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Annual Report
& Accounts 2020
At Metro Bank we aspire to disrupt
retail banking by building a bank
that puts customers at the heart
of what we do.
This is helping us achieve our
ambition to become the UK’s
best community bank – a bank
that is deeply rooted within local
communities, allowing us to serve
customers brilliantly in person,
digitally and over the phone.
What’s inside
STRATEGIC REPORT
01 Summary of the year
02 Who we are
04 Chair’s statement
06 Chief Executive Officer’s statement
10 Our approach
12 Business model
14 Key performance indicators
16 Strategic priorities
18 External market review
21 Financial review
25 Risk report
56 Our stakeholders
64 Environmental, social and governance review
GOVERNANCE
76 Corporate governance overview
78 Board of Directors
80 Corporate governance
83 Board roles and responsibilities
84 The Board’s year in review
88 Workforce engagement
90 Audit Committee report
99 Risk Oversight Committee report
104 Nomination Committee report
108 Remuneration Committee report
116 Remuneration at a glance
118 Annual report on remuneration
135 Our Remuneration Policy
148 Directors’ report
FINANCIAL STATEMENTS
152
Independent auditors’ report to the members
of Metro Bank PLC
164 Consolidated statement of comprehensive income
165 Consolidated balance sheet
166 Consolidated statement of changes in equity
167 Consolidated cash flow statement
168 Company balance sheet
169 Company statement of changes in equity
170 Company cash flow statement
171 Notes to the financial statements
ADDITIONAL INFORMATION
228 Country-by-country reporting
229 Independent auditors’ report to the Directors of Metro
Bank PLC on country-by-country information
232 Other disclosures
233 Alternative performance measures
236 Shareholder information
MORE INFORMATION
metrobankonline.co.uk
Summary of the year
Our results have been heavily impacted by the COVID-19 pandemic,
notably an increase in expected credit losses arising from the
worsening economic outlook, reduced net interest margin due to
further base rate reductions and lower fee income as a result of
lockdowns and government travel restrictions.
£22.6bn
Assets
(£bn)
£16.1bn
Deposits
(£bn)
2016
2017
2018
2019
2020
£10.1
£16.4
2016
2017
2018
2019
2020
£21.6
£21.4
£22.6
£8.0
£11.7
£15.7
£14.5
£16.1
£12.1bn
Loans and advances
(£bn)
2016
2017
2018
2019
2020
£5.9
£9.6
£14.2
£14.7
£12.1
£(271.8)m
Underlying (loss)/profit before tax¹
(£m)
£(311.4)m
Statutory (loss)/profit before tax
(£m)
75%Loan to deposit ratio
2016
2017
2018
2019
-£11.7
-£11.7
£20.8
£50.0
2016
2017
2018
2019
2020
-£271.8
2020
-£311.4
-£17.2
-£130.8
£18.7
£40.6
2016
2017
2018
2019
2020
74%
82%
91%
101%
75%
Strategic
• Acquired RateSetter – accelerating our ability to grow unsecured lending
• Agreed sale of £3.1 billion mortgage portfolio to NatWest freeing up capital
• Appointed Daniel Frumkin as Chief Executive Officer (CEO)
• Appointed six new members of the Executive Committee
• Appointed Robert Sharpe as Chair and appointed four new Non-Executive Directors
• Delivered £1.5 billion in government support loans to small and medium sized businesses
• Vacated our central London offices at Old Bailey as part of our approach to managing costs
• Launched specialist mortgages
Operational
• Supported customers through the COVID-19 pandemic, keeping all stores open throughout
• Provided payment deferrals across 24% of our lending² (active deferrals 3% as at 31 December 2020)
•
• Launched new digital capabilities and services including Business Account Online
• Celebrated our 10th birthday
Opened six new stores – expanding into new markets including Sheffield and Liverpool
1. Underlying loss before tax is an alternative performance measure. Further details, including a reconciliation to statutory loss before tax can be found on pages 233 to 235.
2. Based on proportion of lending by gross balance.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 01
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Who we are
Our purpose,
values and strategy
Our ambition
• To become the UK’s best community bank
ACHIEVED THROUGH
Our purpose
• To create FANS
Our business at a glance
We opened our doors in the summer of 2010 and were the first high
street bank to open in the UK in over 100 years. In the 10 years since then,
we’ve built a business that is providing meaningful competition against
larger incumbents and offering a compelling alternative for customers
across retail, private, small business (SME) and commercial banking.
Our ambition
Our ambition is to become 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 commercial services that
best meet the needs of residents and businesses in the surrounding area.
DELIVERED VIA
Our purpose
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
• Internal and external communications
UNDERPINNED BY
Our values
• Attend to every 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
We are achieving our ambition through delivering on our purpose which
is to create FANS. FANS are customers which are created through
delivering exceptional customer service and champion Metro Bank
through actively recommending us to friends and family.
Summary business model
Integrated
model
Unique
culture
Risk-
adjusted
returns
Low-cost
deposits
02 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Our business model
Year in review
We attract customers and create FANS by focusing on our
business model. Our business model involves combining
an integrated model of stores, telephony and digital with
exceptional customer service.
Our network of 77 stores places us at the heart of the
communities we serve, giving customers a face-to-face
connection with our colleagues, while our telephone, mobile
and online capabilities offer the convenience of banking when
and where our customers choose. Our stores are open early
‘til late, seven days a week1 and as well as serving customers,
host networking and community events. They have been
ranked the best for store service in Great Britain by the
Competition and Markets Authority (CMA) in their service
quality survey six times in a row.
The combination of these components allows us to attract
customers and create FANS, bringing low-cost deposits
which we can then use to generate risk-adjusted returns.
We underpin our business model with strong capital
and liquidity management and a robust approach to risk
and governance.
Find out more about our business model on pages 12 to 13
Our strategic priorities
Our business model is supported by our strategic priorities,
which we launched in 2020. By delivering on these strategic
priorities it ensures the sustainability of our business model
and moves us closer to achieving our ambition.
Find out more about our strategic priorities on pages 16 to 17
Our values
Our values underpin everything we do and are ingrained
throughout our organisation helping us drive our customer-
centric approach.
We serve 2.2 million customer accounts demonstrating that
our business model continues to resonate with customers,
even during these difficult times.
Find out more about our values on page 69
1. During 2020 we have had to operate reduced hours due to the COVID-19 pandemic.
JANUARY
Launch of our first mainstream
advertising campaign celebrating
our people-people banking
FEBRUARY
Daniel Frumkin appointed as CEO
MAY
Launched specialist mortgages
JUNE
Opening of our 76th store in Cardiff
(our fifth with a drive through) and
our 77th store in Sheffield
JULY
Celebrated our 10th birthday
Bounce Back Loan Scheme (BBLS)
Enabled Direct Debit origination for
business customers
AUGUST
Launch of refer a friend
switching incentive
SEPTEMBER
Acquisition of RateSetter
Launch of Business Account
Online for SME customers
OCTOBER
First Metro Bank lending
delivered through
RateSetter platform
NOVEMBER
Robert Sharpe
appointed as Chair
DECEMBER
Announcement of
£3.1 billion residential
mortgage sale to NatWest
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 03
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Chair’s statement
extended period. We adapted our
sickness policy to ensure all colleagues
were fully paid while taking the time
needed to recover if they fell ill or needed
to self-isolate. We also increased paid
emergency leave to support parents and
carers and continue to support flexible
working arrangements.
RESULTS
Our results for the year clearly reflect
the impacts of the pandemic, notably an
increase in our expected loss expense,
up £115.0 million to £126.7 million (2019:
£11.7 million). The statutory loss before tax
for the year of £311.4 million (2019: £130.8
million) also reflects the continued
headwinds we face as well as the costs
of turning around the business.
The loss for the year was lessened by
a gain of £69.0 million (£63.7 million,
net of costs) relating to the sale of a
£3.1 billion residential mortgage portfolio
to NatWest. A further gain of £8.2 million
(£8.0 million, net of costs) was recognised
in 2021. The sale was in line with the
strategic priorities and means we have
no immediate need to raise additional
Minimum Requirement for own funds and
Eligible Liabilities (MREL) qualifying debt
as well as allowing us to free up capital to
redeploy in other higher yielding business.
During the year the Bank started to utilise
its regulatory capital, due to the losses
incurred, but as a result of the mortgage
portfolio sale ended the year above
regulatory requirement with a CET1 ratio
of 15.0% (2019: 15.6%) and a total capital
ratio of 18.1% (2019: 18.3%).
My overarching priority, as well as that
of the wider Board, is to ensure the Bank
remains well capitalised and returns to
sustainable profitability in the medium
term. The sale of the mortgage portfolio
is therefore an important step in
achieving this.
ROBERT SHARPE
CHAIR
I am pleased to introduce Metro Bank’s
2020 Annual Report following my
appointment as Chair in November. I am
delighted to have been chosen to chair
a company which has remained steadfast
in its commitment to deliver for customers,
especially at a time when community
banking has never been more important.
I believe that through a combination of
strong management and a credible
strategy executed well, we can ensure the
successful transformation and turnaround
of Metro Bank, allowing us to continue to
provide a force for good in UK banking.
CHALLENGING TIMES
Like most businesses, 2020 has
presented us with challenging times.
Embarking on a turnaround strategy
during this period has been particularly
testing. I am certainly not underestimating
the task ahead but Metro Bank has
many important strengths that give me
confidence it will succeed. By far the
most vital of these are our dedicated
colleagues and management team.
Since my appointment I have had the
opportunity to meet many of them from
around the business. I have been struck
by their commitment to Metro Bank and
the way they have adapted to support
customers through the pandemic to
continue to deliver exceptional customer
service. I would like to take this
opportunity to say thank you to all of
them for supporting each other and
delivering to our communities and our
customers when they needed us most.
As well as meeting colleagues I have
used my first few months in the role to
undertake a robust examination of the
Bank from the inside out. The strategy
that our CEO, Daniel Frumkin, unveiled
at the start of 2020, with five key areas
of focus, provides the business with
a very clear roadmap. It has been
encouraging to see progress in each
of those areas notwithstanding the
impacts of COVID-19.
PROVIDING SUPPORT IN
DIFFICULT TIMES
Throughout the crisis we have worked
to support our customers. We have lent
out nearly £1.5 billion of government
support loans as well as granting
payment deferrals across 24% of our
lending portfolio, by value (with 3%
of lending portfolio having payment
deferrals at year-end).
Whilst continuing to serve our customers,
we have prioritised the health of
colleagues, ensuring our stores and
offices were safe as well as supporting
the mental wellbeing of colleagues who
have been working remotely for an
04 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
CHANGES TO BOARD COMPOSITION
My appointment broadly completes a full
refresh of the Board. Our independent
Non-Executive Directors have the
required expertise to lead Metro Bank
through the next stage of its journey. As
the Board evolves over the years ahead,
it will be a focus of mine to ensure we
continue to have the right mix of skills
and experience.
I would like to thank my predecessor,
Sir Michael Snyder, who was filling
the role on an interim basis and who
was instrumental in transforming
the composition of the Board. I am
delighted he will remain on the Board,
resuming his previous role as Senior
Independent Director.
REMUNERATION
Listening to shareholder feedback is one
of the most important components of
my role and one of the areas that we are
regularly asked about is our approach
to remuneration. It is for this reason that
despite reviewing last year, we have
decided once more to refresh our
remuneration policy. The new policy,
for which we will seek approval at our
Annual General Meeting (AGM), is more
in line with wider market practices and
provides greater levels of transparency
and incentive.
I appreciate that changing an
organisation’s approach to executive
remuneration in the current climate
is not an easy one, but I firmly believe
it will better align the interests of
management to those of shareholders
and other stakeholders.
Improving the Bank’s communications
is one of the five central pillars of our
strategy and part of this was a promise
to review our KPIs. By ensuring that they
are more closely linked to our strategic
aims, it will create better visibility and
accountability for both the executive
management team and Board. We have
worked to align the new KPIs to both our
business model as well as key stakeholder
outcomes to ensure we are focused on
the right areas and behaviours.
LEGACY ISSUES
The Bank continues to feel the effects
of legacy issues and is still subject to
regulatory investigations. The associated
remediation costs of this are a significant
drag on financial performance. Closing
out the investigations and ensuring the
lessons are learnt to avoid any future
issues remains of paramount importance
to the Board.
THE FUTURE
Despite the current external challenges
I believe that Metro Bank has turned
a corner and is effectively tackling the
headwinds we face whilst at the same
time addressing and moving on from
many of the issues from the past.
My key objective will be to ensure that
Metro Bank focuses on delivering
shareholder value by continuing to
execute on our strategy and maintaining
a strong capital position.
I am immensely grateful for the support
both management and I have received
from shareholders, as we look to
reposition the business and deliver
profitable growth.
As part of our new remuneration
approach, we have updated our key
performance indicators (KPIs) to which
remuneration is linked.
Robert Sharpe
Chair
23 March 2021
Celebrating 10
years of bringing
banking back to
communities
We celebrated 10 years of bringing
banking back to communities. Over
the past decade colleagues across
the Bank have:
• Hosted more than 11,000
networking events to help grow
and support local businesses.
• Educated more than 200,000
children through Money Zone,
our free financial education
programme for schools and
youth groups.
• Supported multiple charities
nationwide.
• Helped kids make 600,000
crafts – from Easter bunny ears
to Halloween pumpkins – at our
family events.
• Volunteered 3,000 days to
support local causes.
• Treated dogs to more than
35,000kg of treats in store.
For our 10th birthday we hosted a
free online concert to celebrate with
all our FANS, featuring Heather
Small, the voice of M People,
alongside Metro Bank colleagues –
our very own ‘M People-people’.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 05
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Chief Executive Officer’s
statement
Our colleagues have made a real
difference to the communities we serve.
I want to say a huge thank you to them
for all their efforts during 2020 to look
after our customers, our communities
and most importantly each other.
OUR STRATEGY
In February 2020 we identified five
strategic drivers to help return us to
delivering adequate shareholder return in
line with our ambition to become the UK’s
best community bank. These consist of:
• Cost initiatives
• Revenue initiatives
• Infrastructure
• Balance sheet optimisation
• Internal and external communications
In spite of the challenges that the
pandemic brings, those drivers remain
unchanged and the business has
remained resilient. Our underlying
performance and the foundations
on which our turnaround plan is built
are strong.
Fundamentally we have seen, and
continue to see, a significant opportunity
to deepen relationships with existing
customers by improving our product
offering, enhancing our channels and by
continuing to remain completely focused
on delivering excellent customer service.
STRATEGIC RESPONSE
TO THE PANDEMIC
While the key strategic drivers and the
transformation plan we set out last year
remain appropriate, the pandemic’s
impact on the macroeconomic
environment meant we’ve clearly had
to adapt and accelerate the delivery
of some strategic initiatives.
Starting in April, alongside the significant
operational response and initiatives put in
place to support customers, colleagues
and communities, we worked to
understand the impact of the pandemic
on our plan. It is clear that the pandemic
has caused both shorter-term effects and
DANIEL FRUMKIN
CHIEF EXECUTIVE OFFICER
In February 2020, shortly after being
appointed as CEO and having completed
a comprehensive review of the business,
we launched our strategic priorities with
a clear plan to return the Bank to
sustainable profitability built around
a community banking model.
It’s hard to believe that only a few weeks
later the country was in lockdown, and
the world entered the most difficult social
and economic crisis of a generation. It has
been a truly unprecedented year for our
business, colleagues and customers. But
never has the role of a community bank
been more important for people across
the UK and I’m incredibly proud of the
way colleagues have stepped up to
support each other, our customers and
the communities we serve.
Our community banking model has
proven itself over the past 12 months,
with the Competition and Market
Authority’s Service Quality Survey once
again confirming that Metro Bank is
number one for store service and number
one on the high street for overall service.
We pride ourselves on giving customers
the choice to bank however, whenever
and wherever they choose by delivering
full-service banking across stores, digital
and telephony – and customers continue
to choose us, with customer accounts
growing to more than 2.2 million by the
end of 2020.
Despite the pandemic weighing on our
financial performance during the course
of the year, we’ve made good progress
delivering against the strategic priorities
we set out in February 2020 and while
there is still much to do, we remain on
track to achieve our transformation plan
as the UK’s best community bank.
COVID-19
The response of Metro Bank colleagues
to the pandemic has left me humbled,
and the resilience they have shown has
been inspiring. The unique culture that we
have built and our unwavering focus on
serving customers has shone through.
Whether it be our front line colleagues
who have kept stores open and been
available on the phone throughout
national and regional lockdowns, through
our back office colleagues who have
helped business and personal customers
access much-needed government
backed loan schemes, those who have
worked remotely to keep our essential
services running while continuing to
launch new products, or those that have
volunteered and fundraised for local
causes in need of support.
06 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
more systemic medium-term effects that
influence our plans. Shorter-term effects
arise from lower customer activity, for
example, with notable impact on
interchange fees, ATM and foreign
exchanges volumes. However these are
transitory, evidenced by a strong bounce
back in activity during the period of
lockdown easing over the summer.
Clearly the resulting fall in economic
activity has in turn created pressure on
our customers leading to a rise in credit
provisioning. While we have seen limited
actual losses to date, the underlying
impact of the pandemic cannot yet be
fully understood as a result of the
appropriate government support
schemes that remain in place. We,
therefore, anticipate that the impact on
our customers will become clearer over
the next 12 to 18 months. We remain
committed to supporting consumers
and businesses as we navigate the
months ahead.
In line with the government support
measures announced during the course
of 2020, we worked hard to support our
customers through these government
backed lending schemes, notably BBLS,
CBILS and CLBILS. These loans provide
lending with little capital and credit risk
impact due to them being partly or fully
underwritten by the Government. To
date, we have helped more than 36,000
customers and lent out £1.5 billion.
The more systemic medium-term effects
of the pandemic revolve around lower
interest rates and quantitative easing
measures taken by the Bank of England
that have meaningfully depressed yields
on investible assets. In February 2020,
we were clear that our transformation
agenda would be driven by a liability-led
strategy given Metro Bank’s proven
ability to grow deposits. The deposits
would then be invested in low risk weight
assets which, while weighing on net
interest margin, would have meaningfully
improved our return on tangible equity.
While shifting our asset mix and the
associated yield enhancement alongside
this was a core part of our plan, these
activities were not due to be a focus until
the latter years of our plan. However, in
an enduring lower for longer interest-rate
environment, and given there is less
inherent value in excess liquidity, we have
accelerated some initiatives to deliver a
different asset mix quicker – with higher
yielding assets and improving net interest
margin. As a result, the Executive team
took several actions during the course
of the year including:
• Purchasing the RateSetter platform
bringing technology and talented
colleagues with deep expertise in
the unsecured lending market to
accelerate our entry into this area.
• Continuing the use of the RateSetter
brand on aggregator sites, opening up
a new distribution channel that was
not in our plans a year ago with the
Metro Bank brand not present
on aggregators.
• An immediate shift away from prime
residential mortgages into more
specialist offerings generating
higher yield.
• Repricing fixed term deposits,
moving from best on high street
rates and bringing us into line with
incumbent providers.
While it is still early days, and
acknowledging that it will take time to
change the shape of the balance sheet to
ultimately improve net interest margin,
the early results are encouraging.
For example, RateSetter lending is now
available through the Metro Bank website
and app, and ready to launch in Metro
Bank stores when lockdown restrictions
ease. Since launch, we have extended
more than £120 million unsecured
consumer loans to customers; this is more
than 12 times the value of consumer
lending that Metro Bank has delivered
organically in any year since we opened
our doors in 2010.
Furthermore, following the decision to
more quickly focus on specialist products,
more than 80% of applications in the last
six months of 2020 were for specialist
mortgages. Cost of deposits and our
deposit mix at the year-end show the
results of our focus on repricing fixed
term deposits during the course of the
year, and it should be expected that we
will remain disciplined on deposit mix,
deposit pricing and deposit growth –
given the lower inherent value of excess
liquidity going forward.
As a result of the impact of the pandemic
on financial performance, capital has
been reduced more quickly than
anticipated and access to capital markets
has been more volatile. Given this, and
the desire to shift our asset mix more
quickly to enhance yield, we were swift
to identify and deliver on opportunities
presented by the current climate with
the sale of a portfolio of residential
mortgages in December 2020. We
are pleased with the outcome of this
transaction, with both the gain on sale
and the resulting release of risk-weighted
assets removing the need to raise
additional capital as well as allowing us
to increase our lending in higher yielding
areas. In February 2021 we announced
our intention to deploy some of this
capital to acquire the RateSetter back
book from peer-to-peer investors,
to accelerate the optimisation of our
balance sheet.
STRATEGIC PROGRESS
Alongside the actions taken to support
customers through COVID-19 and
to react to the changing external
environment, as outlined above, we have
continued to make solid progress on
delivering against our strategic pillars.
We’re continuing to deliver what we
said we would do, and the business has
demonstrated its resilience with the
pandemic having limited effect on our
ability to drive and deliver change.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 07
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Chief Executive Officer’s statement continued
1) Cost initiatives
Despite the high fixed cost base nature
of retail banking, we have controlled
business as usual (‘Run the Bank’) costs.
Cost growth was 1% on a like for like basis,
adjusting for the RateSetter acquisition,
COVID-19 related costs, six store
openings, and colleague reward, or 9%
in total. Costs to transform the business
(‘Change the Bank’) have increased
130%. We always anticipated these
change costs would be frontloaded
and remain focused on keeping these
appropriately contained.
We are taking a more proactive
management approach to our property
estate. In our interim results we
announced we had taken the decision
to vacate our office at Old Bailey, London.
The success of our working from home
arrangements as well as feedback
from colleagues is leading us to explore
other opportunities for office space
rationalisation, including better utilising
excess space in our store network rather
than occupying standalone office space.
An example of this is our new operations
centre in our Bristol store, using
previously underused space.
We have also taken the opportunity
to capitalise on our strong liquidity
position to take advantage of the current
commercial property market. This has
seen us buy the freeholds of certain
stores at an attractive yield and either
at, or close to, the carrying amount of
their right of use asset – meaning only
a marginal upfront capital impact in
exchange for longer-term run rate
savings and flexibility.
2) Revenue initiatives
Despite various national and regional
lockdowns throughout the year, we
have continued to grow our customer
accounts – increasing to 2.2 million as
at the year-end (31 December 2019:
2.0 million). During 2020 we opened six
stores, including two, in Sheffield and
Cardiff, following the initial COVID-19
outbreak. We will open two further
stores in 2021.
In August 2020, we launched the Bank’s
first switching offer, helping us give
something back to our existing customers
by rewarding them for referring friends
to open an account whilst welcoming
new customers too. In September we
launched Business Account Online (BAO)
that enables new customers to open a
business account on their mobile or
online, 24 hours a day, and taking just
15 minutes from application to approval.
We had to pause applications temporarily
due to the overwhelming demand
received, but we started to resume
openings in 2021. We have also
continued to see a meaningful share
of the business switching market join
us from RBS through the Incentivised
Switching Scheme.
Furthermore, this year we will begin
to make insurance products available
to better serve Metro Bank customers
and drive incremental revenue – initially
through a partnership with Churchill
Expert providing SME insurance, and
with further partnerships to follow
during the course of 2021.
3) Infrastructure
Alongside building the digital application
system for BBLS in less than six weeks,
we have continued to launch digital
initiatives throughout the year including
launching BAO; account sweeping; Direct
Debit origination in partnership with
Bottomline Technologies; in-app receipt
management technology in partnership
with Sensibill; and an accounting software
partnership with Clear Books.
We have also demonstrated the
operational resilience of the Bank –
moving a significant proportion of
colleagues to home-based working
almost overnight, alongside delivering
a significant programme of mandatory,
regulatory and discretionary change.
4) Balance sheet optimisation
Our main focus this year has been on
increasing our return on regulatory
capital. We continue to explore corporate
transactions where there are attractive
opportunities that would be strategically
advantageous to us, although our
predominant focus remains on growing
organically. We have accelerated the
delivery of this pillar of our strategy in
particular as outlined in our strategic
response to the pandemic above.
5) Internal and external communications
The start of the year saw us launch our
first marketing campaign – people-
people banking – which showcased
our incredible colleagues and was
designed to help customers and
potential customers understand Metro
Bank’s differentiators.
Following the success of our first
advertising campaign, we are planning
to launch a new advertising campaign
focusing on business banking for SMEs.
This is an area we see as key for future
growth enabling us to deepen
relationships, earn greater levels of fee
income and is an area that remains
underserved by larger competitors.
As well as a greater level of
communications with customers we have
continued to remain fully engaged with
colleagues, regulators and shareholders.
As a large proportion of colleagues
have been working fully from home,
maintaining effective communication has
been critical in preserving our culture.
This will continue to be important moving
forward as we move towards a more
flexible model with regard to location.
08 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
RESULTS
COVID-19 has weighed heavily on our
financial performance during 2020,
with us making a loss before tax of
£311.4 million (2019: loss of £130.8 million).
Adjusted for non-underlying items the
loss for the year was £271.8 million
(2019: loss of £11.7 million).
THE FUTURE
This year marked the 10-year anniversary
of our first store in Holborn, as the first
high street bank to open in more than 100
years. We’ve since grown from 79
colleagues and one location to more than
3,500 colleagues, 77 stores and more
than 2.2 million customer accounts today.
The loss has primarily been driven by
an increase in our expected credit loss
expense which rose from £11.7 million in
2019 to £126.7 million in 2020, reflecting
the worsened economic outlook. The
results also reflect the low interest rate
environment and competitive
marketplace as well as the costs of
delivering our turnaround plan.
However, excluding the impact of
COVID-19, financial performance is on
track and in line with our expectations
one year into our turnaround plan.
And half-on-half P&L performance
demonstrates the momentum of the
transformation plan – with underlying loss
before tax halving in the second half of
the year compared with the first half.
BUILDING THE TEAM
In April 2020, I also began making
a series of changes to our Executive
Committee (ExCo) in order to ensure we
were best set up with the right skills and
experience to support customers and
colleagues in executing our strategy.
This included bringing onboard a number
of external hires – Richard Lees joined
as Chief Risk Officer, Martin Boyle as
Chief Transformation Officer, and Carol
Frost as Chief People Officer.
In February 2021, we were rated the top
high street bank for overall service for
personal and business customers in the
latest Competition and Market Authority’s
Service Quality Service and number
one for store service for the sixth time
running. This is a huge endorsement
to all our colleagues and the
professionalism they have shown
through very trying times.
Whilst the past decade had not been
without its challenges, and there is plenty
of heavy lifting still to do, we have built
a business to be proud of. The level of
dedication amongst my colleagues, the
strong start we have made in executing
our strategic plan, and our relentless
focus on delivering great customer
service across all channels gives me
every confidence we can deliver
on our growth ambitions and meet
more customer needs.
One year into my role I am continually
reminded what an amazing group of
colleagues I work alongside. Their
dedication to our FANS, communities
and each other allows us to drive Metro
Bank forward. It has been an extremely
challenging year, but I could not ask
more from our colleagues.
With our refreshed ExCo now
established, I am confident they will help
the Bank and I to navigate the ongoing
choppy waters and deliver our ambition
to be the UK’s best community bank.
Finally, it would be remiss not to
remember the real cost of the pandemic
and extend my deepest sympathies
to anyone who has lost a loved one.
Daniel Frumkin
Chief Executive Officer
23 March 2021
Providing support
through COVID-19
Support our customers
During the pandemic we have
continued to deliver on our
ambition to become the UK’s best
community bank. This involved
keeping all of our stores open
throughout the year. We did
this whilst also ensuring our
key-worker colleagues had all
they need to work in a safe and
protected environment.
We have provided tailored
customer support to those that
need it including offering payment
deferrals across our portfolios and
waived overdraft interest for
personal customers temporarily.
We gained accreditation to issue
government backed support loans
and have already supported
thousands of small and medium
sized businesses with nearly
£1.5 billion of lending.
Allowing our colleagues to
support our communities
Each year we give colleagues
a Day to AMAZE, in which they can
volunteer for a local cause instead
of working. In light of the pandemic
we extended this to five days in
2020 to support our communities
when they needed it most.
In 2020 we opened our 77th store
in Sheffield’s city centre, with the
local team using their Days to
AMAZE to go the extra mile – quite
literally. Store colleagues took part
in the ‘Tour de South Yorkshire’.
By completing 114 miles by cycling,
walking and running, our colleagues
raised over £1,000 for Brain Tumour
Research and support, Yorkshire’s
Brain Tumour Charity.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 09
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Our approach
We take...
Inputs in the form of
AWARD WINNING CUSTOMER SERVICE
We seek to provide an exceptional level of service through
our people-people approach to banking. We work to make
our customers FANS who share their positive experiences
with their friends and families – generating strong brand
awareness and affinity in the markets we operate.
INTEGRATED DELIVERY
We focus on combining the best of physical and digital.
Through a network of 77 stores, digitally and on the phone
we serve our 2.2. million customer accounts.
OUR VALUES
Our AMAZEING values are at the heart of everything we do.
By having our values embedded within the organisation
it makes sure we put our customers at the centre of our
decision making.
OUR STRATEGIC PRIORITIES
In 2020 we launched our strategic priorities to help turnaround
our business. These priorities are designed to strengthen our
model and ensure its sustainability for the long term.
See pages 16 to 17 for more information
...underpinned by...
a framework of
RISK MANAGEMENT
Effective risk management underpins everything we do and is
one of the core foundations on which our approach is built.
See pages 25 to 53 for more information
GOVERNANCE
The other key foundation on which our business model
is built is ensuring we continually improve our approach to
governance. Ensuring we maintain a robust governance
framework is important in allowing all stakeholders to have
confidence that we are making decisions in the right way.
See pages 76 to 151 for more information
10 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
...and apply...
Our business model
See pages 12 to 13 for more information on the
components of our business model
INVESTING IN...
INTEGRATED
MODEL
Through focusing
our purpose of
creating FANS...
UNIQUE
CULTURE
...to deliver
Outcomes in the form of
STAKEHOLDER OUTCOMES
FANS
Whether it is helping achieve major lifetime milestones such as
buying a first new home or just looking after day-to-day spending
and saving we help customers manage their money.
Colleagues
We create fulfilling careers where colleagues can progress
and excel.
Investors
We aim to reward investors with tangible book growth and
a sustainable return.
Communities
As a community bank we want to be an active member of society.
Whether it is through hosting network events and helping small
businesses thrive or volunteering to support local causes we place
ourselves at the heart of the communities we serve.
Regulators
Our regulators work to create and maintain a stable, competitive
and fair banking system in which customers can trust. We work
closely with our regulators to help in this shared aim.
Suppliers
As we grow we generate value for companies throughout our
supply chain. We work to support and deepen our relationships
with our suppliers helping them to grow.
RISK-ADJUSTED
RETURNS
LOW-COST
DEPOSITS
See page pages 56 to 63 for more information
FINANCIAL RESULTS
We make money from the difference on the amount of interest
we charge on our lending less the interest we pay to customers
for their deposits. In addition we earn income from fees we charge
for additional services. We then manage our operating costs,
including credit losses, within this income to generate profits
and tangible book growth.
See pages 21 to 24 for more information
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 11
LONG-TERM
VALUE AND
TANGIBLE BOOK
GROWTH
...we achieve
our ambition to
become the UK’s
best community
bank
CREATES
FANS AND FANS
BRING...
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Business model
PROGRESS IN 2020
PRIORITIES
MARKET RISKS AND OPPORTUNITIES
REMUNERATION AND RISK
KPIS
Integrated
model
Our integrated model aims to
combine delivery through physical
and digital channels.
Unique culture
Our colleagues deliver superior
service and are at the heart of our
people-people banking approach.
Low-cost
deposits
We seek to attract low-cost deposits
through our service-led community
banking model with specific
emphasis on our core retail and
SME franchise.
Risk-adjusted
returns
We seek to balance our lending mix
through a broad yet simple product
offering that is priced proportionate
to risk.
• Launched new digital services including
Direct Debit Origination.
• Onboarded new business accounts including
attracting new customers from RBS via the
incentivised switching.
• Opened of six new stores.
• Purchased RateSetter to accelerate unsecured
lending capabilities.
Impacts of COVID-19
• Temporarily reduced store opening hours.
• Temporarily paused business account openings
due to unprecedented demand.
• Created over 150 new roles and hired
12 apprentices.
• Worked on building our people-people
banking approach to banking.
Impacts of COVID-19
• Changing ways that management engage
with colleagues and how we interact with
customers, due to social distancing. This has
included the increased use of digital channels
for communication.
• Continued move towards core SME and
personal current accounts.
• Rolling off of high fixed term deposits.
Impacts of COVID-19
• Fall in fees income due to lower
activity volumes.
• Acquisition of RateSetter platform.
• Sale of £3.1 billion of residential mortgages.
• Launched specialist mortgage products.
Impacts of COVID-19
• Significant increase in expected credit losses.
• Reduction in base rate leading to lower
yields, particularly in low loan to value
(LTV) mortgages.
• Participation in BBLS, CBILS and CLBILS loan
schemes, delivering nearly £1.5 billion
of relevant lending.
• Launched 90% LTV product when others
in market withdrew.
• Cautious approach to
further store openings.
• Expand product
offering to meet more
customer needs.
• Launch of further
digital initiatives
including in-app
invoicing, enhanced
overdrafts, improved
foreign exchange (FX)
capabilities and
insurance products.
• Embed new working
arrangements that
reinforce our culture
as the COVID-19
pandemic eases.
• Continue to increase
and champion diversity
across all levels.
• Continued growth in
current account
relationships including
business accounts.
• Deepening of customer
relationships to enable
greater fee growth.
• Remain disciplined on
deposit pricing.
•
Integration of
RateSetter and scaling
up of unsecured
lending.
• Management of
lending within
capital limit.
• Continued push into
specialist mortgages.
12 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Risks
• Strong competition especially from incumbents
and new digital only neo-banks.
• Uncertainty over future state of the high street
and the impact on our stores.
Remuneration
C. Customers
Risk
2. Operational risk
Opportunities
• Depressed commercial property market allows
an opportunity to reduce store costs.
•
Increased use of customers using digital channels
widens opportunities to interact with customers.
Risks
• Competitive market for talent, especially in
specialist and senior roles could hamper ability
to attract talent.
Opportunities
• Remote working provides great opportunity to
expand the pool of available talent that can work
for us as well as helping reduce costs.
Remuneration
D. People
Risk
2. Operational risk
7. Conduct risk
Risks
• Continued competitive landscape.
• Potential for further base rate falls (including
negative interest rates).
• Shift in customer preference to lower cost instant
Opportunities
access accounts.
• Low interest environment for deposits focuses
differentiating factor between providers to service
rather than price.
Risks
• Continued competitive landscape.
• Potential for further base rate falls
(including negative interest rates).
• Growth in fraud risk, especially those targeted
at government-backed lending programmes.
• End of stamp duty holiday.
• Growth in consumer lending as economy
• Return in customer volumes as lockdowns
Opportunities
bounces back.
are eased.
Remuneration
A. Financial
Risk
3. Liquidity and
funding risk
4. Market risk
5. Financial crime
6. Regulatory risk
Remuneration
A. Financial
B. Risk
Risk
1. Credit risk
4. Market risk
5. Financial crime
6. Regulatory risk
8. Model risk
9. Capital risk
Number of accounts
2020: 2.2 million
2019: 2.0 million
Customer satisfaction
2020: 86 (new to Bank)
45 (existing)
2019: 89 (new to Bank)
47 (existing)
Colleague engagement
2020: 73%
2019: 74%
Senior leadership diversity
2020: 11% (BAME)
38% (female)
2019: 8% (BAME)
36% (female)
Cost of deposits
2020: 0.65%
2019: 0.78%
Loan to deposit ratio
Cost of risk
2020: 0.86%
2019: 0.08%
2020: 75%
2019: 101%
CET1 ratio
2020: 15.0%
2019: 15.6%
Market risks & opportunities: pages 18 to 20
Risks: pages 28 to 29
Remuneration: page 116
KPIs: pages 14 to 15
PROGRESS IN 2020
PRIORITIES
MARKET RISKS AND OPPORTUNITIES
REMUNERATION AND RISK
KPIS
• Launched new digital services including
Direct Debit Origination.
• Cautious approach to
further store openings.
• Onboarded new business accounts including
• Expand product
attracting new customers from RBS via the
offering to meet more
combine delivery through physical
• Purchased RateSetter to accelerate unsecured
Integrated
model
Our integrated model aims to
and digital channels.
Unique culture
Our colleagues deliver superior
service and are at the heart of our
people-people banking approach.
Low-cost
deposits
We seek to attract low-cost deposits
through our service-led community
banking model with specific
emphasis on our core retail and
SME franchise.
Risk-adjusted
returns
We seek to balance our lending mix
through a broad yet simple product
offering that is priced proportionate
to risk.
incentivised switching.
• Opened of six new stores.
lending capabilities.
Impacts of COVID-19
• Temporarily reduced store opening hours.
• Temporarily paused business account openings
due to unprecedented demand.
• Created over 150 new roles and hired
12 apprentices.
• Worked on building our people-people
banking approach to banking.
Impacts of COVID-19
• Changing ways that management engage
with colleagues and how we interact with
customers, due to social distancing. This has
included the increased use of digital channels
for communication.
• Acquisition of RateSetter platform.
• Sale of £3.1 billion of residential mortgages.
• Launched specialist mortgage products.
Impacts of COVID-19
• Significant increase in expected credit losses.
• Reduction in base rate leading to lower
yields, particularly in low loan to value
(LTV) mortgages.
• Participation in BBLS, CBILS and CLBILS loan
schemes, delivering nearly £1.5 billion
• Launched 90% LTV product when others
of relevant lending.
in market withdrew.
customer needs.
• Launch of further
digital initiatives
including in-app
invoicing, enhanced
overdrafts, improved
foreign exchange (FX)
capabilities and
insurance products.
• Embed new working
arrangements that
reinforce our culture
as the COVID-19
pandemic eases.
• Continue to increase
and champion diversity
across all levels.
current account
relationships including
business accounts.
• Deepening of customer
relationships to enable
greater fee growth.
• Remain disciplined on
deposit pricing.
•
Integration of
RateSetter and scaling
up of unsecured
lending.
• Management of
lending within
capital limit.
• Continued push into
specialist mortgages.
• Continued move towards core SME and
• Continued growth in
personal current accounts.
• Rolling off of high fixed term deposits.
Impacts of COVID-19
• Fall in fees income due to lower
activity volumes.
Risks
• Strong competition especially from incumbents
and new digital only neo-banks.
• Uncertainty over future state of the high street
and the impact on our stores.
Remuneration
C. Customers
Risk
2. Operational risk
Opportunities
• Depressed commercial property market allows
•
an opportunity to reduce store costs.
Increased use of customers using digital channels
widens opportunities to interact with customers.
Risks
• Competitive market for talent, especially in
specialist and senior roles could hamper ability
to attract talent.
Opportunities
• Remote working provides great opportunity to
expand the pool of available talent that can work
for us as well as helping reduce costs.
Remuneration
D. People
Risk
2. Operational risk
7. Conduct risk
Risks
• Continued competitive landscape.
• Potential for further base rate falls (including
negative interest rates).
Opportunities
• Shift in customer preference to lower cost instant
access accounts.
• Low interest environment for deposits focuses
differentiating factor between providers to service
rather than price.
Risks
• Continued competitive landscape.
• Potential for further base rate falls
(including negative interest rates).
• Growth in fraud risk, especially those targeted
at government-backed lending programmes.
• End of stamp duty holiday.
Opportunities
• Growth in consumer lending as economy
bounces back.
• Return in customer volumes as lockdowns
are eased.
Remuneration
A. Financial
Risk
3. Liquidity and
funding risk
4. Market risk
5. Financial crime
6. Regulatory risk
Remuneration
A. Financial
B. Risk
Risk
1. Credit risk
4. Market risk
5. Financial crime
6. Regulatory risk
8. Model risk
9. Capital risk
Number of accounts
2020: 2.2 million
2019: 2.0 million
Customer satisfaction
2020: 86 (new to Bank)
45 (existing)
2019: 89 (new to Bank)
47 (existing)
Colleague engagement
2020: 73%
2019: 74%
Senior leadership diversity
2020: 11% (BAME)
38% (female)
2019: 8% (BAME)
36% (female)
Cost of deposits
2020: 0.65%
2019: 0.78%
Cost of risk
2020: 0.86%
2019: 0.08%
Loan to deposit ratio
2020: 75%
2019: 101%
CET1 ratio
2020: 15.0%
2019: 15.6%
Market risks & opportunities: pages 18 to 20
Risks: pages 28 to 29
Remuneration: page 116
KPIs: pages 14 to 15
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 13
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Key performance indicators
Our KPIs are the things we monitor to
check we are on track with the delivery
of our strategy as well as assess how
our business model is performing.
Link to business model
Components our business model
Our business model consists of:
• Integrated model
• Unique culture
• Low cost deposits
• Risk adjusted returns
Our business model is set out on pages
12 to 13. This includes showing how our
KPIs link to the above components.
Output of our business model
Our business model is to generate
long-term value and create tangible
book growth. This is measured through:
• Total shareholder return
• Return on tangible equity
Link to new remuneration approach
We have updated our approach to
remuneration and this has included
updating our scorecard measures
(effective from 1 January 2021) and
introducing a long term incentive
plan (LTIP) for Management.
Scorecard measures are aligned to the
components our business model.
In addition to the KPIs disclosed the
scorecard also includes the use of
qualitative measures.
LTIP measures are linked to the
output of our business model.
Scorecard Measure (from 2021)
LTIP Measure
See pages 135 to 147 for more information
Alternative performance measures
Where a financial KPI is an alternative
performance measure a reconciliation
to the nearest statutory measure can
be found on pages 233 to 235.
Alternative performance measures
Non-financial
Financial
Customer satisfaction
2020
2019
86
89
2020
2019
New account openings
Continuing relationships
45
47
2020
-£311.4m
2019
2020
-£271.8
-£130.8m
2019
-£11.7m
2020
2019
15.0%
15.6%
Statutory loss before tax
Underlying loss before tax
CET1 ratio
How we define it
Net promoter score for new account openings and continuing customer relationships.
Why it is important
Our purpose is to create FANS and as such ensuring strong ongoing levels of customer
satisfaction is important in measuring this.
How we define it
Our earnings before tax as defined
by IFRS.
Why it is important
Achieving sustainable profitability is the
key financial measure to demonstrate
we are creating long-term value which
is the output of our business model.
How we define it
Our statutory earnings adjusted for
certain items that distort year-on-year
comparisons.
Why it is important
It provides a better and more relevant
understanding of the underlying trends
in the business.
How we define it
Our common equity tier 1 capital
expressed as a percentage of RWAs.
Why it is important
This is the regulatory core capital we
need to hold.
Customer accounts
Colleague engagement
Cost of deposits
2020
2019
2.2m
2.0m
2020
2019
73%
74%1
2020
2019
0.65%
0.78%
Cost of risk
2020
2019
0.08%
Statutory cost:income ratio
0.86%
2020
2019
143%
129%
How we define it
Number of active customer accounts.
Why it is important
Growing our customer accounts is key
to our franchise and validate that our
approach is working and that our
proposition resonates with customers.
Diversity
2020
2019
% Female
38%
36%
How we define it
The result is taken from our annual voice
of the colleague survey.
Why it is important
Attracting and retaining talent is vital
to delivering superior service and
preserving our culture and therefore
we want to ensure colleagues enjoy
working for Metro Bank.
1. We have changed how we measure colleague
engagement and as such the comparative figure
differs from the 92% figure disclosed last year.
2020
11%
2019
8%
% Black, Asian and minority ethnic (BAME)
How we define it
Proportion of female/BAME colleagues amongst our senior leadership (the ExCo
and their direct reports).
Why it is important
Ensuring diversity amongst our senior management ensures we are representative
of the communities we serve and our colleagues as a whole. This means we are more
likely to make decisions that are beneficial to all our stakeholders and help us deliver
on our strategy.
How we define it
Interest expense on customer deposits
divided by the average deposits from
customers for the year.
Why it is important
Cost of deposits is a key component
of profitability. As customers are more
willing to trade interest for a better
service offering on deposits as
compared to lending it is much more
within management’s ability to influence
the costs of deposits.
How we define it
How we define it
Expected credit loss expense divided by
average gross loans for the year.
Total costs (excluding expected credit
loss expense) expressed as proportion
of total income.
We seek to minimise our cost of risk and
Why it is important
optimise this in relation to the lending
Achieving tangible book growth
Why it is important
yield received.
involves achieving profitability and
therefore creating positive operating
jaws is vital to this. Statutory
cost:income ratio is a useful metric in
measuring progress in this regard.
Return on tangible equity
Loan to deposit ratio
Total shareholder return
2020
2019
-22%
-13%
2020
2019
75%
101%
2020
-96%
2019
-93%
How we define it
Earnings for the year divided by
average tangible shareholders’ equity
(total equity less intangible assets).
How we define it
Loans and advances to customers
expressed as a percentage of
total deposits.
How we define it
Total capital gains and dividends
returned to investors over a defined
period over a three-year rolling period.
Why it is important
This is the strategic output of
our business model and how we
judge success.
Why it is important
As we seek to be a deposit funded bank,
ensuring we maintain an appropriate
loan to deposit is a key measure in
managing this.
Why it is important
We want to ensure shareholders are
rewarded for their continued investment
in us.
14 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Non-financial
Financial
Customer satisfaction
2020
2019
86
89
How we define it
Why it is important
New account openings
Continuing relationships
Net promoter score for new account openings and continuing customer relationships.
Our purpose is to create FANS and as such ensuring strong ongoing levels of customer
satisfaction is important in measuring this.
Statutory loss before tax
Underlying loss before tax
CET1 ratio
2020
-£311.4m
2019
2020
-£271.8
-£130.8m
2019
-£11.7m
2020
2019
15.0%
15.6%
How we define it
Our earnings before tax as defined
by IFRS.
Why it is important
Achieving sustainable profitability is the
key financial measure to demonstrate
we are creating long-term value which
is the output of our business model.
How we define it
Our statutory earnings adjusted for
certain items that distort year-on-year
comparisons.
Why it is important
It provides a better and more relevant
understanding of the underlying trends
in the business.
How we define it
Our common equity tier 1 capital
expressed as a percentage of RWAs.
Why it is important
This is the regulatory core capital we
need to hold.
Customer accounts
Colleague engagement
Cost of deposits
2020
2019
2.2m
2.0m
2020
2019
73%
74%1
2020
2019
0.65%
0.78%
Cost of risk
2020
2019
0.08%
Statutory cost:income ratio
0.86%
2020
2019
143%
129%
How we define it
How we define it
Number of active customer accounts.
The result is taken from our annual voice
of the colleague survey.
Why it is important
Growing our customer accounts is key
to our franchise and validate that our
approach is working and that our
proposition resonates with customers.
Why it is important
Attracting and retaining talent is vital
to delivering superior service and
preserving our culture and therefore
we want to ensure colleagues enjoy
working for Metro Bank.
1. We have changed how we measure colleague
engagement and as such the comparative figure
differs from the 92% figure disclosed last year.
Diversity
2020
2019
% Female
38%
36%
How we define it
and their direct reports).
Why it is important
% Black, Asian and minority ethnic (BAME)
Proportion of female/BAME colleagues amongst our senior leadership (the ExCo
Ensuring diversity amongst our senior management ensures we are representative
of the communities we serve and our colleagues as a whole. This means we are more
likely to make decisions that are beneficial to all our stakeholders and help us deliver
on our strategy.
How we define it
Interest expense on customer deposits
divided by the average deposits from
customers for the year.
Why it is important
Cost of deposits is a key component
of profitability. As customers are more
willing to trade interest for a better
service offering on deposits as
compared to lending it is much more
within management’s ability to influence
the costs of deposits.
How we define it
Expected credit loss expense divided by
average gross loans for the year.
Why it is important
We seek to minimise our cost of risk and
optimise this in relation to the lending
yield received.
How we define it
Total costs (excluding expected credit
loss expense) expressed as proportion
of total income.
Why it is important
Achieving tangible book growth
involves achieving profitability and
therefore creating positive operating
jaws is vital to this. Statutory
cost:income ratio is a useful metric in
measuring progress in this regard.
Return on tangible equity
Loan to deposit ratio
Total shareholder return
2020
2019
-22%
-13%
2020
2019
75%
101%
2020
-96%
2019
-93%
How we define it
Earnings for the year divided by
average tangible shareholders’ equity
(total equity less intangible assets).
How we define it
Loans and advances to customers
expressed as a percentage of
total deposits.
How we define it
Total capital gains and dividends
returned to investors over a defined
period over a three-year rolling period.
Why it is important
This is the strategic output of
our business model and how we
judge success.
Why it is important
As we seek to be a deposit funded bank,
ensuring we maintain an appropriate
loan to deposit is a key measure in
managing this.
Why it is important
We want to ensure shareholders are
rewarded for their continued investment
in us.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 15
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Strategic priorities
Costs
Tight cost control through back-office
efficiencies, organisational
simplification and disciplined
property footprint.
DETAILS
PROGRESS IN 2020
IMPACTS OF COVID-19
PRIORITIES IN 2021
• Fixed costs are a significant portion of our cost base; greater operational
•
‘Run the bank’ cost growth of 1% on
•
Increased costs of ensuring our
• Customer service transformation.
leverage will be provided by containing cost growth.
• A range of initiatives are in place to limit cost growth.
a like for like basis.
locations are COVID-19 secure and
• Continued development of a
• Accelerated property strategy: exited
a colleague ‘thank you’ fund for
– Back-office location optimisation; increased remote working; and modernising
a Central London property.
frontline teams.
contact centre technology.
– Digitising/automating services; and reducing organisational layers.
– Future store expansion subject to review.
Revenue
Meeting more customer needs and
development of new capabilities.
• Leading customer service proposition focused on deepening relationships
and attracting new customers 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.
• Leveraging existing store network for growth through further embedding
ourself as a community bank.
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
customers 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.
Internal and
external
communications
Improve our approach to engagement.
• Optimise balance sheet and asset mix whilst focusing on risk adjusted return
• £3.1bn residential mortgage portfolio
• Capital light SME growth
• Remain dynamic and opportunistic
on capital.
• Seeking a better yielding asset book and improved returns by rebalancing
lending mix towards areas such as specialist mortgages, SMEs and retail
unsecured loans.
• Focus on providing colleagues, shareholders and other stakeholders with
a consistent message as we deliver on our ambition to become the UK’s
best community bank.
• Ensure colleagues have a clear understanding of the transformation plan
and their role within this.
• Re-evaluating guidance, KPIs, tone and frequency of reporting.
• Colleagues engaged across the business.
•
Increased colleague and customer
•
Implement new ways of working
•
Implemented a change of approach to
communication through the
to support our future hybrid plans.
quarterly reporting.
COVID-19 pandemic.
• Launched our people-people banking
•
Increased colleague health and
marketing campaign to raise awareness
wellbeing support with the launch
• Continue to deliver progress
updates on our transformation
strategy to all stakeholders.
• Focus on communicating new
of our award-winning service, this
included tailored versions for our
of our Wellbeing Hub.
• Greater use of digital tools to engage
product and service offerings to
Sheffield and Cardiff store openings.
with stakeholders.
deepen customer relationships.
16 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
• Procurement transformation and IT
• Set-up costs incurred to support
BBLS requirements.
• E-forms and process automation across
• Temporarily elevated expected
review of cost performance and
outsourcing transformed.
the Bank.
• Purchase of three store freeholds.
home working.
credit losses.
strategic collections capability
for the bank including meeting
• Continued focus on cost discipline,
discretionary spend.
• New products launched enhancing
• Re-prioritised initiatives to
• New products including SME
both retail and business customer
enhance and broaden existing
propositions.
product offering.
unsecured lending, retail credit
cards as well as enhanced
• Unsecured consumer lending originating
• Launch of BBLS, CBILS and CLBILS
overdrafts and FX capabilities.
through the RateSetter platform.
bringing additional revenue.
• Expansion of RateSetter unsecured
• Specialist mortgage products launch
• Fee income and foreign exchange
lending into store.
including higher LTV lending.
revenue impacted by lower
• Furthering range of specialist
• Announced acquisition of RateSetter
transaction volumes.
back book of unsecured consumer loans.
• Six new stores opened.
mortgage products.
• SME proposition for general
insurance.
• RateSetter platform integrated and
• Majority of office-based colleagues
• Product delivery through
originating unsecured consumer lending.
working remotely.
digital channels.
• Regulatory requirements delivered
• Resource allocated to deliver
• Delivery of regulatory
including PSD2, high cost of credit
government schemes.
requirements and enhancements
and cross border regulation.
• Brought forward customer support
to regulatory reporting.
•
IT landscape enhanced with a security
capability investment.
•
IT and Operational resilience
programmes.
operations centre and platform
upgrades.
disposal with an average yield of 2.1%.
through BBLS, CBILS and CLBILS.
to seek capital efficiencies.
• Acquisition and integration of RateSetter
• Capital relief measures
• Accelerate unsecured lending and
platform accelerates growth in consumer
applied, including:
unsecured lending.
• Re-entered high LTV mortgage market
as part of specialist mortgages strategy,
specialist mortgage applications
comprised >80% of all applications in Q4.
– IFRS 9 transitional agreement.
– SME supporting factor changes.
• Access to TFSME.
specialist mortgages to drive
improved yields and reduce the
lag effect on NIM.
• Complete RateSetter integration.
• Purchase RateSetter back book.
DETAILS
PROGRESS IN 2020
IMPACTS OF COVID-19
PRIORITIES IN 2021
bringing additional revenue.
through the RateSetter platform.
• Specialist mortgage products launch
including higher LTV lending.
• Announced acquisition of RateSetter
back book of unsecured consumer loans.
• Six new stores opened.
• Customer service transformation.
• Continued development of a
strategic collections capability
for the bank including meeting
BBLS requirements.
• Continued focus on cost discipline,
review of cost performance and
discretionary spend.
• New products including SME
unsecured lending, retail credit
cards as well as enhanced
overdrafts and FX capabilities.
• Expansion of RateSetter unsecured
Costs
Tight cost control through back-office
efficiencies, organisational
simplification and disciplined
property footprint.
• Fixed costs are a significant portion of our cost base; greater operational
leverage will be provided by containing cost growth.
• A range of initiatives are in place to limit cost growth.
– Back-office location optimisation; increased remote working; and modernising
contact centre technology.
•
‘Run the bank’ cost growth of 1% on
a like for like basis.
• Accelerated property strategy: exited
a Central London property.
•
Increased costs of ensuring our
locations are COVID-19 secure and
a colleague ‘thank you’ fund for
frontline teams.
• Procurement transformation and IT
• Set-up costs incurred to support
– Digitising/automating services; and reducing organisational layers.
outsourcing transformed.
home working.
– Future store expansion subject to review.
• E-forms and process automation across
• Temporarily elevated expected
the Bank.
• Purchase of three store freeholds.
credit losses.
• New products launched enhancing
both retail and business customer
propositions.
• Re-prioritised initiatives to
enhance and broaden existing
product offering.
• Unsecured consumer lending originating
• Launch of BBLS, CBILS and CLBILS
• Fee income and foreign exchange
lending into store.
revenue impacted by lower
transaction volumes.
• Furthering range of specialist
mortgage products.
• SME proposition for general
insurance.
Revenue
Meeting more customer needs and
development of new capabilities.
• Leading customer service proposition focused on deepening relationships
and attracting new customers 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.
• Leveraging existing store network for growth through further embedding
ourself as a community bank.
Infrastructure
Investment in integrated channels and
core infrastructure.
customers 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
• Seeking a better yielding asset book and improved returns by rebalancing
lending mix towards areas such as specialist mortgages, SMEs and retail
on capital.
unsecured loans.
• Continued investment in the Bank’s leading customer proposition with the aim
• RateSetter platform integrated and
• Majority of office-based colleagues
• Product delivery through
of bringing the physical and digital world together, making life easier for our
originating unsecured consumer lending.
working remotely.
digital channels.
• Regulatory requirements delivered
including PSD2, high cost of credit
and cross border regulation.
IT landscape enhanced with a security
operations centre and platform
upgrades.
•
• Resource allocated to deliver
• Delivery of regulatory
government schemes.
• Brought forward customer support
capability investment.
requirements and enhancements
to regulatory reporting.
IT and Operational resilience
programmes.
•
• £3.1bn residential mortgage portfolio
disposal with an average yield of 2.1%.
• Acquisition and integration of RateSetter
platform accelerates growth in consumer
unsecured lending.
• Re-entered high LTV mortgage market
as part of specialist mortgages strategy,
specialist mortgage applications
comprised >80% of all applications in Q4.
• Capital light SME growth
• Remain dynamic and opportunistic
through BBLS, CBILS and CLBILS.
to seek capital efficiencies.
• Capital relief measures
• Accelerate unsecured lending and
applied, including:
– IFRS 9 transitional agreement.
– SME supporting factor changes.
• Access to TFSME.
specialist mortgages to drive
improved yields and reduce the
lag effect on NIM.
• Complete RateSetter integration.
• Purchase RateSetter back book.
Internal and
external
communications
Improve our approach to engagement.
• Focus on providing colleagues, shareholders and other stakeholders with
a consistent message as we deliver on our ambition to become the UK’s
• Ensure colleagues have a clear understanding of the transformation plan
best community bank.
and their role within this.
• Re-evaluating guidance, KPIs, tone and frequency of reporting.
• Colleagues engaged across the business.
Implemented a change of approach to
•
quarterly reporting.
• Launched our people-people banking
marketing campaign to raise awareness
of our award-winning service, this
included tailored versions for our
Sheffield and Cardiff store openings.
•
•
Increased colleague and customer
communication through the
COVID-19 pandemic.
Increased colleague health and
wellbeing support with the launch
of our Wellbeing Hub.
• Greater use of digital tools to engage
with stakeholders.
•
Implement new ways of working
to support our future hybrid plans.
• Continue to deliver progress
updates on our transformation
strategy to all stakeholders.
• Focus on communicating new
product and service offerings to
deepen customer relationships.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 17
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION External market review
Economic outlook
The COVID-19 pandemic led to
contraction across broad sectors of the
economy, unprecedented in its speed and
scale of impact. During the first half of the
year the UK’s gross domestic product
(GDP) declined by more than 20%
reflecting the impact of the first national
lockdown implemented to reduce
transmission of the virus. An easing of
restrictions during the summer months
led to some recovery, although the rate of
improvement slowed in the third quarter
as stricter measures were reintroduced in
response to the second wave of infection.
By the year end, GDP was more than
10% below a year earlier.
The economic impact of the lockdown
was in part mitigated through the
implementation of a range of government
measures designed to protect consumers
and businesses. Banks, including
ourselves, were an important factor in this
effort, extending payment holidays and
other support measures to borrowers,
whilst rapidly channelling government-
backed BBLS, CBILS and CLBILS
to businesses.
A government-backed furlough scheme,
that protected the jobs of over nine
million people at its peak, limited the
effects on unemployment in 2020.
Property transactions were largely
curtailed during the spring national
lockdown as the market initially struggled
to operate in the absence of in-person
viewings and valuations. However, as
lenders adapted by implementing remote
valuation tools, momentum returned to
the market in early summer. The
combination of pent-up demand at the
end of the lockdown together with the
introduction of a stamp duty holiday for
transactions up to £500,000, helped
drive the number of transactions in
November to their highest level for 10
years. House prices in December were
over 7% above the start of the year.
An acceleration in economic recovery
is anticipated in the second quarter of
2021, as the widespread deployment
of vaccines is expected to allow social
restrictions to be lifted. The furlough
scheme is due to end in September 2021
and, in the absence of other measures,
there is speculation that this could lead
to a further rise in unemployment. The
phasing out of the stamp duty holiday
from June 2021 combined with a
potentially softer labour market may lead
to a period of lower property transactions
and the threat of weaker prices.
Given the exceptional nature of the
pandemic, uncertainty remains around
the shape and timing of the recovery.
Our response
We have increased the size of our
customer support function to ensure
that we can continue to provide our
personal and business customers with
the support they need as the impacts
of the pandemic work through the
economy. We provided payment
deferrals on 24% of our lending
portfolio, with deferrals in place on
3% of our total lending at
31 December 2020.
In response to the government-
backed support schemes we have
worked to deliver these at pace,
knowing how critical these are to
many small and medium-sized
business. At the same time we have
worked to minimise the level of fraud
on these schemes including joining
the industry-wide initiatives to help
protect both ourselves and the
taxpayer against loss.
Credit risk modelling and
measurement of Expected Credit
Losses remains a key focus for
management and the Board,
supported by robust, independent
macroeconomic forecasts.
18 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Competition
As part of its package of measures to
support the economy, in March the Bank
of England (BoE) reduced the base rate
by 0.65% to 0.1%. In response, rates on
fixed term deposit and instant access
accounts repriced markedly downwards
across the market. Included in this shift
were recent online-only entrants that had
been driving competition, and the
government-backed National Savings
and Investments that has traditionally
taken a significant market share.
In the current account market
competition remains high particularly
from the new digital-only operator
as well as from established players
offering switching incentives to attract
new customers.
At the outset of 2020, it had been widely
anticipated that maturing of the Term
Funding Scheme (TFS) would drive
beneficiaries of the scheme to seek funds
from the deposit market and therefore
drive competition and pricing higher,
however the introduction of TFSME in
March 2020 provided a new, low cost,
alternative source of funding.
The lower rate environment has reduced
the differential between instant access
and fixed rate deposit accounts, which
when combined with customers’ caution
in the context of an uncertain economic
outlook, has seen change in customer
preference towards instant access
and the retention of higher current
account balances.
Pricing in the mortgage market in the first
quarter continued to reflect the highly
competitive environment of the previous
year, driven by the continued effects of
ring-fencing on the larger banks. High
levels of activity in the residential
mortgage market in the second half of
2020 were spurred on by the stamp duty
holiday and pent-up demand during the
first lockdown. The scarcity of operational
capacity pushed mortgage providers to
increase pricing to dampen demand,
widening spreads to levels not seen in the
market in recent years. However, with the
stamp duty holiday due to be phased out
from June 2021, it’s uncertain how long
the elevated transaction volumes and
higher mortgage pricing environment
will continue.
Our response
In response to these competitive
pressures we have pulled back from
mainstream mortgage lending and
instead have targeted lending
towards higher yielding segments
of the market, including testing a
range of specialist mortgages.
This included offering 90% LTV
mortgages when all other
mainstream lenders withdrew
from this segment of the market.
In September we also completed
the acquisition of the RateSetter
platform and have since added
consumer lending journeys to our
app and website. In February 2021
we announced the purchase of its
back book, accelerating our entry
into the consumer credit market.
We reduced the rates on our fixed
term deposit accounts, positioning
our rates competitively with other
high street banks, but below the
online only providers.
In August we also launched our
own ‘Refer a Friend’ switching
incentive scheme offering £50
each to both the new customer
and the existing customer who
referred them.
Regulation
As part of the package of measures put
in place to support consumers during
the pandemic, the Financial Conduct
Authority (FCA) guided lenders to
offer mortgage and consumer credit
customers relief in the form of payment
deferrals of up to a maximum of six
months, ending at the latest by 31 July
2021. The FCA also paused home
repossessions by lenders until
1 April 2021.
In response to the pandemic the BoE
continues to assess the appropriateness
of implementing negative interest rates as
a transmission mechanism for monetary
policy. In October 2020 the BoE
undertook a sector-wide exercise to
gather information to understand firms’
operational readiness and challenges with
potential implementation, particularly in
terms of technology capabilities. In
February 2021 the BoE gave banks and
building societies six months to prepare
for these.
Concerns regarding the potential risks
to banks and the wider financial system
related to climate change remain high
on the regulatory agenda, with firms
encouraged to consider climate risk
as part of their strategy and risk
management frameworks. The
Prudential Regulation Authority (PRA)
have indicated that firms should have
fully embedded their approaches to
managing climate-related financial
risks by the end of 2021.
Our response
Alongside the UK Government’s
COVID-19 support measures and
the other regulatory initiatives
outlined above, the wider
regulatory landscape continues
to evolve.
We continue to monitor closely
and prepare for further initiatives
including the potential for negative
rates and the impacts of climate
change, to ensure that we remain
well placed to identify impacts to
our business model and our ability
to continue to support our
customers effectively.
Capital regime and funding
Regulators acted rapidly in the early
stages of the pandemic, adjusting capital
requirements to ensure the economy
was unconstrained by a lack of access
to finance. The measures included a
reduction in the countercyclical buffer
to 0% from 1% (previously expected to
increase to 2% in December 2020) and
the Capital Requirements Regulation
(CRR) ‘Quick Fix’ package including a
revised IFRS 9 transitional agreement and
changes to the SME supporting factor.
Further relief has been provided through
the European Banking Authority’s
changes to the capital treatment of
software, although the PRA has
recommended that banks do not factor
this in when making capital decisions and
is planning to consult on it in due course.
In March the BoE launched the Term
Funding Scheme with additional
incentives for SMEs (TFSME) to support
lending to the economy. The scheme
offers four-year funding at base rate.
TFSME is available to Banks up to the
value of 10% of their lending with
additional funding available for banks
that increase lending to SMEs.
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
within the European Union’s Banking
Recovery and Resolution Directive
(BRRD). The BoE adopted a transitional
period, with an interim requirement from
1 January 2020 equal to 18% of risk-
weighted assets (RWAs) plus regulatory
buffers. End-state requirements are
effective from 1 January 2023 and for
‘bail-in’ banks are equal to twice 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
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 19
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION External market review continued
requirements. During summer 2021
the BoE will issue a consultation paper
regarding the MREL regime with
potential for change including transition
periods, thresholds, calibration and
qualifying instruments.
Consumer behaviour
COVID-19 has forced a significant
alteration in consumer behaviour. It is
currently unclear which of these will lead
to a permanent shift and which will return
to the status quo.
Our response
In December we sold a £3.1 billion
residential mortgage portfolio; the
transaction increased our capital
headroom, whilst also enabling
a shift in our asset mix towards
higher yielding segments of the
market. The transaction removed
the need to issue additional MREL
qualifying debt in the near term.
Alongside other small and mid-
sized banks, we hold
proportionately more capital within
Pillar 1 compared to the larger
incumbent banks. We continue
to advance our advanced internal
ratings based approach to
calculating credit risk (AIRB)
application to reduce risk density
and increase our competitiveness.
Pillar 3
Pillar 3 reporting requirements
requires us to publish a set of
disclosures which allow market
participants to assess our
capital, risk exposures and risk
assessment process.
Our Pillar 3 disclosures, which are
unaudited, can be found on our
website www.metrobankonline.co.
uk/investor-relations/
During the early weeks of the first
lockdown we saw considerable reduction
in customer activity with safety deposit
box visits down c.80%, ATM and counter
transactions falling by c.70%, and card
transactions around 40% lower. Activity
levels began trending upwards as the
lockdown was eased from mid-May
and fell back during the autumn and
Christmas lockdowns, although not down
to the levels observed in the spring. Other
UK banks have reported similar trends,
together with exceptionally high digital
activity and sign-ups. While we have
seen elevated digital activity since the
beginning of March, our customers
already have high digital and online
engagement, for example with mobile
banking set-up in-store at the time of
account opening, therefore we have not
seen such a pronounced increase in
sign-up. The reduction in consumer
activity has also resulted in higher levels
of savings and increases in retail deposit
balances have been observed across
the sector.
The increase in use of digital channels
is not unique to banking and 2020 has
seen an acceleration of online shopping
putting pressure on many high streets.
This in turn has led to decline in the value
of commercial retail space.
Social distancing requirements limited
the number of customers permitted
inside banks and it became a feature of
high streets throughout the country to
see queues of customers forming on the
pavement. This highlighted the value
customers place on having face-to-face
contact, and our store network remains
a key part of our proposition to customers
and communities.
20 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Most competitors paused their
permanent store closure programmes
for a number of months as part of their
response to COVID-19, however these
plans recommenced by the end of the
year, impacting their customers by
compelling them to travel further for
face-to-face services.
Our response
Provided support to our
communities throughout the
pandemic by ensuring customers
continued access to manage their
finances, in store, via telephone
or online.
All of our stores remained open
throughout the pandemic, although
with reduced hours, whilst other
high street banks allowed some
of their branches to close during
the height of the lockdown. We
provided extra support to elderly
and vulnerable customers,
including introducing protected
hours within our AMAZE direct
call centres.
We have taken the opportunity to
purchase the freeholds of some
of our stores with longer leases,
providing greater flexibility over
these sites.
We are committed to leveraging
our existing network of 77 stores,
with no expansion beyond stores
in Bradford and Leicester in 2021.
Future expansion is subject
to review, with no new stores
planned in 2022 or 2023.
Financial review
Our statutory loss before tax for the year
was £311.4 million, up from the loss of
£130.8 million we made in 2019. A key
driver of the increased loss was a higher
expected credit loss expense which was
£126.7 million compared to £11.7 million in
2019. Non-underlying items, particularly
transformation and remediation costs,
remained a significant component
during 2020 reflecting the costs
of the turnaround plan.
However, these costs were partly offset
by a £63.7 million gain recognised on the
mortgage sale (net of costs) in 2020. A
further gain of £8.0 million for this sale
(net of costs) was recognised in 2021.
Underlying loss before tax
(271.8)
Reconciliation
£m
Gain on mortgage portfolio
sale (net of costs)
Listing Share Awards
Impairment and write-off of
PPE and intangible assets
Remediation costs
Transformation costs
Business acquisition and
integration costs
Statutory loss before tax
63.7
0.2
(40.6)
(40.8)
(16.7)
(5.4)
(311.4)
For more information on our alternative
performance measures see pages 233 to 235
Income
Total statutory income increased 4% year-
on-year to £432.6 million from £415.6
million. This was driven by the £69.0
million gain recognised in relation to the
mortgage sale. Adjusting for this and
for grant income relating to the C&I
programme, underlying income reduced
by 15% year-on-year from £400.1 million
to £340.9 million. This principally reflects
margin compression due to the timing lag
on asset and liability pricing following the
65bps base reduction in March, as well as
the reduction in the loan to deposit ratio.
These effects were most keenly felt in the
first half of the year with net interest
margin (NIM) reducing to 1.15% in H1.
DAVID ARDEN
CHIEF FINANCIAL OFFICER
2020
£m
2019
£m
Change
%
Underlying net
interest income 250.3 308.1
(19%)
Underlying fee
and other
income
Underlying net
gains on sale of
assets
Total underlying
revenue
Underlying
operating costs
Expected credit
loss expense
Underlying loss
before tax
Non-underlying
items
Statutory loss
before tax
86.3
90.4
(5%)
4.3
1.6 >100%
340.9 400.1
(15%)
(486.0) (400.1)
21%
(126.7)
(11.7) >100%
(271.8)
(11.7) >100%
(39.6) (119.1)
(67%)
(311.4) (130.8) >100%
Our financial performance in 2020
reflects the challenging year we have
faced, as the anticipated costs of our
turnaround have been compounded
by a difficult operating environment.
Notwithstanding these challenges, we
have made good progress against our
turnaround plan, whilst at the same time
maintaining a strong balance sheet. Our
underlying performance is on track
against our expectations, once adjusted
for the impacts of COVID-19.
Entering 2020, the main constraint on
the business remained regulatory capital.
In response to this, and in line with our
strategy, we took the decision in
December 2020 to divest £3.1 billion
of residential mortgages (90% were
derecognised at year-end). The sale
increased total capital plus MREL
resources by 4%, removing the need to
raise additional capital in the near term,
as well as allowing us to continue to shift
our product portfolio towards higher
yielding segments.
Further supporting this strategy, in
September 2020 we acquired RateSetter
which provided immediate capabilities
to accelerate our reach into unsecured
lending. In February 2021 we further
announced our intention to utilise some
of the capital freed up from the mortgage
sale to buy the back book of peer-to-peer
loans from the RateSetter investors.
Additionally, during 2020 we significantly
increased the proportion of mortgage
lending in speciality segments.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 21
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Financial review continued
NIM reconciliation
Reconciliation
2019 full year net interest
margin
Treasury assets
(including disposals)
Lending mix
Lending yield
Cost of deposits
Loan-to-deposit ratio and
other
2020 full year net interest
margin
1.51%
(0.07%)
0.02%
(0.19%)
0.10%
(0.15%)
1.22%
NIM recovered somewhat in H2 to 1.28%,
due to repricing actions taken on the
deposit book, improved deposit mix
benefiting from an 11% reduction in fixed
term deposits and a 9% increase in
non-interest bearing current accounts,
plus improved asset mix. While the full
year cost of deposits was 0.65%, the exit
rate was 0.39%. In 2021, we anticipate
further improvements in NIM as we
continue to reprice deposits and move
to higher yielding assets.
Fee income was materially impacted
by lower volumes due to the various
COVID-19 lockdowns and regional
restrictions implemented throughout
the year. Despite this, underlying fee
and other income only fell 5%, reflecting
continued account growth, as well as fee
optimisation and other initiatives. Of note
is the material recovery we saw in H2,
with a 39% increase in underlying fees
and other income from H1 as lockdown
restrictions were eased over the summer
and autumn. At the timing of writing it
is difficult to predict when the current
lockdown will end, however we do expect
to see a normalisation of fee levels over
the course of 2021, supported by current
account growth and our SME
propositions, as well as the introduction
of new products during 2021.
non-underlying expenditure, most
notably ongoing remediation costs,
as well as previously communicated front-
loaded ‘Change the Bank’ investment
spend. ‘Run the Bank’ costs, which
exclude investments and reflect our core
operating expenses, grew 9% year-on-
year. However, this growth includes the
increased store footprint, the acquired
costs from RateSetter, as well as
COVID-19 related costs. Excluding these
items, ‘Run the Bank’ cost increases were
contained to 1% on a like for like basis,
demonstrating improved cost discipline
within the business.
The majority of ‘Change the Bank’
expenditure has been focused on
required infrastructure and regulatory
programmes during 2020. While this
will continue into 2021, we do anticipate
focusing more spend on revenue and
cost avoidance initiatives.
During the year we took the decision to
vacate one of our central London offices.
The costs of this exit are reflected within
transformation and impairment and
write-off of PPE and intangible
assets lines.
2020
£m
2019
£m
Change
%
Depreciation and
amortisation
Total operating
expense
Total underlying
operating
expense
‘Run the Bank’
costs
‘Change the
Bank’ costs
74.4
76.4
(3%)
617.3 534.7
15%
486.0 400.1
21%
390.4 358.6
9%
95.6
41.5 >100%
Statutory
cost:income ratio 143%
Underlying
cost:income ratio 143%
129%
100%
commercial property market to buy the
freeholds of three of our stores. The
stores purchased were on 25-year leases
with no break clauses and were bought at
amounts close or equal to their right of
use asset – meaning only a marginal
upfront capital impact in exchange for
longer-term savings and flexibility.
Freeholds now make up 30% of our
store estate.
2021 will also see us start to realise
synergies from the integration of
RateSetter as well as focus on other
areas where costs can be reduced
across the business.
Depreciation and amortisation remained
flat at £74.4 million during 2020 (2019:
£76.4 million) reflecting reduced
amortisation as a result of the write-offs
made in 2019, offset by the increased
store presence and new digital initiatives.
Expected credit loss expense
Expected credit losses were severely
impacted by the deteriorating
macroeconomic conditions resulting
from the COVID-19 pandemic, increasing
£115.0 million to £126.7 million (2019: £11.7
million) representing a cost of risk of
0.86% (2019: 0.08%).
Balance sheet expected credit loss
provisions were £154 million at the
year-end (31 December 2019: £34 million)
which represents coverage ratio of 1.30%
of our total gross lending.
The increase in expected credit losses
has been driven by deteriorating
macroeconomic scenarios which have
primarily increased the probability of
default. Observed losses still remain
relatively low, however they will likely
increase through 2021 as COVID-19
related government support measures
roll off.
Costs
Total statutory costs grew by 15% during
the year to £617.3 million (2019: £534.7
million). This reflects continued growth in
Alongside this we have taken advantage
of the opportunities afforded to us by our
strong liquidity position and a weakened
We have applied a number of post-model
adjustments and overlays to reflect the
continued uncertainties in the economic
environment, particularly in relation to
22 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
sectors heavily impacted by the
COVID-19 pandemic.
Throughout the course of the pandemic
we have been committed to supporting
customers and, in line with regulatory
requirements, we offered payment
deferrals to mortgage and personal
customers who required support. This
was initially for a three-month period
from March to June, however this has
been subject to extensions. In addition,
we offered support measures to
commercial customers and in total
offered support arrangements on 29%
of our commercial lending portfolio
(based on gross exposure).
In line with regulatory guidance, the use
of a support measure by a customer does
not in itself signify an increase in credit
risk for that loan.
At 31 December 2020 less than 1% of
the mortgage portfolio were subject to
support measures with weighted average
debt-to-values of 64% on these loans.
Deposits
Retail customer
(excluding retail
partnerships)
Retail
partnerships
Commercial
customers
(excluding SMEs)
SMEs
Total customer
deposits
2020
£bn
2019
£bn
Change
%
7.4
6.9
7%
1.6
1.8
(13%)
2.7
4.4
2.5
3.3
8%
36%
16.1
14.5
11%
Deposits from customers ended the year
at £16.1 billion up 11% from £14.5 billion
at the end of 2019. The increase has
primarily been driven by an 10% increase
in new accounts as well as higher savings
levels during the pandemic, a trend that
has been seen across the market.
Deposits have also increased as a result of
the BBLS loans being redeposited, where
businesses have secured funding but are
yet to fully utilise the loan. These effects
are particularly prevalent in our core
deposit base of retail customers
and SMEs.
We continue to use funds from the BoE’s
Term Funding Scheme (TFS) which was
closed to further drawdowns in February
2018. In 2020 we rolled over £550 million
of TFS drawing that matured into TFSME
– a similar style scheme aimed at
supporting lending to SMEs.
Assets
Loans and
advances to
customers
Total assets
2020
£bn
2019
£bn
Change
%
12.1
22.6
14.7
(18%)
21.4
6%
Loan to deposit
ratio
75%
101%
Cost of risk
0.86% 0.08%
Total assets increased to £22.6 billion
from £21.4 billion at the end of 2019.
Loans and advances to customers fell
to £12.1 billion from £14.7 billion, this
decrease primarily reflects the £3.1 billion
mortgage sale to NatWest. Following the
sale, retail mortgages now make up 56%
of our gross lending (31 December
2019: 71%).
Following the acquisition of RateSetter
in September, unsecured personal loans
ended the year at £121 million. Whilst this
still only represents a small part of our
lending, this will increase as we scale up
the volumes over the course of 2021.
During the year we also grew our
commercial lending by 27% to £5.1 billion
(31 December 2019: £4.1 billion). The
increase has been driven by government-
backed lending schemes in the form of
BBLS, CBILS and CLBILS which totalled
£1.5 billion at the year end.
Our loan to deposit ratio returned to
below 100% ending the year at 75%
(31 December 2019: 101%). The sale of the
mortgage portfolio in December lowered
the ratio. Excluding the mortgage sale,
the loan to deposit ratio would have
been 94%.
Taxation
During 2020 we made a total tax
contribution of £132.9 million (2019: £123.1
million), which comprised £86.5 million
(2019: £78.2 million) of taxes we paid
and a further £46.4 million (2019: £44.9
million) of taxes we collected.
Taxes paid
Corporation tax
2020
0.0%
2019
1.6%
Business rates
13.5%
12.9%
Land transaction
tax
Employer NICs
Irrecoverable VAT
and customs duty
Other
1.3%
20.4%
64.5%
0.3%
3.3%
20.6%
61.3%
0.3%
Total taxes paid
£86.5m £78.2m
Taxes collected
2020
2019
Employees’ NICs
PAYE
Net VAT
Other
Total taxes
collected
25.1%
65.5%
9.1%
0.4%
23.6%
62.1%
14.3%
0.0%
£46.4m £44.9m
In 2020 our tax credit recognised in
the income statement was £9.7 million
(2019: expense £51.8 million).
Acquisition of RateSetter
In September 2020 we acquired Retail
Money Market Ltd (‘RateSetter’). The
acquisition was in line with our strategy
to shift our lending mix and the
acquisition provided a quicker and
more cost-efficient route to market than
building out the capability in-house. As
part of the acquisition we recognised £32
million of intangible assets in respect of
RateSetter’s unsecured lending platform.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 23
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Financial review continued
RateSetter was bought for consideration
of £12 million, of which £0.5 million was
deferred for 12 months from purchase
and £9 million is payable up to three
years from purchase subject to certain
lending volumes being met. Goodwill of
£6 million was recognised in relation to
the purchase.
Prior to acquisition by Metro Bank, the
RateSetter peer-to-peer business was put
into run off, which closed the platform to
new investors and started the process of
running down the back book of loans.
Since the acquisition we have injected
further capital into the business allowing
it to repay £21 million of external debt,
on which it was paying an average of 7%
interest. Whilst RateSetter will continue
to be loss making in the short term, in the
near term we anticipate achieving cost
synergies as it becomes more closely
integrated into the Group and as we
increase lending volumes.
On 2 February 2021 we announced our
intention to purchase the back book of
loans from the RateSetter peer-to-peer
investors, in line with our strategy of
increasing this area of lending.
Capital
2020
£’million
2019
£’million Change
CET1 capital
1,192
1,427
(16%)
As a result of the pandemic the regulator
took a number of measures in relation
to regulatory capital. These included
a reduction in the countercyclical buffer
to 0% from 1% (previously expected to
increase to 2% in December 2020) and
the Capital Requirements Regulation
(CRR) ‘Quick Fix’ package including a
revised IFRS 9 transitional agreement and
changes to the SME supporting factor.
In addition, further capital relief has
been provided through the EBA’s
changes to the capital treatment of
software, although the PRA has
announced through CP5/21 their intention
to modify the regulatory requirements
and we expect that software will return
to being fully deducted prior to 1 January
2022. We are therefore not considering
this benefit when making capital
decisions today or in our longer-term
strategic planning.
Reconciliation
Total capital plus MREL ratio
at 1 January 2020
22.1%
Annual operational risk
adjustment
Movement in lending
(excluding portfolio sale)
Mortgage portfolio sale
Intangible assets
(including RateSetter)
EBA software add back
Risk-weighted
assets (RWAs)
7,957
9,147
(13%)
SME supporting factor
CET1 ratio
15.0%
15.6% (60bps)
Expected credit losses
Total regulatory
capital ratio
Total regulatory
capital plus
MREL ratio
Regulatory
leverage ratio
18.1%
18.3% (20bps)
22.4%
22.1%
30bps
5.6%
6.6%
A reconciliation between our statutory
balance sheet and our RWAs can be found
on page 232
IFRS 9 add-back
Loss for the year
(excluding ECL and
mortgage sale)
Total capital plus MREL ratio
at 31 December 2020
Completion of mortgage
portfolio sale
Total capital plus MREL ratio
at 31 December 2020
(pro forma)
24 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
(0.4)%
1.8%
2.0%
(1.1)%
0.8%
0.9%
(1.6)%
1.0%
(3.1)%
22.4%
2.0%
24.4%
We ended the year with a CET1 ratio of
15.0% (2019: 15.6%) and a total capital
ratio plus MREL 22.4% (2019: 22.1%).
On a pro forma basis adjusting for the
mortgage portfolio sale which was in the
process over the year end these ratios
would be 16.3% and 24.4% respectively.
Looking ahead
Despite the clear challenges resulting
from the COVID-19 pandemic, 2020
brought many encouraging signs which
demonstrate our turnaround is beginning
to take effect.
Whilst the external challenges we face
will inevitably continue into 2021, we are
now in a stronger position to tackle these.
The sale of the residential mortgage
portfolio has removed the need to raise
additional capital in the near-term, as well
as allowing us to reinvest the proceeds
in higher yielding assets to maximise
capital efficiency.
The capabilities and systems obtained via
our acquisition of RateSetter will allow us
to accelerate a shift in our product mix to
focus on yield over volume.
We will continue to focus on cost control
and ensure that we can return to
sustainable profitability. That remains
our key focus.
David Arden
Chief Financial Officer
23 March 2021
Risk report
Effective risk management underpins
everything we do and is critical to
realising our strategic priorities. We
have an established risk management
framework to manage and report the
various risks that we face over the course
of our daily business. The framework:
• is the totality of systems, structures,
policies, processes and people that
identify, measure, evaluate, control,
mitigate, monitor, and report all
internal and external sources of
material risk;
• ensures all principal and emerging
risks are identified, assessed,
mitigated, monitored and reported;
• ensures risk appetite is clearly
articulated and influences the
strategic plan;
• promotes a clearly defined risk culture
that emphasises risk management
across all areas of the Bank; and
• undertakes ongoing analysis of the
environment in which we operate and
proactively addresses potential risk
issues as they arise.
Risk appetite, policies and procedures
In line with our business model, outlined
on pages 12 to 13 we strive to generate
long term tangible book growth as well
as sustainable growth for all our
stakeholders. Risk appetite is defined as
the level and types of risk we are willing
to take within the boundaries of our risk
capacity, to achieve these objectives.
We achieve this by developing Risk
Appetite Statements which articulate our
risk appetite to stakeholders and provide
a view on the risk-taking activities with
which the Board is comfortable, guiding
decision-makers in their strategic and
business decisions. Summaries of our Risk
Appetite Statements are included within
the relevant principals risks on pages 30
to 51.
Our Risk Appetite Statements convey
the balance required between risk-taking
and the commercial and reputational
implications of doing so, promoting good
customer outcomes and protecting us
from excessive exposure. The Risk
Appetite Statements include qualitative
and quantitative limits which inform
strategies, targets, policies, procedures
and other controls that collectively ensure
we remain within the Board’s approved
risk appetite. Information on performance
against relevant Risk Appetite Statement
settings, breaches and trends is reported
to the Executive Risk Committee, Risk
Oversight Committee and Board regularly.
In addition to our Risk Appetite
Statements we have developed a Risk
Policy Framework as a key component
of our risk management. The Risk Policy
Framework provides structure and
governance for the consistent and
effective management of policies we
develop in order to manage our risk
appetite. These policies define the
minimum control requirements that
must be observed across the Bank to
manage material sources of risk within
risk appetite.
Risk governance and oversight
We have a structured risk governance
framework which strengthens our
approach to risk management as well
evaluating new risks. This allows us
to manage the changing regulatory
environment in an efficient and
effective manner.
Effective operation of a ‘three lines
of defence’ model is integral to our
approach to risk management and is
based on the overriding principle that risk
capability must be embedded within the
first line of defence teams to be effective.
Responsibility for risk management
resides at all levels within the Bank and
is supported by Board and Executive-
level committees. The table on page 27
sets out how responsibility for risk
management is allocated and how
that responsibility is discharged.
Risk culture
A critical supporting factor of the risk
management framework is our culture,
which supports risk awareness by
encouraging every colleague to think
about the relationship between their role
and our purpose of creating FANS and
growing safely and sustainably. This
culture begins with our Executive team,
which leads by example with consistent
and clear communication of our
commitment to managing risk at all
levels of the organisation.
Personal accountability is at the heart of
our risk culture. This is enabled through
the Senior Managers and Certification
Regime framework, which supports
colleagues to make risk-informed
decisions. Risk management is also
included in every colleague’s objectives
each year and is embedded within our
scorecard, against which performance
is measured. Colleagues are recruited
with the core skills, abilities and attitude
required to fulfil their role. They are
provided with training and development
to ensure they maintain and develop
the required levels of competence. This
supports colleagues in making decisions
and judgements with risk in mind.
We know that a culture that truly
focuses on creating FANS by exceeding
customers’ expectations will reduce
the risk of customer harm and deliver
consistently good outcomes. We
continually seek to enhance and further
embed our risk management framework
to ensure effective risk ownership and
management within risk appetite,
supporting appropriate customer
outcomes, and the delivery of our
strategic plan. We promote an
environment of effective challenge
in which decision-making processes
stimulate a range of views. During the
year, we have implemented several
initiatives that have further strengthened
and embedded the risk management
framework within the business, increasing
commitment to and understanding of risk
management across all colleagues.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 25
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
Risk Appetite
Culture
STRATEGY
APPETITE
GOVERNANCE
C
u
l
t
u
r
e
RISK MANAGEMENT PROCESS
Identification
Assessment
Treatment
Evaluation
&
r
e
p
o
r
t
i
n
g
M
o
n
i
t
o
r
i
n
g
RISK OPERATING MODEL
I
i
n
c
d
e
n
t
s
,
l
o
s
s
e
s
3 lines of defence
Tools and processes
Resources
(People, data, technology)
Culture
Our response to the pandemic
demonstrates the robustness of our
approach to risk management and
mitigation as we continue to successfully
manage these events. Like many
businesses, COVID-19 has, however,
increased our risk profile. The measures
introduced to support the economy
create new operational, conduct and
financial risks for the Bank. These risks are
being managed and will be monitored
over time.
Changes in principal risks
and risk profile
In line with the UK Corporate Governance
Code requirements, we have performed
a robust assessment of the principal
and emerging risks we face, including
those that could result in events or
circumstances that might threaten our
business model, future performance,
solvency or liquidity, and reputation. In
deciding on the classification of principal
risks, we considered the potential impact
and probability of the related events and
circumstances and the timescale over
which they may occur. The principal risk
categories remain similar to those
outlined in the Annual Report and
Accounts 2019, with changes relating
to the identification of capital risk as
a principal risk and the recognition of
climate risk as a cross-cutting risk, which
manifests through the existing principal
risk framework.
An overview of the principal risks and
how they have changed over the year are
set out on pages 28 to 29. While further
information on all of the principal risks
can be found on pages 30 to 51 of the
Risk report.
During the year, we have been working
hard to support our customers and
minimise the impact of COVID-19 for
businesses and households across the
UK, maintaining our customer service
operations and store distribution with
minimal interruption. We have also
participated in the various UK
Government-backed loan schemes
for businesses, in addition to offering
payment holidays to mortgage, personal
and business customers.
26 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
BOARD
SETS RISK APPETITE AND STRATEGY
• Sets our strategy, corporate objectives, risk appetite.
• Ensures an adequate framework is in place for reporting
• Maintains an appropriate control environment
to manage risk effectively.
and managing risk.
• Ensures capital, liquidity and other resources are
adequate to achieve our objectives within risk appetite.
RISK OVERSIGHT COMMITTEE
OVERSEES RISK GOVERNANCE AND MANAGEMENT
• Recommends risk appetite statement measures
• Reviews risk policies, and approves or recommends
to the Board.
to the Board for approval.
• Reviews risk exposures in relation to the risk appetite.
• Monitors the effectiveness of risk management
processes and procedures put in place by management.
EXECUTIVE-LEVEL COMMITTEES
OVERSEE THE RISK MANAGEMENT FRAMEWORK
Executive Risk Committee
• Endorses the risk appetite for approval by the Board
Asset and Liability Committee
• Monitors performance against the Board
and monitors performance against risk appetite.
• Reviews and recommends risk policies for approval
capital/funding plans.
• Ensures that the Bank meets internal liquidity
by the Board or Risk Oversight Committee.
and capital targets.
• Reviews and endorses risk frameworks and tools.
• Oversees the quality and composition of the credit risk
• Agrees pricing decisions to ensure visibility
of capital and liquidity impacts.
portfolio, and recommends strategies to adjust the portfolio.
• Monitors interest rate risk.
Model Oversight Committee
• Oversees model governance and model risk monitoring.
• Approves all material models.
Credit Approval Committee
• Approves higher value lending requests,
policy exceptions.
1ST LINE OF DEFENCE: CHIEF EXECUTIVE OFFICER, EXECUTIVES AND THEIR TEAMS
OWN AND MANAGE RISK
• Own and manage risk on a day-to-day basis.
• Design, implement and maintain effective controls.
• Align strategy with, and monitor exposure against,
risk appetite.
• Ensure adequate resources, tools and training in place.
• Promote and maintain an appropriate risk culture.
2ND LINE OF DEFENCE: CHIEF RISK OFFICER AND THE RISK FUNCTION
DESIGN AND MAINTAIN THE RISK MANAGEMENT FRAMEWORK
• Design and maintain the risk management framework.
• Establish and review risk policies and standards.
• Facilitate the development of risk appetite, tools
and training.
• Ensure that key risks are identified, assessed
and managed.
• Provide oversight, review and challenge to the first line.
• Report to Executive Management and the Board.
3RD LINE OF DEFENCE: AUDIT COMMITTEE AND INTERNAL AUDIT FUNCTION
PROVIDE ASSURANCE THAT THE RISK MANAGEMENT FRAMEWORK IS OPERATING EFFECTIVELY
• Assess the adequacy/effectiveness of the
• Conduct reviews of risk management
control environment.
controls/procedures.
• Independently verify that the risk management
framework is operating effectively.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 27
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
The table below summarises the changes in our principal risks since 2019 and the key risk implications of the pandemic.
PRINCIPAL RISK
RISK MOVEMENT IN 2020
IMPACT OF COVID-19
We have participated in regulatory and government
support schemes, with a priority focus on
supporting existing customers through COVID-19.
Capital repayment holidays, interest free overdrafts
(for retail customers) and extensions of credit, as
well as other flexible supporting measures, continue
to be provided and monitored.
Policies, risk appetite, credit decisioning and
supporting frameworks have been reviewed and
updated to reflect the changing environment
and risk profiles.
COVID-19 brought heightened people risk as some
of our colleagues worked to keep our stores open,
whilst others worked from home. It also
necessitated changes to working practices, which
are managed closely via an enhanced governance
structure. We are now investigating permanent
improvements that can be made.
The impact of COVID-19 has resulted in an overall
improvement to our overall liquidity profile through
improved deposit balances and participation in the
Bounce Back Loan Scheme, with clients placing
funds drawn-down on deposit, prior to their
utilisation. This effect has been observed across
the industry and is anticipated will be temporary
in nature.
Not directly impacted by COVID-19, we are able to
manage and hedge interest rate risk through
different rate environments.
New government support schemes have provided
opportunities for fraudsters and we have
implemented controls to counter their attempts.
1. Credit risk
The risk of financial loss should our
borrowers or counterparties fail to fulfil
their contractual obligations in full and
on time.
Although the impacts on our retail and
business credit portfolios are yet to fully
manifest, it is clear that the level of risk
has increased, with levels of defaults
expected to increase over time,
particularly once government support
schemes come to an end.
2. Operational risk
The risk that events arising from
inadequate or failed internal processes,
people and systems, or from external
events cause regulatory censure,
reputational damage, financial loss,
service disruption and/or detriment
to our FANS.
3. Liquidity and funding risk
The risk that we fail to meet our
short-term obligations as they fall due.
The risk that we cannot fund assets
that are difficult to monetise at short
notice (i.e. illiquid assets) with funding
that is behaviourally or contractually
long term (i.e. stable funding).
4. Market risk
The risk of loss arising from
movements in market prices. Market
risk is the risk posed to earnings,
economic value or capital that arises
from changes in interest rates, market
prices or foreign exchange rates.
5. Financial crime risk
The risk of financial loss or reputational
damage due to regulatory fines,
restriction or suspension of business,
or cost of mandatory corrective
action as a result of failing to
comply with prevailing legal and
regulatory requirements relating
to financial crime.
The risk has increased, driven by
increased remote working, the
implementation of new processes and
pressure on customer support areas
arising from changing customer needs,
which could lead to increased errors or
delays and subsequent losses.
Liquidity and funding risk has decreased
during the year, increasing stability.
Market risk has remained stable through
the year.
The risk has decreased during the year
due to enhancements made to our AML
and Sanctions controls through the
Financial Crime Improvement
Programme.
Overall fraud attacks continue to
significantly increase in line with what is
being seen across the industry, year on
year; albeit, in 2020, fraud losses have
reduced from 2019.
28 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
PRINCIPAL RISK
RISK MOVEMENT IN 2020
IMPACT OF COVID-19
6. Regulatory compliance risk
The risk of: failing to understand
and comply with relevant laws and
regulatory requirements; not keeping
regulators informed of relevant issues;
not responding effectively to
information requests or failing to meet
regulatory deadlines; or obstructing
the regulator.
7. Conduct risk
The risk of treating customers unfairly
and delivering poor outcomes that
lead to customer detriment, such as
financial loss and/or distress and
inconvenience. This can also result in
wider adverse impacts, for example,
loss of our FANS, reputational damage,
regulatory and/or legal action.
8. Model risk
The risk of potential loss and
regulatory non-compliance due to
decisions that could be principally
based on the output of models,
due to errors in the development,
implementation or use of such models.
9. Capital risk
The risk that we fail to meet minimum
regulatory capital (and MREL)
requirements. Management of
capital is essential to the prudent
management of our balance sheet,
ensuring our resilience under stress,
and the maintenance of the confidence
of our current and potential creditors
(including bondholders, the bond
market, and customers) and key
stakeholders in the pursuit of our
business strategy.
We remain exposed to regulatory and
compliance risk as a result of significant
ongoing and new regulatory change.
We will seek to comply with all regulations
as they evolve, and as customer
expectations continue to develop.
The risk has increased driven by the
impact of the external environment,
namely COVID-19 and the UK economy,
where customers are increasingly more
vulnerable to dramatic income changes,
job losses and behavioural changes
driven by social/political agendas.
The risk has increased as a result of
the rapid application of COVID-19
model adjustments.
We have deployed multiple new policies and
processes to implement government, regulatory
and central bank COVID-19 support measures.
Additional regulatory and compliance risks are
associated with adherence to both COVID-19-
specific regulatory guidance and with existing
regulation. Consequently, additional risk
assessments, governance processes and assurance
activities have been deployed across the Bank.
COVID-19 has generally had a detrimental impact
on customers’ financial stability and affordability
due to income loss caused by furlough and/or
complete job loss. This has resulted in increased
reliance on savings, inability to meet repayment
demands and the need for the regulator and
lenders to introduce enhanced forbearance
measures, such as payment deferrals. We have
now sought to include some of these measures
as part of our ongoing collections strategy.
The uncertain economic environment has affected
all model components including input data,
default markers, outputs, model accuracy
and performance.
There have been several regulatory capital
developments in the UK and Europe in response
to COVID-19, which have reduced certain capital
requirements for banks across the industry.
Additionally, in order to provide operational
capacity for banks to respond to the immediate
financial stability priorities resulting from the
impact of COVID-19, both the PRA and Basel
communicated revised timelines across key
regulatory initiatives.
Our capital ratios were broadly flat
year-on-year. We took action to
strengthen our MREL resources through
the sale of a portfolio of owner occupied
residential mortgages, which is in line
with our strategy to enhance risk-
adjusted returns on capital through the
ongoing focus on balance sheet
optimisation. We also purchased the
peer-to-peer lender RateSetter, to
provide unsecured personal loans
direct to customers.
Further information on our principal risks are set out on pages 30 to 51.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 29
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
1. Credit risk
Definition
Credit risk is the risk of financial loss should our borrowers or counterparties fail to fulfil
their contractual obligations in full and on time.
Change since 2019:
Increased
Appetite
We have a moderate appetite for credit risk. As part of our strategic priorities we are rebalancing our lending mix, increasing the
proportion of unsecured lending which will lead to an increased level of credit risk. Our tolerance for credit loss has been set within
our ability to meet our capital requirements but also reflects the increased level of risks associated with COVID-19. Our metrics, and
how we monitor them, will allow for informed decisions and meaningful risk management action to take place to ensure our capital
and other resources are adequate in order to achieve our long-term strategic objectives.
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. At 31 December 2020, 84% (31 December 2019: 95%) of our loans consisted of retail mortgages and commercial term
loans secured on collateral, with average debt-to-value of 56% (2019: 59%) and 56% (2019: 60%) respectively.
Our exposure to loans of greater than 100% debt to value (or where no real estate collateral is present) remains low at less than 1% of
retail mortgage lending (31 December 2019: less than 1%) and 12% of commercial term lending (31 December 2019: 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 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%
31 December 2020
£’million
31 December 2019
£’million
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
1,855
842
836
1,084
359
74
1
502
390
533
407
4
–
5
2,357
1,232
1,369
1,491
363
74
6
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
1,937
10,430
Total retail mortgage lending
5,051
1,841
6,892
30 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Table 2: Commercial term lending by DTV (excluding BBLS)
Audited
DTV ratio
Less than 50%
51–60%
61–70%
71–80%
81–90%
91–100%
More than 100%
31 December 2020
£’million
31 December 2019
£’million
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
353
261
351
133
9
6
4
876
546
255
100
51
13
411
1,229
807
606
233
60
19
415
363
283
404
135
10
12
12
911
535
343
86
31
37
384
1,274
818
747
221
41
49
396
3,546
Total commercial term loans
1,117
2,252
3,369
1,219
2,327
We have developed an automated credit approval process for consumer lending and retail mortgages utilising credit scorecards,
affordability calculators and policy rules. This is supported by a team of skilled manual underwriters for more complex decisions,
who operate within agreed delegated lending authorities, and a clear Credit Policy and Lending Standards.
All commercial lending is individually reviewed. This is undertaken by Relationship Managers and a specialist team of commercial
underwriters, reviewing these proposals in accordance with agreed delegated lending authorities. It is underpinned by a commercial
lending policy supported by sector specific standards and guidelines.
Undrawn commitments
At 31 December 2020, we had undrawn loan facilities of £769 million (2019: £726 million). This includes commitments of £351 million
(2019: £296 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. We mitigate credit risk in respect of these undrawn balances by regular
customer monitoring to allow undrawn limits to be removed if we observe credit quality deterioration. We also have exposure to
Invoice Finance assets (£36 million drawn on limits of £138 million) where the amount drawn is capped both by the discounted value
of available invoices and a set relationship cap. Similarly, we have a small exposure to Commercial Real Estate Development Finance,
where a limit to draw down is agreed in principle and funds are released in stages, throughout the development and following
satisfactory surveyor reports. In commercial lending, undrawn commitments are regularly reviewed to ensure relationship caps
remain appropriate. This has been particularly evident during 2020 as we continue to support customers through COVID-19.
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. At 31 December 2020, this
risk arises principally in the mortgage book where the exposure to interest-only loans stands at £4.1 billion (31 December 2019:
£4.4 billion). There is further exposure to refinance risk in the Commercial Book of £1.3 billion (31 December 2019: £1.5 billion)
from interest-only loans and a portion of amortising term loans.
All borrowers of interest-only lending are assessed as being able to refinance the lending at the end of the term or have an
appropriate repayment plan in place. These loans are also appropriately collateralised (see lending and collateral section on page
30), ensuring we have a first charge in the event of default by the borrower. The reduction in owner occupied mortgages is as
a result of the £3.1 billion retail mortgage sale, agreed in December 2020.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 31
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
1. Credit risk continued
Table 3: Retail mortgage lending by repayment type
Audited
Repayment
Interest
Capital and interest
Total retail mortgage lending
Table 4: Commercial term lending (excluding BBLS)
Audited
Repayment
Interest
Capital and interest
Total commercial term loans
31 December 2020
£’million
31 December 2019
£’million
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
2,337
2,714
1,751
90
4,088
2,804
5,051
1,841
6,892
2,573
5,920
8,493
1,834
103
1,937
4,407
6,023
10,430
31 December 2020
£’million
31 December 2019
£’million
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
1,058
59
281
1,971
1,339
2,030
1,117
2,252
3,369
1,155
64
1,219
328
1,999
2,327
1,483
2,063
3,546
Sector exposure
We manage the level of credit risk concentration based on individual borrowing entities and sector. Our credit risk appetite includes
limits for high risk sectors and/or high levels of concentration.
Within commercial lending we set credit risk policy and lending standards for key sectors. We have specialist sector lending teams
including in healthcare, hospitality, and property.
Over 2020, we have observed that some sectors have been more severely impacted by COVID-19 lockdowns. Hospitality has
experienced a more significant reduction in income than other sectors, and as a consequence we are seeing higher levels of
COVID-19 support required by these customers.
Table 5: Commercial term lending by sector exposure (excluding BBLS)
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
32 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
31 December 2020
£’million
31 December 2019
£’million
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
1,117
–
–
–
–
–
–
–
–
–
–
–
1,032
376
248
208
107
60
53
36
30
10
9
83
2,149
376
248
208
107
60
53
36
30
10
9
83
1,117
2,252
3,369
1,219
–
–
–
–
–
–
–
–
–
–
–
1,219
1,155
308
263
236
100
62
51
35
30
11
8
68
2,327
2,374
308
263
236
100
62
51
35
30
11
8
68
3,546
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. We are
expanding our footprint over time to reduce geographical concentration of lending. 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 (excluding
BBLS) 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
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
5,051
1,841
6,892
Table 7: Commercial term loans by geographic exposure (excluding BBLS)
Total commercial term loans
1,117
2,252
3,369
1,219
31 December 2020
£’million
31 December 2019
£’million
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
Retail owner
occupied
Retail
buy-to-let
Total retail
mortgages
2,213
1,157
433
298
265
179
139
131
102
62
72
1,147
309
91
73
63
58
37
25
21
10
7
3,360
1,466
524
371
328
237
176
156
123
72
79
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
31 December 2020
£’million
31 December 2019
£’million
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
Professional
buy-to-let
Other term
loans
Total
commercial
term loans
780
205
31
48
20
10
3
11
5
3
1
–
1,358
399
156
67
146
66
13
18
10
18
–
1
2,138
604
187
115
166
76
16
29
15
21
1
1
850
224
52
35
21
11
11
5
4
4
1
1
1,414
424
156
104
115
49
26
12
10
9
3
5
2,327
2,264
648
208
139
136
60
37
17
14
13
4
6
3,546
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 33
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
1. Credit risk continued
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 2020 we held £3.4 billion (31 December 2019: £2.6 billion) of investment securities, which are used for balance
sheet and liquidity management purposes, of which £3.4 billion (31 December 2019: £2.4 billion) is eligible as collateral at the BoE.
We hold investment securities at amortised cost or fair value through other comprehensive income depending on our intentions
regarding each asset. We do not hold investment securities at fair value through profit and loss.
Table 8: Investment securities by credit rating
Audited
Credit rating
AAA
AA- to AA+
A- to A+
Lower than A-
Total
31 December 2020
£’million
31 December 2019
£’million
Investment
securities
held at
amortised
cost
Investment
securities
held at
FVOCI
2,184
456
–
–
2,640
385
388
–
–
773
Investment
securities
held at
amortised
cost
Investment
securities
held at
FVOCI
1,943
144
67
–
2,154
156
255
–
–
411
Total
2,569
844
–
–
3,413
Total
2,099
399
67
–
2,565
We have a robust securities investment policy which requires us to invest in high-quality liquid debt instruments. At 31 December
2020, 75% of our investment securities were rated as AAA (31 December 2019: 82%) with a further 25% (31 December 2019: 16%)
rated AA- or higher.
Additionally, we hold £3.0 billion (31 December 2019: £3.0 billion) in cash balances, which is either held by ourselves or at the BoE,
where there is minimal credit exposure.
Oversight
Credit risk is overseen by the Chief Risk Officer (supported by the Chief Credit Officer), Executive Risk Committee and Risk
Oversight Committee.
The Credit Risk function reports to the Chief Risk Officer and is led by the Chief Credit Officer. It is responsible for:
• Recommending and overseeing credit risk appetite limits.
• Maintaining credit risk policies and standards.
• Overseeing credit risk strategies in accordance with policies and risk appetite.
• Providing an independent review of individual commercial credit proposals and renewals of loan facilities.
• Monitoring credit risk performance and reporting to the Executive Risk Committee and Risk of Committee.
• Developing and monitoring credit risk models.
• Ensuring appropriate IFRS 9 credit provisions.
• Developing and overseeing of retail collections and recoveries strategies.
• Managing commercial collections and recoveries strategy and activities.
In addition, our Treasury Risk team, which is led by the Director of Prudential Risk and reports to the Chief Risk Officer, supports
the development and implementation of applicable policies and procedures and monitors the credit risk aspects of the
Treasury portfolio.
34 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Measurement
Economic weightings
We measure credit quality for impairment purposes under IFRS 9. We have taken a cautious approach to assessing our impairment
provisions in order to set aside appropriate portfolio provision coverage for the anticipated economic deterioration and increase in
credit losses that is expected over the coming period.
Our IFRS9 models utilise a blend of several economic scenarios provided by Moody’s Analytics. The weightings of these scenarios
reflect the UK economic outlook arising from COVID-19 and Brexit. The macroeconomic assumptions applied can be found on page
208. Our credit risk models are subject to internal model governance including independent validation. We undertake annual model
reviews and have regular model performance monitoring in place.
The impairment provisions recognised during the year reflect our best estimate of the level of provisions required for future credit
losses as calibrated under our conservative weighted economic assumptions and following the application of expert credit risk
judgement overlays.
Use of Post Model Adjustments and Post Model Overlays
To supplement the models, we also applied expert credit risk judgement through post model adjustments and post model overlays.
Post Model Adjustments refer to increases/decreases in ECL to address known model limitations, either in model methodology or
model inputs. These rely on analysis of model inputs and parameters to determine the change required to improve model accuracy.
These may be applied at an aggregated level, however they will usually be applied at account level.
Post Model Overlays reflect management judgement. These rely more heavily on expert judgement and will usually be applied at an
aggregated level. For example, where recent changes in market and economic conditions have not yet been captured in the
macroeconomic factor inputs to models (e.g. industry specific stress event).
The appropriateness of post model adjustments and post model overlays is subject to rigorous review and challenge, including
review by the Audit Committee (see page 94).
Further details on our use of post model adjustments and post model overlays can be found on page 210.
Regulatory measurement
As of 31 December 2020, 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 and have rolled out use of commercial rating and slotting models
during 2020.
Monitoring
We monitor credit risk performance through a suite of reports covering performance against risk appetite limits and key credit risk
metrics, including: new business flow; portfolio quality; early warning indicators; arrears and recovery performance; sector and
geographical concentration; and exceptions to lending policy. Reports are provided to ERC, the ROC and the Board on a monthly
basis. Credit risk performance is supported by portfolio reviews and deep dives on material portfolios and key credit risk themes.
Early Warning and Non-performing loans
In line with IFRS 9, we allocate all loans into Stages 1, 2 and 3 to reflect likelihood of loss.
• Stage 1 includes those loans where the credit risk has not increased significantly since the loan was originally agreed.
• Stage 2 includes those loans where the credit risk has increased significantly, but which are not impaired.
• Stage 3 includes loans which are non-performing.
The risk of loss increases through these stages. Under IFRS 9, the potential for a loan to default is calculated on a 12-month horizon
at Stage 1, and a lifetime horizon at Stages 2 and 3.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 35
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
1. Credit risk continued
COVID-19 has been a significant factor in customers’ ability to make payments. We have worked with customers to assist with how
best to manage repayments, and have provided payment deferral options as an option, in line with regulatory guidance. This
customer support package has kept arrears lower, and is expected to make return to repayment easier for most customers – a trend
we have seen as customers have begun to roll off payment holidays.
We expect to see increasing numbers of customers experiencing financial difficulties, as restrictions continue to impact trading,
liquidity is used up, and repayments start to fall due on government support loans. Commercial customers are managed through
early warning categorisation where there are early signs of financial difficulty. The overriding objective is to identify, at an early
stage, those customers for whom we believe repayment difficulties may develop, thereby allowing timely engagement and
appropriate corrective action to be taken. Early Warning categorisation supports IFRS 9 Stage Allocation.
In Retail, we monitor for early signs of financial difficulty to enable appropriate customer support.
COVID-19 has also materially impacted the volume of lending in Early Warning categories over 2020. The main sector exposures
within Early Warning categories reflect the key commercial term lending industry sectors: Real Estate; Hospitality; Recreation,
Cultural and Sport are particularly affected. The majority of customers in Early Warning categories have received COVID-19 support
including payment holidays or government backed loans, and we anticipate an increase in the number of customers requiring
further COVID support.
Non-performing loans
Non-performing loans are loans that have more than three instalments unpaid (90+ days past due) or where the debtor is assessed
as unlikely to pay our credit obligations in full without recourse to legal action to recover the debts in full, regardless of the existence
of any past-due amount or of the number of days past due. All non-performing loans are included within Stage 3.
Where a debtor is facing difficulties meeting financial commitments, Metro Bank is able to offer forbearance. Forbearance is a
concession either through a change to the terms and conditions of the loan, or a refinance of the loan. To be forborne, the customer
is in or is about to face financial difficulties. Loans which have been renegotiated within existing credit policy where the customer
is not in financial difficulties are not forborne. All forborne loans are included within Stage 3. Customers who have sought COVID
support in the form of payment deferrals or temporary conversion to interest only payments are not considered forborne, by virtue
of having sought that support. However, this may be a contributing factor for an account to be allocated in Stage 2.
Commercial loans in Stage 3 are individually assessed with consideration for the collateral provided against the loan. Provisions are
reported and overseen through Impairment Committee to Executive Risk Committee.
COVID
COVID-19 has and will continue to materially impact the volume of lending classified as Stage 2 and Stage 3. In anticipation of this,
a number of model adjustments have been put in place to reflect those losses, the full extent of which has yet to materialise.
Table 9: Non-performing loans
Group
Retail-residential mortgages
Retail-consumer and other
Commercial (including asset and invoice finance)
Total
31 December 2020
31 December 2019
Non-
performing
loans
£’million
Non-
performing
loan ratio
Non-
performing
loans
£’million
Non-
performing
loan ratio
118
13
127
258
1.70%
6.13%
2.48%
2.10%
25
10
42
77
0.24%
4.30%
1.12%
0.53%
The deterioration of the non-performing loan ratio from 31 December 2019 to 31 December 2020 for all portfolios is primarily driven
by customers who have received temporary COVID-19 support measures and now require further forbearance support which has
been classified as unlikeliness to pay criteria in the definition of default.
36 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Cost of risk
Cost of risk is credit impairment charges expressed as a percentage of average gross lending. The increase has been primarily
driven by COVID-19. There has been a significant deterioration in macroeconomic scenarios as well as increases in arrears and
forbearance. This has driven an overall increase in the ECL expense.
Table 10: Cost of risk
Group
Retail-residential mortgages
Retail-consumer and other
Commercial (including asset and invoice finance)
Average cost of risk
2020
2019
0.19%
5.97%
1.99%
0.86%
0.00%
1.92%
0.11%
0.08%
Regulatory and Government support schemes
We have remained focused on supporting customers through COVID-19 and have participated in the various Government support
schemes. Payment deferrals and temporary payment conversion to interest-only for loans, interest-free overdrafts, and extensions
of credit have all been made available.
We have provided BBLS to our customers with loans of between £2,000 and £50,000. These are available for up to 10 years, with
no repayments due in the first year, at a fixed rate. Changes made as part of the ‘Pay as you Grow’ scheme allow customers to apply
for an interest only payment period of six months (up to a maximum of three periods) with an additional payment deferral period,
for both capital and interest, also up to six months. These loans are 100% guaranteed by the government.
CBILS allows for loans of over £50,000 to a maximum of £5 million. These have been made available at variable rates of lending
with no arrangement fees and 0% interest for the first 12 months. The Government has guaranteed 80% of the loss and pays the
fees as well as the interest for the first 12 months. The maximum term of these loans is six years.
CLBILS provides loans of over £50,000, up to a maximum of £200 million. These have also been made available at a variable rate
of lending, with terms ranging between three months and three years. The government guarantees 80% of any loss on these loans.
At 31 December 2020 we have £1.35 billion of loans for BBLS, £114 million (with a further £19 million approved) in CBILS and
£27 million ( with further £3 million approved) in CLBILS. Whilst these loans are guaranteed by the government, costs to collect
are expected, and the risks associated from these loans is being closely monitored and reassessed where necessary, particularly
as new government guidance is made available.
Table 11: COVID-19 Government Backed Loans
Group
BBLS
CBILS
CLBILS
Total
Number of
Customers
36,139
277
3
Drawn
Balance
£’million
1,353
114
27
Average
Loan
Amount
£’000
37
411
9,122
36,419
1,494
41
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 37
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Risk report continued
1. Credit risk continued
COVID-19 support measures
COVID-19 support measures including payment deferrals and temporary payment conversions to interest only have been made
available as part of our commitment to support our customers through COVID-19.
Less than 1% of mortgage customers currently have part or full payment deferrals. 22% of all mortgage customers have been
granted deferrals in 2020 and 1% of customers remain. Of those customers who took a payment deferral, 90% have returned
to full contractual payments with only 6% moving into arrears or requiring additional support.
7% of commercial customers currently have COVID-19 support measures in place, predominantly capital and interest payment
holidays. 75% of commercial customers who have previously been granted COVID-19 support have now returned to full
contractual terms.
Of our retail unsecured customers, 1% of customers have currently been granted payment deferral; 8% have taken a payment
deferral over 2020 with 85% of those returning to contractual payments. Of those that have returned, 33% have moved into
arrears or require additional support.
Table 12: COVID-19 support
Group
Retail Mortgages
Commercial Lending
Retail Unsecured
Total
Granted to Date
31 December 2020
Total
Balances
£’million
1,540
1,011
13
2,564
% of Total
Balances
Total
Balances
£’million
% of Total
Balances
22%
29%
8%
24%
68
251
2
321
1%
7%
1%
3%
2. Operational risk
Definition
Operational risk is the risk that events arising from inadequate or failed internal
processes, people and systems, or from external events cause regulatory censure,
reputational damage, financial loss, service disruption and/or detriment to our FANS.
Change since 2019:
Increased
Appetite
We maintain a low appetite for Operational Risk. We aim to minimise incidents and losses arising from operational risk issues by
maintaining a resilient infrastructure, including robust systems, employing and training the right colleagues, minimising the impact
of external events and having a framework in place to ensure that operational risks are captured, monitored and mitigated.
Mitigation
Policies
We have detailed policies, procedures and controls in place that are designed to mitigate operational risks both through minimising
impacts suffered in the normal course of business (expected losses) and to avoid or reduce the likelihood of suffering a large
extreme (or unexpected) loss.
38 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Cyber and information security
Our Chief Information Security Officer (CISO) is responsible for ensuring robust cyber and information security. We continuously
invest in our cyber and information security infrastructure in order to improve services, protect customer data and minimise the risk
of disruption. We also take pre-emptive actions to safeguard the end-to-end resilience of critical processes. We continue to enhance
the control environment, recognising the changing cyber landscape and the increased focus on digital capabilities and reliance
on home working, as well as the changing risk profile of the business.
Operational resilience
Operational resilience is demonstrated in the mitigation of risks that impact our people, technology, third parties, and premises.
By identifying critical end-to-end processes, focus can be given to those processes and the controls in place, including management
of the technology upon which they rely, to minimise disruption. The need for strong operational resilience is inherent in the provision
of services to customers. As customer expectations and use of services evolves we will need to maintain focus on the resilience
of services. COVID-19 highlights the ongoing exposure to external risks and threats that can be unpredictable in nature and
widespread in impact. Our response to COVID-19 to date has ensured that critical services have continued in the safest manner
possible for both customers and colleagues. The ongoing nature of the pandemic will continue to present risks to our resilience
and these are monitored continually.
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 FANS, whilst maintaining a safe, reliable and resilient banking operation.
Measurement
Material operational risk events are identified, reviewed and escalated in line with criteria set out in the Risk Management
Framework. Root cause analysis is undertaken and action plans are implemented. Losses may result from both internal and external
events, and are categorised using risk categories aligned to Basel II. We also measure operational risk using a number of quantitative
metrics. These KRIs are defined, reported against and escalated to the Business Risk Committees, Executive Risk Committee and
Risk Oversight Committee.
We also develop and maintain a suite of operational risk scenarios using internal and external data. These scenarios provide insights
into the stresses the business could be subject to given extreme circumstances. Scenarios cover all material operational risks
including execution of change, failures to core processes or contagion risk from a third party. Scenarios are owned by senior
management custodians with review and challenge provided by the Risk function, Executive Risk Committee and Risk Oversight
Committee, as part of the ICAAP process.
Monitoring
We have built detection capabilities to monitor and alert us about system attacks and we use incident management procedures and
playbooks to respond to attacks accordingly.
We continuously develop and embed our approach to the management of operational risks, with the aim of maintaining robust
operational processes, systems and controls, including conducting Risk and Control Self-Assessments across the Bank.
Operational risk is overseen by the CRO, Business Risk Committees, Executive Risk Committee and Risk Oversight Committee.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 39
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
3. Liquidity and funding risk
Definition
Liquidity Risk is the risk that we fail to meets our short-term obligations as they fall due.
Funding Risk is the risk that we cannot fund assets that are difficult to monetise at short
notice (i.e. illiquid assets) with funding that is behaviourally or contractually long term
(i.e. stable funding).
Change since 2019:
Decreased
Appetite
We have a moderate appetite for Liquidity Risk and Funding Risk. We shall be able to survive a combined name-specific and
market-wide liquidity stress event for at least three months, at a level of severity determined by our internal stress test, utilising our
Liquidity Pool. Equally, we shall maintain a prudent funding profile by using stable funding to fund illiquid assets, without reliance
on wholesale funding markets, whilst ensuring that funding is not inappropriately concentrated by customer, sector, or term,
as identified during our liquidity stress testing.
Mitigation
Deposit-funded approach
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 2020, 44.3% of our deposits came from commercial customers (31 December 2019: 40%) with the remaining 56%
(31 December 2019: 60%) coming from retail customers. Additionally, 39% of deposits at year end (31 December 2019: 29%) were
in the form of current accounts, with the remainder split between a combination of instant access and fixed-term savings products.
In 2020 our cost of deposits was 0.65% (2019: 0.78%).
Our deposit base during the year and at year end remains stable and resilient throughout the pandemic, with retail deposits forming
a higher portion of our balance sheet than commercial deposits.
Liquidity management
We continue to hold a prudent level of liquidity to cover unexpected outflows, ensuring that we are able to meet financial
commitments for an extended period. We recognise the potential difficulties in monetising certain assets, so set higher-quality
targets for liquid assets for the earlier part of a stress period. We have assessed the level of liquidity necessary to cover both
systemic and idiosyncratic risks and maintain an appropriate liquidity buffer at all times. Our Liquidity Coverage Ratio 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 on page 41 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, they are static in nature and provide long-term stable funding for our operations and
liquidity. Equally, our loans and advances to customers – specifically mortgages – are lent on longer contractual terms; however,
are often redeemed or remortgaged earlier.
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.
Recovery planning
The Recovery Plan details a series of indicators that 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 chaired by the CFO, which sits as
required in the event of a liquidity stress.
40 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Term Funding Scheme repayments
Term Funding Scheme (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. In March 2020, the Bank of England
announced a revised TFS with additional incentives for SMEs. In December 2020, TFSME drawdowns were undertaken for £550
million with an expected maturity of 2024. We intend to continue to utilise the TFSME scheme in 2021 while our existing TFS
drawings will be repaid using a combination of excess liquidity and by utilising TFSME.
Table 13: Contractual maturity
Audited
31 December 2020
Cash and balances with the
Bank of England
Loans and advances to customers
Investment securities
Other assets
Total assets
Deposits from customers
Deposits from central banks
Debt securities
Repurchase agreements
Lease Liabilities
Other liabilities
Total liabilities
Equity
Carrying
value
Repayable
on demand
£’million
Up to 3
months
£’million
3–6 months
6–12 months
£’million
£’million
1–5 years
£’million
Over 5 years
£’million
No
contractual
maturity
£’million
Total
£’million
2,993
12,385
3,413
3,788
2,993
–
–
–
–
332
87
2,568
22,579
2,993
2,987
(16,072) (12,550)
–
–
–
–
–
(3,808)
(600)
(196)
(327)
(287)
(641)
(692)
–
–
(7)
–
–
281
233
–
514
(864)
(588)
(23)
–
(7)
–
–
634
221
–
855
–
4,551
2,768
–
–
11,424
140
–
–
284
59
1,220
2,993
17,506
3,508
3,788
7,319
11,564
1,563
27,795
(1,233)
(1,500)
(24)
(49)
(15)
–
(702)
(1,033)
(719)
(155)
(115)
–
–
–
–
–
(273)
–
(273)
(119) (16,109)
(3,813)
(766)
(204)
(417)
(287)
–
–
–
–
(287)
(406) (21,596)
(21,290) (12,550)
(1,340)
(1,482)
(2,821)
(2,724)
(1,289)
–
–
–
–
–
–
(1,289)
(1,289)
Total Equity and liabilities
(22,579) (12,550)
(1,340)
(1,482)
(2,821)
(2,724)
(273)
(1,695) (22,885)
Derivative cashflows
–
(3)
(3)
(2)
–
–
Cumulative liquidity gap
(9,557)
(7,913)
(8,882)
(10,851)
(6,258)
5,033
Audited
31 December 2019
Cash and balances with the
Bank of England
Loans and advances to customers
Investment securities
Other assets
Total assets
Deposits from customers
Deposits from central banks
Debt securities
Repurchase agreements
Lease Liabilities
Other liabilities
Total liabilities
Equity
Carrying
value
Repayable
on demand
£’million
Up to 3
months
£’million
3–6 months
6–12 months
£’million
£’million
1–5 years
£’million
Over 5 years
£’million
No
contractual
maturity
£’million
Total
£’million
2,989
14,681
2,565
1,165
2,989
–
–
–
21,400
2,989
(14,477)
(3,801)
(591)
(250)
(341)
(357)
(9,720)
–
–
–
–
–
–
349
209
–
558
(601)
(6)
–
(54)
(7)
–
–
317
229
–
546
–
584
74
–
658
–
4,191
1,924
–
–
16,893
215
–
–
395
60
1,165
2,989
22,729
2,711
1,165
6,115
17,108
1,620
29,594
(1,102)
(7)
(23)
–
(7)
–
(1,838)
(556)
(23)
–
(14)
–
(1,178)
(3,274)
(766)
(204)
(119)
–
–
–
–
–
(329)
–
(329)
(115) (14,554)
(3,843)
(812)
(258)
(476)
(357)
–
–
–
–
(357)
(472) (20,300)
(9,720)
(668)
(1,139)
(2,431)
(5,541)
(1,583)
–
–
–
–
–
–
(1,583)
(1,583)
Total Equity and liabilities
(21,400)
(9,720)
(668)
(1,139)
(2,431)
(5,541)
(329)
(2,055) (21,883)
Derivative cashflows
Cumulative liquidity gap
–
(2)
(2)
(9)
–
–
(6,731)
(6,843)
(7,437)
(9,212)
(8,647)
8,132
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 41
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
3. Liquidity and funding risk continued
Measurement
Our asset and liability management system is used to capture all positions across the Bank and evaluate their liquidity. We calculate
our LCR and performs stress testing of our liquidity daily. Forward-looking short-range forecasts are produced at least monthly.
Early warning indicators are set out in the Recovery Plan. Colleagues monitor these on a regular basis and bump-up any triggers.
A cost of funds model is used to 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. We have a dedicated Treasury Risk
team who monitor our liquidity and funding risk including ensuring compliance with the policies we have development. The
Regulatory Reporting team also monitors compliance with LCR.
The Asset & Liability Committee 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. Our LCR has remained
strong throughout the year, ending 2020 at 187% (2019: 197%).
4. Market risk
Definition
Market risk is the risk of loss arising from movements in market prices. It is the risk posed
to earnings, economic value or capital that arises from changes in interest rates, market
prices or foreign exchange rates.
Change since 2019:
No change
Appetite
We have a moderate appetite for Market Risk, and do not have a trading book. Market Risk arises naturally as a result of taking
deposits from customers and lending to customers. Market Risk is closely monitored and managed to ensure the level of risk
remains within appetite, with key metrics reported to senior management and the Board.
Mitigation
Interest rate risk
We benefit from natural offsetting between certain assets and liabilities, which may be based on both the contractual and
behavioural characteristics of these positions. Where natural hedging is insufficient, we hedge net interest rate risk exposures
appropriately, including, where necessary, with the use of 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 to ensure that risks are managed appropriately – and that we are
well-positioned to avoid losses outside our appetite, in the event of unexpected market moves.
We have hedge accounting solutions in place to reduce the volatility in the income statement arising from these hedging activities.
42 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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 basic customer
requirements only.
Measurement
We measure interest rate risk exposure using methods including the following:
• 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 that 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.
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 ensure prompt action and limit excesses
are escalated to the Asset & Liability Committee. A digest of interest rate risk measures and details of any excesses are presented
monthly at the Asset & Liability Committee.
Internal Asset & Liability Committee Limits are set for the economic value of equity and net interest income based on the worse
of a +200bps or -200bps instantaneous symmetrical parallel shock to interest rates. The economic value of equity and net interest
income limits are monitored daily by risk. Performance against limits is reported monthly to the Asset & Liability Committee (with
exceptions communicated by email) and more regularly to senior management, as well as being noted by the ROC and the Board.
Furthermore, limits are 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 Asset & Liability Committee 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 us 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
and loss account.
The tables on page 44 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. During 2020 we have updated the tables to better reflect our behavioural
assumptions on deposits and equity as well as to provide increased granularity. The comparative tables for 2019 have also been
updated to reflect these changes.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 43
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
4. Market risk continued
Table 14: Repricing analysis
31 December 2020
Cash and balances with the Bank of England
Loans and advances to customers1
Investment securities
Other assets
Total assets
Deposits from customers
Deposits from central banks and repurchase
agreements
Debt securities
Other liabilities2
Equity
Total equity and liabilities
Interest rate derivatives
Interest rate sensitivity gap
Cumulative gap
31 December 2019
Cash and balances with the Bank of England
Loans and advances to customers
Investment securities
Other assets
Total assets
Deposits from customers
Deposits from central banks and repurchase
agreements
Debt securities
Other liabilities2
Equity
Total equity and liabilities
Interest rate derivatives
Interest rate sensitivity gap
Cumulative gap
3–6 months
£’million
6–12 months
£’million
1–5 years
£’million
Over 5 years
£’million
Up to 3
months
£’million
2,913
4,665
2,343
2,568
12,489
Up to 3
months
£’million
2,989
4,565
2,068
–
9,622
–
538
65
–
603
–
1,083
–
–
1,083
–
5,924
910
–
6,834
(8,761)
(1,091)
(1,657)
(4,563)
(3,808)
–
–
(886)
–
–
–
(40)
(47)
–
–
(79)
(149)
(600)
–
(284)
(13,455)
(1,131)
(1,783)
(5,596)
389
(577)
(125)
(653)
–
(700)
(264)
974
(577)
(1,230)
(1,930)
(956)
(686)
3–6 months
£’million
6–12 months
£’million
1–5 years
£’million
Over 5 years
£’million
–
639
–
–
639
–
1,506
3
–
1,509
–
7,962
472
–
8,434
(6,462)
(1,212)
(2,066)
(4,737)
(3,855)
–
–
(634)
–
–
–
(50)
–
–
–
(100)
(196)
(591)
–
(799)
(10,951)
(1,262)
(2,166)
(6,323)
964
(365)
(365)
(90)
(713)
(245)
(902)
(628)
1,483
(1,078)
(1,980)
(497)
(467)
Non-interest
bearing
£’million
80
–
–
1,220
1,300
Total
£’million
2,993
12,385
3,413
3,788
22,579
–
(16,072)
–
–
(614)
–
(4,004)
(600)
(614)
(1,289)
(614)
(22,579)
–
686
–
Non-interest
bearing
£’million
–
–
–
1,165
1,165
–
–
Total
£’million
2,989
14,681
2,565
1,165
21,400
–
(14,477)
–
–
(698)
–
(4,051)
(591)
(698)
(1,583)
(698)
(21,400)
–
467
–
–
–
–
175
95
–
270
–
–
–
–
–
–
–
270
–
9
22
–
31
–
–
–
–
–
–
30
1. Loans and advances to customers at 31 December 2020 includes the £295 million of loans and advances classified as held for sale.
2. Other liabilities includes lease liabilities which are shown as non-interest bearing category. Whilst interest expense is recognised on these liabilities within the income
statement this interest is not paid like other financial liabilities. The maturities of the lease liabilities shown on the balance sheet are set out below:
Lease liability maturity profile
Audited
31 December 2020
31 December 2019
Up to
3 months
£’million
(7)
(7)
3–6 months
£’million
6–12 months
£’million
1–5 years
£’million
Over 5 years
£’million
Total
£’million
(7)
(7)
(15)
(14)
(102)
(101)
(196)
(212)
(327)
(341)
44 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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
multiple factors, including actual repayment dates and interest rate sensitivities within the banding periods. The converse is true
for a negative interest rate sensitivity gap.
The table below shows the sensitivity arising from the standard scenario of a +200bps and -200bps parallel interest rate shock upon
projected net interest income for a one-year forecasting period.
Table 15: Interest rate sensitivity
Sensitivity of projected net interest income to parallel interest rate shock for a one-year forecasting period
31 December 2020
31 December 2019
200bps
decrease
(not floored
at zero)
£’million
(20.1)
(8.2)
200bps
increase
£’million
19.8
8.1
5. Financial crime risk
Definition
Financial crime risk is the risk of financial loss or reputational damage due to regulatory
fines, restriction or suspension of business, or cost of mandatory corrective action as
a result of failing to comply with prevailing legal and regulatory requirements relating
to financial crime.
Change since 2019:
Decreased
Appetite
We have no appetite for establishing or maintaining customer relationships or executing transactions that facilitate financial crime
and have no appetite for sanctions breaches. Relationships with customers where it is felt that the financial crime risks are too great
to manage effectively will be ended and continual investment is made in our expertise, partnerships and systems to improve our
management of risk in this area. We will not tolerate any deliberate breach of financial crime laws and regulations that apply to our
business and the transactions we undertake.
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 and standards in 2020 to ensure alignment with regulatory obligations.
Our Financial Crime Improvement Programme, which was mobilised in 2019, continued to deliver enhancements to our business-
wide financial crime systems and controls throughout 2020. This programme will continue to deliver a Bank-wide framework to
ensure Financial Crime controls are designed in line with regulatory requirements and build new capability to manage financial
crime risk into 2021.
Resourcing and training
Resourcing continues to be a significant focus for the Bank 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 2020 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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 45
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Risk report continued
5. Financial crime risk continued
Sanctions compliance
We continue to review our sanctions compliance framework with the support of external advisers, following our notifications
to regulators on the sanctions matters discovered in 2017 and 2019.
The Financial Crime Improvement Programme has delivered multiple enhancements to our sanctions compliance capabilities
in 2020 and will continue to do so throughout 2021.
Anti-money laundering and combating terrorist financing prevention
We comply with all relevant UK Anti-Money Laundering and Combating Terrorist Financing legislation. The Financial Crime
Improvement Programme continues to deliver enhancements to our customer due diligence capabilities, transaction monitoring,
customer and payment screening capabilities. The programme ensures we continue to effectively prevent, detect and treat
potential out-of-appetite financial crime activities.
Anti-bribery and corruption and anti-tax evasion compliance
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 any facilitation of tax evasion. We are committed to acting
professionally, fairly and with integrity in all our business dealings and relationships.
Fraud prevention
We have continued to invest in fraud prevention tools and further capability in 2020. This, in addition to historic investment,
has resulted in significant savings by preventing attempted frauds against our customers and the Bank itself.
During the pandemic, we have seen fraudsters continue to target customers through authorised and unauthorised payment fraud
attempts. Alongside this we have also seen an increase in the use of social engineering techniques to attempt to obtain customers’
personal and security details, using reasons related to COVID-19 and scams topical to the pandemic, including pets, vaccines and
personal protective equipment. We have continued to share fraud prevention trends and best practice via our various
communication channels to help our customers protect against such attacks.
We have supported our customers during these difficult times by providing government-funded schemes and we have
implemented fraud capabilities to limit attempted fraud against these schemes. We have worked closely with the British Business
Bank, other banks, network operators and law enforcement to identify and reduce the fraud risk in relation to BBLS applications.
In 2021, we will continue to work closely with stakeholders to help prevent and protect our customers from fraud.
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 defines our risk appetite and recommends 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 various risks.
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.
46 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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, the Financial Conduct Authority and law enforcement to support
our identification of new and evolving risks.
6. Regulatory and compliance risk
Definition
Regulatory and compliance risk is the risk of failing to understand and comply with
relevant laws and regulatory requirements; not keeping regulators informed of relevant
issues; not responding effectively to information requests nor meeting regulatory
deadlines; or obstructing the regulator.
Change since 2019:
No change
Appetite
We have no appetite for actions that result in breaches of regulation or for inaction to address systemic process and
control failures leading to material non-compliance. Notwithstanding the complexity and volume of the regulatory agenda,
We ensure that all mandatory requirements are prioritised with sufficient resources to implement within required timescales
in a customer-focused manner.
Mitigation
The following controls and procedures help to mitigate regulatory and compliance risk:
• A clearly defined compliance policy statement (with supporting policy standards) and Regulatory Appetite Statements signed
off by the Board.
• Ongoing development, maintenance and reporting of risk appetite measures for regulatory and compliance risk to the Executive
Risk Committee and the Board.
• Maintenance of proactive and coordinated engagement with our key regulators.
• Continual assessment of evolving regulatory requirements, including regulatory business plans and thematic reviews.
• Consideration of regulatory requirements in the context of product and proposition development and associated
appropriate governance.
• Oversight of key regulatory implementations, including PSD2.
• Oversight of regulatory and compliance risks and issues in relevant governance bodies.
• Ongoing review and tracking of known regulatory and compliance issues and remediation actions being taken.
• A risk-based assurance framework, designed to monitor compliance with regulation and assess customer outcomes.
Our Board, Risk Oversight Committee and Executive Committee (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
Regulatory and compliance risks are measured against a defined set of Board-approved risk appetite metrics relating to regulatory
breaches, and past due regulatory implementations and actions. Thresholds are set and form part of the Board-approved Risk
Appetite Statement.
Monitoring
Regulatory and compliance risk is considered by all three lines of defence as part of their oversight and assurance activities.
A risk assurance plan, approved by the Executive Risk Committee on an annual basis, independently assesses areas of the control
framework underpinning compliance with laws and regulations.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 47
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
7. Conduct risk
Definition
Conduct risk is the risk of treating customers unfairly and delivering poor outcomes that
lead to customer detriment, such as financial loss and/or distress and inconvenience.
This can also result in wider adverse impacts, for example, loss of customers,
reputational damage, regulatory investigations and/or legal action.
Change since 2019:
Increased
Appetite
We have no appetite for conduct risks that knowingly deliver inappropriate customer outcomes, which may lead to customer
detriment. Where inappropriate outcomes are identified, these are remediated quickly to minimise risk and reduce harm
to our customers.
Mitigation
Our simple, transparent and fairly-priced products and activities continue to help ensure that conduct risk is minimised. Our
colleagues are fully-trained in all relevant products and services and these are delivered with exceptional levels of service to
customers through all channels, with openness and transparency, supported by robust management controls and quality assurance
measures. Our products are reviewed regularly to ensure they continue to meet customer needs and perform as expected. We are
committed to ensuring communications are clear, fair and not misleading. We do not use sales incentives in stores, nor is there
a perception amongst colleagues that they exist in any unofficial manner.
Make every wrong right
Our service-led business model gives us an inherent advantage over peers. We are committed to doing the right thing for our
customers and to making any wrongs right. Where conduct risks are identified, resources and expertise are dedicated to swift
remediation action to appropriately mitigate any issues, avoid recurrence and, if detriment has occurred, the scale of the harm is
quantified to address this with impacted customers. This is possible because of our clear risk framework which includes defined
first line ownership, review stages and challenge by the second line, and assurance from the third line.
In 2019, we made a provision of £12 million for customer remediation, which predominately related to non-compliance with certain
requirements to provide SMS warning alerts to customers regarding overdraft charges. The error was subsequently corrected and
the Competition and Markets Authority was informed. We pride ourselves on providing exceptional levels of service and we regret
the impact on customers. All customers have now been contacted and the remediation project has been completed.
Measurement
We measure conduct risk through Risk Appetite Metrics which are centred around product governance, compliance monitoring,
analysis of expressions of dissatisfaction, root cause analysis, ‘Voice of the Customer’ surveys and reporting through customer
treatment forums. Key Risk Indicators are also defined, reported against and escalated to the Risk Oversight Committee. We view
the effective management of conduct risk as being evidenced by low levels of poor customer outcomes and evidence of robust
controls, meaning that the right internal processes are being followed to deliver these outcomes.
Monitoring
As well as monitoring the trends in the metrics outlined above, we analyse the root cause of complaints and any underlying trends,
to identify opportunities to improve service provision while delivering consistently fair outcomes for customers.
48 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
8. Model risk
Definition
Model risk can be defined as the potential loss that we may incur, as a consequence of
decisions that could be principally based on the output of models, due to errors in the
development, implementation or use of such models. Model risk can lead to financial
loss, poor business and strategic decisions, and reputational damage. Model risk covers
all models and is not limited to credit risk models.
Change since 2019:
Increased
Appetite
We have only a moderate appetite for risk due to errors in the development, implementation or use of models, which we mitigate via
effective governance over the specification and design, implementation and running of our models and over model input data.
Mitigation
Governance
The main mitigant to model risk is the robust governance process we have established. This includes two dedicated
model committees:
• Model Oversight Committee - which is the designated committee for the management of model risk.
• Model Governance Committee - which is the technical committee overseeing the model risk life cycle.
Material models are presented to the Model Oversight Committee for approval via the Model Governance Committee, ahead
of implementation or model changes.
The Model Oversight Committee defines and approves standards relevant to model risk and recommends policies and model risk
appetite to the Risk Oversight Committee for approval on an annual basis. The Model Governance Committee owns the minimum
standards and target operating models to mitigate model risk. It 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 the Model Oversight Committee and Model
Governance Committee.
Independent review
We have established an independent Model Validation team, which is part of our Prudential Risk function. This is managed by
a team of experts, independent from model development. This team is responsible for reviewing model development submissions
and maintains a model validation action log to track model risk remediation plans. Models are also subject to internal and external
audit as well as regulatory reviews.
Measurement
We measure model risk using a set of model performance indicators which form part of our Key Risk Indicators are regularly
reported and discussed at the Model Governance Committee, Model Oversight Committee, Risk Oversight Committee and Board.
On a monthly basis, the Model Governance Committee reviews any material validation actions and tracks their closure.
Monitoring
A dedicated Model Monitoring team is responsible for assessing the ongoing performance of credit risk models against pre-
specified tolerances approved by the Model Governance Committee as part of model monitoring standards.
Model performance is regularly monitored, and results are discussed both at the Model Governance Committee and Model
Oversight Committee, 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 Model Governance Committee, however, this monitoring is undertaken by the
appropriate user areas rather than by the Model Monitoring team.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 49
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Risk report continued
9. Capital risk
Definition
Capital Risk is the risk that we fail to meet minimum regulatory capital (and MREL)
requirements. Management of capital is essential to the prudent management of our
balance sheet, ensuring our resilience under stress and the maintenance of the
confidence of our current and potential creditors (including bondholders, the bond
market, and customers) and key stakeholders in the pursuit of our business strategy.
Change since 2019:
No change
Appetite
We have a low appetite for Capital Risk and our aim is to maintain a surplus of capital resources above regulatory requirements.
Mitigation
We manage our capital risk via our Capital Adequacy Framework which includes policies, strategy, limit setting, continuous
monitoring and stress testing. Our ICAAP is a key component of this framework and is used to analyse material risks and assess our
strategy and objectives under various stress scenarios. Capital ratios continued to be maintained within Board risk appetite and
regulatory requirements throughout 2020.
Sustainable profit growth
The main mitigation to capital risk is the sustainable generation of additional capital through the accumulation of profits.
The Board and Executive Committee are focused on ensuring the successful delivery of the strategic plan to ensure the return
to sustainable profitability.
Balance sheet optimisation
Another key mitigation that we can use to manage capital risk is the efficient deployment of our existing capital resources. One of
our strategic priorities is improving our balance sheet optimisation to ensure we maximise our risk-adjusted returns whilst remaining
above regulatory requirements. As part of this approach we executed a sale of a portfolio of residential mortgages in December
2020 which increased our MREL resources, through a combination of reducing our RWAs and the recognition of a gain on sale.
Raising of additional capital
As we grow we need to raise additional regulatory capital to support lending growth. The ability to raise additional capital, as well as
the associated cost, is dependent upon market conditions and perceptions. The sale of the mortgage portfolio removed the need
for us to raise additional capital in the near term.
Measurement
We measure our capital resources in line with regulatory requirements. In order to appropriately manage our capital resources,
we produce regular reports on the current and forecasted level of capital for the Board and the Executive Leadership Team. This
includes the undertaking of routine stress testing on an ongoing basis.
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.
The ICAAP is used to assess the adequacy and efficiency of our capital resources required to support our business model.
50 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Monitoring
We consider both short-term forecasts and medium-term plans, and our overall agreed risk appetite.
We also develop appropriate strategies under market stress conditions to manage those risks to capital and consider both past
events and customer behaviour to inform our analysis, and to validate our robustness. This process is used to ensure that we apply
appropriate management buffers to regulatory capital requirements in line with risk appetite.
We manage and monitor capital in accordance with prudential rules issued by the PRA and FCA, in line with the EU Capital
Requirements Directive, in addition to our own internal reporting measures. 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;
and the recent PRA consultation CP17/20 (CRD V: Further Implementation) detailing the transitional changes in the UK regulatory
framework required as a result of the exit from the European Union.
Table 16: Capital resources
Audited
Ordinary share capital
Share premium
Retained earnings
Other reserves
Intangible assets
Other regulatory adjustments
Total Tier 1 capital (CET1)
Debt securities (Tier 2)
Total Tier 2 capital
Total regulatory capital
31 December
2020
£’million
31 December
2019
£’million
–
1,964
(694)
19
(254)
157
1,192
249
249
–
1,964
(392)
11
(168)
12
1,427
249
249
1,441
1,676
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 51
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
Emerging risks
In addition to our principals, we
monitor other potentially significant
emerging risks.
We consider emerging risks to be
evolving threats which cannot yet be
quantified, with the potential to
significantly impact the Bank’s strategy,
financial performance, operational
resilience and/or reputation. The
emerging risks are continually assessed
and reviewed through a horizon scanning
process, with escalation and reporting
to the Board as necessary. The horizon
scanning process fully considers all
relevant internal and external factors and
is designed to capture those risks which
are present but have not yet fully
crystallised, as well as those which are
expected to crystallise in the future.
Macroeconomic
environment
The full extent of the economic impacts
from COVID-19 are yet to be seen. The
duration and depth of the downturn is
uncertain and risks to credit and margin
performance are expected, with
significant disruption to both supply and
demand already occurring. Increasing
levels of unemployment could impact
customers’ ability to repay their lending.
The efficacy of monetary and fiscal
policy, and the speed and ability with
which the UK can return to ‘normal’
operating conditions, will determine the
overall economic impact for the UK.
Mitigating actions
We continue to monitor economic and
political developments in light of the
ongoing uncertainty, considering
potential consequences for our
customers, products and operating
model. We actively monitor our credit
portfolios and undertake robust internal
stress testing to identify sectors that may
come under stress as a result of an
economic slowdown in the UK.
Economic
Environment
Climate risk
There is significant uncertainty around
the time horizon over which climate risks
will materialise, as well as the exact way
in which they will occur. Climate risk is
classified as a cross-cutting risk type that
manifests through other principal risks
– primarily strategic risk, credit risk and
operational risk. We are exposed to
physical, transition and reputation risks
arising from climate change.
Our mortgage portfolio represents a
significant proportion of our customer
lending. Increases in extreme variability
in weather patterns may lead to increased
incidence and severity of physical risks
which, in addition to the disruption felt by
customers, can lead to a decrease in the
valuations of property taken as collateral
to mitigate credit risk. In addition,
tightening minimum energy efficiency
standards for domestic buildings could
impact the value of mortgaged
properties or the ability of borrowers
to service debt. We have low levels
of lending to carbon-related assets,
however, we may be exposed to
future transition risks through the
business portfolio.
t
c
a
p
m
i
f
o
d
e
e
p
S
Digitisation
Regulatory
Change
Climate
Risk
52 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Probability
Low financial impact
Moderate financial impact
Significant financial
impact
Regulatory change
Digitisation
The suite of government support
measures introduced in reaction to the
economic pressures created by COVID-19
are complex and nuanced. Any sudden
or unexpected change to the rules and
regulations governing the measures
could create material market disruption,
requiring large-scale prioritisation
decisions in a fast-paced environment.
Beyond COVID-19, there is continued
evolution of the regulatory landscape and
the requirement to respond to ongoing
prudential and conduct driven initiatives.
Mitigating actions
We continue to monitor emerging
regulatory initiatives to identify potential
impacts on our business model and
ensure we are well placed to respond
with effective regulatory change
management. We continue to work with
regulators to ensure we meet all
regulatory obligations, with identified
implications of upcoming regulatory
activity incorporated into the strategic
planning cycle.
COVID-19 has accelerated the digitisation
of the banking industry in the space of a
few months and is likely to lead to rapid
change over the coming years as the
industry rapidly adapts to customers’
evolving behaviours. This is spurring an
acceleration of investment and delivery
by both incumbent banks and neo-banks
to provide enhanced digital propositions
to customers in both the consumer and
business markets.
Mitigating actions
The Bank’s strategy had always been
predicated on new and exciting digital
propositions, with the implications of the
pandemic both supporting that ambition,
but also accelerating the timeframe for
delivery. Our rapid response to the
pandemic has demonstrated our ability
to implement change and digital solutions
swiftly. We are therefore continuously
evaluating the timetable and investment
profile of our strategy. We are continuing
with our investment and digital
development in the near term to position
us for the future.
Mitigating actions
The Chief Risk Officer has Senior
Manager Responsibility for our approach
to managing financial risks from climate
change. We continue to consider climate
change in our Risk Management
Framework, in line with our plan to align
to regulatory expectations. The Executive
Risk Committee has responsibility for
overseeing our exposures and approach
to managing the financial risks from
climate change. The Committee will
receive regular updates on progress
against the plan through the Bank Risk
Report and special papers.
Analysis of current river and sea flood
risk to properties within the mortgage
portfolio has been undertaken as an initial
step in assessing the physical risk to our
lending. Scenario analysis work will be
undertaken to consider the longer-term
impacts, as well as the high degree of
uncertainty. Transition risk within the
mortgage portfolio will also be
considered with an assessment of the
energy efficiency of properties and we
intend to use this information to support
our customers to ‘green’ their homes. An
assessment of sectors (and sub-sectors)
that may have a higher likelihood of being
impacted by transition risks from moving
to a lower carbon environment has been
performed, to increase understanding of
the possible risks facing our customers,
and support prioritisation of areas where
further analysis is required. Building
scenario analysis capability is a key
component of work planned for 2021.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 53
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk report continued
Viability statement
Assessment of principal risks
The Board is responsible for monitoring
the nature and extent of the principal
risks it faces as well as determining the
level of appetite it is willing to take in
order to achieve its strategic objectives.
The principal risks the Group actively
monitors and manages are described
on pages 30 to 51 which includes the
Group’s appetite, measurement,
monitoring and mitigation approach.
An analysis showing the impact that
COVID-19 has had on these risks is
outlined on pages 28 to 29.
In line with the requirements of the
Corporate Governance Code (the
‘Code’), the Directors have performed
a robust assessment of the principal and
emerging risks facing the Group,
including those that would threaten its
business model and impact the Group’s
performance, capital or liquidity. The
Group’s business model is set out on
pages 12 to 13 which also show how this
links to the Group’s principal risks.
Risk management and internal controls
As described in the Corporate
governance report on pages 86 and 93
and the Risk report on pages 25 to 27,
the Group’s risk management and
internal control systems are monitored
at Board level. A review of the
effectiveness of those systems has been
performed incorporating all material
controls, including financial, operational
and compliance controls.
Assessment of prospects
The Directors have an obligation in
accordance with provision 31 of the
Code to confirm that they believe
that the Group will be able to continue
in operation, and to meet their liabilities
as they fall due.
The Group’s prospects are assessed
primarily through its strategic planning
process (‘Long term plan’), the first year
of which reflects the Group’s 2021
budget. This process includes an annual
review of the ongoing plan, led by the
CEO and CFO through the Executive
Committee and Board. The Board
participates fully in the annual process
and is responsible for signing off the
plan and in doing so considers whether
the plan continues to take appropriate
account of the external environment
including the impacts of the COVID-19
pandemic as well as any regulatory
changes. The latest updates to the long
term plan (covering the period 2021 to
2025) were formally approved by the
Board in February 2021.
The Group’s business model and
strategic priorities (see pages 16 to 17)
are central to an understanding of its
prospects. The nature of the Group’s
activities is long-term and the Group’s
business model has remained
unchanged since it was founded 10 years
ago. The Group’s current strategy was
launched at the start of 2020 and good
progress has been made in delivering
this, despite the COVID-19 pandemic.
The Group’s strategy is subject to
the ongoing monitoring to ensure it
remains appropriate.
The Group’s strategy is based on
a combination of balance sheet
management, revenue growth and cost
control. Alongside this the strategy
focuses on infrastructure investment,
with decisions on new investment being
taken based on the long-term benefits
they will provide. Although decisions are
taken for the long term any investment
has to align with the Group’s appetite for
risk as well as be able to demonstrate an
appropriate payback period.
As part of its strategy the Group’s
current focus is particularly on shifting
the lending mix with growth planned in
both unsecured lending and specialist
mortgage offerings. The growth of the
unsecured lending will be supported by
the acquisition of RateSetter in
September 2020 which gave the Group
the necessary technology and capability
to expand into this area of the market.
The Directors have reviewed the
assumptions underpinning the lending
growth, mix and yield as well as the
change in appetite for risk contained
within the long term plan and have
determined they are acceptable in the
context of the Group’s overall risk profile.
Whilst the Group’s long term plan covers
a five year period to 31 December 2025,
the Directors have assessed prospects
and viability for the four years through
to 31 December 2024. This is felt
appropriate as this is the period over
which forecasts have a greater level of
certainty (although the fifth year still
provides a robust planning tool against
which strategic decisions can be made).
54 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
The assessment has included reviewing
the plan against the Group’s principal
risks (as detailed on pages 30 to 51)
to examine those matters that could
prevent the group from delivering on
its strategy. Of the Group’s principal risks
only three were felt could directly lead to
the business not being able to continue
in its current form if they were to occur
(although a failure of the Group’s other
principal risks could lead to one of these
events). These were:
• operational failure (operational risk);
• a lack of liquidity (liquidity and
funding risk); and
• insufficient capital (capital risk).
Of these three risks, insufficient capital is
where there is most uncertainty and
where extra consideration was given by
the Directors in their assessment. These
key risks were also considered as part of
the assessment of the Group’s viability,
as explained below.
One of the key assumptions in the
long term plan is the Group’s ability to
raise qualifying debt over the forecast
period to fund anticipated growth
and to continue to meet regulatory
requirements. This comprises of
additional qualifying MREL debt,
which will require changes to the
organisational structure of the Group,
as well as various regulatory approvals.
Assessment of viability
Although the Group’s long term plan
reflects the Directors’ best estimate of
the future prospects of the business,
they have also tested the potential
impact on the Group by examining
the sensitivity to ‘severe but plausible’
changes to the assumption. This has
been undertaken via the creation of
scenarios that reflect a downside
(stressed) case by overlaying additional
risks into the forecasts (primarily
reflecting the aforementioned
principal risks).
The main downside scenarios tested
included:
• Increased costs of raising qualifying
debt compared to those envisaged
in the plan.
• A prolonged economic recovery
from the COVID-19 pandemic.
• Delays in the delivery of key strategic
initiatives which are assumed as part
of the plan.
The results of this stress testing showed
that the Group would be able to
withstand the impact of these scenarios
over the assessment period and would
retain sufficient capital (over and above
regulatory minima). In the most severe
scenarios this would involve making
reasonable adjustments to the Group’s
operating plans, although these were
within what would typically be done in
the normal course of business and
therefore these mitigating actions did
not of themselves constitute any
additional risk.
In addition to the specific scenarios
outlined above the Group undertakes
routine stress testing on an ongoing
basis for both management and
regulatory purposes. This includes
conducting reverse stress tests, whereby
the Group looks at the factors and
assumptions that would have to exist for
it not to be viable. The results are then
assessed to understand the likelihood
of such events occurring and what
mitigating actions could be taken if
necessary. The results of the stress
testing performed to date is in line with
the assessment outlined above and has
not given rise to any additional factors
that would impact the Group’s viability.
Viability statement
Based on their assessment of prospects
and viability above, the Directors
confirm that 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
four-year assessment period to
31 December 2024.
Going concern
The Directors also considered it
appropriate to prepare the financial
statements on the going concern basis,
as explained in the basis of preparation
paragraph in note 1 to the accounts.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 55
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Our stakeholders
Section 172 statement
The Board must act in accordance with the duties set out in the Companies Act 2006
(the ‘Act’). Under section 172, the Board has a duty to promote the success of the
Company for the benefit of its members as a whole. When making decisions, the
Board ensures that it acts in the way it considers, in good faith, would most likely
promote the Bank’s success for the benefit of its members as a whole, and in doing
so have regard (among other matters) to:
(a) the likely consequences of any decision in the long term;
(b) the interests of the Company’s colleagues;
(c) the need to foster the Company’s business relationships with suppliers, customers
and others;
(d) the impact of the Company’s operations on the community and the environment,
(e) the desirability of the Company maintaining a reputation for high standards
of business conduct; and
(f) the need to act fairly between members of the Company.
This duty is at the heart of the Board’s decision-making process. The Board recognises
that the long-term success of the Bank will depend upon the interests of all our
stakeholders and this view is intrinsic in our decision-making. The Board’s role
when making strategic decisions is to ensure that it has the relevant management
information to fully consider the potential impact on the relevant stakeholders of
any given decisions they approve. This process is enhanced by the updated Board
paper template introduced in early 2020 which is now an integral part of reporting
to the Board.
The Board takes into consideration all its stakeholders when making decisions with
a spotlight on the following stakeholder groups:
Our FANS
Our business model depends upon attracting customers and
turning them into FANS. Our reputation and creating FANS
is at the core of our values.
Our Colleagues
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.
Long-term decisions
The Board delegates day to day business
to the ExCo, but oversees performance,
strategy and approves significant
business transactions. The Board
approved a number of transactions
during the year in line with the duties
set out under S.172.
As part of our strategy to enhance
returns, the Bank acquired Retail Money
Market Ltd (‘RateSetter’). The Board
debated the long-term consequences of
the decision and its impact on colleagues.
The Board believes that the acquisition,
over the medium to long term, will be
accretive to our reputation and augment
our ability to provide excellent service
to our customers and meet their needs.
The acquisition was in the best interests
of our shareholders and supported the
new turnaround strategy.
In December, we announced the sale
of a portfolio of mortgages. The Board
considered the sale to be in the best
interest of the Bank in the long term,
to provide the funds to increase lending
in other areas in line with our strategy
to deliver even better returns for our
investors. This will allow the Bank to
create more FANS through the new
customers we will be able to welcome.
The Board took the interests of existing
customers into account and is confident
that they will continue to receive the
necessary level of service following
the sale.
The COVID-19 outbreak has affected
business practices, the economy and
society as a whole. In April, seven
Governance Forums were formed
to oversee changes and propose any
decisions regarding COVID-19. The Board
had oversight of the related issues facing
the Bank through regular updates from
the COO. Our response to COVID-19 and
actions taken to support our stakeholders
is set out in the stakeholder engagement
table on pages 59 to 63.
56 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
The Board recognises the significant
hard work our colleagues have put in
to continue to deliver unparalleled levels
of service to customers during the
pandemic. The Board has also had
oversight of how the Bank has been
supporting colleagues through this time
and in recognition of those colleagues
who continued to go into our stores and
centres during lockdowns, approved
a ‘Thank You Fund’ to show the Bank’s
appreciation for all their hard work.
Maintaining a reputation for high
standards of business conduct
When Directors join the Board they
are provided with a detailed and
bespoke induction, which includes
a comprehensive introduction and
training programme on Director duties
and responsibilities. More information
on Board training and development
can be found on pages 82 and 84.
The Board discharges its duty to maintain
a reputation for high standards of
business conduct by having oversight
for our policies and procedures. We have
incorporated comprehensive systems,
approved policies and procedures which
promote good corporate governance
and responsibility, as well as setting high
standards of business conduct. The
Board approved various policies and
procedures during the year. More
information on these policies can be
found in the table on page 73.
Information on the reporting on modern
slavery can be found on page 67.
On 19 February 2020, Daniel Frumkin
was appointed as permanent CEO, with
immediate effect. Dan was appointed
because he believed in prioritising
excellent customer service, has a track
record in retail banking and business
transformation, and the necessary
experience to deliver sustainable growth.
All of which made him the ideal candidate
to take the Bank into its second decade.
On 8 July 2020, the Bank also announced
the appointment of Robert Sharpe as
Chairperson. Robert has a wealth of
Board and Executive-level experience
in the retail banking sector. In taking the
decision to appoint the new Chairperson,
the Board considered who would be the
best candidate to lead the delivery of our
strategic objectives and was delighted to
appoint Robert to the role on 1 November
2020. Robert’s letter can be found
on pages 04 to 05.
This year, the Board spent a considerable
amount of time reviewing our strategy
including the impact of the challenging
conditions as a result of COVID-19. In
defining the new strategy, the Board
considered our stakeholders and how
any transformation work would impact
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 Board is also confident that
the new strategy will deliver acceptable
outcomes for investors and suppliers
and will ensure that we remain compliant
with the relevant rules and regulations
set out by our regulators in the long
term. The CEO and CFO have had
extensive engagement with the largest
shareholders and bondholders following
the announcement of our revised
strategy in February.
During the year, the Board agreed to
appoint three new Non-Executive
Directors (NEDs), a new independent
Chair, a new Company Secretary and
oversaw the strengthening of the
Executive Committee. The Board believes
that the appointments will support our
long-term strategic objectives as well
as meet the expectations of investors
and regulators. More information on the
appointments can be found in the
Corporate Governance Report from
page 76.
Following the COVID-19 pandemic, the
majority of colleagues formerly located
in Old Bailey were remote working.
Therefore, as part of our long-term
strategy and further to the results from
the wellbeing survey and colleagues’
indication that they prefer to work
remotely at least three days a week, the
Board decided to exit the Old Bailey site.
In making this decision the Board took
into consideration the needs of all our
stakeholders including colleagues and
their working preferences.
Interests of the Company’s employees
We understand that we can only create
and keep FANS if we have the best
colleagues to support them. The Board
takes account of the Bank’s colleagues
in all decision-making and Sally Clark
was appointed as a NED, responsible
for workforce engagement from 19 May
2020 onwards. More information on
Sally’s work with colleagues can be
found on pages 88 to 89. In addition, the
Board monitors organisational culture on
an ongoing basis by receiving regular
updates from the Chief People Officer
(CPO) to ensure continued oversight of
culture, colleague wellbeing and the
results of the Voice of the Colleague
(VOC) Survey. Through the monthly
business update, the Board receives
information on, amongst other matters,
stress related absence, attrition, gender
and diversity statistics. This gives the
Board the relevant oversight to fully
consider the implications of decisions
on colleagues.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 57
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Our stakeholders continued
Suppliers, Customers, Community,
the Environment and others
The Board recognises that building
strong relationships with our stakeholders
will help us to deliver our strategy in line
with our long-term values and operate
the business in a sustainable way.
The Board takes all stakeholders into
account when making decisions and this
view is embedded in our decision-making
and culture. To enable the Board to fully
consider stakeholder interests, they
receive regular deep dives from
management and its advisers. No two
decisions are the same, and the interests
of our stakeholders need to be carefully
balanced with the needs of the Bank.
As a regulated bank, we are committed
to promoting integrity, transparency and
engaging in a collaborative relationship
with our regulators. In addition to this,
the Board seeks to understand the
interests and views of our stakeholders
by engaging with them directly as
appropriate. Some of the ways in which
the Board has engaged directly with
stakeholders over the year can be found
in the stakeholder engagement table
on pages 59-63.
Our culture is what sets us apart from
other banks and our AMAZEING
behaviours (as set out on page 69)
underpin this. These fundamental
behaviours are embedded throughout
the organisation and ensure that all of
our colleagues do the right thing. The
Board has oversight of these behaviours
and monitors how they are being lived
through results of the Voice of the
Customer Survey, (VOC Survey) and
reports of expressions of dissatisfaction
from the Bank’s customers.
Creating FANS is our purpose and at
the core of our values and this is at the
forefront of Board decision-making.
During the year we were proud to be
the only Bank to keep all of our stores
open during the pandemic, to enable us
to provide face-to-face support for our
customers who were navigating their way
through the pandemic. In making this
decision, the Board had oversight of how
colleagues could be kept safe through
various adaptations to our stores and
ways of working. More information
relating to how we engaged with our
FANS in 2020 can be found on page 64.
We are a proud member of the
communities we serve and this will
remain essential to our long-term plan.
The Board took into account the needs
of the communities we serve when
having oversight of the opening of six
new stores. In deciding where to build
new stores we bear in mind where we
can reach the most people, so that we
continue to offer convenient banking
at a time that suits our FANS. More
information relating to our communities
and how we engage with them can
be found on page 64.
The Board recognises the potential for
its decisions to have an impact on the
environment and is committed to
developing the Bank’s disclosures in line
with the Task Force on Climate Related
Financial Disclosures’ recommendations.
More information on the environment and
the Bank’s activities in 2020 and plans for
2021 can be found on pages 67-69.
The Board values its investors who help
shape us and allow us to grow. The Board
is committed to frequent and transparent
communication with its investors and
creating value in the long term. More
information on how we engage with
our investors can be found on page 87.
58 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Stakeholder engagement
FANS
WHY WE ENGAGE
Our business model depends upon attracting customers and turning them into FANS. Our reputation and creating FANS is at the
core of our values and it is important to our Board to understand what FANS want.
HOW WE ENGAGE
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.
WHAT MATTERS MOST TO OUR STAKEHOLDERS
Our diverse range of FANS all have their own individual needs, but what binds them together is the desire for:
AMAZEING service: in the CMA’s latest service quality survey (February 2021), we continue to deliver stand-out service. We are the
highest-rated high street bank for overall service quality for personal and business customers, as well as the highest-rated bank for
service in stores for personal and business customers.
A full range of banking services, whether in store, online or over the phone: our full service, high street banking proposition – with
great digital and telephone banking alongside that – continues to really set us apart from the competition. That’s why we were named
Bank of the Year at the 2020 MoneyAge Awards and Banking Brand of the Year at the 2021 Moneynet Personal Finance Awards.
Added convenience and going the extra mile: we’re open 362 days a year, 7 days a week, early until late. We’ll print your new bank
card in-store for you, so you can walk out with it in your pocket rather than waiting a week for it to turn up in the post.
HOW WE ARE RESPONDING
During 2020 we were pleased to announce the launch of several initiatives which focus on enhancing customer experience
and convenience.
Initiatives included launching our Business Account Online (BAO) digital application journey, which enables new customers to open
a business account on their mobile or online, 24 hours a day. It takes just 15 minutes from application, through to identification and
verification checks and approval. This is the latest business banking innovation from Metro Bank as part of its commitment to the
Capability and Innovation (C&I) Fund.
COVID-19 SPECIFIC CONSIDERATIONS
During the COVID-19 pandemic, we were the only Bank to keep all of our stores open and in June we opened two new stores safely
in Sheffield and in Cardiff.
A COVID-19 related FAQ section on our public website was launched to support all of our customers.
As a community bank, we know that our business FANS sit at the heart of our local communities and this is a very challenging time
for them. We have provided nearly £1.5 billion in government-backed loans to 36,000 businesses since the start of the COVID-19
pandemic, and will continue to do our utmost to support the UK’s businesses during this challenging time.
Furthermore, the Board has overseen a number of other ways that we have been supporting both personal and business customers
since early March 2020 – for example through capital repayment deferrals, interest roll ups, increasing overdrafts or waiving overdraft
arrangement fees.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 59
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Our stakeholders continued
Stakeholder engagement continued
Colleagues
WHY WE ENGAGE
Our Board understands that our colleagues are what makes us unique. We believe in people-people banking and to live up to that
ethos we ensure that we support and invest in our people. We put 100% into supporting our colleagues in reaching their full potential
and through our culture encourage people to be themselves so that they can be at their very best for our customers.
HOW WE ENGAGE
This year, Sally Clark took on the role of Non-Executive Director, responsible for workforce engagement. Action taken following
feedback from colleagues throughout 2020 can be found on pages 88–89.
We also engage through our colleague networks that serve to educate, celebrate and support the experiences of others. The
networks include Mpride (LGBTQ+), Mbrace (our BAME network), Women on Work and Mparents. Membership is open to anyone
who would like to learn, educate, celebrate or contribute to those communities. Throughout 2020, Directors were invited to speak
at colleague network events. More information on our colleague networks can be found on page 69.
During 2020, the Bank continued to promote colleague communication to ensure colleagues feel informed and are best placed
to help our customers. This is done through: ‘VOC’ surveys; a ‘Voice of the Colleague Wellbeing’ survey; ’Tea on Teams’, where
colleagues meet virtually to catch-up with Metro Bank senior leaders; Online Q&As with leadership (Yam Jams); and internal news.
WHAT MATTERS MOST TO OUR STAKEHOLDERS
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 and what matters most to them. Each year we run a ‘VOC’ engagement survey and results from the survey can be
found on page 71 and are reported back to the Board. We also conducted a wellbeing survey which helped us to identify new ways
to support everyone.
HOW WE ARE RESPONDING
Further to the results of the wellbeing survey, we continued to work on enhancing our holistic health and wellbeing offering. More
information on this can be found on page 71. We have encouraged colleagues to take more time to complete Corporate Social
Responsibility activities and support their local communities through additional paid leave as we understand that this is important
to them. We know how vital it is to our colleagues that we invest in them and are proud of the career development opportunities
we offer. More information on this can be found on page 72.
We understand that colleagues want access to the most up to date information about our business and have updated over 600
pages on Metropedia (our employee information site) and have grown our library to over 1,000 pages which are accessed over
40,000 times a month by our colleagues.
We encourage our colleagues’ desire to learn and grow and have re-written over 500 hours of learning content for virtual delivery
and created a library of over 900 learning items, which have been completed more than 134,000 times. We have also retrained 84
colleagues across the business to take calls in AMAZE Direct during lockdown to ensure business continuity and trained 130 new
AMAZE Direct colleagues.
The ‘Voice of the Colleague’ engagement survey gave us valuable insight into colleagues’ opinions on remuneration and where they
felt we could do better. Taking this feedback into account, and in parallel with the Bank’s turnaround plan communicated in early
2020, we have instigated a Bank-wide review of remuneration which will:
• Support the values and strategy of the Bank.
• Simplify remuneration where appropriate.
• Ensure a competitive level of pay versus other organisations.
• Align colleague financial interests with those of our shareholders.
COVID-19 SPECIFIC CONSIDERATIONS
Our first priority continues to be the health and safety of our colleagues and their families. Since early March, our colleagues have
been working productively from home or from our offices and stores which have been adapted to meet social distancing
requirements. We created a Coronavirus communication channel accessible for all our colleagues working from home, self-isolating
or on voluntary leave to ensure they were supported during the lockdown. More information on how we have supported our
colleagues can be found on page 71.
60 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Investors
WHY WE ENGAGE
We engage openly and transparently with our investors, who are helping us to grow for the future.
In a year of uncertainty for banks and our society as a whole, it has been more important than ever to engage with our investors and
to share our vision for the future and understand their concerns.
HOW WE ENGAGE
This year the Board engaged with investors at:
• The 2020 Annual General Meeting.
• Results meetings.
•
• Proxy adviser and institutional investors meetings.
Investor roadshows and conferences.
We also engaged with investors on the impacts of COVID-19 and consulted our largest shareholders on Remuneration Policy changes.
WHAT MATTERS MOST TO OUR STAKEHOLDERS
It is important that our stakeholders understand our strategy and to an extent the economic and regulatory environments that could
impact the successful delivery of the plan.
Implementation of the strategic plan, progress made against it and the impact of COVID-19.
Our investor base is currently focused on:
•
• Path to profitability; factors influencing timing and shape of the recovery.
• Acceleration of asset mix shift, RateSetter integration and other revenue initiatives.
• Timing and outcome of the BOE’s planned MREL consultation and the effect on our future capital requirements and potential
issuance. Progress on AIRB.
• Ability to maintain cost discipline; profile of ‘Change to Bank’ expenditure.
• Expected credit losses; payment deferrals granted; default trends and impact of government measures.
HOW WE ARE RESPONDING
We provide comprehensive updates to the market at half and full year, with condensed trading statements at Q1 and Q3. The results
presentation and Q&A with management provides stakeholders with clear guidance on our capital planning priorities alongside
strategic updates and financial results.
The 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 2020 can be found in the Corporate Governance report starting
on page 76.
COVID-19 SPECIFIC CONSIDERATIONS
Detailed and specific updates on the impacts of COVID-19 are included in our quarterly disclosures, covering both financial and
operational aspects.
We have continued to meet investors virtually, tailoring our engagement approach to maintain communication and relationships until
physical meetings are appropriate.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 61
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Our stakeholders continued
Stakeholder engagement continued
Communities
WHY WE ENGAGE
We are proud to be an integral part of the communities we serve and are at the heart our ambition to be the UK’s best community
bank. Our communities bring Metro Bank to life, providing vital services to local people and businesses as well as employment
opportunities for when we expand into new locations.
The people and businesses close to our stores are crucially important to us, as we deliver on our strategic objective to grow into the
UK’s best community bank.
Feedback from the FCA and PRA is regularly considered by
the Board and helps inform decision-making by Directors.
HOW WE ENGAGE
During 2020 we continued to engage through:
• New store openings.
• Money Zone, our educational programme for kids.
• Networking and community events.
• Days to AMAZE volunteering.
WHAT MATTERS MOST TO OUR STAKEHOLDERS
We know that having a safe and friendly environment for their banking needs is important to our communities. With us, you can
bring in your whole family – kids and pets are always welcome in our stores.
WHAT MATTERS MOST TO OUR STAKEHOLDERS
Governance and accountability: We engage with our
WHAT MATTERS MOST TO OUR STAKEHOLDERS
From such engagement suppliers have identified prompt
regulators to ensure regulatory compliance including key
payment by the Bank as critical.
Many of our colleagues volunteer for charities and local causes in the nearby area, providing valuable time and raising money for local
people. We listen to the feedback of our local communities and use these insights to offer support that will genuinely help the people
we serve.
pieces of governance such as the Senior Managers and
Certification Regime (SMCR). In order to do the right thing,
we always seek to comply with all relevant regulations.
HOW WE ARE RESPONDING
Throughout 2020 Metro Bank was able to support its communities by keeping every single store open and all of our AMAZE Direct
contact centres. In fact this year, we successfully opened six new stores, in London, the Midlands, the North and Wales. Two of these
stores (Sheffield and Cardiff) were opened safely during the pandemic.
HOW WE ARE RESPONDING
HOW WE ARE RESPONDING
Senior representatives from the PRA have attended our Board
We are committed to paying our suppliers within clearly
to engage with them on current regulatory topics and share
defined terms, and we have proper processes for dealing
views and insights. The FCA and PRA also receive copies of
with any payment issues that may arise.
For our FANS who are kids, despite being unable for much of the year to provide face-to-face learning, we were still able to safely
take nearly 7,000 pupils from 132 different schools through our Money Zone programme.
While our networking events had to be delivered virtually, we were pleased to lend a helping hand with a range of ‘take-away’ craft
activities for kids at Easter and Halloween, as well as a Back to School event in late August.
COVID-19 SPECIFIC CONSIDERATIONS
Colleagues from across Metro Bank have been supporting the NHS through various means, such as making scrubs, drinks,
snacks and meals for NHS workers, as well as acting as a hub for NHS goods.
We also supported food donations and volunteered at foodbanks, and from Cambridge to Basingstoke to Liverpool and Wood
Green (and many more places along the way) our colleagues have offered their time, made up food parcels, delivered meals
and made sure those most in need in the communities we serve didn’t go hungry.
We also helped the local causes that made a big difference to our FANS. Whether that’s supporting new mothers in need by
collecting essential goods, making deliveries to Colchester Zoo, running marathons to raise money for the local hospice in Solihull,
or checking-in with elderly residents self-isolating, our colleagues have been proud to support those in need.
62 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Regulators
WHY WE ENGAGE
Suppliers
WHY WE ENGAGE
We are subject to financial services regulations and approvals
Our supply chain helps us to deliver banking products
in the markets we operate in. Following these helps us to put
and services to all of our customers and stakeholders.
FANS at the heart of everything we do.
HOW WE ENGAGE
HOW WE ENGAGE
We maintain open and constructive relationships with our
We engage with our suppliers through contractual
regulators and our Directors have regular meetings with
arrangements to ensure suppliers adhere to the
both the FCA and PRA. We aim to maintain our positive
Bank’s requirements.
relationships with regulators through an approach
of early and regular engagement, particular on areas
of critical importance.
The Audit Committee reviews and approves the
Bank’s disclosure on supplier payment practices.
our Board papers. We have successfully appointed a new
Chairman, new CEO and a new Chair of our Risk Oversight
Committee during 2020.
We have engaged constructively with our regulators during
2020 with respect to key initiatives and will continue this
engagement across upcoming changes to the regulatory
landscape in 2021 and beyond.
COVID-19 SPECIFIC CONSIDERATIONS
COVID-19 SPECIFIC CONSIDERATIONS
Alongside our peers we have been fully engaged with
Our Audit Committee reviews the Bank’s supplier payment
regulators since the beginning of the pandemic.
practices and, as required by law, we publicly report this
information on a bi-annual basis. For the last reporting period
We have welcomed their pragmatic approach to regulatory
between January to June 2020 we had an average invoice
developments, supervision and requirements through
payment turnaround of 31 days. We continue to review and
the course of the pandemic which has allowed us to
improve our processes with the aim of ensuring all our
comprehensively support our FANS at their time of need.
suppliers are consistently paid within defined terms.
Communities
WHY WE ENGAGE
We are proud to be an integral part of the communities we serve and are at the heart our ambition to be the UK’s best community
bank. Our communities bring Metro Bank to life, providing vital services to local people and businesses as well as employment
opportunities for when we expand into new locations.
The people and businesses close to our stores are crucially important to us, as we deliver on our strategic objective to grow into the
UK’s best community bank.
HOW WE ENGAGE
During 2020 we continued to engage through:
• New store openings.
• Money Zone, our educational programme for kids.
• Networking and community events.
• Days to AMAZE volunteering.
Regulators
Suppliers
WHY WE ENGAGE
We are subject to financial services regulations and approvals
in the markets we operate in. Following these helps us to put
FANS at the heart of everything we do.
Feedback from the FCA and PRA is regularly considered by
the Board and helps inform decision-making by Directors.
WHY WE ENGAGE
Our supply chain helps us to deliver banking products
and services to all of our customers and stakeholders.
HOW WE ENGAGE
We maintain open and constructive relationships with our
regulators and our Directors have regular meetings with
both the FCA and PRA. We aim to maintain our positive
relationships with regulators through an approach
of early and regular engagement, particular on areas
of critical importance.
HOW WE ENGAGE
We engage with our suppliers through contractual
arrangements to ensure suppliers adhere to the
Bank’s requirements.
The Audit Committee reviews and approves the
Bank’s disclosure on supplier payment practices.
WHAT MATTERS MOST TO OUR STAKEHOLDERS
We know that having a safe and friendly environment for their banking needs is important to our communities. With us, you can
bring in your whole family – kids and pets are always welcome in our stores.
Many of our colleagues volunteer for charities and local causes in the nearby area, providing valuable time and raising money for local
people. We listen to the feedback of our local communities and use these insights to offer support that will genuinely help the people
WHAT MATTERS MOST TO OUR STAKEHOLDERS
Governance and accountability: We engage with our
regulators to ensure regulatory compliance including key
pieces of governance such as the Senior Managers and
Certification Regime (SMCR). In order to do the right thing,
we always seek to comply with all relevant regulations.
WHAT MATTERS MOST TO OUR STAKEHOLDERS
From such engagement suppliers have identified prompt
payment by the Bank as critical.
we serve.
HOW WE ARE RESPONDING
Throughout 2020 Metro Bank was able to support its communities by keeping every single store open and all of our AMAZE Direct
contact centres. In fact this year, we successfully opened six new stores, in London, the Midlands, the North and Wales. Two of these
stores (Sheffield and Cardiff) were opened safely during the pandemic.
For our FANS who are kids, despite being unable for much of the year to provide face-to-face learning, we were still able to safely
take nearly 7,000 pupils from 132 different schools through our Money Zone programme.
While our networking events had to be delivered virtually, we were pleased to lend a helping hand with a range of ‘take-away’ craft
activities for kids at Easter and Halloween, as well as a Back to School event in late August.
COVID-19 SPECIFIC CONSIDERATIONS
Colleagues from across Metro Bank have been supporting the NHS through various means, such as making scrubs, drinks,
snacks and meals for NHS workers, as well as acting as a hub for NHS goods.
We also supported food donations and volunteered at foodbanks, and from Cambridge to Basingstoke to Liverpool and Wood
Green (and many more places along the way) our colleagues have offered their time, made up food parcels, delivered meals
and made sure those most in need in the communities we serve didn’t go hungry.
We also helped the local causes that made a big difference to our FANS. Whether that’s supporting new mothers in need by
collecting essential goods, making deliveries to Colchester Zoo, running marathons to raise money for the local hospice in Solihull,
or checking-in with elderly residents self-isolating, our colleagues have been proud to support those in need.
HOW WE ARE RESPONDING
Senior representatives from the PRA have attended our Board
to engage with them on current regulatory topics and share
views and insights. The FCA and PRA also receive copies of
our Board papers. We have successfully appointed a new
Chairman, new CEO and a new Chair of our Risk Oversight
Committee during 2020.
We have engaged constructively with our regulators during
2020 with respect to key initiatives and will continue this
engagement across upcoming changes to the regulatory
landscape in 2021 and beyond.
HOW WE ARE RESPONDING
We are committed to paying our suppliers within clearly
defined terms, and we have proper processes for dealing
with any payment issues that may arise.
COVID-19 SPECIFIC CONSIDERATIONS
Alongside our peers we have been fully engaged with
regulators since the beginning of the pandemic.
We have welcomed their pragmatic approach to regulatory
developments, supervision and requirements through
the course of the pandemic which has allowed us to
comprehensively support our FANS at their time of need.
COVID-19 SPECIFIC CONSIDERATIONS
Our Audit Committee reviews the Bank’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 January to June 2020 we had an average invoice
payment turnaround of 31 days. We continue to review and
improve our processes with the aim of ensuring all our
suppliers are consistently paid within defined terms.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 63
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Environmental, social and
governance review
As part of our ambition to become the
UK’s best community bank we seek to
drive positive environmental and social
change through the approach we take.
As set out on pages 10 to 11 our approach
is to generate positive stakeholder
outcomes. We do this by creating positive
societal impacts, ensuring we offer
significant value for all stakeholders as
we grow.
Our stakeholders, and how we engage
with them, are set out pages 59 to 63.
Through this engagement we have
developed our environmental, social
and governance (ESG) priorities.
Our approach and priorities
Our approach to ESG priorities is simply
about doing the right thing. As a young
and growing bank we have the
opportunity to fully incorporate these
priorities into our business and ensure
we build it in the right way. In doing so
we are committed to being open and
transparent about what we are doing
and why.
Our AMAZEING values underpin
everything we do and this is the same
for ESG. Our values align to our belief that
we should act with integrity in everything
that we do.
Oversight of ESG is at Board and ExCo
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.
Our priorities consist of the following:
• Our FANS and communities
• Our colleagues
• Data privacy and security
• Our planet
• Our suppliers
Our FANS and communities
As we have grown over the past 10 years,
one thing has remained the same and
that is our commitment to great customer
service. Turning customers and the
communities we serve into FANS remains
our purpose and is therefore at the heart
of everything we do.
completely contact-free. This is our fifth
drive-thru store.
As a community bank, 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.
As of February 2021, we are the highest-
rated bank for service in stores for both
personal and business customers, as well
as the highest-rated high street bank for
overall service quality for personal
customers in the CMA’s Service Quality
Survey. In addition, we were proud to be
crowned as Bank of the Year at the 2020
MoneyAge Awards and Banking Brand of
the Year at the 2021 Moneynet Personal
Finance Awards.
We recognise and value our diverse
customer base. We support our
vulnerable customers and we invest
in our colleagues to make sure they
give the best guidance and support.
Monitoring our customer service is
prioritised through our Voice of the
Customer survey and analytics
programme, ensuring that we are
surprising and delighting all our FANS
and delivering the best customer
service possible, every single day.
We celebrated our 10th birthday in 2020,
after launching in 2010 as the first new
high street bank in the UK in more than
100 years. Since 2010, we have opened
77 stores across the UK supporting more
than two million customer accounts.
We’ve opened six new stores in 2020,
in London, the Midlands, the North and
Wales. Two of these stores (Sheffield and
in Cardiff) were opened safely during the
pandemic. Throughout 2020 we were
also the only Bank to keep all of our
stores open. Our newest store in Cardiff
also offers a drive-thru service, allowing
customers to carry out cashier services
from the comfort and safety of their cars,
Supporting our communities
In April 2020, our annual partnership
with our official charity partner Teenage
Cancer Trust came to an end, beating our
fundraising target of £150,000 which
allowed us to fund three specialist nurses
for a year at a Teenage Cancer unit. Our
colleagues participated in bake sales,
quizzes, the Three Peaks Challenge,
abseiling down The Orbit and many
more fundraising activities, and our
customers have helped us support the
cause through donations via our Magic
Money Machines.
Since March 2020, our colleagues
have continued to focus on supporting
causes in their local areas and during the
pandemic our colleagues went above and
beyond to support their communities.
2020 was like nothing that we’ve ever
experienced before and at Metro Bank,
like everywhere else, we’ve had to adapt.
Every year we give each of our colleagues
a Day to AMAZE, a day when they’d
ordinarily be working to use for
volunteering within their local community.
We extended this initiative to five days
volunteering so colleagues could
support local areas during the pandemic,
when we knew they needed help more
than ever.
Our colleagues have volunteered at
foodbanks, checked in with those
self-isolating, made scrubs for their local
NHS hospitals and delivered prescriptions
for local pharmacies. Some of our stores
have acted as donation points for
essential food and supplies for those
who need it and for frontline workers.
64 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Tax
We are a major UK employer, investor
and purchaser of goods and services.
We recognise our responsibilities as
a financial institution and make a
significant contribution to the UK
exchequer each year.
In 2020, we made a total tax contribution
of £132.9 million, which comprised
of £86.5 million of taxes we paid and
£46.4 million of taxes we collected on
behalf of the government.
Ultimately, society as a whole will benefit
from a fair, effective and predictable
approach to taxation. This includes
all of our customers, colleagues and
communities. We pride ourselves on
always acting with integrity, honesty
and transparency with regard to tax
and we continually adhere to the highest
standards of corporate governance.
Having granted relief to thousands
of customers through these means,
we’re now working with customers to
understand their needs going forward.
Our network of Local Business Managers
and Commercial Relationship Managers
are providing their expertise and
guidance to our customers to help
them manage their finances in the
current environment.
Kids and families
We are passionate about supporting the
kids in our community. Our stores run
Money Zone, a free financial education
programme. It introduces pupils to key
financial skills, helping them understand
how money, savings and banking work.
Our sessions for Key Stages 2 and 3
are linked to the wider government
curriculum guidelines. We are proud to
offer these courses in English and Welsh.
Since launching the programme, we have
educated more than 200,000 kids
through the Money Zone programme.
We are also developing a way to make
these digital so teachers and parents
can teach the material at home.
We have continued to host our in-store
family extravaganzas including our Back
to School and Halloween events, with
social distancing in place, and following
all health and safety precautions. Families
have been able to enjoy our free crafts
in store where it has been safe to do so,
as well as take them away to have fun
at home.
We put in place new processes for more
vulnerable customers to access cash and,
at the height of the pandemic when our
contact centres were busier than usual,
we also set up dedicated times for
vulnerable customers to call our
contact centre.
Despite the circumstances, some
things haven’t and won’t change – our
commitment to our customers remains
more important than ever, and we are
proud to say that we stayed open during
lockdown to help people with their
banking needs.
Supporting customers financially
We understand it has been and will
continue to be a particularly difficult
time for both our personal and business
customers. At Metro Bank we appreciate
that every situation is different, so we’ve
worked together with our customers on
an individual basis to find a solution that
best meets their financial needs.
Alongside this, there are a number of
other ways that we have been supporting
both personal and business customers
since early March 2020 to offer vital
peace of mind and additional financial
flexibility – for example through capital
repayment deferrals, interest roll ups,
increasing overdrafts or waiving overdraft
arrangement fees.
For small and medium enterprises (SMEs)
we recognise that many are experiencing
tough times and even tougher times
ahead. As an accredited lender with the
British Business Bank we have provided
nearly £1.5 billion in government-backed
loans to 36,000 businesses since the
start of the COVID-19 pandemic. We
will continue to do our utmost to support
the UK’s businesses during this
challenging time.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 65
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Environmental, social and governance review continued
Data privacy and security
The steady rise in both the number and
sophistication of cyber-attacks, combined
with the sudden shift to almost all
colleagues working from home as a result
of the COVID-19 lockdown, has presented
unprecedented challenges for our data
privacy and information security teams.
Despite this, during 2020 we substantially
strengthened both our procedural and
technical defences, bringing in new
capability, experience and tools to the
bank, in order to maintain our focus on
protecting FANS, colleagues and the
Bank’s information. The flexibility and
responsiveness of our security capability
has been key in enabling us to meet
FANS’ needs, for instance in rolling out
the government-backed business loan
schemes quickly and successfully.
Information security and cyber defence
In 2020, we partnered with a world-
leading cyber security firm to develop
a Security Operations Centre, which
monitors our networks and systems
24/7 to alert us to any unexpected or
potentially malicious cyber activity. We
have also invested heavily in our cyber
intelligence capability, giving us advance
warning of impending attacks and often
allowing us to react in time to head
them off. This is tightly integrated with
Fraud and Financial Crime teams,
giving our FANS, and their money,
all-round protection.
Our other key focus has been on
improving the resilience of our systems
to attack. Huge progress has been made
in patching and upgrading our IT
platforms, to minimise vulnerability to
the latest cyber threats. This cyber
resilience improvement is part of a wider
IT resilience programme, which continues
into 2021, under the guidance of our new,
highly experienced Chief Information
Security Officer and overseen by our
Chief Information Officer (CIO), Executive
Committee and Board.
Data protection
Privacy remains a key priority for our
FANS. Building on the foundations of
earlier General Data Protection Rules
(GDPR) compliance work, we have run
a substantial GDPR improvement
programme throughout 2020, improving
the effectiveness, maturity and efficiency
of our data privacy capability. We have
established dedicated teams for data
protection operations, responding quickly
and efficiently to FANS’ data rights
requests, and ensuring consistent good
governance over systems handling
personal data. We have also integrated
data protection into our wider
architecture processes and tooling.
GDPR improvement is a long-term
investment, continuing into 2022. Key
focus areas for 2021 are embedding
data retention policies and driving the
anonymisation or deletion of unneeded
personal data, to minimise the risk
of leaks.
Fraud prevention
We take our customers’ security
extremely seriously and have a range
of safeguards in place across all channels
to help defend customers against fraud.
We continue to work closely with other
stakeholders including banks, network
operators and law enforcement agencies
to prevent and protect customers
from fraud.
During the course of 2020 we have
increased the level of communication we
have with customers around the risks of
fraud and how to help protect against it.
We are active supporters of UK Finance’s
Take Five fraud awareness campaign, and
have an extensive online security centre
that provides information on how we
protect customers’ accounts and how
they can keep their personal details safe.
We continually update and share via
social media the latest threats and advise
on practices to guard against these.
66 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Protecting our customers is a key
priority and we are always working to
enhance our security, whilst making
sure all customers enjoy a convenient
banking experience.
We’re also proud to be a member of
the Authorised Push Payment Scams
Steering Group and were one of the
original banks to sign up to the voluntary
code which launched on 28 May 2019.
This gave consumers significantly
increased protections against authorised
push payment scams.
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 maintain this throughout the entire
life cycle of our business relationships.
We continually review the controls put
in place by our suppliers to prevent and
detect data security breaches, bribery,
corruption, modern slavery, child
trafficking, unfair wages, unacceptable
working conditions and labour
rights abuses.
We also 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 resources and best
practice with other buyers. We also
conduct regular meetings and supplier
assurance reviews on our riskiest
suppliers to ensure that they 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 of
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 2020 we continued to follow and
progress our processes to support our
Modern Slavery Policy, including:
• Publishing Metro Bank’s fourth Modern
Slavery Statement, approved by the
Board and signed by the CEO, on our
website in June 2020
(metrobankonline.co.uk).
• Delivering the third report of the
Modern Slavery Champion to the
Board in April 2020, including:
– The annual review of our Modern
Slavery Policy.
– Updating on the 2019/2020 Modern
Slavery Assurance Review which
found that the Policy and the
Annual Report of the Modern
Slavery Champion meet legislative
requirements and governance has
been managed consistently.
– Updating on progress against the
Modern Slavery Statement and
Action Plan.
– Working on developing plans for
sustainable banking, responsible
business conduct and
environmental and social risk,
including modern slavery risk.
• Metro Bank continues to leverage
FSQS to support due diligence on
suppliers before contracting and
ongoing during the relationship, on a
risk basis. In 2020, we engaged with
1,801 active third parties. 24 (1.3%)
were either based in riskier locations
(where the 2019 Measurement Action
Freedom score, an independent
assessment of government progress
towards UN Sustainable Development
Goal 8.7, is less than 50) or were more
likely to be exposed to modern slavery
risk due to the nature of the services. In
accordance with our Modern Slavery
Policy further investigation was
conducted, following which, 20
suppliers demonstrated adequate
controls to mitigate modern slavery
risk, and the remaining four supplier
relationships were terminated.
• All colleagues were required to
undertake modern slavery computer-
based training during 2020.
Our Modern Slavery Statement is available
at metrobankonline.co.uk
Our planet
Our greenhouse gas (GHG) reporting is
undertaken in line with our obligations
under The Companies Act 2006,
(Strategic and Directors’ Reports)
Regulations 2013 and latest 2018
regulations. The emissions this year also
include the acquisition of RateSetter and
emissions have been incorporated from
the acquisition date, 14 September 2020
to year end.
GHG
emissions
2020
(tCO2e)
2019
(tCO2e)
2016
(tCO2e)
Change
from
2016
(tCO2e)
Scope 1
Emissions
Scope 2
Emissions
(location
based)
Scope 2
Emissions
(market
based)
Scope 3
Emissions
Total GHG
Emissions
(location
based)
Total GHG
Emissions
(market
based)
Intensity
Metric¹
(FTE)
Total
Emissions2
per FTE
1,492
1,699
1,160
28.7%
3,644
4,247
5,044 (27.8%)
344
449
5,044 (93.2%)
1,303
1,951
1,661 (21.5%)
6,440
7,897
7,865 (18.1%)
3,139
4,099
7,865 (60.1%)
4,515
3,555
2,417
86.8%
1.43
2.22
3.25 (56.2%)
1. The intensity ratio is calculated as the sum total of
Scope 1 and Scope 2 emissions divided by the
average FTE count (which was 1.43) during the
reporting year.
2. The total emissions per FTE is calculated as Total
GHG Emissions (location based) divided by the
average FTE count.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 67
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Environmental, social and governance review continued
Our focus on energy efficiency and
renewable energy supply has also helped
us to mitigate the environmental impact
of the growth of our business.
We did not develop any carbon targets
for the current reporting period. However,
we have a plan for a steady reduction in
operational emissions (Scope 1 and Scope
2) over the next five years. During the
last 12 months, we have continued to
implement a number of energy efficiency
and waste reduction initiatives, including
purchasing green energy on electricity
contract renewal, replacing all fleet
vehicles with electric or hybrid vehicles
and switching to zero-to-landfill waste
management providers.
We’re also continually looking for ways
to reduce our energy consumption as we
open new stores, including electric car
chargers, installing double glazing, LED
light replacements, and motion detector
installations for store lighting. However,
we know we need to do much more to
meet our aspirations and will be building
out our net-zero roadmap over the
coming year. We will also be working to
better understand our indirect (Scope 3)
emissions and prioritise where we have
the greatest opportunity to influence
reductions. The surveys and associated
reports completed as part of Phase 2
ESOS will provide a roadmap for which
energy conservation measures can be
implemented cost effectively. To reduce
energy consumption, cost and carbon
emissions, we will continue our existing
good work and implement further energy
conservation measures in the next
12-month period, and as the changing
COVID-19 situation allows.
We have chosen operational control
as the consolidation approach and the
boundary includes all entities and
facilities either owned or under our
operational control that are within the
UK. The methodology used to calculate
the CO2e emissions utilises the carbon
emissions methodology as defined by
the World Resources Institute/World
Business Council for Sustainable
Development (WRI/WBCSD)
Greenhouse Gas Protocol. 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.
This is the fifth year of GHG reporting and
is aligned with the financial year, 1 January
2020 to 31 December 2020. The first year
of reporting, 2016, forms the baseline
year. The intensity metric chosen is
number of full time employees as at the
Financial Year ending 31 December 2020.
Total GHG emissions for the 12 months to
31 December 2020 are 18.5% less than the
previous year. Additionally, when viewed
as an intensity metric, our emissions have
reduced by 35.6% per full-time equivalent
employee year-on-year. We have no
qualifying carbon offsets during this
financial period. The majority of
electricity that the Bank procures is either
REGO backed or 100% Carbon offset,
hence market-based emissions are
relatively small. This year’s reporting
period has been significantly impacted by
the COVID-19 situation which has reduced
occupation of buildings and Company
transport and therefore associated
emissions since March 2020.
TCFD focus area
Key progress in FY20
Focus areas for FY21
Governance
Read more
on pages
84 and 99
Enhanced Board and
Management Committee ESG/
climate risk governance,
including refreshed charters
and accountabilities.
Regular Board and Leadership
Team deep dives planned on
ESG, including climate-related
risks and opportunities.
Strategy
Read more
on page 53
Started to develop scenario
analysis capabilities to inform
future strategy refreshes.
Risk
management
Read more
on pages 53
Analysis undertaken on
mortgages and business
lending, including initial flood
risk and transition risk analysis.
Set aspirations for reduction
in GHG emissions.
Metrics and
targets
Read more
on pages
67 to 69
Refresh ESG strategy with clear
goals, milestones and priorities,
which target material areas of the
balance sheet such as mortgages.
Expand dialogue with customers
on climate-related risks and
opportunities.
Expand ESG Credit Policy and
sensitive sectors analysis.
Develop the use of data and
modelling to inform credit
decisions.
Develop roadmaps and interim
milestones for moving towards
our 2030 aspirations.
Develop an ESG balanced
scorecard.
68 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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 and
parents-to-be. 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, a network lead and
an external coach, providing a link
between the inclusion networks and
senior management. Our Inclusion
Committee oversees the activities
of our four networks and facilitates an
intersectional approach to our diversity
and inclusion activities.
All of our senior leaders continue to
fully support our networks through
attendance at events, as well as acting
as speakers and panel hosts. We also
launched a new reverse mentoring
scheme with the Mbrace committee
and our senior leadership population.
We will continue our work to understand
the identities and experiences of all of our
Metro Bank colleagues. Looking forward,
we will carry on using data-informed
efforts to support diversity, equality
and inclusion.
The changes to our working model in
response to COVID-19 have also helped
us to decrease our energy footprint.
As we build our future working model,
we plan to harness the positive
environmental impacts from COVID-19
and will strive to minimise our personal
and corporate energy consumption
through reduced corporate travel and
commuting, supported by our ongoing
energy efficiency initiatives.
Enabling our FANS to manage their
finances online and make sustainable
long-term decisions is integral to
our business model. The continual
development of our digital capabilities
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.
With 15% of UK carbon emissions coming
from heating our homes, we know we
have an important role to play in helping
our mortgage customers reduce the
carbon footprint of their own homes.
In 2020, we began work to better
understand the carbon intensity of
our mortgage book, which will help us
establish a detailed roadmap for our
lending-related Scope 3 emissions.
We are also working to enhance the way
ESG is reflected in credit risk policies.
Our starting position is strong with a
focus on supporting small and medium-
size enterprises, exclusively based in the
UK, and low levels of lending to carbon-
intensive sectors, mitigating our exposure
to material climate-related risks.
We remain committed to developing our
disclosures in line with the Task Force on
Climate-related Financial Disclosures
(TCFD)’s recommendations.
Our colleagues
Our colleagues help to make Metro Bank
unique. We’re big believers in people-
people banking: a genuine belief that
people value human relationships when it
comes to their finances. To live up to that
ethos we ensure that we support and
invest in our people. We put 100% into
supporting our colleagues in reaching
their full potential and through our culture
encourage people to be themselves so
that they can be at their very best for
our customers.
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
N
G
Inspire colleagues
to create FANS!
Nurture colleagues
so they grow
Game-change because
this is a revolution
Our culture and our AMAZEING
behaviours are at the heart of our
business and communities, now more
than ever. All colleagues learn about our
culture in their first interaction with Metro
Bank, through their recruitment journey,
to their very first day where they start on
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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 69
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Environmental, social and governance review continued
Ethnic diversity at Metro Bank
Asian British
25.5% Mixed Other
2.2%
Asian Other
8.2% White British
37.4%
Black British
7.0% White Irish
Black Other
2.2% White Other
Mixed British
2.3% Undisclosed
0.6%
8.7%
5.9%
The events of 2020 are yet another
reminder that we need to do more, both
as an organisation and as a society, to
tackle systemic racism and inequality in
every aspect of life in the UK. In particular,
the Black Lives Matter movement has
been a powerful force in raising
awareness of the issues faced by
BAME people.
We have always believed it is imperative
that we represent the communities
we serve; this is the foundation of our
community banking model. It is this
philosophy that has fostered a culture
of diversity and inclusion within
our workforce.
We believe an organisation with a broad
range of skills, backgrounds, knowledge
and experience is more effective and
we are deeply committed to promoting
greater diversity throughout the
Bank and transparently reporting
against progress.
Our leadership team, with the support of
our inclusion network Mbrace, is looking
at how we support our BAME colleagues,
and what more we can do to champion
the issues impacting them. This will be an
ongoing process and is something we are
committed to.
Social mobility
We are incredibly proud of the work
we have been doing on social mobility.
We work with a range of charities and
organisations including the Armed Forces
Covenant, the Mayors Fund and Code
4000. In 2020, we obtained the silver
award from the Defence Employer
Recognition Scheme as part of our
Armed Forces Covenant. Throughout the
year we have run multiple careers events,
CV upskilling workshops and business
insight days to audiences such as the
Liverpool Education Authority, the
Lord Mayor’s Fund, Job Centre Plus,
armed forces veterans, those leaving
public services, ex-offenders looking
to return to work, and Brunel and
Birmingham Universities.
We have entered into a partnership with
the Care Leaver Covenant to provide a
care leaver friendly bank account opening
process, which uniquely does not require
them to produce photo ID. In addition,
we are committed to working with care
leavers before, during and beyond the
account opening process to ensure
they have a smooth experience, and
to develop and further enhance the
experience for future care leaver
customers. We are proud to deliver a
much friendlier bank account opening
process, helping to empower care
leavers as they grow into adult life.
Through our partnership with the Lord
Mayor’s Fund we have run sessions
helping to educate school age kids from
disadvantaged backgrounds in preparing
for work. We have also worked with
Birmingham University on various
projects to support a diverse workforce
and learn what the next generation of
candidates will require from an employer
to be successful.
Gender representation by grade
Gender
Female
Male
Executive
leadership
team
Senior
managers1
All
colleagues
6
24
(43%)
(36%)
8
42
(57%)
(64%)
1,890
(45%)
2,294
(55%)
1. Senior managers includes statutory directors
of subsidiary companies.
Gender diversity
43% of our ExCo and 36% of the Senior
Leadership Team (SLT) is female,
significantly exceeding the Hampton-
Alexander Review’s target of 33% female
representation on the ExCo and SLT
(direct reports to the Executive Team).
We are also proud signatories of the
Women in Finance Charter, which aims
to achieve gender balance at all levels
across financial services firms.
Since the last Annual Report, we
published our gender pay gap figures
for the third time, in line with the Equality
Act 2010 (Gender Pay Gap Information)
Regulations 2017. Our gender pay gap
is below the UK median, and we continue
to focus on supporting talented women
(and men) to progress at Metro Bank.
All details can be found on our website.
For more information please visit
metrobankonline.co.uk.
Our gender pay gap figures are
explained in more detail in the Directors’
Remuneration Report on pages 110 to 111.
Supporting more women into leadership
roles won’t happen without investment of
time and resource, which is why we have
a number of initiatives in place to help us
achieve our objectives. As well as our
Women on Work 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.
70 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
The Bank is a signatory of the Investing
in Women Code, 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.
• Encouraged colleagues to take more
time to complete Corporate Social
Responsibility (CSR) activity and
support their local communities
through additional paid leave.
• Supported colleagues whose store
openings were delayed on full pay.
The 2020 VOC survey saw over 87%
of colleagues taking the time to share
their views. ExCo and the Board
closely monitor the results of the
survey to continuously improve our
colleagues’ experiences.
COVID-19 response for colleagues
A key priority continues to be the health
and safety of our colleagues and their
families. Since early March, our colleagues
have been working productively from
home or from our offices and stores
which have been adapted to meet social
distancing requirements. We created a
coronavirus communication channel
accessible for all our colleagues working
from home, self-isolating or on voluntary
leave to ensure they were communicated
to and supported during the lockdown.
We welcomed over 700 new starters
remotely, ensuring that they had the
same ‘cultural injection’ through our
virtual Visions that they would have
enjoyed through the face-to-face
equivalent. We also set up a £2 million
‘Thank You payment’ of up to £1,000 for
frontline colleagues who had continued
to physically attend work during the
outbreak of the pandemic.
To adapt to the different ways of working
we also:
• Introduced new flexible working
practices for our corporate functions
colleagues that had caring
responsibilities. This included
colleagues doing condensed hours,
such as working early mornings or
evenings to enable them to take the
middle of the day off.
• Supported colleagues that were
shielding on full pay.
• Increased emergency dependant leave
to seven days to support colleagues
during the initial lockdown.
• Supported over 250 colleagues to take
voluntary leave on 80% of pay without
taking part in the Government
Coronavirus Job Retention Scheme
(furlough) – aimed at those who were
struggling to attend work.
Wellbeing and colleague engagement
We want our colleagues to be at their
best both at work and at home, and we
have continued to work on enhancing our
holistic health and wellbeing offering. In
2020 we conducted a wellbeing survey,
with 77% of colleagues responding,
empowering us to identify new ways to
support colleagues. Initiatives to come
out of the survey included a free year-
long subscription to Headspace to
offer our colleagues mindfulness tools
and techniques.
We also launched a new wellbeing portal
that has helped to engage many of our
colleagues in conversations about mental
health in a positive way, and there is now
a growing community of colleagues who
are taking proactive care of themselves
and others. Our partner Vitality has
adapted their offering to provide online
exercise classes, rewarding colleagues
for healthy behaviour during lockdown
with a range of benefits that can be
accessed at home.
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 VOC engagement survey and
have selected a new partner to support
us in running our 2020 survey. With the
new provider we have taken the
opportunity to reset our approach with
new questions, a new scoring system and
new benchmarks. We have retained the
main engagement question to enable us
to have a broad comparison to 2019.
Whilst the engagement score has
marginally reduced, it still remains within
the range that we would expect,
particularly in such an unusual year.
Headlines from 2020’s survey
• 91% of colleagues feel they have
a good working relationship with
their team.
• 73% of colleagues are happy
working at Metro Bank.
• 77% of colleagues feel that
Metro Bank does things for the
best of our customers.
• 76% of colleagues feel that
Metro Bank has a great culture.
• 75% of colleagues feel that
everyone has an equal
opportunity to succeed.
• 81% of colleagues feel
comfortable being themselves
at work.
During 2020 we appointed Sally Clark as
the designated Non-Executive Director
for workforce engagement. More
information on workforce engagement
in 2020 can be found on page 88.
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. This
provides information, advice and
expert support services. We work
with partners that have also had mental
health first aid training, to support with
colleague conversations.
Furthermore, our Health and Safety
Policy protects our customers and
colleagues and ensures we are
compliant with our statutory duties
and responsibilities.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 71
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Environmental, social and governance review continued
Developing careers
We are proud of the career development
opportunities we offer:
• We offer all our store and contact
centre advisors the chance to gain
a professional qualification with
the Chartered Banker Institute.
• We have an apprenticeship
programme to support young people
to start a career in banking.
• Colleagues can make the most
of our training facilities. Metro Bank
University, our online learning
platform, offers over 70 different
courses and almost 100 e-learning
modules.
• We promote from within – we always
look for internal candidates before
searching externally.
During the year, we welcomed 1,000
new colleagues to Metro Bank and
promoted more than 600 colleagues
already working in the Bank. To help our
colleagues develop the skills they need
to succeed, we have empowered them
through our talent programmes, resulting
in eight new Local Directors, 12 Local
Business Managers, and 79 new leaders.
We have updated over 600 pages on
Metropedia (our employee information
site) and have grown our library to more
than a thousand pages which are
accessed over 40,000 times a month by
our colleagues. We have rewritten over
500 hours of learning content for virtual
delivery and created a library of over
900 learning items, which have been
completed more than 134,000 times.
We have also retrained 84 colleagues
across the business to take calls in
AMAZE Direct during the COVID-19
lockdown, helping to ensure business
continuity and trained 130 new AMAZE
Direct colleagues to support our
customers throughout the pandemic.
Apprentices at Metro Bank
Across our stores and call centres we are
accredited to Level 2 standard (equivalent
to five GSCEs) for the Financial Services
Customer Advisor Apprenticeship
Programme. Our programme has been
running since 2017, offering apprentices
invaluable opportunities to further their
career progression. For example, within
our call centre apprenticeship
programme all apprentices have the
option to gain their Professional Banker
Certificate in addition to the regular
programme, further boosting their
future career prospects.
We recruit apprentices regularly based
on demand for roles within the bank,
with 19 apprentices currently undertaking
apprenticeship programmes across
our store and call centre networks.
We have further plans to extend our
apprenticeship programme and offer
a Level 3 (Equivalent to 2 A-Levels)
accreditation in 2021. We were one of
the few employer providers who were
able to continue to support our cashier
apprentices during the lockdown which
means they were still able to graduate
in 2020 as originally planned.
Rewarding and retaining our colleagues
As a growing bank – one that puts its
communities at the heart of everything
it does – we know just how crucial our
colleagues are when it comes to
achieving our objectives and providing
great customer service. Our reward
principles, which reflect this and apply to
all colleagues, are designed to incentivise
our colleagues to perform at the highest
level and retain the talent upon which our
business depends. Our principles include:
• Paying fair salaries and providing
strong career and growth
opportunities, underpinned by our
AMAZEING culture.
• Empowering each colleague to be an
owner, aligning them to the Bank’s
long-term vision.
• Rewarding 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.
• Keeping the reward process simple
and transparent.
• Offering competitive levels of
remuneration: no excessive cash
bonuses or linear incentives which
can skew behaviours and encourage
unnecessary risk taking.
In partnership with Cranfield School
of Management, we run the UK’s first
masters level apprenticeship for senior
banking professionals. The MSc in Retail
and Digital Banking has seen its first
cohort of 22 colleagues complete their
first year of the two-year part time
degree. The course is a fully funded
masters programme, with support
from the Apprenticeship Levy. For the
second cohort in 2020, the opportunity
to join the programme was opened
up to colleagues at other banks,
who are learning alongside our
Metro Bank colleagues.
72 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Policy
Description
ESG priorities
Treating Customers Fairly
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.
Lending Policies (including
residential mortgage, retail
unsecured finance, private
banking credit,
commercial, arrears
management)
Anti-Money Laundering/
Counter Terrorist
Financing
Diversity and Inclusion
The policy sets out the systems and controls to identify, assess, monitor and manage financial
crime risks and the procedures in place to assess their effectiveness.
1 2
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.
Recruitment and Selection
The policy relates to all recruitment-related activities and is relevant for all colleagues and any
third-party recruitment partners. The policy outlines responsibilities for hiring aligned to our
Company objectives/ethos and in accordance with the relevant legislation and regulation.
Board Diversity
Health and Safety
Whistleblowing
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.
Anti-bribery and
Corruption
The policy outlines our approach to managing the risk of bribery and corruption and to
ensure we conduct business in an honest and ethical way, with a zero-tolerance approach to
bribery and corruption.
Conflicts of Interest
The policy provides consistent practical guidance to all relevant parties in relation to the
identification, recording and maintenance of actual and perceived conflicts of interest.
Anti-tax Evasion
The policy sets out our zero-tolerance approach to tax evasion.
Business Continuity
Data
The policy makes sure we are able to continue delivering services to our customers at
acceptable levels if something unexpected were to happen. It addresses impacts to the
continuity of critical business activities in the case of man-made disasters, natural disasters or
other material events.
1 2 3 5
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.
Procurement & Supplier
Management
The policy ensures that when we rely on an external supplier for key processes and activities,
we take the reasonable steps to identify, monitor and mitigate the external supplier risks.
Modern Slavery
The policy describes our approach towards preventing slavery, servitude, forced and
compulsory labour and human trafficking in any of our operations or at any of our suppliers
and, through them, our supply chains.
1 Our FANS and communities 2 Our colleagues 3 Data privacy and security 4 Our planet 5 Our suppliers
1 2
1
2
2
2
2
2
2
2
1
1 2 4
1 5
1 5
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 73
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Environmental, social and governance review continued
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 KPIs relevant to our business can be found on pages
12 to 14. Additional KPIs in relation to each of the matters listed in the table below have been disclosed on pages 10 to 11, where we
believe this will assist in demonstrating the outcomes of our policies and activities during 2020.
Where to find further information
necessary for an understanding of our
business and our impacts, including
outcomes of our activities
Our Planet, page 67
Reporting
requirement
Environmental
matters
Employees
Our Colleagues, page 69
The CEO’s statement (pages 06
to 10) and the description of our
business model (pages 12 and 13),
articulate how our colleagues
are an essential component of
our success.
Society and
communities
Our Communities, page 64
Relevant policies
(please see page 73 for a description of each policy)
Our comprehensive risk management processes (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 52. 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 66
• Modern Slavery
• Outsourcing
Our Suppliers, page 66
• Anti-bribery and Corruption
74 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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 25 to 55.
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 73 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
23 March 2021
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 75
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Corporate governance overview
ROBERT SHARPE
CHAIR
Introduction
I set out Metro Bank’s corporate
governance statement, and my first
report since being appointed as Chair in
November 2020. I am delighted to have
joined the Board and I look forward to
leading the Bank on the next stage of
its journey.
Firstly, I would like to thank Sir Michael
Snyder for the significant progress made
during his tenure as Chair. During that
time the Bank appointed a new
permanent CEO, announced its revised
strategy and continued to strengthen the
skills, experience and independence on
the Board through the appointment of
four new Non-Executive Directors.
2020 was undoubtedly a testing year
for us all given the significant uncertainty
brought by the COVID-19 pandemic. A
key area of focus for the Board has been
overseeing the Bank’s response to the
pandemic. The Board and I are proud of
the way colleagues across the Bank have
come together to support customers and
each other through this time. The Board
will continue to monitor the evolving
nature of the pandemic including the
macroeconomic challenges and how this
impacts the Bank and its stakeholders
into 2021 and beyond.
Leadership, succession planning
and diversity
A key focus of the 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 in
order to support the strategic and
operational direction of the Bank.
A particular emphasis has been placed
on finding Non-Executive Directors
with strong retail banking knowledge
following the departure of Gene Lockhart
and Stuart Bernau in 2020. I am pleased
to report that during the year the Board,
on the recommendation of the
Nomination Committee, appointed Anne
Grim, Ian Henderson and Nick Winsor, all
of whom have extensive retail banking
experience from their executive careers.
Since 2019, the Board and the
Nomination Committee have worked
to improve the levels of independence,
gender and ethnic diversity, skills and
experience on the Board and this is
reflected in the makeup of our Board
today. The Board is now comprised of
33% females and there is one Director
of colour as at 31 December 2020. I am
therefore pleased to report that the
Board is meeting the objectives of its
Board Diversity Policy.
76 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
The Board’s composition is well placed
to provide robust and effective oversight
of the Bank and this was reflected in
the feedback from our recent external
Board evaluation.
Looking forwards, the Board and the
Nomination Committee will continue to
focus on longer-term succession planning
with a focus on high-quality diverse
candidates, who can add value and
insight to our strong Board into 2021
and beyond.
New Chair Selection Committee
A committee of independent Directors
was formed following the departure
of Vernon W. Hill, II as Chair in October
2019, to oversee the search for a new
independent permanent Chair for the
Bank. The Committee carried out a
robust and thorough search process
during the first half of 2020 with the help
of executive search firm Korn Ferry. I was
appointed as Chair on 1 November 2020
following regulatory approval.
Governance and Board effectiveness
In our corporate governance report on
pages 76 to 151, 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
2018 UK Corporate Governance Code
(the ‘Code’). It also outlines the
governance initiatives we have
undertaken during the year. For more
information on our compliance with the
Code, please see the Code Compliance
Statement on page 80.
A key area of governance work this year
has been the externally facilitated Board
evaluation which took place during Q3.
The evaluation was carried out by
Independent Audit, a market leading
firm. I am pleased to report that overall
the findings of the evaluation were
positive and the new Board is working
well together. Like many boards, we have
adapted to the challenges of remote
meetings and have continued to provide
effective oversight and scrutiny of the
management team in what is the new
‘normal’ way of working.
Following the evaluation, the Board
agreed an action plan to address the
findings of the report and I am pleased
to report the actions are now largely
complete. More details can be found
on page 86.
Further to the action plan, I am pleased
to report that, in line with best practice,
the Board separated the role of CFO and
Company Secretary and Melissa Conway
was appointed as Company Secretary of
the Bank. This marks a further step in the
Bank’s maturation as a listed company
and our commitment to the highest
standards of corporate governance.
Remuneration
Listening to shareholder feedback is one
of the most important components of
my role and one of the areas that we are
regularly asked about is our approach
to remuneration. It is for this reason that,
despite reviewing it last year, we have
decided to once more refresh our
Remuneration Policy. The new policy,
for which we will seek approval at our
AGM, is more in line with wider market
practices and provides greater levels
of transparency and incentive.
I appreciate that changing an
organisation’s approach to executive
remuneration in the current climate
is not an easy one, but I firmly believe
it will better align the interests of
management to those of our
shareholders and other stakeholders.
Workforce Engagement
Sally Clark was appointed as our
Non-Executive Director for Workforce
Engagement in May 2020. Since that
time, Sally has been busy meeting
colleagues remotely via a variety of
mechanisms to ensure that colleague
feedback is heard by the Board, despite
the challenges of the pandemic. Sally 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 pages 88 to 89.
Future priorities
My overarching priority, as well as that
of the wider Board, is to ensure the Bank
remains well capitalised and returns to
sustainable profitability in the medium
term. The recent sale of a mortgage
portfolio was an important step in
achieving this and there is more work to
be done in 2021. Additionally, in line with
its strategy of increasing its presence in
the unsecured lending market, the Bank
also announced the purchase of the
RateSetter back book in February of
this year.
The Bank continues to feel the effects
of legacy issues and is still subject to
regulatory investigations. Closing out the
investigations and ensuring the lessons
are learned to avoid any future issues
remains of paramount importance to
the Board.
The Bank will also need to evolve its
approach to sustainability, including
setting out targets to help measure
our progress.
I am immensely grateful for the support
both I and management have received
from stakeholders as we look to
reposition the business and deliver
profitable growth.
Robert Sharpe
Chair
23 March 2021
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 77
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Board of Directors
Key to Committees
A
N
Audit
Nomination
R
O
Remuneration
Risk Oversight
N
N
ROBERT SHARPE
CHAIR
DANIEL FRUMKIN
CHIEF EXECUTIVE OFFICER
DAVID ARDEN
CHIEF FINANCIAL OFFICER
SIR MICHAEL SNYDER
SID
Appointed to the Board 1 November 2020
Appointed to the Board 1 January 2020
Appointed to the Board 29 March 2018
Appointed to the Board 22 September 2015
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 30-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.
Robert has over 45 years’ experience in
retail banking. He is currently Chair at
Hampshire Trust Bank plc, Honeycomb
Investment Trust plc and Aspinall Financial
Services Limited. He has had an extensive
number of appointments both in the UK
and the Middle East including Chair of
Bank of Ireland (UK) plc, Vaultex Limited
and RIAS plc. He has also been a NED at
Aldermore Bank plc, George Wimpy plc,
Barclays Bank UK Retirement Fund, LSL
Properties plc, and several independent
NED roles at banks in Qatar, UAE, Oman
and Turkey. Robert was previously CEO at
West Bromwich Building Society, a role he
took to chart and implement its rescue
plan. Prior to this, he was CEO at Portman
Building Society, Bank of Ireland (UK)’s
consumer business in the UK and Bank of
America’s UK retail banking business.
Michael served as Chair between October
2019 to November 2020. During his tenure
as Chair the Bank appointed a new CEO,
strengthened gender balance on the
Board and refreshed its ExCo. He was
accountable for setting a new five year
strategy and helping the Bank navigate
COVID-19. Michael is a NED of Mason
Pearson Bros. Limited, Sumner Group
Holdings Limited and is a NED and Audit
Chair of Power By BritishVolt. He is an
experienced business leader, having
chaired GLE Loan Finance Ltd, been
Co-Chair 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, acting as Chair of the Policy
and Resources Committee for five years.
A
A
N
A
R
A
O
ANNE GRIM
INED
ANNA (MONIQUE) MELIS
INED
PAUL THANDI CBE
INED
MICHAEL TORPEY
INED
Appointed to the Board 20 April 2020
Appointed to the Board 20 June 2017
Appointed to the Board 1 January 2019
Appointed to the Board 1 September 2019
Anne is currently a NED of Plus500,
Insight Investment Funds Management
Limited, Openwork Holdings Limited, and
Retail Money Market Ltd (RateSetter).
Anne is an experienced executive turned
advisor, consultant and NED with more
than 30 years in senior financial services
leadership roles at Barclays, Wells Fargo,
American Express, Mastercard and most
recently as Chief Customer Officer at
Fidelity International. Her expertise is in
customer experience, strategic planning
and execution, technology innovation and
business transformation. In addition, she is
currently an Advisor to the Investment
Association’s FinTech Engine, a Trustee on
the UK board of Opportunity International
and a Director of CXpertin Ltd.
Monique is a Managing Director and the
Global Service Line Head of Regulatory
Consulting at Duff & Phelps, a Kroll
Business 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, the Financial
Services Authority and the Securities and
Futures Authority.
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 also a CEO
of West Midlands Growth Company
Limited and NED of British Allied Trades
Federation. Paul is an experienced CEO,
Chair and NED with diverse international
media and service-led experience with an
emphasis on people, innovation, data and
culture. Paul has over 20 years’ experience
in the media industry, including as
Executive Director at CMP Information.
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 in the 2020 New Year’s Honours
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.
78 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
R
N
O
A
R
A
O
O
CATHERINE BROWN
INED
SALLY CLARK
INED AND DNED FOR
WORKFORCE ENGAGEMENT
IAN HENDERSON
INED
NICHOLAS WINSOR MBE
INED
Appointed to the Board 1 October 2018
Appointed to the Board 1 January 2020
Appointed to the Board 20 April 2020
Appointed to the Board 20 April 2020
Catherine holds various non-executive
roles including: NED of FNZ (UK) Limited
and NED of QBE Underwriting Limited and
QBE UK Limited, and Chairman and NED
of Additive Flow Limited and The Plastic
Economy Limited. Until 31 March 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 NED
for the UK. She is a Trustee of Cancer
Research UK, one of the UK’s largest
charities. Catherine has extensive
experience in organisational
transformation in financial services and
a wide range of experience in leadership
and operations. Her previous
appointments include: Group Strategy
Director at Lloyds Banking Group,
Executive Director of Human Resources at
the Bank of England and Chief Operating
Officer at Apax Partners.
Sally is a Director at Acin, the data
standards firm for non-financial risk and
controls. She is also a NED of Frattina
Services Ltd. Previously, she was Chief
Internal Auditor at Barclays Internal Audit
(BIA) 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. 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.
Ian is currently CEO of Kyckr, an Australian
listed RegTech business providing global
KYC solutions to banks, payments services
providers and other regulated businesses.
He joined Kyckr after a 30-year career in
retail and business banking and wealth
management. He is also a Member Trustee
of the Chartered Bankers Institute. Since
2012, he has been actively involved in the
UK Challenger Bank sector holding CEO
roles at Arbuthnot Latham & Co Limited,
Kensington Mortgages, and Shawbrook
Bank. Prior to this, he was Chief Operating
Officer of the Private Banking Businesses
in Barclays Wealth and before that he was
with RBS for 21 years. His final role there
was as CEO of RBS International. He also
held the positions of Chief Operating
Officer Retail Banking and Marketing
Director RBS & NatWest. Ian holds
degrees in Economics and Finance from
Scottish and Canadian universities and
an MBA.
Nick is an independent consultant and
non-executive director. He is NED of
Schroder Oriental Income Limited, Chair
of its Nomination and Remuneration
Committee and a member of its Audit and
Management Engagement committees.
He is also a NED of the States of Jersey
Development Company, Chair of its
Remuneration and Nomination Committee
and is a member of the Audit and Risk
Committee and the Deal Advisory Panel.
Nick has more than 35 years of
international banking experience with
HSBC Group in a number of markets:
Brunei; Channel Islands; Hong Kong; India;
Japan; Qataer; Singapore; Taiwan; United
Arab Emirates and the United Kingdom.
He was Chief Executive Officer and Vice
President of HSBC Bank (Taiwan) Limited,
CEO of HSBC’s businesses in the Channel
Islands and Isle of Man and a Director of
HSBC Bank Middle East Limited. Nick is
also Chair of Autism Jersey and was
awarded an MBE for services to the
community in the Queen’s 2020 Birthday
Honours List. He holds a Masters in Physics
from Oxford University and is a Fellow of
the Institute of Directors.
Board skills as at date of the report
Retail Banking
Risk and Compliance
Regulatory
Finance, Audit
and Accounting
People and Culture
Digital and
Technology
Transformation
0
2
4
6
8
10
12
No of Board Directors
Gender Diversity
Board Independence
33%
Male
Female
67%
18%
82%
Independent Directors
Non-Independent Directors
This calculation excludes the Chair in line
with the requirements of the Code.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 79
MELISSA CONWAY
COMPANY SECRETARY
Appointed 1 December 2020
Melissa joined Metro Bank as Deputy
Company Secretary in 2017 and was
appointed as Company Secretary in
December 2020. During that time she
was responsible for building the Company
Secretary function and worked closely
with the Board on a number of key
governance tasks including the
appointment of the new CEO and
permanent Chair. Melissa is an
experienced Company Secretary with
extensive listed company experience
having held roles at HSBC Group and
Henderson Global Investors (now Janus
Henderson) prior to joining Metro Bank.
Melissa acts as Secretary to the Board, the
Remuneration and Nomination Committee
and also supports the Bank’s Executive
Committee. She holds a Bachelor of Laws
degree from the University of Sheffield
and is an associate of the Institute of
Chartered Secretaries and Administrators.
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Corporate governance
Highlights
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 56.
A summary of the major decisions taken in 2020 is set out below,
further detail on these decisions can be found on pages 56 to 58:
• Reviewing the Bank’s revised strategy, long term plan and the
impact of COVID-19.
• Oversight of the Bank’s responses to COVID-19 including the
wellbeing of our colleagues and the various initiatives through
which we have supported our customers (details of which can
be found on pages 56 to 58).
• Exiting the contractual lease of our Old Bailey office, as
part of the return to work strategy for our colleagues.
• Acquisition of RateSetter as part of the Bank’s
turnaround strategy.
• Sale of a portfolio of mortgages to a high street
mortgage provider.
• Board composition and succession planning including the
appointment of our new Chair, new independent Non-
Executive Directors, as well as new ExCo appointments
and Company Secretary.
Board succession
Key priorities for the Board in 2020 were Board succession
planning and continuing to strengthen the skills, experience
and independence of our Board. Changes to our Board in
2020 included:
• Sally Clark joined the Board on 1 January 2020 with
Anne Grim, Ian Henderson and Nick Winsor joining on
20 April 2020 as independent Non-Executive Directors.
• Sir Michael Snyder stepped down as Interim Chair and
Robert Sharpe was appointed as Chair of the Board as
of 1 November 2020, with Sir Michael resuming his role
as Senior Independent Director.
Governance enhancements
• Following the appointment of the new NEDs, the Board
(excluding David Arden and Daniel Frumkin) is now
comprised of a wholly independent Non-Executive
Director membership.
• Appointment of a permanent independent Chair.
• Splitting the role of CFO and Company Secretary to appoint
a designated Company Secretary.
• Refreshing the Board Committee membership, further
strengthening the relationships between Committees with
cross memberships between Audit and Risk Oversight.
• Updated and approved the Board Committees’ Terms
of Reference to reflect current best practice.
• Undertook an externally facilitated Board evaluation,
more details of which can be found on page 86.
Corporate governance compliance statement
Good corporate governance is essential to the delivery of our revised strategy and the long-term success of the Bank. This report
also sets out how the Bank has applied the principles as set out in the UK Corporate Governance Code (the Code). During 2020
there were two instances of non-compliance with the detailed provisions of the Code and we have set out the explanations below.
Code Provision
Explanation
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 38 – The pension contribution rates for
executive directors, or payments in lieu, should be
aligned with those available to the workforce.
As disclosed in the 2019 Annual Report, Gene Lockhart and Stuart Bernau, who
were both non-independent NEDs, sat on the Risk Oversight Committee before
stepping down from the Board. Since May 2020, the Risk Oversight Committee has
been fully comprised of INEDs, and as at the year end the Bank is fully compliant
with this provision.
As per the Bank’s remuneration policy, any new Executive Director hire will have
a maximum pension contribution at a level aligned with those available to the
workforce. Our new CEO was appointed on a pension contribution level of 8%
of base salary in line with this approach.
The pension contribution rate for the CFO is currently 10% of base salary. This will
be reduced to a level aligned with those available to the workforce by the end
of 2022. In line with the latest FRC Guidance we have recognised this as an area
of non-compliance with the Code during 2020, and as outlined above we are
committed to ensuring our executive pension contributions are fully aligned with
the provisions of the Code.
80 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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:
CEO
• Determine and review risk appetite.
• Monitor management performance in
delivering our strategy.
• Ensure that risk management measures
and internal controls are appropriate
and effective.
• Oversee and monitor the embedding of and
adherence to the Bank’s business values.
• Ensure that the Bank’s financial structure,
resources, talent and culture will support
long-term growth. In discharging this role,
the Board must also have regard to and
engage with the interests of a wide range
of stakeholders, including colleagues,
customers, suppliers and broader
communities, in order to build mutual trust
and support the long-term sustainability
of the business.
EXECUTIVE
COMMITTEES
RISK
OVERSIGHT
COMMITTEE
NOMINATION
COMMITTEE
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
DISCLOSURE
COMMITTEE
The Executive Committees are outlined in the Risk report on page 27.
Board Leadership and Company Purpose
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. In February 2020 the Bank announced its
strategic ambition to become the UK’s best community bank
and every decision we make is in furtherance of this ambition.
More detail on this can be found in our s.172 Statement on
pages 56 to 58.
The composition of the Board
As at the date of this report, the Board consists of the
independent Non-Executive Chair, two Executive Directors (the
CEO and CFO) and nine independent Non-Executive Directors.
Division of responsibilities between the Chair and CEO
The Board has formally documented the separate roles and
responsibilities of the Chair and CEO and more detail on this can
be found on the Bank’s website at www.metrobankonline.co.uk/
investor-relations.
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 CEO and sets out the basis
for delegation of authorities from the Board to its Committees.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 81
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Corporate governance continued
Further to the acquisition of Retail Money Market Ltd and its
subsidiaries (‘RateSetter’), RateSetter is currently continuing to
operate as a standalone entity. As part of the pre-completion
matters, the Board considered the most effective way to
maintain an appropriate level of oversight; RateSetter has its
own Board of Directors, with a mix of both INEDs, NEDs and
Executive Directors, and its own matters reserved for the Board,
with certain matters reserved to the shareholder. Informal
updates are provided from its Audit and Risk Committees to
their Metro Bank counterpart Committees and the RateSetter
CEO is a member of the Bank’s ExCo who, as part of the cycle
of ExCo presentations to the Board, presents to the Directors
on an annual basis.
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 90 to
115. 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.
The Board also delegates the review of the Bank’s disclosure
obligations to a Disclosure Committee, formed of the CEO,
CFO, Company Secretary and General Counsel. The Disclosure
Committee also has an approved Terms of Reference.
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,
ultimately approved by the Board, along with a self-assessment
of how each Committee’s duties have been addressed. The
composition of each of the Committees can be found at the
beginning of each Committee’s individual report. Any changes
to the Committees are made by recommendation of the
Nomination Committee.
Effectiveness
A clear record of the time commitments of each Non-Executive
Director is maintained and reviewed annually by the Nomination
Committee and the Board is satisfied that the Chair 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 Chair, Robert has
stepped down from his position as Chairman of Bank of Ireland
(UK). 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
82 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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 Chair or Company Secretary
so that their contribution can be included in the wider
Board discussion.
Board skills
As part of how the Board plans for succession, it reviews and
maintains a clear record of the skill-set that each Director
provides. The Directors’ skills and experience span a wide range
of sectors and specialisms which can be found on pages 78 to
79. The experience and knowledge of each of the Directors
gives them the ability to constructively challenge strategy and
to scrutinise performance.
Independence of Directors
The Board is satisfied that, as at 31 December 2020,
all Non-Executive Directors and the Chair of the Board
were independent.
Induction of new Directors
During 2020, we welcomed Sally Clark, Anne Grim, Ian
Henderson and Nick Winsor to the Board. All of our new
Directors undergo a formal, robust and tailored induction
programme upon appointment which is agreed with the Chair
and coordinated by the Company Secretary. Non-Executive
Directors meet the Chair 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 Bank policies and corporate and
financial information. New Directors also received listed
company director responsibilities training from our legal
advisers as part of their induction.
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 2020, none
of the Bank’s Executive Directors held directorships in any
other quoted company.
Board roles and responsibilities
Role
Chair
Names
Responsibility
Robert Sharpe
Melissa Conway
The Company Secretary is responsible for advising and supporting the Chair and the Board on
good corporate governance and best boardroom practice. She leads the Bank’s Company
Secretarial function.
The Chair 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
responsibility for fostering a positive Board culture that reflects the values of the business.
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 ExCo. The
CEO reports to the Chair and to the Board directly and is responsible for all executive
management matters of the Bank.
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, Company
Secretarial and Investor Relations functions, and is also responsible for producing and ensuring
the integrity of the Bank’s financial information and regulatory reporting.
The Senior Independent Director’s (SID) role is to act as a sounding board for the Chair and to
serve as an intermediary for Directors when necessary.
The SID is also available to shareholders if they have concerns that have not been resolved
through the normal channels of Chair, 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 Chair, 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 Chair and
conducts the Chair’s annual performance evaluation.
The DNED is responsible for:
• bringing the views and experiences of colleagues into the boardroom;
• as required, working with the Board, as a whole, and particularly the Executive Directors, to take
reasonable steps to evaluate the impacts of Board proposals and developments on colleagues;
• engaging with the Executive Directors regarding workforce engagement and steps taken to
address colleague concerns arising out of business-as-usual activities;
• providing feedback to colleagues on steps taken in response to their feedback; and
• reporting regularly to the Board on activities undertaken and feedback, as well as presenting the
annual update for the inclusion in the Annual Report and Accounts.
The role of the Independent Non-Executive Director (INED) is to constructively challenge proposals
on strategic direction. Each INED brings specific experience and knowledge to the Board and its
Committees. The INEDs 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 79. Their contributions provide independent views on matters of
strategy, performance, risk, conduct and culture. Each INED is appointed for an initial two-year
term but is re-elected on an annual basis.
CEO
Daniel Frumkin
CFO
David Arden
Company
Secretary
SID
Sir Michael
Snyder
Sally Clark
DNED for
Workforce
Engagement
INEDs
Catherine Brown
Sally Clark
Anne Grim
Ian Henderson
Monique Melis
Paul Thandi
Michael Torpey
Nick Winsor
The composition of the Committees can be found at the beginning of each of their individual reports.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 83
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION The Board’s year in review
Board attendance as at 31 December 2020
The following is a list of the Board’s attendance in 2020 for
scheduled Board meetings. A number of ad hoc meetings
were held at short notice during the year to consider strategic
opportunities and as a result of the COVID-19 pandemic.
The Board were able to devote additional sufficient time
to the Company as a result of COVID-19.
Meetings attended 2020
Meetings
held during
Director’s
tenure
Attended
Robert Sharpe (independent Chair)
Daniel Frumkin (CEO)
David Arden (CFO)
Catherine Brown (INED)
Sally Clark (INED and DNED)
Anne Grim (INED)
Ian Henderson1 (INED)
Anna (Monique) Melis (INED)
Sir Michael Snyder (SID)
Paul Thandi2 (INED)
Michael Torpey (INED)
Nick Winsor (INED)
Directors who have retired during the year
Gene Lockhart (former NED)
Stuart Bernau (former NED)
Roger Farah (former INED)
1
10
10
10
10
7
6
10
10
9
10
7
4
4
2
1
10
10
10
10
7
7
10
10
10
10
7
4
4
2
1. Ian was absent from one meeting for personal reasons but was fully briefed on
all matters discussed at the meeting.
2. Paul was absent from one meeting for personal reasons but was fully briefed on
all matters discussed at the meeting.
Full details of appointments and resignations in the year can be
found on page 149.
Development
The Company Secretary ensures that all Directors are kept
abreast of changes in relevant legislation and regulations.
In 2020, the Board received internal training sessions on
whistleblowing, the Bank’s cloud strategy and from PwC on
ESG: Climate related risk. 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.
84 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Board activities
The Board has a forward plan for its meetings which includes
regular updates from the Executive Committee and on financial,
risk management and operational matters. 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 Board recognises the importance of culture and it
has continued to increase the amount of time dedicated to the
monitoring and assessment of culture at Board meetings
in 2021.
Reports from the CEO, CFO and CRO are standing items on
every agenda. The Company Secretary reports on governance
matters and updates the Board on any changes to their
statutory duties or the regulatory environment which are
pertinent to their role. The Chair of each Committee reports on
the proceedings of the previous Committee meeting at the next
Board meeting, and minutes of the Disclosure Committee are
also included in the Board papers.
The Executive Committee, senior management team and
advisers are invited to attend Board and Committee meetings,
to present, contribute to the discussion and advise members
of the Board or its Committees on particular matters.
The involvement of the Executive Committee and 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. Further, it also enables the
Board to scrutinise and challenge management on the delivery
of strategic objectives. The Chair, 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.
The table below sets out the Board’s activities in 2020 and how these link to our business model, which is how we deliver our
purpose to create FANS, and ultimately on our ambition to become the UK’s best community bank.
Activity
Progress
Topic
Leadership and
effectiveness
Link to business
model
•
Integrated
model
• Unique culture
• Low-cost
deposits
• Risk-adjusted
returns
• Appointment of three new
INEDs and an independent Chair.
• Oversight of strengthening of
the Executive Committee.
• Review of External Board
Evaluation findings and approval
of action plan.
• The Board has the right balance of skills and
independence to provide effective oversight
of the Bank. The Nomination Committee and
Board will continue to focus on longer term
succession planning.
• Executive Committee appointments are now
complete. The Board is confident that the Executive
Committee is comprised of the right people to
deliver on the Bank’s strategic objectives.
• The actions from the Board Evaluation are
materially complete, more information can be
found on page 86.
• The Board has undertaken a comprehensive review
of the strategy, which has been further reviewed to
adapt to the challenges presented by COVID-19.
Delivery against the strategy continues with the
acquisition of RateSetter, sale of a portfolio of
residential mortgages and the purchase of the
backbook of RateSetter in February 2021.
• The Board received regular updates from
management on the Bank’s response to COVID-19.
on specialist lending.
• The acquisition of RateSetter completed in
September 2020. The integration is now at an
advanced stage and periodic updates are given
to the Board.
• During 2020 the Board approved the Bank’s Long
Term Plan and has reviewed and approved the
Bank’s 2021 budget.
• The Board has reviewed capital and liquidity
adequacy as part of the approval of the ICAAP and
ILAAP, supported by detailed review at the ROC.
• Approved the sale of a portfolio of mortgages to
create capital headroom.
Strategy
• Approval of the Bank’s
new strategy.
• Oversight of the Bank’s
response to COVID-19.
•
Integrated
model
• Unique culture
• Low-cost
deposits
• Risk-adjusted
returns
Capital and
financial
performance
• Low-cost
deposits
• Risk-adjusted
• Review and approval of the
Bank’s Long Term Plan.
• Review and Approval of the
returns
ICAAP and ILAAP.
• Review and approval
of financial reporting.
New initiatives •
Integrated
model
• Risk-adjusted
returns
specialist lending.
• RateSetter acquisition.
• Approval of expansion into
• The Board and the ROC continue to receive updates
Colleagues
• Unique culture
• Ongoing monitoring of culture
including updates from CPO
and her team and review of the
Voice of the Colleague and
wellbeing surveys.
• Review of informal and formal
feedback from the DNED from
colleague engagement activities
• Exit of the Old Bailey site further
to the results of the colleague
wellbeing survey.
• The Board reviewed and discussed the results of the
Voice of the Colleague engagement survey and
keeps the action plan under review.
• The Board review and discuss colleague feedback,
which is taken into consideration when making
its decisions.
• Further to feedback from stakeholders, the Board,
through the Remuneration Committee has overseen
the review of the Bank’s remuneration framework.
Further information can be found on pages 124 to
125 in the Remuneration Report.
Technology
•
Integrated
model
• Review of the Bank’s technology
strategy and journey to the cloud.
• The Bank has adopted a cloud strategy and
implemented a cloud platform.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 85
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION The Board’s year in review 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.
External Board evaluation
In line with the evaluation cycle and further to the internal
evaluation in 2019 reported on last year, an externally facilitated
evaluation was undertaken in 2020. The Bank appointed
Independent Audit to carry out this exercise further to a
selection process supported by the Bank’s procurement
team. Independent Audit were also subsequently engaged to
undertake the external quality assessment of the Bank’s Internal
Audit function. Aside from this, Independent Audit have no
other connection with the Bank.
Independent Audit were selected due to their experience in the
market and their proven ability to conduct an evaluation to
meaningfully support the Board in analysing their effectiveness
and create a suggested action plan. As part of their field work,
Independent Audit were invited to observe Board and
Committee meetings, they held 1:1 interviews with all directors
and various members of ExCo, as well as reading Board papers
and governance materials.
Areas of assessment
Agreed actions and progress
Board logistics
Role and focus of
the Board
• Review the Board agenda and
identify opportunities to reduce
the length. This is complete.
• Schedule informal sessions to
encourage development of
Director relationships. This
is ongoing.
• Review arrangements for
holding meetings virtually.
This is complete.
• Separate the CFO and
Company Secretary roles.
This is complete.
• Agree schedule of strategy
updates. This is complete.
• Agree style and content of
executive reports. This
is complete.
• Agree approach to ongoing
monitoring of culture This
is complete.
The Committees
Included in the individual reports
of the Committees.
86 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
The actions arising from the evaluation are materially complete
and progress against the remaining actions will be monitored
during the year by the Chair and Company Secretary, with
status reports back to the Board as required.
We are satisfied that the Board and each of the Committees
continue to operate effectively. The findings of the evaluation
showed the progress made regarding Board composition in
particular the strengthening of skills, experience, notably retail
banking, and independence of the Board. More details on
succession planning can be found in the Nomination Committee
report on page 104.
In line with the Code, an internally facilitated evaluation will
take place in 2021 which will also be an opportunity to revisit
progress made against the 2020 exercise.
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 25 to 55. The
ROC reviews the effectiveness of the risk management process
on the Board’s behalf, and its approach to this can be found
in the ROC report on pages 99 to 103. The Board confirm
that there is an on-going process for identifying, evaluating
and managing the emerging and principal risks faced by
the company.
The Board has delegated responsibility to the Audit Committee
for the review of the effectiveness of internal control systems.
More detail can be found in the Audit Committee report
on page 90.
The Board is ultimately responsible for the Bank’s internal
control and risk management systems, and in discharging this
duty they regularly receive updates from the Chairs of both
Committees as well as updates from the CRO. The Board also
approves the Internal Audit plan on recommendation from the
Audit Committee. The Board is satisfied that the internal control
and risk management systems are operating effectively and that
they have been in place for the year under review and up to the
date of approval of the Annual Report.
Conflicts of interest
At each meeting, the Board considers Directors’ conflicts of
interest. The Company’s Articles of Association provide for the
Board to authorise any actual or potential conflicts of interest.
During 2020, 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 Chair) for architectural
design and marketing services which ended in February 2020.
The Bank then entered into an additional short contract for
advisory services to ensure an effective transition to its new
providers which ceased in June 2020. The Audit Committee has
responsibility for the oversight of this related party transaction
and reviewed the arrangements with InterArch and the
reporting requirements ahead of the 2020 Annual Report
and Accounts. Further details are set out in note 36 to the
financial statements.
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 her team, who are
responsible for advice on corporate governance matters to
the Board.
Directors’ indemnities and insurance
We provide Directors and Officers of the Bank with appropriate
insurance during the course of their appointment, which is
reviewed annually. In addition, Directors of the Bank have
received an indemnity from the Bank against: (a) any liability
incurred by or attaching to the Director in connection with any
negligence, default, breach of duty, or breach of trust by them
in relation to the Bank or any associated company; and (b) any
other liability incurred by or attaching to the Director in the
actual or purported execution and/or discharge of their duties
and/or the exercise or purported exercise of their powers and/
or otherwise in relation to/or in connection with their duties,
powers or office other than certain excluded liabilities, including
to the extent that such an indemnity is not permitted by law.
Appointment and retirement of Directors
The Board may appoint Directors to the Board. Newly
appointed Directors must stand for election by shareholders at
the AGM following their appointment. In accordance with the
provisions of the Code, all continuing Directors of the Company
will offer themselves for annual re-election at the 2021 AGM.
Robert Sharpe will stand for election by shareholders at the
2021 AGM, this being the first AGM following his appointment.
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 page 60.
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 59 to 63.
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
pre COVID-19, telephone calls, presentations, webcasts and
online content.
Investor meetings are undertaken by the Chair, CEO and CFO,
supported by the Director of Investor Relations. During 2020
most communication was virtual in response to the risks of
COVID-19. The team participated in over 200 individual and
group meetings with shareholders, analysts and investors
from the US, UK and Europe and presented at various investor
conferences. Institutional investors have the opportunity to
meet with the Chair, SID and/or other NEDs 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. During early 2021 and prior to the publication
of this report, the Chair of the Remuneration Committee
engaged with shareholders regarding changes to the Bank’s
Remuneration Framework – more details can be found in the
Remuneration Committee report.
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
Secretary are available on the website for any shareholders,
analysts or investors who wish to ask a question.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 87
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Letter from the Non-Executive Director
for workforce engagement
Our activities during the year are set out in the calendar to the
right and explored in more detail below.
DNED activities during the year:
• Attending a virtual ‘Visions’ session as part of my own
onboarding as a Board member – a great opportunity
to take part in the Bank’s cultural engagement programme.
• Publishing a Colleague Communication, issued to colleagues
when I took the role over from my predecessor, as well as
a wellbeing blog post on the Bank’s Intranet during
the summer.
• Working closely with the Company Secretariat, we took steps
to formalise the role with a terms of reference which was
approved formally by the Board.
• Quarterly working groups with the CPO, Director of
Corporate Affairs and Company Secretariat (‘DNED Working
Group’) with the aim of identifying the most suitable
engagement opportunities and reflecting on feedback
and the effectiveness of engagement ahead of the formal
Board updates.
• Continuing with regular reporting to the Board
(two formal Board papers, plus ongoing opportunities
for informal feedback).
• Meeting with the CPO to discuss the Voice of the Colleague
results, ahead of the Board presentation.
• Introductions made to the chairs of all the Colleague
networks with a view to utilising the broad channels across
the Bank, so far resulting in attendance at both the Women
on Work annual careers event, Black History month events
and an invitation to the D&I Committee.
• Attending external round sessions during the year which
were useful opportunities to reflect on the development of
the role with our peers, adding value by being able to share
meaningful suggestions and contacts with management.
Highlights of Colleague engagement feedback
and action taken in 2020
Our virtual roundtable with our CPO and colleague volunteers
was a fantastic opportunity to have a more focused session,
with colleagues bringing their thoughts on what they appreciate
about the Bank and what they would like to change:
• Further to feedback we recognised that there was an
opportunity to increase awareness and understanding of the
roles of the Bank’s colleague networks.
• The session also discussed the merits of mentoring, particular
reverse mentoring, and this is something that is being
fostered through colleague networks.
SALLY CLARK
I was very pleased this year to succeed Stuart Bernau as Metro
Bank’s Non-Executive Director for workforce engagement
(DNED). Having joined the Bank at the beginning of 2020,
taking on this role has been a wonderful opportunity to get to
know colleagues across the business; hearing what is important
to them and being able to give additional insight to the rest of
the Board on colleague culture. At Metro Bank we know that our
people are our ‘special sauce’ and listening to their feedback is
of the utmost importance.
This year, being connected to our colleagues, supporting and
listening to them has been more vital than ever, and I’m proud
to be on the Board of an organisation that champions the
wellbeing of its colleagues. You can read more about the
Bank’s response to COVID-19 on 59 to 63.
As set out last year, to comply with the UK Corporate
Governance Code, the Board’s aim with choosing a DNED
as its workforce engagement mechanism was to create an
environment where colleagues could participate and have their
voices heard through an authentic dialogue and increased
connectivity between our colleagues and the Board. As we
moved into our second year, we continued to leverage the
existing communication and engagement channels with
colleagues, which are working well, as well as expanding these
to ensure we were able to continue to engage remotely as result
of the pandemic. My formal reporting on colleague engagement
to the Board is complemented by updates from the Bank’s
Chief People Officer on culture, which enable the Board to gain
insight into culture and the voice of our colleagues, as well as
through the monthly business update which provides periodic
updates on stress related absence, attrition and gender and
diversity statistics.
88 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
• Finally, the group also discussed the Bank’s return to office
Calendar of colleague engagement opportunities in 2020
H1
• Attendance on colleague briefing calls in respect of
the release of the 2019 financial results.
• Online live Q&A.
• Welcome email from Sally on taking on the DNED role.
H2 • Virtual colleague roundtable (Tea on Teams), with
• ‘Wellbeing Wednesday’ blog post on the
store, AMAZE Direct and AMAZE Central colleagues.
Bank’s intranet.
• Participation in the Women on Work network career
event with fellow Board member Anne Grim.
• Virtual store visits.
• Listened into a meeting of the Inclusion Committee.
2021 Opportunities
• Store Tour.
• ‘Get Chatty with Sally’ virtual roundtable.
• AMAZE Direct and Central Town Halls.
• RateSetter Town Hall.
• Colleague Network Events (rotation).
• New store opening.
strategy and new working spaces. We discussed that thought
should be given as to how colleagues can make the most of
the opportunity to collaborate with their team/stakeholders
when they are in the office. Management took this on board
and are considering this carefully as part of the broader
return to office strategy.
We also had some feedback at one of the Bank’s online Q&As
earlier in the year, which was in relation to supporting women
and their career path at the Bank. Further to this I was honoured
to join my colleague Anne Grim presenting at the Women on
Work annual career event in September.
I was very pleased to be able to report back to the Board
on these points in my report in September, and I have been
delighted to observe the tremendous appreciation for the
culture here at the Bank, the care and positivity extended
to and among colleagues, with a real enthusiasm and passion
for the brand and making FANS.
Looking forwards
As the role continues to develop, an action for us to focus on
next year will be evolving the opportunities for engagement
to ensure that they continue to be as effective as possible,
particularly in light of new ways of working. Although I have
been appointed as the DNED, the Board as a whole recognises
its responsibility to engage, listen and take colleagues’ views
into consideration when making its decisions, and in addition to
the regular informal and formal discussions with the Chair and
my NED colleagues on wider colleague engagement, the DNED
Working Group also considers opportunities for other directors
to participate when considering the engagement plan.
Regarding the changes to the remuneration framework, we
are committed to engaging with our colleagues. We listened to
the feedback our colleagues gave us as part of the VOC survey
and follow up VOC ambassador sessions. Through my role I’ll
continue to engage with colleagues to receive feedback around
these proposed changes at one of our virtual roundtables in H2.
We’ve found the feedback from our colleague population of
the impact of having a DNED to be positive, with an enthusiastic
response from colleagues to the invitations to engage. The
Board is satisfied that after a second year with the DNED role
in effect, that a meaningful and regular dialogue is being
established with our colleagues, continuing to strengthen
our colleagues voice in the boardroom.
Sally Clark
Independent Non-Executive Director
23 March 2021
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 89
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Audit Committee report
MICHAEL TORPEY
AUDIT COMMITTEE CHAIR
Audit Committee attendance for 2020*
Members
Sally Clark1
Anne Grim2
Ian Henderson3
Monique Melis
Michael Torpey (Chair)
Paul Thandi4
Meetings
held during
Director’s
tenure
Meetings
attended
6
5
2
9
9
8
6
5
3
9
9
9
Composition of the Audit Committee
In addition to the Committee Chair, Michael Torpey, there are
five members of the Audit Committee: Sally Clark; Anne Grim;
Ian Henderson; Monique Melis; and Paul Thandi. Each are
independent Non-Executive Directors with a range of relevant
business experience. Michael and Sally have 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
78 and 79.
New Committee members in the year met with the Audit
Committee Chair, Committee Secretary and Director
of Internal Audit for a briefing session as part of their
induction programme.
Regular attendees at the Audit Committee include the CEO,
CFO, CRO, Director of Internal Audit, Deputy CFO, Director
of Finance Transformation and representatives from the
external auditor, PwC.
1. Sally Clark was appointed to the Committee on 1 March 2020.
2. Anne Grim was appointed to the Committee on 1 May 2020.
3. Ian Henderson was appointed to the Committee on 1 September 2020. He was
unable to attend one meeting for personal reasons but was fully briefed on
discussions at the meeting.
4. Paul Thandi was unable to attend one meeting for personal reasons but was
fully briefed on discussions at the meeting.
* In addition to these scheduled meeting, additional meetings were held at short
notice to consider matters in relation to the Annual Report and Accounts and
financial considerations related to strategic opportunities.
2020 Activities
• External effectiveness evaluation of the Committee and
Internal Audit function.
• Monitoring the going concern and viability assumptions
as the COVID-19 pandemic developed.
• Oversight of the Regulatory Reporting Assurance
Programme.
• Reviewed the Modern Slavery action plan, statement and
policy, and recommended to the Board for approval.
• Reviewed the Annual Report on the systems and controls
in place for whistleblowing.
• Reviewed Internal Audit reports and attestations and all
of the Bank’s financial reporting.
Key areas discussed by the Committee during the year are
covered in detail on page 92.
2021 Focus areas
• Key regulatory changes, including CRR2/CRD5.
• Continuing to monitor going concern and viability of the Bank.
• Oversight of the integration of RateSetter from a financial
reporting perspective.
90 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Following each Committee meeting, I 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 a subsequent 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.
The Committee received briefings during the year from
subject matter experts in the Bank on cyber security, the
AIRB programme and from the Internal Audit team on the risk
assessments that take place to determine the Internal Audit
plan. These were excellent opportunities to meet more of our
colleagues as well as expand our understanding with deep
dives on these topics.
Building on the rotation of members last year, we have
continued to refresh our membership and welcomed
Anne Grim to the Committee on 1 May 2020 and Ian Henderson
on 1 September 2020. Both Anne and Ian bring a wealth of
knowledge with them in financial services and retail and
business banking respectively.
This year, and looking forward, the role of the Audit Committee
will be to continue to ensure the control environment
of the Bank keeps pace with the delivery of the Bank’s
strategic objectives.
Michael Torpey
Audit Committee Chair
23 March 2021
Dear shareholders
I am pleased to present the Audit Committee report for the
year ended 31 December 2020. In my first full year as Audit
Committee Chair, we’ve witnessed a lot of change in the macro
environment and the resulting challenges posed by the
COVID-19 pandemic with the Bank responding and adapting
accordingly. All the while, the Committee has provided support
as part of the Bank’s wider governance framework by
maintaining focus on evaluating the effectiveness of the Bank’s
control environment which continued to evolve and strengthen
during 2020. Building on the regulatory reporting programme
commenced in 2019, which the Audit Committee had close
oversight of, we’ve been pleased to observe during the year
that the regulatory reporting framework is continuing to be
embedded and there is a strengthening culture, enterprise
wide, on risk awareness. Further, the Bank continues work
to implement a new regulatory reporting system as well
as establishing a new internal assurance function within the
finance and regulatory team, further strengthening the control
framework (more on this can be found later in the report on
page 94). As we continue into 2021, the Committee will be
overseeing the preparation for the implementation of the
Capital Requirements Directive and Regulation (CRR2/CRD5)
due in early 2022.
During the year, the Committee continued to provide challenge
and scrutiny on financial reporting, fulfilling our role supporting
the Board in evaluating the appropriateness of financial
reporting. In light of the unfolding challenges caused by
COVID-19 in early 2020, additional meetings were convened for
the Committee to devote the necessary focus on going concern
and viability assumptions, satisfying themselves that all relevant
matters around the impact of the pandemic and the revision to
the Bank’s long term plan were explored and taken into account.
The Committee also met to consider matters associated with
the acquisition of RateSetter.
The Committee has overseen the delivery of the 2020 Internal
Audit Plan. During the year the 2020 Plan has had to evolve
and be reprioritised, to take account of the external factors of
COVID-19, as well as accommodate additional audits associated
with new initiatives such as CBILS and the acquisition of
RateSetter. We provide significant challenge to management
and scrutiny over actions through review of the Internal Audit
reports and, in the event that management actions are not
satisfactory, take a robust stand. The relevant ExCo member
is then invited to the Committee to discuss the findings and
a timeline for completion of remedial actions, which the
Committee also pays close attention to and challenges
where necessary.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 91
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Audit Committee report continued
Key areas discussed at Audit Committee meetings in 2020
Area
Policy
Financial
reporting
Internal Audit
External audit
Related party
disclosure
Financial and
regulatory
assurance
Governance
Key topics
• Annual report on the systems and controls in place for whistleblowing, including considering the new
external whistleblowing mechanism, as well as reports on whistleblowing claims as required.
• Non-audit services policy.
• Treatment of income statement items as underlying or non-underlying.
• Review quarterly trading updates ahead of release to the market.
• 2020 half-year results, including an update of critical accounting judgements and estimates, going
concern and viability.
• 2019 full-year results, Annual Report and Accounts, including assessment of the key judgements and
estimates, going concern and viability report.
• Post-COVID-19 Long Term Plan scenarios.
• Tax strategy, Senior Accounting Officer Review and HMRC Employer Tax Compliance Review.
• Deferred tax asset review.
• Review and challenge carrying values of certain intangible assets.
• Accounting treatment of exiting our Central London office at Old Bailey.
•
Integration of RateSetter from a financial reporting perspective, including alignment of accounting
reference date and external audits.
• Review of the 2020 Director of Internal Audit reports, and any remedial action plans.
• Approval of the Internal Audit Charter.
• Review and approval of the 2021 Internal Audit Plan.
• Evaluation of the effectiveness of the Internal Audit function.
• RateSetter – pre-acquisition Internal Audit review.
• 2020 External Audit Plan, engagement terms and fees.
• Terms of engagement for the half-year review.
• External auditors’ half-year review findings.
• 2019 full-year external auditors’ report and findings.
• Reviewed the disclosure relating to the transition arrangements with InterArch for advisory services
during 2020.
• Ongoing oversight of the regulatory reporting framework as processes embedded (including reports from
PwC on capital ratios).
• Horizon scanning the regulatory landscape to get ready for implementation of CRR2/CRD5.
• AIRB programme updates.
• Oversight of the customer remediation project in respect of overdraft SMS warning alerts.
• GDPR.
• 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
including an action plan.
IT and Cyber Security Framework.
•
• Terms of Reference (ToR) reviewed and recommended to the Board for approval.
• Self-assessment of the Committee’s duties under its ToR.
• Supplier payment practice reporting.
• Committee performance evaluation.
• C&I Fund updates.
• RateSetter funding approach.
92 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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.
• Monitor and review the effectiveness of the function.
• Review and approve the Internal Audit Charter biennially.
• Review and assess the Internal Audit Plan and ensure
that resources are adequate.
• Meet regularly with the Director of Internal Audit and
ensure access to Board.
• Review all reports on the Bank from the Director
of Internal Audit.
• 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 and Modern Slavery
• Review the adequacy and security of whistleblowing
arrangements.
• Chair of Audit is the Modern Slavery Champion and reports
to the Board at least annually on the effectiveness and
integrity of the systems and controls in place to ensure
compliance with the Modern Slavery policy.
Internal controls and risk management
• Consider the level of assurance the Committee is getting on
the risk management and internal control systems, including
internal financial controls, and whether this is enough to help
the Board in satisfying itself that they are operating effectively.
• In conjunction with the Risk Oversight Committee, review
and approve the statements in the Annual Report concerning
internal controls and risk management.
In addition to the key areas on the previous page, the
Committee reviewed the progress against the Internal Audit
Plan and reviewed the detailed reports where appropriate.
To create a cohesive governance structure and the right level
of oversight of the RateSetter business, in addition to the
updates the Committee received on integration from a financial
reporting perspective, our Committee member Anne Grim
is also a Non-Executive Director on the Board of RateSetter,
as well as a member of its Audit Committee. Additionally,
our Director of Internal Audit is invited to the RateSetter
Board Audit Committee meetings as a guest, reporting back
to the Bank’s Audit Committee as appropriate. The audit of
the integration of RateSetter into the Bank will form part
of the approved Internal Audit plan for 2021, whilst the Internal
Audit function of RateSetter continues to be outsourced to
Grant Thornton.
The Chair of the Audit Committee holds regular meetings with
colleagues from the Bank, including the Director of Internal
Audit, CRO, CFO and senior members of his team, and the
Assistant Company Secretary who acts as Secretary to the
Committee. The Committee Chair also sits on the Risk Oversight
Committee and works closely with Ian Henderson, its Chair.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 93
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Audit Committee report continued
Committee evaluation
Throughout the year the Committee has continually evaluated
its effectiveness and this included a full review of the Terms of
Reference and an in-depth self-assessment to determine how
it met its responsibilities during the year. The Committee was
satisfied that it had addressed all its duties during 2020 and was
well placed to deliver on the same in 2021. There is a continued
close collaboration with ROC, and both Terms of Reference
were reviewed to ensure that each Committee’s distinct
responsibilities, and where the Committee’s collaborate,
is clearly articulated.
Expected credit losses
During the year the Group recognised a significant increase
in the expected credit losses, with the expected credit loss
expense for the year of rising to £126.7 million from £11.7 million
in 2019. The Committee dedicated time to review the
appropriateness of the expected credit losses proposed
and to challenge the assumptions that underpinned these.
This included reviewing the use of post model overlays and
adjustments, which were deemed to be a new critical
accounting judgement in 2020.
Committee Evaluation Actions
Independent Audit suggestion
Metro Bank action/approach
Review the membership
of the Audit Committee
Clarify responsibilities around
how financial controls will be
addressed by the Audit
Committee
Consider how cultural issues
can be more actively included
in Audit Committee discussions
To be discussed by the Chair
of the Board and Audit
Committee Chair in Q1 2021.
An annual paper to be
prepared by management
to demonstrate the
appropriateness of the
financial controls.
Committee Chair to consider/
encourage discussions on
how internal audit and other
control-related points highlight
cultural issues and root cause.
As part of the wider external Board evaluation, facilitated
by Independent Audit, the effectiveness of the Committee’s
performance was also assessed. 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 and the actions from the action plan would be
addressed in Q1 of 2021.
Related parties
During 2020, the Bank’s related party transactions under the
Listing Rules with InterArch for Architectural Design Services
and Marketing Services ended as disclosed in last year’s report.
In order to ensure an effective transition, a new short term
arrangement for advisory services was entered into which
ceased in June 2020. The Committee has responsibility for the
oversight of such related party transactions and reviewed the
arrangements with InterArch and the reporting requirements
ahead of the 2020 Annual Report and Accounts.
94 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Recognition of provisions
The Committee continues to get regular updates on the
progress and status of the Group’s legal and regulatory matters.
For the purpose of year end reporting the Committee was
provided with an assessment of whether a need was required
to make a provision in respect of any of these matters.
Regulatory reporting framework
Following on from the solid base established for regulatory
reporting in 2019, culminating in the reasonable assurance
opinion from PwC on the 2019 CET1 and total capital ratios, the
focus for 2020 has been on ensuring that the transformational
changes within regulatory reporting remain embedded and
effective. The final aspects of the transformational programme
not completed in 2019 pertain to the implementation of
a new regulatory reporting system, Moody’s Analytics.
This implementation is overseen by the Audit Committee
on a regular basis to ensure that sufficient resource and
management oversight is applied to the completion of the
system implementation.
During 2020, Metro Bank has also continued its focus on
the undertakings required to seek IRB accreditation in 2021.
A successful accreditation would leverage the transformations
already achieved in regulatory reporting and those in flight
within risk, given the IRB interdependencies on the regulatory
and risk management frameworks. The Audit Committee
provide regular oversight and challenge to this IRB programme.
The Chair of the Committee further enhances this challenge
and oversight through his membership at the Board IRB
Working Group.
Building on the increased focus of the Audit Committee on the
underlying controls environments and infrastructure supporting
both regulatory reporting and IRB implementation, controls
reporting will be further enhanced in 2021. This will enable the
Committee to assess the effectiveness of the controls as the
strategy of the Bank continues to evolve, coupled with the
additional requirements for data collection and regulatory
reporting as a result of changes in the macroeconomic
environment which required rapid and large scale change
to respond to customer needs.
Fair, balanced and understandable
In line with the Code, the Committee considered whether the
2020 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 2020 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 2020 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 2020 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
management 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 externally facilitated review of the
effectiveness of the Internal Audit function.
• Monitored the delivery of the Internal Audit Plan.
• Approved the Internal Audit Plan for 2021.
The Committee was satisfied that Internal Audit had adequate
resources available this year, to perform the commitments under
the plan for 2020.
In developing the Internal Audit Plan for 2021, 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 2021 Internal Audit Plan was approved
by the Board in January 2021 following discussion at the
Committee and it also approved the level of risk assurance
contained within the Plan.
Internal audit evaluation
In line with best practice, and further to an external evaluation
performed in 2016/17, an external quality assurance (EQA) was
commissioned in Q4, with the conclusion that the IA function
was effective. The report highlighted that there is a positive
relationship between IA and executive management which
represents a real asset to the Bank’s risk management capability.
The EQA further highlighted that audit work is governed by an
appropriate methodology, is comprehensively planned and
complies with the spirit of the IIA Standards and the CIIA
guidance on effective audit in the financial services sector.
Systems of internal control
and risk management
Details of the Bank’s risk management framework are provided
on pages 25 to 55. 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. The Committee
also challenge management where appropriate on the
timeframe of the delivery of the actions.
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. The Committee is satisfied
that strong internal controls in relation to financial controls have
been in place for the year under review and up to the date
of approval of the Annual Report and Accounts.
Additionally, a Financial and Regulatory Assurance function was
created in March 2020 with a remit of ensuring that processes
are supported by robust systems and controls, to ensure high
quality output with risks and issues being identified, highlighted
and rectified appropriately. The team has a strong focus
on risk, control and quality of reporting, and works to drive
accountability across the Finance and Regulatory teams. The
assurance provided includes business as usual assurance, such
as review of core deliverables and external reporting, as well
as performing deep dive reviews into processes where risks
or issues have been observed. Assurance is also provided over
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 95
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Audit Committee report continued
technical interpretations, both from an accounting and
regulatory viewpoint. The Assurance team has provided regular
written updates to the Audit Committee throughout 2020.
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 2020,
we continued to follow and progress our processes to support
our policy. We published our fourth 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 and regular e-learning training
for colleagues. 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. Further to a recommendation by
the Committee that the Bank’s whistleblowing processes
be enhanced, an external confidential reporting hotline is
to be implemented. 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 the external auditor 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;
• noted the FRC Practice Aid for Audit Committee’s as part
of the January Committee papers;
• reviewed and approved the audit engagement terms
and proposed audit fee;
• considered the continued independence and objectivity
of the external auditor; and
• reviewed and discussed the reports provided by the
external auditor.
In our assessment of PwC’s performance effectiveness, we
also considered the Financial Reporting Council’s (FRC) Audit
Quality Inspection Report published in July 2020. In addition,
the FRC’s Audit Quality Review team reviewed PwC’s audit of
the Bank’s 2019 financial statements as part of its latest annual
inspection of audit firms. The Committee received a copy of the
findings in March 2021 and discussed them with PwC. While
there were no significant findings, the documentation of some
aspects of PwC’s audit procedures was identified as needing
limited improvements only.
The Audit Committee are satisfied that the auditors
demonstrated appropriate professional scepticism and
challenged the key focus of the financial statements, including
material and judgemental areas. The auditors have effectively
contributed to the financial assessment of the business
throughout the year and their contributions have been
appropriately investigative and valuable, and their expertise
welcomed. We invite comment from our audit partner
throughout the Committee meetings as well as regularly
taking the opportunity to hold meetings without management
present to maintain integrity and objectivity.
The Audit Committee confirms that PwC continues to be effective.
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. Our last formal competitive tender exercise took
place 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 2020
Annual General Meeting to reappoint PwC, which shareholders
subsequently approved. At the forthcoming AGM, the
Committee will again be recommending the reappointment
of PwC.
In addition, the lead audit partner rotates every five years. The
Bank’s PwC audit partner Darren Meek is due to be rotated after
the financial year ended 31 December 2020 in accordance with
the FRC’s Revised Ethical Standard 2019, having been appointed
into role in 2016.
96 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Non-audit services
The Bank and PwC have safeguards in place to protect the
independence and objectivity of the external auditor. A Revised
Ethical Standard concerning auditor independence took
effect on 15 March 2020 and the Bank’s policy on Approval
of Non-Audit Services by the External Auditor was revised
accordingly and approved by the Committee. Key changes
to the policy include:
• Moving to a specific list of permitted non-audit services
for UK incorporated Public Interest Entities, rather than
referring to a specific list of prohibited services as under
the previous standard.
• Prohibition of internal audit services, secondments and
contingent fee arrangements.
Requirements of the ethical standard:
An ethical standard for statutory audit is in place which sets
out a specific list of permitted non-audit services for UK
incorporated Public Interest Entities (PIEs). These services are
largely those required by law and regulation, loan covenant
reporting, other assurance services closely linked to the audit or
Annual Report and Accounts and reporting accountant services.
Examples of such services include:
• Reporting required to a competent authority or regulator
under UK law or regulation, such as reporting to a regulator
on client assets.
• Reporting on the iXBRL tagging of financial statements.
• Reports required by regulators where the regulator has
specified the auditor provide the service or has indicated
that the auditor would be an appropriate choice.
• Reviews of interim financial information, and providing
verification of interim profits.
• Additional assurance work or agreed upon procedures
performed on material included within or referenced from
the Annual Report and Accounts.
• Reporting on government grants.
• Reporting on covenant or loan agreements which require
independent verification.
Certain non-audit services are prohibited including:
• Services involving contingent fee arrangements.
• Internal audit services which play any part in management’s
decision making.
• Secondments/loan staff arrangements.
• Tax, consulting, valuation or corporate finance services
(other than reporting accountant engagements).
Under the ethical standard, there is a 70% cap on non-audit fees
for services provided by the external auditor. The cap is based
on comparing the average of three consecutive years of
statutory audit fees to the non-audit fees for services in the
fourth year. Therefore, non-audit fees for 2020 should be
compared to the average of audit fees for 2017, 2018 and 2019.
The cap does not apply to non-audit fees for certain services
required by law or regulation.
Application of the standard within Metro Bank
All non-audit services provided to the Bank by the external
auditor must be approved in advance by the Committee subject
to the guidelines and thresholds detailed in the policy. 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 Committee carefully monitors the level of non-audit
services provided by PwC. During 2020, 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 services provided and the fees
paid to the external auditor during the year can be found in
note 8 to the financial statements on page 177.
The Committee concludes that the Bank’s policy on Approval
of Non-Audit Services by the External Auditor is aligned to the
Revised Ethical Standard concerning auditor independence,
and the Bank has complied with its policy during 2020.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 97
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION 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 expected credit
loss allowance
Recognition of provisions
Write-offs and
impairment testing
Alternative performance measures
Acquisition of RateSetter
Sale of mortgage portfolio
Going concern and viability statement
During the year the Committee reviewed the measurement of the expected credit loss
including ensuring that management’s approach to provision remained appropriate,
especially resulting from the deteriorating macroeconomic environment. This included
a review of the appropriateness of the post-model overlays applied.
The Committee reviewed whether there was a need for provisions in respect of the
ongoing legal and regulatory matters the Group is subject to. The Committee also
discussed and reviewed the associated disclosures.
The Committee reviewed the annual impairment review including discussing the
impairment indicators that had arisen and the associated work 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 whether management’s basis for underlying results
remained appropriate. This included a review of the items that were classified as
non-underlying.
The Committee reviewed the acquisition-related accounting pertaining to the purchase
of RateSetter in September.
As part of the residential mortgage portfolio sale to NatWest the Committee reviewed
the associated accounting.
In accordance with the requirements of the Code, the Committee undertook an
assessment of the Group’s going concern and 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. A copy of the viability assessment can be found on
pages 54 to 55.
The Committee is satisfied that the approach taken and judgements applied were reasonable.
98 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Risk Oversight Committee report
IAN HENDERSON
RISK OVERSIGHT COMMITTEE CHAIR
Risk Oversight Committee attendance for 2020
Member
Catherine Brown
Ian Henderson (Chair)1
Michael Torpey
Nick Winsor2
Former members
Stuart Bernau3
Sally Clark4
Gene Lockhart3
Monique Melis3
Meetings
attended
9
6
9
6
4
3
3
2
Meetings
held during
Director’s
tenure
9
6
9
6
4
3
3
2
Composition of the Risk Oversight Committee
In addition to the Committee Chair, Ian Henderson, there
are three members of the Risk Oversight Committee (ROC):
Catherine Brown, Michael Torpey and Nick Winsor. Non-
Executive Directors who are not ROC members may attend
meetings. The CEO, CFO and CRO 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 Company Secretary and her team act as Secretary
to the Committee.
2020 Activities
• The Chair and members of the Committee met with
the regulator as part of its supervision of the Bank.
1. Ian Henderson joined the Committee on 1 May 2020.
2. Nick Winsor joined the Committee on 18 May 2020.
3. Gene Lockhart, Monique Melis and Stuart Bernau stepped down from the
Committee on 28 April 2020, 16 March 2020 and 18 May 2020 respectively.
4. Sally Clark joined the Committee on 1 March 2020 and stepped down
on 1 June 2020.
• Reviewed the Bank’s risk profile and response to the
COVID-19 pandemic.
• Oversight of the impact of COVID-19 on the Bank’s
risk appetite.
• Oversight of the financial crime control framework.
• Had oversight and advised the Board on the acquisition and
onboarding of RateSetter.
• Regular updates on the progress of the advanced internal
ratings based approach to calculating credit risk (AIRB)
accreditation programme.
• Oversight of the appropriateness of the Bank’s models.
• Risk sections of the 2019 Annual Report and Accounts.
2021 Focus areas
• Embedding and enhancement of the Bank’s Risk
Management Framework.
• Ongoing work to enhance the Bank’s financial crime control
• Overview of the Bank’s enhanced Risk
framework.
Management Framework.
• Change and execution risk relating to strategy and
transformation agendas.
• Ongoing work towards AIRB accreditation.
• Capital.
• Liquidity.
• Climate change.
• Oversight of the Bank’s risk appetite.
• Reviewed and approved the Bank’s Pillar 3 disclosure.
• Reviewed and approved or recommended policies to the
Board for approval.
• Oversight of the Bank’s capital and funding positions.
• Provided oversight of the preparation of the Bank’s Internal
Capital Adequacy Assessment Process (ICAAP) and Internal
Liquidity Adequacy Assessment Process (ILAAP).
• Held ‘Deep Dive’ review sessions on COVID-19 operational
resilience, change risk and transformation, cyber risk, data
privacy, information security and IT resilience, people and
culture, customer strategy and innovation, stores, non-stores,
and fraud.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 99
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk Oversight Committee report continued
Dear shareholders
I set out below the report of the Risk Oversight Committee
(ROC) for 2020.
Overview
I was delighted to join Metro Bank as a Non-Executive Director
in April 2020 and take up the role of Chair of ROC in May 2020.
It has been a challenging year for the Bank and its stakeholders.
I have been heartened to see the Bank’s response to the
pandemic and the way the Bank has adapted to ensure it
continues to support its customers and colleagues in a safe and
sustainable way. The ROC has overseen the Bank’s response to
the pandemic and is monitoring any increases to the Bank’s risk
profile as a result of COVID-19. The Bank’s ability to support
customers and adapt quickly to the demands of the UK
Government-backed loan schemes for businesses and to offer
payment holidays to mortgage, personal and business
customers is a testament to the Bank’s Risk Management
Framework (RMF).
Committee composition
There were a number of changes to the composition of the
Committee during the year. I would like to take this opportunity
to thank the previous Chair, Gene Lockhart and Committee
member, Stuart Bernau for their contribution to the Committee
during their time at the Bank. As part of the wider changes to
Board and Committee composition, Sally Clark and Monique
Melis also stepped down from the Committee during 2020.
The Committee is now fully independent in line with the UK
Corporate Governance Code and I was pleased to see further
strengthening of the Committee with the appointment of Nick
Winsor in May. He brings a wealth of retail banking and financial
crime risk management experience and therefore is a valuable
asset to the Committee.
I also joined the Audit Committee as a member in September.
Michael Torpey, Chair of Audit, is also a member of the ROC and
this allows for coordinated and full coverage oversight of the
Bank’s risk management and internal control systems.
The Committee also considered and endorsed the appointment
of the Bank’s new CRO, Richard Lees. I look forward to working
alongside Richard in 2021 as he embeds and strengthens the
RMF implemented during 2020.
Deep dives
The Committee heard from the Bank’s first line of defence at
meetings during 2020 and received detailed accounts from
the Bank’s senior management and their teams. The updates
covered: COVID-19 and the Bank’s operational resilience,
change risk and transformation, cyber risk, data privacy,
IT resilience, people and culture, customer strategy and
innovation, distribution and fraud.
This in-depth insight gave the Committee a broad overview
of improvements made to controls and processes through
the year, particularly with regard to the pandemic, and
gave the Committee the opportunity to ask questions
and challenge management, in order to discharge their
oversight responsibilities.
RateSetter
Prior to a decision being taken by the Board, the Committee
reviewed the proposed acquisition of RateSetter and made
a recommendation to the Board, taking into account the
implications for the risk appetite and tolerance of the Bank.
The Committee was pleased to endorse the acquisition and
welcome RateSetter to the Bank. This is an exciting step
in the Bank’s new strategy and we will continue to have
regular updates on the integration as we move into 2021.
Evaluation
During September the Committee took part in the scheduled
externally facilitated Board evaluation. The Committee
welcomed the independent evaluation of its activities and was
pleased that the findings demonstrated that the Committee
was working well. The Committee is liaising with the Company
Secretary and the management team to reduce the size of the
Committee’s packs and to continue to refine agendas to ensure
there is sufficient data on the most important issues.
Credit risk
As a community bank we have done all we can to support our
customers during the pandemic and we are closely monitoring
credit risk metrics in light of supporting customers with
repayment holidays and Government backed loan schemes.
During the year, the Committee focused on ensuring that credit
risk appetite remained appropriate in line with COVID-19
support and new credit propositions which support the
Bank’s revised strategy.
100 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Sanctions review
We continued our review of our sanctions compliance
framework with the support of external advisers, following our
notifications to regulators on the sanctions matters discovered
in 2017 and 2019. Metro Bank continues to fully cooperate with
its regulators in relation to any enquiries in this regard.
Outlook for 2021
I look forward to leading the Committee through 2021 and the
changing landscape that a post-COVID-19 environment will
bring. The Committee will continue to focus on areas within its
remit and will challenge and provide oversight of the continued
risks associated with the COVID-19 pandemic.
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 2020.
Ian Henderson
Risk Oversight Committee Chair
23 March 2021
Operational risk
This has been a tough year for our communities and the Bank’s
people and as part of our operational risk oversight, we have
been closely monitoring the impact of COVID-19 on our key
stakeholders. I would like to take this opportunity to thank
the Bank’s colleagues for all their efforts to keep our stores
open and as always putting our customers at the heart of
everything we do.
The Committee received regular reports from the Chief
Operations Officer on the Bank’s operational resilience in
response to COVID-19. It is a testament to the Bank’s approach
to business and to putting customers first that it was able
to quickly adapt to the changing environment in a safe way.
We will continue to monitor this as the situation progresses.
Regular reporting categories
The risk weighted assets remediation programme, which
was commenced in 2019, was concluded in 2020. We continue
to make ongoing improvements to our risk-related internal
systems, processes, controls and governance around capital
and risk-weighted assets, and we expect to implement a new
regulatory reporting system in a phased approach over 2021
and 2022. The Audit Committee is providing oversight over
this programme.
Efforts continue towards AIRB accreditation. Additional
momentum was applied to the initiative in 2020, leveraging
the enhancements made to the risk management framework,
internal capabilities and internal ratings based governance and
during 2021 we will maintain dialogue and engagement with
the PRA throughout the process.
As part of its oversight role, the Committee has also spent
time reviewing and challenging the Bank’s ICAAP, ILAAP
and associated documents, including stress testing and
assumptions, prior to the submission to the PRA. The
Committee was pleased to see material improvements
to the quality of both documents during 2020.
Financial crime risk
The Committee reviewed the Money Laundering Reporting
Officer report and the strategic plans focused on continuing to
develop the Bank’s money laundering control framework. The
Committee had oversight of the key milestones of the Financial
Crime Improvement Programme and we also continue to
increase customer awareness of fraud risks.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 101
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Risk Oversight Committee report continued
The Risk Oversight Committee in brief
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.
Accountable to the Board, the ROC provides leadership,
oversight and direction regarding the Bank’s risk governance
and management. It is charged with helping the Board 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. The ROC is responsible
for reviewing, challenging and recommending to the Board the
Bank’s risk appetite, ICAAP document, ILAAP document and
risk policies. It also provides oversight of the risk model
programme. The ROC oversees risk management procedures
and reviews risk reports on key business areas.
The ROC receives regular management information and reports
concerning the Bank’s performance against risk appetite and
the measures set by it and by the Board. Regular updates
are received on regulatory developments, and consideration
is given to how these will affect plans, processes, systems
and controls.
The key areas of risk considered by the Committee include:
• credit risk;
• treasury and prudential risk;
• operational risk;
• compliance and conduct risk (including regulatory risk); and
• financial crime risk.
The ROC is a sub-committee of the Board. Its specific
responsibilities are set out in its Terms of Reference which are
reviewed annually and available on the Bank’s website.
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 report
This includes a summary from the CRO setting out items of note
and assessing the Bank’s performance against its risk appetite
and risk metrics.
Treasury and prudential risk
The Treasurer’s commentary is tabled at each ROC meeting and
the Treasurer provides a summary of relevant Treasury matters,
including balance sheet performance and each of the principal
Treasury risks i.e. liquidity and funding, capital and market risks.
In addition, the status of the Recovery Plan and indicators
therein are discussed. The Treasurer also tables relevant
Treasury polices for approval and notes the minutes of the
ALCO, which is the primary venue for in-depth discussion
on Treasury matters. The report to the Committee includes
high-level MI on; liquidity, funding, capital and market risks.
In addition, the Treasurer’s report includes updates on relevant
regulatory matters.
The Committee also receives a regular update from the Director
of Prudential Risk on Treasury risk, Treasury risk appetite
performance and model risk.
During the year, ROC also reviewed and recommended to the
Board for approval the ICAAP, ILAAP, Recovery Plan and
relevant policies.
Credit risk
Execution of 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 policy exceptions
are monitored. The Committee regularly reviewed the
performance of the loan portfolio including assessing immediate
and ongoing COVID-19 impacts across all products. The
Committee also oversaw the implementation and performance
of the suite of government financial support measures
including: capital payment holidays, CBILS and new/increased
overdraft facilities.
Operational risk
The ROC receives reports concerning risk appetite and risk
assessment for a number of key operational risks including:
information security and systems availability, operational
resilience, and the execution risk of change. Incidents and root
cause analysis as a result of any material incidents were
presented in 2020 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.
102 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
During 2020 the Committee has also received reports from
management on emerging non-financial risks and how these
risks are mitigated.
Key policies considered by the
Risk Oversight Committee in 2020
Policy
Policies approved by the ROC:
• Retail Mortgage Policy
• Anti-Bribery & Corruption Policy
• Anti-Tax Evasion Policy
Impairment Policy
•
• Regulatory Reporting Disclosures Policy
• Commercial Lending Policy and Commercial Lending
Standards Policy
• Retail Unsecured Lending Policy
• Collections and Recovery Policy
• Dealing Policy
• Model Governance Policy
• Retail SME Credit Policy
• Risk Management Framework
Policies reviewed and recommended to the Board:
• Credit Risk Policy.
• Responsible Lending Policy
Information Security Policy
•
• Fraud Policy
• Capital Management Policy
• Liquidity Policy
Compliance and conduct risk
The ROC is updated regularly on regulatory developments and
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 of defence.
Financial crime risk
Given the level of risk posed by financial crime to all banks,
the Committee reviews 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. The regular
reporting also includes payments and customer screening,
as well as updates on items of note from the Financial
Crime Steering Group.
Litigation update
The ROC notes the report from the Bank’s Legal team regarding
any material litigation cases.
Deep dives and in-depth reviews
The ROC receive in-depth reviews on areas of emerging risk
and regulatory interest throughout the year.
Executive Committee minutes
The Committee reviews and formally notes the minutes of the
Executive Risk Committee and the Asset and Liability Committee.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 103
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Nomination Committee attendance for 2020*
Catherine Brown
Monique Melis (Chair)1
Sir Michael Snyder
Robert Sharpe2
Former members
Roger Farah3
Meetings
held during
Director’s
tenure
Meetings
attended
5
3
5
1
2
5
3
5
1
2
1. Monique Melis joined the Committee in March 2020.
2. Robert Sharpe joined the Committee in November 2020.
3. Roger Farah left the Committee in March 2020.
* In addition to the scheduled meetings listed above the Committee held
additional meetings to review succession planning and NED recruitment.
• The Committee also reviewed and recommended to the
Board for approval, changes to the membership of the
Board’s Committees, following the appointment of the
new NEDs.
• Led by the Committee Chair, held a session on the work
of the Committee for new NEDs, which formed part of
their induction.
2021 FOCUS AREAS
• Long term succession planning for the Board and Senior
Management, including the mix of skills, experience,
independence and diversity on the Board.
• Monitoring progress against the objectives set out in the
Bank’s Diversity Policy.
• Further review and refinement of Committee membership
following the appointment of the new Chair and new NEDs
in 2020.
Nomination Committee report
MONIQUE MELIS
NOMINATION COMMITTEE CHAIR
Composition of the Nomination Committee
In addition to the Committee Chair, Monique Melis, there are
three members of the Nomination Committee: Catherine Brown,
Sir Michael Snyder and Robert Sharpe. Each are independent
Non-Executive Directors. The CEO and the CPO attend
meetings by invitation. The CPO provides support to the
Committee Chair and Committee as needed and the Company
Secretary acts as Secretary to the Committee. Following each
meeting the Chair provides a verbal update to the Board. The
Committee minutes are also included in future Board papers.
2020 ACTIVITIES
• The Nomination Committee oversaw and recommended the
appointment of three new Non-Executive Directors, Anne
Grim, Ian Henderson and Nick Winsor, who joined the Board
on 20 April 2020.
• We announced in October 2019 that Vernon W. Hill, II was
stepping down as Chair. Sir Michael Snyder was appointed
as interim Chair and a separate Committee of independent
Directors was established to oversee the search for a new
permanent independent Non-Executive Chair working with
Korn Ferry. The New Chair Selection Committee was
comprised of Monique Melis (Nomination Committee Chair
and former interim SID), Catherine Brown (Remuneration
Committee Chair), Paul Thandi (iNED).
• Robert Sharpe was appointed as Chair on 1 November 2020,
following an extensive search process led by the New Chair
Selection Committee.
• During 2020 the Bank has further strengthened its
Executive Committee.
• The Board endorsed the appointment of a Company
Secretary, separating the role from the CFO in line with
best practice.
104 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Dear shareholders
I am pleased to share my Nomination Committee report for
the 2020 year end. I write to you following a turbulent and
challenging year for us all and I hope this letter finds you well.
The Committee and I, along with our Board members, are proud
of the way the Bank has supported its people and its customers
through this difficult time. I am pleased to see that Colleague
wellbeing is a top priority for the Executive Committee.
Looking back on 2020, we made significant progress on Board
succession planning through the appointment of a new
independent Chairperson and three new INEDs during 2020.
The Committee is satisfied that there is the correct balance of
skills and experience on the Board to provide effective oversight
of the Bank and the delivery of its strategic objectives.
Working with Executive Search Partners Korn Ferry following
a detailed and robust process led by the New Chair Selection
Committee, Robert Sharpe was appointed as Chair of the Board
on 1 November 2020. Korn Ferry has no other connection to
Metro Bank.
Robert brings extensive retail banking and governance
experience from his executive career and board roles. He has
over 45 years’ experience in retail banking. He is currently
chairman at Hampshire Trust Bank plc, Honeycomb Investment
Trust plc and Aspinall Financial Services Limited. He was the
Chairman of the Bank of Ireland (UK) plc until November 2020.
In his executive career Robert was previously Chief Executive
Officer at West Bromwich Building Society, a role he took to
chart and implement its rescue plan. Prior to this, he was Chief
Executive Officer at Portman Building Society.
As part of the search for a new Chair the Nomination Committee
considered the appointment of an interim Chair. Sir Michael
Snyder was selected to fulfil this role given his extensive
knowledge of the Bank and strong relationships with the
Bank’s shareholder base. I was appointed as interim Senior
Independent Director while Sir Michael carried out this role.
Following the appointment of Robert Sharpe, Sir Michael
returned to the position of Senior Independent Director.
A key focus during the year has been to increase the level of
retail banking experience on the Board following the departure
of Gene Lockhart and Stuart Bernau after nine years of service
in 2020. We appointed Anne Grim, Ian Henderson and Nick
Winsor to the Board on 20 April 2020. Anne has more than 30
years experience in senior financial services leadership roles at
Barclays, Wells Fargo, American Express, Mastercard and most
recently as Chief Customer Officer at Fidelity International. Ian
has had a 30 year career in retail & business banking and wealth
management. Since 2012, he has been actively involved in the
UK Challenger Bank sector holding CEO roles at Arbuthnot
Latham & Co Limited; Kensington Mortgages; and Shawbrook
Bank. Nick has more than 35 years of retail and commercial
banking experience with HSBC Group in a number of
international markets. Latterly he was head of the Financial
Crime Remediation Programme at HSBC.
It is great to be able to welcome new talent to the Board and
to increase the diversity of background, skills and retail banking
experience we have amongst our Non-Executive Directors.
Whilst we believe that the current make up of the Board is right
and don’t plan to make any further appointments in the short
term, we also know that finding high quality, diverse candidates
takes time. We have therefore spent time reviewing a new
candidate profile for NED searches. Diversity of gender and
ethnicity is at the heart of this.
Committee Performance Evaluation
As part of the broader externally facilitated Board evaluation
in 2020 the Committee undertook a review of its effectiveness.
I am pleased to report that the review showed that the
Committee is working well together and is also benefiting from
the support and advice of our new Chief People Officer, Carol
Frost. There were no actions arising from review relating to the
work of the Nomination Committee. We will carry out an internal
review of effectiveness in 2021 in line with the Committee Terms
of Reference.
Looking forward, 2021 will continue to be busy for the
Nomination Committee as it further reviews the composition
of Board Committees, long term succession planning as well
as progress against the objectives of our Board Diversity Policy.
A summary of the progress made in 2020 is set out below.
Wishing you the best for a healthy and happy 2021.
Monique Melis
Nomination Committee Chair
23 March 2021
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 105
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Nomination Committee report continued
Key areas discussed at Nomination
Committee meetings in 2020
The Board carried out an externally facilitated evaluation during
2020. More details are on page 86.
Board appointments
• The appointment of Anne Grim, Ian Henderson and Nick
Winsor as new Non-Executive Directors.
• Review of proposed Non-Executive Director candidates from
diverse long lists.
• Appointment of Interim Chair and Interim SID.
• Appointment of SID.
• Reviewing and agreeing the latest candidate profiles
for NED search.
Board succession
• The Board succession plan and progressively refreshing our
Board with a view to promoting diversity of backgrounds, skills,
experience, and personal and cognitive strengths.
• Succession planning for the Executive Committee and
senior management.
• Reviewing the Board Skills Matrix.
• Reviewing and updating the Board Diversity Policy.
• Agreement of Committee memberships and Committee
Chair Roles.
• Agreement of composition for the independent New Chair
Selection Committee.
Other areas for review
• NED time commitments.
• Approval of Nomination Committee report.
• Annual review of the Nomination Committee Terms of Reference.
• Review of the DNED Terms of Reference.
• Nomination Committee annual effectiveness review.
Board composition, independence and time commitments
We reviewed the skills, experience, independence and
knowledge of the Board during 2020 to understand which areas
to focus on when recruiting future Board members and the
future composition of our Board and Committees. We are aware
of the areas of expertise we may need to strengthen and we will
also continue to review length of tenure to ensure there are
orderly succession plans in place, taking into account the
strategic and oversight needs of the Bank.
We reviewed the time commitments of the Board and are
satisfied that all Board members have sufficient time to dedicate
to their roles. We were also satisfied that Board members were
able to devote additional time to the Company as a result of
COVID-19.
The changes to the Board during 2020 and the appointment of
Robert Sharpe as Chair gave us the opportunity to refresh the
membership of our Committees.
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.
Diversity
We understand and value the merits of a diverse organisation
and Board. We have worked with 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 other connection
to Metro Bank.
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. The gender balance of those in senior
management and their direct reports can be found on page 70.
106 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Board Diversity Policy
During 2020 we further reviewed our Board Diversity Policy to ensure this was in line with best practice recommendations and
meets the expectations of our stakeholders.
The Board places great emphasis on ensuring that its membership reflects diversity in its broadest sense.
A summary of the objectives of the Board Diversity Policy and the progress made against these is listed below.
Objective
Progress made in 2020
Considering candidates for appointment as Non-Executive Directors
from a wide and diverse pool, which include a combination of skills,
experience, ethnicity, age, gender, social, educational and professional
background and other relevant personal attributes such as cognitive
and personal strengths to provide the range of perspectives.
Ensuring the female representation on the Board meets and remains
at a minimum of 33% as per the Hampton-Alexander objective.
Ensuring the Board’s ethnic diversity meets and maintains a minimum
of one Director of colour by 2024.
Only engaging executive search firms who are committed to sourcing
diverse candidates and who have signed up to the voluntary Code of
Conduct on gender diversity and best practice.
Reporting annually against our objectives and other initiatives taking
place within the Bank which promote diversity.
Diverse candidate long lists were provided for all NED searches
by our executive search partners.
As at 31 December 2020, the Board is comprised of 33% females.
As at 31 December 2020 there is one Director of colour on the
Board. The Committee will promote ethnic and racial diversity
for any new appointments, but do not expect to make any
appointments in the short term given the significant refreshing
of our Board in 2020.
We have worked with Audeliss, a search firm who are committed
to the highest standards of diversity and inclusion.
Report against objectives:
A summary is included here and more information can be found
in the stakeholders’ section on page 60.
Other initiatives taking place within the Bank:
Initiatives launched
• Refreshing the Bank’s Colleague Networks and creating
consistency.
• Supporting diverse talent in succession plans.
•
• Learning content and sessions that promote an inclusive mind
Inclusion champions pilot scheme.
set and behaviours refreshed and available in the Bank’s
Learning System.
• Building more inclusive recruitment practices.
Initiatives in progress
• Recruitment of an Inclusion Director.
•
•
Inclusion diagnostic and follow up strategy.
Increasing the alignment of the Bank’s Inclusion Committee
with business areas and regular activity.
• Developing a mentoring platform to connect colleagues
to mentors, and reverse mentoring initiatives.
Reporting annually on the outcome of the Board evaluation including
the composition, structure and diversity of the Board.
Full details can be found on page 86.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 107
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Remuneration Committee report
CATHERINE BROWN
REMUNERATION COMMITTEE CHAIR
Composition of the Remuneration Committee
During 2020 the Remuneration Committee comprised
Committee Chair, Catherine Brown, and two other members,
Sally Clark and Paul Thandi. The Committee has comprised
these three members since March 2020 (see below). 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 Company Secretary acts as
Secretary to the Committee. Following each meeting the
Committee Chair provides a verbal update to the Board. The
Committee minutes are also included in future Board papers.
Catherine Brown has chaired the Remuneration Committee
since 13 March 2020 with her predecessor, Roger Farah,
chairing the Committee to this date.
Remuneration Committee attendance for 2020
Members
Catherine Brown (Chair)1
Sally Clark2
Paul Thandi3
Former members
Roger Farah4
Meetings
held during
Director’s
tenure
Meetings
attended
8
5
9
3
9
5
9
4
1. Appointed to the Committee on 1 April 2019. Appointed Committee Chair
on 13 March 2020.
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 13 March 2020.
108 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
2020 Activities
The Committee convened more often in 2020 than had been
necessary during previous years, due to the impact of COVID on
the Bank. This enabled the Committee to make timely decisions
in relation to relevant remuneration matters.
The Committee has:
• Reviewed the Directors’ Remuneration Policy ( the ‘Policy’),
having taken into account the changing regulatory landscape
relating to remuneration since our initial Policy was published
in 2017. The Policy was approved at the 2020 Annual General
Meeting with over 92% of shareholder votes cast in favour.
• Agreed a temporary, three month reduction in fees for
Non-Executive Directors and salaries for Executive Directors
during the first national lockdown.
• Overseen the key aspects of reward for all colleagues,
including Directors’ remuneration, a review of the
performance of the Group personal pension scheme and
the Company’s gender pay gap.
• Considered the appropriateness of the Bank’s list of
colleagues who fall under the Senior Manager and
Certification Regime; specifically, those deemed to be
Material Risk Takers.
• Asked Management to instigate a Bank-wide review
of our approach to performance management and reward,
to ensure that, going forward, colleagues’ goals and
remuneration are aligned to the revised corporate strategy
announced in early 2020.
• Reviewed the principles of the annual Reward Review,
including salaries and variable pay, for all colleagues.
• Discussed the treatment of outstanding variable pay awards
and variable pay outcomes for 2020 in the context of internal
analysis and the ongoing external investigation into the
risk-weighted assets adjustment made in early 2019.
• Completed an independent Board effectiveness review
with no significant findings.
• Determined that remuneration outcomes for 2020 should
reflect the Company’s performance in a challenging external
environment, while recognising the substantial progress that
has been made in delivering the Bank’s transformation
programme, and applied discretion as appropriate.
2021 Focus areas
• The impact of recent regulatory changes on remuneration
as well as the impact of the implementation of the
CRD V remuneration rules which apply to the Bank
from 1 January 2021.
• The Directors’ Remuneration Policy is being reviewed in the
context of the announcement of the revised corporate
strategy, the evolving external environment and feedback
from external stakeholders.
• After a thorough review of our approach to remuneration
for colleagues, senior executives and Executive Directors,
including a positive engagement process with external
stakeholders in Q1 2021, we will submit a revised Policy
to shareholders for approval at the 2021 AGM.
• We shall continue to monitor the impact of COVID-related
disruption on the Bank’s performance and consider any
implications that arise regarding remuneration.
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 2020.
The report aims to describe how the Committee addressed
its responsibilities during the year.
I was formally appointed as Committee Chair on 13 March 2020,
having been a member of the Board since 1 October 2018 and
a member of the Remuneration Committee from 1 April 2019.
I would like to take this opportunity to thank Roger Farah for
his previous leadership of the Committee.
Since the time of writing my letter to you this time last year,
COVID-19 has created a unique series of challenges for the
Bank, its customers and colleagues, and other stakeholders.
Notwithstanding these challenges, the Committee recognises
that substantial progress has been made in delivering the Bank’s
ambitious transformation programme, which remains on time
and on budget despite the vast majority of colleagues working
from home for much of the year. With this in mind, the
Committee has focused on balancing remuneration decisions
that meet the expectations of our customers, colleagues and
shareholders, reflecting both 2020 business performance and
achievements in strengthening the Bank for the future. The
Committee is mindful of the exceptional work undertaken by
colleagues across the Bank during these difficult times; ensuring
we continued to deliver our market-leading service to customers
throughout the year whilst strengthening our capabilities for
the future.
Following Daniel Frumkin’s formal appointment as CEO in early
2020, a new strategic plan was launched to bring the Bank back
to profitability. New talent has been brought onto the Executive
Committee and the Senior Leadership Team to enable delivery
of the business performance and transformation objectives
contained in the plan. The Committee recognised that aligning
remuneration to the objectives, targets and outcomes of the
plan would be helpful in encouraging commitment to deliver
the plan over a number of years, but that the Bank’s existing
approach to remuneration was not designed to support longer
term performance expectations.
As a result, the Committee felt that it was timely and
appropriate to review our approach to remuneration, not only
for our most senior colleagues, but for colleagues across the
Bank. The review was supported by Aon (McLagan), who
provided advice on remuneration practices across the financial
services sector and options to bring greater alignment of
incentives with longer term performance.
Our proposed approach to Executive Directors’ and Executive
Committee members’ remuneration
Whilst we received support for our revised Directors’
Remuneration Policy at the 2020 AGM, we will be seeking
shareholders’ approval for a new Policy for the following three
years at the 2021 AGM in light of the remuneration review
outlined above. The Committee is cognisant of the views of
our shareholders on remuneration matters, and following the
feedback received through the recent engagement process,
as well as feedback from the proxy advisors in early 2020,
the Committee believes a change to the Policy is appropriate.
I would like to thank investors for their feedback on the
proposed Policy during 2021 and I will continue to engage
with them and other stakeholders on our approach to
remuneration going forward.
The following key areas are being addressed as part of the
newly proposed Directors’ Remuneration Policy:
• Introduction of appropriate long term incentives, aligning
the interests of executives with those of shareholders
• An increase in the weighting of financial metrics on the
variable reward balanced scorecard
• Clarification of the Remuneration Committee’s ability to
adjust performance outcomes through use of discretion
• Formalisation of post-cessation shareholding requirements
• Malus and clawback provisions reviewed ensuring share plan
rules are compliant with CRD V regulation
The Remuneration Committee has agreed to retain the
existing Policy relating to fixed remuneration; but is proposing
material changes relating to the Bank’s approach to variable
remuneration for its most senior colleagues. The changes
address the Committee’s preference to bring greater
alignment between longer term performance and incentives,
acknowledging external feedback received in 2020. The
proposed changes reflect best practice and ensure the Bank’s
remuneration structure is compliant with the regulatory
requirements we are required to observe as a proportionality
level 2 firm. We have also considered changes to the corporate
governance landscape with respect to executive remuneration.
The key changes include:
• Annual Bonus – may be delivered in deferred shares
and/or cash which, in combination with the LTIP award
(see below), will be structured in line with the regulatory
requirements on the deferral of variable pay under the
PRA Remuneration Code.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 109
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Remuneration Committee report continued
Our proposed approach to Executive Directors’ and Executive
Committee members’ remuneration continued
• Long Term Incentive Plan (LTIP) Award – Annual, forward-
looking awards granted under the LTIP will be determined
by the Committee. Any awards are subject to performance
conditions measured over a period of at least three years
aligned with the Bank’s long term strategy. The LTIP awards
will be limited to 100% of salary within the current variable
pay Policy limit of 200% of salary with the annual bonus limit
also to be set at 100% under the new Policy.
• Shareholding requirements – formal shareholding guidelines
for Executive Directors of 200% of salary form part of the
existing Policy; however, under the new Policy the Executive
Directors will be expected to build up to this level over
a five-year period. In line with investor expectations and best
practice relating to Executive Directors, an enforcement
mechanism will be introduced to support the current
necessity to retain 100% of the shareholding requirement
(or actual holding if lower) for two years post-cessation.
The following amendment regarding pension contributions
made as part of last year’s policy review has been retained and
will remain critical to our remuneration approach going forward:
• Pension contributions – 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.
Some aspects of the Directors’ Remuneration Policy will be
adopted for members of the Executive Committee, including
the Annual Bonus and LTIP arrangements as a set out above.
Full details of the proposed changes to our Directors’
Remuneration Policy can be found on page 135.
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. For the first time since the Bank’s inception, our
revised approach to remuneration for Executive Directors and
the Executive Committee will be different from the approach
taken for all other colleagues but only with regards to variable
remuneration. It will be delivered partly as annual bonus with
a long term deferral into shares and partly as an LTIP award.
Executive Committee (including Executive Directors)
remuneration will comprise a salary, reasonable benefits
and pension provisions and variable reward which is
delivered through an annual bonus with deferral and LTIP,
as described above.
For the wider colleague population, the Committee is keen
to ensure our remuneration structure is as simple as possible,
delivers variable reward that is valued by colleagues, and is
aligned to market practice. Therefore, under our revised
approach, colleagues’ remuneration below the Executive
Committee has been simplified. It will comprise a salary,
reasonable benefits, pension provisions and a variable
remuneration award which is delivered solely in cash.
Historically colleagues have received a combination of cash
and share options. The only exception to this will be those
colleagues who are deemed to be Material Risk Takers
where variable remuneration will be deferred in line with
regulatory requirements.
Colleagues across the Bank can participate in our ShareBuy
scheme; a share incentive plan (SIP) that is recognised by HMRC
and allows colleagues to buy Metro Bank shares in a simple, tax
efficient way. During the course of 2021, we will look to extend
our ShareBuy offering which will encourage share ownership in
the Bank. This aligns all colleagues with both investors and other
stakeholders in line with our customer-focused model and long
term vision.
All variable awards are subject to malus and clawback of at least
three years, extending up to ten years for senior management.
Gender pay
Our median gender pay gap has decreased year on year, while
our mean gender pay gap has increased year on year. The 2020
median gender pay gap is 11.7% (2019: 12.4%) and the mean
gender pay gap is 21.1% (2019: 20.1%). Whilst it is positive to see
the median pay gap reduce, the primary cause of the pay gap
is the larger proportion of women in the lower quartiles along
with a higher 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
11.7%
21.1%
60.0%1
22.7%
60.0%1
22.7%
12.4%
20.1%
33.3%
30.6%
33.3%
29.4%
Year
2020
2019
1. Year on year increase in median bonus gap is due to the greater proportion
of men in the top quartile of colleagues (see next page for further detail).
110 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
We take fairness and transparency very seriously, so we have
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
50%
Male
Female
50%
Median pay gap 0.0%
0.1%
Mean pay gap
50%
Male
Female
50%
Median pay gap 0.0%
Mean pay gap 0.3%
Upper middle
Upper
56%
Male
Female
44%
Median pay gap 0.9%
1.5%
Mean pay gap
68%
Male
Female
32%
Median pay gap 10.7%
8.7%
Mean pay gap
In 2020, variable reward was balanced with 87.4% of females
receiving a bonus, versus 83.8% of males.
Female
Male
12.6%
87.4%
16.2%
83.8%
Received bonus
Did not receive bonus
The median bonus gap was 60% and the mean bonus gap was
22.7%. With no share option exercises being made during 2020,
no gains were made on the sale of share options and as such,
the median bonus gap (excluding share options sales/gains)
remains at 60.0% and the mean bonus gap (excluding share
options sales/gains) remains at 22.7%. The bonus gap is driven
by the greater proportion of men in the top quartile where
variable reward tends to be higher. The median bonus gap was
exacerbated by our approach to awarding bonuses in lieu
of 2019 corporate performance.
Full details can be found on our website: metrobankonline.co.uk.
Looking back on 2020
COVID-19 has meant that 2020 has been a unique year, unlike
any other in recent memory. It has created significant challenges
for all colleagues across the Bank. We have not used the
government furlough scheme, ensuring continuity of service to
our customers throughout the pandemic and I am very proud
to be part of a business where all of our colleagues have risen to
the challenge in a variety of ways. Store-based colleagues have
remained focused on creating FANS; their dedication to
excellent customer service has enabled us to keep all of our
stores open throughout the pandemic. Similarly, our AMAZE
Direct colleagues have been on the end of the phone
throughout the pandemic, supporting those customers who
weren’t able to get to a store. Management has also led by
example, making sound decisions to support colleagues and
ensuring the business has remained resilient whilst delivering
against our new strategic plan.
In April, the Committee approved a three month reduction
in fees for the Non-Executive Director population. They also
approved a three month reduction in salary for both Daniel
Frumkin and David Arden.
Like most organisations, the Committee has been required
to apply its discretion more than before in deciding the
remuneration outcomes for the year. Not only has the
Committee had to consider the impact of COVID-19 on business
performance and shareholders, it has been conscious of all
the challenges our extraordinary colleagues have faced during
the year. Notwithstanding these challenges, the Committee
recognises that substantial progress has been made in
delivering the Bank’s ambitious transformation programme,
which remains on time and on budget despite the vast majority
of colleagues working from home for much of the year.
With this in mind and considering the exceptional circumstances
we find ourselves in, I believe that the decisions relating to
remuneration for the year are appropriate, ensuring we retain
and incentivise our colleagues appropriately whilst recognising
the significant impact of COVID-19 on business performance.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 111
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Remuneration Committee report continued
All members of the Executive Committee together with Daniel
Frumkin and David Arden have volunteered to forgo any cash
bonuses for 2020 performance. Executive Director awards will
be delivered in shares in the Deferred Variable Reward Plan.
These awards vest between three and seven years subject to
ongoing service. Each vest is subject to a mandatory one year
holding period. Any vesting of David’s award will be frozen
pending the internal analysis and any external investigations
into the RWA adjustment.
The Committee considers both Daniel and David’s share
awards reflect their performance during the year including the
development and implementation of the strategic plan and their
pivotal roles in the successful execution of our transformation
plan going forward as we focus on becoming the UK’s best
community bank. Their awards are therefore delivered in the
form of long term vesting share awards to align them 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.
Daniel and David were both awarded individual performance
adjustment factors of 115%. Applying this to the company
adjustment factor (74.5%) delivers an outcome of 85.7%.
Acknowledging that underlying business performance has
been strong against scorecard measures but mindful of
the shareholder experience during the last 12 months, the
Remuneration Committee exercised its discretion to reduce
this outcome by 50% to 35.7% for the Executive Directors.
There will be no cash bonus awards made this year and
the Executive Director incentive awards will be delivered
in the Deferred Variable Reward Plan.
The Remuneration Committee has used its discretion to
determine that, subject to AGM approval of the new policy and
the LTIP plan rules, an LTIP award will be made under the new
policy to Daniel and David of 100% of their salary. These LTIP
awards will have four-year forward-looking performance
conditions, be retentive, will align the Executive Director’s
interests with shareholders and incentivise them to deliver
on the strategic plan.
Pages 118, 119 and 120 detail the scorecard measures, targets
and outcomes relating to 2020 as well as any share-based
awards made to Executive Directors.
Looking back on 2020 continued
Past Directors
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 received 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.
Craig Donaldson stepped down from his role as CEO on
31 December 2019 and worked his contractual notice period
until 31 December 2020. The Committee considered and agreed
that he should retain his outstanding share options on the basis
of being culturally aligned in the treatment of colleagues exiting
the business and the hard work and commitment of Craig in
building the Bank since its inception. Outstanding awards are
subject to malus and clawback provisions.
Variable reward
Executive Directors’ variable remuneration outcomes are
based on key financial, risk, customer and colleague objectives,
balanced with personal behaviours and delivery of the
individual. This approach is consistent with the standards
we apply to every colleague.
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 by £900 million. The
Committee decided to freeze vesting of share options and
awards for Executive Directors and the Executive Committee,
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; this approach has been applied to any
colleague deemed to be proximate to the issue. The Committee
formally reviews all outstanding frozen awards during the year.
To meet our plans to return the business to profitability we set
stretching targets for 2020 despite facing significant headwinds,
underlying business performance has been strong against all
scorecard measures (financial, risk, customer and colleague),
which resulted in a formulaic balanced scorecard outcome of
99.1%. The balanced scorecard outcome can range from 0%
to 120% with 100% being target performance. In considering
the approach to the 2020 year end incentive awards, the
Committee agreed to apply the budget recognising the impact
of COVID-19 to the corporate scorecard. The Committee
considered the outcome and exercised its discretion to reduce
the scorecard outcome down to 74.5% after taking into
consideration the impact of COVID-19 on the macro business
environment, and also the shareholder experience during the
last 12 months.
112 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Looking forward to 2021
Salaries from 1 April 2021
We had an overall salary increase pot of 2.5% for 2021. The
‘on-target’ pay increase for inflationary and behavioural/
performance-related salary increases was 1.75%. When we
consider all salary increases, the average pay rise was 2.5% and
the maximum was 22.2%. In total, 2,500 or 60% of all colleagues
received a salary increase above their associated inflationary
and behavioural/performance-related pay rise. Salary increases
for Cashiers, Customer Service Representatives and AMAZE
Direct Representatives (entry level roles) have increased
between 1.5% and 2.5%.
The Committee is undertaking a review of the Executive
Director roles and the wider market and is considering whether
there should be any increase to salaries for Daniel Frumkin and
David Arden. No salary increases are proposed at present.
As noted above, variable pay for Executive Directors will be
awarded through annual bonus including a deferral under the
Deferred Variable Reward Plan (‘Deferred Plan’) and the
proposed LTIP. Variable reward for PRA-designated Senior
Managers (including the Executive Directors) will vest over
a period of up to seven years, subject to LTIP performance
conditions being met after three years, with a 12 month post
vest holding period in line with our status as a proportionality
level 2 firm. 2021 LTIP awards will have performance conditions
measured over four years (future awards will have a three year
performance period) and are subject to a post-vesting holding
period with the result that awards will not be released until at
least five years from grant.
Our simplified approach to variable reward, applied across the
organisation, focuses all colleagues on growth and the long-
term, sustainable success of the business.
Chair and Non-Executive Director fees
Robert Sharpe was appointed Chair in on 1 November 2020 with
a fee of £350,000 per annum. The annual fee for the Chair will
remain unchanged. Fees for our Non-Executive Directors
remain unchanged at £52,500 per annum.
Former Chair
Sir Michael Snyder stepped down from his role as interim Chair
on 31 October 2020. He received his annual fee of £275,000 for
the year until this date. He returns to his position as Senior
Independent Director.
Variable reward for 2021
The Committee has agreed an appropriate balanced scorecard
to inform the Company variable reward adjustment factor for
2021, based on financial, risk, customer and people objectives.
Further to feedback from investors and proxy advisors, the
Committee has agreed to increase the weighting of the financial
measures within the balanced scorecard to 60% in 2021 to
demonstrate commitment to strong financial performance.
Whilst the colleague and customer measures will slightly reduce,
we will not lose any of our focus on these important areas. We
will disclose targets and measures in the Remuneration section
of the Annual Report for 2021.
Appropriateness of Executive Remuneration
We believe that, with the proposed changes in our approach to
variable remuneration, the remuneration structure will become
more appropriate and align with our ambitious strategy. The
amendments to our policy will strengthen our approach to
reward, reflect best practice and investor expectations, bring
greater alignment between longer term performance and
incentives and ensure continued compliance with the regulatory
requirements the Bank is required to observe as a
proportionality level 2 firm. Under the proposals, the interests
of the Executive Directors, broader Executive Committee and
shareholders will be more closely aligned.
The Remuneration Committee has complete discretion to
challenge the formulaic variable reward outcome where it
believes it is not appropriate.
Colleagues across the Bank can participate in our ShareBuy
(SIP) scheme, enabling every colleague to become an owner.
We engage with relevant organisations concerning our
approach to remuneration and welcome feedback from
investors and stakeholders.
I very much hope that you will support the resolutions to
approve the Directors Remuneration Policy, the new LTIP
Plan, changes in the Deferred Variable Reward Plan and the
Remuneration Report at the forthcoming AGM. We believe
that our Policy is critical to motivate and incentivise our senior
leadership team to deliver our Strategic Plan. On behalf of the
Committee, thank you for your support.
Catherine Brown
Remuneration Committee Chair
23 March 2021
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 113
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Remuneration Committee report continued
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.
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.
The Committee is committed to providing open and transparent
disclosures to shareholders and colleagues with regard to executive
remuneration arrangements.
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 Non-Executive Director for Workforce Engagement.
Our approach to remuneration for Executive Directors is simple and transparent.
It is consistent with structures used widely across the financial services industry.
In line with regulatory requirements, our remuneration practices promote sound
and effective risk management whilst supporting our business objectives.
For 2021, 20% of our balanced scorecard which informs variable reward will
be based on risk and regulatory measures, and variable reward is also subject
to a risk adjustment process and input from the 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.
Awards made under the separate LTIP will also vest over a seven year period,
assuming performance conditions (of which one is a risk-based measure) have
been met. Our malus policy can be applied to the LTIP throughout the vesting.
All variable pay awards that have vested are subject to our clawback policy for
a period of up to seven years from the award date (extending to 10 years where
an investigation is ongoing).
Variable reward is delivered primarily through long term share based awards.
The value of awards are therefore closely aligned to share price movements
and the shareholder experience.
The potential value and composition of the Executive Directors’ remuneration
packages at below threshold, target and maximum scenarios are provided
in the Remuneration Policy on page 143.
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.
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.
Alignment to culture
Incentive schemes should drive behaviours
consistent with company purpose, values
and strategy.
The Committee has discretion to override formulaic scorecard outcomes
to ensure that they are appropriate and reflective of overall performance.
Our primary objective is to design a remuneration framework that promotes
growth and our long term success 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 able to participate in our HMRC approved SIP scheme,
which supports our ethos of colleague buy-in and ownership.
114 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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 supports long term growth with long term share-based
awards being the major source of variable reward for our senior executives. This ensures colleagues in leadership roles are 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 FRC remuneration principles. Full details are on our website: metrobankonline.co.uk.
Key areas discussed at Remuneration Committee meetings in 2020
Area
Key topics
Policy and
reporting
• Review of Directors’ Remuneration Policy, including consultation with key shareholders and proxy
advisory bodies on Executive Director remuneration matters
• Approval of Directors’ Remuneration Report, including letter from Remuneration Committee Chair
Reward
and Remuneration Policy
• Gender pay and approach to reporting 2020 data
• Annual review of Remuneration Committee Terms of Reference
• Feedback on 2019 Annual Report and 2020 AGM
• 2019/20 Annual Reward Review for all colleagues – including the adjustment factor for variable reward,
•
awards (for 2019 performance year), pay outcomes and CEO summary
Remuneration for Executive Directors, members of the Executive Committee and Director of Internal
Audit as part of the annual review cycle
• Fees for Chair and Non-Executive Directors
• Consideration of the external environment in which we operate and agreed proposed reductions to
salaries/fees of Board members
• Full review of our approach to remuneration and performance management for all colleagues across the
Bank, ensuring alignment to the strategic plan
• Review of Metro Bank Group Personal Pension Plan (Governance report)
•
Treatment of outstanding variable pay awards in the context of the internal analysis and external
investigation into the RWA adjustment
Regulation
Implementation of remuneration regulatory requirements as a proportionality level 2 firm
•
• Reviewed and approved the extension of the list of roles across the Bank which fall under the Senior
Manager and Certification Regime
• Remuneration Code Annual Disclosure for 2020
• Ex-post checks for April and October 2020 share option vests
• CRO review of FCA remuneration guidelines, including ex-ante checks
•
•
•
•
Director of Internal Audit sign-off of 2020 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, informed by independent, external feedback
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 115
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Remuneration at a glance
Balanced Scorecard Remuneration Outcome and Company Performance Adjustment Factor
A Financial – see Financial Measures table
B Risk
C Customer
D People
Total
Revised scorecard adjustment factor after discretion applied
Financial measures
Underlying Profit (Loss) before tax
Statutory Return on Tangible Equity
Statutory Cost : Income Ratio
Variable reward for all colleagues
l
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For each of the
individual Company
performance metrics
the adjustment factor
range is 80%–120%
For each performance
metric, there will be no
payment at all until
performance for that
metric has reached
threshold performance
At threshold
performance 80% of the
adjustment factor will
apply and at maximum
performance 120% of
the adjustment factor
will apply
Each Executive Director
is eligible for an
on-target variable
reward opportunity
of 100% of salary
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The range of the
individual adjustment
factor is 0%–200%
If the Company
adjustment factor
doesn’t exceed
expected performance,
the maximum individual
adjustment factor that
will be applied is 150%
The individual
adjustment factor is
applied by reference to
each colleague’s
individual behaviours
and performance in the
year as well as their
seniority
Weighting
Weighted
adjustment
factor
40%
20%
20%
20%
100%
100%
42.5%
11.3%
22.5%
22.8%
99.1%
74.5%
Weighted
adjustment
factor
21.0%
12.0%
9.5%
CAP APPLIED 200%
OF SALARY
Variable remuneration
for Executive Directors
will not exceed 200%
of salary
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116 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
2020 Remuneration outcomes for Executive Directors
Daniel Frumkin
Chief Executive Officer
2020
£’000
£0
£500
£1,000
£1,500
£2,000
£774
£523
David Arden
Chief Financial Officer
2020
£’000
£436
£289
£0
£500
£1,000
£1,500
£2,000
Total fixed remuneration
Deferred share award
1. Daniel Frumkin and David Arden have volunteered to forego any cash bonuses for 2020 performance.
2. Deferred share award will over seven-year period, pro rata with no vesting before third anniversary. Each vest subject to mandatory 1-year holding period.
2020 Remuneration outcomes
l
a
i
c
n
a
n
F
i
42.5%
k
s
i
R
11.3%
r
e
m
o
t
s
u
C
22.5%
e
u
g
a
e
l
l
o
C
22.8%
Company
Individual
Scorecard adjustment factor
99.1%
Remuneration Committee
Discretion
Revised company adjustment factor
74.5%
On-target variable reward
opportunity
AMAZEING Review Rating
Total Variable Reward
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 117
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION 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 2020. 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 2021 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.
Salary1
Taxable benefits2
Pension benefits1,3
Other4
Total fixed remuneration
Annual variable pay awarded in deferral5,6
Total variable remuneration7
Total remuneration
Daniel Frumkin
David Arden
2020
20198
2020
2019
£714,833
£1,001
£57,253
£875
£773,962
£523,214
£523,214
£1,297,176
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£394,875
£400
£39,488
£768
£403,750
£356
£40,375
£785
£435,531
£445,266
£288,968
£115,421
£288,968
£115,4219
£724,499
£560,687
Notes:
1. Both Daniel Frumkin and David Arden volunteered salary reductions in May, June and July in light of the COVID-19 pandemic. This also impacted their pension
contributions. Salaries were reduced by 10% with a further 10% deferment for a period of three months. In respect of Daniel Frumkin, his salary also reflects his time
as Interim CEO between 1 January and 18 February 2020. See table below for details of salary reductions.
2. Taxable benefits include private medical insurance.
3. Pension contributions for the Executive Directors may be paid into the Group Personal Pension Plan or paid as a cash in lieu of pension allowance. Daniel Frumkin
personally contributes to the pension scheme up to legislative limits and receives a cash allowance of 8% of salary in lieu of company pension contributions. 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.
4. This is made up of non-taxable benefits provided to the Executive Directors and includes life assurance, Group income protection and an annual health check.
5. 2019 Awards: 100% of the total variable pay awarded was converted into share options. Any share options awarded are included in this figure; they were not in addition
to it. There is a continued service condition attached to the award of options.
6. 2020 Awards: The annual variable pay for 2020 will be delivered fully in shares in the Deferred Variable Reward Plan with vesting pro rata between years three and
seven subject to continued service.
7. Daniel and David’s awards have been calculated using their annual salaries as opposed to adjusted salaries in respect of COVID-19. The voluntary waiver was made in
respect of salary payments; the base salary used for calculating variable reward was unchanged by this voluntary waiver.
8. Daniel Frumkin took up the position of Interim CEO on 1 January 2020. Prior to this he held the role of Chief Transformation Officer. His remuneration is only disclosable
from his appointment as Interim CEO, at which point he became an Executive Director.
9. 100% of David Arden’s 2019 variable reward was 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 seven years (pro rata between years three and seven) with a retention period of at least one year after each vest.
Details of the single figure salary (audited)
Daniel Frumkin1
David Arden
Salary as at
1 January
2020
Salary as at
1 April
2020
Total salary
paid in
20202
£690,000 £740,000 £714,8333
£405,000 £405,000 £394,875
Notes:
1. Daniel Frumkin took up the position of permanent CEO on 19 February 2020, at which point his salary increased from £690,000 to £740,000.
2. Both Daniel Frumkin and David Arden volunteered salary reductions in May, June and July in light of the COVID-19 pandemic. This also impacted their pension
contributions. The voluntary waiver was made in respect of salary payments; the base salary used for calculating the variable reward was unchanged by this voluntary
waiver. In respect of Daniel Frumkin, his salary also reflects his time as Interim CEO between 1 January and 18 February 2020.
3. If Daniel had not volunteered a reduction in salary in light of COVID-19, his single figure salary would have been £733,306.
118 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
2020 variable reward outcomes
Executive Directors’ variable reward in relation to performance during 2020 was based on a balanced scorecard of performance
measures and objectives, weighted between financial (40%), risk (20%), customer (20%) and people (20%).
In considering the approach to the 2020 year end incentive awards, the Committee agreed to apply the budget recognising the
impact of COVID-19 to the corporate scorecard. The Remuneration Committee applied downward discretion to the provisional
scorecard adjustment factor and to balance the underlying performance of the business excluding the impact of COVID-19, strong
delivery against its strategic plan and the hard work and dedication of our colleagues with current year financial performance,
the wider macro-economic environment and the challenges faced by our customers and the communities we serve. With the
above in mind and the fact that the Bank had not sought government support through the Coronavirus Job Retention Scheme,
the Committee felt it appropriate to offer variable reward to colleagues. However, there will be no cash bonus awards made
to the Executive Committee (including Executive Directors) for 2020.
In addition to the Company adjustment factor, a further adjustment factor 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 125, this approach and adjustment factor are consistent with that applied for all colleagues
across the Bank.
Amounts shown reflect the total awards under the variable reward scheme paid in 2021, based on performance in the financial year
ending 31 December 2020, including the value of any long term deferred element.
Financial Performance
Performance measure
Weighted
performance
outcome at
threshold1
Threshold
performance
Weighted
performance
outcome
at target2
2020 target
performance
Weighted
performance
outcome at
maximum3
Maximum
performance
Weighted
performance
outcome
Actual
performance
outcome
Underlying loss before tax (£’million)
Statutory return on tangible equity (%)
Statutory cost:income ratio (%)
Total for financial measures
(313.9)
(35.2%)
155%
16%
8%
8%
32%
20%
10%
10%
40%
(285.4)
(32.0%)
141%
24%
12%
12%
48%
(256.9)
(28.8%)
127%
21.0%
12.0%
9.5%
42.5%
(271.8)
(21.8%)
143%
1. 80% of weighting is applied for threshold performance i.e. at 90% of target. There is a step progression of 5% in the adjustment factor of the weighted performance
outcome from 80% to 120% for every 2.5% increase in performance from 90% to 110%.
2. 100% of weighting is awarded for on-target performance.
3. Maximum adjustment factor is 120% of weighting which is applied for performance of 110% of target or more.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 119
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Annual report on remuneration continued
Non-Financial Company Objectives
Objectives
Key achievements in 2020
Risk
Key measures relating
to Internal Audit, credit
quality – arrears and
compliance training
Customer
Key measures relating to
Net Promoter Scores,
and customer complaints
People
Key measures relating to
voluntary attrition, diversity
and being a ‘good place
to work’
Credit quality is good and has continued to perform
well, delivering above target performance. Good
progress has been made on the enhancements of
our Fraud and Financial Crime controls with
evidence of delivery against critical milestones
throughout 2020. The majority of our audits had
good outcomes where controls evaluated were
adequate and effective ensuring scorecard target
was achieved. Completion of compliance training
continues to be a focus of Management, ensuring
it is completed in a timely manner across the
remote workforce.
Customer service metrics were above threshold,
with customer complaints also in line with
expectations. These are good results bearing in
mind the changes we had to make to adapt to
COVID-19. This performance enabled us to retain
our status as the best High Street bank on the
CMA service quality results.
Engagement has remained strong throughout this
challenging year. For 2020 we changed the way we
measure Engagement and 73% of our colleagues
told us that they are happy working at Metro Bank
in our annual colleague survey, this is broadly in line
with sentiment in previous years. We have seen a
decrease in voluntary attrition in the year. We have
made progress on both of our diversity metrics,
with increases in gender and ethnic diversity in
our senior leaders.
2020
Weighted
performance
outcome
at target
Weighted
performance
outcome
20%
11.3%
20%
22.5%
20%
22.8%
Note: As above for financial measures, 80% of weighting is applied for threshold performance – i.e. at 90% of target. There is a step progression of 5% in the adjustment
factor of the weighted performance outcome from 80% to 120% for every 2.5% increase in performance from 90% to 110%. 100% of weighting is awarded for on-target
performance. Maximum adjustment factor is 120% of weighting which is applied for performance of 110% or more.
Target performance was achieved in all but one of the individual performance metrics under the Customer and People categories
on the scorecard.
Overall Balanced Scorecard Remuneration Outcome for Group Performance Adjustment Factor
A Financial
B Risk
C Customer
D People
Total
See how our balanced scorecard measures link to our business model on page 12.
120 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Weighted
performance
outcome
Weighting
40%
20%
20%
20%
100%
42.5%
11.3%
22.5%
22.8%
99.1%
As outlined in our 2019 Annual Report and Accounts, the weightings of the performance measures within the balanced scorecard
were amended for 2020. This was following feedback from investors and proxy advisors on appropriate market practice.
The weighting of financial measures was 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 99.1% was considered by the Remuneration Committee for 2020. However, using its discretion, the Remuneration
Committee agreed to a lower adjustment factor taking into account 2020 financial performance, the external environment and the
impact of COVID-19. The revised adjustment factor is 74.5% and has been applied to the annual bonus element of variable reward
for all eligible colleagues across the Bank.
Individual Behaviours and Performance Adjustment Factor
A discretionary adjustment factor was applied to variable reward for all eligible colleagues, by reference to each colleague’s
individual behaviours and performance for the year. Below we set out details of the individual adjustment factor in respect of our
Executive Directors for 2020 which was determined by the Remuneration Committee.
Executive Director
Key achievements in 2020
Daniel Frumkin
Daniel has successfully steered the Bank through the first year of an ambitious turnaround plan,
having announced a new strategy to be the UK’s best community bank in February 2020. Whilst
the overall financial results for 2020 appear disappointing, if the impact of COVID-19 is removed
from the year end outcome, the Bank has exceeded the budgeted 2020 numbers in nearly all
aspects of financial performance.
Individual
behaviours and
performance
adjustment factor
115%
Colleague wellbeing and service to customers has been at the top of his agenda, providing visible
leadership to all stakeholder groups; engagement has remained strong and our committed
colleagues have enabled Metro Bank to be recognised again as the CMA’s highest rated for
service in Stores.
• Operational performance was resilient across all customer channels, and all Stores and AMAZE
Direct remained open throughout pandemic.
• Rapid response to government support schemes enabling 36,419 businesses to have access
to £1.5 billion of government backed loans, provided 2,564 Emergency Repayment Holidays
and went the ‘extra mile’ to identify and help vulnerable customers.
• Strong progress implementing sustainable improvements to regulatory controls, risk
management framework, financial crime requirements and remediation of historical
regulatory issues.
• Strengthened his executive team, bringing new talented leaders into key positions.
• Recommended and implemented strategic initiatives to meet corporate objectives;
– RateSetter acquisition and the subsequent purchase of their back book receivables;
– Sale of £3.1 billion of prime residential mortgages to NatWest Group at a premium, avoiding
the need to raise additional capital in the near-term;
– Creation of a brand new SME lending platform to support BBLS;
– Launch of the Business Account Online;
– Closure of the Bank’s Old Bailey office.
All of which have contributed towards putting Metro Bank back on the path of future
profitable growth.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 121
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Annual report on remuneration continued
Overall Balanced Scorecard Remuneration Outcome for Company Performance Adjustment Factor continued
David Arden
2020 has been a strong year for David, he has made a significant contribution
to progress against the turnaround plan.
• Led the work to reshape the balance sheet through the sale of £3.1 billion
115%
of our Mortgage Portfolio to NatWest Group.
• Integral to the successful acquisition of RateSetter which has enabled Metro Bank
to quickly establish a presence in the unsecured loan market.
• Provided Daniel with invaluable support across a range of internal and external
matters through his first year, H1 results in particular.
• Further strengthened cost focus through greater transparency and discipline.
• Worked to build positive stakeholder relationships and has made further progress
improving our Regulatory agenda.
• Continued to build capability and capacity in his team and to further enhance our
control environment.
Calculation of Variable Pay for the Executive Directors
Executive Director
Salary for
variable reward
(Note 2)
Company
performance
adjustment
factor1
Individual
behaviours and
performance
adjustment
factor
Company and
individual
performance
adjustment
outcome
Daniel Frumkin
£733,306
David Arden
£405,000
74.5%
74.5%
115.0%
115.0%
85.675%
85.675%
Remuneration
Committee
discretionary
adjustment
50.0%
50.0%
Company and
individual
performance
adjustment
outcome after
discretion
35.675%
35.675%
Maximum
opportunity
(as % of salary)
Variable reward
(deferred share
award)2,3
200%
200%
£523,214
£288,968
1. The corporate adjustment factor of 99.1% was adjusted to 74.5% after the Remuneration Committee applied discretion after taking into account 2020 financial
performance, the external environment and the impact of COVID-19.
2. Daniel Frumkin and David Arden’s awards have been calculated using their annual salaries as opposed to adjusted salaries in respect of COVID-19. The voluntary waiver
was made in respect of salary payments; the base salary used for calculating variable reward was unchanged by this voluntary waiver. In respect of Daniel Frumkin, his
salary also reflects his time as Interim CEO between 1 January and 18 February 2020.
3. No cash bonus will be paid. The full variable award will be delivered in shares in the Deferred Variable Reward Plan.
In recognition of the corporate scorecard outcome and a holistic review of personal performance and contribution for 2020, the
Remuneration Committee agreed an incentive outcome against the Executive Directors’ maximum incentive opportunity of 200%
of salary permitted under the current Policy. The Remuneration Committee reviewed the outcome of the company and personal
performance adjustment factor of 85.675% for the Executive Directors. Acknowledging that underlying business performance has
been strong against scorecard measures but mindful of the shareholder experience during the last 12 months, the Remuneration
Committee exercised its discretion to reduce this outcome by 50% to 35.675% for the Executive Directors. There will be no cash
bonus awards made this year and the Executive Director incentive awards will be delivered in the Deferred Variable Reward Plan.
These awards contribute to the Executive Directors building up their Shareholding Requirement. All share awards are subject to
malus and clawback provisions.
122 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
How Variable Reward is paid
Executive Director
Total 2020
variable reward
Element of variable reward
Value (£)
Method of delivery1
Daniel Frumkin
£523,214
Cash
–
• Paid immediately in cash
Short term share award –
Deferred share award
£523,214
• Shares granted immediately but subject
to a mandatory 1-year holding period
• Shares that vest over 7-year period, pro-rata
• No vesting is permitted before third anniversary
with pro rata vesting from year 3 to year 7
• Each vest subject to mandatory 1-year holding period
• No performance conditions
David Arden
£288,968
Cash
–
• Paid immediately in cash
Short term share award –
Deferred share award2
£288,968
• Shares granted immediately but subject
to a mandatory 1-year holding period
• Shares that vest over 7-year period, pro-rata
• No vesting is permitted before third anniversary
with pro-rata vesting from year 3 to year 7
• Each vest subject to mandatory 1-year holding period
• No performance conditions
1. Daniel Frumkin and David Arden have volunteered to forgo any cash bonuses for 2020 performance. The full variable award will be delivered in shares in the Deferred
Variable Reward Plan with vesting pro rata between years three and seven subject to continued service.
2. All share awards made to David Arden will be frozen pending further internal analysis and any external investigations into the RWA adjustment.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 123
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Annual report on remuneration continued
Directors’ remuneration policy in brief and implementation in 2021
Subject to AGM approval of the new policy and the LTIP plan rules, an LTIP award will be made under the new policy to Daniel and
David of 100% of their salary. These LTIP awards will have four-year forward-looking performance conditions, be retentive, will align
the Executive Director’s interests with shareholders and incentivise them to deliver on the strategic plan. The vesting and holding
period would extend from five to eight years post grant.
The LTIP grants to the Executive Directors will equal 100% of base salary in recognition of their contribution to performance in the
challenging period, their strategic direction, maintaining business continuity through the turbulence of the last year and is to provide
a meaningful incentive to drive Metro Bank forward and to deliver the Strategic Plan in the ongoing difficult conditions.
Performance conditions and targets together with corresponding weightings for LTIP awards to be granted in 2021 in respect of
forward-looking performance period 2021-2024 are as follows:
Weighting
Threshold
Maximum
Total shareholder return (TSR) relative to the FTSE 250 (excluding
investment trusts)
40%
Median
against peers
Upper quartile
or above
Statutory ROTE
Risk and regulatory
40%
20%
See Note 1
See Note 2
1. The ROTE performance range will be disclosed in the Annual Report and Accounts immediately following Metro Bank resuming provision of medium term guidance
to the market. Since Metro Bank is not currently providing medium term guidance to the market, this is deemed commercially sensitive at this time.
2. Based on a Remuneration Committee assessment of specific quantitative and qualitative measures.
The table below sets out the key features of our proposed new Remuneration Policy, and how it will be implemented in 2021. The
Policy is due to be approved by shareholders at our AGM in 2021 for the following three years. Full details of the proposed Policy
can be found on pages 135 to 147.
Key elements of
remuneration
Key features of the Policy
Implementation for 2021
Salary
• Reviewed annually and increases will normally be in line with
• Daniel Frumkin:
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
CEO: £740,000 (unchanged)
• David Arden:
CFO: £405,000 (unchanged)
Benefits
Core benefits include:
• Life assurance of 4x salary
• Private medical insurance for the Executive Director, their partner
• Benefits are provided in line with the
approved Policy
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
Pension
• Executive Directors are automatically enrolled into our Group Personal
Pension Plan when they join the Bank. If they have exceeded the lifetime
allowance or the annual pension tax-free contribution limit, they may
elect to take cash in lieu of pension for all or some of the benefit
• The maximum employer contribution (including cash in lieu)
is 10% of salary
Company contributions:
• Daniel Frumkin: 8% of salary
• David Arden: 10% of salary
Annual Bonus • Variable remuneration will be limited to 200% of salary for a financial year.
• Scorecard will have a CET1 gateway
Within this overall limit, annual bonus to be limited to 100% of salary
for a financial year
requirement
• 60% Financial (PBT, Cost:Income ratio,
• Deferral of annual bonus will be into long term deferred shares
Loan to deposit ratio)
• 20% Risk (Cost of Risk, Relationship
with Regulators)
• 10% Customer (NPS, EoDs)
• 10% Colleague (Engagement, Diversity)
Performance ranges will be disclosed in the
2021 Annual Report as commercially
sensitive to disclose at this stage.
124 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Key elements of
remuneration
Long Term
Incentive Plan
(LTIP)
Key features of the Policy
Implementation for 2021
• Variable remuneration will continue to be limited to 200% of salary for a
financial year. Within this overall limit LTIP to be limited to 100% of salary
for a financial year
• The first grant of LTIP in 2021 will have a
four year performance period 2021-2024
to align with the strategic plan
• Performance to be measured over a three-year period. LTIP shares will
be subject to a post-vesting holding period with the result that shares will
be held at least five years prior to release
• The performance conditions have been aligned to the Strategic Plan and
the performance range for these measures will be set to be stretching
• See above table for LTIP performance
measures and performance ranges
• The ROTE performance range will be
disclosed in the Annual Report and
Accounts immediately following Metro
Bank resuming provision of medium term
guidance to the market. Since Metro Bank
is not currently providing medium term
guidance to the market, this is deemed
commercially sensitive at this time
Non-Executive
Directors
• All Non-Executive Directors receive a basic annual fee for fulfilling
• Our Non-Executive Directors are paid in
their duties as a Board member
line with the approved Policy
• Additional fees are paid for added responsibilities such as
• The basic annual fee paid to all Non-
chairmanship and membership of Committees, or acting as the
Senior Independent Director
Executive Directors remains unchanged
at £52,500
• The basic and additional fees are reviewed periodically, drawing on
• The annual fee for the Chair remains
external market information for comparable financial services groups
and companies
unchanged at £350,000
Remuneration for colleagues below board level
Our approach to remuneration for colleagues below our Executive Committee is consistent for all colleagues. Whilst remuneration
for the Executive Committee (including Executive Directors) is structured differently to that of the wider colleague population,
it is consistent across this small cadre of colleagues. The focus is on simplicity, rewarding the right behaviours and outcomes for
customers and the business whilst discouraging unnecessary risk taking. Remuneration amongst Executive Committee level
colleagues is also focussed on the long term growth of the Bank.
Our current Directors’ Remuneration Policy, as approved by shareholders at the AGM on 26 May 2020, 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
• Encouraging everyone to be 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, transparent and as competitive as possible, whilst complying with all relevant regulatory requirements
and meeting shareholder expectations
Summary of the Remuneration Structure for colleagues below board level
Salary
Benefits
Pension
Variable remuneration
• All colleagues are eligible for
private medical insurance
funded at different rates of
cover depending on their level
of seniority
• The table below shows the
minimum and maximum
employer pension
contributions payable by
Metro Bank year-on-year
• All colleagues, including the
Executive Directors, receive
Life Assurance cover of
four times their base
annual salary
• We apply the same Company
performance adjustment factor
to all colleagues
• For all colleagues whose
personal behaviours and
delivery are as expected or
better, we apply a adjustment
factor up to a maximum
of 200%
• We have a ‘normal’ inflationary
and performance-related pay
pot of 2.5%
• The quantum of salary
increases are primarily driven
by individual behaviours and
capability
• We also review salaries for
roles that we deem are
growing rapidly in scale and/
or complexity and are critical
to the business and for those
colleagues which market data
suggests are falling behind the
market rates for their roles
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 125
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Annual report on remuneration continued
Pension Contributions¹
Employer contribution as a % of salary
Minimum
Maximum
Minimum
Maximum
Minimum
Maximum
2020
2019
% increase
CEO2
Executive Directors2 & Executive Committee
Senior leaders and experts
Managers and specialists
Entry-level roles
8%
8%
10%
8%
6%
8%
10%
10%
8%
6%
10%
10%
10%
8%
6%
10%
10%
10%
8%
6%
(20%)
(20%)
0%
0%
0%
(20%)
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.
Change in Directors remuneration compared with colleagues
The table below sets out the percentage change in salary and variable reward between 2019 and 2020 for Directors compared with
the wider colleague population.
Executive Committee (including Executive Directors) salaries increased at a lower rate than the wider colleague population year on
year. However variable reward for Executive Committee members increased by a larger percentage due to the impact of the RWA
adjustment on 2019 remuneration outcomes.
Annual percentage change in remuneration between 2019 and 2020
All colleagues1
CEO2
CFO
Executive Committee
Robert Sharpe
Catherine Brown3
Sally Clark
Anne Grim
Ian Henderson
Monique Melis3
Michael Snyder3
Paul Thandi3
Michael Torpey4
Nicholas Winsor
Roger Farah5
Gene Lockhart5
Stuart Bernau5
Average
Taxable
benefits
23.9%
12.5%
12.5%
8.5%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Salary/Fees
4.7%
(4.7%)
(2.2%)
3.0%
n/a
13.8%
n/a
n/a
n/a
40.6%
75.8%
6.6%
246.6%
n/a
(79.7%)
268.9%
(65.7%)
191.9%
(66.0%)
0.0%
Variable
reward
41.1%
100.0%6
150.4%
266.5%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1. Due to the significant growth at Metro Bank, ‘All colleagues’ percentages reflect average percentage change in FTE salary, taxable benefits and allowances, and bonus
for colleagues employed on both 31 December 2019 and 31 December 2020. Colleagues who joined or left the Bank within this period have been excluded from the
analysis. Salary is taken as at 31 December 2019 and 31 December 2020.
2. Considers Craig Donaldson in the role of CEO for 2019 and Daniel Frumkin in the role for 2020.
3. Year on year increase in fees due to Non-Executive Directors either taking on additional responsibility or undertaking a change in role.
4. New Board member in 2019. 2020 fees reflect a full year and 2019 fees reflect limited period in role.
5. The following Non-Executive Directors stepped down from the Board during the year; Roger Farah (13 March 2020), Gene Lockhart (28 April 2020) and Stuart Bernau
(18 May 2020). The benefit increase for Roger Farah and Gene Lockhart was due to settlement of outstanding expenses from 2019 and 2020 prior to their leaving date).
6. Craig Donaldson did not receive a variable reward for 2019. Daniel Frumkin’s 2020 variable pay will be delivered in long term deferred shares vesting over seven years.
126 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
CEO to colleague pay ratio disclosure
Year
2020
2019
Calculation
methodology
A
A
25th
percentile
pay ratio
55:1
36:1
Median
pay ratio
40:1
27:1
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
23:1 £714,800 £21,100 £27,400 £47,000 £1,297,000 £23,800 £32,200 £57,000
16:1 £750,000 £20,700 £26,700 £43,400
£828,600 £22,900 £30,300 £51,200
Note: Salary and total pay figures have been rounded to the nearest £100.
The CEO salary and total pay figures consider Craig Donaldson for 2019 and Daniel Frumkin for 2020.
We have not diverged from the single total figure methodology when calculating employee pay and benefits.
Payroll data from 1 January to 31 December 2020 was used to calculate the lower, median and upper-quartile colleagues. We used
the ‘single figure’ approach (Option A) to calculating total remuneration for all colleagues employed on 31 December 2020. This
methodology was chosen as it is the most straightforward approach.
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 2021 in respect of the 2020 performance year. All elements
were calculated on a full-time equivalent basis. We are confident that the colleagues identified at the lower, median and upper
quartiles are remunerated in line with the Company’s wider policies on colleague pay, reward and progression.
The pay ratio has increased year on year due to the Committee agreeing that Craig Donaldson would not be awarded variable
remuneration in respect of the 2019 performance year.
Relative importance of spend on pay
The table below shows total remuneration of all colleagues for 2020 compared to 2019. This data is taken from the people costs on
page 176 and excludes social security and pension costs.
Employee costs
2020
£’million
2019
£’million
% change
166.9
142.2
17.4
Employee costs have increased as a result of the average salary figure increasing across the Bank between 2019 and 2020.
Colleague headcount has increased across the Bank, with the sharpest rise in specialist professional roles, supporting the delivery
of strategic projects and strengthening regulatory controls.
We made no distributions by way of dividend or share buy-back during the year, or any other significant distributions. We therefore
consider that at this time there is no information or data which would assist shareholders in understanding the relative importance
of spend on pay.
Total Shareholder Return
The chart shows our total shareholder return (TSR) relative to the FTSE 250 and the FTSE 350 banks (which is the capitalisation-
weighted index of all bank stocks in the FTSE 100 and FTSE 250) since our listing on the London Stock Exchange in March 2016.
These indices have been chosen as they represent a cross-section of UK companies and banks.
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
)
%
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
Mar 2016
Dec 2016
Dec 2017
Dec 2018
Dec 2019
Dec 2020
Metro Bank
FTSE 250
FTSE Banks
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 127
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Annual report on remuneration continued
CEO Historic Remuneration
Total remuneration (including any
Listing awards)
Variable reward outcome as a
percentage of the maximum that could
have been paid5
Daniel Frumkin1
Craig Donaldson
2020
2019
2018
2017
2016
2015
2014
£1,297,1762
£828,5653
£800,944 £1,518,893 £1,304,919 £2,661,4744 £749,443
35.7%
0%
0%
62%
52%
n/a6
n/a6
1. Daniel Frumkin took up the position of Interim CEO on 1 January 2020 and became permanent CEO on 19 February 2020.
2. Daniel Frumkin has volunteered to forgo any cash bonus for 2020 performance. Variable pay will be delivered in shares in the Deferred Variable Reward Plan with
vesting pro rata between years three and seven subject to continued service.
3. 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.
4. 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 131 and outstanding share awards table on page 133.
As mentioned above, the vesting of these share awards will be frozen pending further internal analysis and any external investigations into the RWA adjustment.
5. Our Directors’ Remuneration Policy containing a maximum variable reward outcome was first approved by shareholders at the AGM on 25 April 2017. Under our current
Remuneration Policy, approved by shareholders on the 26 May 2020, and our and proposed Remuneration Policy (subject to AGM approval) variable reward remains
capped at 200% of salary.
6. Prior to approval of the Policy this cap was not in place.
Non-Executive Directors’ Remuneration
Chair’s fees
The fees for the Chair remain unchanged at £350,000.
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 Chair
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
128 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Non-Executive Directors’ fees and taxable benefits (audited)
The table below shows the actual fees paid to our Chair and Non-Executive Directors in 2020 and 20191.
Fees
Taxable
benefits7
Fees
Taxable
benefits7
£0
£0
Robert Sharpe (Chair)
Stuart Bernau2
Catherine Brown
Sally Clark
Roger Farah3,4
Anne Grim
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
£58,333
n/a
£30,643
£90,000
£81,118
£71,250
£79,106
n/a
£17,898
£88,333
£49,293
Total
£58,333
n/a
n/a
£0
£8,493
£0
£0
£0
£30,643
£98,493
£81,118
£71,250
£79,106
n/a
n/a
£9,740
£2,640
£0
£27,638
£90,973
£49,293
2019
n/a
n/a
n/a
Ian Henderson
Gene Lockhart4,5
Anna (Monique) Melis
Sir Michael Snyder6
Paul Thandi
Michael Torpey
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
£55,998
n/a
£29,167
£85,000
£101,947
£72,500 £230,000
£130,798
£68,875
£64,583
£89,542
£25,833
Total
£55,998
Fees
Taxable
benefits7
Total
n/a
n/a
£11,206
£3,838
£0
£0
£0
£0
£0
£0
£1,673
£0
£40,373
£88,838
£101,947
£72,500 £230,000
£130,798
£68,875
£64,583
£91,215
£25,833
Nicholas Winsor
2020
£39,982
£0
£39,982
2019
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. Left the Board on 18 May 2020.
3. Left the Board on 13 March 2020.
4. For our US-resident Non-Executive Directors all travel is covered by a PAYE Settlement Agreement. Food and lodging are put through payroll and taxed accordingly,
rounded up to the nearest £.
5. Left the Board on 28 April 2020.
6. Undertook the role of interim Chair from 23 October 2019 to 31 October 2020.
7. Taxable benefit figures for our UK Non-Executive Directors reflect grossed-up expenses claimed. Both the 2019 and 2020 figures reflect expenses claimed in the
2018-19 and 2019-20 tax years respectively.
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 two years, which may be renewed subject to their re-election
by shareholders at AGMs.
The effective dates of the current Directors’ appointments disclosed in their service contracts are shown in the table below.
Executive Director
Daniel Frumkin
David Arden
Notice period
Date of service contract
12 months
18 February 2020
12 months
19 March 2018
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 129
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Annual report on remuneration continued
Payments to past Directors (audited)
There were no payments made to past Directors in 2020.
Payments for Loss Of Office (audited)
Craig Donaldson received payments in line with the Bank’s remuneration policy and his settlement agreement during 2020. During
his notice period, he received his salary (£750,000), pension (£75,000) and non-cash benefits (£3,884). He did not receive any
variable remuneration in respect of performance year 2020.
Vernon W. Hill, II received payment in lieu of his annual fee pro-rata (£72,917) up to and including 9 March 2020 (i.e. the expiry of his
current term). He did not claim any expenses during 2020.
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. For awards made after the 2021 AGM
under the new policy, we will ensure awards under the Deferred Plan and the LTIP will not exceed 5% of the issued share capital in
any rolling 10-year period, in line with guidance.
Statement of Voting at the AGM
We will be proposing a resolution to shareholders in respect of the annual report on remuneration, the Directors’ Remuneration
Policy, minor amendments to the Deferred Variable Reward Plan and the Long Term Incentive Plan (LTIP) at the 2021 AGM.
The table below shows the voting outcomes on the annual report on remuneration and the Directors’ Remuneration Policy at the
last AGM held on 26 May 2020.
Item
Remuneration Policy
2019 Remuneration Report
For no.
For %
Against no.
Against %
Votes withheld
88,493,441
89,259,211
92.77
93.38
6,893,174
6,332,404
7.23
6.62
5,513,110
5,309,036
At the 2020 AGM, all resolutions were passed by a significant majority of shareholders.
Advisors to the Remuneration Committee
The Committee has not appointed an independent remuneration advisor but, during 2020, Deloitte LLP and Aon (McLagan) have
offered advice to management who have advised the Committee. During the period, Aon provided advice on executive and
colleague benchmarking and also the 2021 remuneration policy whilst Deloitte LLP also offered advice on our 2020 remuneration
policy. Fees in relation to executive benchmarking and remuneration policy totalled £93,500 (excluding VAT), with Deloitte fees
totalling £34,300 and Aon (McLagan) fees totalling £59,200. The Committee was satisfied that both Deloitte LLP and Aon
(McLagan) offered independent and impartial advice.
130 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Shareholding (audited)
These are the total shareholdings as at 31 December 2020 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 132 to 134.
Director*
Robert Sharpe
Daniel Frumkin
David Arden
Stuart Bernau1
Catherine Brown
Sally Clark
Roger Farah2
Anne Grim
Ian Henderson
Gene Lockhart3
Monique Melis
Sir Michael Snyder
Paul Thandi
Michael Torpey
Nicholas Winsor
No. of shares
30,000
2,350,000
18,400
51,154
100
0
685,023
22,500
15,000
44,989
1,690
145,000
30,000
0
50,000
Percentage
of share
capital
0.02
1.36
0.01
0.03
0.00
0.00
0.40
0.01
0.01
0.03
0.00
0.08
0.02
0
0.03
1. Stuart Bernau held 51,154 shares when he left the Board on 18 May 2020.
2. Roger Farah held 685,023 shares when he left the Board on 13 March 2020.
3. Gene Lockhart held 44,989 shares when he left the Board on 28 April 2020.
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.
Robert Sharpe purchased 16,000 shares on 11 March 2021, his total holding is now 46,000 shares representing 0.03% of the
Company’s issued share capital. Other than this, since the year end and up to 15 March 2021, no transactions in shares by Directors
and their connected persons have taken place.
Directors’ Shareholdings
Shareholding guidelines
Executive Directors are required to build up a holding of shares equivalent to 200% of their annual salary. With the deferral in
shares and introduction of an LTIP, a five year timeframe will be formalised for the build-up of the Executive Director Shareholding
Requirement. Until this level is achieved, there is a requirement to retain 50% of net shares in the Deferred Variable Reward Plan
and those which vest under the LTIP.
Daniel Frumkin has purchased 2,350,000 shares. David Arden has purchased 18,400; he became a Director of the Company
on 19 March 2018 and we are allowing him time to build up his shareholding.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 131
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Annual report on remuneration continued
Executive Directors are required to retain 100% of their shareholding requirement (or actual shareholding if lower) for two years
post-cessation of employment.
Daniel Frumkin
David Arden
1. Values are based on 31 December 2020 closing price of 140.00p.
2. The above table reflects the position as at 31 December 2020.
Base Salary
£740,000
£405,000
Requirement as
a % of base
salary
Wholly owned
shares
Shareholding
requirement
met?
Value1
200%
200%
2,350,000
£3,290,000
18,400
£25,760
Yes
No
Outstanding Share Awards (audited)
Options have an exercise price that is equal to market value at the date of grant; share options awarded under the Company Share
Option Plan (CSOP) from CSOP 2016 onwards are based on the Volume Weighted Average Share Price for Metro Bank on a date
determined by the Remuneration Committee.
We have not awarded share options to 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 2020:
• 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 112.
Daniel Frumkin
Share Option Plan Name
CSOP2020 – Hiring
Agreement
Share
options
granted
Award
date
Exercise
price
Face Value
of award
First
Last
vesting date
vesting date
Share
options
vested
Share
options
vested
(frozen)1
Share
options
still subject
to
conditions
Exercised
in year
100,000
31/03/20
£0.93
£93,000
30/04/23
30/04/27
–
–
100,000
–
Total
100,000
David Arden
100,000
Share Option Plan Name
CSOP2020
CSOP 2019 Deferred Cash
1 Year
CSOP2019
CSOP2018
Total
Share
options
granted
Award
date
Exercise
price
Face Value
of award
First
Last
vesting date
vesting date
76,947
31/03/20
£0.93
£71,561
30/04/23
30/04/27
9,600 02/04/19
19,200 02/04/19
£7.94
£7.94
£76,224
30/04/20
30/04/20
£152,448
30/04/20
30/04/24
30,000
31/03/18
£35.36
£1,060,800
30/04/19
30/04/23
135,747
Share
options
vested
–
–
–
–
–
Share
options
vested
(frozen)1
Share
options still
subject to
conditions
–
76,947
9,600
–
3,840
15,360
11,999
18,001
25,439
110,308
Exercised
in year
–
–
–
–
–
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.
132 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Craig Donaldson
Share Option Plan Name
CSOP 2018 Deferred Cash
1 Year
CSOP2018 Bonus
Exchange
CSOP2018
CSOP2017 Deferred Cash
1 Year
CSOP2017 Bonus
Exchange
CSOP2017
CSOP2016 Pension
Exchange
CSOP2015
CSOP2015 Bonus
Exchange
CSOP2014
CSOP2014 Bonus
Exchange
CSOP2013
CSOP2012
CSOP2011
Total
Share
options
granted
Award
date
Exercise
price
Face Value
of award
First
Last
vesting date
vesting date
Share
options
vested
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
–
–
–
40,000
31/03/18
£35.36
£1,414,400
30/04/19
30/04/23
–
16,000
24,000
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
33,637
31/03/17
£32.73
£1,100,939
30/04/18
30/04/22
16,819
6,727
–
–
–
–
13,455
13,455
4,541 04/03/16
£20.00
£90,820
21/03/16
21/03/16
4,541
–
30,000
04/11/15
£16.00
£480,000
31/10/16
31/10/20
18,000
12,000
20,000
20/03/15
£14.00
£280,000
20/03/15
20/03/15
20,000
–
130,000
31/10/14
£13.50
£1,755,000
31/10/15
31/10/19
104,000
26,000
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
87,455
37,455
–
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.
Share Plan Name
Project Revolution
(Listing Awards)
Shares
awarded
Award date
Award price
First
vesting date
Last
vesting date
Shares
vested and
transferred
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
17,746
8,876
–
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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 133
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Annual report on remuneration continued
Stuart Bernau
Scheme Name
CSOP2015
CSOP2014
CSOP2013
CSOP2012
CSOP2011
Total
Gene Lockhart
Scheme Name
CSOP2015
CSOP2014
CSOP2013
CSOP2012
CSOP2011
Total
Share
options
granted
Award
date
Exercise
price
Face Value
of award
First
Last
vesting date
vesting date
Share
options
vested
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
7,500
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
–
–
27,500
–
–
–
–
–
–
–
–
–
–
–
–
Award
date
Exercise
price
Face Value
of award
First
Last
vesting date
vesting date
Share
options
vested
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
7,500
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
2,000
4,000
07/10/11
£9.00
£36,000
07/10/12
07/10/14
4,000
33,500
33,500
–
–
–
–
–
–
–
–
–
–
–
–
33,500
Share
options
granted
Executive Director proposed Share-Based Awards
The following share-based awards are proposed to be made in 2021 in respect of the 2020 performance year and are already
included in the single figure table for 2020 variable pay on page 118.
Vesting period
After one year
After seven years1,2
Total
Daniel Frumkin
David Arden
0
£523,214
0
£288,968
£523,214
£288,968
1. The annual variable pay for 2020 will be delivered fully in shares in the Deferred Variable Reward Plan with vesting pro rata between years three and seven subject to
continued service.
2. Share awards made under the Deferred Plan will be granted at a price on the last Dealing Day before the Grant Date, or the average of the closing middle market
quotations for Metro Bank as agreed by the Remuneration Committee.
3. The vesting of David Arden’s deferred share award will be frozen pending further internal analysis and any external investigations into the RWA adjustment.
134 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Our Remuneration Policy
The section below sets out the Remuneration Policy for Executive and Non-Executive Directors.
Following adoption by the Board of Metro Bank’s new Strategic Plan (set out in the H1 2020 Results Presentation) to turn around
the business, a new Remuneration Policy will be submitted for shareholder approval at our Annual General Meeting in May 2021
to support delivery of the Strategic Plan. If approved, it will take effect from that date. Details of how the policy will be applied in
2021 are included in the Directors’ Remuneration Report.
It is intended that the policy will apply for three years from 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.
In determining the new Remuneration Policy, the Committee has undertaken a thorough review of remuneration arrangements
at Metro Bank, the strategic priorities of the business, FTSE market practice and investor guidance.
The views of our shareholders on remuneration matters are also important to us and, as a result, we requested feedback from our
key shareholders and representative bodies.
With this in mind, we are proposing to make a number of changes to our Directors’ Remuneration Policy to align with good practice,
regulatory requirements and to put in place a policy which will motivate and incentivise executives and colleagues to deliver Metro
Bank’s Strategic Plan.
The Committee are satisfied that any conflicts of interest have been mitigated in the preparation of this Policy.
1. Policy
Metro Bank offers banking, focused on the customer, through unparalleled levels of service and convenience.
We offer an 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.
Pay, pension levels 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
137 and there is a process for managing Executive Director pension alignment with the majority of the workforce. Colleagues are
able to express their views on pay through regular surveys and feedback, as well as through our Designated Non-Executive Director
for Workforce Engagement.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Our Remuneration Policy continued
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.
All newly appointed Executive Director contributions
to be aligned with or lower than those of the wider
work force 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. Legacy
benefits are no longer offered.
Annual Bonus
Variable remuneration for a financial year is limited
to 200% of salary.
On-target opportunity is 50% of maximum
opportunity i.e. 100% of base salary.
At least 40% of variable remuneration will be based
on financial performance measures.
Variable remuneration deferral into market price
options. Deferral for a period of not less than seven
years, with pro-rata vesting permitted between years
three and seven, and a retention period of at least one
year after each vest as required by regulation.
No Long Term Incentive Plan.
Long Term
Incentive Plan
(LTIP)
No change from previous policy.
For the incumbent Executive Directors, they will
transition by 31 December 2022 to be eligible for
employer pension contributions aligned with or lower
than the majority of the Metro Bank colleagues at
that time.
Executive Director pension contributions are currently
set at 8% for the CEO and 10% for the CFO.
For new Executive Director hires, they will be eligible
for employer pension contributions aligned with or
lower than those of the majority of the workforce at
the time of appointment.
No change from previous policy.
Variable remuneration will continue to be limited to
200% of salary for a financial year. Within this overall
limit, annual bonus to be limited to 100% of salary for
a financial year.
Deferral of annual bonus will be into shares.
At least 60% of the corporate scorecard measures
will be based on financial performance. Additionally,
there will be a gateway requirement of CET1 or
a profit hurdle.
Variable remuneration will continue to be limited
to 200% of salary for a financial year. Within this
overall limit LTIP to be limited to 100% of salary for
a financial year.
Performance to be measured over a three-year period.
Subject to AGM approval, the first grant of LTIP in 2021
will have a four-year performance period 2021-2024
and be subject to a post-vesting holding period with
the result that awards will not be released until at least
five years from grant which, depending on regulatory
requirements may extend to eight years prior
to release.
The performance conditions have been aligned to the
Strategic Plan and the performance range for these
measures will be set to be stretching.
136 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Component
Current Policy
New Policy
Shareholding
requirement
Requirement for Executive Directors to build and
maintain a shareholding of 200% of base salary.
With the deferral in shares and introduction of an LTIP,
the new policy will introduce a five-year time frame for
the build-up of the Executive Director shareholding
requirement of 200% of salary from the start of the
new policy.
Post-cessation
shareholding
requirement
Executive Directors are required to retain 100% of
their shareholding requirement (or actual holding if
lower) for two years post-cessation of employment.
An enforcement mechanism for the post-cessation
shareholding requirement will be introduced effective
for awards granted from the start of the new policy.
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.
Operation
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.
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.
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
• Individual behaviours and delivery as per the AMAZEING reviews for Executive Directors
• Relevant external market data
• Scope and size of role
• Individual’s skills, expertise and experience and ability to grow with the role and organisation
• Level of increases for all colleagues
• Internal relativity
• Economic factors, e.g. inflation
• Affordability and available budget
Maximum potential
Performance
measures
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.
Any salary increases for Executive Directors are based on individual behaviours and performance.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
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 when they join the Bank.
If they have exceeded HMRC pension tax-free contribution limits, they may elect to take cash in lieu of
pension for all or some of the benefit on the same basis as other colleagues.
Maximum potential
The current maximum employer contribution (including cash in lieu) for Executive Directors is 10% of base
salary. Incumbent Executive Directors will transition by 31 December 2022 to be eligible for employer pension
contributions aligned with or lower than the majority of the Metro Bank colleagues at that time.
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.
138 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Annual Bonus
Purpose and link to
strategy
To recognise and reward the delivery of annual financial and strategic objectives which contribute towards
the delivery of longer term strategy.
Operation
Annual bonus across the workforce (including Executive Directors) is determined by an assessment of the
Corporate Scorecard outcome and personal performance. The Committee uses the scorecard to assess the
overall performance of the business and may, on a discretionary basis, make a holistic assessment of the
outcome. The Committee has discretion to reduce the annual bonus if it is not supported by underlying
financial performance.
If Metro Bank achieves threshold performance on all metrics in the balanced scorecard, we would pay out
40% of the maximum opportunity.
Together with the LTIP, at least 60% of variable remuneration (annual bonus and LTIP grant) in respect of a
financial year will be deferred with a vesting period of at least three years, increasing to up to seven years
where required by regulation. The annual bonus deferral will be delivered under the Deferred Variable Reward
Plan in shares (which may be nil/nominal price options or conditional share awards). Dividends or dividend
equivalents may accrue from the vesting date.
Malus and clawback will apply to these awards.
Maximum potential Up to 100% of salary for a financial year (50% of maximum for target performance). To note, this award limit is
a maximum amount and the actual awards will be assessed for each financial year and will depend on
performance and value delivered to Metro Bank shareholders.
Performance
measures
The choice of measures is reviewed by the Committee each financial year, with threshold, target and stretch
levels of performance set for each measure. At least 60% of the corporate scorecard measures will be based
on financial performance. Additionally, there will be a gateway requirement of CET1 or a profit hurdle. Details
of these measures for the 2021 financial year are set out in the Remuneration Report on page 124.
Long Term Incentive Plan (LTIP)
Purpose and link to
strategy
Operation
To incentivise and reward the creation of long term shareholder value thereby creating shareholder alignment.
Executive Directors will be considered for awards on an annual basis. Awards will be in the form of shares
(delivered as nil/nominal cost options or conditional awards).
Awards will usually have performance assessed on the third anniversary of grant or, if later, when the
Committee determines that the performance conditions have been satisfied. The 2021 LTIP grant will have
a four year performance period from 2021 to 2024 to align with the delivery timeline of the milestones in
the Strategic Plan. The combined performance, vesting and holding period will be at least five years and
may exceed this where required by regulation. Dividends or dividend equivalents may accrue from the
vesting date.
Threshold vesting performance for the LTIP will be set at 25% of maximum opportunity.
The Committee may also decide to grant cash based awards of an equivalent value to share based awards
or to satisfy share based awards in cash, although it does not currently intend to do so. Awards are satisfied
through a mixture of either market purchase or new issue shares. To the extent new issue shares are used,
the LTIP will adhere to a 5% in 10 year dilution limit.
Malus and clawback will apply to these awards.
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Our Remuneration Policy continued
Long Term Incentive Plan (LTIP) continued
Maximum potential Up to 100% of salary for a financial year. The threshold and maximum vesting levels for LTIP grants will be set
to be stretching.
Performance
measures
Awards are subject to the achievement of performance targets linked to the long term success of
the Company.
These targets are currently Relative Total Shareholder Return (TSR) weighted 40%, Return on Tangible Equity
(ROTE) weighted 40% and Risk & Regulatory weighted 20%. However, different performance measures and
weighting may be set for future awards to ensure that the LTIP remains aligned to the Company’s strategy.
Shareholding
requirements
The performance conditions have been aligned to the Strategic Plan and the performance range for these
measures will be set to deliver the plan and be stretching.
Executive Directors are subject to a minimum shareholding requirement equivalent to 200% of salary.
Executive Directors are expected to retain all shares vesting under the Deferred Plan and the LTIP (net of tax)
until such time as this shareholding requirement has been met. Build up is expected over a period of five years
commencing with the later of this policy commencement date or the date the Executive Director joins
the Company.
Executive Directors are expected to maintain the shareholding requirement (or their actual shareholding
at date of leaving, if lower) for at least two years post-employment. For awards granted from the
commencement of this policy, the Company will enforce this by way of a contractual requirement.
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.
140 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Long Term Incentive Plan (LTIP) continued
Area
Commentary
Performance
measures and
targets
Assessment of performance of the Bank is based on overall performance in line with the Corporate Scorecard.
The Corporate Scorecard typically comprises the following measures:
Measure
Financial
Rationale
To ensure delivery of strong growth in deposits, loans and profit
Risk & Regulatory
To safeguard the future of the Bank by focusing on our strategy to offer low-risk and
diversified lending
Customer
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
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Our Remuneration Policy continued
Long Term Incentive Plan (LTIP) continued
Area
Commentary
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:
• The Executive Director has participated in or is responsible for conduct that has resulted in significant
losses to the Bank;
• The Executive Director has failed to meet appropriate standards of fitness and propriety;
• There is reasonable evidence of misconduct or serious error by an Executive Director;
• The Company and/or the business unit for which the Executive Director works suffers a material downturn
in its business performance;
• The Company and/or the business unit for which the Executive Director works suffers a significant failure
in risk management;
• There has been a material misstatement in the Company’s financial results or an error in assessing any
applicable performance condition;
• The Company has suffered an instance of corporate failure which has resulted in:
– the conditions for use of the stabilisation powers under the special resolution regime in accordance with
Part 1 to 3 of the Banking Act 2009 being satisfied;
– the Company entering into a compromise or arrangement in accordance with sections 1 to 7 of the
Insolvency Act 1986 for the purpose of repayment or restructuring of the Company’s debts; or
– the passing of a resolution or making of an order which is sanctioned by the Court for the appointment
of a liquidator or administrator;
• The Company or any Group Member suffers substantial reputational damage to its business from an event
to which the Executive Director made a material contribution as a result of their action or conduct or failure
to act;
• The Executive Director is subject to a regulatory censure in respect of a material failure in control;
• The level of the award is not, in the opinion of the Board, sustainable when assessing the overall financial
viability of the Company or any Group Member.
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 colleague population.
Performance conditions for variable pay awards are similar to those for all colleagues and we apply the same
Company performance factor to variable pay awards to all colleagues across the Bank. Further details are
provided on page 116.
142 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
3. Illustration of Application of Remuneration Policy
The graphs below illustrate the potential total remuneration for each Executive Director in office at 1 January 2021 under the revised
policy for the 2021 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
Chief Executive Officer
(£’000)
801
Mininum
Target
Maximum
David Arden
Chief Financial Officer
(£’000)
£801,000
Mininum
447
Target
£447,000
£903,000
£1,257,000
£1,460,000
801
370
463
£1,634,000
447 203 253
801
Max +50% growth
801
740
740
740
£2,281,000
1,110
£2,651,000
Maximum
447
405
Max +50% growth
405
447
405
608
£0
£0.5m
£1.0m
£1.5m
£2.0m
£2.5m
£3.0m
£0
£0.5m
£1.0m
£1.5m
£2.0m
£2.5m
£3.0m
Fixed pay
Annual bonus
Long-term incentives
Note
1. These illustrations are based on salaries as at 1 April 2021 and consider the cash amount of annual variable remuneration before conversion into share awards.
No account is taken of the effect of share price changes or dividends on the value received from share awards or shares received under them.
4. 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.
The maximum variable reward for new joiners will be limited to 200% of base salary (100% in annual bonus
and 100% in LTIP).
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 143
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Our Remuneration Policy continued
4. Approach to remuneration when recruiting Executive Directors continued
Component
Approach
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,
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 limits on variable remuneration described on pages 139 and 140 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.
144 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
5. 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
remuneration
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 and
Long Term Incentive Plan Rules (e.g. ill health, retirement with the agreement of the employer, sale of the
employing company out of the group, 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 with a time pro rata reduction of LTIP awards.
The Committee may, at its discretion, determine that awards may vest, subject to performance, before the
normal vesting date. If a participant dies, awards will ordinarily vest, subject to performance, on the date of
death unless the Committee decides they should vest on the normal vesting date.
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.
Executive Directors will be required to maintain the lower of the in-employment shareholding requirement
of 200% of salary or the level achieved at the cessation date 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.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Our Remuneration Policy continued
6. 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 78 and 79.
7. Components of remuneration for all other colleagues
Executive Directors are remunerated broadly in line with the same structures that apply across the wider colleague population.
The performance conditions for variable pay awards similar to those for colleagues.
For all colleagues, 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 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, the Deferred Variable Reward Plan and the Long Term Incentive 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 127) and also the gender pay gap.
Executive Directors are also offered the same benefits that are available to colleagues across the Bank, primarily our pension
scheme, private medical insurance, life assurance and our ShareBuy plan.
8. 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, the Deferred Variable Reward Plan and the Long Term
Incentive Plan.
Colleagues are able to express their views on pay through regular surveys and feedback, as well as through our Designated Non-
Executive Director for Workforce Engagement.
146 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
9. 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 the year in order that they 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.
10. 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 Non-Executive 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 2020 | 147
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Directors’ report
The Directors have pleasure in presenting their Annual Report
for the year ended 31 December 2020. 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 76 to 151.
The Directors consider the Annual Report for the year ended
31 December 2020, taken as a whole, is fair, balanced and
understandable, and provides the information necessary for
shareholders to assess the Group’s position and performance,
business model and strategy.
Principal activities
Our principal activities during 2020 were the provision of
banking and related services. We are 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 164.
No dividend was declared or paid during 2020 (2019: £nil).
The Directors do not anticipate declaring a dividend in the
near future.
Significant Events
In September 2020, as part of our strategy to enhance returns
and ambition to grow unsecured lending, we acquired Retail
Money Market Ltd (RateSetter). RateSetter’s originating and
underwriting capability will enable us to rapidly accelerate this
ambition via an existing, scalable platform.
In December 2020 we announced the sale of a portfolio of
owner occupied residential mortgages, the transaction
completed in February 2021. The portfolio had a gross book
value of £3,044 million resulting in a total cash consideration
of £3,127 million.
Articles of Association
The Articles of Association can be found on our website:
metrobankonline.co.uk.
Share Capital
As at 31 December 2020, our issued share capital 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 27
to the financial statements on page 201.
There are no restrictions on the transfer of our share capital and
there are no shares or stock which carry specific rights with
regards to control of the Group.
The Directors seek annual authority from shareholders to allot
new ordinary shares and to disapply pre-emption rights of
existing shareholders in accordance with the Investment
Association Share Management Guidelines.
Holders of ordinary shares are entitled to receive dividends
when declared, to receive the Group’s Annual Report, to attend
and speak at general meetings of the Company, to appoint
proxies and to exercise voting rights.
Annual General Meeting
Due to COVID-19, following the Government guidelines on
restricting movement and gatherings, the details regarding the
2021 Annual General Meeting are yet to be finalised and more
information will be published closer to the date of the meeting.
Directors
Details of the Directors who served during the year and continue
to serve at the date of approval of the Directors’ Report are set
out on pages 78 and 79. Stuart Bernau, Roger Farah and Gene
Lockhart stepped down as Directors during 2020.
On the 20 April 2020, we announced the appointment of three
independent Non-Executive Directors, Anne Grim, Ian
Henderson, and Nick Winsor.
On 8 July 2020, we announced the appointment of Robert
Sharpe as Chair. Robert has significant experience at Board and
Executive level in the retail banking sector. Robert currently acts
as Chair at Hampshire Trust Bank and Honeycomb Investment
Trust plc. He stepped down from his position as Chair of the
Bank of Ireland (UK) in November 2020.
Directors are appointed and replaced in accordance with the
Company’s Articles, the Companies Act 2006 and the UK
Corporate Governance Code. The powers of the Directors are
set out in the Company’s Articles and the Companies Act 2006.
148 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Directors who served on the Board during the year
ended 31 December 2020
Appointment Date
Resignation
Date
Robert Sharpe (independent Chair)
1 November 2020
Daniel Frumkin (CEO)
David Arden (CFO)
1 January 2020
29 March 2018
–
–
–
As at 15 March 2021, being the last practical date before
publication of this report, the Group has been notified under
DTR 5 of the interests in its issued share capital, and these are
set out in the table below. All such shareholders have the right to
vote in all circumstances at general meetings.
Stuart Bernau (former NED)
5 March 2010
18 May 2020
Shareholder
Catherine Brown (iNED)
Sally Clark (iNED)
1 October 2018
1 January 2020
–
–
683 Capital Management
7,050,000
4.09%
Indirect
Spaldy Investments Limited
15,549,496
9.018%
Roger Farah (former iNED)
1 February 2014
13 March 2020
Spruce House Partnership
Goldman Sachs
Ordinary
shares held
% of total
ordinary
shares
Direct/
indirect
interest
15,500,000
16,963,374
8.99%
9.84%
Direct
Direct
Indirect
Anne Grim (iNED)
Ian Henderson (iNED)
20 April 2020
20 April 2020
–
–
Gene Lockhart (former NED)
5 March 2010
28 April 2020
Anna (Monique) Melis (iNED)
20 June 2017
Sir Michael Snyder (SID)
22 September 2015
Paul Thandi (iNED)
1 January 2019
Michael Torpey (iNED)
1 September 2019
Nick Winsor (iNED)
20 April 2020
–
–
–
–
–
Directors’ interests
Details of the Directors’ beneficial interests are set out in the
Annual Report on Remuneration on page 131.
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 87.
Provisions on change of control
The Company’s existing share plan contains provisions relating
to a change of control. Outstanding options and awards may
vest and become exercisable on a change of control subject to
the Committee’s discretion. As at 31 December 2020, 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 for compensation for loss of office or
employment that occur following a takeover. Certain of the
Company’s third party supplier agreements may become
terminable upon a change of control of the Company.
Greenhouse gas emissions
Our energy consumption and associated greenhouse gas
emissions during 2020 are set out in the Strategic Report
on page 67.
Employee involvement
We encourage employee 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.
During 2020, all employees were eligible to participate in our
share option and/or share buy and share pool schemes. More
information on our colleagues and how we engaged with them
can be found on page 60 of the Strategic Report.
Engagement with stakeholders
The Board recognises that the long-term success of the Bank
will depend upon the interests of all our stakeholders and this
view is intrinsic in our decision making. More information on our
stakeholders, how we engaged with them and how the Board
took them into consideration when making decisions are set
out in the 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.
Major interests in shares
Information provided to the Group by substantial shareholders
pursuant to the Disclosure and Transparency Rules (DTR) is
published via a Regulatory Information Service.
Our Board Diversity Policy, which sets out our commitment
to diversity and inclusion for the Board can be found on our
website www.metrobankonline.co.uk/investor-relations.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 149
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Directors’ report continued
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.
More information on our performance against our objectives
within the policy can be found in the Nomination Committee
Report on page 107.
Disabled employees
For all colleagues and candidates we always look to make
reasonable adjustments to ensure equity. 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.
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 through during
2020 can be found on page 67. 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 details of risk
management objectives and policies, are shown in the Risk
Report on pages 25 to 55. Details around the processes in place
in relation to financial reporting can be found in the Audit
Committee report on pages 95 to 96. 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 Factors and Management Report.
150 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Going concern
The financial statements are prepared on a going concern
basis, as the Directors are satisfied that the Group and Parent
Company have the resources to continue in business for the
foreseeable future.
Viability Statement
Our Viability Statement is set out on pages 54 and 55.
Auditors
Our 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
2020 (2019: £nil).
Research and development
We continue to invest in our digital offering. During the year,
we spent £81 million on intangible assets.
Post balance sheet events
A summary of the key post balance sheet events is set out
in note 40 to the financial statements on page 227.
Future developments
Our business and future plans are reviewed in the
Strategic Report.
Financial instruments and financial risk management
Information relating to financial instruments and financial risk
management can be found on pages 42 to 45 and in note 10
to the financial statements.
Listing Rules disclosures
For the purposes of LR 9.8.4R, the information required to be
disclosed by LR 9.8.4R can be found in the following sections
of the Report:
Item
Location, where applicable
Detail of long-term
incentive schemes
Remuneration Report, and in note 30
to the financial statements.
Contracts of significance Any contracts of significance or related
party transactions can be found in
note 36 to the financial statements.
Waived emoluments
Remuneration Report
Corporate Governance Statement
The Corporate Governance Report on pages 76 to 151 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
Our Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulation.
The Directors are responsible for the maintenance and
integrity of the information included on our website.
Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
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 accounting standards in conformity with the
requirements of the Companies Act 2006 and international
financial reporting standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union and
parent company financial statements in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006.
Under company law, Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Parent Company
and of the profit or loss of the Group for that period. In
preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply
them consistently;
• state whether applicable international accounting standards
in conformity with the requirements of the Companies Act
2006 and international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union have been followed for the group
financial statements and international accounting standards
in conformity with the requirements of the Companies Act
2006 have been followed for the Parent 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’s 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.
Directors’ confirmations
The Directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Group’s and Parent Company’s position and performance,
business model and strategy.
Each of the Directors, whose names and functions are listed in
pages 78 and 79 confirm that, to the best of their knowledge:
• the Group financial statements, which have been prepared in
accordance with international accounting standards in
conformity with the requirements of the Companies Act
2006 and international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union, give a true and fair view of the assets,
liabilities, financial position and loss of the Group;
• the Parent Company financial statements, which have been
prepared in accordance with international accounting standards
in conformity with the requirements of the Companies Act
2006, give a true and fair view of the assets, liabilities, financial
position and loss of the Parent Company; 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.
Statement of disclosure of information to auditors
Each Director in office at the date of this report, and whose
name is listed on pages 78 and 79, confirms that to the best
of their knowledge:
• there is no relevant audit information of which the Group
and Parent Company’s auditors are unaware; and
• all reasonable steps that they ought to have taken as a Director
to make themselves aware of any relevant audit information,
and to establish that the Group and Parent Company’s
auditors are aware of the information, have been taken.
The confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the Companies
Act 2006.
The Directors’ Report comprising pages 148 to 151 has been
approved by the Board of Directors and signed on its behalf by
Melissa Conway
Company Secretary
23 March 2021
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION 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 (together, 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 2020 and of the Group’s loss
and the Group’s and Company’s cash flows for the year then ended;
• have been properly prepared in accordance with international accounting standards in conformity with the requirements of the
Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report & Accounts 2020 (the ‘Annual Report’), which
comprise: the Consolidated and Company balance sheets as at 31 December 2020; the Consolidated statement of comprehensive
income for the year then ended, the Consolidated and Company cash flow statements for the year then ended; 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.
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial
statements. These are cross-referenced from the financial statements and are identified as audited.
Our opinion is consistent with our reporting to the Audit Committee.
Separate opinion in relation to international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union
As explained in note 1 to the financial statements, the Group, in addition to applying international accounting standards in
conformity with the requirements of the Companies Act 2006, has also applied international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
In our opinion, the Group financial statements have been properly prepared in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
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.
Other than those disclosed in note 8 to the financial statements, we have provided no non-audit services to the Group in the period
under audit.
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Our audit approach
Overview
Audit scope
• The scope of our audit and the nature, timing and extent of audit procedures performed were determined by our risk assessment,
the financial significance of reporting units and other qualitative factors (including history of misstatement through fraud
or error).
• We performed audit procedures over components considered financially significant in the context of the Group (full scope audit)
or in the context of individual primary statement account balances (audit of specific account balances). 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.
Key audit matters
• Determination of allowance for Expected Credit Losses (ECL) on loans and advances (Group and Company)
• Recognition of revenue on loans and advances (Group and Company)
• Carrying values of intangible assets (excluding goodwill) (Group and Company)
• Acquisition of RateSetter (Group and Company)
• Impact of COVID-19 (Group and Company)
Materiality
• Overall Group materiality: £5.2 million (2019: £2.6 million) based on 5% of the average consolidated profit or loss before tax
of the last 5 years.
• Overall Company materiality: £5.1 million (2019: £2.7 million) based on 5% of the average consolidated profit or loss before tax
of the last 5 years.
• Performance materiality: £3.9 million (Group) and £3.8 million (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
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect material
misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and
regulations related to breaches of the rules of the Financial Conduct Authority (FCA), 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 preparation of
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:
• Enquiries of the Audit Committee, management, internal audit and the Group’s legal counsel, including consideration
of known or suspected instances of non-compliance with laws and regulation and fraud;
• Evaluation of the design and implementation of controls designed to prevent and detect irregularities relevant
to financial reporting;
• Reviewing key correspondence with regulators, such as the FCA and the PRA in relation to the Group’s compliance
with banking regulations;
• Incorporating unpredictability into the nature, timing and/or extent of our testing;
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• Challenging assumptions and judgements made by management in their estimation of the allowance for ECL on loans and
advances to customers, revenue recognition, the assessment of the carrying value of intangible assets (excluding goodwill),
and the acquisition of RateSetter (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 process.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements.
Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results
of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
The acquisition of RateSetter is a new key audit matter this year. Otherwise, the key audit matters below are consistent with
last year.
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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 30 (Risk report), page 98 (Audit
Committee report),and page 205 (Note 31: Expected
credit losses).
The methodology used to determine the allowance
for ECLs requires a number of important assumptions
to be made, and the uncertainty in the economic
environment caused by Brexit and COVID-19 has
required greater use of expert judgement. A number
of overlays were required to address specific portfolio
considerations, such as geographical and industry
concentrations, as well as new market conditions,
such as COVID-19 support measures, and changing
economic expectations from Brexit and a third UK
lockdown, which were not fully reflected in economic
forecasts. In addition, model adjustments were
applied to reflect known model limitations in the
current model methodology.
Key assumptions and judgements included
the following:
• The judgement exercised by management in
determining probability of default (PD) – as Metro
Bank has relatively limited historic loss data for
some portfolios, and the continuing disruption
caused by COVID-19;
• Judgements exercised by management in
determining whether a significant increase in credit
risk (‘SICR’) should be recognised;
• The selection of forward-looking economic
assumptions used in the models, including
management’s assumptions to address economic
uncertainty, heightened by COVID-19;
• The judgements involved in addressing underlying
economic uncertainty through the use of post
model overlays and the application of these
adjustments; and
• The measurement of ECL on individually assessed
stage 3 loans, including management’s estimation
of future expected cash flows (for example the
timing and value of collateral realisation).
We evaluated the design and implementation of key controls. Where we planned
to rely on them, we tested their operating effectiveness and concluded that we
could place reliance on the controls for the purposes of our audit. This involved
testing of:
• Controls over the recording of data into the loan system across
each portfolio of loans;
• Controls over the recording of collateral within the DPR system
(Retail loans);
• Model governance and validation controls (including model
monitoring process);
• Controls governing the watchlist process and the identification
of credit impaired loans;
• Controls over the performance of periodic credit reviews for
commercial loans; and
• Controls over the review and approval of provisions applied
to individually impaired loans.
We engaged the support of credit modelling specialists and 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 assumptions in the context of the current economic
environment and our wider industry experience.
Probability of default (PD)
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 used in the calculation of provisions.
Significant increase in credit risk (SICR)
To test whether judgements exercised in determining whether a SICR has
occurred are appropriate, we performed substantive procedures including
selecting samples of loans and advances across the Stage 1 and 2 population,
forming our own judgements of stage allocation and comparing this to
management’s conclusions as well as assessing Metro Bank’s qualitative
and quantitative assessment thresholds.
Forward looking information and multiple economic scenarios
We used resources provided by our economics experts to assess the
reasonableness of management’s selected economic scenarios and associated
scenario weightings, giving specific consideration to the economic uncertainty
caused by Brexit and COVID-19.
Post Model Overlays
We critically assessed and tested the expert judgements applied by
management to address the credit risk in the portfolio that was not reflected in
modelled outputs, evaluating and challenging the methodology and application.
Individually assessed Stage 3 loans
For a sample of Stage 3 credit impaired loans, we:
• Critically evaluated the basis on which the allowance was determined,
and the evidence supporting the analysis performed by management;
• Independently challenged whether the key assumptions used, such
as the recovery strategies, expected cash flows, collateral rights and
valuations, and ranges of potential outcomes, were appropriate, given
the borrower’s circumstances.
We identified a number of differences through our testing of the ECL
calculations. These were considered by management, and addressed
to our satisfaction.
Based on the evidence obtained, we concluded that the methodologies,
modelled assumptions, management judgements and collective and individually
assessed ECL to be appropriate and materially compliant with the requirements
of IFRS 9.
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Key audit matter
How our audit addressed the key audit matter
Recognition of revenue on loans and
advances (Group and Company)
Refer to page 98 (Audit Committee report) and
page 173 (Note 2: Net interest income).
The Group’s primary source of revenue is interest
income arising on loans and advances.
The Group recognises interest income using the
effective interest rate method which spreads interest
as well as transaction costs and integral fees, the
most significant of which relate to loan arrangement
fees of new lending, over the loans’ expected
behavioural lives.
Interest is generated across multiple portfolios,
using information generated from Metro Bank’s
own systems and those of third party loan
portfolio administrators.
The determination of the behavioural life over
which arrangement fees from the commercial
loan and mortgage books is spread is judgemental,
as the Group has limited historical experience
of the performance of certain portfolios, and
there is a greater degree of uncertainty as
to customer behaviour due to the current
economic circumstances.
We evaluated the design and implementation of key controls over the
recognition of revenue on loans and advances, including, with respect to
effective interest rate adjustments, the identification of transaction costs and
integral fees, determination of their treatment, and the determination and
approval of the assumptions used in the estimation of the behavioural lives
of loans and advances.
Where we planned to rely on controls, we tested their operating effectiveness
and concluded that we could place reliance on them for the purposes of
our audit.
We performed the following substantive audit procedures with respect to the
recognition of revenue on loans and advances:
• We evaluated management’s behavioural life assumptions for new loan
portfolios (including BBLs and CBILs);
• We evaluated management’s assessment of the impact of payment holidays
on behavioural life assumptions;
• We tested assumptions to supporting documentation, and stressed the
estimates applied, to assess whether they were appropriate;
• We assessed management’s identification of transaction costs and fees which
are directly attributable to the lending;
• We assessed the estimation of behavioural lives of the loans, over which those
amounts are spread; and
• We tested key inputs to supporting documentation, and independently
reperformed the calculation of interest income arising on loan portfolios
on a sample basis.
No exceptions arose in the course of our work. 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.
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Key audit matter
How our audit addressed the key audit matter
Carrying values of intangible assets (excluding
goodwill) (Group and Company)
Refer to page 98 (Audit Committee report) and page
189 (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.
The economic challenges and uncertainty have
resulted in delay to the implementation of the Group’s
business strategy, and in addition the Group has
reported losses for the year. These represent potential
indicators of impairment.
The Directors have evaluated the intangible assets
for impairment, and where relevant estimated the
recoverable amounts of those assets. Where the
assets do not generate largely independent cash
inflows, they have been incorporated into a relevant
cash generating unit (CGU) and the recoverable
amount of that CGU has been determined. The
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.
The Directors have determined that useful economic
lives (UEL) for intangible assets are assessed and
assigned on an individual project level as this is the
lowest level where a UEL can be assigned. This means
that the same UEL will be assigned to all items in a
specific project instead of it being assigned on an
individual line item basis. Accelerated amortisation is
applied to additions to a project so that it will have the
same finishing point as the overall project as the UEL
of the overall project is the period in which
management expects to be able to derive
economic benefits.
We evaluated the design and implementation of key controls over 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 units;
• 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 inquiry of management,
review of business plans and IT strategies, and minutes of relevant Board
and Committee meetings;
• Assessed the recoverable amount estimates against evidence provided by
management and performed tests to ensure that management’s classification
for impaired figures for the project is accurate, 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 key assumptions, examined corroborating audit evidence
and inspected business plans to assess whether they are reasonable and
supportable. We have engaged our valuation specialists in assessing the
discount rate.
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 considered by management, and
addressed to our satisfaction.
Based on the procedures performed, we found that the methodology and
judgements used in determining the useful economic lives and amortisation
are appropriate and materially compliant with IAS 38.
With respect to the carrying value assessment performed in relation to Metro
Bank’s 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.
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Key audit matter
How our audit addressed the key audit matter
We performed the following substantive audit procedures over the acquisition
of RateSetter:
• Reviewed the facts and circumstances of the transaction and validated
the acquisition and consideration structure as well as management’s
assessment of the acquirer, acquiree and acquisition date in line with
the requirements of IFRS 3;
• With the assistance of our technical accounting specialists, we reviewed
the accounting policies used by RateSetter and challenged management
as to the appropriate policies to use post acquisition;
• With the assistance of our valuations experts, we evaluated and tested
the key judgements used by management and management’s experts
in determining the goodwill and intangible asset valuations;
• We worked with our credit modelling specialists to critically assess the fair
value including incorporation of expected losses for assets and liabilities
related to the provision fund as well as independently replicate the material
assumptions; and
• We reviewed management’s receipt factor methodology, which is a best
estimate view of future interest payments into the PF.
Based on the work performed we concluded that the acquisition was
appropriately accounted for. In addition, the valuation of goodwill and intangible
assets, and the measurement of the provision fund related assets and liabilities
was reasonable and materially compliant with the requirements of IFRSs 3
and 13.
Acquisition of RateSetter (Group and Company)
Refer to page 98 (Audit Committee report), page 171
(Note 1: Basis of preparation and significant
accounting policies) and page 224 (Note 37:
Business combinations).
On 14 September 2020, the Company acquired 100%
of Retail Money Market Ltd (RMML) and its
subsidiaries (together, RateSetter or RS), a peer-to-
peer platform specialising in unsecured lending, for
purchase consideration of £12 million cash, consisting
of £2.5 million that was paid upon completion, with
£0.5 million deferred and £9 million of contingent
consideration. Goodwill of £6.6 million arose on the
acquisition of RS, recognised at the Group level.
The deferred consideration is payable one year from
the acquisition date and the contingent consideration
is payable three years from the acquisition date based
on certain lending targets being achieved through the
RateSetter platform.
Acquisitions are unique in nature, and management
has limited experience in accounting for acquisitions.
There is also judgement involved in determining the
valuation of performance based consideration and
the accounting treatment of the entity upon
consolidation. A key judgment in the acquisition was
the determination of the intangible asset valuation,
an expert was engaged by management to provide
assistance in the fair valuation of the purchase
consideration and acquired intangible assets.
Judgement was also applied by management in
relation to the measurement of assets and liabilities
relating to the provision fund (PF), an arrangement
set up with investors of RateSetter.
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Key audit matter
How our audit addressed the key audit matter
Impact of COVID-19 (Group and Company)
COVID-19 was declared a pandemic by the World
Health Organization during Q1 2020. As a result, there
have been societal restrictions imposed by the UK
Government which, amongst other things, included
recommendations for working remotely from home
and refraining from socialising in groups.
In assessing management’s consideration of the impact of COVID-19
on the financial statements, we have undertaken the following procedures:
• Considered the impact of COVID-19 on the Group’s internal control
environment through our audit testing and inquiries of management;
• Considered the impact of COVID-19 when performing our fraud risk
assessment and testing of management override of controls;
• Performed enquiries with the Audit Committee, management, the PRA
and the FCA;
• Reviewed management’s going concern assessment, which considered the
impact of COVID-19 on the financial performance of the Group and its
Long-Term Plan;.
• Assessed the impact of COVID-19 on estimates and the assumptions that
underpin them, for example related to expected credit losses and carrying
value of intangible assets, as detailed above;and
• Evaluated the adequacy of the disclosures made in the financial statements
with respect to the impact of COVID-19.
Based on the work performed, we concluded that the impact of COVID-19
has been appropriately evaluated and reflected in the preparation of the
financial statements.
This has had an immediate impact on businesses such
as tourism, transport, retail and entertainment. It has
also affected supply chains and the production of
goods throughout the world, and lower economic
activity has resulted in reduced demand for many
goods and services. In response, the UK Government
has rolled out programmes to support businesses and
people such as BBLs and CBILs, both of which the
Group participated in, along with providing payment
holidays to existing customers.
The Company has not experienced any significant
operational challenges. All of its stores remained open
throughout the pandemic with reduced hours, and
other employees have been working remotely since
March 2020.
The Directors have specifically considered the impact
of the COVID-19 pandemic and resulting uncertainty
when preparing the financial statements and, where
relevant to a key audit matter of this audit report,
we have included our considerations therein.
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 thirteen components of which the largest are: Metro Bank PLC (being the Company), SME Invoice Finance
Limited, SME Asset Finance Limited, Retail Money Market LTD and RateSetter Trustee Services 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 15% of the loss before tax of the consolidated Group) were considered full scope
components. We considered the individual financial significance of other components in relation to primary statement account
balances and the presence of any significant audit risks and other qualitative factors (including history of misstatements through
fraud or error). For our Group audit, we identified one financially significant component, which is the Company.
We then considered the components in the Group that had either financially significant or unusual account balances which were
required to be brought into scope. This was the case for the SME entities, Retail Money Market LTD and RateSetter Trustee Services
Limited, where we performed audit procedures over specific account balances. The remaining components, in our judgement, did
not present a reasonable possibility of a risk of material misstatement either individually or in aggregate and were eliminated from
further consideration for specific audit procedures, although they were subject to Group level analytical review procedures.
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Independent auditors’ report
To the members of Metro Bank PLC continued
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:
Overall materiality
£5.2 million (2019: £2.6 million).
£5.1 million (2019: £2.7 million).
Financial statements – Group
Financial statements – Company
How we determined it
5% of the average consolidated profit or loss before
tax of the last 5 years.
5% of the average consolidated 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
Group, and is a generally accepted auditing
benchmark.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
The range of materiality allocated across components was between £0.1 million and £5 million. Certain components were audited to
a local statutory audit materiality that was also less than our overall Group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope
of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to £3.9 million for the Group
financial statements and £3.8 million for the Company financial statements.
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range
was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £260,000
(Group audit) (2019: £132,000) and £248,000 (Company audit) (2019: £133,000) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going concern basis
of accounting included:
• Evaluation of management’s going concern assessment;
• Evaluation of management’s financial forecasts and management’s stress testing of liquidity and regulatory capital, including the severity
of the stress scenarios and assumptions that were used;
• Evaluation of the degree to which the impact of COVID-19 has been reflected in the Group’s financial plans and going concern
assessment; and
• Substantiation of liquid resources held, and liquidity facilities available to the Group, for example, with the Bank of England.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern
for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
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However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and the
Company’s ability to continue as a going concern.
In relation to the Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered
it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the
other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this
report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and
matters as described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’
report for the year ended 31 December 2020 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic report and Directors’ report.
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.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the
corporate governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are
described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we
have nothing material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks
and an explanation of how these are being managed or mitigated;
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 161
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Independent auditors’ report
To the members of Metro Bank PLC continued
• The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of any material uncertainties to the Group’s and Company’s
ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
• The directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers
and why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the Group and Company will be able to continue
in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an
audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that
the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our knowledge and understanding of the Group and Company and their
environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess the Group’s and Company’s position, performance, business
model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems;
and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Company’s
compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing
Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the statement of Directors’ responsibilities, 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.
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.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population from which the sample is selected.
162 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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 obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received
from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Company financial statements and the part of the 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 year 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 11 years, covering the years
ended 31 December 2010 to 31 December 2020.
Darren Meek (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
24 March 2021
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 163
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Consolidated statement of comprehensive income
For the year ended 31 December 2020
Interest income
Interest expense
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 expenses
Depreciation and amortisation
Impairment and write-offs of property, plant, equipment and intangible assets
Total operating expenses
Expected credit loss expense
Loss before tax
Taxation
Loss for the year
Other comprehensive income for the year
Items which will be reclassified subsequently to profit or loss:
Movement in respect of investment securities held at fair value through other comprehensive
income (net of tax):
– changes in fair value
– fair value changes transferred to the income statement on disposal
Total other comprehensive income
Total comprehensive loss for the year
Loss per share
Basic (pence)
Diluted (pence)
Year ended
31 December
2020
£’million
Year ended
31 December
2019
£’million
Notes
2
2
3
3
4
5
6
14, 15
14, 15
31
9
29
29
426.3
(176.6)
249.7
61.1
(1.2)
59.9
73.3
49.7
496.2
(188.1)
308.1
67.4
(6.4)
61.0
1.6
44.9
432.6
415.6
(502.3)
(74.4)
(40.6)
(617.3)
(126.7)
(311.4)
9.7
(380.6)
(76.4)
(77.7)
(534.7)
(11.7)
(130.8)
(51.8)
(301.7)
(182.6)
5.6
(0.1)
5.5
2.7
(2.4)
0.3
(296.2)
(182.3)
38
38
(175.0)
(175.0)
(123.9)
(123.9)
The accounting policies, notes and information on pages 171 to 227 form part of these financial statements.
164 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Consolidated balance sheet
As at 31 December 2020
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
Financial assets held at fair value through profit and loss
Property, plant and equipment
Intangible assets
Prepayments and accrued income
Assets classified as held for sale
Other assets
Total assets
Liabilities
Deposits from customers
Deposits from central banks
Debt securities
Financial liabilities held at fair value through profit and loss
Repurchase agreements
Derivative financial liabilities
Lease liabilities
Deferred grants
Provisions
Deferred tax liability
Other liabilities
Total liabilities
Equity
Called-up share capital
Share premium
Retained losses
Other reserves
Total equity
Total equity and liabilities
31 December
2020
£’million
31 December
2019
£’million
Notes
11
12
13
13
14
15
16
17
18
19
20
21
22
23
24
25
9
26
27
27
28
29
2,993
12,090
773
2,640
30
806
254
77
295
2,621
2,989
14,681
411
2,154
–
856
168
66
–
75
22,579
21,400
16,072
3,808
600
30
196
8
327
28
11
12
198
21,290
–
1,964
(694)
19
1,289
14,477
3,801
591
–
250
8
341
50
17
15
267
19,817
–
1,964
(392)
11
1,583
22,579
21,400
The accounting policies, notes and information on pages 171 to 227 form part of these financial statements.
The financial statements on pages 164 to 227 were approved by the Board of Directors on 23 March 2021 and signed on
its behalf by:
Robert Sharpe
Chair
Daniel Frumkin
Chief Executive Officer
David Arden
Chief Financial Officer
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 165
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Consolidated statement of changes in equity
For the year ended 31 December 2020
Balance as at 1 January 2020
Loss for the year
Other comprehensive income (net of tax) relating to
investment securities designated at FVOCI
Total comprehensive loss
Net share option movements
Balance as at 31 December 2020
Balance as at 1 January 2019
Loss for the year
Other comprehensive income (net of tax) relating to
investment securities designated at FVOCI
Total comprehensive loss
Shares issued
Cost of shares issued
Net share option movements
Balance as at 31 December 2019
Notes
Called-up
share capital
£’million
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27
Share
premium
£’million
1,964
–
–
–
–
1,964
1,605
–
–
–
375
(16)
–
1,964
27
Retained
losses
£’million
FVOCI
reserve
£’million
Share option
reserve
£’million
Total equity
£’million
(392)
(302)
–
(302)
–
(694)
(209)
(183)
–
(183)
–
–
–
(392)
28
(3)
–
6
6
–
3
(3)
–
–
–
–
–
–
(3)
29
1,583
(302)
6
(296)
2
1,289
1,403
(183)
–
(183)
375
(16)
4
1,583
14
–
–
–
2
16
10
–
–
–
–
–
4
14
29
The accounting policies, notes and information on pages 171 to 227 form part of these financial statements.
166 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Consolidated cash flow statement
For the year ended 31 December 2020
Reconciliation of loss before tax to net cash flows from operating activities:
Loss before tax
Adjustments for:
Impairment and write-offs of property, plant, equipment and intangible assets
Interest on lease liabilities
Depreciation and amortisation
Share option charge
Grant income recognised in the income statement
Amounts provided for (net of amounts released)
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 inflows/(outflows) 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
Acquisition of subsidiary, net of cash acquired
Net cash (outflows)/inflows from investing activities
Cash flows from financing activities
Shares issued
Cost of shares issued
Debt issued
Cost of debt issued
Grant (repaid)/received
Repayment of capital element of leases
Net cash (outflows)/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 before tax includes:
Interest received
Interest paid
Year ended
31 December
2020
£’million
Year ended
31 December
2019
£’million
Notes
(311)
(131)
14, 15
23
14, 15
7
5
25
12
19
14
15
27
27
21
21
24
23
11
11
41
19
74
2
(24)
8
(73)
3
–
2,591
1,595
(2,820)
(64)
1,041
615
(1,460)
(29)
(81)
(1)
(956)
–
–
–
–
(50)
(31)
(81)
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
4
2,989
2,993
517
2,472
2,989
407
176
493
174
The accounting policies, notes and information on pages 171 to 227 form part of these financial statements.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 167
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Company balance sheet
As at 31 December 2020
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
Investment in subsidiaries
Intangible assets
Prepayments and accrued income
Assets classified as held for sale
Other assets
Total assets
Liabilities
Deposits from customers
Deposits from central banks
Debt securities
Repurchase agreements
Derivative financial liabilities
Lease liabilities
Deferred grants
Provisions
Deferred tax liability
Other liabilities
Total liabilities
Equity
Called-up share capital
Share premium
Retained losses1
Other reserves
Total equity
Total equity and liabilities
31 December
2020
£’million
31 December
2019
£’million
Notes
11
12
13
13
14
39
15
16
17
18
19
20
21
22
23
24
25
9
26
27
27
28
29
2,974
11,821
773
2,640
803
59
209
73
295
2,880
2,983
14,381
411
2,154
856
15
162
63
–
365
22,527
21,390
16,072
3,808
600
196
8
325
28
8
8
180
14,477
3,801
591
250
8
341
50
17
15
262
21,233
19,812
–
1,964
(689)
19
1,294
–
1,964
(397)
11
1,578
22,527
21,390
1. The Company loss for the year was £292.1 million (2019: loss of £182.6 million).
The accounting policies, notes and information on pages 171 to 227 form part of these financial statements.
The financial statements on pages 164 to 227 were approved by the Board of Directors on 23 March 2021 and signed
on its behalf by:
Robert Sharpe
Chair
Daniel Frumkin
Chief Executive Officer
David Arden
Chief Financial Officer
168 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Company statement of changes in equity
For the year ended 31 December 2020
Balance as at 1 January 2020
Loss for the year
Other comprehensive income (net of tax) relating to
investment securities designated at FVOCI
Total comprehensive loss
Net share option movements
Balance as at 31 December 2020
Balance as at 1 January 2019
Loss for the year
Other comprehensive income (net of tax) relating to
investment securities designated at FVOCI
Total comprehensive loss
Shares issued
Cost of shares issued
Net share option movements
Balance as at 31 December 2019
Notes
Called-up
share capital
£’million
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27
Share
premium
£’million
1,964
–
–
–
–
1,964
1,605
–
–
–
375
(16)
–
1,964
27
Retained
losses
£’million
FVOCI
reserve
£’million
Share option
reserve
£’million
Total equity
£’million
(397)
(292)
–
(292)
–
(689)
(214)
(183)
–
(183)
–
–
–
(397)
28
(3)
–
6
6
–
3
(3)
–
–
–
–
–
–
(3)
29
1,578
(292)
6
(286)
2
1,294
1,398
(183)
–
(183)
375
(16)
4
1,578
14
–
–
–
2
16
10
–
–
–
–
–
4
14
29
The accounting policies, notes and information on pages 171 to 227 form part of these financial statements.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 169
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Company cash flow statement
For the year ended 31 December 2020
Reconciliation of loss before tax to net cash flows from operating activities:
Loss before tax
Adjustments for:
Impairment and write-offs of property, plant, equipment and intangible assets
Interest on lease liabilities
Depreciation and amortisation
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 inflows/(outflows) 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
Acquisition of subsidiary
Capital injection into subsidiaries
Net cash (outflows)/inflows from investing activities
Cash flows from financing activities
Shares issued
Cost of shares issued
Debt issued
Cost of debt issued
Grant (repaid)/received
Repayment of capital element of leases
Net cash (outflows)/inflows from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
Loss before tax includes:
Interest received
Interest paid
Year ended
31 December
2020
£’million
Year ended
31 December
2019
£’million
Notes
(299)
(131)
23
24
12
19
15
27
27
21
21
24
23
11
11
41
19
73
2
(24)
8
(73)
3
–
2,560
1,595
(2,820)
(23)
1,062
615
(1,460)
(29)
(81)
(3)
(33)
(991)
–
–
–
–
(50)
(30)
(80)
(9)
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
2,983
2,974
2,446
2,983
397
175
483
174
The accounting policies, notes and information on pages 171 to 227 form part of these financial statements.
170 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Notes to the financial statements
1. Basis of preparation and significant accounting policies
This section sets out the Group’s (‘our’ or ‘we’) accounting policies which relate to the financial statements as a whole. Where an
accounting policy relates specifically to a note then the related accounting policy is set out within that note. All policies have been
consistently applied to all the years presented unless stated otherwise.
1.1 General information
Metro Bank plc (the ‘Company’) together with its subsidiaries (the ‘Group’) provides retail and commercial banking services in the
UK and is a public limited company limited by shares incorporated and domiciled in the United Kingdom under the Companies Act
2006 (Company number 06419578). The registered office is One Southampton Row, London WC1B 5HA.
1.2 Basis of preparation
The consolidated financial statements of the Group and Company comply with international accounting standards in conformity
with the requirements of the Companies Act 2006 and have also applied international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. They were authorised by the Board for issue
on 23 March 2021.
The financial information has been prepared under the historical cost convention, as modified by the revaluation of certain financial
assets and liabilities at fair value through profit or loss and other comprehensive income. Fair value is defined as the price that would
be received or paid in an orderly transaction between market participants at the measurement date.
Certain disclosures required under IFRS 7 ‘Financial instruments: disclosures’ and IAS 1 ‘Presentation of financial statements’ have
been included within the risk report on pages 30 to 51. Where information is marked as audited, it is incorporated into these financial
statements and it is covered by the Independent auditor’s report.
Going concern
The Directors consider that it is appropriate to continue to adopt the going concern basis of accounting in preparing the financial
statements. In reaching this assessment, the Directors have considered projections for the Group’s capital and funding position as
well as other principal risks. As part of this process the Directors have considered an updated long-term plan including associated
upside and downside scenarios. All scenarios considered incorporate assumptions surrounding the potential impacts of the
continuing COVID-19 pandemic on the economy over both the near and longer terms. Directors also considered the key
assumptions and uncertainties that feed into these plans alongside management actions and mitigants that are available. Under all
scenarios considered the Directors believe the Group to remain a going concern on the basis that it maintains sufficient resources
(including liquidity and capital) to be able to continue to operate for the foreseeable future.
Basis of consolidation
Our consolidated financial statements include the results for all entities which we control (details of our subsidiaries can be found in
note 39). Controlled entities are all entities (including structured entities) to which we are exposed, or have rights, to variable returns
from our involvement with the entity and have the ability to affect those returns through our power over it. An assessment of control
is performed on an ongoing basis.
During the year we acquired Retail Money Market Ltd (Company number 07075792) and its subsidiaries which trades under the
name RateSetter. Details on the acquisition of Retail Money Market Ltd (‘RateSetter’) can be found in note 37.
Our controlled entities are consolidated from the date on which we establish control until the date that control ceases.
The acquisition method of accounting is used to account for business combinations other than those under common control
(see note 37 for further details).
Post-acquisition, income and expenses are included in the consolidated income statement on a line-by-line basis in accordance with
the accounting policies set out herein, adjusting for any intra-group transactions which are eliminated in full upon consolidation.
In publishing the Company financial statements here together with the Group financial statements, we have adopted the exemption
in section 408(3) of the Companies Act 2006 not to present a Company statement of comprehensive income and related notes
that form a part of these financial statements.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 171
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
1. Basis of preparation and significant accounting policies continued
1.3 Functional and presentation currency
These financial statements are presented in pound sterling, which is our 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 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
There have been no changes to our accounting policies during the year, although additional disclosure has been provided, primarily
relating to the acquisition of RateSetter.
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’ and the IASB’s Phase 2 amendments in response to issues arising from the replacement
of interest rate benchmarks. 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.
172 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
1.9 Critical accounting judgements and estimates
The preparation of financial statements in conformity with IFRS requires us to make both material judgements as well as estimates
which although based on our best assessment, by definition will seldom equal the actual results. Management believes that the
underlying assumptions applied at 31 December 2020 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, judgement or where
estimates have a significant risk of resulting in a material adjustment to the carrying amounts within the next financial year are:
Recognition of provisions
Measurement of expected credit loss allowance
Significant increase in credit risk
Use of post model overlays
Multiple forward-looking scenarios
Estimate/judgement
Note
Judgement
Judgement
Judgement
Estimate
25
31
31
31
Page
199
210
210
212
Further details can be found within the relevant notes.
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
2020
£’million
2019
£’million
6.1
393.3
24.8
2.1
426.3
17.0
435.0
40.6
3.6
496.2
2020
£’million
2019
£’million
99.1
8.7
47.8
18.7
2.3
176.6
112.4
28.5
22.1
17.7
7.4
188.1
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 173
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
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
Service charges and other fee income
Safe deposit box
ATM and interchange fees
Nature, timing and satisfaction of performance
obligations and payment terms
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 over time 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.
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
2020
£’million
2019
£’million
22.9
15.0
23.2
61.1
(1.2)
59.9
31.4
13.3
22.7
67.4
(6.4)
61.0
2020
£’million
2019
£’million
4.2
0.1
69.0
73.3
2.4
1.7
(2.5)
1.6
Disposal of investment securities
During the year ended 31 December 2020 some of our investment securities held at amortised cost were unexpectedly called early
by the issuers resulting in a gain being recognised on these assets.
174 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Disposal of loan portfolios
On 18 December 2020 we agreed to sell a portfolio of £3.1 billion of loans to NatWest Group plc (‘NatWest’) of which 90% was
de-recognised in 2020 (the remaining 10% of the portfolio was classified as held for sale at 31 December 2020; further information
can be found in note 17). The portfolio consisted of owner occupied residential mortgages with a weighted average interest rate of
2.08%. The loans were primarily repayment mortgages with an average remaining fixed-rate term of c.2.5 years and a weighted
average current debt to value of c.60%.
The transaction is in line with our strategy to enhance risk-adjusted returns on capital through the ongoing focus on balance sheet
optimisation. In addition to increasing our MREL resources, the sale creates additional lending capacity and enables us to rebalance
asset mix towards higher yielding assets such as specialist mortgages and unsecured loans.
The sale of loan portfolios is infrequent and only undertaken for very specific purposes. The sale in 2020 was to meet our risk
management objectives and was not considered to constitute a change in our business model as outlined in note 12.
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 24). 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
2020
£’million
2019
£’million
24.0
0.9
23.9
0.9
49.7
25.4
1.2
16.2
2.1
44.9
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 175
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
6. General operating expenses
Group
People costs (note 7)
Information technology costs
Occupancy costs
Money transmission and other banking-related costs1
Transformation costs
Remediation costs
Capability and Innovation Fund (C&I) costs2
Legal and regulatory fees
Professional fee
Contractor costs3
Printing, postage and stationery costs
Travel costs
Marketing costs
Business acquisition and integration costs
Costs relating to the RBS alternative remedies package
Other1
Total general operating expenses
2020
£’million
2019
£’million
197.6
48.4
34.4
46.0
16.7
40.8
21.6
5.5
54.1
5.6
6.2
1.8
6.4
5.4
–
11.8
170.9
33.8
28.6
40.3
11.5
26.8
16.5
4.7
11.2
5.8
5.6
3.9
3.5
–
1.2
16.3
502.3
380.6
1. During the year we have reclassified certain costs from other operating expenses to be included within money-transmission and other banking-related costs to better
reflect the nature of these costs. The 2019 comparator figures have been updated to reflect these changes.
2. C&I costs represent the non-capitalisable costs of delivering the C&I digital commitments. It includes £3.2 million (2019: £0.9 million) of people costs. These are
included within C&I costs rather than people costs to better reflect their nature. In addition to these costs the grant income recognised in note 5 is also used to offset
property costs relating to the store commitments delivered.
3. Contractor costs are shown net of both amounts capitalised and amounts included within the transformation costs, remediation costs, C&I costs and costs relating
to the RBS alternative remedies package application lines.
Included within legal, regulatory and professional fees is £0.2 million (2019: £0.2 million) in respect of the Financial Services
Compensation Scheme (FSCS) levy.
7. People costs
Group
Wages and salaries¹
Social security costs¹
Pension costs¹
Equity-settled share-based payments2
Total people costs
2020
£’million
2019
£’million
166.9
17.9
10.8
2.0
197.6
142.2
14.7
9.8
4.2
170.9
1. Amounts are net of people costs which are capitalised as well as those relating to C&I (see note 6) as these costs will be offset against the C&I grant income in note 5.
2. Included within equity-settled share-based payments is £0.2 million (2019: £0.6 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 £7.2 million (2019: £9.5 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 3,850 (2019: 3,681).
Group
Customer-facing
Non-customer-facing
Total number of persons employed
176 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
2020
2019
2,175
1,675
3,850
2,125
1,556
3,681
Pension costs
Payments were made amounting to £11.2 million (2019: £10.4 million) to colleagues’ individual personal pension plans during the
year. This includes pension contributions that were capitalised as well as those relating to colleagues working on C&I which are not
included in the figures above.
8. Fees payable to our auditors
Fees payable to our auditors PricewaterhouseCoopers LLP 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 our auditors
2020
£’000
1,923
183
115
2,221
2019
£’000
1,298
60
1,980
3,338
1. Other services consists of independent assurance work relating to CASS, country-by-country reporting and our interim review (in 2019 other services also included
regulatory reporting assurance).
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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 177
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
9. Taxation continued
Tax expense
The components of the tax credit/(expense) for the year are:
Group
Current tax
Current tax
Adjustment in respect of prior years
Total current tax (expense)/credit
Deferred tax
Origination and reversal of temporary differences
Effect of changes in tax rates
Adjustment in respect of prior years
Total deferred tax credit/(expense)
Total tax credit/(expense)
2020
£’million
2019
£’million
(0.1)
(0.5)
(0.6)
3.6
2.1
4.6
10.3
9.7
3.5
(0.3)
3.2
(52.0)
(2.8)
(0.2)
(55.0)
(51.8)
Reconciliation of the total tax credit/(expense)
The tax credit/(expense) shown in the income statement differs from the tax expense that would apply if all accounting losses had
been taxed at the UK corporation tax rate.
A reconciliation between the tax credit/(expense) and the accounting loss multiplied by the UK corporation tax rate is as follows:
Group
Accounting loss before tax
Tax expense at statutory tax rate of 19% (2019: 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
2020
£’million
(311.4)
59.2
(2.4)
(3.2)
(6.6)
(0.7)
0.2
(0.2)
4.1
(42.8)
–
2.1
Effective
tax rate
%
19.0%
(0.8%)
(1.0%)
(2.1%)
(0.2%)
0.1%
(0.1%)
1.3%
(13.7%)
–
0.7%
Tax credit/(expense) reported in the consolidated income statement
9.7
3.2%
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%)
178 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
The effective tax rate for this year is 3.1% (2019: (39.5%)). 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 research and development tax relief
During 2020 we wrote-off £3 million (2019: £68 million) of Intangible assets. This related to the discontinuation of certain work-in-
progress or older IT projects. As some of these assets had previously qualified for research and development tax relief we adjust our
research and development deferred tax liability to reflect this.
Share based payments
During the period our share price fell from £2.06 to £1.40. In 2019 the share price fell from £16.94 to £2.06. This had the impact
of reducing the deferred tax asset held for share options and contributed £1.2m to the 2019 deferred tax charge.
Adjustment in respect of prior years
We have recognised some losses that were previously derecognised in 2019. This is partly offset by an adjustment for fixed assets
following the filing of the 2019 corporation tax return.
Derecognition of tax losses carried forward
We derecognised the deferred tax asset for tax losses carried forward as at 31 December 2019, due to the expected impact on our
forecast short term profit. This is due to our long term investment in cost, revenue and infrastructure transformation. The current
year losses to date for which no deferred tax asset has been recognised is £42.8 million (2019: £11.4 million).
Effect of changes in tax rates
This relates to the remeasurement of deferred tax rates following a change to the main UK corporation tax rate, announced in the
Budget on 11 March 2020 and substantively enacted on 17 March 2020. The rate applicable from 1 April 2020 remained at 19%,
rather than the previously enacted reduction to 17%. We also removed the impact of the banking tax surcharge from the calculation
of deferred taxes.
Factors affecting future tax charge
On the 5 March 2021 the UK government announced that from 1 April 2023, the Corporation Tax main rate will be increase from 19%
to 25% for taxable profits over £250,000. Deferred tax balances are reported at the current corporation tax rate of 19% and it is
expected this will be substantively enacted over the coming months. The impact of this rate change will be to increase the deferred
tax liability held at the balance sheet date by £3.1 million. The government also announced a review of the banking tax surcharge
later in 2021.
Deferred tax
A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can
be regarded as more likely than not there will be suitable tax profits from which the future of the underlying timing differences
can be deducted.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 179
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
9. Taxation continued
Group
2020
Deferred tax assets
Deferred tax liabilities
Deferred tax liabilities (net)
At 1 January 2020
Income statement
Other comprehensive income
Acquisition
At 31 December 2020
Company
2020
Deferred tax assets
Deferred tax liabilities
Deferred tax liabilities (net)
Group and Company
2019
Deferred tax assets
Deferred tax liabilities
Deferred tax liabilities (net)
At 1 January 2019
Income statement
At 31 December 2019
Investment
securities
and
impairments
£’million
Unused tax
losses
£’million
Share-based
payments
£’million
Property,
plant and
equipment
£’million
Intangible
assets
£’million
Total
£’million
12
–
12
–
12
–
–
12
3
(1)
2
4
(1)
(1)
–
2
–
–
–
–
–
–
–
–
–
(16)
(16)
(15)
(1)
–
–
(16)
–
(10)
(10)
(4)
–
–
(6)
(10)
15
(27)
(12)
(15)
10
(1)
(6)
(12)
Investment
securities
and
impairments
£’million
Unused tax
losses
£’million
Share-based
payments
£’million
Property,
plant and
equipment
£’million
Intangible
assets
£’million
Total
£’million
9
–
9
3
(1)
2
–
–
–
–
(15)
(15)
–
(4)
(4)
12
(20)
(8)
Investment
securities
and
impairments
£’million
Unused tax
losses
£’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)
Unrecognised deferred tax assets
Due to the investment property impairment being unrealised there is an unrecognised deferred tax asset of £3.1 million
(31 December 2019: £1.6 million).
We have unused tax losses of £563 million for which no deferred tax asset has been recognised for £107 million. There is no time
limit beyond which the losses expire.
180 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
10. Financial instruments
Our financial instruments primarily comprise customer deposits, loans and advances to customers and investment securities,
all of which arise as a result of our normal operations.
The main financial risks arising from our financial instruments are credit risk, liquidity risk and market risks (price and interest rate
risk). Further details on these risks can be found within the Risk report on pages 30 to 51.
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.
Cash and balances with the Bank of England, trade and other receivables, trade and other payables and other assets and liabilities
which meet the definition of financial instruments are not included in the table below.
Classification of financial instruments
Group
31 December 2020
Assets
Loans and advances to customers
Investment securities
Financial assets held as fair value through profit and loss
Assets classified as held for sale
Liabilities
Deposits from customers
Deposits from central bank
Debt securities
Financial liabilities held as fair value through profit and loss
Derivative financial liabilities
Repurchase agreements
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
Fair value
through
profit and
loss
£’million
Fair value
through other
comprehensive
income
£’million
Amortised
cost
£’million
Total
£’million
–
–
30
–
–
–
–
30
8
–
–
773
–
–
–
–
–
–
–
–
12,090
2,640
–
295
16,072
3,808
600
–
–
196
12,090
3,413
30
295
16,072
3,808
600
30
8
196
Fair value
through
profit and
loss
£’million
Fair value
through other
comprehensive
income
£’million
Amortised
cost
£’million
Total
£’million
–
–
–
–
–
8
–
–
411
14,681
2,154
14,681
2,565
–
–
–
–
–
14,477
3,801
591
–
250
14,477
3,801
591
8
250
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 181
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
10. Financial instruments continued
Financial assets and liabilities held at fair value through profit and loss
The financial assets and liabilities held at fair value through profit and loss relate to the provision fund operated by RateSetter for the
benefit of its peer-to-peer investors (see note 37). At 31 December 2020 the total assets and liabilities of the provision fund were
equal due to it having fewer assets compared to its expected future liabilities (which are measured based on the lifetime expected
losses of the loans the fund is providing protection against) and as such the provision fund liabilities are capped at the value of its
total assets. On 2 February 2020 we agreed to purchase the RateSetter back book (see note 40 for further details).
Financial assets pledged as collateral
We have pledged £5,363 million (2019: £5,809 million) of the financial assets above as encumbered collateral which can be called
upon in the event of default. Of this, £1,186 million (2019: £941 million) is made up of high-quality securities and £4,177 million
(2019: £4,868 million) is from our own loan portfolio.
This does not include cash balances pledged as collateral which are shown separately within note 18.
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.
Where cash is pledged as collateral and as such is not available on demand this is included within
other assets within note 18.
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 England
Group
31 December
2020
£’million
Group
31 December
2019
£’million
Company
31 December
2020
£’million
Company
31 December
2019
£’million
2,788
146
59
2,993
2,751
178
60
2,989
2,788
127
59
2,974
2,751
172
60
2,983
The expected credit loss held against cash and balances with the Bank of England is less than £0.1 million (31 December 2019: less
than £0.1 million).
182 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
12. Loans and advances to customers
Accounting policy
Loans and advances to customers are classified as held at amortised cost. Our business model is
that customer lending is held to collect cash flows, with no sales expected in the normal course of
business. We aim to offer products with simple terms to customers, and as a result, all loans comprise
solely payments of principal and interest. Loans are initially recognised when cash is advanced to the
borrower at fair value – which is the cash consideration to originate the loan including any transaction
costs – and measured subsequently at amortised cost using the effective interest rate method, which
is detailed further in note 2. Interest on loans is included in the income statement and is reported as
‘Interest income’. Expected credit losses (ECL) are reported as a deduction from the carrying value
of the loan. Changes to the ECL during the year are recognised in the income statement as ‘Expected
credit loss expense’.
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 2020
Gross
carrying
amount
£’million
204
6,892
4,874
ECL
allowance
£’million
Net carrying
amount
£’million
(25)
(26)
(98)
179
6,866
4,776
11,970
(149)
11,821
274
(5)
269
12,244
(154)
12,090
31 December 2019
Gross
carrying
amount
£’million
233
10,430
3,751
14,414
301
14,715
ECL
allowance
£’million
Net carrying
amount
£’million
(13)
(8)
(11)
(32)
(2)
220
10,422
3,740
14,382
299
(34)
14,681
On 14 September 2020 we acquired RateSetter in line with our strategy of increasing unsecured lending (see note 37 for further
details). Prior to the acquisition, RateSetter’s business model was a peer-to-peer platform connecting investors and borrowers
and therefore does not hold deposits or loans on its balance sheet.
Since acquisition we have resumed lending under the RateSetter brand with all lending being funded by Metro Bank and serviced
by RateSetter. As such this lending is on the Company’s balance sheet.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 183
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
12. Loans and advances to customers continued
On 2 February 2021 we agreed to purchase the peer-to-peer loans from the RateSetter investors (see note 40) and these will also sit
on the Company’s balance sheet. As this purchase was agreed post year end it is not reflected in any of the balances below.
Further information on the movements in gross carrying amounts and ECL can be found in note 31. 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
Bounce back loans
Coronavirus business interruption loans
Other term loans
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
2020
£’million
Group
31 December
2019
£’million
Company
31 December
2020
£’million
Company
31 December
2019
£’million
73
10
121
204
5,051
1,841
6,892
7,096
1,117
1,353
114
2,138
4,722
149
3
274
77
11
145
233
8,493
1,937
10,430
10,663
1,219
–
–
2,327
3,546
202
3
301
73
10
121
204
5,051
1,841
6,892
7,096
1,117
1,353
114
2,138
4,722
149
3
–
77
11
145
233
8,493
1,937
10,430
10,663
1,219
–
–
2,327
3,546
202
3
–
5,148
4,052
4,874
3,751
12,244
14,715
11,970
14,414
171
228
171
228
184 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
13. Investment securities
Accounting policy
Our investment securities may be categorised as amortised cost, FVOCI or FVTPL. 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 FVTPL.
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
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
2020
£’million
Group
31 December
2019
£’million
Company
31 December
2020
£’million
Company
31 December
2019
£’million
773
2,640
3,413
411
2,154
2,565
773
2,640
3,413
411
2,154
2,565
Group
31 December
2020
£’million
Group
31 December
2019
£’million
Company
31 December
2020
£’million
Company
31 December
2019
£’million
386
50
337
773
283
–
128
411
386
50
337
773
283
–
128
411
Group
31 December
2020
£’million
Group
31 December
2019
£’million
Company
31 December
2020
£’million
Company
31 December
2019
£’million
495
1,624
521
2,640
61
1,752
341
2,154
495
1,624
521
2,640
61
1,752
341
2,154
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 185
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
14. Property, plant and equipment
Accounting policy
Property, plant and equipment
Our property, plant and equipment primarily consists of investments and improvements in 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 the end of each reporting period for indicators
of impairment.
Right-of-use assets
Upon the recognition of a lease liability (see note 23 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 the end of each reporting period 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.
186 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Group
Cost
1 January 2020
Additions
Recognised in business
combinations
Disposals
Write-offs
Transfers
31 December 2020
Accumulated depreciation
1 January 2020
Depreciation charge for the
year
Recognised in business
combinations
Impairments
Disposals
Write-offs
Transfers
31 December 2020
Net book value
Group
Cost
1 January 2019
Additions
Disposals
Write-offs
Transfers
31 December 2019
Accumulated depreciation
1 January 2019
Depreciation charge for the year
Impairments
Disposals
Write-offs
Transfers
31 December 2019
Net book value
Investment
property
£’million
Leasehold
improvements
£’million
Freehold land
and buildings
£’million
Fixtures, fittings
and equipment
£’million
IT hardware
£’million
Right-of-use
assets
£’million
Total
£’million
18
–
–
–
–
–
18
10
–
–
2
–
–
–
12
6
314
6
1
–
(11)
(18)
292
49
11
1
9
–
(2)
(2)
66
226
262
18
–
–
–
18
298
14
5
–
–
–
–
2
21
277
26
3
–
–
(4)
–
25
12
5
–
1
–
(3)
–
15
10
10
2
1
–
(2)
–
11
5
4
–
–
–
(2)
–
7
4
332
4
3
(9)
–
–
330
16
16
–
16
(1)
–
–
47
283
962
33
5
(9)
(17)
–
974
106
41
1
28
(1)
(7)
–
168
806
Investment
property
£’million
Leasehold
improvements
£’million
Freehold
land and
buildings
£’million
Fixtures,
fittings and
equipment
£’million
IT hardware
£’million
Right-of-use
assets
£’million
Total
£’million
10
–
–
–
8
18
3
–
7
–
–
–
10
8
275
51
–
(3)
(9)
314
39
11
–
–
–
(1)
49
265
199
62
–
–
1
262
9
4
–
–
–
1
14
248
33
5
–
(12)
–
26
18
6
–
–
(12)
–
12
14
39
2
–
(31)
–
10
33
3
–
–
(31)
–
5
5
313
26
(7)
–
–
332
–
16
–
–
–
–
16
316
869
146
(7)
(46)
–
962
102
40
7
–
(43)
–
106
856
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 187
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
14. Property, plant and equipment continued
Impairments
During 2020 following the decision to vacate our Old Bailey office we tested the related assets for impairment and recognised
an impairment loss in respect of these assets.
Additionally due to the decline in the commercial property market an impairment indicator was identified in relation to our
investment property. Our 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. An impairment loss of £2 million was recognised against these assets.
At 31 December 2020 our investment property had a fair value of £6 million (31 December 2019: £7 million). The fair value has been
provided by a qualified independent valuer.
Impairment indicators were also identified in respect of other items of our property, plant and equipment. The assets, which
included our stores, were tested for impairment. The recoverable amount of the cash generating units to which these assets
were allocated was found to be in excess of their carrying amount and as such no impairment was recognised.
Write-offs
The write-offs in the year consist of fit out costs to some of our remaining office spaces that have been, or are planned, be stripped
out either as a result of these spaces being vacated or refitted to allow future flexible working as well as sites that were abandoned
during the year. Additionally write-off includes 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.
Relevant disclosures for the Company have not been included as they are not materially different to the Group disclosures.
188 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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 tested for impairment at the end of each reporting period.
The recoverable amount of a CGU is the higher of its fair value less cost to sell, and the present value
of its expected future cash flows.
If the recoverable amount is less than the carrying value, an impairment loss is charged to the 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
Brands
up to 20 years
3 to 10 years
licence period
10 years
5 years
All intangible assets are reviewed at the end of each reporting period for indicators of impairment.
1. Core banking software consists of our central banking transaction platform. The original platform was assessed as having a 20-year life
due to it being the central component of our digital infrastructure. It was upgraded during 2019 with the upgrade assessed as having a
15-year life. Our core banking software has been in use since we first opened and given its significance is unlikely to be replaced in the
foreseeable future.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 189
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
15. Intangible assets continued
Group
Cost
1 January 2020
Additions
Recognised in business combination (see note 37)
Write-offs
Deferred grant (see note 23)
31 December 2020
Amortisation
1 January 2020
Amortisation charge for the year
Write-offs
31 December 2020
Net book value
Group
Cost
1 January 2019
Additions
Write-offs
Deferred grant (see note 24)
31 December 2019
Amortisation
1 January 2019
Amortisation charge for the year
Write-offs
31 December 2019
Net book value
Goodwill
£’million
Brands
£’million
Customer
contracts
£’million
Software
£’million
Total
£’million
4
–
6
–
–
10
–
–
–
–
10
–
–
2
–
–
2
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
224
81
32
(10)
1
328
60
33
(7)
86
228
81
40
(10)
1
340
60
33
(7)
86
242
254
Goodwill
£’million
Brands
£’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
Write-offs
The write-offs in the year consisted primarily of software and applications that are no longer being used and are no longer providing
any further economic benefits.
Goodwill
Goodwill is assessed for any impairment on an annual basis.
For the purpose of impairment testing goodwill is allocated to the following cash generating units:
Asset and invoice finance business
Retail bank
Total
No impairment losses were recognised in the year ended 31 December 2020 (2019: nil).
2020
£’million
4
6
10
190 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
The recoverable amount of the cash-generating units to which goodwill has been allocated is determined using the value-in-use
basis. 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 over a period of five years. 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 assumption is made that we will be able to remain appropriately capitalised to fund our
anticipated growth. We have determined that we will be able to meet the appropriate regulatory
requirements, which has been based on an analysis of both our existing and planned capital
structure. This is consistent with the assessment undertaken by the Directors in respect
of assessing viability.
The retail bank and asset and invoice finance businesses are determined to have the same discount
rate which is representative of that of the Group as a whole. 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 was 9.3%.
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 both CGUs operate in)
of 2.0%.
The key assumptions outlined above may change depending on economic and market conditions although we estimate that
reasonable changes to the assumption in any of these factors would not cause the recoverable of either CGU to fall below its
carrying amount.
Company
Cost
1 January
Additions
Write-offs
Deferred grant (see note 24)
31 December
Amortisation
1 January
Amortisation charge for the year
Write-offs
31 December
Net book value
2020
Software
£’million
2019
Software
£’million
221
81
(10)
1
293
59
32
(7)
84
209
246
79
(100)
(4)
221
56
35
(32)
59
162
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 191
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
16. Prepayments and accrued income
Prepayments
Accrued income
VAT receivable
Total prepayments and accrued income
Current portion
Non-current portion
17. Assets classified as held for sale
Group
31 December
2020
£’million
Group
31 December
2019
£’million
Company
31 December
2020
£’million
Company
31 December
2019
£’million
30
46
1
77
77
–
29
34
3
66
66
–
26
46
1
73
73
–
26
34
3
63
63
–
Accounting policy
Non-current assets (including disposal groups) are classified as assets held for sale when their carrying
amount is to be recovered principally through a sale transaction and a sale is considered highly
probable. They are stated at the lower of their carrying amount and fair value less costs to sell,
unless they are exempt from the measurement criteria.
On 18 December 2020 we agreed to sell a portfolio of £3.1 billion of loans to NatWest. The portfolio of mortgages sold was subject
to a 10% carve out, which related to a group of specifically identified loans on which NatWest would undertake further due diligence
prior to completion.
In the period between the sale agreement and completion, NatWest had the ability to exclude loans from the 10% carve out,
subject to pre-set criteria. Due to the ability for loans to be excluded from the sale, the carve out did not meet the threshold to be
derecognised at year end, however was deemed by Management to meet the definition of comprising a disposal group held for sale
under IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’. The disposal group was held at its carrying amount
of £295 million as at 31 December 2020 and as such the gain relating to the carve out is not included within the amount recognised
in note 4.
Further detail of allowances for credit losses on the held for sale loans is provided in note 31.
The sale of these loans was accounted for in 2021 at which point a gain of £8.2 million was recognised (£8.0 million, net of costs).
Further detail are provided in note 40.
18. Other assets
Due from other banks1
Cash pledged as collateral
Other2
Amounts owed by Group undertakings
Total other assets
Current portion
Non-current portion
Group
31 December
2020
£’million
Group
31 December
2019
£’million
Company
31 December
2020
£’million
Company
31 December
2019
£’million
2,568
36
17
–
2,621
2,595
26
–
43
32
–
75
48
27
2,568
36
16
260
2,880
2,854
26
–
43
31
291
365
338
27
1. Due from other banks comprises solely of the amount receivable from NatWest in respect of the portion of the loan portfolio that was derecognised 31 December
2020, less amounts already received as at 31 December 2020 (see notes 4 for further details).
2. Other balance primarily comprises customer transactions in process or items in the course of collection over year end.
192 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
19. Deposits from customers
The total deposits from customers as at 31 December 2020 is comprised of 56% from retail customers (31 December 2019: 60%)
and 44% from commercial customers (31 December 2019: 40%).
Deposits from retail customers
Deposits from commercial customers
Total deposits from customers
Group
31 December
2020
£’million
Group
31 December
2019
£’million
Company
31 December
2020
£’million
Company
31 December
2019
£’million
8,960
7,112
8,730
5,747
8,960
7,112
8,730
5,747
16,072
14,477
16,072
14,477
20. Deposits from central banks
Deposits from central banks consists solely of amounts drawn down under the Bank of England’s Term Funding Scheme (TFS) and
Term Funding Scheme with additional incentives for SMEs (TFSME).
Amounts drawn down under TFS
Amounts drawn down under TFSME
Deposits from central banks
Group
31 December
2020
£’million
Group
31 December
2019
£’million
Company
31 December
2020
£’million
Company
31 December
2019
£’million
3,258
550
3,808
3,801
–
3,801
3,258
550
3,808
3,801
–
3,801
TFS was closed to further drawdowns in February 2018 and our drawdowns will mature in 2021 and 2022 in the amounts of £2,778
million and £480 million respectively. £550 million of TFS drawings that matured in 2020 were rolled over into TFSME, which will
mature in 2024.
21. Debt securities
Accounting policy
Debt securities in issue are recognised initially at fair value, being proceeds less transaction costs.
Subsequently, debt securities are measured at amortised cost using the effective interest method.
Name
Issue date
Currency
£’million Coupon rate
Call date
Maturity date
Fixed Rate Reset Callable Subordinated Notes
Fixed Rate Reset Senior Non-Preferred Notes
26/06/18
08/10/19
GBP
GBP
250
350
5.50% 26/06/2023 26/06/2028
9.50% 08/10/2024 08/10/2025
Amount
issued
1 January
Issuances
Costs associated with issuance
Movements in micro hedging arrangements
Unwind of issuance costs
31 December
Group
2020
£’million
Group
2019
£’million
Company
2020
£’million
Company
2019
£’million
591
–
–
7
2
600
249
350
(9)
–
1
591
591
–
–
7
2
600
249
350
(9)
–
1
591
In addition to the movements in debt securities set out above we assumed £21 million of external borrowings as part of the
acquisition of RateSetter (see note 37), subject to an average interest rate of 7%. This debt was not eligible for regulatory capital
purposes and was subsequently refinanced from existing cash resources via a capital contribution (see note 39).
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 193
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
22. 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 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 so long as the hedged forecast cash flows are still expected.
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.
194 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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 2020
31 December 2019
Assets
Liabilities
Assets
Liabilities
Fair value
£’million
Notional
contract
amount
£’million
Fair value
£’million
–
1
1
–
127
127
8
1
9
Notional
contract
amount
£’million
1,431
129
1,560
Fair value
£’million
Notional
contract
amount
£’million
Fair value
£’million
Notional
contract
amount
£’million
–
1
1
–
8
1,712
138
138
1
9
136
1,848
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.
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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 195
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
22. Derivatives continued
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 2020
31 December 2019
Asset
Liability
Asset
Liability
Notional
contract
amount
£’million
Carrying
amount
£’million
–
–
–
–
Notional
contract
amount
£’million
1,431
1,431
Carrying
amount
£’million
Notional
contract
amount
£’million
Carrying
amount
£’million
8
8
–
–
–
–
Notional
contract
amount
£’million
1,712
1,712
Carrying
amount
£’million
8
8
Summary of hedged items in designated hedge relationships
The items designated as hedged items in fair value hedge relationships to manage our exposure to interest rates are:
Group and Company
31 December 2020
31 December 2019
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
Fixed rate mortgages1
Fixed rate debt issuance2
Fixed rate investment securities at FVOCI3
Fixed rate investment securities at amortised cost4
Fixed rate loans5
Total derivatives designated as fair value hedges
663
–
263
62
7
995
–
457
–
–
–
457
8
–
4
2
1
15
–
7
–
–
–
7
994
–
372
–
7
1,373
–
350
–
–
–
350
4
–
4
–
–
8
–
–
–
–
–
–
1. Hedged item and the cumulative fair value changes are recorded in Loans and advances to customers.
2. Hedged item and the cumulative fair value changes are recorded in Debt securities in issue (see note 21).
3. Hedged items are recorded in Investment Securities held at FVOCI and the cumulative fair value changes are recorded in Other reserves.
4. Hedged item and the cumulative fair value changes, are recorded in Investment Securities held at amortised costs.
5. Hedged item and the cumulative fair value changes are recorded in Loans and advances to customers.
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
196 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
2020
£’million
2019
£’million
(0.2)
(0.3)
(0.5)
(7.2)
7.6
0.4
23. Leases
Accounting policy
At the inception of a contract we assess whether the contract contains a lease.
At the commencement of a lease we recognise a lease liability and right-of-use asset (see note 14 for
further details). The lease liability is initially measured as the present value 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 reasonably certain to exercise a break in the lease, only the lease payments up until the
date of the break are included.
We subsequently remeasure the lease liability when there is a change to an index or rate used or when
there is a change in expectation that we will exercise a purchase option or break clause or if we extend
the lease. When such an adjustment is made to the lease liability a 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.
Lease liabilities
1 January
Additions and modifications
Recognised in business combinations (see note 37)
Disposals
Lease payments made
Interest on lease liabilities
31 December
Current
Non-current
Group
2020
£’million
Group
2019
£’million
Company
2020
£’million
Company
2019
£’million
341
4
3
(9)
(31)
19
327
29
298
328
23
–
(3)
(25)
18
341
28
313
341
4
–
(9)
(30)
19
325
28
297
328
23
–
(3)
(25)
18
341
28
313
Right-of-use assets
All of our disclosures relating to right-of-use assets, including our accounting policy, can be found in note 14.
Low value and short leases
During the year ended 31 December 2020, £0.2 million (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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 197
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
23. Leases continued
Future income due under non-cancellable property leases
We lease out surplus space in some of our properties. The table below sets out the cash payments expected over the remaining
non-cancellable term of each lease, exclusive of VAT.
Receivable
Within one year
Due in one to five years
Due in more than five years
Total
Group
31 December
2020
£’million
Group
31 December
2019
£’million
Company
31 December
2020
£’million
Company
31 December
2019
£’million
1
4
5
10
1
3
7
11
1
4
5
10
1
3
7
11
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
24. Deferred grants
Accounting policy
Group
31 December 2020
31 December 2019
Total future
minimum
payments
£’million
Unearned
finance
income
£’million
Present
value
£’million
Total future
minimum
payments
£’million
Unearned
finance
income
£’million
Present
value
£’million
8
13
–
21
(1)
(1)
–
(2)
7
12
–
19
7
13
1
21
(1)
(1)
–
(2)
6
12
1
19
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
Offset against capital expenditure (see note 15)
Grant returned
31 December
Group
2020
£’million
Group
2019
£’million
Company
2020
£’million
Company
2019
£’million
50
–
(23)
1
–
28
–
120
(16)
(4)
(50)
50
50
–
(23)
1
–
28
–
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. Full details of our current commitments can be found on BCR’s website. As at the 31 December 2020 no provision has
been made for the return of any further funds on the basis we are on track to deliver our commitments agreed with BCR.
198 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
25. Provisions
Accounting policy We recognise provisions when it is probable that an outflow of economic benefits will be required to settle
a present legal or constructive obligation that has arisen as a result of past events and for which a reliable
estimate can be made. The provision is measured at its current present value.
Provision
Description
Customer remediation
We are committed to doing the right thing but occasionally we identify issues
that have caused detriment as a result of our actions.
Dilapidations
Dilapidations provisions are recognised in regard to certain properties we lease.
Where we have to refund costs to customers we provide for this at the point the
obligation arises. The amounts recognised include any associated interest due.
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.
Onerous contract provisions are recognised when the unavoidable costs of
meeting the obligations under the contract exceed the economic benefits we
expect to be received under it. The provision is recognised as the net cost of
exiting from the contract, which is the lower of the cost of fulfilling it and any
compensation or penalties arising from failure to fulfil it.
Onerous contracts
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 33.
Critical accounting
judgement
Recognition of provisions
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.
Additional information about legal and regulatory matters which constitute contingent liabilities is
available in note 33.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 199
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
25. Provisions continued
Group
1 January
Additions
Recognised in business
combinations (see note 37)
Released
Utilised
31 December
2020
2019
Customer
remediation
£’million
Dilapidations
£’million
Onerous
contracts
£’million
Other
provisions
£’million
Total
£’million
Customer
remediation
£’million
Dilapidations
£’million
Onerous
contracts
£’million
Other
provisions
£’million
Total
£’million
12
1
–
–
(11)
2
3
–
–
–
–
3
–
9
3
–
(6)
6
2
–
–
(2)
–
–
17
10
3
(2)
(17)
11
–
12
–
–
–
12
–
3
–
–
–
3
–
–
–
–
–
–
2
–
–
–
–
2
2
15
–
–
–
17
All additions have been recognised in the income statement.
Customer remediation
The customer remediation provision primarily relates to non-compliance with requirements to provide SMS warning alerts to
customers regarding overdraft charges we identified in 2019. The error was subsequently corrected with affected customers
being contacted in the first half of 2020 to put things right. As such the majority of the provision was utilised during the year
with a small amount remaining in respect of uncashed cheques. A small amount is also recognised in respect of other immaterial
remediation issues.
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. It is anticipated the remaining provision will be utilised within the
next 12 months.
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.
Dilapidations included a provision for the restoration of the Old Bailey site we vacated during the year.
Onerous contracts
Onerous contracts primarily relate to the non-rental costs of fulfilling property contracts from which we will no longer benefit
(this included costs related to the Old Bailey site). Rental costs on these sites from which we will receive no future economic benefits
are represented by an impairment to the right of use asset (see note 14 for further details). In addition an onerous contract provision
was recognised as part of our acquisition of RateSetter relating to loans they have lent out under their peer-to-peer model with
a negative margin (i.e. the interest the borrower had agree to pay was less than the rate the investor had been matched with).
All of our current onerous contract provisions are anticipated to be utilised within the next 18 months.
200 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
26. Other liabilities
Trade creditors
Other taxation and social security costs
Accruals
Deferred income
Grant awaiting repayment (note 24)
Deferred consideration (note 37)
Other liabilities
Total other liabilities
Current portion
Non-current portion
27. Called-up share capital
Group
31 December
2020
£’million
Group
31 December
2019
£’million
Company
31 December
2020
£’million
Company
31 December
2019
£’million
4
9
101
7
–
8
69
198
172
26
4
6
93
10
50
–
104
267
236
31
4
8
98
7
–
8
55
180
154
26
4
5
92
10
50
–
101
262
231
31
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 2020, we had 172.4 million ordinary shares of 0.0001p
(31 December 2019: 172.4 million) authorised and in issue.
Called-up ordinary share capital, issued and fully paid
The called-up share capital reserve is used to record our nominal share capital. At 31 December 2020 our called-up share capital
was £172.42 (31 December 2019: £172.42).
1 January
Issued
31 December
Group
2020
£’million
Group
2019
£’million
Company
2020
£’million
Company
2019
£’million
–
–
–
–
–
–
–
–
–
–
–
–
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
2020
£’million
Group
2019
£’million
Company
2020
£’million
Company
2019
£’million
1,964
–
–
1,964
1,605
375
(16)
1,964
1,964
–
–
1,964
1,605
375
(16)
1,964
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 201
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
28. Retained losses
Retained losses 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 for the year
31 December
Group
2020
£’million
Group
2019
£’million
Company
2020
£’million
Company
2019
£’million
(392)
(302)
(694)
(209)
(183)
(392)
(397)
(292)
(689)
(214)
(183)
(397)
No dividends were paid during the year (2019: none). We do not currently have any distributable reserves and, as such, it is unlikely
a dividend will be paid in the foreseeable future.
29. 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)
31 December
Group
2020
£’million
Group
2019
£’million
Company
2020
£’million
Company
2019
£’million
14
2
16
10
4
14
14
2
16
10
4
14
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
Fair value changes transferred to the income statement on disposal
31 December
Group
2020
£’million
Group
2019
£’million
Company
2020
£’million
Company
2019
£’million
(3)
6
–
3
(3)
2
(2)
(3)
(3)
6
–
3
(3)
2
(2)
(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 £0.4 million (31 December 2019: less than £0.2 million) and therefore not been separately disclosed as a component of reserves
due to its immaterial size.
202 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
30. 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 market price at the date of the grant. Options vest in equal tranches over three to seven years and generally 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 (this option has not been offered
in 2020). 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
2020
2019
Number
of options
‘000
4,760
2,733
–
(323)
Weighted
average
exercise
price
£
19.98
0.93
–
14.06
7,170
12.99
3,468
19.74
Number
of options
‘000
4,104
922
(3)
(263)
4,760
2,921
Weighted
average
exercise
price
£
22.90
7.94
12.56
23.42
19.98
19.75
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 203
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
30. Share options continued
Fair value of options granted
The average share price during 2020 was 114p (2019: 631p). The number of options outstanding at year end was as follows:
Exercise price
£0.93
£7.94
£9.00
£10.00
£12.00
£13.00
£13.50
£14.00
£16.00
£20.00
£32.73
£35.36
Total
2020
2019
Weighted
average
remaining
contractual
life
years
Weighted
average
remaining
contractual
life
years
Number
of options
‘000
Number
of options
‘000
2629
752
47
128
235
60
616
194
607
446
639
817
9.3
8.2
0.8
1.8
2.8
3.2
3.8
n/a
n/a
5.2
6.2
7.2
–
856
47
128
235
60
615
194
624
451
668
882
7,170
7.2
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
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 2020 was £2.3 million (2019: £1.7 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
2020
share
options
0.15% to 0.24%
5.5 to 8.5 years
125%
nil
£0.93
£0.93
204 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
31. 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 as well as their modelled impact.
• Macroeconomic scenarios and weightings 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:
Description
ECL recognised
Financial assets that have had no significant
increase in credit risk since initial recognition
or that have low credit risk (high quality
investment securities only) at the
reporting date.
12-month expected credit losses
Total losses expected on defaults which
may occur within the next 12 months.
Losses are adjusted for probability-
weighted macroeconomic scenarios.
Financial assets that have had a significant
increase in credit risk since initial recognition
but that do not have objective evidence
of impairment.
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 2020 | 205
Stage
Stage 1
Stage 2
Stage 3
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
31. 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 threshold is set at three times the median
PD of the portfolio at origination.
• Qualitative criteria – instruments that are 30 days past due or more are allocated to Stage 2,
regardless of the results of the quantitative analysis. In addition instruments classified on the
Early Warning List as higher risk, are allocated to Stage 2, regardless of the results of the
quantitative analysis.
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 leading to forbearance.
A loan may also be considered to be non-performing when it is subject to forbearance measures,
consisting of concessions in relation to:
• 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.
• Life cycle trends depending on a loan’s vintage.
• Factors indicating the quality of the vintage.
• Characteristics of the current and future economic environment.
206 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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 (five year mortgage rate).
• UK unemployment rates.
• UK HPI changes, year-on-year.
• UK GDP changes, year-on-year.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 207
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
31. Expected credit losses continued
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.
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 2020 and 2019 are:
• Baseline – 40%.
• Upside and Downside – 30% each.
Economic variable assumptions
The period-end assumptions used for the ECL estimate as at 31 December 2020 are as follows:
2022
2024
2023
2021
Interest rates (%) –
five year mortgage rate
Base: 2.2%
Upside: 2.4%
Downside: 1.7%
Base: 2.8%
Upside: 2.9%
Downside: 2.3% Downside: 2.6% Downside: 2.7%
Base: 3.6%
Upside: 4.2%
Base: 3.3%
Upside: 3.7%
UK unemployment (%)
UK house price index –
% change year-on-year
UK GDP – % change
Base: 7.4%
Upside: 6.4%
Downside: 9.2% Downside: 9.3% Downside: 8.3% Downside: 7.6%
Base: 5.9%
Upside: 5.0%
Base: 5.5%
Upside: 4.8%
Base: 6.8%
Upside: 5.6%
Base: (5.0%)
Upside: (1.1%)
Downside: (9.8%) Downside: (1.95%) Downside: 4.7% Downside: 6.8%
Base: 5.8%
Upside: 5.5%
Base: 5.7%
Upside: 7.4%
Base: (3.2%)
Upside: 7.6%
Base: 6.8%
Upside: 10.7%
Downside: 1.8%
Base: 5.4%
Upside: 3.9%
Downside: 7.0% Downside: 3.0% Downside: 1.0%
Base: 2.7%
Upside: 2.4%
Base: 1.0%
Upside: 1.1%
208 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
The assumptions used for the ECL estimate as at 31 December 2019 are as follows:
Interest rates (%)
UK unemployment (%)
UK house price index –
% change year-on-year
UK GDP – % change
2020
2021
2022
2023
Base: 1.8%
Base: 1.0%
Upside: 2.0%
Upside: 1.0%
Downside: 0.0% Downside: 0.7% Downside: 1.1%
Base: 2.3%
Upside: 2.6%
Base: 2.9%
Upside: 3.3%
Downside: 1.6%
Base: 4.2%
Upside: 3.3%
Downside: 5.6% Downside: 6.7% Downside: 7.0% Downside: 6.8%
Base: 4.4%
Upside: 3.0%
Base: 4.8%
Upside: 3.6%
Base: 4.6%
Upside: 3.3%
Base: 1.4%
Upside: 5.8%
Downside: (4.0)% Downside: (8.1)% Downside: (1.6)% Downside: 2.7%
Base: 0.6%
Upside: 5.9%
Base: 1.1%
Upside: 2.2%
Base: 1.1%
Upside: 0.1%
Base: 1.0%
Upside: 4.5%
Downside: (3.9)% Downside: 0.4% Downside: 2.0% Downside: 2.4%
Base: 1.0%
Upside: 0.7%
Base: 1.1%
Upside: 0.7%
Base: 1.5%
Upside: 1.3%
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 2020 | 209
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
31. Expected credit losses continued
Critical accounting
judgement
Measurement of the expected credit loss allowance
The measurement of ECL is complex and involves the use of significant judgements. We consider
that the following represent key judgements in respect of the measurement of the ECL.
Significant increase in credit risk
IFRS 9 requires a higher level of 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 PD
expecting 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.
During 2020 we introduced the ability for our customers to request payment deferrals as a result
of the COVID-19 pandemic. The use of a payment deferral is not in itself considered to be trigger of
a significant increase in credit risk and as such the granting of a COVID-19 related payment deferral
does not in itself result in a transfer between stages for the purposes of IFRS 9. Payment deferral is
however a potential indicator of an increase risk and has been reflected via a post model overlay.
Use of post model overlays and adjustments
We have applied expert judgement to the measurement of the expected credit loss in the form
of post model overlays and adjustments.
Post model adjustments
Post model adjustments (PMAs) refer to increases/decreases in ECL to address known model
limitations, either in model methodology or model inputs. These rely on analysis of model inputs
and parameters to determine the change required to improve model accuracy. These may be
applied at an aggregated level, however they will usually be applied at account level.
Post model overlays
Post model overlays (PMOs) reflect management judgement. These rely more heavily on expert
judgement and will usually be applied at an aggregated level. For example, where recent changes
in market and economic conditions have not yet been captured in the macroeconomic factor
inputs to models (e.g. industry specific stress event).
The appropriateness of PMAs and PMOs is subject to rigorous review and challenge, including
review by the Audit Committee (see page 94).
210 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Critical accounting
judgement
ECL assessment
We have utilised PMAs and PMOs in the assessment of ECL. These supplement the models to
account for where there are limitations in model methodology or data inputs, or where recent
changes in market and/or economic conditions are not yet captured.
In 2020 we have developed a number of new models which are being finalised through model
validation. These models reflect enhancements that have been made to mitigate previous known
model limitations, for example to reflect new products. PMAs have been utilised for the year ended
31 December 2020 to reflect these expected future model enhancements and make up £23 million
of the ECL expense (2019: £nil).
PMOs have been applied to account for elements that management consider not fully captured
in the macroeconomic forecasts, as well as any uncertainties that exist as a result of COVID-19
and Brexit. These are based on expert judgement and analysis of more severe macroeconomic
outlooks where unemployment rates could go as high as 10% and HPI could fall as much as 19%.
In calculating the PMOs we have utilised information such as, impacts from prior economic
recessions, banking industry benchmarking and specific commercial industry and sector forecasts,
such as for retail and hospitality. This information is then used to form an expert judgement of ECL
impact for each of the below PMOs, considering the specific nature and composition, such as
geographical and sector concentrations, of our loan portfolios.
PMOs make up £54 million of the ECL expense for the year ended 31 December 2020
(2019: £1.4 million) and comprise:
• Uncertainties to economic forecast – To reflect the additional uncertainty not captured in the
scenarios used (2020: £16.5 million; 2019: £nil). Given the December 2020 scenarios were
developed prior to 31 December 2020 they do not fully reflect events up until 31 December
2020, i.e. the emergence of the new COVID-19 variant and imposing of stricter lockdown
measures, therefore management consider that they do not adequately capture the full
economic risk.
• An overlay to reflect the payment deferrals provided to customers – For mortgages and
consumer lending a portfolio level overlay has been calculated to reflect the increased risk
for customers currently benefiting from COVID-19 payment deferrals (2020: £10.9 million;
2019: £nil).
• An uplift for COVID-19 vulnerable Commercial sectors including restaurants, hospitality
and real estate – A portfolio level overlay has been assessed to reflect the increased risk for
customers benefiting from temporary COVID-19 support measures operating within sectors
which have exhibited stress (2020: £10.6 million; 2019: £nil).
• An assessment of the impacts of Brexit – A limited deal was assumed in the scenarios used.
Despite a Brexit deal being agreed, there is still significant uncertainty in the wider UK
economy, potential short term disruption, direct customer impacts for customers who buy and
sell into the EU as well as indirect customer supply chain impacts. To reflect this additional risk,
a portfolio overlay has been calculated for commercial exposures (2020: £8.5 million;
2019: £1.4 million).
• An overlay for losses in respect of government backed lending schemes – This covers the
potential cost to recover for CBILS and BBLS as well as the 20% non-guaranteed portion
of CBILS (2020: £7.5 million, 2019: £nil).
All PMOs impact the ECL measurement, however not all adjust the staging.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 211
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
31. Expected credit losses continued
Critical accounting
estimate
Measurement of the expected credit loss allowance
We consider that the key source of estimation uncertainty relates to the formulation and incorporation
of multiple forward-looking economic scenarios into the ECL estimates to meet the measurement
objective of IFRS 9.
Multiple forward-looking economic 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. At 31 December 2020
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 HPI changes, year on year.
• UK GDP changes, year on year.
The weightings applied to each scenario at 31 December 2020 and 31 December 2019 are:
• Baseline – 40%.
• Upside and Downside – 30% each.
The weighted ECL differs from the Baseline scenario as reflecting the non-linearity of credit
losses which means that the impact of the Downside scenario do not equal the impact of the
Upside scenario.
The weightings used are reviewed each reporting period to ensure these remain appropriate and as
such are considered to represent significant accounting estimates. We have performed an 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
2020
–
2%
(7%)
5%
ECL
(£’million)
154
157
143
161
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. In addition the post model overlays as well as all
individually assessed provisions are reported flat against each of the economic scenarios. 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.
Under the current economic circumstances it is very difficult to quantify the estimation of market
uncertainty. As an illustration of potential sensitivity, if customers on payment holidays and customers
with CBILS and BBLs loans were to recover in full this would result in a reversal to PMOs of £18.4 million.
212 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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
Held for sale assets
Write-offs and other movements
Total expected credit loss expense
2020
£’million
2019
£’million
18
12
87
3
6
1
–
127
(3)
4
–
(1)
8
–
4
12
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 2020, the loss allowance included within the FVOCI reserve is less than
£0.1 million (31 December 2019: £0.2 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 2020 is less than £0.1 million (31 December 2019: £0.2 million).
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 213
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
31. Expected credit losses continued
Loss allowance
The following tables explain the changes in both the gross carrying amount and loss allowances of our loans and advances during the year.
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 2020
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
Transfer to held for
sale⁴
Derecognitions⁵
Changes to model
assumptions⁶
9,874
502
54
– 10,430
–
(3)
(5)
109
(106)
(3)
(559)
560
(1)
(55)
(22)
77
–
522
–
48
–
1
–
–
–
–
–
–
–
–
(1)
–
–
1
–
–
–
1
(1)
–
571
1
(3)
(8)
(3)
(1)
–
(122)
(11)
–
–
(133)
(289)
(7)
(3,569) (101)
–
(10)
(296)
–
– (3,680)
–
1
3
–
–
1
31 December 2020 5,911
863
118
–
–
–
–
–
–
(6)
(6)
6,892
(5)
(17)
–
–
–
–
–
–
–
–
–
–
–
(8) 9,874
499
49
– 10,422
–
108
(105)
(3)
–
(559)
560
(1)
–
(55)
(21)
76
(8)
(6)
1
519
(8)
45
(1)
1
–
–
–
–
–
–
–
–
(8)
565
–
(122)
(11)
–
–
(133)
(7)
(288)
1
5 (3,566) (100)
–
(9)
(295)
–
– (3,675)
(10)
(6)
(6)
2
(26) 5,906
846
114
–
–
(10)
6,866
–
–
1
2
(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
9,245
336
39
5 9,625
–
(5)
(4)
(2)
(11) 9,245
331
35
3 9,614
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
169
(162)
(7)
(369) 370
(1)
(22)
(16)
38
–
–
–
–
–
–
–
2,122
(244)
(1,027)
–
77
–
–
–
–
– 2,199
(9)
(94)
(3)
(12)
–
(256)
(5) (1,138)
31 December 2019
9,874
502
–
–
–
54
–
–
– 10,430
(1)
–
–
1
–
–
–
–
–
1
–
–
(1)
–
–
2
–
(3)
–
–
–
(2)
–
–
2
(1)
(5)
–
–
–
–
–
–
2
–
–
–
–
–
168
(161)
(7)
(369) 370
(1)
(22)
(16)
38
–
–
–
–
–
–
(2)
1
– 2,122
(1)
77
(2)
–
–
(2)
– 2,199
–
(244)
6 (1,027)
(9)
(92)
(3)
(10)
–
(256)
(3) (1,132)
(1)
–
–
(8) 9,874
499
(1)
49
–
(1)
– 10,422
1. Represents stage transfers prior to any ECL remeasurements.
2. Represents the remeasurement between the twelve month and lifetime ECL due to stage transfer. In addition it includes any ECL change resulting from model
assumptions and forward looking information on these loans.
3. Represents the increase in balances resulting from loans and advances that have been newly originated, purchased or renewed as well as any ECL that has been
recognised in relation to these loans during the year.
4. Represents the loans and advance reclassified as held for sale at year end (see note 17).
5. Represents the decrease in balances resulting from loans and advances that have been fully repaid, sold or written off.
6. Represents the change in ECL to those loans that remain within the same stage through the year.
214 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Consumer 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
223
–
10
–
233
(3)
(1)
(9)
–
(13)
220
(1)
1
–
220
1 January 2020
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
–
–
(62)
62
(3)
(1)
–
55
–
2
–
–
4
–
–
(14)
(50)
(20)
–
(1)
(1)
–
–
–
31 December 2020
149
43
12
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
(1)
–
–
–
–
–
–
57
–
(2)
(7)
–
(3)
–
(35)
(51)
–
204
–
–
(2)
(6)
–
–
–
–
1
1
(9)
(10)
–
–
–
–
–
–
–
–
–
–
–
–
–
(61)
61
–
–
–
(3)
(1)
4
(10)
(2)
–
53
(7)
2
(3)
–
–
1
(14)
(50)
(20)
–
(1)
–
(1)
(2)
–
(25) 143
34
1
2
–
–
–
–
–
–
–
–
–
–
–
–
(10)
55
(35)
(50)
(1)
179
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 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
8
5
(5)
(1)
1
(3)
(3)
–
39
(37)
(55)
–
223
–
–
–
(1)
–
–
5
–
–
6
–
–
(1)
–
–
10
–
–
–
–
–
–
–
–
–
–
288
(3)
(3)
(3)
–
–
–
–
39
(38)
(56)
–
–
–
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
–
(2)
(4)
–
–
–
–
233
(3)
(1)
(9)
–
–
–
–
–
–
–
–
–
–
(9) 272
5
–
–
–
5
(5)
(1)
1
(3)
(1)
(4)
–
–
39
–
–
–
(37)
(55)
–
(13) 220
–
–
–
(1)
–
(1)
2
–
–
4
(4)
–
(1)
–
–
1
–
–
–
–
–
–
–
–
–
–
279
–
–
–
(4)
39
(38)
(56)
–
220
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 215
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
31. Expected credit losses continued
Commercial lending (excluding asset and invoice finance)
Our top 10 commercial exposures total £366 million (2019: £360 million), representing 8% (2019: 10%) 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
3,628
72
51
–
3,751
(4)
(1)
(6)
–
(11) 3,624
71
45
– 3,740
1 January 2020
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
13
(11)
(2)
(678)
679
(1)
(80)
(20)
100
–
1,462
–
199
–
8
(111)
(391)
1
(14)
(7)
(24)
–
–
–
31 December 2020
3,843
906
125
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
(1)
–
1,669
–
(4)
(28)
(13)
(29)
(3)
(117)
(429)
–
1
–
1
–
2
–
(8)
(3)
(3)
4,874
(15)
(43)
(40)
–
–
–
–
–
–
–
–
–
–
13
(11)
(2)
–
(678)
679
(1)
–
(80)
(19)
99
–
–
–
–
–
–
(57)
–
(20) 1,458
(28)
186
(29)
5
–
(57)
– 1,649
–
4
(111)
(390)
1
(13)
(7)
(22)
–
–
(117)
(425)
(14)
(8)
(3)
(3)
–
(14)
(98) 3,828
863
85
– 4,776
£’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
43
(43)
(64)
64
–
–
(15)
(9)
24
–
397
–
2
–
14
–
–
–
–
–
–
–
–
(1)
–
–
1
–
–
–
1
(1)
–
413
1
(1)
(1)
–
(2)
(2)
7
–
–
–
42
(42)
–
(64)
64
–
(15)
(8)
23
(2)
(3)
1
396
(1)
2
(2)
12
– 4,047
–
–
–
–
–
–
–
–
(2)
410
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
(143)
(560)
(3)
(16)
9
(6)
–
–
(137)
(582)
–
–
–
–
–
–
–
1
(4)
–
–
1
(1)
–
2
–
(6)
–
2
(143)
(560)
(3)
(16)
9
(4)
–
–
(137)
(580)
2
1
1
–
–
2
(11) 3,624
71
45
– 3,740
–
–
–
–
–
–
–
–
–
31 December 2019
3,628
72
51
– 3,751
216 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Asset and invoice finance
Gross carrying amount
Loss allowance
Net carrying amount
£’million
Stage 1 Stage 2 Stage 3
POCI
Total Stage 1 Stage 2 Stage 3
POCI
Total Stage 1 Stage 2 Stage 3
POCI
Total
1 January 2020
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 2020
301
–
–
(4)
–
100
(90)
(35)
–
272
–
–
–
–
–
–
–
–
–
–
–
–
–
4
–
1
(2)
(1)
–
2
–
301
(2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
101
–
(2)
(92)
(36)
–
274
–
–
–
(4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
–
–
–
–
(1)
–
–
–
–
–
–
–
–
–
–
(2)
299
–
–
–
–
–
(4)
(1)
(2)
–
98
–
–
–
(90)
(35)
–
(5)
268
–
–
–
–
–
–
–
–
–
–
–
–
–
4
(1)
1
(2)
(1)
–
1
–
299
–
–
–
–
–
–
–
–
–
–
–
–
(1)
99
(92)
(36)
–
269
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 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 2020 | 217
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
31. Expected credit losses continued
Total
£’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 2020
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
Transfer to held for
sale
Derecognitions
Changes to model
assumptions
14,026
574
115
– 14,715
(9)
(5)
(20)
–
(34) 14,017
569
95
– 14,681
122
(117)
(5)
(1,299) 1,301
(2)
(142)
(43)
185
–
2,139
–
249
–
10
–
–
–
–
–
–
–
–
(1)
1
1
(1)
–
–
–
2
(2)
–
2,398
1
(11)
(43)
(16)
(34)
(3)
(337)
(30)
(10)
–
(377)
(289)
(7)
(4,045) (115)
–
(36)
–
(296)
– (4,196)
–
1
4
–
–
2
–
–
–
–
–
(16)
(9)
–
–
4
–
–
–
–
–
–
–
–
–
–
121
(116)
(5)
– (1,298) 1,300
(2)
–
(142)
(41)
183
(76)
1
(30) 2,128
(43)
233
(34)
7
–
–
–
–
–
–
–
–
(76)
2,368
–
(337)
(30)
(10)
–
(377)
1
(7)
(288)
10 (4,041) (113)
–
(32)
–
(295)
– (4,186)
–
(25)
(16)
(9)
–
–
(25)
31 December 2020 10,175 1,812
257
– 12,244
(30)
(69)
(55)
–
(154) 10,145 1,743
202
– 12,090
Off-balance sheet
items
Commitments and
guarantees¹
769
–
769
£’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
13,785 421
58
5 14,269
(9)
(11)
(12)
(2)
(34) 13,776
410
46
3 14,235
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
217
(210)
(7)
(434) 435
(1)
(42)
(28)
70
–
–
–
–
–
–
(2)
–
–
2
–
3
–
2,674
–
79
–
15
–
–
– 2,768
2
(1)
(2)
–
(484)
(12)
(1,690) (111)
2
(22)
–
(494)
(5) (1,828)
–
–
–
–
–
–
–
1
–
2
1
–
–
(3)
(8)
(2)
–
5
–
–
–
–
–
–
–
2
–
–
–
–
–
215
(208)
(7)
(434) 435
(1)
(42)
(25)
67
–
–
–
–
–
–
(8)
2
(3) 2,673
(2)
79
(8)
13
–
(8)
– 2,765
(484)
(12)
–
9 (1,690) (109)
2
(17)
–
(494)
(3) (1,819)
2
1
1
(34) 14,017
569
–
95
–
2
– 14,681
31 December 2019
14,026
574
115
– 14,715
(9)
(5)
(20)
Off-balance sheet items
Commitments and
guarantees
726
–
726
1. Represents undrawn lending facilities. Further details can be found in note 32.
218 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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
Stage 1
12-month
ECL
5,911
–
–
–
5,911
Stage 1
12-month
ECL
149
–
–
–
149
31 December 2020
31 December 2019
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
802
18
43
–
863
47
8
13
50
118
–
–
–
–
–
Stage 1
12-month
ECL
9,873
1
–
–
9,874
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
449
21
32
–
502
16
4
10
24
54
–
–
–
–
–
31 December 2020
31 December 2019
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
38
3
2
–
43
–
–
–
12
12
–
–
–
–
–
213
10
–
–
223
–
–
–
–
–
–
–
–
10
10
–
–
–
–
–
Commercial lending (excluding 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 2020
31 December 2019
Stage 1
12-month
ECL
3,843
–
–
–
3,843
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
863
21
22
–
906
96
2
11
16
125
–
–
–
–
–
Stage 1
12-month
ECL
3,599
29
–
–
3,628
Stage 2
Lifetime ECL
Stage 3
Lifetime ECL
POCI
Lifetime ECL
–
18
54
–
72
7
4
9
31
51
–
–
–
–
–
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 2020
31 December 2019
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
272
–
–
–
272
–
–
–
–
–
–
–
–
2
2
–
–
–
–
–
301
–
–
–
301
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Write-off policy
We write off financial assets (either partially or fully) when there is no realistic expectation of receiving further payment from the
customer. Indicators that there is no reasonable expectation of recovery include debt sale to a third party and ceasing enforcement
activity. We may write-off financial assets that are still subject to enforcement activity.
Modification of financial assets
We sometimes renegotiate the terms of loans provided to customers with a view to maximising recovery. Restructuring activities
include extended payment arrangements or the modification or deferral of payments. During 2020 as part of the response to
COVID-19 we offered payment deferrals across our loan portfolio, significantly increasing the amount of payment deferrals offered.
The modifications, including payment deferrals have not led to any material modification gains or losses being recognised.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 219
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
32. 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 31).
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 2020, we had undrawn loan facilities of £769 million (2019: £726 million). This includes commitments of £351 million
(2019: £296 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.
33. 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 cooperating with the PRA’s investigation. As
yet, the PRA has given no indication of the likely timeframe for completing their investigation or of the action that might be taken
as a result. At this stage it is not practicable to identify the likely outcome or estimate the potential financial impact with any
certainty.
• The current scope of the FCA’s investigation concerns potential breaches of articles 15 and 17 of the Market Abuse Regulation
(EU 596/2014), Principle 11 of the FCA’s Principles for Business, and Listing Principle 1, Premium Listing Principle 6 and Rule 1.3.3
of the Listing Rules, in the period between 1 June 2017 and 26 February 2019. The investigations relate to the announcements
made on 23 January 2019 and 26 February 2019 in relation to risk-weighted assets and AIRB accreditation respectively and the
impact these announcements had on our share price. We are cooperating with the FCA’s investigation. As yet, the FCA has given
no indication of the likely timeframe for completing their investigation or of any action that might be taken as a result. At this
stage it is not practicable to identify the likely outcome or estimate the potential financial impact with any certainty.
Financial Crime
In 2017 and 2019 initial disclosures were made to the United State’s Office of Foreign Assets Control (OFAC) in relation to Cuba and
Iran. We are continuing a review in respect of these matters, together with a review of our sanctions screening and transaction
monitoring systems and controls, with the support of external advisers. We continue to engage and fully co-operate with our
regulators in relation to these matters. At this stage it is not practicable to identify the likely outcome or estimate the potential
financial impact with any certainty.
220 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
34. 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 and 31 December 2020 no financial instruments have been offset in the balance sheet
with the exception of those relating to derivatives, details of which can be found in note 22.
35. 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 2020
Assets
Loans and advances to customers
Investment securities held at FVOCI
Investment securities held at amortised cost
Financial assets held at FVTPL
Liabilities
Deposits from customers
Deposits from central bank
Debt securities
Financial liabilities held at FVTPL
Derivative financial liabilities
Repurchase agreements
Carrying
value
£’million
Quoted
market price
Level 1
£’million
Using
observable
inputs
Level 2
£’million
With
significant
unobservable
inputs
Level 3
£’million
Total fair
value
£’million
12,090
773
2,640
30
16,072
3,808
600
30
8
196
–
723
1,021
–
–
50
1,567
–
11,892
–
66
30
11,892
773
2,654
30
–
–
483
–
–
–
–
–
–
–
8
–
16,147
3,808
–
16,147
3,808
483
30
–
196
30
8
196
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 221
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
35. Fair value of financial instruments continued
Group
31 December 2019
Assets
Loans and advances to customers
Investment securities held at FVOCI
Investment securities held at amortised cost
Liabilities
Deposits from customers
Deposits from central bank
Debt securities
Derivative financial liabilities
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
8
250
–
411
508
–
–
602
–
–
–
–
1,647
–
–
–
8
–
14,652
–
–
14,448
3,801
–
–
250
Total fair
value
£’million
14,652
411
2,155
14,448
3,801
602
8
250
Cash and balances with the Bank of England, trade and other receivables, trade and other payables, assets classified as held for
sale and other assets and liabilities which meet the definition of financial instruments are not included in the tables. Their carrying
amount is a reasonable approximation of fair value.
Information on how fair values are calculated for the financial assets and liabilities noted above are explained below:
Loans and advances to customers
Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate
of interest at the balance sheet date, adjusted for future credit losses and prepayments, if considered material.
Investment securities
The fair value of investment securities is based on either observed market prices for those securities that have an active trading
market (fair value Level 1 assets), or using observable inputs (in the case of fair value Level 2 assets).
Financial assets and liabilities held at fair value through profit and loss
The financial assets and liabilities held at fair value through profit and loss relate to the provision fund operated by
RateSetter for the benefit of its peer-to-peer investors. The provision fund assets are measured based on the present
value of future income receivable into the fund.
At 31 December 2020 the total assets and liabilities of the provision fund were equal due to it having fewer assets
compared to its expected future liabilities (which are measured based on the lifetime expected losses of the loans the
fund is providing protection against) and as such the provision fund liabilities are capped at the value of its total assets.
Deposits from customers
Fair values are estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities.
The fair value of a deposit repayable on demand is approximated by its carrying value.
Debt securities
Fair values are determined using the quoted market price at the balance sheet date.
Deposits from central banks/repurchase agreements
Fair values are estimated using discounted cash flows, applying current rates. Fair values approximate carrying amounts as their
balances are generally short-dated.
Derivative financial liabilities
The fair values of derivatives are obtained from discounted cash flow models or option pricing models as appropriate.
222 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
36. 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
Post-employment benefits
Share-based payment costs
Total compensation for key management personnel
2020
£’million
2019
£’million
5.3
0.1
0.7
6.1
5.8
–
1.7
7.5
Short-term employee benefits include salary, medical insurance, bonuses and cash allowances paid to key management personnel.
The share-based payment cost represents the IFRS 2 charge for the year which includes awards granted in prior years that have not
yet vested.
Banking transactions with key management personnel
We provide banking services to Directors and other key management personnel and persons connected to them. 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)
2020
£’million
2019
£’million
0.7
1.8
(0.6)
–
–
1.9
34
3.8
–
(3.1)
0.2
(0.2)
0.7
90
There were three (31 December 2019: five) loans outstanding at 31 December 2020 totalling £1.9 million (31 December 2019:
£0.7 million). Of these, two are residential mortgages secured on property and one is an asset finance loan; all loans were provided
on our standard commercial terms.
In addition to the loans detailed above, we have issued credit cards and granted overdraft facilities on current accounts to Directors
and key management personnel.
Credit card balances outstanding at 31 December were as follows:
Group
Credit cards outstanding as at 31 December
2020
£’000
22
2019
£’000
16
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 223
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
36. Related parties continued
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
Deposits outstanding as at 31 December
Transactions with Group companies
Details of transactions with Group companies can be found within note 39.
2020
£’million
2019
£’million
3.3
0.2
(0.3)
(1.1)
2.1
4.5
2.1
(1.8)
(1.5)
3.3
Other transactions with related parties
During the year, architecture, design and branding services were provided to us by InterArch, Inc., (‘InterArch’) a firm which is owned
by Shirley Hill, the wife of Vernon W. Hill II. Vernon W. Hill II was Chairman until 23 October 2019 and a Board member until
17 December 2019 when he stepped down.
He retains an honorary role as Chairman Emeritus. By virtue of his previous position in the Bank, as well as status of founder,
InterArch continues to be considered a related party. The creative and brand services contract and architectural design service
contract ended on 27 February 2020. In order to ensure the smooth transition to new providers, we entered into a short agreement
with InterArch to support the transition until the end of June 2020. This process has now fully completed.
The following transactions were carried out with InterArch during the year:
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
2020
£’000
388
333
721
–
2019
£’000
4,885
428
5,313
82
37. Business combinations
Accounting policy
We account for business combinations using the acquisition method when control is transferred. The
consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net
assets acquired. Any deferred or contingent consideration is measured at fair value at the date of
acquisition and subsequent changes in the fair value of the contingent consideration are recognised
in profit or loss.
Any goodwill that arises is tested annually for impairment (see note 15 for further details).
Transaction costs are expensed as incurred.
On 14 September 2020 we acquired 100% of Retail Money Market LTD, a peer-to-peer platform specialising in unsecured lending
and trading under the RateSetter brand. The acquisition formed part of delivering our strategy to increase our unsecured lending.
As part of our acquisition, we started the process of winding down the peer-to-peer business, with no new investors being
accepted. In February 2021, we announced the acquisition of the peer-to-peer lending portfolio from investors who had
invested through the RateSetter platform (see note 40 for further details).
The purchase consideration was £12 million cash, consisting of £2.5 million that was paid upon completion with £0.5 million
of deferred and £9 million of contingent consideration.
The deferred consideration is payable one year from the acquisition date and the contingent consideration is payable three years
from the acquisition date based on the certain lending targets being achieved through the RateSetter platform.
224 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
The fair value of the consideration has been determined to be £11 million. The fair value of deferred and contingent consideration
(£8 million) has been recognised as a liability at 31 December 2020 (see note 26).
The assets and liabilities recognised as a result of the acquisition are:
Cash and balances with the Bank of England
Financial assets held at FVTPL
Property, plant and equipment
Intangible assets
Prepayments and accrued income
Other assets
Total assets
Debt securities
Provisions
Financial liabilities held at FVTPL
Deferred tax liability
Other liabilities
Total liabilities
Net assets
Goodwill arising on consolidation
Total consideration
Fair value at
14 September
2020
£’million
2
29
4
34
1
2
72
(21)
(3)
(29)
(6)
(8)
(67)
5
6
11
Of the assets and liabilities above the financial assets and liabilities held at FVTPL relate to the RateSetter provision fund operated
by RateSetter for the benefit of its peer-to-peer investors. The liabilities of the provision fund are capped at the value of its total
assets and at the acquisition date were equal due to the fund having fewer assets than the lifetime expected losses anticipated on
the peer-to-peer lending.
The goodwill arising on the transaction is attributable to the workforce and organisational capability acquired. We will reconsider
the valuation of the consideration and the provisional goodwill figures up to the end of the applicable measurement period to
14 September 2021. If changes identified represent additional information about facts and circumstances that existed as at the
acquisition date, adjustments will be made to the original acquisition accounting.
Revenue and loss contribution
RateSetter contributed income of £3.2 million and a loss of £6.7 million to the Group for the period from 14 September 2020
to 31 December 2020.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 225
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes to the financial statements continued
38. Loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary equity holders of Metro Bank by the weighted average
number of ordinary shares in issue during the year.
Loss attributable to ordinary equity holders of Metro Bank (£’million)
Weighted average number of ordinary shares in issue – basic (‘000)
Basic loss per share (pence)
2020
2019
(301.7)
172,420
(182.6)
147,420
(175.0)
(123.9)
Diluted loss per share has been calculated by dividing the loss 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 both the years to 31 December 2020
and 31 December 2019, the share options would be antidilutive, as they would reduce the loss per share. Therefore, all the
outstanding options have been disregarded in the calculation of dilutive loss per share.
Loss attributable to ordinary equity holders of Metro Bank (£’million)
Weighted average number of ordinary shares in issue – diluted (‘000)
Diluted loss per share (pence)
2020
2019
(301.7)
172,420
(182.6)
147,420
(175.0)
(123.9)
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.
39. Investment in subsidiaries
The Group had the following subsidiaries at 31 December 2020:
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 Limited1
UK
SME Asset Finance Limited1
UK
RDM Factors Limited1
UK
Retail Money Market LTD2
UK
RateSetter Trustee Services Limited2 UK
RateSetter Asset Management
Limited2
RateSetter Motor Limited2
Security Trustee Services Limited2
APNL Limited2
Vehicle Credit Limited3
Vehicle Stocking Limited3
Vehicle Stocking A Limited3
UK
UK
UK
UK
UK
UK
UK
Invoice financing and factoring
Asset finance
Dormant
Peer to peer lending
Peer to peer lending
100
–
–
100
–
Dormant
Holding company
Holding company
Dormant
Motor Finance
Motor Finance
Dormant
–
–
–
–
–
–
–
–
100
100
–
100
100
100
100
100
100
100
100
1. Registered address One Southampton Row, London, W21B 5HA.
2. Registered address 6th Floor, 55 Bishopsgate, London, EC2N 3AS.
3. Registered address No.1, Osiers Business Centre, Leicester, LE19 1DX.
The proportion of the voting rights in the subsidiary undertakings held directly by the Company do not differ from the proportion of
ordinary shares held.
We are currently in the process of winding up a number of the subsidiaries.
226 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Investment in subsidiaries
1 January
Cost of subsidiaries acquired (See note 37)
Capital injections into subsidiaries post acquisition
31 December
Company
2020
£’million
Company
2019
£’million
15
11
33
59
15
–
–
15
RateSetter is subject to its own regulatory capital requirements. These requirements are determined by the Financial Conduct
Authority and relate to its peer-to-peer lending business (which is in run-off). As part of the acquisition agreement, RateSetter
distributed shares in an Australian associate, Plenti (formally RateSetter Australia) to its shareholder. The distribution took
RateSetter below its minimum capital requirements and meant a capital injection was required post acquisition. The capital injection
has provided RateSetter with sufficient capital and liquidity to meet both its current capital requirements, absorb future losses
for the short term and to extinguish external debt (see note 21 for further details).
Transactions between the Company and Group subsidiaries
Interest on inter-Company loan with SME Asset/Invoice Finance
Servicing fees paid to RateSetter
Amounts outstanding as at 31 December owed by SME Asset/Invoice Finance
Company
2020
£’million
Company
2019
£’million
6.7
0.5
7.4
–
Company
2020
£’million
Company
2019
£’million
260
291
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 2019: less than £0.1 million).
The transactions above are eliminated upon consolidation.
40. Post balance sheet events
Completion of sale of residential mortgage portfolio
On 2 February 2021 we completed the sale of the residential mortgage portfolio to NatWest including the £295 million assets that
were held for sale as at 31 December 2020 (see notes 4 and 17). A further gain on sale of £8.2 million (£8.0 million, net of costs) was
recognised in 2021 in relation to the transaction.
Acquisition of RateSetter back book
On 2 February 2021 we announced the acquisition of a portfolio of primarily unsecured consumer loans from peer-to-peer investors
who have invested through the RateSetter platform for a cash consideration of up to £384 million. The exact amount is expected to
be less as the Portfolio will continue to amortise between announcement and expected completion in April 2021, following a two
month notice period for retail investors.
No adjustment has been made to the financial statements in respect of either of these transactions.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 227
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION 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 credit (£’million)
Corporation tax paid (£’million)
No public subsidies were received during the year.
UK
3,850
432.6
311.4
9.7
–
228 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Independent auditors’ report
to the directors of Metro Bank Plc
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 31st December 2020 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 31st December 2020 in the Country-by-Country Report.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)), including ISA (UK) 800 and ISA
(UK) 805, and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit
of the country-by-country information section of our report. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We remained independent of the 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 note 1 of the country-by-
country information which describes the basis of preparation. The country-by-country information is prepared for the directors for
the purpose of complying with the requirements of the Capital Requirements (Country-by-Country Reporting) Regulations 2013.
The country-by-country information has therefore been prepared in accordance with a special purpose framework and, as a result,
the country-by-country information may not be suitable for another purpose.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of accounting
included:
• Evaluation of management’s going concern assessment;
• Evaluation of management’s financial forecasts and management’s stress testing of liquidity and regulatory capital, including the
severity of the stress scenarios and assumptions that were used;
• Evaluation of the degree to which the impact of COVID-19 has been reflected in the Group’s financial plans and going concern
assessment; and
• Substantiation of liquid resources held, and liquidity facilities available to the Group, for example, with the Bank of England.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for a period of at least
twelve months from the date on which the country-by-country information is authorised for issue.
In auditing the country-by-country information, we have concluded that the directors’ use of the going concern basis of accounting
in the preparation of the country-by-country information is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company’s ability
to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 229
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Independent auditors’ report
to the directors of Metro Bank Plc continued
Reporting on other information
The other information comprises all of the information in the Country-by-Country Report 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.
Responsibilities for the country-by-country information and the audit
Responsibilities of the directors for the country-by-country information
The directors are responsible for the preparation of the country-by-country information in accordance with the requirements of the
Capital Requirements (Country-by-Country Reporting) Regulations 2013 as explained in the basis of preparation in note 1, 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.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and
regulations related to breaches of the rules of the Financial Conduct Authority (FCA), 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 country-by-country information. We also considered those laws and regulations that have a direct impact on the
country-by-country information such as Companies Act 2006 and the Capital Requirements (Country-by-Country Reporting)
Regulations 2013. We evaluated management’s incentives and opportunities for fraudulent manipulation of the country-by-country
information (including the risk of override of controls), and determined that the principal risks were related to posting manual journal
entries to manipulate financial performance and management bias in accounting estimates. Audit procedures performed included:
• Enquiries of the Audit Committee, management, internal audit and the Group’s legal counsel, including consideration of known
or suspected instances of non-compliance with laws and regulation and fraud;
• Evaluation of the design and implementation of controls designed to prevent and detect irregularities relevant
to financial reporting;
• Reviewing key correspondence with regulators, such as the FCA and the PRA in relation to the Group’s compliance
with banking regulations;
• Incorporating unpredictability into the nature, timing and/or extent of our testing;
230 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
• Challenging assumptions and judgements made by management in their estimation of the allowance for ECL on loans and
advances to customers, revenue recognition, the assessment of the carrying value of intangible assets (excluding goodwill),
and the acquisition of RateSetter (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 process.
There are inherent limitations in the audit procedures described in the section below 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.
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
24 March 2021
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 231
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION 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
Financial assets held at fair value through profit and loss
Property, plant and equipment
Intangible assets
Prepayments and accrued income
Assets classified as held for sale
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 2020
Financial
statements
£’million
Average risk
density
Risk-
weighted
assets
£’million
2,993
12,090
773
2,640
30
806
254
77
295
–
2,621
22,579
1%
42%
5%
12%
–
100%
30%
81%
36%
n/a
22%
31%
32
5,068
39
328
–
806
75
62
105
2
567
7,084
167
7,251
7
14
685
7,957
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
232 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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%
18%
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
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
Expected credit loss expense divided by average gross loans for the year.
Expected credit loss expense (note 31)
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
2020
£’million
2019
£’million
126.7
14,675
0.86%
11.7
15,048
0.08%
2020
£’million
2019
£’million
99.1
15,262
0.65%
112.4
14,450
0.78%
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 19)
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
2020
£’million
2019
£’million
12,090
16,072
75%
14,681
14,477
101%
2020
£’million
2019
£’million
249.7
20,550
1.22%
308.1
20,355
1.51%
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 233
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Alternative performance measures
(Unaudited) continued
Underlying loss
Underlying loss represents an adjusted measure, excluding the effect of certain items that are considered to distort year-on-year
comparisons, in order to provide readers with a better and more relevant understanding of the underlying trends in the business.
The following items are considered to be non-underlying:
Non-underlying item Description
Reason for exclusion
Listing Share Awards
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 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.
Impairment and
write-offs of PPE and
intangible assets
The costs associated with non-current assets that
are no longer being used by and/or generate
future economic benefit for the business.
C&I fund costs
Remediation costs
Transformation costs
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 C&I 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 impairments and write-offs relating to PPE and
intangible assets is removed as they distort comparison
between years. This is on the basis that the write-offs
and impairments relate to specific events and triggers
which are not consistent between years.
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 time limited and
will disappear once the investigations have concluded.
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.
Business acquisition
and integration costs
The costs associated with acquiring and
integrating RateSetter.
We acquire businesses infrequently and the costs are
not anticipated to be recurring.
Mortgage portfolio
sale
The gain on sale and associated costs of the
£3.1 billion mortgage portfolio sale.
The sale of loan portfolios is generally not considered in
line with our business model. Given the infrequency of
sales and the quantum of the gain it has been removed
in order to prevent year-on-year distortion.
234 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
A reconciliation from statutory loss before tax to underlying loss before tax is set out below.
Year ended 31 December 2020
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
Statutory
basis
£’million
249.7
59.9
73.3
49.7
432.6
(502.3)
(74.4)
(40.6)
(617.3)
(126.7)
(311.4)
Impairment
and write-off
of property,
plant,
equipment
and intangible
assets
£’million
Listing
Share
Awards
£’million
C&I fund
costs
£’million
Transformation
costs
£’million
Remediation
costs
£’million
Business
acquisition
and
integration
costs
£’million
Mortgage
portfolio sale
£’million
Underlying
basis
£’million
–
–
–
–
–
(0.2)
–
–
(0.2)
–
(0.2)
–
–
–
–
–
–
–
40.6
40.6
–
40.6
0.6
–
–
(23.3)
(22.7)
22.7
–
–
22.7
–
0.0
–
–
–
–
–
16.7
–
–
16.7
–
16.7
–
–
–
–
–
40.8
–
–
40.8
–
40.8
–
–
–
–
–
5.4
–
–
5.4
–
5.4
–
–
(69.0)
–
250.3
59.9
4.3
26.4
(69.0)
340.9
5.3
–
–
5.3
–
(411.6)
(74.4)
–
(486.0)
(126.7)
(63.7)
(271.8)
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
Impairment
and write-off
of property,
plant,
equipment and
intangible
assets
£’million
Statutory
basis
£’million
Listing Share
Awards
£’million
C&I fund
costs
£’million
Transformation
costs
£’million
Remediation
costs
£’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)
–
–
–
–
–
0.6
–
–
0.6
–
0.6
–
–
–
–
–
–
–
77.7
77.7
–
77.7
–
–
–
(15.5)
(15.5)
18.1
–
–
18.1
–
2.6
–
–
–
–
–
11.5
–
–
11.5
–
11.5
–
–
–
–
–
26.8
–
–
26.8
–
26.8
308.1
61.0
1.6
29.4
400.1
(323.7)
(76.4)
–
(400.1)
(11.7)
(11.7)
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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 235
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION 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
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 Limited1,2
Aspect House
Spencer Road
Lancing, West Sussex BN99 6DA
Telephone: 0371 384 2311
International callers: +44 121 415 7095
1. Equiniti Limited and Equiniti Financial Services Limited are part of the Equiniti group of companies. Company share registration, employee scheme and pension
administration services are provided through Equiniti Limited, which is registered in England and Wales with No. 6226088. Investment and general insurance services
are provided through Equiniti Financial Services Limited, which is registered in England and Wales with No. 6208699 and is authorised and regulated by the UK
Financial Conduct Authority.
2. Lines are open from 8.30 to 5.30pm (UK time) Monday to Friday, excluding public holidays in England and Wales.
2021 Financial Calendar
Annual General Meeting – 18 May 2021
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
236 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Annual General Meeting
Due to COVID-19, following the Government guidelines on restricting movement and gatherings, the details regarding the
2021 Annual General Meeting are yet to be finalised and more information will be published closer to the date of the meeting.
The safety of our colleagues and shareholders 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 2020
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
44.29%
15.86%
8.88%
12.06%
4.70%
7.49%
2.28%
4.44%
349
125
70
95
37
59
18
35
788
Total number
of shares held at
31 December
2020
105,548
299,185
527,757
2,323,440
2,641,135
14,179,726
12,283,251
140,060,416
Percentage
of total
0.06%
0.17%
0.31%
1.35%
1.53%
8.22%
7.13%
81.23%
100.00%
172,420,458
100.00%
Shareholder profile by category as at 31 December 2020
Category
Private shareholders
Banks
Nominees and other institutional investors
Total
Number of
holders
Percentage
of holders
within type
Shares held at
31 December
2020
Percentage
of issued
share capital
353
4
431
788
44.80%
0.51%
1,229,766.00
104,783.00
54.69% 171,085,909.00
0.71%
0.06%
99.23%
100.00% 172,420,458.00
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.
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 237
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes
238 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
Notes
METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020 | 239
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Notes
240 | METRO BANK PLC ANNUAL REPORT AND ACCOUNTS 2020
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METRO BANK PLC
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