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9
Annual Report
& Accounts 2019
Our purpose
To create FANS
At Metro Bank we aspire to
revolutionise UK retail banking
by building a bank that puts
our customers first.
This is helping us achieve our
ambition to become Britain’s
best community bank – a bank
that is deeply rooted within
the communities we serve,
integrated with complementary
digital channels.
CONTENTS
Strategic report
01 Summary of the year
02 Chairman’s statement
03 Chief Executive Officer’s statement
06 Business model
10 Strategic priorities
12 Operating and market review
15 Financial review
18 Risk report
40 Our stakeholders
50 Workforce engagement
51
Non-financial information
statement
Governance
52 Corporate governance overview
54 Board of Directors
56 Corporate governance
64 Audit Committee report
71 Risk Oversight Committee report
75 Nomination Committee report
79 Remuneration Committee report
85 Remuneration at a glance
87 Annual report on remuneration
98 Our Remuneration Policy
107 Directors’ report
Financial statements
111 Independent auditors’ report to the
members of Metro Bank PLC
119 Consolidated statement of
comprehensive income
120 Consolidated balance sheet
121 Consolidated statement of changes
in equity
122 Consolidated cash flow statement
123 Company balance sheet
124 Company statement of changes
in equity
125 Company cash flow statement
126 Notes to the financial statements
Additional information
173 Country-by-country reporting
174 Independent auditors’ report to the
Directors of Metro Bank PLC on
country-by-country information
176 Other disclosures
177 Alternative performance measures
180 Shareholder information
MORE INFORMATION
metrobankonline.co.uk
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
01
Summary
of the year
Financial
Underlying (loss) before tax1
Statutory (loss) before tax
Loan to deposit ratio
£(11.7)m
Compared to profit of £50.0 million
in 2018
£(130.8)m
Compared to profit of £40.6 million
in 2018
101%
Compared to 91% in 2018
Assets
Deposits from customers
Loans and advances to customers
Underlying profit/(loss) before tax1
Statutory profit/(loss) before tax
2015
£6.1b
£5.1b
£3.5b
£(46.6)m
£(56.8)m
2016
£10.1b
£8.0b
£5.9b
£(11.7)m
£(17.2)m
2017
£16.4b
£11.7b
£9.6b
£20.8m
£18.7m
2018
£21.6b
£15.7b
£14.2b
2019
£21.4b
£14.5b
£14.7b
£50.0m
£(11.7)m
£40.6m
£(130.8)m
Year-on-year
% change
-1%
-8%
+3%
-123%
-422%
Strategic
• Increase in customer accounts to over 2.0 million,
up from 1.6 million at the start of the year
• Ranked top in the Competition and Market Authority
(‘CMA’) survey for personal current account overall
quality of service for the majority of 2019. Ranked first
for both in store and online and mobile banking services
in latest results2
• Launch of our new strategic priorities focusing on
– Costs
– Revenue
– Infrastructure
– Balance sheet optimisation
– Internal and external communications
Operational
• Opened six new stores, including expanding geographic
presence to Wales and northern England
• Launch of new initiatives for small and medium sized
businesses (‘SMEs’) including Business Insights – an
artificial intelligence tool to help them better understand
how they are using their money – and MCash, our cash
delivery and collection service
• Launch of first marketing campaign focusing on our
‘people-people’ banking
Service in stores2
84%
80%
71%
70%
69%
Online and mobile banking services2
85%
83%
83%
80%
79%
1. Underlying (loss)/profit before tax is an alternative performance measure (‘APM’) and excludes Listing Share Awards, impairment and write-off of property, plant & equipment (‘PPE’) and
intangible assets, net Banking Competition Remedies Limited (‘BCR’) costs, transformation costs and remediation costs when comparing to our statutory (loss)/profit. Further details on
our APMs are available on pages 177 to 179.
2. CMA results from February 2020.
Strategic reportGovernanceFinancial statementsAdditional information 02
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Chairman’s statement
Sir Michael Snyder
Chairman
2019 was the most challenging year that the
Bank faced since it was launched nearly 10
years ago. This included making a material
adjustment to our Risk Weighted Assets
(‘RWA’), periods of net deposit outflows
and a delayed senior MREL issuance.
These major challenges, together with
continued competitive pressures in the
residential mortgage market, resulted in
a difficult year. Whilst these events have
materially impacted our 2019 financial
performance and our share price, we have
retained a simple and resilient balance
sheet with a strong capital and liquidity
position, providing a solid foundation from
which to rebuild. The Board is conscious
of investors’ support during this period
and we are grateful for their patience.
The Board has been actively involved in our
thorough evaluation of the Bank’s strategy.
This revised strategy that we announced in
February recognises the need for change
and includes a number of initiatives to return
the Bank to profitability, whilst minimising
capital consumption. The Board will closely
monitor the implementation of this strategy
and work with management to improve
the financial performance of the Bank.
In addition, the Board has had active
oversight of the implementation of the
RWA remediation plan throughout the
year and will continue to do so until its
expected completion during 2020.
for their significant contribution on
behalf of the Board and colleagues.
I was appointed Chairman (on an interim
basis) in October, and was delighted
when Daniel Frumkin accepted the
position as CEO, bringing with him a
wealth of experience in retail banking.
Following my transition to Chairman,
Monique Melis was appointed as Senior
Independent Director (on an interim
basis). The Board’s active search for a
permanent Chairperson is progressing.
I also extend my thanks to the Non-Executive
Directors who have stood down from the
Board during the year: Lord Howard Flight;
Keith Carby; and Ben Gunn. Additionally,
Roger Farah stepped down from the Board in
March 2020, while Gene Lockhart and Stuart
Bernau will step down before the next AGM,
and will not stand for re-election.
The Directors and I continue to review
the composition of the Board to ensure it
remains diverse in terms of background,
skills and experience to support the strategic
direction of the Bank. We have welcomed
a number of new Non-Executives
Directors: Paul Thandi joined in January
2019; Michael Torpey joined in September
and Sally Clark joined in January 2020.
Each of these talented individuals bring
valuable experience and I look forward
to their continued contribution.
CHANGES TO BOARD COMPOSITION
Towards the end of the year, Vernon Hill
and Craig Donaldson separately decided
to step down from the Board as Chairman
and Chief Executive Officer respectively.
I would like to pay tribute to their vision
and dedication, through which Metro
Bank has grown to over 2 million
customer accounts and I thank them
REMUNERATION
In recent months we have been listening
to our shareholders in relation to the
revised Director’s Remuneration Policy, for
which we will seek approval at the AGM.
Our proposed policy continues to have a
simple, consistent remuneration structure.
Newly appointed Directors’ pension
contributions will now be aligned with or
lower than that available to the majority
of the wider workforce across the Bank.
Target variable remuneration has been
brought in line with market practice,
including an increase in the weighting of
financial performance measures. A formal
shareholding requirement has also been
introduced and we have formalised the
extension of the vesting of share options.
Together, these changes represent a
progression of our policy to reflect the
views of shareholders and best practice.
OUTSTANDING CUSTOMER SERVICE AT
THE HEART OF THE LOCAL
COMMUNITIES
Metro Bank stands out from the competition
by delivering outstanding service and
through active engagement with the local
communities in which we operate. This year
we’ve taken over 45,000 school children
through our Money Zone education
programme as well as holding over 2,500
charity and local business events. With many
of our competitors reducing their physical
footprint, we’re demonstrating our value in
the communities in which we operate and
I look forward to the continuing growth
of these activities as we move forward.
Every day we hear from our customers how
much they appreciate the exceptional level
of service we provide, the convenience
we offer and the enthusiasm of our
colleagues. Once again this has been
recognised in our strong performance in
the CMA Service Quality Survey, of which
everyone at the Bank is rightly proud.
Improving our product offering,
simplifying our processes by becoming
more channel efficient, focusing on
achieving cost efficiencies and proving
we are good stewards of shareholders’
capital will be critical in rebuilding trust
with our stakeholders and it remains the
focus of the Board for the year ahead.
The whole country is also facing an
unprecedented challenge as it responds
to COVID-19 and we are doing
our very best to protect our colleagues
and customers whilst continuing to
provide the very best customer service.
On behalf of the Board I would like to
recognise colleagues throughout the
Bank for their continued dedication,
to delivering outstanding service,
and thank them in advance for their
support in successfully implementing
the strategic changes announced.
Sir Michael Snyder
Chairman
16 April 2020
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
03
Chief Executive Officer’s statement
Daniel Frumkin
Chief Executive Officer
THE WAY FORWARD – ‘BECOMING THE
UK’S BEST COMMUNITY BANK’
Over the last six months, my management
team and I have worked with the Board
to evaluate a new strategy for Metro
Bank to enable it to deliver acceptable
returns for shareholders. The inherent
strengths of Metro Bank – AMAZEING
culture, AMAZEING colleagues,
AMAZEING customer service and a
history of generating meaningful retail
and SME deposit growth – provide
solid foundations for a straightforward
strategy where execution is key.
We have developed a set of strategic
priorities with the ambition of becoming
‘the UK’s best community bank’.
Community banking means being
embedded in the local communities
that we serve, ensuring local decision
making, providing access to simple and
straightforward retail, business banking
and corporate services that best meet
the needs of residents and businesses in
the surrounding area. However, to build a
platform that delivers acceptable returns
for our shareholders, we must reduce the
rate at which costs are growing, continue
to evolve our customer proposition,
invest efficiently in our infrastructure
and be more effective with how we use
our balance sheet to generate returns.
Our new strategy has these principles at
its core:
1) Cost-saving initiatives
Cost growth has outstripped revenue
growth and this cannot continue. Metro
Bank has invested heavily in its store
estate, creating a significant fixed, or
quasi-fixed, cost base. We have performed
a detailed store-by-store financial analysis
to consider whether it made economic
sense to close stores. It doesn’t. Our
stores are still growing and are more
profitable tomorrow than today – and
they provide a significant untapped
potential as a distribution channel.
There are another group of costs that
are driven by the operations of the
business. These processing costs,
including things like payment processing,
credit card processing, etc. are mostly
volume driven and bound by existing
contracts. Another difficult area for
reducing costs over the short term.
The remaining costs, the addressable
costs, are made up of non-store
colleague costs, non-store lease
costs and non-store operations.
I was delighted to join Metro Bank
in September 2019, initially as Chief
Transformation Officer and now as Chief
Executive Officer. I would like to begin
by extending my deepest thanks to all
the Metro Bank colleagues who have
welcomed me and, more importantly,
have kept customer focus at the heart of
all we do, even during a challenging year.
BUILDING ON OUR STRENGTHS
In many ways, the response to the
challenges of 2019 has demonstrated
the underlying resilience of Metro Bank.
The core strength of Metro Bank has
been, and will remain, an AMAZEING
group of colleagues who are tirelessly
focused on customer service. It is our
colleagues who will ensure Metro
Bank achieves its ambition to become
the UK’s best community bank.
The CMA results, where Metro Bank
was rated number one for store service
and number one for mobile and online
banking, is external validation of what I
have learned over the last few months
– Metro Bank is completely focused on
its customers. The ratings also show the
commitment of Metro Bank to providing
full-service community banking, in-
store, online and over the phone.
The energy expended to surprise and
delight customers has continued to
create FANS, even during a difficult 2019.
Customer accounts grew almost 25% with
385,000 new accounts opened during
the year, bringing total accounts to more
than 2 million. In addition, retail customer
deposit balances grew 33% in the year
and SME customer balances were up 3%.
Our community banking philosophy
and ‘clicks and bricks’ model, combined
with an exceptional level of service
resonates well with customers, and we
continue to be successful in growing
the number of personal and business
current accounts. Also, in our current
heartland of London and the South East,
the number of SME business current
account switchers choosing Metro
Bank remained strong in 2019 at 15%1.
We’re absolutely committed to
bringing market-leading service to
SMEs and injecting more competition
into the market, and we have already
demonstrated our success in deploying
Capability & Innovation (‘C&I’) funds to
date. For example, in 2019, Metro Bank
launched Business Insights – an in-app
account insights tool for SMEs, MCash
– an on-demand cash collection and
delivery service, and opened its first store
in the North, in Manchester. In February
2020, we agreed a revised business case
with BCR whereby we have aligned Metro
Bank’s public commitments with our
new strategy, and will return £50 million
of the original £120 million we were
awarded. Looking forward, with a reduced
amount of £70 million, alongside Metro
Bank’s own investment of c.£140 million,
the Bank will continue to transform the
SME experience – through its market-
leading service proposition, 15 new
stores opening in the North of England
and continued investment in its digital
capabilities. With BCR’s agreement,
we’re pleased to have been able to forge
a new plan which delivers for SMEs
and aligns with our new strategy.
1. Banking from Savanta, Survey Period: Q2-Q4 2020. Main bank for business banking – Switching Gains based upon 345
respondents of which 71 were in London and the South East. Data is weighted by region and turnover to be representative
of businesses in GB.
Strategic reportGovernanceFinancial statementsAdditional information
04
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Chief Executive
Officer’s statement
continued
People-people
banking
As part of our evolving brand strategy
in 2020 we launched our first brand
campaign, celebrating our long-
standing belief in ‘people-people
banking’.
The campaign – delivered through
out-of-home advertising, cinema and
online video as well as paid search – is
built on our philosophy that, whatever
happens in the future of banking,
people need people and value human
relationships.
The adverts featured six colleagues –
identified via an internal talent search
– who embody the spirit of ‘people-
people banking’.
The campaign has given us an exciting
platform to communicate our
differentiated position and showcase
our award-winning customer service
credentials and over the course of the
first three months in 2020 was
displayed in more than 2,000
placements across 77 out-of-home
locations close to our stores as well as
appearing in around 400 cinemas.
To effectively control these expenses,
plans are in place to revisit our non-store
property leases, especially in central
London. In addition, the infrastructure
investment in the plan includes several
initiatives that allows Metro Bank to
scale more effectively. This includes
new digital self-service functionality,
more straight through processing
and new call centre infrastructure.
We expect low single-digit ‘run the Bank’
cost compounded annual growth rate
(‘CAGR’) 2020 to 2024, allowing our
total cost:income ratio to fall to 70-75%
by 2024. To enable this objective, and
the Bank’s strategic objectives, we will
spend £250-£300 million of new opex
investment (excluding depreciation
and amortisation) and c.£100 million
of capex, front-end loaded.
We have started to show our ability to
moderate costs with sequential reductions
in the pace of cost growth through
2019, and our revised agreement with
BCR will allow us to become more cost
efficient quicker while continuing to
deliver for SMEs. This gives me great
confidence that we can deliver our clear
initiatives within the stated timeframe.
While there are a number of
initiatives to contain costs, improving
shareholder returns is a revenue story.
It is about creating scale through
deposit and revenue growth while
holding costs and investments.
2) Revenue initiatives
There is significant opportunity to
grow revenue at Metro Bank, through
building stronger relationships with
our existing customers, continuing
to attract more people to our stores,
embedding ourselves in more
communities in the UK, continuing to
invest in our number one rated digital
offering and to upgrade our telephony
infrastructure. This is a bricks, clicks and
phone strategy that will drive revenue.
We need to deepen relationships with
our customers by improving the range
of our products and their availability
through new and existing channels.
For example, we intend to meet more
customer needs by offering a broader
range of unsecured customer loans, SME
lending products, business and personal
credit cards and niche mortgages, all
while maintaining our disciplined attitude
towards underwriting. This is an area
Metro Bank has not previously focused on,
evidenced by the fact that we currently
arrange an average of two unsecured
personal loans per store per month
and only 3% of our Personal Current
Account base hold our credit cards.
It also aligns perfectly with our customer
service ethos; by meeting more customer
needs, we create more FANS. We will
also build on Metro Bank’s great strength
of winning new customers and I believe
that there is a significant opportunity
to enhance footfall conversion in
stores. We will do this by developing
more effective in-store processes
and improving colleague training.
Whilst we have grown our deposits at
a CAGR of 30% over the last five years,
our strategy conservatively budgets
significantly lower deposit growth over
the next five years. In addition, 2020 has
the lowest deposit growth forecast of
any year in the plan and is only 25% of
our annual deposit growth in 2018, even
though Metro Bank has six more stores.
Revenue growth is predicated on doing
more with what we already have. The
growth does not rely on significant store
growth, although the plan does allow us to
open a limited number of new stores. This
includes six stores in 2020 and a further
18 between 2021-2024 including our
revised C&I commitment. This will give us
the opportunity to embed Metro Bank in
more communities and bring our award-
winning proposition closer to more people.
3) Infrastructure
We need to continue to build our number
one service propositions in store and
digital to ensure we continue to offer
the best channel experience in an
efficient way. To enable this, we need
to continue to invest in our digital and
physical infrastructure to deliver process
improvements and enhance our core
capabilities. We will continue to invest in
stores, but in a more cost-efficient way –
our new stores will be flexible in both size
and design and we’ll aim to streamline
and improve in-store processes. We’ll also
grow our digital service offering and build
out customer self-service opportunities.
By pivoting towards greater automation
we will improve our speed to market
and streamline back-office functions.
It’s important that all of this is done
whilst also enhancing our internal
capabilities and resilience. This will be
executed through investment in cyber
resilience as well as investment in core
risk systems such as financial crime
infrastructure. We will of course continue
investment in our core IT systems to
ensure that we keep pace with the
ever-changing regulatory agenda.
4) Balance sheet optimisation
Metro Bank has not focused on risk-
adjusted return on regulatory capital as
much as is required to drive adequate
returns to shareholders. Focusing on risk-
adjusted returns and growth in tangible
book value will allow better planning
decisions to be made going forward and
deliver more value to shareholders.
Business lines, portfolios and investments
will be reviewed based on the above
discipline on an ongoing basis.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
05
We will sell assets, securitise portfolios
and rethink investment spend as
necessary to ensure we are maximising
the return on the balance sheet.
The loan portfolio composition will
shift over the life of the plan. Unsecured
credit will be offered to SME and retail
customers, applying risk-based pricing.
Niche mortgage lending will become a
larger share of our mortgage operations
and commercial lending to our valued
customers will continue to grow.
5) Internal and external communications
I am pleased that we have launched
our first marketing campaign – people-
people Banking – which showcases
our incredible colleagues and helps
customers and potential customers to
understand Metro Bank’s differentiators.
We will set realistic expectations of the
future direction of Metro Bank and update
on progress in a timely manner. For our
colleagues, we will continue to provide
full transparency to help inform and equip
them to fulfil their roles and maintain
our already high levels of engagement.
A CHALLENGING 2019
Last year, we faced headwinds from
industry-wide competitive pressures, an
evolving regulatory landscape, continued
low interest rates and political uncertainty
from Brexit. While these external
challenges have dampened returns
across the broader sector, Metro Bank
faced specific challenges that impacted
growth and profitability. These have been
well trailed in previous announcements,
and management undertook prudent
steps to manage our capital and liquidity
positions in response. Although these
actions have impacted on profitability
in the short to medium term, we enter
2020 with a resilient balance sheet, loyal
FANS and a committed colleague base.
Our colleagues have shown incredible
commitment to serving our customers
into 2020 in the face of disruption caused
by the COVID-19 threat and we will do
everything in our power to meet customer
needs through our various channels.
In closing, it would be remiss not to
thank Vernon Hill and Craig Donaldson
for all they have done for Metro Bank
since it opened the doors to its first
store 10 years ago. I truly appreciate
the AMAZEING colleagues they have
recruited into the business. It is these
colleagues that give me confidence
in the future of Metro Bank.
Daniel Frumkin
Chief Executive Officer
16 April 2020
Our purpose, values and strategy
Our ambition
• To become the UK’s best
community bank
Achieved through
Our purpose
• To create FANS
Delivered via
Our business
model
• Unique culture
• Integrated model
• Low cost deposits
• Risk-adjusted returns
Supported by
Our strategic
priorities
• Cost control
• Revenue growth
• Infrastructure investment
• Balance sheet optimisation
• Improved internal
and external communications
Underpinned by
Our AMAZEING
values
• Attend to everyday detail
• Make every wrong right
• Ask if you’re not sure
– bump it up!
• Zest is contagious, share it!
• Exceed expectations
• Inspire colleagues to create FANS!
• Nurture colleagues
so they grow
• Game-change because this
is a revolution
Strategic reportGovernanceFinancial statementsAdditional information
06
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Business model
How we aim to create value
Inputs
METRO BANK BRAND
Our exceptional level of service
resonates well with our customers,
creating FANS who share their positive
experiences with their friends and
families. This delivers a strong brand
awareness in our current heartland of
London and the South East, recently
supported by our ‘people-people
banking’ advertising campaign in
locations close to our stores.
INTEGRATED PHYSICAL AND DIGITAL
DELIVERY
Our integrated ‘bricks and clicks’
offering provides our retail customers
with a truly differentiated level
of service. Our network of 75
stores places us at the centre of
communities, giving customers a
face-to-face connection with our
exceptional colleagues. Stores are
open 362 days a year, 7 days a week
and early ‘til late, while our mobile
and online capability offers the
convenience of banking when and
where our customers choose.
CUSTOMER CENTRIC CULTURE
Our colleagues are focused on
delivering superior service and creating
FANS. 80% of store managers and
75% of assistant store managers
have been promoted from within,
demonstrating the loyalty of our team
members and their dedication to the
success of the Bank. Our colleagues
are at the heart of people-people
banking and will drive us to become
the UK’s best community bank.
For more information go to page 44
RISK MANAGEMENT
AND GOVERNANCE
Our approach is underpinned by
strong risk management as well as a
renewed emphasis on governance
over the course of 2019. As at
31 December 2019, the majority
of the Board was independent.
For more information see the risk report
on pages 18 to 39 and governance report
on pages 52 to 110
c.90%1
Brand awareness
Our unique, integrated and
disruptive approach to become
the UK’s best community bank
45%
of current account
holders used stores
and digital in the last
90 days
INVESTING
IN...
80%
of store managers are
promoted from within
UNIQUE
CULTURE
For more
information
go to page 8
It’s all about
creating FANS...
INTEGRATED
MODEL
For more
information
go to page 8
1. YouGov plc, brand
awareness survey. Total
sample size in London was
1,014 adults. Fieldwork was
undertaken between
27-29 January 2020. The
figures have been weighted
and are representative of all
London adults (aged 18+).
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
07
Outputs
FANS
We have more customers than
ever before, with customer
accounts exceeding 2
million at the end of 2019.
No. 1
for service in store and
mobile banking in the
latest CMA ranking
LONG-TERM
VALUE AND
TANGIBLE BOOK
GROWTH
FEE AND OTHER INCOME
Delivered strong growth in
non-interest income, benefiting
from our increasing number of
customers and deepening the
relationship we have with them.
+43%
growth in underlying fee
and other income
RISK-ADJUSTED
RETURNS
For more
information
go to page 9
DEPOSITS
Deposits from personal and small
business customers continued
to grow, demonstrating
resilience throughout the
year, despite challenges in
other customer segments.
+33%
growth in retail customer
deposits (excluding retail
partnerships)
...and
generating
sustainable
value
CREATES
FANS &
FANS BRING...
LOW-COST
DEPOSITS
For more
information
go to page 9
Stakeholder outcomes
FANS
We were delighted that our
service continues to be
recognised in the CMA rankings.
We were ranked top for service in
stores as well as our mobile and
online services. We were also
second overall for both retail and
business current account service.
COLLEAGUES
92% of colleagues think Metro
Bank is a great place to work.
COMMUNITIES
We hosted 2,500 community and
charity events in store in 2019,
as well as taking 45,000 school
children through our Money
Zone education programme.
For more information
go to page 46
Strategic reportGovernanceFinancial statementsAdditional information 08
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Business model continued
How we become the UK’s
best community bank
In order to achieve our ambition of becoming the UK’s best
community bank we are focused on the four components
of our business model.
Unique culture
Integrated model
Our colleagues deliver superior service and are at the heart
of our people-people banking approach.
Our integrated model aims to combine delivery through
physical and digital channels.
Progress in 2019
Progress in 2019
• Undertook our first brand campaign focusing on ‘people-
• Opened six new stores, expanding into new geographies
people’ banking and featuring six colleagues
in the Midlands and Northern England
• We were ranked top for service in stores in the latest CMA
survey results
KPI
• Launched several new digital initiatives including MCash,
the new on-demand cash collection and delivery service,
and Business Insights, the artificial intelligence-led, in-app
account insights tool for business customers
• Grew customer accounts to over 2 million from 1.6 million
in 2018
KPI
92% (2018: 96%)
of colleagues think Metro Bank is a great place to work in our
annual voice of the colleague survey
2.0m (2018: 1.6m)
Number of accounts
Link to relevant risk
Link to relevant risk
2 Operational risk
7 Conduct risk
9 Strategic risk1
For more information go to pages 18 to 39
Link to remuneration
D People
Link to remuneration
A Customer accounts (financial)
C Customers
For more information go to page 85
For more information go to page 85
1. Strategic risk is a combination of our eight principal risks and therefore
not assessed separately in the Risk report.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
09
Low-cost
deposits
Risk-adjusted
returns
We seek to attract low-cost deposits through our service-
led community banking model with specific emphasis on
our core retail and SME franchise.
We seek to balance our lending mix through a broad yet
simple product offering that is priced proportionate to risk.
Progress in 2019
Progress in 2019
• Despite overall deposits outflows in the first half of the
• Sale of previously acquired mortgage portfolio
year, retail and SME deposits continued to grow
• Low-cost personal and business current accounts reached
over 1 million accounts
• Reduction in growth of high risk-weighted lending with
commercial loans from 31% of the portfolio at
31 December 2018 to 28% at the year end
KPI
78bps (2018: 61bps)
Cost of deposits
KPI
8bps (2018: 7bps)
Cost of risk
Link to relevant risk
Link to relevant risk
3 Funding and liquidity risk
4 Market risk
1 Credit risk
6 Regulatory risk
5 Financial crime
6 Regulatory risk
4 Market risk
8 Model risk
For more information go to pages 18 to 39
For more information go to pages 18 to 39
Link to remuneration
Link to remuneration
A Deposit performance (financial)
A Lending performance (financial) B Risk
For more information go to page 85
For more information go to page 85
Strategic reportGovernanceFinancial statementsAdditional information 10
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Strategic priorities
How we execute
our strategy
In order to be able to deliver our strategy and our 2024 targets we need
to focus on five key strategic priorities, which are detailed below.
Initiatives
Details
Costs
Tight cost control through back-office
efficiencies, organisational simplification
and disciplined property footprint
• Fixed costs are a significant portion of our cost base, primarily due to the store
network; this in time will deliver significant operating leverage as revenues
increase.
• A range of initiatives are in place to ensure cost growth continues to moderate.
– New stores will become more cost efficient and flexible in size, fit-out and
leasing terms.
– Back-office operations relocating to cost-effective locations; modernising
contact-centre technology; digitising/automating services; and reducing
organisational layers.
Revenue
Meeting more customer needs and
development of new capabilities
• Leading customer service proposition maintained and improved through
deepening existing relationships and attracting new FANS, thereby driving
revenue and margin growth.
• Current product offering will be enhanced and broadened, while investing in our
colleagues and technology to enhance accessibility for customers.
• A limited number of new stores will be opened over the next few years, allowing
us to be embedded in more communities.
• Existing and new stores will benefit from the ‘people-people’ banking marketing
campaign which will raise awareness of the Bank’s award-winning service.
Infrastructure
Investment in integrated channels and
core infrastructure
• Continued investment in the Bank’s leading customer proposition with the aim of
bringing the physical and digital world together, making life easier for our FANS
and colleagues.
• Underpinned by further investment in technology, finance and risk infrastructure.
Balance sheet
optimisation
Enhanced focus on risk-adjusted returns
and growing tangible book value
• Optimise balance sheet and asset mix whilst focusing on risk adjusted return on
capital.
•
In the short term, tactical asset disposals will be considered, and in the longer
term a number of funding diversification options will be considered to deliver
greater risk-adjusted returns on capital.
• Seeking a better yielding asset book and improved returns by rebalancing lending
mix towards areas such as niche mortgages, SMEs and unsecured loans.
Internal and
external
communication
Improve our approach to engagement
• Focus on providing colleagues, shareholders and other stakeholders with a clear
message.
• Ensure colleagues have a clear understanding of the transformation plan and
their role within this.
• Re-evaluating guidance, KPIs, tone and frequency of reporting.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
11
Deposits
Targets 2024
Guidance
Growth
Loan to deposit ratio
Cost of deposits
<10% CAGR 2020-2024
<100%
To reduce over time
as the mix of current
accounts increases
Revenue
NIM + fees
Cost of risk
Target lending mix
NIM expansion vs. 2019
15-30bps
Fee and other income to
increase as proportion of
revenue mix
75% Mortgages
20% SME
5% Unsecured
Operating
costs
New investment spend
Cost:income ratio
Growth
£250-£300 million opex1
and c.£100 million capex
by 2024, front-end
loaded
70-75% by 2024
(including new
investment spend,
depreciation
and amortisation)
Low single-digit
CAGR 2020-2024
Capital
Capital ratios
MREL issuance
MREL issuance
Minimum 12% CET1
>20.5% TCR + MREL2
Up to £300 million before
1 January 20222
Additional issuance post
January 2022 in line with
regulatory requirements
>8.5% Statutory RoTE by 2024
1. Excludes depreciation and amortisation.
2. MREL issuance revised to £300 million from £500 million following the reduction in the countercyclical buffer to 0% from 1% (previously expected to increase to 2% in
December 2020). All other assumptions remain unchanged.
Strategic reportGovernanceFinancial statementsAdditional information 12
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Operating and
market review
INDUSTRY TRENDS
UK banks’ net interest margins have come
under pressure in 2019, largely reflecting
sustained competition in the residential
mortgage market and the prolonged
period of low interest rates. Larger
competitors that fall within the scope
of ring-fencing legislation implemented
the regime in the second half of 2018,
separating retail banking from international
and investment banking activities. The
excess retail funding and liquidity this
created in the UK banking system has
driven sustained competition in certain
retail lending segments, particularly in the
low loan-to-value parts of the residential
mortgage market. This has resulted in
lower yields on mortgages, with some
smaller lenders choosing to exit the market
during the year and others stepping back to
prioritise margin over volume and market
share. The UK has also experienced a
period of historically low interest rates,
with the Bank of England (‘BOE’) base rate
below 1% for the last 10 years. For many
financial institutions, including ourselves,
net interest margins have remained under
pressure as the scope for further reducing
funding costs is limited, while overall
lending yields have continued to remain
low and in some areas of the market,
such as mortgages, yields have reduced.
In response to these earnings pressures
we have targeted other revenue
generating opportunities, primarily growth
in non-interest income through the
delivery of value-added services. Among
other initiatives, we launched an in-app
Business Insights tool, made trade finance
and foreign currency enhancements
and introduced a mobile cash collection
and drop-off service for SMEs. Alongside
these actions, we have also implemented
changes to safety deposit box pricing and
optimised transaction fees from business
debit cards, in total delivering an increase
in fee and other income in the year. We
will continue to invest in new services
and products, deepening the relationship
with business and personal customers.
2019 saw credit losses remain at recent
lows. A number of mid-sized lenders
are reassessing their appetite for growth
in certain higher-yielding lending
categories as a way to improve earnings,
for example by growing their exposure
to higher loan-to-value mortgages,
SMEs, or unsecured consumer lending.
CAPITAL AND FUNDING
UK banks have made significant progress
in implementing host jurisdiction
requirements under the European Union’s
Banking Recovery and Resolution Directive
(‘BRRD’), designed to allow authorities to
resolve a financial institution in an orderly
manner without exposing the taxpayer to
loss. Institutions subject to BRRD are also
required to meet minimum requirements
for own funds and eligible liabilities (‘MREL’).
UK financial institutions, including ourselves,
with total assets greater than £15 billion
are subject to the most stringent MREL
requirements defined under the ‘bail-in’
stabilisation power. The BOE adopted
a transitional period, with an interim
requirement from 1 January 2020 equal
to 18% of RWAs plus regulatory buffers.
End-state requirements are effective from
1 January 2022 and for ‘bail-in’ banks are
equal to two times its Pillar 1 and Pillar
2A requirement, plus regulatory buffers.
Furthermore, UK resolution entities subject
to a bail-in strategy are required to have
MREL resources subordinated to operating
liabilities using structural subordination,
the timing of which coincides with
the end-state MREL requirements.
In order to comply with interim MREL
requirements by 1 January 2020 we issued
£350 million of MREL qualifying senior
non-preferred debt in October 2019.
Our total capital plus MREL resources at
31 December 2019 was £2,018 million
with a ratio of 22.1% of RWAs, exceeding
the minimum 21.5% interim requirement
at 31 December 2019. The minimum
requirement was subsequently reduced
to 20.5% in March 2020.
RWA densities across the UK banking
system remain wide-ranging, driven by
the differences between the advanced
internal modelling approach (‘AIRB’) and
the standardised approach for calculating
credit risk. We continue to progress our
AIRB application and continue to engage
with the Prudential Regulation Authority
(‘PRA’) on this iterative and detailed
project. Alongside other small and
mid-sized banks, we continue to hold
proportionately more capital within Pillar 1
compared to the larger incumbent banks.
In aggregate, UK banks have drawn over
£127 billion under the BOE Term Funding
Scheme (‘TFS’), which was introduced in
August 2016 and designed to ensure the
pass-through to the wider economy of
the reduction in the base rate at the time.
The Scheme closed to new drawdowns in
February 2018 and given that banks were
able to borrow funds for up to four years,
the first drawdowns are due for contractual
repayment in 2020. In advance of this,
some banks began repaying TFS ahead
of contractual maturities during 2019. We
held £3.8 billion of TFS at 31 December
2019, with the majority of contractual
repayments due in 2021. We are currently
holding excess liquidity as a buffer for TFS
repayment, which will be utilised alongside
deposit growth and the pay-down or
sale of non-LCR qualifying investment
securities. This is currently under review
in light of measures announced by the
BOE in March 2020, which included a
new funding scheme, the TFSME.
REGULATORY CHANGE
Increased focus from regulatory authorities
is expected in the year ahead on a
number of consumer topics, including
the impact of high cost overdrafts and
vulnerable customers. In 2019 we made
a provision of £12 million for customer
remediation, which predominately
relates to non-compliance with certain
requirements to provide SMS warning
alerts to customers regarding overdraft
charges. The error was subsequently
corrected, and the CMA was informed. We
pride ourselves on providing exceptional
levels of service and we regret the impact
on customers; any related charges will
be refunded during the course of 2020.
Increased focus from regulatory
authorities is expected in the year
ahead on a number of consumer
topics, including the impact of high cost
overdrafts and vulnerable customers. We
are working to ensure that our continuous
focus on delivering exceptional service
and treating customers fairly limits the
impact of new regulations in this area.
Open banking continues to drive
regulatory changes with third-party
developers and firms building applications
and services providing opportunities
for more efficient and transparent
banking. Regulators are mindful of the
benefits whilst recognising the various
challenges, such as risks to business
models and reputation, and issues
regarding data privacy, cyber security
and third-party risk management.
The new lease accounting standard, IFRS
16, was implemented on 1 January 2019,
requiring certain types of lease to be
recognised on the balance sheet. Given the
relatively young life of our store and office
property portfolio, the introduction of this
standard has had a proportionally greater
impact on us compared to our peers. At
the start of the year this added £313 million
to RWAs and resulted in a £13 million net
charge to underlying profit in the period.
However, the impact on profitability will
reduce over time as the leases mature.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
13
CAPABILITY & INNOVATION FUNDING
In February 2020, we agreed a revised
business case with BCR whereby we
have aligned our public commitments
with our new strategy, and will return
£50 million of the original £120 million
awarded. Looking ahead, with a reduced
amount of £70 million, alongside our
own investment of c.£140 million, we will
continue to transform the SME banking
experience, with our market-leading
service proposition, 15 new stores in
the North of England and continued
investment in digital capabilities.
EVOLUTION IN DIGITAL BANKING
We benefit from modern IT infrastructure
comprised of a limited number of systems
that form a scalable, flexible, reliable and
secure platform. The platform is crucial
to our service proposition, including the
ability to open accounts in a matter of
minutes and the opportunity to deliver
valuable insights to customers across
their accounts using real-time analytics.
During the year our core banking
system was successfully upgraded,
providing increased business capability
and operational resiliency to enable the
roll out of new services, particularly to
support our SME offering. Our digital
environment and the deployment of
micro-service architecture makes us an
attractive partner for Fintech providers
through API-enabled integrations. In
conjunction with Personetics, an Israeli
Fintech, we launched Business Insights,
a powerful artificial intelligence-led, in-
app tool empowering SME customers
to make more data-driven decisions.
Our app-based receipt management
technology, also launched this year via
beta trial and developed with Sensibill
of Canada, supports small businesses to
drive efficiency through automatically
reconciling their transaction history.
In 2020 we will continue to bring game-
changing innovation to small businesses,
with new technologies to improve
the essential daily tasks of invoicing,
receipt management, bookkeeping and
completing VAT returns. This functionality
will be intuitively embedded into our
mobile app and online banking, and also
interface with cloud accounting providers.
CONSUMER BEHAVIOUR
The largest UK banks have continued
to close branches in an effort to reduce
their sizable networks costs. Further
announcements of closures are typically
met with a negative response from their
customers and the media, as impacted
customers are compelled to travel further
to benefit from face-to-face services. In
contrast, we opened six new stores in
2019 with further openings planned for
2020, with significantly longer opening
hours than other banks on the high street.
Customers continue to value our store
network, with 45% of current account
holders using physical and digital channels
in an average three-month period.
We continued to attract SME accounts,
with 15%1 of business switchers in the
South East choosing us in 2019. The
BCR Incentivised Switching Scheme
has delivered fewer accounts than
anticipated, although it is believed we
are taking a proportionate share of those
choosing to switch through the scheme.
MACRO TRENDS
We are a largely real estate backed lender
operating in the UK, with personal and SME
customers active in the domestic market.
Growth in the wider UK economy was
relatively benign during the year, impacted
by the ongoing uncertainty surrounding
Brexit and the effect of the general election
called in the fourth quarter.
House prices have also remained broadly
stable both nationally and in London
and the South East, where we have the
majority of our mortgage exposure,
recording only modest growth during
the year. Employment and average
household incomes continued to be
bright spots in the economy, with
unemployment continuing to track
historic lows and income growth trending
positively. These factors, combined with
the low interest rate environment and
our prudent approach to underwriting,
resulted in low credit losses in the year.
The start of 2020 has seen increased
economic uncertainty as a result of the
COVID-19 situation, however we will
continue to focus on our strategic
objective of improving our risk-adjusted
return.
PRA AND FCA INVESTIGATIONS INTO
THE RWA ADJUSTMENT AND AIRB
ACCREDITATION
In January 2019 we announced that we
had adjusted the risk weighting of certain
commercial loans secured on commercial
property and certain specialist buy-to-
let loans that had the combined effect
of increasing our risk-weighted assets
by £900 million (‘RWA Adjustment’).
1. Banking from Savanta, Survey Period: Q2-Q4 2020. Main
bank for business banking – Switching Gains based upon
345 respondents of which 71 were in London and the
South East. Data is weighted by region and turnover to be
representative of businesses in GB.
The PRA and Financial Conduct Authority
(‘FCA’) are independently investigating
the circumstances and events that led
to the RWA adjustment. The FCA is also
investigating disclosure relating to our
application for AIRB accreditation.
We are satisfied that the risk weightings
have now been assigned properly.
We are continuing to work on
further enhancements to our
systems and controls.
We continue to fully co-operate with
our regulators in all respects.
SANCTIONS
In November 2017, on the advice of
external legal counsel, we notified the
Office of Foreign Assets Control of the
United States Treasury Department
(‘OFAC’) that we had discovered that a
UK-based entity with which we had a
banking relationship was subject to US
sanctions relating to Cuba. We ended
our relationship with the relevant entity.
In addition, in 2019 we discovered
that a payment made to one of our
customer’s accounts, which had been
received from a UK-based financial
institution, had been routed to the UK-
based financial institution from Iran. A
further notification was made to OFAC.
We have initiated a review of the
foregoing matters together with a review
of our broader sanctions compliance
and transaction monitoring policies
and procedures with the support of
external advisors, which is still ongoing.
Metro Bank continues to fully co-
operate with its regulators in relation
to any enquiries in this regard.
OUR STRATEGY
We are a different kind of high street
bank, with outstanding customer
service and convenience delivered by
outstanding colleagues across a range
of distribution channels at the core of
our strategy. We had growth of 385,000
customer accounts in the year, which
demonstrates that our business model
continues to resonate with customers.
Our service has once again been
recognised by our customers in the
latest CMA Service Quality Survey.
Our objective to become the UK’s
best community bank is built on firm
foundations: robust capital and liquidity;
strong asset quality; simple balance
sheet; sector-leading customer service
underpinned by a strong culture and
engaged colleagues; and customer
account growth momentum. Community
Strategic reportGovernanceFinancial statementsAdditional information
14
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Operating and
market review
continued
banking means being embedded in the
local communities that we serve, ensuring
local decision-making, providing access
to simple and straightforward retail,
business banking and corporate services
that best meet the needs of residents
and businesses in the surrounding area.
AN INTEGRATED MODEL
We believe in making life easier for our
customers and our colleagues by investing
to bring the physical and digital world
together. This is highlighted by the fact
that we have been recognised by our
customers as the highest rated bank for
both service in stores, as well as online and
mobile banking services in the CMA Service
Quality Survey published in February 2020.
For us, having a physical estate
combined with a digital offering is a key
differentiator and hugely valuable to
our customer proposition. In 2019 we
continued to invest in enhancing our
digital offering with the launch of new
services including Business Insights, our
artificial intelligence-led, in-app account
insights tool, which enables businesses
to make more data-driven decisions
and manage their cashflows better.
We are committed to collaborating
with UK SMEs by embedding them into
the products and services we offer. In
October we signed a trio of fintech and
SME partnerships with Funding Options,
Conance and Due Dil to enhance our
business banking offering and also later
in the year launched MCash, which
allows business customers to log on to
our app and order cash for pick-up
and/or drop-off at their convenience.
In 2019 we opened six new stores.
These included the opening of a store
in Manchester, our first in the North.
Looking ahead, we will continue to
invest in enhancing our infrastructure
and supporting our community
banking model, through a fully
integrated ‘bricks and clicks’ model.
AMAZEING COLLEAGUES
We are proud of having culture at the
heart of everything we do; creating a
truly differentiated approach to banking
cannot be achieved without the right
people and attitude. It is colleagues and
their interactions with customers that
will ensure we realise our ambition to
become the UK’s best community bank.
Our colleagues deliver superior service
and are at the heart of our people-
people banking. We now have over 3,500
colleagues, of which 92% believe that we
are a great place to work. Their dedication
to the Bank is also reflected in our internal
promotion statistics, with 80% of our store
managers and 75% of our assistant store
managers hired from within. By investing
in our colleagues we are ensuring
that we will continue to offer a truly
differentiated experience in UK banking.
During 2019 we also expanded our
work in communities. Our colleagues
taught over 45,000 school children
about money by hosting over 1,500
Money Zones, our financial education
programme. We also supported our
charity partner, Teenage Cancer Trust,
with colleagues raising over £100,000
for this important cause during the year.
LOW-COST DEPOSIT LED BANKING
Our exceptional customer service has
continued to delight our FANS and this
is reflected in the 385,000 increase
in customer accounts, which ended
the year at over 2 million. As well as
delivering account growth, we also
have a proven ability to grow total
deposits, with 30% CAGR over the last
five years, including growth in personal
and business current accounts which
are largely non-interest bearing. At
just under a third of our total deposits,
these non-interest bearing liabilities are
a key element of our funding model.
Through our colleagues’ continued focus
on exceeding the expectations of our
customers, increasing the convenience of
accessing our services such as Business
Current Account opening online, we will
continue to drive up the proportion of
current accounts within our deposit mix.
Our pricing on retail fixed term deposit
accounts was elevated as we took action
to drive deposit momentum in the second
half of 2019. Our front-book rates on
these accounts have now normalised
as we moved into 2020, supporting a
lower average cost of deposits in future.
COST INITIATIVES
Our fixed costs make up a significant
portion of our cost base, primarily due
to significant investment in the store
network. Every one of our stores is still
growing and this fixed cost base will,
in time, deliver significant operating
leverage. In the meantime, we have
initiatives in place to ensure ‘run the Bank’
cost growth continues to moderate. We
will streamline back-office operations
by relocating to cost-effective locations;
modernise our contact-centre; scale
more efficiently through investment
in technology to digitise services; and
move to reduce organisational layers
across the Bank while reducing our
use of consultants and contractors.
REVENUE INITIATIVES
Key to driving revenue growth is in
leveraging our fixed cost base. We
will maintain and improve our leading
customer service to both deepen existing
relationships and attract new FANS to
drive revenue and margin growth. The
current product offering will be enhanced
and broadened; these will include a
wider range of unsecured customer
loans, SME lending products, credit
cards, niche mortgages and overdrafts.
We will also develop a broader range of
savings products and work with partners
to offer new services. We will invest in
colleague training and technology to
enhance accessibility for customers and
improved credit scoring. The potential
for growth is considerable, for example
only 3% of our personal current account
customers hold a Metro Bank credit card.
A limited number of new stores will be
opened over the next few years, allowing
us to be embedded in more communities.
INFRASTRUCTURE INVESTMENT
We will continue to invest in our leading
customer proposition with the aim of
bringing the physical and digital world
together, making life easier for FANS and
colleagues. This will be underpinned
by further investment in technology,
finance and risk infrastructure.
BALANCE SHEET OPTIMISATION
We will optimise our balance sheet
and asset mix whilst focusing on
risk-adjusted return on regulatory
capital. In the short term, tactical asset
disposals will be considered, and in
the longer term a number of funding
diversification options will be considered
to deliver greater risk-adjusted returns
on capital. We will seek a better yielding
asset book and improved returns on
regulatory capital by rebalancing our
lending mix towards higher-yielding
segments such as specialist mortgages,
SMEs and unsecured loans.
COMMUNICATIONS
Our strategy will focus on providing
colleagues, shareholders and other
stakeholders with a clear message.
We will ensure colleagues have a clear
understanding of our transformation
plan and their role within this. Externally,
we are re-evaluating guidance, KPIs,
tone and frequency of reporting.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
15
Financial review
performing credit portfolios and a robust
capital and liquidity position stand us
in good stead as we enter 2020.
2019 was a strong year for customer
acquisition, with the number of customer
accounts growing to 2.0 million
from 1.6 million at year-end 2018.
The challenges we have faced this year
are reflected in our trading performance
for 2019. Our underlying loss before
tax of £11.7 million is a decrease from
the £50.0 million underlying profit we
reported in 2018. This reduction reflects
a difficult market backdrop driven by
sustained mortgage market competition,
low interest rates, the earnings impact of
debt issuance, and the adoption of IFRS
16 that changed how we account for
our lease costs. We are also absorbing
the financial impacts of management
actions taken to maintain a strong capital
and liquidity position following events of
the first half of the year. The sale of £1.5
billion interest-bearing treasury assets,
a £521 million loan portfolio disposal,
adjustments to deposit pricing and a
slower pace of loan growth reduced
revenue, particularly in the second half of
the year. The statutory loss before tax of
£130.8 million in 2019 reflects the impact
of non-recurring items including the write-
down of certain intangible assets as well
as transformation and remediation costs.
Underlying loss before tax
(11.7)
Reconciliation
£’million
Impairment and write-off of
PPE and intangible assets
Remediation costs
Transformation costs
Net BCR costs
Listing Share Awards
(77.7)
(26.8)
(11.5)
(2.6)
(0.6)
Statutory loss before tax
(130.8)
For more information on our APMs go to
page 177
Despite these challenges we have
continued to deliver on key objectives.
During 2019 we made good progress
with our cost transformation programme,
reducing the pace of cost growth in the
second half of the year relative to prior
periods, whilst continuing to expand
our physical presence and product
offering. We have also been successful
in growing our customer base and
deepening relationships with existing
customers, driving higher underlying net
fee and other income to £90.4 million,
up 43% from £63.3 million in 2018.
Asset quality has remained strong, with
2019 cost of risk at 0.08% compared
to 0.07% in the prior year. Our strongly
DEPOSITS
Deposits from customers ended the
year at £14.5 billion, with a reduction
in the first half of the year driven by
the intense speculation that preceded
the £375 million equity capital raise
in June 2019. Deposit withdrawals
predominantly came from a limited
number of our larger commercial
customers, with commercial deposit
balances (excluding SMEs) reducing to
£2.5 billion from £5.1 billion in 2018.
Customer deposits
Retail customer
(excluding retail
partnerships)
Retail
partnerships
Commercial
customers
(excluding
SMEs)
SMEs
2019
£’billion
2018
£’billion
Change
6.9
5.2
33%
1.8
2.2
(18%)
2.5
3.3
5.1
3.2
(51%)
3%
Total customer
deposits
14.5
15.7
(8%)
Retail and SME deposits displayed
significant resilience in 2019. Retail
deposits (excluding retail partnerships)
continued to grow through the year to
£6.9 billion from £5.2 billion in 2018,
supported in part by competitively priced
fixed-term retail savings. We also reported
a 3% improvement in the SME deposit
base, which ended the year at £3.3
billion, compared to £3.2 billion in 2018,
demonstrating the strength of our SME
proposition. These core retail and SME
deposits now represent 48% and 23% of
our deposit base respectively, up from
33% and 20% as at 31 December 2018.
2019
£’million
2018
£’million
Change
Deposits
14,447
15,661
(8%)
Customer
accounts
% current
accounts
Cost of
deposits
2.0m
1.6m
25%
29%
30%
(1pp)
0.78%
0.61%
17bps
Strong service recognition results,
increasing brand awareness and new
store openings as well as competitive
pricing on our fixed-term retail
savings products aided growth in the
total number of customer accounts.
Deposit growth into 2020 and beyond,
alongside excess liquidity, will support
the repayment of drawdowns under
TFS. Our total borrowings under the
scheme are £3.8 billion, of which
£543 million is repayable in the
second half of 2020, as appropriate.
ASSETS
Total assets reduced marginally to £21.4
billion from £21.6 billion at the end of
2018, which primarily reflects a £1.1 billion
reduction in treasury assets, partially
offset by a £0.4 billion increase in net
loans and advances to customers and a
one-off £313 million increase in right-of-
use lease assets following the adoption
of IFRS 16. The reduction in treasury
assets reflects the sale of non-LCR eligible
assets to prudently manage the Bank’s
liquidity position through the year.
2019
£’million
2018
£’million
Change
Loans and
advances to
customers
14,681
14,235
Total assets
21,400
21,647
3%
(1%)
Loan to deposit
ratio
101%
91%
10pp
Cost of risk
0.08%
0.07%
–
Despite the £521 million disposal of a
previously acquired loan portfolio, net
loans and advances increased by 3% to
£14.7 billion (31 December 2018: £14.2
billion). The disposed portfolio was not
considered a strategic asset, with its
sale having no impact on our customer
franchise given it was continually serviced
by an external provider. Lending growth
in the year was primarily driven by the
ongoing support of our existing franchise
and fulfilment of our committed pipeline
at the end of 2018 flowing through during
the first months of the year. As the year
progressed, lending growth slowed
as we proactively managed our loan
to deposit ratio and looked to reduce
our exposure to higher risk-density
commercial lending following the RWA
adjustment in January 2019. Commercial
lending as a percentage of total lending
reduced to 28% from 31% in 2018.
Our loan to deposit ratio increased
during the first half of 2019 to 109% at
30 June 2019 from 91% at the end of
2018, following growth in customer loans.
However, we made good progress in
reducing the ratio in the second half of
the year, supported by a return to deposit
Strategic reportGovernanceFinancial statementsAdditional information
16
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Financial review
continued
growth in the third and fourth quarters and
management of lending volumes through
upward adjustments to asset pricing.
Asset quality remained particularly robust
in 2019 with cost of risk broadly remaining
flat at 0.08% compared to 0.07% in the
previous year. Non-performing loans
increased to 0.53% from 0.15% in 2018,
reflecting seasoning of the loan portfolio
and a single name commercial exposure.
For more information on our cost of risk
and non-performing loans go to page 26
INCOME
Total underlying income decreased
marginally year-on-year to £400.1 million
from £404.1 million, reflecting a 3%
reduction in interest earning assets to
£20.3 billion and interest income pressure
driven by sustained competition in the
residential mortgage market, offset by a
43% increase in underlying net fee and
other income. Interest expense increased
to £188.1 million from £114.3 million and
captures the full-year expense of the
£250 million subordinated Tier 2 notes
issued in June 2018 and one quarter
of interest on the £350 million senior
non-preferred notes issued in October
2019. Cost of deposits has risen to an
average of 78bps for full-year 2019, from
61bps in 2018, reflecting competitive
pricing in retail fixed-term savings and
absorption of the impact of the August
2018 Bank of England base rate rise. On
a statutory basis total income rose 3%
from £400.1 million to £415.6 million.
The adoption of IFRS 16, the new
leasing standard, also had an impact
on net interest income through the
recognition of an interest charge on the
lease liability, partly offset by a reduction
in lease expenses. The net effect was
a c.£18 million reduction in revenue.
Given growth in our store network and
our relatively young lease portfolio,
the impact is more pronounced for us
compared with many of our peers.
The above trends resulted in a year-
on-year reduction in our net interest
margin (‘NIM’) to 1.51% from 1.81%.
NIM reconciliation
Reconciliation
2018 full year net interest
margin
IFRS 16 adoption
1.81%
(0.07)%
Treasury assets (inc. disposals)
(0.08)%
Lending yield
Cost of deposits
Debt interest expense
Loan-to-deposit ratio and
other
2019 full year net interest
margin
(0.05)%
(0.12)%
(0.11)%
0.13%
1.51%
The income impact from the reduction
in NIM was partly offset by the strong
growth in fee and commission income,
up 43% year-on-year to £90 million
(2018: £63 million) on the statutory
basis. Non-interest income growth
has been an area of focus for the Bank
throughout 2019, with the increase driven
by optimisation of fee structures, strong
growth in customer accounts and the
introduction of new value-added products
and services. Net fee and other income
(excluding net gains on sale of assets)
as a percentage of total revenue has
increased to 24% from 16% in 2018. Given
our strong focus on customer service
and further expansion of our product
offering for SMEs, we expect non-interest
income to continue to grow in 2020.
OPERATING EXPENSES
Depreciation
and
amortisation
Total operating
expense
Total
underlying
operating
expense
Statutory
cost:income
ratio
Underlying
cost:income
ratio
2019
£’million
2018
£’million
Change
76.4
45.1
70%
534.7
355.5
50%
400.1
346.1
16%
129%
88%
100%
86%
Underlying operating expenses grew by
16% during the year to £400.1 million,
with statutory operating costs up 50%
to £534.7 million. Given our focus on
improving cost efficiency, the pace of
cost growth slowed in the second half
of 2019 to just 2% versus the first half.
The increase in operating expenses
primarily reflects the expansion of our
store footprint driving higher people
and occupancy costs and growth in
regulation and technology costs.
Depreciation and amortisation grew to
£76.4 million during 2019 (2018: £45.1
million) reflecting growth in the store
network to 71 stores (2018: 65) and
ongoing investment in IT and digital
to support our integrated offering.
The introduction of IFRS 16 lease
accounting on 1 January 2019 also led
to a depreciation charge on the right-
of-use asset amounting to £16 million.
The underlying cost/income ratio increased
to 100% in 2019 from 86% in 2018, driven by
the income challenges outlined above.
The difference between underlying loss
before tax of £11.7 million and statutory
loss before tax of £130.8 million is
principally driven by the write-down of
certain intangible assets as well as costs
relating to the Bank-wide transformation
programme and the remediation work
undertaken following the RWA adjustment
in January 2019, customer remediation
and work undertaken in relation to a
review of our sanctions procedures. The
RWA remediation programme is focused
on improving risk-related internal systems,
processes, controls and governance and
is expected to be completed in 2020.
STORES
During 2019 we opened six stores,
including the entry into new regions
in the Midlands and the North. The
opening in Manchester is the first
to be delivered as part of our BCR
commitments, and together with the
new stores in the Birmingham area,
represents an important phase of
growth into SME hotspots outside of
our existing geographical footprint.
At the year end we had 71 stores and in
early 2020 we opened in Wolverhampton,
Cardiff, Liverpool and Hammersmith.
Going forward we will maximise the
existing estate and selectively expand
in strategic locations. We will adapt the
new store formats to fit the communities
that we will be serving, often with smaller
sites, yet retaining the exceptional levels
of service our customers expect.
TAXATION
During 2019 we made a total tax
contribution of £123.1 million (2018:
£120.3 million), which comprised £78.2
million (2018: £78.4 million) of taxes we
paid and a further £44.9 million (2018:
£41.9 million) of taxes we collected.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
17
Taxes paid
2019
2018
Corporation tax
1.6%
4.6%
Business rates
12.9%
11.5%
Land transaction tax
3.3%
6.3%
Employer NICs
20.6%
18.7%
Irrecoverable VAT and
Customs duty
Other
61.3% 58.8%
0.3%
0.1%
Total taxes paid
£78.2m £78.4m
Taxes collected
2019
2018
Employees NICs
23.6%
22.3%
PAYE
Net VAT
Other
62.1%
61.2%
14.3%
15.4%
–
1.1%
Total taxes collected
£44.9m £41.9m
In 2019 our tax expense recognised in
the income statement was £51.8 million
(2018: £13.5 million). This primarily relates
to the derecognition of the deferred
tax asset for unused tax losses. This has
no impact on our regulatory capital
position. The derecognition reflects
the impact on our short-term results of
the investment announced as part of
our strategy. Our effective tax rate for
the year was (39.5%) (2018: 33.2%).
ADOPTION OF IFRS 16
On 1 January 2019 we adopted IFRS 16
‘Leases’. This had the impact of bringing
£313 million of RWAs onto our balance
sheet. We implemented IFRS 16 in the
most capital efficient manner, which
meant there was no reduction to equity
at the point of transition. IFRS 16 has
the impact of front-loading charges in
the first half of a lease compared to IAS
17 (the previous accounting standard
under which they were measured). As
our lease portfolio is relatively young,
this will lead to increased charges in the
income statement for the medium term.
and provide headroom for controlled
growth and the delivery of our strategy.
Reconciliation
Total capital ratio at
31 December 2018
IFRS 16 adoption
Annual operational risk
increment
Organic lending growth
Profit and loss account
Intangibles/other
Asset disposals
Equity raise
Total capital ratio at
31 December 2019
Senior unsecured debt (issued
October 2019)
Total capital plus MREL ratio
at 31 December 2019
15.9%
(0.5%)
(0.3%)
(0.4%)
(0.7%)
(0.6%)
1.0%
3.9%
18.3%
3.8%
22.1%
The senior non-preferred debt issuance
in October 2019 ensured compliance
with our interim MREL requirement
of 18% of RWAs plus 3.5% regulatory
buffers, with the Bank closing 2019 with
a total capital plus MREL ratio of 22.1%.
In March 2020, the BOE announced a
package of measures in response to the
economic shock posed by COVID-19.
First, cutting the base rate to 0.1%
to support business and consumer
confidence. Secondly, introducing a new
Term Funding Scheme with incentives to
support lending to SMEs. Finally, reducing
the countercyclical capital buffer (‘CCyB’)
to 0% from 1%, that had been due to reach
2% by December 2020. The adjustment
to CCyB reduces our minimum CET1
requirement to 9.6% and our interim
total capital plus MREL requirement
(including regulatory buffers) to 20.5%.
2019
£’million
2018
£’million
Growth
For more information on our implementation
of IFRS 16 go to page 126
CET1 capital
1,427
1,171
22%
CAPITAL
We have maintained a robust capital
position throughout 2019, supported by
the £375 million equity capital raise in May
2019 and a slowdown in the pace of RWA
growth, up 2% to £9.2 billion. Although
the January 2019 adoption of IFRS 16 and
RWA adjustment resulted in one-off capital
impacts, our CET1 ratio remained above
both our 12.0% minimum target and our
10.6% minimum regulatory requirement at
31 December 2019. Our 15.6% CET1 ratio
and 18.3% total capital ratio demonstrate
the strength of our capital position
Risk-weighted
assets (‘RWAs’)
9,147
8,936
2%
CET1 ratio
15.6%
13.1%
Total regulatory
capital ratio
Total regulatory
capital plus
MREL ratio
Regulatory
leverage ratio
Leverage
18.3%
15.9%
22.1%
n/a
6.6%
8.3%
5.4% 1.2pps
6.4% 0.9pps
A reconciliation between our statutory
balance sheet and our RWAs can be found
on page 176
Further to the commitment made to the
market in February 2019 to externally assure
our RWAs, we are pleased to confirm that
this undertaking is now complete and the
Board has received a reasonable assurance
opinion from PwC on the 2019 CET1 and
total capital ratios. The relevant capital ratios
are disclosed above.
The work we have undertaken, including
significant investment of time and
resources, supplemented with specialist
advice and external assurance, allows us
to demonstrate to the market that last
year’s RWA misreporting was taken
seriously. On the basis of a materiality
threshold of 35bps, meaning that a
misstatement of the capital ratios of that
level or greater would be considered
material, we confirm that our capital
ratios are materially correct.
LOOKING AHEAD
2019 has been a difficult year, due
to both external headwinds as well
as internal challenges. In order to
face into these challenges we have
developed a new strategy. This will
see us focus on five key areas:
• Costs
• Revenue
•
Infrastructure
• Balance sheet optimisation
•
Internal and external communications
This will allow us to grow into our
existing cost base as well as become
more focused on delivering risk-
adjusted returns and seek to deliver a
greater than 8.5% statutory return on
tangible equity (‘RoTE’) by 2024.
For more information on our strategic
priorities go to page 10
In late January 2020 the first incidence of
the COVID-19 was reported in the UK. This
is clearly a serious situation impacting not
just the UK, but also the global economy.
The position has been, and continues to
be, rapidly evolving and difficult to predict
with any certainty. It is not possible at
this point to quantify the impact and no
adjustment has been made. However,
our immediate focus has been to
support our colleagues and customers.
David Arden
Chief Financial Officer
16 April 2020
Strategic reportGovernanceFinancial statementsAdditional information
18
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk report
The management of risk lies at the
heart of everything we do. Our overall
risk strategy is maintained by the CRO
and approved by the Board. We have a
set of risk management principles that
must be followed across the Bank, and
robust controls in place to ensure risk is
managed effectively. Our risk strategy
and Risk Management Framework
are under continuous review.
We will continue to embed improved
risk management, processes and
procedures and will make further
improvements over the course of 2020.
We set out to align our people, processes,
and systems to the way we manage the
risks inherent in our business activities.
This supports management of the
business in a safe and compliant way.
Our approach to risk management
consists of:
• A robust compliance and control
environment
• Fair and consistent customer treatment
and outcomes
• Maintaining a strong risk culture, with
the right expertise
OVERVIEW
We know that a culture that truly focuses
on delivering our purpose of creating FANS
will reduce the risk of customer harm as
well as deliver consistently fair outcomes.
All colleagues are responsible for
managing risk as part of their day-to-
day role. Customer-facing colleagues
are at the forefront of risk management,
along with their line managers with
oversight by the Risk team.
Our risk and control framework
is designed to ensure that:
• all principal and emerging risks are
identified, assessed, mitigated,
monitored and reported;
• risk appetite is clearly articulated and
policies aligned to it; appropriate
processes, systems and controls are in
place to support all colleagues in
performance of their roles within risk
appetite; and
• ongoing analysis of the environment in
which we operate takes place to
identify emerging risks and regulatory
requirements.
Everything at Metro Bank 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 whilst
growing safely and sustainably; and to be
comfortable asking questions to ensure
their actions do not result in financial loss,
reputational damage or customer harm.
DEVELOPMENTS IN 2019
The announcement in January 2019
(‘the RWA announcement’) that we had
adjusted the risk-weighting of certain
commercial loans secured on commercial
property and certain specialist buy-to-
let loans, with the combined effect of
increasing RWAs by £900 million, has
had a substantial effect. In response,
the Board established a Working Group,
supported by a major professional
services firm, to review and assess the
issues and factors that led to them in
more detail. The objective of the Working
Group was to identify and assess root
causes; and determine what short-term
tactical solutions, as well as long-term
strategic solutions, are required.
Over the course of 2019 we made a
considerable investment in remediation
activity to enhance regulatory reporting
processes, systems and controls as well
as enhancing the risk management
framework more broadly (details of
which are set out later in this report).
2019 also saw us complete an equity
capital raise in the second quarter of
the year. The intense speculation that
preceded it resulted in a concentrated
period of net reductions in deposits,
reflected in total customer deposits
closing the year at £14.5 billion. The
reductions were concentrated in May
2019 and we demonstrated a return
to net growth in the second half
of the year. The adverse sentiment
that the speculation created mostly
impacted a limited number of larger
commercial customers, with retail
and small business customer deposits
remaining resilient throughout the year.
In response to the reductions in deposits,
we took actions to manage capital
and liquidity positions with loan and
treasury asset disposals, management of
lending volumes and initiatives to regain
momentum in deposit growth. Though
not without its own challenges, the
senior non-preferred debt issuance in
October 2019 also further strengthened
the total loss-absorbing capital position,
whilst ensuring compliance with
interim MREL requirements ahead
of the 1 January 2020 deadline.
These challenges demonstrated the
robustness of our risk management and
mitigation approach as we were able
to successfully manage these events.
We have, however, learnt valuable
lessons from these events and have put
in place a programme of investment
in risk infrastructure going forward
to assist with this. This investment
in our risk infrastructure is a key
component of our refreshed strategy.
BOARD ROLE
The Board is responsible for setting
strategy, corporate objectives and risk
appetite. The strategy and risk appetite
consider the interests of our customers,
shareholders and other stakeholders.
Each principal area of risk to which
we are exposed has a Risk Appetite
statement detailing the metrics by which
we measure the level of risk we are
prepared to accept. Depending on the
risk measure, the maximum acceptable
risk may be zero. On the advice of the
Risk Oversight Committee (‘ROC’),
the Board approves the risk appetite
for each principal risk category, whilst
providing oversight to ensure there is
an adequate framework in place for
reporting and managing those risks.
The Board has delegated responsibility
for reviewing the effectiveness of
this framework to the ROC.
The Board is also responsible for
maintaining an appropriate control
environment to manage risk effectively,
and for ensuring that capital, liquidity and
other resources are adequate to achieve
our objectives within risk appetite.
INTERNAL CONTROLS FRAMEWORK
The Board has delegated responsibility
for reviewing the effectiveness of the
internal control framework to the Audit
Committee. This committee monitors and
considers the internal control environment,
internal and external audits and risk
assurance, and is assisted in its oversight
role by our Internal Audit function.
Internal Audit carries out both regular
and ad-hoc reviews of risk management
controls and procedures; and reports
the results to the Audit Committee.
The Director of Internal Audit’s
reporting line is to the Chair of the
Audit Committee, with a dotted line
to the CEO, and therefore supports
the function’s independence.
As part of their work in 2019, Internal
Audit and the Audit Committee
reviewed the commercial RWA
controls enhancement programme.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
19
CHIEF RISK OFFICER AND THE RISK
FUNCTION
Our Chief Risk Officer (‘CRO’) leads the
Risk function, which is independent from
operational and commercial functions.
The CRO is responsible for ensuring
that appropriate risk management
processes, policies and controls are in
place, that they are sufficiently robust,
that key risks are identified, assessed,
monitored and mitigated, and that we
are operating within our risk appetite.
The Risk team provides specialist
knowledge and support to colleagues,
acting as a reference point for advisory
queries, whilst also overseeing colleagues
and the risk management and controls
in place. It operates themed, targeted
and ad-hoc reviews to provide assurance
to the leadership team, and ultimately
to the Board, that risks are properly
managed, controls are effective, and that
we are not exceeding our risk appetite.
We have invested and will continue to
invest in risk management to ensure that
the risk function can continue to provide
independent assurance to the ROC, Board
and other stakeholders that risks in the
Bank are being appropriately controlled
and managed. During 2019 and early
2020 we have strengthened our risk
senior leadership team with the addition
of two new senior roles reporting to the
CRO: a Director of Prudential Risk and
a Risk Chief Operating Officer. We have
also made a series of experienced hires
across all lines of defence to boost the
strength in depth of risk management
capability, and enable the transfer of best
practice knowledge across the Bank.
As part of our Strategy and Long Term
Plan we have allocated additional
investment to support delivery of key
initiatives to enhance risk management
capability, systems and infrastructure.
RISK MANAGEMENT POLICIES
We have established risk management
policies to identify and analyse key risks,
to set appropriate risk limits and controls,
and to monitor risks and adherence to
limits. The Risk team regularly reviews
these policies and controls to verify
compliance and to reflect changes
in market conditions and business
activities. Policies have annual or biennial
review, depending on materiality, with a
schedule maintained and presented at
every ROC meeting to ensure reviews
are tracked. We use training and
management standards and procedures
to develop a robust and effective control
environment – one where all colleagues
understand their roles and obligations.
Viability statement
Assessment of prospects and viability
In accordance with provision 31 of the revised
UK Corporate Governance Code, the Board has
assessed the prospects of the Company and
Group over a longer period than the 12 months
that has in practice been the focus of the ‘going
concern’ provision.
The Directors have chosen to assess prospects
and viability over a four year period. This compares
to a five year time horizon over which the Group
forecasts for financial and business planning
purposes and which the strategic targets and
guidance have been issued on page 11 cover. A
shorter period is deemed appropriate for assessing
viability as it is the period over which the financial
forecasts have greater certainty.
Planning process
The Group’s planning process includes an annual
update to its forecast. This forecast is built to reflect
the Group’s business model which is outlined on
pages 6 and 7.
The forecast takes account of the Group’s strategy,
risk appetite and objectives in the context of its
operating environment including actual and
reasonably expected changes in the UK interest
rate and broader economic environment. It also
incorporates the Group’s new strategic priorities and
long term plans, further details of which can be
found on pages 10 and 11.
This forecast, including the assumptions used, is
subject to rigorous review and challenge both from
within the business and by the Board. The planning
process is supported by a stress testing framework
which assesses the base forecast to ensure the
Group maintains a robust capital, liquidity and
funding position in the event of stress by subjecting
the base forecast to appropriate downside stress and
sensitivity analysis over the assessment period. This
takes into account the Group’s current position, its
experience of managing change and the impact of a
number of severe yet plausible scenarios, based on
the risks outlined in the risk factors and management
section of this report.
Both the base case and stressed forecast plans are
reviewed against the Group’s risk appetite which is
outlined on pages 22 to 37. This includes ensuring
that the risk mitigants available to the Group (also
detailed on pages 22 to 37) remain appropriate.
Assumptions
Key assumptions in the Group’s base forecast include
lending mix and growth, customer account and
deposit growth, the Group’s ability to achieve its cost
saving plans, as well as anticipated liquidity
requirements and projections. The Group has also
assumed significant investment to achieve these
goals, and that it will remain appropriately capitalised.
As highlighted on page 11, the Group reasonably
expects to raise qualifying debt over the forecast
period to fund anticipated growth and to continue to
meet regulatory requirements. This comprises debt
to meet requirements for own funds and eligible
liabilities (‘MREL’), which may require changes to the
organisational structure of the Group, as well as
various regulatory approvals.
These assumptions have been re-evaluated in
respect of the emerging risks outlined below and the
Board considers that these remain reasonable.
Emerging risks
In reaching their assessment of viability the Directors
have considered emerging risks and these are
reflected in the stress tests performed. This
includes the UK’s departure from the EU.
The Board has also considered the impact of the
current and rapidly evolving situation surrounding
the COVID-19 pandemic as well as the associated
government and regulatory fiscal, monetary and
other actions, as taken within the UK and
internationally, on both the Group’s prospects and
viability. This includes the reduction in the base rate
to 0.10% (from 0.75%) and government schemes to
support British households and businesses.
As the situation surrounding COVID-19 arose after
the Group had completed its planning process,
additional work has been undertaken to examine
the potential impact. This included a review of the
economic assumptions used within the stress
tests previously performed based on severe yet
plausible scenarios.
In particular, the Group had previously undertaken
a comprehensive severe stress on its expected
credit losses, capturing a significant deterioration
in customers’ ability to pay. The current situation
is uncertain but it is reasonably expected that this
assessment is more severe than the economic
impact widely commentated upon in the market
regarding COVID-19. While the response to
COVID-19 has featured low interest rates and
substantial announced government intervention,
both of which are expected to support continued
repayment, and the Group benefits from relatively
low exposure to unsecured lending and a
conservative debt to value profile, it is nonetheless
reasonable to expect the economic situation to
have a significant adverse impact on credit quality
and collateral values.
In reaching their conclusions, as well as the
modelling outlined above, the Directors have also
considered many other factors. These include, but
are not limited to:
• The Group’s conservative approach to credit
risk – further details of which can be found in
the risk report on pages 22 to 26;
• The Group’s robust capital position – TCR plus
MREL ratio as at 31 December 2019 of 22.1%;
• The Group’s strong liquidity position – LCR as
at 31 December 2019 of 197% – and access to
the BOE’s liquidity support schemes;
• A declining loan to deposit ratio from 2019 highs
– LTD ratio at 31 December 2019 of 101%; and
• The fact the Group has continued to operate
effectively to date, as has its key suppliers, and that
it is well prepared should the situation worsen.
The Directors are also assured that there are
further levers available to the Group should the
situation evolve with greater severity than
modelled. This includes as a result of non-credit
related impacts to the Group’s profitability, liquidity
and capital position arising from COVID-19.
Further details of the Group’s emerging risks can
be found on pages 37 to 39. As the situation
evolves the Group will continue to update and
refine its models to reflect the most up to date
information.
Conclusion
Based on the assessment completed, the Directors
have a reasonable expectation that the Company
and Group will be able to continue in operation
and meet their liabilities as they fall due over the
period of the assessment.
Strategic reportGovernanceFinancial statementsAdditional information 20
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk report
continued
RISK APPETITE
Our approach to risk appetite is to set relevant quantitative and qualitative measures against which risk management performance
can be reviewed for each principal risk. Risk appetite is set by the Board, based on the recommendation of the ROC, and
implemented by the Executive Risk Committee and its subcommittees. The risk appetite has been developed in line with business
plan, strategy and vision, and is underpinned by a culture in which all colleagues embed risk considerations in decision-making.
RISK OVERSIGHT COMMITTEE
The ROC assists the Board in providing leadership, direction and oversight with regard to risk governance and
management, and also assists the Board in fostering a culture that emphasises and demonstrates the benefits
of a risk-based approach to risk management and internal controls. It works closely with the Audit Committee.
It is chaired by a Non-Executive Director and meets at least quarterly. Its responsibilities include:
• recommending risk appetite statements and measures to the Board;
• regularly reviewing risk exposures in relation to the risk appetite;
• reviewing risk policies, and approving or recommending to the Board for approval; and
• monitoring the effectiveness of risk management processes and procedures put in place by management.
EXECUTIVE LEADERSHIP COMMITTEES
The CEO, supported by the Executive Leadership Team, is responsible for executing the strategy, managing risk exposures and making
decisions and recommendations to the Board, as appropriate, via the following executive risk committees:
Committee
Role
Executive Risk
Committee
Credit Approval
Committee
Model Oversight
Committee (‘MOC’)
Asset and Liability
Committee (‘ALCO’)
The Committee is chaired by the CRO and meets monthly. It and its subcommittees are responsible for:
oversight of risk policies; reviewing credit, prudential, operational, regulatory and compliance risk
management issues with regard to risk appetite; oversight of the Enterprise and Credit Risk management
frameworks and performance of the Key Risk Indicators (‘KRIs’); reviewing Assurance reports and findings;
making recommendations for adjustment of policies to the Board; monitoring portfolio performance against
risk appetite; along with the CFO, approving the impairment levels; and approving all material aspects of IRB
rating systems, including all material models.
The Committee is chaired by the CRO or Director of Commercial Credit and is responsible for: sanctioning
higher value lending requests, and any exceptions to policy; monitoring overdue accounts; and granting and
reviewing delegated lending authorities.
The Committee is chaired by the CRO, meets monthly and is responsible for: oversight of model governance
and model risk monitoring, approval of all material models including combining and retirement of models.
The Committee is chaired by the CFO, meets monthly and is responsible for: ensuring that an appropriate
balance is maintained between funding and lending activities; ensuring that we meet internal liquidity targets
as set out in the Liquidity Policy; analysis of Capital Market trends, considered along with actual and projected
business performance to assess the adequacy of funding to meet the projected targets; agreement of pricing
decisions to ensure visibility of trading and capital impact; and monitoring interest rate risk.
Board of Directors
Risk Oversight
Committee
Nomination Committee
Audit Committee
Remuneration
Committee
Chief
Executive Officer
Model Oversight
Committee
Credit Approval
Committee
Asset and Liability
Committee
Executive Risk
Committee
Executive Leadership
Team
This graphic illustrates the key committees of the Bank with risk responsibility – to keep it simple, not all are shown.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
21
THREE LINES OF DEFENCE MODEL
We operate a ‘three lines of defence’ model for risk management. The first line of defence is operational management, who manage
risk by maintaining appropriate systems and controls that are operated and effective on a daily basis. The second line of defence
comprises the risk management function, providing independent advice and oversight through specialist support teams and the risk
committees. The third line of defence is Internal Audit, providing independent assurance through internal reviews and reporting the
results to the Audit Committee.
Board of Directors
Board establishes risk appetite and risk strategy
Approves frameworks, methodologies, policies and responsibilities
Operational
management
Risk
management
Internal
Audit
1 First line
of defence
2 Second line
of defence
3 Third line
of defence
• Line management in each business area
• Primary responsibility for risk
• Independent risk management function
• Provides specialist advice, governance
management
and oversight
• Internal Audit function
• Independent assurance and
reporting line
• Supports and challenges the first line
• Provides risk and compliance assurance
PRINCIPAL RISKS
Our principal risks represent defined groupings that we use to help consistently identify, assess, manage, monitor and report risks.
Using consistent risk categories enables risks to be aggregated to determine their overall impact on the Bank. The principal risks are
designed to be both comprehensive and mutually exclusive.
The principal risks are detailed below. In addition to the eight risks listed, there is also a ninth principal risk in the form of strategic risk.
Strategic risk is a manifestation of material instances, or a combination of, the other eight principal risks. As such, strategic risk is
assessed in line with those principal risks.
Credit
risk
Liquidity and
funding risk
Financial
crime risk
Conduct
risk
1
2
3
4
5
6
7
8
Operational
risk
Market
risk
Regulatory
risk
Model
risk
These are detailed further on pages 22 to 37.
Strategic reportGovernanceFinancial statementsAdditional information 22
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk report
continued
1. Credit risk
Definition
Credit risk is the risk of financial loss due to a borrower’s failure
to meet the terms of any debt contract or where a borrower
otherwise fails to perform as agreed due to financial difficulties.
For more information on our business model please see pages 6 to 9
Change since 2018:
No change
Link to business model:
Risk-adjusted returns
APPETITE
Our credit risk appetite is set to ensure that the risk we take is commensurate to the returns we receive. Our credit risk appetite is
defined through our Credit Risk Policy which is owned and approved by the Board annually. Portfolio-level policies and credit risk
appetite are recommended by the Executive to the Board via the ERC and the ROC. The credit risk appetite is specified as a set of key
performance indicators (‘KPIs’), concentration measures, capital and impairment components. Policy and appetite are based on sound
credit risk principles.
CHANGE IN YEAR
There have been no changes to the risk level during 2019.
MITIGATION
Lending and collateral
Our foremost exposure to credit risk is through the loans, limits and advances we make available to our customers. We primarily
mitigate credit risk through holding collateral against our residential 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. All
real estate assets taken as security are supported by an external valuation with a first fixed charge registered at the land registry. At
31 December 2019, 95% (31 December 2018: 94%) of our loans consisted of retail mortgages and commercial term loans secured on
collateral with average debt-to-value of 59% (2018: 61%) and 60% (2018: 59%) respectively.
Our exposure to loans of greater than 100% remains low at less than 1% of retail mortgage lending (31 December 2018: less than 1%)
and 11% of commercial term lending (31 December 2018: 11%). In the retail mortgage lending portfolio, these loans have principally
been part of portfolios we have acquired. For commercial term lending, additional forms of collateral (such as debentures or
unsupported guarantees giving recourse to our customers) are excluded from these debt-to-value (‘DTV’) figures, so the true credit risk
exposure on these loans is lower and is underwritten on the strength of all types of collateral.
Table 1: Retail mortgage lending by DTV
Audited
DTV ratio
Less than 50%
51–60%
61–70%
71–80%
81–90%
91–100%
More than 100%
Total retail mortgage lending
Table 2: Commercial term lending by DTV
Audited
DTV ratio
Less than 50%
51–60%
61–70%
71–80%
81–90%
91–100%
More than 100%
Total commercial term lending
31 December 2019
£’million
31 December 2018
£’million
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
2,647
1,383
1,422
1,813
1,201
23
4
8,493
464
393
505
554
13
–
8
3,111
1,776
1,927
2,367
1,214
23
12
2,124
1,195
1,374
1,362
1,205
80
11
458
493
553
596
129
33
12
1,937
10,430
7,351
2,274
2,582
1,688
1,927
1,958
1,334
113
23
9,625
31 December
2019
£’million
31 December
2018
£’million
1,274
818
747
221
41
49
396
3,546
1,277
936
791
249
100
51
424
3,828
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
23
The approval for consumer lending and retail mortgages is automated and underpinned by scorecard and policy rules. The end-to-end
process is overseen by our colleagues in the first line and approved in accordance with agreed delegated lending authorities.
The approval for commercial lending is a manual approval undertaken by a specialist team of commercial underwriters in accordance with
agreed delegated lending authorities. It is underpinned by a commercial lending policy supported by sector specific standards/guidelines.
Undrawn commitments
We have additional limited credit exposure to committed and undrawn amounts, such as unused overdraft limits and facilities. At
31 December 2019 we had £296 million (31 December 2018: £242 million) of undrawn credit card and overdraft facilities. 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.
Interest-only lending
We have exposure to refinance risk. This is the risk from loans to customers who are subject to a bullet or balloon payment at
contractual maturity but who find themselves unable to refinance or otherwise make this payment. This risk arises principally in the
mortgage book where the exposure to interest-only loans stands at £4.4 billion (31 December 2018: £4.4 billion). There is further
exposure to refinance risk in the Commercial Book of £1.5 billion (31 December 2018: £1.6 billion) from interest-only loans and a
portion of non-fully amortising term loans.
We manage this risk by ensuring the borrower has an appropriate repayment plan in place or would be able to refinance the lending at
the end of the term. Also, by ensuring these loans are appropriately collateralised (see lending and collateral section above), we would
have first charge in the event of default by the borrower.
Table 3: Retail mortgage lending by repayment type
Audited
Repayment
Interest
Capital and interest
Total retail mortgage lending
Table 4: Commercial term lending by repayment type
Audited
Repayment
Interest
Capital and interest
Total commercial term loans
31 December 2019
£’million
31 December 2018
£’million
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
2,573
5,920
8,493
1,834
103
1,937
4,407
6,023
10,430
2,242
5,109
7,351
2,166
108
2,274
4,408
5,217
9,625
31 December
2019
£’million
31 December
2018
£’million
1,483
2,063
3,546
1,592
2,236
3,828
Sector exposure
We manage the level of credit risk concentration based on individual borrowing entities, deal type and sector. We have specialist sector
lending teams including in healthcare, hospitality, property and not for profit.
Table 5: Commercial term lending by sector exposure
Audited
Industry sector
Real estate (rent, buy and sell)
Hospitality
Health and social work
Legal, accountancy and consultancy
Retail
Real estate (development)
Recreation, cultural and sport
Construction
Education
Real estate (management of)
Investment and unit trusts
Other
Total commercial term loans
31 December
2019
£’million
31 December
2018
£’million
2,374
308
263
236
100
62
51
35
30
11
8
68
3,546
2,547
235
217
384
99
52
19
60
15
72
1
127
3,828
Strategic reportGovernanceFinancial statementsAdditional information 24
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk report
continued
1. Credit risk continued
Geographic exposure
We also manage our lending exposure by region. Our current residential mortgage and commercial term lending is concentrated
within London and the South East, which is broadly representative of our current customer base and store footprint. As we expand
our footprint over time we envisage our geographical exposure of lending will change. All of our current loans’ exposures are secured
on UK based collateral. A geographic analysis of the location of retail mortgage collateral and commercial term loan collateral is set
out below:
Table 6: Retail mortgages by geographic exposure
Audited
Region
Greater London
South East
South West
East of England
North West
West Midlands
Yorkshire and the Humber
East Midlands
Wales
North East
Scotland
Northern Ireland
Total retail mortgage lending
Table 7: Commercial term loans by geographic exposure
31 December 2019
£’million
31 December 2018
£’million
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
3,424
2,094
738
570
482
340
275
243
169
93
65
–
8,493
1,197
337
97
76
66
62
37
26
21
11
7
–
1,937
4,621
2,431
835
646
548
402
312
269
190
104
72
–
10,430
3,034
1,797
616
492
405
293
207
241
141
83
38
4
7,351
1,231
383
122
91
138
81
73
57
36
31
4
27
2,274
4,265
2,180
738
583
543
374
280
298
177
114
42
31
9,625
Audited
Region
Greater London
South East
South West
East of England
North West
West Midlands
Yorkshire and the Humber
East Midlands
Wales
North East
Northern Ireland
Scotland
Total commercial term loans
31 December
2019
£’million
31 December
2018
£’million
2,264
648
208
139
136
60
37
17
14
13
6
4
3,546
2,465
677
229
151
145
50
26
33
29
16
3
4
3,828
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 2019 we held £2.6 billion (31 December 2018: £4.1 billion) of investment securities which are used for balance sheet and
liquidity management purposes, of which £2.4 billion (31 December 2018: £3.4 billion) is eligible as collateral at the BOE.
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 securities at fair value through profit and loss.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
25
Table 8: Investment securities by credit rating
Audited
Credit rating
AAA
AA- to AA+
A- to A+
Lower than A-
Total
31 December 2019
£’million
31 December 2018
£’million
Investment
securities
held at
amortised
cost
Investment
securities
held at FVOCI
1,943
144
67
–
2,154
156
255
–
–
411
Investment
securities
held at
amortised
cost
Investment
securities
held at FVOCI
3,113
306
39
–
3,458
230
319
28
97
674
Total
2,099
399
67
–
2,565
Total
3,343
625
67
97
4,132
We have a robust securities trading and investment policy which requires us to invest in high-quality liquid debt instruments. At
31 December 2019, 82% of our investment securities were rated as AAA (31 December 2018: 81%) with a further 16% (31 December
2018: 15%) rated AA- or higher with some use of derivatives for hedging purposes.
Additionally, we hold £3.0 billion (31 December 2018: £2.5 billion) in cash balances, which is either held by ourselves or at the BOE,
where there is minimal credit exposure.
MEASUREMENT
We measure credit quality for impairment purposes using a suite of IFRS 9 models. We have a strong suite of credit risk models and
have invested heavily in credit risk model development in support of enhancing our IFRS 9 calculation, stress testing capability and AIRB
programme. Our stress testing capability was enhanced significantly during 2018 and continued to be so over the last 12 months.
Our IFRS 9 models incorporate the impact of a range of possible future economic scenarios. We have placed a higher probability on
our downside scenario (a worsening economic outcome), largely to reflect a greater likelihood of a worse outcome for the UK
economy due to exiting the European Union. The models used are subject to the internal model governance, are validated by an
independent team, regularly monitored and annually reviewed.
KPIs are defined, reported against and escalated through to the ROC. KPIs on portfolio concentrations are included in the monitoring
reviewed by the Executive and Board Committees as part of our risk appetite. They are reviewed annually, with limit setting a collaborative
exercise between first and second line teams. Limits are dependent on business objectives for the coming year. There are three classes of
metrics: Tier 1 owned by the Board, Tier 2 owned by the Executive Leadership Team, and tracking metrics owned by management.
We monitor lending policy exceptions and their subsequent performance.
Credit risk quality assurance reviews are performed regularly and cover our sub-portfolios and sector exposure. The reviews cover top
exposures, portfolio trends, concentration, key risk areas and recommendations.
As of 31 December 2019, all exposures are measured under the standardised approach for credit risk for regulatory capital; we are
parallel running the AIRB rating system for residential mortgages. We continue to progress our AIRB application and continue to
engage with the PRA on this iterative and detailed project.
Strategic reportGovernanceFinancial statementsAdditional information 26
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk report
continued
1. Credit risk continued
MONITORING
Credit risk is overseen by the CRO, ERC and the ROC.
Three functions support the management of credit risk and report to the CRO:
• Our Commercial Credit Underwriting team supports the creation of commercial credit policies, ensures the business has suitable credit
assessment tools and procedures and provides an independent review of individual commercial credit proposals and renewals.
• Our Credit Risk and Analytics team develops credit risk policies in accordance with the risk appetite, develops appropriate
frameworks to comply with regulatory and statutory requirements and works with other areas of the Bank to ensure credit risk
control practices are effectively implemented throughout the Bank. It monitors aggregate exposures and reviews portfolio
performance and concentrations, providing comprehensive reports including KPIs to senior management, ERC and the ROC. It also
develops and monitors models used for automatic credit decisioning, portfolio management and impairment, and develops stress
test methodologies.
• Our Treasury Risk team supports the development and implementation of applicable policies and procedures and monitors the
credit risk aspects of the Treasury portfolio.
Non-performing loans
Non-performing loans are loans which have more than three instalments unpaid (90+ days past due). All non-performing loans are
included within Stage 3.
Table 9: Non-performing loans
Group
Retail-residential mortgages
Retail-consumer and other
Commercial (including asset and invoice finance)
Total
31 December 2019
31 December 2018
Non-
performing
loans
£’million
Non-
performing
loans ratio
Non-
performing
loans
£’million
Non-
performing
loans ratio
25
10
42
77
0.24%
4.30%
1.12%
0.53%
9
5
7
21
0.09%
1.74%
0.16%
0.15%
Cost of risk
Cost of risk is credit impairment charges expressed as a percentage of average gross lending. Further details can be found on page 177.
Table 10: Cost of risk
Group
Retail-residential mortgages
Retail-consumer and other
Commercial (including asset and invoice finance)
Average cost of risk
2019
2018
0.00%
1.92%
0.11%
0.08%
0.01%
1.54%
0.10%
0.07%
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
27
2. Operational risk
Definition
Operational risk is the risk of direct or indirect loss from failed or inadequate processes, people or
systems, or exposure to external events.
For more information on our business model please see pages 6 to 9
Change since 2018:
Increase
Link to business model:
Unique culture
APPETITE
We aim to minimise the amount of operational risk and as such seek to maintain robust operational systems and controls.
CHANGE IN YEAR
Operational risk has increased during the year. The change in delivery pipeline in 2019 contained remediation, regulatory and
mandatory change, and exciting developments for the SME marketplace using the C&I funds. This volume of change has heightened
both the change delivery risk, and the ability of business areas to absorb large amounts of change into their processes. These risks are
being activity managed through our change risk frameworks and reported through governance. As operational resilience, fraud and
cyber security threats continue to evolve and affect the banking industry, we continue to monitor and manage these to appetite.
MITIGATION
Policies
We have detailed policies, procedures and controls in place which are designed to evaluate, monitor and report these risks as well as,
where appropriate, develop mitigation plans to minimise the impact of losses suffered in the normal course of business (expected
losses) and to avoid or reduce the likelihood of suffering a large extreme (or unexpected) loss.
Investment in our systems and technology
We continue to invest in the ongoing maintenance and development of our key controls, which combine system and process
measures to mitigate risk or to minimise any impact on us or our customers.
The pace of our growth and levels of change experienced inside and outside the Bank have increased the execution risks associated
with delivery of the transformation programme described earlier in this report while also continuing to deliver consistently great service
to our customers. Therefore, in 2019, we continued to invest heavily in our systems. One of the largest changes was the delivery of the
upgrade of the T24 core banking system which went live in July 2019. We will continue to invest in fully or semi-automated controls to
support us in managing within risk appetite, while freeing up colleagues to focus on our customers.
We have been expanding our SME product offerings as part of the BCR Capability and Innovation programme, working with new third-
party providers, extending our physical store presence and enhancing our technology for growth. To mitigate the risks introduced through
this change we are investing even more in our digital platforms to build resilient and secure technologies. The current era of evolving
technology requires us to maintain a secure digital infrastructure which is crucial to protect data and provide secure reliable services.
We continue to evolve our ability to deliver superior service to our customers through our integrated technology stack. Given the rapid
pace of change, continuous improvement of our technology infrastructure is essential to effective management of the risks associated
with Bank’s delivery agenda and the expansion of our digital footprint.
Delivery of the new strategy is dependent on additional investment in technology infrastructure. Ongoing investment is also required to
protect us and our customers from the evolving threat of cyber risk.
Culture and training
As we evolve, we aim to do so safely through continued investment in training our colleagues. This enables them to deliver the right
outcomes to our customers, whilst maintaining a safe, reliable and resilient banking operation.
Operational resilience
Operational resilience has been a central part of our risk management activity throughout 2019. This includes an ongoing maturity
assessment of our cross organisational resilience capability, a review of our mobile channels; enhancement of our crisis management
plan and operational disruption event response planning as part of the T24 upgrade, and enhanced operational risk scenario analysis,
particularly as part of our Internal Capital Adequacy Assessment Process (‘ICAAP’).
MEASUREMENT
We measure operational risk using a number of quantitative metrics. These KRIs and KPIs are defined, reported against and escalated to
the ROC.
MONITORING
We continuously develop and embed our approach to the management of operational risks with the aim of maintaining robust
operational processes, systems and controls. In 2019 we continued to enhance our risk and control framework with the refresh of our
risk appetite statement and operational risk policy, and development of operational (including IT) resilience capability; change risk
management tools, and further alignment of risk governance to support consistent monitoring and escalation across the business areas.
Operational risk is overseen by the CRO, ERC and ROC.
Strategic reportGovernanceFinancial statementsAdditional information
28
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk report
continued
2. Operational risk continued
Monthly Business Risk Committees are the business governance forums used to escalate risks and issues that are outside of appetite to
the ERC and the ROC. Monitoring and oversight, along with compliance to policy, is provided on an ongoing basis by the Operational
Risk Oversight team.
Targeted deep dive, thematic and desktop operational risk reviews are completed as part of an annual assurance plan completed by the
Risk and Compliance Assurance team.
3. Liquidity and funding risk
Definition
Liquidity risk is the risk that future financial obligations are not met or future asset growth cannot occur
because of an inability to obtain funds at a reasonable price within a reasonable time.
We consider liquidity and funding risk to have increased year on year due to observed adverse
movements in deposits and liquidity throughout the year, and the enhanced rates required to raise debt
and deposits during 2019.
Change since 2018:
Increase
Link to business model:
Diversified low-cost deposits
For more information on our business model please see pages 6 to 9
APPETITE
Our liquidity risk appetite is based on the principle that we will ensure we maintain liquidity resources which are sufficient, both as to
amount and quality, to ensure that liabilities can be met as they fall due; and to ensure that we maintain a prudent funding profile,
appropriately diversified within the context of a deposit-led bank. Our approach is to ensure that we can both meet payments as they
fall due and support asset growth in line with plan, in both normal conditions and in the event of a liquidity stress, and that we can
survive a severe liquidity stress event and continue as a going concern.
CHANGE IN YEAR
Liquidity and funding risk has increased during the year owing to deposit outflows experienced prior to our equity capital raise,
increased competition in the deposit market, and higher volatility of large commercial deposits. Additionally, in 2020 we expect the
impact of COVID-19 to have a negative effect, however given the inherent uncertainty over the length and scale of the pandemic it is
too early to fully evaluate the impact of the situation.
MITIGATION
Deposit-funded approach
Our mid-term guidance as set out on page 11 underlines our approach of having a long-term loan-to-deposit ratio of less than 100%.
Our retail deposit-led approach means we do not currently have reliance on wholesale funding to enable our ongoing lending.
We aim to attract deposits that are diverse and are low cost, which are less sensitive to competition within the deposit market. At
31 December 2019 40% of our deposits came from commercial customers (31 December 2018: 53%) with the remaining 60%
(31 December 2018: 47%) coming from retail customers. Additionally, 29% of deposits at year end (31 December 2018: 30%) were in the
form of current accounts, with the remainder split between a combination of instant access and fixed-term savings products. In 2019
our cost of deposits was 0.78% (2018: 0.61%).
Despite large adverse movements in deposits during short periods of the year, our deposit base at year end is stable and resilient, and
retail deposits form a higher portion of our balance sheet than commercial deposits.
Liquidity management
We aim 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 Liquidity Coverage Ratio (‘LCR’) ensures that we comply with our own risk
appetite as well as regulatory requirements.
Our liquidity portfolio consists of cash and balances at the BOE as well as high-quality liquid assets (‘HQLAs’) that are available to
monetise in the event of stress.
The tables below set out the maturity structure of our financial assets and liabilities by their earliest possible contractual maturity date; this
differs 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 these are repayable on demand or at short notice, however
in reality 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, however are often redeemed or remortgaged earlier.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
29
3. Liquidity and funding risk continued
The total balances depicted in the analysis do not reconcile with the carrying amounts as disclosed in the consolidated balance sheet.
This is because the maturity analysis incorporates all the expected future cash flows (including interest), on an undiscounted basis.
Term Funding Scheme repayments
TFS closed to further drawdowns in February 2018. Our drawdowns of £3,801 million will mature in 2020, 2021 and 2022 in the
amounts of £543 million, £2,778 million and £480 million respectively. We will repay TFS through a combination of deposit growth and
via a reduction in excess liquidity. This is currently under review in light of measures announced by the Bank of England in March 2020,
which included a new funding scheme, the TFSME.
Table 11: Contractual maturity
Audited
31 December 2019
Cash and balances with the
BOE
Loans and advances to customers
Investment securities
Total financial assets
Other assets
Total assets
Deposits from customers1
Deposits from central banks
Debt securities
Repurchase agreements
Other liabilities
Total financial liabilities
Capital
Total equity and liabilities
Cumulative liquidity gap
Audited
31 December 2018
Cash and balances with the
BOE
Loans and advances to customers
Investment securities
Total financial assets
Other assets
Total assets
Deposits from customers1
Deposits from central banks
Debt securities
Repurchase agreements
Other liabilities
Repayable
on demand
£’million
Up to
3 months
£’million
3–6 months
£’million
6–12 months
£’million
1–5 years
£’million
Over 5 years
£’million
No
contractual
maturity
£’million
2,989
–
–
2,989
–
2,989
(9,668)
–
–
–
–
(9,668)
–
(9,668)
(6,679)
–
349
269
618
194
812
(602)
(6)
–
(54)
(194)
(856)
–
–
317
229
546
93
639
(1,102)
(7)
(23)
–
(94)
–
584
74
658
250
908
(1,838)
(556)
(23)
–
(251)
–
4,191
1,924
6,115
1,345
7,460
(1,178)
(3,274)
(766)
(204)
(1,354)
(1,226)
(2,668)
(6,776)
–
–
–
(856)
(1,226)
(2,668)
(6,776)
–
16,893
215
17,108
1
17,109
–
–
–
–
(1)
(1)
–
(1)
(6,723)
(7,310)
(9,070)
(8,386)
8,722
–
–
(161)
(21,356)
Repayable
on demand
£’million
Up to
3 months
£’million
3–6 months
£’million
6–12 months
£’million
1–5 years
£’million
Over 5 years
£’million
No
contractual
maturity
£’million
Total
£’million
2,989
22,728
2,711
28,428
1,883
30,311
(14,549)
(3,843)
(812)
(258)
(1,894)
(21,356)
–
Total
£’million
2,472
22,512
4,389
29,373
498
29,871
(15,709)
(3,906)
(311)
(355)
(498)
(20,779)
–
2,989
394
–
–
–
394
(161)
–
–
–
–
(161)
–
–
374
–
374
–
374
(700)
–
–
(58)
–
(758)
–
2,472
–
–
2,472
–
2,472
(10,818)
–
–
–
–
–
313
98
411
113
524
(964)
(7)
–
–
(113)
–
289
321
610
1
611
(686)
(9)
(7)
(1)
–
(703)
–
(703)
(8,998)
–
558
407
965
2
967
(1,587)
(19)
(7)
(37)
(2)
(1,652)
–
(1,652)
(9,683)
–
4,092
3,273
7,365
379
7,744
(954)
(3,871)
(297)
(259)
(380)
(5,761)
–
(5,761)
(7,700)
–
16,886
290
17,176
3
17,179
–
–
–
–
(3)
(3)
–
(3)
Total financial liabilities
(10,818)
(1,084)
Capital
Total equity and liabilities
Cumulative liquidity gap
–
(10,818)
(8,346)
–
(1,084)
(8,906)
(758)
(20,779)
9,476
–
–
1. Deposits from customers with no contractual maturity comprises of notice accounts. These accounts continue indefinitely until the customer gives notice to withdraw some or all of the
funds. Notice periods range from 30 to 100 days and customers cannot access their funds on demand, even with a penalty.
Capital management
We hold capital to protect our depositors, cover our inherent risks, provide a cushion for stress events and to support our business
strategy. In assessing the adequacy of our capital resources, we consider our business plan, risk appetite, the material risks to which we
are exposed and the appropriate strategies required to manage those risks. We prepare an annual Internal Capital Adequacy
Assessment Process document that sets out how we identify and manage the key risks to which we are exposed and details our capital
requirements, capital resources and capital adequacy over the planning period, including under stress scenarios. This process is used
to ensure that we apply appropriate management buffers to regulatory capital requirements in line with risk appetite.
Strategic reportGovernanceFinancial statementsAdditional information 30
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk report
continued
3. Liquidity and funding risk continued
In order to appropriately monitor and manage the Bank’s capital resources, we produce regular reports on the current and forecasted
level of capital for the Board and the Executive Leadership Team (chaired by the Chief Executive Officer). The key assumptions and risk
drivers used to create the stress tests are regularly monitored and reported, and are used in determining how we will evolve our capital
resources and ensure they are appropriate for growth.
We manage capital in accordance with prudential rules issued by the PRA and FCA, in line with the EU Capital Requirements Directive.
In June 2013 the European Parliament approved new capital reforms (referred to as ‘CRD IV’), which implements Basel III in Europe.
CRD IV legislation has been effective from 1 January 2014. We are committed to maintaining a strong capital base under both existing
and future regulatory requirements. We are working to ensure we are compliant with the incoming CRD V/CRR 2 requirements which
were published in June 2019, mostly taking effect from mid-2021. These include requirements on the leverage ratio, market risk, and
counterparty credit risk.
The MREL took effect on 1 January 2020 on an interim basis, and comes fully into effect in 2022. Holding MREL debt is a requirement
placed on larger firms to ensure that in the event of their failing and requiring resolution by the BOE, their customers continue to have
access to their funds, and the operation of their accounts will not be affected.
Table 12: Capital resources
Audited
Ordinary share capital
Share premium
Retained earnings
Intangible assets
Deferred tax asset (CET1 element)
Deferred tax liability (CET1 element)
Other reserves
IFRS 9 transitional adjustment
Total Tier 1 capital (CET1)
Debt securities
Total Tier 2 capital
Total regulatory capital
31 December
2019
£’million
31 December
2018
£’million
–
1,964
(392)
(168)
–
4
11
8
1,427
249
249
–
1,605
(209)
(197)
(54)
7
7
12
1,171
249
249
1,676
1,420
Recovery planning
The Recovery Plan (‘RP’) details a series of indicators which would tend to suggest a stress event may be in train. It assigns responsibilities
and actions to key individuals, specifies timeframes, and establishes the Recovery Committee (‘RC’) chaired by the CFO which sits as
required in the event of a liquidity stress. The RC was convened in 2019 during the periods of heightened media speculation described
elsewhere in this report.
MEASUREMENT
Our asset and liability management (‘ALM’) system is used to capture all positions across the Bank and evaluate their liquidity. We
calculate our LCR and perform stress testing of our liquidity daily. Forward-looking short-range forecasts are produced at least monthly.
Early warning indicators (‘EWIs’) are set out in the RP. Colleagues monitor these on a regular basis and bump up any triggers. A cost of
funds model is used help colleagues account for liquidity, capital and interest rate risk in pricing.
We perform an ILAAP every year for the identification, measurement, management and monitoring of liquidity, having due regard for
the PRA Rulebook section ‘Internal Liquidity Adequacy Assessment’. The Treasury team seeks ILAAP input from a range of teams
including Finance, Risk, and Products, before taking the ILAAP through a robust governance process.
The conclusions of the ILAAP are reviewed and approved by the Board, assisting in: identification of our material liquidity risks; deciding
the management of material liquidity risks; and determining the Board’s risk appetite.
For liquidity risk, we assess against internal and external requirements. The chief external requirement is the LCR, and a series of internal
requirements are set and maintained through our ILAAP.
MONITORING
The Treasury function has responsibility for our compliance with liquidity policy and strategy. The Regulatory Reporting team monitors
compliance with LCR. The ALCO is responsible for liquidity and funding risk. Liquidity and funding cannot be considered in isolation,
and we have regard to liquidity risk, profitability and capital optimisation when considering funding sources. We issued MREL debt for
the first time in October 2019. Our LCR has remained strong throughout the year, ending 2019 at 197% (2018: 139%).
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
31
4. Market risk
Definition
Market risk is the risk that earnings or the economic value of equity will underperform due to changes in
interest rates, foreign exchange rates, or other financial market asset prices. Our ability to manage market
risks contributes to our overall capital management.
For more information on our business model please see pages 6 to 9
Change since 2018:
No change
Link to business model:
Low-risk diversified lending
APPETITE
As maturity transformation is one of the primary roles of a bank, we are exposed to interest rate risk by many of our activities. Our
Market Risk Policy is set with a view to ensuring that our funding resources are invested in assets that satisfy our earnings risk and
economic value risk appetites.
CHANGE IN YEAR
There have been no changes to the risk level during 2019. Market volatility has increased during the start of 2020, driven by global
economic uncertainty resulting from the COVID-19 pandemic.
MITIGATION
Interest rate risk
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. We enter into derivatives only for hedging purposes and not as part
of customer transactions or for speculative purposes.
Our Treasury and Treasury Risk teams work closely together and ensure that risks are managed appropriately – and that we’re 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 exchange assets and liabilities are matched off closely in each of the
currencies we operate and less than 5% of our assets and liabilities are in currencies other than pounds sterling. We do not have any
operations outside the United Kingdom. We offer currency accounts and foreign exchange facilities to facilitate customer requirements
but do not perform speculative trading activities.
We have hedge accounting solutions in place to reduce the volatility in the income statement arising from these hedging activities.
Treasury management
We are mindful of upcoming regulatory changes, as we shape the investment portfolio in 2020 and beyond – and are working to
reduce the proportion of our assets that are ineligible for a ring-fenced entity. Natural roll-off of ineligible assets is expected to
continue, and we will cease to acquire assets which a ring-fenced entity may not hold.
MEASUREMENT
We measure interest rate risk exposure using methods including:
• economic value sensitivity: calculating repricing mismatches across our assets and liabilities and then evaluating the change in value
arising from a change in the yield curve. Our risk appetite scenario is based on a parallel rate movement of 2% to all interest rates,
but we evaluate based on a series of other parallel and non-parallel rate changes. The scenarios are designed to replicate severe but
plausible economic events and to have regard to risks which would not be evident through the use of parallel shocks alone.
•
interest income sensitivity: the impact on 12-month future income arising from various interest rate shifts. Our risk appetite scenarios
are based on parallel rate movements of 2% and of divergences of up to 1.15% between BOE base rate and LIBOR against a constant
balance sheet. We also evaluate a series of other parallel, non-parallel and non-instantaneous rate changes.
•
interest rate gaps: calculating the net difference between total assets and total liabilities across a range of time buckets.
The frequency of calculating and reporting each measure varies from daily to quarterly appropriate to each risk type.
We use an integrated ALM system which consolidates all our positions and enables the measurement and management of interest rate
repricing profiles for the entire Bank. The model takes into account behavioural assumptions as specified in our Market Risk Policy.
Material assumptions can be updated more frequently at the request of business areas, in response to changing market conditions or
customer behaviours. The model also takes into account future contracted or expected growth in lending and deposits.
We measure and monitor our exposures to foreign exchange risk daily and do not maintain net exposures overnight in any currency
other than pounds sterling, above 5% of our total assets and liabilities.
Strategic reportGovernanceFinancial statementsAdditional information 32
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk report
continued
4. Market risk continued
MONITORING
Interest rate risk
Interest rate risk measures have limits set against them through the Market Risk Policy, and these are monitored on a regular basis by
the Treasury Risk team. Measures close to the limits are escalated to Treasury in order to enable prompt action, and limit excesses are
escalated to the ALCO. A digest of interest rate risk measures and details of any excesses are presented monthly at the ALCO.
Limits are set for the economic value of equity (‘EVE’) and net interest income (‘NII’). EVE shall not drop more than £25 million based on the
worse of a +200bps or -200bps instantaneous symmetrical parallel shock to interest rates, and one-year NII shall not drop more than £15 million
based on the same shock. The EVE and NII limits are monitored daily by risk. Performance against limits are reported monthly to the ALCO (with
exceptions communicated by email) and more regularly to senior management, as well as being noted by the ROC and the Board.
Furthermore, a £15 million limit is set for a set of asymmetrical movements between LIBOR and the BOE base rate. Our Treasury Risk
function runs a series of other interest rate risk simulations on a monthly basis to ensure that the ALCO is kept updated of any other
risks not captured by the policy measures.
We enter into hedging arrangements when the natural hedging in our book is insufficient to enable the Bank to remain within our limits. All
derivatives are entered into macro or micro fair value hedge accounting arrangements in order to minimise volatility in the profit & loss account.
The tables below 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 non-contractual and out-of-course early
repayments in line with the Market Risk Policy.
Table 13: Repricing analysis
Audited
31 December 2019
Cash and balances with the BOE
Loans and advances to customers
Other assets
Total assets
Deposits from customers
Other liabilities
Shareholders’ funds
Total liabilities
Interest rate sensitivity gap
Cumulative gap
Audited
31 December 2018
Cash and balances with the BOE
Loans and advances to customers
Other assets
Total assets
Deposits from customers
Other liabilities
Shareholders’ funds
Total liabilities
Interest rate sensitivity gap
Cumulative gap
3–6 months
£’million
6–12 months
£’million
1–5 years
£’million
Over 5 years
£’million
Non-interest
bearing
£’million
(9,829)
(1,089)
(1,819)
(1,942)
(6,721)
(21,400)
62
62
(450)
(388)
(311)
(699)
6,491
5,792
31
(5,823)
5,823
–
–
–
3–6 months
£’million
6–12 months
£’million
1–5 years
£’million
Over 5 years
£’million
Non-interest
bearing
£’million
Up to
3 months
£’million
2,811
4,567
2,513
9,891
(5,974)
(3,855)
–
Up to
3 months
£’million
2,242
5,235
3,402
10,879
(7,914)
(3,949)
–
(11,863)
(984)
(984)
–
639
–
639
(1,089)
–
–
–
1,505
3
1,508
(1,819)
–
–
–
7,961
472
8,433
(1,147)
(795)
–
–
579
–
579
(683)
–
–
(683)
(104)
–
1,184
50
1,234
(1,565)
–
–
(1,565)
(331)
(1,088)
(1,419)
–
7,186
751
7,937
(929)
(445)
–
(1,374)
6,563
5,144
Total
£’million
2,989
14,681
3,730
21,400
(14,477)
(5,340)
(1,583)
Total
£’million
2,472
14,235
4,940
21,647
(15,661)
(4,583)
(1,403)
178
–
720
898
(4,448)
(690)
(1,583)
230
–
737
967
(4,570)
(189)
(1,403)
–
9
22
31
–
–
–
–
–
51
–
51
–
–
–
–
(6,162)
(21,647)
51
(5,195)
5,195
–
–
–
A positive interest rate sensitivity gap exists when more assets than liabilities reprice during a given period. A positive gap position tends
to benefit net interest income in an environment where interest rates are rising; however, the actual effect will depend on a number of
factors, including actual repayment dates and interest rate sensitivities within the banding periods. The converse is true for a negative
interest rate sensitivity gap.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
33
4. Market risk continued
The table below shows the sensitivity arising from the standard scenario of a +200bps and -200bps parallel interest rate shock for a
one-year forecasting period upon projected net interest income.
Sensitivity of projected net interest income to parallel interest rate shock for a one-year forecasting period
At 31 December 2019
At 31 December 2018
200bps
decrease (not
floored
at zero)
£’million
(8.2)
2.8
200bps
increase
£’million
8.1
(3.4)
5. Financial crime risk
Definition
Financial crime risk is the risk of financial loss or reputational damage due to regulatory fines or penalties,
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 (which we define to
include internal or external fraud, anti-money laundering/counter terrorist financing, bribery and
corruption and sanctions compliance).
For more information on our business model please see pages 6 to 9
Change since 2018:
Increase
Link to business model:
Diversified low-cost deposits
APPETITE
We have no risk appetite in relation to financial crime risk.
CHANGE IN YEAR
Financial crime risk has increased during the year due to changes to global sanctions and obligations with which we must comply.
MITIGATION
Investment in our systems and controls
We continue to conduct horizon scanning activity to identify emerging trends and typologies as well as to identify and prepare for new
legislation and regulation. This includes participating in key industry forums (or associations) such as those hosted by UK Finance. As
required, we will update our control framework to ensure emerging risks are identified and mitigated. We updated all our Financial
Crime policies in 2019 to ensure alignment with regulatory obligations.
In 2019 we also mobilised a Financial Crime Improvement Programme to invest in and deliver enhancements to our business-wide
financial crime systems and controls.
Resourcing and training
Resourcing continues to be a significant focus for us to ensure the Financial Crime Framework is implemented effectively. Headcount
has increased across all lines of defence and we have recruited additional specialist resource in 2019 to support operational teams in
the first line of defence and to bolster second line Financial Crime Policy, Advisory and Assurance functions. We continue to invest in
our colleagues’ development to improve their capabilities through industry recognised financial crime qualifications. All colleagues
receive financial crime training which is updated to reflect new requirements, ensuring our colleagues are able to meet their personal
regulatory obligations and assist us in achieving our risk appetite and financial crime obligations.
Sanctions
We have no appetite for non-compliance with legal and regulatory obligations in respect of sanctions.
In November 2017, on the advice of external legal counsel, we notified OFAC that we had discovered that a UK-based entity with which
we had a banking relationship was subject to US sanctions relating to Cuba. We ended our relationship with the relevant entity.
In addition, in 2019 we discovered that a payment made to one of our customer’s accounts, which had been received from a UK-based
financial institution, had been routed to the UK-based financial institution from Iran. A further notification was made to OFAC.
We have initiated a review of the foregoing matters together with a review of our broader sanctions compliance and transaction
monitoring policies and procedures with the support of external advisors, which is still ongoing. Metro Bank continues to fully co-
operate with its regulators in relation to any enquiries in this regard.
Anti-Money Laundering and Combating Terrorist Financing
We have no risk appetite for financial crime and seek to comply with all relevant UK Anti-Money Laundering and Combating Terrorist
Financing legislation. We continue to invest in capabilities to identify and detect potentially suspicious activity with work to enhance
automated monitoring capabilities continuing through 2019 into 2020. This will improve our ability to identify suspicious activity to
support external reporting obligations under the Proceeds of Crime Act 2002 and the Terrorism Act 2000.
Strategic reportGovernanceFinancial statementsAdditional information 34
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk report
continued
5. Financial crime risk continued
Anti-bribery and corruption and anti-tax evasion
We comply with the UK Bribery Act 2010 and have zero tolerance for undertaking and/or facilitating bribery and/or corruption and will
always avoid giving or receiving improper financial or other benefits in our business operations. We also comply with the Criminal
Finances Act 2017 and have a zero tolerance approach to facilitation of tax evasion. We are committed to acting professionally, fairly
and with integrity in all our business dealings and relationships. Policies and standards were revised in 2019.
Fraud
We have maintained our investment in fraud prevention and detection systems which has resulted in some significant losses being
prevented, thus protecting our customers from becoming victims of fraud.
In 2019 we successfully updated our core banking platform with no increase in fraudulent activity impacting our customers. We also
worked in collaboration with the telecommunications industry to enhance our controls preventing the social engineering of customers
by fraudsters imitating Metro Bank.
Following the launch of our ‘Be Your Own Hero’ campaign in 2018, we continued to update our customers on new fraud trends as well
as providing hints and tips to enable them to protect themselves from becoming victims of fraud.
We anticipate that in 2020 we will see fraudsters targeting customers through social engineering attacks and utilising our digital
channels to make fraudulent payments. We have measures in place to help combat these, including technology to enable us to
proactively avoid, respond, recover and learn from fraud events. We work in close partnership with our cyber security team and
external cyber alliance agency in this area.
MEASUREMENT
The Financial Crime Risk team own our control framework with accountability for execution owned by our colleagues across the first
line. The Risk team define our risk appetite and recommend this to the Board for approval. In order to monitor the effectiveness of our
control framework and the alignment with our risk appetite, KPIs are defined, reported against and escalated through to the ROC. We
report monthly on our Bank-wide account opening pass rates, fraud volumes and associated operational losses through this process.
MONITORING
Our policy framework also sets out key requirements which must be complied with consistently to manage our risk.
We have risk-based audit and assurance plans to monitor the effectiveness of our controls. Dedicated and skilled resources are in place
to complete these reviews with findings and recommendations tracked through our financial crime governance structure.
We maintain policies and compliance standards, aligned to our legal and regulatory obligations, which also articulate our risk appetite.
Each year we complete a financial crime risk assessment to ensure that our financial crime control framework is commensurate and
robust to manage our inherent business risks across each financial crime area.
We participate in external industry forums, including being an active member of the Cyber Defence Alliance and liaise with government
bodies such as UK Finance, the Home Office, HMRC, Financial Conduct Authority (‘FCA’) and law enforcement to support our
identification of new and evolving risks.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
35
6. Regulatory risk
Definition
Regulatory risk is the risk of financial loss or reputational damage due to regulatory fines or penalties,
restriction or suspension of business, or cost of mandatory corrective action as a result of failing to
adhere to applicable laws, regulations and supervisory guidance.
For more information on our business model and strategy please see pages 6 to 9
Change since 2018:
Increase
Link to business model:
Diversified low-cost deposits
Risk-adjusted returns
APPETITE
We have no appetite for regulatory non-compliance. We aim to comply with all relevant rules, regulations and sourcebooks. We
have policies and procedures in place to ensure compliance with our regulatory obligations, and robust oversight and monitoring
to evidence compliance. Alongside this, we regularly engage with the PRA, the FCA, and other industry bodies to proactively manage
this risk.
CHANGE IN YEAR
The range and complexity of regulations with which we are required to comply has increased, and this continues into 2020.
During 2019, several key initiatives to implement regulatory changes were significantly progressed or completed. Notably, these
included PSD2, High Cost of Credit and Annual Statement of Fees, alongside the implementation of new measures required by the
Competition and Markets Authority (‘CMA’).
Our culture, built on transparency, fairness and customer focus, sits at the heart of how we deliver our vision and strategy, and this is
implicit in our approach to delivering regulatory change. It is the essence of who we are, and it helps us to meet our legal and
regulatory commitments.
MITIGATION
Avoidance
Our mitigation strategy favours risk avoidance through ensuring compliance with our relevant rules and requirements. We seek to
achieve this through the allocation of appropriate resources for regulatory compliance advisory and oversight activities. In instances
that challenge our ability to comply or remain compliant with a particular rule, we seek to collaborate and engage early with our
regulatory supervisors to reduce the risk to an acceptable level.
Our Board, ROC and Executive Leadership Team (via the Executive Risk Committee) continue to monitor and oversee our focus on
maintaining regulatory compliance. This includes periodic reporting on regulatory themes, regulatory changes on the horizon and the
regulatory environment, alongside supporting key risk measures and Board-approved policies and standards.
MEASUREMENT
We have policies, procedures and standards in place to ensure compliance with our regulatory obligations. This is supported through
our Enterprise Risk Management Framework by oversight and monitoring activity to evidence compliance.
In 2018, Metro Bank, supported by a ‘big four’ accounting firm, undertook a review of the classification and risk-weighting of certain
commercial loans secured on commercial property and certain specialist buy-to-let loans that had the combined effect of increasing
our risk-weighted assets by £900 million (‘RWA Adjustment’), as announced in January 2019.
The Prudential Regulation Authority (‘PRA’) and Financial Conduct Authority (‘FCA’) are independently investigating the circumstances
and events that led to the RWA Adjustment. The FCA are also investigating disclosure relating to our application for AIRB accreditation.
We are satisfied that the risk weightings have now been assigned properly. We are continuing to work on further enhancements to our
systems and controls.
MONITORING
As an industry, our regulatory obligations are increasing, including the introduction of minimum requirements for own funds and
eligible liabilities (‘MREL’), and the second Payment Services Directive (‘PSD II’), The Board and senior management are focused on
responding in a timely and effective way to these changes, including ensuring we are appropriately resourced and have sufficient
capability in these areas to not only implement the changes but also ensure we have clear visibility of the impact of changes on our
business model .
Strategic reportGovernanceFinancial statementsAdditional information
36
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk report
continued
7. Conduct risk
Definition
Conduct risk is the risk of treating customers unfairly, and delivering inappropriate outcomes that lead to
customer detriment.
For more information on our business model please see pages 6 to 9
Change since 2018:
Increase
Link to business model:
Unique culture
APPETITE
We have no appetite for conduct risk. We aim to provide customers with simple, fairly priced products delivered with consistently great
service and convenience. We are committed to avoiding customer harm.
CHANGE IN YEAR
Conduct risk has increased in 2019, driven by changes to complaints handling processes relating to fraud and social engineering, and
an increase in compensation for fraud instances.
MITIGATION
Simple and transparent products
Our simple, transparent product range continues to help ensure that customer outcomes are fair. Our colleagues are fully trained in all
relevant products and services and these are delivered to our customers through all channels, with openness and transparency. We
believe in looking after our existing customers and will never offer teaser rates or better rates for new customers that aren’t also
available to our existing customers. Our products are reviewed regularly to ensure they continue to meet customer needs and operate
as expected. We are committed to ensuring that our communications to our customers are clear, fair and not misleading. Sales
incentives in stores neither exist nor are perceived by colleagues to exist.
Make every wrong right
Our service-led business model gives us an inherent advantage. We are committed to doing the right thing for our customers and to
making every wrong right. When we identify issues that have caused customers detriment as a result of our own actions we will seek to
put these right.
In 2019 we made a provision of £12m for customer remediation, which predominately relates to non-compliance with certain
requirements to provide SMS warning alerts to customers regarding overdraft charges. The error was subsequently corrected, and the
CMA was informed. We pride ourselves on providing exceptional levels of service and we regret the impact on customers; any related
charges will be refunded during the course of 2020.
MEASUREMENT
We measure and monitor conduct risk through product governance activity, compliance monitoring, analysis of expressions of
dissatisfaction, root cause analysis and reporting through customer treatment forums. We also use our ‘Voice of the Customer’ surveys
to inform continuous improvement activity. KPIs are also defined, reported against and escalated to the ROC.
MONITORING
As well as monitoring the trends in the metrics outlined above, we constantly analyse the root cause of complaints and any underlying
trends, to identify opportunities to improve service provision while delivering consistently fair outcomes for customers.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
37
8. Model risk
Definition
Model risk is the potential for negative outcomes from random or systematic errors in model
development, input, calculation or use of outputs. Models are always approximations and never perfect
and there are therefore risks associated with using them. These risks range from their theoretical basis,
the data and methods used in their construction, the economic conditions under which they are
developed, and their use.
For more information on our business model please see pages 6 to 9
Change since 2018:
No change
Link to business model:
Diversified low-cost deposits
APPETITE
There is a low appetite for model risk. This is defined as part of our overall risk appetite and is regularly monitored by the Model
Oversight Committee (‘MOC’) and ROC. All models are evaluated on the basis of our model governance framework and detailed
procedures and target operating models are in place to manage model risk.
CHANGE IN YEAR
There have been no changes to the risk level during 2019.
MITIGATION
Governance
MOC is the designated committee for the management of model risk. The Model Governance Committee (‘MGC’) is the technical
committee overseeing the model risk lifecycle. Any material model is presented to the MOC for approval ahead of implementation or
model changes.
The MOC defines and approves standards relevant to model risk and recommends policies and model risk appetite to ROC for approval
on an annual basis. The MGC owns the minimum standards and target operating models to mitigate model risk and also defines roles
and responsibilities, with clear ownership and accountability.
The model governance function maintains a model inventory which records key features of models including ownership and review
schedules. The model governance function also tracks model risk and actions from both MGC and MOC.
Independent review
An independent model validation function is part of the Enterprise Risk Function. This team is independent from the Model Development
team and is responsible for reviewing the model development submissions and maintains a model validation action log to track model risk
mitigation plans. Models are also subject to internal and external audit.
MEASUREMENT
A set of KPIs are regularly reported and discussed at the MGC, MOC, ROC and Board. On a monthly basis the MGC reviews any material
validation actions and tracks their completion.
MONITORING
A dedicated Model Monitoring team is responsible for assessing the ongoing performance of credit risk models against pre-specified
tolerances approved by the MGC as part of the model monitoring standards. Model monitoring is regularly performed and results are
discussed at the MGC and MOC where actions are agreed and tracked to completion. Non-credit risk models are also subject to
monitoring according to metrics and a schedule agreed at MGC but this monitoring is carried out by the user areas concerned rather
than by the Model Monitoring team.
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METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk report
continued
In addition to our principal risks, we monitor other potentially significant or emerging risks
Emerging risks
CREDIT CYCLE/CYCLICAL RISK
The credit cycle is the expansion and contraction of access to credit over time. Credit cycle risk is the risk of our customers not being
able to access credit in adequate quantities when required, causing pressure on their cash flow and ability to meet credit obligations
when due.
Cycle risk is systemic, affecting a number of providers of finance, but also idiosyncratic, affecting specific individuals, businesses and
sectors. It typically does not have a tangible measure.
Credit cycles tend to drive the economic cycle which, over a period of time, has four distinct stages.
• Economic growth when credit is readily available
• Cycle peak when credit availability exceeds the underlying market demand causing over-gearing
• Economic contraction when credit availability is restricted
• Cycle trough when credit is severely restricted, preventing economic growth
It is widely accepted in the absence of a more direct measure that the impact of credit cycle risk is instead reflected in the value of real
estate assets.
Management and mitigation are achieved through our robust lending policies ensuring appropriate customer gearing levels are
maintained throughout the credit cycle. Additionally, the performance of individual exposures and the quality of supporting real estate
assets and other tangible assets are monitored regularly.
Portfolio monitoring and analysis are governed by a set of credit risk appetite metrics measuring key areas such as performance and sector
concentrations. Portfolio monitoring reports are provided monthly for review and challenge at senior management and Board level.
COVID-19 PANDEMIC
Given the inherent uncertainty over the length and scale of the pandemic it is too early to fully evaluate the impact of the situation. The
short term economic disruption, and potential for longer term economic slowdown, will result in a deterioration in credit risk profile
and higher than expected credit risk impairments. Additionally the situation has the potential to increase both the likelihood and impact
of our other key risks including operational, market and funding and liquidity risks although there has been no immediate significant
increase in our risk exposure in these areas. Our mitigation approach to all our key risks is outlined through pages 22 to 37 and these
mitigants will support the Bank in managing the effects of the pandemic.
We continue to focus on supporting our colleagues and customers through this period and the initiatives we have introduced,
including providing temporary forbearance as well as participation in other Government support measures, should also assist in
reducing the potential impacts.
CYBER RISK
Cyber risk management continues to be an area of key focus. We aim to maintain robust cyber security systems and control measures,
and seek a low level of risk in both of these areas.
To mitigate the risk we combine traditional information security controls with a cyber intelligence capability, and a proactive
partnership with law enforcement.
We continue to develop and embed our approach to managing cyber risk across the Bank, learning from intelligence sources and
industry peers to identify new and emerging cyber risks. We use a combination of automated tooling metrics with intelligence-led
insight to manage our cyber risk profile, enabling us to stay ahead of the continuously evolving threat of cyber threats in order to
protect our customers and the Bank.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
39
OPERATIONAL RESILIENCE
Recent disruptive events across the financial services industry, and beyond, evidence the importance of safe, resilient operations.
Increasing external complexities compound the risk exposure across the industry. In response we are committed to investing in the
continued enhancement of resilience controls and capabilities, so that we can continue to deliver consistently excellent service to
our customers.
Operational resilience will remain high on the regulatory agenda, with regulatory supervision activity expected in early 2020. The BOE,
FCA and PRA have, on 5 December 2019, released a shared policy summary and co-ordinated consultation papers on requirements to
strengthen operational resilience in the financial services sector, further indicating that this is a key priority for 2020 and beyond.
CULTURE AND PEOPLE
We know that our unique culture is what sets us apart. Our focus on exceeding customers’ and colleagues’ expectations by delivering
consistently great service creates an emotional attachment to our brand. Achieving this culture is dependent on attracting and retaining
the right people.
Given the challenges in 2019, there is a risk that we may not retain or attract colleagues in key roles that will support execution of the
Bank’s revised strategy. To address this, we are continuing to invest in our people and culture to ensure Metro Bank remains a great
place to work.
ECONOMIC CONDITIONS: BREXIT
The UK economy continues to face uncertainty resulting from the UK’s decision to leave the EU (‘Brexit’), which took effect on
31 January 2020. Brexit poses a risk to the UK economy in the short, medium and long term. It includes the risks of withdrawal from
the EU, negotiating new trade agreements and foreign investment. The impacts will not be immediately visible, but will affect the
economy over the months and years to come.
Underlying economic performance across the UK has, since the referendum, been better than initially projected. In 2019 employment
levels have improved and wage growth has outpaced inflation. There have been some property price decreases in London and the
South East and we expect house prices to remain subdued with low turnover. The overall picture supports a view that conditions for
lending in the consumer markets are stable, albeit with headwinds for reduced growth.
Business investment continues to wane and there are continuing structural changes to the retail sector and some healthcare sectors.
We continue to monitor external projections. Our impairment provision outlook includes an additional scenario and higher weighting
that reflects a worsening outlook for the economy. Using these and more severe outlooks we have stressed the lending portfolios to
provide a view on how the business may perform and thus ensure sufficient levels of capital and liquidity.
Direct operational impacts on us from the EU exit are limited but we are aware of indirect effects on our colleagues and customers.
We believe the UK’s continued provision of innovation and high-value services, the weaker pound and the relatively flexible labour
market should enable the UK to prosper longer term.
CLIMATE CHANGE
During 2019, as part of its Future of Finance project, the PRA indicated its initial expectations of firms on the subject of managing the
financial risks arising from climate change. It expects firms to take a strategic approach which will consider how actions taken today affect
future financial risks. Firms are asked to embed climate change considerations in their risk management and day-to-day operations.
Examples of how this may affect Metro Bank include:
• Change in risk on lending portfolios secured on property, arising from heightened energy efficiency standards in domestic and
commercial buildings
• Technology changes such as development of electric vehicles or renewable energy technology which may affect the value of
financial assets in these sectors (albeit Metro Bank does not hold any assets of any such companies as at 31 December 2019)
• Businesses to which Metro Bank has lent money may fail to adapt, disclose or mitigate the risks arising from climate change which
can result in climate-related litigation and may affect their ability to repay loans when they fall due
We have also observed activist investors/shareholders attempting to influence other banks to withdraw or not offer services to clients
considered to be contributing to the climate crisis.
The time horizons of the crystallisation of these risks are uncertain, but the scope and magnitude of risks from climate-related factors are
likely to depend on future scenarios — however, these will, at least in part, be determined by actions taken today. Where action taken is
insufficient or too late to achieve climate goals, there is potential for severe financial impacts to Metro Bank. Whilst these risks may be
mitigated by an orderly transition to a low-carbon world, there can be no certainty that all relevant parties will act in sufficient time.
We do not currently lend to carbon-intensive industries, nor do we lend to project finance initiatives and we have no plans to do so. As
a community-focused bank we know that climate change risk is becoming of increased importance to many of our stakeholder groups
and as such are developing our approach towards it. This includes working towards ensuring that climate change forms part of our
stress-testing scenarios.
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40
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Our stakeholders
SECTION 172 STATEMENT
The Board considers the following stakeholder groups
relevant when making decisions and these are aligned with
the stakeholder groups which are material for ESG purposes:
Our FANS
Our colleagues
Our business model depends upon
attracting customers and turning them
into FANS. Our reputation and creating
FANS is at the core of our values.
As a growing business we need to attract
new talent. We also want to ensure our
existing colleagues are happy and
engaged so that they provide excellent
service to each and every customer.
Our investors
We engage openly and transparently with
our investors, who are helping us to grow
and shape the Bank for the future.
Our communities
We are proud to be an integral part of the
communities we serve.
Our Regulators
Following our Regulators’ Principles,
Rules And Guidance helps us to put FANS
at the heart of everything we do.
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.
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 to our decision making. This year the Board
spent a lot of time debating the future direction of the Bank and
details of our new strategy can be found on page 10. The Board
ensured in-depth oversight of the process and set up a Strategic
Review Committee to help manage this. An outline of our
stakeholders and how they were taken into account when
making the Board’s principle decisions in 2019 can be found on
pages 41 to 43.
Metro Bank’s culture is what sets it apart from other banks and
our AMAZEING behaviours (as set out on page 44) underpin
this. These behaviours are embedded throughout the
organisation and ensure that all colleagues are mindful of doing
the right thing for all our stakeholders. The Board has oversight
of these behaviours and monitors how they are being lived
through results of; the Voice of the Customer Survey, Voice of
the Colleagues Survey and reports of expressions of
dissatisfaction from our customers.
The Board takes all stakeholders into account when making
decisions. No two decisions are the same, and the interests of
our stakeholders need to be carefully balanced with the needs
of the Bank. To ensure the Board has the right information to do
this, in early 2020 we updated our Board paper templates to
ensure that management provides as much information as
possible as to which stakeholders will be impacted and in what
ways. We know we have more work to do in this area and we
will work to continually refine and improve the information
provided to the Board, to help them make the best possible
decisions, for the Bank and its stakeholders.
When Directors join the Board they are given a detailed and
bespoke induction, and this includes a comprehensive
introduction to Director duties.
All Directors also took part in refresher training this year, which
reviewed their duties under s.172 amongst other governance
and regulatory matters.
The Board discharges its duty to maintain a reputation for high
standards of business conduct by having oversight for the
policies and procedures by which the Bank is run. More
information on these policies can be found in the table on page
49. Information on the reporting up to the Board on modern
slavery can be found on page 48.
The annual Board evaluation enables Directors to feed back to
management on whether they are receiving the right amount of
information to enable them to discharge their duties under
S.172 and the opportunity to set out information which they
would like to better inform their decision making.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
41
Stakeholder engagement
FANS
Stakeholder engagement during 2019
Key considerations and/or outcomes on principal decisions
At Metro Bank we encourage customer feedback and
customers are regularly invited to complete a survey to let us
know their thoughts. The ‘Voice of the Customer’ surveys are
analysed and the data is provided to the Board to help them
make decisions on how we can continue to create FANS.
The Board also received regular updates and analytics on
expressions of dissatisfaction to help them understand areas
that require improvement and debate opportunities for
innovation.
For more information on our FANS and how we engaged with them
in 2019, go to page 44.
Colleagues
During 2019 we were pleased to announce the launch of
several initiatives which focus on enhancing customer
experience and convenience.
Initiatives included MCash, the new on-demand cash
collection and delivery service, and Business Insights, the
artificial intelligence-led, in-app account insights tool for
business customers.
Stakeholder engagement during 2019
Key considerations and/or outcomes on principal decisions
When making decisions, the Board takes the impact on
colleagues very seriously. They receive regular updates on
colleague attrition, stress and sickness levels and the
outcomes of the ‘Voice of the Colleague’ survey to help
decision making.
We recognise that as we grow so does the demand on our
colleagues and a major factor on all decisions is the impact of
increased workload on our people. We try to ensure that the
roll out of new projects, such as the upgrade to our core
banking systems, is timed appropriately to ensure that no
undue pressure is put on colleagues.
We know that you can’t be people-people without AMAZEING
colleagues. As a growing business we constantly need to
attract new talent and want to ensure our existing colleagues
are happy and engaged.
During a period of significant change for the Bank in 2019,
colleague communication has increased to ensure colleagues
feel informed and are best placed to help our customers. This
is done through:
•
‘Voice of the Colleague’ surveys
• Have your say cafés, colleague meetings with leaders
• Online Q&As with leadership (Yam Jams)
•
Internal news (Revolution Updates)
This year, Stuart Bernau took on the role of the Non-Executive
Director, responsible for workforce engagement. Action taken
following feedback from colleagues throughout 2019 can be
found on page 50.
For more information on our colleagues and how we engaged with
them in 2019, go to page 44.
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METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Our stakeholders
continued
Communities
Stakeholder engagement during 2019
Key considerations and/or outcomes on principal decisions
Our communities bring Metro Bank to life and our stores are
an important part of our growth.
The Board approved the opening of six stores during 2019 and
met with the people in our communities at Grand Openings.
In deciding where to build new stores 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.
During 2019 we continued to engage through:
• New store grand opening
• Money Zone, our educational programme
• Networking and community events
• Days to AMAZE volunteering
For more information on our communities and how we engaged
with them in 2019, go to page 46.
Investors
Stakeholder engagement during 2019
Key considerations and/or outcomes on principal decisions
In a difficult year for the Bank, it has been more important
than ever to engage with our investors and to share our vision
for the future and understand their concerns.
This year the Board met with investors at:
•
•
the 2019 Annual General Meeting;
the General Meeting where investors voted to approve a
£375 million equity raise;
• quarterly results meetings;
•
investor roadshows and conferences;
• proxy adviser and institutional investors meetings;
• governance breakfasts; and
• post 2019 AGM engagement via letter, phone calls and
face-to-face meetings.
The Board proactively engaged with investors in advance of
our equity and debt capital raises during 2019. The Chairman
and the Senior Independent Director ensure that the feedback
from shareholders is fed back to Board meetings and this is a
key consideration in our decision making.
We also carried out a programme of engagement following
our 2019 AGM to understand the rationale for voting against
those resolutions which received less than 80% of votes in
favour. More details about how we engaged with our investors
following this can be found on page 63.
The Board recognises why investors value independence and
diversity on Boards and this year was pleased to announce
several new appointments. More information on the Board
and appointments in 2019 can be found on page 59.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
43
Regulators
Stakeholder engagement during 2019
Key considerations and/or outcomes on principal decisions
The Board and management have held regular meetings with
the Prudential Regulation Authority, Financial Conduct
Authority, Payment Systems Regulator and Bank of England
and we have open, transparent and constructive relations with
our regulators. Complying with the relevant rules and
regulations is of the utmost importance in Board decisions.
We have consulted with the PRA and FCA on all major Board
changes in the year.
We have also created a Regulatory liaison function and as part
of that have brought in external Subject Matter Experts to
manage the relationship with the FCA and PRA on an
ongoing basis.
We also frequently engaged with the FCA and PRA on day to
day business matters.
The Board was pleased to issue a £350 million MREL-eligible
debt issuance in October to ensure continued compliance
with the relevant regulation as well as an equity capital raise
in June.
Suppliers
Stakeholder engagement during 2019
Key considerations and/or outcomes on principal decisions
Engagement with suppliers starts at the procurement stage
and the relationship is then continually reviewed through
meetings and site visits.
For more information on our suppliers and how we engaged with
them in 2019, please go to page 48.
In 2019, the Board announced its decision to move away from
the provision of branding marketing and architectural design
services by InterArch. As part of this decision the Board has
considered the views and interests of wider stakeholders,
including the regulator, investors, colleagues and customers.
The Board has also received regular updates on the tender for
these services by new suppliers.
The Audit Committee reviews the Group’s supplier payment
practices and, as required by law, we publicly report this
information on a bi-annual basis. For the last reporting period
between July and December 2019, we had an average time
for paying invoices of 29 days. We continue to review and
improve processes to enhance payment terms and reduce
invoice volumes.
In addition, the Board took the interests of all stakeholders into account when agreeing on the new strategy for the Bank. More
information on our new strategy can be found on page 10. In considering the new strategy the Board considered all its stakeholders
and how any transformation work would affect them. The Board is satisfied that the new strategy continues to enhance products and
channels for our FANS and supports colleagues to enable them to deliver the highest levels of customer service every day. The Bank is
a proud member of the communities we serve and this will remain essential to our long-term plan. The Board is also confident that the
new strategy will deliver acceptable outcomes for investors and suppliers and will ensure that the Bank remains compliant with the
relevant rules and regulations set out by its regulators in the long term.
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METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Our stakeholders
continued
OUR PRIORITIES
Our approach to environmental,
social and governance (‘ESG’) policy
at Metro Bank is simply about doing
the right thing. As a growing bank we
have the opportunity to build a bank
that puts FANS first and supports our
local communities while being open
and transparent about our responsible
business activities. Our AMAZEING values
are aligned to this and underpin our belief
that we should act with integrity, whilst
being the most professional bankers.
Oversight of ESG is at Board and Executive
team level, who approve the policies
and procedures by which we operate.
In addition, the Board is responsible for
setting the Bank’s strategic direction,
which has a major impact on our ESG
priorities and how we manage them.
MATERIALITY
The following matrix shows our material
ESG priorities which inform our reporting
on responsible business. The matrix
outlines the potential risks and
opportunities that might inform the
decisions we make. Our priorities for this
year remain unchanged:
• Our FANS;
• Our colleagues;
• Our communities;
• Data privacy and security;
• Our planet; and
• Our suppliers.
Medium materiality
High materiality
Our FANS
Our colleagues
Our planet
Our communities
Low materiality
Medium materiality
Data privacy
and security
Our suppliers
Relevance to Metro Bank
l
s
r
e
d
o
h
e
k
a
t
s
o
t
e
c
n
a
t
r
o
p
m
I
Our
FANS
As we have grown over the last 10 years,
one thing has remained the same and
that is our commitment to great customer
service. Turning customers into FANS is
at the heart of everything we do and we
will continue to keep our products simple
and our rates and charges transparent,
with stores open 7 days a week and
open from 8am-8pm on weekdays.
Our mobile and online service achieved
the top spot in the CMA’s Service Quality
Survey among personal and business
current account holders in February
2020; we also ranked in the top two
for overall service and store service
for personal and business customers.
We were also awarded ‘Best All Round
Personal Finance Provider’ at the
Moneynet Personal Finance Awards 2019.
We recognise and value our diverse
customer base. We support our
vulnerable customers and we work hard
to train our colleagues to make sure
they give the best advice and support.
We monitor our customer service
through our ‘Voice of the Customer’
survey and analytics programme to make
sure we are surprising and delighting
all our FANS and delivering the best
customer service every single day.
Our
Colleagues
Our culture and our AMAZEING
behaviours are at the heart of our
business. Our colleagues learn about
this on their first day through our cultural
engagement programme, Visions.
We want Metro Bank to be a place
where everyone can be at their best,
and our inclusive approach celebrates
diversity. Our colleagues represent the
communities we serve and the locations
where we are based. This year we are
proud to say that we have won a number
of awards, including ‘Most Inclusive
Organisation’ at the British LGBT+ Awards
2019 and have been shortlisted for the
following: ‘Best Large Organisation for
business culture’ and ‘Best Learning
Initiative’ at the Business Culture awards,
‘National Top 10 LGBT+ Network’ at the
British LGBT+ Awards 2019 and ‘Social
Mobility Initiative of the Year Award’ at
the European Diversity Awards 2019.
Our AMAZEING behaviours
A Attend to every detail
M Make every wrong right
A Ask if you’re not sure –
bump it up!
Z Zest is contagious, share it!
E Exceed expectations
I
Inspire colleagues to create
FANS!
N Nurture colleagues so they
grow
G Game-change because this
is a revolution
COLLEAGUE NETWORKS
Our colleague networks include Women
on Work (‘WOW’), Mpride for our LGBT+
colleagues, Mbrace for our Black, Asian
and Minority Ethnic (‘BAME’) colleagues
and Mparents for all working parents,
parents-to-be or non-parents. All groups
are open to all colleagues, regardless of
race, gender or sexual orientation and
all have the aim of helping everyone to
be their very best. The networks hold a
variety of internal and external events that
provide support to network members and
raise awareness across our business.
Each network is supported by an
Executive Sponsor, providing a link
between the inclusion networks and
senior management. Our Inclusion
Committee oversees the activities
of our three inclusion networks and
facilitates an intersectional approach to
our diversity and inclusion activities.
ETHNIC DIVERSITY AT METRO BANK
Asian British
Asian Other
Black British
Black Other
Mixed British
25.1%
7.6%
6.8%
2.0%
2.4%
Mixed Other
White British
White Irish
White Other
Undisclosed
2.2%
40.6%
0.7%
8.9%
3.7%
SOCIAL MOBILITY
We are incredibly proud of the work we
have been doing on social mobility. As
well as being shortlisted at the European
Diversity awards, we work with a range
of charities and organisations including
the Armed Forces Covenant, ‘Switch the
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
45
Play’, the Mayors Fund and Code 4000.
We signed the Armed Forces Covenant
and were assigned Bronze status. We ran
Business Insights days for ‘Switch the Play’,
who offer support to elite and aspiring
athletes and players as they transition
to a life outside of sport. We also ran
monthly Business Insights days with the
Mayors Fund supporting young people
from low income backgrounds. Finally,
in 2019 we recruited our first colleague
through the Code 4000 programme,
supporting offenders to return to work.
GENDER REPRESENTATION BY GRADE
Executive
leadership
team
Senior
managers
All
colleagues
4 (50%)
23 (34%)
1,662 (46%)
4 (50%)
44 (66%)
1,921 (54%)
GENDER DIVERSITY
In line with the Hampton-Alexander
Review, we have made good progress
with our gender diversity on the Board,
with 30%, as at the date this report, of
members being female (2018: 17%). We
have also exceeded its target of 33% of
female representation on the Executive
Leadership Team and Senior Leadership
Team (direct reports to the Executive
Team) and we are proud to be a signatory
of the Women in Finance Charter.
During 2019 we published our gender
pay gap figures for the second time, in
line with the Equality Act 2010 (Gender
Pay Gap Information) Regulations 2017
and details can be found on our website.
For more information please visit
metrobankonline.co.uk.
Further information on our gender pay
gap figures can be found in the Directors’
remuneration report on pages 79 to 106.
We have a range of initiatives focused on
supporting women into leadership roles.
As well as our WOW network, we run
mentoring circles, leadership seminars on
key topics and provide diverse candidate
shortlists to hiring managers. We also
offer flexible working arrangements
and 14 weeks’ parental leave for all
new parents, regardless of gender.
We have also signed the Investing in
Women Code which is a commitment
to support the advancement of
female entrepreneurship in the United
Kingdom by improving female access
to tools, resources and finance from
the financial services sector.
LISTENING TO COLLEAGUES
We work hard to understand how our
colleagues feel about Metro Bank as
an employer, as a place to work and
as a provider of banking services. Each
year we run a ‘Voice of the Colleague’
engagement survey. In our 2019 survey,
over 85% of colleagues took the time
to share their views. The Executive
Leadership Team and the Board closely
monitor the results of the survey and
the text analytics review to continuously
improve our colleagues’ experiences.
Headlines from this year’s survey:
• 91% of colleagues feel Metro Bank is an
inclusive employer and that they can
be themselves at work
• 92% of colleagues feel Metro Bank is a
good place to work
• 92% of colleagues feel encouraged to
escalate an issue or ‘bump it up’
• 94% of colleagues understand how
their business area contributes to the
overall success of Metro Bank.
During 2019 we appointed Stuart Bernau
as the designated Non-Executive Director
for workforce engagement. More
information on workforce engagement
in 2019 can be found on page 50.
DEVELOPING CAREERS
During the year, we created over 700
new jobs and promoted more than
630 colleagues. We’re committed to
supporting colleagues and investing in
their careers, and over the past 12 months
have helped 126 new leaders ‘Learn to
Lead’, supported over 247 colleagues
on fast-track schemes and specialist
studies, and enabled 380 colleagues to
gain professional banking qualifications.
In 2019, we welcomed a second cohort
of colleagues onto our MSc programme
in Retail and Digital Banking, which we set
up with Cranfield School of Management
in 2018. The first year saw 25 colleagues
complete the first year of a two-year
part time degree. A fifth of colleagues
who signed up in 2018 have also since
gone on to achieve promotions within
the Bank. The course is a fully funded
master’s programme, and the UK’s first
masters’-level apprenticeship for senior
banking professionals, funded from
the Apprenticeship Levy. This year, for
the second cohort, the opportunity to
join the programme was opened up to
applicants from other banks, who will
be learning alongside our colleagues.
We also continued to support the cashier
apprenticeship programme which saw
50 apprentices graduate, a number
of whom achieved a distinction.
REWARDING AND RETAINING OUR
COLLEAGUES
We know that our colleagues are
integral to growing our business.
Our reward principles, which reflect
this and apply to all colleagues, are
designed to reward our colleagues for
high performance and retain the talent
upon which our business depends:
• Pay fair salaries and offer strong career
and growth opportunities in an
AMAZEING culture
• Make everyone an owner, aligning
them to the Bank’s long-term vision
• Reward colleagues based on Metro
Bank’s culture and performance and
how they behave and deliver, both as
part of the team and as an individual
• Keep reward as simple as possible, with
one approach for all
• Take a retail approach to variable
reward: no excessive cash bonuses or
linear incentives which can skew
behaviours and encourage
unnecessary risk taking
POLICY
The Board’s Nomination and
Remuneration Committees set policy
and monitor implementation relating
to their areas of responsibility.
Our Whistleblowing Policy ensures that
all colleagues are encouraged to raise
any concerns they may have about the
conduct of others in the business or
the way in which the business is run in
good faith and without fear of unfair
treatment. This protects our colleagues
and customers, both of whom are integral
to the continued success of the Bank.
In 2019, we engaged an independent
third party to set up a confidential hotline
where colleagues can raise concerns.
We have developed, and are committed
to, our Recruitment and Selection Policy,
which outlines our responsibilities in
accordance with recruitment-related
legislation, regulation and our objectives.
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46
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Our stakeholders
continued
Money Zone
We are very committed to playing
an active role in supporting the
communities where we operate.
A very important part of this is
Money Zone, our financial education
programme for children.
Money Zone teaches primary school
children how money, banking and
personal finance work. The
programme consists of four fun-
packed sessions, which are ideal to be
incorporated to schools’ personal,
social and health education curriculum
and are linked to the wider
government curriculum guidelines.
The first three sessions are provided by
one of our colleagues and take place
in the children’s classroom. The fourth
session takes place at one of our
stores, where children get to meet real
Metro Bank cashiers, step inside a
vault, experience our Magic Money
Machine and more.
In 2019 our colleagues hosted over
1,500 Money Zone events, where they
taught over 45,000 Stage 2 (Years 4
and 5) pupils financial skills, helping
them understand how money, saving
and banking work. Children got to
learn about different types of banking
accounts, basic tips for managing
money, and other useful tools to help
shape a money smart generation.
HEALTH, SAFETY AND WELLBEING
Our Health and Safety Policy protects
our customers and colleagues and
ensures we are compliant with our
statutory duties and responsibilities.
All colleagues benefit from health and
safety training when they join Metro
Bank. Colleagues are encouraged to
participate in mental health awareness
training and also have access to Employee
Assistance and the independent and
confidential Bank Workers Charity
contact line that provides information,
advice and expert support services.
Our People Partners have also had
Mental Health First Aid training to
support with colleague conversations.
Our
Communities
During the year we have opened six
new stores, and were proud to bring
the revolution in British banking to
the Midlands, the North and into
Wales. We strive to make a positive
difference: through the local colleagues
we employ, the local businesses we
work with and the causes we support.
By helping our communities thrive
we believe our business will too.
We hold a Grand Opening, where we invite
the local community to come and see
each new store and meet our colleagues.
We also hold events throughout the year
in all our stores including Halloween,
Easter and Christmas craft events.
The signage and Money Zones courses
are in English and Welsh in our new
stores in Wales and we are also offering
colleagues the chance to learn Welsh
so that we can continue to surprise
and delight our new Welsh FANS.
We are passionate about working with
the kids in our communities and over
45,000 young people have taken part in
our free financial education programme,
Money Zone, during 2019. Money Zone
introduces pupils to financial skills, helping
them understand how money, saving
and banking work. Our sessions are
incorporated into the school curriculum,
and are linked to the wider government
curriculum guidelines. We are proud to
offer these courses in English and Welsh.
Our official charity partner for 2019
was Teenage Cancer Trust, chosen
following a vote by colleagues in April.
Our colleagues have taken part in various
fundraising events through the year,
raising over £100,000, and our customers
have helped us support these charities
through donations via our Magic Money
Machines. We also supported Children
in Need, with over 100 colleagues
volunteering their time to stay late at
our Ilford call centre to take donations.
We are proud to encourage colleagues to
take ‘Days to Amaze’, where our colleagues
give time out of their working day to
support the causes close to their hearts.
As a major employer, investor and
purchaser of goods and services, we
make a significant contribution to the
UK exchequer. We made a total tax
contribution in 2019 of £123.1 million,
which comprised of £78.1 million of taxes
we paid and £44.9 million of taxes we
collected on behalf of the government.
We recognise and value the benefits
for society that arise from fair, effective
and predictable tax regimes. We are
committed to acting with integrity,
honesty and transparency in all
matters related to tax and ensure
we adhere to the highest standards
of corporate governance.
Data Privacy
and Security
Our business is built on creating FANS
and our FANS recommending us to
their friends, family and colleagues.
We understand how much our
customers value the protection
of their data and we take it just as
seriously as protecting their money.
Our Chief Information Officer is
accountable for the delivery of secure
and resilient IT services to our FANS and
colleagues. Performance is reported
and monitored by the Executive
Leadership Team and Board.
We do everything we can to keep our
customers’ details safe and to reduce
the risk of financial crime, both against
us and our customers. This includes
using market-leading technology,
which gives us confidence we are
speaking to a genuine customer.
FRAUD PREVENTION
At Metro Bank we take our customers’
security extremely seriously and we
have a range of safeguards in place to
help defend them against fraud. We
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
47
apply a multi-layered approach to fraud
controls in the majority of areas, some
of which are visible to the customers
and others which work behind the
scenes. We are constantly reviewing,
updating and investing in these in light
of increasingly sophisticated tactics from
fraudsters. We continue to invest money
into this to protect our customers.
We run our ‘Be Your Own Hero’ campaign
to help educate customers on how to
protect themselves from fraud. We also
work closely with UK Finance who work
across the banking industry to tackle
fraud. For example, we support the
‘Take Five’ campaign, which encourages
customers to stop and think before
acting on suspicious instructions.
We were also in the first tranche of
banks to sign up to the Authorised Push
Payment Voluntary Code in May 2019.
BUSINESS CONTINUITY
Our model is built to ensure that customers
have access to their banking when they
need it, with access to our app, online
banking, 24/7 telephony 365 days a year
and stores open early until late 362 days a
year. We work with multiple call centres,
data centres and offices in order to ensure
no single point of failure in our operations.
We have processes in place in the
unlikely event that an incident occurs.
This includes colleagues being able to
relocate to other stores or locations
and a call cascade tree which enables
urgent messages to be passed to
colleagues, including out of hours, which
is tested biannually. A member of the
management team is also on call 24/7
to react to any out-of-hours incidents,
who is empowered to escalate where
necessary. Our Customer Support and
Operational Risk teams are responsible
for putting our business continuity
policy and arrangements into practice.
Our
Planet
As we grow, climate change is an
important consideration for our future.
Bringing a revolution to British banking
means thinking differently and making
it easy and convenient for our FANS
to reduce their environmental impact
and minimising our own impact on
the planet is a vital part of that.
We are committed to undertaking
further work to understand the risks and
opportunities for Metro Bank arising
from climate change. Environmental
issues are important to our colleagues
too and this year a group of colleagues
from across different business areas have
come together to form the first Metro
Bank Environmental Committee. The
Committee has been set up to improve
colleague environmental awareness
and to encourage sustainable business
practices throughout the Bank.
We disclose our greenhouse gas
emissions that we are responsible for
in line with the requirements of the
Companies Act 2006 (Strategic and
Directors’ Reports) Regulations 2013.
2019
(TCO2e)
2018
(TCO2e)
2017
(TCO2e)
2016
(TCO2e)
baseline
year
1,699 2,306
1,312
1,160
4,247 4,064 4,668 5,044
5,946 6,369 5,980 6,204
3,555 3,803
3,002
2,417
1.67
1.67
1.99
2.57
GHG
emissions
Scope 1
emissions
Scope 2
emissions
Total
Scope 1&2
GHG
emissions
Full Time
Employees
(FTE)
Total
Scope 1&2
emissions
per FTE
This is our fourth year of GHG reporting
and is aligned with our financial year,
1 January 2019 to 31 December 2019.
There has been a 0.4% increase in
absolute GHG Scope 1 and 2 emissions
in 2019 from the baseline year, 2016.
However, when viewed as an intensity
metric, our Scope 1 and 2 emissions have
reduced by 34.8% per full time equivalent
employee. It should be noted that some
of this improvement in carbon intensity
is due to changes in the energy mix
used by our suppliers of electricity and
some is through the decoupling of our
emissions from the number of employees.
We chose operational control as our
consolidation approach and our boundary
includes all entities and facilities either
owned or under our operational control.
The methodology used to calculate our
CO2e emissions is the operational control
approach on reporting boundaries as
well as utilising the carbon emissions
methodology as defined by the World
Resources Institute/World Business
Council for Sustainable Development
(WRI/WBCSD) Greenhouse Gas Protocol
(GHG): A Corporate Accounting
and Reporting Standard, Revised
Edition. Emissions factor data source:
BEIS 2019 conversion factors.
Where properties are covered by our
consolidated financial statements but
are leased to tenants who are invoiced
for utilities, these emissions are not
included in the GHG calculations. For
properties where we are the tenant,
the landlords of these properties
provide us with utility bills which are
included in our emissions reporting.
Scope 1 covers direct combustion of
fuels, predominantly mains gas, fuel use
within company-owned vehicles and
hire cars as well as refrigerant use and
associated fugitive emissions. Scope 2
covers the emissions from electricity
purchased used on our Bank premises.
We’re continually looking for ways in order
to reduce our energy consumption as we
open new stores. Some of our initiatives
include:
• reducing our plastic consumption and
general waste requirements; colleagues
have been given the option and are
encouraged to use sustainable bamboo
cups, provided by the Bank;
• coffee bins have been installed where
possible to allow us to recycle coffee
grounds;
• electric car chargers have been
installed at our new Merry Hill store and
also at our Holborn location to service
our fleet vehicles. Electric car chargers
will continue to be incorporated into
store design wherever possible;
• an IT initiative has been rolled out to
reduce the power usage of desktop
computers if they are left on overnight;
• all new stores have LED controlled
lighting installed, reducing energy
consumption and repeat maintenance
to lamps;
• all store lighting is controlled and is
reduced and turned off when the store
is not occupied. A roll out of motion
detector installation to ensure
unoccupied spaces are not illuminated
has also been undertaken;
• all store AC systems are thermostatically
controlled and are monitored with a
monthly review undertaken to ensure
correct operation; and
• all fleet vehicles will be electric or
hybrid by the end of 2020 with all high
carbon emission vehicles off fleet by
the end of Q1.
Strategic reportGovernanceFinancial statementsAdditional information
48
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Our stakeholders
continued
We also have a number of initiatives
seeking to reduce levels of waste and
water usage, including:
• working with a supplier that sends zero
waste to landfill to handle over 90% of
our waste;
•
installing hand dryers in store
washrooms and installing single-leaf
dispensers to reduce paper waste and
carbon footprint;
• fire fighting equipment is being
replaced with new chemical-free
equipment that requires fewer units
and can be refilled locally; and
• where possible, replacing our
bathroom taps with taps that turn off
automatically to minimise water usage.
Enabling our FANS to manage their
finances online, on our app and over
the phone, is integral to our business
model. The continual development of
these services has not only reduced
excess waste by enabling paperless
banking, but has also reduced the
need to come into stores to access
our services, thus helping to reduce
the carbon footprint of our FANS.
We believe our business model increases
our resilience to climate-related risk.
Our focus on supporting small and
medium-size enterprises, exclusively
based in the UK, helps to mitigate our
exposure to material international
environmental risks. We consider a
variety of issues when working with new
customers, including exposure to high-
risk industries. Such industries include
mineral extraction, where for example,
any decision regarding the account
would require further investigation and
escalation to management. We do
not currently lend to carbon-intensive
industries and have no plans to do so.
We’ve reported on our emissions
in line with the requirements of the
Companies’ Act 2006 (Strategic and
Directors’ Reports) Regulations 2013.
Our
Suppliers
It is important to us that we work with
suppliers who uphold our values. We
take this seriously at the procurement
stage and throughout our business
relationships and 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 abuse.
It is important to us that we collect details
about the control environments that our
suppliers operate and as a member of the
Financial Services Supplier Qualification
System (‘FSQS’) we make it as easy as
possible for our suppliers to share these
details with us. FSQS helps our suppliers
by reducing duplication of effort in
responding to buyer due diligence
requests, and benefits us by sharing
resource and best practice with other
buyers. We also conduct regular meetings
and site visits to ensure that suppliers
are upholding the highest standards.
ANTI-BRIBERY AND CORRUPTION
We are committed to maintaining the
highest standards of ethics and integrity.
Any act of bribery or corruption is
unacceptable and we take the same
approach with our suppliers. We
protect our customers and the Bank
by setting out and regularly training
our colleagues on our Anti-Bribery and
Corruption Policy; this helps us to make
sure all our colleagues are conducting
business in an honest and ethical
way, which reflects our zero tolerance
approach to bribery and corruption.
MODERN SLAVERY
Our philosophy is to conduct all business
in an appropriate manner. 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 continue to be committed
to acting professionally, fairly and with
integrity 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.
During 2019 we continued to follow
and progress our processes to support
our Modern Slavery Policy, including:
• publishing Metro Bank’s third Modern
Slavery statement, approved by the
Board and signed by the CEO, on our
website in June 2019
(metrobankonline.co.uk);
• delivering the second report of the
Modern Slavery Champion to the Board
in May 2019, including:
– updating on progress against the
Modern Slavery Statement and the
Action Plan agreed in 2018;
– looking to develop how we report
on aspects of our business, beyond
supply chains, including in relation
to our customer and colleague
relationships; and
– the first review of our Modern
Slavery Policy, established in 2017;
• continuing to develop FSQS to support
due diligence on suppliers before
contracting and ongoing during the
relationship, on a risk basis. During 2019
we identified that we had 2,266 active
third-party relationships. Of these 95%
are UK based and 4.85% are in countries
which do not rank within the Top 60 of
the Modern Slavery Prevalence Index or
do not have a Vulnerability to Modern
Slavery score over 50 (as per the 2018
Modern Slavery Index) so are considered
lower risk. We therefore focused on the
remaining four suppliers who are based
in higher risk countries. We undertook
enhanced due diligence and as a result
we have exited one supplier, are in the
process of exiting a second, have
received assurances from a third and are
still engaging with the fourth. We also
followed up on suppliers with turnover
in excess of £36 million, identified as not
having published a Modern Slavery
Statement; if responses are not
forthcoming, we will consider exiting
these relationships. We have identified a
number of other relationships where we
consider there is vulnerability to modern
slavery, including reviewing their
compliance with the Modern Slavery Act
2015 and site visits to assess any red
flags. In these cases, either Modern
Slavery Statements were published on
their website or no red flags were
identified; and
• all colleagues were required to
undertake modern slavery computer-
based training during 2019.
Our Modern Slavery Statement is
available at metrobankonline.co.uk.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
49
Policy
Description
Treating Customers Fairly
Lending Policies (including
residential mortgage, retail
unsecured finance, private
banking credit, commercial,
arrears management)
Anti-Money Laundering/
Counter Terrorist Financing
Diversity and Inclusion
Recruitment and Selection
Board Diversity
Health and Safety
Whistleblowing
Anti-bribery and Corruption
Conflicts of Interest
The policy reflects our goal to create FANS through the delivery of
consistently AMAZEING outcomes. This philosophy is embedded in our
culture and is an integral part of our business model and strategy. Our zero
tolerance for unfair customer outcomes is underpinned by our Conduct Risk
framework which was approved by the Board.
The policies make sure that we’re lending in the right way.
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.
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.
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.
The policy sets out our commitment to diversity and inclusion for the Board.
This is based on our knowledge that a diverse Board, appointed on merit,
with a broad range of skills, backgrounds, knowledge and experience, will be
a more effective and responsible Board.
The policy protects our customers and colleagues. It recognises our
statutory duties and responsibilities under the relevant Health and Safety and
Welfare legislation.
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.
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.
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.
ESG priorities
1 2
1
1 2
2 3
2
2
2
2
2
2
Anti-tax Evasion
The policy sets out our zero-tolerance approach to tax evasion.
Business Continuity
Data
Procurement & Supplier
Management
Modern Slavery
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.
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.
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.
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 3
1 2 3 4 6
1 2 4
1 6
3 6
1 Our FANS
2 Our colleagues
3 Our communities 4 Data privacy and security
5 Our planet 6 Our suppliers
Strategic reportGovernanceFinancial statementsAdditional information 50
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
WORKFORCE ENGAGEMENT
Letter from the
Non-Executive
Director for workforce
engagement
I was pleased this year to be appointed
as the first Metro Bank Non-Executive
Director for workforce engagement.
During my time on the Board I have
been privileged to meet so many
wonderful colleagues and this
was a great opportunity to engage
in person, and digitally, with the
workforce and deliver their feedback
to my fellow Board members.
Further to the introduction of the
provision in the latest UK Corporate
Governance Code for the Board to
have a method through which they
engage with the workforce, the Board
agreed that the most appropriate
method for the Bank was appointing
a designated Non-Executive Director.
Our aim was to create an environment
where colleagues could participate
and have their voices heard through an
authentic dialogue with leadership.
I worked closely with the Company
Secretariat on this initiative and
together we created a varied plan of
engagement, with a view to getting
across different parts of the business,
and enabling an independent channel
for colleagues to not only have their
views heard by the Board, but ultimately
with the aim of adding value to the
decision making. Our activities during
the year are set out in the calendar
to the right. This was designed to
complement the activities that the
Bank already undertook, reflecting the
importance that we place on colleagues
being at the heart of our culture.
After attending each of the sessions
and listening to colleagues, I reported
to the Board during the year and this
helped inform debate. At the end
of the year I produced a summary
report setting out the year’s activities,
highlighting the colleague feedback,
the response management had given
to the matters raised by colleagues and
what further action was required, if any.
I was pleased to be able to take action on
the opportunities raised by colleagues and
was especially pleased with the actions
taken as to how we communicate with
colleagues about changes in the Bank.
Following their feedback, we now include
more detailed FAQs when we make
changes as a business, and also hold
online Q&A sessions with the ELT and
myself (Yam Jams), so that we engage
the workforce at the earliest possible
stage. We rounded off the year with a
communication from me to all colleagues
on Yammer setting out the activities
and progress made during the year.
It has been a busy year for the Bank with
many changes and, as ever, we have
taken colleagues into consideration in
every decision we have made as a Board.
I also attended an external roundtable
session earlier in the year which was
a great opportunity to reflect on the
effectiveness of the work we had done
so far with our peers. For 2020, as the
role and engagement with the Board
evolves, we look forward to engaging
with our colleagues on the Bank’s revised
strategy in order to embed colleagues’
views into our decision making.
I’ve thoroughly enjoyed shaping this
important role in 2019. As part of
the rotation of this position, I will be
handing over to Sally Clark after Q1,
who will continue to champion the
dialogue between colleagues and the
Board with the ultimate goal to ensure
colleagues’ views continue to impact
Board debate and decision making.
Stuart Bernau
Non-Executive Director
16 April 2020
CALENDAR OF COLLEAGUE
ENGAGEMENT OPPORTUNITIES IN 2019
Colleague engagement opportunities
Q1
Q2
Q3
West London Employee
Forum
South East Regional Meeting
Store openings
Home Counties – Regional
Director meeting
Online live Q&A (Yam Jam)
Q4 Store visits in the South West
Internal news (Revolution
updates) led by the CEO
Online live Q&A (Yam Jam)
Set out below are highlights of action taken
in 2019 following colleague feedback.
Employee engagement feedback
Colleague communication:
Clearer communication regarding change
Action we have taken
• FAQs circulated when communicating
changes to colleagues
• Bump It Up videos dedicated to
challenges faced this year
• More frequent colleague
communications
• Weekly Yam Jams with the ELT
Culture
Action we have taken
• Following questions about whether
our culture would change following a
challenging year, we confirmed via our
Revolution Updates that our unique
culture, values and absolute focus on
creating FANS will remain at the heart
of everything we do. We remain
committed to delivering exceptional
customer service.
Development and progression
Action we have taken
• There continue to be many
opportunities for promotion and we
have invested for the second year in the
MSc in retail and digital banking as well
as introducing a brand new Metro Bank
university platform.
2020 Areas of focus and opportunities
• Develop and approve Terms of
Reference for the role
• Visit colleagues at an AMAZE
Direct site
• Visit our new colleagues in the North
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
51
NON-FINANCIAL INFORMATION STATEMENT
This is our Group Non-Financial Information statement, prepared in order to comply with sections 414CA and 414CB of the Companies
Act 2006. We explain here where you can find further information on how we make sure we do the right thing in relation to wider
society and the environment and how we seek to do the right thing in terms of our impacts.
A description of our business model and strategy, as well as the non-financial Key Performance Indicators (‘KPIs’) relevant to our
business can be found on pages 6 to 11. Additional KPIs in relation to each of the matters listed in the table below have been disclosed
on pages 8 to 9, where we believe this will assist in demonstrating the outcomes of our policies and activities during 2019.
Reporting requirement
Environmental
matters
Where to find further information necessary for an
understanding of our business and our impacts,
including outcomes of our activities
Our Planet, page 47
Employees
Our Colleagues, page 44
The Chief Executive Officer’s statement
(pages 3 to 5) and the description of our
business model (pages 6 to 9), articulate
how our colleagues are an essential
component of our success.
Our Communities, page 46
Society and
communities
Relevant policies
(please see page 39 for a description of each policy)
Our comprehensive risk management processes and ESG materiality
assessment (see below) have not identified environmental matters or
climate change as a principal risk for the business; we do however
consider this an emerging risk as described further in the Risk report.
So, at present, we do not have a bespoke environmental policy. We
do, however, recognise the need to minimise our impact on the
environment and manage any material impacts from climate change
on our business, as described in the emerging risks on page 39. As
disclosed in the Our Planet section, we have successfully driven
progress in our environmental performance to date without the
need for a bespoke policy. We will continue to review the
appropriateness of this approach.
• Diversity and Inclusion
• Recruitment and Selection
• Health and Safety
• Whistleblowing
• Conflicts of Interest and Related Parties
As outlined in the communities section of this report, we are proud
to be an integral part of the communities we serve. At present, we
do not pursue a bespoke policy regarding our activities with the
wider communities but stores are key to our unique model and we
strive to make a positive difference, through the local colleagues we
employ, the local businesses we lend to and through the causes we
support. By helping our communities thrive we believe our business
will do too.
Respect for
human rights
Anti-bribery and
corruption
Our Suppliers, page 48
• Modern Slavery
• Outsourcing
Our Suppliers, page 48
• Anti-bribery and Corruption
MANAGEMENT OF PRINCIPAL RISKS AND DUE DILIGENCE FOR ESG POLICIES
We manage risk through a comprehensive governance and control framework, as described in our Risk report on pages 18 to 39. The
Risk report also describes the principal and emerging risks to our business. Our risk management policies and controls are reviewed
regularly to reflect changes in market conditions, regulations and our activities. Through regular training and additional standards,
guidance and procedures, we aim to develop a robust and effective control environment in which all our colleagues understand
their roles and obligations. The policies disclosed on page 49 form part of our wider risk management approach. All colleagues are
responsible for managing risk as part of their day-to-day role and our AMAZEING culture is all about our colleagues doing the right
thing for our FANS and the business. As such, everyone at Metro Bank plays a role in risk management.
Management exercises an appropriate level of due diligence over the policies and activities referenced in the Stakeholder section
and this Non-Financial Information statement. Our reporting on environmental and social matters is subject to the oversight of the
Audit Committee.
This Strategic report was approved by the Board and was signed on its behalf by:
Daniel Frumkin
Chief Executive Officer
16 April 2020
Strategic reportGovernanceFinancial statementsAdditional information 52
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Corporate governance overview
Sir Michael Snyder
Chairman
INTRODUCTION
I set out Metro Bank’s corporate governance statement, and my
first report since being appointed as Chairman (on an interim
basis) in October 2019.
2019 was undoubtedly a testing year for Metro Bank, with a
combination of external and internal challenges impacting our
financial performance. The financial impacts of balance sheet
actions taken during 2019 were difficult but necessary steps. We
will continue to deliver the very best customer service, which will
provide strong foundations on which to deliver our new strategy.
The Board looks forward to entering this new phase of our
journey to revolutionise British banking.
LEADERSHIP, SUCCESSION PLANNING AND DIVERSITY
A key focus of our governance work during the year has been to
review the composition of the Board to ensure that it continues
to be diverse in terms of background, skills and experience to
support the strategic and operational direction of the Bank.
During the year, the Board and the Nomination Committee
have worked to improve the levels of independence and gender
diversity on the Board and this is reflected in the makeup of
our Board today. More information on this can be found in
the Nomination Committee report on page 75.
Roger Farah stepped down from the Board in March 2020, Craig
Donaldson, Vernon W. Hill, II and Ben Gunn stepped down from
the Board in December 2019. Lord Howard Flight and Keith Carby
also stepped down from the Board earlier in 2019. In addition,
Stuart Bernau and Gene Lockhart will not be standing for
re-election as Directors at the 2020 Annual General Meeting of
shareholders to be held in May 2020. On behalf of the Board, I
would like to extend our thanks to them for everything they have
done over the last 10 years to build a bank so focused on serving
our customers.
I am pleased to report that following a thorough and robust
selection process, the Board agreed to appoint Daniel Frumkin
as our permanent CEO. Since Daniel joined us last September
and took over the role of CEO in January, he has made a real
impact on our organisation. When we started our search, it
was essential the person we appointed shared our passion for
delivering the very best experience for our FANS, was someone
with experience in retail banking and who had the intellect, skills
and determination to lead the business. We chose Daniel because
out of all the candidates we met, he was the one who could best
meet all of the criteria.
We also welcomed our newest Board members, Michael Torpey
and Sally Clark, on 1 September 2019 and 1 January 2020
respectively. Michael was previously Chief Executive of the
Corporate & Treasury division of the Bank of Ireland and has
extensive experience in senior roles across financial services.
Sally was previously Chief Internal Auditor of Barclays plc and
brings a wealth of audit and retail banking experience. I am
delighted that they have joined us.
Following these Board changes, we have taken the opportunity
to review the membership of our Board Committees regularly
throughout the year to ensure the independence of the
Committees and to adhere to the UK Corporate Governance
Code (the ‘Code’). This is reflected in the various Committee
reports found in pages 64 to 106.
The Board and the Nomination Committee will be continuing
our proactive search for new high-calibre independent Board
members with the assistance of our executive search partners
in 2020 and beyond.
NEW CHAIR SELECTION COMMITTEE
A committee of independent Directors was formed following the
departure of Vernon W. Hill, II as Chairman in October 2019, to
oversee the search for a new independent permanent Chairperson
for the Bank. The Committee is carrying out a robust and thorough
search process with the help of executive search firm Korn Ferry.
The search process is ongoing at the time of writing.
GOVERNANCE
In our corporate governance report on pages 56 to 106, we
aim to provide a clear and meaningful explanation of how
we as a Board provide oversight of the Bank and discharge
our governance duties, including how we have complied
with the Code. It also outlines the governance initiatives
we have undertaken during the year.
Following the implementation of the new Code on 1 January
2019, there have been some short-lived items of non-compliance
with the detailed provisions of the Code. More details can be
found in the corporate governance report. Following Gene
Lockhart and Stuart Bernau stepping down from the Board, the
Bank will be fully compliant with the Code.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
53
SHAREHOLDER ENGAGEMENT
During the year, we actively sought to engage with shareholders
following votes of less than 80% in favour on certain resolutions
at our 2019 AGM, being resolutions 2 (to approve the annual
report on remuneration section of the Directors’ remuneration
report), 7 (to approve the re-election of Stuart Bernau), 8 (to
approve the re-election of Gene Lockhart) and 11 (to approve
the re-election of Monique Melis).
Shareholder feedback is very important to us and we have
continued to engage as we prepared for the update to our
Remuneration Policy at the 2020 AGM. Details of the proposed
update to the Remuneration Policy are included in the Directors’
remuneration report on page 79.
The Board has continued to focus on succession planning and
independence levels on the Board with a number of changes
recently as outlined above. We will continue this work in 2020
and beyond.
WORKFORCE ENGAGEMENT
Stuart Bernau was appointed as our Non-Executive Director for
Workforce Engagement in January 2019. Since that time, Stuart
has been busy meeting colleagues from all over the business
both face-to-face and via live Q&A sessions on our intranet to
hear their views. Stuart has provided regular updates on the views
of our colleagues to the Board and on the actions to be taken as
a result. A detailed summary can be found on page 50.
BOARD EFFECTIVENESS
During 2019, we conducted an internal evaluation of the Board
and the Committees. The evaluation process involved the
completion of questionnaires and interviews by the Chairman
and the Senior Independent Director, followed by a Board
discussion of the key findings and the actions taken to address
these. More information on the process and the key actions are
set out on page 62. During 2020, the Board will undergo an
externally facilitated evaluation as required by the Code.
BOARD OPERATION
We continue to operate a clear line of distinction between
management, led by the CEO, who is responsible for the
day-to-day running of the business, and the Board, acting
under my leadership, which provides constructive challenge
to management ensuring an open culture of debate.
During 2020, the Board will continue to engage with its
stakeholders and operate in a constructive and open manner,
with honesty and integrity as its core principles.
Sir Michael Snyder
Chairman
16 April 2020
Highlights
BOARD SUCCESSION AND STRENGTHENING THE
INDEPENDENCE OF THE BOARD WAS A KEY PRIORITY
FOR 2019 AND EARLY 2020
• Howard Flight, Keith Carby, Ben Gunn and Roger Farah
retired from the Board on 1 April, 30 April, 31 December
2019 and 13 March 2020 respectively
• Paul Thandi, Michael Torpey and Sally Clark joined the
Board on 1 January 2019, 1 September 2019 and 1 January
2020 as independent Non-Executive Directors
• Vernon W. Hill, II, stepped down as Chairman of the Board
and Sir Michael Snyder was appointed Interim Chairman
on 23 October 2019
• Craig Donaldson stepped down as CEO and Director after
10 years of leading the Bank on 31 December 2019
• Daniel Frumkin was appointed interim CEO as of 1 January
2020 and was subsequently appointed permanent CEO as
of 19 February 2020
MAJOR BOARD DECISIONS
Consideration of our stakeholders and promoting the
long-term sustainable success of the Company are at the
centre of our Board’s decision making. Further information
on the Board’s s172 duties can be found in our dedicated
statement on page 40. A summary of the major decisions
taken in 2019 is set out below:
• Reviewing and agreeing our revised strategy
• The equity capital raise completed in June 2019
• The debt capital raise completed in October 2019
• Oversight of the successful upgrade to our core
banking systems
• Board composition and succession planning including the
appointment of our new CEO
GOVERNANCE ENHANCEMENTS
• Appointed a designated Non-Executive Director for
workforce engagement
• Strengthened our whistleblowing procedures through the
introduction of an independent reporting line for
anonymous reporting of concerns
• A Committee of independent NEDs was formed to
evaluate the Group’s strategic direction
• A Committee of independent NEDs was formed to lead the
search for a new independent Chair
• Updated and approved the Board Committees’ Terms of
Reference to reflect the Code
Strategic ReportGovernanceFinancial StatementsAdditional information 54
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Board of Directors
Sir Michael Snyder
Chairman N
Daniel Frumkin
Chief Executive Officer
David Arden
Chief Financial Officer and Company Secretary
Appointed to the Board 22 September 2015
Appointed to the Board 1 January 2020
Appointed to the Board 29 March 2018
Michael was Senior Partner of Kingston Smith
between 1979 and 2016, and continues to support
the firm as a consultant. He is a passionate supporter
of small and medium-sized businesses; having
advised the government over many years, including
chairing the National Business Angels Network,
and as a member of the Small Business Council
and Small Business Investment Taskforce. He is
an experienced business leader, having chaired
GLE Loan Finance Ltd, been Co-Chairman of the
government’s Professional and Business Services
Council, and Chair of the Association of Practising
Accountants. He is Senior Partner of Bramdean
Consultants LLP and an elected member of the City
of London Corporation, which he led for five years as
Chairman of the Policy and Resources Committee.
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.
Prior to joining Metro Bank, David was CFO at
Sainsbury’s Bank and interim MD of Argos Financial
Services, following the successful acquisition of
Home Retail Group by J Sainsbury plc in September
2016. David joined Sainsbury’s Bank from Shop
Direct Financial Services, where he was CFO. In
his 28-year career, he has held a number of senior
positions including MD of RBS/NatWest credit cards
and Finance and Risk Director for Tesco Bank.
Stuart Bernau
Non-Executive Director and Designate for
Workforce Engagement O
Appointed to the Board 5 March 2010
Stuart has specialised in financial services for over 40
years, including 13 years as a main Board Director of
Nationwide Building Society. He was Chairman and
CEO of Chelsea Building Society and has chaired
the Council of Mortgage Lenders and the Financial
Services Sector Skills Council. He was Special Adviser
to the Treasury Select Committee from 2013 to 2015.
Catherine Brown
Independent Non-Executive Director
R , N , O
Appointed to the Board 1 October 2018
Sally Clark
Independent Non-Executive Director
A , O , R
Appointed to the Board 1 January 2020
Catherine holds various non-executive roles including:
Non-Executive Director of FNZ (UK) Limited, and
Chairman and Non-Executive Director of Additive
Flow Limited and The Plastic Economy Limited. Until
March 31 2020, she was a Non-Executive Board
Member at the Cabinet Office. Most recently, in
mid-2019, she joined QBE Underwriting Limited
(QBE UK Ltd), one of the world’s leading international
insurers, as a Non-Executive Director 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.
Sally recently took up the position of Senior Advisor
at Acin, the data standards firm for non-financial risk
and controls. Previously, she was Chief Internal Auditor
at Barclays from 2014 to 2019. Her role was to run
the 650-strong global function providing assurance
to key stakeholders on the effectiveness of the
control environment at Barclays. She was passionate
about helping the bank succeed through the work
undertaken by Barclays Internal Audit (‘BIA’) and
through the continuous programme of improvement
within the function itself. Before that she was the
Chief of Administration for BIA. Her responsibilities
revolved around strategy for the function along with
professional practices including QA, training and
development, BIA operations and communications. A
qualified executive coach and Fellow of the Institute
of Leadership and Management, Sally also mentored
staff within Barclays and was the ExCo sponsor for
the wellbeing agenda. Sally has a track record of
success in developing and executing strategy, driving
operational excellence and audit delivery. She served
on the Council of the Institute of Internal Auditors for
three years and was Deputy President in 2018/19.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
55
Gene Lockhart
Non-Executive Director O
Appointed to the Board 5 March 2010
Gene is Chairman and Managing Partner at
MissionOG, a venture capital firm with significant
operational and investment experience across
the financial services and payments industries.
Previously, he was a Special Adviser at General
Atlantic and a Venture Partner at Oak Investment
Partners. Prior to that, he was President of the
Global Retail Bank at Bank of America, President
and CEO at MasterCard International, and CEO
at Midland Bank plc. He has been on the boards
of many banking institutions including Midland
Group Holdings, First Republic Bank, Bank America
Corp., MasterCard International, and APACS,
amongst others. Gene has also been the Chairman
of the Board of CHAPS and Director of SWIFT.
Anna (Monique) Melis
Senior Independent Non-Executive Director
A , N
Appointed to the Board 20 June 2017
Monique is a Managing Director and the Global
Head of Regulatory Consulting at Duff & Phelps
and is a member of Duff & Phelps’ 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 (‘CSX’), the Financial Services
Authority and the Securities and Futures Authority.
Paul Thandi
Independent Non-Executive Director A , R
Appointed to the Board 1 January 2019
Michael Torpey
Independent Non-Executive Director A , O
Appointed to the Board 1 September 2019
Paul is CEO of the NEC Group in Birmingham, where
he has overseen the growth of one of the world’s top
venue management companies. He is an experienced
CEO, Chair and Non-Executive Director with diverse
international media and service-led experience
with an emphasis on people, innovation, data and
culture. Paul has over 20 years’ experience in the
media industry, including as executive director at
CMP Information (‘CMPi’). He is Deputy Lieutenant of
West Midlands Lieutenancy, representing the Queen
in the region, and was appointed Commander of
the Order of the British Empire (‘CBE’) in the New
Year’s Honours in January 2020 for his services to the
economy through his 13-year leadership of the NEC.
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. 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.
Retirement in 2019/20
Lord Howard Flight resigned from the Board
on 1 April 2019. Keith Carby resigned from the
Board on 30 April 2019. Ben Gunn resigned on
31 December 2019. Vernon W. Hill, II resigned from
the Board on 17 December 2019. Craig Donaldson
resigned from the Board on 31 December 2019.
Roger Farah resigned from the Board on 13 March
2020. Gene Lockhart and Stuart Bernau will not be
standing for re-election as Directors at the 2020
Annual General Meeting to be held in May 2020.
Key to Committees
A Audit
R Remuneration
N Nomination
O Risk Oversight
Strategic ReportGovernanceFinancial StatementsAdditional information 56
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Corporate governance
GOVERNANCE FRAMEWORK
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.
CORPORATE GOVERNANCE STRUCTURE
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 business appetite for risk
• Monitor management performance in delivering
that 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
RISK OVERSIGHT
COMMITTEE
NOMINATION
COMMITTEE
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
CHIEF
EXECUTIVE
OFFICER
EXECUTIVE
LEADERSHIP
COMMITTEES
The Executive Leadership Committees are outlined in the Risk report on page 20.
CORPORATE GOVERNANCE COMPLIANCE STATEMENT
Good corporate governance is essential to the delivery of our revised strategy and the long-term success of the Bank. Following Gene
Lockhart and Stuart Bernau stepping down from the Board in May 2020, the Bank will be fully compliant with the Code. During 2019,
there were some short-lived instances of non-compliance with the Code as follows:
Code Provision
Explanation
Provision 12 – The board should appoint one of the
independent non-executive directors to be the senior
independent director to provide a sounding board for the
chair and serve as an intermediary for the other directors
and shareholders.
For a very short period between 23 October 2019 and 30 November 2019, the
Senior Independent Director (‘SID’) position was vacant when Sir Michael Snyder
(previous SID) was appointed as Chairman (on an interim basis). Following
consideration by the Nomination Committee and the Board, on 1 December
2019, Monique Melis was appointed as SID (on an interim basis).
Provision 19 – The chair should not remain in post beyond
nine years from the date of their first appointment to
the board.
Provision 25 – Where a separate board-level risk committee
(rather than the audit committee) reviews some or all of the
company’s internal financial controls or wider internal
control and risk management systems, it should be
composed of independent non-executive directors.
Provision 34 – Remuneration for all non-executive directors
should not include share options or other performance-
related elements.
Vernon W. Hill, II completed his ninth year of tenure as Chair in March 2019. He
remained appointed as Chair between March and October 2019 in order to
facilitate effective Chair succession planning. Sir Michael Snyder, an independent
Non-Executive Director, was subsequently appointed as Chairman (on an
interim basis) in October 2019. The Board has appointed a committee of
independent Directors to lead the search for a new independent Chairman.
The Board has delegated responsibility of oversight of the Bank’s risk
management systems and controls to the Risk Oversight Committee (ROC). The
ROC is comprised of a majority of independent NEDs. Stuart Bernau and Gene
Lockhart are both longstanding members of ROC and are non-independent
NEDs, due to their tenure. They were retained on the ROC to provide continuity
of banking and risk management experience. They are both stepping down
before the 2020 AGM.
Stuart Bernau and Gene Lockhart hold historical stock option grants which are
still outstanding until 31 October 2020. These were granted in 2015 prior to the
Bank’s listing in March 2016 and, since then, no Non-Executive Director has
received share options in the Company. Our remuneration practices have
therefore been compliant with this provision since listing. Stuart Bernau and
Gene Lockhart are stepping down from the Board before the 2020 AGM and not
will not be standing for re-election.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
57
LEADERSHIP
The role of the Board
The Board is responsible to our shareholders and sets our strategy
for achieving long-term success. It is also ultimately responsible
for the management, governance, controls, risk management,
direction and performance of the Bank. The importance Metro
Bank places on the interests of its wider stakeholders, and the
fact that the Bank has its customers at the heart of everything
it does, is always at the forefront of the Board’s agenda. This
year, we are pleased that the importance of stakeholder
engagement has been highlighted with the introduction
of The Companies (Miscellaneous Reporting) Regulations
2018, and our s.172 Statement can be found on page 40.
Division of responsibilities between the chair and chief
executive officer
The Board has formally documented the separate roles and
responsibilities of the Chair and Chief Executive Officer and
more detail on this can be found on the Bank’s website at
www.metrobankonline.co.uk/investor-relations.
Board skills
The Board remains mindful of the need for ongoing succession
planning, and therefore maintains a clear record of the time each
Director has served the Bank and the skill-set that they provide.
The Directors’ skills and experience span a wide range of sectors
and specialisms which is outlined below.
The composition of the Board
As at the date of this report, the Board consists of the
independent Non-Executive Chairman, two Executive Directors
(the CEO and CFO) and seven Non-Executive Directors.
Board skills as at the date of this report
64%
64%
Gender representation as at the date of this report
Male
Female
70%
30%
36%
55%
45%
45%
Retail
Banking
Risk and
Compliance
Regulatory
Finance, Audit
and Accounting
People and
Culture
Transformation
Board independence as at the date of this report
Independent Directors
Non-independent
Directors
56%
44%
Strategic ReportGovernanceFinancial StatementsAdditional information 58
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Corporate governance
continued
Board role and responsibilities
Role
Chairman
Responsibility
The Chairman leads the Board and is responsible for its effectiveness and governance. He sets the tone for
the Company, including overseeing the development of the Bank’s business 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 leading a positive Board culture that reflects the values of the business.
Chief Executive Officer
The Chief Executive Officer (‘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 in decision-making by the Executive Leadership Team. The CEO reports to the
Chairman and to the Board directly and is responsible for all executive management matters of the Bank.
Chief Financial Officer and
Company Secretary
The Chief Financial Officer (‘CFO’) has responsibility for planning, implementing, managing and controlling
all financial-related activities of the Company, 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. The CFO also has oversight of the Treasury, Legal, Procurement and Investor Relations functions,
and is also responsible for producing and ensuring the integrity of the Bank’s financial information and
regulatory reporting. As Company Secretary, David is responsible for advising and supporting the Chairman
and the Board on good corporate governance and best boardroom practice. He leads the Bank’s Company
Secretariat function.
Senior Independent
Director
The Senior Independent Director’s (‘SID’) role is to act as a sounding board for the Chairman and to serve
as an intermediary for Directors when necessary.
Non-Executive Director
The SID is also available to shareholders if they have concerns that have not been resolved through the
normal channels of Chairman, CEO or CFO. The SID 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 Chairman, CEO or CFO is inappropriate. The SID also acts as the conduit, as required, for the views
of other Non-Executive Directors on the performance of the Chairman and conducts the Chairman’s
annual performance evaluation.
The role of the Non-Executive Director is to constructively challenge proposals on strategic direction. Each
Non-Executive Director brings specific experience and knowledge to the Board and its Committees. The
Non-Executive Directors 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 57. Their contributions provide independent views on matters of strategy, performance, risk,
conduct and culture. The Non-Executive Directors were appointed for an initial two-year term but are
re-elected on an annual basis.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
59
More information on the makeup of our Board, Committees and
succession planning can be found in the Nomination Committee
report on page 75.
During the year we were pleased to announce the appointment
of Sir Michael Snyder as Chairman of the Bank following Vernon
W. Hill, II stepping down as Chairman in October 2019. Sir
Michael is serving on an interim basis until a permanent successor
is appointed. Sir Michael is independent of the Bank as required
by provision 9 of the Code.
The recruitment process for a permanent independent, Non-
Executive Chair is progressing. An independent Committee of the
Board was established to lead this process.
The Board thanks Vernon for his vision which inspired and
created Metro Bank 10 years ago. He left a lasting legacy of
creating FANS through exceptional customer service and has
revolutionised British banking.
Independence of Directors
The Board is satisfied that, as at 31 December 2019, a majority
of the Non-Executive Directors (excluding the Chairman)
were independent.
Gene Lockhart and Stuart Bernau have been on the Board since
the Bank was granted its banking licence in March 2010 and have
overseen the Bank’s significant growth during that time, including
the milestone of its listing on the London Stock Exchange in
March 2016. Their unique skills, retail banking, risk management
and regulatory experience, have been instrumental to the growth
of the Bank. However, recognising the Code’s recommendations
in relation to tenure and independence, we no longer treat those
Non-Executive Directors as independent. Gene and Stuart will
not be standing for re-election as Directors at the 2020 Annual
General Meeting of Shareholders to be held in May 2020.
Building on the work achieved in 2018, during 2019 the Board
and the Nomination Committee spent a significant amount of
time on the Board’s long-term succession plan, including the
balance of independence, diversity, skills and experience on the
Board, and have made further headway in refreshing the Board.
We appointed three new independent Non-Executive Directors:
Paul Thandi on 1 January 2019, Michael Torpey on 1 September
2019 and Sally Clark on 1 January 2020.
The Chairman is committed to ensuring that at least half of the
Board (excluding the Chairman) comprises independent Non-
Executive Directors who objectively challenge management. As
at the date of this report, the Board, excluding the Chairman, will
be made up of nine Directors, of which five (56%) are
independent Non-Executive Directors, two are non-independent
NEDs and two are Executive Directors. Gene and Stuart will not
be standing for re-election as Directors at the 2020 Annual
General Meeting of Shareholders to be held in May 2020, which
will further increase the independence levels on the Board.
Strategic ReportGovernanceFinancial StatementsAdditional information 60
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Corporate governance
continued
Board attendance as at 31 December 2019
The following is a list of the Board’s attendance in 2019 for scheduled board meetings. There were also a number of ad-hoc meetings
held on short notice to discuss matters such as strategy and Board succession planning.
Vernon W. Hill, II1 (former Non-Executive Chair)
Craig Donaldson2 (former CEO)
Sir Michael Snyder3 (independent Non-Executive Director and Chairman)
David Arden (CFO and Company Secretary)
Stuart Bernau (Non-Executive Director)
Catherine Brown (independent Non-Executive Director)
Gene Lockhart4 (Non-Executive Director)
Anna (Monique) Melis (independent Non-Executive Director)
Paul Thandi (independent Non-Executive Director)
Michael Torpey5 (independent Non-Executive Director)
Keith Carby6 (former independent Non–Executive Director)
Roger Farah7 (former independent Non-Executive Director)
Lord Howard Flight8 (former independent Non-Executive Director)
Alastair (Ben) Gunn9 (former independent Non-Executive Director)
Meetings attended 2019
Meetings
held during
Director’s
tenure
Attended
10
10
10
10
10
10
9
10
10
3
4
10
3
9
10
10
10
10
10
10
10
10
10
3
4
10
3
10
1. Stepped down as Chair on 23 October 2019. Resigned as a Non-Executive Director on 17 December 2019.
2. Stepped down 31 December 2019 and replaced by Daniel Frumkin as of 1 January 2020.
3. Appointed Chairman (on an interim basis) on 23 October 2019.
4. Gene was absent for one meeting due to medical reasons but was briefed on all matters discussed at the meeting.
5. Appointed 1 September 2019.
6. Stepped down 30 April 2019.
7. Stepped down 13 March 2020.
8. Stepped down 1 April 2019.
9. Ben was absent for one meeting due to medical reasons but was briefed on all matters discussed at the meeting. Resigned 31 December 2019.
MATTERS RESERVED FOR THE BOARD
The Board is responsible for setting and managing our strategic
direction. The operation of the Board is documented in a formal
schedule of matters reserved for its approval. These include
matters relating to the 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, any changes to Board
or Committee membership or structure, and has authority to
recommend the Directors’ Remuneration Policy to shareholders.
The Board delegates responsibility for day-to-day management of
the business to the Chief Executive Officer and sets out the basis
for delegation of authorities from the Board to its Committees.
BOARD DECISIONS AND ACTIVITY DURING THE YEAR
The Board has a schedule of regular business, financial and
operational matters, and each Board Committee has 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.
The Chairman, assisted by the Company Secretary, is responsible
for ensuring that the Directors receive accurate and timely
information. The Company Secretary compiles the Board and
Committee papers, which are circulated to Directors in advance of
meetings. The Company Secretary also ensures that any feedback
or suggestions for improvement on Board papers is fed back to
management. The Company Secretary provides minutes of each
meeting and is responsible for following up on any action items.
GOVERNANCE AND STRATEGY
During the year, the Board has provided extensive oversight of the
Bank’s business and, in particular, the setting of the Bank’s revised
strategy. The robust governance provided by the Board has
contributed to the formulation of the revised strategy and will also
monitor the delivery of this. This has been achieved by:
• appointing a committee of Non-Executive Directors to review
the evaluation of strategic options;
• holding strategy deep dive sessions at Board meetings and a
specific strategy meeting to analyse and challenge the pillars
of the new strategy;
•
through the work of the Nomination Committee, reviewing
the composition of the Board to ensure this continues to be
appropriate so as to provide effective oversight of the delivery
of the new strategy; and
•
looking ahead, adding regular strategy and transformation
updates to the Board forward plan.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
61
AREAS OF FOCUS
During 2019, the key areas the Board focused on included:
• Strategic review including the formation of a Strategic Review
Committee comprising Non-Executive Directors to evaluate
the Bank’s strategic direction
• 2020 Budget
• Reviewing the PRA and FCA’s external investigation into the
RWA adjustment
• Receiving reports from the designated Board sub-committee
on the internal analysis into the RWA adjustment
• Reviewing and approving all necessary matters in relation to
debt and equity capital issuance
• Reviewing and approving the upgrade to our core
banking systems
• Deep dive sessions on liquidity
• C&I Fund Programme
• Succession planning, governance, Board composition
• Board and Committee effectiveness review
• Reviewing annual and quarterly financial reporting
• Policy reviews and updates
• Workforce engagement
• Shareholder engagement
• Disposal of a mortgage portfolio
Reports from the CEO, CFO and Chief Risk Officer (‘CRO’) are
standing items on every agenda. The Company Secretary reports on
legal, regulatory and 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 Committee
reports on the proceedings of the previous Committee meeting
at the next Board meeting.
Senior management and advisers are invited to attend Board and
Committee meetings, where appropriate, to present, contribute
to the discussion and advise members of the Board or its
Committees on particular matters. The involvement of senior
management at Board and 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.
BOARD COMMITTEES
The Board has delegated specific responsibilities to each
of the Audit, Risk Oversight, Nomination and Remuneration
Committees, and reports for each are set out on pages 64 to 106.
Each Committee has written Terms of Reference setting out its
duties, authority and reporting responsibilities.
Copies of all the Committee Terms of Reference are available on
our website: metrobankonline.co.uk.
We keep the Terms of Reference of each Committee under
continuous review to ensure they remain appropriate
and reflect any changes in legislation, regulation or best
practice. They are also reviewed formally every year by the
relevant Committee and the Board. More information on
the makeup of our Committees can be found on page 77.
Any changes to the Committees are made after the review
and recommendation of the Nomination Committee.
INDUCTION OF NEW DIRECTORS
During 2019 and early 2020, we welcomed Paul Thandi, Michael
Torpey and Sally Clark to the Board. All of our new Directors
undergo a formal, robust and tailored induction programme
upon appointment which is agreed with the Chairman and co-
ordinated by the Deputy Company Secretary. Non-Executive
Directors meet the Chairman and the CEO as part of the
Nomination Committee’s selection process and then again on
appointment for a thorough briefing on all relevant aspects
of the Company. They also meet the Company Secretary,
senior management and our advisers for briefings on their
responsibilities as Directors and on our business, finances,
risks, strategy, procedures and the markets where we operate.
Directors also receive an electronic induction pack upon their
appointment which includes relevant company policies and
corporate and financial information. New Directors received listed
company director responsibilities training from our legal advisers.
Prior to appointment, all Directors were advised of the time
required to fulfil the role and confirmed they could make the
necessary commitment. This requirement is also included in their
letters of appointment.
EFFECTIVENESS
The Board is satisfied that the Chairman and each of the Non-
Executive Directors is 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 Non-
Executive Directors’ letters of appointment set out that they
should be prepared to dedicate at least 20 days per year to
the Company. Since taking on the role of Chairman (on an
interim basis), there has been no change in the Chairman’s
other time commitments. Directors are expected to attend
all meetings of the Board, and the 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 papers to
be considered at the meeting will be discussed in advance
with the Chairman or Company Secretary so that their
contribution can be included in the wider Board discussion.
The skills and experience of Board members are set out on pages
54 to 55 and 57. The experience and knowledge of each of the
Directors gives them the ability to constructively challenge
strategy and to scrutinise performance. We are actively seeking
new independent Non-Executive Director candidates with retail
banking and transformation experience and expect to make
further appointments in 2020.
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62
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Corporate governance
continued
PERFORMANCE
The Board recognises the importance of, and value gained from,
continuing to develop as a whole, and individually. Every year, the
Board undertakes an evaluation of its performance, as well as that
of its Committees and individual Directors, to ensure the Board’s
continued effectiveness.
INTERNAL BOARD EVALUATION
In line with the evaluation cycle and further to the last externally
facilitated evaluation in 2017, an internal evaluation was
undertaken in 2019. This was conducted by circulating
questionnaires to the members of the Board for completion. The
results were then discussed in one-to-one sessions between the
Chairman and each Board member, with Monique Melis as Senior
Independent Director conducting the Chairman’s evaluation.
The themes explored during the process included culture,
stakeholder engagement, succession planning and director duties.
Following the conclusion of the meetings, the Chairman
presented the results to the Board and the Directors discussed
the key findings and proposed actions to address them. Actions
taken as a result of the evaluation include:
•
Inviting first line representatives to Board meetings to give
regular updates on the running of the Bank
• Reviewing content and length of Board papers
• Continued focus at Board level on the Nomination
Committee’s progress on the Board’s succession plan
Progress will be considered as part of the next performance
evaluation.
Executive Directors take part in the Bank’s appraisal procedure.
This sets tangible targets against which performance is measured.
Non-Executive Directors are appraised as part of the overall
Board evaluation process referred to above. Each of the Board
Committees also carried out reviews of their performance, as set
out in their individual reports.
We are satisfied that the Board and each of the Committees
continue to operate effectively, and are pleased with the
progress made from the 2017 and 2018 evaluations, particularly
in respect of:
• Strengthened focus on Board composition and leadership
succession planning
• Additional strategic review deep dives by forming a Strategic
Review Board Committee
•
•
Improved meeting agendas to facilitate more effective
discussions
Improved timeliness and organisation of Board papers
circulated by introducing an electronic Board portal
In line with the Code, an externally facilitated evaluation will take
place in 2020.
DEVELOPMENT
The Company Secretary ensures that all Directors are kept
abreast of changes in relevant legislation and regulations. In 2019,
the Board received a briefing on cyber security from PwC,
corporate governance (including s172, the new Code, ESG and
horizon scanning) from its legal advisers and an internal deep dive
session on liquidity. Non-Executive Directors attend seminars and
briefings in areas considered to be appropriate for their own
professional development, including governance and issues
relevant to the Committees on which they sit.
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 18 to 39. The
Risk Oversight Committee reviews the effectiveness of the risk
management process on the Board’s behalf, and its approach to
this can be found in the Risk Oversight Committee report on
pages 71 to 74.
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
page 66.
The Board is satisfied that internal control and risk management
systems have been in place for the year under review and up to
the date of approval of the Annual Report.
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 the Director’s duties to the Company. The appointment to
such positions is subject to the prior approval of the Board.
During the year ended 31 December 2019, none of the Bank’s
Executive Directors held directorships in any other quoted
company.
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.
During 2019, the Company had a commercial relationship with
InterArch, Inc. (‘InterArch’), a firm which is owned by Shirley Hill,
the wife of Vernon W. Hill, II (former Chairman). The Audit
Committee considers this relationship on an annual basis, further
to an externally facilitated benchmarking exercise by an
independent third party, and again for 2019 concluded that the
arrangements with InterArch were on terms which are at least as
beneficial to the Bank as those which could be obtained from an
independent third party.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
63
In order to expand the suppliers used, management ran a
competitive tender to identify an alternative supplier of architecture
services. We are already working with new architecture providers
on the transition. To enable this, we are continuing to work with
InterArch to ensure a smooth operational transition by the end of
2020. Further details are set out in the Audit Committee report on
page 67 and in note 35 to the financial statements.
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,
presentations, webcasts and online content.
Investor meetings are undertaken by the Chairman, CEO and
CFO, supported by the Director of Investor Relations. During
2019, the team participated in over 300 individual and group
meetings in the US, UK and Europe and presented at various
investor conferences. Institutional investors have the opportunity
to meet with the Chairman, SID and/or other Non-Executive
Directors to discuss any areas of concern. In addition, the
Committee Chairs seek engagement with shareholders on
significant matters related to the areas of their responsibility.
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: metrobankonline.co.uk/investor-relations/.
Contact details for the Investor Relations and Company
Secretariat are available on the website for any shareholders,
analysts or investors who wish to ask a question.
ENGAGEMENT POST 2019 AGM
During autumn 2019, we held engagement sessions with
stakeholders in preparation for our upcoming annual reporting.
There was a particular focus on receiving shareholder feedback
on our 2019 AGM voting results, Remuneration Policy and
succession planning. The Board and senior management have
taken all feedback into consideration and this is reflected in our
continued focus on Board succession planning and in our
updated Remuneration Policy being put forward for approval at
our 2020 AGM, which can be found on pages 98 to 106. Further,
we issued an updated announcement on 21 November 2019
outlining the actions taken in response to shareholder feedback.
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 and his team, who are
responsible for advice on corporate governance matters to
the Board.
DIRECTORS’ INDEMNITIES AND INSURANCE
We provide Directors and Officers with appropriate insurance
during the course of their appointment, which is reviewed
annually. In addition, Directors and Officers have received an
indemnity from the Bank against: (a) any liability incurred by or
attaching to the Director or Officer 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 or Officer 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 2020 Annual General
Meeting. Daniel Frumkin, Michael Torpey and Sally Clark will stand
for election by shareholders at the 2020 AGM, this being the first
Annual General Meeting following their appointments. Roger Farah
retired from the Board on 13 March 2020. In addition, Stuart
Bernau and Gene Lockhart will be stepping down and not standing
for re-election at the 2020 AGM. The Board continues to actively
seek new independent Non-Executive Director candidates who,
based on merit, will add value to the Board. 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.
EMPLOYEE ENGAGEMENT
For further information on how the Directors have engaged with
colleagues, had regard to 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 40 to 51.
OTHER STAKEHOLDER ENGAGEMENT
For further information on how the Directors have 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 40 to 51.
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METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Audit Committee report
AUDIT COMMITTEE MEMBERS
In addition to the Committee Chair, Michael Torpey, there
are three members of the Audit Committee: Monique Melis,
Paul Thandi and Sally Clark (who joined the Committee
on 1 March 2020). Each are independent Non-Executive
Directors with a range of relevant business experience. At
least one of the members of the Committee 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 54 and 55. Regular attendees at the Audit
Committee include the CEO, CFO, CRO, Director of Internal
Audit, Director of Financial Reporting, Director of Finance
Transformation and representatives from the external
auditor, PwC.
In accordance with the provisions of the UK Corporate
Governance Code (‘the Code’), Sir Michael Snyder stepped
down as Chair of the Audit Committee when he became
Chairman of the Board (on an interim basis). He attended the
November Committee as a guest after stepping down as a
member, in order to provide continuity and facilitate an
effective transition to the new Chairman. Additionally, as part
of a rotation of members, Gene Lockhart, Stuart Bernau and
Keith Carby stood down from the Committee on 31 March
2019 and Roger Farah stood down from the Committee on
31 October 2019.
AUDIT COMMITTEE ATTENDANCE FOR 2019:
Members
Sally Clark 1
Monique Melis
Michael Torpey (Chair)2
Paul Thandi3
Former members
Stuart Bernau4
Keith Carby5
Roger Farah6
Gene Lockhart7
Michael Snyder8
Meetings
attended
N/A
Meetings
held during
Director’s tenure
N/A
6
2
0
3
3
5
2
8
6
2
1
3
3
5
3
8
1. Sally was appointed a member of the Committee on 1 March 2020.
2. Michael was appointed a member of the Committee on 1 October 2019 and Chair of
the Committee on 1 November 2019.
3. Paul was appointed to the Committee on 1 November 2019. He was unable to attend
due to a pre-existing scheduling conflict but was briefed on all matters discussed at the
meeting and any decisions taken.
4. Stuart was Chair of the Committee until 31 March 2019.
5. Keith was a member of the Committee until 31 March 2019 prior to him stepping down
from the Board.
6. Roger was a member of the Committee from 1 March until 31 October 2019.
7. Gene was a member of the Committee until 31 March 2019.
8. Sir Michael was appointed Chair of the Committee between 1 April 2019 and
23 October 2019 when he stood down from the Committee.
2019 ACTIVITIES
• Oversight of the Regulatory Reporting Assurance
Programme
• A deep dive into the Committee’s duties under the Terms of
Reference
• Reviewed 36 Internal Audit reports and attestations and all
of the Bank’s financial reporting
• Reviewed related party contracts and associated
independent review
• Reviewed the banking systems upgrade programme
2020 FOCUS AREAS
• Keep under review the recommendations from the Brydon
Review, and wider audit market reform
• Review Internal Audit reports and oversee an external review
of the effectiveness of the Internal Audit function
• Review financial reporting and effectiveness of internal
controls
• Strategy review for 2020-2024
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
65
Dear shareholders
I am pleased to present the Audit Committee report for the year
ended 31 December 2019. It was my pleasure to accept the role
of Audit Committee Chair when Sir Michael Snyder took on the
role of Chairman of the Board (on an interim basis).
It has once again been a busy year for the Audit Committee. Our
focus has been on evaluating the effectiveness of the Bank’s
control environment and ensuring it is fit for purpose, work which
will continue in 2020. We also devoted considerable attention to
the oversight of the regulatory reporting assurance programme.
Metro Bank appointed Sam Brayshaw in 2019 in a newly created
role as Director of Finance Transformation. Sam led the
regulatory reporting assurance programme and attended
Committee meetings on a regular basis to provide updates. As a
consequence we are pleased to confirm that this undertaking is
now complete and the Board has received a reasonable
assurance opinion from PwC on the 2019 CET1 and total capital
ratios. This gave the Committee an invaluable first-hand insight
into the work being undertaken. More information on the
programme can be found later in the report on page 67.
During the year, the Committee continued to provide challenge
and scrutiny on financial reporting, including in relation to
impairment and write-off of certain intangible assets, the
derecongition of deferred tax assets and the categorisation of
costs related to remediation and transformation, fulfilling our role
supporting the Board in evaluating the appropriateness of
financial reporting.
The Committee has overseen the delivery of the 2019 Internal
Audit Plan. We provide significant challenge to management and
scrutiny over actions through review of the Internal Audit reports,
and where findings are not satisfactory, take a robust stand. The
relevant ELT member is then invited to the Committee to discuss
the findings and a timeline for completion of remedial actions.
In developing the Internal Audit Plan for 2020, we have ensured
inclusion of those areas which bear the greatest risk to the Bank,
those which are most impacted by continued growth and areas
of regulatory focus. We monitor the resource available to the
Internal Audit team to ensure it has sufficient resource to fulfil
its responsibilities.
The 2020 Internal Audit Plan was approved by the Board in
January 2020 following discussion at the Committee and it also
approved the level of risk assurance contained within the plan. As
the Bank revises its strategy, I will ensure that the Internal Audit
assurance reflects the changes in risk profile as appropriate.
Further to the disclosures last year, the Bank’s relationship with
InterArch, Inc. (‘InterArch’) is now evolving and we are now
transitioning away from our working relationship with them.
During the year, the Committee undertook independent
evaluation of the contracts for services with InterArch. This
included oversight of the review carried out by an authoritative
independent third party, further details of which can be found on
page 67.
As part of my role as Chair of the Audit Committee, I hold regular
meetings with colleagues from the Bank, including the Director
of Internal Audit, CRO and CFO and senior members of his team,
and the Assistant Company Secretary who acts as Secretary to
the Committee. I also sit on the Risk Oversight Committee and
work closely with Gene Lockhart, its Chair.
The Audit Committee met nine times in 2019. Following each
meeting, the Chair in post provided a verbal update to the Board
on key issues and, where necessary, outlined the actions being
taken by management to address any issues raised. The minutes
are also included in the next Board pack. I meet on a regular basis
with the external audit partner, and the Committee members
have time as required with the external auditor at the end of each
meeting, without the presence of management.
During the year and up to the date of this report, we had a
healthy rotation of Committee members (more detail on
which can be found later in this report) as the Board and the
Nomination Committee has consistently focused on succession
planning to ensure the Committee’s composition meets the
requirements of the Code and has the requisite expertise. As
such, I would like to take this opportunity to thank both Sir
Michael Snyder and Roger Farah for their valued contributions
to the Committee’s work. I’m also delighted to introduce
Sally Clark who joined the Committee on 1 March 2020. Sally
brings a wealth of knowledge as a result of her executive
roles, most recently as Chief Internal Auditor at Barclays plc.
In 2020 and beyond, the role of the Audit Committee will be to
continue to ensure the control environment of the Bank keeps
pace with evolving strategy.
Michael Torpey
Audit Committee Chair
16 April 2020
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METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Audit Committee report
continued
THE AUDIT COMMITTEE IN BRIEF
The Audit Committee’s key role is to review the integrity of the
financial reporting for the Bank and to oversee the effectiveness
of the internal control systems and the work of the internal and
external auditors.
External audit
• Recommend the appointment, reappointment or removal of
the external auditors
• Review independence and objectivity, as well as the quality of
the audit work performed
• Approve audit remuneration
• Review the supply of non-audit services in line with the Bank’s
policy and professional independence requirements
• Meet regularly without management present
• Ensure the audit contract is tendered at least every 10 years
Internal audit
• Approve appointment or termination of the Director of
Internal Audit
• Contribute to the annual and half-year review of the Director
of Internal Audit
• Monitor and review the effectiveness of the function
• Review and approve the Internal Audit Charter
• Review and assess the Internal Audit Plan and ensure that
resources are adequate
KEY AREAS DISCUSSED AT AUDIT COMMITTEE MEETINGS
IN 2019
Area
Policy
Financial reporting
Key topics
• Annual report on the systems and
controls in place for whistleblowing,
including considering the new external
whistleblowing mechanism
• Share dealing policy
• Non-audit services policy
• Review quarterly financial reporting
• 2019 half-year results, including an
update of critical accounting
judgements and estimates
• 2018 full-year results, Annual Report
and Accounts, including assessment of
the key judgements and estimates,
going concern and viability report
• Review of IFRS 16 and accounting
considerations for the C&I Fund
• Prospectus review relating to the Bank’s
capital raise
• Tax strategy
• Deferred tax asset review
• Review and challenge carrying values of
certain intangible assets
• Meet regularly with the Director of Internal Audit and ensure
Internal Audit
• Review of the 2019 Internal Audit
reports, and any remedial action plans
• Review of the 2020 Internal Audit Plan
External audit
• 2019 External Audit Plan, engagement
terms and fees
• Terms of engagement for the half-year
review
• External auditors’ half-year review
findings
• 2018 full-year external auditors’ report
and findings
Related party review • Independent review of the InterArch
architectural design services
access to Board
• Review all reports on the Bank from the Internal Auditor
• Review management’s responsiveness to findings
Financial and narrative reporting
• Monitor the integrity of the financial statements and formal
announcements relating to the Bank’s financial performance.
• Review and report to the Board on significant financial issues
and material judgements
• Review and challenge accounting policies, methods used to
account for significant and unusual transactions, clarity and
completeness of disclosure
• Advise whether the Annual Report is fair, balanced and
understandable
Whistleblowing
• Review the adequacy and security of whistleblowing
arrangements
• Review the Bank’s systems and controls for the prevention of
modern slavery and receive reports on non-compliance
Internal controls and risk management
• Monitor and review the adequacy and effectiveness of the
Bank’s internal financial controls and risk management systems
• Review and approve the statements in the Annual Report
concerning internal controls and risk management
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
67
Area
Key topics
Regulatory and
governance
• Ongoing remediation of the regulatory
reporting framework (including reports
from PwC on capital ratios)
• Modern Slavery statement and annual
report on the operation and
effectiveness of the systems and
controls in place for the Modern Slavery
Policy, as well as regular updates from
the General Counsel
• Terms of Reference (‘ToR’) reviewed
and recommended to the Board for
approval
• Full review of the Committee’s duties
under its ToR
• Supplier payment practice reporting
• Committee performance evaluation
• C&I Fund updates
• Fraud update
In addition to the key areas above, the Committee reviewed the
progress against the Internal Audit Plan and reviewed the detailed
reports where appropriate. The Committee also discussed the
FRC’s IFRS 9 Thematic Review published in October 2019, which
highlighted that our 2018 annual reporting disclosure was an
example of better practice.
Throughout the year the Committee has continually evaluated its
effectiveness and this has included a full review of the Terms of
Reference and an in-depth review of its duties and how these
were met throughout the year. The Committee was satisfied that
it had met all its duties during the year and was well placed to
deliver on the same in the following year. There is a continued
close collaboration with the Risk Oversight Committee, and both
Terms of Reference have been reviewed to ensure that each
Committee’s distinct responsibilities are clearly articulated.
COMMITTEE EVALUATION
In line with the Board’s annual cycle for evaluating its
performance and that of all Committees, the Chair led an internal
evaluation of the Committee’s performance at the end of the
year. A questionnaire was circulated and the Chair led a
discussion on feedback at the November meeting. Overall, the
members were in agreement that the Committee was continuing
to operate effectively.
RELATED PARTIES
During the year, architectural design services and branding,
marketing and advertising services were provided to the Bank by
InterArch – a firm owned by Shirley Hill, wife of Vernon W. Hill, II
(former Chairman).
In order to ensure that the contracts for services with InterArch
were materially consistent with those that could be obtained
from an independent third party, the contractual arrangements
were subject to an independent annual review arranged by the
Committee. As part of this review, a detailed benchmarking
review of the architectural design contract, which covers the
build and design of our stores, is conducted by a big four
professional services firm. To provide assurance that the
contract remains on arm’s length terms, the InterArch fee rates
and structures are compared against market comparators
and commentary is provided on how the services provided
to the Bank by InterArch align with these. The Committee
discussed the independent benchmarking review and remain
satisfied that the contract for services with InterArch was at
arm’s length and at least as beneficial as those which could
be obtained in the market from an alternative supplier.
As disclosed in last year’s report, in order to expand the suppliers
used, management ran a competitive tender to identify an
additional alternative supplier of architecture services. We are
already working with new architecture providers on the transition.
To enable this, we are continuing to work with InterArch to ensure
a smooth operational transition by the end of 2020.
In line with the Code, the Committee also considers the
disclosures that the Bank makes in the financial statements
regarding the relationship with InterArch to ensure they are
appropriate and in line with relevant reporting standards.
IMPAIRMENTS AND WRITE-OFFS
During the year the Group impaired and wrote-off £68 million of
intangible assets. This relates to the discontinuation of certain
work-in-progress or older IT projects that do not form part of the
Group’s revised strategy. As some of these assets had previously
qualified for R&D tax relief, the R&D deferred tax liability has been
adjusted to reflect this.
DEFERRED TAX ASSETS
During the year the Group derecognised £53 million of deferred
tax assets relating to unused tax losses. This reflects the revised
outlook for the Bank’s profit and the evidence of recoverability.
REMEDIATION OF THE REGULATORY REPORTING
FRAMEWORK
Throughout 2019, the Committee provided oversight and
robust challenge to progress made in the remediation of the
regulatory reporting challenges that had been highlighted
to the market. Through such oversight, the Committee was
able to ensure that a sustainable solution was identified and
progressively embedded for prudential reporting, underpinned
by a comprehensive controls framework, improved data and
upgraded systems. Further to the commitment made to the
market in February 2019 to externally assure our RWAs, we
are pleased to confirm that this undertaking is now complete
and the Board has received a reasonable assurance opinion
from PwC on the 2019 CET1 and total capital ratios.
Strategic ReportGovernanceFinancial StatementsAdditional information
68
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Audit Committee report
continued
The work the Bank has undertaken, including significant
investment of time and resources, supplemented with specialist
advice and external assurance, allows the Bank to demonstrate to
the market that last year’s RWA misreporting was taken seriously.
On the basis of a materiality threshold of 35bps, meaning that a
misstatement of the capital ratios of that level or greater would be
considered material, the Bank confirms that its capital ratios are
materially correct.
FAIR, BALANCED AND UNDERSTANDABLE
In line with the Code, the Committee considered whether the 2019
Annual Report is ‘fair, balanced and understandable and should
provide the information necessary for shareholders to assess the
Group’s position and performance, business model and strategy’.
The Committee is satisfied that the 2019 Annual Report meets this
requirement and, in particular, that appropriate disclosure has been
included for both positive and negative developments in the year.
The process supporting this goal included:
• The compilation of the 2019 Annual Report and Accounts
which was managed by the CFO together with a cross-
functional team of senior managers
•
Input by a cross-functional team from Finance, Risk, People,
Legal, Investor Relations and business lines
• A formal review by the Committee of the draft 2019 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 2024.
INTERNAL AUDIT
The Group’s Internal Audit function plays a key role in providing
independent assessment and challenging governance, risk and
control. The Committee approved the Internal Audit Plan and
considered the results of its work. It also:
• Monitored the objectivity and competence of the Internal
Audit function, and the adequacy of Internal Audit resources
and skills
• Carried out an internally facilitated review of the effectiveness
of the Internal Audit function
• Monitored the delivery of the Internal Audit Plan
• Approved the Internal Audit Plan for 2020
The Committee was satisfied that Internal Audit had adequate
resources available this year.
SYSTEMS OF INTERNAL CONTROL AND RISK MANAGEMENT
Details of the Bank’s risk management framework are provided
on pages 18 to 39. In considering the effectiveness of internal
controls, the Committee received and discussed reports from
Internal Audit and the external auditor. In addition, executive
management was invited to discuss the more significant issues
raised by Internal Audit. Management action plans to resolve the
issues raised are monitored by the Committee.
Financial risk management processes and controls are in
place and there is assessment of the effectiveness of our
internal controls on an ongoing basis. The internal controls
framework encompasses all controls, including those relating
to: financial reporting processes; preparation of consolidated
Group accounts; and risk management processes, including
formulation of the Group’s strategic plans, budgets and forecasts,
and its accounting policies and levels of delegated authority.
Management regularly review key risks and the effectiveness of
mitigating controls including finance governance meetings.
There is an ongoing process for identifying, evaluating and
managing the principal and emerging risks faced by the Bank.
Recommendations for improvements to internal controls by the
external auditor are monitored by Internal Audit, with progress
reported to the Committee. The Committee is satisfied that
internal control and risk management systems have been in place
for the year under review and up to the date of approval of the
Annual Report and Accounts.
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. In 2019, we
continued to follow and progress our processes to support our
policy. We published our third Modern Slavery Statement and the
General Counsel provides regular updates to the Committee on
progress against our Statement and action plan.
WHISTLEBLOWING
The Bank has a whistleblowing policy that is accessible to all
colleagues via the Bank’s intranet. 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. In 2019, it was agreed by the Committee to
enhance our whistleblowing processes by introducing an external
confidential reporting hotline. The Committee and the Board
review whistleblowing reports throughout the year and an annual
report is presented to the Board on the operation and effectiveness
of the systems and controls in place for whistleblowing.
EXTERNAL AUDIT
The Committee reviews and makes recommendations to the
Board with regard to the appointment of the external auditor,
its remuneration and terms of engagement.
The Committee is also responsible for the oversight of the
relationship with PwC and the effectiveness of the audit process.
To satisfy ourselves of the effectiveness of the external audit,
during the year we:
• reviewed the proposed Audit Plan in advance of the
annual audit;
• Reviewed and approved the audit engagement terms and
proposed audit fee;
• considered the continued independence and objectivity
of PwC; and
• reviewed and discussed the reports provided by PwC.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
69
The policy further formalises within the Bank the restriction
on the provision of non-audit services by the external auditor
which the FRC considers to be prohibited. In accordance with
the FRC’s Revised Ethical Standard 2019, the services considered
prohibited include:
• Certain tax services, consultancy and advisory services
• Services that involve any part in the management or decision-
making of the Bank
• The design and implementation of internal control or risk
management procedures related to the preparation or control
of financial information, or the design and implementation of
financial information technology systems
• Services linked to the financing, capital structure and
investment strategy of the Bank
• Certain legal services
• Bookkeeping and preparing accounting records and financial
statements
• Payroll services and certain human resources services
• Services related to the Bank’s Internal Audit function
• Certain valuation services
• Providing, dealing in or underwriting shares in the Bank
Under the Revised Ethical Standard 2019, permissible non-audit
services are now capped at a maximum of 70% of the average of
the audit fees paid in the last three consecutive financial years for
the statutory audit of the Bank.
The Committee carefully monitors the level of non-audit services
provided by PwC, and for 2019 this was particularly relevant in
relation to the equity raise and the Bank’s RWAs. 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. Details of the fees paid to the
external auditor during the year can be found in note 8 to the
financial statements on page 133.
As part of the Committee’s wider review of the next steps in the
reform of the audit market, it will closely monitor any specific
guidance as it pertains to non-audit services.
At the end of each Committee meeting, members have the
opportunity to meet the external auditor without management
present to discuss any relevant issues.
The Bank confirms that for the purposes of compliance with
Article 7.1 of the Competition Markets Authority (‘CMA’) Order, it
has complied with Articles 3, 4 and 5 of the CMA Order for the
financial year under review.
INDEPENDENCE
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 auditor at least every 20 years.
Following a formal competitive tender exercise during 2018, in
relation to the audit for the year ended 31 December 2019, the
Board approved the Committee’s recommendation to put a
resolution to shareholders at the 2019 Annual General Meeting to
reappoint PwC, which shareholders subsequently approved.
In addition, the lead audit partner rotates every five years. The
PwC audit partner is due to be rotated after the financial year
ended 31 December 2020 in accordance with the FRC’s Revised
Ethical Standard 2019.
A resolution to reappoint PwC will be put to shareholders at the
AGM in 2020.
NON-AUDIT SERVICES
The Bank and PwC have safeguards in place to protect the
independence and objectivity of the external auditor. During the
year the Committee approved the non-audit services policy. An
additional review was undertaken in January 2020 further to the
FRC’s Revised Ethical Standard 2019.
The Bank has a policy for the provision of non-audit services
by the external auditor. In line with the policy, all non-audit
services provided to the Bank by the external auditor, where
the fee is expected to exceed a de minimis limit, must be
approved in advance by the Committee subject to the guidelines
and thresholds detailed in the policy. Pre-approval by the
Committee must be obtained in advance of any work being
carried out. Pre-approval must be performed by the Committee;
it cannot be delegated to a member of management. The
Committee must be provided with a detailed explanation of
each particular service to be provided to allow it to make an
appropriate assessment of the impact of the service on the
external auditor’s independence. The pre-approval requirements
outlined above may be waived for non-audit services if:
•
the aggregate amount of all such non-audit services provided
to the Bank constitutes not more than 5% of the total amount
of audit fees paid by the Bank to its auditor during the financial
year in which the non-audit services are provided; and
• such services are reported to the Committee in arrears.
Strategic ReportGovernanceFinancial StatementsAdditional information 70
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Audit Committee report
continued
SIGNIFICANT FINANCIAL REPORTING AREAS CONSIDERED BY
THE AUDIT COMMITTEE
In respect of financial reporting, the Committee considered a
number of key areas of judgement and estimates. The table
below details the areas considered in our reviews.
Key area
Summary of review undertaken
Effective interest rates for
financial instruments
Materiality of impact following
refresh of assumptions.
Measurement of the
credit loss allowance
Recognition of provisions
Write-offs and
impairment testing
Deferred tax assets
Adjusted profit measures
During the year the Committee
reviewed the measurement of
the expected credit loss
including ensuring that
management’s approach to
provision remained appropriate.
This included a review of a
number of post-model overlays
and the level of systematic
reviews in place.
The Committee considered
whether there was a need for
provisions in respect of both
customer remediation and legal
and regulatory matters. The
Committee also discussed and
reviewed the associated
disclosures.
Over the course of 2019 the
Committee discussed the
impairment indicators that had
arisen and the associated
impairment testing undertaken.
As part of this, the Committee
considered the results of
management’s assessment of
the write-offs and impairments
required and whether these
were appropriate.
The Committee considered the
recoverability of the deferred tax
assets, specifically for unused
tax losses given the updates to
the Group’s long-term plan.
The Committee considered
whether management’s basis for
underlying profitability remained
appropriate. This included a
review of the items that were
classified as non-underlying.
Key area
Summary of review undertaken
IFRS 16 ‘Leases’
Implementation of hedge
accounting programme
Deferred grant
Viability statement
The Committee reviewed the
implementation of IFRS 16,
which included a review of the
new disclosures and the
assumptions that have been
made.
As part of the implementation of
the Bank’s hedge accounting
programme, the Committee
discussed the progress made
with implementation and
associated reporting impacts.
The Committee discussed the
accounting behind the
successful bid to the Capability
and Innovation Fund. Alongside
this the Committee reviewed the
decisions made in respect of the
revised agreement and the
subsequent accounting
treatment following the
outcome post year end.
In accordance with the
requirements of the Code, the
Committee undertook an
assessment of the Group’s
viability over the assessment
period. The assessment was
performed considering the
risks the Bank faces as well as
taking account of the new
long-term plan.
The Committee is satisfied that the approach taken and
judgements applied were reasonable.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
71
Risk Oversight Committee report
2019 ACTIVITIES
• Reviewed and approved or recommended policies to the
Board for approval
• Oversaw the review of the Bank’s Enterprise Risk
Management Framework (‘RMF’) and Risk Transformation
Programme
• Oversight of the Bank’s capital and funding positions,
including Treasury updates with respect to prudently
managing the Bank’s liquidity position following periods of
net deposit outflows in H1 2019
• Held ‘Deep Dive’ review sessions on operational and IT
resilience, including oversight of an upgrade to the Bank’s
core banking platform, T24
• Reviewed the Bank’s plans and processes in relation to
Recovery and Operational Continuity in Resolution as
required by the Regulator
• Provided oversight of the preparation of the Bank’s Internal
Capital Adequacy Assessment Process (‘ICAAP’) and Internal
Liquidity Adequacy Assessment Process (‘ILAAP’)
• Received regular updates on the AIRB approach to
calculating credit risk application process
• The Chair and members of the Committee met with the
Regulator as part of its supervision of the Bank
2020 FOCUS AREAS
• Ongoing work to enhance the Bank’s financial crime control
framework
RISK OVERSIGHT COMMITTEE ATTENDANCE FOR 2019
Member
Gene Lockhart (Chair)
Stuart Bernau
Catherine Brown1
Sally Clark2
Michael Torpey3
Former members
Monique Melis4
Alastair (Ben) Gunn5
Sir Michael Snyder5
Meetings
held during
Director’s
tenure
Meetings
attended
8
8
5
8
8
6
N/A
N/A
3
8
2
2
3
8
2
2
1. Catherine Brown joined the Committee on 1 April 2019. She missed one Committee
• Change and execution risk relating to strategy and
transformation agendas
• Embedding and enhancement of the Bank’s Risk
Management Framework
• Ongoing work towards AIRB accreditation
• Capital
• Liquidity
meeting due to a delayed flight but was briefed on all matters discussed at the
meeting.
2. Sally Clark joined the Committee on 1 March 2020.
3. Michael Torpey joined the Committee on 1 October 2019.
4. Stepped down from the Committee on 16 March 2020.
5. Ben Gunn and Sir Michael Snyder stepped down from the Committee on
31 March 2019.
COMPOSITION OF THE RISK OVERSIGHT COMMITTEE
In addition to the Committee Chair, Gene Lockhart, there are
four members of the Risk Oversight Committee: Stuart
Bernau, Catherine Brown, Sally Clark and Michael Torpey.
Catherine, Sally and Michael are independent Non-Executive
Directors and Gene and Stuart are non-independent Non-
Executive Directors. Non- Executive Directors who are not
ROC members may attend meetings. New Directors
appointed to the Board attend meetings as part of their
induction programme. The CFO, CRO and CEO have standing
invitations to attend as guests, unless the Chair of the
Committee asks them to excuse themselves from a particular
meeting or discussion.
Other Directors and colleagues attend as guests by invitation
of the Chair to present and report on relevant topics. The
Deputy Company Secretary and her team act as Secretary to
the Committee.
Strategic ReportGovernanceFinancial StatementsAdditional information 72
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk Oversight Committee report
continued
Dear shareholders
I set out below the report of the Risk Oversight Committee
(‘ROC’) for 2019.
The ROC provides oversight of risk and advises the Board, as
appropriate, on the risk posed to the Bank from its continuing
business activities and future risk strategy.
The areas of risk include:
• Credit risk
• Treasury and liquidity management
• Operational risk
• Compliance and conduct risk (including regulatory risk)
• Financial crime risk
OVERVIEW
The Bank’s response to the external and internal challenges of 2019
is evidence of the underlying resilience within the organisation.
Despite pressures from an evolving regulatory landscape, political
uncertainty and profitability challenges, we reported a strong year
for growth in customer accounts and continued to be recognised
for our unique customer service proposition.
We took prudent actions to maintain a resilient balance sheet
following the RWA adjustment in January 2019, the change in our
timeframe for AIRB approval and periods of deposit outflows in
the first half of 2019. The equity capital raise, senior non-preferred
debt issuance and return to deposit growth in H2 2019 ensured
that we entered 2020 with a strong capital and liquidity position,
as well as being compliant with our interim MREL requirements.
These strong foundations are further underpinned by the
continued strong credit performance of our loan portfolios.
During 2019 we embarked on a Bank-wide RMF review and Risk
Transformation Programme to ensure our risk management
framework keeps pace with the Bank’s growth. This is focused on
risk-related internal systems, processes, controls and governance.
As part of this work, the Committee reviewed the Bank’s Risk
Appetite Statements. The RMF review and Risk Transformation
Programme is expected to be completed in 2020.
FINANCIAL RISK
During the year a key area of focus for the Committee has been
maintaining the Bank’s strong capital and liquidity positions.
Consideration was given to the timing and size of the Bank’s
equity capital raise and senior non-preferred debt issuance to
ensure the Bank maintained a robust capital position and met its
interim MREL requirements ahead of the 1 January 2020 deadline.
Similarly, the Committee considered the Bank’s prudent
management actions that followed periods of net deposit
outflows in the first half of 2019. These included loan and treasury
asset disposals, slowdown in lending growth and deposit
gathering initiatives, all of which have served to support the
Bank’s strong liquidity position.
Our CET1 ratio of 15.6%, total capital plus MREL ratio of 22.1% and
LCR of 197% all demonstrate the strength of the balance sheet as
we look forward to deliver the Bank’s medium-term strategy.
Our loan portfolios continue to deliver strong credit performance.
Our cost of risk and NPL ratios of 0.08% and 0.53% respectively
continue to reflect our low risk appetite and conservative
approach to lending. During the year the Committee frequently
reviewed market conditions and Credit Risk Policies within
the Bank’s key lending segments. Looking forward, as we
are targeting a faster pace of growth in consumer unsecured
lending, the Committee will focus on ensuring that risk appetite
remains appropriate to drive sustainable risk-adjusted returns.
OPERATIONAL RISK
Keeping our customers safe remains a key priority. To this end, during
2019 the Committee spent significant time reviewing and providing
oversight of the Bank’s IT and operational resilience and infrastructure.
A key part of the Committee’s oversight in 2019 related to
the upgrade of the Bank’s core banking platform. In July 2019
we successfully upgraded T24, which provides the Bank and
our customers with increased business capability and
operational resilience.
During 2019 the Committee has also received reports from
management on emerging non-financial risks and how these
risks are mitigated.
REGULAR REPORTING CATEGORIES
In January 2019 an announced adjustment to risk-weightings on
certain commercial and specialist buy-to-let loans increased
RWAs by £900 million. Although the adjustment had no bearing
on the credit quality of those assets, it resulted in a reduction of
our CET1 ratio to 13.1% and reduced the capital surplus above our
target CET1 ratio of 12.0% and the Tier 1 regulatory minimum at
the time of 10.6% (now 9.6% following adjustment to CCyB).
We have learnt valuable lessons from this and made good
progress in delivering an RWA remediation programme during
2019, which is expected to conclude in 2020. The Audit
Committee is providing oversight of the improvement to our
risk-related internal systems, processes, controls and governance
around capital and risk-weighted assets.
We submitted our application for an AIRB approach to credit
risk to the regulator at the start of 2018. Work towards AIRB
accreditation will include ongoing engagement with the PRA on
what is an iterative and detailed project. The status of the Bank’s
application for AIRB accreditation is ongoing.
As part of its oversight role, the Committee has also spent time
reviewing and challenging the Bank’s ICAAP and associated
documents, including stress testing and assumptions, prior
to the submission to the PRA.
COMPLIANCE AND CONDUCT RISK
The Committee has spent time during the year reviewing the
effectiveness of the policies by which the Bank identifies and
manages conduct risk, including agreeing enhanced conduct and
regulatory risk appetite metrics. The Committee continues to
maintain its oversight of the embedding and extension of the
Senior Managers & Certification Regime within the Bank. The
Committee has also assessed compliance and risk management
matters raised by the Bank’s regulators and the actions being
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
73
taken by management to respond. The Committee continues to
commission in-depth analysis of significant risk topics, which are
presented by the CRO or senior risk managers.
THE 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.
FINANCIAL CRIME RISK
The Committee gave consideration to the ongoing and
significant amount of regulatory and legislative change in relation
to financial crime, including money laundering and fraud. The
Committee reviewed the Money Laundering Officer’s report
(MLRO report) and the strategic plans focused on continuing to
develop the Bank’s money laundering control framework. We
also continue to increase customer awareness of fraud risks.
During 2019 the Committee considered the Bank’s control
framework and strategy to manage fraud risk within risk appetite.
Sanctions review
In November 2017, on the advice of external legal counsel, we
notified OFAC that we had discovered that a UK-based entity with
which we had a banking relationship was subject to US sanctions
relating to Cuba. We ended our relationship with the relevant entity.
Accountable to the Board, the ROC provides leadership,
oversight and direction regarding the Bank’s risk governance
and management. We are charged with helping the Board
to create an appropriate culture across the Bank, which emphasises
and demonstrates the benefits of a risk-based approach to
risk management and internal controls. We are responsible for
reviewing, challenging and recommending to the Board the
Bank’s risk appetite, ICAAP document, ILAAP document and
risk policies. We also provide oversight of the credit risk model
programme. The ROC oversees risk management procedures
and reviews risk reports on key business areas. In addition, we
advise the Audit Committee on reviews of effectiveness of the
Bank’s risk controls, and the Nomination and Remuneration
Committees on the weighting to be applied to risk for the
remuneration calculations for the Executive Leadership Team.
In addition, in 2019 we discovered that a payment made to one of
our customer’s accounts, which had been received from a UK-based
financial institution, had been routed to the UK-based financial
institution from Iran. A further notification was made to OFAC.
The ROC receives regular management information (‘MI’) and
reports concerning the Bank’s performance against risk appetite
and the measures set by it and by the Board. We receive regular
updates on regulatory developments, and consider how these
will affect plans, processes, systems and controls.
The Committee reviews and formally notes the minutes of the
Executive Risk Committee (‘ERC’), the Asset and Liability
Committee (‘ALCO’) and the Model Oversight Committee.
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.
At each scheduled meeting the ROC considered the following
standing items:
CRO ROC report
This includes an executive summary from the CRO setting out
items of note and assessing the Bank’s performance against its
risk appetite and risk metrics. It also includes specific reports on
the following areas:
Credit risk
Execution of our strategy requires prudent and controlled
management of credit risk. To support this, one of the roles of the
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 monitors policy exceptions.
We have initiated a review of the foregoing matters together with
a review of our broader sanctions compliance and transaction
monitoring policies and procedures with the support of external
advisors, which is still ongoing. Metro Bank continues to fully
co-operate with its regulators in relation to any enquiries in
this regard.
In early 2019, the Nomination Committee and Board reviewed
the composition of the ROC to ensure that it continued to have
the appropriate balance of skills, experience and independence.
We welcomed Michael Torpey to the Committee in October
2019. Following Sally Clark’s appointment to the Board in January
2020, she joined the Committee on 1 March 2020.
The following sections explain the role and activities of the ROC,
and how it has discharged these responsibilities, as well as setting
out several key areas of activity during 2019.
Following 10 years on the Board, I will be stepping down from the
Board before the 2020 AGM. I would like to thank our customers,
shareholders and colleagues for their commitment and support
during my time on the Board.
CORONAVRIUS
At the time of writing, the coronavirus pandemic continues to
progress. This is clearly a serious situation impacting not just the UK,
but also the global economy. The position has been, and continues
to be, rapidly evolving and difficult to predict with any certainty.
However our immediate focus has been to support our colleagues
and customers. We will continue to monitor the situation carefully.
The Bank’s liquidity position remains strong and we stand ready to
support our customers, both borrowers and depositors, as required.
Gene Lockhart
Risk Oversight Committee Chair
16 April 2020
Strategic ReportGovernanceFinancial StatementsAdditional information 74
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Risk Oversight Committee report
continued
KEY AREAS CONSIDERED BY THE RISK OVERSIGHT
COMMITTEE IN 2019
During 2019, we received items of business including the
following:
Operational risk
The ROC receives reports concerning risk appetite and risk
assessment for a number of key operational risks including:
information security and availability, operational resilience, and
the execution risk of change. The Committee has been updated
on control enhancement work that the Bank is undertaking in
these areas. Incidents and root cause analysis as a result of any
material incidents were presented in 2019 to demonstrate how
the Bank captures learnings and takes action to prevent or
mitigate any potential recurrences. The view of the Committee is
that the management of these incidents and the actions taken in
response were proportionate and appropriate to the size and
scale of the incidents.
Compliance and conduct risk (including regulatory risk)
In a constantly changing regulatory environment, the ROC is
updated regularly on developments and regulatory changes
that could impact the Bank. 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.
Financial crime risk
Given the level of risk posed by financial crime to all banks,
our report includes management information on matters
including: performance against the Bank’s financial crime key
risk indicators; compliance with customer identification and
verification requirements for all new accounts and oversight and
risk assessment of high-risk customers. Our report also covers
payments and customer screening, as well as updates on
items of note from the Financial Crime Steering Group.
Treasury and liquidity management
While the primary venue for in-depth discussions on Treasury is
the ALCO, the Treasurer’s commentary is tabled at each ROC
meeting – and the Treasurer is invited to attend meetings to
discuss this. The ROC also reviews Treasury policies and notes
the minutes of the ALCO. Our report includes high-level MI on
liquidity and interest rate risk, while the Committee also receives
specific reports on Treasury risk. In addition, the Treasurer’s report
includes updates on relevant regulatory matters.
Litigation update
The ROC notes the report from the Bank’s Legal team regarding
any material litigation cases.
Deep dives and in-depth reviews
We receive in-depth reviews on areas of emerging risk and
regulatory interest throughout the year.
The ROC’s Terms of Reference are reviewed annually and are
available on our website.
Area
Policy
Discussion
Policies approved by the ROC:
• Business Continuity Policy
• Retail Mortgage Policy
• Unsecured Retail Lending Policy
• Private Banking Policy
• Anti-Bribery & Corruption Policy
• Anti-Tax Evasion Policy
• Investment and Dealing Policy
• Impairment Policy
• Arrears Management Policy
• Health and Safety Policy
• Diversity and Inclusion Policy
• Information Security Policy
• Regulatory Reporting Disclosures Policy
• Commercial Lending Policy and
Commercial Lending Standards Policy
• Retail Unsecured Lending Policy
• Collections and Recovery Policy
Policies reviewed and recommended to
the Board:
• Credit Risk Policy
• Commercial and Business Lending Policy
• Risk Appetite Policy
• Compliance Policy
• Sanctions Policy
• Anti-Money Laundering/Combating
Terrorist Financing Policy
• Customer Treatment Policy
• Share Dealing Policy
• Recovery Plan and Capital Management
Policy
• Responsible Lending Policy
• Enterprise Risk Management Policy
• Treating Customers Fairly Policy
Regulatory
• MREL
• Recovery Plan
• Operational Continuity in Resolution
AIRB application
• AIRB approach to calculating credit risk
application updates
Treasury
• Balance sheet resilience actions
IT resilience
• Banking systems upgrade (T24)
programme
Capital and
liquidity
• ILAAP document incorporating Treasury
Policy and Contingency Funding Plan
• ICAAP document including interest rate risk
in the banking book
Deep dives
• Credit risk
• Non-financial risk
• Commercial property update
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
75
Nomination Committee report
2019 ACTIVITIES
• The Nomination Committee oversaw and recommended
the appointment of two new Non-Executive Directors
(‘NEDs’); Michael Torpey (who joined the Board on
1 September 2019) and Sally Clark (who joined the Board
on 1 January 2020)
• We announced in October 2019 that Vernon W. Hill, II was
stepping down as Chair. Sir Michael Snyder was appointed
as interim Chairman and a separate Committee of
independent Directors has been established to oversee the
search for a new permanent independent Non-Executive
Chair, working with Korn Ferry
•
In December 2019 we announced that Craig Donaldson was
stepping down as CEO. Daniel Frumkin was appointed as
permanent CEO in February 2020
• Five NEDs left the Board during 2019 and early 2020: Keith
Carby, Lord Howard Flight, Vernon W. Hill, II (former Chair),
Ben Gunn and Roger Farah
• The Committee also agreed new Committee membership
and Committee Chair appointments to maintain Committee
independence and the appointment of an interim Senior
Independent Director (‘SID’)
NOMINATION COMMITTEE MEMBERS
In addition to the Committee Chair, Monique Melis1, there are
two members of the Nomination Committee: Catherine Brown
and Sir Michael Snyder. Each are independent Non-Executive
Directors. The CEO attends meetings by invitation. The People
team provides support to the Committee Chair and Committee
as needed and the Deputy Company Secretary acts as Secretary
to the Committee. Following each meeting the Chair provides a
verbal update to the Board. The Committee minutes are also
included in future Board papers.
1. Subject to regulatory approval.
NOMINATION COMMITTEE ATTENDANCE FOR 2019
2020 FOCUS AREAS
• The Nomination Committee and New Chair Selection
Committee will prioritise identifying a permanent Chair
• The Nomination Committee will also continue to focus on
Board succession and independence; specifically, sourcing
high-quality independent Non-Executive Director
candidates with relevant banking experience who have the
capability to support and challenge the organisation
• We will also seek to further improve the diversity of our
Board in line with our Board Diversity Policy
Catherine Brown1
Monique Melis (Chair)2
Sir Michael Snyder3
Former members
Keith Carby4
Roger Farah5
Lord Howard Flight6
Vernon W. Hill, II7
Paul Thandi8
Meetings
held during
Director’s
tenure
Meetings
attended
4
N/A
N/A
3
5
2
5
3
4
N/A
N/A
3
5
2
5
3
1. Appointed to the Committee on 1 April 2019.
2. Appointed to the Committee on 13 March 2020, position as Chair subject to
regulatory approval.
3. Appointed to the Committee on 1 November 2019. There were no meetings held for
the remainder of 2019 after Sir Michael was appointed a member.
4. Stepped down from the Board on 30 April 2019.
5. Stepped down from the Board on 13 March 2020.
6. Stepped down from the Board on 1 April 2019.
7. Stepped down from the Board on 17 December 2019.
8. Stepped down from the Committee on 31 October 2019.
Strategic ReportGovernanceFinancial StatementsAdditional information 76
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Nomination Committee report
continued
Dear shareholders
I am pleased to share my first report as Nomination Committee
Chair since taking over from Roger Farah in March 2020.
We have made and overseen a number of changes to the Board
and Committees since our 2019 AGM.
DIVERSITY
We understand the merits of a diverse organisation and Board.
We have retained Audeliss, a search firm, to support us in
sourcing candidates for Non-Executive Director roles. Diversity
is central to Audeliss’s approach and it is a signatory to the
Women on Boards Voluntary Code of Conduct for Executive
Search Firms. Audeliss has no connection to Metro Bank.
Working in partnership with the search firm Audeliss, we
appointed Michael Torpey to the Board on 1 September 2019 and
Sally Clark to the Board on 1 January 2020. Michael brings a
wealth of experience in banking and regulation from his time at
the Bank of Ireland. Sally was previously Chief Internal Auditor at
Barclays, and she brings substantial banking, audit and controls
experience to our Board.
As a Committee and as a Board, we recognise that the diversity
of our Board drives effective decision making and constructive
challenge and scrutiny in the boardroom. This shapes the
strategic and operational direction of the Bank. We are therefore
committed to building a strong Board which is diverse in many
ways, including gender, as per our Board Diversity Policy which is
on our website.
Additionally, Paul Thandi, CEO of the NEC, joined the Board as a
Non-Executive Director from 1 January 2019 following a brief
period on our Advisory Board as announced in our 2018 report.
It is great to be able to welcome new talent to the Board and to
increase the diversity of background, skills and experience we
have amongst our Non-Executive Directors. This continues to
be an area of focus for the Committee and Board in 2020.
Looking forward, 2020 will continue to be busy for the
Nomination Committee. A committee of independent NEDs is
carrying out a thorough and robust search for a new permanent
independent Chair. As Nomination Committee Chair and SID, I
also chair the New Chair Selection Committee.
We do not have any specific targets in relation to Board and
leadership diversity and any appointments are made on merit
and experience, as we seek individuals who will add significant
value. We are aware of the recommendations published in the
Hampton-Alexander Review for 33% female representation on
all FTSE 350 Boards and FTSE 350 leadership teams (both the
executive team and their direct reports) by the end of 2020. We
continue to improve the diversity levels and the Board is now 30%
female. We will further review our Board Diversity Policy in 2020
to ensure this remains fit for purpose and is in line with best
practice guidance.
We are pleased to have exceeded the target for female
representation on our leadership teams as at 31 December 2019.
Monique Melis
Nomination Committee Chair
16 April 2020
BOARD COMPOSITION, INDEPENDENCE AND TIME
COMMITMENTS
We reviewed the skills, experience, independence and knowledge
of the Board during 2019 to understand which areas to focus on
when recruiting future Board members and the future
composition of our Board and Committees.
We recognise the Code’s recommendations in relation to director
tenure and independence. Our Non-Executive Directors Stuart
Bernau and Gene Lockhart are no longer considered independent
as they reached nine years’ tenure in March 2019. Both Stuart and
Gene are stepping down from the Board before the 2020 AGM and
will not stand for re-election.
The changes to the Board during 2019 gave us the opportunity to
refresh the membership and Chairs of our Committees.
The Board carried out an internal evaluation during 2019. More
details are on page 62.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
77
Our Board and Committee composition as at the date of this report:
Roles
Board roles
Chairman
Names
Comments
Sir Michael Snyder
The Board (excluding the Chairman) is made up of nine directors of which five (56%)
are independent Non-Executive Directors (‘NEDs’), two are non-independent NEDs
and the remaining two are Executive Directors.
Senior Independent
Director
Monique Melis1
Monique Melis was appointed as SID on 1 December 2019 following Sir Michael’s
appointment as Chairman.
Designated NED for
Workforce Engagement
Stuart Bernau
(non-independent)
Sally Clark will take up the position of designated NED for Workforce Engagement
following Stuart Bernau stepping down from the Board.
Independent NEDs
Catherine Brown
Sally Clark
Monique Melis
Paul Thandi
Michael Torpey
NEDs (non-independent)
Gene Lockhart
Stuart Bernau
Stuart and Gene are stepping down before the 2020 AGM will not stand for
re-election.
Executive Directors
CEO
CFO
Audit Committee
Chair
Members
Daniel Frumkin
David Arden
Michael Torpey
Paul Thandi
Monique Melis
Sally Clark
Nomination Committee
Chair
Members
Monique Melis1
Catherine Brown
Sir Michael Snyder
Remuneration Committee
Chair
Members
Risk Oversight Committee
Chair
Members
Catherine Brown1
Paul Thandi
Sally Clark
Gene Lockhart
Stuart Bernau
Catherine Brown
Sally Clark
Michael Torpey
1. These roles are subject to regulatory approval.
The Audit Committee is comprised entirely of independent NEDs.
The Nomination Committee is comprised entirely of independent NEDs.
The Board continues its proactive search for additional independent NEDs and we
expect to again make at least one appointment this year.
The Remuneration Committee is comprised entirely of independent NEDs.
Strategic ReportGovernanceFinancial StatementsAdditional information 78
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Nomination Committee report
continued
THE NOMINATION COMMITTEE IN BRIEF
The Nomination Committee leads the process for identifying
and making nomination recommendations to the Board. Its
duties include:
• regularly reviewing the structure, size and composition
(including skills, knowledge, experience, independence and
diversity) of the Board as a whole and making
recommendations to the Board as required;
• considering succession planning for members of the Board
and Executive Directors, including the length of service of
members and the need to regularly refresh Board
membership, taking into account the Bank’s strategic priorities
and the main trends 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;
•
taking responsibility for identifying and nominating candidates
to fill Board vacancies as and when they arise, for the approval
of the Board;
• evaluating the balance of skills, knowledge and experience,
diversity and length of service on the Board, and the range of
critical skills of value to the Board relevant to the challenges
and opportunities facing the Bank;
• considering Board candidates on merit and against objective
criteria and with due regard for the benefits of diversity, taking
care that appointees have time available to devote to the
position; and
• reviewing the results of the Board performance evaluation
process relating to Board composition.
The Nomination Committee Terms of Reference can be found on
our website: metrobankonline.co.uk
KEY AREAS DISCUSSED AT NOMINATION COMMITTEE
MEETINGS IN 2019
Area
Topics
Board
appointments
• The appointment of Michael Torpey as
a new Non-Executive Director
• The appointment of Sally Clark as a new
Non-Executive Director
• Review of proposed Non-Executive
Director candidates
Board succession
• The Board succession plan –
progressively refreshing our Board with
a view to promoting diversity of
backgrounds, skills, experience, and
personal and cognitive strengths
• Succession planning for senior
management
• Putting the Board succession plan into
action and Board independence
• Reviewed Committee Chairs and
independence
• Agreement of Committee memberships
Other areas for
review
• 2019 Hampton-Alexander data/report
• Approval of Nomination Committee
report
• Annual review of the Nomination
Committee Terms of Reference
• Proxy Adviser feedback on 2018 Annual
Report and new Code requirements
• Nomination Committee annual
effectiveness review
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
79
Remuneration Committee report
2019 ACTIVITIES
• The Committee oversaw the key aspects of reward for all
colleagues. Our activities are not focused solely on Director
remuneration; for example, they included a review of the
performance of the Group personal pension scheme and the
Company’s gender pay gap
• We also review the principles of the annual Reward Review,
including salaries and variable pay, for all colleagues
• We discussed the treatment of outstanding variable pay
awards and variable pay outcomes for 2019 in the context of
the internal analysis and external investigation into the
risk-weighted assets (‘RWA’) adjustment and reduced the
scorecard outcome as a result
2020 FOCUS AREAS
• The Committee is mindful of the changes within the UK
Corporate Governance Code and executive pay reporting
legislation which apply to the Bank from 1 January 2019, as
well as the additional requirements under the Shareholder
Rights Directive
• We have reviewed the Remuneration Policy (the ‘Policy’) in
the context of recent developments in the external
environment and our business strategy and are submitting a
revised Policy to shareholders for approval at the 2020 AGM
• We have also considered our approach to remuneration for
2020 in the context of Company performance and have
applied our discretion as appropriate
REMUNERATION COMMITTEE MEMBERS
During 2019 the Remuneration Committee comprised Committee
Chair, Roger Farah and two other members, Catherine Brown and
Paul Thandi. Each are independent Non-Executive Directors. The
CEO and Chair attend meetings by invitation to assist the
Committee in its deliberations, although not in relation to their
own remuneration. The People team provides support to the
Committee Chair and Committee as needed and the Deputy
Company Secretary acts as Secretary to the Committee. Following
each meeting the Chair provides a verbal update to the Board.
The Committee minutes are also included in future Board papers.
Since March 2020, the Remuneration Committee has been chaired
by Catherine Brown, with Paul Thandi and Sally Clark as members.
The Committee has not appointed a remuneration advisor but
Deloitte LLP offers advice to management who in turn advise
the Committee.
REMUNERATION COMMITTEE ATTENDANCE FOR 2019
Members
Catherine Brown (Chair)1
Sally Clark2
Paul Thandi3
Former members
Keith Carby4
Roger Farah5
Lord Howard Flight6
Meetings
attended
Meetings held
during Director’s
tenure
3
N/A
3
3
6
3
3
N/A
3
3
6
3
1. Appointed to the Committee on 1 April 2019.
2. Appointed to the Committee on 13 March 2020.
3. Appointed to the Committee on 1 April 2019.
4 Stepped down from the Board on 30 April 2019.
5. Stepped down from the Board on 13 March 2020.
6. Stepped down from the Board on 1 April 2019.
The above change in Committee Chair is subject to regulatory approval.
Strategic ReportGovernanceFinancial StatementsAdditional information 80
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Remuneration Committee report
continued
Dear shareholders
On behalf of the Board, and as Chair of the Remuneration
Committee, I am pleased to present the Remuneration
Committee report and the Directors’ remuneration report
(‘the Report’) for the year ending 31 December 2019.
Our current policy entered its third and final year in 2019.
Therefore, we will be seeking shareholders’ approval for our
proposed Directors’ Remuneration Policy for the following three
years at the 2020 AGM.
The Committee is cognisant of the views of our shareholders on
remuneration matters, and following the vote on the Directors’
remuneration report at the 2019 AGM, the Committee undertook a
detailed review of our approach to executive pay, seeking feedback
from our key shareholders and representative bodies. I would like
to thank our investors for their feedback on our proposed Policy
and we will continue to engage with investors and stakeholders on
our approach to remuneration going forward.
As part of the engagement exercise after the 2019 AGM,
the following key topics were discussed with investors and
proxy advisers:
• Weighting of the financial metrics on the variable reward
balanced scorecard
• The Remuneration Committee’s ability to adjust performance
outcomes through use of discretion
• Executive Director pension contributions
• Post-cessation shareholding requirements
During the course of the review, the Committee considered a
number of alternative approaches, including a conventional
long-term incentive model. The Committee was mindful of
feedback received directly from investors on our current
approach to remuneration, the changing corporate governance
landscape and the evolving debate on executive remuneration.
Reflecting on the wider challenges the Bank continues to face
and our strategic priorities in that context, the Committee
concluded that our current framework, consistent throughout the
Bank, remains aligned with, and will continue to drive, the
long-term sustainable delivery of our business strategy.
As such, the Remuneration Committee has agreed to retain the
majority of the existing Policy, whilst making a number of minor
changes to address the external feedback, reflect best practice and
formalise the regulatory requirements the Bank is required to
observe as a proportionality level 2 firm. The key changes include:
• Pension contributions – Going forward, any new Executive
Director hire will have a maximum pension contribution at a
level aligned with or lower than that available to the majority of
the wider workforce (our new CEO was appointed on a
pension contribution level of 8% of base salary in line with this
approach). The Committee is mindful of the current debate
regarding pension contribution rates, and the pension
contribution rate for the CFO (currently 10% of base salary) will
be reduced to a level aligned with or lower than that available
to the majority of the wider workforce by the end of 2022.
• Variable reward – On-target variable reward will be reduced
from 75% of maximum potential to no more than 50% of
maximum. The proportion of variable reward based on financial
measures will increase from at least 25% to at least 40%.
• Shareholding requirements – We are proposing to introduce
formal shareholding guidelines for Executive Directors of 200%
of salary. In line with investor expectation and best practice,
Executive Directors will also be required to retain 100% of the
shareholding requirement (or actual holding if lower) for two
years post-cessation.
With the Bank becoming a proportionality level 2 firm from
1 January 2019, we are subject to a number of enhanced
regulatory requirements which apply to Executive Directors and
other members of our Executive Leadership Team. These
requirements, including extended deferral timeframes and malus
and clawback periods, will be formalised into our updated Policy.
Full details of the proposed changes to our Directors’
Remuneration Policy can be found on page 98.
OUR APPROACH TO REMUNERATION ACROSS METRO BANK
We believe oversight of the remuneration and benefits across the
Bank for all colleagues, not just Directors, is an important part of
our role. Our approach to remuneration for Executive Directors is
consistent with that taken for all colleagues. It comprises a salary,
reasonable benefits and pension provisions and variable reward
which is delivered primarily through share options. We do not
operate additional Long-Term Incentive Plans or ‘LTIPs’.
Variable reward for all eligible colleagues, including Directors, is
based on personal behaviours and delivery and also how the Bank
has performed during the year. All share options are awarded at the
market share price with no discount and are subject to deferral. The
wider colleague population receive share options that vest over five
years; colleagues who are PRA-designated Senior Managers
(including the Executive Directors) will receive share options that vest
over seven years with a 12-month holding period. This aligns all
colleagues with both investors and other stakeholders in line with
our customer-focused model and long-term vision.
All variable reward is subject to malus and clawback extending for
up to ten years.
GENDER PAY
Our median gender pay gap has increased year on year although
it remains below the level of 2017 and our mean gender pay gap
has decreased year on year. The 2019 median gender pay gap is
12.4% (9.8% in 2018) and the mean gender pay gap is 20.1% (21.0%
in 2018). The primary causes of the median pay gap to increase
are the larger proportion of women in the lower quartiles along
with a high proportion of men in the upper quartiles.
Median
pay gap
Mean
pay gap
Median
bonus gap
Mean
bonus gap
Median
bonus gap
excluding
share
options
sales/gains
Mean
bonus gap
excluding
share
options
sales/gains
12.4%
20.1%
33.3%
30.6%
33.3%
29.4%
9.8%
21.0%
29.0%
35.7%
27.9%
30.0%
Year
2019
2018
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
81
We take fairness and transparency very seriously so we examined
salaries for all roles with more than 10 colleagues in them. This
confirmed that we pay colleagues doing the same roles equitably,
regardless of gender. Nonetheless, we continue to focus on
reducing the gap by supporting all colleagues to develop in their
careers and progress towards more stretching jobs that typically
command a higher salary. All of our talent development
programmes are inclusive and we support leaders by providing
them with diverse candidate lists for vacancies.
PAY QUARTILES
Lower
Lower middle
48%
Male
Female
52%
Median pay gap 0.0%
-0.1%
Mean pay gap
50%
Male
Female
50%
Median pay gap 0.5%
1.2%
Mean pay gap
Upper middle
Upper
54%
Male
46%
Female
Median pay gap -0.2%
Mean pay gap
0.3%
68%
Male
32%
Female
Median pay gap 8.2%
Mean pay gap
7.8%
In 2019, variable reward was balanced with 80.8% of females
receiving a bonus, versus 79.6% of males.
Female
Male
19.2%
20.4%
80.8%
79.6%
Received bonus
Did not receive bonus
The median bonus gap was 33.3% and the mean bonus gap was
30.6%. However, if gains made on the sale of share options or
shares are excluded, the median bonus gap remains at 33.3% and
the mean bonus gap reduces to 29.4%. The bonus gap is driven
by the greater proportion of men in the top quartile where
variable reward tends to be higher.
Full details can be found on our website: metrobankonline.co.uk.
LOOKING BACK ON 2019
Variable reward
Variable reward outcomes are based on key financial, risk, customer
and people objectives balanced with the personal behaviours and
delivery of individual Executive Directors. This is the same approach
that we take with every colleague in Metro Bank.
As disclosed in our 2018 Annual Report, in January 2019 we
announced that we had adjusted the risk weighting of certain
commercial loans secured on commercial property and certain
specialist buy-to-let loans that had the combined effect of increasing
our risk-weighted assets (‘RWA’) by £900 million. The Committee
decided to freeze vestings of share options and awards for Executive
Directors and the Executive Leadership Team, including share
options granted for 2019 performance, pending further internal
analysis and any external investigations into the RWA adjustment.
Awards for 2018 and 2019 will remain frozen, as will any further
awards, and we have extended this approach to include any
colleagues who we believe may have been proximate to the issue.
Further to feedback from investors and proxy advisors in early 2019,
the Committee chose to exercise discretion and amend the
weightings of the performance measures within the balanced
scorecard. The final scorecard therefore differed from that outlined
in the 2018 Annual Report and Accounts. In response to shareholder
feedback, we increased the weighting of financial and colleague
measures and reduced the weighting of customer measures. The
weighting of the financial measure will increase further in 2020
whilst the colleague measure will reduce.
We again set stretching targets for 2019, and strong performance
against our risk, customer and people measures resulted in a
formulaic balanced scorecard outcome of 56.5% of maximum. The
Committee was mindful of the fact that the non-financial measures
have paid out at a higher level compared to the financial measures,
which were below gateway performance, as a result of challenging
market conditions in the year. Taking this into consideration, and in
view of the overall Company performance in 2019, the Committee
exercised its discretion to reduce the scorecard outcome to 41.4% of
maximum relating to the cash bonus element; the Committee also
applied further downward discretion to the number of share options
being awarded after considering our headroom and dilution limits.
The Committee determined that it would not be appropriate to
award cash bonuses or short-term share options to the Executive
Directors or members of the Executive Leadership Team for 2019. As
such, and in order to retain our people and align their reward to
long-term performance of the organisation, David Arden’s variable
pay award as well as those of our Executive Leadership team
members was delivered solely in the form of market price share
options vesting over seven years. At the time of award, the value of
these share options was nil and vesting is frozen pending the
investigation into the RWA adjustment.
The Committee considers David’s award reflects his growth into
the role and his development of strong relationships with key
stakeholders and regulators. David has also helped lead the
comprehensive review of our strategy, and the Committee
believes he will play a key role in the successful execution of our
transformation plan going forward as we focus on becoming the
UK’s best community bank. David’s award was therefore delivered
in the form of long-term vesting share awards to align David with
the successful execution of our strategy over the coming years,
which will benefit all of our stakeholders and be key for the
long-term sustainable success of the Bank.
Strategic ReportGovernanceFinancial StatementsAdditional information 82
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Remuneration Committee report
continued
David’s options have an exercise price equal to the market value of
the Metro Bank shares on the date of grant, and as such, value will
only be delivered to the extent that the share price increases going
forward. Any vesting of the award is frozen pending the investigation
into the RWA adjustment.
The Committee has agreed that Craig Donaldson will not be
awarded variable remuneration in respect of the 2019
performance year, in light of corporate performance during the
year and the announcement that he would be stepping down as
Chief Executive Officer at the end of the year.
Pages 87 and 88 detail the scorecard measures, targets and
outcomes relating to 2019 as well as any share options awarded
to Executive Directors.
Leadership changes
Following the announcement that Craig Donaldson was stepping
down as Chief Executive Officer, Daniel Frumkin was appointed
as interim CEO on 1 January 2020 on a salary of £690,000.
Daniel was subsequently appointed permanent CEO on
19 February 2020 on a salary of £740,000, which was less than
his predecessor (£750,000). His pension contribution is 8% of
salary, which is aligned with or lower than that available to the
majority of the wider workforce and his variable reward
arrangements are in line with our Remuneration Policy. Further
details are provided on page 98.
Craig Donaldson stepped down as CEO on 31 December 2019.
Craig did not receive any variable remuneration for 2019 (or 2018).
Craig will remain employed by Metro Bank until 31 December
2020, and remain available to the Board as an adviser in order to
support the transition and provide insight and background. The
Committee will consider whether Craig’s outstanding share
options and awards will remain capable of vesting on their normal
vesting dates, albeit all unvested share options and shares remain
frozen at present, pending further internal analysis and any external
investigation into the RWA adjustment.
LOOKING FORWARD TO 2020
Salaries from 1 April 2020
We had an overall salary increase pot of 2% for 2020. The
‘on-target’ pay increase for inflationary and behavioural/
performance-related salary increases was 1.30%. When we
consider all salary increases, the average pay rise was 1.74% and
the maximum was 17%. In total, 1,875 or 53.70% of all colleagues
received a salary increase above the standard inflationary and
behavioural/performance-related pay rise. This includes all our
Cashiers, Customer Service Representatives and AMAZE Direct
Representatives, where our entry-level salaries have increased by
between 2.93% and 7.78%.
We have reviewed our Executive Directors’ salaries and
determined that no salary increases would be made for 2020.
Chairman and Non-Executive Director fees
Sir Michael Snyder was appointed interim Chairman in October
2019. The annual fees for the interim Chairman remain unchanged
at £275,000. The fees for our Non-Executive Directors remain
unchanged at £52,500 per annum.
Former Chair
The former Chair, Vernon W. Hill, II, stepped down from his role
as Chair on 23 October 2019 and resigned from the Board on
17 December 2019. He will receive his annual fee of £385,000
until 9 March 2020 in line with his service agreement and our
Remuneration Policy as approved by shareholders in 2017. The
£120,000 gross annual allowance, paid in monthly instalments via
PAYE as a contribution towards his travel to/from the UK and
accommodation and subsistence while here, ceased with effect
from the date he stepped down from the Board.
Variable reward for 2020
The Committee will agree an appropriate balanced scorecard to
inform the Company variable reward multiplier for 2020, based
on financial, risk, customer and people objectives. We will
disclose targets and measures in the Remuneration section of the
Annual Report for 2020. This disclosure will include information
relating to performance against those targets except where we
believe it is commercially sensitive – in which case it will be
disclosed once it is deemed to no longer be sensitive.
The Committee is mindful that the COVID-19 pandemic will have
an impact on the 2020 performance of the Bank and will take it
into consideration when determining the variable remuneration
for all colleagues as part of 2020 performance outcomes, in
particular the outcomes for senior executives.
The majority of variable pay for Executive Directors will continue
to be awarded as share options. Variable reward for PRA-
designated Senior Managers (including the Executive Directors)
will continue to vest over seven years with a 12-month holding
period in line with our move to a proportionality level 2 firm.
Our simple approach to variable reward, applied across the
organisation, focuses all colleagues on growth and the long-
term, sustainable success of the business.
APPROPRIATENESS OF EXECUTIVE REMUNERATION
We believe that the overall remuneration structure continues to
be appropriate and as such are only proposing minor
amendments to our policy which will strengthen our approach to
reward, reflect best practice and investor expectations and ensure
continued compliance with the regulatory requirements the Bank
is required to observe as a proportionality level 2 firm. There is
significant alignment between the interests of Executive Directors
and shareholders, and we take the same approach with all
colleagues as part of our ethos to make every colleague feel like
an owner. The Remuneration Committee has complete discretion
to challenge the formulaic variable reward outcome where it
believes it is not appropriate.
We engage with relevant organisations concerning our approach
to remuneration and welcome feedback from investors and
stakeholders.
On behalf of the Committee, thank you for your support.
Catherine Brown
Remuneration Committee Chair
16 April 2020
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
83
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
remuneration arrangements.
Simplicity
Remuneration structures should avoid complexity and their rationale
and operation should be easy to understand.
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.
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.
Proportionality
The link between individual awards, the delivery of strategy and the
long-term performance of the company should be clear. Outcomes
should not reward poor performance.
In the review of the Remuneration Policy, the Committee engaged
with shareholders in order that they could express their views on the
proposals, and took into account shareholder feedback to ensure our
proposed policy is aligned to best practice and investor expectation.
Colleagues are able to express their views on pay through regular
surveys and feedback, as well as through our designated workforce
engagement Director.
Our approach to remuneration for Executive Directors is simple and
consistent with that taken for all colleagues (comprising fixed pay and
variable reward delivered primarily through share options). We do not
operate an additional long-term incentive plan.
In line with regulatory requirements, our remuneration practices
promote sound and effective risk management whilst supporting our
business objectives.
For 2020, 20% of our balanced scorecard which informs variable
reward will be based on risk measures, and variable reward is
also subject to a risk adjustment process and input from the
Chief Risk Officer.
The deferred portion of any awards granted to Executive Directors is
subject to a seven-year deferral period, during which our malus
policy can be applied. 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).
Variable reward is delivered primarily through share options. 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 in the Remuneration Policy on page 104.
Variable reward payments require robust performance against
challenging conditions. 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. In 2019 the Committee exercised its discretion to
reduce variable pay awards to zero for the CEO.
Alignment to culture
Incentive schemes should drive behaviours consistent with company
purpose, values and strategy.
Our primary objective is to design a remuneration framework that
promotes the growth and long term success of Metro Bank while
supporting 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 eligible for share options or an equivalent, in line
with our strong ethos of colleague buy-in and ownership.
Strategic ReportGovernanceFinancial StatementsAdditional information 84
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Remuneration Committee report
continued
Area
Reward
THE REMUNERATION FRAMEWORK IN BRIEF
Our remuneration framework:
• promotes the growth and long-term success of Metro Bank
• supports the unique culture and model to deliver outstanding
customer service
• promotes sound and effective risk management and does not
encourage risk-taking that exceeds the risk appetite agreed by
the Board
In line with our business strategy and objectives, the framework
strongly emphasises long-term growth and share options as the
major source of reward – so that everyone is focused and
rewarded for long-term, sustainable success.
Because of the way we measure behaviours and performance for
individuals, and how we capture and act upon customer insight
across the organisation, the framework is strongly aligned to the
delivery of outstanding customer service.
Our approach to reward strikes a balance between short-term
rewards and the long-term performance of the business. The
framework also complies with the FCA remuneration principles.
Full details are on our website: metrobankonline.co.uk.
KEY AREAS DISCUSSED AT REMUNERATION COMMITTEE
MEETINGS IN 2019
Area
Key topics
Regulation
Policy and
reporting
• Approval of Directors’ remuneration
report, including letter from
Remuneration Committee Chair
and Remuneration Policy
• Gender pay and approach to
reporting 2019 data
• New Remuneration Committee
Terms of Reference
• Feedback on 2018 Annual Report and
2019 AGM
• Review of Directors’ Remuneration
Policy, including consultation with
key shareholders and proxy advisory
bodies on Executive Director
remuneration matters
Key topics
• 2019 Annual Reward Review for all
colleagues – including multiplier for
variable reward, awards (for 2018
performance year), pay outcomes and
CEO summary
• Remuneration for Executive Directors,
members of the Executive Leadership
Team and Director of Internal Audit
• Fees for Chairman and Non-Executive
Directors
• Share options – number available for
granting, dilution policy, approval of
exchange value and VWAP to apply to
the 2020 grant (for 2019 performance
year)
• Consideration of alternative long-term
incentive arrangements
• Discretionary decisions regarding
retention of share options by former
employees
• Review of Metro Bank Group Personal
Pension Plan (Governance report)
• Treatment of outstanding variable pay
awards and variable pay outcomes for
2019 in the context of the internal
analysis and external investigation into
the risk-weighted assets (‘RWA’)
adjustment
• Implementation of remuneration
regulatory requirements as a
proportionality level 2 firm
• Remuneration Code Annual Disclosure
for 2019
• Ex-post checks for April and October
2019 share option vests
• CRO review of FCA remuneration
guidelines, including ex-ante checks
• Director of Internal Audit sign-off of
2019 Reward Review
• Annual review of Remuneration
Committee Terms of Reference
• New Corporate Governance Code
requirements and changes to
remuneration report legislation
• Remuneration Committee annual
effectiveness review
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
85
Remuneration at a glance
BALANCED SCORECARD REMUNERATION OUTCOME FOR
2019 COMPANY PERFORMANCE MULTIPLIER
FINANCIAL MEASURES
A Financial – see Financial Measures table
B Risk
C Customer
D People
Total
Adjusted company multiplier after
discretion applied
VARIABLE REWARD FOR ALL EMPLOYEES
Weighted
performance
outcome
Weighting
35%
20%
25%
20%
0.0%
Deposit performance
Profit before tax
19.3%
17.8%
19.4%
100%
56.5%
100%
41.4%
Weighted
multiplier
0.0%
0.0%
On-target variable reward
X
Adjusted company multiplier
Individual performance and
seniority multiplier
=
X
Total variable reward
APPLICATION TO EXECUTIVE DIRECTORS
• Each Executive Director
• For each of the
• The range of the
is eligible for an
on-target variable
reward opportunity of
100% of salary
individual Company
performance metrics
the multiplier range is
80%–120%
• For each performance
metric, there will be no
payment at all until
performance for that
metric has reached
gateway performance
• At gateway performance
80% of the multiplier
will apply and at
maximum performance
120% of the multiplier
will apply
•
individual multiplier is
0%–200%
If the Company
multiplier doesn’t
exceed expected
performance, the
maximum individual
multiplier that will be
applied is 150%
• The multiplier is applied
by reference to each
colleague’s individual
behaviours and
performance in the year
CAP APPLIED
200% OF SALARY
• Variable remuneration
will not exceed 200% of
salary for Executive
Directors
2019 REMUNERATION OUTCOMES
A) Financial
0.0%
+
B) Risk
19.3%
+
C) Customer
17.8%
+
D) People
19.4%
=
56.5%
Discretion
applied
41.40%
Individual
Performance
+
Individual
Seniority
=
Total variable
reward
2019 REMUNERATION OUTCOMES FOR EXECUTIVE DIRECTORS
Craig Donaldson – CEO
£’000
Fixed
Variable pay
£829
Total 2019 reward
£829
£750
£829
£1,500
£829
Minimum
On-target
Maximum
David Arden – CFO
£’000
Fixed
Variable pay
£561
Total 2019 reward
£445
Minimum
£404
£445
On-target
£808
£445
Maximum
Strategic ReportGovernanceFinancial StatementsAdditional information 86
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Remuneration at a glance
continued
DIRECTORS’ REMUNERATION POLICY IN BRIEF
The table below sets out the key features of our proposed new Remuneration Policy, and how it will be implemented in 2020. The Policy is due to be
approved by shareholders at our AGM in 2020 for the following three years. Full details of the proposed Policy can be found on pages 98 to 106.
Key elements of
remuneration
Key features of the Policy
Implementation for 2020
Salary
• Reviewed annually and increases will normally be in line
• Daniel Frumkin:
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 and scope of a particular role is
increasing as the organisation grows
Interim CEO: £690,000 (1 January 2020 to
18 February 2020)
• Permanent CEO: £740,000 (19 February 2020 onward)
• David Arden
CFO: £405,000 (unchanged)
Benefits
Core benefits include:
• Life assurance of 4x salary
• Private medical insurance for the Executive Director, their
partner and children
• Additional benefits may be provided in certain
circumstances such as on relocation
• Executive Directors will be eligible to participate in any
all-employee Share Incentive Plan (‘SIP’)
Pension
• Executive Directors are automatically enrolled into our
Group Personal Pension Plan (‘GPPP’) 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
• The maximum employer contribution (including cash in
lieu) is 10% of salary
• Benefits are provided in line with the approved Policy
Company contributions:
• Daniel Frumkin: 8% of salary
• David Arden: 10% of salary
Variable
remuneration
• Discretionary variable reward scheme in which all eligible
• The total variable reward opportunity, expressed as a
percentage of salary, will be 100% for on-target
performance, and 200% at maximum performance
• The weightings of the performance measures that will
make up the balanced scorecard for 2020 will be as
follows:
– Financial 40%
– Risk 20%
– Customer 20%
– People 20%
colleagues participate, based on behaviours and
performance over the year, paid in the form of cash and
share awards for all colleagues
• For Executive Directors at least 60% of variable pay is
deferred into long-term share awards which vest over 7
years, normally in the form of share options. Share awards
will normally vest pro-rata between years three and seven
with a retention period of at least one year after each vest.
A further 20% is deferred into one-year vesting share
awards; again, normally share options. The remaining 20%
is paid as cash
• Total variable remuneration, including the fair value of
share awards, for each Executive Director for any year, will
not exceed 200% of their base pay at the time of award
• The variable reward pool for any year is based on the
overall performance of the Bank in line with the balanced
scorecard including financial and cultural measures
• Malus and clawback apply to all deferred variable
remuneration
• Variable remuneration is subject to a risk adjustment
process and input from the Chief Risk Officer
• The Company has the flexibility to make compensatory
awards to new Executive Directors, to compensate them
for benefits they may lose as a result of joining Metro Bank.
The 200% limit on variable remuneration will not apply to
these compensatory awards
Non-Executive
Directors
• All Non-Executive Directors receive a basic annual fee for
• Our Non-Executive Directors are paid in line with the
fulfilling their duties as a Board member
approved Policy
• Additional fees are paid for added responsibilities such as
• The basic annual fee paid to all Non-Executive
chairmanship and membership of Committees, or acting as
the Senior Independent Director
Directors remains unchanged at £52,500
• The annual fees for the interim Chairman remain
• The basic and additional fees are reviewed periodically,
drawing on external market information for comparable
financial services groups and companies
unchanged at £275,000
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
87
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 2019. This section will, together with the annual statement by the Chair of the Remuneration
Committee, be put to shareholders for an advisory vote at the 2020 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.
Craig Donaldson
David Arden
2019
2018
2019
2018
Salary
Taxable benefits1
Variable pay, including deferred element2
Pension benefits3
Other4
Buyouts
Total remuneration
£750,000
£889
£0
£75,000
£2,676
–
£725,000
£1,027
£0
£72,500
£2,417
–
£403,750
£356
£315,152
£274
£115,4215 £288,0006
£31,515
£650
£460,0007
£40,375
£785
–
£828,565
£800,944
£560,687 £1.095,591
Notes:
1. Taxable benefits include private medical insurance.
2. 80% of the total variable pay awarded is typically converted into share options – see page 89. Any share options awarded are included in this figure; they are not in addition to it. There is a
continued service condition attached to the award of options.
3. Pension contributions for the Executive Directors may be paid into a Group Personal Pension Plan or paid as a cash in lieu of pension allowance. David Arden has opted out of the pension
scheme as he has reached the lifetime allowance and receives a cash allowance of 10% of salary. The incoming CEO will receive a pension contribution of 8% of salary
4. This is made up of non-taxable benefits provided to the Executive Directors and includes life assurance, Group income protection (legacy scheme for Craig Donaldson only) and an
annual health check.
5. David Arden’s 2019 variable reward will be delivered in the form of long-term share options only. At award, the value of the market price share options was nil. These share options will
vest over 7 years (pro-rata between years three and seven) with a retention period of at least one year after each vest.
6. This award reflected 2018 in full and was not pro-rated for time served. David Arden did not receive any variable reward from his former employer, and no buyout award was provided to
him, in respect of the period covering 1 January to 19 March 2018. The Committee elected instead to provide a full year’s variable pay award in respect of 2018, such that the entire award
was subject to the Company’s performance and his individual contribution during the year, and also to our normal deferral time horizons as well as malus and clawback terms.
7. David Arden (CFO) joined the Company on 19 March 2018. To compensate David for the lapsing of deferred awards that were made to him by his former employer under its annual and
long-term incentive plans, if he had not resigned, share options have been granted to him to the value of £300,000, with no performance conditions other than continued service. The
share options will vest pro-rata over five years. To recognise the loss of payments that would have been made to him by his former employer, a one-off payment of £160,000 was also
made. In determining the level of compensatory awards, the Company has taken account of the value of the awards forfeited, the time horizons of the awards and the performance
hurdles attached to them. This award does not relate to the 2018 performance year.
DETAILS OF THE SINGLE FIGURE
Salary
Craig Donaldson (stepped down from the Board 31 December 2019)
David Arden
Salary as at
1 January
2019
Salary as at
1 April
2019
Total salary
paid in
2019
£750,000
£400,000
£750,000
£405,000
£750,000
£403,750
2019 variable reward outcomes
In line with the Remuneration Policy approved by shareholders at the AGM on 25 April 2017, the Executive Directors’ variable reward in
relation to performance during 2019 was based on a balanced scorecard of performance measures and objectives, weighted between
financial (35%), risk (20%), customer (25%) and people (20%). Amounts shown reflect the total awards under the variable reward scheme
paid in 2020, based on performance in the financial year ending 31 December 2019, including the value of any deferred element.
In addition to the Company multiplier, a further multiplier based on individual behaviours and performance was applied to the balanced
scorecard remuneration outcome. The tables below illustrate performance against each of the balanced scorecard measures. As set
out on page 90, this approach and multiplier are consistent with that applied for all colleagues across the Bank.
FINANCIAL PERFORMANCE
Performance measure
Deposit performance £m
Profit before tax %
Total for financial measures
Weighted
performance
outcome at
gateway1
Gateway
(threshold)
performance
Weighted
performance
outcome
at target2
17,294
90%
4.0%
27.0%
31.0%
5.0%
30.0%
35.0%
2019 target
performance
19,216
100%
Weighted
performance
outcome at
maximum3
6.0%
33.0%
39.0%
Maximum
performance
Weighted
performance
outcome
Actual
performance
outcome
21,137
110%
14,500
0%
0.0%
0.0%
0.0%
1. 80% of weighting is applied for gateway performance i.e. at 90% of target. There is a step progression of 5% in the multiplier of the weighted performance outcome from 80% to 120% for
every 2.5% in performance from 90% to 110%.
2. 100% of weighting is awarded for on-target performance.
3. Maximum multiplier is 120% of weighting which is applied for performance of 110% or more.
Strategic ReportGovernanceFinancial StatementsAdditional information 88
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Annual report on remuneration
continued
NON-FINANCIAL COMPANY OBJECTIVES
Objectives
Key achievements in 2019
Risk
Key measures relating to
Internal Audit, credit
quality – arrears1 and
anti-money laundering
controls
Credit quality is good and has been capped at 100%. The majority of our
audits had good outcomes where controls evaluated were adequate and
effective. Our first line anti-money laundering controls operated just
below threshold at 97%. The weighted performance outcome does not
take into account the impact of the RWA adjustment as this was not an
objective under the 2019 scorecard.
Customer Key measures relating to
Net Promoter Scores, call
centre service, and
customer complaints
Call centre service was below expectations and fell short of threshold,
although customer complaints were above threshold. Both customer
accounts and Net Promoter Scores met target. We topped the CMA
service quality results for the first time in 2019 but this is not captured in
the 2019 scorecard.
People
Key measures relating to
voluntary attrition2,
diversity, compliance
training and being a ‘good
place to work’
92% of people agreed that Metro Bank is a good place to work in our
annual colleague survey. We have seen an increase in voluntary attrition
in the year, although it remains in line with target (capped at 100%).
Colleagues have undertaken their regulatory training on time. We
improved both gender and ethnic diversity in our senior leaders during
the course of 2019.
2019
Weighted
performance
outcome
Weighting
20%
19.3%
25%
17.8%
20%
19.4%
1. Credit quality for arrears was capped at 100%.
2. Voluntary attrition was capped at 100%.
Note: As above for financial measures, 80% of weighting is applied for gateway performance – i.e. at 90% of target. There is a step progression of 5% in the multiplier of the weighted
performance outcome from 80% to 120% for every 2.5% in performance from 90% to 110%. 100% of weighting is awarded for on-target performance. Maximum multiplier is 120% of
weighting which is applied for performance of 110% or more.
OVERALL BALANCED SCORECARD REMUNERATION OUTCOME FOR COMPANY PERFORMANCE MULTIPLIER
A Financial
B Risk
C Customer
D People
Total
Weighted
performance
outcome
Weighting
35%
20%
25%
20%
0.0%
19.3%
17.8%
19.4%
100%
56.5%
See how our balanced scorecard measures link to our business model on page 8.
Weightings of the performance measures within the balanced scorecard were amended in early 2019 following feedback from
investors and proxy advisors. The weight of financial and colleague measures were increased and the weighting of the customer
measure was reduced.
Based on the assessment of performance against the balanced scorecard outcomes outlined above, a Company performance
weighting of 56.5% was considered by the Remuneration Committee for 2019. However, using its discretion, the Remuneration
Committee agreed to a lower multiplier taking into account 2019 financial performance. The adjusted multiplier is 41.4% and has been
applied to the cash bonus element of variable reward for all eligible colleagues across the Bank.
INDIVIDUAL BEHAVIOURS AND PERFORMANCE MULTIPLIER
A discretionary multiplier was applied to variable reward for all eligible colleagues, by reference to each colleague’s individual
behaviours and performance for the year. Below we set out details of the individual multiplier in respect of David Arden for 2019 which
was determined by the Remuneration Committee.
Executive Director
Key achievements in 2019
David Arden
2019 was David’s first full year at Metro Bank and during that time he has helped lead the business through a very
difficult period. He has been integral to the balance sheet actions taken by the business, appropriately managing
the Bank’s capital and liquidity position. Balance sheet optimisation remains a key area of focus. Material progress
has also been made on the remediation programme relating to RWA’s and regulatory reporting, as well as a
continued improvement in the governance and general control environment within Finance. David has also
continued to build strong relationships across Metro Bank’s stakeholders, most notably investors and regulators.
Individual
behaviours
and
performance
multiplier
100%
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
89
CALCULATION OF VARIABLE PAY FOR THE EXECUTIVE DIRECTORS
As set out in the 2018 Directors’ remuneration report, each Director was eligible for an on-target variable reward opportunity of 100%
of salary in respect of the financial year ending 31 December 2019. Craig Donaldson (the former CEO who stepped down on
31 December 2019) was not awarded any variable reward for 2019.
In addition to the Committee applying discretion to reduce the multiplier to 41.4% for all colleagues, the Committee also applied their
discretion when considering the number of share options to grant to David Arden in 2020, taking into account dilution limits. It was
agreed that fewer share options would be granted than normal.
In line with the above and our approach for all colleagues, the variable reward for the Executive Directors was as follows.
Executive Director
Craig Donaldson
David Arden
On-target
variable
reward
Company1
performance
multiplier
Individual
behaviours
and
performance
multiplier
£750,000
£405,000
41.4%
41.4%
–
100%
Total variable reward
=£0
=£115,4212
1. The corporate multiplier of 56.5% was adjusted to 41.4% after the Remuneration Committee applied discretion after taking into account 2019 financial performance.
2. In order to retain our people and align reward with the long-term performance of the Bank, the full amount of David Arden’s variable pay was delivered in the form of market price share
options vesting over seven years. At the time of award, the value of these share options was nil.
HOW VARIABLE REWARD IS PAID
Executive Director
Total 2019 variable
reward
Element of variable
reward
Quantum
Method of delivery1
David Arden
£115,421
Long-term share
options1
76,947 options
Seven-year options with the first vesting three years after grant and
in equal annual instalments thereafter with a 12-month retention
period after each vest. The Committee will retain discretion over the
vesting of any options.
Note: All share option awards rounded to nearest option
1. The Committee exercised its discretion to determine that no cash bonus or one-year share options would be awarded and David’s variable pay would be delivered in the form of market
price share options vesting over seven years. At the time of award, the value of these share options was nil. Any share options awarded were granted at an option price based on the
Volume Weighted Average Share Price (‘VWAP’) for Metro Bank on 30 March. All share options awarded are frozen pending further internal analysis and any external investigations into the
RWA adjustment.
REMUNERATION FOR EMPLOYEES BELOW BOARD LEVEL
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.
Our current Directors’ Remuneration Policy, as approved by shareholders at the AGM on 25 April 2017, as well as our proposed Policy
going forward, was developed by reference to our reward principles, which apply to all colleagues:
• Pay fair salaries and offer strong career and growth opportunities in an AMAZEING culture
• Make everyone an owner, aligning them to the Bank’s long-term vision
• Reward colleagues based on Metro Bank’s culture and performance and how they behave and deliver, both as part of the team and
as an individual
• Keep reward as simple as possible, with one approach for all
• Take a retail approach to variable reward; no excessive cash bonuses or linear incentives which can skew behaviours and encourage
unnecessary risk-taking
Strategic ReportGovernanceFinancial StatementsAdditional information 90
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Annual report on remuneration
continued
SUMMARY OF THE REMUNERATION STRUCTURE FOR COLLEAGUES BELOW BOARD LEVEL
Salary
Benefits
Pension
Variable remuneration
• We have a ‘normal’
inflationary and performance-
related pay pot of 2%
• The quantum of salary
increases are primarily driven
by individual behaviours
• 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
PENSION CONTRIBUTIONS1
• The table below shows the
minimum and maximum
employer pension
contributions payable by
Metro Bank year-on-year
• All colleagues are eligible for
private medical insurance
funded at different rates of
cover depending on their
level of seniority
• All colleagues, including the
Executive Directors, receive a
benefit of death in service life
cover of four times their base
salary
• All colleagues are eligible for
share options or an
equivalent, in line with our
strong ethos of colleague
buy-in and ownership
• We apply the same Company
performance multiplier to all
colleagues
• For all colleagues whose
personal behaviours and
delivery are as expected or
better, we apply a multiplier
up to a maximum of 200%
Employer contribution as a % of salary
Minimum
Maximum
Minimum
Maximum
Minimum
Maximum
2019
2018
% increase
CEO2
Executive Directors2 & Executive Leadership Team
Senior leaders and experts
Managers and specialists
Entry-level roles
10%
10%
10%
8%
6%
10%
10%
10%
8%
6%
10%
10%
9%
8%
6%
10%
10%
10%
8%
6%
0%
0%
11%
0%
0%
0%
0%
0%
0%
0%
1. Data at 1 April each year.
2. A newly appointed Executive Director’s pension contributions will be aligned with or lower than those of the wider workforce at the time of appointment. Daniel Frumkin was appointed
on a pension contribution of 8% of base salary.
CEO REWARD VS. EMPLOYEE REWARD
The table below sets out the percentage change between the 2018 and 2019 years in salary and variable reward.
% change 2018/19
Employee group
All colleagues1
CEO2
Executive Leadership Team3
Median
Average
FTE salary
FTE taxable
benefits
FTE⁴ variable
reward
FTE salary
FTE taxable
benefits
FTE variable
reward
4.7%
3.4%
3.4%
–13.4%
–13.4%
–13.4%
0.3%
n/a
–57.9%
6.3%
3.4%
5.9%
–1.4%
–40.2%
–13.4%
n/a
–13.4%
–72.2%
1. Due to the significant growth at Metro Bank, data has been calculated using the same colleagues over the two-year period. This only includes colleagues who were employed by Metro
Bank on or before 1 January 2018 and still employed on or after 31 December 2019. Any colleagues who joined or left the Bank within this period have been excluded from the analysis.
Salary is taken as at 31 December 2018 and 31 December 2019.
2. Craig Donaldson did not receive a variable reward for 2018 and he will not receive a variable reward for 2019.
3. The CFO is not included in this figure as David Arden was not employed across the entire same store period – i.e. between 1 January 2018 and 31 December 2019.
4. FTE: full-time equivalent.
CEO to colleague pay ratio disclosure
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
A
A
36:1
36:1
27:1
28:1
16:1 £750,000
£20,700
£26,700
£43,400 £828,600
£22,900
£30,300
£51,200
16:1 £725,000
£19,300
£25,100
£40,500 £801,000
£22,200
£28,400
£49,300
Year
2019
2018
Note: Salary and total pay figures have been rounded to the nearest £100
The lower, median and upper-quartile colleagues were determined using the ‘single figure’ approach (Option A) to calculating
total remuneration for all colleagues employed on 31 December 2019. This methodology was chosen as it is the most
straightforward approach.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
91
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,
referral bonuses as well as total variable reward awarded in 2020 in respect of the 2019 performance year. All elements were calculated
on a full-time equivalent basis. We are confident that the colleagues identified are representative of the lower, median and upper
quartiles and the median pay ratio is consistent with the Company’s wider policies on colleague pay, reward and progression.
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below shows total remuneration of all colleagues for 2019 compared to 2018. This data is taken from the people costs on
page 133 and excludes social security costs.
Employee costs
2019
£’million
2018
£’million
% change
142.2
128.0
11.1
Employee costs have increased as a result of the average salary figure increasing across the Bank between 2018 and 2019. This is
primarily due to recruitment of more senior colleagues to deliver strategic projects.
We made no distributions by way of dividend or share buy-back during the preceding 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.
TOTAL SHAREHOLDER RETURN
The chart shows our total shareholder return (‘TSR’) relative to the FTSE 250, FTSE 100 and the FTSE 350 banks (which is the
capitalisation-weighted index of all bank stocks in the FTSE 100 and FTSE 250). These indices have been chosen as they represent a
cross-section of UK companies and banks.
This chart shows the total return to Metro Bank investors since our listing on the London Stock Exchange in March 2016, compared
with the total return on an investment made in the FTSE 250, FTSE 100 or FTSE 350 banks over the same period.
)
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e
d
o
h
e
r
a
h
s
l
a
t
o
T
250%
200%
150%
100%
50%
0%
Mar 2016
Sept 2016
Mar 2017
Sept 2017
Mar 2018
Sept 2018
Mar 2019
Sept 2019
Metro Bank
FTSE 100
FTSE 250
FTSE 350
FTSE banks
CEO HISTORIC REMUNERATION
Total remuneration (including any
Listing awards)
Variable reward outcome as a
percentage of the maximum that
could have been paid3
2019
2018
2017
2016
2015
2014
2013
Craig Donaldson
£828,5651
£800,944
£1,518,893
£1,304,919
£2,661,4742
£749,443
£1,294,100
0%
0%
62%
52%
n/a4
n/a4
n/a4
1. The figure for 2019 takes into account zero variable reward for Craig Donaldson in light of the Committee agreeing that Craig will not be awarded variable remuneration in respect of the
2019 performance year.
2. As disclosed in the Prospectus and 2016 Annual Report, Craig Donaldson received a higher variable reward for 2015 in the form of Share Awards, granted in March 2016, in recognition of
his significant contribution to the successful private placement and admission of Metro Bank to the London Stock Exchange, as well as his performance in 2015. No other variable reward
for the 2015 performance year was awarded. The Listing Share Award is subject to continued employment and no further performance conditions apply to vesting. Further details are
included in the shareholding table on page 93 and outstanding share awards table on page 95. As mentioned above, the vesting of these share awards will be frozen pending further
internal analysis and any external investigations into the RWA adjustment.
3. Our Directors’ Remuneration Policy containing a maximum variable reward outcome was first approved by shareholders at the AGM on 25 April 2017. Under our Remuneration Policy,
approved by shareholders in 2017, variable reward is capped at 200% of salary.
4. Prior to approval of the Policy this cap was not in place.
Strategic ReportGovernanceFinancial StatementsAdditional information
92
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Annual report on remuneration
continued
NON-EXECUTIVE DIRECTORS’ REMUNERATION
Chairman’s fees
The fees for the interim Chairman remain unchanged at £275,000.
Non-Executive Directors’ fees
The Non-Executive Directors are paid a basic fee, with further fees payable to reflect Board Committee memberships and
chairmanships and/or additional responsibilities such as Senior Independent Director. Fees are reviewed annually. The fees are
benchmarked against financial services and FTSE 250 companies.
The basic fee for Non-Executive Directors, which was last increased in April 2018, remains unchanged at £52,500. Additional fees
remain unchanged from 2018. The latest fees are shown below:
Role
Non-Executive Director – basic fee
Senior Independent Director or Deputy Chairman
Chair of Audit or Risk Committee or Designated NED for Workforce Engagement
Chair of Nomination or Remuneration Committee
Member of Audit, Risk or Remuneration Committee
Member of Nomination Committee
Annual fee
(£’000)
52.5
30.0
20.0
10.0
10.0
5.0
The table below shows the actual fees paid to our Chairman and Non-Executive Directors in 2019 and 20181.
Vernon W. Hill, II2,3
Stuart Bernau
Catherine Brown
Keith Carby⁴
Roger Farah5
Howard Flight6
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
385,000
Fees
Taxable benefits8 115,455
385,000
120,000
90,000
8,493
90,625
7,617
71,250
0
13,125
0
24,167
4,148
75,625
5,011
88,333
2,640
65,625
5,190
21,875
0
85,625
0
Total
500,455 505,000
90,000
90,625
71,250
13,125
24,167
75,625
90,973
70,815
21,875
85,625
Alastair (Ben) Gunn
Gene Lockhart5
Anna (Monique) Melis
Sir Michael Snyder7
Paul Thandi
Michael Torpey
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Fees
Taxable benefits8
85,000
5,252
90,625
5,189
85,000
3,838
90,625
0
72,500
0
58,958 130,798
0
0
70,625
0
64,583
0
Total
85,000
90,625
88,838
90,625
72,500
58,958 130,798
70,625
64,583
n/a
n/a
n/a
25,833
0
25,833
n/a
n/a
n/a
1. These figures include all fees paid to the Senior Independent Director and to Non-Executive Directors for Board Committee memberships and Committee chairmanships.
2. A gross allowance was paid to the Chairman monthly via PAYE as a contribution towards his travel to/from the UK and accommodation and subsistence while here. He does not claim any
expenses in relation to this.
3. Stepped down from his role as Chair on 23 October 2019 and resigned from the Board on 17 December 2019.
4. Left the Board on 30 April 2019.
5. For our US-resident Non-Executive Directors all travel is covered by a PAYE Settlement Agreement (‘PSA’). Food and lodging are put through payroll and taxed accordingly, rounded up to
the nearest £.
6. Left the Board on 31 March 2019.
7. Became interim Chairman on 23 October 2019.
8. 2018 taxable benefit figures for our UK Non-Executive Directors have been restated to reflect grossed-up expenses claimed. 2018 figures now reflect expenses claimed in the 2017-18 tax
year and 2019 figures reflect expenses claimed in the 2018-19 tax year.
SERVICE CONTRACTS AND LETTERS OF APPOINTMENT
Both Executive Directors have service contracts. Our Non-Executive Directors do not have service contracts but are bound by letters of
appointment which are available for inspection on request at the Company’s registered office.
Non-Executive Directors are appointed for fixed terms not exceeding 2 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
Craig Donaldson1
David Arden
Daniel Frumkin
Notice period
Date of service contract
12 months
12 months
12 months
1 September 2009
19 March 2018
18 February 2020
1. Craig Donaldson stood down from the role of Chief Executive Officer and the Board on 31 December 2019.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
93
PAYMENTS TO PAST DIRECTORS
There were no payments made to past Directors in 2019.
PAYMENTS FOR LOSS OF OFFICE
There were no payments for loss of office made to Directors in 2019.
DILUTION LIMITS
The rules of the Metro Bank PLC Deferred Variable Reward Plan contain limits on the dilution of capital. These limits are monitored to
ensure that we do not exceed 10% of the issued share capital in any rolling 10-year period.
STATEMENT OF VOTING AT THE AGM
We will be proposing a resolution to shareholders in respect of the annual report on remuneration and the Directors’ Remuneration
Policy at the 2020 AGM.
The table below shows the voting outcomes on the annual report on remuneration at the last AGM on 21 May 2019 and the Directors’
Remuneration Policy at the AGM held 25 April 2017.
Item
Remuneration Policy
2018 remuneration report
For %
For no.
Against %
Against no.
Votes
withheld
95.4% 41,582,506
79.3% 58,189,686
4.6% 1,989,312
20.7% 15,165,144
343,211
1,448,784
At the 2019 AGM, whilst all resolutions were passed by a large majority of shareholders, the vote on the 2018 Directors’ remuneration
report was passed with 79.3% votes cast in favour. Since the AGM, we have continued to engage actively with our shareholders to fully
understand their views and voting decisions. We understand from those shareholders who we have spoken to that they voted against this
resolution because of concerns in respect of the bonus payment for David Arden in 2018. Having reflected on the views expressed by the
relevant shareholders, we are satisfied that the bonus payment was appropriate; however, we acknowledge that we could have provided
more detail in respect of the decision to award David a bonus in 2018. We will take this into account in our disclosures going forward.
SHAREHOLDING
These are the total shareholdings as at 31 December 2019 for each of the Non-Executive Directors and Executive Directors and any
related connected persons. Outstanding share awards, including share options, are summarised on pages 94 to 97.
Director*
Sir Michael Snyder
Craig Donaldson1
David Arden
Stuart Bernau
Catherine Brown
Roger Farah
Alastair (Ben) Gunn
Gene Lockhart
Monique Melis
Paul Thandi
Michael Torpey
No. of shares
Percentage
of share
capital
48,300
264,342
18,400
51,154
100
685,023
69,864
44,989
1,690
30,000
0
0.03
0.15
0.01
0.03
0.00
0.40
0.04
0.03
0.00
0.02
0.00
* Howard Flight held 29,116 shares when he left the Board on 1 April 2019. This figure is not included in the table above.
* Keith Carby held 38,320 shares when he left the Board on 30 April 2019. This figure is not included in the table above.
* Vernon W. Hill, II held 5,489,317 shares when he left the Board on 17 December 2019. This figure is not included in the table above.
1. 17,749 of Craig Donaldson’s shares which were awarded in connection with the Listing have not yet vested and are conditional in line with the rules of the long-term deferred variable
reward plan.
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 dependant child under the age of 18 years.
Since the year end and up to 31 March 2020, no transactions in shares by Directors and their connected persons have taken place.
Strategic ReportGovernanceFinancial StatementsAdditional information 94
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Annual report on remuneration
continued
DIRECTORS’ SHAREHOLDINGS
Shareholding guidelines
Executive Directors are required to build up a holding of shares equivalent to 200% of their annual salary and this will be formalised in
our revised Remuneration Policy in 2020 subject to shareholder approval. We will allow any new Executive Director a reasonable
amount of time to build up their shareholding.
Craig Donaldson has met the shareholding requirement of 200% of his annual salary. David Arden has purchased 15,000 shares and as
he only joined the Company on 19 March 2018 we are allowing him time to build up his shareholding.
From 2020, Executive Directors will be required to retain 100% of their shareholding requirement (or actual shareholding if lower) for
two years post-cessation of employment.
OUTSTANDING SHARE AWARDS (AUDITED)
Options have an exercise price that is equal to market value at the date of grant; share options from CSOP 2016 onwards are based on
the Volume Weighted Average Share Price (‘VWAP’) for Metro Bank on a date determined by the Remuneration Committee.
We have not awarded share options to Non-Executive Directors 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 and Non-Executive Director as at 31 December 2019:
•
•
•
the total number of share awards, shares granted or interests in shares granted and the award price;
the total number of outstanding share awards; and
the total number of share awards frozen, subject to the ongoing RWA investigation. See page 81
Vernon W. Hill, II
Scheme Name
CSOP2015
CSOP2014
CSOP2013
CSOP2012
CSOP2011
Total
Share
options
granted
Award
date
Award
price
Face
Value of
award
First
vesting
date
Last
vesting
date
Share options
vested and
unexercised
Share options
still subject to
conditions
Exercised in
year
15,000
04/11/15
£16.00
£240,000
31/10/16
31/10/20
12,000
3,000
60,000
31/10/14
£13.50
£810,000
31/10/15
31/10/19
60,000
5,000
11/11/13
£12.00
£60,000
11/11/16
11/11/18
2,000
31/10/12
£10.00
£20,000
31/10/13
31/10/15
4,000
07/10/11
£9.00
£36,000
07/10/12
07/10/14
5,000
2,000
4,000
–
–
–
–
86,000
83,000
3,000
–
–
–
–
–
–
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
95
Craig Donaldson
Scheme Name
CSOP 2018
Deferred Cash 1
Year
CSOP2018 Bonus
Exchange
Share
options
granted
Award
date
Award
price
Face
Value of
award
First
vesting
date
Last
vesting
date
Share options
vested and
unexercised
Share
options
vested
(frozen)1
Share
options still
subject to
conditions
Exercised in
year
20,000
31/03/18
£35.36
£707,200
30/04/19
30/04/19
–
20,000
20,000
31/03/18
£35.36
£707,200
31/03/18
31/03/18
20,000
–
–
–
CSOP2018
40,000
31/03/18
£35.36 £1,414,400
30/04/19
30/04/23
–
8,000
32,000
CSOP2017
Deferred Cash 1
Year
CSOP2017 Bonus
Exchange
16,819
31/03/17
£32.73
£550,486
30/04/18
30/04/18
16,819
16,819
31/03/17
£32.73
£550,486
31/03/17
31/03/17
16,819
–
–
–
–
CSOP2017
33,637
31/03/17
£32.73 £1,100,939
30/04/18
30/04/22
6,727
6,727
20,183
CSOP2016 Pension
Exchange
4,541
04/03/16
£20.00
£90,820
21/03/16
21/03/16
4,541
–
–
CSOP2015
30,000
04/11/15
£16.00
£480,000
31/10/16
31/10/20
18,000
6,000
6,000
CSOP2015 Bonus
Exchange
20,000
20/03/15
£14.00
£280,000
20/03/15
20/03/15
20,000
–
CSOP2014
130,000
31/10/14
£13.50 £1,755,000
31/10/15
31/10/19
104,000
26,000
CSOP2014 Bonus
Exchange
CSOP2013
CSOP2012
CSOP2011
Total
13,077
21/03/14
£13.00
£170,001
21/03/14
21/03/14
13,077
30,000
11/11/13
£12.00
£360,000
11/11/16
11/11/18
30,000
50,000
31/10/12
£10.00
£500,000
31/10/13
31/10/15
50,000
11,000
07/10/11
£9.00
£99,000
07/10/12
07/10/14
7,667
–
–
–
–
435,893
307,650
66,727
58,183
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1. All vestings under existing awards will remain frozen as will any future awards subject to further internal analysis and any external investigation into the RWA adjustment.
Scheme Name
Project Revolution
(Listing Awards)
Shares
awarded
Award
date
Award
price
First
vesting
date
Last
vesting
date
Shares
vested and
unexercised
Shares
vested
(frozen)1
Shares still
subject to
conditions
Exercised in
year
55,459
04/03/16
£0.00
10/03/16
30/04/21
28,837
8,873
17,749
–
1. All vestings under existing awards will remain frozen as will any future awards subject to further internal analysis and any external investigation into the RWA adjustment.
David Arden
Scheme Name
CSOP 2019
Deferred Cash 1
Year
CSOP2019
CSOP2018
Total
Share
options
granted
Award
date
Award
price
Face
Value of
award
First
vesting
date
Last
vesting
date
Share
options
vested
Share
options
vested
(frozen)1
Share options
still subject to
conditions
Exercised in
year
9,600
02/04/19
£7.94
£76,224
30/04/20
30/04/20
19,200
02/04/19
£7.94
£152,448
30/04/20
30/04/24
30,000
31/03/18
£35.36 £1,060,800
30/04/19
30/04/23
58,800
–
–
–
–
–
–
5,999
5,999
–
–
–
–
–
–
–
–
1. All vestings under existing awards will remain frozen as will any future awards subject to further internal analysis and any external investigation into the RWA adjustment.
Strategic ReportGovernanceFinancial StatementsAdditional information 96
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Annual report on remuneration
continued
Roger Farah – all of Roger’s share options were vested and exercised during 2019. There are no options outstanding.
Stuart Bernau
Scheme Name
CSOP2015
CSOP2014
CSOP2013
CSOP2012
CSOP2011
Total
Keith Carby
Scheme Name
CSOP2015
CSOP2014
CSOP2013
CSOP2012
CSOP2011
Total
Scheme Name
CSOP2015
Total
Lord Howard Flight
Scheme Name
CSOP2015
CSOP2014
CSOP2013
CSOP2012
CSOP2011
Total
Alastair (Ben) Gunn
Scheme Name
CSOP2015
CSOP2014
CSOP2013
CSOP2012
CSOP2011
Total
Share
options
granted
Award
date
Award
price
Face
Value of
award
First
vesting
date
Last
vesting
date
Share options
vested and
unexercised
Share options
still subject to
conditions
Exercised in
year
7,500
04/11/15
£16.00
£120,000
31/10/16
31/10/20
6,000
1,500
15,000
31/10/14
£13.50
£202,500
31/10/15
31/10/19
15,000
5,000
11/11/13
£12.00
£60,000
11/11/16
11/11/18
5,000
2,000
31/10/12
£10.00
£20,000
31/10/13
31/10/15
4,000
07/10/11
£9.00
£36,000
07/10/12
07/10/14
–
–
–
–
–
–
26,000
1,500
–
–
–
–
–
–
Award
date
Award
price
Face
Value of
award
First
vesting
date
Last
vesting
date
Share options
vested and
unexercised
Share options
still subject to
conditions
Exercised in
year
7,500
04/11/15
£16.00
£120,000
31/10/16
30/04/19
7,500
15,000
31/10/14
£13.50
£202,500
31/10/15
30/04/19
15,000
5,000
11/11/13
£12.00
£60,000
11/11/16
11/11/18
2,000
31/10/12
£10.00
£20,000
31/10/13
31/10/15
4,000
07/10/11
£9.00
£36,000
07/10/12
07/10/14
33,500
5,000
2,000
4,000
33,500
–
–
–
–
–
–
–
–
–
–
–
–
Share
options
granted
Award
date
Award
price
Face
Value of
award
First
vesting
date
Last
vesting
date
Share options
vested and
unexercised
Share options
still subject to
conditions
Exercised in
year
7,500
04/11/15
£16.00
£120,000
31/10/16
31/10/20
–
–
–
–
–
–
Award
date
Award
price
Face
Value of
award
First
vesting
date
Last
vesting
date
Share options
vested and
unexercised
Share options
still subject to
conditions
Exercised in
year
7,500
04/11/15
£16.00
£120,000
31/10/16
31/03/19
4,500
15,000
31/10/14
£13.50
£202,500
31/10/15
31/03/19
12,000
5,000
11/11/13
£12.00
£60,000
11/11/16
11/11/18
2,000
31/10/12
£10.00
£20,000
31/10/13
31/10/15
4,000
07/10/11
£9.00
£36,000
07/10/12
07/10/14
–
–
–
–
–
–
–
–
–
–
–
–
5,000
2,000
4,000
27,500
Award
date
Award
price
Face
Value of
award
First
vesting
date
Last
vesting
date
Share options
vested and
unexercised
Share options
still subject to
conditions
Exercised in
year
7,500
04/11/15
£16.00
£120,000
31/10/16
31/10/20
6,000
15,000
31/10/14
£13.50
£202,500
31/10/15
31/10/19
15,000
5,000
11/11/13
£12.00
£60,000
11/11/16
11/11/18
5,000
2,000
31/10/12
£10.00
£20,000
31/10/13
31/10/15
4,000
07/10/11
£9.00
£36,000
07/10/12
07/10/14
33,500
–
–
26,000
–
–
–
–
–
–
–
–
–
–
–
–
33,500
Share
options
granted
7,500
Share
options
granted
33,500
Share
options
granted
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
97
Gene Lockhart
Scheme Name
CSOP2015
CSOP2014
CSOP2013
CSOP2012
CSOP2011
Total
Share
options
granted
Award
date
Award
price
Face
Value of
award
First
vesting
date
Last
vesting
date
Share options
vested and
unexercised
Share options
still subject to
conditions
Exercised in
year
7,500
04/11/15
£16.00
£120,000
31/10/16
31/10/20
6,000
1,500
15,000
31/10/14
£13.50
£202,500
31/10/15
31/10/19
15,000
5,000
11/11/13
£12.00
£60,000
11/11/16
11/11/18
2,000
31/10/12
£10.00
£20,000
31/10/13
31/10/15
4,000
07/10/11
£9.00
£36,000
07/10/12
07/10/14
5,000
2,000
4,000
–
–
–
–
33,500
32,000
1,500
0
0
0
0
0
0
Sir Michael Snyder – all of Michael’s share options were vested and exercised during 2019. There are no options outstanding.
Scheme Name
CSOP2015
Total
Share
options
granted
Award
date
Award
price
Face
Value of
award
First
vesting
date
Last
vesting
date
Share options
vested and
unexercised
Share options
still subject to
conditions
Exercised in
year
5,000
04/11/15
£16.00
£80,000
31/10/16
31/10/20
5,000
–
–
–
–
–
–
EXECUTIVE DIRECTOR PROPOSED SHARE OPTION AWARDS
The following share option awards were made in 2020 in respect of the 2019 performance year and are already included in the single
figure table for 2019 variable pay on page 87. The Committee has agreed that Craig Donaldson will not be awarded variable
remuneration in respect of the 2019 performance year.
Vesting period
After one year
After seven years
Total
1. These share options have been frozen pending further internal analysis and any external investigations into the RWA adjustment.
Craig
Donaldson
0
0
0
David
Arden
0
76,9471
76,947
Strategic ReportGovernanceFinancial StatementsAdditional information 98
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Our Remuneration Policy
The section below sets out the Remuneration Policy for Executive and Non-Executive Directors. Approval for this Remuneration Policy
will be sought at the Company’s Annual General Meeting in May 2020 and, if approved, will take effect from that date. Details of how
the policy will be applied in 2020 are included in the Directors’ remuneration report.
It is intended that the policy will apply for three years beginning on the date of approval. However, the Remuneration Committee will
consider the policy annually to ensure it remains aligned with the business strategy and regulatory requirements. Any changes needed
within three years would be subject to shareholder approval, where required.
Our Remuneration Policy is being renewed for the first time. The key features remain unchanged from the policy previously approved
by shareholders in 2017 and we have engaged with shareholders during 2019 and early 2020 as part of the review of this Policy.
In determining the new Remuneration Policy, the Committee followed an appropriate process, reflecting the consideration that the
current remuneration framework remains aligned with the delivery of our strategy and the decision to retain the majority of the existing
policy. Consideration was given to the strategic priorities of the business, evolving market practice and investor guidance. Input was
sought from the management team, while ensuring that conflicts of interests were suitably mitigated. External perspective was
provided by our independent advisers. The policy was also assessed against the principles of clarity, simplicity, risk management,
predictability, proportionality and alignment to culture.
1. POLICY
Metro Bank offers banking, focused on the customer, through unparalleled levels of service and convenience.
We offer a simple approach to compensation which supports our unique culture and strategy as well as being aligned to shareholder
needs. We reward colleagues who display the right behaviours and deliver the right outcome for customers and the business, focusing
on long-term growth and discouraging unnecessary risk-taking.
The Directors have open discussions with investors and are available for feedback on reward matters at any time. During 2019,
feedback was gathered from both investors and representative bodies as to the existing Remuneration Policy. Their feedback has been
considered in the drafting of this Policy.
Pay and employment conditions of other colleagues in the Bank were also taken into account when setting this Remuneration Policy.
In particular, base salary of Executive Directors is limited by reference to colleague pay as described on page 99. Colleagues are able to
express their views on pay through regular surveys and feedback, as well as through our designated workforce engagement Director.
Summary of policy changes
This updated Policy has been developed taking into account various regulatory requirements and governance principles. The key
changes proposed are set out below:
Component
Current Policy
New Policy
Base salary
Pension
Competitive salaries based on role requirements and
individual experience which enable us to attract and
retain the right calibre of colleague.
10% of salary for Executive Directors and Executive
Leadership Team.
While not formally included within the Policy, the new
CEO’s pension contribution was set at a level aligned with
or lower than that available to the majority of the wider
workforce at the time of appointment.
No change from previous policy.
All newly appointed Executive Director contributions to
be aligned with or lower than those of the wider
workforce at the time of appointment.
Incumbent Executive Director contributions to be aligned
with the wider workforce by the end of 2022.
Benefits
Standard benefits that are provided to Executive Directors
are offered to all colleagues, with legacy benefits (income
protection) being offered in certain circumstances.
Standard benefits that are provided to Executive Directors
are offered to all colleagues. Legacy benefits are no
longer offered.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
99
Component
Current Policy
New Policy
Variable
remuneration
Variable remuneration in respect of a financial year is
limited to 200% of base salary.
Maximum opportunity unchanged from previous policy.
On-target variable remuneration will be no more than
75% of the maximum opportunity i.e. 150% of base salary.
At least 25% of variable remuneration based on financial
performance measures.
On-target opportunity has been reduced to 50% of
maximum opportunity i.e. 100% of base salary.
At least 40% of variable remuneration will be based on
financial performance measures.
Deferral and retention periods extended, with any variable
remuneration to be deferred over a period of not less
than seven years, with pro-rata vesting permitted
between years three and seven, with a retention period of
at least one year after each vest.
Shareholding
requirement
Post-cessation
shareholding
requirement
Shareholding requirement not formally included within
the Policy.
Requirement for Executive Directors to maintain a
shareholding of 200% of base salary.
Post-cessation of employment shareholding requirement
not formally included within the Policy.
From 2020, Executive Directors will be required to retain
100% of their shareholding requirement (or actual holding
if lower) for two years post-cessation of employment.
2. COMPONENTS OF REMUNERATION FOR EXECUTIVE DIRECTORS
Base salary
Purpose and link
to strategy
Base salary is part of the total proposition at Metro Bank, including career and growth opportunities and long-term
reward.
We aim to set pay at a level which enables us to attract and retain the right calibre of colleagues, with the required level
of skills, experience and cultural alignment to deliver and improve the model.
Operation
Base salaries for Executive Directors are reviewed annually by the Remuneration Committee with any increase usually
taking effect from 1 April the following year and paid in 12 equal, monthly instalments.
Individual behaviours and delivery as per the AMAZEING reviews for Executive Directors
When determining base salary levels, the Remuneration Committee considers factors including:
• Company performance across a balanced set of measures including financial, risk, customer service and culture
•
• Relevant external market data
• Scope and size of role
•
• Level of increases for all colleagues
•
• Economic factors, e.g. inflation
• Affordability and available budget
Individual’s skills, expertise and experience and ability to grow with the role and organisation
Internal relativity
Maximum potential
Salary increases in percentage terms for Executive Directors will normally be in line with increases awarded to other
colleagues, but there may be instances where a higher amount is agreed at the discretion of the Remuneration
Committee, including, but not limited to, where there has been a clear increase in the scope of role or change in
responsibilities.
Performance
measures
Any salary increases for Executive Directors are based on individual behaviours and performance.
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METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Our Remuneration Policy
continued
Pension
Purpose and link
to strategy
Our pension policy aims to support Executive Directors in building long-term savings for their retirement, without
exposing the Bank to any unnecessary financial risk or unacceptable cost.
Operation
Executive Directors are automatically enrolled into our Group Personal Pension Plan (‘GPPP’) 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.
Maximum potential
For incumbent Executive Directors, the current maximum employer contribution (including cash in lieu) is 10% of base
salary.
Newly appointed Executive Directors will have their pension contributions set at a level aligned with or less than that
available to the majority of the wider workforce.
There are no performance measures related specifically to pension contributions.
Performance
measures
Benefits
Purpose and link
to strategy
We have a simple approach to reward and support the health, wellbeing and security of our Executive Directors
through additional core benefits.
Operation
Benefits may include those currently provided and disclosed in the annual report on remuneration.
Core benefits include:
• Life assurance of 4x salary
• Private medical insurance coverage for the Executive Director, their partner and children
• Health screening checks for Executive Directors
Additional benefits may be provided in certain circumstances including, but not limited to, relocation.
Executive Directors also have access to additional voluntary benefits which are available to all colleagues, including
ShareBuy, our Share Incentive Plan (‘SIP’).
Maximum potential
The maximum paid in respect of benefits will be the cost to Metro Bank of providing the benefits noted above. The
cost may fluctuate from year to year even if the level of benefit provided remains unchanged.
Performance
measures
There are no performance measures specifically related to benefits.
Variable remuneration
Purpose and link
to strategy
Our discretionary variable reward scheme is made up of cash and deferred reward, normally in the form of share
options (market value), or by exception, shares awarded subject to forfeiture (together called ‘Share Awards’). Share
Awards form the main part of our variable remuneration to encourage Executive Directors to focus on the long term, to
think and behave like owners and to align their interests with those of our shareholders.
The purpose of variable reward is to recognise Executive Directors for achievement against business objectives and
priorities for the year and for demonstrating strong leadership and our AMAZEING Behaviours.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
101
Variable remuneration continued
Operation
We operate a discretionary variable reward scheme based on behaviours and performance over the year, paid in the
form of cash and Share Awards for all colleagues including Executive Directors.
We do not currently operate any separate and additional Long-Term Incentive Plans.
The Remuneration Committee will exercise its discretion to ensure that the variable remuneration outcomes for
Executive Directors are fair and do not exceed the maximum opportunity as outlined below. The Chief Risk Officer will
also be engaged so that all applicable risk factors have been considered as part of the decision-making process.
If Metro Bank achieves threshold performance on all metrics in the balanced scorecard, we would pay out 40% of the
maximum opportunity.
At least 60% of variable pay is deferred into long-term Share Awards which vest over seven years, normally in the form of
share options. Share Awards will normally vest pro-rata between years three and seven with a retention period of at least
one year after each vest. A further 20% is deferred into one-year vesting Share Awards; again, normally share options.
The remaining 20% is paid as cash. This means a minimum of 80% of variable reward is deferred into Share Awards.
Options are normally exercisable for 10 years from the date of grant.
Options may be satisfied on exercise by delivering shares equal to the gain.
Share Awards satisfy regulatory requirements around the deferral of variable reward under the PRA Remuneration Code
and, once vested, will also be subject to a retention period of one year. Share awards are subject to malus and clawback.
We use a Black-Scholes method to inform the fair value of options at the time of award and the fair value of Share
Awards will never be more than the variable remuneration deferred.
Share Awards will not be entitled to dividend equivalents during the vesting period.
In line with the approach for all colleagues through our Bonus Exchange Scheme, Executive Directors may be allowed to
‘exchange’ part or all of the cash element of any variable remuneration into their Metro Bank pension, or into immediate
vesting Share Awards. The cash element may be exchanged for Share Awards at an exchange ‘price’ approved by the
Remuneration Committee. The exchange price offered to Executive Directors is on the same basis as for all other
colleagues. The fair value of the Share Awards via Bonus Exchange will never be more than the cash element exchanged.
There are no holding periods for these Bonus Exchange Share Awards.
Maximum potential
Total variable remuneration, including the fair value of Share Awards, for each Executive Director for any year will not
exceed 200% of their base salary at the time of award.
Performance
measures
Performance is measured against an annual scorecard, based on targets set for financial and non-financial measures,
typically including risk, customer, people and culture. Risk-adjusted financial performance is considered. Individual
behaviours and performance are also assessed.
The Bank is focused on the right outcomes for customers and does not ‘incentivise’ the delivery of any specific targets
in a linear way.
Balanced scorecard performance measures will be set by the Remuneration Committee at the start of each financial
year. At least 40% of measures will be based on financial indicators.
The Remuneration Committee has discretion to adjust the overall variable reward pool and also individual awards for
Executive Directors if it believes there are circumstances that justify such an adjustment.
No more than 50% of the maximum variable remuneration (i.e. no more than 100% of base salary) will be paid for
on-target performance.
Shareholding
requirements
If threshold performance is achieved against all metrics in the balanced scorecard, 40% of the maximum opportunity
would be paid.
Executive Directors are subject to a minimum shareholding requirement equivalent to 200% of base salary.
Executive Directors are expected to retain any after-tax vested Share Awards until their shareholding requirements are
met, and maintain that level of shareholding (or their actual shareholding at date of leaving, if lower) for at least two
years post-employment.
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METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Our Remuneration Policy
continued
Notes to the Policy table
Area
Commentary
Deferred reward
Deferred reward in the form of share options or shares awarded subject to forfeiture shall be operated in accordance
with the rules of the respective plans. The Committee may exercise operational and administrative discretions under
the respective plan rules as set out in those rules.
Prior arrangements
The Committee reserves the right to make any remuneration payment and/or payments for loss of office
notwithstanding that they are not in line with the Policy set out in this report, where the terms of the payment were
determined before the Policy or any previous policy came into effect, or if the individual was not a Director at the date
the remuneration was determined and the remuneration was not set in consideration or in anticipation of becoming a
Director.
Minor amendments
The Committee will follow any statutory requirements when operating the Policy, and may make minor amendments
to the Policy for regulatory, exchange control, or administrative purposes without obtaining shareholder approval for
that minor amendment.
Performance
measures and
targets
Variable reward is based on the performance of both the Bank (financial and non-financial) and individual in the year.
Performance of the Bank is based on the overall performance of the Bank in line with the balanced scorecard. The
balanced scorecard typically comprises the following measures:
Measure
Financial
Risk
Customer
Rationale
To ensure delivery of strong growth in deposits, loans and profit
To safeguard the future of the Bank by focusing on our strategy to offer low-risk and
diversified lending
To support our business model centred around creating FANS through our integrated
customer experience
People and culture
To ensure we have dedicated colleagues focusing on our AMAZEING culture and our controls
by doing the right things the right way
Individual behaviours and performance is based on the individual’s AMAZEING review which supports the development
of our AMAZEING culture.
AMAZEING Behaviours framework:
• Attend to every detail
• Make every wrong right
• Ask if you are not sure, bump it up
• Zest is contagious, share it
• Exceed expectations
•
Inspire colleagues to create FANS
• Nurture colleagues so they grow
• Game change because this is a revolution
Malus/clawback
Malus and clawback apply to all elements of variable remuneration. Cash bonus and Share Awards may be delayed or
reduced before they are paid/before they vest (malus) or may be subject to clawback on or after payment should the
Committee conclude that an adjustment needs to be made.
Clawback may be applied up to seven years from the award date, or ten years where an investigation has commenced.
While not exhaustive, malus and/or clawback may be applied in the following situations where:
• There is a restatement of accounts
• A material failure of risk management has occurred
• A material downturn in financial performance has taken place
• Conduct of an Executive Director has, in the opinion of the Remuneration Committee, caused serious harm to the
reputation of and/or significant financial loss to the Bank
• An error has occurred in the calculation of the vesting of an award relating to an Executive Director that resulted in
an overpayment
• The Remuneration Committee deems it appropriate to take into account to comply with any regulations or
guidance published by a relevant regulator from time to time
• A payment/award has been made based on erroneous or misleading data, misconduct, misstatement of accounts,
serious reputational damage and corporate failure
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
103
Area
Commentary
Discretion in
relation to future
operation of the
policy
In the event of a variation of the Company’s share capital or a demerger, special dividend or any other event that may
affect the Company’s share price, the number of shares subject to an award and/or any exercise price applicable to the
award, may be adjusted. The Committee may amend any performance conditions applicable to variable pay awards if
any event occurs which causes the Committee to consider an amended performance condition would be more
appropriate and not materially less difficult to satisfy.
Remuneration
policy for other
colleagues
The remuneration structure for Executive Directors is aligned with the wider employee population. Performance
conditions for variable pay awards are similar to those for all colleagues and we apply the same Company performance
multiplier to variable pay awards to all colleagues across the Bank. Further details are provided on page 85.
Approach to remuneration when recruiting Executive Directors
When appointing a new Executive Director, the Remuneration Committee seeks to align the remuneration package for the individual
with Metro Bank’s Remuneration Policy and takes into account the package as a whole.
The following table outlines the components of remuneration considered as part of the remuneration package for a new Executive
Director, along with the approach that would be followed.
Component
Approach
Base salary
Pension
Base salary will be determined by virtue of the individual’s role, experience and responsibility. External market
commentary will also be considered.
Pension contributions will be set at a level aligned with or less than that available to the majority of the wider
workforce.
Benefits
Benefits that are offered to all colleagues will be provided to newly appointed Executive Directors.
We may also choose to pay allowances to enable us to hire someone who will need to live away from home in order to
be employed by us, which may include assistance with children’s education, periodic trips home, spouse and children’s
travel amongst others.
Variable
remuneration
The maximum variable remuneration opportunity for the performance period in which the Executive Director joined
would be determined by the Remuneration Policy and the Committee would consider whether it is appropriate to
reduce the award, subject to time in role.
Shareholding
requirement
Newly appointed Executive Directors will be given a reasonable timeframe to build up their shareholding to meet the
minimum requirements as set out in this policy.
Executive Directors are required to build up a holding of shares equivalent to 200% of their annual salary, normally
within five years from the date of appointment as executive director. Executive Directors will have a reasonable period
to build up to this requirement if it is not met because of exceptional circumstances, for example a significant share
price depreciation.
Buy-out
The Committee has the flexibility to make compensatory awards to new Executive Directors, to compensate the
Executive Director for benefits they may lose as a result of joining Metro Bank (buy-out).
These awards will:
• be made up of the same inputs as the normal variable remuneration for Metro Bank colleagues and Executive
Directors;
• consider the value of the forfeited awards at the time of resignation (using an appropriate valuation methodology);
• be in a similar form as the awards which are being lost, where possible;
• vest over a similar or longer time period than the awards being lost; and
• be subject to comparable service and consider performance conditions and be subject to continued employment.
The limit on variable remuneration described on page 101 will not apply to these compensatory awards. The flexibility
to offer a higher level of variable remuneration to new recruits, through compensatory awards, is required to give the
Company flexibility when negotiating with potential new recruits.
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METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Our Remuneration Policy
continued
Illustration of application of Remuneration Policy
The graphs below illustrate the potential total remuneration for each Executive Director in office at 1 January 2020 under the revised
policy for the 2020 performance year. Three scenarios are considered:
• Minimum: Considers fixed elements of package only, including salary, pension and benefits
• On-target: Fixed remuneration and variable remuneration assuming on-target performance (50% of the maximum opportunity)
• Maximum: Fixed remuneration and maximum variable remuneration
• Fixed element is:
– base salary
– pension contribution of 8% for the CEO and 10% for the CFO
– benefits as outlined in the policy table for which we have used the value derived as part of the single-figure calculations
Minimum (fixed only), on-target and maximum potential annual variable remuneration that may be awarded:
Daniel Frumkin
David Arden
Mininum
Target
Maximum
100%
51%
10%
10%
29%
35%
13%
13%
39%
£800,964
£1,540,964
Mininum
Target
Maximum
100%
50%
10%
10%
30%
£446,641
£851,641
£2,280,964
£2.5m
35%
13%
13%
39%
£0.5m
£1.0m
£1,256,641
£1.5m
£0
£0.5m
Fixed element
£1.0m
Cash bonus
£1.5m
£2.0m
1 year share options
£0
7 year share options
Note
1 These illustrations are based on salaries as at 1 April 2020 and consider the cash amount of annual variable remuneration before conversion into Share Awards as described on page 101.
No account is taken of the effect of share price changes or dividends on the value received from Share Awards or shares received under them.
Remuneration on or after termination
For each component of pay, the amount paid to an Executive Director on termination will be determined as follows:
Component of pay
Determination
Salary/fees and
benefits
The Executive Director is entitled to be given notice of termination of the relevant length and receive their normal base
salary and benefits in that time. The Bank has discretion to make a payment in lieu of base salary in respect of any
unexpired notice period and may decide to pay this in instalments, subject to reduction if the Executive Director finds
alternative employment. Benefits will continue until the last day of contractual employment and the accrued but
unused holiday will be paid out.
Appropriate outplacement and legal support will be provided where required.
Variable pay
Variable remuneration may accrue during a notice period, however (unless decided otherwise by the Remuneration
Committee at its discretion) the Executive Director usually has to be employed at the date that any variable
remuneration is awarded in order to be eligible to receive it. No variable remuneration is payable after termination and
previous unvested variable reward deferred into Share Awards will usually lapse.
However, if the Executive Director leaves for the reasons detailed in the Deferred Variable Reward Plan Rules (e.g. ill
health, retirement, redundancy or death) or in other circumstances at the discretion of the Remuneration Committee,
their award under that plan will usually continue on the same terms (subject to reduction and clawback as described in
the policy) and usually vest at the normal time provided any performance conditions are met.
Pension contributions continue to be made during the notice period. No further payment in lieu of pension or pension
contributions can be made after termination. Any benefits will become payable in the normal course in accordance
with the rules of the scheme. There is no right to early payment of pension benefits unless this can be done without
additional contribution from the Bank.
Upon departure, Executive Directors will be required to retain 100% of their shareholding requirement (or actual
holding if lower) for a period of two years post-cessation.
Pension
Post-cessation
shareholding
requirements
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 the Company’s
registered office.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
105
External appointments
Executive Directors are permitted to accept one appointment on a Board or Committee of a listed company, subject to approval of the
Board. When reviewing the appropriateness of an external appointment, the Board will consider:
• Any regulatory guidance that may be in place at the time
• Whether the appointment would interfere or conflict with the business of the Company
Any fees received in respect of these appointments can be retained directly by the relevant Executive Director.
Details of external appointments held by our Executive Directors can be found in our governance report on pages 54 and 55.
Components of remuneration for all other colleagues
Executive Directors are remunerated broadly in line with the same structures that apply across the wider employee population. The
performance conditions for variable pay awards are similar to those for all colleagues.
For all colleagues beneath our Executive Directors, whether they are on our Executive Leadership Team or not, we offer a simple
approach to compensation which supports our unique culture and strategy as well as being aligned to shareholder needs. This is just
like our approach to remuneration for our Executive Directors as outlined in section 1 of this policy.
Both our annual salary increase budget and our annual variable remuneration budget are determined by company performance
and affordability.
During the year, the Remuneration Committee will also receive updates on overall pay and conditions for colleagues across the Bank.
Ahead of our annual reward review process, the Remuneration Committee will opine on the quantum to be made available for salary
increases, annual bonus awards and the Deferred Variable Reward Plan.
Included in the decision making, they will discuss proposals for the Executive Directors as well as considering metrics such as the CEO
pay ratio (page 90) and also the gender pay gap.
Executive Directors are also offered the same benefits that are offered to colleagues across the Bank, primarily our pension scheme,
private medical insurance, life assurance and our ShareBuy plan.
Statement of consideration of employment conditions elsewhere in the Bank
We offer a simple approach to compensation 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 receives updates on overall pay and conditions for colleagues across the Bank and this
was taken into account when setting the Directors’ Remuneration Policy. 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 will opine on the
quantum to be made available for salary increases, annual bonus awards and the Deferred Variable Reward Plan.
The Company does not specifically invite colleagues to comment on the Directors’ Remuneration Policy, although colleagues are able
to express their views on pay through regular surveys and feedback, as well as through our designated workforce engagement Director.
Statement of consideration of shareholder views
The Committee welcomes shareholders’ views on executive remuneration and seeks to maintain an active and open dialogue with
investors regarding any changes to the Company’s executive pay arrangements. The Directors have regular open discussions with
investors and are available for feedback on reward matters.
In the review of the Remuneration Policy, the Committee engaged with shareholders during 2019 and early 2020 in order that
shareholders could express their views on the proposals. The Remuneration Committee takes very seriously the view of shareholders
when making any changes to executive remuneration, and will continue to acknowledge any feedback in reviewing our policy in future.
Strategic ReportGovernanceFinancial StatementsAdditional information
106
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Our Remuneration Policy
continued
9. COMPONENTS OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS
Component of pay
Determination
Fees
All Non-Executive Directors receive a basic annual fee for fulfilling their duties as a Board member.
Additional fees are paid for added responsibilities such as chairmanship and membership of Committees, or acting as
the Senior Independent Director or designated Director for Workforce Engagement. Fees for Committee chairmanship
are paid in addition to any fees for Committee membership.
The Non-Executive Chairman receives an annual fee for the performance of his role. This fee is agreed by the
Remuneration Committee.
Fees for both Non-Executive Directors and the Non-Executive Chairman are paid in cash, subject to the appropriate
deductions. The amount payable takes into account: the time commitment and requirements of the role; individual
performance and experience; benchmark data from appropriate market sources and the financial performance of the
Bank as well as other relevant factors.
The basic and additional fees are typically reviewed annually, drawing on external market information for comparable
financial services groups and companies. Any increase normally takes effect from April of a given year.
The maximum aggregate annual fees that can be paid to the Chairman and Non-Executive Directors are capped
at £3,000,000.
Benefits
Non-Executive Directors do not participate in any pension, bonus or long-term incentive arrangements or receive any
other benefits. Travel and expenses incurred in the normal course of business, e.g. in relation to attendance at Board
and Committee meetings, are met by the Bank.
Non-Executive Directors are reimbursed for reasonable expenses and any tax arising on those expenses will typically
be settled by the Bank.
Fees on recruitment
The fees payable to a new Non-Executive Director will be consistent with the current basic fee structure in place for all
Non-Executive Directors and reflect any additional responsibilities such as Chairman or member of Board Committees.
The fees payable to a new Non-Executive Chairman will be set with reference to external market data, internal relativity
among other Executive and Non-Executive Directors and the requirements of the role.
Letters of
appointment
Appointment letters for the Non-Executive Directors provide for a notice period of one month, during which time they
are entitled to be paid their normal fees or payment in lieu without liability for compensation. There is no provision for
any other early termination compensation and no payment for loss of office.
When appointing any new Non-Executive Directors to the Board, the Nomination Committee will consider regulatory guidance relating
to outside appointments and whether the candidate can devote sufficient time to their Board roles.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
107
Directors’ report
The Directors have pleasure in presenting their Annual Report for
the year ended 31 December 2019. As set out more 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 International Financial
Reporting Standards (‘IFRS’) as adopted by the EU and includes
the corporate governance report set out on pages 52 to 106.
The Directors consider the Annual Report for the year ended
31 December 2019, taken as a whole, is fair, balanced and
understandable, and provides the information necessary for
shareholders to assess the Company’s position and performance,
business model and strategy.
PRINCIPAL ACTIVITIES
Our principal activities during 2019 were the provision of banking
and related services. Metro Bank is a deposit-taking and lending
institution with a focus on retail and small and medium-size
commercial customers, offering consistent fair pricing and
excellent customer service. We’re 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 119.
No dividend was declared or paid during 2019 (2018: £nil). The
Directors do not anticipate declaring a dividend in the near future.
SIGNIFICANT EVENTS
In February 2019, the Bank was awarded the Pool A funding of
£120 million from BCR Ltd as part of the Capability and
Innovation Fund. The funds are being used to enhance the
mobile offerings to the Bank’s SME customers as well as more
advanced business current accounts and ancillary products.
Following a change to our strategy, a revised business case was
submitted to BCR, and as part of this it was agreed that £50
million of the grant will be returned to BCR.
Further to the authority granted by shareholders at a General
Meeting on 3 June 2019, a further 75,000,000 new ordinary
shares of an aggregate nominal value of 0.0001 pence were
issued at £5.00 per share. The new shares were admitted for
trading on the London Stock Exchange on 5 June 2019.
In July 2019, the Bank disposed of a £521 million loan portfolio.
The disposed portfolio was not considered a strategic asset, with
its sale having no impact on the Bank’s customer franchise, given
it was continually serviced by an external provider.
During the year, we successfully priced a £350 million
MREL-Eligible Debt Issuance with an order book in excess of
£550 million which allowed the issuance to be upsized from the
original size of £300 million.
ARTICLES OF ASSOCIATION
The Articles of Association can be found on our website:
metrobankonline.co.uk.
SHARE CAPITAL
As at 31 December 2019, the issued share capital of the Company
was £172.42 comprising 172,420,458 ordinary shares of 0.0001p
each. Further details of our called-up share capital, together with
details of shares allotted during the year, is shown in note 26 to
the financial statements on page 152.
There are no restrictions on the transfer of the Company’s share
capital and there are no shares or stock which carry specific
rights with regard to control of the Company.
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 Management Guidelines.
Holders of ordinary shares are entitled to receive dividends when
declared, to receive the Company’s Annual Report, to attend and
speak at general meetings of the Company, to appoint proxies
and to exercise voting rights.
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 54 to 55. Howard Flight, Keith Carby, Ben Gunn,
Vernon W. Hill, II and Craig Donaldson stepped down as
Directors during 2019.
Directors are appointed and replaced in accordance with the
Company’s Articles, the Companies Act 2006 (the ‘Act’) and the
UK Corporate Governance Code. The powers of the Directors are
set out in the Company’s Articles and the Act.
Strategic ReportGovernanceFinancial StatementsAdditional information 108
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Directors’ report
continued
DIRECTORS’ INTERESTS
Details of the Directors’ beneficial interests are set out in the
annual report on remuneration on page 93.
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 63.
PROVISIONS ON CHANGE OF CONTROL
The Company’s share plan contains provisions relating to a
change of control. Outstanding share options and awards may
vest and become exercisable on a change of control subject to
the Remuneration Committee’s discretion. Save in respect of
provisions of the Company’s share plan, there are no other
agreements between the Company and its Directors or
colleagues providing 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 Bank by substantial shareholders
pursuant to the Disclosure and Transparency Rules (‘DTR’) is
published via a Regulatory Information Service.
As at 3 April 2020, 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.
Shareholder
Ordinary
shares held
% of total
ordinary
shares
Spaldy Investments Limited
15,549,496
9.018
Spruce House Partnership
12,133,642
Davis Selected Advisers
683 Capital Management
9,191,516
7,050,000
Ennismore Fund Management
Limited
5,290,284
Ruane, Cunniff and Goldforb
5,020,755
Hound Partners
Norges Bank
4,763,731
3,023,256
7.04
5.33
4.09
3.07
5.15
4.89
3.10
Direct/
indirect
interest
Direct
Direct
Indirect
Indirect
Indirect
Direct
Indirect
Direct
GREENHOUSE GAS EMISSIONS
Our energy consumption and associated greenhouse gas
emissions during 2019 are set out in the Strategic report on
page 47.
EMPLOYEE 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. All
colleagues are eligible to participate in our share option and/or
share buy and share pool schemes. More information on our
colleagues can be found on page 44 of the Strategic report.
DIVERSITY
Our Diversity and Inclusion 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.
During the year, we published our Board Diversity Policy,
which sets out our commitment to diversity and inclusion
for the Board. At Metro Bank we believe that a diverse Board,
appointed on merit, with a broad range of skills, backgrounds,
knowledge and experience, will be a more effective and
responsible Board. The policy can be found on our website at
www.metrobankonline.co.uk/investor-relations. Going forward,
we will report annually against the objectives in the policy.
DISABLED EMPLOYEES
Applications for employment by disabled persons are always fully
and fairly considered, bearing in mind the abilities and aptitudes
of the applicant concerned. In the event of colleagues becoming
disabled, we make every effort to ensure that their employment
continues and that we 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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
109
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 2019 can
be found on page 48. We have also appointed a member of the
Board as our Modern Slavery Champion who, with the CEO, will
monitor 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 the processes in place in
relation to financial reporting, and details of risk management
objectives and policies, are shown in the Risk report on pages 18
to 39. As a result of normal business activities, we are exposed to
a variety of risks – and the principal risks and uncertainties that we
face are shown in the Risk report.
AUDITORS
The auditors, PricewaterhouseCoopers LLP, have indicated their
willingness to continue in office and a resolution seeking to
reappoint them will be proposed at the Annual General Meeting.
POLITICAL DONATIONS
We made no political donations in the year ending 31 December
2019 (2018: £nil).
RESEARCH AND DEVELOPMENT
We continue to invest in our digital offering. During the year, we
spent £79 million on intangible assets.
POST BALANCE SHEET EVENTS
A summary of the key post balance sheet events is set out in note
38 to the financial statements on page 172.
ANNUAL GENERAL MEETING
Details of this year’s AGM can be found in the shareholder
information section on page 180.
FUTURE DEVELOPMENTS
Our business and future plans are reviewed in the Operating
review.
LISTING RULES DISCLOSURES
For the purposes of LR 9.8.4CR, the information required to be
disclosed by LR 9.8.4R can be found in the following sections of
the report:
GOING CONCERN
The Board considers it appropriate for the Group to adopt the
going concern basis in the preparing its financial statements.
Item
Location, where applicable
Detail of long-term incentive
schemes
Remuneration report, note 29 to
the financial statements
VIABILITY STATEMENT
Our Viability statement is set out on page 19.
Contracts of significance
Any contracts of significance or
related party transactions can
be found in note 35 to the
financial statements
Strategic ReportGovernanceFinancial StatementsAdditional information Directors’ confirmations
Each of the Directors, whose names are listed on pages 54 and
55 confirm that, to the best of their knowledge:
•
•
the financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and loss of the group; and
the Strategic Report includes a fair review of the development
and performance of the business and the position of the
group and parent 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 and parent company’s auditors
are unaware; and
•
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 and parent
company’s auditors are aware of that information.
The Directors’ report comprising pages 107 to 110 has been
approved by the Board of Directors and signed on its behalf by
David Arden
Chief Financial Officer and Company Secretary
16 April 2020
110
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Directors’ report
continued
CORPORATE GOVERNANCE STATEMENT
The corporate governance report on pages 56 to 63 in
accordance with Rule 7.2 of the Disclosure and Transparency
Rules and Rule 9.8.6 (5) and (6) of the Listing Rules forms part of
this Directors’ report.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT
OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report
and the financial statements 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 financial statements in accordance with
International Financial Reporting Standards (‘IFRSs’) as adopted by
the European Union and parent company financial statements in
accordance with IFRSs as adopted by the European Union. Under
company law the 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 parent company and
of the profit or loss of the group and parent company 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 IFRSs as adopted by the European
Union have been followed for the group financial statements
and IFRSs as adopted by the European Union have been
followed for the company financial statements, subject to any
material departures disclosed and explained in the financial
statements;
• make judgements and accounting estimates that are
reasonable and prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and parent
company will continue in business.
The Directors are also responsible for safeguarding the assets of
the group and parent company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group and
parent company’s transactions and disclose with reasonable
accuracy at any time the financial position of the group and
parent company and enable them to ensure that the financial
statements and the Directors’ Remuneration Report comply with
the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
The Directors are responsible for the maintenance and integrity
of the parent company’s website. Legislation in the United
Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
111
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 (“the 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 2019 and of the Group’s loss and
the Group’s and the Company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union
and, as regards the Company’s financial statements, 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 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report & Accounts 2019 (the “Annual Report”), which comprise:
the Consolidated and Company balance sheets as at 31 December 2019; the Consolidated statement of comprehensive income, the
Consolidated and Company cash flow statements, and 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
to the Group or the Company.
Other than those disclosed in note 8 to the financial statements, we have provided no non-audit services to the Group or the Company
in the period from 1 January 2019 to 31 December 2019.
Strategic ReportGovernanceFinancial StatementsAdditional information 112
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Independent auditors’ report continued
To the members of Metro Bank PLC
Our audit approach
Overview
Materiality
• Overall Group materiality: £2.6 million (2018: £1.8 million), based on 5% of the average consolidated
profit or loss before tax of the last 5 years.
• Overall Company materiality: £2.7 million (2018: £1.9 million), based on 5% of the average Company
profit or loss before tax of the last 5 years.
• 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 components and other qualitative
factors (including history of misstatement through fraud or error).
Audit scope
• 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). We performed other procedures including testing entity level controls,
information technology general controls, tests of detail and analytical review procedures to mitigate the
risk of material misstatement in the non-financially significant components.
• Determination of Expected Credit Losses (“ECLs”) on loans and advances (Group and Company).
Key audit
matters
• Recognition of revenue on loans and advances (Group and Company).
• Carrying value of intangible assets (excluding goodwill) (Group and Company).
• Potential impact of COVID-19 (Group and 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.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and its 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”), Prudential Regulatory Authority (“PRA”), UK tax
legislation and the Consumer Credit Act 1974 and we considered the extent to which non-compliance might have a material effect on
the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as
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:
• Discussions with 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 correspondence with regulators, such as the FCA and the PRA in relation to the group’s compliance with banking
regulations;
• Challenging assumptions and judgements made by management in their estimation of the impairment of loans and advances to
customers, revenue recognition, and the assessment of the carrying value of intangible assets (excluding goodwill), (see related key
audit matters below); 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 processes.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. 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.
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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
113
Key audit matter
How our audit addressed the key audit matter
Determination of allowance for Expected Credit
Losses (‘ECL’) on loans and advances
(Group and Company)
Refer to page 70 (Audit Committee report), page 128
(Note 1: Basis of preparation and significant
accounting policies) and page 155 (Note 30: Expected
credit losses).
The methodology used by the Bank to determine ECLs
requires a number of important assumptions and
judgements to be made. Those of most significance
included the following:
• The judgements made by management in
determining the probability of default (‘PD’) and loss
given default (‘LGD’);
• The ‘staging’ thresholds selected by management
to determine a significant increase in credit risk or
when a loan is credit impaired, and hence whether
a 12 month or lifetime loss provision is recorded;
• The measurement of ECL on stage 3 loans
individually assessed; and
• The application of forward-looking economic
assumptions used in the models, including
management’s assumptions to address potential
risks from the UK’s exit from the European Union.
We evaluated and tested key controls around the determination of the
allowance for ECL, including the periodic model review, validation and
approval, and the identification of credit impairment events.
We determined that these controls tested were designed, implemented and
operated effectively and therefore that we could place reliance on them for
the purposes of our audit.
We performed the following substantive audit procedures in order to assess
the performance of the ECL models implemented and the appropriateness
of management’s key judgements and estimates in the context of the current
economic environment and our wider industry experience.
We engaged the support of credit modelling specialists in the substantive
procedures set out below.
PD and LGD rates
• We critically assessed the methodology applied in the impairment
models, to evaluate whether the methodology was compliant with IFRS 9
requirements, and tested key assumptions and judgements, including
those made by management in determining PDs and LGDs, used in the
calculation of provisions.
Staging
• To test the application of management’s ‘staging’ thresholds, we
performed substantive procedures including selecting samples of loans
and advances, forming our own judgements of stage allocation and
comparing this to management’s conclusions.
Measurement of ECL on Stage 3 loans individually assessed
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;
•
Independently challenged whether the key assumptions used, such as the
recovery strategies, expected cashflows, collateral rights and valuations
and ranges of potential outcomes, were appropriate, given the borrower’s
circumstances; and
• Re-performed management’s allowance calculation.
Forward looking information and multiple economic scenarios
• We assessed the reasonableness of the forward-looking information used
by management in the impairment model, by comparing the forward-
looking assumptions to publicly available forecasts, including those
published by the Bank of England.
• We assessed the reasonableness of management’s probability weights
applied to the scenarios in the calculation of impairment and considered
whether the scenarios and probability weights appeared to be within a
reasonable range. This included assessing management’s assumptions
regarding the impact of the UK’s exit from the European Union.
• We tested the accuracy of critical data inputs used by the impairment
models on a sample basis to supporting documentation.
Based on our procedures and the evidence assessed, we found the
methodologies, modelled assumptions, judgements and data used by
management in their determination of allowance for ECLs be reasonable and
to be materially compliant with the requirements of IFRS 9.
Strategic ReportGovernanceFinancial StatementsAdditional information 114
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Independent auditors’ report continued
To the members of Metro Bank PLC
Key audit matter
How our audit addressed the key audit matter
Recognition of revenue on loans and advances
(Group and Company)
Refer to page 70 (Audit Committee report) and page
130 (Note 2: Net interest income).
The Group recognises interest income using the
effective interest rate method which spreads interest
and directly attributable cash flows, the most
significant of which relate to loan arrangement fees
and upfront costs of new lending, over the loans’
expected behavioural lives.
The determination of loans’ behavioural lives involves
the use of estimates, as the Group has limited historical
experience of the performance of certain portfolios.
We evaluated and tested the key controls around the identification of
upfront costs and fees and determination of their treatment, the accuracy
of the effective interest calculation, and the determination and approval
of the assumptions used in the estimation of the behavioural lives of loans
and advances.
We determined that the controls tested were designed, implemented and
operating effectively and therefore we determined that we could place
reliance on them for the purposes of our audit.
Our substantive testing assessed the application of judgement to the
treatment of effective interest rate accounting for fees and costs, including;
• The identification of fees and costs which are directly attributable to
the lending;
• The estimation of behavioural lives of the loans, over which those amounts
Carrying values of intangible assets (excluding
goodwill)
(Group and Company)
Refer to page 67 (Audit Committee report) and page
143 (Note 15: Intangible assets).
The Group capitalises certain spend, in the
development of systems and infrastructure designed
to support its business strategy, as intangible assets.
Following the announcement of the Group’s strategic
review, a number of those intangible assets have been
determined to no longer be required, and impairment
has been recorded in the period. The assets primarily
consisted of projects that were work in progress that
have now been abandoned as well as older assets that
were felt to no longer provide demonstrable future
economic benefits under the new strategy.
The Directors have evaluated the intangible assets for
impairment, and where relevant estimated the
recoverable amounts of those assets. Where the assets
do not independently generate cash flows, they have
been incorporated into a relevant cash generating unit
(“CGU”) and the recoverable amount of that CGU has
been determined. The relevant CGU was considered
to be the Bank.
The determination of recoverable amounts require
management to estimate the higher of value in use,
where judgement is required to estimate cash flow
projections, long term growth rates, and cash flow
discount rates, and the fair value less costs to sell, which
also requires judgement given the bespoke nature of
some of the assets
are spread; and
• The effective interest rate method used.
We tested key data inputs and assumptions to supporting documentation, and
stressed the estimates applied, to assess whether they were appropriate.
Based on the work performed, we found the methodology, judgements and
estimates used to be appropriate and materially compliant with the
requirements of IFRS 9.
We evaluated the design and implementation of key controls around the
carrying value assessments performed by management.
We performed the following substantive audit procedures over the impairment
assessments:
• Evaluated management’s accounting policy and impairment methodology
with reference to IFRS requirements, including management’s
determination of the relevant cash generating unit;
• For a sample of impaired and unimpaired intangible assets, we obtained
and assessed management’s analysis by validating assertions made against
supporting evidence obtained through specific enquiry of management
and IT personnel, review of business plans and IT strategies, and minutes of
relevant Board and Committee meetings;
• Assessed the recoverable amount determined by management against
the evidence obtained, and tested the accuracy of the impairment
losses recorded;
• Obtained management’s cash generating unit impairment assessment
calculations and tested the forecast cash flows to the latest approved Board
plans; and
• Evaluated the key assumptions in these forecasts and plans, and evaluated
the evidence provided to corroborate them, with a focus on the income
growth plans, the investment and cost savings plans and those related to
areas such as capital requirements.
We assessed the useful economic lives over which intangible assets are being
amortised, against the evidence obtained, with a focus on the underlying
business use cases or the purpose to which the asset was being deployed.
We identified a number of exceptions through our testing of the specific
intangible asset assessments. These were resolved by management and
adjusted for.
With respect to the carrying value assessment performed in relation to the
Bank cash generating unit, we found the key assumptions to be reasonable
and supportable, and the assessment to be materially compliant with the
requirements of IAS 36.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
115
Key audit matter
How our audit addressed the key audit matter
Potential impact of COVID-19
(Group and Company)
Refer to page 17 (Strategic report), page 38 (Risk
report) and page 172 (Note 38: Post balance sheet
events).
There is a global pandemic of COVID-19 which,
subsequent to the year end, has taken hold in the UK
where the Group operates. This has been disruptive to
financial markets and normal patterns of human
behaviour. This is anticipated to translate into an
adverse impact on the global economy. In response,
the UK and other governments, and the Bank of
England, have announced measures, such as lowering
the base rate and countercyclical buffer, designed to
ameliorate resulting adverse impacts on the economy.
The Directors have specifically considered the impact
on the financial statements, including the post balance
sheet event disclosures and its impact on their going
concern assessment through evaluating the impact on
the Bank’s capital and liquidity position.
The Directors have concluded that the matter is
a non-adjusting post balance sheet event, the
financial effect of which cannot be reliably
estimated at this stage.
We critically assessed the Directors’ conclusions that the matter be treated as
a non-adjusting post balance sheet event and that the impact cannot be
reliably estimated at this stage. We considered:
• The timing and development of the outbreak across the world;
• The timing and nature, in particular, of UK government advice to UK
citizens; and
• How the financial statements might be impacted by the aforementioned
disruption and the complexity in measuring such impacts.
In assessing the Directors’ going concern assessment , we evaluated
whether it considered impacts arising from COVID-19. Our procedures in this
respect included:
• Evaluating management’s assessment of the impact of COVID-19 and UK
economic conditions on the Bank’s capital and liquidity position, and
operating plans; and
• Substantiating the Bank’s liquid assets held at the Bank of England, and its
ability to access Bank of England liquidity facilities.
Based on the work performed, we are satisfied that the matter has been
appropriately evaluated and reflected in the financial statements.
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.
The Group comprises three components: Metro Bank PLC (being the Company), SME Invoice Finance Limited and SME Asset Finance
Limited. 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 10% of the total assets 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). Any
component which was not already included as a full scope component but was identified as being individually financially significant in
respect of one or more account balances was subject to specific audit procedures over those account balances.
All remaining components which were not individually financially significant were subject to procedures which addressed the risk of
material misstatement including testing of entity level controls, information technology general controls, specific tests of detail and
Group and component level analytical review procedures.
Components within the scope of our audit contributed 98% of Group total assets and 97% of Group total income.
Strategic ReportGovernanceFinancial StatementsAdditional information
116
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Independent auditors’ report continued
To the members of Metro Bank PLC
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:
Group financial statements
Company financial statements
Overall materiality
£2.6 million (2018: £1.8 million).
£2.7 million (2018: £1.9 million).
How we determined it
5% of the average consolidated profit or loss
before tax of the last 5 years.
5% of the average Company profit or loss
before tax of the last 5 years.
Rationale for benchmark applied
Based on the benchmarks used in the
Annual Report, profit or loss before tax is
a key measure used by the shareholders in
assessing the performance of the Group, and
is a generally accepted auditing benchmark.
Based on the benchmarks used in the Annual
Report, profit or loss before tax is a key
measure used by the shareholders in assessing
the performance of the Company, and is a
generally accepted auditing benchmark.
For our Group audit, we identified one financially significant component, which is the Company. We allocated a materiality of £2.5
million to the Company, which is less than our overall Group audit materiality. As the allocated materiality for the Company is below the
statutory materiality, we have audited the Company using this lower component materiality. We have audited certain account balances
within non-financially significant components to the relevant component’s statutory materiality, which is also less than our overall
Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £132,000 (Group
audit) (2018: £86,000) and £133,000 (Company audit) (2018: £86,000) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or
draw attention to in respect of the Directors’ statement in the
financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting in
preparing the financial statements and the Directors’ identification
of any material uncertainties to the Group’s and the Company’s
ability to continue as a going concern over a period of at least
twelve months from the date of approval of the financial
statements.
We are required to report if the Directors’ statement relating to
Going Concern in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Group’s and
Company’s ability to continue as a going concern.
We have nothing to 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. 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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
117
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06),
ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as
described below (required by ISAs (UK) unless otherwise stated).
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 2019 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements. (CA06)
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. (CA06)
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity
of the Group
We have nothing material to add or draw attention to regarding:
• The Directors’ confirmation on page 109 of the Annual Report that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The Directors’ explanation on page 19 of the Annual Report as to how they have assessed the prospects of the Group, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a
reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of
their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements;
checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and
considering whether the statements are consistent with the knowledge and understanding of the Group and Company and their
environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the Directors, on page 107, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the
course of performing our audit.
• The section of the Annual Report on page 66 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• 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.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006. (CA06)
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 set out on page 110, 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.
Strategic ReportGovernanceFinancial StatementsAdditional information 118
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Independent auditors’ report continued
To the members of Metro Bank PLC
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.
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.
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 received 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 Directors’ Remuneration Report 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 period ended 31 December 2010 and subsequent financial periods. During 2018 the Directors carried out an audit
tender and we were subsequently invited to continue to perform the audit of the financial statements, pending formal reappointment
at each Annual General Meeting. The period of total uninterrupted engagement is 10 years, covering the years ended 31 December
2010 to 31 December 2019.
Darren Meek (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
16 April 2020
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
119
Consolidated statement of comprehensive income
For the year ended 31 December 2019
Interest income
Interest expense1
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Net gains on sale of assets
Other income
Total income
General operating expenses1
Depreciation and amortisation1
Impairment and write-offs of property, plant, equipment and intangible assets
Total operating expenses
Expected credit loss expense
(Loss)/profit before tax
Taxation
(Loss)/profit for the year
Other comprehensive income/(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
– fair value changes transferred to the income statement on disposal
Total other comprehensive income/(expense)
Total comprehensive (loss)/profit for the year
Earnings per share
Basic (pence)
Diluted (pence)
Year ended
31 December
2019
£’million
Year ended
31 December
2018
£’million
Notes
2
2
3
3
4
5
6
14, 15
14, 15
30
9
28
28
36
36
496.2
(188.1)
308.1
67.4
(6.4)
61.0
1.6
44.9
444.4
(114.3)
330.1
42.5
(4.9)
37.6
10.7
25.7
415.6
404.1
(380.6)
(76.4)
(77.7)
(534.7)
(11.7)
(130.8)
(51.8)
(182.6)
(305.6)
(45.1)
(4.8)
(355.5)
(8.0)
40.6
(13.5)
27.1
2.7
(2.4)
0.3
(2.4)
(1.5)
(3.9)
(182.3)
23.2
(123.9)
(123.9)
29.1
28.2
1. On 1 January 2019 we adopted IFRS 16 Leases. We have adopted IFRS 16 on the modified retrospective basis and as such the comparators have not been restated. Further details can be
found in note 1.5.
The accounting policies, notes and information on pages 126 to 172 form part of these financial statements.
Strategic ReportGovernanceFinancial StatementsAdditional information 120
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Consolidated balance sheet
As at 31 December 2019
Assets
Cash and balances with the Bank of England
Loans and advances to customers
Investment securities held at fair value through other comprehensive income (‘FVOCI’)
Investment securities held at amortised cost
Property, plant and equipment1
Intangible assets
Prepayments and accrued income
Deferred tax asset
Other assets
Total assets
Liabilities
Deposits from customers
Deposits from central banks
Debt securities
Repurchase agreements
Derivative financial liabilities
Lease liabilities1
Deferred grants
Provisions
Deferred tax liability
Other liabilities
Total liabilities
Equity
Called-up share capital
Share premium
Retained earnings
Other reserves
Total equity
Total equity and liabilities
31 December
2019
£’million
31 December
2018
£’million
Notes
11
12
13
13
14
15
16
9
17
18
19
20
21
22
23
24
9
25
26
26
27
28
2,989
14,681
411
2,154
856
168
66
–
75
2,472
14,235
674
3,458
454
197
66
41
50
21,400
21,647
14,477
3,801
591
250
8
341
50
17
15
267
15,661
3,801
249
344
1
–
–
2
–
186
19,817
20,244
–
1,964
(392)
11
1,583
–
1,605
(209)
7
1,403
21,400
21,647
1. On 1 January 2019 we adopted IFRS 16 Leases. We have adopted IFRS 16 on the modified retrospective basis and as such the comparators have not been restated. Further details can be
found in note 1.5.
The accounting policies, notes and information on pages 126 to 172 form part of these financial statements.
The financial statements on pages 119 to 172 were approved by the Board of Directors on 16 April 2020 and signed on its behalf by:
Sir Michael Snyder
Interim Chairman
Daniel Frumkin
Chief Executive Officer
David Arden
Chief Financial Officer
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
121
Consolidated statement of changes in equity
For the year ended 31 December 2019
Balance as at 1 January 2019
Loss for the year
Other comprehensive expense (net of tax) relating to
investment securities designated at fair value through other
comprehensive income
Total comprehensive loss
Shares issued
Cost of shares issued
Net share option movements
Balance as at 31 December 2019
Balance as at 1 January 2018
Profit for the year
Other comprehensive expense (net of tax) relating to
investment securities designated at fair value through other
comprehensive income
Total comprehensive income
Shares issued
Cost of shares issued
Net share option movements
Balance as at 31 December 2018
Notes
Called-up
share capital
£’million
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26
Share
premium
£’million
1,605
–
–
–
375
(16)
–
1,964
1,304
–
–
–
304
(3)
–
Retained
earnings
£’million
(209)
(183)
–
(183)
–
–
–
(392)
(236)
27
–
27
–
–
–
1,605
(209)
26
27
FVOCI
reserve
£’million
Share option
reserve
£’million
Total equity
£’million
(3)
–
–
–
–
–
–
(3)
1
–
(4)
(4)
–
–
–
(3)
28
1,403
(183)
–
(183)
375
(16)
4
1,583
1,085
27
(4)
23
304
(3)
(6)
1,403
10
–
–
–
–
–
4
14
16
–
–
–
–
–
(6)
10
28
The accounting policies, notes and information on pages 126 to 172 form part of these financial statements.
Strategic ReportGovernanceFinancial StatementsAdditional information 122
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Consolidated cash flow statement
For the year ended 31 December 2019
Reconciliation of (loss)/profit before tax to net cash flows from operating activities:
(Loss)/profit before tax
Adjustments for:
Impairment and write-offs of property, plant, equipment and intangible assets
Interest on lease liabilities1
Depreciation and amortisation1
Share option charge
Grant income recognised in the income statement
Amounts provided for
Gain on sale of assets and fair value gains on derivatives
Accrued interest on and amortisation of investment securities
Changes in operating assets and liabilities
Changes in loans and advances to customers
Changes in deposits from customers
Changes in other operating assets
Changes in other operating liabilities
Net cash (outflows)/inflows from operating activities
Cash flows from investing activities
Sales of investment securities
Purchase of investment securities
Purchase of property, plant and equipment
Purchase and development of intangible assets
Net cash inflows/(outflows) from investing activities
Cash flows from financing activities
Shares issued
Cost of shares issued
Debt issued
Cost of debt issued
Grant received
Repayment of capital element of leases1
Net cash inflows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
(Loss)/profit before tax includes:
Interest received
Interest paid
Year ended
31 December
2019
£’million
Year ended
31 December
2018
£’million
Notes
14, 15
2
14, 15
7
5
6
12
18
14
15
26
26
20
20
23
22
11
11
(131)
78
18
76
4
(16)
12
(2)
(8)
(445)
(1,184)
(26)
(31)
(1,655)
2,193
(618)
(120)
(79)
1,376
375
(16)
350
(8)
120
(25)
796
517
2,472
2,989
41
5
–
45
5
–
–
(11)
(7)
(4,615)
3,992
(36)
734
153
1,522
(1,740)
(150)
(75)
(443)
304
(3)
250
(1)
–
–
550
260
2,212
2,472
493
174
437
105
1. On 1 January 2019 we adopted IFRS 16 Leases. We have adopted IFRS 16 on the modified retrospective basis and as such the comparators have not been restated. Further details can be
found in note 1.5.
The accounting policies, notes and information on pages 126 to 172 form part of these financial statements.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
123
Company balance sheet
As at 31 December 2019
Assets
Cash and balances with the Bank of England
Loans and advances to customers
Investment securities held at fair value through other comprehensive income (‘FVOCI’)
Investment securities held at amortised cost
Property, plant and equipment1
Investment in subsidiaries
Intangible assets
Prepayments and accrued income
Deferred tax asset
Other assets
Total assets
Liabilities
Deposits from customers
Deposits from central banks
Debt securities
Repurchase agreements
Derivative financial liabilities
Lease liabilities1
Deferred grants
Provisions
Deferred tax liability
Other liabilities
Total liabilities
Equity
Called-up share capital
Share premium
Retained earnings2
Other reserves
Total equity
Total equity and liabilities
31 December
2019
£’million
31 December
2018
£’million
Notes
11
12
13
13
15
16
17
18
19
20
21
22
23
24
9
25
26
26
27
28
2,983
14,381
411
2,154
856
15
162
63
–
365
2,446
13,940
674
3,458
454
15
190
63
40
355
21,390
21,635
14,477
3,801
591
250
8
341
50
17
15
262
15,661
3,801
249
344
1
–
–
2
–
179
19,812
20,237
–
1,964
(397)
11
1,578
–
1,605
(214)
7
1,398
21,390
21,635
1. On 1 January 2019 we adopted IFRS 16 Leases. We have adopted IFRS 16 on the modified retrospective basis and as such the comparators have not been restated. Further details can be
found in note 1.5.
2. The Company loss for the year was £182.6 million (2018: profit of £29.0 million).
The accounting policies, notes and information on pages 126 to 172 form part of the financial statements.
The financial statements on pages 119 to 172 were approved by the Board of Directors on 16 April 2020 and signed on its behalf by:
Sir Michael Snyder
Interim Chairman
Daniel Frumkin
Chief Executive Officer
David Arden
Chief Financial Officer
Strategic ReportGovernanceFinancial StatementsAdditional information 124
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Company statement of changes in equity
For the year ended 31 December 2019
Balance as at 1 January 2019
Loss for the year
Other comprehensive expense (net of tax) relating to
investment securities designated at fair value through other
comprehensive income
Total comprehensive loss
Shares issued
Cost of shares issued
Net share option movements
Balance as at 31 December 2019
Balance as at 1 January 2018
Profit for the year
Other comprehensive expense (net of tax) relating to
investment securities designated at fair value through other
comprehensive income
Total comprehensive income
Shares issued
Cost of shares issued
Net share option movements
Balance as at 31 December 2018
Notes
Called-up
share capital
£’million
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26
Share
premium
£’million
1,605
–
–
–
375
(16)
–
1,964
1,304
–
–
–
304
(3)
–
1,605
26
Retained
earnings
£’million
FVOCI
reserve
£’million
Share option
reserve
£’million
Total equity
£’million
(214)
(183)
–
(183)
–
–
–
(397)
(241)
27
–
27
–
–
–
(214)
27
(3)
–
–
–
–
–
–
(3)
1
–
(4)
(4)
–
–
–
(3)
28
10
–
1,398
(183)
–
(183)
375
(16)
4
1,578
1,080
27
(4)
23
304
(3)
(6)
1,398
–
–
–
–
4
14
16
–
–
–
–
–
(6)
10
28
The accounting policies, notes and information on pages 126 to 172 form part of these financial statements.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
125
Company cash flow statement
For the year ended 31 December 2019
Reconciliation of (loss)/profit before tax to net cash flows from operating activities:
(Loss)/profit before tax
Adjustments for:
Impairment and write-offs of property, plant, equipment and intangible assets
Interest on lease liabilities1
Depreciation and amortisation1
Share option charge
Grant income recognised in the income statement
Amounts provided for
Gain on sale of assets and fair value gains on derivatives
Accrued interest on and amortisation of investment securities
Changes in operating assets and liabilities
Changes in loans and advances to customers
Changes in deposits from customers
Changes in other operating assets
Changes in other operating liabilities
Net cash (outflows)/inflows from operating activities
Cash flows from investing activities
Sales of investment securities
Purchase of investment securities
Purchase of property, plant and equipment
Purchase and development of intangible assets
Net cash inflows/(outflows) from investing activities
Cash flows from financing activities
Shares issued
Cost of shares issued
Debt issued
Cost of debt issued
Grant received
Repayment of capital element of leases1
Net cash inflows from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
(Loss)/profit before tax includes:
Interest received
Interest paid
Year ended
31 December
2019
£’million
Year ended
31 December
2018
£’million
Notes
(131)
78
18
75
4
(16)
12
(2)
(8)
(441)
(1,184)
(14)
(25)
(1,635)
2,193
(618)
(120)
(79)
1,376
375
(16)
350
(8)
120
(25)
796
537
2,446
2,983
40
5
–
45
4
–
–
(8)
(7)
(4,547)
3,992
(128)
732
128
1,526
(1,740)
(150)
(75)
(439)
304
(3)
250
(1)
–
–
550
239
2,207
2,446
483
174
425
105
12
18
15
26
26
20
20
23
22
11
11
1. On 1 January 2019 we adopted IFRS 16 Leases. We have adopted IFRS 16 on the modified retrospective basis and as such the comparators have not been restated. Further details can be
found in note 1.5.
The accounting policies, notes and information on pages 126 to 172 form part of these financial statements.
Strategic ReportGovernanceFinancial StatementsAdditional information
126
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
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 (‘the Company’) together with its subsidiaries (‘the Group’) provides retail and commercial banking services in the UK and is
a public limited liability company incorporated and domiciled in the United Kingdom under the Companies Act 2006 (Registration
number 06419578). The registered office is One Southampton Row, London WC1B 5HA.
1.2 Basis of preparation
Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as
adopted by the EU, the IFRS Interpretations Committee (‘IFRS IC’) and the Companies Act 2006 applicable to companies reporting
under IFRS. They were authorised by the Board for issue on 16 April 2020.
The financial statements are prepared on a going concern basis, as our Directors are satisfied that the Group and the Company have
the resources to continue in business for the foreseeable future. This includes having sufficient liquidity and capital to meet all
regulatory requirements.
In publishing the Company financial statements here together with the Group financial statements, we have taken advantage of 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.
1.3 Functional and presentation currency
These financial statements are presented in pound sterling, which is the Bank’s functional currency. All amounts have been rounded to the
nearest £1 million and £0.1 million for balance sheet and income statement line items respectively, except where 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)/profit 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 which directly reports the cash
effects of the transactions.
1.5 Changes in accounting policy and disclosures
The only changes to our accounting policies arose from the adoption of IFRS 16 ‘Leases’. Additionally, we have disclosed accounting
policies in relation to derivatives, grants and provisions in notes 21, 22 and 24 respectively for the first time.
IFRS 16 ‘Leases’
On 1 January 2019 we adopted IFRS 16. IFRS 16 provides guidance on the classification, recognition and measurement of leases to help
provide useful information to the users of financial statements. IFRS 16 replaces IAS 17 ‘Leases’ and provides a single lessee accounting
model, requiring lessees to recognise right of use (‘RoU’) assets and lease liabilities for all applicable leases, with operating leases being
brought onto the face of the balance sheet.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
127
1. Basis of preparation and significant accounting policies continued
Transition approach
We have adopted IFRS 16 on the modified retrospective basis, for all Group companies, and as such the comparators within these
financial statements have not been restated and continue to be presented under IAS 17. We elected to adopt using the modified
retrospective basis as this prevents an opening adjustment to equity and as such maintained our CET1 capital upon transition.
On adoption of the standard on 1 January 2019, we recognised lease liabilities for operating leases of £328 million. We elected the
transitional option to set the RoU asset equal to the related lease liability for all leases as at 1 January 2019 and therefore there is no
opening adjustment to retained earnings. The total amount of RoU asset recognised on 1 January was £313 million. This differs to the
opening lease liability due to adjustments made for amounts accrued in respect of rent-free periods and prepaid rentals as at the point
of transition.
Use of estimates
The only estimate made at the point of transition was the discount rate used to measure lease liabilities. Under IFRS 16 future lease
payments are discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our incremental
borrowing rate. Due to the interest rate implicit in the lease not being readily determinable for any of our leases at transition, we used
our incremental cost of borrowing. Our weighted average discount rate at transition was 5.5% and was determined by reference to the
rate we would be able to borrow in the market for similar assets over a similar time period. The table below shows what the impact
would have been on the opening lease liability had the discount rate been one per cent higher or lower.
Lease liability at 1 January 2019
Decrease in
weighted
average
discount rate
to 4.5%
£’million
Increase in
weighted
average
discount rate
to 6.5%
£’million
357
303
Use of judgements
A judgement was made in regard to whether we will exercise any breaks contained within our leases as this has a significant impact on
the measurement of the lease liability. The majority of leases are around 25 years in length and a small proportion of these have break
clauses part way through. At transition it has been assumed all leases will be retained for their full term, unless there is a specific plan to
vacate the site at an early break point, in which case the lease term is deemed to be the period up until that point. This is consistent
with the period of time over which leasehold improvements are depreciated.
Practical expedients
We have applied the available practical expedients of exempting leases with a short life (less than 12 months) or low value (less than
£5,000) on an ongoing basis. These leases will continue to be recognised on a straight-line basis over the lease term and in total are
immaterial to the Group. As a result, the key leases to which the full requirements of IFRS 16 have been applied are our leases of stores
and head office sites. At transition we did not have any leases of 12 months or less (or any longer-term leases in their final year) other
than those that had a value of below £5,000. The total value of individually low value lease assets at transition was less than £1 million.
Impact of the financial statements
Due to our relatively young age coupled with our store opening profile over recent years, the vast majority of our leases remain in the
first half of their terms, with an average remaining lease length of 20 years. Our business model will also see us continue to open stores
in the years ahead, leading to an expanding lease portfolio. These two factors will lead to significantly higher charges recognised in the
income statement in the near term when compared to IAS 17, reflecting a different profile of cost recognition under each standard.
Charges under IFRS 16 are front loaded in the earlier years of a lease compared to IAS 17 which requires lease expenses to be
recognised on a straight-line basis.
Our net interest margin (‘NIM’), which is one of our key performance indicators and alternative performance measures (‘APMs’),
will be reduced by the adoption of IFRS 16 since the rental expense (part of operating expenses under IAS 17) will be replaced by a
depreciation and interest expense charge. The interest expense will be recognised within NIM, thus reducing it on an ongoing basis.
Further details on NIM and our APMs can be found on pages 177 to 179.
As stated above, since we have applied IFRS 16 on a modified retrospective basis, there is no adjustment to equity upon transition. A
new RoU asset and lease liability were included on the balance sheet at 1 January 2019. The addition of the RoU asset has an impact
on our regulatory capital, reducing our capital ratios by 50 bps, as this has a 100% risk weighting, compared to no risk weighting when
leases were held off balance sheet under IAS 17. Further details can be found in the Financial review on page 17.
Strategic ReportGovernanceFinancial StatementsAdditional information
128
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
1. Basis of preparation and significant accounting policies continued
The table below reconciles our undiscounted lease commitments as at 31 December 2018 to the opening lease liability and RoU
recognised under IFRS 16 on 1 January 2019.
Total undiscounted lease commitments at 31 December 2018 (See note 22)
Exclusion of VAT from lease liability
Discounting at a weighted average rate of 5.5%
Lease liability included in the statement of financial position at 1 January 2019
Less amounts previously recognised in respect of prepaid rentals and accrued rent-free periods
Right-of-use asset included in the statement of financial position at 1 January 2019
Accounting policy
Our updated accounting policy relating to leases can be found within note 22.
£’million
659
(116)
(215)
328
(15)
313
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,
including IFRS 17 ‘Insurance contracts’. We have not adopted any standards early within these financial statements.
1.7 Segmental reporting
IFRS 8 requires operating segments to be identified on the basis of internal reports and components of the Group which are regularly
reviewed by the Chief 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 our 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 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 and losses arising from foreign currency
transactions offered to customers are also recognised in other income.
1.9 Critical accounting judgements
Measurement of the expected credit loss allowance
The recognition and measurement of expected credit losses (‘ECL’) is complex and involves the use of significant estimation and
judgements. We consider that the key judgement for us relates to the determination of whether a ‘significant increase in credit risk’
has occurred.
Significant increase in credit risk
As described in more detail in note 30, IFRS 9 requires a higher level of expected credit loss to be recognised for underperforming
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 significant increase in credit risk 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
losses expected on defaults which may occur within the next 12 months. Assets which are considered to have experienced a significant
increase in credit risk 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 significant increase in credit risk has occurred. An assessment of whether credit risk has
increased significantly since initial recognition, resulting in transfer to Stage 2, is performed at each reporting period by considering the
change in the probability of default (‘PD’) occurring over the remaining life of the financial instrument. The assessment explicitly or
implicitly compares the PD 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. We assess
whether PD has increased using qualitative and quantitative measures, as described in note 30.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
129
1. Basis of preparation and significant accounting policies continued
Recognition of provisions
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.
A key area of judgement applied in the preparation of these financial statements is determining whether a present obligation exists and
where one does, in estimating the probability, timing and amount of any outflows. In determining whether a provision needs to be
made and whether it can be reliably estimated, we consult relevant professional experts and reassess our judgements on an ongoing
basis as facts change. In the early stages of legal and regulatory matters, it is typically the case that it is not possible to reliably estimate
the outcome and in these cases we do not provide for their outcome, however do provide further disclosures outlining the matters in
further detail.
Further detail of our provisions, including our accounting policy, can be found in note 24, with additional information about legal and
regulatory matters which constitute contingent liabilities available in note 32.
Write-off of intangible assets
During the year we have written off £68 million of intangible assets. These assets were derecognised following a review which
was undertaken as a result of our change in future strategy and leadership. The assets primarily consisted of projects that were
work in progress that have now been abandoned, as well as older assets that were felt to no longer provide demonstrable future
economic benefits.
Judgement has been applied in determining whether assets can continue to provide future economic benefits. The assessment has
been made both in reference to both our change in strategy and new long-term plan.
Further detail of our intangible asset write-offs can be found in note 15.
1.10 Critical accounting estimates
The preparation of financial statements in conformity with IFRS requires us to make 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 2019 are appropriate and that these consolidated financial statements therefore present the financial position and results
of the Group fairly. The areas involving a higher degree of complexity, or areas where estimates have a significant risk of resulting in a
material adjustment to the carrying amounts of assets and liabilities within the next financial year, are disclosed below.
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 measurement objective of IFRS 9.
Multiple forward-looking economic scenarios
As described in note 30, the ECL recognised in the financial statements reflects the effect on expected credit losses of a range of
possible outcomes, calculated on a probability-weighted basis, based on a number of economic scenarios and including management
overlays where required. These scenarios are representative of our view of forecast economic conditions, sufficient to calculate
unbiased ECL. At 31 December 2019, three main scenarios were applied (‘Baseline’, ‘Upside’ and ‘Downside’).
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 house price index (‘HPI’) changes, year on year
• UK gross domestic product (‘GDP’) changes, year on year
The weightings applied to each scenario at 31 December 2019 are:
• Baseline – 40%
• Upside and Downside – 30% each
Strategic ReportGovernanceFinancial StatementsAdditional information 130
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
1. Basis of preparation and significant accounting policies continued
The weighted ECL is higher than the Baseline scenario, reflecting the impact of the Downside scenario, offset by the impact of the
Upside scenario. Further details on how the assumptions and scenario weightings have been determined can be found in note 30.
The weightings applied to each scenario are considered to represent significant accounting estimates. We have performed an
assessment of the impact on the ECL if each of the Baseline, Upside and Downside scenarios were applied to the ECL calculation using
a 100% weighting (that is, ignoring all other scenarios in each case):
Scenario
Weighted
Baseline
Upside
Downside
Variance
to reported
weighted
ECL at
31 December
2019
–
(3%)
(13%)
17%
ECL
(£’million)
34
33
30
40
We note that the sensitivities disclosed above represent example scenarios and may not represent actual scenarios which occur in the
future. If one of these scenarios did arise then at that time the ECL would not equal the amount disclosed above, as the amounts disclosed
do not take account of the alternative possible scenarios which would be considered at that time. We also note that the sensitivities
disclosed above do not take into account movements in impairment stage allocations that would result under the different scenarios
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
purchased or originated credit impaired 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 loan net of
credit impairment.
Interest income
Group
Cash and balances held with the Bank of England
Loans and advances to customers
Investment securities held at amortised cost
Investment securities held at FVOCI
Total interest income
Interest expense
Group
Deposits from customers
Deposits from central banks
Debt securities
Lease liabilities
Repurchase agreements
Total interest expense
2019
£’million
2018
£’million
17.0
435.0
40.6
3.6
496.2
11.2
365.2
57.7
10.3
444.4
2019
£’million
2018
£’million
112.4
28.5
22.1
17.7
7.4
188.1
83.7
22.7
7.2
–
0.7
114.3
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
131
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
Safe deposit box
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 is recognised as revenue
when the service is delivered.
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 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
Service charges and other fee income
Safe deposit box income
ATM and interchange fees
Fee and commission income
Fee and commission expense
Total net fee and commission income
4. Net gains on sale of assets
Group and Company
Investment securities held at amortised cost
Investment securities held at fair value through other comprehensive income
Loan portfolios
Total gains on sale of assets
2019
£’million
2018
£’million
31.4
13.3
22.7
67.4
(6.4)
61.0
23.2
11.1
8.2
42.5
(4.9)
37.6
2019
£’million
2018
£’million
2.4
1.7
(2.5)
1.6
6.8
1.5
2.4
10.7
Disposal of investment securities
During the year ended 2019 we sold some financial assets measured at amortised cost; this was primarily to manage liquidity following
significant unexpected deposit outflows in the first half of the year. In 2018 we sold a small amount of assets from the amortised cost
portfolio as these were no longer eligible under our Treasury policy; additionally, some securities were called by the issuer
unexpectedly early resulting in gains on these assets.
Disposal of loan portfolios
In July 2019 we disposed of a mortgage portfolio that we had previously acquired in 2017 for £521 million. The portfolio was primarily
retail buy-to-let mortgages and was not considered a strategic portfolio, with its sale having no impact on our customer franchise given
it has continually been serviced by an external provider. In 2018 we sold a small portfolio of consumer loans that had previously been
acquired. The sale realised a gain of £2.4 million.
These sales are not felt to constitute a change to our business model which is outlined in note 13.
Strategic ReportGovernanceFinancial StatementsAdditional information 132
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
5. Other income
Accounting policy
Other income is accounted for as follows:
Product or service
Foreign currency
transactions
Rental income
Grant income
Nature, timing and satisfaction of performance obligations and payment
terms
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 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.
Grant income primarily relates to amounts recognised in relation to the
amounts drawn down against the Capability and Innovation Fund 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 part of the bid.
Group
Foreign currency transactions
Rental income
Grant income
Other
Total other income
6. General operating expenses
Group
People costs (note 7)
Information technology costs
Occupancy costs1
Money transmission and other banking-related costs
Transformation costs
Remediation costs
Capability and Innovation Fund costs2
Legal, regulatory and professional fees
Contractor costs3
Printing, postage and stationery costs
Travel costs
Marketings costs
Costs relating to the RBS alternative remedies package
Other1
Total general operating expenses
2019
£’million
2018
£’million
25.4
1.2
16.2
2.1
44.9
22.5
1.4
–
1.8
25.7
2019
£’million
2018
£’million
170.9
33.8
28.6
27.1
11.5
26.8
16.5
15.9
5.8
5.6
3.9
3.5
1.2
29.5
154.9
26.8
48.6
19.6
–
–
–
9.1
4.0
4.9
4.0
5.9
3.8
24.0
380.6
305.6
1. During the year we have reclassified certain costs, such as cleaning and store security costs, from other operating expenses to be included within occupancy expenses to better reflect
the nature of these costs. The 2018 comparator figure has been updated to reflect these changes.
2. Included within Capability and Innovation Fund costs are £0.9 million (2018: nil) of people costs. These are included within Capability and Innovation Fund costs rather than people costs
to better reflect their nature.
3. Contractor costs are shown net of both amounts capitalised and amounts included within the transformation costs, remediation costs, Capability and Innovation Fund costs and costs
relating to the RBS alternative remedies package application lines.
Included within legal, regulatory and professional fees is £0.2 million (2018: £0.4 million) in respect of the Financial Services
Compensation Scheme (‘FSCS’) levy.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
133
7. People costs
Accounting policy
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.
Group
Wages and salaries
Social security costs
Pension costs
Equity-settled share-based payments1
Total people costs
2019
£’million
2018
£’million
142.2
14.7
9.8
4.2
170.9
128.0
13.7
8.5
4.7
154.9
1. Included within equity-settled share-based payments is £0.6 million (2018: £0.8 million) in respect of share awards granted to key members of management in 2016 in recognition of their
significant contribution to the successful listing on the London Stock Exchange. These share awards vest annually until April 2021. These relate to shares held in treasury, rather than share
options, and as such do not get recorded in the share option reserve.
During the year £9.5 million (2018: £10.8 million) of people costs were capitalised as part of our intangibles assets (further details can
be found in note 15).
The average monthly number of persons employed during the year was 3,681 (2018: 3,552).
Group
Customer-facing
Non-customer-facing
Total number of persons employed
2019
2018
2,125
1,556
3,681
2,107
1,445
3,552
Pension costs
Payments were made amounting to £10.4 million (2018: £9.1 million) to colleagues’ individual personal pension plans during the year.
8. Fees payable to the Group’s auditors
Fees payable to our auditors PricewaterhouseCoopers LLP (‘PwC’) are analysed below:
Group
For Metro Bank’s statutory audit
For the statutory audit of Metro Bank’s subsidiaries
For all other services1
Total fees payable to the Group’s auditors
2019
£’000
1,298
60
1,980
3,338
2018
£’000
968
49
123
1,140
1. Other services consists of independent assurance work relating to CASS, country-by-country reporting, regulatory reporting, our debt and equity raises and our interim review.
Strategic ReportGovernanceFinancial StatementsAdditional information 134
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
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 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.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax
assets against current tax liabilities 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
Current tax
Current tax
Adjustment in respect of prior years
Total current tax credit/(expense)
Deferred tax
Origination and reversal of temporary differences
Effect of changes in tax rates
Adjustment in respect of prior years
Total deferred tax expense
Total tax expense
2019
£’million
2018
£’million
3.5
(0.3)
3.2
(52.0)
(2.8)
(0.2)
(55.0)
(51.8)
(2.8)
(0.7)
(3.5)
(9.8)
(0.7)
0.5
(10.0)
(13.5)
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
135
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)/profits had
been taxed at the UK corporation tax rate.
A reconciliation between the tax expense and the accounting (loss)/profit multiplied by the UK corporation tax rate is as follows:
Group
Accounting (loss)/profit before tax
Tax expense at statutory tax rate of 19% (2018: 19%)
Tax effects of:
Non-deductible expenses – depreciation on non-qualifying fixed assets
Non-deductible expenses – investment property impairment
Non-deductible expenses – remediation
Non-deductible expenses – other
Impact of intangible asset impairment on R&D deferred tax liability
Share-based payments
Adjustment in respect of prior years
Current year losses for which no deferred tax asset has been recognised
Derecognition of tax losses arising in prior years
Effect of changes in tax rates
Tax expense reported in the consolidated income statement
2019
£’million
(130.8)
24.9
(3.0)
(1.1)
(4.4)
(0.7)
1.8
(1.9)
(0.5)
(11.4)
(52.7)
(2.8)
(51.8)
Effective
tax rate
%
19.0%
(2.3%)
(0.9%)
(3.3%)
(0.5%)
1.4%
(1.5%)
(0.3%)
(8.7%)
(40.2%)
(2.2%)
(39.5%)
2018
£’million
40.6
(7.7)
Effective
tax rate
%
19.0%
(2.6)
(0.5)
–
(0.6)
–
(1.3)
(0.2)
–
–
(0.6)
6.4%
1.2%
–
1.4%
–
3.1%
0.5%
–
–
1.5%
(13.5)
33.2%
The effective tax rate for this year is (39.5%) (2018: 33.2%). 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 impairment on R&D deferred tax liability
During the year we impaired £68 million of intangible assets. This relates to the discontinuation of certain work in progress or older IT
projects that do not form part of our revised strategy. As some of these assets had previously qualified for R&D tax relief, the R&D
deferred tax liability has been adjusted to reflect this.
Share-based payments
During the period our share price fell from £16.94 to £2.02. This had the impact of reducing the deferred tax asset held for share
options and contributed £1.9 million to the deferred tax charge.
Derecognition of tax losses carried forward
We derecognised the deferred tax asset arising in prior years due to the expected impact on our forecast short-term results of the
investment in cost, revenue and infrastructure transformation. The losses will remain available for offset in the future and recognition
will be revaluated at future reporting periods.
Effect of changes in tax rates
This relates to the remeasurement of deferred tax due to rate changes.
Strategic ReportGovernanceFinancial StatementsAdditional information
136
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
9. Taxation continued
Deferred tax
A deferred tax asset (‘DTA’) must be regarded as recoverable and therefore recognised only when, on the basis of all available evidence,
it can be regarded as more likely than not there will be suitable taxable profits from which the future of the underlying timing
differences can be deducted. The following table shows deferred tax recorded in the balance sheet and changes recorded in the
tax expense:
Group
2019
Deferred tax assets
Deferred tax liabilities
Deferred tax assets (net)
At 1 January 2019
Income statement
At 31 December 2019
Group
2018
Deferred tax assets
Deferred tax liabilities
Deferred tax assets (net)
At 1 January 2018
Income statement
Other comprehensive income
Statement of changes in equity
At 31 December 2018
Unused tax
losses
£’million
Investment
securities and
impairments
£’million
Share-based
payments
£’million
Property,
plant and
equipment
£’million
Intangible
assets
£’million
Total
£’million
–
–
–
53
(53)
–
6
(2)
4
5
(1)
4
–
–
–
1
(1)
–
–
(15)
(15)
(11)
(4)
(15)
–
(4)
(4)
(7)
3
(4)
6
(21)
(15)
41
(56)
(15)
Unused tax
losses
£’million
Investment
securities and
impairments
£’million
Share-based
payments
£’million
Property,
plant and
equipment
£’million
Intangible
assets
£’million
Total
£’million
53
–
53
57
(4)
–
–
53
7
(2)
5
4
(1)
2
–
5
1
–
1
11
(1)
–
(9)
1
–
(11)
(11)
(8)
(3)
–
–
(11)
–
(7)
(7)
(6)
(1)
–
–
(7)
61
(20)
41
58
(10)
2
(9)
41
Derecognised deferred tax assets
The value of unused tax losses for which no deferred tax asset has been recognised is £64 million. There is no time limit beyond which
the losses expire.
Due to the investment property impairment being unrealised there is an unrecognised DTA of £1.6 million (2018: £0.5 million).
10. Financial instruments
Our financial instruments primarily comprise customer deposits, loans and advances to customers, cash held at banks and investment
securities, all of which arise as a result of 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 18 to 39.
The financial instruments we hold are simple in nature and we do not consider that we have made any significant or material
judgements relating to the classification of financial instruments under IFRS 9.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
137
10. Financial instruments continued
Classification of financial assets
Group
31 December 2019
Assets
Loans and advances to customers
Investment securities
Liabilities
Deposits from customers
Deposits from central bank
Debt securities
Derivative financial liabilities
Repurchase agreements
31 December 2018
Assets
Loans and advances to customers
Investment securities
Liabilities
Deposits from customers
Deposits from central bank
Debt securities
Derivative financial liabilities
Repurchase agreements
Mandatory fair
value through
profit and loss
£’million
Designated fair
value through
profit and loss
£’million
Fair value
through other
comprehensive
income
£’million
Amortised
cost
£’million
Total
£’million
–
–
–
–
–
8
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
411
14,681
2,154
14,681
2,565
–
–
–
–
–
14,477
3,801
591
–
250
14,477
3,801
591
8
250
–
674
14,235
3,458
14,235
4,132
–
–
–
–
–
15,661
3,801
249
–
344
15,661
3,801
249
1
344
Financial assets pledged as collateral
We have pledged £5,809 million (2018: £5,768 million) of the financial assets above as encumbered collateral which can be called
upon in the event of default. Of this, £941 million (2018: £1,762 million) is made up of high-quality securities and £4,868 million (2018:
£4,006 million) is from our own loan portfolio prepositioned with the Bank of England to support some of the Term Funding Scheme
(‘TFS’) drawings.
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 in substance cash equivalents, e.g. debt investments with fixed
redemption dates that are acquired within a short period of their maturity.
Unrestricted balances with the Bank of England
Cash and unrestricted balances with other banks
Money market placements
Total cash and balances with the Bank of England1
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
2,751
178
60
2,989
2,242
230
–
2,472
2,751
172
60
2,983
2,242
204
–
2,446
1. Balances held at other financial institutions have been reclassified during the year as cash, rather than as loans and advances to banks, to better reflect the unrestricted nature of
these balances.
The expected credit loss held against cash balances held at other banks is less than £0.1 million (31 December 2018: less than
£0.1 million).
Strategic ReportGovernanceFinancial StatementsAdditional information 138
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
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. All 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’.
Consumer lending
Retail mortgages
Commercial lending (excluding asset and invoice finance)
Total loans and advances to customers (Company)
Asset and invoice finance
Total loans and advances to customers (Group)
Consumer lending
Retail mortgages
Commercial lending (excluding asset and invoice finance)
Total loans and advances to customers (Company)
Asset and invoice finance
Total loans and advances to customers (Group)
31 December 2019
Gross
carrying
amount
£’million
233
10,430
3,751
14,414
301
14,715
Gross
carrying
amount
£’million
288
9,625
4,057
13,970
299
14,269
ECL
allowance
£’million
Net carrying
amount
£’million
(13)
(8)
(11)
(32)
(2)
(34)
220
10,422
3,740
14,382
299
14,681
31 December 2018
ECL
allowance
£’million
Net carrying
amount
£’million
(9)
(11)
(10)
(30)
(4)
(34)
279
9,614
4,047
13,940
295
14,235
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
139
12. Loans and advances to customers continued
Further information on the movements in gross carrying amounts and ECL can be found in note 30. An analysis of the gross loans and
advances by product category is set out below:
Overdrafts
Credit cards
Term loans
Total consumer lending
Residential owner occupied
Retail buy-to-let
Total retail mortgages
Total retail lending
Professional buy-to-let
Term loans (exc. professional buy-to-let)
Commercial term loans
Overdrafts and revolving credit facilities
Credit cards
Asset and invoice finance
Total commercial lending
Gross loans and advances to customers
Amounts include:
Repayable at short notice
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
77
11
145
233
8,493
1,937
10,430
10,663
1,219
2,327
3,546
202
3
301
70
11
207
288
7,351
2,274
9,625
9,913
1,380
2,448
3,828
226
3
299
77
11
145
233
8,493
1,937
10,430
10,663
1,219
2,327
3,546
202
3
–
70
11
207
288
7,351
2,274
9,625
9,913
1,380
2,448
3,828
226
3
–
4,052
4,356
3,751
4,057
14,715
14,269
14,414
13,970
228
251
228
251
Strategic ReportGovernanceFinancial StatementsAdditional information 140
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
13. Investment securities
Accounting policy
Our investment securities may be categorised as amortised cost, FVOCI or FVPL. 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 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 categorise any
investment securities as FVPL.
Investment securities held at amortised cost
Investment securities held at amortised cost consist entirely of debt instruments. They 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 foreign exchange gains and losses, until the
investment security is derecognised. Interest is calculated using the effective interest method.
Fair value through other comprehensive income (‘FVOCI’)
Amortised cost
Total investment securities
Fair value through other comprehensive income
Sovereign bonds
Residential mortgage-backed securities
Covered bonds
Corporate bonds
Total investment securities held at FVOCI
Amortised cost
Sovereign bonds
Residential mortgage-backed securities
Covered bonds
Total investment securities held at amortised cost
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
411
2,154
2,565
674
3,458
4,132
411
2,154
2,565
674
3,458
4,132
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
283
–
128
–
411
351
64
104
155
674
283
–
128
–
411
351
64
104
155
674
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
61
1,752
341
2,154
58
2,997
403
3,458
61
1,752
341
2,154
58
2,997
403
3,458
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
141
14. Property, plant and equipment
Accounting policy
Property, plant and equipment
Our property, plant and equipment primarily consists of investments and improvements in our store
network and is stated at cost less accumulated depreciation and any 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
Freehold land
Buildings
Fixtures, fittings and equipment
IT hardware
Lower of the remaining life of the lease or the useful life of the asset
Not depreciated
Up to 50 years
5 years
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 least annually for indicators of impairment.
Right-of-use assets
Upon the recognition of a lease liability (see note 22 for further details) a corresponding right-of-use
(‘RoU’) 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 RoU asset is depreciated on a straight-line basis over the life of the lease.
All right-of-use assets are reviewed at least annually for indicators 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 disclosed.
Group
Cost
31 December 2018
IFRS 16 transition adjustment
1 January 2019
Additions
Disposals
Write-offs
Transfers
31 December 2019
Accumulated depreciation
31 December 2018
IFRS 16 transition adjustment
1 January 2019
Depreciation charge for the year
Impairments
Disposals
Write-offs
Transfers
31 December 2019
Net book value
Investment
property
£’million
Leasehold
improve-
ments
£’million
Freehold land
and buildings
£’million
Fixtures,
fittings and
equipment
£’million
IT hardware
£’million
Right-of-use
assets
£’million
Total
£’million
10
–
10
–
–
–
8
275
–
275
51
–
(3)
(9)
199
–
199
62
–
–
1
18
314
262
3
–
3
–
7
–
–
–
10
8
39
–
39
11
–
–
–
(1)
49
265
9
–
9
4
–
–
–
1
14
248
33
–
33
5
–
(12)
–
26
18
–
18
6
–
–
(12)
–
12
14
39
–
39
2
–
(31)
–
10
33
–
33
3
–
–
(31)
–
5
5
n/a
313
313
26
(7)
–
–
332
n/a
–
–
16
–
–
–
–
16
316
556
313
869
146
(7)
(46)
–
962
102
–
102
40
7
–
(43)
–
106
856
Strategic ReportGovernanceFinancial StatementsAdditional information 142
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
14. Property, plant and equipment continued
Investment property consists of shops and offices which are located within the same buildings as some of our stores, where we have
acquired the freehold interest. Investment property is held to earn rental income and for capital appreciation. At 31 December 2019 our
investment property had a fair value of £7 million (31 December 2018: £7 million). The fair value has been provided by a qualified
independent valuer.
Group
Cost
1 January 2018
Additions
Transfers
31 December 2018
Accumulated depreciation
1 January 2018
Impairments
Depreciation charge for the year
Transfers
31 December 2018
Net book value
Investment
property
£’million
Leasehold
improve-
ments
£’million
Freehold land
and buildings
£’million
Fixtures,
fittings and
equipment
£’million
IT hardware
£’million
Total
£’million
11
–
(1)
10
–
3
–
–
3
7
198
80
(3)
275
29
1
10
(1)
39
136
59
4
199
6
–
2
1
9
236
190
26
7
–
33
14
–
4
–
18
15
35
4
–
39
29
–
4
–
33
6
406
150
–
556
78
4
20
–
102
454
Write-offs
Write-offs in the year consisted of pipeline sites which were abandoned as part of the change in our strategy as these sites were no
longer felt to be in suitable locations or formats. In addition, it included a number of fixtures, fittings and equipment and IT hardware
with a nil book value which are no longer being used.
Transfers
Transfers represent costs associated with the improvements made to previously leased stores which have been purchased. These
stores were purchased where there was a strong commercial rationale for doing so. Following the introduction of IFRS 16, the capital
impact of such purchases is considerably less than previously under IAS 17 and gaining ownership provides greater flexibility over the
site in the future.
Additionally, during the year an acquired freehold site was transferred from freehold land and buildings to investment property. The site
was originally acquired with the intent of converting into a store, however the change in our strategy has meant this course of action is
no longer felt suitable. Given there is no intention in the short to medium term to convert this site into a store, the decision was made
to continue letting the property, and the property is considered an investment property.
Relevant disclosures for the Company have not been included as they are not materially different to the Group disclosures.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
143
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 the cash-generating units (‘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 reviewed for impairment on an annual basis. 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 income
statement. Goodwill is stated at cost less accumulated impairment losses. Any 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.
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 software1
Other banking software
Software licences
Customer contracts
up to 20 years
3 to 10 years
licence period
10 years
1. Core banking software consists of our central banking transaction platform. It was upgraded during the year and has been assessed as having a
20-year life due to it being the central component of our digital infrastructure. It has been in use since we first opened and given its significance is
unlikely to be replaced within the foreseeable future.
Group
Cost
1 January 2019
Additions
Write-offs
Deferred grant (see note 23)
31 December 2019
Amortisation
1 January 2019
Amortisation charge for the year
Write-offs
31 December 2019
Net book value
Goodwill
£’million
Customer
contracts
£’million
Software
£’million
Total
£’million
4
–
–
–
4
–
–
–
–
4
1
–
(1)
–
–
1
–
(1)
–
–
249
79
(100)
(4)
224
56
36
(32)
60
164
254
79
(101)
(4)
228
57
36
(33)
60
168
Strategic ReportGovernanceFinancial StatementsAdditional information 144
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
15. Intangible assets continued
Group
Cost
1 January 2018
Additions
31 December 2018
Amortisation
1 January 2018
Impairments
Amortisation charge for the year
31 December 2018
Net book value
Goodwill
£’million
Customer
contracts
£’million
Software
£’million
Total
£’million
4
–
4
–
–
–
–
4
1
–
1
1
–
–
1
–
174
75
249
30
1
25
56
179
75
254
31
1
25
57
193
197
Write-offs
The write-offs in the year consisted primarily of software and applications that were either in use or work in progress that have been
abandoned owing to the change in our strategy.
Goodwill
Goodwill is assessed for any impairment on an annual basis. All of the £4 million (31 December 2018: £4 million) goodwill has been
allocated to the Group’s asset and invoice finance business. This business was previously acquired and is considered a standalone
cash-generating unit. The recoverable amount of the cash-generating unit, determined using the value-in-use basis, was found to be in
excess of its carrying amount and, as such, no impairment to goodwill was required.
The following assumptions were used in the assessment:
Assumption
How it has been determined
Projected adjusted
profitability
Projected capital
expenditure
Funding and capital
Discount rate
The cash flows are based on our most recent Board-approved long-term plan adjusted for non-cash
items. Our long-term plan is based on our best estimate of lending yields, volume growth and cost
base over the period.
The projected capital expenditure (excluding replacement of assets) has been determined on a
consistent basis to that used for the long-term plan, which has been calculated based on the spend
needed for growth within the limits of what can be afforded.
The CGU receives all its funding from Metro Bank and an assumption is made whether we will be able
to remain appropriately capitalised to fund our anticipated growth. We have determined that we will
be able meet the appropriate regulatory requirements, which has been based on an analysis of both
our existing and planned capital structure.
As the CGU receives all its funding directly from Metro Bank, the discount rate has been set at the
pre-tax weighted average cost of capital for the Group adjusted to reflect the specific risks relating to
the business. This discount rate has been compared to industry peers to ensure it is appropriate. The
discount rate used is 10.9%.
Long-term growth rate
The long-term growth rate is used to extrapolate the cash flows in perpetuity. We have used the
predicted long-term GDP growth rate of the UK economy (the only market the CGU operates in)
of 2.0%.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
145
15. Intangible assets continued
Company
Cost
1 January
Additions
Write-offs
Deferred grant (see note 23)
31 December
Amortisation
1 January
Impairments
Amortisation charge for the year
Write-offs
31 December
Net book value
16. Prepayments and accrued income
Prepayments
Accrued income
VAT receivable
Total prepayments and accrued income
Current portion
Non-current portion
17. Other assets
Assets pledged as collateral
Other1
Amounts owed by Group undertakings
Total other assets
Current portion
Non-current portion
1. Other balance primarily comprises customer transactions in process or items in the course of collection over year end.
2019
Software
£’million
2018
Software
£’million
246
79
(100)
(4)
221
56
–
35
(32)
59
162
171
75
–
–
246
30
1
25
–
56
190
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
29
34
3
66
66
–
32
31
3
66
66
–
26
34
3
63
63
–
29
31
3
63
63
–
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
43
32
–
75
48
27
14
36
–
50
39
11
43
31
291
365
338
27
14
36
305
355
344
11
Strategic ReportGovernanceFinancial StatementsAdditional information 146
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
18. Deposits from customers
The total deposits from customers as at 31 December 2019 is comprised of 60% from retail customers (31 December 2018: 47%) and
40% from commercial customers (31 December 2018: 53%).
Deposits from retail customers
Deposits from commercial customers
Total deposits from customers
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
8,730
5,747
7,429
8,232
8,730
5,747
7,429
8,232
14,477
15,661
14,477
15,661
19. Deposits from central banks
Deposits from central banks consists solely of amounts drawn down under the Bank of England’s Term Funding Scheme (‘TFS’)
Amounts drawn down under Term Funding Scheme
Deposits from central banks
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
3,801
3,801
3,801
3,801
3,801
3,801
3,801
3,801
The TFS was closed to further drawdowns in February 2018. Our drawdowns will mature in 2020, 2021 and 2022 in the amounts of
£543 million, £2,778 million and £480 million respectively.
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.
In October 2019 we issued £350 million of senior non-preferred notes in order to be able to meet our interim MREL requirements.
Name
Fixed Rate Reset Callable Subordinated Notes
Fixed Rate Reset Senior Non-Preferred Notes
Issue date
Currency
26/06/18
08/10/19
GBP
GBP
Amount
issued
£’million
250
350
Coupon rate
Call date
Maturity date
5.50%
26/06/2023
26/06/2028
9.50%
08/10/2024
08/10/2025
1 January
Issuances
Costs associated with issuance
Accrued interest payable
31 December
Group
2019
£’million
Group
2018
£’million
Company
2019
£’million
Company
2018
£’million
249
350
(9)
1
591
–
250
(1)
–
249
249
350
(9)
1
591
–
250
(1)
–
249
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
147
21. Derivatives
Accounting policy
In accordance with our risk management strategy, to the extent not naturally hedged, we use interest rate
swaps to manage our exposure to interest rate risk. On adoption of IFRS 9 we chose to continue applying
the hedge accounting rules set out in IAS 39 as adopted by the EU (EU-IFRS) as we employ dynamic
portfolio hedge accounting of interest rate risk across fixed rate financial assets and fixed rate financial
liabilities. Relevant differences between IFRS as issued by the IASB and EU-IFRS specifically relate to our
dynamic hedges of non-interest bearing liabilities and fixed rate mortgages.
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 (such as fixed rate mortgages or non-interest
bearing customer deposits) 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).
Where we are using interest rate swaps to hedge the exposure to variability in cash flows attributable to
interest rate risk on a recognised asset or liability or a highly probable forecast transaction that could
affect profit or loss, we apply cash flow hedge accounting. If there is an effective hedge relationship, the
effective portion of the movement in fair value of the hedging instrument (the interest rate swap) is
recognised in other comprehensive income (‘OCI’) and taken to the cash flow hedge reserve. The
financial hedged item (such as floating rate loans and advances to customers) is accounted for as normal
in line with IFRS 9 accounting requirements.
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 amortised over the remaining life of the hedged item. When a cash
flow hedge is de-designated any accumulated amounts in the cash flow hedge reserve are recycled to
profit or loss as and when the hedged forecast cash flows impact the income statement.
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 methodology used for testing
hedge effectiveness.
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.
Group and Company
Interest rate swaps/Designated as
hedging instruments
Foreign currency swaps/Designated as
held at fair value through profit and loss
Total
31 December 2019
31 December 2018
Assets
Liabilities
Assets
Liabilities
Fair value
£’million
Notional
contract
amount
£’million
Fair value
£’million
–
1
1
–
138
138
8
1
9
Notional
contract
amount
£’million
1,712
136
1,848
Fair value
£’million
Notional
contract
amount
£’million
Fair value
£’million
Notional
contract
amount
£’million
–
–
–
50
102
152
–
1
1
322
106
428
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 mortgage assets.
The hedge accounting relationships, which we designate risk components of hedged items are as follows:
• Benchmark interest rate risk as a component of interest rate risk
• Exchange rate risk for foreign currency financial assets and financial liabilities
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.
Strategic ReportGovernanceFinancial StatementsAdditional information 148
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
21. Derivatives continued
Portfolio fair value hedges
During 2019 we implemented a macro hedging programme, as part of which we increased our use of 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 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 portfolio fair value hedges of the fixed rate mortgage portfolio 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.
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:
Group and Company
Interest rate swaps
Total derivatives designated as fair value
hedges
31 December 2019
31 December 2018
Asset
Liability
Asset
Liability
Notional
contract
amount
£’million
Carrying
amount
£’million
–
–
–
–
Notional
contract
amount
£’million
1,712
1,712
Carrying
amount
£’million
Notional
contract
amount
£’million
Carrying
amount
£’million
8
8
50
50
–
–
Notional
contract
amount
£’million
322
322
Carrying
amount
£’million
–
–
Summary of hedged items in designated hedge relationships
The amounts relating to items designated as hedged items in fair value hedge relationships to manage our exposure to interest rates are:
Group and Company
Interest rate risk
Fixed rate mortgages1
Fixed rate debt issuance2
Fixed rate investment securities3
Fixed rate loans4
Total derivatives designated as fair value
hedges
31 December 2019
31 December 2018
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 the carrying
amount of the hedged item
Assets
£’million
Liabilities
£’million
Assets
£’million
Liabilities
£’million
Assets
£’million
Liabilities
£’million
Assets
£’million
Liabilities
£’million
994
–
372
7
1,373
–
350
–
–
350
4
–
4
–
8
–
–
–
–
–
–
–
370
7
377
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
3. Hedged item and the cumulative fair value changes are recorded in the Other reserves
4. Hedged item and the cumulative fair value changes are recorded in Loans and advances to customers
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
149
21. Derivatives continued
For the purposes of calculating ineffectiveness recognised in the profit or loss, the total accumulated amount of fair value hedge
adjustment is used.
Summary of ineffectiveness from designated hedge relationships
An analysis of the hedge ineffectiveness recognised in profit or loss for the designated fair value hedge relationships is set out below:
Group and Company
(Loss)/gain arising from fair value hedges
Hedging instrument
Hedged item attributable to the hedged risk
Total ineffectiveness arising from fair value hedges
22. Leases
Accounting policy
Policy applicable from 1 January 2019
At the inception of a contract we assess whether the contract contains a lease.
2019
£’million
2018
£’million
(7.2)
7.6
0.4
(0.5)
0.6
0.1
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 for 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 certain to exercise a break in the lease, only the lease payments up until the date of the
break are included.
We subsequently re-measure 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 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 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 an expense in the income statement on a
straight-line basis over the life of the lease.
As outlined in note 1, on 1 January 2019 we implemented IFRS 16 ‘Leases’. We elected to adopt IFRS 16 under the modified
retrospective approach and as such no comparatives are shown for the tables below, as all of the leases we have are operating leases
and were held off-balance sheet under IAS 17.
Lease liabilities
31 December 2018
Transition adjustment
1 January 2019
Additions and modifications
Disposals
Lease payments made
Interest on lease liabilities
31 December 2019
Current
Non-current
Group
2019
£’million
Company
2019
£’million
–
328
328
23
(3)
(25)
18
341
28
313
–
328
328
23
(3)
(25)
18
341
28
313
Strategic ReportGovernanceFinancial StatementsAdditional information 150
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
22. Leases continued
Discount rate
The average discount rate as at 31 December 2019 was 5.7%. The increase in the discount rate from 5.5% at the point of transition
reflects our increased incremental cost of borrowing during the year. The discount rate is not retrospectively adjusted for older leases.
Right-of-use assets
All of our disclosures relating to right-of-use assets, including our accounting policy, can be found in note 14.
Lease commitments
At the balance sheet date, future minimum lease payments, inclusive of irrecoverable VAT at 20% (31 December 2018: 20%), were
as follows:
Due
Within one year
Due in one to five years
Due in more than five years
Total
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
34
142
516
692
30
133
495
659
34
142
516
692
30
133
495
659
Low value and short leases
During the year ended 31 December 2019, £0.4 million was recognised in the income statement with respect to assets of low value of
a lease less 12 months.
Future income due under non-cancellable 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 any VAT.
Receivable
Within one year
Due in one to five years
Due in more than five years
Total
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
1
3
7
11
1
4
9
14
1
3
7
11
1
4
9
14
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
classified as loans and advances to customers and are categorised within our asset and invoice finance lending per the breakdown
provided in note 12.
Receivable
Within one year
Due in one to five years
Due in more than five years
Total
Group
31 December 2019
31 December 2018
Total future
minimum
payments
£’million
Unearned
finance
income
£’million
Present value
£’million
Total future
minimum
payments
£’million
Unearned
finance
income
£’million
Present value
£’million
7
13
1
21
(1)
(1)
–
(2)
6
12
1
19
6
13
2
21
(1)
(1)
–
(2)
5
12
2
19
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
151
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 purchase of an asset, it is recognised directly
against the cost of the asset.
1 January
Grants received
Released to the income statement (see note 5)
Offset against capital expenditure (see note 15)
Element of grant awaiting repayment
31 December
Group
2019
£’million
Group
2018
£’million
Company
2019
£’million
Company
2018
£’million
–
120
(16)
(4)
(50)
50
–
–
–
–
–
–
–
120
(16)
(4)
(50)
50
–
–
–
–
–
–
On 22 February 2019 we were awarded £120 million from the Capability and Innovation Fund (part of the RBS alternative remedies
package).
Following changes to our strategy, a revised business case was submitted to the BCR (the awarding body). The proposals put forward
were accepted by BCR on 25 February 2020 as part of which the public commitments attached to the grant were amended. The
commitments relate to the delivery of certain digital initiatives as well as opening at least 15 stores in the north of England. Full details
of the commitment can be found on BCR’s website. As part of this, it was agreed that £50 million of the grant would be returned to
BCR. As disclosed in note 33, the acceptance of our proposal by BCR post year end is considered an adjusting event and, as such, the
£50 million to be repaid is classified as a liability as at 31 December 2019. All of the sums recognised to date, either in the income
statement or offset against capital expenditure, are still components of the revised commitments and, as such, no adjustments to these
amounts have been made.
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, where the time
value of money is felt to be material.
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 includes 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 (‘the act’). 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 act, or sites within the act where we think
there is a chance we will vacate a site at the end of its lease, a provision is
made for dilapidations.
The provision is made in line with the underlying obligations contained
within the lease.
Other provisions
Other provisions consist of other sundry amounts that are provided for in the
ordinary course of our business.
No provision has been recognised in relation to any of the legal and regulatory matters set out in note 32.
Strategic ReportGovernanceFinancial StatementsAdditional information
152
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
24. Provisions continued
Group and Company
1 January
Additions
Utilised
31 December
2019
2018
Customer
remediation
£’million
Dilapidations
£’million
Other
provisions
£’million
Total
£’million
Customer
remediation
£’million
Dilapidations
£’million
Other
provisions
£’million
Total
£’million
–
12
–
12
–
3
–
3
2
–
–
2
2
15
–
17
–
–
–
–
–
–
–
–
2
–
–
2
2
–
–
2
All additions have been recognised in the income statement with the exception of the provisions in respect of dilapidations. These have
been recognised as part of the right-of-use asset and will be depreciated over the lease term.
Customer remediation
The amount provided relates to non-compliance with requirements to provide SMS warning alerts to customers regarding overdraft
charges. We identified that SMS warning overdraft alerts to customers did not contain all the information that should have been
included, and on certain occasions some customers did not receive these alerts before 10am, as required. The error was subsequently
corrected, and the CMA was informed. Affected customers will be contacted in the first half of 2020 to put things right.
The provision has been calculated based on the fees originally incorrectly charged. It also includes any interest due from the date the
amount was charged through to the estimated date of return. The remediation will be actioned in the first half of 2020.
Dilapidations
The amounts provided in respect of dilapidations are calculated based on assessments by 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 reviewing the lease at the end of its term, the provision recognised may not end up being utilised.
25. Other liabilities
Trade creditors
Other taxation and social security costs
Accruals
Deferred income
Grant awaiting repayment (note 23)
Other liabilities
Total other liabilities
Current portion
Non-current portion
26. Called-up share capital
Group
31 December
2019
£’million
Group
31 December
2018
£’million
Company
31 December
2019
£’million
Company
31 December
2018
£’million
4
6
93
10
50
104
267
236
31
5
6
97
18
–
60
186
158
28
4
5
92
10
50
101
262
231
31
5
6
96
18
–
54
179
152
27
Accounting policy
On issue of new shares, incremental directly attributable costs are shown in equity as a deduction from
the proceeds.
We have a single class of shares. As at 31 December 2019, we had 172.4 million ordinary shares of 0.0001p (31 December 2018: 97.4
million) authorised and in issue.
In June 2019 we issued 75 million ordinary shares for consideration of £375 million. Associated costs of £16 million have been offset
against the amount raised.
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 2019 our called-up share capital was
£172.42 (31 December 2018: £97.40).
1 January
Issued
31 December
Group
2019
£’million
Group
2018
£’million
Company
2019
£’million
Company
2018
£’million
–
–
–
–
–
–
–
–
–
–
–
–
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
153
26. Called-up share capital continued
Share premium
The share premium reserve is used to record the excess consideration of any shares we have issued over the nominal share value.
1 January
Issued
Costs of shares issued
31 December
Group
2019
£’million
1,605
375
(16)
1,964
Group
2018
£’million
Company
2019
£’million
Company
2018
£’million
1,304
304
(3)
1,605
1,605
375
(16)
1,964
1,304
304
(3)
1,605
27. Retained earnings
Retained earnings records our cumulative losses since our formation. The Group’s retained earnings also include the accumulated
profits of our subsidiaries since they were acquired.
1 January
(Loss)/profit for the year
31 December
Group
2019
£’million
Group
2018
£’million
Company
2019
£’million
Company
2018
£’million
(209)
(183)
(392)
(236)
27
(209)
(214)
(183)
(397)
(241)
27
(214)
No dividends were paid during the year (2018: none). We do not currently have any distributable reserves and, as such, it is unlikely a
dividend will be paid in the foreseeable future.
28. Other reserves
Share option reserve
The share option reserve is used to record movements in relation to share options awarded under our CSOP plans.
1 January
Equity-settled share-based payment charges (note 7)
Deferred tax movements (note 9)
Employer’s national insurance arising on exercise of options
31 December
Group
2019
£’million
Group
2018
£’million
Company
2019
£’million
Company
2018
£’million
10
4
–
–
14
16
4
(9)
(1)
10
10
4
–
–
14
16
4
(9)
(1)
10
Fair value though other comprehensive income (‘FVOCI’) reserves
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.
1 January
Changes in fair value
Deferred tax movements (note 9)
Fair value changes transferred to the income statement on disposal
31 December
Group
2019
£’million
Group
2018
£’million
Company
2019
£’million
Company
2018
£’million
(3)
2
–
(2)
(3)
1
(2)
2
(4)
(3)
(3)
2
–
(2)
(3)
1
(2)
2
(4)
(3)
Treasury shares
We have a small number of shares held in treasury relating to awards granted to key members of management in 2016 in recognition of
their significant contribution to the successful listing on the London Stock Exchange (see note 7 for further details). These are held by
an employee benefit trust, which is consolidated within the Group accounts. The balance on the reserve is less than £0.2 million
(31 December 2018: £0.4 million) and therefore not been separately disclosed as a component of reserves due to its immaterial size.
Strategic ReportGovernanceFinancial StatementsAdditional information 154
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
29. Share options
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 shares or share options
granted on the date of the grant. The cost of the colleague services received in respect of the share
options granted is recognised in the consolidated income statement over the period that the services are
received, which is the vesting period. Graded vesting is applied where relevant.
The fair value of colleague share option plans is calculated at the grant date using a Black-Scholes model.
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 vesting.
We offer options to Executive Directors and colleagues under our deferred variable reward plan. The granting of options is designed to
provide incentives to all colleagues to deliver long-term returns. No individual has a contractual right to participate in the plan or to
receive any guaranteed benefits and the granting of options remains at the discretion of the Remuneration Committee.
Standard share options are granted for no consideration and carry no voting rights. The exercise price of the granted options is equal to
the estimated market price determined at the date of the grant. Options generally vest in equal tranches over five years and have a
contractual option term of ten years, with the only vesting condition being the continuing service of the colleague. Options acquired
via ‘exchange’ of some or all of the cash element of a colleague’s variable reward vest immediately. All our options are equity settled
and we have no legal or constructive obligation to repurchase the shares or settle the options in cash.
The table below summarises the movements in the number of options outstanding and their weighted average exercise price:
Group
Outstanding at 1 January
Granted
Exercised
Lapsed
Outstanding at 31 December
Exercisable at 31 December
2019
2018
Number
of options
‘000
Weighted
average
exercise price
£
Number
of options
‘000
Weighted
average
exercise price
£
4,104
922
(3)
(263)
4,760
2,921
22.90
7.94
12.56
23.42
19.98
19.75
3,377
1,001
(144)
(131)
4,104
2,287
18.98
35.36
16.14
25.05
22.90
18.22
Fair value of options granted
The average share price during 2019 was 631p (2018: 3,075p). The number of options outstanding at year end was as follows:
Exercise price
£7.94
£9.00
£10.00
£12.00
£13.00
£13.50
£14.00
£16.00
£20.00
£32.73
£35.36
Total
2019
2018
Weighted
average
remaining
contractual
life years
Number
of options
‘000
Weighted
average
remaining
contractual
life years
Number
of options
‘000
856
47
128
235
60
615
194
624
451
668
882
4,760
9.2
1.8
2.8
3.8
4.2
4.8
n/a
n/a
6.2
7.2
8.2
6.9
–
47
129
236
60
621
194
647
498
708
963
4,104
–
2.8
3.8
4.9
5.2
5.8
n/a
n/a
7.2
8.2
9.2
7.4
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
155
29. Share options continued
The fair value of the options granted during the year is determined using a Black-Scholes valuation model. The total fair value of
options granted in 2019 was £1.7 million (2018: £4.3 million), based on the following assumptions:
Group
Weighted average risk-free interest rate
Weighted average expected life
Weighted average expected volatility
Weighted average expected dividend yield
Weighted average share price
Weighted average exercise price
2019
cash bonus
exchange
2019
share
options
0.80%
4 years
50%
nil
£7.94
£7.94
0.76%
3.5 years
50%
nil
£7.94
£7.94
Expected volatility is a measure of the amount by which our shares are expected to fluctuate during the life of an option. The expected
volatility is estimated based on a blended statistical analysis of the historic share prices of other FTSE 350 banks over the most recent
period which is commensurate with the expected life of the option and our own share price. This is on the basis of our own share price
having only been listed since March 2016.
30. Expected credit losses
Accounting policy
We assess on a forward-looking basis the expected credit losses (‘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 expected credit losses recognised where the risk of default of an instrument has increased
significantly. Risk of default and expected credit losses 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 credit losses are
calculated for drawn loans, and for committed lending.
The same broad calculation approach is applied for each core model. Expected credit losses are
calculated by multiplying three main components, being the probability of default, loss given default and
the exposure at default, discounted at the original effective interest rate.
Key model inputs and judgements include:
• Consideration of when a significant increase in credit risk occurs
• Probability of default (‘PD’), loss given default, and exposure at default
• Macroeconomic scenarios to be applied
Significant increase in credit risk
IFRS 9 requires a higher level of expected credit loss to be recognised for underperforming loans. This is
considered based on a staging approach:
Stage
Stage 1
Description
ECL recognised
Financial assets that have had no
significant increase in credit risk since
initial recognition or that have low credit
risk at the reporting date.
12-month expected credit
losses
Total losses expected on
defaults which may occur
within the next 12 months.
Losses are adjusted for
probability-weighted
macroeconomic scenarios.
Strategic ReportGovernanceFinancial StatementsAdditional information 156
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
30. Expected credit losses continued
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.
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 (non-performing loan) or where the
borrower is considered unlikely to pay.
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 expected credit
losses
Losses expected on defaults
which may occur at any
point in a loan’s lifetime.
Losses are adjusted for
probability-weighted
macroeconomic scenarios.
Lifetime expected credit
losses
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.
Lifetime expected credit
losses
At initial recognition, POCI
assets do not carry an
impairment allowance.
Lifetime expected credit
losses are incorporated into
the calculation of the asset’s
effective interest rate.
Subsequent changes to the
estimate of lifetime expected
credit losses are recognised
as a loss allowance.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
157
30. Expected credit losses continued
A significant increase in credit risk may be identified in a number of ways:
• Quantitative criteria – where the numerically calculated probability of default 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 origination, we
implement different thresholds by sub-products within each portfolio (term loans, revolving loan
facilities and mortgages). The selection of the threshold is such that the PD threshold of the observed
median lifetime PD at origination is three times this median.
• Qualitative criteria – instruments that are 30 days past due or more are allocated to Stage 2, regardless
of the results of the quantitative analysis. Instruments that are 30 days past due or more, or instruments
classified on the watchlist 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 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 evidence of financial distress.
A loan may also be considered to be non-performing when it is subject to forbearance measures,
consisting of concessions in relation to:
• a modification of the previous terms and conditions of the loan which the borrower is not considered
able to comply with; or
• 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
The probability of default 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 probability of default is calculated for all loans based on historic data and incorporates:
• Credit quality scores
• Lifecycle trends depending on a loan’s vintage
• Factors indicating the quality of the vintage
• Characteristics of the current and future economic environment
Strategic ReportGovernanceFinancial StatementsAdditional information 158
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
30. Expected credit losses continued
Loss given default
The 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 exposure at default.
PD, LGD and exposure at default are calculated and applied at an individual account level for secured
lending. For unsecured lending, PD and exposure at default are calculated and applied at an individual
account level, but 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 expected credit losses of a range of
possible outcomes, calculated on a probability-weighted basis, based on a number of economic
scenarios and including management overlays where required. These scenarios are representative of our
view of forecast 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 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.
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 independent information.
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
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, stock 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 predictive fit to our data.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
159
30. Expected credit losses continued
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 investment spend and
exchange rates, as well as the possible impact of recessionary conditions or financial shocks. A large
number of possible future paths is simulated. The Downside scenario has been set to be worse than 90%
of possible future outcomes; the Upside scenario has been set to be better than 90% of possible future
outcomes. These assumptions are considered sufficient to capture any material non-linearities.
A simulation process was designed to determine the weighting to apply to each scenario based on the
severity of each scenario and the range of possible scenarios for which that scenario was representative.
We recognise that applying the above three scenarios will not always be sufficient to determine an
appropriate ECL in all economic environments.
The weightings applied to each scenario at 31 December 2019 are:
• Baseline – 40%
• Upside and Downside – 30% each
This weighting scheme is deemed as being appropriate for the computation of unbiased ECL.
Economic variable assumptions
The period-end assumptions used for the ECL estimate as at 31 December 2019 are as follows:
Interest rates (%)
UK unemployment (%)
2020
2021
2022
2023
Base: 1.0%
Upside: 1.0%
Downside: 0.0%
Base: 1.8%
Upside: 2.0%
Downside: 0.7%
Base: 2.3%
Upside: 2.6%
Downside: 1.1%
Base: 2.9%
Upside: 3.3%
Downside: 1.6%
Base: 4.2%
Upside: 3.3%
Downside: 5.6%
Base: 4.4%
Upside: 3.0%
Downside: 6.7%
Base: 4.6%
Upside: 3.3%
Downside: 7.0%
Base: 4.8%
Upside: 3.6%
Downside: 6.8%
UK house price index – % change
year-on-year
Base: 1.4%
Upside: 5.8%
Downside: (4.0)%
Base: 0.6%
Upside: 5.9%
Downside: (8.1)%
Base: 1.1%
Upside: 2.2%
Downside: (1.6)%
Base: 1.1%
Upside: 0.1%
Downside: 2.7%
UK GDP – % change
Base: 1.0%
Upside: 4.5%
Downside: (3.9)%
Base: 1.0%
Upside: 0.7%
Downside: 0.4%
Base: 1.1%
Upside: 0.7%
Downside: 2.0%
Base: 1.5%
Upside: 1.3%
Downside: 2.4%
Strategic ReportGovernanceFinancial StatementsAdditional information 160
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
30. Expected credit losses continued
The assumptions used for the ECL estimate as at 1 January 2019 are as follows:
Interest rates (%)
UK unemployment (%)
UK house price index – % change
year-on-year
UK GDP – % change
2019
2020
2021
2022
Base: 2.2%
Upside: 2.1%
Downside: 0.9%
Brexit: 0.5%
Base: 2.6%
Upside: 3.1%
Downside: 1.2%
Brexit: 0.8%
Base: 2.8%
Upside: 3.1%
Downside: 1.4%
Brexit: 0.9%
Base: 3.2%
Upside: 3.5%
Downside: 1.6%
Brexit: 1.3%
Base: 4.6%
Upside: 3.3%
Downside: 6.2%
Brexit: 6.7%
Base: 4.8%
Upside: 3.4%
Downside: 7.2%
Brexit: 8.4%
Base: 5.0%
Upside: 3.6%
Downside: 7.3%
Brexit: 8.5%
Base: 5.0%
Upside: 3.0%
Downside: 6.9%
Brexit: 8.1%
Base: 1.9%
Upside: 7.6%
Downside: (5.3)%
Brexit: (8.5)%
Base: 0.5%
Upside: 4.5%
Downside: (6.4)%
Brexit: (11.1)%
Base: 1.2%
Upside: 1.9%
Downside: 0.0%
Brexit: (1.7)%
Base: 1.9%
Upside: 0.9%
Downside: 3.7%
Brexit: (4.3)%
Base: 1.6%
Upside: 4.0%
Downside: (1.9)%
Brexit: (3.6)%
Base: 1.4%
Upside: 2.1%
Downside: 0.8%
Brexit: (0.2)%
Base: 1.9%
Upside: 1.9%
Downside: 2.6%
Brexit: 2.6%
Base: 1.8%
Upside: 1.6%
Downside: 2.0%
Brexit: 2.3%
Following the initial four-year projection period, the Upside and Downside scenarios converge to the
Baseline scenario. The rate of convergence varies based on the macroeconomic factor, but at a minimum
convergence takes place three years from the initial four-year projection period.
We note that the scenarios applied comprise our best estimate of economic impacts on the ECL, and the
actual outcome may be significantly different.
Investment securities and other financial assets
Impairment provisions have been calculated based on our best estimate of expected credit losses 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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
161
30. Expected credit losses continued
Expected credit loss expense
Group
Retail mortgages
Consumer lending
Commercial lending (excluding asset and invoice finance)
Asset and invoice finance
Expected credit losses included within gains on sale of assets
Write-offs and other movements
Total expected credit loss expense
2019
£’million
2018
£’million
(3)
4
–
(1)
8
4
12
1
(8)
6
(1)
10
–
8
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 December 2019, the loss allowance included within the FVOCI reserve is £0.2 million
(31 December 2018: £0.3 million).
All investment securities held at amortised cost are deemed to be in Stage 1. The total expected credit loss recognised for these assets
at 31 December 2019 is £0.2 million (31 December 2018: £0.2 million).
Loss allowance
The following tables explain the changes in both the gross carrying amount and loss allowances of our loans and advances during the
period. Significant changes in the gross carrying amount which contributed to changes in the loss allowance are explained below.
Other movements consists of changes to model assumptions and forward-looking information.
Retail mortgages
£’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
Gross carrying amount
Loss allowance
Net carrying amount
1 January 2019
Transfers to/(from)
Stage 11
Transfers to/(from)
Stage 2
Transfers to/(from)
Stage 3
Net remeasurement due
to transfers2
New lending3
Repayments, additional
drawdowns and interest
accrued
Derecognitions4
Changes to model
assumptions5
9,245
336
39
5 9,625
169
(162)
(369)
370
(7)
(1)
(22)
(16)
38
–
–
–
–
–
–
–
2,122
–
77
–
–
–
–
– 2,199
(244)
(1,027)
(9)
(94)
(3)
(12)
– (256)
(5) (1,138)
31 December 2019
9,874
502
–
–
–
54
–
–
– 10,430
–
(1)
–
–
1
–
–
–
–
–
(5)
(4)
(2)
(11) 9,245
331
35
3 9,614
1
–
–
(1)
–
–
2
–
(3)
–
–
–
(2)
–
–
2
(1)
(5)
–
–
–
–
–
–
2
–
–
–
168
(161)
– (369)
370
(7)
(1)
–
(22)
(16)
38
–
–
–
–
–
–
(2)
1
– 2,122
(1)
77
(2)
–
–
(2)
– 2,199
– (244)
6 (1,027)
(9)
(92)
(1)
–
–
(8) 9,874
499
(3)
(10)
(1)
49
– (256)
(3) (1,132)
–
(1)
– 10,422
1. Represents stage transfers prior to any ECL remeasurements.
2. Represents the remeasurement between the 12-month and lifetime ECL due to stage transfer, including any changes to the model assumptions and forward-looking information.
3. Represents the increase in balances resulting from loans and advances that have been newly originated, purchased or renewed.
4. Represents the decrease in balances resulting from loans and advances that have been fully repaid, disposed of or written off.
5. Represents the change in loss allowances resulting from changes to the model assumptions, forward-looking information and changes in the customer’s risk profile.
Strategic ReportGovernanceFinancial StatementsAdditional information 162
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
30. Expected credit losses continued
£’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
Gross carrying amount
Loss allowance
Net carrying amount
1 January 2018
Transfers to/(from)
Stage 1
Transfers to/(from)
Stage 2
Transfers to/(from)
Stage 3
Net remeasurement due
to transfers
New lending
Repayments, additional
drawdowns and interest
accrued
Derecognitions
Changes to model
assumptions
6,065
129
33
4 6,231
60
(52)
(222)
223
(8)
(1)
(16)
(7)
23
–
–
–
–
–
–
–
3,933
–
76
–
3
–
–
2 4,014
(151)
(424)
(7)
(26)
–
–
(1)
(10)
–
39
(1)
–
–
(160)
(460)
–
5 9,625
31 December 2018
9,245
336
Consumer lending
(3)
1
(1)
1
(2)
(1)
–
–
–
(1)
(1)
1
–
1
(1)
–
1
–
–
(5)
(1)
(10) 6,064
126
28
3 6,221
–
–
(1)
(1)
–
–
1
2
–
–
–
–
–
–
–
(1)
(2)
–
–
–
59
(51)
(221)
222
(8)
(1)
(16)
(6)
22
–
–
–
–
–
–
(2)
1
(2) 3,932
(2)
75
–
2
1
(151)
(423)
(7)
(26)
–
–
(11) 9,245
331
(1)
3
(1)
(9)
2
35
–
(2)
2 4,012
(1)
–
(1)
(160)
(458)
1
3 9,614
(5)
(4)
£’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
Gross carrying amount
Loss allowance
Net carrying amount
1 January 2019
Transfers to/(from)
Stage 1
Transfers to/(from)
Stage 2
Transfers to/(from)
Stage 3
Net remeasurement due
to transfers
New lending
Repayments, additional
drawdowns and interest
accrued
Derecognitions
Changes to model
assumptions
31 December 2019
275
5
(1)
(3)
–
39
(37)
(55)
–
223
8
(5)
1
(3)
–
–
–
(1)
–
–
5
–
–
6
–
–
(1)
–
–
10
–
–
–
–
–
–
–
–
–
–
288
(3)
(3)
(3)
–
–
–
–
39
(38)
(56)
–
233
–
–
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
(2)
(4)
–
–
–
–
(3)
(1)
(9)
–
–
–
–
–
–
–
–
–
–
(9)
272
–
–
–
5
(1)
(3)
(4)
–
–
39
–
–
–
(37)
(55)
–
(13)
220
5
(5)
1
(1)
–
–
–
(1)
–
(1)
2
–
–
4
(4)
–
(1)
–
–
1
–
–
–
–
–
–
–
–
–
–
279
–
–
–
(4)
39
(38)
(56)
–
220
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
163
30. Expected credit losses continued
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 2018
Transfers to/(from)
Stage 1
Transfers to/(from)
Stage 2
Transfers to/(from)
Stage 3
Net remeasurement due
to transfers
New lending
Repayments, additional
drawdowns and interest
accrued
Derecognitions
Changes to model
assumptions
31 December 2018
191
20
2
(3)
(1)
–
160
(2)
3
(1)
–
2
(27)
(47)
(1)
(13)
–
275
–
8
6
–
–
2
–
1
–
(4)
–
5
–
–
–
–
–
–
–
–
–
–
217
(1)
(11)
(5)
–
–
–
–
163
(28)
(64)
–
288
–
–
–
–
(2)
–
–
–
(3)
–
–
–
(1)
(1)
–
10
–
(3)
–
–
–
(1)
–
–
3
–
(3)
–
–
–
–
–
–
–
–
–
–
(17)
190
–
–
–
2
(3)
(1)
(2)
(3)
–
158
–
13
–
(9)
(27)
(47)
–
272
9
(2)
3
(1)
(1)
1
(1)
(3)
–
5
1
–
–
2
(1)
1
–
(1)
–
2
–
–
–
–
–
–
–
–
–
–
200
–
–
–
(2)
160
(28)
(51)
–
279
Commercial lending (excluding asset and invoice finance)
Our top 10 commercial exposures total £360 million (2018: £347 million), representing 10% (2018: 9%) of our total commercial lending.
£’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
Gross carrying amount
Loss allowance
Net carrying amount
3,970
77
10
– 4,057
(4)
(3)
(3)
–
(10) 3,966
74
1 January 2019
Transfers to/(from)
Stage 1
Transfers to/(from)
Stage 2
Transfers to/(from)
Stage 3
Net remeasurement due
to transfers
New lending
Repayments, additional
drawdowns and interest
accrued
Derecognitions
Changes to model
assumptions
43
(43)
(64)
64
–
–
(15)
(9)
24
–
397
–
2
–
14
(143)
(560)
(3)
(16)
–
–
9
(6)
–
51
–
–
–
–
–
–
–
–
–
–
–
–
413
(137)
(582)
–
– 3,751
(1)
–
–
1
(1)
–
–
1
(4)
1
–
1
(1)
–
–
–
1
(1)
–
–
(1)
(2)
(2)
–
2
–
(6)
–
–
–
–
–
–
–
–
–
7
–
–
–
42
(42)
–
(64)
64
–
(15)
(8)
23
(2)
(3)
1
396
(1)
2
(2)
12
–
2
(143)
(560)
(3)
(16)
9
(4)
2
1
1
–
– 4,047
–
–
–
–
–
–
–
–
–
–
–
(2)
410
(137)
(580)
2
31 December 2019
3,628
72
(11) 3,624
71
45
– 3,740
Strategic ReportGovernanceFinancial StatementsAdditional information 164
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
30. Expected credit losses continued
£’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
Gross carrying amount
Loss allowance
Net carrying amount
1 January 2018
Transfers to/(from)
Stage 1
Transfers to/(from)
Stage 2
Transfers to/(from)
Stage 3
Net remeasurement due
to transfers
New lending
Repayments, additional
drawdowns and interest
accrued
Derecognitions
Changes to model
assumptions
2,855
93
11
1 2,960
(2)
(1)
(1)
50
(50)
(53)
53
(4)
(3)
–
1,512
–
10
(75)
(315)
–
(7)
(19)
–
77
–
–
7
–
1
(2)
(7)
–
10
–
–
–
–
–
–
–
–
– 1,523
–
(1)
–
(84)
(342)
–
– 4,057
–
–
–
–
(1)
–
–
(1)
(4)
–
–
–
(2)
–
–
–
–
(3)
–
–
–
(1)
–
–
–
(1)
(3)
31 December 2018
3,970
Asset and invoice finance
–
–
–
–
–
–
–
–
–
–
(4) 2,853
92
10
1 2,956
–
–
–
50
(50)
(53)
53
(4)
(3)
(3)
–
(1) 1,511
(2)
10
–
–
(75)
(315)
(7)
(19)
(2)
(1)
(10) 3,966
–
74
–
–
7
(1)
1
(2)
(7)
(1)
7
–
–
–
–
–
–
–
(3)
– 1,522
–
(1)
–
(84)
(342)
(2)
– 4,047
£’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
Gross carrying amount
Loss allowance
Net carrying amount
1 January 2019
Transfers to/(from)
Stage 1
Transfers to/(from)
Stage 2
Transfers to/(from)
Stage 3
Net remeasurement due
to transfers
New lending
Repayments, additional
drawdowns and interest
accrued
Derecognitions
Changes to model
assumptions
31 December 2019
295
–
–
(2)
–
116
(60)
(48)
–
301
–
–
–
–
–
–
–
–
–
–
4
–
–
2
–
1
(3)
(4)
–
–
–
299
(2)
–
–
–
–
–
–
–
–
–
–
–
–
–
117
(63)
(52)
–
301
–
–
–
–
–
–
–
–
(2)
–
–
–
–
–
–
–
–
–
–
(2)
–
–
–
–
–
–
1
1
–
–
–
–
–
–
–
–
–
–
–
(4)
293
–
–
–
–
–
–
1
1
–
–
(2)
–
116
(60)
(48)
–
(2)
299
–
–
–
–
–
–
–
–
–
–
2
–
–
2
–
1
(3)
(3)
1
–
–
295
–
–
–
–
–
–
–
–
–
–
–
–
–
117
(63)
(51)
1
299
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
165
31 December 2018
295
1 January 2018
Transfers to/(from)
Stage 1
Transfers to/(from)
Stage 2
Transfers to/(from)
Stage 3
Net
remeasurement
due to transfers
New lending
Repayments,
additional
drawdowns and
interest accrued
Derecognitions
Changes to model
assumptions
Total
£’million
1 January 2019
Transfers to/(from)
Stage 1
Transfers to/(from)
Stage 2
Transfers to/(from)
Stage 3
Net
remeasurement
due to transfers
New lending
Repayments,
additional
drawdowns and
interest accrued
Derecognitions
Changes to model
assumptions
30. Expected credit losses continued
£’million
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Gross carrying amount
Loss allowance
Net carrying amount
219
–
–
2
–
–
(2)
(1)
–
142
(45)
(19)
–
–
–
–
(1)
–
–
5
–
–
3
–
–
(2)
(2)
–
4
–
–
–
–
–
–
–
–
–
–
226
(3)
–
–
–
–
142
(47)
(22)
–
299
–
–
–
–
(2)
–
–
3
(2)
–
–
–
–
–
–
–
–
–
–
(2)
–
–
–
(1)
–
–
1
–
(2)
–
–
–
–
–
–
–
–
–
–
2
–
–
(5)
216
–
–
–
–
–
(2)
(1)
(1)
(2)
–
140
–
1
3
(45)
(19)
3
(4)
293
–
–
–
(1)
–
–
3
–
–
3
(1)
–
(2)
(1)
–
2
–
–
–
–
–
–
–
–
–
–
Total
221
–
–
–
(1)
140
(47)
(21)
3
295
Gross carrying amount
Loss allowance
Net carrying amount
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Stage 1
Stage 2
Stage 3
POCI
Total
13,785
421
58
5 14,269
(9)
(11)
(12)
(2)
(34) 13,776
410
46
3 14,235
217
(210)
(434)
435
(7)
(1)
(42)
(28)
70
–
2,674
–
79
–
15
–
–
–
–
–
–
–
–
–
2,768
(484)
(1,690)
(12)
(111)
2
(22)
–
(5)
(494)
(1,828)
(2)
–
–
2
(1)
–
–
1
2
–
3
(2)
–
–
2
1
(9)
(5)
–
–
(3)
(8)
(2)
–
5
–
(20)
–
–
–
–
–
–
2
–
–
–
–
–
215
(208)
(434)
435
(7)
(1)
(42)
(25)
67
(8)
(3)
2
2,673
(2)
79
(8)
13
–
–
–
–
–
–
–
–
(8)
2,765
–
9
2
(484)
(1,690)
(12)
(109)
2
(17)
–
(3)
(494)
(1,819)
1
1
(34) 14,017
569
–
95
–
2
– 14,681
–
31 December 2019 14,026
–
574
–
115
–
–
– 14,715
Off-balance sheet
items
Commitments and
guarantees1
1,022
–
1,022
1. Represents undrawn lending facilities. Further details can be found in note 31.
Strategic ReportGovernanceFinancial StatementsAdditional information 166
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
30. Expected credit losses continued
£’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
Gross carrying amount
Loss allowance
Net carrying amount
9,330
244
55
5 9,634
(7)
(15)
(13)
(1)
(36) 9,323
229
42
4 9,598
112
(104)
(278)
279
(8)
(1)
(23)
(12)
35
–
–
–
–
–
–
–
5,747
–
88
–
5
–
–
2 5,842
(298)
(805)
(15)
(59)
(5)
(23)
–
–
–
58
(1)
(1)
–
(319)
(888)
–
(1)
1
–
1
(6)
–
1
2
1
(1)
1
(5)
(2)
–
10
–
–
–
(1)
(4)
–
–
5
1
–
–
–
–
–
–
–
(1)
(2)
–
–
–
111
(103)
(277)
278
(8)
(1)
(23)
(11)
34
–
–
–
–
–
–
(8)
1
(8) 5,741
(5)
86
(4)
5
–
(8)
2 5,834
–
16
2
(298)
(804)
(15)
(49)
2
–
(34) 13,776
410
(5)
(18)
1
46
(1)
(1)
(1)
(319)
(872)
2
3 14,235
5 14,269
(9)
(11)
(12)
1,125
–
1,125
31 December 2019
31 December 2018
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
9,873
1
–
–
9,874
449
21
32
–
502
16
4
10
24
54
–
–
–
–
–
9,242
3
–
–
9,245
275
14
47
–
336
19
4
7
9
39
2
1
1
1
5
31 December 2019
31 December 2018
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
213
10
–
–
223
–
–
–
–
–
–
–
–
10
10
–
–
–
–
–
272
3
–
–
275
–
3
5
–
8
–
–
–
5
5
–
–
–
–
–
Commercial lending (exc. asset and invoice finance)
£’million
Up to date
1 to 29 days past due
30 to 89 days past due
90+ days past due
Gross carrying amount
31 December 2019
31 December 2018
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
3,599
29
–
–
3,628
–
18
54
–
72
7
4
9
31
51
–
–
–
–
–
3,918
52
–
–
3,970
6
44
27
–
77
2
–
1
7
10
–
–
–
–
–
1 January 2018
Transfers to/(from)
Stage 1
Transfers to/(from)
Stage 2
Transfers to/(from)
Stage 3
Net remeasurement due
to transfers
New lending
Repayments, additional
drawdowns and interest
accrued
Derecognitions
Changes to model
assumptions
31 December 2018
13,785
421
Off-balance sheet items
Commitments and
guarantees
Credit risk exposures
Retail mortgages
£’million
Up to date
1 to 29 days past due
30 to 89 days past due
90+ days past due
Gross carrying amount
Consumer lending
£’million
Up to date
1 to 29 days past due
30 to 89 days past due
90+ days past due
Gross carrying amount
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
167
30. Expected credit losses continued
Asset and invoice finance credit risk exposure
£’million
Up to date
1 to 29 days past due
30 to 89 days past due
90+ days past due
Gross carrying amount
31 December 2019
31 December 2018
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
Stage 1
12-month ECL
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
301
–
–
–
301
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
295
–
–
–
295
–
–
–
–
–
–
–
4
–
4
–
–
–
–
–
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.
The outstanding contractual amounts of such assets written off during the year ended 31 December 2019 was £0.5 million (year ended
31 December 2018: £0.4 million).
Modification of financial assets
We sometimes renegotiate the terms of loans provided to customers with a view to maximising recovery.
Restructuring activities include extended payment arrangements or the modification or deferral of payments. Restructuring policies
and practices are based on indicators or criteria which, in the judgement of management, indicate that payment will most likely
continue. These policies are kept under continuous review. Restructuring is most commonly applied to term loans. In the majority of
cases, restructuring results in the asset continuing to be credit-impaired. During the year only an immaterial amount of loans were
modified and none of the modifications gave rise to a modification gain or loss.
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 2019, we had undrawn loan facilities granted to retail and commercial customers of £726 million (2018: £883 million).
In addition, as part of our retail and commercial operations, we had commitments of £296 million (2018: £242 million) in respect of
credit card and overdraft facilities. These commitments represent agreements to lend in the future, subject to certain conditions. Such
commitments are cancellable, subject to notice requirements, and given their nature are not expected to be drawn down to the full
level of exposure.
Strategic ReportGovernanceFinancial StatementsAdditional information 168
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
32. Legal and regulatory matters
As part of the normal course of business we are subject to legal and regulatory matters, the majority of which are not considered to
have a material impact on the business.
The contingent liabilities detailed below are those which could potentially have a material impact, although their inclusion does not
constitute any admission of wrongdoing or legal liability. The outcome and timing of these matters is inherently uncertain. Based on
the facts currently known, it is not possible at the moment to predict the outcome of any of these matters or reliably estimate any
financial impact. As such, at the reporting date no provision has been made for any of these cases within the financial statements.
PRA and FCA investigations into RWA Adjustment and AIRB Accreditation
We are currently subject to enforcement investigations by both the Prudential Regulation Authority (‘PRA’) and Financial Conduct
Authority (‘FCA’).
• The PRA’s investigation relates to potential breaches of the PRA’s Fundamental Rules 2 and 6. The PRA is investigating whether there
were failures to conduct regulatory reporting with due skill, care and diligence, to remedy an issue identified by the PRA in a timely
fashion and/or to provide effective oversight and control to comply with its regulatory reporting obligations. These issues relate to
our assessment and reporting of our risk-weighted assets. We are co-operating with the PRA’s investigation. As yet, the PRA has
given no indication of the likely timeframe for completing their investigation or of the action that might be taken as a result. As a
result, it is not possible to identify the likely outcome of the investigation or quantify any potential liability for penalties or possible
costs associated with the investigation with any certainty.
• The current scope of the FCA’s investigation concerns potential breaches of articles 15 and 17 of the Market Abuse Regulation (EU
596/2014), Principle 11 of the FCA’s Principles for Business, and Listing Principle 1, Premium Listing Principle 6 and Rule 1.3.3 of the
Listing Rules, in the period between 1 June 2017 and 26 February 2019. The investigations relate to the announcements made on
23 January 2019 and 26 February 2019 in relation to risk-weighted assets and AIRB accreditation respectively and the impact these
announcements had on our share price. We are co-operating with the FCA’s investigation. As yet, the FCA has given no indication of
the likely timeframe for completing their investigation or of any action that might be taken as a result. As a result, it is not possible to
identify the likely outcome of the investigation or quantify any potential liability for penalties or possible costs associated with the
investigation with any certainty.
Sanctions-related matters
In November 2017, on the advice of external legal counsel, we notified the Office of Foreign Assets Control (‘OFAC’) that we had
discovered that a UK-based entity with which we had a banking relationship was subject to US sanctions relating to Cuba. We ended
our relationship with the relevant entity. In addition, in 2019, we discovered that a payment made to a customer’s account, which it had
received from a UK-based financial institution, had been routed to the UK-based financial institution from Iran. A further notification was
made to OFAC. We have initiated a review of the foregoing matters, together with a review of our broader sanctions compliance
policies and transaction monitoring policies and procedures with the support of external advisers which is still ongoing. We continue to
fully co-operate with our regulators in relation to their enquiries in this regard. At this stage it is not practicable to identify the likely
outcome or estimate the potential financial impact of these matters with any certainty.
US class action
We are also defending civil claims brought against us in the State of California based on breaches of US Federal Securities laws arising
from allegedly false and misleading statements in relation to our loan book between March 2018 and May 2019. We intend to
vigorously defend these proceedings. They are at an early stage, and so it is not practicable to identify the likely outcome or estimate
the potential financial impact.
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 settle on a net basis
or realise the asset and settle the liability simultaneously.
During the year ending 31 December 2019 no financial instruments have been offset in the balance sheet (2018: none).
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
169
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 its 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.
Group
31 December 2019
Assets
Loans and advances to customers
Investment securities held at FVOCI
Investment securities held at amortised costs
Liabilities
Deposits from customers
Deposits from central bank
Debt securities
Repurchase agreements
31 December 2018
Assets
Loans and advances to customers
Investment securities held at FVOCI
Investment securities held at amortised costs
Liabilities
Deposits from customers
Deposits from central bank
Debt securities
Repurchase agreements
Carrying
value
£’million
Quoted
market price
Level 1
£’million
Using
observable
inputs
Level 2
£’million
With
significant
unobservable
inputs
Level 3
£’million
14,681
411
2,154
14,477
3,801
591
250
14,235
674
3,458
15,661
3,801
249
344
–
411
508
–
–
602
–
–
607
605
–
–
219
–
–
–
1,647
–
–
–
–
–
67
2,824
–
–
–
–
14,652
–
–
14,448
3,801
–
250
14,857
–
–
15,605
3,801
–
344
Total fair
value
£’million
14,652
411
2,155
14,448
3,801
602
250
14,857
674
3,429
15,605
3,801
219
344
Strategic ReportGovernanceFinancial StatementsAdditional information 170
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
34. Fair value of financial instruments continued
Information on how fair values are calculated for the financial assets and liabilities noted above are explained below:
Loans and advances to customers
Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at
the balance sheet date, adjusted for future credit losses and prepayments, if considered material.
Investment securities
The fair value of investment securities is based on either observed market prices for those securities that have an active trading market
(fair value Level 1 assets), or using observable inputs (in the case of fair value Level 2 assets).
Deposits from customers
Fair values are estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities. The
fair value of a deposit repayable on demand is approximated by its carrying value.
Debt securities
Fair values are determined using the quoted market price at the balance sheet date.
Deposits from central banks/repurchase agreements
Fair values are estimated using discounted cash flows, applying current rates. Fair values approximate carrying amounts as their
balances are generally short-dated.
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 Executive Leadership Team are considered to be the key management personnel for disclosure purposes.
Key management compensation
Total compensation cost for key management personnel for the year by category of benefit was as follows:
Group
Short-term benefits
Share-based payment costs
Total compensation for key management personnel
2019
£’million
2018
£’million
5.8
1.7
7.5
6.0
3.1
9.1
Short-term employee benefits include salary, medical insurance, bonuses and cash allowances paid to key management personnel.
The share-based payment cost represents the IFRS 2 charge for the year which includes awards granted in prior years that have not yet
vested. The cost includes the in-year IFRS 2 costs for Listing Share Awards granted to selected key management personnel in
recognition of their significant contribution to the private placement and admission of Metro Bank to the London Stock Exchange.
Banking transactions with key management personnel
We provide banking services to Directors and other key management personnel and persons connected to them. Loan transactions
during the year and the balances outstanding at 31 December were as follows:
Group
Loans outstanding at 1 January
Loans relating to persons and companies newly considered related parties
Loans relating to persons and companies no longer considered related parties
Loans issued during the year
Loan repayments during the year
Loans outstanding as at 31 December
Interest expense on loans payable to the Group (£’000)
2019
£’million
2018
£’million
3.8
–
(3.1)
0.2
(0.2)
0.7
90
3.0
0.1
–
0.8
(0.1)
3.8
82
There were five (31 December 2018: ten) loans outstanding at 31 December 2019 totalling £0.7 million (31 December 2018: £3.8
million). Of these, three are residential mortgages secured on property, one is an asset finance loan and one is an unsecured loan; all
loans were provided on 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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
171
35. Related parties continued
Credit card balances outstanding at 31 December were as follows:
Group
Credit cards outstanding as at 31 December
Deposit balances outstanding at 31 December were as follows:
Group
Deposits held at 1 January
Deposits relating to persons and companies newly considered related parties
Deposits relating to persons and companies no longer considered related parties
Net amounts (withdrawn)/deposited
Deposits outstanding as at 31 December
Transactions with Group companies
Details of transactions with Group companies can be found within note 37.
Other transactions with related parties
The following transactions were carried out with related parties:
Group
Architectural design services
Creative and brand services
Total purchase of services with entities connected to key management personnel
Amounts outstanding as at 31 December owed by Metro Bank
2019
£’000
16
2018
£’000
34
2019
£’million
2018
£’million
4.5
2.1
(1.8)
(1.5)
3.3
3.4
0.3
(0.2)
1.0
4.5
2019
£’000
4,885
428
5,313
82
2018
£’000
4,084
498
4,582
51
Architecture, design, creative and brand services are provided by InterArch, Inc. (‘InterArch’), a firm which is owned by Shirley Hill, the
wife of Vernon W. Hill, II, who served as both Chair and a Non-Executive Director during the year, before stepping down from the
Board on 17 December 2019.
Architectural design services
InterArch provided various architectural design services during the year, including pre-design, architectural design, interior design,
construction management, landscape architectural, signage, security design and layout and procurement services. The fee structure
for each project is based on a fixed percentage of final construction costs with certain additional services provided on an hourly basis.
Creative and brand services
InterArch also provided branding, marketing and advertising services.
In order to ensure that the terms of the InterArch arrangements are consistent with those that could be obtained from an independent
third party, and in accordance with the Articles, the contractual arrangements with InterArch are subject to an annual review by the
Audit Committee using benchmarking reviews conducted by independent third parties. For the architectural design contract, which
covers the build and design of stores, a ‘big four’ professional services firms carries out the benchmarking review. For 2019 the Audit
Committee has concluded that the contracts for services with InterArch are at arm’s length and are at least as beneficial as those which
could be obtained in the market from an alternative supplier.
The creative and brand services contract and architectural design service contract ended on 27 February 2020. In order to ensure the
smooth transition to new providers, the Group entered into a short agreement with InterArch to support the transition until the end of
June 2020.
Further details of the review conducted by the Audit Committee can be found on page 67.
36. Earnings per share
Basic earnings per share (‘EPS’) is calculated by dividing the (loss)/profit attributable to ordinary equity holders of Metro Bank by the
weighted average number of ordinary shares in issue during the year.
(Loss)/profit attributable to ordinary equity holders of Metro Bank (£’million)
Weighted average number of ordinary shares in issue – basic (‘000)
Basic (loss)/earnings per share (pence)
2019
2018
(182.6)
147,420
27.1
92,964
(123.9)
29.1
Strategic ReportGovernanceFinancial StatementsAdditional information
172
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes to the financial statements
continued
36. Earnings per share continued
Diluted EPS has been calculated by dividing the (loss)/profit attributable to ordinary equity holders of Metro Bank by the weighted
average number of ordinary shares in issue during the year plus the weighted average number of ordinary shares that would be issued
on the conversion to shares of options granted to colleagues. As we made a loss during the year to 31 December 2019, the share
options would be antidilutive, as they would reduce the loss per share. Therefore, all the outstanding options have been disregarded in
the calculation of dilutive EPS.
(Loss)/profit attributable to ordinary equity holders of Metro Bank (£’million)
Weighted average number of ordinary shares in issue – diluted (‘000)
Diluted (loss)/earnings per share (pence)
2019
2018
(182.6)
147,420
27.1
95,853
(123.9)
28.2
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 EPS.
37. Investment in subsidiaries
Accounting policy
We apply the acquisition method to account for business combinations. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control commences
until the date that control ceases. Inter-Company transactions and balances are eliminated upon
consolidation. All subsidiaries follow the same accounting policies as the Group.
The Group had the following subsidiaries at 31 December 2019:
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
SME Asset Finance Limited
RDM Factors Limited
UK
UK
UK
Invoice financing and factoring
Asset finance
Dormant
100
–
–
–
100
100
All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings held
directly by the Company do not differ from the proportion of ordinary shares held.
Transactions between the Company and Group subsidiaries
Interest on inter-Company loan with SME Asset/Invoice Finance
Amounts outstanding as at 31 December owed by SME Asset/Invoice Finance
2019
£’million
2018
£’million
7.4
291
6.1
305
The expected credit loss recognised within the Company’s financial statements in respect of the inter-Company loan facility is less than
£0.1 million (31 December 2018: less than £0.1 million).
Details of the registered offices of all our Group companies can be found on page 180.
38. Post balance sheet events
Capability and Innovation fund
Following changes to our strategy, a revised business case was submitted to BCR in respect of the £120 million grant it previously awarded
us as part of the Capability and Innovation Fund (part of the RBS alternative remedies package). The proposal we put forward was accepted
by BCR on 25 February 2020, as part of which our public commitments were amended. As part of this it was agreed that £50 million of the
grant would be returned to BCR. The approval of the new proposal by the Board and its acceptance by BCR post year end is considered an
adjusting event and, as such, the £50 million to be repaid is classified within other liabilities as at 31 December 2019. All of the sums
recognised to date, either in the income statement or offset against capital expenditure, are still components of the revised commitments
and, as such, no adjustments to these amounts have been made.
COVID-19
In late January 2020 the first incident of the coronavirus (COVID-19) was reported in the UK. This is clearly a serious situation impacting not
just the UK, but also the global economy. The position has been, and continues to be, rapidly evolving and difficult to predict with any
certainty. We do not consider COVID-19 to be an adjusting event and as such any impacts are not reflected within these financial
statements. At present it is not possible to fully quantify the impact COVID-19 will have. Our focus has and will be to continue to support our
colleagues and customers during this period. As part of this we have temporarily waived overdraft fees for personal current account
customers, offered payment holidays to customers who need them and supported colleagues with flexible working arrangements.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
173
Country-by-country reporting
Metro Bank and its subsidiaries only operate with the United Kingdom (‘UK’) and are all UK registered entities. The Company, Metro
Bank, is a credit institution for the purposes of CRD IV and is therefore within the scope of CBCR. Our activities are disclosed within
note 1 to the financial statements.
For the purposes of CBCR, the appropriate disclosures required are summarised below:
Number of employees (average full-time equivalent)
Turnover (£’million)
Loss before tax (£’million)
Tax expense (£’million)
Corporation tax paid (£’million)
No public subsidies were received during the year.
UK
3,681
415.6
130.8
51.8
1.3
Strategic ReportGovernanceFinancial StatementsAdditional information 174
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Independent auditors’ report
To the Directors of Metro Bank PLC on country-by-country information
Report on the audit of the country-by-country information
Opinion
In our opinion, Metro Bank PLC’s country-by-country information for the year ended 31 December 2019 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 2019 in the Annual Report and Accounts.
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 company 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 the relevant note 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
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:
•
•
the Directors’ use of the going concern basis of accounting in the preparation of the country-by-country information is not
appropriate; or
the Directors have not disclosed in the country-by-country information any identified material uncertainties that may cast significant
doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months
from the date when the country-by-country information is authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the company’s ability to
continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report and Accounts other than the country-by-country
information and our auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the country-by-
country information does not cover the other information and, accordingly, we do not express an audit opinion or any form of
assurance thereon.
In connection with our audit of the country-by-country information, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the country-by-country information 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 country-by-country information 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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
175
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 and accounting
policies in note 1, 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 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 company 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.
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 company’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 Darren Meek.
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
16 April 2020
Strategic ReportGovernanceFinancial StatementsAdditional information 176
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Other disclosures
(Unaudited)
Reconciliation of statutory balance sheet to risk-weighted assets
Cash and balances with the Bank of England
Loans and advances to customers
Investment securities held at fair value through other comprehensive income
Investment securities held at amortised cost
Property, plant and equipment
Intangible assets
Prepayments and accrued income
Deferred tax asset1
Other assets
Total assets
Off-balance sheet assets
Credit risk (excluding counterparty credit risk)
CRR
Market risk
Operational risk
Total risk-weighted assets
31 December 2019
Financial
statements
£’million
Average risk
density
Risk-
weighted
assets
£’million
2,989
14,681
411
2,154
856
168
66
–
75
21,400
1%
47%
3%
13%
100%
–
94%
n/a
100%
39%
38
6,967
13
383
856
–
62
7
75
8,401
190
8,591
5
5
546
9,147
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.
Cash and balances with the Bank of England
Loans and advances to customers
Investment securities held at fair value through other comprehensive income
Investment securities held at amortised cost
Property, plant and equipment
Intangible assets
Prepayments and accrued income
Deferred tax asset
Other assets
Total assets
Off-balance sheet assets
Credit risk (excluding counterparty credit risk)
CRR
Market risk
Operational risk
Total risk-weighted assets
31 December 2018
Financial
statements
£’million
Average risk
density
Risk-
weighted
assets
£’million
2,472
14,235
674
3,458
454
197
66
41
50
21,647
1%
50%
17%
18%
100%
–
100%
51%
100%
39%
37
7,061
116
606
454
–
66
21
50
8,411
149
8,560
2
4
370
8,936
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
177
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 (‘GAAP’) under which we report. These measures are consistent with those used by management to assess underlying
performance. In addition, a number of non-IFRS metrics are calculated which are commonly used within the banking industry.
These alternative performance measures have been defined below:
Cost of risk
Impairment charges divided by average gross loans for the year.
Expected credit loss expense (note 30)
Average gross lending
Cost of risk
Cost of deposits
Interest expense on customer deposits divided by the average deposits from customers for the year.
Interest on customer deposits (note 2)
Average deposits from customer
Cost of deposits
2019
£’million
2018
£’million
11.7
15,048
8.0
12,005
0.08%
0.07%
2019
£’million
2018
£’million
112.4
14,450
0.78%
83.7
13,610
0.61%
Loan-to-deposit ratio
Loans and advances to customers expressed as a percentage of total deposits. It is a commonly used ratio within the banking industry
to assess liquidity.
Loans and advances to customers (note 12)
Deposits from customer (note 18)
Loan-to-deposit ratio
Net interest margin
Net interest income as a percentage of average interest-earning assets.
Net interest income (note 2)
Average interest-earning assets
Net interest margin
2019
£’million
14,681
14,477
101%
2018
£’million
14,235
15,661
91%
2019
£’million
2018
£’million
308.1
20,355
1.51%
330.1
18,279
1.81%
Strategic ReportGovernanceFinancial StatementsAdditional information 178
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Alternative performance measures
(Unaudited)
continued
Underlying (loss)/profit
Underlying (loss)/profit 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.
The following items are considered to be non-underlying:
Non-underlying item
Description
Reason for exclusion
Listing Share Awards
Impairment and write-offs of
PPE and intangible assets
Share awards granted to key members of
management in 2016 in recognition of their
significant contribution to the successful
listing on the London Stock Exchange. These
share awards vest annually until April 2021.
The costs associated with non-current assets
that are no longer being used by and/or
generate future economic benefit for the
business.
Net BCR costs
Remediation costs
Transformation costs
Derecognition of DTA for
unused tax losses
These costs include the amounts spent in
relation to the RBS alternative remedies
package. This includes both the costs of the
successful bid to the Capability and Innovation
Fund as well as costs incurred preparing for
the incentivised switching scheme. In addition,
it includes the costs spent delivering the
commitments and the associated income that
is offset against it.
Remediation costs comprise 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
sanctions compliance. It also includes
amounts in respect of customer remediation.
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 derecognition of unused tax losses in line
with the requirement of IAS 12 ‘Income Taxes’
as a result of our revalution of short-term
profitability outlook.
The awards were one-off in nature as they directly
related to our listing on the London Stock
Exchange and are distinct from the annual share
options we grant. Once the last tranche of share
awards has vested in 2021 there will be no
ongoing cost to the business.
The impairments and write-offs relating to PPE
primarily relate to work undertaken on aborted
stores. As it is not our intention to open stores
indefinitely these costs are considered to not
reflect the true performance on the business.
Impairments and write-offs of intangible assets
tend to be exceptional and therefore these are
removed as they distort comparison between
years. The significant write-off of intangible assets
in 2019 is considered to be largely a one-off event.
The bid to BCR for the alternative remedies
package, as well as the fulfilment of the
commitments, is considered a one-off event.
The remediation costs are felt to be a one-off
event and as such are removed to allow greater
comparability between periods.
The transformation costs are seen as a non-
recurring cost stream aimed at addressing the
challenges the business faces. These are therefore
removed in order to prevent year-on-year
distortion.
These unused tax losses were accumulated during
our earlier years of operation and the
derecognition will not reoccur in the future. The
derecognition of these losses does not, however,
impact their economic recoverability.
A reconciliation from statutory (loss)/profit before tax to underlying (loss)/profit before tax is set out on page 179.
Underlying earnings per share is calculated by dividing the underlying (loss)/profit by the weighted average number of basic/diluted
shareholders as disclosed in note 36.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
179
Impairment
and write-off
of property,
plant,
equipment
and
intangible
assets
£’million
Statutory
basis
£’million
Listing Share
Awards
£’million
Net
BCR
costs
£’million
Transformation
costs
£’million
Remediation
costs
£’million
Derecognition
of DTA for
unused tax
losses
£’million
Underlying
basis
£’million
308.1
61.0
1.6
44.9
415.6
(380.6)
(76.4)
(77.7)
(534.7)
(11.7)
(130.8)
(51.8)
(182.6)
–
–
–
–
–
0.6
–
–
0.6
–
0.6
–
0.6
–
–
–
–
–
–
–
77.7
77.7
–
77.7
(1.8)
75.9
–
–
–
(15.5)
(15.5)
18.1
–
–
18.1
–
2.6
(0.5)
2.1
–
–
–
–
–
11.5
–
–
11.5
–
11.5
(2.2)
9.3
–
–
–
–
–
26.8
–
–
26.8
–
26.8
(0.7)
26.1
–
–
–
–
–
–
–
–
–
–
–
52.7
52.7
308.1
61.0
1.6
29.4
400.1
(323.7)
(76.4)
–
(400.1)
(11.7)
(11.7)
(4.3)
(16.0)
Impairment
and write-off
of property,
plant,
equipment
and
intangible
assets
£’million
Statutory
basis
£’million
Listing Share
Awards
£’million
330.1
37.6
10.7
25.7
404.1
(305.6)
(45.1)
(4.8)
(355.5)
(8.0)
40.6
(13.5)
27.1
–
–
–
–
–
0.8
–
–
0.8
–
0.8
–
0.8
–
–
–
–
–
–
–
4.8
4.8
–
4.8
–
4.8
Net
BCR
costs
£’million
Transformation
costs
£’million
Remediation
costs
£’million
Derecognition
of DTA for
unused tax
losses
£’million
Underlying
basis
£’million
–
–
–
–
–
3.8
–
–
3.8
–
3.8
–
3.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
330.1
37.6
10.7
25.7
404.1
(301.0)
(45.1)
–
(346.1)
(8.0)
50.0
(13.5)
36.5
Year ended 31 December 2019
Net interest income
Net fee and commission income
Net gains on sale of assets
Other income
Total income
General operating expenses
Depreciation and amortisation
Impairment and write-offs of PPE
and intangible assets
Total operating expenses
Expected credit loss expense
Loss before tax
Taxation
Loss for the period
Year ended 31 December 2018
Net interest income
Net fee and commission income
Net gains on sale of assets
Other income
Total income
General operating expenses
Depreciation and amortisation
Impairment and write-offs of PPE
and intangible assets
Total operating expenses
Expected credit loss expense
Profit before tax
Taxation
Profit for the period
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.
Strategic ReportGovernanceFinancial StatementsAdditional information 180
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Shareholder information
Registered and other offices
The Company’s registered office and head office is:
One Southampton Row
London
WC1B 5HA
Telephone: 0345 08 08 500/0345 08 08 508
Website: www.metrobankonline.co.uk
Other subsidiaries of the Company are also registered at the same registered office and head office of the Company.
Registrars
The Company has appointed Equiniti Limited to maintain its register of members. Shareholders should contact Equiniti using the details
below in relation to all general enquiries concerning their shareholding:
Equiniti Limited1
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.
2020 Financial Calendar
Annual General Meeting – 26 May 2020
Due to COVID-19 and recent regulatory changes, our dates in relation to our financial calendar will be made available in due course on
our website.
Unsolicited mail
The Company is required by law to make its 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: www.mpsonline.org.uk
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
181
Annual General Meeting
In light of the COVID-19 pandemic and the Government’s restrictions imposed on public gatherings and non-essential travel, we have
restricted attendance at our upcoming 2020 AGM. Further details are published in the Notice of Meeting mailed to shareholders and is
also available on our website. The safety of our shareholders and our colleagues is of the utmost importance to the Board.
Forward-looking statements
This annual report 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 are based on the Company’s current expectations and, by their
nature, forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s
control, that could cause the Company’s actual results and performance to differ materially from any expected future results or
performance expressed or implied by any forward-looking statements. As a result, you are cautioned not to place undue reliance on
such forward-looking statements. Past performance should not be taken as an indication or guarantee of future results, and no
representation or warranty, expressed or implied, is made regarding future performance.
No assurances can be given that the forward-looking statements in this annual report will be realised. The Company undertakes no
obligation to release the results of any revisions to any forward-looking statements in this annual report that may occur due to any
change in its expectations or to reflect events or circumstances after the date of this announcement and the Company disclaims any
such obligation.
Shareholder profile by size of holding as at 31 December 2019
Range
1–1,000
1,001–5,000
5,001–10,000
10,001–50,000
50,001–100,000
100,001–500,000
500,001–1,000,000
1,000,001 and above
Total
Total
number of
holdings
Percentage
of holders
Total number
of shares held at
31 December
2019
111,905
40.30%
365,386
18.80%
518,164
8.35%
2,729,217
13.64%
2,676,218
4.42%
16,312,772
8.23%
13,762,204
2.33%
3.93% 135,944,592
396
153
68
111
36
67
19
32
812
Percentage
of total
0.07%
0.21%
0.30%
1.58%
1.55%
9.46%
7.98%
78.85%
100.00% 172,420,458
100.00%
Shareholder profile by category as at 31 December 2019
Category
Private shareholders
Banks
Nominees and other institutional investors
Total
Number of
holders
Percentage
of holders
within type
Shares held at
31 December
2019
Percentage
of issued
share capital
286
5
521
812
35.22%
0.62%
2,362,666
381,372
64.16% 169,676,420
1.37%
0.22%
98.41%
100.00% 172,420,458
100.00%
It should be noted that many private investors hold their shares through nominee companies and therefore the percentage of shares
held by private shareholders may be higher than that shown.
Strategic ReportGovernanceFinancial StatementsAdditional information 182
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
183
Notes
Strategic ReportGovernanceFinancial StatementsAdditional information 184
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2019
Notes