
The Directors confirm that they have undertaken a robust assessment of the emerging and
principal risks facing the Group. We seek to manage all risks that arise from our activities.
Details of risk management systems, and details of risk management objectives and
policies, are shown in the Risk Report on pages 54 to 97. Details around the processes
inplace in relation to financial reporting can be found in the Audit Committee Report
onpages 124 to 129. As a result of normal business activities, we are exposed to a variety
ofrisks. The principal risks and uncertainties that we face are shown in the Risk Report.
Going concern
The financial statements are prepared on a going concern basis, as the Directors are
satisfied that the Group and Parent Company have the resources to continue in business
for a period of at least 15 months from the financial statements authorisation date. Further
details can be found in note 1 to the financial statements on page 185 and in the Viability
statement (details of which can be found below).
Viability statement
Our Viability statement is set out on pages 96 to 97.
Hedge accounting
The policy for hedging transactions is detailed in note 21.
Auditors
Our Auditors, PwC, have indicated their willingness to continue in office and a resolution
seeking to reappoint them will be proposed at the 2023 AGM.
Political donations
We made no political donations in the year ending 31 December 2022 (2021: £nil).
As part of our community engagement during 2022 we met with more than 30 Members
of Parliament (MPs), including Government and opposition party figures as well as MPs
visiting local Metro Bank stores in their constituencies. During the year, we also became an
associate member of the All Party Parliamentary Group on Challenger Banks and Building
Societies. As part of this we paid £6,000 in sponsorship towards the research, writing and
publication of a report on how challenger banks and building societies can support the
levelling-up agenda (2021: n/a).
Research and development
During the year, we spent £24 million on intangible assets and a further £48 million
onresearch and development costs which were not capitalised.
Post balance sheet events
Our post balance sheet events are set out in note 39 to the financial statements.
Future developments
Our business and future plans are set out in the Strategic Report.
Financial instruments and financial risk management
Information relating to financial instruments and financial risk management can be found
on pages 54 to 97 and in note 10 to the financial statements.
Listing Rules disclosures
For the purposes of LR 9.8.4R, the information required to be disclosed by LR 9.8.4R
canbe found in the following sections of the Annual Report:
Item Location
Detail of long-term
incentive schemes
Annual Report on Remuneration and in note 29 to the
financialstatements
Contracts of significance Any contracts of significance or related party transactions
canbefound in note 36 to the financial statements
Waived emoluments Annual Report on Remuneration
Corporate Governance Statement
Our Corporate governance report is set out on pages 99 to 169 in accordance with
Rule7.2of the DTR and Rule 9.8.6 (5) and (6) of the Listing Rules forms part of this
Directors’ Report.
168 Metro Bank PLC Annual Report and Accounts 2022
Directors’ report Continued
Statement of Directors’ responsibilities in respect of the financial statements
The Directors are responsible for preparing the Annual Report and Accounts in accordance
with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial
year.Under that law the Directors have prepared the Group and the Company financial
statements in accordance with UK-adopted international accounting standards.
Under company law, Directors must not approve the financial statements unless they
aresatisfied that they give a true and fair view of the state of affairs of the Group and
Company and of the profit or loss of the Group for that period. In preparing the financial
statements, the Directors are required to:
• Select suitable accounting policies and then apply them consistently.
• State whether applicable UK-adopted international accounting standards have
beenfollowed, subject to any material departures disclosed and explained in the
financial statements.
• Make judgements and accounting estimates that are reasonable and prudent.
• Prepare the financial statements on the going concern basis unless it is inappropriate
topresume that the Group and Company will continue in business.
The Directors are responsible for safeguarding the assets of the Group and Company
andhence for taking reasonable steps for the prevention and detection of fraud and
otherirregularities.
The Directors are also responsible for keeping adequate accounting records that are
sufficient to show and explain the Group’s and Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Group and Company and
enable them to ensure that the financial statements and the Directors’ Remuneration
Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company’s financial
statements published on its website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ confirmations
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary for shareholders
toassess the Group’s and Company’s position and performance, business model
andstrategy.
Each of the Directors, whose names and functions are listed in Board of Directors page
inthe Governance section confirm that, to the best of their knowledge:
• The Group and Company financial statements, which have been prepared in accordance
with UK-adopted international accounting standards, give a true and fair view of the
assets, liabilities and financial position of the Group and Company, and of the loss of
theGroup and Company.
• The Strategic report includes a fair review of the development and performance of the
business and the position of the Group and Company, together with a description of the
principal risks and uncertainties that it faces.
In the case of each Director in office at the date the Directors’ report is approved:
• So far as the Director is aware, there is no relevant audit information of which the Group’s
and Company’s Auditors are unaware.
• They have taken all the steps that they ought to have taken as a Director in order to
make themselves aware of any relevant audit information and to establish that the
Group’s and Company’s Auditors are aware of that information.
The confirmation is given and should be interpreted in accordance with the provisions
ofsection 418 of the Companies Act 2006.
The Directors’ report comprising pages 166 to 169 has been approved by the Board
ofDirectors.
By Order of the Board
Stephanie Wallace
General Counsel and Company Secretary
15 March 2023
169 Metro Bank PLC Annual Report and Accounts 2022 Strategic report
Governance Financial statements Additional information
Financial statements
In this section
171 Independent auditors’ report to themembers
of Metro Bank PLC
181 Consolidated statement of comprehensive
income
182 Consolidated and company balancesheets
183 Consolidated and company statementsof
changesin equity
184 Consolidated and company
cashflowstatement
185 Notes to the financial statements
170 Metro Bank PLC Annual Report and Accounts 2022
Our audit approach
Overview
Audit scope
• The scope of our audit and the nature, timing and extent of audit procedures performed
were determined by our risk assessment, the financial significance of reporting units and
other qualitative factors (including history of misstatement through fraud or error).
• We performed audit procedures over components considered financially significant
inthe context of the group (full scope audit) or in the context of individual primary
statement account balances (audit of specific account balances). The company is the
only financially significant component. We performed other procedures including testing
information technology general controls, analytical procedures and tests of detail of
loans and advances to mitigate the risk of material misstatement in the non-financially
significant components.
Key audit matters
• Determination of allowance for Expected Credit Losses on loans and advances
tocustomers (group and parent)
• Carrying values of non-financial assets (excluding goodwill) (group and parent)
• Going concern (group and parent)
Materiality
• Overall group materiality: £9.6m (2021: £11.3m) based on 1% of Total Equity
(2021:5%ofthe average consolidated loss before tax of the last 3 years).
• Overall company materiality: £9.1m (2021: £10.7m) based on 1% of Total Equity
(2021:5%of the average consolidated loss before tax of the last 3 years).
• Performance materiality: £7.2m (2021: £8.48m) (group) and £6.8m (2021: £8m)
(company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of
material misstatement in the financial statements. In particular, we looked at where the
directors made subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future events that are
inherently uncertain.
Independent auditors’ report to the members
ofMetroBank PLC
Report on the audit of the financial statements
Opinion
In our opinion, Metro Bank PLC’s group financial statements and company financial
statements (the “financial statements”):
• give a true and fair view of the state of the group’s and of the company’s affairs as at
31December 2022 and of the group’s loss and the group’s and company’s cash flows
forthe year then ended;
• have been properly prepared in accordance with UK-adopted international accounting
standards as applied in accordance with the provisions of the Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts
(the “Annual Report”), which comprise: the Consolidated and Company balance sheets
asat 31 December 2022; the Consolidated statement of comprehensive income; the
Consolidated and Company cash flow statements; the Consolidated and Company
statements of changes in equity for the year then ended; and the notes to the financial
statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK)
(“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further
described in the Auditors’ responsibilities for the audit of the financial statements section
of our report. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, which includes the FRC’s
Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited
bythe FRC’s Ethical Standard were not provided.
Other than those disclosed in note 8, we have provided no non-audit services to the
company or its controlled undertakings in the period under audit.
171
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Independent auditors’ report to the members
ofMetroBank PLC Continued
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of
most significance in the audit of the financial statements of the current period and include
the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the results of our
procedures thereon, were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
This is not a complete list of all risks identified by our audit.
The Impact of the COVID-19 pandemic, which was a key audit matter last year, is no longer
included because that specific issue has abated. In that key audit matter, we referenced
theimpact of COVID-19 on impairment of non-financial assets, expected credit losses and
going concern. Separate key audit matters are included in this opinion on these areas.
Otherwise, the key audit matters below are consistent with last year.
Key audit matter How our audit addressed the key audit matter
Determination of allowance for Expected Credit Losses on loans and advances to customers
(group and parent)
Refer to page 124 (Audit Committee report), page 196 (Note 12: Loans and advances
tocustomers) and page 212 (Note 30: Expected credit losses).
In 2022, the group increased gross loans and advances by £830 million to £13,289 million
aswell as the proportion of unsecured loans in the portfolio. The charge for expected credit
losses(ECL) in the consolidated statement of comprehensive income increased from
£22.4million to£39.9 million.
The calculation of the allowance for ECL requires management to make a number of significant
judgements, assumptions and estimates. In 2022, the UK experienced a heightened level of
inflation. The Bank of England increased base rates significantly and the economy is expected
to enter a recession in the first half of 2023. The deteriorating economic environment increased
the amount of judgement required in determining the ECL.
Management determines the amount of ECL using a number of complex models. In addition,
anumber of post model overlays are required where the models fail to capture all the
risks.Theoverlays included adjustments in relation to the impact of inflation on customer
affordability and commercial borrowers which was determined either not to be fully reflected
inthe economic forecasts or where the modelled output did not fully reflect the impact
oncreditrisk.
We identified a significant audit risk in determining the ECL for the following portfolios: Retail
Mortgages, Consumer (specifically for RateSetter unsecured loans) and Commercial (excluding
the small asset finance and invoice finance portfolios, and government backed loans).
Specifically, the significant risk relates to the following key assumptions and judgements:
• Forward-looking economic assumptions used in the models, and the weighting selected
bymanagement. Management uses a third party expert to determine the economic
assumptions;
• Judgements involved in creating post model overlays to change modelled outputs and the
application of those adjustments in response to heightened economic uncertainty and the
impact of inflation;
• Judgements exercised in determining whether a significant increase in credit risk (‘SICR’)
should be recognised for Commercial loans where staging is based on a qualitative
assessment of credit risk; and
• Judgements applied by management in estimating stage 3 individual impairment
allowancessuch as the valuation of collateral, forecast cash flows and the reasonableness
ofthe probability weighting of expected likely outcomes.
We evaluated the design and implementation of key controls. Where we planned to rely
onthem, we tested their operating effectiveness and concluded that we could place reliance
on the controls for the purposes of our audit. This involved the testing of controls over
Commercial loans in relation to:
• the recording of collateral into the lending system; and
• the performance of periodic credit reviews.
We evaluated the level of arrears as at 31 December 2022 by portfolio, in particular for
theRatesetter, Retail Mortgage and Commercial loans (excluding government backed),
andconfirmed that there has been no notable change in arrears during the year.
We engaged the support of our credit modelling specialists and performed the following
substantive audit procedures in order to assess the performance, methodology, and accuracy
of the ECL models. We also assessed the appropriateness of management’s key judgements
and assumptions in the context of the current economic environment and our wider industry
experience.
Forward looking information and multiple economic scenarios
We used our economic analysis software, utilising data from the Bank of England,
HMTreasury, and Consensus Economics, to assess the reasonableness of management’s
economic scenarios and associated weightings, giving specific consideration to current
economic uncertainties.
Where economic inputs fell outside of a reasonable range, we ensured that a suitable post
model overlay was recorded.
Management made updates to their scenario weightings in response to the deteriorating
base case scenario for the UK economic outlook observed over the second half of 2022.
Weevaluated whether the change to scenario weights appropriately captured the economic
uncertainty created by the Russia-Ukraine conflict, high inflation and the possibility of the
UKeconomy entering a recession.
Model methodology & post model overlays
We critically assessed the methodology used in the impairment models and evaluated
compliance with IFRS 9 requirements. We also tested the key assumptions and judgements.
These included those made by management in determining PDs/LGDs/EADs used
inthecalculation of provisions.
Our credit modelling specialists independently rebuilt the commercial loans, retail
mortgages and the RateSetter ECL models. This was performed using management’s
methodology and we compared the output to management’s modelled ECL output.
Forsome products we did not independently rebuild all model components. Where this
was the case, our modelling specialists performed an independent code review to validate
that the models were implemented in line with the group’s methodology.
We critically assessed and tested the expert judgements applied by management
toaddress the credit risk in the portfolio that was not reflected in modelled outputs.
Weevaluated and challenged the methodologies, the accuracy of application and the
completeness of overlays. The only individually material overlay related to a Commercial
post-model overlay which addressed the impact of inflation.
Significant increase in credit risk (SICR) – Commercial
To test the judgements in determining whether SICR events have occurred, we selected
samples of loans across the Commercial stage 1 and 2 populations and independently
assessed the stage allocation against SICR criteria.
Individually assessed stage 3 loans
For a sample of stage 3 credit impaired loans, we critically evaluated the basis on which
theallowance was determined, and the evidence supporting the analysis performed by
management. We also independently challenged whether the key assumptions used,
suchas the recovery strategies, expected cash flows, collateral rights and valuations,
andranges of potential outcomes, were appropriate given the borrowers’ circumstances.
Based on the evidence obtained, we found the estimates and judgements in determining
the ECL to be reasonable and in compliance with the requirements of IFRS 9.
172
Metro Bank PLC Annual Report and Accounts 2022
Independent auditors’ report to the members
ofMetroBank PLC Continued
Key audit matter How our audit addressed the key audit matter
Determination of allowance for Expected Credit Losses on loans and advances to customers
(group and parent)
Refer to page 124 (Audit Committee report), page 196 (Note 12: Loans and advances
tocustomers) and page 212 (Note 30: Expected credit losses).
In 2022, the group increased gross loans and advances by £830 million to £13,289 million
aswell as the proportion of unsecured loans in the portfolio. The charge for expected credit
losses(ECL) in the consolidated statement of comprehensive income increased from
£22.4million to£39.9 million.
The calculation of the allowance for ECL requires management to make a number of significant
judgements, assumptions and estimates. In 2022, the UK experienced a heightened level of
inflation. The Bank of England increased base rates significantly and the economy is expected
to enter a recession in the first half of 2023. The deteriorating economic environment increased
the amount of judgement required in determining the ECL.
Management determines the amount of ECL using a number of complex models. In addition,
anumber of post model overlays are required where the models fail to capture all the
risks.Theoverlays included adjustments in relation to the impact of inflation on customer
affordability and commercial borrowers which was determined either not to be fully reflected
inthe economic forecasts or where the modelled output did not fully reflect the impact
oncreditrisk.
We identified a significant audit risk in determining the ECL for the following portfolios: Retail
Mortgages, Consumer (specifically for RateSetter unsecured loans) and Commercial (excluding
the small asset finance and invoice finance portfolios, and government backed loans).
Specifically, the significant risk relates to the following key assumptions and judgements:
• Forward-looking economic assumptions used in the models, and the weighting selected
bymanagement. Management uses a third party expert to determine the economic
assumptions;
• Judgements involved in creating post model overlays to change modelled outputs and the
application of those adjustments in response to heightened economic uncertainty and the
impact of inflation;
• Judgements exercised in determining whether a significant increase in credit risk (‘SICR’)
should be recognised for Commercial loans where staging is based on a qualitative
assessment of credit risk; and
• Judgements applied by management in estimating stage 3 individual impairment
allowancessuch as the valuation of collateral, forecast cash flows and the reasonableness
ofthe probability weighting of expected likely outcomes.
We evaluated the design and implementation of key controls. Where we planned to rely
onthem, we tested their operating effectiveness and concluded that we could place reliance
on the controls for the purposes of our audit. This involved the testing of controls over
Commercial loans in relation to:
• the recording of collateral into the lending system; and
• the performance of periodic credit reviews.
We evaluated the level of arrears as at 31 December 2022 by portfolio, in particular for
theRatesetter, Retail Mortgage and Commercial loans (excluding government backed),
andconfirmed that there has been no notable change in arrears during the year.
We engaged the support of our credit modelling specialists and performed the following
substantive audit procedures in order to assess the performance, methodology, and accuracy
of the ECL models. We also assessed the appropriateness of management’s key judgements
and assumptions in the context of the current economic environment and our wider industry
experience.
Forward looking information and multiple economic scenarios
We used our economic analysis software, utilising data from the Bank of England,
HMTreasury, and Consensus Economics, to assess the reasonableness of management’s
economic scenarios and associated weightings, giving specific consideration to current
economic uncertainties.
Where economic inputs fell outside of a reasonable range, we ensured that a suitable post
model overlay was recorded.
Management made updates to their scenario weightings in response to the deteriorating
base case scenario for the UK economic outlook observed over the second half of 2022.
Weevaluated whether the change to scenario weights appropriately captured the economic
uncertainty created by the Russia-Ukraine conflict, high inflation and the possibility of the
UKeconomy entering a recession.
Model methodology & post model overlays
We critically assessed the methodology used in the impairment models and evaluated
compliance with IFRS 9 requirements. We also tested the key assumptions and judgements.
These included those made by management in determining PDs/LGDs/EADs used
inthecalculation of provisions.
Our credit modelling specialists independently rebuilt the commercial loans, retail
mortgages and the RateSetter ECL models. This was performed using management’s
methodology and we compared the output to management’s modelled ECL output.
Forsome products we did not independently rebuild all model components. Where this
was the case, our modelling specialists performed an independent code review to validate
that the models were implemented in line with the group’s methodology.
We critically assessed and tested the expert judgements applied by management
toaddress the credit risk in the portfolio that was not reflected in modelled outputs.
Weevaluated and challenged the methodologies, the accuracy of application and the
completeness of overlays. The only individually material overlay related to a Commercial
post-model overlay which addressed the impact of inflation.
Significant increase in credit risk (SICR) – Commercial
To test the judgements in determining whether SICR events have occurred, we selected
samples of loans across the Commercial stage 1 and 2 populations and independently
assessed the stage allocation against SICR criteria.
Individually assessed stage 3 loans
For a sample of stage 3 credit impaired loans, we critically evaluated the basis on which
theallowance was determined, and the evidence supporting the analysis performed by
management. We also independently challenged whether the key assumptions used,
suchas the recovery strategies, expected cash flows, collateral rights and valuations,
andranges of potential outcomes, were appropriate given the borrowers’ circumstances.
Based on the evidence obtained, we found the estimates and judgements in determining
the ECL to be reasonable and in compliance with the requirements of IFRS 9.
173
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Key audit matter How our audit addressed the key audit matter
Carrying values of non-financial assets (excluding goodwill) (group and parent)
Refer to page 124 (Audit Committee report), page 198 (Note 14: Property, Plant and
Equipment) and page 200 (Note 15: Intangible assets).
The group’s tangible fixed assets amounted to £748 million at 31 December 2022 and
mainly comprised leasehold improvements and Right of Use assets. The group also
capitalised as intangible assets certain expenditure in the development of software to
support its business strategy. The intangible asset balance was £216 million at 31 December
2022. The continuing losses incurred in 2022, the uncertain economic environment,
together with the capital constraints under which the group is operating, are potential
indicators of impairment.
The Directors have evaluated the above non-financial assets for impairment, and where
relevant estimated the recoverable amounts of those assets. Where the assets do not
generate largely independent cash inflows, they have been incorporated into a relevant
cashgenerating unit (CGU) and the recoverable amount of that CGU has been determined.
The CGU relevant to the vast majority of assets is the ‘retail bank CGU’ within the company.
The determination of the recoverable amount requires management to estimate the higher
of value in use and fair value less costs to sell of the retail bank CGU. This assessment is
complex and involves subjective judgements. The recoverable amount is estimated using
forecast cash flows included in management’s 5 year Long Term Plan, a decreasing
growthrate from years 6 to 10, a terminal growth rate and a discount rate. There are also
methodology judgements required in determining a value in use in compliance with IAS 36
‘Impairment of assets’. The Long Term Plan is also supported by various assumptions
relating to compliance with regulatory capital requirements.
Management concluded that no impairment existed as at 31 December 2022. The forecast
cash flows in the medium to longer term, the determination of the discount rate and
theassumptions relating to compliance with regulatory capital requirements are key
judgements. Due to the magnitude of the balance and the judgements involved in
respectofthe retail bank CGU, the impairment assessment represents a key audit matter.
To address the risk of impairment of the non-financial assets, we performed a number of
audit procedures over the assessment performed by management. We challenged and
tested the reasonableness of management’s methodology and key assumptions. Our work
included the following substantive tests:
• Tested the mathematical integrity of the impairment model and agreed the cash flows
to the Board approved Long Term Plan;
• Performed a comparison of the financial performance of the group in 2022 to the
budget to assess the reliability of the budgeting and forecasting process;
• Evaluated management’s accounting policy and impairment methodology with
reference to IFRS requirements, including management’s determination of the relevant
CGU and the carrying amount, using our accounting specialists;
• Reviewed the forecasts in the Long Term Plan and evaluated these for reasonableness.
We made inquiries of management, inspected business plans and critically assessed
management’s growth assumptions using third party evidence where relevant;
• Evaluated compliance with regulatory capital requirements and the underlying
assumptions during the period of the plan using our regulatory experts. We tested
forecast capital ratios, reviewed regulatory correspondence and held discussions
withthe PRA;
• Engaged our valuation specialists in assessing the reasonableness of the discount rate
and terminal growth rate; and
• Performed sensitivity analyses to test the impact of changing various assumptions,
including lower profits during the Long Term Plan period, a higher discount rate and
adelay in the return to profitability and capital raising.
Based on the procedures performed, we found the judgements used in determining the
carrying value of the retail bank CGU to be reasonable and supportable. We assessed the
disclosures made in the financial statements. We are satisfied that these disclosures are
appropriate and in compliance with the accounting requirements.
Independent auditors’ report to the members
ofMetroBank PLC Continued
174
Metro Bank PLC Annual Report and Accounts 2022
Key audit matter How our audit addressed the key audit matter
Going concern (group and parent)
Refer to page 97 (Assessment of going concern) and page 185 (Basis of presentation
andsignificant accounting policies)
The bank has incurred significant operating losses in recent years and invested in the
transformation of the business. This has eroded capital levels which continued in 2022.
Management has calculated that the bank’s MREL capital resources are currently below
thesum of the bank’s combined MREL requirement and buffers, but above minimum
requirements. The directors have concluded that the group will have sufficient resources
(including capital and liquidity) for a period of at least 15 months from the date of these
financial statements.
In assisting the Directors reach their conclusion, management has modelled both a base
caseand a severe but plausible downside scenario to assess whether the group has sufficient
capital. The assessment of going concern is dependent on management’s future profit
forecasts and regulatory capital projections. While the bank’s operating performance
significantly improved in 2022, the prevailing economic uncertainty and competitive
pressures introduce risks as to the achievability of the 2023 and 2024 plan. There is
judgement involved in determining the forecasts and in concluding whether or not there
isamaterial uncertainty.
Going concern was not considered a significant audit risk although due to the importance
ofmaintaining MREL above the minimum requirement, we performed extensive procedures
and discussed the judgements with the Audit Committee throughout the audit and hence
thisconstitutes a key audit matter.
Our procedures and conclusions in respect of going concern are set out below in the
‘Conclusions relating to going concern’ section on page 177.
Independent auditors’ report to the members
ofMetroBank PLC Continued
175
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Materiality
The scope of our audit was influenced by our application of materiality. We set certain
quantitative thresholds for materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature, timing and extent of our
audit procedures on the individual financial statement line items and disclosures and in
evaluating the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial
statements as a whole as follows:
Financial statements
– group
Financial statements
– company
Overall materiality £9.6m (2021: £11.3m). £9.1m (2021: £10.7m).
How we
determined it
1% of Total Equity (2021: 5% of
the average consolidated loss
before tax of the last 3 years)
1% of Total Equity (2021: 5% of the
average consolidated loss before
tax of the last 3 years)
Rationale for
benchmark
applied
The group's total equity is the
most appropriate benchmark
as it is correlated with the level
of regulatory capital which is
akey metric for management
and users of the financial
statements. In the past, a
benchmark of average losses
was used. The absolute value
of losses has reduced
significantly and an equity
based measure provides a
more stable and relevant basis
for determining materiality.
The company's total equity is the
most appropriate benchmark as
itis correlated with the level of
regulatory capital which is a key
metric for management and users
of the financial statements. In the
past, a benchmark of average
losses was used. The absolute
value of losses has reduced
significantly and an equity based
measure provides a more stable
and relevant basis for determining
materiality.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able
togive an opinion on the financial statements as a whole, taking into account the structure
of the group and the company, the accounting processes and controls, and the industry
inwhich they operate.
We performed a risk assessment, giving consideration to relevant external and internal
factors, including climate change, economic risks, relevant accounting and regulatory
developments, as well as the group’s strategy. We also considered our knowledge and
experience obtained in prior year audits. We continually assessed the risks and changed
the scope of our audit where necessary. As part of considering the impact of climate
change in our risk assessment, we evaluated management’s assessment of the impact of
climate risk, which is set out on page 45, including their conclusion that there is no material
impact on the financial statements. In particular, we considered management’s assessment
of the impact on ECL on loans and advances to customers, the financial statement line
item we determined to be most likely to be impacted by climate risk. Management’s
assessment gave consideration to a number of matters, including the Climate Biennial
Exploratory Scenario climate stress testing performed in 2021. As a result of their
assessment, an immaterial model overlay was recognised in the prior year, and continues
to be held as at 31 December 2022.
The group comprises five components. Any components which were considered
individually financially significant in the context of the group’s consolidated financial
statements (defined as components that represent more than or equal to 15% of the
lossbefore tax of the consolidated group) were considered full scope components. We
considered the individual financial significance of other components in relation to primary
statement account balances and the presence of any significant audit risks and other
qualitative factors (including history of misstatements through fraud or error). For our
group audit, we identified one financially significant component, which is the company.
Allsignificant risks relate to the company and the group.
We then considered the components in the group that had either financially significant
orunusual account balances which were required to be brought into scope. In relation to
SME Asset Finance Limited, we performed audit procedures over loans and advances.
Theremaining balances and components, in our judgement, did not present a reasonable
possibility of a risk of material misstatement either individually or in aggregate and were
eliminated from further consideration for specific audit procedures. We performed other
procedures such as tests of information technology controls and group level analytical
review procedures.
Independent auditors’ report to the members
ofMetroBank PLC Continued
176
Metro Bank PLC Annual Report and Accounts 2022
• Evaluation of the reasonableness of management’s downside assumptions using
ourfirm’s economics experts and our understanding of the bank and the external
environment. We evaluated management’s assumptions by performing independent
stress testing to determine whether a reasonable alternative stressed scenario would
result in a breach of minimum regulatory requirements;
• Considering the mitigating actions that management identified, including the reduction
of costs and slowing down the origination of new loans and advances, and assessing
whether these were in the control of management and possible in the going concern
period of assessment;
• Reviewing management’s stress testing of liquidity and evaluation of the impact on
liquidity of past stress events. We substantiated the liquid resources held, and liquidity
facilities available to the group, for example, with the Bank of England. We also
reconciled the bank’s liquidity position to its regulatory liquidity reporting returns;
• Reviewing correspondence between the bank and its regulators to evidence the current
regulatory capital position and also to provide evidence to support forecast changes
inthe bank’s capital requirement in the period to 30 June 2024. We met with the PRA
during the audit and understood the PRA’s perspectives on the bank’s risks and its
capital position; and
• Assessing the adequacy of disclosures in the Going Concern statement in note 1 of the
Consolidated and Company Financial Statements and within the Assessment of going
concern section of the Viability statement on page 97 and found these appropriately
reflect the key areas of uncertainty identified.
Based on the work we have performed, we have not identified any material uncertainties
relating to events or conditions that, individually or collectively, may cast significant doubt
on the group’s and the company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going
concern basis of accounting in the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is
not a guarantee as to the group’s and the company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate
Governance Code, we have nothing material to add or draw attention to in relation to
thedirectors’ statement in the financial statements about whether the directors considered
it appropriate to adopt the going concern basis of accounting.
For each component in the scope of our group audit, we allocated a materiality that is less
than our overall group materiality. Loans and advances to customers within SME Asset
Finance Limited was audited to a local statutory audit materiality that was also less than
our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that
the aggregate of uncorrected and undetected misstatements exceeds overall materiality.
Specifically, we use performance materiality in determining the scope of our audit and
thenature and extent of our testing of account balances, classes of transactions and
disclosures, for example in determining sample sizes. Our performance materiality was
75%(2021: 75%) of overall materiality, amounting to £7.2m (2021: £8.48m) for the group
financial statements and £6.8m (2021: £8m) for the company financial statements.
In determining the performance materiality, we considered a number of factors –
thehistory of misstatements, risk assessment and aggregation risk and the effectiveness
ofcontrols – and concluded that an amount at the upper end of our normal range
wasappropriate.
We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above £0.5m (group audit) (2021: £0.6m) and £0.5m
(companyaudit) (2021: £0.5m) as well as misstatements below those amounts that,
inourview, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group’s and the company’s ability
tocontinue to adopt the going concern basis of accounting included:
• Confirmation of our understanding of the Directors’ going concern assessment process,
including the preparation and approval of the budget. We obtained management’s
Board approved forecast covering the period of the going concern assessment to
30June 2024. We evaluated the forecasting method adopted by the Directors in
assessing going concern, including considering severe but plausible downside scenarios;
• Evaluation of management’s financial and regulatory capital forecasts. We checked
themathematical accuracy of the model and evaluated the key assumptions using our
understanding of the bank and external evidence where appropriate. We used our
Prudential Regulatory experts to review the bank’s risk weighted assets and forecast
capital requirement assumptions. We also performed a comparison of the 2022 budget
and the actual results to assess the accuracy of the budgeting process;
Independent auditors’ report to the members
ofMetroBank PLC Continued
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Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Directors’ Remuneration
In our opinion, the part of the Annual Report on remuneration to be audited has been
properly prepared in accordance with the Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going
concern, longer-term viability and that part of the corporate governance statement
relating to the company’s compliance with the provisions of the UK Corporate Governance
Code specified for our review. Our additional responsibilities with respect to the corporate
governance statement as other information are described in the Reporting on other
information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the
following elements of the corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during the audit, and we have nothing
material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment of the
emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures
are in place to identify emerging risks and an explanation of how these are being
managed or mitigated;
• The directors’ statement in the financial statements about whether they considered it
appropriate to adopt the going concern basis of accounting in preparing them, and their
identification of any material uncertainties to the group’s and company’s ability to
continue to do so over a period of at least twelve months from the date of approval
ofthe financial statements;
• The directors’ explanation as to their assessment of the group’s and company’s
prospects, the period this assessment covers and why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the
company will be able to continue in operation and meet its liabilities as they fall due over
the period of its assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Our responsibilities and the responsibilities of the directors with respect to going concern
are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than
thefinancial statements and our auditors’ report thereon. The directors are responsible
forthe other information, which includes reporting based on the Task Force on Climate-
related Financial Disclosures (TCFD) recommendations. Our opinion on the financial
statements does not cover the other information and, accordingly, we do not express
anaudit opinion or, except to the extent otherwise explicitly stated in this report, any
formof assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit,
orotherwise appears to be materially misstated. If we identify an apparent material
inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required
toreport that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether
the disclosures required by the UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006
requires us also to report certain opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information
given in the Strategic Report and Directors’ Report for the year ended 31 December 2022
is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the group and company and their
environment obtained in the course of the audit, we did not identify any material
misstatements in the Strategic Report and Directors’ Report.
Independent auditors’ report to the members
ofMetroBank PLC Continued
178
Metro Bank PLC Annual Report and Accounts 2022
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to
issuean auditors’ report that includes our opinion. Reasonable assurance is a high level
ofassurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis
ofthese financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations.
We design procedures in line with our responsibilities, outlined above, to detect material
misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal
risks of non-compliance with laws and regulations related to breaches of the rules of the
Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA), and we
considered the extent to which non-compliance might have a material effect on the
financial statements through the imposition of fines or the loss of the group’s licence to
operate. We also considered those laws and regulations that have a direct impact on the
financial statements such as UK tax legislation and the Companies Act 2006. We evaluated
management’s incentives and opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls), and determined that the principal
risks were related to posting manual journal entries to manipulate financial performance
and management bias in accounting estimates. Audit procedures performed by the
engagement team included:
• Enquiries of the Audit Committee, management, internal audit and the group’s legal
counsel, including consideration of known or suspected instances of non-compliance
with laws and regulation and fraud;
• Evaluation of the design and implementation of controls designed to prevent and detect
irregularities relevant to financial reporting;
• Reviewing key correspondence and holding discussions with regulators, such as the
FCAand the PRA, in relation to the group’s compliance with banking regulations;
• Incorporating unpredictability into the nature, timing and/or extent of our testing;
Our review of the directors’ statement regarding the longer-term viability of the group
andcompany was substantially less in scope than an audit and only consisted of making
inquiries and considering the directors’ process supporting their statement; checking that
the statement is in alignment with the relevant provisions of the UK Corporate Governance
Code; and considering whether the statement is consistent with the financial statements
and our knowledge and understanding of the group and company and their environment
obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that
each of the following elements of the corporate governance statement is materially
consistent with the financial statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report, taken as a whole,
isfair,balanced and understandable, and provides the information necessary for the
members to assess the group’s and company’s position, performance, business model
and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk
management and internal control systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’
statement relating to the company’s compliance with the Code does not properly disclose
a departure from a relevant provision of the Code specified under the Listing Rules for
review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the statement of Directors’ responsibilities in respect of the
financial statements, the directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied that they
give a true and fair view. The directors are also responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the
group’s and the company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the group or the company or to cease operations,
orhave no realistic alternative but to do so.
Independent auditors’ report to the members
ofMetroBank PLC Continued
179
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate
for our audit have not been received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the company financial statements and the part of the Annual report on remuneration
tobe audited are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed
bythedirectors on 29 July 2009 to audit the financial statements for the year
ended31December 2010 and subsequent financial periods. The period of total
uninterruptedengagement is 13 years, covering the years ended 31 December 2010
to31December 2022.
Other matter
In due course, as required by the Financial Conduct Authority Disclosure Guidance and
Transparency Rule 4.1.14R, these financial statements will form part of the ESEF-prepared
annual financial report filed on the National Storage Mechanism of the Financial Conduct
Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’).
Thisauditors’ report provides no assurance over whether the annual financial report
willbeprepared using the single electronic format specified in the ESEF RTS.
Jonathan Holloway (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
15 March 2023
• Challenging assumptions and judgements made by management in their estimation
ofthe allowance for ECL on loans and advances to customers, the assessment of the
carrying value of non-financial assets and the ability of the group to continue as a going
concern (see related key audit matters and the Conclusions relating to going concern
section); and
• Identifying and testing journal entries including those posted by infrequent or
unexpected users, those posted to unusual account combinations and those posted late
in the financial reporting process.
There are inherent limitations in the audit procedures described above. We are less likely
tobecome aware of instances of non-compliance with laws and regulations that are not
closely related to events and transactions reflected in the financial statements. Also, the
risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and
balances, possibly using data auditing techniques. However, it typically involves selecting a
limited number of items for testing, rather than testing complete populations. We will often
seek to target particular items for testing based on their size or risk characteristics. In other
cases, we will use audit sampling to enable us to draw a conclusion about the population
from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is
located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s
members as a body in accordance with Chapter 3 of Part 16 of the Companies Act
2006and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown
orinto whose hands it may come save where expressly agreed by our prior consent
inwriting.
Independent auditors’ report to the members
ofMetroBank PLC Continued
180
Metro Bank PLC Annual Report and Accounts 2022
Consolidated statement of comprehensive income
For the year ended 31 December 2022
Years ended 31 December
Notes
2022
£’million
2021
£’million
Interest income 2 56 3.7 405.7
Interest expense 2 (159. 6) (1 1 0 . 4)
Net interest income 404.1 295. 3
Fee and commission income 3 84 .4 7 1.2
Fee and commission expense 3 (2 . 6) (1 .6)
Net fee and commission income 81. 8 69.6
Net gains on sale of assets 4 – 9.4
Other income 5 3 7. 6 44 .2
Total income 523 .5 4 18.5
General operating expenses 6 (467 .6) (5 3 6.1)
Depreciation and amortisation 14, 15 (7 7. 0) (8 0 . 2)
Impairment and write-offs of property, plant, equipment and intangible assets 14, 15 (9 .7) (24 . 9)
Total operating expenses (55 4 . 3) (6 41 . 2)
Expected credit loss expense 30 (39.9) (2 2 . 4)
Loss before tax (70.7) (24 5 .1)
Taxation 9 (2 .0) (3 .1)
Loss for the year (7 2.7) (24 8 . 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 fair value through other comprehensive income (net of tax):
– changes in fair value 28 (7. 6) (8 .1)
– fair value changes transferred to the income statement on disposal 28 – (0 . 3)
Total other comprehensive expense (7. 6) (8 . 4)
Total comprehensive loss for the year (8 0. 3) (25 6 . 6)
Loss per share
Basic (pence) 36 (42 . 2) (1 4 4 . 0)
Diluted (pence) 36 (42 . 2) (1 4 4 . 0)
The accompanying notes form an integral part of these financial statements.
181
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Consolidated and company balance sheets
As at 31 December 2022
Group Company
Years ended 31 December Years ended 31 December
Notes
2022
£’million
2021
£’million
2022
£’million
2021
£’million
Cash and balances with the Bank of England 11 1,956 3,568 1,953 3,547
Loans and advances to customers 12 13 ,102 12, 290 12,698 11,976
Investment securities held at fair value through other comprehensive income 13 57 1 79 8 571 798
Investment securities held at amortised cost 13 5 , 343 4 ,7 76 5,343 4,776
Financial assets held at fair value through profit and loss 1 3 1 3
Derivative financial assets 21 23 1 23 1
Property, plant and equipment 14 74 8 76 5 748 765
Investment in subsidiaries 37 – – 31 31
Intangible assets 15 216 24 3 204 231
Prepayments and accrued income 16 85 68 80 64
Assets classified as held for sale 14 1 – 1 –
Other assets 17 73 76 473 392
Total assets 22 ,11 9 22, 58 8 22,126 22,584
Deposits from customers 18 1 6,014 16,44 8 16,014 16,448
Deposits from central banks 19 3,800 3,800 3,800 3,800
Debt securities 20 57 1 58 8 571 588
Repurchase agreements 10
238 169 238 169
Derivative financial liabilities 21 26 11 26 11
Lease liabilities 22 24 8 269 248 269
Deferred grants 23 17 19 17 19
Provisions 24 7 15 7 15
Deferred tax liability 9 12 12 12 12
Other liabilities 25 230 222 236 217
Total liabilities 21 ,1 63 21, 553 21,169 21,548
Called-up share capital 26 – – – –
Share premium 26 1 ,964 1,964 1,964 1,964
Retained losses
1
27 (1 ,015) (9 42) (1,014) (941)
Other reserves 28 7 13 7 13
Total equity 956 1 ,035 957 1,036
Total equity and liabilities 22 ,11 9 22, 588 22,126 22,584
1. The Company loss for the year was £73.1 million (2021: loss of £252.2 million).
The accompanying notes form an integral part of these financial statements. They were approved by the Board of Directors on 15 March 2023 and signed on its behalf by:
Robert Sharpe Daniel Frumkin James Hopkinson
Chair Chief Executive Officer Chief Financial Officer
182
Metro Bank PLC Annual Report and Accounts 2022
Consolidated and company statements of changes in equity
For the year ended 31 December 2022
Group Company
Called-up
share
capital
£’million
Share
premium
£’million
Retained
losses
£’million
FVOCI
reserve
£’million
Share
option
reserve
£’million
Total
equity
£’million
Called-up
share
capital
£’million
Share
premium
£’million
Retained
losses
£’million
FVOCI
reserve
£’million
Share
option
reserve
£’million
Total
equity
£’million
Balance as at 1 January 2022 – 1,964 (9 42) (5) 18 1 ,03 5 – 1,964 (941) (5) 18 1,036
Loss for the year – – (73) – – (73) – – (73) – – (73)
Other comprehensive expense (net of tax) relating to investment securities
designated at FVOCI – – – (8) – (8) – – – (8) – (8)
Total comprehensive loss – – (73) (8) – (81) – – (73) (8) – (81)
Net share option movements – – – – 2 2 – – – – 2 2
Balance as at 31 December 2022 – 1,964 (1 ,015) (13) 20 956 – 1,964 (1,014) (13) 20 957
Balance as at 1 January 2021 – 1,964 (6 9 4) 3 16 1, 28 9 – 1,964 (689) 3 16 1,294
Loss for the year – – (24 8) – – (24 8) – – (252) – – (252)
Other comprehensive expense (net of tax) relating to investment securities
designated at FVOCI – – – (8) – (8) – – – (8) – (8)
Total comprehensive loss – – (24 8) (8) – (25 6) – – (252) (8) – (260)
Net share option movements – – – – 2 2 – – – – 2 2
Balance as at 31 December 2021 – 1,964 (9 42) (5) 18 1 ,03 5 – 1,964 (941) (5) 18 1,036
Notes 26 26 27 28 28 26 26 27 28 28
The accompanying notes form an integral part of these financial statements.
183
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Consolidated and company cash flow statements
For the year ended 31 December 2022
Group Company
Years ended 31 December Years ended 31 December
Notes
2022
£’million
2021
£’million
2022
£’million
2021
£’million
Reconciliation of loss before tax to net cash flows from operating activities:
Loss before tax (7 1) (24 5) (71) (245)
Adjustments for non-cash items 38 (273) (1 8 2) (259) (132)
Interest received 553 409 538 394
Interest paid (1 24) (1 26) (124) (126)
Changes in other operating assets (8 52) 2,6 49 (842) 2,613
Changes in other operating liabilities (4 1 8) 349 (409) 370
Net cash (outflows)/inflows from operating activities (1 ,18 5) 2, 854 (1,167) 2,874
Cash flows from investing activities
Sales, redemptions and paydowns of investment securities 857 1 , 269 857 1,269
Purchase of investment securities (1, 20 6) (3 , 43 8) (1,206) (3,438)
Purchase of property, plant and equipment 14 (29) (4 2) (29) (41)
Purchase and development of intangible assets 15 (24) (3 9) (24) (64)
Net cash outflows from investing activities (4 0 2) (2 , 2 5 0) (402) (2,274)
Cash flows from financing activities
Repayment of capital element of leases 22 (2 5) (2 9) (25) (27)
Net cash outflows from financing activities (25) (2 9) (25) (27)
Net (decrease)/increase in cash and cash equivalents (1 ,6 12) 575 (1,594) 573
Cash and cash equivalents at start of year 11 3,56 8 2, 993 3,547 2,974
Cash and cash equivalents at end of year 11 1 ,956 3, 568 1,953 3,547
The accompanying notes form an integral part of these financial statements.
184
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements
1. Basis of preparation and significant accounting policies
This section sets out the Group’s (‘our’ or ‘we’) accounting policies which relate to the
financial statements as a whole. Where an accounting policy relates specifically to a note
then the related accounting policy is set out within that note. All policies have been
consistently applied to all the years presented unless stated otherwise.
1.1 General information
Metro Bank PLC (the ‘Company’) together with its subsidiaries (the ‘Group’) provides retail
and commercial banking services in the UK and is a public limited company limited by
shares incorporated and domiciled in the UK under the Companies Act 2006 (Company
number 06419578), with registered offices at One Southampton Row, London WC1B 5HA.
1.2 Basis of preparation
The consolidated financial statements of the Group and Company have been
prepareded inin accordance with UK-adopted International Accounting Standards and
theCthe CompaniesAcies Act 2006 applicable to companies reporting under International
Financialal Reporting Standards.
The consolidated financial statements of the Group and Company were authorised
bytheBby the Board for issue on 15 March 2023.
The financial information has been prepared under the historical cost convention, as
modified by the revaluation of certain financial assets and liabilities at fair value through
profit or loss and other comprehensive income. Fair value is defined as the price that
wouldbe red be received or paid in an orderly transaction between market participants
atthemat the measurement date.
Certain disclosures required under IFRS 7 ‘Financial instruments: disclosures’ and IAS 1
‘Presentation of financial statements’ have been included within the Risk report on pages
54 to 97. Where information is marked as audited, it is incorporated into these financial
statements and it is covered by the Independent auditor’s report.
Going concern
The Directors consider that it is appropriate to continue to adopt the going concern
basisbasis of accounting in preparing the financial statements. In reaching this assessment,
theDthe Directors have considered projections for the Group’s capital and funding position
aswelas well as other principal risks. As part of this process the Directors have considered
andappd approved the Group’s most recent Long Term Plan including associated downside
scenarios. Directors also considered the key assumptions and uncertainties that feed
intotheinto these plans alongside management actions and mitigants that would be available if
required. Under all scenarios considered, the Directors believe the Group to remain a going
concern on the basis that it maintains sufficient resources (including liquidity and capital)
to be able to continue to operate for the foreseeable future (considered to be at least 15
months from the date of these financial statements). The Directors did not deem there to
be any material uncertainties with regards to the assessment on going concern. Further
details on the assessment undertaken by the Directors is set out in the Viability statement
on pages 96 to 97.
Basis of consolidation
Our consolidated financial statements include the results for all entities which we control
(details of our subsidiaries can be found in note 37). Controlled entities are all entities to
which we are exposed, or have rights, to variable returns from our involvement with the
entity and have the ability to affect those returns through our power over it. An assessment
of control is performed on an ongoing basis.
Our controlled entities are consolidated from the date on which we establish control until
the date that control ceases. The acquisition method of accounting is used to account for
business combinations other than those under common control.
Post-acquisition, income and expenses are included in the consolidated income statement
on a line-by-line basis in accordance with the accounting policies set out herein, adjusting
for any intra-group transactions which are eliminated in full upon consolidation.
In publishing the Company financial statements here together with the Group financial
statements, we have adopted the exemption in section 408(3) of the Companies Act 2006
not to present a Company statement of comprehensive income and related notes that
form a part of these financial statements.
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Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
1. Basis of preparation and significant accounting policies
Continued
1.3 Functional and presentation currency
These financial statements are presented in pounds sterling (£), which is our
functionalcual currency. All amounts have been rounded to the nearest £1 million and
£0.1mi£0.1 million for balance sheet and income statement line items respectively, except
whereo otherwise indicated.
1.4 Cash flow statement
The cash flow statement shows the changes in cash and cash equivalents arising during
the year from operating activities, investing activities and financing activities.
The cash flows from operating activities are determined by using the indirect method.
Under that method, loss before tax is adjusted for non-cash items and changes in other
assets and liabilities to determine net cash inflows or outflows from operating activities.
Cash flows from investing and financing activities are determined using the direct
methodwhod which directly reports the cash effects of the transactions.
1.5 Changes in accounting policy and disclosures
During the period there have not been any changes in accounting policy or disclosures
thaththat have had a material impact on our financial statements.
1.6 Future accounting developments
At the year-end there are no standards that were in issue but not yet effective, that would
have a material impact on the Group. We have not adopted any standards early within
these financial statements.
1.7 Segmental reporting
IFRS 8 ‘Operating Segments’ requires operating segments to be identified on the basis
ofinterof internal reports and components of the Group which are regularly reviewed by the
ChiefOpef Operating Decision Maker to allocate resources to segments and to assess their
performance. For this purpose, the Chief Operating Decision Maker of the Group
isouis ourBor Board of Directors.
The Board considers the results of the Group as a whole when assessing the performance
of the Group and allocating resources, owing to our simple structure. Accordingly, the
Group has a single operating segment. We operate solely within the UK and, as such,
nogno geographical analysis is required. We are not reliant on any single customer.
1.8 Foreign currency translation
Transactions in a foreign currency are translated into the functional currency using the
exchange rates prevailing at the date of the transaction.
Monetary items denominated in a foreign currency are translated using the closing rate as
at the reporting date. Non-monetary items measured at historical cost denominated in a
foreign currency are translated with the exchange rate as at the date of initial recognition;
non-monetary items in a foreign currency that are measured at fair value are translated
using the exchange rates at the date when the fair value was determined.
Foreign currency differences arising on translation are recognised in other income.
Gainsains and losses arising from foreign currency transactions offered to customers
areaare alsorelso recognised in other income.
1.9 Critical accounting judgements and estimates
The preparation of financial statements in conformity with IFRS requires us to make both
material judgements as well as estimates which, although based on our best assessment,
by definition will seldom equal the actual results. Management believes that the underlying
assumptions applied at 31 December 2022 are appropriate and that these consolidated
financial statements therefore present the financial position and results of the Group and
Company fairly. The areas involving a higher degree of complexity, judgement or where
estimates have a significant risk of resulting in a material adjustment to the carrying
amounts within the next financial year are:
Area Estimates Judgements Further details
Measurement of ECL Multiple
forward-looking
scenarios
Significant increase
increin credit risk
Use of PMOs and PMAs
Note 30
186
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
2. Net interest income
Accounting policy
We recognise interest income and expense for all interest–bearing financial instruments
within ‘interest income’ and ‘interest expense’ in the income statement using the effective
interest rate method. The effective interest rate method is a method of calculating the
amortised cost of a financial asset or a financial liability and of allocating the interest
income or interest expense over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash payments or receipts through the expected
life of the financial instrument to the net carrying amount of the financial asset or financial
liability. When calculating the effective interest rate we estimate cash flows considering all
contractual terms of the financial instrument (for example, prepayment options) but do not
consider future credit losses except for POCI assets. The calculation includes all fees paid
or received between parties to the contract that are an integral part of the effective interest
rate, transaction costs and all other premiums or discounts.
For loans that are credit impaired, interest income is calculated on the carrying amount
ofthelof the loan net of credit impairment.
Interest income
Group
2022
£’million
2021
£’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
Group
2022
£’million
2021
£’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
Accounting policy
Fee and commission income is earned from a wide range of services we provide to our
customers. We account for fees and commissions as follows:
Product or service Nature, timing and satisfaction of performance obligations and payment terms
Service charges and other
fee income
We levy a range of standard charges and fees for account maintenance
or specific account services. Where the fee is earned upon the
execution of a significant act at a point in time, for example CHAPS
payment charges, these are recognised as revenue when the act
is completed for the customer. Where the income is earned from
the provision of services, for example an account maintenance fee,
thisithis isrecos recognised as revenue over time when the service is delivered.
Safe deposit box
Revenue is recognised over the period the customer has access to the
box from the date possession is taken. Safe deposit box fees are billed
on either a monthly or annual basis with a standard set price payable
dependent on the size of box.
ATM and
interchange fees
Where we earn fees from our ATMs or from interchange this
isreis recognised at the point the service is delivered.
Expenses that are directly related and incremental to the generation of fee and commission
income are presented within fee and commission expense.
As disclosed in note 1, we provide services solely within the UK and therefore revenues are
not presented on a geographic basis. Revenue is grouped solely by contract-type as we
believe this best depicts how the nature, amount and timing of our revenue and cash flows
are affected by economic factors.
Group
2022
£’million
2021
£’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
187
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
4. Net gains on sale of assets
Group
2022
£’million
2021
£’million
Investment securities held at amortised costs – 0.4
Investment securities held at fair value through other comprehensive income – 0.3
Loan portfolios – 8.7
Total net gains on sale of assets – 9.4
Disposal of investment securities
During the year ended 2021 some of our investment securities held at amortised cost
werecwere called early by the issuers resulting in a gain being recognised on these assets.
Disposal of loan portfolios
The £8.7 million gain on loan portfolio sales recognised in 2021 relates to the sale of a
portfolio of £3.1 billion of loans to NatWest in December 2020. The portfolio of mortgages
sold was subject to a 10% carve out, which related to a group of specifically identified loans
on which NatWest undertook further due diligence prior to completion in February 2021.
5. Other income
Accounting policy
Other income is accounted for as follows:
Product or service Nature, timing and satisfaction of performance obligations and payment terms
Foreign currency
transactions
Gains on foreign currency transactions is the spread earned on foreign
currency transactions performed for our customers along with any
associated fees. It is recognised at the point in time that the exchange
is executed.
Rental income
Rental income is primarily earned from the letting out of surplus space
in some of our properties. The revenue is recognised on a straight-line
basis over the life of the lease.
Deferred grant income
Deferred grant income relates to amounts recognised in relation to
the amounts drawn down against the Capability and Innovation Fund
(C&I) award (further details of which can be found in note 23). Income
is recognised in line with the delivery of the commitments we agreed
toas pato as part of the bid.
Other income
Other income primarily consists of hedge ineffectivenesss, foreign
currency differences arising on translation
and movements in
financial assets and liabilities held at fair value through profit and loss.
Group
2022
£’million
2021
£’million
Foreign currency transactions 34.1 27.7
Rental income 0.7 0.9
Deferred grant income 1.5 10.5
Other 1.3 5.1
Total other income 37.6 44.2
188
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
Information technology costs
Information technology costs include costs expensed in relation to software licenses,
support from third party providers, back up costs and cloud computing costs.
Occupancy costs
Occupancy costs consist of the non-IFRS 16 property costs of occupying our stores and
offices, including rates, utilities and property maintenance costs as well as irrecoverable
VAT on lease payments.
Money transmission and other banking-related costs
Money transmission and other banking-related costs are made up of the overheads
relating to servicing our deposits and lending that do not constitute either part of the
effective interest rate, or fee and commission expense.
Professional fees
Professional costs includes £15.0 million (2021: £29.4 million) of research and development
costs not capitalised. This does not include any costs of colleagues working on these
projects that are included in the people costs line. Including these costs we spent
£47.5m5 million (2021: £53.5 million) on research and development costs not capitalised.
Included within legal, regulatory and professional fees is £0.1 million (2021: £nil) in respect
of the Financial Services Compensation Scheme levy.
Transformation, remediation, Capability and Innovation Fund, business acquisition
and integration and holding company insertion costs
Further details on transformation, remediation, Capability and Innovation Fund,
businessass acquisition and integration and holding company insertion costs can be found
onpon page 244.
6. General operating expenses
Group
2022
£’million
2021
£’million
People costs (note 7) 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
1.3 8.1
Legal and regulatory fees 7.0 6.6
Professional fees
2
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
1. C&I costs represent the non-capitalisable costs of delivering the C&I digital commitments. It includes £0.9 million
(2021: £2.5 million) of people costs. These are included within C&I costs rather than people costs to better reflect
their nature. In addition to these costs the grant income recognised in note 5 is also used to offset property costs
relating to the store commitments delivered.
2. Professional fees are shown net of both amounts capitalised and amounts included within the transformation
costs, remediation costs and C&I costs lines.
189
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
7. People costs
Group
2022
£’million
2021
£’million
Wages and salaries
1
196.8 201.2
Social security costs
1
23.7 22.0
Pension costs
1
13.7 13.4
Equity-settled share-based payments 2.4 2.4
Total people costs 236.6 239.0
1. Amounts are net of people costs which are capitalised as well as those relating to C&I (see note 6) as these costs
will be offset against the deferred grant income in note 5.
During the year £5.3 million (2021: £6.9 million) of people costs were capitalised as part
ofouof our intangibles assets (further details can be found in note 15).
The average monthly number of persons employed during the year was 4,040
(2021:41: 4,184).
Group 2022 2021
Customer-facing 1,886 2,062
Non-customer-facing 2,154 2,122
Total number of persons employed 4,040 4,184
Pension costs
We operate a defined contribution pension scheme for our colleagues. Contributions to
colleagues’ individual personal pension plans are made on a contractual basis, with no
further payment obligations once the contributions have been paid. These contributions
are recognised as an expense when they fall due.
Payments were made amounting to £14.0 million (2021: £14.0 million) to colleagues’
individual personal pension plans during the year. This includes pension contributions
thatwethat were capitalised as well as those relating to colleagues working on C&I which are
notinot included in the figures above.
8. Fees payable to our auditors
During the year, the Group (including its subsidiaries) obtained the following services from
our auditors, PricewaterhouseCoopers LLP:
Group
2022
£’000
2021
£’000
Audit of the Consolidated and Company financial statements
1
2,553 2,342
Audit of the financial statements of the Company’s subsidiaries 73 143
Audit-related assurance services 203 232
Other assurance services 115 –
Total fees payable to our auditors 2,944 2,717
1. Includes £160,000 related to the prior year (2021: £300,000).
190
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
9. Taxation
Accounting policy
Current tax
Our current tax comprises the expected tax payable or receivable on the taxable profit for the year and any adjustment to the tax payable or receivable in respect of previous years.
ItismIt is measured using tax rates enacted or substantively enacted at the reporting date.
Where we have tax losses that can be relieved only by carry-forward against taxable profits of future periods, a deductible temporary difference arises. Those losses carried forward are set off
against deferred tax liabilities carried in the balance sheet.
Deferred tax
Deferred tax is recognised in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is
determined using tax rates (and laws) that have been enacted or substantively enacted by the date of the balance sheet and are expected to apply when the related deferred tax asset is realised
or the deferred tax liability is settled.
The principal differences arise from trading losses, depreciation of property, plant and equipment and relief on research and development expenditure.
We recognise a deferred tax asset to the extent that it is probable that future taxable profits will be available against which they can be used and deferred tax liabilities are provided on taxable
temporary differences. Deferred tax assets and liabilities are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be
realised or the deferred tax liability settled.
We offset deferred tax assets and liabilities where we have a legally enforceable right to offset and where the deferred tax assets and liabilities relate to taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities where there is an intention to settle on a net basis.
Tax expense
The components of the tax expense for the year are:
Group
2022
£’million
2021
£’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)
191
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
9. Taxation Continued
Reconciliation of the total tax expense
The tax expense shown in the income statement differs from the tax expense that would apply if all accounting losses had been taxed at the UK corporation tax rate.
A reconciliation between the expense and the accounting loss multiplied by the UK corporation tax rate is as follows:
Group
2022
£’million
Effective
tax rate
%
2021
£’million
Effective
tax rate
%
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 liability 0.3 0.4% 3.0 1.2%
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%)
The effective tax rate for this year is 2.8% (2021: 1.3%). The main reasons for this, in addition to the reported accounting loss before tax for the year, are set out below:
Impact of intangible asset write-off on research and development tax relief
During the year we fully wrote-off intangible assets relating to discontinued products resulting in a net deferred tax credit.
Share based payments
During the period our share price increased from £1.04 to £1.21. This had the impact of increasing the deferred tax asset held resulting in a deferred tax credit. In 2021 our share price fell
from £1.40 to £1.04. This had the impact of reducing the deferred tax asset held resulting in a deferred tax charge.
Adjustment in respect of prior years
Following the filing of our 2021 corporation tax return we reduced our research and development deferred tax liability following a decrease in qualifying research and development
expenditure. This was partly offset by an increase in our property, plant and equipment deferred tax liability resulting from an increase in qualifying additions.
Losses for which no deferred tax asset has been recognised
The tax effected value of losses for which no deferred tax asset has been recognised is £11.7 million (2021: £34.7 million).
Effect of changes in tax rates
This relates to the remeasurement of deferred tax rates following aclowing a changeto thnge to the mainUK cn UK corporation tax rate. An increase in the UK corporation rate from 19% to 25% for taxable
profits over £250,000 (effective 1 April 2023) was substantively enacted on 24 May 2021. This continues to impact our deferred tax rates until 2023.
192
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
9. Taxation Continued
Deferred tax assets
A deferred tax asset must be regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not there will
besube suitable tax profits from which the future of the underlying timing differences can be deducted.
The following table shows deferred tax recorded in the statement of financial position and changes recorded in the tax expense:
31 December 2022 31 December 2021
Group
Unused
tax losses
£’million
Investment
securities
and
impairments
£’million
Share-
based
payments
£’million
Property,
plant and
equipment
£’million
Intangible
assets
£’million
Total
£’million
Unused
tax losses
£’million
Investment
securities
and
impairments
£’million
Share-
based
payments
£’million
Property,
plant and
equipment
£’million
Intangible
assets
£’million
Total
£’million
Deferred tax assets 12 3 1 – – 16 13 3 – – – 16
Deferred tax liabilities – 4 – (26) (6) (28) – 2 – (23) (7) (28)
Deferred tax liabilities (net) 12 7 1 (26) (6) (12) 13 5 – (23) (7) (12)
1 January 13 5 – (23) (7) (12) 12 2 – (16) (10) (12)
Income statement (1) – 1 (3) 1 (2) 1 – – (7) 3 (3)
Other comprehensive income – 2 – – – 2 – 3 – – – 3
31 December 12 7 1 (26) (6) (12) 13 5 – (23) (7) (12)
Offsetting of deferred tax assets and liabilities
We have presented all the deferred tax assets and liabilities above on a net basis within the Group and Company balance sheets on page 182. This is on the basis that all our deferred tax
assets and liabilities relate to taxes levied by HMRC upon the Company and we have a legally enforceable right to offset these. Further details on our offsetting of financial assets and
liabilities can be found in note 33.
Unrecognised deferred tax assets
We have total unused tax losses of £859 million for which a deferred tax asset of £215 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prevaild prevailing market conditions. There is no time limit beyond which these losses expire.
Due to unrealised accumulated investment property impairments of £11 million there is an unrecognised deferred tax asset of £3 million (31 December 2021: £3 million).
Company disclosures
Relevant disclosures for the Company have not been included as they are not materially different to the Group disclosures.
193 Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
10. Financial instruments
Accounting policy
Repurchase agreements
Where we sell financial assets subject to sale and repurchase agreements, the financial assets
are retained in their respective balance sheet categories, however become encumbered and
are not available for transfer or sale. The associated liabilities are included in the repurchase
agreements line. The difference between the sale and repurchase price of repurchase
agreements is treated as interest and accrued over the life of the agreements using the
effective interest method as set out in note 2.
Other financial instruments
Our accounting policies in respect of our other financial instruments can be found in their
respective notes, where applicable.
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). Further details on these risks can be found
within the Risk report on pages 54 to 97.
The financial instruments we hold are simple in nature and we do not consider that
wehave madwe have made any significant or material judgements relating to the classification
andmeasurand 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
Group
Fair value
through
profit and
loss
£’million
FVOCI
£’million
Amortised
cost
£’million
Total
£’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
Group
Fair value
through
profit
and loss
£’million
FVOCI
£’million
Amortised
cost
£’million
Total
£’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
194
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
10. Financial instruments Continued
Financial assets held at fair value through profit and loss
The financial assets held at fair value through profit and loss consist of loans previously
absorbed by the RateSetter provision fund. Following the acquisition of the legacy peer-to-
peer back book from RateSetter investors in April 2021 these loans are now owned by the
Company. Following the back book purchase we no longer have any liability in respect
ofthe pof the provision fund.
Financial assets pledged as collateral
We have pledged £5,286 million (31 December 2021: £5,463 million) of the financial assets
above as encumbered collateral which can be called upon in the event of default. Of this,
£2,131 million (31 December 2021: £1,491 million) is made up of high-quality securities
and£3d £3,141 million (31 December 2021: £3,956 million) is from our own loan portfolio.
This does not include cash balances pledged as collateral which are shown separately
within note 17.
LIBOR replacement
On 1 January 2022 SONIA (Sterling Overnight Index Average) replaced LIBOR
(LondonInter-ban Inter-bank Offered Rate) as the industry standard sterling interest
ratee benchmark.
As at 31 December 2022 all of our market-facing derivative flows are executed against
SONIA, however, we continue to hold £64 million (31 December 2021: £295 million)
ofmoof mortgages that are either exposed, or revert to synthetic LIBOR.
11. Cash and balances with the Bank of England
Accounting policy
Cash and balances with the Bank of England consists of both cash on hand and demand
deposits, both at other banks as well as the Bank of England. In addition, it includes highly
liquid investments that are readily convertible to known amounts of cash and which are
subject to insignificant risk of changes in value. Investment securities are only classified as
cash if they have a short maturity of three months or less from the date of acquisition and
areiare in substance cash equivalents, e.g. debt investments with fixed redemption dates that
areaare acquired within a short period of their maturity.
Where cash is pledged as collateral and as such is not available on demand this is included
within other assets within note 17.
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Unrestricted balances with the Bank of England 1,761 3,361 1,761 3,361
Cash and unrestricted balances with other banks 136 177 133 156
Money market placements 59 30 59 30
Total cash and balances with the Bank of England 1,956 3,568 1,953 3,547
The expected credit loss held against cash and balances with the Bank of England is less
than £0.1 million (31 December 2021: less than £0.1 million).
195
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
12. Loans and advances to customers
Accounting policy
Loans and advances to customers are classified as held at amortised cost. Our business
model is that customer lending is held to collect cash flows, with no sales expected in
the normal course of business. We aim to offer products with simple terms to customers,
and as a result, all loans comprise solely payments of principal and interest. Loans are
initially recognised when cash is advanced to the borrower at fair value – which is the
cash consideration to originate the loan including any transaction costs – and measured
subsequently at amortised cost using the effective interest rate method, which is detailed
further in note 2. Interest on loans is included in the income statement and is reported as
‘Interest income’. Expected credit losses (ECL) are reported as a deduction from the carrying
value of the loan. Changes to the ECL during the year are recognised in the income statement
as ‘Expected credit loss expense’.
31 December 2022 31 December 2021
Gross
carrying
amount
£’million
ECL
allowance
£’million
Net
carrying
amount
£’million
Gross
carrying
amount
£’million
ECL
allowance
£’million
Net
carrying
amount
£’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
Total loans and advances to
customers (Company) 12,877 (179) 12,698 12,139 (163) 11,976
Asset and invoice finance 412 (8) 404 320 (6) 314
Total loans and advances to
customers (Group) 13,289 (187) 13,102 12,459 (169) 12,290
Further information on the movements in gross carrying amounts and ECL can be found
innoin note 30.
An analysis of the gross loans and advances by product category is set out below:
Group
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Overdrafts 60 66 60 66
Credit cards 19 13 19 13
Term loans 1,401 811 1,401 811
Total consumer lending 1,480 890 1,480 890
Residential owner occupied 5,507 5,022 5,507 5,022
Retail buy-to-let 2,142 1,701 2,142 1,701
Total retail mortgages 7,649 6,723 7,649 6,723
Total retail lending 9,129 7,613 9,129 7,613
Professional buy-to-let 731 950 731 950
Bounce back loans 801 1,304 801 1,304
Coronavirus business interruption loans 127 165 127 165
Recovery loan scheme
1
385 157 385 157
Other term loans 1,578 1,791 1,578 1,791
Commercial term loans 3,622 4,367 3,622 4,367
Overdrafts and revolving credit facilities 122 156 122 156
Credit cards 4 3 4 3
Asset and invoice finance 412 320 – –
Total commercial lending 4,160 4,846 3,748 4,526
Gross loans and advances to customers 13,289 12,459 12,877 12,139
Amounts include:
Repayable at short notice 156 181 156 181
1. Recovery loan scheme includes £97 million acquired from third parties under forward flow arrangements
(31D1 December 2021: £66 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).
196
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
13. Investment securities
Accounting policy
Our investment securities may be categorised as amortised cost, FVOCI or fair value
through profit and loss. Currently all investment securities are non-complex, with cash flows
comprising solely payments of principal and interest. We hold some securities to collect
cash flows; other securities are held to collect cash flows, and to sell if the need arises
(e.g.tome.g. to manage and meet day-to-day liquidity needs). Therefore, we have a mixed business
model and securities are classified as either amortised cost or FVOCI as appropriate.
Wedonot cWe do not categorise any investment securities as fair value through profit and loss.
Settlement date accounting is used when recording financial asset transactions where a trade
is settled through the regular settlement cycle for that particular investment.
Investment securities held at amortised cost
Investment securities held at amortised cost consist entirely of debt instruments.
Theyareacey are accounted for using the effective interest method, less any impairment losses.
Investment securities held at FVOCI
Investment securities held at FVOCI consist entirely of debt instruments. Investment
securities held at FVOCI are initially recognised at fair value, which is the cash consideration
including any transaction costs, and measured subsequently at fair value with gains and
losses being recognised in other comprehensive income, except for impairment losses
andfored foreign exchange gains and losses, until the investment security is derecognised.
Interestiscat is calculated using the effective interest method.
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Investment securities held at FVOCI 571 798 571 798
Investment securities held at amortised cost 5,343 4,776 5,343 4,776
Total investment securities 5,914 5,574 5,914 5, 574
Investment securities held at FVOCI
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Sovereign bonds 215 566 215 566
Residential mortgage-backed securities 38 38 38 38
Covered bonds 152 156 152 156
Multi-lateral development bank bonds 166 38 166 38
Total investment securities held at FVOCI 571 798 571 798
Investment securities held at amortised cost
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Sovereign bonds 1,717 1,198 1,717 1,198
Residential mortgage-backed securities 1,095 1,687 1,095 1,687
Covered bonds 542 442 542 442
Multi-lateral development bank bonds 1,821 1,289 1,821 1,289
Asset backed securities 168 160 168 160
Total investment securities held at amortised cost 5,343 4,776 5,343 4,776
Further information on the ECL recognised on investment securities can be found
innoin note30.te 30.
197
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
14. Property, plant and equipment
Accounting policy
Property, plant and equipment
Our property, plant and equipment primarily consists of investments and improvements
inoin our store network and is stated at cost less accumulated depreciation and any
recognisedimpairment.recognised impairment.
We depreciate property, plant and equipment on a straight-line basis to its residual value
using the following useful economic lives:
Leasehold improvements Lower of the remaining life of the lease
or the useful life of the asset
Freehold land Not depreciated
Buildings Up to 50 years
Fixtures, fittings and equipment 5 years
IT hardware 3 to 5 years
We keep depreciation rates, methods and the residual values underlying the calculation of
depreciation of items of property, plant and equipment under review to take account of any
change in circumstances.
All items of property, plant and equipment are reviewed at the end of each reporting period
for indicators of impairment.
Right-of-use assets
All of our leases within the scope of IFRS 16 ‘Leases’ (other than those of low value) relate
toour sto our stores and head office properties.
Upon the recognition of a lease liability (see note 22 for further details) a corresponding right-
of-use asset is recognised. This is adjusted for any initial direct costs incurred, lease incentives
paid or received and any restoration costs at the end of the lease (where applicable).
The right-of-use asset is depreciated on a straight-line basis over the life of the lease.
All right-of-use assets are reviewed at the end of each reporting period for indicators
ofof impairment.
Investment property
Investment property is also stated at cost less accumulated depreciation and any recognised
impairment. Depreciation is calculated on a consistent basis with that applied to land and
buildings as set out above.
2022
Group
Investment
property
£’million
Leasehold
improvements
£’million
Freehold
land and
buildings
£’million
Fixtures,
fittings and
equipment
£’million
IT Hardware
£’million
Right-of-use
assets
£’million
Total
£’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
198
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
14. Property, plant and equipment Continued
2021
Group
Investment
property
£’million
Leasehold
improvements
£’million
Freehold
land and
buildings
£’million
Fixtures,
fittings and
equipment
£’million
IT Hardware
£’million
Right-of-use
assets
£’million
Total
£’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
Impairments
During the year impairments were recognised in relation to some of our investment
property. Our investment property typically consists of shops and offices which are
located within the same buildings as some of our stores, where we have acquired the
freehold interest. As at 31 December 2022 our investment property had a fair value of
£4milli£4 million (31 December 2021: £6 million). The fair value has been provided by a qualified
independent valuer.
Impairment indicators were also identified in respect of other items of our property, plant
and equipment. The assets, which included our stores, were tested for impairment. We do
not consider individual stores to be cash generating units (CGU), on the basis that they do
not generate sufficiently independent cash flows. Instead all of our stores and associated
assets are deemed to belong to our retail bank CGU. Further details on the impairment
testing of our CGUs can be found in note 15.
The recoverable amount of the retail bank CGU was found to be in excess of its carrying
amount and as such no impairment was recognised.
Write-offs
The write-offs made during the year relate to items that are no longer being used or are
nolono longer providing us with any economic benefit.
Transfers
Transfers represent costs associated with the improvements made to the two (2021: four)
previously leased stores which have been purchased during the year. These stores were
purchased where there was a strong commercial rationale for doing so.
Assets classified as held for sale
During the year we agreed the sale of one of our investment properties. This site had been
previously acquired as a location for a future store, which we subsequently decided against
proceeding with and as such it had been classified as investment property. As at the
31De1 December 2022 the property met the criteria to be classified as held for sale and
wasthwas therefore remeasured to its fair value (less disposal costs) and transferred out
ofinvestmof investment property. The sale of the site was completed in early 2023, with no gain
orloor loss being recognised upon disposal.
Contractual commitment for the acquisition of property, plant and equipment
As at 31 December 2022 we had no contractual commitments relating to the acquisition of
property, plant and equipment that are not reflected in the tables (31 December 2021: £nil).
Company disclosures
Relevant disclosures for the Company have not been included as they are not materially
different to the Group disclosures.
199
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
15. Intangible assets
Accounting policy
Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the
consideration transferred over our interest in net fair value of the net identifiable assets,
liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling
interest in the acquiree.
For the purpose of impairment assessment, goodwill acquired in a business combination
is allocated to each of our CGUs, or groups of CGUs, that is expected to benefit from the
synergies of the combination. Each unit or group of units to which the goodwill is allocated
represents the lowest level within the entity at which the goodwill is monitored for internal
management purposes.
Goodwill is not amortised, however, it is tested for impairment at the end of each
reportingg period.
The recoverable amount of a CGU is the higher of its fair value less cost to sell, and the
present value of its expected future cash flows.
If the recoverable amount is less than the carrying value, an impairment loss is charged
tothe into the income statement. Goodwill is stated at cost less accumulated impairment losses.
AnyimAny impairment is recognised immediately as an expense and is not subsequently reversed.
Other intangible assets
Software includes both purchased items and internally developed systems, which consists
principally of identifiable and directly associated internal colleague, contractor and other costs.
Purchased intangible assets and costs directly associated with the development of systems
are capitalised as intangible assets where there is an identifiable asset which we control and
which will generate future economic benefits in accordance with IAS 38 ‘Intangible Assets’.
Costs to establish feasibility or to maintain existing performance are recognised as an
expense. Intangible assets are amortised on a straight-line basis within the income statement
using the following useful economic lives:
Core banking software
1
up to 20 years
Other banking software 3 to 10 years
Software licences licence period
Customer contracts 10 years
Brands 5 years
All intangible assets are reviewed at the end of each reporting period for indicators
ofof impairment.
1. Core banking software consists of our central banking transaction platform. The original platform was
assessed as having a 20-year life due to it being the central component of our digital infrastructure. It was
upgraded during 2019 with the upgrade assessed as having a 15-year life. Our core banking software has
beenien in use since we first opened and given its significance is unlikely to be replaced in the foreseeable future.
2022
Group
Goodwill
£’million
Brands
£’million
Software
£’million
Total
£’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
2021
Group
Goodwill
£’million
Brands
£’million
Software
£’million
Total
£’million
Cost
1 January 2021 10 2 328 340
Additions – – 39 39
Write-offs – – (32) (32)
Deferred grant (see note 23) – – 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
Software
Software consists of both internally generated and externally acquired assets. As at
31De1 December 2022 externally acquired licences had a net book value of £9 million
(31De1 December 2021: £6 million). Out of our total intangible assets, £39 million of software
assets were under the course of construction at 31 December 2022 (31 December 2021:
£98 million).
200
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
15. Intangible assets Continued
Write-offs
The write-offs in the year consisted primarily of software and applications that are
nolono longer being used and are no longer providing any further economic benefits.
Contractual commitment for the acquisition of intangible assets
As at 31 December 2022 we had no contractual commitments relating to the acquisition
ofintof intangible assets that are not reflected in the tables (31 December 2021: £nil).
Goodwill and impairment testing of cash generating units
An impairment test on the carrying value of the assets in our CGUs has been undertaken.
As at 31 December 2022 we had two main CGUs being the retail bank and our asset and
invoice finance business and no changes have been made to our CGUs during the year.
Both of our CGUs contain goodwill and as such are tested annually for impairment.
Additional impairment indicators were identified in relation to the retail bank CGU in
relation to both its intangible assets as well as property, plant and equipment (see note 14).
31 December
2022
£’million
Asset and invoice finance business 4
Retail bank 6
Total 10
The recoverable amount for both CGUs was determined by a value in use (VIU) calculation.
The VIU was higher than their carrying value and therefore no impairment charge has been
recognised for the current year (2021: £nil). The VIU calculation is based on our Board-
approved Long Term Plan which covers the five-year period from 2023 to 2027 inclusive.
Our Long Term Plan is constructed using our best estimate of the future performance of
the business and encompasses commercially sensitive estimates including lending and
deposit yields and volumes, as well as costs forecasts over the period. The Long Term Plan
is built on the assumption that we remain appropriately capitalised to fund our anticipated
growth. We have determined that we will be able to meet the appropriate regulatory
requirements, which has been based on an analysis of both our existing and planned
capital structure. This is consistent with the assessment undertaken by the Directors
inresin respect of assessing viability, which can be found on pages 96 to 97.
The profitability for each CGU per the Long Term Plan is adjusted for non-cash items
(including depreciation and amortisation), capital expenditure and long-term funding costs
(which are reflected in the discount rate) to establish the cash flows for the VIU. Cash flows
beyond the five years have been extrapolated using a decreasing growth rate for years six
to ten at which point a terminal growth rate of 2% (31 December 2021: 2%) is applied.
Thepere period of projection and growth rates used reflects our anticipated growth profile
after the five-year planning period, as well as the nature and life of the assets within the
CGUs. The terminal growth rate of 2% represents the predicted long-term GDP growth
rateof the Urate of the UK economy (the only market both CGUs operate in).
A pre-tax discount rate of 15.3% (31 December 2021: 13.3%) has been used for the VIU
calculation. The discount rate is based on our post-tax weighted average cost of capital
(which is grossed up to a pre-tax rate).
The VIU is most sensitive to changes in the projected profitability per the Long Term Plan
and the discount rate applied (which are dependent on the assumptions regarding capital
outlined above). If adjusted independently of all other variables, reasonable changes
totheasto the assumption in either of these factors over the next 12 months would not cause
therethe recoverable amount of either CGU to fall below its carrying amount.
Company disclosures
Company
2022
Software
£’million
2021
Software
£’million
Cost
1 January 326 293
Additions 24 64
Write-offs (15) (32)
Deferred grant (see note 23) – 1
31 December 335 326
Accumulated amortisation
1 January 95 84
Amortisation charge 42 37
Write-offs (6) (26)
31 December 131 95
Net book value 204 231
201
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
18. Deposits from customers
The total deposits from customers as at 31 December 2022 consisted of 49% from
retailcusil customers (31 December 2021: 52%) and 51% from commercial customers
(31De1 December 2021: 48%).
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Deposits from retail customers 7,851 8,527 7,851 8,527
Deposits from commercial customers 8,163 7,921 8,163 7, 921
Total deposits from customers 16,014 16,448 16,014 16,448
As at 31 December 2022, 49% of deposits from customers consisted of instant access
current accounts (31 December 2021: 44%). In line with our strategy we continued to let
fixed term saving accounts roll-off, with these making up 4% of balances as at the year-end
(31 December 2021: 9%).
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Demand: current accounts 7,888 7,318 7,888 7,318
Demand: savings accounts 7,501 7,68 4 7,501 7,684
Fixed term: savings accounts 625 1,446 625 1,446
Total deposits from customers 16,014 16,448 16,014 16,448
19. Deposits from central banks
Deposits from central banks consist solely of amounts drawn down under the Bank
ofEngof England’s Term Funding Scheme with additional incentives for SMEs (TFSME).
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Amounts drawn down under TFSME 3,800 3,800 3,800 3,800
Deposits from central banks 3,800 3,800 3,800 3,800
TFSME was closed to further drawdowns in October 2021 and our drawdowns will
maturein 20re in 2024, 2025 and 2027 in the amounts of £550 million, £1,860 million and
£1,390mil0 million respectively.
16. Prepayments and accrued income
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Prepayments 32 28 27 24
Accrued incomeme¹ 52 38 52 38
VAT receivable 1 2 1 2
Total prepayments and accrued income 85 68 80 64
Current portion 85 68 80 64
Non-current portion – – – –
1. Includes accrued interest receivable.
17. Other assets
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Cash pledged as collateral 39 36 39 36
Other
1
34 40 34 39
Amounts owed by Group undertakings – – 400 317
Total other assets 73 76 473 392
Current portion 45 52 445 365
Non-current portion 28 24 28 27
1. Other balance primarily comprises customer transactions in process or items in the course of collection over
year-end.
202 Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
20. Debt securities
Accounting policy
Debt securities in issue are recognised initially at fair value, being proceeds less transaction
costs. Subsequently, debt securities are measured at amortised cost using the effective
interest method.
Name Issue date Currency
Amount
issued
£’million
Coupon
rate Call date
Maturity
date
Fixed Rate Reset Callable
Subordinated Notes 26/06/18 GBP 250 5.50% 26/06/23 26/06/28
Fixed Rate Reset Senior
Non-Preferred Notes 08/10/19 GBP 350 9.50% 08/10/24 08/10/25
Group
2022
£’million
Group
2021
£’million
Company
2022
£’million
Company
2021
£’million
1 January 588 600 588 600
Fair value movements due to micro hedging arrangements (19) (14) (19) (14)
Unwind of issuance costs 2 2 2 2
31 December 571 588 571 588
In December 2022 the Bank of England’s Resolution Directorate has agreed to provide
atempa temporary, time-limited, adjustment for our existing Fixed Rate Reset Callable
Subordinated Notes (the ‘Notes’) with respect to MREL eligibility until 26 June 2025.
Thiswill cos will come into effect upon the implementation of a holding company, which
wearerewe are required to implement by 26 June 2023.
The adjustment permits the Notes to remain eligible to count towards the holding
company’s MREL requirement until 26 June 2025, while remaining at the operating
company. The adjustment has been granted in line with the statement in the Bank of
England’s December 2021 MREL Policy Statement that it may, on a firm’s request, make
‘temporary, time-limited adjustments’ to the implementation of its policy change on MREL
debt eligibility with respect to individual firms where to do so would not materially affect
the overall amount of loss absorbing and recapitalisation capacity available in resolution.
As set out in the table above the Notes have a one-time call date of 26 June 2023 and,
given the adjustment, at present we do not expect to exercise the call provision (unless
itwoulit would be economically rational to do so at the time and subject to Prudential Regulation
Authority approval). The Notes’ eligibility for Tier 2 capital amortises from the call date
over the remaining life of the instrument if not called.
21. Derivatives
Accounting policy
In accordance with our risk management strategy, to the extent not naturally hedged,
weuse iwe use interest rate swaps to manage our exposure to interest rate risk. On adoption
of IFRS9 we chRS 9 we chose to continue applying the hedge accounting rules set out in IAS 39
‘FinancialInsl Instruments: Recognition and Measurement’ as we employ dynamic portfolio
hedge accounting of interest rate risk across fixed rate financial assets and fixed rate
financialliabilities.ncial liabilities.
Where we are using interest rate swaps to hedge the changes in fair value attributable to
the interest rate risk of a recognised asset or liability that could affect profit or loss, we apply
fair value hedge accounting. If there is an effective hedge relationship, the hedged item is
adjusted for fair value changes in respect of the hedged risk. These fair value changes are
recognised in the income statement together with the fair value movements on the hedging
instrument (the interest rate swaps).
Hedge accounting is discontinued when a hedge ceases to be highly effective, a derivative
expires or is sold, the underlying hedged item matures or is repaid, or periodically if a new
underlying hedged item or hedging instrument is added to the hedge relationship. Where
a fair value hedge is de-designated (either due to becoming ineffective or as part of our
dynamic approach to hedge accounting) any hedge adjustments accrued to that point
areaare amortised over the remaining life of the hedged item.
At the inception of every hedge, we produce hedge documentation which identifies
the hedged risk, hedged item and hedging instrument. This documentation sets out
themthe methodology used for testing hedge effectiveness.
203 Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
21. Derivatives Continued
We use derivatives as part of our approach to hedging interest rate and foreign exchange exposure. Our derivative financial instruments are analysed in the table below.
31 December 2022 31 December 2021
Assets Liability Assets Liability
Group and Company
Notional
contract
amount
£’million
Fair value
£’million
Notional
contract
amount
£’million
Fair value
£’million
Notional
contract
amount
£’million
Fair value
£’million
Notional
contract
amount
£’million
Fair value
£’million
Interest rate swaps – Designated as hedging instruments 452 21 450 26 – – 1,164 10
Foreign currency swaps – Designated as held at fair value through profit and loss 146 2 145 – 160 1 162 1
Total 598 23 595 26 160 1 1,326 11
Hedge accounting
Our hedging strategy is divided into micro hedges, where the hedged item is an identifiable asset or liability, and portfolio hedges, where the hedged item is a portfolio
ofmoof mortgageaage assets.
The designated risk components of hedged items are benchmark interest rate risk. Other risks such as credit risk and liquidity risk are managed separately and are not included in the
hedge accounting relationship.
The changes in the designated risk component usually account for the largest portion of the overall change in fair value of the hedged item.
Portfolio fair value hedges
We operate a macro hedging programme. As part of this we use interest rate swaps to manage our interest rate risk. So far the macro hedging programme has been applied to our fixed
rate mortgage assets only.
We determine hedged items by analysing portfolios of fixed rate mortgages into repricing time buckets based on expected, rather than contractual, repricing dates. The hedging
instruments are designated appropriately to those repricing time buckets.
The hedge relationship is tested for effectiveness prospectively at the designation date, and retrospectively at each de-designation on a monthly basis. This is done by comparing fair
value movements of the designated proportion of the bucketed mortgages, against the fair value movements of the derivatives, to ensure that they are within an 80% to 125% range.
The aggregated fair value changes due to interest rate risk in the hedged mortgages are recognised on the balance sheet as an asset and liability respectively. At the end of every
month, we de-designate the hedge relationships and redesignate them as new hedges in order to minimise the ineffectiveness from early repayments and accommodate new exposures.
At de-designation, the fair value hedge accounting adjustments are amortised on a straight-line basis over the remaining period until the repricing of the mortgage. Amortisation begins
at the date of de-designation.
Micro fair value hedges
We use this hedging strategy on fixed rate assets and liabilities held at fair value through other comprehensive income and amortised cost as well as on our fixed rate debt issuance.
Hedge ineffectiveness
Hedge ineffectiveness within fair value hedges can occur due to a number of potential sources, such as non-zero derivative designated in a hedge relationship; mismatches between
contractual terms such as basis, timing, principal and notionals; or change in credit risk of interest rate swaps.
For the purposes of calculating ineffectiveness recognised in the profit or loss, the total movement in fair value due to the hedged risk on the hedged item and hedging instrument since
designation are considered. The total ineffectiveness on our fair value hedges is recognised in Other income within note 5.
204
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
21. Derivatives Continued
Summary of hedging instruments in designated hedge relationships
The amounts relating to items designated as hedging instruments in fair value hedge relationships to manage our exposure to interest rates are:
31 December 2022 31 December 2021
Assets Liability Assets Liability
Group and Company
Notional
contract
amount
£’million
Carrying
amount
£’million
Notional
contract
amount
£’million
Carrying
amount
£’million
Notional
contract
amount
£’million
Carrying
amount
£’million
Notional
contract
amount
£’million
Carrying
amount
£’million
Interest rate swaps 452 21 450 26 – – 1,164 10
Total derivatives designated as fair value hedges 452 21 450 26 – – 1,164 10
Summary of hedged items in designated hedge relationships
The items designated as hedged items in fair value hedge relationships to manage our exposure to interest rates are:
31 December 2022 31 December 2021
Carrying amount
Accumulated amount
of fair value hedge
adjustments included in
the carrying amount of
the hedged item Carrying amount
Accumulated amount
of fair value hedge
adjustments included
inin the carrying amount
of the hedged item
Group and Company
Assets
£’million
Liabilities
£’million
Assets
£’million
Liabilities
£’million
Assets
£’million
Liabilities
£’million
Assets
£’million
Liabilities
£’million
Fixed rate mortgages
1
129 – – – 456 – 2 –
Fixed rate debt issuance
2
– 424 26 – – 443 7 –
Fixed rate investment securities at FVOCI
3
236 – – 20 195 – 1 –
Fixed rate investment securities at amortised cost
4
59 – – 1 60 – – –
Fixed rate loans
1
5 – – – 5 – – –
Total derivatives designated as fair value hedges 429 424 26 21 716 443 10 –
1. Hedged item and the cumulative fair value changes are recorded in Loans and advances to customers.
2. Hedged item and the cumulative fair value changes are recorded in Debt securities in issue (see note 20).
3. Hedged item and the cumulative fair value changes recorded in Investment securities held at FVOCI
4. Hedged item and the cumulative fair value changes are recorded in Investment securities held at amortised cost.
Summary of ineffectiveness from designated hedge relationships
Total hedge ineffectiveness recognised in profit or loss for the designated fair value hedge relationships is £nil (2021: gain of £0.2 million).
205
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
22. Leases
Accounting policy
At the inception of a contract we assess whether the contract contains a lease.
At the commencement of a lease we recognise a lease liability and right-of-use asset (see
note 14 for further details). The lease liability is initially measured as the present value of the
future lease payments discounted at the rate implicit in the lease (where available) or our
incremental cost of borrowing. Generally we use our deemed incremental cost of borrowing
as the discount rate. Following initial recognition, the lease liability is measured using the
effective interest method.
Where we are reasonably certain to exercise a break in the lease, only the lease payments
upuup until the date of the break are included.
We subsequently remeasure the lease liability when there is a change to an index or rate
used or when there is a change in expectation that we will exercise a purchase option or
break clause or if we extend the lease. When such an adjustment is made to the lease liability
acora corresponding adjustment is made to the right-of-use asset.
Irrecoverable VAT on lease payments is excluded from the lease liability and is taken
to the income statement over the period which is due. This is included within note 6,
GeneralGeneral operating expenses, under ‘occupancy expense’.
We have elected not to recognise a lease liability and right-of-use assets for any leases
that have a term of less than 12 months, or are for an asset which is deemed to be of low
value (item is worth less than £5,000). For these leases, the lease payments are recognised
asaas anexpen expense in the income statement on a straight-line basis over the life of the lease.
All of our leases within the scope of IFRS 16 (other than those of low value) relate to our
stores and head office properties.
Lease liabilities
Group
2022
£’million
Group
2021
£’million
Company
2022
£’million
Company
2021
£’million
1 January 269 327 269 325
Additions and modifications 1 (6) 1 (6)
Disposals (11) (40) (11) (40)
Lease payments made (25) (29) (25) (27)
Interest on lease liabilities 14 17 14 17
31 December 248 269 248 269
Current 23 25 23 25
Non-current 225 244 225 244
Right-of-use assets
All of our disclosures relating to right-of-use assets, including our accounting policy,
canbefon be found in note 14.
Disposals
The disposals during the year relate to the two (2021: four) stores where we purchased
thefthe freehold or long-lease during the year. Following the purchase both the lease liabilities
and right-of-use assets relating to these stores were derecognised. Additionally we
derecognised one of the leases relating to the three stores we closed during the year
following the surrendering of this lease back to the landlord.
Minimum lease payments
Future undiscounted minimum payments under lease liabilities, exclusive of VAT,
asat3as at 31D1 December are as follows:
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Within one year 24 25 24 25
Due in one to five years 88 92 88 92
Due in more than five years 172 219 172 219
Total 284 336 284 336
Low value and short leases
During the year ended 31 December 2022 £0.2 million (2021: £0.7 million) was recognised
in the income statement with respect to assets of low value or a lease of less than
12m12 months.
206
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
22. Leases Continued
Future income due under non-cancellable property leases
We lease out surplus space in some of our properties. The table below sets out the cash
payments expected over the remaining non-cancellable term of each lease, exclusive
ofVof VAT.
Receivable
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Within one year 1 1 1 1
Due in one to five years 3 4 3 4
Due in more than five years 4 4 4 4
Total 8 9 8 9
Finance lease receivables
Through our asset finance business we lease a variety of assets to third parties, which
typically consist of plant, machinery and vehicles. These rentals typically cover the assets’
useful economic life and as such any residual value is minimal. Amounts receivable
areclare classified as loans and advances to customers and are categorised within
ourassr assetanet andinvoice fid invoice finance lending per the breakdown provided in note 12.
Group
31 December 2022 31 December 2021
Group
Total future
minimum
payments
£’million
Unearned
finance
income
£’million
Present
value
£’million
Total future
minimum
payments
£’million
Unearned
finance
income
£’million
Present
value
£’million
Within one year 6 (1) 5 7 (1) 6
Due in one to five years 9 (1) 8 10 (1) 9
Due in more than five years – – – – – –
Total 15 (2) 13 17 (2) 15
23. Deferred grants
Accounting policy
Grants are recognised where there is reasonable assurance that we will both receive the
grant and will be able to comply with all the attached conditions. When the grant relates to
an expense item, it is recognised as income on a systematic basis over the periods that the
related costs, for which it is intended to compensate, are expensed. When the grant relates
tothe pto the purchase of an asset, it is recognised directly against the cost of the asset.
Group
2022
£’million
Group
2021
£’million
Company
2022
£’million
Company
2021
£’million
1 January 19 28 19 28
Released to the income statement (2) (10) (2) (10)
Offset against capital expenditure (see note 15) – 1 – 1
31 December 17 19 17 19
Our only deferred grant relates to amounts awarded in relation to the Capability and
Innovation Fund which formed part of the RBS alternative remedies programme. The
programme was aimed to increase competition in the UK business banking marketplace.
As part of the grant we are subject to delivering a number of public commitments.
Thesecoese commitments can be found on BCR’s (the awarding body) website. As at
31De1 December 2022 we are currently on track to deliver all of these commitments.
207
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
24. Provisions
Accounting policy
We recognise provisions when it is probable that an outflow of economic benefits will be
required to settle a present legal or constructive obligation that has arisen as a result of past
events and for which a reliable estimate can be made. The provision is measured at its current
present value.
Provision Description
Customer remediation
We are committed to doing the right thing but occasionally we identify
issues that have caused detriment as a result of our actions.
Where we have to refund costs to customers we provide for this at
the point the obligation arises. The amounts recognised include any
associated interest due.
Dilapidations
Dilapidations provisions are recognised in regard to certain properties
we lease.
The majority of our stores and offices have an automatic right to
renewal at the end of the lease under the provisions of the Landlord
and Tenant Act 1954. Where this is the case we do not provide for
restorations on these sites since we have no intention of vacating at
the end of the lease term. For sites that are outside the Landlord and
Tenant Act 1954, or sites within the Landlord and Tenant Act 1954
where we think there is a chance we will vacate a site at the end of
itslits lease, a provision is made for dilapidations. The provision is made
inliin linewitne with the underlying obligations contained within the lease.
Onerous
contracts
Onerous contract provisions are recognised when the unavoidable
costs of meeting the obligations under the contract exceed the
economic benefits we expect to be received under it. The provision
is recognised as the net cost of exiting from the contract, which is
the lower of the cost of fulfilling it and any compensation or penalties
arising from failure to fulfil it.
Legal and regulatory
Provisions are made relating to the outcome of legal cases and
regulatory investigations based on our best estimate of settlement
following consultation with our lawyers and advisors. The inclusion
of a provision does not constitute any admission of wrongdoing or
legal liability. Details of individual cases are provided where these
are material to our financial statements and disclosure would not
bepbe prejudicial to the outcome of the case.
Other provisions
Other provisions consist of other sundry amounts that are provided
forifor in the ordinary course of our business.
No provision has been recognised in relation to any of the legal and regulatory matters
setoset out in note 32.
2022
Group and Company
Customer
remediation
£’million
Dilapidations
£’million
Onerous
contracts
£’million
Legal and
regulatory
£’million
Other
provisions
£’million
Total
£’million
1 January 2022 1 3 5 5 1 15
Additions – – – 5 2 7
Released – (2) (1) – – (3)
Utilised – – (2) (10) – (12)
31 December 2022 1 1 2 – 3 7
2021
Group and Company
Customer
remediation
£’million
Dilapidations
£’million
Onerous
contracts
£’million
Legal and
regulatory
£’million
Other
provisions
£’million
Total
£’million
1 January 2021 2 3 6 – – 11
Additions – 2 5 5 1 13
Released – (2) (4) – – (6)
Utilised (1) – (2) – – (3)
31 December 2021 1 3 5 5 1 15
All additions for both the current and prior year have been recognised in the income
statement, with the exception of the £2 million provision for dilapidations in 2021.
Thiswasrecs was recognised as an addition to the right-of-use assets (see note 14).
Dilapidations
The amounts provided in respect of dilapidations are calculated based on assessments
byan inby an independent qualified valuer. They represent the best estimate of the present value
to restore the site to the condition required under the lease. As the date restoration is
required may be up to 25 years in the future, there is uncertainty in this estimation.
Additionally, for sites that are outside the act, should we be successful in renewing the
lease at the end of its term, it is possible that the provision recognised may not be utilised.
The dilapidation provision releases during the year, relate to two of the sites we announced
for closure. Agreements with our landlords on these sites has removed our requirement
toreinsto reinstate these stores to their original condition.
208
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
24. Provisions Continued
Onerous contracts
Onerous contracts primarily relate to the non-rental costs of fulfilling property contracts
from which we will no longer benefit, including closed stores and head office space. The
provision is determined with reference to the occupancy costs from the date of closure
through to the next lease break. Rental costs on these sites from which we will receive
nofno future economic benefits are represented by an impairment to the right of use asset.
The utilisation and releases primarily relate to two of the stores we closed during the year
which have either been surrendered back to the landlord or fully sublet for the remainder
of the lease term.
Legal and regulatory
The provision for regulatory matters consisted of amounts in respect of the FCA’s RWA
investigation. During the year we paid £10 million in full and final settlement of this matter.
25. Other liabilities
Group
31 December
2022
£’million
Group
31 December
2021
£’million
Company
31 December
2022
£’million
Company
31 December
2021
£’million
Trade creditors 1 4 1 4
Taxation and social security costs 9 11 8 10
Accruals  99 76 99 75
Deferred income 57 37 57 37
Deferred consideration² – 8 – 8
Amounts payable to group undertakings – – 16 7
Other liabilities 64 86 55 76
Total other liabilities 230 222 236 217
Current portion 205 175 211 170
Non-current portion 25 47 25 47
1. Includes accrued interest payable.
2. During the year we paid the remaining amount of deferred consideration to Retail Money Market Ltd (‘RateSetter’)
investors following the delivery of lending targets agreed as part of the acquisition.
26. Called-up share capital
Accounting policy
On issue of new shares, incremental directly attributable costs are shown in equity
asadas a deduction from the proceeds.
We have a single class of shares. As at 31 December 2022, we had 172.5 million ordinary
shares of 0.0001p (31 December 2021: 172.4 million) authorised and in issue.
Called-up ordinary share capital, issued and fully paid
The called-up share capital reserve is used to record our nominal share capital. At 31
December 2022 our called-up share capital was £172.54 (31 December 2021: £172.42).
Group
2022
£’million
Group
2021
£’million
Company
2022
£’million
Company
2021
£’million
31 December – – – –
Share premium
The share premium reserve is used to record the excess consideration of any shares
wehave issuwe have issued over the nominal share value.
Group
2022
£’million
Group
2021
£’million
Company
2022
£’million
Company
2021
£’million
31 December 1,964 1,964 1,964 1,964
27. Retained losses
Retained losses records our cumulative losses since our formation. The Group’s retained
losses also include the accumulated earnings of our subsidiaries since they were acquired.
Group
2022
£’million
Group
2021
£’million
Company
2022
£’million
Company
2021
£’million
1 January (942) (694) (941) (689)
Loss for the year (73) (248) (73) (252)
31 December (1,015) (942) (1,014) (941)
No dividends were paid during the year (2021: none). As at 31 December 2022 we have
nodino distributable reserves (31 December 2021: none).
209
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
28. Other reserves
Share option reserve
The share option reserve is used to record movements in relation to share options awarded
under our Deferred Variable Reward and LTIP.
Group
2022
£’million
Group
2021
£’million
Company
2022
£’million
Company
2021
£’million
1 January 18 16 18 16
Equity-settled share-based payment charges (note 7) 2 2 2 2
31 December 20 18 20 18
Fair value though other comprehensive income reserve
The FVOCI reserve is used to record changes in the fair value of investment securities
designated at FVOCI. When investment securities held at FVOCI are sold, any accumulated
gains or losses are transferred to the income statement.
Group
2022
£’million
Group
2021
£’million
Company
2022
£’million
Company
2021
£’million
1 January (5) 3 (5) 3
Changes in fair value (10) (11) (10) (11)
Deferred tax movements 2 3 2 3
31 December (13) (5) (13) (5)
Treasury shares
We have a small number of shares held in treasury relating to awards originally granted to
key members of management in 2016 in recognition of their significant contribution to the
successful listing on the London Stock Exchange. The final tranche of these awards vested
in April 2021 and the remaining balance represents awards that did not vest owing to the
original conditions of the grant not being fulfilled. These are held by an employee benefit
trust, which is consolidated within the Group accounts. The balance on the reserve is less
than £1 million (31 December 2021: less than £1 million) and therefore not been separately
disclosed as a component of reserves due to its immaterial size.
29. Share based payments
Accounting policy
The grant date fair value of options awarded to colleagues is recognised as an expense
over the period in which colleagues become unconditionally entitled to the options. The
expense (representing the value of the services received by us) is measured by reference
to the fair value of the awards granted on the date of the grant. The cost of the colleague
services received in respect of the awards granted is recognised in the consolidated
incomestae statement over the period that the services are received, which is the vesting
periodGrd Graded vesting is applied where relevant.
Vesting conditions are limited to service and performance conditions. For performance-
based schemes, the relevant performance measures are projected to the end of the
performance period in order to determine the number of options expected to vest. This
estimate of the performance measures is used to determine the option fair value, discounted
to present value. The Group revises the number of options that are expected to vest,
including an estimate of lapses at each reporting date based on forecast performance
measures. The impact of the revision to original estimates, if any, is recognised in the
incomestae statement, with a corresponding adjustment to equity.
The fair value of colleague awards plans is calculated at the grant date using Black-Scholes
and Monte Carlo models. The resulting cost is charged to the income statement over the
vesting period. The value of the charge is adjusted to reflect expected and actual levels
ofvestiof vesting.
We provide share award schemes to colleagues as part of their remuneration packages,
and we operate a number of share-based compensation schemes, namely the DVRP
andLd LTIP. The granting of awards is designed to provide incentives to colleagues to deliver
long-term returns. No individual has a contractual right to participate in the plans or
toreceive ato receive any guaranteed benefits and the granting of awards remains at the discretion
ofthe Pof the People and Remuneration Committee. Standard share options are granted
fornfor noconso consideration, are not pensionable and carry no voting rights.
Long Term Incentive Plan
The LTIP is the primary long-term incentive scheme for the members of our ExCo. It was
approved by shareholders at the 2021 AGM. Under the plan, annual awards, based on a
percentage of salary, may be offered. The extent to which an award vests is measured over
a three-year period (four-years for the initial awards granted in 2021) against financial
targets, which consist of return on tangible equity and relative total shareholder return,
aswelas well as continued employment within the Group.
210
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
29. Share based payments Continued
Deferred Variable Reward Plan
The DVRP was first introduced in 2010 and the latest plan was approved by shareholders
at the 2021 AGM. Although originally designed for all colleagues, the plan is now operated
for senior managers, primarily consisting of members of the our ExCo and other Material
Risk Takers. Under the current rules participants are required to defer a proportion of any
bonus paid into nominal price awards, a proportion of which vest immediately and the
remainder of which vest over seven years. There are no further performance conditions
onthon these shares, other than continued employment. All awards under the DVRP are subject
to a one year holding period, once exercised and all awards have a life of 10 years from
thedthe date of grant.
More information is available in relation to both the DVRP and LTIP is available within
theRemu Remuneration Report.
Awards outstanding
The table below summarises the movements in the number of options outstanding
andthed their weighted average exercise price:
2022 2021
Group
Number
of options
‘000
Weighted
average
exercise
price
£
Number
of options
‘000
Weighted
average
exercise
price
£
Outstanding at 1 January 10,477 8.72 7,170 12.99
Granted 4,787 0.00 3,646 0.000¹
Exercised (222) 0.00 (3) 0.93
Lapsed (1,716) 1.96 (336) 5.49
Outstanding at 31 December 13,326 6.61 10,477 8.72
Exercisable at 31 December 6,658 12.35 4,202 18.29
1. Nominal price awards with exercise price of 0.0001p.
The average share price during 2022 was 88p (2021: 111p). For share options exercised
during the period, the weighted average share price at the date of exercise was 93p
(2021:11: 113p).
All our options are equity settled and we have no legal or constructive obligation to
repurchase the shares or settle the options in cash. Exercises of awards granted are
satisfied via the issuance of new shares.
Total share based compensation charges totalled £2.4 million in the year ended 2022
(2021: £2.4 million).
Fair value of options granted
The number of options outstanding at year end was as follows:
2022 2021
Exercise price
Number
of options
‘000
Weighted average
remaining
contractual
life years
Number
of options
‘000
Weighted average
remaining
contractual
life years
£0.000¹ 6,997 9.0 3,646 9.4
£0.93 2,116 7.3 2,403 8.3
£7.94 660 6.2 712 7. 2
£10.00 – – 128 0.8
£12.00 235 0.8 235 1.8
£13.00 60 1.2 60 2.2
£13.50 616 1.8 616 2.8
£14.00 194 n/a 194 n/a
£16.00 611 n/a 611 n/a
£20.00 444 3.2 444 4.2
£32.73 633 4.2 633 5.2
£35.36 760 5.2 795 6.2
Total 13,326 7.3 10,477 7. 2
1. Nominal price awards with exercise price of 0.0001p.
The total fair value of options granted in 2022 was £4.3 million (2021: £3.8 million),
basedonbased on the following assumptions:
Group 2022 awards
Risk-free interest rate 1.10% to 1.53%
Expected life 1 to 7 years
Volatility 159%
Expected dividend yield nil
Share price at grant date £0.90
Exercise price 0.0001p
Volatility has been estimated by taking our share price volatility since we listed in 2016.
An assumption is also made in respect of how many shares will lapse due to the vesting
criteria not being met. For the awards granted in 2021 and 2022, as these were only made
to members of the ExCo, the lapse assumption has been set at 0%. The fair value charges
recognised in the income statement for these scheme are adjusted annually to reflect
actually lapses. For all other schemes the lapse assumption is updated annually.
211
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
30. Expected credit losses
Accounting policy
We assess on a forward-looking basis the ECL associated with the assets carried at amortised cost and FVOCI and recognise a loss allowance for such losses at each reporting date.
Impairment provisions are driven by changes in credit risk of loans and securities, with a provision for lifetime ECL recognised where the risk of default of an instrument has increased
significantly. Risk of default and ECL must incorporate forward-looking and macroeconomic information.
Loans and advances
Sophisticated impairment models have been developed for our retail and commercial loan portfolios, with three core models: revolving products; fixed term loans; and mortgages.
Expectedcred credit losses are calculated for drawn loans, and for committed lending.
The same broad calculation approach is applied for each core model. ECL are calculated by multiplying three main components, being the PD, LGD and the EAD, discounted at the original
effective interest rate.
Key model inputs, judgements and estimates include:
– Consideration of when a SICR occurs.
– PD, LGD and EAD as well as their modelled impact.
– Macroeconomic scenarios and weightings applied.
Significant increase in credit risk
IFRS 9 requires a higher level of ECL to be recognised for underperforming loans. This is considered based on a staging approach:
Stage Description ECL recognised
Stage 1
Financial assets that have had no significant increase in credit risk since initial
recognition or that have low credit risk (high quality investment securities only)
atthat the reporting date.
12-month ECL Total losses expected on defaults which may occur within the next
12m12 months. Losses are adjusted for probability-weighted macroeconomic scenarios.
Stage 2
Financial assets that have had a significant increase in credit risk since initial
recognition but that do not have objective evidence of impairment.
Lifetime ECL
Losses expected on defaults which may occur at any point in a loan’s lifetime.
Lossesaes are adjusted for probability-weighted macroeconomic scenarios.
Stage 3
Financial assets that are credit impaired at the reporting date.
A financial asset is credit impaired when it has met the definition of default.
WedefiWe define default to have occurred when a loan is greater than 90 days past
dueorwhe or where the borrower is considered unlikely to pay.
Lifetime ECL
Losses expected on defaults which may occur at any point in a loan’s lifetime.
Lossesaes are adjusted for probability-weighted macroeconomic scenarios.
Interest income is calculated on the carrying amount of the loan net of credit
allowance.
POCI
Financial assets that have been purchased and had objective evidence of being
non-performing or credit impaired at the point of purchase.
Lifetime ECL
At initial recognition, POCI assets do not carry an impairment allowance.
LifetimeECtime ECL are incorporated into the calculation of the asset’s effective
interest rate. Subsequent changes to the estimate of lifetime ECL are recognised
asaloas a lossass allowance.
212
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
30. Expected credit losses Continued
Accounting policy Continued
A SICR may be identified in a number of ways:
– Quantitative criteria – where the numerically calculated PD on a loan has increased significantly since initial recognition. This is assessed using detailed models which assess whether the
lifetime PD at observation is greater than the lifetime PD at origination by a portfolio specific threshold. Given the different nature of the products and the dissimilar level of lifetime PDs
atorat origination, we implement different thresholds by sub-products within each portfolio (term loans, revolving loan facilities and mortgages). The threshold is set at three times the median
PDof thPD of the portfolio at origination.
– Qualitative criteria – instruments that are 30 days past due or more are allocated to Stage 2, regardless of the results of the quantitative analysis. In addition instruments classified on the
EarlyWarnrly Warning List as higher risk, are allocated to Stage 2, regardless of the results of the quantitative analysis.
A loan will be considered to be ‘non-performing’ or ‘credit impaired’ when it meets our definition of default – that is to say, the loan is 90 days past due, or the borrower is considered unlikely
topay withto pay without realisation of collateral. Unlikeliness to pay is assessed through the presence of triggers including the loan being in repossession, the customer having been declared bankrupt,
orevior evidence of financial distress leading to forbearance.
A loan may also be considered to be non-performing when it is subject to forbearance measures, consisting of concessions in relation to either:
– A modification of the previous terms and conditions of the loan which the borrower is not considered able to comply with.
– A total or partial refinancing of a troubled debt contract that would not have been granted had the borrower not been in financial difficulties.
It may not be possible to identify a single discrete event which defines an asset as ‘non-performing’ or ‘credit impaired’. Instead, the combined effect of several events may cause financial assets
to become credit impaired.
A probation period is implemented before transferring a financial instrument to a lower stage (i.e. from Stage 3 to Stage 2, or from Stage 2 to Stage 1). Specifically, in order to move an account
from Stage 3 to Stage 2, we apply a backstop such that the instrument should meet the Stage 2 criteria for three consecutive months. The same logic is applied when transferring an account
from Stage 2 to Stage 1.
Probability of default
PD represents the likelihood of a borrower defaulting on its financial obligation either over the next 12 months (for Stage 1 accounts), or over the remaining lifetime of the loan (for Stage 2 and 3
accounts). A PD is calculated for all loans based on historical data and incorporates:
– Credit quality scores.
– Life cycle trends depending on a loan’s vintage.
– Factors indicating the quality of the vintage.
– Characteristics of the current and future economic environment.
213
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
30. Expected credit losses Continued
Accounting policy Continued
Loss given default
LGD represents our expectation of the extent of a loss on a defaulted exposure, and is expressed as a percentage considering expected recoveries on defaulted accounts. We apply two LGD
rates – one for unsecured lending and one for secured lending. LGD rates have been modelled considering a range of inputs, including:
– Value of collateral on secured portfolios – a key driver of the expected recovery in the event of default.
– Expected haircut applied to the collateral value to reflect a forced sale discount.
– Price index forecasts applied to project collateral values into the future.
– Stress factors based on macroeconomic scenarios.
Exposure at default
This is the amount that we expect to be owed at the point of default. This is subject to judgement since a balance will not necessarily remain static between the balance sheet date and the point
of expected default. For example:
– Interest should be accrued.
– Repayments may be received on mortgages.
– For a revolving product, further drawings may be taken between the current point in time and the point of default.
– Estimations of these factors will be incorporated into our estimate of EAD.
PD, LGD and EAD are calculated and applied at an individual account level for secured lending. For unsecured lending, PD and EAD are calculated and applied at an individual account level,
butLGbut LGD is assessed at a portfolio level and applied to accounts on an individual basis.
Macroeconomic scenarios
The ECL recognised in the financial statements reflects the effect on ECL of a range of possible outcomes, calculated on a probability-weighted basis, based on a number of economic scenarios
and including management overlays where required. These scenarios are representative of our view of forecast economic conditions, sufficient to calculate unbiased ECL, and are designed
tocato capture material ‘non-linearities’ (i.e. where the increase in credit losses if conditions deteriorate, exceeds the decrease in credit losses if conditions improve).
In the normal course of business, we use three scenarios. These represent a ‘most likely outcome’, (the ‘Baseline’ scenario) and two, less likely, ‘Outer’ scenarios on either side of the Baseline
scenario, referred to as an ‘Upside’ and a ‘Downside’ scenario respectively. The Baseline scenario captures the most likely economic future; the Downside scenario presents particular adverse
economic conditions; and the Upside scenario presents more favourable economic conditions. During 2021 a fourth, ‘Severe downside’ macroeconomic scenario has been introduced across
allpall portfolios to ensure the set of scenarios adequately reflect a wider range of downside risks which have been previously included within management overlays.
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Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
30. Expected credit losses Continued
Accounting policy Continued
Key scenario assumptions are set using data sourced from independent external economists. This helps ensure that the IFRS 9 scenarios are unbiased and maximise the use
ofinof independentient information.
The following assumptions, considered to be the key drivers of ECL, have been used for the scenarios applied as at 31 December 2022 and 31 December 2021:
– UK interest rates (five-year mortgage rate).
– UK unemployment rates.
– UK HPI changes, year-on-year.
– UK GDP changes, year-on-year.
– UK commercial real estate index, year-on-year (2022 only)
Macroeconomic scenarios impact the ECL calculation through varying PDs and LGDs. We use UK HPI to index mortgage collateral which has a direct impact on LGDs. Other metrics are
considered to have a direct impact on PDs and were selected following a search and data calibration exercise of possible drivers. A list of around 15 potential drivers were initially considered,
representing drivers which capture trends in the economy at large, and may indicate economic trends which will impact UK borrowers. The list included variables which impact economic
output, interest rates, inflation, share prices, borrower income and the UK housing market. An algorithm was then used to choose the subset of drivers which had the greatest significance
andpred predictive fit to our data.
Each scenario was determined by flexing the baseline scenario, taking into account a number of factors in the global and UK economy such as commodity prices, global interest rates,
UKinvestmK investment spend and exchange rates, as well as the possible impact of recessionary conditions or financial shocks. A simulation process was designed to determine the weighting to apply
to each scenario based on its severity and the range of possible scenarios for which that scenario was representative. A summary of each scenario and weighting used at 31 December 2022
areaare as follows:
– Baseline scenario: Reflects the projection of the median, or ‘50%’ scenario, meaning that in the assessment there is an equal probability that the economy might perform better or worse than
the baseline forecast.
– Upside scenario: This above-baseline scenario is designed so there is a 10% probability the economy will perform better than in this scenario, broadly speaking, and a 90% probability it will
perform worse.
– Downside scenario: In this recession scenario, in which a deep downturn develops, there is a 90% probability the economy will perform better, broadly speaking, and a 10% probability it will
perform worse.
– Severe downside scenario: In this recession scenario, in which a deep downturn develops, there is a 96% probability the economy will perform better, broadly speaking, and a 4% probability
itwill pit will perform worse.
These assumptions are considered sufficient to capture any material non-linearities.
The weightings applied to each scenario at 31 December 2022 were Baseline – 50%, Upside – 20%, Downside – 25% and Severe Downside scenario – 5% (31 December 2021: Baseline – 40%,
Upside – 20%, Downside – 30% and Severe Downside scenario – 10%).
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Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
30. Expected credit losses Continued
Accounting policy Continued
Economic variable assumptions
The period-end assumptions used for the ECL estimate as at 31 December 2022 and 31 December 2021 are as follows:
31 December 2022 31 December 2021
2023 2024 2025 2026 2022 2023 2024 2025
Interest rates (%) –
five-year mortgage rate
Baseline
5.5% 4.4% 4.0% 4.0% 2.7% 3.3% 3.7% 4.1%
Upside 5.3% 4.3% 4.0% 4.0% 3.0% 3.6% 4.2% 4.6%
Downside 5.5% 4.4% 3.6% 3.1% 2.3% 2.8% 3.1% 3.1%
Severe downside 5.8% 4.0% 3.4% 3.0% 2.1% 2.6% 2.9% 3.1%
UK unemployment (%)
Baseline
4.3% 4.5% 4.5% 4.6% 4.7% 4.4% 4.4% 4.5%
Upside 3.9% 3.6% 3.7% 4.0% 3.9% 3.3% 3.5% 3.8%
Downside 6.2% 7. 2% 7.2% 6.8% 6.2% 6.6% 6.5% 6.3%
Severe downside 7.4% 8.3% 8.2% 7.9% 7.2% 7. 5% 7. 2% 7.1%
UK HPI –
% change year-on-year
Baseline
(4.4%) 2.3% 4.8% 2.9% 3.4% 6.0% 5.2% 3.7%
Upside 9.0% 5.4% 2.1% (1.2%) 14.2% 8.5% 4.8% 2.1%
Downside (14.9%) (7.0%) 4.0% 5.7% (12.8%) (8.1%) (1.9%) 4.4%
Severe downside (20.7%) (10.9%) 4.4% 4.3% (16.3%) (10.3%) (2.5%) 4.3%
UK GDP – % change year-on-year
Baseline
(0.8%) 1.2% 1.4% 1.2% 3.9% 3.1% 1.4% 1.0%
Upside 1.9% 1.2% 1.1% 1.2% 7.7% 1.7% 1.2% 1.1%
Downside (6.9%) 1.3% 2.5% 1.2% (2.3%) 5.7% 2.4% 1.7%
Severe downside (8.3%) (0.3%) 3.5% 2.1% (3.9%) 5.4% 2.2% 1.8%
UK commercial real estate index, year-on-year –
% change (2022 only)
Baseline
(8.2%) (6.0%) 2.0% 1.4% n/a n/a n/a n/a
Upside 3.2% (3.6%) (0.3%) (2.2%) n/a n/a n/a n/a
Downside (23.2%) (11.9%) 5.1% 4.2% n/a n/a n/a n/a
Severe downside (30.5%) (14.8%) 6.9% 3.5% n/a n/a n/a n/a
Following the initial four-year projection period, the Upside, Downside and Severe downside scenarios converge to the Baseline scenario. The rate of convergence varies based on the
macroeconomic factor, but at a minimum convergence takes place three years from the initial four-year projection period.
We recognise that applying the above scenarios will not always be sufficient to determine an appropriate ECL in all economic environments. The scenarios applied comprise our best estimate
ofecoof economic impacts on the ECL, and the actual outcome may be significantly different.
Investment securities and other financial assets
Impairment provisions have been calculated based on our best estimate of ECL on other assets classified and measured at amortised cost and fair value through other comprehensive income.
These include investment securities, cash held at banks and other financial assets. These impairment provisions are not material.
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Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
30. Expected credit losses Continued
Critical accounting judgement
Measurement of the expected credit loss allowance
The measurement of ECL is complex and involves the use of significant judgements. We consider that the following represent key judgements in respect of the measurement of the ECL.
Significant increase in credit risk
IFRS 9 requires a higher level of ECL to be recognised for under-performing loans as a lifetime ECL is recognised compared to a 12-month ECL for performing loans. This is considered based
on a staging approach. Financial assets that have had no SICR since initial recognition, or that have low credit risk at the reporting date, are considered to be performing loans and are classified
as ‘Stage 1’. Losses are calculated based on our expectation of defaults which may occur within the next 12 months. Assets which are considered to have experienced a SICR since initial
recognition, but that do not have objective evidence of impairment, are classified as ‘Stage 2’. Losses are calculated based on defaults which may occur at any point in the asset’s lifetime.
Judgement is required to determine when a SICR has occurred. An assessment of whether credit risk has increased significantly since initial recognition, resulting in transfer to Stage 2,
ispeis performed at each reporting period by considering the change in the PD expected over the remaining life of the financial instrument. The assessment explicitly or implicitly compares the
PDoPD occurring at the reporting date compared to that at initial recognition, taking into account reasonable and supportable information, including information about past events, current
conditions and future economic conditions.
Use of post model adjustments and overlays
We have applied expert judgement to the measurement of the ECL in the form of PMOs and PMAs.
Post model adjustments
PMAs refer to increases/decreases in ECL to address known model limitations, either in model methodology or model inputs. These rely on analysis of model inputs and parameters
todeteto determine the change required to improve model accuracy. These may be applied at an aggregated level however, they will usually be applied at account level.
Post model overlays
PMOs reflect management judgement. These rely more heavily on expert judgement and will usually be applied at an aggregated level. For example, where recent changes in market
andecod economic conditions have not yet been captured in the macroeconomic factor inputs to models (e.g., industry specific stress event).
The appropriateness of PMAs and PMOs is subject to rigorous review and challenge, including review by the Audit Committee (see page 126).
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Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
30. Expected credit losses Continued
Critical accounting judgement Continued
ECL assessment
Given the continued economic uncertainty, we continue to maintain cautious levels of PMOs. The level of PMAs/PMOs has been reduced during 2022 with PMAs/PMOs reducing to 16% of total
ECL as at 31 December 2022 (31 December 2021: 26%).
PMAs make up £0.4 million of the ECL allowance for the year ending 31 December 2022 (31 December 2021: £9.1 million) and are being held in anticipation of IFRS 9 models being implemented
into production by H1 2023, once these are validated and approved through internal governance process, and comprise:
– IFRS 9 retail mortgage secured LGD model (31 December 2022: £0.1 million; 31 December 2021: £nil) – A PMA has been raised in 2022 in anticipation of the implementation of a new model.
– IFRS 9 commercial business loans lifetime PD model scope extended to commercial Revolving facilities (31 December 2022: £0.3 million; 31 December 2021: (£0.7 million)).
In 2021 we also had a PMA of £9.8 million in respect of our IFRS 9 commercial Secured LGD model. This was raised in anticipation of the new IFRS 9 Commercial model which was still being
reviewed as at 31 December 2021. In 2022 this was approved and therefore now forms part of the modelled ECL.
PMOs make up £30.5 million of the ECL allowance for the year ending 31 December 2022 (31 December 2021: £35.0 million) and are comprised of:
– High inflation environment and cost of living risks – Management overlays have been introduced in 2022 to reflect high inflation and cost of living pressures, which are not fully captured
through the economic scenarios and IFRS9 models (31 December 2022: £22.5 million; 31 December 2021: £nil). This reflects the associated risks across retail mortgage, consumer,
and commercial portfolios. For Commercial, the inflation PMO has been assessed based on potential future portfolio migration of current Stage 1 lending migrating into Stage 2 and 3,
basedosed onanin an inflationary stress scenario.
– Climate change impact – An expert judgement overlay raised in 2021 has been maintained as at 31 December 2022 and reflects the impact of climate change on property values for the
mortgage and commercial portfolios (31 December 2022: £3.5 million; 31 December 2021: £5.1 million).
– HPI and commercial real estate adjustment – An overlay has been raised in 2022 to reflect further downside risk in property price indices beyond the latest scenarios for the retail
mortgageane and commercial property portfolios (31 December 2022: £6.1 million; 31 December 2021: £1.2 million). This overlay was previously held to account for concentration risk across
theseprose property values.
– Commercial model enhancements – An overlay has been raised in anticipation of model adjustments for the commercial portfolio in 2022 (31 December 2022: £1.2 million;
31De1 December202r 2021:£nil): £nil).
– An expert judgement overlay for the commercial portfolio – To reflect additional downside risks as a result of economic uncertainty for the commercial portfolio buy-to-let portfolio not fully
captured by the IFRS 9 models (31 December 2022: £0.6 million; 31 December 2021: £nil).
– SICR adjustment overlay – A negative overlay has been introduced in 2022 for the mortgage and consumer portfolios to reflect a change in measurement in the SICR criteria feeding through
the IFRS 9 PD models. These overlays will be removed once the IFRS 9 PD annual model reviews for both portfolios are validated and implemented into production (31 December 2022:
(£3.4m.4 million); 31 December 2021: £nil).
In 2021 we also had PMOs totalling £29.9 million relating to the COVID-19 pandemic and its associated uncertainty. These have all been released during the year.
We review our PMOs on an ongoing basis and reassess these based on the evolving economic outlook and observation of performance data.
All PMOs impact the ECL measurement, however not all adjust the staging.
218
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
30. Expected credit losses Continued
Critical accounting estimate
Measurement of the expected credit loss allowance
We consider that the key source of estimation uncertainty relates to the formulation and incorporation of multiple forward-looking economic scenarios into the ECL estimates to meet
themthe measurement objective of IFRS 9.
Multiple forward-looking economic scenarios
The ECL recognised in the financial statements reflects the effect on ECL of a range of possible outcomes, calculated on a probability-weighted basis, based on a number of economic scenarios,
including management overlays where required. These scenarios are representative of our view of forecast economic conditions, sufficient to calculate unbiased ECL.
The following assumptions, considered to be the key drivers of ECL, have been used for the scenarios applied:
– UK interest rates.
– UK unemployment rates.
– UK HPI changes, year-on-year.
– UK GDP changes, year-on-year.
– UK commercial real estate index, year-on-year (2022 only).
The weightings applied to each scenario at 31 December 2022 and 31 December 2021 are:
31 December
2022
31 December
2021
Baseline 50% 40%
Upside 20% 20%
Downside 25% 30%
Severe downside 5% 10%
The weightings used are reviewed each reporting period to ensure these remain appropriate and as such are considered to represent significant accounting estimates. We have performed
anaan assessment of the impact on the ECL if each of the Baseline, Upside, Downside and Severe downside scenarios were applied to the ECL calculation using a 100% weighting (that is, ignoring
all other scenarios in each case):
Stage 1
£’million
Stage 2
£’million
Stage 3
£’million
Total
£’million
Baseline 62 42 68 172
Upside 55 33 68 156
Downside 87 75 71 233
Severe downside 103 103 73 279
Weighted 66 51 70 187
The sensitivities disclosed above represent example scenarios and may not represent actual scenarios which occur in the future. If one of these scenarios did arise then at that time the ECL
would not equal the amount disclosed above, as the amounts disclosed do not take account of the alternative possible scenarios which would be considered at that time.
PMOs and individually assessed provisions are reflected in the above sensitivities as are any resulting movements in staging allocation.
219
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
30. Expected credit losses Continued
Expected credit loss expense
Group
2022
£’million
2021
£’million
Retail mortgages  1 (7)
Consumer lending  33 17
Commercial lending (excluding asset and invoice finance)  (18) 4
Asset and invoice financence¹ 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 allowance 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.
Investment securities
All investment securities held at FVOCI are deemed to be in Stage 1. Any credit loss allowance is, however, included as part of the revaluation amount in the FVOCI reserve.
At31DAt 31 December 2022, the loss allowance included within the FVOCI reserve is £0.1 million (31 December 2021: £0.1 million).
All investment securities held at amortised cost are deemed to be in Stage 1. The total ECL expense recognised for these assets at 31 December 2022 is £0.7 million (31 December 2021:
£0.1 million).
Collateral
Collateral is usually held in the form of real estate, guarantees, debentures and other liens that we can call upon in the event of the borrower defaulting. At 31 December 2022, 79%
(31De1 December 2021: 79%) of our loans consisted of retail mortgages and commercial term loans secured on collateral, with average DTV of 56% (31 December 2021: 55%) and 55%
(31De1 December 2021: 57%) respectively. A further 6% (31 December 2021: 10%) of our lending portfolio consists of BBLS, which although do not have any collateral are 100% guaranteed
by the Government. Further details on the collateral of our loans can be found in the Risk report.
As at 31 December 2022 we didn’t hold any financial instruments for which no loss allowance was recognised because of collateral (31 December 2021: none).
220
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
30. Expected credit losses Continued
The following tables explain the changes in both the gross carrying amount and loss allowances of our loans and advances during the year.
Gross carrying amount Loss allowance Net carrying amount
£’million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
1 January 2022 10,071 1,925 462 1 12,459 (47) (49) (73) – (169) 10,024 1,876 389 1 12,290
Transfers to/(from) Stage 1
1
517 (504) (13) – – (13) 13 – – – 504 (491) (13) – –
Transfers to/(from) Stage 2 (451) 458 (7) – – 2 (2) – – – (449) 456 (7) – –
Transfers to/(from) Stage 3 (124) (73) 197 – – 1 7 (8) – – (123) (66) 189 – –
Net remeasurement due to transfers
2
– – – – – 10 (10) (15) – (15) 10 (10) (15) – (15)
New lending
3
3,157 742 31 – 3,930 (30) (15) (11) – (56) 3,127 727 20 – 3,874
Repayments, additional drawdowns
and interest accrued (604) (107) (26) (1) (738) – – – – – (604) (107) (26) (1) (738)
Derecognitions
4
(1,717) (353) (292) – (2,362) 7 10 34 – 51 (1,710) (343) (258) – (2,311)
Changes to model assumptions
5
– – – – – 4 (5) 3 – 2 4 (5) 3 – 2
31 December 2022 10,849 2,088 352 – 13,289 (66) (51) (70) – (187) 10,783
2,037 282 – 13,102
Off-balance sheet items
Commitments and guarantees
6
1,120 – 1,120
Gross carrying amount Loss allowance Net carrying amount
£’million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
1 January 2021 10,175 1,812 257 – 12,244 (30) (69) (55) – (154) 10,145 1,743 202 – 12,090
Transfers to/(from) Stage 1
1
559 (537) (22) – – (16) 16 – – – 543 (521) (22) – –
Transfers to/(from) Stage 2 (772) 787 (15) – – 2 (3) 1 – – (770) 784 (14) – –
Transfers to/(from) Stage 3 (202) (110) 312 – – – 6 (6) – – (202) (104) 306 – –
Net remeasurement due to transfers
2
– – – – – 11 (11) (19) – (19) 11 (11) (19) – (19)
New lending
3
2,157 357 18 1 2,533 (23) (13) (10) – (46) 2,134 344 8 1 2,487
Repayments, additional drawdowns
and interest accrued (318) (57) (16) – (391) – – – – – (318) (57) (16) – (391)
Derecognitions
4
(1,528) (327) (72) – (1,927) 5 11 20 – 36 (1,523) (316) (52) – (1,891)
Changes to model assumptions
5
– – – – – 4 14 (4) – 14 4 14 (4) – 14
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 guarantees
6
1,245 – 1,245
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.
6. Represents undrawn lending facilities. Further details can be found in note 31.
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Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
30. Expected credit losses Continued
Retail mortgages
Gross carrying amount Loss allowance Net carrying amount
£’million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
1 January 2022 5,546 1,063 114 – 6,723 (2) (12) (5) – (19) 5,544 1,051 109 – 6,704
Transfers to/(from) Stage 1 293 (281) (12) – – (4) 4 – – – 289 (277) (12) – –
Transfers to/(from) Stage 2 (199) 205 (6) – – – – – – – (199) 205 (6) – –
Transfers to/(from) Stage 3 (16) (22) 38 – – – 1 (1) – – (16) (21) 37 – –
Net remeasurement due to transfers – – – – – 4 (1) – – 3 4 (1) – – 3
New lending 1,666 549 1 – 2,216 (3) (7) – – (10) 1,663 542 1 – 2,206
Repayments, additional drawdowns
and interest accrued (130) (22) (5) – (157) – – – – – (130) (22) (5) – (157)
Derecognitions (965) (149) (19) – (1,133) (1) 2 3 – 4 (966) (147) (16) – (1,129)
Changes to model assumptions – – – – – – 2 – – 2 – 2 – – 2
31 December 2022 6,195 1,343 111 – 7,6 49 (6) (11) (3) – (20) 6,189 1,332 108 – 7,629
Gross carrying amount Loss allowance Net carrying amount
£’million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
1 January 2021 5,911 863 118 – 6,892 (5) (17) (4) – (26) 5,906 846 114 – 6,866
Transfers to/(from) Stage 1 362 (345) (17) – – (8) 8 – – – 354 (337) (17) – –
Transfers to/(from) Stage 2 (469) 477 (8) – – 1 (1) – – – (468) 476 (8) – –
Transfers to/(from) Stage 3 (19) (26) 45 – – – 1 (1) – – (19) (25) 44 – –
Net remeasurement due to transfers – – – – – 7 (1) – – 6 7 (1) – – 6
New lending 894 233 – – 1,127 (1) (4) – – (5) 893 229 – – 1,122
Repayments, additional drawdowns
and interest accrued (131) (17) (2) – (150) – – – – – (131) (17) (2) – (150)
Derecognitions (1,002) (122) (22) – (1,146) 1 1 1 – 3 (1,001) (121) (21) – (1,143)
Changes to model assumptions – – – – – 3 1 (1) – 3 3 1 (1) – 3
31 December 2021 5,546 1,063 114 – 6,723 (2) (12) (5) – (19) 5,544 1,051 109 – 6,704
222
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
30. Expected credit losses Continued
Consumer lending
Gross carrying amount Loss allowance Net carrying amount
£’million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
1 January 2022 786 82 21 1 890 (18) (8) (16) – (42) 768 74 5 1 848
Transfers to/(from) Stage 1 19 (19) – – – (2) 2 – – – 17 (17) – – –
Transfers to/(from) Stage 2 (96) 96 – – – 1 (1) – – – (95) 95 – – –
Transfers to/(from) Stage 3 (21) (6) 27 – – 1 2 (3) – – (20) (4) 24 – –
Net remeasurement due to transfers – – – – – 2 (3) (15) – (16) 2 (3) (15) – (16)
New lending 806 156 12 – 974 (15) (7) (9) – (31) 791 149 3 – 943
Repayments, additional drawdowns
and interest accrued (144) (41) (6) (1) (192) – – – – – (144) (41) (6) (1) (192)
Derecognitions (170) (18) (4) – (192) 5 1 1 – 7 (165) (17) (3) – (185)
Changes to model assumptions – – – – – 5 2 – – 7 5 2 – – 7
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
£’million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
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 transfers – – – – – 1 – (2) – (1) 1 – (2) – (1)
New lending 697 66 12 1 776 (16) (7) (9) – (32) 681 59 3 1 744
Repayments, additional drawdowns
and interest accrued (20) (9) (1) – (30) – – – – – (20) (9) (1) – (30)
Derecognitions (40) (13) (7) – (60) 1 2 7 – 10 (39) (11) – – (50)
Changes to model assumptions – – – – – 3 3 – – 6 3 3 – – 6
31 December 2021 786 82 21 1 890 (18) (8) (16) – (42) 768 74 5 1 848
223
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
30. Expected credit losses Continued
Commercial lending (excluding asset and invoice finance)
Our top 10 commercial exposures total £310 million as at 31 December 2022 (31 December 2021: £326 million), representing 8% (31 December 2021: 7%) of our total commercial lending.
Gross carrying amount Loss allowance Net carrying amount
£’million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
1 January 2022 3,425 775 326 – 4,526 (23) (28) (51) – (102) 3,402 747 275 – 4,424
Transfers to/(from) Stage 1 202 (201) (1) – – (7) 7 – – – 195 (194) (1) – –
Transfers to/(from) Stage 2 (148) 149 (1) – – 1 (1) – – – (147) 148 (1) – –
Transfers to/(from) Stage 3 (85) (45) 130 – – – 4 (4) – – (85) (41) 126 – –
Net remeasurement due to transfers – – – – – 4 (5) – – (1) 4 (5) – – (1)
New lending 485 36 17 – 538 (9) (1) (1) – (11) 476 35 16 – 527
Repayments, additional drawdowns
and interest accrued (275) (42) (14) – (331) – – – – – (275) (42) (14) – (331)
Derecognitions (532) (184) (269) – (985) 2 6 29 – 37 (530) (178) (240) – (948)
Changes to model assumptions – – – – – (1) (9) 3 – (7) (1) (9) 3 – (7)
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
£’million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
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 transfers – – – – – 3 (9) (16) – (22) 3 (9) (16) – (22)
New lending 427 58 6 – 491 (4) (2) (1) – (7) 423 56 5 – 484
Repayments, additional drawdowns
and interest accrued (120) (31) (12) – (163) – – – – – (120) (31) (12) – (163)
Derecognitions (443) (192) (41) – (676) 2 8 11 – 21 (441) (184) (30) – (655)
Changes to model assumptions – – – – – (3) 10 (3) – 4 (3) 10 (3) – 4
31 December 2021 3,425 775 326 – 4,526 (23) (28) (51) – (102) 3,402 747 275 – 4,424
224
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
30. Expected credit losses Continued
Asset and invoice finance
Gross carrying amount Loss allowance Net carrying amount
£’million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
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 transfers – – – – – – (1) – – (1) – (1) – – (1)
New lending 200 1 1 – 202 (3) – (1) – (4) 197 1 – – 198
Repayments, additional drawdowns
and interest accrued (55) (2) (1) – (58) – – – – – (55) (2) (1) – (58)
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
£’million Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
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 transfers – – – – – – (1) (1) – (2) – (1) (1) – (2)
New lending 139 – – – 139 (2) – – – (2) 137 – – – 137
Repayments, additional drawdowns
and interest accrued (47) – (1) – (4 8) – – – – – (47) – (1) – (48)
Derecognitions (43) – (2) – (45) 1 – 1 – 2 (42) – (1) – (43)
Changes to model assumptions – – – – – 1 – – – 1 1 – – – 1
31 December 2021 314 5 1 – 320 (4) (1) (1) – (6) 310 4 – – 314
225
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
30. Expected credit losses Continued
Credit risk exposures
Retail mortgages
31 December 2022 31 December 2021
£’million
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
POCI
Lifetime
ECL Total
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
POCI
Lifetime
ECL Total
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
£’million
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
POCI
Lifetime
ECL Total
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
POCI
Lifetime
ECL Total
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
226
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
30. Expected credit losses Continued
Commercial lending (excluding asset and invoice finance)
31 December 2022 31 December 2021
£’million
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
POCI
Lifetime
ECL Total
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
POCI
Lifetime
ECL Total
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
£’million
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
POCI
Lifetime
ECL Total
Stage 1
12-month
ECL
Stage 2
Lifetime
ECL
Stage 3
Lifetime
ECL
POCI
Lifetime
ECL Total
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
Write-off policy
We write-off financial assets (either partially or fully) when there is no realistic expectation of receiving further payment from the customer. Indicators that there is no reasonable
expectation of recovery include debt sale to a third party and ceasing enforcement activity. We may write-off financial assets that are still subject to enforcement activity.
Modification of financial assets
We sometimes renegotiate the terms of loans provided to customers with a view to maximising recovery. The modifications have not led to any material modification gains or losses
being recognised.
227
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
31. Financial commitments
Accounting policy
To meet the financial needs of our customers, we enter into various irrevocable
commitments. These generally consist of financial guarantees, letters of credit and other
undrawn commitments to lend.
Even though these obligations are not recognised on the balance sheet, they do contain
credit risk and an ECL is calculated and recognised for them (see note 30).
When these commitments are drawn down or called upon, and meet the recognition criteria
as detailed in note 12, these are recognised within our loans and advances to customers.
At 31 December 2022, we had undrawn loan facilities granted to retail and commercial
customers of £1,120 million (31 December 2021: £1,245 million).
In addition, as part of our retail and commercial operations, we had commitments of
£250mill0 million (31 December 2021: £302 million) in respect of credit card and overdraft
facilities. These commitments represent agreements to lend in the future, subject to
certaincoin conditions. Such commitments are cancellable, subject to notice requirements,
andgiventhd given their nature are not expected to be drawn down to the full level of exposure.
32. 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
(details of our provisions are set out in note 24). 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wronof wrongdoing or legal liability.
Financial Crime
The FCA is currently undertaking enquiries regarding our financial crime systems
andcontrod controls. We continue to engage and co-operate fully with the FCA in relation
tothesto thesemate matters.
Magic Money Machine litigation
In 2022 Arkeyo LLC, a software company based in the United States, filed a civil suit with
astaa stated value of over £24 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.
228
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
33. Offsetting of financial assets and liabilities
Accounting policy
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention
tosetto settle on a net basis or realise the asset and settle the liability simultaneously.
31 December 2022 31 December 2021
Effects of offsetting
on the balance sheet
Related amounts
not offset
Effects of offsetting
on the balance sheet
Related amounts
not offset
Group
Gross
amount
£’million
Gross amounts
offset in the
balance sheet
£’million
Net amounts
presented
in the balance
sheet
£’million
Amounts
pledged as
collateral
£’million
Net
amount
£’million
Gross
amount
£’million
Gross amounts
offset in the
balance sheet
£’million
Net amounts
presented
in the balance
sheet
£’million
Amounts
pledged as
collateral
£’million
Net
amount
£’million
Loans and advances to customers 13,102 – 13,102 (3,141) 9,961 12,290 – 12,290 (3,956) 8,334
Investment securities 5,914 – 5,914 (2,131) 3,783 5, 574 – 5,574 (1,491) 4,083
Deferred tax assets 16 (28) (12) – (12) 16 (28) (12) – (12)
Other assets 73 – 73 (39) 34 76 – 76 (36) 40
229
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
34. Fair value of financial instruments
Accounting policy
Determination of fair value
‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or,
initin itsabs absence, the most advantageous market to which we have access at that date. The fair value of a liability reflects its non-performance risk.
In order to show how fair values have been derived, financial instruments are classified based on a hierarchy of valuation techniques, as summarised below:
• Level 1 financial instruments – Those where the inputs used in the valuation are unadjusted quoted prices from active markets for identical assets or liabilities that we have access
to at the measurement date. We consider markets as active only if there are sufficient trading activities with regards to the volume and liquidity of the identical assets or liabilities
and when there are binding and exercisable price quotes available on the balance sheet date.
• Level 2 financial instruments – Those where the inputs that are used for valuation are significant, are derived from directly or indirectly observable market data available over the
entire period of the instrument’s life. Such inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical instruments in inactive markets
and observable inputs other than quoted prices, such as interest rates and yield curves, implied volatilities, and credit spreads. In addition, adjustments may be required for the
condition or location of the asset or the extent to which it relates to items that are comparable to the valued instrument. However, if such adjustments are based on unobservable
inputs which are significant to the entire measurement, we will classify the instruments as Level 3.
• Level 3 financial instruments – Those that include one or more unobservable input that is significant to the measurement as whole.
31 December 2022 31 December 2021
Group
Carrying
value
£’million
Quoted
market
price
Level 1
£’million
Using
observable
inputs
Level 2
£’million
With
significant
unobservable
inputs
Level 3
£’million
Total fair
value
£’million
Carrying
value
£’million
Quoted
market
price
Level 1
£’million
Using
observable
inputs
Level 2
£’million
With
significant
unobservable
inputs
Level 3
£’million
Total fair
value
£’million
Assets
Loans and advances to customers 13,102 – – 12,321 12,321 12,290 – – 12,356 12,356
Investment securities held at fair value through other comprehensive income 571 533 38 – 571 798 760 38 – 798
Investment securities held at amortised cost 5,343 3,834 1,135 40 5,009 4,776 2,977 1,710 60 4,747
Financial assets held at fair value through profit and loss 1 – – 1 1 3 – – 3 3
Derivative financial assets 23 – 23 – 23 1 – 1 – 1
Liabilities
Deposits from customers 16,014 – – 16,004 16,004 16,448 – – 16,452 16,452
Deposits from central bank 3,800 – – 3,800 3,800 3,800 – – 3,800 3,800
Debt securities 571 423 – – 423 588 495 – – 495
Derivative financial liabilities 26 – 26 – 26 11 – 11 – 11
Repurchase agreements 238 – – 238 238 169 – – 169 169
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nare not included in the tables. Their carrying amount is a reasonable approximation of fair value.
230
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
34. Fair value of financial instruments Continued
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apis 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.
231
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
35. Related parties
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 ExCo 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beof benefit was as follows:
Group
2022
£’million
2021
£’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 ‘Share-based Payment’ charge for the year which includes awards granted
inprin 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ped persons connected to them.
Deposit transactions during the year and the balances outstanding as at
31De1 December2ber 2022 and 31 December 2021 were as follows:
Group
2022
£’million
2021
£’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:
Group
2022
£’million
2021
£’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 (£’000) 60 30
There were two (31 December 2021: three) loans outstanding at 31 December 2022
totalling £2.1 million (31 December 2021: £3.2 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foas follows:
Group
2022
£’000
2021
£’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: £nil). We have not written-off any balances
tokey manato key management personnel in either 2021 or 2022.
Transactions with Group companies
Details of transactions with Group companies can be found within note 37.
232
Metro Bank PLC Annual Report and Accounts 2022
Notes to the financial statements Continued
36. 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 (£’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pyear 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 (£’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.
37. Investment in subsidiaries
The Group had the following subsidiaries at 31 December 2022:
Name
Country of
incorporation
and place
of business
Nature of
business
Proportion
of ordinary
shares directly
held by the
Parent (%)
Proportion
of ordinary
shares directly
held by the
Group (%)
SME Invoice Finance Limited
1
UK Invoice financing 100% –
SME Asset Finance Limited
1
UK Asset financing – 100%
RDM Factors Limited
1
UK Dormant – 100%
Retail Money Market Ltd
2
UK Not currently trading 100% –
Vehicle Credit Limited
3
UK Not currently trading 100% –
1. Registered address One Southampton Row, London, W21B 5HA.
2. Registered address 6th Floor, 55 Bishopsgate, London, EC2N 3AS.
3. Registered address No.1, Osiers Business Centre, Leicester, LE19 1DX.
The proportion of the voting rights in the subsidiary undertakings held directly
bytheCoby the Company do not differ from the proportion of ordinary shares held.
We are currently in the process of winding up a number of the subsidiaries.
Investment in subsidiaries
Company
2022
£’million
Company
2021
£’million
1 January 31 59
Deemed capital contribution – 18
Impairment of subsidiaries – (46)
31 December 31 31
233
Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements Additional information
Notes to the financial statements Continued
37. Investment in subsidiaries Continued
In April 2021 we purchased the back book of peer-to-peer loans from RateSetter investors.
As a result of that transaction the provision fund that RateSetter operated (via RateSetter
Trustee Services Limited) for the benefit of these investors ceased to have liability for
further claims, which resulted in a net release of £18 million of liabilities. This was treated
asa das a deemed capital contribution due to the resulting increase in the subsidiary’s net asset.
Following the purchase of the back book, only limited activities continued to occur in
theRathe RateSetter business and as such we undertook an impairment assessment on our
investment in subsidiary. The recoverable amount of the investment in RateSetter was
determined to be the fair value of the net assets remaining in the business. This resulted
inan iin an impairment charge of £46 million in 2021.
Over the course of 2021 and 2022 we have been rationalising our structure with all former
RateSetter activities being transferred to the Company. As part of this process, during the
year we dissolved RateSetter Trustee Services Limited, RateSetter Motor Limited, Security
Trustee Services Limited and Vehicle Stocking Limited. We are in the process of winding
upaup and dissolving Retail Money Market Ltd and Vehicle Credit Limited, with expected
completion of this process in early 2023.
All remaining net assets from the closed entities were transferred to Retail Money Market
Ltd via way of a £5.6 million dividend paid by RateSetter Trustee Services Limited.
Transactions between the Company and Group subsidiaries
Company
2022
£’million
2021
£’million
Interest on inter-Company loan with SME Asset/Invoice Finance 9.5 6.4
Servicing fees paid to RateSetter – 5.9
Company
2022
£’million
2021
£’million
Amounts outstanding owed by SME Asset/Invoice Finance 397 312
Amounts outstanding owed to RateSetter 3 5
The ECL expense recognised within the Company’s financial statements in respect
oftheiof the inter-Company loan facility is less than £0.1 million (31 December 2021: less than
£0.1million£0.1 million).
The transactions above are eliminated upon consolidation.
38. Non-cash items
The table below sets out the non-cash items included in profit before tax of the Group
andComd Company. These have been adjusted for in the cash flow statements on page 184.
Group
2022
£’million
Group
2021
£’million
Company
2022
£’million
Company
2021
£’million
Interest income (564) (40 6) (547) (390)
Interest expense 160 110 160 110
Depreciation and amortisation 77 80 77 76
Impairment and write-offs of property, plant, equipment
and intangible assets 10 25 10 18
Impairment of investment in subsidiaries – – – 46
Expected credit loss expense 40 22 37 21
Share option charge 2 2 2 2
Grant income recognised in the income statement (2) (11) (2) (11)
Amounts provided for (net of amounts released) 4 5 4 5
Gain on sale of assets – (9) – (9 )
Total adjustments for non-cash items (273) (182) (259) (132)
39. Post balance sheet events
There have been no material post balance sheet events.
234
Metro Bank PLC Annual Report and Accounts 2022
Page Title L1 Continued - 14/20
Page Title L2 - 14/20
Additional information
In this section
236 Country-by-country report
237 Independent auditors’ report to the Directors
of Metro Bank PLC (on country-by-country
information)
240 Other disclosures
241 Alternative performance measures
246 Abbreviations
247 Shareholder information
235 Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements
Additional information
Country-by-country report
The reporting obligations set out in the Capital Requirements Directive IV (CRD IV) have
been implemented in the UK by the Capital Requirements (Country-by-Country Reporting)
Regulations. The purpose of the regulations is to provide clarity on the source of the
Group’s income and the locations of its operations.
The Company, Metro Bank, is a credit institution for the purposes of CRD IV and is
therefore within the scope of Country-by-Country Reporting. Our activities are disclosed
within note 1 to the financial statements.
For the purposes of Country-by-Country Reporting, the appropriate disclosures required
are summarised below:
UK
Number of employees (average full-time equivalent) 4,040
Turnover (£’million) 523.5
Loss before tax (£’million) (70.7)
Tax expense (£’million) (2.0)
Corporation tax paid (£’million) –
No public subsidies were received during the year.
Basis of preparation
Country
Metro Bank PLC and its subsidiaries only operate with the UK and are all UK
registeredentities.
Full-time equivalent employees
FTEs are allocated to the country in which they are primarily based for the performance
oftheir employment duties. The figures disclosed represent the average number of FTEs,
all of which were employed in the UK.
Turnover and loss before tax
Turnover and loss before tax are compiled from the Metro Bank PLC consolidated financial
statements for the year ended 31 December 2022, which are prepared in accordance
withIFRS. Turnover represents the sum of the Group’s net interest income, net fee and
commission income, net gains on sale of assets and other income.
Tax credit and corporation tax paid
Corporation tax paid represents the net cash taxes paid to the tax authority, HMRC, during
2022. Corporation tax paid is reported on a cash basis and will normally differ from the tax
expense recorded for accounting purposes due to:
• Timing differences in the accrual of the tax charge.
• Brought forward losses from previous years that were used to extinguish a portion
ofitstaxable profits.
• Other differences between when income and expenses are accounted for under IFRS
and when they become taxable.
236 Metro Bank PLC Annual Report and Accounts 2022
Independent auditors’ report to the directors
ofMetroBank PLC
237 Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements
Additional information
Report on the audit of the country-by-country information
Opinion
In our opinion, Metro Bank PLC’s (the “Group”) country-by-country information for
theyear ended 31 December 2022 has been properly prepared, in all material respects,
inaccordance with the requirements of the Capital Requirements (Country-by-Country
Reporting) Regulations 2013.
We have audited the country-by-country information for the year ended
31December2022 in the Country-by-Country Report.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK)
(“ISAs (UK)”), including ISA (UK) 800 and ISA (UK) 805, and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the
audit of the country-by-country information section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that
are relevant to our audit of the country-by-country information in the UK, which includes
the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
Emphasis of matter – Basis of preparation
In forming our opinion on the country-by-country information, which is not modified, we
draw attention to note 1 of the country-by-country information which describes the basis
of preparation. The country-by-country information is prepared for the directors for the
purpose of complying with the requirements of the Capital Requirements (Country-by-
Country Reporting) Regulations 2013. The country-by-country information has therefore
been prepared in accordance with a special purpose framework and, as a result,
thecountry-by-country information may not be suitable for another purpose.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s ability to continue to adopt
thegoing concern basis of accounting included:
• Confirmation of our understanding of the Directors’ going concern assessment process,
including the preparation and approval of the budget. We obtained management’s
Board approved forecast covering the period of management’s going concern
assessment to 30 June 2024. We evaluated the forecasting method adopted by
theDirectors in assessing going concern, including considering severe but plausible
downside scenarios;
• Evaluation of management’s financial and regulatory capital forecasts. We checked
themathematical accuracy of the model and evaluated the key assumptions using our
understanding ofthe bank and external evidence where appropriate. We used our
Prudential Regulatory experts toreview the bank’s risk weighted assets and forecast
capital requirement assumptions. We also performed a comparison of the 2022 budget
and the actual results to assess the accuracy of the budgeting process;
• Evaluation of the reasonableness of management’s downside assumptions using
ourfirm’s economic and credit risk modelling experts and our understanding of the
bankand the external environment. We evaluated management’s assumptions by
performingindependent stress testing to determine whether a reasonable alternative
stressed scenario, or combination of scenarios, wouldresult in a breach of minimum
regulatory requirements;
• Considering the mitigating actions that management identified, including the reduction
of costs andslowing down the origination of new loans and advances, and assessing
whether these were inthe control of management and possible in the going concern
period of assessment;
• Reviewing management’s stress testing of liquidity and evaluation of the impact on
liquidity of paststress events. We substantiated the liquid resources held, and liquidity
facilities available to thegroup, for example, with the Bank of England. We also
reconciled the bank’s liquidity position toitsregulatory liquidity reporting returns;
Independent auditors’ report to the directors
ofMetroBank PLC Continued
238 Metro Bank PLC Annual Report and Accounts 2022
• Reviewing correspondence between the bank and its regulators to evidence the current
regulatory capital position and also to provide evidence to support forecast changes in
the bank’s capital requirement in the period to 30 June 2024. We met with the PRA
during the audit and noted the PRA’s perspectives on the bank’s risks and its capital
position; and
• Assessing the adequacy of disclosures in the Going Concern statement and within the
Viability statement in the Consolidated and Company Financial Statements and found
these appropriately reflect the key areas of uncertainty identified.
Based on the work we have performed, we have not identified any material uncertainties
relating to events or conditions that, individually or collectively, may cast significant doubt
on the Groups ability to continue as a going concern for a period of at least twelve months
from the date on which the country-by-country information is authorised for issue.
In auditing the country-by-country information, we have concluded that the directors’
useof the going concern basis of accounting in the preparation of the country-by-country
information is appropriate.
However, because not all future events or conditions can be predicted, this conclusion
isnot a guarantee as to the Group’s ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern
are described in the relevant sections of this report.
Responsibilities for the country-by-country information and the audit
Responsibilities of the directors for the country-by-country information
The directors are responsible for the preparation of the country-by-country information
inaccordance with the requirements of the Capital Requirements (Country-by-Country
Reporting) Regulations 2013 as explained in the basis of preparation in note 1 of the
Country-by-Country Report and the accounting policies in the Consolidated and Company
financial statements, and for determining that the basis of preparation and accounting
policies are acceptable in the circumstances. The directors are also responsible for such
internal control as they determine is necessary to enable the preparation of country-by-
country information that is free from material misstatement, whether due to fraud or error.
In preparing the country-by-country information, the directors are responsible for
assessing the Group’s ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis of accounting unless
the directors either intend to liquidate the Group or to cease operations, or have no
realistic alternative but to do so.
Auditors’ responsibilities for the audit of the country-by-country information
It is our responsibility to report on whether the country-by-country information has
beenproperly prepared in accordance with the relevant requirements of the Capital
Requirements (Country-by-Country Reporting) Regulations 2013.
Our objectives are to obtain reasonable assurance about whether the country-by-country
information as a whole is free from material misstatement, whether due to fraud or error,
and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the
basis of this country-by-country information.
Independent auditors’ report to the directors
ofMetroBank PLC Continued
239 Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements
Additional information
Irregularities, including fraud, are instances of non-compliance with laws and regulations.
We design procedures in line with our responsibilities, outlined above, to detect material
misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal
risks of non-compliance with laws and regulations related to breaches of the rules of
theFinancial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA), and
weconsidered the extent to which non-compliance might have a material effect on the
country-by-country information. We also considered those laws and regulations that
havea direct impact on the country-by-country information such as applicable UK tax
legislation and the Capital Requirements (Country-by-Country Reporting) Regulations
2013. We evaluated management’s incentives and opportunities for fraudulent
manipulation of the country-by-country information (including the risk of override of
controls), and determined that the principal risks were related to posting manual journal
entries to manipulate financial performance and management bias in accounting
estimates. Audit procedures performed included:
• Enquiries of the Audit Committee, management, internal audit and the group’s legal
counsel, including consideration of known or suspected instances of non-compliance
with laws and regulation and fraud;
• Evaluation of the design and implementation of controls designed to prevent and detect
irregularities relevant to financial reporting;
• Reviewing key correspondence and holding discussions with regulators, such as the
FCAand thePRA, in relation to the group’s compliance with banking regulations;
• Incorporating unpredictability into the nature, timing and/or extent of our testing;
• Challenging assumptions and judgements made by management in their estimation
ofthe allowance for ECL on loans and advances to customers, the assessment of the
carrying value of non financial assets (excluding goodwill) and the ability of the group
tocontinue as a going concern; and
• Identifying and testing journal entries including those posted by infrequent or
unexpected users,those posted to unusual account combinations and those posted
latein the financial reporting process.
There are inherent limitations in the audit procedures described above. We are less likely
tobecome aware of instances of non-compliance with laws and regulations that are not
closely related to events and transactions reflected in the country-by-country information.
Also, the risk of not detecting a material misstatement due to fraud is higher than the risk
of not detecting one resulting from error, as fraud may involve deliberate concealment
by,for example, forgery or intentional misrepresentations, or through collusion.
A further description of our responsibilities for the audit of the country-by-country
information is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditors’ report.
Use of this report
This report, including the opinion, has been prepared for and only for the Group’s directors
in accordance with the Capital Requirements (Country-by-Country Reporting) Regulations
2013 and for no other purpose. We do not, in giving this opinion, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown
orinto whose hands it may come, save where expressly agreed by our prior consent
inwriting.
The engagement partner responsible for this audit is Jonathan Holloway.
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
15 March 2023
Other disclosures (unaudited)
Reconciliation of statutory balance sheet to risk-weighted asset
31 December 2022 31 December 2021
Financial
statements
£’million
Average risk
density
%
Risk-
weighted
assets
£’million
Financial
statements
£’million
Average risk
density
%
Risk-
weighted
assets
£’million
Cash and balances with the Bank of England 1,956 2% 30 3,568 1% 33
Loans and advances to customers 13,102 45% 5,949 12,290 42% 5,204
Investment securities held at FVOCI 571 4% 20 798 2% 19
Investment securities held at amortised cost 5,343 4% 215 4,776 6% 301
Financial assets held at fair value through profit and loss 1 – – 3 – –
Derivative financial assets 23 – – 1 – –
Property, plant and equipment 748 100% 748 765 100% 765
Intangible assets 216 – – 243 26% 64
Prepayments and accrued income 85 47% 40 68 84% 57
Deferred tax assets
1
1 100% 1 – – –
Assets classified as held for sale – n/a 5 – n/a 5
Other assets 73 89% 65 76 97% 74
Total assets 22,119 32% 7,073 22,587 29% 6,522
Off-balance sheet assets 169 188
Credit risk (excluding counterparty credit risk) 7,242 6,710
Counterparty credit risk 9 6
Market risk – 9
Operational risk 739 729
Total risk-weighted assets 7,990 7,454
1. In the consolidated balance sheet per the financial statements, deferred tax is shown as a net figure with the deferred tax liability, however, from a regulatory perspective the deferred tax asset and liability are treated separately.
240 Metro Bank PLC Annual Report and Accounts 2022
Alternative performance measures (unaudited)
In the reporting of financial information, we use certain measures that are not required under IFRS, the Generally Accepted Accounting Principles under which we report.
Thesemeasures are consistent with those used by management to assess underlying performance.
These alternative performance measures have been defined below:
Metric KPI
Scorecard
measure LTI P Definition
Cost of deposits Yes No No Interest expense on customer deposits divided by the average deposits from customers for the year.
2022
£’million
2021
£’million
Interest on customer deposits (note 2) 32.9 40.1
Average deposits from customer 16,351 16,369
Cost of deposits 0.20% 0.24%
Cost of risk Yes Yes No
Expected credit loss expense divided by average gross loans.
2022
£’million
2021
£’million
Expected credit loss expense (note 30) 39.9 22.4
Average gross lending 12,611 12,330
Cost of risk 0.32% 0.18%
Coverage ratio No No No Expected credit losses as a percentage of gross loans.
2022
£’million
2021
£’million
Expected credit losses (note 12) 187 169
Gross loans and advances to customers (note 12) 13,289 12,459
Coverage ratio 1.41% 1.36%
Retail mortgages
2022
£’million
2021
£’million
Expected credit losses – retail mortgages (note 12) 20 19
Gross retail mortgage lending (note 12) 7,6 49 6,723
Coverage ratio 0.26% 0.28%
Consumer
2022
£’million
2021
£’million
Expected credit losses – consumer (note 12) 75 42
Gross consumer lending (note 12) 1,480 890
Coverage ratio 5.07% 4.72%
Commercial
2022
£’million
2021
£’million
Expected credit losses – commercial (note 12) 92 108
Gross commercial lending (note 12) 4,160 4,846
Coverage ratio 2.21% 2.23%
241 Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements
Additional information
Alternative performance measures (unaudited)
Continued
Metric KPI
Scorecard
measure LTI P Definition
Loan-to-deposit ratio Yes No No Net loans and advances to customers expressed as a percentage of total deposits as at the year end.
Itisacommonly used ratio within the banking industry to assess liquidity.
2022
£’million
2021
£’million
Net loans and advances to customers (note 12) 13,102 12,290
Deposits from customer (note 18) 16,014 16,448
Loan–to–deposit ratio 82% 75%
Net interest margin No No No Net interest income as a percentage of average interest–earning assets.
2022
£’million
2021
£’million
Net interest income (note 2) 404.1 295.3
Average interest–earning assets 21,029 21,128
Net interest margin 1.92% 1.40%
Non-performing loan ratio No No No Gross balance of loans in stage 3 (non–performing loans) as a percentage of gross loans as at year end.
Total book
2022
£’million
2021
£’million
Stage 3 loans (note 30) 352 462
Loans and advances to customers (note 12) 13,289 12,459
Non–performing loan ratio 2.65% 3.71%
Retail mortgages
2022
£’million
2021
£’million
Stage 3 loans – retail mortgages (note 30) 111 114
Gross retail mortgage lending (note 12) 7,6 49 6,723
Non–performing loan ratio – retail mortgages 1.45% 1.70%
Consumer
2022
£’million
2021
£’million
Stage 3 loans – consumer (note 30) 50 21
Gross consumer lending (note 12) 1,480 890
Non–performing loan ratio – consumer 3.38% 2.36%
Commercial
2022
£’million
2021
£’million
Stage 3 loans – commercial (note 30) 191 327
Gross commercial lending (note 12) 4,160 4,846
Non–performing loan ratio 4.59% 6.75%
242 Metro Bank PLC Annual Report and Accounts 2022
Alternative performance measures (unaudited)
Continued
Metric KPI
Scorecard
measure LTI P Definition
Return on tangible equity Yes No Yes Statutory profit after tax as a percentage of average tangible equity (average total equity less intangible assets).
2022
£’million
2021
£’million
Statutory loss after tax (Consolidated statement of comprehensive income) (72.7) (248.2)
Average tangible equity 749 898
Return on tangible equity (10%) (28%)
Statutory cost:income ratio Yes Yes No Statutory total operating expenses as a percentage of statutory total income.
2022
£’million
2021
£’million
Total operating expenses (Consolidated statement of comprehensive income) 554.3 641.2
Total income (Consolidated statement of comprehensive income) 523.5 418.5
Statutory cost:income ratio 106% 153%
Total shareholder return Yes No Yes Total capital gains and dividends returned to investors over a three-year rolling period.
2022 2021
Share price at the start of the three-year period 205p 1,718p
Share price at the end of the three-year period 121p 96p
Total shareholder return (41%) (94%)
1. No dividends were paid in either period
Underlying cost:income ratio No No No Underlying total operating expenses as a percentage of underlying total income.
2022
£’million
2021
£’million
Total underlying operating expenses (page 245) 532.8 546.8
Total underlying income (page 245) 522.1 397.9
Underlying cost:income ratio 102% 137%
Underlying loss Yes Yes No Underlying loss represents an adjusted measure, excluding the effect of certain items that are considered to
distort year-on-year comparisons, in order to provide readers with a better and more relevant understanding
of the underlying trends in the business.
Details of the calculation of underlying loss can be found on pages 244 to 245.
We also disclose a number of capital and liquidity metrics which are required by the PRA and FCA. The basis of calculation of those metrics is defined within the relevant legislation.
243 Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements
Additional information
Alternative performance measures (unaudited)
Continued
Non-underlying item Description Reason for exclusion
Impairment and
write-offs of property,
plant, equipment
andintangibleassets
The costs associated with non-current assets that are either no longer being
used by or are no longer generating future economic benefit for the business.
The impairments and write-offs relating to property, plant, equipment and
intangible assets are removed as they distort comparison between years.
Thisison the basis that the write-offs and impairments relate to specific
eventsand triggers which are not consistent between years.
Net C&I costs These costs and income relate to the delivering the commitments associated
with the Capability and Innovation Fund (awarded by BCR). Further details
onthis grant can be found in note 23.
The commitments under the Capability and Innovation Fund continue through
to 2025. The costs associated with fulfilling the commitments and associated
income are felt to distort year-on-year comparison. Given the offsetting nature
of the income and expenditure, there is no net impact on our profitability from
this adjustment.
Remediation costs Remediation costs consists of money spent in relation to the RWA adjustment
including the associated investigations by the PRA and FCA as well as work
undertaken in relation to financial crime.
The remediation costs are felt to be time limited and will disappear once
the investigations have concluded. As such are removed to allow greater
comparability between periods. Following the conclusion of the investigations
by the PRA, FCA and OFAC future remediation costs will be limited, primarily
relating to the ongoing regulatory matters regarding financial crime.
Transformation costs Transformation costs primarily consist of the costs associated with redundancy
programmes during the year as part of our approach to right-sizing teams
as well as the costs of work undertaken to establish our cost reduction
programme.
The transformation costs are seen as a nonrecurring cost stream aimed at
addressing the challenges the business faces. These are therefore removed
in order to prevent year-on-year distortion. Following the conclusion of our
transformation plan in 2022 no further transformation costs will be recognised
in 2023.
Business acquisition
andintegration costs
(2021 only)
The costs associated with acquiring and integrating RateSetter. We acquire businesses infrequently and the costs are not anticipated to be
recurring. We substantially completed our integration of RateSetter in 2021
andas such no costs have been recognised in 2022.
Mortgage portfolio sale
(2021 only)
The gain on sale and associated costs of the £3.1 billion mortgage portfolio
sale. It also includes the income and cost of servicing this portfolio until it was
transferred in 2021.
The sale of loan portfolios is generally not considered in line with our business
model. Given the infrequency of sales and the quantum of the gain it has been
removed in order to prevent year-on-year distortion. The portfolio transfer
completed in 2021.
Holding company
insertion costs
(2022 only)
Costs associated with the establishment and insertion of a holding
company (Metro Bank Holdings PLC) above the current operating
company(MetroBankPLC) to meet regulatory requirements.
During 2022 we started work on implementing our new holding company.
These costs are due to be time-limited as work is required to be completed
byJune 2023. As such they have been excluded from our underlying results
toavoid distortion between years.
244 Metro Bank PLC Annual Report and Accounts 2022
Alternative performance measures (unaudited)
Continued
A reconciliation from statutory loss before tax to underlying loss before tax is set out below.
Year ended 31 December 2022
Statutory
basis
£’million
Business
acquisition
and
integration
costs
£’million
Impairment
and write-off of
property, plant,
equipment
and intangible
assets
£’million
Net C&I
costs
£’million
Transformation
costs
£’million
Mortgage
portfolio sale
£’million
Remediation
costs
£’million
Holding
company
insertion
costs
£’million
Underlying
basis
£’million
Net interest income 404.1 – – 0.1 – – – – 404.2
Net fee and commission income 81.8 – – – – – – – 81.8
Net gains on sale of assets – – – – – – – – –
Other income 37.6 – – (1.5) – – – – 36.1
Total income 523.5 – – (1.4) – – – – 522.1
General operating expenses (467.6) – – 1.4 3.3 – 5.3 1.8 (455. 8)
Depreciation and amortisation (77.0) – – – – – – (77.0)
Impairment and write-offs of property, plant, equipment and intangible assets (9.7) – 9.7 – – – – – –
Total operating expenses (554.3) – 9.7 1.4 3.3 – 5.3 1.8 (532.8)
Expected credit loss expense (39.9) – – – – – – – (39.9)
Loss before tax (70.7) – 9.7 – 3.3 – 5.3 1.8 (50.6)
Year ended 31 December 2021
Statutory
basis
£’million
Business
acquisition
and
integration
costs
£’million
Impairment
and write-off of
property, plant,
equipment
and intangible
assets
£’million
Net C&I
costs
£’million
Transformation
costs
£’million
Mortgage
portfolio sale
£’million
Remediation
costs
£’million
Holding
company
insertion
costs
£’million
Underlying
basis
£’million
Net interest income 295.3 – – 0.4 – – – – 295.7
Net fee and commission income 69.6 – – – – – – – 69.6
Net gains on sale of assets 9.4 – – – – (8.7) – – 0.7
Other income 44.2 – – (9.4) – (2.9) – – 31.9
Total income 418.5 – – (9.0) – (11.6) – – 397.9
General operating expenses (536.1) 2.4 – 9.0 8.9 3.3 45.9 – (466.6)
Depreciation and amortisation (80.2) – – – – – – – (80.2)
Impairment and write-offs of property, plant, equipment and intangible assets (24.9) – 24.9 – – – – – –
Total operating expenses (641.2) 2.4 24.9 9.0 8.9 3.3 45.9 – (546.8)
Expected credit loss expense (22.4) – – – – – – – (22.4)
Loss before tax (245.1) 2.4 24.9 – 8.9 (8.3) 45.9 – (171.3)
245 Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements
Additional information
Abbreviations
AGM Annual General Meeting
ALCO Asset and Liability Committee
ATM Automated teller machine
BAME Black, Asian and Minority Ethnic
BBLS Bounce Back Loan Scheme
BCR Banking Competition Remedies
BEIS Department of Business, Energy and Industrial Strategy
bps Basis points
C&I Capability and Innovation Fund
CEO Chief Executive Officer
CET1 Common Equity Tier 1 Capital
CFO Chief Financial Officer
CMA Competition and Markets Authority
CRD Capital Requirements Directive
CRO Chief Risk Officer
D&I Diversity and inclusion
DNED Designated Non-Executive Director for Colleague Engagement
DTR Disclosure Guidance and Transparency Rules
DTV Debt-to-value
DVRP Deferred Variable Reward Plan
EAD Exposure at default
ECL Expected credit losses
EPC Energy Performance Certificate
ERC Executive Risk Committee
ESG Environmental, social, and governance
ExCo Executive Committee
FCA Financial Conduct Authority
FRC Financial Reporting Council
FSQS Financial Services Qualification System
FTE Full time equivalent
FVOCI Fair value through other comprehensive income
GDP Gross domestic product
GHG Greenhouse gases
HMRC His Majesty’s Revenue and Customs
HPI House price index
IAS International Accounting Standards Board
ICAAP Internal Capital Adequacy Assessment Process
IFRS International Financial Reporting Standards
ILAAP Internal Liquidity Adequacy Assessment Process
IRB Internal ratings-based
KPI Key performance indicator
LGBTQ+ Lesbian, gay, bisexual, transgender, queer plus
LGD Loss given default
LIBOR London Inter-Bank Offered Rate
LTI Loan-to-income
LTIP Long Term Incentive Plan
LTV Loan-to-value
MPs Members of Parliament
MREL Minimum requirement for own funds and eligible liabilities
MSc Master of Science
NED Non-Executive Director
NICs National insurance contributions
NPL Non-performing loan
OFAC Office of Foreign Assets Control
PAYE Pay as you earn
PCAF Partnership for Carbon Accounting Financials
PD Probability of default
PMA Post model adjustments
PMO Post model overlays
POCI Purchased or originated credit impaired
PRA Prudential Regulation Authority
PwC PricewaterhouseCoopers LLP
REGO Renewable Energy Guarantee of Origin
RLS Recovery Loan Scheme
ROC Risk Oversight Committee
RWAs Risk-weighted assets
SBTi Science-Based Targets Initiative
SICR Significant increase in credit risk
SME Small or medium-sized enterprise
SONIA Sterling Overnight Index Average
TCFD Task Force on Climate-related Financial Disclosures
TFSME Term Funding Scheme with additional incentives for SMEs
UK United Kingdom
VAT Value added tax
VIU Value in use
246 Metro Bank PLC Annual Report and Accounts 2022
Shareholder information
Registrars
We have appointed Equiniti Limited to maintain our register of members. Shareholders
should contact Equiniti using the details below in relation to all general enquiries
concerning their shareholding:
Equiniti Limited
1,2
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Telephone: 0371 384 2311
International callers: +44 121 415 7095
1. Equiniti Limited and Equiniti Financial Services Limited are part of the Equiniti group of companies. Company
share registration, employee scheme and pension administration services are provided through Equiniti Limited,
which is registered in England and Wales with No. 6226088. Investment and general insurance services are
provided through Equiniti Financial Services Limited, which is registered in England and Wales with No. 6208699
and is authorised and regulated by the UK Financial Conduct Authority.
2. Lines are open from 8.30 to 5.30pm (UK time) Monday to Friday, excluding public holidays in England and Wales.
Registered and other offices
Our registered office and head office is:
One Southampton Row
London
WC1B 5HA
Telephone: 0345 08 08 500/0345 08 08 508
Website: metrobankonline.co.uk
Unsolicited mail
We are required by law to make our share register available on request to unconnected
organisations. As a consequence, shareholders may receive unsolicited mail, including
mailfrom unauthorised investment firms. If you wish to limit the amount of unsolicited
mailreceived, please contact the Mailing Preference Service, an independent organisation
whose services are free for consumers.
Further details can be obtained from:
Mailing Preference Service
MPS Freepost LON 20771
London
W1E 0ZT
Website: mpsonline.org.uk
247 Metro Bank PLC Annual Report and Accounts 2022 Strategic report Governance Financial statements
Additional information
Shareholder information Continued
Annual General Meeting
Our 2023 AGM will be held on 26 April 2023. Full details for the arrangements for the AGM
and details of the resolutions to be proposed, together with explanatory notes, will be set
out in the Notice of AGM to be published on our website.
Shareholder profile
Shareholder profile by size of holding as at 31 December 2022
Range
Total
number of
holdings
Percentage
of holders
Total number
of shares held at
31 December
2022
Percentage
of total
1–1,000 380 51.01% 101,114 0.06%
1,001–5,000 110 14.77% 256,118 0.15%
5,001–10,000 41 5.50% 309,855 0.18%
10,001–50,000 80 10.74% 1,967,692 1.14%
50,001–100,000 26 3.49% 1,989,396 1.15%
100,001–500,000 58 7.79% 13,493,066 7.82%
500,001–1,000,000 12 1.61% 8,738,764 5.06%
1,000,001 and above 38 5.09% 145,681,626 84.44%
Total 745 100.00% 172, 537,631 100.00%
Shareholder profile by category as at 31 December 2022
Category
Number of
holders
Percentage
of holders
within type
Shares held at
31 December
2022
Percentage
of issued
share capital
Private shareholders 457 61.34% 935,642 0.54%
Banks 2 0.27% 31,048 0.02%
Nominees and other institutional investors 286 38.39% 171,570,941 99.44%
Total 745 100.00% 172, 537,631 100.00%
Forward-looking statements
This Annual Report and Accounts contains statements that are, or may be deemed to be,
forward-looking statements. Forward-looking statements typically use terms such as ‘believes’,
‘projects’, ‘anticipates’, ‘expects’, ‘intends’, ‘plans’, ‘may’, ‘will’, ‘would’, ‘could’ or ‘should’ or similar
terminology. Any forward-looking statements in this Annual Report and Accounts are based
on our current expectations and, by their nature, forward-looking statements are subject to
a number of risks and uncertainties, many of which are beyond our control, that could cause
our actual results and performance to differ materially from any expected future results or
performance expressed or implied by any forward-looking statements. As a result, you are
cautioned not to place undue reliance on such forward-looking statements. Past performance
should not be taken as an indication or guarantee of future results, and no representation or
warranty, expressed or implied, is made regarding future performance. No assurances can
be given that the forward-looking statements in this Annual Report and Accounts will be
realised. We undertake no obligation to release the results of any revisions to any forward-
looking statements in this Annual Report and Accounts that may occur due to any change
initsexpectations or to reflect events or circumstances after the date of this announcement
andwe disclaim any such obligation.
248 Metro Bank PLC Annual Report and Accounts 2022
Metro Bank PLC
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