Annual Report and Accounts 2023 Summary of the year Our purpose and strategy framework Strategic report 1 2 4 Chair’s statement 6 Operating environment 8 11 Business model 14 Key performance indicators 16 Financial review 20 Environmental, social and Chief Executive Officer’s statement 31 governance review Non financial information and sustainability information statement 34 Section 172 statement 35 Task Force on Climate-related Financial Disclosures 44 Risk overview summary 49 Viability statement Corporate governance introduction Governance 52 54 Board of Directors 56 2023 governance at a glance 57 Board activities and stakeholder engagement 59 Stakeholder engagement 62 Letter from the Designated Non- Executive Director for Colleague Engagement 64 Board leadership and company purpose 66 Board roles and responsibilities 67 Board effectiveness 70 Group Audit Committee report 75 78 Group Nomination Committee report 82 People and Remuneration Committee report Group Risk Oversight Committee report 86 Remuneration at a glance 91 Remuneration for colleagues below Board level 94 Directors’ remuneration policy 105 Annual report on remuneration 120 Directors’ report Risk 125 Risk management framework 126 Risk governance and oversight 128 Risk culture 130 Financial risks 151 Non-financial risks Financial statements 159 Independent auditors’ report to the members of Metro Bank Holdings PLC 167 Consolidated statement of comprehensive income 168 Consolidated balance sheet 169 Consolidated statement of changes in equity 170 Consolidated cash flow statement 171 Notes to the financial statements 219 Company balance sheet 220 Company statement of changes in equity 221 Company cash flow statement 222 Notes to the financial statements Additional information 226 Country-by-country report 227 Independent auditors’ report to the Directors of Metro Bank Holdings PLC 229 Other disclosures 230 Alternative performance measures 235 Abbreviations 236 Shareholder information Building resilience Whilst 2023 has had its challenges, we have successfully undertaken the ground work necessary to ensure we have a strong platform for sustainable profitability in the years ahead. This has seen us establish our new holding company, execute a £925 million capital package and take the first steps in delivering a disciplined cost reduction programme. Focused on growth We remain focused on the opportunities for future growth and ensuring we fulfil our ambition to be the number one community bank. We will achieve this by continuing to deliver on our strategy through which we aim to create value for all our stakeholders. Read more in the Chief Executive Officer’s statement on page 8 The actions we have taken provide us with the platform to create sustainable growth. Daniel Frumkin Chief Executive Officer Metro Bank Holdings PLC Annual Report and Accounts 2023 Summary of the year Strategic report Governance Risk report Financial statements Additional information 1 2023 has been a year of two halves: whilst the first six months saw us return to profitability on both a statutory and underlying basis, our results in the second six months were impacted by speculation surrounding our capital options, contributing to the need to raise capital. Statutory profit/(loss) before tax (£m) Loan to deposit ratio (%) Who we are We opened our doors in the summer of 2010 and were the first high street bank to open in the UK in over 100 years. Since then, we’ve built a business that is providing meaningful competition against larger incumbents and offering a compelling alternative for retail, private, small business and commercial customers. Our approach Our approach is centred on our colleagues, customers and communities. This allows us to deliver our ambition to be the number one community bank and create FANS. Our community-centric model and focus on our localness informs everything we do and the decisions we make. 30.5 (70.7) 2023 2022 2021 (245.1) 2020 (311.4) 2019 (130.8) Net interest margin (%) 2023 2022 2021 2020 2019 1.98 1.92 1.40 1.22 1.51 2023 2022 2021 2020 2019 Deposits (£bn) 2023 2022 2021 2020 2019 Underlying loss before tax (£m) Loans and advances (£bn) 2023 2022 2021 2020 (271.8) 2019 (171.3) (16.9) (50.6) (11.7) 2023 2022 2021 2020 2019 79 82 75 75 101 15.6 16.0 16.4 16.1 14.5 12.3 13.1 12.3 12.1 14.7 #1 In-store service for personal and business customers¹ Top 10 Most loved UK workplaces² 3m Customer accounts 1. Competition and Markets Authority (CMA) survey carried out in Great Britain by Ipsos and BVA-BDRC between January 2023 and December 2023 - Services in branches. Results at ipsos.com and bva-bdrc.com 2. Newsweek survey carried out in the United Kingdom. Results at newsweek.com Metro Bank Holdings PLC Annual Report and Accounts 2023 Our purpose and strategy framework Our ambition is to be the number one community bank Despite the challenges faced in 2023, our ambition remains the same: to be the number one community bank. Community banking means being embedded in the local communities we serve and prioritising local decision-making. It also means we provide simple and straightforward business, commercial and retail banking services that meet the needs of our customers in the area. It’s achieved through our purpose Our purpose is to create FANS. FANS are customers created through delivering exceptional customer service, who then champion us through actively recommending us to friends and family. This simple purpose guides everything we do as it places the customer at the heart of all of our decision-making. 2 Strengthened by our AMAZEING behaviours Our AMAZEING behaviours strengthen everything we do and are ingrained throughout our organisation helping us drive our customer centric-approach. • 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. Read more about our people and culture on page 22 Metro Bank Holdings PLC Annual Report and Accounts 2023 Our purpose and strategy framework Continued Strategic report Governance Risk report Financial statements Additional information 3 Delivered via our business model Supported by our strategic priorities Measured by our key performance indicators Aligned with performance based remuneration Our business model is how we generate stakeholder value. It involves combining stores and digital channels with exceptional customer service to generate sustainable long-term value and tangible book growth. Integrated model Our model combines delivery through physical and digital channels. Unique culture Our colleagues deliver superior service and are the heart of our people-people banking approach. Service-led core deposits We seek to attract core deposits through our service-led relationship 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. Our strategic priorities are what we focus on on a day-to-day basis that are crucial to developing our long-term success. Revenue Create FANS to deliver strong growth. Balance sheet optimisation Continued focus on risk-adjusted returns. Cost Cost discipline to support profitable growth and reinvestment. Infrastructure Protect value through safe, scalable infrastructure. Communications Engage colleagues, communities and other stakeholders to tell our story. Our key performance indicators (KPIs) are the metrics we monitor to check we are on track with the delivery of our strategy as well as to assess how our business model is performing. These consist of: • Customer accounts. • Colleague engagement. • Customer satisfaction. • Senior leadership diversity. • Statutory profit/(loss). • Underlying profit/(loss). • Total capital plus MREL. • Cost of deposits. • Cost of risk. • Statutory cost:income ratio. • Return on tangible equity. • Loan-to-deposit ratio. • Total shareholder return. Our approach to remuneration for management is based on a simple and clear scorecard in addition to a Long Term Incentive Plan (LTIP). Scorecard measures are aligned to the four components of our business model with the LTIP based upon the successful generation of sustainable long-term value and tangible book growth. Read more about our business model on page 11 Read more about our strategy on page 12 Read more about our KPIs on page 14 Read more about our remuneration on page 86 Metro Bank Holdings PLC Annual Report and Accounts 2023 Chair’s statement 4 In a world of continued uncertainty we remain focused on delivering value for all of our stakeholders. We aim to achieve this through the continued execution of our strategy and an unrelenting focus on our ambition to be the number one community bank. Dear stakeholder I am pleased to introduce the first annual report of Metro Bank Holdings PLC, following the successful insertion of our new holding company in May 2023. Whilst our name might have changed, our ambition to be the number one community bank has not, and 2023 has been another key year in moving towards this. As I reflect upon both the progress and challenges we have overcome during the past year, I do so with immense gratitude. The continued trust shown to us by you, our shareholders, bondholders, customers and colleagues reinforces mine and the Board’s determination to see Metro Bank thrive and succeed. I want to take this opportunity to express my deepest thanks to you all. Capital raise The announcement in October of our £925 million capital package (comprising £150 million of new equity, £175 million of new MREL-eligible debt and £600 million of debt refinancing) was a defining moment. The Board was fully engaged in this process and active in both supporting and challenging the executive team to set this important foundation for the future. The shareholder vote of over 90% in favour of this was a demonstration of the support shareholders have for the business and the importance of strengthening our capital position. Whilst we acknowledge that many shareholders were unable to participate in the capital raise, we believe that the package represented the best possible outcome for all stakeholders and will allow us to move forward with strengthened financial resources and renewed sense of purpose. As part of the capital package, Jaime Gilinski Bacal – a long-time investor, became our majority shareholder through his company, Spaldy Investment Limited. Spaldy Investments Limited is entitled to appoint up to three shareholder appointed Non-Executive Directors to the Board. Dorita Gilinski, who has been a shareholder-appointed Non-Executive Director since September 2022 will continue as one of the three roles. The Board continues to be made up of a majority of independent Non-Executive Directors and together the Board remains committed to fulfilling its duty to act on behalf of all shareholders and wider stakeholders. Results The first six months of 2023 saw us return to profitability on both a statutory and underlying basis, a culmination of all the hard work delivered by Dan and the team over the past few years. The second six months of 2023, however, precipitated the conditions that required us to raise capital. As I reflect upon both the progress and challenges we have overcome during the past year, I do so with immense gratitude. Robert Sharpe Chair Metro Bank Holdings PLC Annual Report and Accounts 2023 Metro Bank Holdings PLC Annual Report and Accounts 2023 Chair’s statement Continued Strategic report Governance Risk report Financial statements Additional information 5 The increase in capital requirements in July through the increase in the counter cyclical capital buffer, alongside the news that we should not expect to receive AIRB approval in 2023 placed incremental pressure on our capital position. The Board has been continuously considering capital options, and these factors, along with the need to refinance our existing MREL debt before October 2024, meant that the window for raising capital from the market was scheduled for the fourth quarter of 2023. At the start of October, several speculative media reports contributed to uncertainty around the capital negotiations and an increased outflow of customer deposits. Our strong levels of liquidity and prudent approach meant these outflows were manageable and, indeed, as at 31 December 2023 we had returned to broadly the same deposit levels as we reported for the third quarter, with strong liquidity and funding regulatory ratios. Since the capital package announcement, and financial completion, we have seen core deposit flows stabilise, supplemented through a combination of repricing and new deposit initiatives. The higher cost of this funding combined with the higher interest rate payable on our new and refinanced debt have acted as a drag on underlying profitability in the fourth quarter. Crucially, the delivery of the capital package in November has seen us restore our regulatory capital ratios, ending the year with total capital plus MREL of 22.0% (31 December 2022: 17.7%) providing both certainty to stakeholders and a platform for future growth. Responding to an evolving landscape In November, the Board approved a cost saving plan to ensure the organisation is right-sized going forward. The programme included reducing our store hours, leading to 1,000 colleagues across stores and the wider business being made redundant. Alongside the cost savings, plans include making additional investments in areas including automation of services, improving our productivity and responding to customer trends. On 29 February 2024, we announced the appointment of Marc Page as the permanent Chief Financial Officer and member of the Board from September 2024 (subject to regulatory approval). Marc will join us from Barclays where he was Chief Financial Officer of Kensington Mortgages since its acquisition by Barclays in 2023. He will bring with him a wealth of knowledge and experience across retail banking strategy, distribution and product management. The Board remains fully engaged in helping drive our strategy and supporting the executive team in its execution. In doing so, we remain mindful of the need to appropriately balance the interests and expectations of all our stakeholders. Governance During the year we appointed Clare Gilligan as our new Company Secretary. Clare joins us from Bank of Ireland (UK) plc where she was Company Secretary, bringing with her a wealth of expertise. Her appointment helps to ensure that our governance framework remains of the highest standard. At the end of the year Anne Grim, Monique Melis and Ian Henderson stepped down from the Board. On 11 January, we announced that James Hopkinson, Chief Financial Officer, would step down as Executive Director and would leave the business during the first quarter of 2024 after a period of handover. I would like to thank all of them for their contribution. The Board appointed Cristina Alba Ochoa to act as interim Chief Financial Officer, effective 15 January 2024. Whilst we will be a leaner organisation going forward, including at Board level, this is not at the expense of having the right level of skills within the organisation. Outlook The road ahead is not without uncertainty. We continue to see political and economic turbulence with a general election likely in 2024 set against the backdrop of cost-of- living pressures and a subdued economy. Alongside these external challenges, we also face Bank-specific headwinds. This includes entering 2024 with elevated funding costs, which act as a drag on near-term profitability. Despite these challenges, I remain confident in our ability to be the number one community bank. Metro Bank’s resilience and ability to navigate obstacles as well as seize new opportunities is one of its great strengths and will drive our success in the coming year. We will continue to champion customer service and traditional banking values of trust, honesty and integrity, delivering excellence in our products and services and nurturing the relationships we hold dear. Robert Sharpe Chair 16 April 2024 Where to find out more How governance is supporting our transformation Stakeholder impact We focus on the impact on our stakeholders of all the decisions we make and ensuring we are delivering the right outcomes to them is fundamental to delivering our ambition to be the number one community bank. Read more in our Stakeholder Engagement on pages 59 to 61 and in our Section 172 Statement on page 34. Stakeholder engagement We were pleased to get support of over 90% for all our resolutions in relation to the capital package in November. We look forward to further shareholder engagement throughout 2024 including at our AGM which will take place on 21 May 2024. Read more in the Chair’s governance letter on pages 52 to 53 and in our Section 172 Statement on page 34. Metro Bank Holdings PLC Annual Report and Accounts 2023 Operating environment 6 The environment we operate in is both competitive and rapidly changing. This presents us with challenges but also creates exciting opportunities for us as we grow. Economic and political outlook Competition Customer behaviour How we see it Whilst 2023 has been a turbulent year with continued global uncertainty, the UK economy has been remarkably resilient, despite entering a technical recession in the final two quarters of the year. Inflation has fallen back from recent highs although remains in excess of the Bank of England’s long-term target of 2%. Part of this softening has been as a result of continued increases in base rates which were increased from 3.50% to 5.25% over the course of the year. Whilst the outlook is that rates have peaked, the increases seen in 2023 will continue to impact customers in the years ahead as they roll-off lower-cost fixed-rate borrowing. Although this has resulted in an increase in arrears, this has come off a low base. We have started to see signs of the job market softening, with lower levels of hiring activities and the prospect of potential rises in unemployment in 2024, adding to an uncertain economic outlook. How we are responding We see the current levels of uncertainty remaining elevated through 2024 due to continuing global conflict and key elections in both the UK and USA, as well as a subdued economic outlook. We continue to take a prudent approach to expected credit loss (ECL) provisioning and believe this reflects the current uncertainties, including those related to slower economic growth and increased unemployment. At the end of 2023 we took the decision to move away from unsecured lending given the return on capital it is providing in the current economic climate. How we see it The UK banking market remains highly competitive in respect of both deposits and lending. For core current accounts, digital-only operators are achieving high levels of customer satisfaction whilst incumbent players continue to deploy switching offers and heavy marketing campaigns to maintain market share. At the same time, average current account balances are reducing industry-wide as customers repay debt, deploy excess deposits into higher rate savings and weather the increased cost of living. In the lending market, larger incumbent players continue to competitively price mortgages with mortgage rates ending 2023 at below 4%, compared to the base rate of 5.25%. Equally, specialist lenders continue to make inroads into non-relationship driven segments, often delivered via intermediaries or aggregators. We have also started to see the early signs of consolidation within the industry, which is likely to see market share concentrated further between larger incumbents. How we are responding We are continuing to invest in our deposit proposition to ensure we remain competitive and gain market share. Whilst we saw a reduction in average current account balances, both due to wider-market forces and the speculation around our capital raise, we continue to grow account numbers and deepen customer relationships. In the lending space we are focusing our attention on targeting more specialist segments of the market. This is in part due to the setback in our AIRB ambitions, which we announced in September. Being a non-AIRB approved lender makes it hard to compete in the prime ‘vanilla’ segment of the market in respect of both volume and price due to the structural disadvantages in the capital treatment of residential mortgages compared to larger AIRB-approved competitors. How we see it Customer behaviour in 2023 has been marked by the higher rate environment and cost-of-living pressures. This has seen customers move their money to savings accounts to maximise interest as well as becoming increasingly willing to switch providers. The higher savings rates have also seen customers making greater use of ISAs as a tax shield, particularly amongst savers with high balances where interest payments exceed the personal savings allowance. We are also continuing to witness the acceleration of digitisation with customers continuing to prefer digital-first channels. This rise in use of new technology also gives rise to increasingly sophisticated fraud. How we are responding We have increased our investment in our deposit gathering channels including building out our ISA proposition ready for the 2024 season. We were able to deploy some of these deposit gathering tools in the fourth quarter where we were able to quickly attract new deposits to replace balances lost in response to the speculation surrounding our capital raise. We expect the current digitisation trend to continue and we will carry on making disciplined investment choices in this area. We remain committed to stores and maintaining a fully integrated offering, although have reduced hours in response to changing customer needs. Metro Bank Holdings PLC Annual Report and Accounts 2023 Operating environment Continued Strategic report Governance Risk report Financial statements Additional information 7 Regulatory environment Capital and funding regime Focus on sustainability How we see it The UK regulatory environment has undergone significant changes in recent years and continues to evolve, with multiple changes on the horizon from key regulatory bodies. Regulatory authorities including the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have introduced reforms aimed at enhancing financial stability, consumer protection and market integrity. Key regulatory initiatives have included the new Consumer Duty requirement and Basel 3.1, which sees changes to the industry’s capital requirements. We are also continuing to see regulators take a firm approach to misconduct and ensuring fair outcomes for customers. An example of this is the FCA’s review into historical motor finance commission arrangements, the cost of which to lenders could be significant. How we are responding We continue to deliver a range of comprehensive projects to ensure we remain compliant with changes to the regulatory environment. During the year, we have made good progress on the implementation of our Consumer Duty requirements and continue to prepare for the introduction of Basel 3.1. We retain proactive engagement with our regulators, industry bodies and other stakeholders to help shape the regulatory agenda, provide feedback on proposed reforms and continue to advocate for proportionate and pragmatic regulations that support both innovation and growth, whilst protecting the integrity of the financial system. The current FCA investigation into motor finance shows the continued focus of regulators on ensuring customers are treated fairly. As a community bank we support the regulator to achieve this outcome for customers. How we see it The UK’s stringent approach to capital management continues to shape the banking industry. This is particularly true for new and mid-sized challengers like ourselves who remain subject to MREL requirements but unable to take advantage of the structural advantages of larger players who are able to benefit from their Advanced Internal Ratings Based (AIRB) status for determining risk-weightings. This makes providing the required return on capital challenging, particularly in mainstream lending, which would benefit from additional competition. With respect to funding, the Bank of England’s continued planned withdrawal of TFSME (combined with additional quantitative tightening) will put additional pressure on banks’ funding requirements, with firms needing to either shrink balance sheets or increase their deposits to replace this form of funding. Equally, given the high-profile international bank failures in 2023, we see liquidity remaining a core focus for banks going into 2024, with firms likely to continue to hold excess liquidity over minimum requirements. How we are responding The capital raise during the year saw us restore all our capital ratios to above minima including CRD4 buffers. The cost of capital remains high, both industry-wide and for ourselves in particular. We are therefore continuing to ensure we optimise our return on regulatory capital when determining our product and pricing strategy. Equally, we are working to ensure we are right-sizing our cost base to aid in the delivery of sustainable organic capital generation. We retain high levels of liquidity with a liquidity coverage ratio (LCR) as at 31 December of 332% (compared to the minimum requirement of 100%), and were able to weather deposit outflows in response to press speculation in October 2023. Our strong levels of liquidity have also allowed us to repay £550 million of TFSME drawings early. How we see it 2023 was the hottest year on record globally and we are continuing to see the impacts of climate change both around the world and in the UK. As awareness of environmental and social issues continues to grow, stakeholders are increasingly scrutinising companies’ responses to these sustainability challenges. In particular, customers are continuing to have increased expectations of companies they interact with to deliver for the environment and wider society. As well as our own decisions around sustainability, we recognise the role we play in broader society, primarily through the decisions over who and what we choose to finance. We see that the financial system has a central role in acting as a catalyst for change in broader society and as such can play an outsized role in contributing to the transition to a more sustainable and resilient economy. How we are responding We recognise the interconnectedness between sustainable business practices and long-term financial performance and as a result continue to integrate sustainability into all of our core operations and decision-making processes. We continue to deliver our plan to achieve our 2030 net zero carbon emissions goal. In achieving this we remain committed to being transparent in respect of our reporting of progress to deliver this. As a community bank we also recognise the importance of giving back to society and this will continue to be achieved through a range of initiatives which utilise our physical and digital channels. Our corporate governance structure ensures that sustainability remains a key focus as part our ambition to be the number one community bank. Metro Bank Holdings PLC Annual Report and Accounts 2023 Chief Executive Officer’s statement 8 With 3.0 million customer accounts covering retail, SME and commercial, a national network of stores and our continued digital investments we remain the UK’s leading full-service mid-sized bank. The start of the year began with continued momentum from 2022, which saw us return to profit on both a statutory and underlying basis and deliver our best set of results for several years in the first half. For the full year, we recognised an underlying loss before tax of £16.9 million for 2023 (2022: loss of £50.6 million), impacted in part by deposit pricing actions taken in the second half of the year. On a statutory basis, we delivered a profit before tax of £30.5 million (2022: loss of £70.7 million), largely as the result of a one-off gain from the capital restructure completed in November. 2023 saw the continued execution of our strategic priorities with tangible progress made across all areas. We enter 2024 with an improved and longer-dated capital position, and continue to take a disciplined approach to cost saving and have commenced further activities to achieve the savings outlined, all of which will set us up to continue on our path to sustainable profitability, and deliver on our ambition to be the number one community bank. Capital package Going into the year we were always clear about our need both to access the capital markets comfortably ahead of the call date for our MREL in October 2024 and to deliver profitability as a prerequisite. The increased capital requirements in July, combined with the setback in September to our ambition to achieve AIRB accreditation for residential mortgages, put pressure on our capital position, impacting the levels to which we were able to grow capital organically. Speculative media reporting contributed to our decision to accelerate and address our capital position in the fourth quarter. The ability to secure the £925 million capital package demonstrates our investors’ faith in us and in our customer service-centric model. We believe that this capital support provides certainty for us going forward. Strategic delivery Throughout the year, our customers have remained supportive and our promise to provide better service and to support the communities in which we operate continues to resonate. Progress has been achieved in the automation of back-office processes and investment in core infrastructure aimed at ensuring the stability and security of systems. Alongside this we have seen the launch of new products including enhanced commercial overdrafts and business credit cards. Whilst we see near-term pressure on profitability resulting from the increased cost of deposits gathered in the final quarter of the year, we are optimistic that the good work put in throughout 2023 continues to set us up well for the future. We remain committed to increasing market share as we support more customers and communities. Daniel Frumkin Chief Executive Officer Metro Bank Holdings PLC Annual Report and Accounts 2023 Metro Bank Holdings PLC Annual Report and Accounts 2023 Chief Executive Officer’s statement Continued Revenue Revenue during the year benefitted from increases in base rates and the continued growth in customer accounts, with total underlying income increasing 5% to £546.5 million (2022: £522.1 million). Like most banks, a large proportion of our lending is fixed rate and therefore, despite base rates having stabilised, we are continuing to see the benefits as older loans mature into a higher rate environment. We will see further upside in 2024, 2025 and 2026 as loans and fixed rate treasury investments continue to reprice. Offsetting this, the weakened outlook for base rates and the competitive nature of the lending market will likely compress front-book loan pricing through 2024. We also saw the increase in base rates flow through to deposit pricing, particularly as competition in the savings market continued to increase. As cost-of-living pressures continue, which is leading to customers utilising current account balances, and industry-wide drawings under TFSME mature, we envisage these pressures continuing through 2024 and for the medium term. To aid this, we have been investing in our deposit capabilities, including preparing for the ISA season in 2024 through improvements to our ISA switching capabilities. We have also started to provide savings accounts on deposit aggregator sites and are launching a new ‘boost’ proposition for savings accounts. While these deposits are more expensive than our core current account deposits, they are priced to be net interest income accretive, enable more lending and help to support our strong liquidity position. Strategic report Governance Risk report Financial statements Additional information 9 Following the announcement of the successful completion of the capital package in November, we launched a deposit campaign to replace the deposits we lost in October resulting from speculative media reports. As a result, our deposits ended the year at £15.6 billion, up 1% from the level reported in our interim results. This campaign and the prevailing higher rate environment, saw cost of deposits in the second half of the year increase to 1.29%, up from 0.66% in the first half. Our priority remains growing the number, depth and quality of our deposit relationships and we remain committed to supporting more customers and communities. Costs We continue to take a disciplined approach to costs, with underlying costs slightly down year on year, despite the continued high inflationary environment. The executive team has worked hard to improve processes helping manage costs. Our processes are still not as efficient or as automated as we would want which gives us the opportunity to identify and deliver further cost savings going forward. As committed at the time of the capital package, we are on track to deliver up to £50 million in annualised cost savings. As part of this approach, we took the decision to reduce our store hours, to focus on the times when customers need us most, and introduced changes to our organisational structure resulting in a reduction of roles. As a people- focused organisation, it is always incredibly difficult to let good colleagues go. I want to thank all of them for their hard work and dedication to Metro Bank. Whilst this was a very tough decision, it was ultimately necessary and is a key step in helping support our long-term sustainability. The exits agreed result in £43 million of annual savings and we remain confident in exceeding £50 million in total annual cost savings in 2024. We will continue to explore options to further right-size our cost base in the months ahead, as we look to secure a sustainably profitable future for the bank. Part of this will include continuing to review our options around stores and our real estate which remain one of the largest components of our fixed cost base. Infrastructure Whilst we have reduced our operating hours, we remain committed to stores, which remain central to our proposition. During the year, we acquired a freehold site in Chester which will be our next new location. We continue to focus on building a pipeline to deliver our growth in the years ahead and have placed a greater focus on securing locations with a strong SME presence. Further store openings in the north of England will predominantly focus on out-of-town locations with parking which are easier for businesses to access and can serve larger populations. Although a physical presence remains core to our offering, our priority will be to continue to digitalise to ensure we remain both competitive against larger high-street peers and new digital entrants. A particular area of focus will continue to be on enhancing our self-service features as well as building out our SME offering where we feel we are continuing to win market share in an area which remains underserved by the market. During the year we worked to transform our mortgage origination platform, which has streamlined the process for both mortgage intermediaries and customers. As mortgages will continue to be the largest component of our lending portfolio we envisage that this investment will yield improvements in productivity and allow us to launch a greater range of products. Where to find out more How we are planning on delivering Our financial approach Our results for the year reflect the challenges faced in the final quarter of the year. Ensuring we are on a path to sustainable profitability remains the highest priority for the ExCo. Read more in our financial review on pages 16 to 19 Our approach to sustainability As a community bank we recognise the important role we play in delivering the sustainability agenda. Key to this is ensuring the decisions we take are right for our customers, communities, colleagues, suppliers and the environment. Read more in our environmental, social and governance review on pages 20 to 33 Our approach to managing risk Maintaining an effective approach to risk management underpins and strengthens our ability to deliver, ensuring decisions made are managed within acceptable limits. Read more in our risk report on pages 124 to 157 Metro Bank Holdings PLC Annual Report and Accounts 2023 Chief Executive Officer’s statement Continued In May, we completed the implementation of our holding company marking an important milestone in meeting our requirements in respect of the Bank of England’s resolution framework. Balance sheet optimisation Over the course of 2023, the management team actively constrained lending to around replacement levels in an effort to build capital organically. Following the capital raise it is now more important than ever that we continue to optimise our balance sheet and utilise our capital stack most efficiently to get the best possible sustainable returns for all stakeholders. The return to a more normalised interest rate environment has led us to shift our focus away from unsecured lending back towards commercial, whilst mortgages will remain the largest component of our balance sheet. With the feedback from the PRA that we would not receive AIRB approval in 2023, our focus is to participate in niche parts of the mortgage market where our manual underwriting capacity is a competitive advantage. This will likely mean that we seek to compete less for vanilla mortgages where AIRB-approved competitors benefit from a materially lower RWA weightage than either standardised weightages or those expected under the Basel 3.1 regulations. The pivot to commercial and specialist lending will drive higher risk adjusted returns but will also increase risk density. In order to meet customer demand and improve profitability, we will manage the balance sheet to optimise returns, which may include (but not limited to) periodically utilising capital buffers or electing to access capital markets to support growth. We are determined that the right-sizing of our workforce will not impede our ability to be a great place to work or a great place to bank. We will continue to foster an environment where colleagues can grow their careers and thrive. I was particularly pleased that during the year we were voted as a top 10 place to work in the UK and our annual Voice of the Colleague survey, conducted in October, saw some of the best results in our history as well as being significantly higher than the global benchmark. We continue to focus on our culture of promoting from within, with over 40% of the positions in the first half of the year filled by colleagues being promoted or moving around the business. For the remaining hires, we have amplified our community focus when recruiting talent, increased opportunities available for apprentices from disadvantaged backgrounds, run a series of roadshows for professional returners trying to get back into the workplace and engaged with later in career populations to support our diverse workforce. In May, we launched a five-year partnership with the England and Wales Cricket Board, later jointly pledging to treble the number of girls’ cricket teams to support the development of women’s and girls’ cricket both at a national and community level, with the aim of delivering a lasting legacy for female representation in the sport. The partnership includes the sponsorship of key sporting events including the Women’s Ashes where we are the title partner. Communication Our focus on delivering excellent customer service is reflected in the latest Independent Competition and Markets Authority (CMA) survey where we retained the number one spot for in-store service for personal and business customers. 2023 also saw us implement Consumer Duty and sign up to the Government’s Mortgage Charter supporting our commitment to customers, especially as many dealt with the effects of increases in the cost of living. Whilst we have reduced our store opening hours in 2024, we remain committed to maintaining a physical presence and ensuring that stores remain both accessible and at the heart of local communities. In 2023, we rolled out our British Sign Language service which customers can now access in any of our stores, on the phone, in app or online. Fifty-two of our stores are also now designated as Safe Spaces – places where those suffering domestic abuse can go to safely start the process of rebuilding their lives. Our community bank ethos also saw us deliver our financial education programme Money Zone in record numbers. The programme has now been delivered to 2,800 schools and 250,000 children, which in 2023 included delivering to 1,100 children in just one day at the Hertfordshire Agricultural Society Food and Farming Day. We have also introduced bespoke programmes for our armed forces’ communities as well as for teenagers aged 16 to 18. Alongside Money Zone, we support our communities through a wider range of initiatives. We have dedicated over 5,600 hours to local causes ranging from litter picks to sponsored walks, as well as celebrating large scale community events, notably Pride in London, Birmingham and Cardiff. 10 Looking ahead 2023 has been a varied year for performance with the continued strong momentum towards achieving underlying profitability in the first half of the year and our successful capital raise being key highlights. These have been offset by continued external headwinds combined with the need to make difficult decisions in the last quarter of the year. Some of these decisions, including our higher cost of deposits will continue to impact earnings potential into 2024, whilst we will not fully benefit from the effects of loan and investment repricing until 2026, therefore acting as a drag on our near-term results. Despite this, I remain confident that the work we have undertaken has allowed us to build the foundations of a structurally profitable bank – which is fundamentally different from where we were four years ago. I remain grateful for the continued support of all our colleagues, customers, debt holders and shareholders as well as wider stakeholders. Daniel Frumkin Chief Executive Officer 16 April 2024 Metro Bank Holdings PLC Annual Report and Accounts 2023 Business model Strategic report Governance Risk report Financial statements Additional information 11 Our business model is simple. By delivering great customer service we can attract and grow a sustainable deposit base, allowing us to lend money to help individuals and businesses fund their ambitions. is underpinned by... Environmental and social priorities We ensure that our business model and approach is focused on the areas that matter most to our stakeholders. Read more on pages 20 to 43 Risk management We continue to focus on enhancing our control environment and risk capabilities, ensuring we balance the risks that need to be taken to deliver our strategy against ensuring this is done in a managed and appropriate manner. Read more on pages 124 to 157 Governance We are continually improving our approach to governance. Ensuring we maintain a robust governance framework is important in allowing all stakeholders to have confidence that we are making decisions in the right way. Our model delivers value for... Combined with... Integrated model Unique culture Creating long-term value allowing investment in... Creating FANS who bring... Risk-adjusted returns Service-led core deposits Allowing us to generate... How we make money We make money through the difference we charge on the loans we issue and the deposits we take, less our operating costs and changes in ECL. Customers Without the loyalty of our customers we would not exist. Ensuring we are turning our customers into FANS ensures the enduring success of our business. Colleagues We strive to make Metro Bank a great place to work; where colleagues can excel, grow and be themselves. Investors We are committed to ensuring that we can be an attractive investment for equity and bondholders. We never take our investors for granted and are working hard to build and maintain trust. Regulators We continue to play our part in ensuring a safe and stable financial system. Suppliers Building a trusted supplier base is key to delivering our ambitions. We want to ensure that as we grow they share in our success. Communities To be the number one community bank we have to be at the heart of the neighbourhoods we serve, delivering societal value day-in day-out. Read more on pages 51 to 123 Read more on pages 16 to 19 Read more on pages 59 to 61 Metro Bank Holdings PLC Annual Report and Accounts 2023 Business model Continued 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. 12 Progress in 2023 Operating environment Priorities Risks KPIs We continue to deliver stand-out service through our stores and digital presence. Our focus on our SME offering has seen us launch a new commercial overdraft and business credit card which includes straight through processing and automated decision-making. During the year we transformed our mortgage origination platform, streamlining the process for both mortgage intermediaries and customers. As mortgages will continue to be the largest component of our lending we envisage that this investment will yield improvements in productivity, allowing us to launch a greater range of products. We pride ourselves on being a bank that puts our colleagues at the heart of what we do. 2023 has been an incredibly difficult year with changes to our organisational structure resulting in the reduction of 1,000 roles in early 2024. Despite this, we continue to be focused on being an employer of choice. In 2023 we were awarded the Diversity, Equity & Inclusion Award from The Top 1% Workplace Awards 2023, reflecting our commitment to attract and retain talent from within the diverse communities we serve. Competition The UK banking market continues to be very competitive with high levels of innovation. To remain competitive we need to continue to invest in all of our channels to ensure they meet our customers’ needs. Consumer behaviour Customers are continuing to place a strong reliance on in-person service, although the move to digital continues. Focus on sustainability We continue to see strong pressure from all of our key stakeholders to ensure all of our operations are sustainable. Competition The market for talent remains highly competitive, and the high inflationary environment has continued to put pressure on wages. We must remain competitive to help colleagues and retain talent. We will explore options to further right-size our cost base in the months ahead. While we remain committed to serving customers through stores, we will look to optimise how this best works for our customers and for our business. This is expected to be through focusing on opening smaller sites in strategic locations in the north of England, and through reassessing our store opening hours, based on how and when our customers use our services. Although a physical presence remains core to our offering, our focus will be to digitalise to ensure we remain competitive against both larger high-street peers and new digital-first or digital-only entrants. We are committed to ensuring our people are our key focus and that recent cost reduction measures do not impact our unique culture. We will continue to support a diverse and inclusive workforce where colleagues can be themselves, investing in training and promoting from within where possible. Our cost reduction initiatives in 2024 will focus on further automation to free up colleagues’ time and allow them to focus on what they do best – creating FANS. Our principal risks in respect of delivering our integrated model are: • Conduct risk. • Operational risk. • Strategic risk. We continue to enhance our processes and systems to minimise the risk of operational issues, and to continue delivering on our strategy. Number of accounts (m) 2023 2022 Customer satisfaction New to bank 2023 2022 Existing 2023 2022 3.0 2.7 76 85 36 33 Our principal risks in respect of delivering our unique culture: Colleague engagement (%) • Conduct risk. • Legal risk. • Operational risk. • Strategic risk. Planned automation and strategic re-focus is key to managing risk within a smaller workforce. 2023 2022 75 75 Senior leadership diversity BAME 2023 2022 Female 2023 2022 20 19 38 41 Read more about our operating environment on pages 6 to 7 Read more about risk on pages 125 to 157 Read more KPIs on pages 14 to 15 Metro Bank Holdings PLC Annual Report and Accounts 2023 Business model Continued Service-led core deposits We seek to attract core deposits through our service-led relationship 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. Strategic report Governance Risk report Financial statements Additional information 13 Progress in 2023 Operating environment Priorities Risks At the start of October, several speculative media reports on the strength of our capital position led to an increased outflow of customer deposits. Whilst liquidity levels remained strong, a deposit campaign was launched in the last months of the year to replace the deposits lost. As at 31 December 2023, we had returned to broadly the same deposit levels as we reported for the third quarter, albeit at a higher cost. Through 2023, we have invested in our deposit capabilities, started to provide savings accounts under our RateSetter brand on deposit aggregator sites, and launched new limited edition savings accounts. Throughout 2023, we actively constrained lending to around replacement levels in an effort to preserve capital. Going into the year we were always clear about our need to access the capital markets, however external pressures caused us to accelerate our initial timetable. We successfully completed the delivery of a capital package in November, following which we decided to refocus our attention on commercial and mortgage lending, with a shift away from consumer lending. Like most banks, a large proportion of our lending is fixed rate and therefore despite base rates having stabilised, we are continuing to see the benefits as older loans mature into a higher rate environment. Competition As interest rates have risen, competition for deposits has increased, both from challenger banks and larger incumbents. Alongside this, newer digital- only fintechs continue to grow. Regulatory environment The regulatory environment continues to work towards ensuring the fair treatment of customers with a particular focus on vulnerable customers and Consumer Duty. This trend is seeing deposit-taking institutions, like ourselves, implement an increasing amount of regulatory requirements. During 2024, our focus will be on utilising the deposit building capabilities we built during 2023. A key component of this will be the new ISA season with a particular emphasis on switching. Alongside this, we will also launch a new ‘boost’ proposition for savings accounts, which will provide us with greater flexibility in the deposit pricing. We also concentrate on continuing to grow our current account numbers, with priority geared towards increasing business accounts, where balances tend to be higher, fee earning opportunities are greater. Competition Competition in the lending space remains strong notably in the mortgage space from larger competitors as well as specialist lenders in other key segments. Following the capital raise, we continue to optimise our balance sheet and utilise our capital stack most efficiently to get the best possible sustainable returns for all stakeholders. We plan to shift our focus away from unsecured lending back towards commercial, whilst mortgages will remain the largest component of our balance sheet with a focus on niche parts of the mortgage market where our manual underwriting capacity is a competitive advantage. Capital and funding regime The UK’s rigorous capital regime continues to see large financial firms, including ourselves, dependent on capital markets to support regulatory requirements. Economic and political outlook We expect interest rates to continue at a more normalised level in 2024, but financial pressure on households and an uncertain political outlook remains. Read more about our operating environment on pages 6 to 7 Our principal risks in respect of delivering service-led core deposits are: • Conduct risk. • Financial crime. • Legal risk. • Liquidity and funding risk. • Market risk. • Regulatory risk. We continue to actively manage our balance sheet to ensure we retain high levels of liquidity and appropriately hedge our interest rate risk. Alongside this, we continue to enhance our controls and review our products to both protect our customers and ensure we are delivering fair outcomes. Our principal risks in respect of delivering risk-adjusted returns are: • Conduct risk. • Credit risk. • Market risk. • Regulatory risk. • Model risk. • Capital risk. • Strategic risk. We take a prudent approach to lending to minimise the risk of losses. We continue to review and update our credit models to support this issue. KPIs Cost of deposits (%) 2023 2022 0.20 0.97 Cost of risk (%) 2023 2022 0.26 0.32 Loan-to-deposit ratio (%) 2023 2022 79 82 Total capital plus MREL ratio (%) 2023 2022 22.0 17.7 Read more about risk on pages 125 to 157 Read more KPIs on pages 14 to 15 Metro Bank Holdings PLC Annual Report and Accounts 2023 Key performance indicators 14 Our KPIs are the metrics we monitor to check we are on track with the delivery of our strategy as well as to assess how our business model is performing. Link to business model Components of our business model Our business model is set out on page 11. Further details of each component of our business model can be found on pages 12 to 13, including how our KPIs link to measure our performance for each of these components. KPI performance during 2023 Despite the challenging operating environment in 2023, we have performed robustly on the majority of our KPIs. A particular highlight has been maintaining record colleague engagement scores and the continued growth in customer numbers. Customer satisfaction remains a key area of focus as whilst our scores remain favourable compared to market peers, we want to ensure the reversal of the decrease seen in year on new account openings, as well as to continue to increase the net promoter score on continuing relationships. In respect of our financial metrics, we have reported a statutory profit and a smaller underlying loss for the year. Equally our capital ratios have improved following successful delivery of the capital package during the year. Output of our business model The output of our business model is to generate long-term value and create tangible book growth, measured through: • Total shareholder return. • Return on tangible equity. Link to remuneration approach Our approach to remuneration for management is based on a simple and clear scorecard. The scorecard measures are aligned to the four components of our business model to ensure management is focused on these. In addition to this we provide an LTIP which is linked to our scorecard outcomes of long-term value generation and tangible book growth. Alternative performance measures Where a financial KPI is an alternative performance measure a reconciliation to the nearest statutory measure can be found on pages 230 to 234. Non-financial Customer accounts (m) Colleague engagement 2023 2022 2021 3.0 2.7 2.5 2023 2022 2021 75 75 69 How we define it Number of active customer accounts. Why it is important Growing our customer accounts is key to our franchise and validates that our approach is working and that our proposition resonates with customers. How we define it The result is taken from our annual Voice of the Colleague survey. Why it is important Attracting and retaining talent is vital to delivering superior service and preserving our culture and therefore we want to ensure colleagues enjoy working for us. Customer satisfaction (%) Senior leadership diversity (%) New account openings Female 2023 2022 2021 76 85 90 2023 2022 2021 Continuing relationships Minority ethnic 38 41 43 20 19 20 We did see a noticeable increase in our cost of deposits, which was driven by a combination of rising base rates as well as the cost of the deposit initiatives undertaken in the fourth quarter. 2023 2022 2021 36 33 42 2023 2022 2021 Key Score card measure LTIP measure Alternative performance measure How we define it Net promoter score for new account openings and continuing customer relationships. Why it is important Our purpose is to create FANS and as such ensuring strong ongoing levels of customer satisfaction is important in measuring this. How we define it Proportion of female/minority ethnic colleagues amongst our senior leadership team (ExCo and their direct reports). Why it is important Ensuring diversity amongst our senior management ensures we are representative of the communities we serve and our colleagues as a whole. This means we are more likely to make decisions that are beneficial to all our stakeholders and help us deliver on our strategy. Metro Bank Holdings PLC Annual Report and Accounts 2023 Key performance indicators Continued Financial Strategic report Governance Risk report Financial statements Additional information 15 Statutory profit/(loss) before tax (£m) Underlying loss before tax (£m) Total capital plus MREL ratio (%) 2023 2022 2021 (245.1) 30.5 (70.7) 2023 2022 2021 (171.3) (16.9) (50.6) 2023 2022 2021 22.0 17.7 20.5 How we define it Our earnings before tax as defined by International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). Why it is important Achieving sustainable profitability is the key financial measure to demonstrate we are creating long-term value. How we define it Our statutory earnings adjusted for certain items that distort year-on-year comparisons. Why it is important It provides further understanding of the underlying trends in the business. How we define it Our total capital plus MREL expressed as a percentage of RWAs. Why it is important Our capital ratio represents the level of solvency of the bank, and the ability to be resilient in events of stress. This is important for all our stakeholders. Cost of deposits (%) Cost of risk (%) Statutory cost:income ratio (%) 2023 2022 0.20 2021 0.24 0.97 2023 2022 2021 0.26 0.32 0.18 2023 2022 2021 90 106 153 How we define it Interest expense on customer deposits divided by the average deposits from customers for the year. Why it is important Our ability to attract service-led core deposits is a component of our business model with cost of deposits being a key determinant in measuring this. How we define it ECL expense divided by average gross loans for the year. Why it is important We seek to minimise our cost of risk, balanced with the interest received, to ensure we are optimising our lending. How we define it Total costs (excluding ECL expense) expressed as proportion of total income. Why it is important As we become more efficient, the ratio decreases and indicates our path to achieve the relevant scale for our capabilities of products and services. Return on tangible equity (%) Loan-to-deposit ratio (%) Total shareholder return (%) 2023 2022 2021 (28) 4 (10) 2023 2022 2021 79 82 75 2023 2022 2021 (94) (71) (41) How we define it Earnings for the year divided by average tangible shareholders’ equity (total equity less intangible assets). How we define it Net 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 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 ratio 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 Holdings PLC Annual Report and Accounts 2023 Financial review Summary of the year 2023 was another important year for us as we returned to profit on both a statutory and underlying basis in the first half of the year, established our new holding company and secured a successful capital package that will allow us to continue to profitably grow the business over the coming years. For the full year ended 31 December 2023, we recorded an underlying loss before tax of £16.9 million, a reduction of 67% from 2022 (2022: loss of £50.6 million), partially reflecting the higher cost of deposits and wider market trend of declining current account balances. On a statutory basis we recognised a profit before tax of £30.5 million (2022: loss of £70.7 million), reflecting the one-off gain on the refinancing of our existing Tier 2 debt as part of the capital package. Additionally, non-underlying items included £20.2 million of costs associated with our announced cost reduction plan which is designed to improve the ongoing efficiency of our business as we look to deliver sustainable profitability. Our results were impacted by the setback in September to our ambitions to achieve AIRB accreditation for residential mortgages and associated speculative media reports regarding our capital position led to an outflow of customer deposits, with a decrease in current account balances. Our strong levels of liquidity and prudent approach meant these outflows were manageable and we were able to quickly replace these balances with longer-term deposits, albeit at a higher cost, which contributed to a material increase in our cost of deposits in the fourth quarter. 16 Despite these challenges, we have entered 2024 with both a stronger capital and liquidity position. We have taken the first steps to deliver a disciplined cost reduction programme that will act to mitigate many of the headwinds we face and ensure a return to sustainable profitability. Statutory and underlying results Financial information in this report is prepared on a statutory (taken from our financial statements on pages 158 to 224) and underlying basis (which we use to assess performance on a management basis). Further details on how we calculate underlying performance, as well as our other alternative performance measures can be found on pages 230 to 234. Income statement Underlying net interest income Underlying non-net interest income Total underlying income Underlying operating expenses 2023 £m 2022 £m Change % 411.9 404.2 2% 134.6 117.9 14% 546.5 522.1 5% (530.2) (532.8) – ECL expense (33.2) (39.9) (17%) Underlying loss before tax (16.9) (50.6) (67%) Non-underlying items 47.4 (20.1) n/a Statutory profit/ (loss) before tax 30.5 (70.7) n/a Interest income Interest income benefitted from a rising base rate during the period, increasing 52% to £855.7 million (2022: £563.7 million). Lending income continues to be the largest component of our interest income. Residential mortgage assets benefitted from higher rates for new and retained customers, with asset yields increasing to 3.37% (2022: 2.65%). Our retail mortgages are 92% fixed, with an average time to reversion of 2.41 years (31 December 2022: 2.45 years); we expect to see continued rate growth in the years ahead as older balances roll-off and are replaced with new lending at a higher rate. Our commercial lending portfolio income grew due to higher yields, predominantly driven by our floating business loans which have seen greater yields as a result of the higher base rate environment, as well as the continued attrition of lower-yielding government-backed lending which was written during the COVID-19 pandemic. Commercial lending remains a strong and growing part of our book; as part of our strategy, we will continue to rotate and grow our commercial lending, with a particular focus on small and medium enterprises as well as more specialist lending. Consumer lending income also increased, driven by higher yielding originations due to the base rate environment. In 2024, we will no longer provide new consumer lending and instead focus on the commercial and specialised mortgages for new originations. We also saw the benefits of increased rates flowing through to our treasury portfolio with interest income on our cash and investment securities increasing. This increase was also aided by our decision to adjust our portfolio mix towards lower risk-weighted investment securities and restrict levels of new lending origination to repayment levels. Interest expense Interest expense increased 178% to £443.8 million (2022: £159.6 million). This increase reflected the combination of the continued gradual reduction in non-interest bearing personal current accounts as well as an increase in cost of deposits reflecting the rising rate environment. The reduction in average balances started across the industry in late 2022 in response to increases in the cost of living, as customers looked to pay down debt and move excess deposits into savings accounts, as well as weather the higher inflationary environment. We saw additional attrition in the fourth quarter following media speculation surrounding our capital options although we have continued to see the number of current accounts grow. During 2023, we have enhanced our deposit capabilities, including serving aggregators and the launch of limited-edition savings products. This has successfully aided deposit inflows, whilst also increasing our average cost of deposits to 0.97% (2022: 0.20%). Our wholesale funding expenses have also increased as a function of interest rates, where the largest expense is the Bank of England’s Term Funding Scheme (TFSME) which is directly linked to base rate. Due to a higher rate environment, we have seen expenses for TFSME increase to £161.3 million (2022: £55.5 million). Despite this increase, it remains an additional stable cost of funding and is accretive to net interest income. During the year, we repaid early the TFSME maturities scheduled for 2024 and the start of 2025. This repayment was partially funded by repurchase agreements, which represented a more cost-effective form of funding. We also used repurchase agreements in the fourth quarter which provided additional liquidity, which were largely repaid by the year-end. Metro Bank Holdings PLC Annual Report and Accounts 2023 Strategic report Governance Risk report Financial statements Additional information 17 Operating expenses Non-underlying items Expected credit loss expense Financial review Continued A combination of these factors, along with the increase in base rate, led to an increase in interest expense on repurchase agreements from £3.4 million in 2022 to £50.1 million in 2023. As part of the capital package, our existing Tier 2 notes, which repriced to 9% in June 2023, were redeemed and replaced with £150 million of new Tier 2 notes at a coupon of 14%. The redemption date of our existing MREL debt was extended, and £175 million new MREL debt issued, both at a coupon of 12%. The repricing and restructuring has resulted in an increase to interest expense on debt securities in 2023 which rose from £48.7 million in 2022 to £55.7 million in 2023; this increased cost of funding will continue into the future. Despite the increased cost, the refinancing of our wholesale debt has enhanced our balance sheet strength, provides additional certainty to all stakeholders and allows us greater runway to continue to deliver our strategy thereby assisting in delivering greater earnings potential in the future. Non-interest income Net fee and commission income has increased by £8.6 million to £90.4 million in 2023 (2022: £81.8 million), reflecting growth in retail and business current account volumes. Interchange income grew by £3.0 million to £40.0 million (2022: £37.0 million) reflecting increased consumer spending using a Metro Bank card. Safe deposit box income increased by £1.7 million to £18.2 million (2022: £16.5 million) reflecting higher volumes as occupancy levels increased, driven by greater consumer demand in strategic geographical locations. Foreign exchange income has remained broadly static year on year at £34.0 million (2022: £34.1 million), providing a valuable source of income, whilst having minimal impact on our capital ratios. Underlying cost: income ratio 97% 102% Statutory cost: income ratio 90% 106% 2023 2022 Despite inflationary pressures, our disciplined approach to cost management has led to a slight decrease in underlying operating expenses to £530.2 million compared to £532.8 million in 2022. This was aided by the decision at the end of 2022 to reduce the number of consultants and contractors used in the business, and to streamline our project delivery capabilities. Salary costs remain our biggest contributor to operating expenses and in the current year we incurred costs of £241.2 million (2022: £236.6 million). A £13.8 million provision for the cost of the restructure has been booked in 2023 as a non-underlying item. Professional fees have reduced significantly by £15.2 million to £23.2 million (2022: £38.4 million) as we have moved away from the use of contractors. In addition to this, information technology costs have also fallen by £2.5 million to £59.7 million (2022: £62.2 million), reflecting our cost discipline. Occupancy expenses continue to be a fixed cost being driven by our store portfolio; costs have remained broadly flat despite the inflationary environment as we continue to actively reduce the cost base whilst maintaining our presence on the high street. The continued discipline in operational cost has also funded areas of increased expenses, including greater investment into deposit product capability as well as a new multi-year sponsorship of women and girls cricket with the ECB. We see this as part of our ongoing commitment to become the number one community bank. 2023 £m 2022 £m Change % 31 December 2023 ECL allowance £m Coverage ratio % NPL ratio % Retail mortgages 19 0.24% 1.87% Impairment and write-off of property, plant, equipment and intangible assets (4.6) (9.7) (53%) Consumer lending Remediation costs – (5.3) n/a Commercial Transformation costs (20.2) (3.3) 512% Total lending 108 72 199 8.33% 5.94% 2.13% 1.59% 4.91% 3.11% Capital raise and refinancing 74.0 – n/a Retail mortgages 20 0.26% 1.45% 31 December 2022 Holding company insertion costs (1.8) Non-underlying items 47.4 (1.8) – Consumer lending (20.1) (336%) Commercial Total lending 75 92 187 5.07% 3.38% 2.21% 4.59% 1.41% 2.65% We have recognised non-underlying income in 2023 of £47.4 million (2022: expenses of £20.1 million) driven by the capital package secured in October 2023 which resulted in a 40% haircut, and a £100 million gain, on the £250 million Tier 2 debt issuance. As part of the capital package, we incurred costs of £26.0 million. These consisted of fees paid to our advisors in relation to the debt restructuring, the acceleration of unamortised issuance costs, as well as the impacts from the breaking of the hedge relationships the instruments were previously in. This is offset by the recognition of £20.2 million of transformation costs, which includes a £15.0 million provision for restructuring and associated costs. We have benefitted from the completion of remediation activities which were settled in 2022. We recognised an expected credit loss expense of £33.2 million in year 2023 (2022: £39.9 million), reflecting the challenging economic environment arising from the increased cost of living. The decrease from 2022 is due to management actions to optimise the credit quality of new lending, combined with releases relating to commercial customers that we have worked with and have secured repayments from. We continue to maintain management overlays and adjustments of £23.4 million (2022: £30.9 million) which represents 12% of ECL stock (31 December 2022: 16%). As at 31 December 2023, our coverage ratio was 1.59% (2022: 1.41%) and we believe we remain appropriately provided at this stage in the economic cycle. Consumer lending accounted for the majority of the expected credit loss expense driven by loan maturation and deteriorated performance due to macroeconomic factors. The loan coverage ratio for consumer lending ended the year at 8.33% compared to 5.07% as at 31 December 2022. Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial review Continued 18 Commercial lending has been more resilient in 2023, with a release of expected credit losses during the year. The coverage ratio for commercial lending has decreased slightly to 2.13% as at 31 December 2023, down from 2.21% as at 31 December 2022. We also saw a release of expected credit losses in respect of our retail mortgage portfolio, where credit quality remains high, leading to a slight decrease in coverage ratio from 0.26% to 0.24% over the year to 31 December 2023. Looking forwards into 2024, we expect to continue the rotation of assets away from consumer unsecured and towards the commercial sector where we see strategic opportunity to support SMEs, a vital segment of the UK economy. The economic environment and wider outlook remain challenging and uncertain; however our processes ensure we continue to maintain adequate coverage ratios and continue to actively manage our portfolios. Balance sheet Lending 31 December 2023 £m 2022 £m Change % Retail mortgages 7,817 7,649 2% Consumer lending 1,297 1,480 (12%) Commercial 3,382 4,160 (19%) Gross lending ECL allowance 12,496 13,289 (199) (187) Net lending 12,297 13,102 (6%) 6% (6%) Net loans and advances to customers ended the year at £12,297 million, down 6% from £13,102 million as at 31 December 2022, as we actively managed our RWA capacity reflecting our capital constraints for the majority of the year. The increased interest rate environment is ensuring that we are achieving a higher return on regulatory capital in all areas of lending as new loans are written at higher yields but with the same risk-weighting. Retail mortgages continue to form the largest component of our lending base at £7,817 million (31 December 2022: £7,649 million), representing 63% of lending (31 December 2022: 58%). With the feedback from the PRA that we should not expect to receive AIRB approval in 2023, our focus going forward will be to dominate in niche parts of the mortgage market where our manual underwriting capacity is a competitive advantage. This will likely mean that we seek to compete less for vanilla mortgages with competitors benefitting from a materially lower RWA weightage than either standardised weightages or those expected under the Basel 3.1 regulations. The commercial portfolio has decreased from £4,160 million as at 31 December 2022, to £3,382 million as at 31 December 2023. The decrease primarily related to our government- backed COVID relief loans which continue to run off following the closure of most schemes in 2021. As at 31 December 2023 outstanding lending under these schemes totalled £938 million (31 December 2022: £1,313 million). Although these loans are highly capital efficient due to their government backing, as these were written at the bottom of the interest rate cycle, they are relatively low-yielding and we will continue to see the benefit to interest income as these loans roll-off. Commercial lending is expected to increase in 2024 as we shift our asset focus to commercial and specialist lending, especially in the SME sector which is currently underserved in the market. This includes launching a suite of relationship-driven products to ensure we can meet all of our customer needs. In 2023, we launched our new business credit card and commercial overdraft, which are fully digital journeys with automated acceptance and decision scoring. This comes off the back of our business overdraft in 2022 which continues to be popular with customers. The consumer portfolio has also decreased to £1,297 million (31 December 2022: £1,480 million), driven in part to minimise exposure to a higher risk segment during this part of the economic environment, but also partly reflecting our evolving strategic priorities where we are looking to prioritise relationship lending as part of our ambition to be the best community bank. Treasury portfolio Over the year, we have continued to optimise our treasury portfolio to maximise our risk adjusted return on regulatory capital, particularly as rates have risen. We ended the year with £8,770 million of treasury assets (31 December 2022: £7,870 million), comprising £4,879 million investment securities and £3,891 million cash and balances at the Bank of England (31 December 2022: £5,914 million and £1,956 million respectively). Our investment securities remain high quality and liquid, with 75% being either AAA-rated or gilts (31 December 2022: 68%). Other assets Property, plant and equipment ended the year at £723 million, down from £748 million as at 31 December 2022. Depreciation continues to outstrip additions, due to no new store openings taking place in 2023, although we are continuing to identify sites for future stores in the North of England. These sites are likely to be smaller than previously envisaged and more likely to be in locations that are most convenient for surrounding businesses. Freehold and long-leasehold properties total 30 out of our 76 stores. This strategy continues to provide us with a more cost- effective way of delivering our store-based service-led model. Intangible assets have decreased to £193 million, down from £216 million in 2022, reflecting a more selective approach to investments. Our investments in 2023 have included delivering confirmation of payee services, improved deposit propositions and a new mortgage platform. Deposits Retail customer (excluding retail partnerships) Retail partnership Commercial customers (excluding SMEs) SMEs Total customer deposits Of which: Demand: current accounts Demand: savings accounts Fixed term: savings accounts 31 December 2023 £m 2022 £m Change % 7,235 1,708 5,797 1,949 25% (12%) 2,898 3,188 (9%) 3,782 5,080 (26%) 15,623 16,014 (2%) 5,696 7,888 (28%) 7,827 7,501 4% 2,100 625 236% We remain focused on being a service-led deposit-driven bank. We ended the year with deposits of £15,623 million (31 December 2022: £16,014 million), a decrease of 2% year on year but up 1% from 30 June 2023. Deposits have been gradually decreasing during 2023 due to the increased cost of living weighing on people’s savings capacity as well as the increasingly competitive interest rate environment which has seen customers both paying down debt and increasingly move deposits to higher-earning savings accounts. Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial review Continued Strategic report Governance Risk report Financial statements Additional information 19 Following press speculation surrounding our capital raise, we saw a time-limited outflow of deposits. Core deposit flows have since stabilised to more recent normal ranges and we have seen a return to growth in these balances following the successful completion of the capital raise. The launch of a deposit gathering promotion in November 2023 saw us successfully attract new funding albeit at a higher cost. Overall our deposit base continues to remain diversified with a 57%:43% split between retail and commercial customers (31 December 2022: 49%:51%). We expect to continue raising deposits along with current account growth with planned store openings in the North of England, as well as continuing to pursue growth in the Instant Access and Cash ISA markets. Wholesale funding We remain predominantly a deposit funded organisation, with wholesale funding utilised where appropriate. Our wholesale funding continues to be mainly the Term Funding Scheme with additional incentives for SMEs (TFSME). During the year we have reduced our utilisation of the TFSME by £750 million, reducing our holding to £3,050 million (31 December 2022: £3,800 million) as we repaid some maturities due in 2024 and 2025 early. Part of this has been funded by our high levels of liquidity, as well as via the utilisation of short-term repurchase agreements which represented a more cost-effective source of financing. Taxation We recorded a tax charge of £1.0 million (2022: £2.0 million) in the year. This charge is primarily due to the offsetting impact of achieving a statutory profit, against exemptions in tax law for the gain recognised on the Tier 2 haircut. We have unused tax losses of £912 million (2022: £859 million) for which no deferred tax asset is being recognised. The current value of our deferred tax asset is £214 million (2022: £215 million). There is no time limit on the utilisation of tax losses and as such the Bank will recognise a deferred tax asset once sustainable profitability is achieved. Liquidity Our liquidity position remains strong and in excess of regulatory minimum requirements. We ended the year with a liquidity coverage ratio of 332% (31 December 2022: 213%) and a net stable funding ratio of 145% (31 December 2022: 134%). We continue to hold large amounts of high-quality liquid assets totalling £6,656 million (2022: £4,976 million). This included £3,642 million of cash held at the Bank of England (2022: £1,761 million). Capital CET1 capital RWAs CET1 ratio Total regulatory capital ratio Total regulatory capital plus MREL ratio UK regulatory leverage ratio 2023 £m 985 7,533 13.1% 2022 £m 819 7,990 Change % 20% (6%) 10.3% 280bps 15.1% 13.4% 170bps 22.0% 17.7% 430bps 5.3% 4.2% 110bps We ended the year with CET1, total capital and total capital plus MREL ratios of 13.1%, 15.1% and 22.0% respectively (31 December 2022: 10.3%, 13.4% and 17.7%), above regulatory minima, including buffers (excluding any confidential buffers, where applicable), of 9.2%, 10.8% and 21.2%. The capital raise saw us issue £150 million of new equity and £175 million in new MREL- eligible debt. As part of the capital package, a long-time investor, Spaldy Investment Limited, became our majority shareholder. In addition to raising new capital, we also refinanced all of our existing regulatory debt. This consisted of £350 million of MREL, which had a call date in November 2024. The refinanced debt, along with the new MREL has a call date of 30 April 2028, providing additional runway for us to deliver our strategy. Alongside this, we replaced our existing £250 million of Tier 2 debt with £150 million of new instruments. The £100 million haircut agreed by bondholders has led to a one-off gain which has been reported as a non-underlying income amount in 2023. We ended the year with risk-weighted assets of £7,533 million (31 December 2022: £7,990 million), reflecting the active capital management we have delivered since the end of 2022 as well as prudent lending decisions at this stage in the economic cycle. At the end of the first half of 2023, we also completed the implementation of our holding company marking an important milestone in meeting our requirements in respect of the Bank of England’s resolution framework. All of our regulatory capital and debt capital is now issued from the new holding company. Basel 3.1 The PRA has published the first of two near-final policy statements covering the implementation of the Basel 3.1 standards for market risk, credit valuation adjustment risk, counterparty credit risk, and operational risk, with remaining elements of the standards expected to be published in the second quarter of 2024. In September 2023, the PRA announced a delay in implementation of the proposals until 1 July 2025. However, the phase in period for the output floor was reduced from 5 years to 4.5 years to maintain full implementation by 1 January 2030. Based on our balance sheet and lending mix as at 31 December 2023 and the current proposals, our initial assessment of the impact indicates that there should be no material change to our capital position on implementation day. It should be noted that the rules are still subject to change. Looking ahead We enter 2024 with a stronger and longer dated capital base, putting us in a good position to deliver on strategy. We have also started the process of delivering a disciplined cost reduction programme, which will help to mitigate some of the near-term headwinds, notably the increased cost of deposits. Ensuring we reduce our cost of deposits from their 2023 exit rate through the generation of additional core-deposits remains a priority. Alongside this, a key area of focus will be rotation of assets from consumer unsecured towards commercial lending, where we believe we can generate a better return in the current environment. This combination of selective capital allocation, pricing rigour and cost discipline is core to our execution, with these steps meaning we are on the path to long term sustainable profitability. Cristina Alba Ochoa Interim Chief Financial Officer 16 April 2024 Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Our ambition to be the number one community bank is built on doing the right thing by our customers, communities, colleagues, suppliers and the environment. Our customers, communities and colleagues Governance, resilience, suppliers, data privacy and security Our planet and climate-related disclosures Page 22 Page 27 Page 29 The strong connection between community banking and ESG There is a strong synergy between our ambition to be the number one community bank, and our approach to ESG. Inherent to our community banking model is acting supportively, sustainably and responsibly towards our customers, our communities, our colleagues and our environment. Metro Bank has always strived to be a different kind of bank. We operate at the heart of local communities, delivering fantastic customer service. As we have grown, our community- focused activities have expanded too, and in parallel to this we have incorporated ESG priorities into our business. We embrace diversity and champion inclusivity; value sustainability and act responsibly towards the environment; make a positive difference through the local colleagues we employ, the local businesses we work with and the local causes we support. We simply aim to do the right thing by our stakeholders. In short, a true community bank. Our support for communities in 2023 has included: • Easter Egg Appeal between 20 March and 6 April distributing eggs to local community groups. • Pride events in London and Birmingham. • Diwali in Leicester (one of the largest Diwali celebrations outside of India) in October and November. • 21 stores participated in Silver Sunday on 1 October 2023, a campaign to tackle loneliness and isolation among older people. • Armed forces day in June. • The Morph art trail in central London. • International Women’s Day in March. • Hertfordshire County Show and the Hertfordshire Food and Farming day in July. 20 2023 ESG governance structure The Audit Committee reviews our ESG update and disclosures for TCFD requirements as part of its wider role in reviewing our Annual Report and Accounts. Non-Executive Director Nick Winsor has an informal Board role for ESG oversight which includes engaging with senior management on ESG matters. The Chief People Officer is the ExCo member responsible for ESG strategy and the Chief Risk Officer has SMF responsibility for climate change risk. ESG governance and structure The Board has oversight of our ESG strategy and priorities and ESG issues are regularly considered by ExCo. Our internal ESG structure comprises an ExCo-level ESG Steering Committee which coordinates all our ESG activities and reports into the Board on an annual basis, plus Working Groups of subject matter experts that coordinate progress and activity across ESG themes and report into the ESG Steering Committee every quarter. The Risk Oversight Committee (ROC) has oversight of the framework for managing and reporting the risks from climate change, as set out in the Enterprise Risk Management Framework. ROC can escalate climate- related risk matters to the Board. Board of Directors Risk Oversight Committee Audit Committee Executive Committee Executive Risk Committee ESG Steering Committee Environment Working Group Social Working Group Governance Working Group Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued Strategic report Governance Risk report Financial statements Additional information 21 ESG materiality and priority themes In 2022, we conducted a materiality assessment of our approach towards current and emerging ESG issues to obtain deeper understanding of our external and internal stakeholders’ views. We used the Global Reporting Initiative approach. Following research and a shortlisting exercise, we asked stakeholders to rank 19 issues, which we mapped against six overarching priority themes. We take account of the results in our considerations of ESG issues. Our customers and communities Our colleagues Data privacy and security Turning customers and the communities we serve into FANS is central to everything we do. We are committed to an AMAZEING colleague experience, based on an inclusive culture. We continue to assess evolve and mature our data privacy and cyber security capabilities Topics identified via materiality assessment: Topics identified via materiality assessment: Topics identified via materiality assessment: • Customer service and experience – • Colleague attraction training and creating FANS. development. • Data privacy and cyber security. • Financial crime and fraud. • Financial inclusion, literacy and • Colleague engagement, health, safety education. • Supporting vulnerable customers. • Community engagement, investment and fundraising. and wellbeing. • Diversity, equality and inclusion. Our suppliers Governance and resilience Our planet We work with suppliers who uphold our values and actively assess and monitor the controls they put in place. Topics identified via materiality assessment: • Supply chain engagement and responsible procurement. • Human rights and modern slavery. • Anti-bribery and corruption. Good governance, compliance and risk management practices make sure we remain a sustainable, strong and resilient business. Topics identified via materiality assessment: • Good governance practices. • Ethics and compliance. • Risk management and business resilience. We are taking the actions required to make positive changes and reduce our impact on the environment. Topics identified via materiality assessment: • Climate change. • Operational environmental efficiency. • Responsible investment and stewardship. • Sustainable product innovation. Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued 22 UN SDGs Our ESG strategy contributes to a number of the United Nations Sustainable Development Goals (UN SDGs) and this is highlighted as appropriate in the following pages. Our customers, communities and colleagues We believe that by fostering these key relationships we can generate wider shared prosperity. Our commitment to community banking aligns with the ‘S’ of ESG. It informs everything we do and runs through every aspect of our model and engagement with our colleagues, customers and communities. By helping our communities thrive, we believe our business will too. Responsibility for delivery is shared across all Metro Bank colleagues, led by our stores with their physical presence in communities across the country. In the following section, we present how our approach to community banking promotes Education, Employment, Equality and Equity. Education Alignment to UN SDGs: We have always championed financial education in our local communities. Research from the Money and Pension Service in summer 2023 found that under half of children aged seven to 17 have been taught the skills they need to handle money as adults. Our free Money Zone financial education programme recognises this need and colleagues in all our stores are specially trained to deliver Money Zone to children at Key Stage 2 and 3 in local schools and clubs. We have reached well over 250,000 children with Money Zone to date, including more than 170 schools and community groups in 2023. This year we extended Money Zone to large community events including to 1,100 children at the Hertfordshire Food and Farming day in July. Last year we launched a financial education programme for young care leavers, and in 2023, we extended it to young people in sixth forms and colleges and to people serving in the armed forces. In 2023, we delivered 16 ‘Tech Zone’ workshops with more than 300 primary school kids from the most deprived parts of London, teaching basic coding skills using micro:bit – tiny computers that have various sensors and capabilities such as buttons, LEDs, light sensor, temperature sensor, microphone, compass, accelerometer, speaker, radio and pins to connect to other devices or extensions. As part of this, Metro Bank built a strong relationship with STEM Learning and became accredited as a STEM organisation, in order to facilitate training to the community. We also created a train the trainer workshop to educate Metro Bank colleagues to deliver the programme in schools. Education for our colleagues has always been a critical part of creating FANs in our communities. In addition to onboarding 1,155 new colleagues, this year we have run three learning campaigns with subject experts to develop skills and to foster a culture of learning. Campaigns focused on key topics: • data literacy and protection • personal development and careers • focusing on leadership mindset and skills. The career campaign alone saw 61% of our colleagues accessing the new modules and events, with over 3,000 views on our Metro Bank University (MBU) internal digital platform. 250k+ children have attended our Money Zone education programme Further developing our technical capabilities, we extended access to learning resources to support the majority of our corporate functions. We have access to over 2,150 new courses from expert training providers globally and we have seen 4,729 colleague interactions (equating to 1,085 learning hours). Our popular MSc Sustainable and Digital Banking apprenticeship programme has seen seven graduates this year, with 19 colleagues starting in December. We also launched our Tech Academy, developing skills through apprenticeships in cyber and IT operations, and currently we have 137 colleagues completing apprenticeships. 75% of our senior leaders attended one or more events hosted by a series of five thought leaders and industry experts. Topics ranged from developing a human customer experience to competition in the banking sector, to the barriers that women face returning to work after a career break. Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued Strategic report Governance Risk report Financial statements Additional information 23 Inspiring the next generation In September 2023, we worked with Phoenix Primary School in Basildon to deliver three one-hour workshops to pupils with different ability levels including children with ADHD and autism. We adapted our training plans and sessions to reflect this, including simplifying our materials to ensure they were appropriate. As a result of these successful workshops, we were asked to run a session at Roehampton Gate Primary School which specialises in children with mild to moderate autism and Asperger’s syndrome. Employment Alignment to UN SDGs: We are delighted to be named in Newsweek’s UK top ten Most Loved Workplaces® for the second year running – the ranking recognises companies that put respect, caring, and appreciation for their colleagues at the centre of their business model. The numerous awards we’ve won in 2023 include: • Top ten UK Most Loved Workplaces. • Top 1% Workplaces Awards: Diversity, Equity and Inclusion Award and Leader of the Year Award. • Global Diversity List 2023: Diversity and Inclusion Professional and Champion. • 2023 Inclusive Awards: Inclusive Culture Initiative Award. • Elite Women 2023: Best women mortgage leaders in the UK. • Women in Finance Awards 2023: Diversity Lead of the Year. • MoneyAge Mortgage Awards 2023: Large Loans Mortgage Lender of the Year. • British Specialist Lending Awards: Lender: Head of Sales. • Mortgage Strategy Awards: Best Large Loan Lender. • UK National Contact Centre Awards: Quality Manager of the Year. • Credit Strategy Car Finance Awards: Company Award for Diversity & Inclusion. • M&A Today, Global Awards 2023: Best Lender of the Year – UK. • Forbes Advisor Best of 2023 Awards: Best Business Credit Card. • Moneynet Personal Finance Awards 2023: Best Business Credit Card. In 2023, 95 colleagues joined us on our Level 2 and 3 Financial Services Customer Advisor Apprenticeship Programmes which support people starting a career in banking – the programme has achieved an overall effectiveness rating of ‘good’ from Ofsted. 63% of our apprentices in our stores and Amaze Direct contact centres come from the 50% most deprived areas of England. Through the opportunity to share up to 25% of our apprenticeship levy, we can support non-levy paying businesses in our local communities to recruit apprentices. In 2023, we focussed on supporting female-led businesses in the Northants area. 300+ female business leaders attended networking events across our stores Metro Bank is a founding signatory to the Investing in Women Code, and as a community bank we can be instrumental in supporting female entrepreneurs. In 2023, in addition to our stores’ regular networking events for local businesses, stores hosted ten events for more than 300 female business leaders. We have redeveloped our public webpage dedicated to supporting women in business, adding a range of case studies to inspire future female business leaders, highlighting the support we can provide, and including the details of our local ambassadors for female entrepreneurs. 200k businesses have their current account with us and more are switching to us everyday Metro Bank customer case studies also featured prominently in the British Business Bank’s Investing in Women Code Annual 2023 Report. Our stores celebrated International Women’s Day by hosting more than 2,000 people at complimentary networking events for local businesses. We’re committed to helping local businesses, who form such an important part of thriving communities. We put relationship banking at the heart of our support for businesses, with every small business customer enjoying direct access to a Local Business Manager. We provide current accounts to more than 200,000 businesses and more are switching to us every day. Building on the successful introduction of our enhanced business overdraft last year, this year we have launched our enhanced Business Credit Card providing fast, flexible access to up to £60,000 of credit, underpinned by an automated and simplified application process meaning customers can walk out of their local store with their new credit card in under 45 minutes. We have also radically improved our small business lending products increasing lending amounts up to £60,000 with a faster journey from application to decision to receiving funds. Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued 24 Armed Forces Business Insights Day 25 people attended our Armed Forces Insight Day, where they heard from our Chief People Officer and Managing Director of Banking Products, plus a number of other senior leadership team members representing a range of business areas. Attendees had the opportunity to have their CVs reviewed by our internal recruitment team and meet hiring managers. This led to three attendees following up and beginning the process for applying for roles. This process is continuing in view of the 12-month timeframe for those leaving the Armed Forces. We are strong supporters of the Armed Forces Covenant and hold the Gold Award. We are proud to have been named in the 100 GREAT British Employers of Veterans by the Ex-Forces in Business Awards. In 2023, we recruited three ex-services colleagues and in June we hosted a business insights day in central London for veterans preparing for employment outside the military, and a number of our stores hosted celebrations for Armed Forces Day in June. Our new stores planned in the north of England will create more than 200 roles directly, with around 30 in place already, and support a significant number of jobs indirectly via the many businesses we support in our local communities. Our wellbeing programme offers a range of tools including our Employee Assistance Programme, plus support through our health partner Vitality and the Bank Workers Charity. Colleagues inspire each other with articles and blogs, which are shared on a weekly basis. To support the launch of our wellbeing strategy, we ran a Wellbeing at Work week which saw 400 colleagues attend a webinar for financial wellbeing and over 100 colleagues booking Vitality Health checks. This is in addition to training and awareness sessions and online support materials. We also offer flexible working options and introduced a Day 1 right to request flexibility in May 2023. This generated a c.400% monthly increase in flexible working applications. Equality and equity Progress this year has included: Alignment to UN SDGs: The current economic environment remains challenging for our customers and we have brought together information regarding the support we can offer into an online hub, along with money tips and links to specialist organisations. Recognising this is a concerning time for some of our mortgage customers, particularly those approaching the end of their existing deal, we have signed up to the Government’s Mortgage Charter to offer additional support including for customers struggling to keep up with mortgage payments. 52of our stores are now Safe Spaces We are committed to financial inclusion and offer all our customers market-leading service, access and support. We have continued our extensive internal vulnerable customer programme throughout 2023 with a focus on bedding-in skills and capability across all functions so that vulnerability is considered across all relevant processes and practices. • Further specialist training for customer- facing colleagues; • Further support for victims of financial abuse, including the roll-out of Safe Spaces across 52 stores and training for our store colleagues. Safe Spaces offer a private area for people to access support safely in partnership with the UK Says No More campaign; • Launch of direct referral processes with StepChange, PayPlan and GamCare for customers in financial difficulty to get specialist support to manage their debt; • Launch of a dedicated Vulnerable Customer page on our intermediary website to help brokers understand how to identify a vulnerable customer; and • A new Mortgage Payment Support page for customers if they are worried about their finances. Supporting our local causes Just a handful of examples of our support for local good causes: our west London and Staines stores celebrated the Sikh New Year festival, Vaisakhi, by donating to local foodbanks; our local colleagues conducted extensive litter clean ups on a nature trail in Croydon and at St Edeyrns Village in Cardiff; our Oxford colleagues helped prepare a new premises for the local Yellow Submarine charity for people with learning difficulties and autism; and our Wolverhampton store donated 180 boxes of banana, apple and blueberry treats to Birmingham Dogs Home. Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued Strategic report Governance Risk report Financial statements Additional information 25 From grassroots clubs all the way up to the Metro Bank Women’s Ashes 2023 was a record-breaking season for the England Women’s cricket team, making the launch of our partnership even more impactful. With viewership on the rise too, our message is travelling further than ever. In fact, the highest number of people on record watched the women’s games this summer – a total of 7.4 million, which is nearly a quarter of total women’s sport viewership in the UK. With our name up in lights for 138 matches – including the Metro Bank Women’s Ashes and Metro Bank One Day Series – and two brand campaigns with a dynamic new look and feel, the figures are brilliant from a brand perspective too. With our brand awareness growing +5ppt amongst cricket fans, coupled with a +9ppt increase in brand trust among female fans, we’re off to a flying start. As always, our colleagues are also a huge priority for us, and it’s been fantastic to see so many attending matches, meeting the players, and even presenting trophies on match days. Our partnership has only just started to scratch the surface, and with the momentum in women’s sport growing ever stronger, this is a real opportunity for us to make a difference in our communities both on and off the field. In May we launched a free, on-demand British Sign Language (BSL) interpreters service to support deaf customers. The service is available for in-person visits to our stores and for phone calls to our AmazeDirect customer service team. This service enhances the existing range of accessibility options for Metro Bank customers including Relay UK to help customers with hearing and speech difficulties communicate with us over the phone, and the ability to request certain documents in braille, large print, or on audio CD. In line with our AMAZEING values, if things go wrong we strive to put them right again and deliver a positive customer experience. We publish customer complaints data on our website here: www.metrobankonline.co.uk/ helpand-support/forms/give-us-feedback/ complaints-data 5k+hours of colleagues time dedicated to volunteering in the communities we serve As a community bank, Metro Bank gives every colleague a paid day dedicated to volunteering, we call it a ‘Day to Amaze’: it’s a great way to support local good causes practically. In 2023, colleagues dedicated more than 5,000 hours of their time to volunteering, an increase of 60% compared to 2022, with the number of colleagues using their Day to Amaze increasing from last year. Alongside this, our colleagues and local communities raised £72,800 for local, national and international good causes via collections, sponsored activities and events and via the Magic Money Machines in our stores. This year, Metro Bank announced a new partnership with the England and Wales Cricket Board (ECB), recognising our shared commitment to diversity, inclusion, and making a meaningful impact in our communities. We’re very proud to be: • First ever Champion of Women’s and Girls’ Cricket • Title Partner of the Women’s Ashes • Title Partner of the International and Domestic One Day Series for Women and Men • Official Banking Partner of the ECB. At the heart of the partnership is the Women’s and Girls’ Fund, co-developed and co-funded by Metro Bank and the ECB to help transform grassroots cricket. Our mission is to triple the number of girls’ teams by 2026, by empowering more female coaches and volunteers to inspire girls on and off the pitch. We’re proud of our culture, and colleagues are telling us they like working here too. Our Voice of the Colleague survey saw our best ever colleague engagement scores this year with all scores above or equal to the global benchmark. Our engagement question “How happy are you working at Metro Bank?” (eSAT) increased by 3 points compared with October 2022 (+4 points above benchmark). We want every colleague to feel included and valued, and therefore diversity and inclusion (D&I) has always been an important part of our AMAZEING culture. Our commitment to being a D&I leader helps us bring out the best in our colleagues, attract new talent, thrive as a business and ultimately create more FANS in our communities. Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued Our 5 colleague inclusion networks Mbody: promotes health and wellbeing in both mind and body, including those with both visible and non-visible barriers. Mbrace: embraces our diverse people and fosters an environment where everybody can be themselves. Mfamily: a network for all those in a family environment to share experiences and provide support for those who want or need it. Mpride: helps create an environment of inclusion where everyone can be themselves and at their very best. Open to all colleagues who identify themselves as LGBTQIA+ or consider themselves an ally. Women on Work (WoW): supports all colleagues, regardless of gender, who are interested in engaging, inspiring and collaborating with female colleagues at Metro Bank. body family pride WoW brace Our colleague networks have had an impactful year: our MPride network had 50 colleagues join Pride marches in Birmingham and London in the summer, demonstrating solidarity with the LGBTQ+ community. In September, colleagues celebrated National Inclusion week with a variety of events, both in-person and virtual events at contact centre sites, team huddles at stores and webinars in head office. Cross-network Mentoring Circles were launched with 82 colleagues taking part promoting intersectional inclusion, and we launched 52 Safe Spaces across our stores in conjunction with a domestic abuse charity by WoW. Our Mbrace network hosted their annual Black History Month event on 12 October where 86 colleagues attended in person at our Holborn office to hear from guest speakers, learn about mentoring and hear from the Sickle Cell Society. £5,400 was raised as part of a raffle and auction for the Sickle Cell Society. Our Mfamily network championed the achievement of Metro Bank becoming a Fostering Friendly organisation, whilst Mbody have dedicated time to educate our colleagues about disabilities and neurodiversity. Gender pay gap As a community bank, we believe it is important that our team reflects the diverse communities we serve; we have a range of initiatives focused on encouraging and supporting talented women into leadership and specialist roles, and we are working hard on initiatives to close the gap. Our median gender pay gap of 16.7% compares with a national average gender pay gap of 14.3% across all industries, calculated by the Office for National Statistics in November 2023. Whilst the gender split amongst our colleagues at Metro Bank is broadly balanced, our gender pay gap exists mainly because of an imbalance when we look at diversity by seniority. This means that we have more colleagues in junior roles than at senior levels, and within this balance we have more female colleagues in our junior roles, and more male colleagues in our senior roles. Gender pay gap As at April 2023 16.7% median pay agp 20.5% mean pay gap Read more on our gender pay at metrobankonline.co.uk Female Directors on the Board 2022 2023 Female colleagues as % of the workforce 2022 2023 Industry % Females in SLT (Exco -1) 2022 2023 Industry 26 36% 36% 46% 46% 47% 39% 38% 33% Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued Strategic report Governance Risk report Financial statements Additional information 27 Governance and resilience Maintaining a strong governance framework allows us to operate effectively. Alignment to UN SDGs: We have always had zero-tolerance for bribery and corruption. We deliver regular training to all colleagues on our Anti-Bribery and Corruption Policy and they are encouraged to raise any concerns about the conduct of others or the way the business is run, without fear of unfair treatment under our Whistleblowing Policy. We comply with all applicable sanctions regimes. We also comply with UK anti-money laundering and anti-terrorist financing legislation and have an implementation framework in place. We do not give or receive improper financial or other benefits in our business operations, nor do we help facilitate tax evasion in any way. We do not tolerate any deliberate breach of financial crime laws and regulations that apply to our business and the transactions we undertake, and we continue to invest in our processes and systems and monitoring. Data privacy and security Keeping our customers safe from fraud and scams is naturally one of our highest priorities. Our ‘scam of the month’ series informs people how to spot and protect against the latest tricks used by fraudsters. We joined the BBC Be Scam Safe awareness week in October. We are active supporters of the Take Five fraud awareness campaign and last year we joined Stop Scams UK’s 159 service, which connects our FANS safely and securely to our contact centre if they receive a suspicious call about a financial matter. Recognising the ever-evolving nature of cyber risk, we run a continuous improvement programme to ensure that our capability keeps pace. We constantly monitor for emerging threats and new attack methods and regularly conduct simulation exercises to fine tune our capability. We have a rigorous and mature vulnerability management process in place, our comprehensive policies and minimum standards align to ISO 7001 best practice, and we benchmark ourselves against the National Institute of Standards and Technology framework. We are active members of a number of industry forums and we provide regular briefings to colleagues in addition to annual mandatory cyber security training. Safe management of personal data is taken seriously and remains a priority for us. We continued to make improvements to our operations and records management team, to ensure effective governance of our data, in particular where records contain special categories of data. Our suppliers It is important to us that we work with suppliers who uphold our values. We take this seriously – starting from when we select a supplier during our procurement processes, then throughout the entire life-cycle of our business relationships. In 2022, we launched our first Supplier Code of Conduct, setting out the expectations we have of our suppliers. The next version of our Code will launch in 2024 and will place more obligations on our suppliers, for example, to inform us of their progress towards lowering carbon emissions. We are gathering more and more information on our suppliers’ approach to ESG and we are doing that proactively through our tendering and contracting activities. In our quarterly business reviews with our most important suppliers, we gather data on, and discuss, topics such as: ISO 14001 certification, use of renewable energy, compliance with Modern Slavery legislation and gender pay gap data. We regularly 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 expect our suppliers to adhere to the UN Guiding Principles on Business and Human Rights. We remain committed to using the Financial Services Supplier Qualification System (FSQS) for our suppliers to share information with us and we encourage all our suppliers to become members. FSQS helps our suppliers by reducing duplication of effort in responding to buyer due diligence requests, and benefits us by sharing resources. Our biggest ever Money Zone event In July, colleagues from our stores in Hemel Hempstead, St Albans, Enfield, Luton and Borehamwood joined forces at the Hertfordshire Agricultural Society Food and Farming Day to deliver part of our financial education programme – Money Zone – to 1,100 eleven year olds from 26 local schools. Money Zone is a series of financial education lessons that we offer to school children – either virtually or in store. Money Zone usually comprises of four sessions – budgeting, saving, banking and the last session which takes place in store giving children a look behind the scenes. Given the time constraints, the pupils enjoyed an abridged lesson on the day with an invitation to take up the full course at their schools at a later date. To date, we have delivered our Money Zone programme to over 250,000 children. Across the UK, adult financial literacy remains at less than 70 per cent. As a community bank we are committed to encouraging children of all ages to learn more about the finances they will need to understand as they grow older and start earning money. Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued Human rights As a community bank, we are committed to maintaining positive relationships with our stakeholders including conducting our business in a way that respects human rights. Our policies and practices reflect this, including our Whistleblowing Policy which applies to any information relating to suspected wrongdoing or dangers, and our detailed Modern Slavery Policy. Slavery, servitude, forced labour and human trafficking (modern slavery) is a crime and violation of fundamental human rights. We have zero tolerance of modern slavery and remain committed to conducting all our business professionally, fairly and with integrity across all our relationships, including enforcing appropriate systems and controls to ensure, on a risk basis, that modern slavery is not taking place in our business or supply chains. During 2023 we: • Published our seventh Modern Slavery Statement, approved by the Board and signed by the CEO (available on our website at: metrobankonline.co.uk/ about-us/ modern-slavery/). • Delivered the sixth report of the Modern Slavery Champion to the Board. The report included the annual review of our Modern Slavery Policy; an update on progress against the Modern Slavery Statement and Action Plan; and an update on our internal Modern Slavery Working Group. • As part of our Modern Slavery Policy, we undertake increased due diligence in respect of our business and supply chains on a risk basis. We continue to leverage the FSQS to support due diligence on suppliers before contracting and ongoing during the relationship, on a risk basis. 1,440 suppliers engaged as part of our due diligence process In 2023, we engaged 1,440 active third parties. Thirty-eight (2.64%) were either based in riskier countries (where the 2023 Measurement Action Freedom score, an independent assessment of government progress towards UN Sustainable Development Goal 8.7, is less than 50) or were more likely to be exposed to modern slavery risk due to the nature of the services. In accordance with our Modern Slavery Policy, further investigation was conducted, following which all 38 suppliers demonstrated adequate controls to mitigate modern slavery risk. We continue to support our suppliers in relation to the risk of modern slavery, to clearly explain our approach to modern slavery and our expectations of our suppliers. All colleagues were required to undertake modern slavery computer-based training during 2023. Political neutrality Metro Bank is and will remain politically neutral and it is not our policy to open or close an account due to the political or personal beliefs of an individual or organisation. Taxation As a community bank, we recognise the benefits to society from our full participation in the tax system. As with everything we do, we are committed to acting with integrity and honesty in our tax strategy, policies and practices. During 2023, our total tax contribution was £139.3 million, made up of £72.9 million taxes paid and £66.4 million of taxes we collected on behalf of the UK government. Taxes paid in the period were charged to our income statement or capitalised as part of an asset’s cost. Taxes collected are generated by our business activity, including the taxes of employees and customers collected in the usual course of business and administered on behalf of the UK government. Further information can be found in our Tax Strategy document available on our website at: metrobankonline.co.uk/globalassets/ documents/customer_documents/ intermediaries/2022-tax-strategy.pdf. ESG ratings In 2023, we commenced engagement with specialist ESG rating agencies to ensure our data and activities are understood and appropriately reflected in our ratings. 28 Taxes paid (2023) 54 3 £72.9m 1 2 1. Irrecoverable VAT and customs duty 2. Employer NICs 3. Business rates 4. Corporation Tax 5. Other taxes £m % 39.2 23.6 8.6 0.8 0.7 53.77 32.37 11.80 1.10 0.96 Taxes collected (2023) 3 2 £66.4m 1 1. PAYE 2. Employee NICs 3. Net VAT £m % 43.0 64.76 13.0 10.4 19.58 15.66 Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued Strategic report Governance Risk report Financial statements Additional information 29 Operational emissions road map tCO2e Offsetting/ sequestration of residual emissions to be developed to reach 2030 net zero Our planet Being good to our planet goes hand in hand with our ambition to be the number one community bank. Alignment to UN SDGs: We are working to reduce the impact of our operations on the environment. Climate change is also a risk to us and the communities we serve – managing this risk, and helping our colleagues, suppliers, customers and communities to do so too is a key part of being a responsible community bank. As we grow and expand into new communities, we are building environmental considerations into the plans for our new stores. In recognition of this, we have committed to two headline pledges to reduce our carbon footprint: • To make our operations net zero by 2030. • To make our operations and value chain net zero by 2050. In summer 2023, we submitted a full disclosure to the Carbon Disclosure Project – a widely-recognised reviewer of corporate environmental data. The outcome is expected in early 2024. 4000 3500 3000 2500 2000 1500 1000 500 0 2019 2020 2021 2022 2023 2026 2030 Scope 1 Scope 2 Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued 30 Bishopsgate office furniture reuse In June 2023, we vacated our office at 55 Bishopsgate in London in advance of the building being redeveloped. All colleagues were relocated to other central London locations. In line with our commitments to support the community, to recycle and reduce waste, we partnered with Collecteco to donate the office furniture and equipment to good causes. £128,000 of furniture and equipment was donated to 13 causes across London including NHS trusts, the YMCA, Scouts, schools and charities. Overall, 31 tonnes were saved from landfill, and the equivalent of 177,500kg of carbon emissions were saved, compared to purchasing the same equipment from new. In autumn 2022, we completed the transition to purchasing 100% electricity from renewable sources across all our stores and offices, certified by the Renewable Energy Guarantee of Origin (REGO) scheme. This important milestone has driven a significant reduction in our operational emissions and has taken our market-based Scope 2 emissions to zero. We do not have any operations based in high biodiversity habitats. 100%of electricity used in our stores and offices comes from renewable sources To continue the progress towards our operational net zero pledge, our next steps are to identify and measure our residual operational emissions and eliminate them where possible. The remainder will be offset by purchasing high quality carbon removals. Since 2020, we have sent zero waste to landfill. We source supplies from renewable sources and recycle where possible. We donate surplus office furniture to local charities, saving tonnes of material from landfill in addition to the carbon emissions that would arise from purchasing equivalent new equipment. This year, we rolled out a new sustainable pen made from recycled plastic and designed to be accessible for everyone, including people with arthritis, carpal tunnel syndrome, or a prosthetic limb. Our pen caddies are made from recycled plastic and can be repurposed as a plant pot – we even provide strawberry seeds as a symbol of supporting our communities grow! As an ethical community bank, we do not lend directly to businesses that undertake: • Metal ore mining, coal mining; peat, oil or gas extraction. • Fossil fuel power generation. • Activities that cause deforestation. • Arms manufacture or military activities. We were founded to be a different kind of bank – a bank with the community at its heart, built around colleagues delivering fantastic customer service. As we have grown, we have incorporated environmental, social and governance (ESG) priorities into our business to ensure we continue to build it in the right way. In doing this, we are committed to being open and transparent about what we are doing and why. This approach has seen us become known as a bank that embraces diversity and champions inclusivity; a bank that values sustainability and acts responsibly towards the environment; a bank that makes a positive difference through the local colleagues we employ, the local businesses we work with and the local causes we support. A bank that simply aims to do the right thing by our stakeholders. The table below sets out our GHG emissions. Scope 1 emissions Scope 2 emissions (location based) Scope 2 emissions (market based) Scope 3 emissions (core)1 Scope 3 emissions (all) Total GHG emissions (location based) Total GHG emissions (market based) Full-time equivalent colleagues (FTE) Total emissions per FTE 2023 469 2022 179 2,705 2,855 – – 1,335 1,397 2021 336 3,327 1,194 n/a 2020 67 3,799 729 n/a 2019 319 4,247 3,256 n/a 111,205 129,363 155,182 190,333 248,979 114,379 132,397 158,845 194,199 253,545 111,674 129,542 156,712 4,281 26.1 4,040 32.8 4,184 38.0 n/a 3,850 50.4 n/a 3,555 71.3 1. This measure covers emissions arising from purchased paper (Cat. 1), Fuel and energy related activities (Cat.3), Waste Generated in Operations (Cat.5) and Business Travel (Cat. 6). Quoted emissions figures are quoted in tCO2e. Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued Strategic report Governance Risk report Financial statements Additional information 31 Non-financial information and sustainability information statement This statement is prepared in compliance with sections 414CA and 414CB of the Companies Act 2006 and explains where you can find further information about how we do the right thing in relation to our customers, communities, colleagues and the environment. A description of our business model and strategy, as well as the non-financial KPIs relevant to our business can be found on pages 11 to 15. Reporting requirement Where to find further information for an understanding of our business and our impacts, including outcomes of our activities Relevant policies and standards that govern our approach (please see policy list on pages 32 to 33 for a description of each policy) Environmental matters Page 29 – Our planet. Page 35 – Task Force on Climate-related Financial Disclosures. Colleagues Page 22 – Our colleagues. Page 26 – Gender pay gap. Page 62 – Letter from the Designated Non-Executive Director for Colleague Engagement. Page 105 – Annual report on remuneration. Social matters Page 22 – Our customers and communities. Page 27 – Data privacy and security. Page 27 – Governance and resilience. Page 29 – Our planet. Human rights Page 27 – Our suppliers. Anti-bribery and corruption Page 27 – Governance and resilience. Page 151 – Financial crime risk. • Climate pledges. • Supplier management. • Business and commercial lending. • Diversity and inclusion. • Recruitment and selection. • Health and safety. • Whistleblowing. • Conflicts of interest. • Climate pledges. • Supplier management. • Business and commercial lending. • Vulnerable customers. • Data protection. • Anti-tax evasion. • Anti-money laundering/counter terrorist financing. • Business continuity. • Complaints. • Modern slavery. • Outsourcing. • Diversity and inclusion. • Anti-bribery and corruption. Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued 32 Policy list Key 1 Our customers and communities 3 Data privacy and security 5 Governance and resilience 2 Our colleagues 4 Our suppliers 6 Our planet Policy Description ESG priorities 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. Anti-Money Laundering/ Counter Terrorist Financing The policy sets out the systems and controls to identify, assess, monitor and manage financial crime risks and the procedures in place to assess their effectiveness. Anti-Tax Evasion The policy sets out our zero-tolerance approach to tax evasion. 2 5 1 2 5 1 5 Business Continuity The policy makes sure we are able to continue delivering services to our customers at acceptable levels if something unexpected were to happen. It addresses impacts to the continuity of critical business activities in the case of man-made disasters, natural disasters or other material events. 1 2 3 4 5 Complaints The policy is in place to ensure customer complaints are handled promptly and effectively, with a focus on fair outcomes for our customers and meeting our regulatory obligations when things go wrong. 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. Data Management 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. Data Protection The Policy is in place to ensure we comply with our data protection obligations and have the adequate level of data protection as prescribed by the General Data Protection Regulation. Diversity, Equity and Inclusion The policy means that we treat our colleagues fairly. It sets out our commitment to having a diverse workforce which reflects our customer base and to employment policies which follow best practice, based on equal opportunities for all colleagues. Fraud The policy sets a consistent approach to the deterrence, detection and prevention of internal and external fraud. Health and Safety The policy protects our customers and colleagues. It recognises our statutory duties and responsibilities under the relevant Health and Safety and Welfare legislation. Information Security The policy sets objectives, expectations, roles and responsibilities and requirements for protecting both our and customer information. 1 2 2 4 5 1 2 3 5 1 2 3 5 1 2 1 2 5 1 2 3 5 Metro Bank Holdings PLC Annual Report and Accounts 2023 Environmental, social and governance review Continued Strategic report Governance Risk report Financial statements Additional information 33 Policy Description ESG priorities Lending and Arrears Management Policies (including Retail, Business & Commercial Lending) These policies set our approach to making lending decisions in a structured, consistent and fair way that is compliant with all relevant regulatory requirements. They define the way we safeguard both ourselves and our customers in pursuit of our goals and how we support our customers during periods of financial difficulty. Modern Slavery Physical Security Procurement and Supplier Management Product governance 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. The policy protects our customers and colleagues. It defines the measures to protect our premises from security threats and to ensure the personal safety and security of all customers, colleagues and visitors. The policy ensures that when we rely on an external supplier for key processes and activities, we take the reasonable steps to identify, monitor and mitigate the external supplier risks. The policy sets requirements to ensure products and services are developed to address customer needs, have a defined target market, are designed to deliver good customer outcomes and are understood by customers. 1 1 5 1 2 1 4 5 6 1 5 Records Management The policy sets out Metro Bank’s objectives and expectations for managing records responsibly and efficiently from creation to disposal, complying with legal and regulatory obligations. 1 2 3 5 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. Sanctions Technology The policy sets the requirements and approach to managing financial sanctions risks in compliance with applicable sanctions regimes including the prevention, detection and investigation of potential sanctions evasion. The policy sets our approach to the management of technology and associated risks across each of the delivery channels, to support our strategic objectives and deliver good customer outcomes. 1 2 3 5 Vulnerable Customer The Vulnerable Customer Policy sets out our approach to identifying and interacting with vulnerable customers to ensure we deliver good customer outcomes. Whistleblowing The policy encourages colleagues to disclose information, in good faith and without fear of unfair treatment, when they suspect any illegal or unethical conduct or wrongdoing affecting us. 1 2 2 5 Metro Bank Holdings PLC Annual Report and Accounts 2023 2 1 5 Section 172 Statement 34 Stakeholder engagement is essential to the execution of our purpose to be the number one community bank. Our six key stakeholders: Our customers Our colleagues Our communities Our investors Our regulators Our suppliers Our business model depends upon attracting customers and turning them into FANS. Our reputation and creating FANS is at the core of our values. As a growing business, we need to attract new talent. We also want to ensure our colleagues are happy and engaged so that they provide excellent service to each and every customer. We are proud to be an integral part of the communities we serve. We engage openly and transparently with our investors who help us to grow. Following our regulators’ principles, rules and guidance helps us to put customers at the heart of everything we do. We pride ourselves on doing the right thing, and maintaining the highest values in everything we do, and this extends to the suppliers we work with. The Board must act in accordance with the duties set out in the Companies Act 2006 (‘the Act’). Under section 172 of the Act, the Board has a duty to promote the success of the Company for the benefit of its members as a whole. When making decisions, the Board ensures that it acts in the way it considers, in good faith, would most likely promote success for the benefit of our members, and in doing so have regard to the matters set out in Section 172(1) of the Act. The different needs of stakeholders are considered throughout the whole decision- making process. The Board at all times has regard to the impact of material decisions on the different stakeholder groups. However, it is not always feasible to provide pragmatic outcomes for all stakeholders and the Board at times has to make decisions based on the competing priorities of stakeholders and the needs of the Bank. More information on the key decisions made by the Board in the year and how stakeholders were considered can be found on page 58. S.172 factor Relevant disclosures (a) the likely consequences of any decision in the long-term • Our purpose and strategy framework. • Business model. • Strategic priorities. • Risk report. (b) the interests of the Company’s employees • Non-financial information statement. • Our colleagues. • Board activity and stakeholder engagement. • Letter from the Designated Non-Executive Director for Colleague Engagement. (c) the need to foster the Company’s business relationships with suppliers, customers, and others • Board activity and stakeholder engagement. • Environmental, social and governance review. • Our suppliers. (d) the impact of the Company’s operations on the community and the environment • Board activity and stakeholder engagement. • Task Force on Climate-related Financial Disclosures. • Environmental, social and governance review. (e) the desirability of the Company maintaining a reputation for high standards of business conduct • Whistleblowing. • Anti-bribery and corruption. • Audit Committee report. • Modern slavery. (f) the need to act fairly between members of the Company • Board activity and stakeholder engagement. • 2023 AGM. • Share capital. Pages 2–3 11–13 3 124–157 31 59 57–61 62–63 57–61 20–33 61 57–61 35–43 20–33 74 27 and 151 70–74 27–28 57–61 60 120 Metro Bank Holdings PLC Annual Report and Accounts 2023 Task Force on Climate-related Financial Disclosures Strategic report Governance Risk report Financial statements Additional information 35 We are committed to reporting on the impact of climate change on our business in a transparent manner and taking responsibility for the actions required to drive positive changes in our approach to climate-related risks and opportunities. In compliance with the FCA’s Listing Rules, the Group has made disclosures consistent with the TCFD 2021 Recommendations and Recommended Disclosures, including the appropriate annexes and supporting guidance. Additionally, following the amendment of sections 414C, 414CA and 414CB of the Companies Act 2006, the Group has indicated in the below table which of the climate-related disclosures, outlined in Section 414CB, are addressed by the TCFD recommended disclosures, alongside the pages of the 2023 Annual Report and Accounts where these are located. Key points Governance Future developments Describe the Board’s oversight of climate-related risks and opportunities. • The Board retains oversight for all climate-related risks and opportunities and has • The Board will continue its regular oversight, engagement and challenge on received half-yearly updates on our progress in this regard in 2023. climate-related strategy and activity. • The Risk Oversight Committee has oversight of the framework for managing and reporting on climate-related risks in line with our Enterprise Risk Management Framework. • Ongoing review of governance framework to ensure continued alignment with regulation and industry-recognised best practice and ensure that an appropriate level of focus on climate-related risks and opportunities is in place. Page 20 and 38 Describe management’s role in assessing and managing climate-related risks and opportunities. • Overall responsibility for our approach to climate-related risks and opportunity sits with the CEO and is devolved to relevant members of the Executive Committee. • Focus on enhancing our data and reporting on climate-related risks via key risk indicators to facilitate improved management assessment of these risks. 20 and 38 • Senior Management Function responsibility under the Senior Managers and Certification Regime sits with the Chief Risk Officer for climate-related risk. • Our Environmental Working Group, reporting into the ESG Steering Committee, discusses our approach to monitoring, measuring and mitigating climate-related risks on a regular basis. Strategy • Further embed climate-related considerations within our approach to product governance to ensure that climate-related risks and opportunities are being consistently considered within this process. Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term. • Climate-related risks have been identified and assessed as part of a wider review of • Continue to evolve our climate-related strategy with new aspirations aligned to our 39–42 top and emerging risks and embedded in the Enterprise Risk Management Framework. overall strategy. • Expand dialogue with customers on climate-related risks and opportunities to • Considerations covering risks, our internal operations and our engagement with ensure we can best support their transition to a low-carbon economy. stakeholders are embedded in the ESG materiality assessment for the organisation. • Opportunities to support our customers in achieving their climate-related aspirations are considered in the strategy review and product development process. • Enhance data capture and quality to support identification, assessment and mitigation of climate-related risks and opportunities and evolve risk capabilities, origination strategy and product suite accordingly. Metro Bank Holdings PLC Annual Report and Accounts 2023 Task Force on Climate-related Financial Disclosures Continued 36 Key points Strategy continued Future developments Page Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning. • The potential impact of climate-related risks and opportunities on our strategy and financial position continues to be considered on an ongoing basis. • Further embedding of climate consideration in our strategic and financial planning, with consideration of the necessary tools and methodologies to support delivery of the climate-related strategy. 39–42 Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. • Climate-related stress testing is in place and continues to evolve in maturity. There is • Continued enhancement of our modelling capabilities. 42 an impairment overlay process established to cover climate-related risks. • Scenario analysis insights are used to inform the Internal Capital Adequacy Assessment Process and in financial reporting. Risk management Describe the organisation’s processes for identifying and assessing climate-related risks. • Climate change has been embedded as a cause into the Enterprise Risk • Continue to develop methodologies to identify and assess climate-related risks. 40–42 Management Framework, together with frameworks, policies and standards for the relevant principal risks. • To form a view on materiality and assess impacts across different time horizons, we assess each principal risk to identify how climate change could manifest. • Internal modelling capabilities are in place to assess the exposure of our lending portfolios to climate-related risks. Describe the organisation’s processes for managing climate-related risks. • We have integrated climate-related controls into our credit processes across both retail and commercial lending, with credit assessments for in-scope commercial clients including qualitative climate risk considerations. • We engage closely with our material suppliers to ensure climate-related risks are identified and appropriate controls put in place. • Further development and embedding of climate-related controls. • Enhancement of climate-related data and monitoring across risk types and processes. • Extend climate scenario analysis to additional portfolios. 40–42 • Enhance capabilities for EPC data capture to enable regular portfolio monitoring. Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall risk management. • Climate-related risks are fully embedded in our Enterprise Risk Management Framework and Three Lines of Defence model, with associated governance structures and defined roles and responsibilities. • Continue to keep pace with evolving industry requirements around risk 40–42 management, reporting and governance. Metro Bank Holdings PLC Annual Report and Accounts 2023 Task Force on Climate-related Financial Disclosures Continued Strategic report Governance Risk report Financial statements Additional information 37 Key points Metrics and targets Future developments Page Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process. • Climate-related metrics across our operations, supply chain and financed emissions are reported on an annual basis via our climate-related disclosures. • The properties securing our lending portfolios are assessed for flood and subsidence risk, as well as EPC distribution. • Continued review and enhancement of our calculation methodologies for Scope 3 emissions in line with industry best practice. Includes development of roadmap to enhance PCAF data quality level for financed emissions and engagement with suppliers to improve Category 1 measurement. 29–30 and 42–43 • Development of climate-related key risk indicators for intra-year monitoring. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas emissions, and the related risks. • Scope 1, 2 and 3 emissions are disclosed within the wider TCFD disclosure, with full • Continued enhancement of emissions calculation methodologies in line with industry disclosure across all applicable Scope 3 categories. best practices. Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets. • We have two overarching net zero targets in place – to achieve net zero emissions • Continued monitoring of performance against these targets and development of across Scope 1 and Scope 2 by 2030 and across Scope 3 by 2050. interim milestones for sub-categories across all Scopes. 30 and 42 29 and 42–43 We have highlighted some key milestones which have been achieved to date and those we believe will help us to meet our 2030 and 2050 Net Zero pledges. Short-Term Medium-Term Long-Term 100% of electricity procured from certified renewable sources No waste delivered to landfill Procurement of certified renewable gas Review of origination strategy, product proposition and asset mix to support mitigation of financed emissions Procurement of quality carbon credits to offset fugitive emissions Ongoing identification of new physical and transition risks impacting our portfolio through scenario analysis Vehicle fleet is fully hybrid Transition vehicle fleet to electric vehicles Maintained travel emissions below 70% of pre-COVID levels Inclusion of climate-related KRIs within Risk Appetite Key Completed Metro Bank Holdings PLC Annual Report and Accounts 2023 Task Force on Climate-related Financial Disclosures Continued This section of our annual report includes our climate-related financial disclosures, consistent with the recommendations of the Task Force on Climate-related Financial Disclosures, providing an update on our current progress and areas of future focus. We have made strong progress during 2023, successfully embedding enhancements to our approach to the management of climate- related risks across both our governance structure and the wider risk management framework. There remains work to do to enhance our assessment of the impact of climate-related risks and opportunities on our businesses, strategy, and financial planning, and to refine and enhance coverage and application of climate-related metrics as our capabilities and methodologies mature. Governance Board oversight of climate-related risks and opportunities The Board has ultimate accountability for all climate change risk-related matters. During 2023, the Board has been engaged in the development of our approach, receiving half-yearly updates on climate risk and an annual ESG update. The Board continues to consider climate-related risks and opportunities as part of the annual strategic and financial planning process to ensure our approach to these matters evolves in line with emerging developments. The Risk Oversight Committee has oversight of the framework for managing and reporting the risks from climate change, as set out in the Enterprise Risk Management Framework. The Committee can escalate any climate-related risk matter to the Board. The Audit Committee approved the approach to disclosures and the TCFD requirements, and reviews climate-related financial disclosures as part of its wider role in reviewing our Annual Report and Accounts. Management’s role in assessing and managing climate-related risks and opportunities Responsibilities for the management of climate-related risks extend across the organisation and its ‘Three Lines of Defence’. As climate risk impacts all of our principal risks it requires integration with existing control frameworks, policies and strategies. The accountability for our approach to ESG sits with the CEO and is devolved to relevant members of ExCo. The Chief Risk Officer has Senior Management Function responsibility under the Senior Managers and Certification Regime for our approach to managing both financial and non-financial risks arising from climate change, including: • Embedding the consideration of climate- related risks into the governance structures. • Incorporating the risks from climate change into risk management practices. • Using long-term scenario analysis to inform strategy setting, risk identification and assessment. • Ensuring that climate-related risks are appropriately disclosed in line with the recommendations of the TCFD. Executive Risk Committee The Executive Risk Committee (ERC) has delegated authority from ROC for overseeing our exposures and approach to managing climate-related risks. In 2023, the Committee received half-yearly updates on the progress of our approach to managing climate-related risks, including assessment of our position against the requirements of Supervisory Statement 3/19, the ongoing evolution of our approach to managing climate-related risks driven by third-party relationships and enhancements to the credit-related aspects of climate risk management. Credit Risk Oversight Committee The Credit Risk Oversight Committee (CROC) has specific responsibility for oversight of climate-related aspects of credit risk including recommending strategies to adjust the credit risk portfolio to react to changes in the prevailing market or physical environmental conditions. During the year, the Committee received updates on the credit risk aspects of climate change, including climate risk-specific analysis relating to lending portfolios. 38 Asset and Liability Committee The Asset and Liability Committee (ALCO) focuses on our financial risks including capital, funding, liquidity and interest rate risk to ensure that the activity complies with regulatory and corporate governance requirements and also delivers our policy objectives. Where appropriate, this includes the impact of climate change on aspects under its remit. Environment Working Group The Environment Working Group continued to bring together key stakeholders from across the first and second lines of defence in 2023 to support work to help embed climate risk into the ERMF and support our wider climate- related goals and ambitions. The Environment Working Group is accountable for delivering our net zero strategy and objectives across three strategic focus areas: • Managing the impact of climate change on the business. • Supporting our customers’ transition to a low-carbon economy. • Reducing the impact that the business has on the environment. The Environment Working Group has focused on building out the foundations of a multi-year roadmap across core business areas and risk management disciplines. It will continue to update as our analysis of risks and opportunities from climate change evolve. This will help to accelerate progress and prioritisation, particularly in relation to our climate change response. Metro Bank Holdings PLC Annual Report and Accounts 2023 Task Force on Climate-related Financial Disclosures Continued Strategic report Governance Risk report Financial statements Additional information 39 Strategy While the changes associated with the transition to a lower-carbon economy pose risks, they also present significant opportunities for organisations focused on climate change mitigation and adaptation solutions. In line with our ambition to be the number one community bank, we have an important role to play in facilitating the transition to a low-carbon economy, leveraging the opportunities, and managing the risks we are exposed to from climate change. We are committed to supporting our customers along the journey as they make the transition towards a low-carbon economy, and to continuing to build our own capabilities by identifying and managing the potential impact of climate change on the business, as well as exploring ways to reduce the impact that the business has on the environment. We recognise that climate change presents both risks and opportunities to our business model and strategy over short, medium and long-term horizons: • Short-term (0-1 years): The time horizon for annual financial planning. • Medium-term (1-5 years): The time horizon for strategic and financial planning cycles. • Long-term (>5 years): This timeframe is considered using scenario analysis. Identifying and managing the impact of climate change on the business The ability to identify, understand and manage risk is critical to our long-term strength and stability and climate risk is no different in this regard. Climate risk does however require us to address risks that may manifest over a significantly greater period of time than that covered by more traditional approaches to risk management. We broadly categorise climate risks into two types: transition risk and physical risk. Within these broad categories we have identified a number of factors arising from climate change which we monitor over the short, medium and long term. Our initial focus has been to identify and assess risks to the business. We have continued to progressively embed climate risk into our key risk processes throughout 2023, developing control processes across our lending activity and internal operations. We continue to develop our own internal climate scenario analysis and stress testing capability in line with emerging industry methodologies and have used outputs from initial methodology developments to formulate an initial impact assessment to inform considerations in developing our strategic response. The risks we face in the medium term primarily relate to transition risks, predominantly arising from developing regulatory and legislative expectations. For example, tightening minimum energy efficiency standards for domestic buildings may lead to transition risks which could impact the value of mortgaged properties or the ability of borrowers to service debt. Physical risks represent a longer-term risk (primarily from changes in climate patterns impacting the physical property securing our mortgage portfolio) and the most material risks are expected to crystallise over the long term. Changes in extreme variability in weather patterns are forecast to 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. Exposures to physical and transition risks may also arise through our commercial lending portfolio due to changes in policy, consumer preferences or technology. As a retail bank, we are not heavily exposed to certain carbon- intensive industries. Operational risk exposures arise from physical damage to key office locations and physical and transition risks via key suppliers, which could result in business disruption or increased costs. In 2024, we will continue to review and assess the risks and opportunities that could have a material impact on the business and environment, and refine our approach to climate change scenario analysis, taking into account what we have learned in our initial development work. As these methodologies continue to develop, we will be progressively drawing on our scenario analysis to inform strategic planning; providing insight into/ for our strategy, business model and financial plans. At present we do not believe risk arising from climate change to have had material impact on the financial statements. Operations We continue to make positive progress in reducing the impact of our direct operations on the environment. We have maintained our position of generating no market-based Scope 2 emissions by continuing to procure 100% renewable electricity with full backing by Renewal Energy Guarantee of Origin (REGO) certificates. We have continued to reduce waste as far as possible and maximise recycling rates (see the case study on the move from our Bishopsgate office for a great example of how we’re truly living this ethos!). We continue to deliver zero waste to landfills, which we have achieved consistently since 2020. These actions have helped us to achieve an overall reduction of 90% across our Scope 1 and 2 emissions from the 2019 baseline, and this keeps us strongly positioned to meet our stated commitment of being net zero across Scope 1 and 2 by 2030. We have identified what continues to drive our remaining Scope 1 and 2 emissions and have identified the necessary actions required to eliminate them. Once these steps have been taken, we will determine the level of residual emissions generated and deliver our full net zero pledge through the purchase of high- quality carbon removals. Metro Bank Holdings PLC Annual Report and Accounts 2023 Task Force on Climate-related Financial Disclosures Continued 40 Risk Management Identification and assessment We classify climate-related risks as either physical risks or transition risks. We are exposed to both physical and transition risks arising from climate change. Risks arising from climate change materialise through various channels: 1) Through the financial services and support we provide to customers who may themselves be exposed to the climate change. 2) The operation of our own infrastructure, business and premises which may be exposed to both transition and physical risks. 3) Through a deteriorated perception of our brand if we do not adequately support a transition to a low-carbon economy. To form a view on materiality, and to understand the broad financial impacts across different time horizons, the Enterprise Risk Management Framework was assessed through a climate change lens to identify how climate change could manifest in each of our principal risks. Due to the longer timeframes associated with climate impacts, short, medium and long-term horizons are being applied to the consideration of impacts. This assessment has been included in the 2023 Internal Capital Adequacy Assessment Process (ICAAP) and identified our top three climate change risks as: credit, capital and operational. Credit risk is the most material climate change risk due to our mortgage portfolio exposures. Credit risk Physical risk examples Transition risk examples Time horizon Repayment challenges from obligors due to reduced profitability or asset devaluation because of climatic shifts. Failure to adapt to changes in policy, regulation, and technology resulting in negative impact to customers. Medium term to long term. Mortgages We have controls in place to mitigate against flood risk, subsidence, and landslip in our residential mortgage portfolio. Where it is identified that a property is situated on a flood plain, borrowing is only permitted where a suitable insurance policy is in place. Specific requirements are in place in relation to lending to buy-to-let properties which have an Energy Performance Certificate (EPC) rating below E. In accordance with the Minimum Energy Efficiency Standards Regulations, all buy-to-let properties must have a minimum EPC rating of E. All physical valuations must be completed by registered valuers to utilise their local knowledge and expertise, including the assessment of physical risks and climate-related information. We continue to receive open-source property data for our mortgage portfolio to enhance our portfolio risk identification and monitoring processes. Our secured lending policies and standards will continue to evolve in response to the external environment, increasing regulation and investor and other stakeholder interest. Work is underway to plan how climate risks will be incorporated into credit decisioning in the future. Commercial lending Our approach to commercial lending and collateral management incorporates environmental risk considerations. We have additional credit risk assessment requirements for customers operating in carbon-intensive industries. Our Commercial Lending Policy also outlines the prohibited and restricted industries where we have either no or limited appetite to lend. A large proportion of our business lending customers are privately owned and/or SMEs. Very few lending customers therefore report against voluntary disclosure initiatives such as Carbon Disclosure Project, Sustainability Accounting Standards Board or TCFD. A top-down assessment of sectors (and sub-sectors) which may have a higher likelihood of being impacted by transition risks has been performed. It highlighted that our direct exposure to commercial lending segments with high emissions is relatively low. We continue to enhance and refine this work at both counterparty and sector level, considering both risks and opportunities as we look to support our customers’ responses to climate change. The output will be used to inform the evolution of our credit policies and risk appetite measures to monitor the portfolio transition risk. Metro Bank Holdings PLC Annual Report and Accounts 2023 Task Force on Climate-related Financial Disclosures Continued Strategic report Governance Risk report Financial statements Additional information 41 Capital and liquidity risk Operational risk Risk examples Time horizon Physical risk examples • Our capital position is indirectly subject to climate risk through Bank-wide exposures across all risk types. • Longer-term climate change risks may adversely impact our future revenue through customer behaviour, balance sheet or strategy changes over the longer term in response to climate change risk factors. • Market dislocation could also impact the value or the ability to monetise liquidity buffers or incremental client deposits run-off resulting from transition risk drivers. Medium term to long term. Business interruptions due to extreme weather events and damage to facilities. Disruptions in supply chain. Transition risk examples Increased operating costs for facilities and higher capital expenditures for resiliency and carbon reduction measures capital expenditures for resiliency and carbon reduction measures. Time horizon Medium term. Climate change risk has been considered as part of the 2023 ICAAP. This includes a qualitative assessment of the potential financial implications of climate-related risk, namely transition and physical risks. The ICAAP is a key planning process and facilitates the Board and senior management in identifying, measuring and monitoring our risks and ensures that we hold adequate capital to support our risk profile. Based on our current assessment the capital requirement is not considered to have a material impact over the planning horizon at this time. Consideration of climate risk will continue to be further embedded in key processes where investment decisions are made and the level of climate risk being taken is material. The output of the climate scenario analysis and stress testing is used to inform the understanding of how capital management may be impacted. Climate risk and broader ESG considerations are now reflected in our treasury portfolio investment strategy, with implications for securities that can be included in the Liquidity Pool. The 2023 Internal Liquidity Adequacy Assessment Process (ILAAP) outlined the potential funding and liquidity risks that may arise as a result of physical risks or transition risks. The impacts of climate change will continue to be assessed within our prudential statements, namely the ICAAP and ILAAP. Climate change is embedded as a cause within the Enterprise Risk Management Framework and our principal risks are assessed through a climate lens. All loss events are recorded in our incident management system, enabling the identification of climate-related risk events. Scenario analysis is performed to assess the potential effects of climate-driven events including disruption to business services, damage to physical assets, and health and safety. Physical risk data has been obtained in relation to key data centres and office/ store locations to support our assessment of future risk. The results of the scenario analysis are used to plan, prepare and respond to potential disruptions. There are also plans in place to help resume business operations as quickly as possible in the aftermath of an extreme climate event to minimise operational disruptions. We continue to take steps to embed climate change considerations into our procurement and supply chain management processes, including exploring different methods to collect environmental performance data from third parties. More broadly, the Operational Resilience programme outlines the requirements (including requirements of suppliers) to respond to business disruption. We will continue to identify, manage and disclose material climate-related risks and their impacts on our strategy and financial planning, in line with the TCFD framework. Metro Bank Holdings PLC Annual Report and Accounts 2023 Task Force on Climate-related Financial Disclosures Continued 42 Our Risk Appetite Statement includes a qualitative statement in relation to climate risk. In support of this appetite, complementary quantitative key risk indicators are being developed and will be assessed with a view to integrating them into risk appetite metrics, where appropriate. Metrics will be further enhanced as data and capability evolves and will leverage scenario analysis outputs. Response Climate change has been embedded as a cause into the Enterprise Risk Management Framework, together with the frameworks, policies and standards for these principal risks. For Credit risk, we have also integrated climate risk considerations into both the Business and Commercial Lending Policy and the Collateral Management Policy to aid the embedding, management and monitoring of climate change risk as a cause to our credit risks. Scenario analysis As the understanding and importance of climate risk progresses, climate scenario analysis is becoming an essential capability and risk management tool. Scenario analysis assists the identification, measurement and ongoing assessment of climate risks over the longer term, and the potential threats to our strategic objectives. Throughout 2023, we have continued to use the analysis from the Biennial Exploratory Scenario work conducted in 2021, leveraging the results of that analysis in the corresponding period and using this to inform a PMO which is incorporated within our IFRS 9 ECL calculation. In addition, a Climate Risk scenario was formally assessed as part of the 2023 ICAAP, reviewing the potential impact of an extreme weather event causing prolonged physical damage to our stores and a breakdown in the transport infrastructure servicing the stores. Outcomes from these pieces of analysis have indicated that we are considered to have sufficient capital to withstand the losses associated with the climate scenarios that have been assessed. As this capability is established and further developed, the assessment will be run on an ongoing basis to inform scenario planning and monitoring of the portfolio composition to ensure no undue concentrations. The results of the scenario analysis will be used to support the evolution of origination strategies in line with our overarching strategic objectives and risk appetite to factor in climate change risks and opportunities. It will also inform product opportunity assessment and help to identify areas where we could best support customers’ transition to improved energy efficiency or reduction in exposure to physical risks. financing activity and value chain by 2050. Recognising that there is more to do to fully understand the impact of climate change across our business, we will continue to work on developing further metrics in line with evolving industry practices. Metrics and targets Our climate change metrics are anchored to our commitment to make our own operations net zero by 2030, and to drive material reductions in the climate impact of our Our emissions data for 2023 is disclosed in the below table, outlining year-on-year changes as well as overall progress from our 2019 baseline. Emissions summary by Scope and Category Emission Scope Category Scope 1 Fuels (transport) Gas Fugitive Total Scope 2 Electricity (market) Total Scope 1 & 2 % change from 2019 baseline Scope 3 Cat 1: Purchased goods & services Cat 2: Capital goods Cat 3: Fuel & energy activities Cat 4: Upstream transportation Cat 5: Waste Cat 6: Business travel Cat 7: Employee commuting Cat 9: Downstream transportation Cat 15: Investments Total Scope 3 % change from 2019 baseline Total GHG emissions % change from 2019 baseline 2023 % change PY 2022 20 71 378 469 0 469 -90 54,986 2,155 903 371 9 423 4,495 114 47,749 111,205 -55 111,674 -56 -13 18 294 162 – 162 – -17 -69 -11 -22 0 23 -1 -3 -4 -14 – -14 – 23 60 96 179 0 179 – 65,933 7,057 1,015 477 9 343 4,550 117 49,862 129,363 -48 129,542 -48 Quoted emissions figures are quoted in tCO2e For Scope 3 emissions, categories 8 and 10-14 are assessed not to apply to our operations at this time and are therefore excluded from our analysis Metro Bank Holdings PLC Annual Report and Accounts 2023 Task Force on Climate-related Financial Disclosures Continued Strategic report Governance Risk report Financial statements Additional information 43 Operational emissions Greenhouse gas reporting is undertaken in line with our obligations under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, and the Streamlined Energy and Carbon Reporting regulations. GHG emissions are reported in accordance with the GHG Protocol, which sets a global standard for how to measure, manage and report emissions. We report GHG emissions in accordance with the operational control approach, The only material data limitation in the emission data relates to employee commuting, where data for all individuals was not available; to account for this, average population values were used to perform the calculation. We have seen an increase in our Scope 1 emissions this year as detailed in the table above, primarily driven by an increase in refrigerant and coolant leaks (known as fugitive emissions). By their nature, these will be subject to variance year on year and as we progress towards our 2030 commitment we will seek to offset these fugitive emissions via high-quality carbon credits. Overall, we have achieved a reduction of 90% in Scope 1 and 2 emissions from our baseline year of 2019 and are well positioned to achieve our 2030 net zero commitment for Scopes 1 and 2. We continue to procure 100% renewable-backed electricity across our operations and therefore produce no market-based emissions from our electricity procurement. We recognise that the climate impact of our operations goes beyond carbon emissions from fuel consumption and electricity and that we have a responsibility to understand and address emissions across our wider value chain. Therefore, we have measured our Scope 3 emissions from our own operations in 2023 as set out in the table above. To enhance our reporting, we have broken down our Scope 3 emissions into their underlying categories. In addition to tracking the emissions for buildings, water and waste consumption are measured across our sites. We continue to divert 100% of our waste from landfill. We have continued to see a reduction in emissions from these sources both year on year and from our baseline in 2019. We have also seen concurrent reductions in paper usage. These reductions can be reasonably attributed in part to our continued operation of a hybrid working model. Financed emissions We remain fully committed to our pledge to make our financing activity and value chain net zero by 2050 to achieve alignment with the 2015 Paris Agreement. Financed emissions are absolute GHG emissions that we finance through our lending and investment activity. We continue to develop the data and technology required to enhance the accuracy of our assessment and management of our carbon-related assets and exposures. For 2023, we have calculated financed emissions from our residential mortgage portfolio (both organic and acquired) and residential and commercial buy-to-let portfolios. PCAF guidance has been followed when determining the attribution factor associated with the lending book, based on outstanding amount and property value at origination. To support calculation of the emissions arising from the portfolio of properties, typical annual energy consumption data for the average UK property was obtained from UK Government statistical databases, as were emissions conversion factors for gas and electricity usage. The use of EPC data has informed our understanding of the impact of transition risk on our mortgage portfolio. EPC ratings of the mortgage portfolio are monitored to provide a view on the energy efficiency of the housing stock securing our lending. The table below shows a summary of EPC ratings on our mortgage book as at the start of 2023, covering both residential and professional buy-to-let. Approximately 75% of mortgaged properties in the portfolios have been matched to an EPC rating, with the most common EPC rating in our mortgage book being D, which is slightly lower than the UK average. Approximately 39% of the book currently rated EPC C or better on an interpolated basis, which represents a 3% improvement over the previous year. EPC rating A B C D1 to < 3 months in arrears) have increased to 0.97% at 31 December 2023 (31 December 2022: 0.63%). Accounts that are 3 or more months in arrears have increased from 0.73% at 31 December 2022 to 1.08% at 31 December 2023. Increases in arrears have been seen to a greater extent in the legacy acquired portfolios that are in run-off and have greater sensitivity to interest rate rises. Retail Mortgage new lending has continued to be of good quality during 2023. The average LTV was 63% (2022: 69%) and the proportion of lending with an LTV over 90% was only 1% due to restrictions on this lending. The proportion of new lending that is buy-to-let reduced in 2023 to 7% from 34% in 2022. Credit quality measured through credit score has remained stable over the last 3 years. Near Prime lending has continued to make up a small proportion of new lending (December 2023: 1.5%) and contributes a small proportion of the portfolio (December 2023: 0.6%). 27% of loans at December 2023 are on interest rates ≥4%, and 8% of loans are on variable rates; the remaining 65% remain on existing fixed rate mortgages and will migrate to higher rate products at the end of the fixed period. We expect that owner-occupied customers have a degree of protection against increasing interest rates as a result of origination credit criteria and underwriting approach; all of our organically originated owner-occupied loans were underwritten at a stressed interest rate allowing for at least a 2% increase, and in the majority of cases (88%) customers did not borrow the maximum lending amount that was available creating an additional buffer against interest rate and inflationary rises. Rental coverage for buy-to-let lending is strong, providing capacity to absorb increases in mortgage payments. All organic buy-to-let mortgages have been underwritten at a minimum 140% rental cover and at a stressed interest rate. The buy-to-let portfolio consists of simple retail loans on prime residential housing stock; there is no cross-collateralisation and there are no houses in multiple occupation. Landlord portfolios are a small proportion of lending. Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued Strategic report Governance Risk report Financial statements Additional information 135 Impairment There has been an increase in coverage ratio for Stage 1 (Stage 1: 0.10% in 2022 to 0.11% in 2023) driven by new business lending and improvements in macroeconomic scenarios resulting in fewer customers with higher PDs triggering SICR into Stage 2. There has been a decrease in coverage ratio in Stage 2 (0.82% in 2022 to 0.72% in 2023) driven by improvements in macroeconomic scenarios, and improvements made in the measurement of SICR in the IFRS 9 lifetime PD model (introduced as an overlay in 2022), resulting in an overall reduction in modelled ECL. There has been an increase in Stage 3 coverage ratio (Stage 3: 2.70% in 2022 to 4.05% in 2023) due to one single name case that triggered default. Payment performance Portfolio arrears have increased from a low base during 2023 due to the impact of the cost of living and interest rate rises. The proportion of the portfolio with >1 and >3 months in arrears has increased from 0.63% to 0.97% of the total retail mortgage portfolio, and the proportion of the portfolio with three or more missed payments has increased from 0.73% to 1.06%. A greater increase in arrears has been observed on the legacy acquired portfolios due to the portfolios being in run-off and there being a larger proportion of mortgages with variable rates in these portfolios. The acquired portfolios were not written under Metro Bank credit criteria and do not represent similar arrears profiles to organic lending. We also observe a higher increase in arrears in the buy-to-let portfolio due to this containing a larger proportion of interest only mortgages that are more sensitive to interest rate rises. Forbearance levels also remain low with 0.19% of our non-arrears portfolio subject to forbearance measures, increasing from 0.02% at December 2022. Interest-only lending Interest-only lending holds the additional risk of balance repayment at the end of the mortgage term. This risk arises principally in the mortgage book where the exposure to interest-only loans stands at £3.8 billion (31 December 2022: £4.1 billion). All borrowers of interest-only facilities 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 with lower LTV thresholds compared to capital and interest mortgage lending. The table below shows the amounts of the retail mortgage that are subject to either interest only, or capital and interest payments. Table 8: Retail mortgage lending by repayment type (audited) Repayment type Interest only Capital and interest Total 31 December 2023 (£’million) 31 December 2022 (£’million) Retail Owner Occupied Retail BTL 1,933 3,918 5,851 1,878 88 1,966 Total 3,811 4,006 7,817 Retail Owner Occupied Retail BTL Total 2,005 3,502 5,507 2,047 95 2,142 4,052 3,597 7,649 Geographic exposure The geographic distribution of our retail mortgages customer balances is set out below. All of our loan exposures which are secured on property are secured on UK-based assets. Our current retail mortgages portfolio is concentrated within London and the South-East, which is representative of our customer base and store footprint. We are expanding our footprint which will reduce the geographical concentration of lending over time. Table 9: Retail mortgage lending by geographic exposure (audited) 31 December 2023 (£’million) 31 December 2022 (£’million) Region Greater London South east South west East of England North west West Midlands Yorkshire and the Humber East Midlands Wales North east Northern Ireland Scotland Total Retail Owner Occupied 2,040 1,564 487 590 268 240 185 180 111 60 – 126 Retail BTL 1,091 381 87 150 65 71 32 53 17 8 – 11 Total 3,131 1,945 574 740 333 311 217 233 128 68 – 137 Retail Owner Occupied Retail BTL 1,937 1,435 476 531 263 226 184 168 109 63 – 115 1,201 408 99 163 68 76 34 54 18 10 – 11 Total 3,138 1,843 575 694 331 302 218 222 127 73 – 126 5,851 1,966 7,817 5,507 2,142 7,649 Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued 136 Collateral Table 10 shows the distribution of the retail mortgage portfolio by DTV. The portfolio DTV profile has increased slightly during 2023 as a result of falling house prices. Table 10: Retail mortgage lending by DTV (audited) Impairment The total ECL coverage position for consumer has increased to 8.3% as a result of the continued maturation of the portfolio and a post model overlay to reflect the uncertainty due to high inflation not fully captured in the IFRS 9 model (31 December 2022: 5.1%). Portfolio level analysis – Commercial Table 12 summarises key credit performance metrics for the commercial portfolio. Table 12: Commercial credit performance DTV ratio Less than 50% 51–60% 61–70% 71–80% 81–90% 91–100% More than 100% Total 31 December 2023 (£’million) 31 December 2022 (£’million) Retail Owner Occupied Retail BTL Total Retail Owner Occupied Retail BTL Total 1,994 1,069 1,044 1,100 550 89 5 439 375 642 493 16 – 1 2,433 1,444 1,686 1,593 566 89 6 2.007 961 1,088 990 374 87 – 568 463 660 434 13 – 4 2.575 1,424 1,748 1,424 387 87 4 5,851 1,966 7,817 5,507 2,142 7,649 Loans and advances Loss allowance Coverage ratio % loans in Stage 2 % loans in Stage 3 90+ days past due Portfolio level analysis – Consumer Table 11 summarises key credit performance metrics for the consumer lending portfolio. Table 13: Summary of Commercial lending Table 11: Consumer credit performance 31 December 2023 £’million 31 December 2022 £’million Professional buy-to-let Bounce back loans Loans and advances Loss allowance Coverage ratio % loans in Stage 2 % loans in Stage 3 90+ days past due 1,297 108 8.33% 24% 6% 5% 1,480 75 5.07% 17% 3% 3% Portfolio and credit risk profile Consumer balances have reduced to £1.3 billion as at 31 December 2023 (31 December 2022: £1.5 billion) following a reduction in, and subsequent cessation of lending through the RateSetter brand. The portfolio is now composed of 96% lending through the RateSetter brand. The performance of this portfolio is aligned with expectations; increases in arrears and non- performing loans are in line with the growth of the book and normal portfolio maturation, and as a result of very low levels of write-offs causing an accumulation of cases in arrears. A batch write-off planned for 2024 is expected to reduce arrears levels. New lending in 2023 remained strong across fixed term and revolving products with average income and application scores remaining stable. Continual enhancements have been performed in relation to the affordability in light of the economic environment. Coronavirus business interruption loans Recovery Loan Scheme Other term loans Total commercial term loans Overdrafts and revolving credit facilities Credit cards Asset and invoice finance Total commercial lending 31 December 2023 £’million 31 December 2022 £’million 3,382 72 2.13% 12% 5% 2% 4,160 92 2.21% 12% 5% 2% 31 December 2023 £’million 31 December 2022 £’million 465 524 86 328 1,341 2,744 172 4 462 3,382 731 801 127 385 1,578 3,622 122 4 412 4,160 Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued Strategic report Governance Risk report Financial statements Additional information 137 Geographic exposure The below table summarises the geographic distribution of the commercial term loans portfolio. 72% of commercial term loans are to companies in London and the South East (31 December 2022: 73%), which reflects the historical concentration of our store network. The following table reflects the geographic distribution of the commercial term loans portfolio excluding BBLS. Table 15: Commercial term lending – excluding BBLS by geographic exposure (audited) 31 December 2023 (£’million) 31 December 2022 (£’million) Region Greater London South east South west East of England North west West Midlands Yorkshire and the Humber East Midlands Wales North east Northern Ireland Scotland Total Professional buy-to-let Other – term loans 298 88 15 31 11 4 2 9 3 3 1 – 880 340 111 122 106 101 17 44 8 19 2 5 Total 1,178 428 126 153 117 105 19 53 11 22 3 5 Professional buy-to-let Other – term loans 472 149 22 45 13 8 3 12 3 3 1 – 1,052 377 143 147 153 112 23 43 11 19 3 7 Total 1,524 526 165 192 166 120 26 55 14 22 4 7 465 1,755 2,220 731 2,090 2,821 Portfolio and credit risk profile Our commercial lending remains largely composed of term loans secured against property and Government-supported lending. In addition, commercial lending includes facilities secured by other forms of collateral (such as debentures and guarantees), and Asset Finance and Invoice Finance. Our commercial balances have decreased from £4,160 million to £3,382 million during 2023 reflecting the reduction in our portfolio of buy-to-let and Real Estate lending, and run-offs in Government-supported lending. Commercial customers are managed through an early warning categorisation where there are early signs of financial difficulty, thereby allowing timely engagement and appropriate corrective action to be taken. Early warning categories support our IFRS 9 stage classification. The percentage of the portfolio in Early warning categories has remained broadly flat since December 2022, however, some deterioration within early warning categories has been observed. Close customer management is key to identifying issues and supporting our customers. Impairment The ECL allowance has reduced to £72 million in 2023 (31 December 2022: £92 million) with coverage reducing to 2.13% (31 December 2022: 2.21%). The proportion of commercial lending in Stage 2 has remained flat at 12% (FY 2022: 12%) as a percentage of total balances. Reduced coverage reflects repayments received and reduction of cases with higher coverage, including conclusion of some larger single name cases as well as improvements in macroeconomic scenarios. Our commercial book consists predominately of SME lending which is reflected in the coverage. The operating environment continues to be challenging and Commercial customers may be impacted by interest rates which remain higher than observed in recent years, and the impact of inflationary increases on discretionary spending and business expenses. We continue to hold appropriate levels of ECL to reflect the higher risk of default. Interest-only lending Interest-only lending in our commercial loans is concentrated towards professional buy-to-let where interest-only lending makes up 94% of professional buy-to-let lending (31 December 2022: 95%). Table 14: Commercial term lending – excluding BBLS by repayment type (audited) Repayment Type Interest only Capital and interest Total 31 December 2023 (£’million) 31 December 2022 (£’million) Professional buy-to-let Other term loans 438 27 465 222 1,533 1,755 Total 660 1,560 2,220 Professional buy-to-let Other term loans 691 40 731 253 1,837 2,090 Total 944 1,877 2,821 Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued 138 Sector exposure We manage credit risk concentration to individual borrowing entities and sector. Our credit risk appetite includes limits for individual sectors where we have higher levels of exposure. The sector profile for commercial term lending is broadly consistent with the position as at 31 December 2022. There has been an overall reduction in commercial real estate and professional buy-to-let. The following table shows the distribution of the commercial portfolio across business sectors. Table 16: Commercial term lending – excluding BBLS by sector exposure (audited) Collateral DTV is calculated for property and cash backed lending in commercial. As of 31 December 2023, 76% of this secured lending had a DTV of 80% or less, reflecting the prudent risk appetite historically applied. Lending with DTV >100% includes loans which benefit from additional forms of collateral, such as debentures. The value of this additional collateral is not included in the DTV but does provide an additional level of credit risk mitigation. DTV >100% also includes government-backed lending where the facility does not also benefit from property collateral. The decrease in DTV >100% in 2023 reflects a reduction in government-backed lending. The following table shows the distribution of the commercial portfolio DTV. Region Real estate (rent, buy and sell) Hospitality Health & social work Legal, accountancy & consultancy Retail Real estate (develop) Recreation, cultural & sport Construction Education Real estate (management of) Investment & unit trusts Other Total commercial term lending 31 December 2023 (£’million) 31 December 2022 (£’million) Professional buy-to-let Other – term loans Total commercial term loans Professional buy-to-let Other – term loans Total commercial term loans 465 – – – – – – – – – – – 509 368 298 150 136 14 72 48 19 7 7 974 368 298 150 136 14 72 48 19 7 7 127 127 731 – – – – – – – – – – – 681 372 334 196 161 6 87 62 17 9 11 1,412 372 334 196 161 6 87 62 17 9 11 154 154 465 1,755 2,220 731 2,090 2,821 Table 17: Commercial term lending – excluding BBLS by DTV (audited) DTV ratio Less than 50% 51 to 60% 61 to 70% 71 to 80% 81 to 90% 91 to 100% More than 100% Total 31 December 2023 (£’million) 31 December 2022 (£’million) Professional buy-to-let Other term loans 160 59 105 76 60 2 3 465 707 319 185 79 21 11 433 1,755 Total 867 378 290 155 81 13 436 2,220 Professional buy-to-let Other term loans 278 158 219 62 3 5 6 731 817 433 112 76 53 12 587 2,090 Total 1,095 591 331 138 56 17 593 2,821 Metro Bank Holdings PLC Annual Report and Accounts 2023 Strategic report Governance Risk report Financial statements Additional information 139 Financial risks Continued Government-backed lending The table below summarises government-backed lending. Table 18: Government-backed lending Bounce Back Loan Scheme Coronavirus Business Interruption Loan Scheme Coronavirus Large Business Interruption Loan Scheme Recovery Loan Scheme1 Total government-backed lending Bounce Back Loan Scheme Coronavirus Business Interruption Loan Scheme Coronavirus Large Business Interruption Loan Scheme Recovery Loan Scheme1 Total government-backed lending No. of loans 22,062 240 2 1,304 23,608 No. of loans 26,824 279 4 1,349 28,456 31 December 2023 Drawn balance £’million Average loan amount £’000 524 86 8 328 946 24 358 3,920 252 40 31 December 2022 Average loan amount £’000 30 Drawn balance £’million 801 127 26 385 1,339 455 3.4% 6,580 285 47 0.7% 10.4% 36.2% % of total business lending 18.8% 3.0% 0.3% 11.6% 33.7% % of total business lending 21.7% 1. Recovery loan scheme includes £71 million acquired from third parties under forward flow arrangements (31 December 2022: £97 million). The loans are held in a trust arrangement in which we hold 99% of the beneficial interest, with the issuer retaining the remaining 1% (the trust retains the legal title loans). Undrawn commitments At 31 December 2023, we had undrawn facilities granted to retail and commercial customers of £718 million (2022: £1,120 million). As part of our retail and commercial operations, this includes commitments of £327 million (2022: £250 million) for 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. 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 2023 we held £4.9 billion (31 December 2022: £5.9 billion) of investment securities, which are used for balance sheet and liquidity management purposes. We hold investment securities at amortised cost or fair value through other comprehensive income (FVOCI) depending on our intentions regarding each asset. We do not hold investment securities at fair value through profit and loss. Table 19: Investment securities by credit rating (audited) 31 December 2023 £’milion 31 December 2022 £’milion Group AAA AA- to AA+ Total Investment Securities held at amortised cost Investment Securities held at FVOCI 3,400 1,003 4,403 256 220 476 Investment Securities held at amortised cost Investment Securities held at FVOCI 3,649 1,694 5,343 356 215 571 Total 3,656 1,223 4,879 Total 4,005 1,909 5,914 We have a robust securities investment policy which requires us to invest in high-quality liquid debt instruments. At 31 December 2023, 75% of our investment securities were rated as AAA (31 December 2022: 68%) with the remainder rated AA- or higher, the majority of which comprises of UK gilts. Additionally, we hold £3.9 billion (31 December 2022: £2.0 billion) in cash balances, which is either held by ourselves or at the Bank of England. Response We have a strong credit risk framework in place that manages lending within risk appetite limits, provides a comprehensive set of policies and lending standards, and sets out a clear set of procedures for managing our portfolios and customers in financial difficulty. We control credit risk through a set of quantitative limits that measure the aggregate level and type of credit risk that we are willing to accept in order to support our business objectives. These limits, which are set at total portfolio and product level, are supported by a suite of product-level policies and lending criteria which define the parameters within which individual exposures can be approved and which manage new lending within the risk appetite. Credit risk is further controlled through the use of automated decision tools, underwriter approval and monitoring of individual transactions. Independent oversight is provided by the Credit risk function, and includes independent underwriting of commercial lending, monitoring of performance against limits, ongoing portfolio monitoring and regular portfolio reviews. Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued The 2023 credit risk appetite limits were set with reference to the appetite for credit impairments as well as analysis of past performance, peer comparisons and qualitative approaches using expert judgement. These limits reflect the Bank’s strategy as well as the macroeconomic outlook. We continue to maintain our climate change risk management capabilities and have policies that outline prohibited commercial sectors which are of particular concern for climate change. In addition, our policies provide for enhanced borrower assessment where borrowers operate in other carbon-intensive industries. In retail mortgages, there are policies in place to mitigate property risk, including the risks that could result from climate change. These include requirements concerning the durability of the property for the lifetime of the loan, the requirement that properties must be insurable, and limits for lending on certain products where the property has received a low EPC rating. Individual credit decisions are controlled through both quantitative models and review under delegated lending authority depending on the product, materiality, and complexity of the exposure. These assessments take into account the potential for future stress in customers’ financial positions. We mitigate credit risk through holding collateral against our retail mortgage and commercial term loan portfolios. This robust framework continues to support underlying portfolio resilience as cost-of-living and interest rate pressures have materialised. Mitigation We mitigate risk through regular monitoring and analysis of our customers and their ability to maintain contractual obligations, as well as the external factors that can impact customer credit risk. We have established Credit Risk policies and lending criteria, and assess customer affordability under different scenarios where appropriate. We employ specialist expert underwriters in our assessments of our commercial customers, and categorise customer risk as part of our Closer Monitoring and Early Warning List as described above. This allows for the early identification of customers who may develop financial difficulties, which have not yet fully materialised. Monthly analysis and reporting provide insight into portfolio credit performance and highlight where deterioration is taking place or is likely to occur. In addition to active management and monitoring of our portfolios and customer affordability, we mitigate credit risk through holding collateral against our retail mortgage and commercial term loan portfolios. Collateral is usually held in the form of real estate, guarantees, debentures and other liens that we can call upon in the event of the borrower defaulting. The management of this is governed by our collateral management policy. At 31 December 2023, 80% (31 December 2022: 78%) of our loans consisted of retail mortgages and commercial term loans, with average debt to value of 58% (31 December 2022: 56%) and 55% (31 December 2022: 55%) respectively. Subject matter experts further mitigate the risk of credit losses through regular review and assessment of cases at an individual level. Specialist teams provide customers with support where financial difficulties are identified, and the use of automated and manual credit assessments help to ensure good customer outcomes and to maximise the likelihood that customers maintain the ability to meet their contractual obligations. 140 Supporting our customers We work with our customers who are in arrears, have payment shortfalls or are in financial difficulties to obtain the most appropriate outcome for both the Bank and the customer. The primary objectives of our policy are to ensure that appropriate mechanisms and tools are in place to support customers during periods of financial difficulty, and to minimise the duration of the difficulty and the consequence, costs and other impacts arising. We will always seek to understand the customer’s individual circumstances and ensure a considered, measured, and consistent approach is taken which is, to the best of our knowledge, appropriate for their individual circumstances. Where a customer’s financial difficulty is due to them being impacted by a vulnerable situation, we will seek to provide tailored and flexible solutions and services appropriate to the circumstances of the vulnerability. As part of this process, we have a range of treatments that may be considered to support the customer through the period of financial difficulty, alongside working with them to understand and agree how to return their account to good standing where possible. This includes the forbearance options outlined below. Commercial customers who are showing signs of potential financial difficulty are supported through our relationship teams, and where appropriate, our Business & Credit Support team. Each situation is individually assessed, and our preference is to provide flexibility where possible to help a customer avoid financial difficulty and to resume normal contractual obligations. Forbearance may be offered where this is sustainable and appropriate to the nature of the customer’s financial distress. Forbearance When our customers show signs of financial difficulties, we may seek to continue our support through the provision of a concession such as a modification of the terms and conditions of the loan, or a total or partial refinancing of an existing loan. Concessions can often result in more favourable terms than those offered or available under normal circumstances. Such events are considered to be acts of forbearance and are dealt with and monitored in accordance with our forbearance policies and regulatory guidelines. Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued Strategic report Governance Risk report Financial statements Additional information 141 Monitoring/reporting Governance Credit risk is managed within our Enterprise Risk Management Framework, as part of our overarching three lines of defence model. Management of credit risk is split primarily into the firsrt and second lines of defence. The first and second lines are operationally independent and have separate reporting lines. The first line management of credit risk is shared across the Bank’s functions that design, distribute, approve and service credit facilities, referred to in this document as the ‘lending functions’. These are the functions under the management of the Managing Director, Corporate and Commercial Banking, Managing Director, Retail and Business Banking, and the Chief Commercial Officer. The first line lending functions are responsible for proposing and implementing lending propositions and are responsible for conducting lending activity in accordance with Credit Risk Appetite and Credit Policies and Standards. The second line Credit Risk function reports to the Chief Credit Officer (CCO) who, in turn, reports to the Chief Risk Officer. The CCO, supported by the Credit Risk team, is responsible for: • Recommending and overseeing Credit Risk Appetite limits • Developing and overseeing credit risk policies and standards • Overseeing credit risk strategies in accordance with policies and risk appetite • Developing and monitoring credit risk models • Providing an independent review and approval of individual commercial credit proposals and renewals of loan facilities • Developing and overseeing retail arrears management strategies • Managing commercial and Business Support strategy and activities • Ensuring appropriate IFRS 9 credit provisions are held, and • Monitoring and reporting credit risk performance. Monitoring The credit risk function monitors the risk profile using a broad range of risk metrics, reporting against risk appetite limits and regular portfolio reviews. This includes oversight of credit risk performance indicators such as arrears levels, modelled risk measures, such as probability of default and loss given default, and measures of concentration risk. Stress testing is conducted to assess the impact on ECL and RWAs. Credit risk appetite metrics are measured and reported regularly to oversight committees to ensure we remain within risk appetite and continue to support our strategic objectives. These metrics include a focus on particular segments of the portfolio which may be susceptible to or indicative of increased levels of risk, and which are crucial to our strategy. These include modelled risk parameters and performance metrics such as probability of default and loss given default, as well as concentration metrics such as sector or geographical concentration. More granular performance metrics are also tracked to assess the likelihood of potential breaches and their drivers. The limit framework includes early warning thresholds which identify where action may need to be taken to avoid a breach of appetite limits. If necessary, a plan is presented to bring the measurements back to approved levels. A monthly portfolio insight report is presented to ERC and ROC to provide oversight of key indicators and performance trends. This is supplemented by a detailed suite of portfolio-level reports which are reviewed by the Credit Risk Oversight Committee. In addition, we perform regular portfolio asset quality reviews as well as monitoring and reporting on our credit decisioning. We have developed statistical models that utilise both internal and external data for the purposes of estimating ECL under IFRS 9, as well as Internal Ratings Based (IRB) models as part of our journey to seek permission to use the IRB approach to calculate risk-weighted exposure amounts for credit risk. Commercial customers are also monitored through our Closer Monitoring and Early Warning List. The objective is to identify the potential risks at an individual level before they materialise and mature. Customers are categorised into one of four categories. The first is ‘closer monitoring’, followed by early warning list categories one to three. Closer Monitoring and Early Warning List categories support IFRS9 stage classification. We monitor the effectiveness of our policies and management framework through the various credit risk committees outlined above. These committees provide oversight of portfolio quality and help inform on where changes to our strategy or policies are required in response to ongoing developments in the external environment. In addition, we assess and estimate the risks associated with climate change through developed models and we continue to develop our quantitative capabilities to further support our longer-term objectives and increased focus in this area. Future focus Our overall approach to credit risk management, level of provisions and portfolio shape has put us in a strong position to remain resilient throughout 2024. We remain focused on monitoring emerging trends and the impact of high inflation and interest rate pressures on our customers. We have taken a number of steps to further enhance our support for customers that may be facing financial difficulty through this period, and will continue to work with our customers to support them where needed. As we develop our future product offering, we will continue to update our credit risk policies and processes to ensure that these remain appropriate for the developing balance sheet. Metro Bank Holdings PLC Annual Report and Accounts 2023 142 Table 20: Key regulatory metrics and ratios CET1 ratio Tier 1 ratio Total capital ratio MREL ratio Leverage ratio 31 December 2023 31 December 2022 13.1% 13.1% 15.1% 22.0% 5.3% 10.3% 10.3% 13.4% 17.7% 4.2% Capital resources The capital raise completed in November saw the Bank issue £150 million of new equity and £175 million in new MREL eligible debt. We ended the year with CET1, Tier 1 and total capital plus MREL ratios of 13.1%, 13.1% and 22.0% respectively (31 December 2022: 10.3%, 10.3% and 17.7%). In addition to raising new capital, we also refinanced all of our existing regulatory debt. This consisted of £350 million of MREL, which now has a call date of 30 April 2028, providing additional runway for us to deliver our strategy. Alongside this, we replaced our existing £250 million of Tier 2 debt with £150 million of new instruments. Financial risks Continued Capital risk Risk definition The risk that financial resources are not adequate in terms of capital, in order to ensure that these resources can cover the nature and level of the risks to which the Bank is or might be exposed. Risk appetite statement The Bank has a cautious appetite for Capital Risk. The Board has determined that the Bank shall be able to maintain a surplus of regulatory capital resources above its total regulatory capital requirement plus public buffers, as communicated by the regulator, with a buffer to include the amount of capital identified as required through the Bank’s ICAAP, utilising an appropriate mix of regulatory capital. Exposure and assessment Capital risk exposures arise from the depletion of our capital resources which may result from: • Increased risk-weighted assets (RWAs). • Losses. • Unfavourable changes to regulatory minima or other regulatory rule changes. Our capital risk management approach is centred around ensuring we can maintain appropriate levels of capital to meet regulatory minima and support our strategic objectives under both normal and stressed conditions. Capitalisation is a core component of our annual planning process, involving the creation of our budget and Long Term Plan. This sets the forecast of our capital position through the planning horizon and is further assessed through our ICAAP scenarios, where the scale of risks to capital is fully considered, and allows the Bank to make informed judgements on risks, the adequacy of capital carried to support them and the overall robustness of our capital risk management approach. Management actions to preserve capital are identified and applied, where relevant to those scenarios. Further details on this process are set out in our Viability statement on pages 49 and 50. Capital risk is a core focus and our current and forecast capital position is regularly monitored by the ALCO and ExCo and reported to ROC and the Board. This involves the production of reports including capital forecasts for the Board and management, which are compared to our risk appetite and limits for acceptable capitalisation. The regulatory environment in which we operate continues to evolve. Consequently, a core component of our capital risk thinking involves horizon scanning of prudential developments to ensure we continue to monitor potential future capital impacts and anticipate appropriate capital resources. Metro Bank Holdings PLC Annual Report and Accounts 2023 Strategic report Governance Risk report Financial statements Additional information 143 Financial risks Continued Our capital resources as at 31 December 2023 are summarised below: Table 21: Regulatory capital Share capital Share premium Retained earnings Other reserves Intangible assets Other regulatory adjustments Total Tier 1 capital (CET1) Debt securities (Tier2) Total Tier 2 capital Total regulatory capital 31 December 2023 £’million 31 December 2022 £’million – 144 978 12 (193) 44 985 150 150 1,135 – 1,964 (1,015) 7 (216) 79 819 250 250 1,069 Capital requirement We calculate our capital requirement in line with the regulatory requirements set out in the PRA Rulebook. This consists of a Pillar 1 calculation of RWAs and a Pillar 2A assessment that captures point in time risks not covered by the Pillar 1 calculation. The Pillar 2A assessment is conducted through the ICAAP process, which is documented and approved by the Board on an annual basis and discussed with the PRA as part of the Supervisory Review and Evaluation Process. Table 22: Capital requirements Pillar 1 Pillar 2A Total capital requirement Capital conservation buffer UK countercyclical buffer Total (excluding PRA buffer, if applicable) 31 December 2023 31 December 2022 CET1 Total capital CET1 Total capital 4.5% 0.2% 4.7% 2.5% 2.0% 9.2% 8.0% 0.4% 8.4% 2.5% 2.0% 12.9% 4.5% 0.3% 4.8% 2.5% 1.0% 8.3% 8.0% 0.5% 8.5% 2.5% 1.0% 12.0% Capital landscape Basel 3.1 The PRA has published the first of two near-final policy statements covering the implementation of the Basel 3.1 standards for market risk, credit valuation adjustment risk, counterparty credit risk, and operational risk, with the remaining elements of the standards expected to be published in Q2 2024. Discovery sessions are ongoing to develop more precise estimates of the likely impact on the Bank. Resolvability regime Financial institutions, with total assets greater than £15-25 billion, are subject to stringent MREL ‘bail-in’ requirements meaning that we will need to continue to hold and issue MREL eligible debt. In order to give further effect to the resolvability regime, the Bank has established a holding company. Resolvability assessment framework The Bank of England (BoE) introduced its Resolvability Assessment Framework (RAF), with implementation for UK mid tier-firms from 1 January 2023. We fall into this category. In light of the proportionate requirements for mid-tier firms, we conducted an internal resolution readiness assessment during 2023. The assessment concluded that we have put in place capabilities to facilitate the management of a potential resolution event, if required, acknowledging that the firm’s capabilities will continue to be enhanced as the Resolvability Assessment Framework is embedded into our business-as-usual activities. Following a review of our RAF and the successful issuance of MREL, the BoE confirmed that the Bank is resolvable. Ring-fencing In 2019, legislation came into force for banks with greater than £25 billion of ‘core deposits’, requiring them to separate their retail banking from other parts of their business including investment and international activities. Given our current level of deposits we are not subject to this separation (referred to as ‘ring-fencing’), although our planned level of growth could see us become subject to it in the future. As we are purely a UK-focused retail bank the impacts of ring-fencing should have limited consequences, beyond the costs of ensuring compliance. Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued Risk-weighted assets Our RWAs decreased over the course of 2023 to £7,533 million (31 December 2021: £7,990 million). 144 Response Capital risk management is focused on three key components: • A return to sustainable profitability that will allow us to generate organic capital growth. • The continued optimisation of our balance sheet to both ensure we are maximising our return Table 23: RWAs Loans and advances Treasury portfolio Other assets Total Assets Off-balance sheet Credit risk (exc. CCR) CCR, Market risk and Operational risk Total RWAs 31 December 2023 31 December 2022 on regulatory capital and managing our RWAs. Exposure Risk density 12,297 8,770 1,181 22,248 46% 3% 75% 30% RWAs 5,597 242 886 6,725 79 6,804 729 7,533 Exposure Risk density RWAs 13,102 7,870 1,147 22,119 45% 3% 75% 32% 5,949 265 859 7,073 169 7,242 748 7,990 • Continuing to assess the raising of external regulatory debt capital, as and when market conditions and opportunities allow. Sustainable profit growth The main long-term management approach to capital is the sustainable generation of additional capital through the accumulation of profits. The Board and ExCo are focused on ensuring the successful delivery of a return to sustainable profitability. Balance sheet optimisation Another key mitigation used to manage capital risk is efficient deployment of our existing capital resources. One of our strategic priorities is ensuring we continue to optimise our balance sheet to ensure we maximise our risk-adjusted returns, while remaining above regulatory requirements. This approach saw us take active measures during the year to enhance our capital ratios by matching originations to the level of asset run-off. Raising of additional capital The ability to raise additional capital, as well as the associated cost, is dependent upon market conditions and perceptions and is monitored closely.. Monitoring/reporting We measure our capital resources in line with regulatory requirements in order to appropriately manage our capital resources. The PRA expects prudential reporting, which includes capital reporting, to be as rigorous as that for financial reporting. Over the past few years we have invested in our regulatory reporting systems as well as making enhancements to our control environment to ensure we are continuing to produce accurate and reliable capital reporting and deliver against these expectations. Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued Strategic report Governance Risk report Financial statements Additional information 145 Liquidity and funding risk Risk definition Liquidity risk is the risk that we fail to meet our obligations as they fall due. Funding risk is the risk that we cannot fund assets that are difficult to monetise at short notice (i.e. illiquid assets) with funding that is behaviourally or contractually long-term (i.e. stable funding). Risk appetite statement Liquidity – The Bank has a cautious appetite for Liquidity risk. The Board has determined that the Bank 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 the Bank’s internal risk appetite stress test, utilising the Bank’s Liquidity Pool, having identified the Bank’s material liquidity risks. In order to appropriately manage our liquidity and funding resources, we run an ILAAP exercise which considers the risks that we are exposed to in both normal and stressed conditions. The ILAAP process also sets appropriate limits and determines the Bank’s liquidity risk appetite, and internal liquidity stress scenario. We produce regular reports on the current and forecast level of liquidity and capital, which are tracked against limits both at the operational level in Treasury and at the Executive level at ALCO. Response Our liquidity and funding risk management is focused on three key components: • We retain a deposit-funded approach, with a broad customer deposit base covering both retail and commercial customers. This means we are not reliant on wholesale funding, although we continue to utilise the Bank of England’s TFSME as an additional stable source of funding. Funding – The Bank has a cautious appetite for Funding risk. The Board has determined that the Bank shall maintain a prudent funding profile by using stable funding to fund illiquid assets, without undue reliance on wholesale funding markets, whilst ensuring that funding is not inappropriately concentrated by customer, sector or term, as identified during the Bank’s liquidity stress testing. • We continue to maintain prudent liquidity levels through the holding of high-quality liquid assets in the form of investment securities with strong credit ratings as well as cash balances held at the Bank of England. • We monitor and manage the behavioural maturity of our assets and liabilities on an ongoing basis to ensure we are not taking undue risk. Encumbrance – The Bank has a cautious appetite for Encumbrance risk. The Board has determined that encumbrance of its balance sheet should be no greater than 30% of the Bank’s total assets in business-as-usual conditions, and unlimited in relation to any encumbrance relating to repo or use of Bank of England facilities in order to manage through a liquidity stress situation – and to test the adequacy of those facilities from time to time. Exposure and assessment Liquidity risk concerns our ability to meet short-term obligations as they fall due. This requires liquidity management to maintain investor and market confidence in both business-as-usual and stressed environments. Funding risk concerns any mismatch between asset liquidity and how the assets are funded. The primary aim is to ensure assets that are slow to monetise are supported by funding which is behaviourally or contractually stable. At the start of October 2023, speculative media reports contributed to uncertainty around the Bank’s capital negotiations and led to an increased outflow of customer deposits. Our strong levels of liquidity and prudent approach meant these outflows were manageable and, as at 31 December 2023 we had returned to broadly the same customer deposit levels as we reported for the third quarter, with strong liquidity and funding regulatory ratios. This was largely achieved by a successful targeted deposit campaign. As at 31 December 2023, our liquidity coverage ratio was 332% (31 December 2022: 213%) and our net stable funding ratio was 145% (31 December 2022: 134%). We measure our liquidity and funding resources in line with regulatory requirements, with the key metric for liquidity being the liquidity coverage ratio and for funding, the net stable funding requirement where we remain above our minimum regulatory requirements. This is supported by monitoring of the encumbrance ratio and other balance sheet metrics. • We monitor encumbrance levels and contingent funding capacity. Deposit-funded approach We aim to attract service-led core deposits which are less sensitive to competition within the deposit market. At 31 December 2023, 43% of our deposits came from commercial customers (31 December 2022: 51%) with the remaining 57% (31 December 2022: 49%) coming from retail customers. Additionally, 36% of deposits at year end 31 December 2022: 49%) were in the form of current accounts, with the remainder split between a combination of instant access and fixed-term savings products. Liquidity management (audited) We continue to hold a prudent level of liquidity to cover unexpected outflows, ensuring that we are able to meet financial commitments for an extended period. We recognise the potential difficulties in monetising certain assets, so set higher quality targets for liquid assets for the earlier part of a stress period. We have assessed the level of liquidity necessary to cover both systemic and idiosyncratic risks and maintain an appropriate liquidity buffer at all times. Our internal liquidity stress test ensures that we comply with our own risk appetite as well as regulatory requirements. Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued 146 Table 24: Contractual maturity (audited) Table 24 sets out the maturity structure of our assets and liabilities, by their earliest possible contractual maturity date. The contractual maturity will differ from the behavioural maturity characteristics in both normal and stressed conditions. The behavioural maturity of customer deposits is much longer than their contractual maturity. On a contractual basis, such deposits are repayable on demand or at short notice. In reality, they are static in nature and provide long-term stable funding for our operations and liquidity. Equally, our loans and advances to customers, specifically mortgages, are lent on longer contractual terms, but may be redeemed or remortgaged earlier. The total balances set out in the analysis do not reconcile with the carrying amounts as disclosed in the consolidated balance sheet. The difference arises from the maturity analysis incorporating all the expected future cash flows (including interest), on an undiscounted basis. Group 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 liabilities Total liabilities Equity Total equity and liabilities Derivative cashflows Cumulative liquidity gap Carrying value 3,891 12,297 4,879 1,178 22,245 Repayable on demand £’million 3,891 – – – 3,891 (15,623) (13,430) (4,241) (694) (553) (21,111) (1,134) – – – (13,430) – (22,245) (13,430) – Up to 3 months £’million – 562 454 – 1,016 (391) (347) – (6) (744) – (744) 2 31 December 2023 3–6 months £’million 6–12 months £’million 1–5 years £’million Over 5 years £’million No contractual maturity £’million – 486 117 – 603 (398) (551) (35) (6) (990) – – 911 397 – 1,308 (931) (67) (42) (11) – 5,078 4,110 – 9,188 (484) (3,621) (829) (107) (1,051) (5,041) – – (990) (1,051) (5,041) – (3) 37 – 15,811 52 – 15,863 – – (160) (238) (398) – (398) 1 – 381 57 1,178 1,616 (67) – – (319) (386) (1,134) (1,520) – Total £’million 3,891 23,229 5,187 1,178 33,485 (15,701) (4,586) (1,066) (687) (22,040) (1,134) (23,174) 37 (9,539) (9,265) (9,652) (9,398) (5,214) 10,252 Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued Table 24: Contractual maturity (audited) Continued Group 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 liabilities Total liabilities Equity Total equity and liabilities Derivative cashflows Cumulative liquidity gap Strategic report Governance Risk report Financial statements Additional information 147 Carrying value £’million 1,956 13,102 5,914 1,147 22,119 (16,014) (4,038) (571) (540) Repayable on demand £’million 1,956 – – – 1,956 (15,310) – – – Up to 3 months £’million – 573 576 – 1,149 (139) (215) – (6) (21,163) (15,310) (360) (956) – (22,119) (15,310) – – (360) (2) 31 December 2022 3 to 6 months £’million 6 to 12 months £’million 1 to 5 years £’million Over 5 years £’million No contractual maturity £’million – 507 206 – 713 (136) (41) (272) (6) (455) – (455) (1) – 942 951 – 1,893 (201) (147) (17) (12) – 5,472 4,312 – 9,784 (162) (4,147) (383) (111) (377) (4,803) – – (377) (3) – 17,525 164 – 17,689 – – – (263) (263) – Total £’million 1,956 25,360 6,268 1,147 34,731 – 341 59 1,147 1,547 (75) (16,023) – – (292) (367) (956) (4,550) (672) (690) (21,935) (956) (13,354) (12,567) (12,310) (10,797) (5,816) 11,610 (4,803) (263) (1,323) (22,891) – – – (6) Monitoring/reporting We consider the effective and prudent management of liquidity to be fundamental to our ongoing resilience and viability. The Board has overall responsibility for establishing and maintaining an adequate risk management framework, including risk appetites that enable the management of our liquidity and funding risks. We are committed to ensuring that at all times we have sufficient liquidity resources – in terms of both quantity and quality – to ensure we can meet payments as they fall due. The Treasury function has responsibility for our compliance with liquidity policy and strategy. We have a dedicated prudential risk team who independently monitor our liquidity and funding risk daily including ensuring compliance with the policies we have developed. A regulatory reporting team also monitors compliance with relevant metrics. Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued Market risk Risk definition 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. Risk appetite statement Our market risk appetite is determined by reference to a number of sub-risk appetites: Earning sensitivity – We have a low appetite for earnings risk, with the Board determining a limit calibrated to ensure net interest income does not exceed an amount recommended and scrutinised by the ALCO and approved by ROC. The limit is calibrated using a 2% instantaneous shock in both directions. Economic value sensitivity – We have a low appetite for economic value risk, with the Board determining a limit calibrated to ensure that a change to the present value of our balance sheet does not exceed an amount as recommended and scrutinised by ALCO and approved by ROC. The limit is calibrated by calculating the impact of a 2% instantaneous shock in both directions. Revaluation risk – We have a low appetite for revaluation risk, with the Board prescribing that we should avoid situations where the potential losses caused by changes in market prices shall not exceed capital held under standard risk weights, taking account of any offsets, determined by our Revaluation Risk stress scenario. Foreign exchange risk – We have no appetite for foreign exchange risk, with the Board determining that exposures in foreign currencies should not represent a material portion of our capital resources. Exposure and assessment We do not have a trading book and we do not actively seek to create value through taking interest rate positions. While we support our customers in making payments or hold accounts in foreign currency, we actively avoid exposing our own balance sheet to foreign exchange risk. The primary source of our market risk exposure is structural interest rate risk in the banking book mismatch between the fixed rate assets and liabilities and any differences in bases. Interest rate risk in the banking book crystallises in, and is measured through, the sensitivity of our current and future net interest income and our economic value to movements in market interest rates. During 2023, we reached the peak of the current interest rate cycle and at year end remain well within our risk appetite and supervisory outlier tests. The Board is responsible for setting market risk appetite. Market risk is mitigated through a risk management framework that allows it to be monitored and managed by first line management and second line risk, with oversight from ALCO. Accordingly, ALCO ensures that steps are taken to identify, measure, monitor and control the interest rate risk in the banking book in line with the approved strategies and policies. Management limits are set at the ALCO for economic value and net interest income sensitivity to ensure prompt action and escalation. Limits and the relevant metrics are also reported to ROC and the Board. 148 The Teasury function has responsibility for managing market risk within our market risk policy and strategy. We have a dedicated prudential risk team who independently monitor our market risk daily including ensuring compliance with the policies we have developed. The Prudential risk function runs additional interest rate risk simulations monthly to assess other threats that may not be evident in the standard parallel shock metrics or supervisory outlier tests. Response We have a low appetite for those market risks which we do take, with clear limits set for net interest income and economic value. These limits are sufficient to allow proper management of operational and financial hedging, but low enough to prevent active use of open positions. Interest rate risk We benefit from natural offsetting between certain assets and liabilities, which may be based on both the contractual and behavioural characteristics of these positions. Where natural hedging is insufficient, we hedge net interest rate risk exposures appropriately, including, where necessary, with the use of derivatives. We enter into derivatives only for hedging purposes and not as part of customer transactions or for speculative purposes. Our treasury and prudential risk teams work closely together to ensure that risks are identified and managed appropriately – and that we are well-positioned to avoid losses outside our appetite, in the event of unexpected market moves. Foreign exchange exposure We have very limited exposure to foreign exchange risk. Foreign currency denominated assets and liabilities are matched off closely in each of the currencies we operate, and we eliminate our foreign exchange exposure as far as is practical on a daily basis. In any event the risk is strictly capped at 2% of our capital base. We offer business current accounts in foreign currency and foreign exchange facilities to facilitate customer requirements only. Monitoring/reporting We measure interest rate risk exposure using methods including the following: • Interest rate gaps: calculating the net difference between total assets and total liabilities across a range of time buckets. • Economic value sensitivity: calculating repricing mismatches across our assets and liabilities over the horizon of our balance sheet and then evaluating the change in value arising from an instantaneous 2% change in the yield curve in both directions, taking into consideration any embedded customer optionality. Our economic value sensitivity risk appetite scenario is based on an instantaneous parallel rate movement of 2% at all maturities, which is widely considered severe but plausible. Additionally, we evaluate the PRA’s outlier test in line with regulatory requirements. • Net interest income sensitivity: calculating repricing mismatches across our assets and liabilities over a one-year horizon and then evaluating the change in net income arising from an instantaneous 2% change in the yield curve in both directions. Our net interest income risk appetite scenario is based on an instantaneous parallel rate movement of 2% at all maturities, which is widely considered severe but plausible. We also assess basis risk by considering divergences between the Bank of England base rate and the Sterling Overnight Index Average (SONIA), which replaced the London Inter-Bank Offered Rate (LIBOR) from January 2022. Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued Strategic report Governance Risk report Financial statements Additional information 149 Interest rate risk Table 25 sets 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 prepayments in line with our policy. A positive interest rate sensitivity gap exists when more assets than liabilities reprice during a given period. A positive gap tends to benefit net interest income in an environment where interest rates are rising; however, the actual effect will depend on multiple factors, including actual repayment dates and interest rate sensitivities within the periods. The converse is true for a negative interest rate sensitivity gap. Table 25: Repricing analysis (audited) 31 December 2023 Cash and balances at central banks Loans and advances to customers Investment securities Other assets Total assets Deposits from customers Deposits from central banks and repurchase agreements Debt securities Other liabilities Total liabilities Equity Total equity and liabilities Interest rate derivatives Interest rate sensitivity gap Cumulative gap Up to 3 months £’million 3,817 3,803 2,029 – 9,649 (6,829) (4,241) – – (11,070) (23) (11,093) (145) (1,589) (1,589) 3 to 6 months £’million 6 to 12 months £’million 1 to 5 years £’million Over 5 years £’million Non-interest bearing £’million – 860 3 – 863 (734) – – – (734) (23) (757) (2) 104 – 1,499 154 – 1,653 (1,607) – – – (1,607) (47) (1,654) – (1) (1,485) (1,486) – 6,063 2,642 – 8,705 (5,897) – (544) – (6,441) (374) (6,815) (3) 1,887 401 – 71 51 – 122 (556) – (150) – (706) – (706) 150 (434) (33) Total £’million 3,891 12,297 4,879 1,178 22,245 (15,623) (4,241) (694) (553) (21,111) (1,134) 74 1 – 1,178 1,253 – – – (553) (553) (667) (1,220) (22,245) – 33 – – – (4,192) Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial risks Continued Table 25: Repricing analysis (audited) Continued 31 December 2022 Cash and balances at central banks Loans and advances to customers Investment securities (AC & FVOCI) Other assets Total assets Deposits from customers Deposits from BoE and repos Debt Other liabilities Total liabilities Equity Total equity and liabilities Interest rate derivatives Interest rate sensitivity gap Cumulative gap Up to 3 months £’million 1,881 4,154 2,163 – 8,198 (6,186) (3,978) – – (10,164) (760) (10,924) (68) (2,794) (2,794) 3 to 6 months £’million 6 to 12 months £’million 1 to 5 years £’million Over 5 years £’million Non-interest bearing £’million – 915 – – 915 (613) – (249) – (862) (10) (872) 40 83 (2,711) – 2,010 539 – 2,549 (1,154) (60) – – (1,214) (21) (1,235) (62) 1,252 (1,459) – 5,850 3,052 – 8,902 (7,456) – (322) – (7,778) (165) (7,943) 105 1,064 (395) – 173 160 – 333 (605) – – – (605) – (605) (15) (287) (682) 75 – – 1,147 1,222 – – – (540) (540) – (540) – 682 – 150 Total £’million 1,956 13,102 5,914 1,147 22,119 (16,014) (4,038) (571) (540) (21,163) (956) (22,119) – – (8,041) Table 26 shows the sensitivity arising from the standard scenario of a +200bps and -200bps parallel interest rate shock upon projected net interest income for a one year forecasting period. This is a hypothetical scenario based on a constant balance sheet as well as a full pass through of the increase to all of our variable rate assets and liabilities. Table 26: Interest rate sensitivity (audited) At 31 December 2023 At 31 December 2022 200bps increase £’million 200bps decrease £’million (13.8) (8.3) 14.3 8.4 Metro Bank Holdings PLC Annual Report and Accounts 2023 Non-financial risks Strategic report Governance Risk report Financial statements Additional information 151 Non-financial risk covers the remaining categories of risk which have the potential to impact the Bank’s operations, service quality and ability to operate in a safe and compliant way. Non-financial risks include Financial crime risk, Operational risk, Conduct risk, Regulatory risk, Legal risk, Model risk and Strategic risk. Financial crime Risk definition Financial crime risk is the risk that Metro Bank’s products and service offerings will be used to facilitate financial crime. Financial crime risks include money laundering, violations of sanctions, bribery and corruption, facilitation of tax evasion and terrorist financing. Risk appetite statement We have a low appetite for customer relationships or activity that pose a high financial crime risk and have no appetite for customer relationships or activity that violate our sanctions obligations. The nature of our business model as a UK retail bank inherently exposes us to financial crime risk and as a result of this exposure, strong and effective controls are required to mitigate this. We have defined a set of quantitative and qualitative key risk appetite metrics against which we monitor performance. We do not accept customers outside of our financial crime risk appetite and likewise where customers are reassessed and found to be outside of appetite (i.e. where the risks are too great to manage effectively) they are exited. Exposure and assessment Failure to prevent financial crime may result in harm to our customers, the Bank and third parties. In addition, non-compliance with regulatory and legal requirements may result in enforcement action which will have an adverse effect on Metro Bank from a financial and reputational perspective. Our overall inherent financial crime risk remains the same as last year and continues to be medium based on our 2023 risk assessment (anti-money laundering/combating terrorist financing, anti-tax evasion facilitation and sanctions inherent risks are rated medium, anti- bribery and corruption inherent risk is rated low). Response We continue to deliver enhancements to our financial crime control framework to ensure that it remains fit for purpose, identifying and mitigating financial crime risk as well as delivering our financial crime strategy. Investment in our systems and controls We continued to deliver strategic enhancements to our financial crime systems throughout 2023 with equal focus on embedding previously implemented controls, as well as introducing new controls to strengthen our control framework. Horizon scanning We continue to identify emerging trends and typologies through conducting horizon scanning activity, through information obtained from investigative and intelligence teams and through attending key industry forums (or associations) such as those hosted by UK Finance. As required, we continue to update our control framework to ensure emerging risks are identified and mitigated. Resourcing and training Resourcing continues to be a significant focus to ensure our Financial Crime Framework is implemented effectively. All colleagues have a key role to play in the detection and management of financial crime risk. To this extent, all colleagues receive financial crime training, ensuring they are able to meet their personal obligations as well performing effectively in role. For colleagues in specialist financial crime roles, we continue to invest in their development to improve capabilities through industry-recognised financial crime qualifications. Sanctions compliance We comply with all applicable sanctions regimes. We continue to invest in our sanctions control framework and keep under review the effectiveness of controls we have in place in order to ensure that sanctions risk is managed in line with risk appetite. We will not tolerate any deliberate breach of financial crime laws and regulations (including sanctions) that apply to our business and the activity we undertake. Anti-money laundering and combating terrorist financing prevention We comply with all relevant UK anti-money laundering and combating terrorist financing legislation and have a framework in place to support the implementation and ongoing monitoring of these requirements into our systems and controls. Anti-bribery and corruption and anti-tax evasion compliance We are committed to acting professionally, fairly and with integrity in all our business dealings and relationships and comply fully with the UK Bribery Act 2010 and Criminal Finances Act 2017. We do not give or receive improper financial or other benefits in our business operations, nor do we help facilitate tax evasion. Monitoring/reporting We monitor compliance with policies and standards through a range of activities completed by specialist colleagues. These include quality checking and assurance within operational and first line risk teams, supported by assurance and internal audit reviews of key financial crime controls carried out by second and third line teams. The results of these reviews and the status of follow up actions are escalated through our governance bodies. Our financial crime risk appetite is reflected in key risk appetite metrics – a set of quantitative metrics, reported monthly through our governance. Where control performance is assessed as outside of our risk appetite, the issue and remediation activity is escalated and tracked through our risk committees. Future focus We are committed to safeguarding the Bank and our customers from financial crime. The FCA is currently undertaking enquiries regarding our financial crime systems and controls. We continue to engage and co-operate fully with the FCA in relation to these matters, and the FCA’s enquiries remain ongoing. Metro Bank Holdings PLC Annual Report and Accounts 2023 Non-financial risks Continued Operational risk Risk definition 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. Risk appetite statement We maintain a cautious appetite for operational risk and aim to minimise incidents, losses and adverse customer impacts arising from operational risk issues. We do this by maintaining a resilient infrastructure, including robust systems, employing and training the right colleagues, minimising the impact of external events and having a framework in place to ensure that operational risks are identified, assessed, responded to and monitored. Operational risk events and losses are recorded and assessed, corrective actions completed and steps taken to avoid recurrence. Exposure and assessment We operate with both a physical and a digital presence and are exposed to a broad range of operational risks across our distribution channels, businesses and functions. Operational incidents and other risk events have the potential to cause service disruption and outages, impacting internal processes, customers, as well as leading to financial losses. Operational risks arise from day-to-day business activities and the Bank’s operational resilience is an outcome that we actively monitor and oversee, including through the identification of important business services and setting of impact tolerances. Our business model, activities and processes have remained broadly consistent with those of last year and as such our material operational risk exposures are largely unchanged. Our Operational Risk Management Framework sets the approach we take to the management of operational risks including the performance of Risk and Control Self-Assessments, consideration of a variety of disruption scenarios and recording and management of incidents and resultant operational risk losses. Operational risk is overseen by the Chief Risk Officer and teams in the first and second lines of defence, monitored via reporting to Business Risk Committees, the Non-Financial Risk Oversight Committee run by the second line, ERC and ROC. Top operational risk exposures through the course of 2023 have included: Information Security and Cyber – The risk that the confidentiality, integrity or availability of our information, data and / or systems are compromised or not compliant with regulatory requirements. Technology – The risk of inadequate performance of IT infrastructure. Data – The risk of the inability to identify and maintain data within agreed data standards. Fraud – The risk of loss due to colleagues, customers or third parties carrying out fraud. 152 Third Party – The risk that reliance on third parties impairs the bank’s performance/operational resilience, including the ability to provide excellent customer service and to manage risk effectively. People – The risk of the inability to attract, retain or engage colleagues who have the right capabilities to carry out the required roles within the Bank. Response We aim to minimise incidents and losses arising from operational risk events by maintaining a resilient infrastructure, including robust systems and employing and training the right colleagues. We consider and prepare for a range of potential disruption events and when they do occur, we respond effectively and ensure that operational risk incidents and losses are recorded and assessed, and corrective steps taken to avoid recurrence. In accordance with regulatory requirements, we hold capital appropriate to potential severe yet plausible operational risk exposures, informed by an assessment of a range of operational risk scenarios. We have put in place detailed policies, standards and controls to mitigate the variety of operational risks to which we are exposed. These are designed to both minimise impacts suffered in the normal course of business (expected losses) and to avoid or reduce the likelihood of suffering a large extreme (or unexpected) loss. Responses to our top operational risk exposures have included: Information Security and Cyber Refreshed this year, our Information Security Policy sets out that all colleagues have an important responsibility to safeguard the systems and sensitive information we hold. We continuously invest in our cyber and information security infrastructure to identify and respond to threats, protect customer data and minimise the risk of disruption. We recognise the dynamic cyber threat landscape in which we operate and the risks that come from increased digitisation, responding by continuing to enhance the control environment and operating advanced tools to identify and resolve potential vulnerabilities. Technology We continue to invest and improve our key technology capabilities that underpin the Bank’s customer service proposition and maintain our operational resilience. The Bank’s technology estate is continuously reviewed to ensure it remains fit for purpose and work has been progressed to deliver required and strategic updates, risk and performance reviews of our material third-party technology providers and independent assessment of our technology resilience. We continue to patch and upgrade our systems and platforms and keep an open dialogue with our regulators on actual or potential disruption events. Metro Bank Holdings PLC Annual Report and Accounts 2023 Non-financial risks Continued Strategic report Governance Risk report Financial statements Additional information 153 Data The effective use and maintenance of our data underpins the success of our strategy as well as our ability to deliver good customer outcomes. This year our Data Management Policy has been comprehensively refreshed, reflective of good practice and designed in line with regulatory requirements concerning the creation, storage, distribution, usage and deletion of data. Ownership and accountability for data is defined and controls are in place to safeguard its access and use. A dedicated Data Governance forum is in place to oversee adherence to standards and data management maturity, with representatives from across the three lines of defence. Fraud The safety and security of our customers and their money is of the highest importance. Our dedicated teams monitor the rapidly evolving threats posed to both ourselves and our customers and quickly respond by deploying a range of preventative and detective measures. Authorised push payment fraud remains an increasing threat across the banking industry and we continuously review and enhance our prevention and detection capabilities in response, notably implementing Confirmation of Payee for our customers in 2023. We share fraud prevention trends and best practice via our various communication channels and pay close attention to supporting customers that fall victims of fraud to ensure they receive a good outcome. Third Party We operate in close collaboration with numerous third parties, with those relationships underpinning many of our operational processes and customer service offering. Our Procurement and Supplier Risk Policy sets out our robust approach for safely managing our third-party relationships, including the potential impacts to our important business processes. Our supplier risk team provides ongoing oversight and monitoring of our material third parties in line with regulatory requirements and undertakes independent assurance as required. People Our people are central to our community banking strategy, building strong relationships by living our AMAZEING values, meeting and exceeding customer expectations. Our dedicated people team provides business support in resource management, talent identification and training and the Bank has continued to actively manage its resource mix to ensure we have the right colleagues, in the right place, at the right time. Monitoring/reporting Material operational risk events are identified, reviewed and escalated in line with criteria set out in the Enterprise and Operational Risk Management Frameworks. Incidents and losses are recorded and root-cause analysis is undertaken with action plans implemented to prevent recurrence and continually improve our processes. Quantitative metrics are used to measure our material operational risks and assess our exposure against our stated risk appetite. We conduct regular operational risk scenario workshops to identify severe yet plausible events which could impact us. This enables us to quantify the potential losses that such events could cause and hold sufficient capital against them, as well as highlighting potential areas for ongoing enhancements to our operational risk capabilities. Business Risk Committees manage operational risks at business area level, supported by forums and working groups. Key risk indicators are in place to monitor our operational risk exposures against stated risk appetite and these are reported to the Non-Financial Risk Oversight Committee which further escalates to ERC and ROC where appropriate. Future focus Work to further mature our management of operational risk will continue in 2024. Making use of tooling introduced and embedded over the course of the year, increased use of data driven insights will empower business teams to further refine their risk assessments and enhance and streamline the control environment. Our operational risk profile will remain under close review as the Bank implements its strategy, with particular focus on increased use of technology and automation. Metro Bank Holdings PLC Annual Report and Accounts 2023 154 • Consideration of customer profiles, target markets, fair value, and customer needs and vulnerability in the context of product and proposition development, ongoing review, and associated appropriate governance. • Ongoing quality assurance and review measures to assess delivery of good customer outcomes, supported and embedded through training. • A risk-based assurance framework, designed to monitor compliance with regulation and assess customer outcomes. Monitoring/reporting Conduct risk is measured on a quantitative and qualitative basis, which includes a progress review of top risks and issues under management against key conduct priorities set by the regulators, as well as a defined set of Board-approved risk appetite metrics relating to complaints, arrears management, product performance, colleague training and customer outcome delivery. A clear governance structure is in place which enables escalation of conduct risks from the first line risk committees through to the relevant second line oversight committees, including tracking and challenging adherence to our risk appetite through our Bank Risk Report. ERC, ROC and the Board in turn monitor and oversee our focus on managing appetite against this risk. As well as the Bank Risk Report, this also includes periodic reporting on key conduct themes, alongside supporting key risk appetite measures and frameworks. Future focus In line with the requirements of Consumer Duty, we will continue to ensure our products and services meet customer expectations and can deliver good outcomes, enabling customers to pursue their financial objectives. We will continually assess our internal processes in line with regulatory changes, ensuring we meet our regulatory requirements and can reasonably prevent customer harm and avoid foreseeable harm. Non-financial risks Continued Conduct risk Risk definition The risk that our behaviours or actions result in poor outcomes or detriment to customers and/ or undermines market integrity. Risk appetite statement We are built around a culture of supporting our customers, offering them a range of relatively simple retail products. We have a low appetite for conduct risk and seek to minimise risks which may result in poor outcomes or lead to customer detriment. Where poor outcomes are identified they must be remediated effectively to minimise risk, prevent recurrence, reduce customer harm, and reasonably avoid foreseeable harm. Exposure and assessment We are built on a people-focused culture of supporting our customers, offering them a range of relatively simple retail products. We remain exposed to conduct risk resulting from of our normal day-to-day business activities and the provision of services and products to customers. Our key focus remains on those customers with additional support needs who may be increasingly vulnerable following specific life events, or facing financial difficulties due to the cost-of-living pressures, or who may be the victim of fraudulent activity. Conduct risk is considered by all three lines of defence as part of their oversight and assurance activities. A combined Risk Assurance plan, approved by the Audit Committee on an annual basis, independently assesses our ability to appropriately mitigate this risk. Response We have enhanced our conduct risk management framework to improve oversight of the conduct agenda and have implemented programmes to address the key drivers of potential customer harm to further support the delivery of good customer outcomes in line with the requirements of Consumer Duty. • A Conduct Risk Framework (with supporting policy and standards) sets out our Conduct Risk Appetite Statement, key regulatory requirements, principles and expectations including drivers of customer harm, defined governance and approach to risk identification and monitoring. • Ongoing development, maintenance and reporting of conduct risk appetite measures (aligned to the risk taxonomy) inclusive of customer outcome measures, to ERC, ROC and the Board. • Oversight and ongoing review of conduct risks and issues in relevant business risk and oversight risk committees, including progress against key customer remediation projects, conduct-related regulatory change initiatives, complaints, vulnerable customers and arrears management. • Maintenance of proactive and coordinated engagement with our regulators around key customer initiatives. Metro Bank Holdings PLC Annual Report and Accounts 2023 Strategic report Governance Risk report Financial statements Additional information 155 Non-financial risks Continued Regulatory risk Risk definition The risk of regulatory sanction, financial loss and reputational damage as a result of failing to comply with relevant regulatory requirements. Risk appetite statement We have a low appetite for regulatory risk and seek to minimise this risk by maintaining robust systems and controls that are designed to meet existing regulatory requirements and to ensure we comply with future changes to the regulatory landscape. Exposure and assessment We remain exposed to regulatory risk arising from our normal day-to-day business activities, as well as significant ongoing and new regulatory changes. We manage regulatory risk through a combination of clearly defined risk frameworks covering our principal risks, and a comprehensive set of risk appetite measures and limits, together with appropriate compliance policies and standards. We undertake a range of mitigating actions to manage regulatory risk, including a risk-based assurance programme designed to assess areas of the control framework underpinning regulatory compliance, oversight of key regulatory developments and proactive and coordinated engagement with our key regulators. Our risk oversight committees monitor and assess compliance with our regulatory requirements. Regulatory risk is measured on a quantitative and qualitative basis, which includes a progress review of top risks and issues under management against material regulatory initiatives and our relationship with our regulators, as well as a defined set of Board-approved risk appetite metrics relating to our principal risks. This includes measures around major/critical regulatory, financial crime and operational impacts, impairment provisioning, credit, model and capital risk exposure, regulatory breaches, high risk assurance and audit findings, incidents and implementation of material regulatory change. Response Investment in our systems and controls We continue to invest in and develop our core systems and controls to enable us to meet existing and new regulatory requirements. Key areas of focus in 2023 included: • Financial crime. • Outsourcing and third-party management. • Operational resilience. • Open banking. • Implementation of the Holding Company. • Consumer Duty. • New Payment requirements (confirmation of payee). Monitoring/reporting Horizon scanning We undertake ongoing horizon scanning to identify and address upcoming regulatory change. As part of this process, we engage proactively with our regulatory authorities as well as industry bodies in respect of any proposed changes. Additionally, a clear governance structure is in place which enables escalation of regulatory risks from the first line risk committees through to the relevant second line oversight committees, including track and challenge of adherence to our risk appetite through our Risk Report. ERC, ROC and the Board in turn monitor and oversee our focus on maintaining regulatory compliance. As well as our Risk Report, this also includes periodic reporting on regulatory themes and key focus areas aligned to the regulator’s strategic priorities, regulatory changes on the horizon and the regulatory environment, alongside supporting key risk appetite measures and Board-approved frameworks. Future focus We continue to place significant focus on overseeing and ensuring compliance with regulatory requirements. We undertake regular reviews of our risk frameworks, appetite limits and monitoring processes to ensure that these remain up to date and reflect current regulatory priorities. During 2024, we will focus on key developments such as Basel 3.1, enhancements to internal control requirements under the revised UK Corporate Governance Code and Consumer Duty. Metro Bank Holdings PLC Annual Report and Accounts 2023 Non-financial risks Continued 156 Legal risk Model risk Risk definition The risk of loss, including to reputation, that can result from lack of awareness or misunderstanding of, ambiguity in or reckless indifference to, the way the law applies to the Directors, the business, and its relationships, processes, products and services. Risk definition 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. Risk appetite statement We have a low appetite for legal risk, limited to those events where there is a minimal chance of material financial, reputational or commercial negative consequences. Assessment and exposure We remain exposed to a range of legal risks in relation to our normal business activities. These risks may arise from: • Defective contracts. • Claims and litigation against us. • Failure or inability to take appropriate measures to protect intellectual property. • Failure to comply with specific legislation (e.g. Market Abuse). Given the pervasive and fundamental nature of legal risk, rather than having a separate framework, the methodology for the robust management of legal risk is set out in reporting to ERC and ROC. Response We minimise legal risk via a range of mitigants, including: • In house legal expertise, maintained via appropriate training and development and specialist recruitment. • Selective use of expert external legal advice via an approved panel of lawyers. • Appropriate policy documentation and training related to specific legal requirements. • Monthly reporting of metrics to measure compliance with our legal risk appetite. Risk appetite statement We adopt a cautious 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. Assessment and exposure We use models to support a broad range of business and risk management activities, including informing business decisions and strategies, measuring, and mitigating risk, valuing exposures (including the calculation of impairment), conducting stress testing, and assessing capital adequacy. Model risk is assessed via our Model Risk Index and underlying key risk indicators, which include monitoring of the materiality and complexity of our models. Model risk remains stable, while closely managed, with ongoing enhancements to risk governance, risk appetite metrics and scope having been implemented. This has in turn helped to mitigate potential increased risk from the impacts and uncertainties arising from macroeconomic challenges. Response The main mitigant to model risk is the robust governance process, including two dedicated model committees, the Model Oversight Committee, and the Model Governance Committee. There is also an expert panel to opine on contentious issues. The committees monitor the effectiveness of the Model Risk Management Framework. This includes a review of findings in relation to specific modelling processes, escalating to ERC and ROC as appropriate. We have in place a well-qualified independent model validation function that performs model validations prior to model implementation, when a model is changed and on a periodic basis. Monitoring/reporting A range of key risk indicators are used to measure our exposure to legal risk, including the risk of defective contracts and claims made against us. Details of our material legal and regulatory matters can be found in note 32 to the financial statements on page 213. Monitoring/reporting Our Model Risk Management Framework sets out the roles and responsibilities of the various stakeholders, underpinned by robust governance of model risk supported by model development, monitoring, validation, implementation and risk appetite standards. Future focus We will continue to ensure that we work within legal parameters for all aspects of our activities and measure compliance with risk appetite. Further to the enhancements made to the Enterprise Risk Management Framework in respect of legal risk, further refinement to the suite of key risk indicators is planned in 2024. Exposure against the key risk indicators is reported to the model risk committees, ERC and ROC on a monthly basis and periodic, more detailed assessments are also reported through the risk governance structure. Future focus We continue to enhance and evolve governance of model risk. Whilst we are a standardised bank and do not need to comply by the regulatory deadline, we are working towards complying with the principles of the Bank of England Supervisory Statement SS1/23 ‘Model risk management principles for banks’. Metro Bank Holdings PLC Annual Report and Accounts 2023 Strategic report Governance Risk report Financial statements Additional information 157 Non-financial risks Continued Strategic risk Risk definition The risk of having an insufficiently defined, flawed or poorly implemented strategy, a strategy that does not adapt to political, environmental, business and other developments and/or a strategy that does not meet the requirements and expectations of our stakeholders. Risk appetite statement We have not set a separate risk appetite for strategic risk and instead monitor it via the full range of reporting via our governance structure and direct risk input into the formulation of our strategy and Long Term Plan, including providing a risk review to support Board approval. Assessment and exposure During 2023, we remained focused on the execution of our strategy with the return to profitability in the first half of the year demonstrating the strengths of our community banking strategy. The second half of the year saw a combination of increased capital requirements together with a setback in our ambition to achieve AIRB accreditation for residential mortgages. These factors put pressure on our capital position and restrained the levels to which we were able to grow capital organically. Despite challenging market conditions, we were successful in delivering a £925 million capital package which included the raising of new capital as well as the refinancing of our existing regulatory debt. We now need to successfully execute on the opportunities the capital affords us and meet stakeholder expectations. Response Strategic risk is considered in everything we do, as having a clear and successful strategy is key to the Bank achieving its goals. This includes reporting our success in relation to our competitors, our monitoring and governance of ESG-related issues and requirements and an ongoing assessment of the geopolitical and macroeconomic landscape we operate within. We continue to oversee the development and execution of our strategy on an ongoing basis through regular in-depth management reviews of business performance and change delivery, oversight of strategic risks through risk governance and regular updates presented to the Board. The Board undertakes an annual review of the Bank’s strategy and Long Term Plan which is supported by risk assessment reviewed at the Risk Oversight Committee. During 2023, we have continued to strengthen our cost management discipline including prioritisation and delivery of technology change through further embedding and optimising Agile ways of working. Monitoring/reporting Strategic risk is addressed through the Board-approved strategy and long-term financial plan. We consider strategic risk as part of ongoing risk reporting and an annual review of our strategy and Long Term Plan, as well as ongoing monitoring and management via our risk governance structure and ExCo oversight of execution, including oversight and challenge by the second line of defence. In addition, the emerging risks the Bank faces are assessed on at least a six-monthly basis, including strategic risks. Future focus We continue to see a high level of volatility in the external environment, with political and economic turbulence in the UK and beyond. The likelihood of a general election, ongoing cost-of-living pressures and a subdued UK economy, as well as continuing conflicts in both Ukraine and the Middle East, provide a challenging backdrop for the execution of strategy. Monitoring of performance will remain heightened with close Board oversight of the efficacy of the strategy and its implementation. This will be supported by ongoing risk assessment to support active management of the evolving risk profile, with oversight from the Risk Oversight Committee. The Bank continues to conduct horizon scanning against emerging risks which may have a severe impact and will adjust its approach accordingly. Metro Bank Holdings PLC Annual Report and Accounts 2023 Financial statements 158 In this section 159 Independent auditors’ report to the members of Metro Bank Holdings PLC Consolidated statement of comprehensive income Consolidated statement of changes in equity 167 168 Consolidated balance sheet 169 170 Consolidated cash flow statements 171 Notes to the consolidated financial statements 219 Company balance sheet 220 Company statement of changes in equity 221 Company cash flow statements 222 Notes to the company financial statements Metro Bank Holdings PLC Annual Report and Accounts 2023 Independent auditors’ report to the members of Metro Bank Holdings PLC Strategic report Governance Risk report Financial statements Additional information 159 Report on the audit of the financial statements Overview Audit scope Opinion In our opinion, Metro Bank Holdings PLC’s group financial statements and company financial statements (the “financial statements”): • give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2023 and of the group’s profit and the group’s and company’s cash flows for the year then ended; • have been properly prepared in accordance with UK-adopted international accounting standards as applied in accordance with the provisions of the Companies Act 2006; and • have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated and Company balance sheets as at 31 December 2023; the Consolidated statement of comprehensive income; the Consolidated and Company statements of changes in equity; the Consolidated and Company cash flow statements for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit Committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided. • The scope of our audit and the nature, timing and extent of audit procedures performed were determined by our risk assessment, the financial significance of components and other qualitative factors (including history of misstatement through fraud or error). • We performed audit procedures over components considered financially significant in the context of the group. For our group audit, we identified two financially significant components, which are Metro Bank Holdings PLC (the company) and Metro Bank PLC. We performed other procedures including testing information technology general controls, analytical procedures and tests of detail over loans and advances to mitigate the risk of material misstatement in the non-financially significant components. Key audit matters • Determination of allowance for expected credit losses on loans and advances to customers (group). • Carrying values of non-financial assets (group). • Carrying value of investment in subsidiary (parent). Materiality • Overall group materiality: £11.4m based on 1% of total equity. • Overall company materiality: £10.0m based on 1% of total equity. • Performance materiality: £8.5m (group) and £7.5m (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. 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. Other than those disclosed in note 8, we have provided no non-audit services to the company or its controlled undertakings in the period under audit. This is not a complete list of all risks identified by our audit. Our audit approach Context The company was incorporated on 29 September 2022. On 19 May 2023, the company listed on the London Stock Exchange and acquired 100% of the ordinary share capital of Metro Bank PLC. The acquisition has been accounted for using merger accounting and therefore this is our first audit of the new group. The comparative numbers in the financial statements were audited as part of our audit of Metro Bank PLC for the year ended 31 December 2022. Metro Bank Holdings PLC Annual Report and Accounts 2023 Independent auditors’ report Continued 160 Key audit matter How our audit addressed the key audit matter Determination of allowance for Expected Credit Losses on loans and advances to customers (group) Refer to page 70 (Audit Committee report), Note 12: Loans and advances to customers and Note 30: Expected credit losses. We evaluated the design and implementation of key controls but did not test the operating effectiveness of controls as we did not plan to rely on them. We performed a fully substantive audit. The calculation of the allowance for expected credit losses (ECL) requires management to make a number of significant judgements and estimates. In 2023, the level of estimation uncertainty and judgement remained high as the UK experienced continued high levels of inflation and increases in interest rates. The uncertainty driven by forecast weak economic growth in 2024 and 2025 has increased the amount of judgement required in determining ECL. Management determines the amount of ECL using a number of complex models. In addition, a number of post model overlays are required where the models do not capture all relevant risks. The overlays included adjustments in relation to the impact of inflation on customer affordability and commercial borrowers which was determined either not to be fully reflected in the economic forecasts or where the modelled output did not fully reflect the impact on credit risk. Across the in-scope portfolios, we identified heightened audit risk in determining the ECL for the following portfolios: Retail Mortgages, Consumer unsecured (specifically for RateSetter loans) and Commercial (excluding the small asset finance and invoice finance portfolios, and government backed loans). Our work focused on the following key assumptions and judgements: • Forward-looking economic assumptions used in the models, and the weighting selected by management. Management uses a third party expert to determine the economic assumptions; • Judgements involved in creating post model overlays to change modelled outputs and the application of those adjustments in response to heightened economic uncertainty and the impact of inflation and higher interest rates; • Judgements exercised in determining whether a significant increase in credit risk (‘SICR’) should be recognised for Commercial loans where staging is based on a qualitative assessment of credit risk; and • Judgements applied by management in estimating stage 3 individual impairment allowances, specifically in relation to the valuation of collateral. We engaged the support of our credit modelling specialists and performed the following substantive audit procedures in order to assess the performance, methodology and accuracy of the ECL models. We also assessed the appropriateness of management’s key judgements and assumptions in the context of the current economic environment and our wider industry experience. Forward looking information and multiple economic scenarios We used our economic analysis tool developed by our economic and modelling experts utilising data from the Bank of England, HM Treasury and Consensus Economics. This tool assessed the reasonableness of management’s economic scenarios and associated weightings, giving specific consideration to the current economic environment. Where economic inputs fell outside of a reasonable range, we ensured that a suitable post model overlay was recorded. Management kept their scenario weightings consistent with 2022 in response to the current economic risks and slow recovery of the UK economy. We evaluated whether the scenario weights appropriately captured the economic uncertainty created by the economic risks, high inflation and interest rates, and the weak growth of the UK economy. Model methodology and post model overlays We critically assessed the methodology used in the in- scope impairment models and evaluated compliance with IFRS 9 requirements. We also tested the key assumptions and judgements which comprise the PDs/LGDs/EADs used in the calculation of provisions. We tested the input of certain data elements into impairment models and management judgemental adjustments, including credit reviews that determine credit risk ratings for commercial customers. Our credit modelling specialists independently rebuilt the commercial loans, retail mortgages and the RateSetter ECL models. This was performed using management’s methodology and we compared the output to management’s modelled ECL output. For the other in-scope portfolios our modelling specialists performed an independent code review to validate that the models were implemented in line with the group’s methodology. Our credit modelling specialists also assessed the results of model monitoring performed by management, and independently re-performed the key tests. We critically assessed and tested the expert judgements applied by management to address the credit risk in the portfolio that was not reflected in modelled outputs. We evaluated and challenged the methodologies, the accuracy of application and the completeness of overlays. Where appropriate, we ran a series of independent scenarios based on alternative assumptions, and compared the results to the ECL results produced by management. Significant increase in credit risk (SICR) – Commercial loans To test the judgements in determining whether SICR events have occurred, we evaluated the appropriateness of the SICR criteria being used. For a sample of loans across the Commercial stage 1 and 2 populations and independently assessed the stage allocation against SICR criteria. Individually assessed stage 3 loans For a sample of stage 3 credit impaired loans, we critically evaluated the basis on which the allowance was determined, and the evidence supporting the analysis performed by management. We also independently challenged whether the key assumptions used, such as the recovery strategies and collateral valuations, and ranges of potential outcomes, were appropriate given the borrowers’ circumstances. Metro Bank Holdings PLC Annual Report and Accounts 2023 Independent auditors’ report Continued Strategic report Governance Risk report Financial statements Additional information 161 Key audit matter How our audit addressed the key audit matter Carrying values of non-financial assets (group) Refer to page 70 (Audit Committee report), Note 14: Property, Plant and Equipment and Note 15: Intangible assets. To address the risk of impairment of the non-financial assets, we performed a number of audit procedures over the assessment performed by management. Our work included the following substantive tests: • Tested the mathematical integrity of the impairment model and agreed the relevant inputs to the Board approved LTP; • Evaluated management’s accounting policy and impairment methodology with reference to IFRS requirements; • Reviewed the forecasts in the LTP and evaluated these for reasonableness. We made inquiries of management, inspected business plans and critically assessed management’s growth assumptions, including those relating to net interest income, using third party evidence where relevant; • Evaluated compliance with regulatory capital requirements and the underlying assumptions during the period of the plan using our regulatory experts. We tested forecast capital ratios, reviewed regulatory correspondence and held discussions with the PRA; and • Engaged our valuation specialists in assessing the reasonableness of the discount rate and terminal growth rate. The group’s tangible fixed assets mainly comprised leasehold improvements and Right of Use assets. The group also capitalised as intangible assets certain expenditure in the development of software to support its business strategy. The market value of the group and the 2023 operating performance of the Bank indicated that the investment might be impaired. Management evaluated the above non-financial assets for impairment, and estimated the recoverable amounts of those assets. As the assets do not generate largely independent cash inflows, they have been incorporated into a relevant cash generating unit (CGU) and the recoverable amount of that CGU has been determined. The CGU relevant to the vast majority of non-financial assets is the ‘retail bank CGU’ within Metro Bank PLC. The determination of the recoverable amount requires management to estimate the higher of value in use and fair value less costs to sell the retail bank CGU. This assessment is complex and involves subjective judgements. The recoverable amount is estimated using forecast cash flows included in management’s 5 year Long Term Plan (‘LTP), a decreasing growth rate from years 6 to 10, a terminal growth rate and a discount rate. There are methodology judgements required in determining a value in use in compliance with IAS 36 ‘Impairment of assets’. The LTP is also supported by various assumptions relating to compliance with regulatory capital requirements. Management concluded that no impairment existed as at 31 December 2023. The forecast cash flows in the LTP, in particular relating to net interest income, the determination of the discount rate and the assumptions relating to compliance with regulatory capital requirements are key judgements. Due to the magnitude of the balance and the judgements involved in respect of the retail bank CGU, the impairment assessment represents a key audit matter. Metro Bank Holdings PLC Annual Report and Accounts 2023 Independent auditors’ report Continued 162 Key audit matter How our audit addressed the key audit matter Carrying value of investment in subsidiary (parent) Refer to page 70 (Audit Committee report) and Note 3. Management reviewed the equity investment in the subsidiary, Metro Bank PLC, for indicators of impairment in accordance with IAS 36 as at 31 December 2023. The market value of the group and the 2023 operating performance of the Bank indicated that the investment might be impaired. Management estimated the recoverable amount using the higher of value in use (‘ViU’) or fair value less cost to sell. The methodology used to estimate the recoverable amount is dependent on various assumptions, both short term and long term in nature. These assumptions, which are subject to estimation uncertainty, are derived from a combination of management’s judgement and third party data. The significant assumptions that we focused our audit on were those with greater levels of management judgement and for which variations had the most significant impact on the recoverable amount. These included the compliance of the chosen methodology with IAS 36, the bank’s Long Term Plan (‘LTP’) for 2024 to 2028, in particular the net interest income forecasts, regulatory capital requirements and the discount rate. Management’s assessment resulted in an impairment charge. Due to the magnitude of the investment and the impairment charge and the judgements involved, the impairment assessment represents a key audit matter. We performed a number of audit procedures over the calculation of the impairment determined by management. We challenged and tested the reasonableness of management’s methodology and key assumptions. Our work included the following substantive tests: • Tested the mathematical integrity of the impairment model and agreed the relevant inputs to the Board approved LTP relating to the subsidiary; • Evaluated management’s accounting policy and impairment methodology with reference to IFRS requirements, including adjustments made to the LTP to comply with IAS 36; • Reviewed the forecasts in the LTP and evaluated these for reasonableness. We made inquiries of management, inspected business plans and critically assessed management’s growth assumptions, including those relating to net interest income, using third party evidence where relevant; • Engaged our regulatory experts in assessing the reasonableness of the risk weighted asset and capital requirements; and • Engaged our valuation specialists in assessing the reasonableness of the discount rate and terminal growth rate. Metro Bank Holdings PLC Annual Report and Accounts 2023 Independent auditors’ report Continued Strategic report Governance Risk report Financial statements Additional information 163 How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they operate. We performed a risk assessment, giving consideration to relevant external and internal factors, including climate change, economic risks, relevant accounting and regulatory developments, as well as the group’s strategy. We also considered our knowledge and experience obtained in prior year audits of Metro Bank PLC. We continually assessed the risks and changed the scope of our audit where necessary. As part of considering the impact of climate change in our risk assessment, we evaluated management’s assessment of the impact of climate risk, which is set out on page 42, including their conclusion that there is no material impact on the financial statements. In particular, we considered management’s assessment of the impact on ECL on loans and advances to customers within Metro Bank PLC, which we determined to be most likely to be impacted by climate risk. Management’s assessment gave consideration to a number of matters, including the Biennial Exploratory Scenario climate stress testing performed in 2021. As a result of their assessment, an immaterial model overlay was recognised in 2021, and continues to be held as at 31 December 2023. The group comprises four components. Any components which were considered individually financially significant in the context of the group’s consolidated financial statements 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 two financially significant components, which are Metro Bank Holdings PLC (the company) and Metro Bank PLC. We then considered the components in the group that had either financially significant or unusual account balances which were required to be brought into scope. In relation to SME Asset Finance Limited and SME Invoice Finance Limited, we performed audit procedures over loans and advances. The remaining balances and components, in our judgement, did not present a reasonable possibility of a risk of material misstatement either individually or in aggregate and were eliminated from further consideration for specific audit procedures. We performed other procedures such as tests of information technology controls and group level analytical review procedures. 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 £11.4m. £10.0m. How we determined it 1% of total equity 1% of total equity Financial statements – group Financial statements – company Rationale for benchmark applied The group’s total equity is the most appropriate benchmark as it is correlated with the level of regulatory capital which is a key metric for management and users of the financial statements. It also provides a stable benchmark. The company’s total equity (before the one-off impairment of the subsidiary) has been used as the most appropriate benchmark given its primary purpose is to act as a holding company, not to generate operating profits and therefore a profit based measure is not relevant. For each component in the scope of our group audit, we allocated a materiality that is 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 £8.5m for the group financial statements and £7.5m 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. Metro Bank Holdings PLC Annual Report and Accounts 2023 Independent auditors’ report Continued 164 We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.5m (group audit) and £0.5 (company audit) 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: • Understanding the Directors’ going concern assessment process, including the preparation and approval of the budget. We obtained management’s Board approved forecast covering the period of the going concern assessment to 30 June 2025. We evaluated the forecasting method adopted by the Directors in assessing going concern; • Evaluation of management’s financial and regulatory capital forecasts. We checked the mathematical accuracy of the model and evaluated the key assumptions using our understanding of the Group and external evidence where appropriate. We used our Prudential Regulatory experts to review the Bank’s risk weighted assets and forecast capital requirement assumptions. We also performed a comparison of the 2023 budget and the actual results to assess the accuracy of the budgeting process; • Evaluation of the appropriateness of management’s severe but plausible scenario using our firm’s economics experts and our understanding of the bank and the external environment. We evaluated management’s assumptions by performing an independent stress test to determine whether a reasonable alternative stressed scenario would result in a breach of minimum regulatory requirements; • Considering the mitigating actions that management identified, including the reduction of costs and slowing down the origination of new loans and advances, and assessing whether these were in the control of management and possible in the going concern period of assessment; • Reviewing management’s stress testing of liquidity and evaluation of the impact on liquidity of past stress events. We substantiated the liquid resources held, and liquidity facilities available to the group, for example, with the Bank of England. We also reconciled Metro Bank Holdings PLC’s liquidity position to its regulatory liquidity reporting returns; • Reviewing correspondence between the Bank and its regulators and we met with the PRA during the audit and understood the PRA’s perspectives on the Bank’s risks and its capital and liquidity position; and • Assessing the adequacy of disclosures in the Going Concern statement in note 1 of the Consolidated and Company Financial Statements and within the Assessment of going concern section of the Viability statement on page 50 and found these appropriately reflect the key areas of uncertainty identified. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and the company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and the company’s ability to continue as a going concern. In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. 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 2023 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. Metro Bank Holdings PLC Annual Report and Accounts 2023 Independent auditors’ report Continued Strategic report Governance Risk report Financial statements Additional information 165 Directors’ Remuneration In our opinion, the part of the Annual Report on remuneration to be audited has been properly prepared in accordance with the Companies Act 2006. • The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and • The section of the Annual Report describing the work of the Audit Committee. We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors. Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the statement of Directors’ responsibilities in respect of the financial statements, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so. 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. Corporate governance statement The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other information section of this report. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to: • The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks; • The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an explanation of how these are being managed or mitigated; • The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the group’s and company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; • The directors’ explanation as to their assessment of the group’s and company’s prospects, the period this assessment covers and why the period is appropriate; and • The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Our review of the directors’ statement regarding the longer-term viability of the group and company was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our knowledge and understanding of the group and company and their environment obtained in the course of the audit. In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit: • The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for the members to assess the group’s and company’s position, performance, business model and strategy; Metro Bank Holdings PLC Annual Report and Accounts 2023 Independent auditors’ report Continued 166 Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA), and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as UK tax legislation and the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting manual journal entries to manipulate financial performance and management bias in accounting estimates. Audit procedures performed by the engagement team included: • Enquiries of the Audit Committee, management, internal audit and the group’s legal counsel, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud; • Evaluation of the design and implementation of controls designed to prevent and detect irregularities relevant to financial reporting; • Reviewing key correspondence and holding discussions with regulators, such as the FCA and the PRA, in relation to the group’s compliance with banking regulations; • Incorporating unpredictability into the nature, timing and/or extent of our testing; • Challenging assumptions and judgements made by management in respect of the determination of allowance for expected credit losses on loans and advances to customers, the carrying value of non-financial assets and the carrying value of the investment in subsidiary (see related key audit matters); and • Identifying and testing journal entries including those posted by infrequent or unexpected users, related to significant one off or unusual transactions, as well as year-end provisions or write downs 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. 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 Annual Report on remuneration to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Appointment Following the recommendation of the Audit Committee, we were appointed by the directors on 25 April 2023 to audit the financial statements for the year ended 31 December 2023 and subsequent financial periods. Metro Bank Holdings PLC is the parent of Metro Bank PLC which we have audited since the year ended 31 December 2010 with the period of total uninterrupted engagement being 14 years, covering the years ended 31 December 2010 to 31 December 2023. Other matter As required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS. 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. Jonathan Holloway (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 16 April 2024 Metro Bank Holdings PLC Annual Report and Accounts 2023 Strategic report Governance Risk report Financial statements Additional information 167 Consolidated statement of comprehensive income For the year ended 31 December 2023 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 income¹ 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 Profit/(loss) before tax Taxation Profit/(loss) for the year Other comprehensive income/(expense) for the year Items which will be reclassified subsequently to profit or loss: Movement in respect of investment securities held at fair value through other comprehensive income (net of tax): • changes in fair value Total other comprehensive income/(expense) Total comprehensive profit/(loss) for the year Profit/(loss) per share Basic (pence) Diluted (pence) 1. Other income includes a £100m gain on debt extinguishment. The accompanying notes form an integral part of these financial statements. Years ended 31 December Notes 2023 £’million 2022 £’million 2 2 3 3 4 5 6 14, 15 14, 15 855.7 563.7 (443.8) (159.6) 411.9 95.0 (4.6) 90.4 2.7 404.1 84.4 (2.6) 81.8 – 143.9 37.6 648.9 523.5 (502.9) (467.6) (77.7) (4.6) (77.0) (9.7) (585.2) (554.3) 30 (33.2) 30.5 (1.0) 29.5 (39.9) (70.7) (2.0) (72.7) 9 28 36 36 2.4 2.4 (7.6) (7.6) 31.9 (80.3) 13.8 13.4 (42.2) (42.2) Metro Bank Holdings PLC Annual Report and Accounts 2023 Consolidated balance sheet As at 31 December 2023 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 Derivative financial assets Property, plant and equipment Intangible assets Prepayments and accrued income Assets classified as held for sale Other assets Total assets 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 Called-up share capital Share premium Retained earnings Other reserves Total equity Total equity and liabilities 168 Notes 11 12 13 13 21 14 15 16 14 17 18 19 20 10 21 22 23 24 9 25 26 26 27 28 Years ended 31 December 2023 £’million 3,891 12,297 476 2022 £’million 1,956 13,102 571 4,403 5,343 – 36 723 193 118 – 108 1 23 748 216 85 1 73 22,245 15,623 3,050 22,119 16,014 3,800 694 1,191 – 234 16 23 13 267 21,111 – 144 978 12 1,134 571 238 26 248 17 7 12 230 21,163 – 1,964 (1,015) 7 956 22,245 22,119 The accompanying notes form an integral part of these financial statements. They were approved by the Board of Directors on 16 April 2024 and signed on its behalf by: Robert Sharpe Chair Daniel Frumkin Chief Executive Officer Metro Bank Holdings PLC Annual Report and Accounts 2023 Consolidated statement of changes in equity For the year ended 31 December 2023 Strategic report Governance Risk report Financial statements Additional information 169 Balance as at 1 January 2023 Profit for the year Other comprehensive income (net of tax) relating to investment securities designated at FVOCI Total comprehensive income Net share option movements Cancellation of Metro Bank PLC share capital and share premium¹ Issuance of Metro Bank Holdings PLC share capital¹ Bonus issuance Capital reduction of Metro Bank Holdings PLC share capital Shares issued Cost of shares issued Balance as at 31 December 2023 Balance as at 1 January 2022 Loss for the year Other comprehensive expense (net of tax) relating to investment securities designated at FVOCI Total comprehensive loss Net share option movements Balance as at 31 December 2022 Notes Share premium £’million Retained earnings £’million Merger reserve £’million FVOCI reserve £’million Called-up share capital £’million – – – – – – – 965 (965) – – – – – – – – – 1,964 (1,015) – – – – 29 – 29 – (1,964) 1,964 – – – 150 (6) 144 1,964 – – – – (965) – 965 – – 978 (942) (73) – (73) – 1,964 (1,015) – – – – – – 965 (965) – – – – – – – – – – 26 26 27 28 Share option reserve £’million 20 – – – 3 – – – – – – 23 18 – – – 2 20 28 Total equity £’million 956 29 2 31 3 – – – – 150 (6) 1,134 1,035 (73) (8) (81) 2 956 (13) – 2 2 – – – – – – – (11) (5) – (8) (8) – (13) 28 1. The cancelled called up share capital of Metro Bank PLC and new share capital of Metro Bank Holdings PLC amount to £172 and as such have been rounded to £nil. The accompanying notes form an integral part of these financial statements. Metro Bank Holdings PLC Annual Report and Accounts 2023 Consolidated cash flow statement For the year ended 31 December 2023 Reconciliation of profit/(loss) before tax to net cash flows from operating activities: Profit/(loss) before tax Adjustments for non-cash items Interest received Interest paid Changes in other operating assets Changes in other operating liabilities Net cash inflows/(outflows) from operating activities Cash flows from investing activities Sales, redemptions and paydowns of investment securities Purchase of investment securities Purchase of property, plant and equipment Purchase and development of intangible assets Net cash inflows/(outflows) from investing activities Cash flows from financing activities Repayment of capital element of leases Issuance of new shares Cost of share issuance Issuance of debt securities Cost of debt issuance Net cash inflows/(outflows) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year The accompanying notes form an integral part of these financial statements. 170 Years ended 31 December Notes 2023 £’million 2022 £’million 31 (376) 834 (370) 744 (235) 628 (71) (273) 553 (124) (852) (418) (1,185) 1,870 857 (816) (1,206) (12) (26) (29) (24) 1,016 (402) (23) 150 (6) 175 (5) 291 1,935 1,956 3,891 (25) – – – – (25) (1,612) 3,568 1,956 37 14 15 22 26 26 20 20 11 11 Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Strategic report Governance Risk report Financial statements Additional information 171 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. 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 3 to the Company financial statements on page 223). Controlled entities are all entities to which we are exposed, or have rights, to variable returns from our involvement with the entity and have the ability to affect those returns through our power over it. An assessment of control is performed on an ongoing basis. 1.1 General information Metro Bank Holdings PLC (the ‘Company’) is the holding company of Metro Bank PLC, which provides retail and commercial banking services in the UK. Metro Bank Holdings PLC is a public limited liability company incorporated and domiciled in England and Wales under the Companies Act 2006 (Company number 14387040) and is listed on the London Stock Exchange (LON:MTRO). The address of its registered office is One Southampton Row, London, WC1B 5HA. Our controlled entities are consolidated from the date on which we establish control until the date that control ceases. The acquisition method of accounting is used to account for business combinations other than those under common control. Post-acquisition, income and expenses are included in the consolidated income statement on a line-by-line basis in accordance with the accounting policies set out herein, adjusting for any intra-group transactions which are eliminated in full upon consolidation. 1.2 Basis of preparation The consolidated financial statements of the Company together with its subsidiaries (the ‘Group’) have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the UK, interpretations issued by the IFRS Interpretations Committee and the Companies Act 2006 applicable to companies reporting under IFRSs. The consolidated financial statements of the Group and Company were authorised by the Board for issue on 16 April 2024. 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 124 to 157. Where information is marked as audited, it is incorporated into these financial statements and it is covered by the Independent auditor’s report. 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 and approved the Group’s most recent Long Term Plan including severe but plausible downside scenarios. The Directors also considered the key assumptions and uncertainties that feed into these plans alongside management actions and mitigants that would be available if required. Under all scenarios considered, the Directors believe the Group to remain a going concern on the basis that it maintains sufficient resources (including liquidity and capital) to be able to continue to operate for the foreseeable future (considered to be at least 15 months from the date of these financial statements). The Directors do not consider there to be any material uncertainties with regards to the assessment on going concern. Further details on the assessment undertaken by the Directors is set out in the Viability statement on pages 49 to 50. 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. This means we have chosen not to present a Company statement of comprehensive income and related notes as part of these financial statements. Insertion of Metro Bank Holdings PLC To meet the Bank of England’s resolution requirements, on 19 May 2023, Metro Bank Holdings PLC was inserted as the new ultimate holding company and listed entity of the Group. Prior to this date Metro Bank PLC was both a banking entity and the ultimate parent company of the Group, but has subsequently become a 100% subsidiary of Metro Bank Holdings PLC. In addition to the insertion of a new holding company the Group undertook a reduction in capital to provide the Group with distributable reserves. The insertion of Metro Bank Holdings PLC has been treated as a business combination under common control, with the Group controlled by the same parties both before and after the insertion. Combinations under common control are outside the scope of IFRS 3 ‘Business Combinations’ and accordingly, the insertion has not been recognised at fair value and no goodwill or fair value acquisition adjustments have been recognised. The Group has instead applied the predecessor accounting approach as this most faithfully represents the substance of the facts and circumstances of the series of transactions that comprise the insertion of Metro Bank Holdings PLC. This is on the basis that those transactions are not designed to deliver economic benefits, but represent a rearrangement of the organisation of business activities across legal entities in order to be compliant with the relevant regulations. In applying this approach, the Group has used the carrying amounts in Metro Bank PLC’s consolidated financial statements at the date of transfer to determine the value of the assets and liabilities transferred. These financial statements are therefore prepared as if Metro Bank Holdings PLC had been the parent company throughout the current and prior years, to treat the new structure as if it has always been in place. The comparative numbers in these financial statements were included in the financial statements of Metro Bank PLC for the year ended 31 December 2022. Hedge accounting continues to be applied to the transferred designated hedge relationships as if they had originally been designated by the Group. Further details on the insertion of Metro Bank Holdings PLC can be found in note 26. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 172 1.3 Functional and presentation currency These financial statements are presented in pounds 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 policies and presentational amendments During the period there have not been any changes in any accounting policies or disclosures that have had a material impact on our financial statements. 1.6 Future accounting developments At the year end there are no standards that were in issue but not yet effective, that would have a material impact on the Group. We have not adopted any standards early within these financial statements. 1.7 Segmental reporting IFRS 8 ‘Operating Segments’ requires operating segments to be identified on the basis of internal reports and components of the Group which are regularly reviewed by the Chief Operating Decision Maker to allocate resources to segments and to assess their performance. For this purpose, the Chief Operating Decision Maker of the Group is our Board of Directors. The Board considers the results of the Group as a whole when assessing the performance of the Group and allocating resources, owing to our simple structure. Accordingly, the Group has a single operating segment. We operate solely within the UK and, as such, no geographical analysis is required. We are not reliant on any single customer. 1.8 Foreign currency translation Transactions in a foreign currency are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Monetary items denominated in a foreign currency are translated using the closing rate as at the reporting date. Non-monetary items measured at historical cost denominated in a foreign currency are translated with the exchange rate as at the date of initial recognition; non-monetary items in a foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined. Foreign currency differences arising on translation are recognised in other income. Gains and losses arising from foreign currency transactions offered to customers are also recognised in other income. 1.9 Critical accounting judgements and estimates The preparation of financial statements in conformity with IFRS requires us to make 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 2023 are appropriate and that these consolidated financial statements therefore present our financial position and results fairly. The areas involving a higher degree of complexity, judgement or where estimates have a significant risk of resulting in a material adjustment to the carrying amounts within the next financial year are: Area Estimates Judgements Measurement of ECL Multiple forward-looking scenarios Impairment of non- financial assets n/a Significant increase in credit risk Further details Note 30 Use of PMOs and PMAs Key assumptions used for VIU calculations Note 15 Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 173 2. Net interest income 3. Net fee and commission income Accounting policy We recognise interest income and expense for all interest–bearing financial instruments within ‘interest income’ and ‘interest expense’ in the income statement using the effective interest rate method. The effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate we estimate cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but do not consider future credit losses except for POCI assets. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. For loans that are credit impaired, interest income is calculated on the carrying amount of the loan net of credit impairment. Interest income 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 Interest income calculated using the effective interest rate method Derivatives in hedge relationships Total interest income Interest expense Deposits from customers Deposits from central banks Debt securities Lease liabilities Repurchase agreements Interest expense calculated using the effective interest rate method Derivatives in hedge relationships Total interest expense 2023 £’million 2022 £’million 120.9 33.0 599.9 462.2 118.6 62.9 6.8 4.7 846.2 562.8 9.5 0.9 855.7 563.7 2023 £’million 2022 £’million 147.8 161.3 55.7 13.1 50.1 32.9 55.5 48.7 14.4 3.4 428.0 154.9 15.8 4.7 443.8 159.6 Accounting policy Fee and commission income is earned from a wide range of services we provide to our customers. We account for fees and commissions as follows: Product or service Nature, timing and satisfaction of performance obligations and payment terms Service charges and other fee income Safe deposit box We levy a range of standard charges and fees for account maintenance or specific account services. Where the fee is earned upon the execution of a significant act at a point in time, for example CHAPS payment charges, these are recognised as revenue when the act is completed for the customer. Where the income is earned from the provision of services, for example an account maintenance fee, this is recognised as revenue 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 the box. ATM and interchange fees Where we earn fees from our ATMs or from interchange this is recognised at the point the service is delivered. Expenses that are directly related and incremental to the generation of fee and commission income are presented within fee and commission expense. As disclosed in note 1, we provide services solely within the UK and therefore revenues are not presented on a geographic basis. Revenue is grouped solely by contract-type as we believe this best depicts how the nature, amount and timing of our revenue and cash flows are affected by economic factors. 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 2023 £’million 2022 £’million 36.8 18.2 40.0 95.0 (4.6) 90.4 30.9 16.5 37.0 84.4 (2.6) 81.8 Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 174 4. Net gains on sale of assets 5. Other income Investment securities held at amortised cost Loan portfolios Total net gains on sale of assets 2023 £’million 2022 £’million 2.9 (0.2) 2.7 – – – Disposal of investment securities During the year some of our investment securities held at amortised cost were called early by the issuers resulting in a gain being recognised on these assets. Foreign currency transactions Rental income Loan portfolio sales During the year we sold a small portfolio of non-performing unsecured loans, which resulted in net losses of £0.2m being recognised. Deferred grant income Other income Accounting policy Other income is accounted for as follows: Product or service 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. Deferred grant income relates to amounts recognised in relation to the amounts drawn down against the Capability and Innovation Fund (C&I) award (further details of which can be found in note 23). Income is recognised in line with the delivery of the commitments we agreed to as part of the bid. Other income primarily consists of hedge ineffectiveness, foreign currency differences arising on translation and movements in financial assets and liabilities held at fair value through profit and loss. Foreign currency transactions Rental income Deferred grant income Gain on debt extinguishment Other Total other income 2023 £’million 2022 £’million 34.0 34.1 1.1 2.4 100.0 6.4 0.7 1.5 – 1.3 143.9 37.6 Gain on debt extinguishment As part of the capital package (see note 20), which completed in November 2023, a 40% haircut was agreed with bondholders on our Tier 2 debt securities, which saw their £250 million of existing notes replaced with £150 million of new notes. This resulted in a gain of £100 million. The acceleration of unamortised issuance costs as well as the impacts from the breaking of the hedge relationships of the refinanced debt has been shown within costs associated with capital raise and refinancing in note 6, to better reflect the nature of the transaction. Metro Bank Holdings PLC Annual Report and Accounts 2023 Strategic report Governance Risk report Financial statements Additional information 175 Notes to the consolidated financial statements Continued 6. General operating expenses People costs (note 7) Information technology costs Occupancy costs Money transmission and other banking-related costs Transformation costs Remediation costs Capability and Innovation Fund costs1 Legal and regulatory fees Professional fees2 Printing, postage and stationery costs Travel costs Marketing costs Costs associated with capital raise and refinancing Holding company insertion costs Other Total general operating expenses 2023 £’million 241.2 59.7 31.7 49.2 20.2 – 2.4 7.0 2022 £’million 236.6 62.2 30.8 48.7 3.3 5.3 1.3 7.0 23.2 38.4 7.2 1.5 7.7 26.0 1.8 24.1 6.2 1.6 5.0 – 1.8 19.4 502.9 467.6 1. C&I costs represent the non-capitalisable costs of delivering the C&I digital commitments. It includes £1.9 million (2022: £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. 2. Professional fees are shown net of both amounts capitalised and amounts included within the transformation costs, remediation costs and C&I costs lines. Information technology costs Information technology costs include costs expensed in relation to software licences, support from third-party providers, back up costs and cloud computing costs. Occupancy costs Occupancy costs consist of the non-IFRS 16 property costs of occupying our stores and offices, including rates, utilities and property maintenance costs as well as irrecoverable VAT on lease payments. Money transmission and other banking-related costs Money transmission and other banking-related costs are made up of the overheads relating to servicing our deposits and lending that do not constitute either part of the effective interest rate, or fee and commission expense. Professional fees Professional costs includes £7.3 million (2022: £15.0 million) of R&D costs not capitalised. This does not include any costs of colleagues working on these projects that are included in the people costs line. Including these costs we spent £25.1 million (2022: £47.5 million) on R&D costs not capitalised. Included within legal and regulatory fees is £0.1 million (2022: £0.1 million) in respect of the Financial Services Compensation Scheme (FSCS) levy. Transformation, remediation, Capability and Innovation Fund, costs associated with capital raise and holding company insertion costs Further details on transformation, remediation, Capability and Innovation Fund, costs associated with capital raise and holding company insertion costs can be found on page 233. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 176 7. People costs 8. Fees payable to our auditors Wages and salaries1 Social security costs1 Pension costs1 Equity-settled share-based payments Total people costs During the year, the Group (including its subsidiaries) obtained the following services from our auditors, PricewaterhouseCoopers LLP: 2023 £’million 2022 £’million 201.7 196.8 21.8 14.5 3.2 23.7 13.7 2.4 Audit of the Group and Company financial statements Audit of the financial statements of the Company’s subsidiaries 241.2 236.6 Audit-related assurance services 2023 £’000 2022 £’000 54 2,553 2,309 144 555 73 203 115 3,062 2,944 1. Amounts are net of people costs which are capitalised as well as those relating to C&I (see note 6) as these costs will be offset against the deferred grant income in note 5. Other assurance services Total fees payable to our auditors During the year £10.0 million (2022: £5.3 million) of people costs were capitalised as part of our intangible assets (further details can be found in note 15). The average monthly number of persons employed during the year was 4,286 (2022: 4,040). Other Other assurance services undertaken during the year includes work performed on the capital raise and restructure. Customer-facing Non-customer-facing Total number of persons employed 2023 2022 1,985 1,886 2,301 2,154 4,286 4,040 Pension costs We operate a defined contribution pension scheme for our colleagues. Contributions to colleagues’ individual personal pension plans are made on a contractual basis, with no further payment obligations once the contributions have been paid. These contributions are recognised as an expense when they fall due. Payments were made amounting to £15.4 million (2022: £14.0 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. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 9. Taxation Strategic report Governance Risk report Financial statements Additional information 177 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. We consider the history of recent losses and the extent to which there is convincing other evidence that sufficient taxable profits will be available against which the unused tax losses or unused tax credits can be utilised. Deferred tax assets and liabilities are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised or the deferred tax liability settled. We offset deferred tax assets and liabilities where we have a legally enforceable right to offset and where the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle on a net basis. Tax expense The components of the tax expense for the year are: Current tax Current tax Total current tax expense Deferred tax Origination and reversal of temporary differences Effect of changes in tax rates Adjustment in respect of prior years Total deferred tax expense Total tax expense 2023 £’million 2022 £’million (0.1) (0.1) (0.5) (0.4) – (0.9) (1.0) – – (1.5) (0.7) 0.2 (2.0) (2.0) Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 9. Taxation Continued Reconciliation of the total tax expense The tax expense shown in the income statement differs from the tax expense that would apply if all accounting losses had been taxed at the UK corporation tax rate. A reconciliation between the expense and the accounting profit/(loss) multiplied by the UK corporation tax rate is as follows: 178 Accounting profit/(loss) before tax Tax expense at statutory tax rate of 23.5% (2022: 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 write-off on research and development deferred tax liability Share-based payments Adjustment in respect of prior years Current year losses for which no deferred tax asset has been recognised Losses offset against current year profits Movement in recognised DTA for unused tax losses Effect of changes in tax rates Income not taxable Tax expense reported in the consolidated income statement 2023 £’million 30.5 Effective tax rate % Effective tax rate % 2022 £’million (70.7) (7.2) 23.5% 13.4 19.0% (2.5) 8.3% (2.5) (3.5%) – – – – (0.1) (0.1%) (0.6) (0.8%) (0.8) 2.6% (0.4) (0.6%) 0.1 (0.3%) (1.2) 3.9% – – 0.3 0.1 0.2 0.4% 0.1% 0.2% (15.4) 50.5% (11.7) (16.5%) 1.1 1.8 (3.6%) (5.9%) – – – – (0.4) 1.3% (0.7) (1.0%) 23.5 (77.0%) – – (1.0) 3.3% (2.0) (2.8%) The effective tax rate for the period is 3.3% (2022: -2.8%). The main reasons for this, in addition to the reported accounting loss before tax for the year, are set out below: Non-deductible expenses – other This mainly relates to costs in setting up the Holding Company and the termination of onerous contracts following a discontinuation of trade. Share-based payments During the period the Metro Bank share price decreased from £1.21 to £0.37. This had the impact of decreasing the deferred tax asset held resulting in a deferred tax expense. Adjustment in respect of prior years Following the filing of our 2022 corporation tax return we reduced our R&D deferred tax liability following a decrease in qualifying capital R&D expenditure. This was partly offset by an increase in our PPE deferred tax liability resulting from an increase in qualifying additions. Losses for which no deferred tax asset has been recognised The tax effected value of current year losses for which no deferred tax asset has been recognised is £15.4 million (2022: £11.7 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. An increase in the UK corporation tax rate from 19% to 25% for taxable profits over £250,000 (effective 1 April 2023) was substantively enacted on 24 May 2021. Income not taxable The credit arising from the haircut on the Tier 2 Instrument issued by Metro Bank PLC meets the conditions set out in section 323A of CTA 2009 exempting the transaction from taxation. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 9. Taxation Continued Strategic report Governance Risk report Financial statements Additional information 179 Deferred tax assets A deferred tax asset must be regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not there will be suitable tax profits from which the future of the underlying timing differences can be deducted. The following table shows deferred tax recorded in the statement of financial position and changes recorded in the tax expense: Deferred tax assets Deferred tax liabilities Deferred tax liabilities (net) 1 January Income statement Other comprehensive income 31 December Investment securities and impairments £’million Unused tax losses £’million 31 December 2023 Share- based payments £’million Property, plant and equipment £’million Intangible assets £’million Total £’million Unused tax losses £’million 31 December 2022 Investment securities and impairments £’million Share- based payments £’million Property, plant and equipment £’million Intangible assets £’million Total £’million 14 – 14 12 2 – 14 2 4 6 7 (1) – 6 1 – 1 1 – – 1 – (29) (29) (26) (3) – (29) – (5) (5) (6) 1 – (5) 17 (30) (13) (12) (1) – (13) 12 – 12 13 (1) – 12 3 4 7 5 – 2 7 1 – 1 – 1 – 1 – (26) (26) (23) (3) – (26) – (6) (6) (7) 1 – (6) 16 (28) (12) (12) (2) 2 (12) Offsetting of deferred tax assets and liabilities We have presented all the deferred tax assets and liabilities above on a net basis within the balance sheet on page 168. This is on the basis that all our deferred tax assets and liabilities relate to taxes levied by HMRC and we have a legally enforceable right to offset these. Further details on our offsetting of financial assets and liabilities can be found in note 33. Unrecognised deferred tax assets We have total unused tax losses of £912 million of which a deferred tax asset has not been recognised on £857 million. Accordingly, a deferred tax asset of £214 million has not been recognised on unused tax losses. The impact of recognising the deferred tax asset in the future would be material. Although there is an expectation for future profits in the near future, as we have a recent history of operating losses for tax purposes, we have taken the decision not to recognise a deferred tax asset in respect of these losses at 31 December 2023. We will continue to reassess this decision as we move into 2024. Due to unrealised investment property impairments of £11 million there is an unrecognised deferred tax asset of £2.7 million (2022: £2.6 million). Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 10. Financial instruments Classification of financial instruments Accounting policy Repurchase agreements Where we sell financial assets subject to sale and repurchase agreements, the financial assets are retained in their respective balance sheet categories, however they become encumbered and are not available for transfer or sale. The associated liabilities are included in the repurchase agreements line. The difference between the sale and repurchase price of repurchase agreements is treated as interest and accrued over the life of the agreements using the effective interest method as set out in note 2. Other financial instruments Our accounting policies in respect of our other financial instruments can be found in their respective notes, where applicable. Our financial instruments primarily comprise customer deposits, loans and advances to customers and investment securities, all of which arise as a result of our normal operations. The main financial risks arising from our financial instruments are credit risk, liquidity risk and market risks (price and interest rate risk). Further details on these risks can be found within the Risk report on pages 124 to 157. The financial instruments we hold are simple in nature and we do not consider that we have made any significant or material judgements relating to the classification and measurement of financial instruments under IFRS 9. Cash and balances with the Bank of England, trade and other receivables, trade and other payables and other assets and liabilities which meet the definition of financial instruments are not included in the following tables. Assets Loans and advances to customers Investment securities Derivative financial assets Liabilities Deposits from customers Deposits from central bank Debt securities Repurchase agreements Assets Loans and advances to customers Investment securities Financial assets held as fair value through profit and loss Derivative financial assets Liabilities Deposits from customers Deposits from central bank Debt securities Derivative financial liabilities Repurchase agreements 180 31 December 2023 Fair value through profit and loss £’million FVOCI £’million Amortised cost £’million Total £’million – – 36 – 12,297 12,297 476 4,403 4,879 – – 36 – – – – – – – – 15,623 15,623 3,050 3,050 694 1,191 694 1,191 31 December 2022 Fair value through profit and loss £’million FVOCI £’million Amortised cost £’million Total £’million – – 1 23 – – – 26 – – 13,102 571 5,343 13,102 5,914 – – – – – – – – – 1 23 16,014 3,800 16,014 3,800 571 – 238 571 26 238 Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 181 10. Financial instruments Continued 11. Cash and balances with the Bank of England Financial assets pledged as collateral We have pledged £6,110 million (2022: £5,286 million) of the financial assets above as encumbered collateral which can be called upon in the event of default. Of this, £1,311 million (2022: £2,131 million) is made up of high-quality securities and £4,799 million (2022: £3,141 million) is from our own loan portfolio. This does not include cash balances pledged as collateral which are shown separately within note 17. LIBOR replacement On 1 January 2022, SONIA (Sterling Overnight Index Average) replaced LIBOR (London Inter-bank Offered Rate) as the industry standard sterling interest rate benchmark. As at 31 December 2023 all of our market-facing derivative flows are executed against SONIA, however we continue to hold £47 million (31 December 2022: £64 million) of mortgages that are either exposed, or revert to synthetic LIBOR. 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 equivalents 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 17. 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 31 December 2023 £’million 31 December 2022 £’million 3,642 1,761 191 58 136 59 3,891 1,956 The expected credit loss held against cash and balances with the Bank of England is £0.1 million (31 December 2022: less than £0.1 million). Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 182 12. Loans and advances to customers An analysis of the gross loans and advances by product category is set out below: Accounting policy Loans and advances to customers are classified as held at amortised cost. Our business model is that customer lending is held to collect cash flows, with no sales expected in the normal course of business. We aim to offer products with simple terms to customers, and as a result, all loans comprise solely payments of principal and interest. Loans are initially recognised when cash is advanced to the borrower at fair value – which is the cash consideration to originate the loan including any transaction costs – and measured subsequently at amortised cost using the effective interest rate method, which is detailed further in note 2. Interest on loans is included in the income statement and is reported as ‘Interest income’. Expected credit losses (ECL) are reported as a deduction from the carrying value of the loan. Changes to the ECL during the year are recognised in the income statement as ‘Expected credit loss expense’. 31 December 2023 31 December 2022 Gross carrying amount £’million 1,297 7,817 3,382 ECL allowance £’million (108) (19) (72) Net carrying amount £’million 1,189 7,798 3,310 Gross carrying amount £’million 1,480 7,649 4,160 ECL allowance £’million (75) (20) Net carrying amount £’million 1,405 7,629 (92) 4,068 Consumer lending Retail mortgages Commercial lending Total loans and advances to customers Overdrafts Credit cards Term loans Consumer auto-finance 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 Recovery loan scheme1 Other term loans Commercial term loans Overdrafts and revolving credit facilities Credit cards 12,496 (199) 12,297 13,289 (187) 13,102 Asset and invoice finance Further information on the movements in gross carrying amounts and ECL can be found in note 30. Total commercial lending Gross loans and advances to customers Amounts include: Repayable at short notice 31 December 2023 £’million 31 December 2022 £’million 40 28 60 19 1,219 1,401 10 1,297 5,851 1,966 7,817 9,114 465 524 86 328 1,341 2,744 172 4 462 – 1,480 5,507 2,142 7,649 9,129 731 801 127 385 1,578 3,622 122 4 412 3,382 4,160 12,496 13,289 244 156 1. Recovery loan scheme includes £70 million acquired from third parties under forward flow arrangements (31 December 2022: £97 million). The loans are held in a trust arrangement in which we hold 99% of the beneficial interest, with the issuer retaining the remaining 1% (the trust retains the legal title loans). Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 183 13. Investment securities Investment securities held at FVOCI Accounting policy Our investment securities may be categorised as amortised cost, FVOCI or fair value through profit and loss. Currently all investment securities are non-complex, with cash flows comprising solely payments of principal and interest. We hold some securities to collect cash flows; other securities are held to collect cash flows, and to sell if the need arises (e.g. to 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 fair value through profit and loss. Settlement date accounting is used when recording financial asset transactions where a trade is settled through the regular settlement cycle for that particular investment. Investment securities held at amortised cost Investment securities held at amortised cost consist entirely of debt instruments. They are 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. Investment securities held at FVOCI Investment securities held at amortised cost Total investment securities 31 December 2023 £’million 31 December 2022 £’million 476 4,403 4,879 571 5,343 5,914 Sovereign bonds Residential mortgage-backed securities Covered bonds Multi-lateral development bank bonds Total investment securities held at FVOCI Investment securities held at amortised cost Sovereign bonds Residential mortgage-backed securities Covered bonds Multi-lateral development bank bonds Asset backed securities Total investment securities held at amortised cost 31 December 2023 £’million 31 December 2022 £’million 220 – 112 144 476 215 38 152 166 571 31 December 2023 £’million 31 December 2022 £’million 938 954 594 1,729 188 1,717 1,095 542 1,821 168 4,403 5,343 Further information on the ECL recognised on investment securities can be found in note 30. Metro Bank Holdings PLC Annual Report and Accounts 2023 184 Investment property £’million Leasehold improvements £’million 2023 Freehold land and buildings £’million Fixtures, fittings and equipment £’million IT hardware £’million Right-of-use assets £’million Total £’million Cost 1 January 2023 Additions Disposals Transfers 31 December 2023 Accumulated depreciation 1 January 2023 Depreciation charge Disposals Transfers 31 December 2023 Net book value 12 – – – 12 8 – – – 8 4 261 372 22 – – (5) 9 – 5 1 – – 8 2 – – 283 958 – (4) – 12 (4) – 256 386 23 10 279 966 34 20 69 13 – (3) 79 5 – 3 42 177 344 1 – – 21 2 2 2 – – 4 6 77 13 (1) – 89 190 210 34 (1) – 243 723 Notes to the consolidated 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 All of our leases within the scope of IFRS 16 ‘Leases’ (other than those of low value) relate to our stores and head office properties. Upon the recognition of a lease liability (see note 22 for further details) a corresponding right- of-use asset is recognised. This is adjusted for any initial direct costs incurred, lease incentives paid or received and any restoration costs at the end of the lease (where applicable). The right-of-use asset is depreciated on a straight-line basis over the life of the lease. All right-of-use assets are reviewed at the end of each reporting period for indicators of impairment. Investment property Investment property is also stated at cost less accumulated depreciation and any recognised impairment. Depreciation is calculated on a consistent basis with that applied to land and buildings as set out above. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 185 14. Property, plant and equipment Continued Investment property £’million Leasehold improvements £’million 2022 Freehold land and buildings £’million Fixtures, fittings and equipment £’million IT hardware £’million Right-of-use assets £’million Total £’million Cost 1 January 2022 Additions Disposals Write-offs Moved to held for sale Transfers 31 December 2022 Accumulated depreciation 1 January 2022 Depreciation charge Impairments Disposals Write-offs Moved to held for sale Transfers 31 December 2022 Net book value 18 – – – (6) – 12 12 – 1 – – (5) – 8 4 280 – – (10) – (9) 261 68 12 – – (10) – (1) 69 192 341 22 – – – 9 372 28 5 – – – – 1 34 338 24 – – (2) – – 22 19 3 – – (2) – – 20 2 1 7 – – – – 8 – 2 – – – – – 2 6 295 959 1 (13) – – – 30 (13) (12) (6) – 283 958 67 13 – (3) – – – 77 206 194 35 1 (3) (12) (5) – 210 748 Fair value of investment property Our investment property typically consists of shops and offices which are located within the same buildings as some of our stores, where we have acquired the freehold interest. As at 31 December 2023 our investment property had a fair value of £4 million (31 December 2022: £4 million). The fair value has been provided by a qualified independent valuer. Impairments During the year impairment indicators were identified in respect of other items of our property, plant and equipment. The assets, which included our stores, were tested for impairment. We do not consider individual stores to be cash generating units (CGU), on the basis that they do not generate sufficiently independent cash flows. Instead all of our stores and associated assets are deemed to belong to our retail bank CGU. Further details on the impairment testing of our CGUs can be found in note 15. The recoverable amount of the retail bank CGU was found to be in excess of its carrying amount and as such no impairment was recognised. Transfers Transfers represent costs associated with the improvements made to the one (2022: two) previously leased stores which have been purchased during the year. Contractual commitment for the acquisition of property, plant and equipment As at 31 December 2023 we had no contractual commitments relating to the acquisition of property, plant and equipment that are not reflected in the tables (31 December 2022: £nil). Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 15. Intangible assets Accounting policy Goodwill Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over our interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree. For the purpose of impairment assessment, goodwill acquired in a business combination is allocated to each of our CGUs, or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is not amortised, however, it is tested for impairment at the end of each reporting 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 consist principally of identifiable and directly associated internal colleague, contractor and other costs. Purchased intangible assets and costs directly associated with the development of systems are capitalised as intangible assets where there is an identifiable asset which we control and which will generate future economic benefits in accordance with IAS 38 ‘Intangible Assets’. Costs to establish feasibility or to maintain existing performance are recognised as an expense. Intangible assets are amortised on a straight-line basis within the income statement using the following useful economic lives: Core banking software1 Other banking software Software licences Brands up to 20 years 3 to 10 years licence period 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. 186 2023 Goodwill £’million Brands £’million Software £’million Total £’million 10 – – 10 – – – – 10 338 350 26 (9) 26 (9) 355 367 134 43 (4) 173 182 134 44 (4) 174 193 2 – – 2 – 1 – 1 1 2022 Goodwill £’million Brands £’million Software £’million Total £’million 10 – – 10 – – – – 10 2 – – 2 – – – – 2 336 348 24 (22) 24 (22) 338 350 105 42 (13) 134 204 105 42 (13) 134 216 Cost 1 January 2023 Additions Write-offs 31 December 2023 Accumulated amortisation 1 January 2023 Amortisation charge Write-offs 31 December 2023 Net book value Cost 1 January 2022 Additions Write-offs 31 December 2022 Accumulated amortisation 1 January 2022 Amortisation charge Write-offs 31 December 2022 Net book value Software Software consists of both internally generated and externally acquired assets. As at 31 December 2023 externally acquired licences had a net book value of £9 million (31 December 2022: £9 million). Out of our total intangible assets, £34 million of software assets were under the course of construction at 31 December 2023 (31 December 2022: £39 million). Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 187 The profitability for each CGU per the Long Term Plan is adjusted for non-cash items (including depreciation and amortisation), capital expenditure and long-term funding costs (which are reflected in the discount rate) and certain cash flows which are not permitted to be included under IAS 36, to establish the cash flows for the VIU. Cash flows beyond the five years have been extrapolated using a decreasing growth rate for years six to ten at which point a terminal growth rate of 2% (31 December 2022: 2%) is applied. The period of projection and growth rates used reflects our anticipated growth profile after the five-year planning period, as well as the nature and life of the assets within the CGUs. The terminal growth rate of 2% represents the predicted long-term GDP growth rate of the UK economy (the only market both CGUs operate in). The VIU cash flows are compared to the carrying value of the CGUs, which exclude long term debt. A pre-tax discount rate of 14.7% (31 December 2022: 15.3%) has been used for the VIU calculation. The discount rate is based on our post-tax weighted average cost of capital of 12.7% (which is grossed up to a pre-tax rate), based on the cost of equity and long term debt, weighted by the market value of the equity and debt. The VIU is most sensitive to changes in the projected profitability per the Long-Term Plan and the discount rate applied (which are dependent on the assumptions regarding capital outlined above). If adjusted independently of all other variables, reasonable changes to the assumption in either of these factors over the next 12 months would not cause the recoverable amount of either CGU to fall below its carrying amount. 15. Intangible assets Continued 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. Contractual commitment for the acquisition of intangible assets As at 31 December 2023 we had no contractual commitments relating to the acquisition of intangible assets that are not reflected in the tables (31 December 2022: £nil). Goodwill and impairment testing of cash generating units An impairment test on the carrying value of the assets in our CGUs has been undertaken. As at 31 December 2023 we had two main CGUs being the retail bank and our asset and invoice finance business and no changes have been made to our CGUs during the year. Both of our CGUs contain goodwill and as such are tested annually for impairment. Additional impairment indicators were identified in relation to the retail bank CGU in relation to both its intangible assets as well as property, plant and equipment (see note 14). Asset and invoice finance business Retail bank Total 31 December 2023 £’million 4 6 10 The recoverable amount for both CGUs was determined by a value in use (VIU) calculation in accordance with IAS 36 impairment of assets. The application of the methodology, as described below, is a critical accounting judgement. The VIU was higher than their carrying value and therefore no impairment charge has been recognised for the current year (2022: £nil). The VIU calculation is based on our Board-approved Long Term Plan which covers the five-year period from 2024 to 2028 inclusive. Our Long-Term Plan is constructed using our best estimate of the future performance of the business, adjusted for execution risk and encompasses commercially sensitive estimates including lending and deposit yields and volumes, as well as costs forecasts over the period. The Long Term Plan is built on the assumption that we remain appropriately capitalised to fund our anticipated growth. We have determined that we will be able to meet the appropriate regulatory requirements, which has been based on an analysis of both our existing and planned capital structure. This is consistent with the assessment undertaken by the Directors in respect of assessing viability, which can be found on pages 49 to 50. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 16. Prepayments and accrued income 18. Deposits from customers Prepayments Accrued income¹ VAT receivable Total prepayments and accrued income Current portion Non-current portion 1. Includes accrued interest receivable. 17. Other assets Cash pledged as collateral Other1 Total other assets Current portion Non-current portion 31 December 2023 £’million 31 December 2022 £’million 42 75 1 118 118 – 32 52 1 85 85 – 31 December 2023 £’million 31 December 2022 £’million 50 58 108 55 53 39 34 73 45 28 Deposits from retail customers Deposits from commercial customers Total deposits from customers Demand: current accounts Demand: savings accounts Fixed term: savings accounts Total deposits from customers 19. Deposits from central banks 1. Other balance primarily comprises customer transactions in process or items in the course of collection Deposits from central banks over year end. Amounts drawn down under TFSME 188 31 December 2023 £’million 31 December 2022 £’million 8,943 6.680 7,851 8,163 15,623 16,014 31 December 2023 £’million 31 December 2022 £’million 5,696 7,827 2,100 7,888 7,501 625 15,623 16,014 31 December 2023 £’million 31 December 2022 £’million 3,050 3,050 3,800 3,800 Deposits from central banks consist of amounts drawn down under the Bank of England’s Term Funding Scheme with additional incentives for SMEs (TFSME). TFSME was closed to further drawdowns in October 2021 and our drawdowns will mature in 2025 and 2027 in the amounts of £1,860 million and £1,390 million respectively. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 189 20. Debt securities 21. Derivatives 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. We assess the criteria for the modification and extinguishment of debt securities in accordance with IFRS 9. A substantial modification of the terms of an existing financial liability or a part of it is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. We determine a substantial modification by performing a quantitative and qualitative prospective assessment. Name Issue date Currency Amount issued £’million Coupon rate Call date Maturity date Fixed rate reset callable (MREL) notes 30/11/2023 GBP 525 12.00% 30/04/28 30/04/29 Fixed rate reset callable subordinated (Tier 2) notes 30/11/2023 GBP 150 14.00% 30/04/29 30/04/34 1 January Issuances Redemption Haircut Costs associated with issuance Movements in micro hedging Unwind of issuance costs 31 December 2023 £’million 571 675 (500) (100) (5) 50 3 694 2022 £’million 588 – – – – (19) 2 571 In November 2023, we completed the raising of £175 million of new MREL notes, in addition to the refinancing of our existing debt securities. The refinancing comprised: • The exchange of our existing £350 million of bail-in MREL notes for £350 million of new bail-in MREL instruments. • The exchange of our existing £250 million bail-in Tier 2 notes for £150 million of new bail-in Tier 2 instruments. As part of the refinancing, we incurred fees that were recognised in general operating expenses (note 6) and a £100m gain on the Tier 2 haircut agreed with creditors (note 5). The £500m redemption reflects the extinguishment of the old MREL and Tier 2 as the criteria for substantially modified terms were met. In December 2022 the existing MREL and Tier 2 notes had a coupon rate of 9.50% and 5.50% respectively, with the latter repricing to 9.14% in June 2023. Hedge accounting is applied to our debt securities to manage interest rate risk. 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 ‘Financial Instruments: Recognition and Measurement’ as we often chose to employ dynamic portfolio hedge accounting of interest rate risk across fixed rate financial assets and fixed rate financial liabilities. Where we are using interest rate swaps to hedge the changes in fair value attributable to the interest rate risk of a recognised asset or liability that could affect profit or loss, we apply fair value hedge accounting. If there is an effective hedge relationship, the hedged item is adjusted for fair value changes in respect of the hedged risk. These fair value changes are recognised in the income statement together with the fair value movements on the hedging instrument (the interest rate swaps). Hedge accounting is discontinued when a hedge ceases to be highly effective, a derivative expires or is sold, the underlying hedged item matures or is repaid, or periodically if a new underlying hedged item or hedging instrument is added to the hedge relationship. Where a fair value hedge is de-designated (either due to becoming ineffective or as part of our dynamic approach to hedge accounting) any hedge adjustments accrued to that point are amortised over the remaining life of the hedged item. At the inception of every hedge, we produce hedge documentation which identifies the hedged risk, hedged item and hedging instrument. This documentation sets out the methodology used for testing hedge effectiveness. Metro Bank Holdings PLC Annual Report and Accounts 2023 190 Notes to the consolidated financial statements Continued 21. Derivatives Continued We use derivatives as part of our approach to hedging interest rate and foreign exchange exposure. Our derivative financial instruments are analysed in the table below. Interest rate swaps – Designated as hedging instruments Interest rate swaps – Designated as held at fair value through profit and loss Foreign currency swaps – Designated as held at fair value through profit and loss Total Derivative netting Grand total 31 December 2023 31 December 2022 Notional contract amount £’million 1,205 1,200 63 2,468 (1,200) 1,268 Carrying amount Asset £’million Liability £’million Notional contract amount £’million Carrying amount Asset £’million Liability £’million 36 31 – 67 (31) 36 – (31) – (31) 31 – 902 – 291 1,193 – 1,193 21 – 2 23 – 23 (26) – – (26) – (26) 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 designated risk components of hedged items are benchmark interest rate risk. Other risks such as credit risk and liquidity risk are managed separately and are not included in the hedge accounting relationship. The changes in the designated risk component usually account for the largest portion of the overall change in fair value of the hedged item. Micro fair value hedges We use this hedging strategy on fixed rate assets and liabilities held at fair value through other comprehensive income and amortised cost as well as on our fixed rate debt issuance. Hedge ineffectiveness Hedge ineffectiveness within fair value hedges can occur due to a number of potential sources, such as a non-zero derivative designated in a hedge relationship; mismatches between contractual terms such as basis, timing, principal and notionals; or change in credit risk of interest rate swaps. For the purposes of calculating ineffectiveness recognised in the profit or loss, the total movement in fair value due to the hedged risk on the hedged item and hedging instrument since designation are considered. The total ineffectiveness on our fair value hedges is recognised in Other income within note 5. Offsetting derivatives The Tier 2 and MREL debt held until renegotiation in late 2023 were designated as hedged items in fair value hedge relationships to manage our exposure to interest rate risk. Following the renegotiation of our debt in November 2023, these hedge relationships were de-designated. We entered into equal and opposite interest rate swaps with a notional of £600 million to fully offset the interest rate swaps used to hedge the old MREL and Tier 2 debt securities. Cash flows are offset at a central clearing party and both sets of swaps will mature at the same time. Further details are included in note 33. Debt issued through the capital package in late 2023 was designated within fair value hedge relationships, with new interest rate swaps designated as the hedging instruments. Master netting arrangement and collateral We either receive or provide collateral related to our hedging arrangements. As at 31 December 2023 we received collateral of £11.4 million. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 191 21. Derivatives Continued Summary of hedging instruments in designated hedge relationships The amounts relating to items designated as hedging instruments in fair value hedge relationships to manage our exposure to interest rates are: Interest rate swaps Total derivatives designated as fair value hedges Summary of hedged items in designated hedge relationships The items designated as hedged items in fair value hedge relationships to manage our exposure to interest rates are: 31 December 2023 31 December 2022 Notional contract amount £’million 1,205 1,205 Carrying amount Asset £’million Liability £’million 36 36 – – Notional contract amount £’million 902 902 Carrying amount Asset £’million Liability £’million 21 21 (26) (26) Fixed rate mortgages1 Fixed rate debt issuance2 Fixed rate investment securities at FVOCI3 Fixed rate investment securities at amortised cost4 Fixed rate loans1 Total derivatives designated as fair value hedges 31 December 2023 31 December 2022 Accumulated amount of fair value hedge adjustments included in the carrying amount of the hedged item £’million – (24) (7) 1 – (30) Carrying amount Assets £’million – – 238 271 3 512 Liabilities £’million – (694) – – – (694) Accumulated amount of fair value hedge adjustments included in the carrying amount of the hedged item £’million – 26 (20) (1) – 5 Carrying amount Assets £’million 129 – 236 59 5 429 Liabilities £’million – (424) – – – (424) 1. Hedged item and the cumulative fair value changes are recorded in loans and advances to customers. 2. Hedged item and the cumulative fair value changes are recorded in debt securities in issue (see note 20). 3. Hedged item and the cumulative fair value changes are recorded in investment securities held at FVOCI. 4. Hedged item and the cumulative fair value changes are recorded in investment securities held at amortised cost. Summary of ineffectiveness from designated hedge relationships Total hedge ineffectiveness recognised in profit or loss for the designated fair value hedge relationships is a gain of £5.6 million (2022: £nil). Metro Bank Holdings PLC Annual Report and Accounts 2023 192 Right-of-use assets All of our disclosures relating to right-of-use assets, including our accounting policy, can be found in note 14. Disposals The disposals during the year relate to one store (2022: two stores) where we purchased the freehold during the year. Following the purchase both the lease liabilities and right-of-use assets relating to the stores were derecognised. Minimum lease payments Future undiscounted minimum payments under lease liabilities, exclusive of VAT, as at 31 December are as follows: Within one year Due in one to five years Due in more than five years Total 31 December 2023 £’million 31 December 2022 £’million 22 83 145 250 24 88 172 284 Low value and short leases During the year ended 31 December 2023 £0.3 million (2022: £0.2 million) was recognised in the income statement with respect to assets of low value or a lease of less than 12 months. Notes to the consolidated financial statements Continued 22. Leases Accounting policy At the inception of a contract we assess whether the contract contains a lease. At the commencement of a lease we recognise a lease liability and right-of-use asset (see note 14 for further details). The lease liability is initially measured as the present value of the future lease payments discounted at the rate implicit in the lease (where available) or our incremental cost of borrowing. Generally we use our deemed incremental cost of borrowing as the discount rate. Following initial recognition, the lease liability is measured using the effective interest method. Where we are reasonably certain to exercise a break in the lease, only the lease payments up 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 it 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. All of our leases within the scope of IFRS 16 (other than those of low value) relate to our stores and head office properties. Lease liabilities 1 January Additions and modifications Disposals Lease payments made Interest on lease liabilities 31 December Current Non-current 2023 £’million 248 – (4) (23) 13 234 22 212 2022 £’million 269 1 (11) (25) 14 248 23 225 Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 193 22. Leases Continued 23. Deferred grants 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 31 December 2023 £’million 31 December 2022 £’million 1 3 3 7 1 3 4 8 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. Within one year Due in one to five years Due in more than five years Total 31 December 2023 31 December 2022 Total future minimum payments £’million Unearned finance income £’million Present value £’million Total future minimum payments £’million Unearned finance income £’million Present value £’million 6 10 – 16 (1) (1) – (2) 5 9 – 14 6 9 – 15 (1) (1) – (2) 5 8 – 13 Accounting policy Grants are recognised where there is reasonable assurance that we will both receive the grant and will be able to comply with all the attached conditions. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to the purchase of an asset, it is recognised directly against the cost of the asset. 1 January Released to the income statement 31 December 2023 £’million 2022 £’million 17 (1) 16 19 (2) 17 Our only deferred grant relates to amounts awarded in relation to the Capability and Innovation Fund which formed part of the RBS alternative remedies programme. The programme was aimed to increase competition in the UK business banking marketplace. As part of the grant we are subject to delivering a number of public commitments. These commitments can be found on BCR’s (the awarding body) website. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 24. Provisions Accounting policy We recognise provisions when it is probable that an outflow of economic benefits will be required to settle a present legal or constructive obligation that has arisen as a result of past events and for which a reliable estimate can be made. The provision is measured at its current present value. Provision Description Customer remediation We are committed to doing the right thing but occasionally we identify issues that have caused detriment as a result of our actions. Where we have to refund costs to customers we provide for this at the point the obligation arises. The amounts recognised include any associated interest due. Dilapidations Dilapidations provisions are recognised in regard to certain properties we lease. The majority of our stores and offices have an automatic right to renewal at the end of the lease under the provisions of the Landlord and Tenant Act 1954. Where this is the case we do not provide for restorations on these sites since we have no intention of vacating at the end of the lease term. For sites that are outside the Landlord and Tenant Act 1954, or sites within the Landlord and Tenant Act 1954 where we think there is a chance we will vacate a site at the end of its lease, a provision is made for dilapidations. The provision is made in line with the underlying obligations contained within the lease. Provisions are made relating to the outcome of legal cases and regulatory investigations based on our best estimate of settlement following consultation with our lawyers and advisors. The inclusion of a provision does not constitute any admission of wrongdoing or legal liability. Details of individual cases are provided where these are material to our financial statements and disclosure would not be prejudicial to the outcome of the case. 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. Restructuring provisions are recognised at the point we have developed a detailed formal paln and we have raised a valid expectation that it will be implemented. This is typcially at the point the plan is announced to affected colleagues. Legal and regulatory Onerous contracts Restructuring Other provisions Other provisions consist of other sundry amounts that are provided for in the ordinary course of our business. 194 Customer remediation £’million Dilapidations £’million Legal and regulatory £’million 1 January 2023 Additions Released Utilised 31 December 2023 1 2 – – 3 1 – – – 1 – – – – – Customer remediation £’million Dilapidations £’million Legal and regulatory £’million 1 January 2022 Additions Released Utilised 31 December 2022 1 – – – 1 3 – (2) – 1 5 5 – (10) – 2023 Onerous contracts £’million 2 – – – 2 2022 Onerous contracts £’million 5 – (1) (2) 2 Restructuring £’million Other provisions £’million Total £’million – 15 – – 15 3 – (1) – 2 7 17 (1) – 23 Restructuring £’million Other provisions £’million Total £’million – – – – – 1 2 – – 3 15 7 (3) (12) 7 No provision has been recognised in relation to any of the legal and regulatory matters set out in note 32. All additions for both the current and prior year have been recognised in the income statement. Restructing provision The restructuring provision provided for during the year relates the decision taken during the year to reduce the number of colleagues across the business by 1,000. Affected colleagues left the business in early 2024, with the associated provision being utilised. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 195 25. Other liabilities Trade creditors Taxation and social security costs Accruals1 Deferred income Other liabilities Total other liabilities Current portion Non-current portion 1. Includes accrued interest payable. 26. Called-up share capital 31 December 2023 £’million 31 December 2022 £’million 1 8 146 37 75 267 253 14 1 9 99 57 64 230 205 25 Accounting policy On issue of new shares, incremental directly attributable costs are shown in equity as a deduction from the proceeds. As at 31 December 2023, we had 672.7 million ordinary shares of 0.0001p (31 December 2022: 172.5 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 2023 our called-up share capital was £672.68 (31 December 2022: £172.54). 1 January Cancellation of Metro Bank PLC share capital1 Issuance of Metro Bank Holdings PLC share capital1 Bonus issuance Capital reduction Share issuance2 31 December 2023 £’million 2022 £’million – – – 965 (965) – – – – – – – – – 1. The cancelled called-up share capital of Metro Bank PLC and new share capital of Metro Bank Holdings PLC amount to £172 and as such have been rounded to £nil in the table above. 2. The called-up share capital of the equity issued during the year totalled £500 and as such has been rounded to £nil in the table above. 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 Cancellation of Metro Bank PLC share premium Share issuance Cost of share issuance 31 December 2023 £’million 1,964 (1,964) 150 (6) 144 2022 £’million 1,964 – – – 1,964 Redeemable preference shares In addition to the share capital set out above Metro Bank Holdings PLC has £50,000 of redeemable preference shares which were issued to Robert Sharpe (Chair) and Daniel Frumkin (Chief Executive Officer) upon the initial incorporation of the legal entity on 29 September 2022. These shares are in the process of being redeemed. New holding company As set out in note 1, on 19 May 2023, Metro Bank Holdings PLC became the listed entity and new holding company of Metro Bank PLC. As part of the insertion of Metro Bank Holdings PLC, the existing listed share capital and share premium of Metro Bank PLC was cancelled and the share capital and share premium amounts transferred to retained earnings. Metro Bank PLC subsequently issued the same number of new unlisted 0.0001p ordinary shares to Metro Bank Holdings PLC. Each existing holder of Metro Bank PLC shares was issued with an equivalent number of new shares in Metro Bank Holdings PLC, with the nominal value of 0.0001p, as part of a share for share exchange. The difference between the new nominal share capital in Metro Bank Holdings PLC and the net assets of Metro Bank PLC was recognised in a merger reserve. This merger reserve was capitalised through the allotment of 964,505,616 million special shares of 0.0001p each, which were then subsequently reduced to provide the Metro Bank Holdings PLC with distributable reserves. Equity raise In November 2023, we issued 500 million ordinary shares for consideration of £150 million. Associated costs of £6 million have been offset against the amount raised. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 196 27. Retained earnings Retained earnings records our cumulative earnings since our formation, including the accumulated earnings of our subsidiaries since they were acquired. 1 January Profit/(loss) for the year Cancellation of Metro Bank PLC share capital and share premium Issuance of Metro Bank Holdings PLC share capital Capital reduction of Metro Bank Holdings PLC share capital 31 December No dividends were paid or declared during the year (2022: none). As at 31 December 2023 all of our retained earnings are distributable. 2023 £’million (1,015) 29 1,964 965 (965) 978 2022 £’million (942) (73) – – – (1,015) Share option reserve The share option reserve is used to record movements in relation to share options awarded under our Deferred Variable Reward and LTIP. 1 January Equity-settled share-based payment charges (note 7) 31 December 2023 £’million 2022 £’million 20 3 23 18 2 20 Fair value though other comprehensive income reserve The FVOCI reserve is used to record changes in the fair value of investment securities designated at FVOCI. When investment securities held at FVOCI are sold, any accumulated gains or losses are transferred to the income statement. 1 January Changes in fair value Deferred tax movements 31 December 2023 £’million 2022 £’million (13) 3 (1) (11) (5) (10) 2 (13) 28. Other reserves Merger reserve 1 January Issuance of Metro Bank Holdings PLC share capital Bonus issuance 31 December 2023 £’million 2022 £’million – 965 (965) – – – – – Treasury shares We have a small number of shares held in treasury relating to awards originally granted to key members of management in 2016 in recognition of their significant contribution to the successful listing on the London Stock Exchange. The final tranche of these awards vested in April 2021 and the remaining balance represents awards that did not vest owing to the original conditions of the grant not being fulfilled. These are held by an employee benefit trust, which is consolidated within the Group accounts. The balance on the reserve is less than £1 million (31 December 2022: less than £1 million) and therefore has not been separately disclosed as a component of reserves due to its immaterial size. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 197 29. Share-based payments Accounting policy The grant date fair value of options awarded to colleagues is recognised as an expense over the period in which colleagues become unconditionally entitled to the options. The expense (representing the value of the services received by us) is measured by reference to the fair value of the awards granted on the date of the grant. The cost of the colleague services received in respect of the awards granted is recognised in the consolidated income statement over the period that the services are received, which is the vesting period. Graded vesting is applied where relevant. Vesting conditions are limited to service and performance conditions. For performance- based schemes, the relevant performance measures are projected to the end of the performance period in order to determine the number of options expected to vest. This estimate of the performance measures is used to determine the option fair value, discounted to present value. The Group revises the number of options that are expected to vest, including an estimate of lapses at each reporting date based on forecast performance measures. The impact of the revision to original estimates, if any, is recognised in the income statement, with a corresponding adjustment to equity. The fair value of colleague awards plans is calculated at the grant date using Black-Scholes and Monte Carlo models. The resulting cost is charged to the income statement over the vesting period. The value of the charge is adjusted to reflect expected and actual levels of vesting. We provide share award schemes to colleagues as part of their remuneration packages, and we operate a number of share-based compensation schemes, namely the DVRP and LTIP. The granting of awards is designed to provide incentives to colleagues to deliver long-term returns. No individual has a contractual right to participate in the plans or to receive any guaranteed benefits and the granting of awards remains at the discretion of the People and Remuneration Committee. Standard share options are granted for no consideration, are not pensionable and carry no voting rights. Long Term Incentive Plan The LTIP is the primary long-term incentive scheme for the members of our ExCo. It was approved by shareholders at the 2021 AGM. Under the plan, annual awards, based on a percentage of salary, may be offered. The extent to which an award vests is measured over a three-year period (four years for the initial awards granted in 2021) against financial targets, which consist of return on tangible equity and relative total shareholder return, as well as continued employment within the Group. Deferred Variable Reward Plan The DVRP was first introduced in 2010 and the latest plan was approved by shareholders at the 2021 AGM. Although originally designed for all colleagues, the plan is now operated for senior managers, primarily consisting of members of the our ExCo and other Material Risk Takers. Under the current rules participants are required to defer a proportion of any bonus paid into nominal price awards, a proportion of which vest immediately and the remainder of which vest over seven years. There are no further performance conditions on these shares, other than continued employment. All awards under the DVRP are subject to a one-year holding period; once exercised and all awards have a life of 10 years from the date of grant. More information in relation to both the DVRP and LTIP is available within the Remuneration Report. Awards outstanding The table below summarises the movements in the number of options outstanding and their weighted average exercise price: Outstanding at 1 January Granted Exercised Lapsed Outstanding at 31 December Exercisable at 31 December 2023 2022 Number of options ‘000 13,326 3,429 (259) (261) 16,235 Weighted average exercise price £ 6.61 0.001 0.03 10.46 5.24 7,931 10.54 Number of options ‘000 10,477 4,787 (222) (1,716) 13,326 6,658 Weighted average exercise price £ 8.72 0.001 0.001 1.96 6.61 12.35 1. Nominal price awards with exercise price of 0.0001p. The average share price during 2023 was 94p (2022: 88p). For share options exercised during the period, the weighted average share price at the date of exercise was 118p (2022: 93p). All our options are equity settled and we have no legal or constructive obligation to repurchase the shares or settle the options in cash. Exercises of awards granted are satisfied via the issuance of new shares. Total share-based compensation charges totalled £3.2 million in the year ended 2023 (2022: £2.4 million). Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 29. Share-based payments Continued Fair value of options granted The number of options outstanding at year end was as follows: Exercise price £0.001 £0.93 £7.94 £12.00 £13.00 £13.50 £14.00 £16.00 £20.00 £32.73 £35.36 Total 1. Nominal price awards with exercise price of 0.0001p. 2023 2022 Weighted average remaining contractual life years 8.7 6.3 5.2 0.0 0.2 0.8 n/a n/a 2.2 3.2 4.2 7.3 Number of options ‘000 10,255 2,011 654 – 60 616 194 611 444 633 757 16,235 Weighted average remaining contractual life years 9.0 7.3 6.2 0.8 1.2 1.8 n/a n/a 3.2 4.2 5.2 7.3 Number of options ‘000 6,997 2,116 660 235 60 616 194 611 444 633 760 13,326 198 The total fair value of options granted in 2023 was £3.4 million (2022: £4.3 million), based on the following assumptions: Risk-free interest rate Expected life Volatility Expected dividend yield Share price at grant date Exercise price 2023 awards 3.44% to 4.03% 1 to 7 years 166% nil £1.06 0.0001p Volatility has been estimated by taking our share price volatility since we listed in 2016. An assumption is also made in respect of how many shares will lapse due to the vesting criteria not being met. For the awards granted post 2022, as these were only made to members of the ExCo and other Material Risk Takers, the lapse assumption has been set at 0%. The fair value charges recognised in the income statement for these scheme are adjusted annually to reflect actual lapses. For all other schemes the lapse assumption is updated annually. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 30. Expected credit losses Strategic report Governance Risk report Financial statements Additional information 199 Accounting policy We assess on a forward-looking basis the ECL associated with the assets carried at amortised cost and FVOCI and recognise a loss allowance for such losses at each reporting date. Impairment provisions are driven by changes in the credit risk of loans and securities, with a provision for lifetime ECL recognised where the risk of default of an instrument has increased significantly. Risk of default and ECL must incorporate forward-looking and macroeconomic information. Loans and advances Sophisticated impairment models have been developed for our retail and commercial loan portfolios, with three core models: revolving products; fixed term loans; and mortgages. Expected credit losses are calculated for drawn loans, and for committed lending. The same broad calculation approach is applied for each core model. ECL are calculated by multiplying three main components, being the PD, LGD and the EAD, discounted at the original effective interest rate. Key model inputs, judgements and estimates include: • Consideration of when a SICR occurs. • PD, LGD and EAD as well as their modelled impact. • Macroeconomic scenarios and weightings applied. Significant increase in credit risk IFRS 9 requires a higher level of ECL to be recognised for underperforming loans. This is considered based on a staging approach: Stage Stage 1 Stage 2 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. Financial assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment. Stage 3 Financial assets that are credit impaired at the reporting date. A financial asset is credit impaired when it has met the definition of default. We define default to have occurred when a loan is greater than 90 days past due or where the borrower is considered unlikely to pay. POCI Financial assets that have been purchased and had objective evidence of being non-performing or credit impaired at the point of purchase. 12-month ECL Total losses expected on defaults which may occur within the next 12 months. Losses are adjusted for probability-weighted macroeconomic scenarios. Lifetime ECL Losses expected on defaults which may occur at any point in a loan’s lifetime. Losses are adjusted for probability-weighted macroeconomic scenarios. Lifetime ECL Losses expected on defaults which may occur at any point in a loan’s lifetime. Losses are adjusted for probability-weighted macroeconomic scenarios. Interest income is calculated on the carrying amount of the loan net of credit allowance. Lifetime ECL At initial recognition, POCI assets do not carry an impairment allowance. Lifetime ECL are incorporated into the calculation of the asset’s effective interest rate. Subsequent changes to the estimate of lifetime ECL are recognised as a loss allowance. Metro Bank Holdings PLC Annual Report and Accounts 2023 200 Notes to the consolidated financial statements Continued 30. Expected credit losses Continued Accounting policy Continued A SICR may be identified in a number of ways: • Quantitative criteria — where the numerically calculated PD on a loan has increased significantly since initial recognition. This is assessed using detailed models which assess whether the lifetime PD at observation is greater than the lifetime PD at origination by a portfolio specific threshold. Given the different nature of the products and the dissimilar level of lifetime PDs at 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 either: • A modification of the previous terms and conditions of the loan which the borrower is not considered able to comply with. • A total or partial refinancing of a troubled debt contract that would not have been granted had the borrower not been in financial difficulties. It may not be possible to identify a single discrete event which defines an asset as ‘non-performing’ or ‘credit impaired’. Instead, the combined effect of several events may cause financial assets to become credit impaired. A probation period is implemented before transferring a financial instrument to a lower stage (i.e. from Stage 3 to Stage 2, or from Stage 2 to Stage 1). Specifically, in order to move an account from Stage 3 to Stage 2, we apply a backstop such that the instrument should meet the Stage 2 criteria for three consecutive months. The same logic is applied when transferring an account from Stage 2 to Stage 1. Probability of default PD represents the likelihood of a borrower defaulting on its financial obligation either over the next 12 months (for Stage 1 accounts), or over the remaining lifetime of the loan (for Stage 2 and 3 accounts). A PD is calculated for all loans based on historical data and incorporates: • Credit quality scores. • Life cycle trends depending on a loan’s vintage. • Factors indicating the quality of the vintage. • Characteristics of the current and future economic environment. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 30. Expected credit losses Continued Strategic report Governance Risk report Financial statements Additional information 201 Accounting policy Continued Loss given default LGD represents our expectation of the extent of a loss on a defaulted exposure, and is expressed as a percentage considering expected recoveries on defaulted accounts. We apply two LGD rates — one for unsecured lending and one for secured lending. LGD rates have been modelled considering a range of inputs, including: • Value of collateral on secured portfolios — a key driver of the expected recovery in the event of default. • Expected haircut applied to the collateral value to reflect a forced sale discount. • Price index forecasts applied to project collateral values into the future. • Stress factors based on macroeconomic scenarios. Exposure at default This is the amount that we expect to be owed at the point of default. This is subject to judgement since a balance will not necessarily remain static between the balance sheet date and the point of expected default. For example: • Interest should be accrued. • Repayments may be received. • For a revolving product, further drawings may be taken between the current point in time and the point of default. • Estimations of these factors will be incorporated into our estimate of EAD. PD, LGD and EAD are calculated and applied at an individual account level for secured lending. For unsecured lending, PD and EAD are calculated and applied at an individual account level, but LGD is assessed at a portfolio level and applied to accounts on an individual basis. Macroeconomic scenarios The ECL recognised in the financial statements reflects the effect on ECL of a range of possible outcomes, calculated on a probability-weighted basis, based on a number of economic scenarios and including management overlays where required. These scenarios are representative of our view of forecast economic conditions, sufficient to calculate unbiased ECL, and are designed to 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 four scenarios. These represent a ‘most likely outcome’, (the ‘Baseline’ scenario) and three, less likely, ‘Outer’ scenarios, referred to as an ‘Upside’, a ‘Downside’ and a severe downside scenario respectively. The Baseline scenario captures the most likely economic future; the Downside and severe downside scenarios reflect adverse economic conditions; and the Upside scenario presents more favourable economic conditions. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 30. Expected credit losses Continued 202 Accounting policy Continued Key scenario assumptions are set using data sourced from independent external economists. This helps ensure that the IFRS 9 scenarios are unbiased and maximise the use of independent information. The following assumptions, considered to be the key drivers of ECL, have been used for the scenarios applied as at 31 December 2023 and 31 December 2022: • UK interest rates (five-year mortgage rate). • UK unemployment rates. • UK HPI changes, year on year. • UK GDP changes, year on year. • UK commercial real estate index, year on year. Macroeconomic scenarios impact the ECL calculation through varying PDs and LGDs. We use UK HPI to index mortgage collateral which has a direct impact on LGDs. Other metrics are considered to have a direct impact on PDs and were selected following a search and data calibration exercise of possible drivers. A list of around 15 potential drivers were initially considered, representing drivers which capture trends in the economy at large, and may indicate economic trends which will impact UK borrowers. The list included variables which impact economic output, interest rates, inflation, share prices, borrower income and the UK housing market. An algorithm was then used to choose the subset of drivers which had the greatest significance and 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 simulation process was designed to determine the weighting to apply to each scenario based on its severity and the range of possible scenarios for which that scenario was representative. A summary of each scenario and weighting used at 31 December 2023 is as follows: • Baseline scenario: Reflects the projection of the median, or ‘50%’ scenario, meaning that in the assessment there is an equal probability that the economy might perform better or worse than the baseline forecast. • Upside scenario: This above-baseline scenario is designed so there is a 10% probability the economy will perform better than in this scenario, broadly speaking, and a 90% probability it will perform worse. • Downside scenario: In this recession scenario, in which a deep downturn develops, there is a 90% probability the economy will perform better, broadly speaking, and a 10% probability it will perform worse. • Severe downside scenario: In this recession scenario, in which a deep downturn develops, there is a 96% probability the economy will perform better, broadly speaking, and a 4% probability it will perform worse. These assumptions are considered sufficient to capture any material non-linearities. The weightings applied to each scenario at 31 December 2023 were Baseline – 50%, Upside – 20%, Downside – 25% and Severe downside scenario – 5% (31 December 2022: Baseline – 50%, Upside – 20%, Downside – 25% and Severe downside scenario – 5%). Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 203 30. Expected credit losses Continued Accounting policy Continued Economic variable assumptions The period-end assumptions used for the ECL estimate as at 31 December 2023 and 31 December 2022 are as follows: Interest rates (%) – five-year mortgage rate UK unemployment (%) UK HPI – % change year-on-year UK GDP – % change year-on-year UK commercial real estate index, year-on-year – % change Baseline Upside Downside Severe downside Baseline Upside Downside Severe downside Baseline Upside Downside Severe downside Baseline Upside Downside Severe downside Baseline Upside Downside Severe downside 31 December 2023 31 December 2022 2024 5.1% 5.3% 3.7% 3.3% 4.6% 4.1% 6.5% 7.7% (6.2%) 7.0% 2025 4.7% 4.7% 2.7% 2.2% 4.7% 3.8% 7.4% 8.5% 3.1% 6.3% (16.5%) (6.3%) (22.2%) (10.3%) 0.4% 3.9% (5.6%) (7.1%) (4.2%) 10.1% (18.7%) (26.9%) 1.0% 1.2% 1.3% (0.2%) 0.8% 3.3% (5.3%) (7.4%) 2026 4.3% 4.3% 2.6% 2.2% 4.7% 3.9% 7.4% 8.4% 4.7% 2.1% 4.0% 4.4% 1.3% 1.3% 2.6% 4.2% 1.7% (1.3%) 3.0% 4.9% 2027 4.2% 4.2% 2.6% 2.2% 4.8% 4.2% 7.0% 8.1% 2.6% (1.5%) 5.4% 4.1% 1.4% 1.4% 1.4% 2.4% (0.4%) (4.3%) 3.4% 2.6% 2023 5.5% 5.3% 5.5% 5.8% 4.3% 3.9% 6.2% 7.4% (4.4%) 9.0% 2024 4.4% 4.3% 4.4% 4.0% 4.5% 3.6% 7.2% 8.3% 2.3% 5.4% (14.9%) (7.0%) (20.7%) (10.9%) (0.8%) 1.9% (6.9%) (8.3%) (8.2%) 3.2% (23.2%) (30.5%) 1.2% 1.2% 1.3% (0.3%) (6.0%) (3.6%) (11.9%) (14.8%) 2025 4.0% 4.0% 3.6% 3.4% 4.5% 3.7% 7.2% 8.2% 4.8% 2.1% 4.0% 4.4% 1.4% 1.1% 2.5% 3.5% 2.0% 2026 4.0% 4.0% 3.1% 3.0% 4.6% 4.0% 6.8% 7.9% 2.9% (1.2%) 5.7% 4.3% 1.2% 1.2% 1.2% 2.1% 1.4% (0.3%) (2.2%) 5.1% 6.9% 4.2% 3.5% Following the initial four-year projection period, the Upside, Downside and Severe downside scenarios converge to the Baseline scenario. The rate of convergence varies based on the macroeconomic factor, but at a minimum convergence takes place three years from the initial four-year projection period. We recognise that applying the above scenarios will not always be sufficient to determine an appropriate ECL in all economic environments. The scenarios applied comprise our best estimate of economic impacts on the ECL, and the actual outcome may be significantly different. Investment securities and other financial assets Impairment provisions have been calculated based on our best estimate of ECL on other assets classified and measured at amortised cost and fair value through other comprehensive income. These include investment securities, cash held at banks and other financial assets. These impairment provisions are not material. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 30. Expected credit losses Continued 204 Critical accounting judgement Measurement of the expected credit loss allowance The measurement of ECL is complex and involves the use of significant judgements. We consider that the following represent key judgements in respect of the measurement of the ECL. Significant increase in credit risk IFRS 9 requires a higher level of ECL to be recognised for under-performing loans as a lifetime ECL is recognised compared to a 12-month ECL for performing loans. This is considered based on a staging approach. Financial assets that have had no SICR since initial recognition, or that have low credit risk at the reporting date, are considered to be performing loans and are classified as ‘Stage 1’. Losses are calculated based on our expectation of defaults which may occur within the next 12 months. Assets which are considered to have experienced a SICR since initial recognition, but that do not have objective evidence of impairment, are classified as ‘Stage 2’. Losses are calculated based on defaults which may occur at any point in the asset’s lifetime. Judgement is required to determine when a SICR has occurred. An assessment of whether credit risk has increased significantly since initial recognition, resulting in transfer to Stage 2, is performed at each reporting period by considering the change in the PD expected over the remaining life of the financial instrument. The assessment explicitly or implicitly compares the PD occurring at the reporting date compared to that at initial recognition, taking into account reasonable and supportable information, including information about past events, current conditions and future economic conditions. Use of post model adjustments and overlays We have applied expert judgement to the measurement of the ECL in the form of PMOs and PMAs. Post model adjustments PMAs refer to increases/decreases in ECL to address known model limitations, either in model methodology or model inputs. These rely on analysis of model inputs and parameters to determine the change required to improve model accuracy. These may be applied at an aggregated level however, they will usually be applied at account level. Post model overlays PMOs reflect management judgement. These rely more heavily on expert judgement and will usually be applied at an aggregated level. For example, where recent changes in market and 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 70). ECL assessment We have applied Post Model Adjustments (PMAs) and Post Model Overlays (PMOs) in the assessment of ECL. PMAs supplement the models to account for where there are limitations in model methodology or data inputs and PMOs accounts for downsides risks which are not fully captured through the economic scenarios. The appropriateness of PMAs and PMOs is subject to rigorous review and challenge, including review by our Model Governance, Impairment Committee and Audit Committee. The level of PMAs and PMOs has reduced in 2023 with the total percentage of ECL stock standing at 12% as at 31 December 2023 (31 December 2022: 16%). No PMAs have been held as at 31 December 2023 as outstanding IFRS9 models have been implemented in production in 2023 resulting in previously held PMAs being removed: • IFRS 9 retail mortgage secured LGD model (31 December 2023: £nil ; 31 December 2022: £0.1 million). • IFRS 9 commercial business loans lifetime PD model scope extended to commercial Revolving facilities (31 December 2023: £nil ; 31 December 2022: £0.3 million). PMOs have been reassessed during the period to ensure an appropriate level of ECL to account for the high level of macroeconomic uncertainty, following the cost of living pressures and stable yet high interest rates, and anticipated property price falls. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 205 30. Expected credit losses Continued Critical accounting judgement Continued PMOs make up £23.4 million of the ECL stock as at 31 December 2023 (31 December 2022: £30.5 million) and comprise: • High inflation environment and cost-of-living risks – Management overlays were introduced in 2022 to reflect high inflation and cost of living pressures, which are not fully captured through the economic scenarios and IFRS9 models (31 December 2023: £16.0 million; 31 December 2022: £22.5 million). The reduction in 2023 is driven by underlying credit risk profile movements on some individual cases resulting in previously held overlays now being released. This reflects the associated risks across the consumer and commercial portfolios. For commercial, the inflation PMO has been assessed based on potential future individual customer migration of current Stage 1 lending migrating into Stage 2 and 3, based on an inflationary stress scenario. The overlay assigned for the mortgage portfolio has been removed as it is now reflected in the new IFRS9 model as part of the model enhancement overlay mentioned below. • Significant increase in credit risk (SICR) adjustment overlay – A negative overlay introduced in 2022 is still being held at December 2023. The SICR model for these portfolios is resulting in a significant overstatement of stage 2 assets and the negative PMO is in place to account for this. These overlays will be removed once the IFRS9 PD Annual Model Reviews for both portfolios are validated and implemented into production (scheduled in H1 2024) (31 December 2023: £7.4 million; 31 December 2022: £3.4 million). • HPI and CRE adjustment – An overlay raised in 2022 is still being held at 31 December 2023 to reflect further downside risk in property price indices beyond the latest scenarios for the retail mortgage and commercial property portfolios (31 December 2023: £3.4 million; 31 December 2022: £6.1 million). This overlay has been reduced in 2023 to offset the observed reduction in HPI. However, management has continued to maintain an overlay to reflect the risk of further deterioration in property price falls (across HPI and CRE) as high base rates continue to be held flat by the Bank of England. • Climate change impact – An expert judgement overlay originally raised in 2021 has been revised for FY 2023 and reflects the impact of climate change on property values for the mortgage and commercial portfolios (31 December 2023: £3.2 million; 31 December 2022: £3.5 million). The slight reduction in the overlay since December 2022 is due to the updated balance movements for all portfolios across the period. • Mortgage model enhancements – A PMO has been introduced in FY 2023 to reflect the new IFRS9 Mortgage PD and Staging models. This overlay will be removed once the IFRS9 PD and Staging Annual Model Reviews are validated and implemented into production (scheduled in Q1 2024) (31 December 2023: £4.7 million; 31 December 2022: £nil). • Commercial model enhancements – An overlay is held in anticipation of remaining model adjustments for the commercial portfolio (31 December 2023: £3.5 million; 31 December 2022: £1.2 million). The increase in the overlay over the period is to reflect the impact from the anticipated new IFRS9 Commercial PD model and the Enhanced Business Overdrafts portfolio which utilises the IFRS9 Commercial models as a proxy for ECL assessment. We review our PMOs on an ongoing basis and reassess these based on the evolving economic outlook and observation of performance data. All PMOs impact the ECL measurement, however not all adjust the staging. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 30. Expected credit losses Continued 206 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 ECL of a range of possible outcomes, calculated on a probability-weighted basis, based on a number of economic scenarios, including management overlays where required. These scenarios are representative of our view of forecast economic conditions, sufficient to calculate unbiased ECL. The following assumptions, considered to be the key drivers of ECL, have been used for the scenarios applied: • UK interest rates. • UK unemployment rates. • UK HPI changes, year on year. • UK GDP changes, year on year. • UK commercial real estate index, year on year. The weightings applied to each scenario at 31 December 2023 and 31 December 2022 are: Baseline Upside Downside Severe downside 31 December 2023 31 December 2022 50% 20% 25% 5% 50% 20% 25% 5% 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, Downside and Severe downside scenarios were applied to the ECL calculation using a 100% weighting (that is, ignoring all other scenarios in each case): Baseline Upside Downside Severe downside Weighted Stage 1 £’million Stage 2 £’million Stage 3 £’million Total £’million 57 49 79 90 63 37 31 57 72 43 93 92 98 100 93 187 172 234 262 199 The sensitivities disclosed above represent example scenarios and may not represent actual scenarios which occur in the future. If one of these scenarios did arise then at that time the ECL would not equal the amount disclosed above, as the amounts disclosed do not take account of the alternative possible scenarios which would be considered at that time. PMOs and individually assessed provisions are reflected in the above sensitivities as are any resulting movements in staging allocation. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 30. Expected credit losses Continued Expected credit loss expense Retail mortgages1 Consumer lending1 Commercial lending1 Investment securities Write-offs and other movements Total expected credit loss expense Strategic report Governance Risk report Financial statements Additional information 207 2023 £’million 2022 £’million (1) 33 (20) 1 20 33 1 33 (16) 1 21 40 1. Represents the movement in ECL allowance during the year and therefore excludes write-offs which are shown separately. 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 2023, the loss allowance included within the FVOCI reserve is £0.1 million (31 December 2022: £0.1 million). All investment securities held at amortised cost are deemed to be in Stage 1. The total ECL expense recognised for these assets at 31 December 2023 is £0.9 million (31 December 2022: £0.7 million). Collateral Collateral is usually held in the form of real estate, guarantees, debentures and other liens that we can call upon in the event of the borrower defaulting. At 31 December 2023, 80% (31 December 2022: 79%) of our loans consisted of retail mortgages and commercial term loans secured on collateral, with average DTV of 58% (31 December 2022: 56%) and 55% (31 December 2022: 55%) respectively. A further 4% (31 December 2022: 6%) of our lending portfolio consists of BBLS, which although they do not have any collateral are 100% guaranteed by the Government. Further details on the collateral of our loans can be found in the Risk report. Write-off policy We write off financial assets (either partially or fully) when there is no realistic expectation of receiving further payment from the customer. Indicators that there is no reasonable expectation of recovery include debt sale to a third party and ceasing enforcement activity. We may write off financial assets that are still subject to enforcement activity. Modification of financial assets We sometimes renegotiate the terms of loans provided to customers with a view to maximising recovery. The modifications have not led to any material modification gains or losses being recognised. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 208 30. Expected credit losses Continued The following tables explain the changes in both the gross carrying amount and loss allowances of our loans and advances during the year. £’million 1 January 2023 Transfers to/(from) Stage 11 Transfers to/(from) Stage 2 Transfers to/(from) Stage 3 Net remeasurement due to transfers2 New lending3 Repayments, additional drawdowns and interest accrued Derecognitions4 Changes to model assumptions5 31 December 2023 Off-balance sheet items Commitments and guarantees6 £’million 1 January 2022 Transfers to/(from) Stage 11 Transfers to/(from) Stage 2 Transfers to/(from) Stage 3 Net remeasurement due to transfers2 New lending3 Repayments, additional drawdowns and interest accrued Derecognitions4 Changes to model assumptions5 31 December 2022 Off-balance sheet items Commitments and guarantees6 Gross carrying amount Loss allowance Net carrying amount Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total 10,849 2,088 352 872 (581) (170) – (857) 589 (71) – 2,060 239 (15) (8) 241 – 16 (685) (172) (1,749) (305) – – (40) (157) – 10,596 1,511 389 – – – – – – – – – – 13,289 – – – – (66) (15) 4 3 12 2,315 (18) (897) (2,211) – – 13 4 (51) (70) 15 (6) 4 (13) (6) – 10 4 – 2 (7) (38) (6) – 26 – 12,496 (63) (43) (93) – – – – – – – – – – (187) 10,783 2,037 282 – – – (39) (30) – 49 8 857 (842) (577) (167) 12 2,042 583 (67) (13) 233 (685) (172) (1,736) (295) 4 4 (15) (6) 234 (38) 10 (40) (131) – (199) 10,533 1,468 296 718 – – – – – – – – – – – 13,102 – – – (39) 2,285 (897) (2,162) 8 12,297 718 Gross carrying amount Loss allowance Net carrying amount Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total 10,071 1,925 462 517 (504) (451) (124) – 458 (73) – 3,157 742 (13) (7) 197 – 31 1 – – – – – 12,459 – – – – 3,930 (604) (107) (26) (1) (738) (1,717) (353) (292) – – – 10,849 2,088 352 – – – (2,362) – 13,289 (66) (47) (13) 2 1 10 (30) – 7 4 (49) (73) 13 (2) 7 (10) (15) – 10 (5) (51) – – (8) (15) (11) – 34 3 (70) – – – – – – – – – – – – – (15) (56) – 51 2 (169) 10,024 1,876 389 504 (449) (123) 10 3,127 (491) 456 (66) (10) 727 (13) (7) 189 (15) 20 (604) (107) (26) (1) (738) (1,710) (343) (258) 4 (5) 3 (187) 10,783 2,037 282 1 – – – – – 12,290 – – – (15) 3,874 – – – (2,311) 2 13,102 1,120 1,120 – 1. Represents stage transfers prior to any ECL remeasurements. 2. Represents the remeasurement between the 12-month and lifetime ECL due to stage transfer. In addition it includes any ECL change resulting from model assumptions and forward-looking information on these loans. 3. Represents the increase in balances resulting from loans and advances that have been newly originated, purchased or renewed as well as any ECL that has been recognised in relation to these loans during the year. 4. Represents the decrease in balances resulting from loans and advances that have been fully repaid, sold or written off. 5. Represents the change in ECL to those loans that remain within the same stage through the year. 6. Represents undrawn lending facilities. Further details can be found in note 31. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 30. Expected credit losses Continued Strategic report Governance Risk report Financial statements Additional information 209 Retail mortgages £’million 1 January 2023 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 2023 £’million 1 January 2022 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 2022 Stage 1 Stage 2 Stage 3 POCI Total 6,189 1,332 108 Gross carrying amount Loss allowance Net carrying amount Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI 6,195 1,343 745 (193) (38) – (737) 199 (29) – 1,195 147 (177) (840) – (18) (121) – 111 (8) (6) 67 – 1 – (19) – 6,887 784 146 – – – – – – – – – – 7,649 – – – – 1,343 (195) (980) – 7,817 (6) (6) – – 5 (1) – 1 – (11) 6 – – (2) (1) – 1 1 (7) (6) (3) – – – (2) – – – (1) (6) – – – – – – – – – – Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI 5,546 1,063 293 (199) (16) – (281) 205 (22) – 1,666 549 (130) (965) – (22) (149) – 6,195 1,343 114 (12) (6) 38 – 1 (5) (19) – 111 – – – – – – – – – – 6,723 – – – – 2,216 (157) (1,133) – 7,649 (2) (4) – – 4 (3) – (1) – (6) (12) 4 – 1 (1) (7) – 2 2 (5) – – (1) – – – 3 – (11) (3) – – – – – – – – – – Total (20) – – – 1 (2) – 2 – Total (19) – – – 3 739 (193) (38) 5 1,194 (177) (839) – (731) 199 (29) (2) 146 (18) (120) 1 (19) 6,880 778 289 (199) (16) 4 (277) 205 (21) (1) (10) 1,663 542 – 4 2 (130) (966) – (22) (147) 2 (8) (6) 67 (2) 1 – (19) (1) 140 (12) (6) 37 – 1 (5) (16) – (20) 6,189 1,332 108 Gross carrying amount Loss allowance Net carrying amount – – – – – – – – – – 7,629 – – – 1 1,341 (195) (978) – 7,798 – – – – – – – – – – 6,704 – – – 3 2,206 (157) (1,129) 2 7,629 Stage 1 Stage 2 Stage 3 POCI Total 5,544 1,051 109 Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 30. Expected credit losses Continued 210 Consumer lending £’million 1 January 2023 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 2023 £’million 1 January 2022 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 2022 Gross carrying amount Loss allowance Net carrying amount Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Stage 1 Stage 2 Stage 3 POCI Total 1,480 – – – – 396 (338) (241) – 1,297 Total 890 – – – – 1,180 34 (182) (35) – 311 (217) (185) – 906 250 (34) 182 (9) – 78 (111) (42) – 314 50 – – 44 – 7 (10) (14) – 77 – – – – – – – – – – Gross carrying amount Stage 1 Stage 2 Stage 3 POCI 786 19 (96) (21) – 82 (19) 96 (6) – 806 156 (144) (170) – (41) (18) – 1,180 250 21 – – 27 – 12 (6) (4) – 50 1 – – – – – (1) – – – (21) (2) 2 1 2 (9) – 3 (2) (26) (12) (42) 2 (2) 2 (6) (4) – 2 2 – – (3) (28) (6) – 12 1 (16) (66) – – – – – – – – – – (18) (2) 1 1 2 974 (15) (192) (192) – – 5 5 (8) 2 (1) 2 (3) (7) – 1 2 (16) – – (3) (15) (9) – 1 – – – – – – – – – – – Total (75) – – – (32) (19) – 17 1 (108) Total (42) – – – (16) (31) – 7 7 1,159 32 (180) (34) 2 302 (217) (182) (2) 880 238 (32) 180 (7) (6) 74 (111) (40) 2 298 8 – – 41 (28) 1 (10) (2) 1 11 – – – – – – – – – – 768 17 (95) (20) 2 791 (144) (165) 5 74 (17) 95 (4) (3) 149 (41) (17) 2 5 – – 24 (15) 3 (6) (3) – 8 1 – – – – – (1) – – – 1,405 – – – (32) 377 (338) (224) 1 1,189 Total 848 – – – (16) 943 (192) (185) 7 1,405 Loss allowance Net carrying amount Stage 1 Stage 2 Stage 3 POCI Stage 1 Stage 2 Stage 3 POCI 1,480 (21) (12) (42) (75) 1,159 238 Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 30. Expected credit losses Continued Strategic report Governance Risk report Financial statements Additional information 211 Commercial lending £’million 1 January 2023 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 2023 £’million 1 January 2022 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 2022 Gross carrying amount Loss allowance Net carrying amount Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI 3,474 93 (206) (97) – 554 (291) (724) – 495 (86) 208 (33) – 14 (43) (142) – 191 (7) (2) 130 – 8 (30) (124) – 2,803 413 166 – – – – – – – – – – 4,160 – – – – 576 (364) (990) – (39) (7) 2 2 5 (8) – 9 6 (28) (25) 7 (4) 2 (5) (1) – 7 1 – 2 (4) (8) – – 14 – 3,382 (30) (21) (21) – – – – – – – – – – 3,739 205 (156) (87) – 685 (330) (582) – 780 (204) 157 (45) – 37 327 (1) (1) 132 – 18 (44) (15) (186) (269) – – 191 3,474 495 – – – – – – – – – – 4,846 – – – – (27) (7) 1 – 4 740 (12) (389) (1,037) – – 3 (1) 4,160 (39) (29) (52) 7 (1) 4 (6) (1) – 7 (9) (28) – – (4) – (2) – 30 3 (25) – – – – – – – – – – Total (92) – – – (8) (9) – 30 7 – – – (2) (15) – 40 (7) (92) Stage 1 Stage 2 Stage 3 POCI Total 3,435 86 (204) (95) 5 546 (291) (715) 6 467 (79) 204 (31) (5) 13 (43) (135) 1 392 166 (7) – 126 (8) 8 (30) (110) – 145 – – – – – – – – – – 4,068 – – – (8) 567 (364) (960) 7 3,310 198 (155) (87) 4 673 751 (197) 156 (41) (6) 36 275 (1) (1) 128 – 16 (330) (579) (44) (15) (179) (239) (1) (9) 3,435 467 3 166 – – – – – – – – – – 4,738 – – – (2) 725 (389) (997) (7) 4,068 (72) 2,773 (108) 3,712 Gross carrying amount Loss allowance Net carrying amount Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 30. Expected credit losses Continued Credit risk exposures Total lending £’million Up to date 1 to 29 days past due 30 to 89 days past due 90+ days past due Gross carrying amount 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 Commercial lending £’million Up to date 1 to 29 days past due 30 to 89 days past due 90+ days past due Gross carrying amount 212 31 December 2023 31 December 2022 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 10,553 1,342 123 12,018 10,819 1,943 43 – – 54 115 – 15 43 112 158 208 208 30 – – 59 86 – 103 12 40 197 12,865 101 126 197 10,596 1,511 389 12,496 10,849 2,088 352 13,289 31 December 2023 31 December 2022 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 6,885 695 2 – – 28 61 – 37 10 16 83 7,617 6,194 1,289 40 77 83 1 – – 21 33 – 6,887 784 146 7,817 6,195 1,343 33 7 15 56 111 7,516 29 48 56 7,649 31 December 2023 31 December 2022 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 900 297 6 – – 2 15 – 906 314 3 – 7 67 77 1,200 1,172 235 8 22 67 8 – – 2 13 – 1,297 1,180 250 3 – 5 42 50 1,410 10 18 42 1,480 31 December 2023 31 December 2022 Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 2,768 350 83 3,201 3,453 35 – – 24 39 – 5 20 58 64 59 58 21 – – 419 36 40 – 2,803 413 166 3,382 3,474 495 67 5 20 99 191 3,939 62 60 99 4,160 Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 213 31. Financial commitments 32. Legal and regulatory matters Accounting policy To meet the financial needs of our customers, we enter into various irrevocable commitments. These generally consist of financial guarantees, letters of credit and other undrawn commitments to lend. Even though these obligations are not recognised on the balance sheet, they do contain credit risk and an ECL is calculated and recognised for them (see note 30). When these commitments are drawn down or called upon, and meet the recognition criteria as detailed in note 12, these are recognised within our loans and advances to customers. At 31 December 2023, we had undrawn facilities granted to retail and commercial customers of £718 million (31 December 2022: £1,120 million). As part of our retail and commercial operations, this includes commitments of £327 million (31 December 2022: £250 million) for 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. As part of the normal course of business we are subject to legal and regulatory matters. The matters outlined below represent contingent liabilities and as such at the reporting date no provision has been made for any of these cases within the financial statements. This is because, based on the facts currently known, it is not practicable to predict the outcome, if any, of these matters or reliably estimate any financial impact. Their inclusion does not constitute any admission of wrongdoing or legal liability. Financial crime The FCA is currently undertaking enquiries regarding our financial crime systems and controls. We continue to engage and co-operate fully with the FCA in relation to these matters, and the FCA’s enquiries remain ongoing. Magic Money Machine litigation In 2022 Arkeyo LLC, a software company based in the United States, filed a civil suit with a stated value of over £24 million against us in the English High Court alleging, among other matters, that we infringed their copyright and misappropriated their trade secrets relating to money counting machines (i.e. our Magic Money Machines). We believe Arkeyo LLC’s claims are without merit and are vigorously defending the claim. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 33. Offsetting of financial assets and liabilities 214 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. Assets Loans and advances to customers1 Investment securities1 Derivative financial assets Deferred tax assets Other assets2 Liabilities Derivative financial liabilities Repurchase agreements1 Deposits from central banks1 Deferred tax liabilities 31 December 2023 Effects of offsetting on the balance sheet Gross amounts offset in the balance sheet £’million – – (31) (17) – (31) – – (17) Gross amount £’million 12,297 4,879 67 17 108 31 1,191 3,050 30 Net amounts presented in the balance sheet £’million 12,297 4,879 36 – 108 – 1,191 3,050 13 31 December 2022 Effects of offsetting on the balance sheet Gross amounts offset in the balance sheet £’million – – – (16) – – – – (16) Gross amount £’million 13,102 5,914 – 16 73 26 238 3,800 28 Net amounts presented in the balance sheet £’million 13,102 5,914 – – 73 26 238 3,800 12 1. We have pledged £6,110 million (2022: £5,286 million) against repos, deposits from central banks and other assets as encumbered collateral which can be called upon in the event of default. 2. Includes £50 million (2022: £39 million) pledged as cash collateral. None of the cash collateral has been offset in the Balance Sheet. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 34. Fair value of financial instruments Strategic report Governance Risk report Financial statements Additional information 215 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, and 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 inputs that are significant to the measurement as whole. Assets 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 Derivative financial assets Liabilities Deposits from customers Deposits from central bank Debt securities Derivative financial liabilities Repurchase agreements 31 December 2023 Quoted market price Level 1 £’million Using observable inputs Level 2 £’million With significant unobservable inputs Level 3 £’million Total fair value £’million Carrying value £’million 31 December 2022 Quoted market price Level 1 £’million Using observable inputs Level 2 £’million With significant unobservable inputs Level 3 £’million Total fair value £’million – 476 3,143 – – – – – – – – – 1,072 – 36 – – 585 – – 12,156 – – – – 12,156 476 4,215 – 36 15,622 3,050 15,622 3,050 – – 1,191 585 – 1,191 13,102 – 571 533 – 38 12,321 12,321 – 571 5,343 3,834 1,135 40 5,009 1 23 16,014 3,800 571 26 238 – – – – 423 – – – 23 – – – 26 – 1 – 1 23 16,004 16,004 3,800 3,800 – – 238 423 26 238 Carrying value £’million 12,297 476 4,403 – 36 15,623 3,050 694 – 1,191 Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 216 34. Fair value of financial instruments Continued 35. Related parties 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 tables. Their carrying amount is a reasonable approximation of fair value. Information on how fair values are calculated are explained below: Loans and advances to customers Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date, adjusted for future credit losses and prepayments, if considered material. Investment securities The fair value of investment securities is based on either observed market prices for those securities that have an active trading market (fair value Level 1 assets), or using observable inputs (in the case of fair value Level 2 assets). Financial assets held at fair value through profit and loss The financial assets at fair value through profit and loss relate to the loans and advances previously assumed by the RateSetter provision fund. They are measured at the fair value of the amounts that we expect to recover on these loans. Deposits from customers Fair values are estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities. The fair value of a deposit repayable on demand is approximated by its carrying value. Debt securities Fair values are determined using the quoted market price at the balance sheet date. Deposits from central banks/repurchase agreements Fair values are estimated using discounted cash flows, applying current rates. Fair values approximate carrying amounts as their balances are either short-dated or are on a variable rate which aligns to the current market rate. Derivative financial assets and liabilities The fair values of derivatives are obtained from discounted cash flow models as appropriate. Related persons Key management personnel Our key management personnel, and persons connected with them, are considered to be related parties. Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group. The Directors and members of the ExCo are considered to be the key management personnel for disclosure purposes. Controlling shareholder Following the completion of our capital raise in November 2023, Jaime Gilinski Bacal, via Spaldy Investments Limited, a company of which he is the sole director and shareholder, became the controlling shareholder of Metro Bank Holdings PLC (see note 7 to the Company financial statements for further details). Given his control over the Group, Jaime Gilinski Bacal, Spaldy Investments Limited and persons connected to them are also considered to be related parties as at 31 December 2023.We have a relationship agreeement with our controlling shareholder which be viewed on our website. More information on the independence of our controlling shareholder can be found on page 122. Key management compensation Total compensation cost for key management personnel for the year by category of benefit was as follows: Short-term benefits Post-employment benefits Share-based payment costs Termination benefits Total compensation for key management personnel 2023 £’million 2022 £’million 5.4 0.1 0.9 0.9 7.3 6.2 0.1 1.8 0.3 8.4 Short-term employee benefits include salary, medical insurance, bonuses and cash allowances paid to key management personnel. The share-based payment cost represents the IFRS 2 ‘Share-based Payment’ charge for the year which includes awards granted in prior years that have not yet vested. Termination benefits includes the costs assocaited with the exit of key management personnel agreed and fully provided for as at the year-end, even where this was paid after the balance sheet date. Banking transactions with key management personnel We provide banking services to Directors and other key management personnel and persons connected to them. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued Strategic report Governance Risk report Financial statements Additional information 217 35. Related parties Continued 36. Earnings per share Deposit transactions during the year and the balances outstanding as at 31 December 2023 and 31 December 2022 were as follows: Basic earnings per share is calculated by dividing the profit/(loss) attributable to our ordinary equity holders by the weighted average number of ordinary shares in issue during the year. 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 deposited/(withdrawn) Deposits held as at 31 December 2023 £’million 1.5 2022 £’million 1.5 – 0.2 (0.5) (0.3) – 1.0 0.1 1.5 Diluted earnings per share has been calculated by dividing the profit/(loss) attributable to our ordinary equity holders by the weighted average number of ordinary shares in issue during the year plus the weighted average number of ordinary shares that would be issued on the conversion to shares of options granted to colleagues. As we were loss making during the year ended 31 December 2022 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 earnings per share for 2022. In the year ended 31 December 2023, 6.5 million share options were excluded from the weighted average number of shares due to these being antidilutative. Loan transactions during the year and the balances outstanding as at 31 December 2023 and 31 December 2022 were as follows: Profit/(loss) attributable to ordinary equity holders (£’million) 2023 £’million 2022 £’million Weighted average number of ordinary shares in issue (thousands) Basic Loans outstanding at 1 January Loans issued during the year Net repayments during the year Loans outstanding as at 31 December Interest received on loans (£’000) 2.1 – – 2.1 35 3.2 0.2 (1.3) 2.1 60 Adjustment for share awards Diluted Earnings per share (pence) Basic Diluted 2023 29.5 – 2022 (72.7) 214,297 172,464 6,459 – 220,756 172,464 13.8 13.4 (42.2) (42.2) There were two (31 December 2022: two) loans outstanding at 31 December 2023 totalling £2.1 million (31 December 2022: £2.1 million). Both are residential mortgages secured on property; all loans were provided on our standard commercial terms. There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of the completion of these financial statements which would require the restatement of loss per share. In addition to the loans detailed above, we have issued credit cards and granted overdraft facilities on current accounts to Directors and key management personnel. Credit card balances outstanding as at 31 December 2023 and 31 December 2022 were as follows: Credit cards outstanding as at 31 December 2023 £’000 3 2022 £’000 7 As with all of our lending we recognise an ECL on loans and credit card balances outstanding with key management personnel. As at 31 December 2023 the only ECL recognised on the balances above was our standard modelled ECL with no individual impairments recognised (31 December 2022: £nil). We have not written off any balances to key management personnel in either 2022 or 2023. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the consolidated financial statements Continued 218 37. Non-cash items The table below sets out the non-cash items included in profit/(loss) before tax. These have been adjusted for in the cash flow statements on page 170. Interest receivable Interest paid Depreciation and amortisation Impairment and write-offs of property, plant, equipment and intangible assets Expected credit loss expense Share option charge Grant income recognised in the income statement Amounts provided for (net of amounts released) Haircut on Tier 2 debt Gain on sale of assets 2023 £’million (856) 444 78 5 33 3 (2) 16 (100) 3 2022 £’million (564) 160 77 10 40 2 (2) 4 – – Total adjustments for non-cash items (376) (273) 38. Post balance sheet events There have been no material post balance sheet events. Metro Bank Holdings PLC Annual Report and Accounts 2023 Company balance sheet As at 31 December 2023 Cash and balances with the Bank of England Financial assets held at fair value through profit and loss Investment in subsidiaries Prepayments and accrued income Total assets Debt securities Other liabilities Total liabilities Called-up share capital Share premium Retained earnings Share option reserve Total equity Total equity and liabilities Strategic report Governance Risk report Financial statements Additional information 219 Years ended 31 December Notes 2023 £’million 2022 £’million 2 3 4 5 5 2 585 682 7 1,276 670 33 703 – 144 406 23 573 1,276 – – – – – – – – – – – – – – 1. The Company loss for the year was £536.5 million (2022: £nil). The accompanying notes form an integral part of these financial statements. They were approved by the Board of Directors on 16 April 2024 and signed on its behalf by: Robert Sharpe Chair Daniel Frumkin Chief Executive Officer Metro Bank Holdings PLC Annual Report and Accounts 2023 Company statement of changes in equity For the year ended 31 December 2023 Balance as at 1 January 2023 Loss and total comprehensive loss for the year Net share option movements Cancellation of Metro Bank PLC share capital and share premium Issuance of Metro Bank Holdings PLC share capital Bonus issuance Capital reduction of Metro Bank Holdings PLC share capital Transfer of share option reserve Shares issued Cost of shares issued Balance as at 31 December 2023 Company incorporated on 29 September 2022 Issuance of shares Balance as at 31 December 2022 Notes The accompanying notes form an integral part of these financial statements. 220 Total equity £’million – (537) 1 – 965 – – – 150 (6) 573 – – – Called-up share capital £’million – – – – – 965 (965) – – – – – – – 5 Share premium £’million Merger Reserve £’million Retained earnings £’million Share option reserve £’million – – – – – – – – 150 (6) 144 – – – 5 – – – – 965 (965) – – – – – – (537) – – – – 965 (22) – – – – 1 – – – – 22 – – 406 23 – – – – – – Metro Bank Holdings PLC Annual Report and Accounts 2023 Company cash flow statement For the year ended 31 December 2023 Strategic report Governance Risk report Financial statements Additional information 221 Reconciliation of loss before tax to net cash flows from operating activities: Loss before tax Adjustments for non-cash items Interest receivable Interest paid Fair value movements Impairment loss on investment in subsidiary Interest received Interest paid Changes in other operating assets Changes in other operating liabilities Net cash inflows from operating activities Cash flows from investing activities Issuance of equity to subsidiary Issuance of debt to subsidiaries Net cash outflows from investing activities Cash flows from financing activities Share issuance Cost of share issuance Debt issuance Cost of debt issuance Net cash inflows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year The accompanying notes form an integral part of these financial statements. Years ended 31 December 2023 £’million 2022 £’million (537) (24) 25 88 428 17 (16) (7) 33 7 (144) (175) (319) 150 (6) 175 (5) 314 2 – 2 – – – – – – – – – – – – – – – – – – – – – Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the company financial statements 222 1. Basis of preparation and significant accounting policies 2. Financial assets held at fair value through profit and loss The financial assets held at fair value through profit and loss consist solely of intercompany loans used for downstreaming regulatory debt issued by the Company to Metro Bank PLC. In line with resolution requirements these internal agreements incorporate the Bank of England’s Statement of Policy giving the Bank of England power to write down the par value of the loans or convert the loans into equity. As such the intercompany loans fail the ‘solely payments of principal and interest’ test under IFRS 9 and have a mandatory classification of fair value through profit and loss. The measurement of these assets is consistent with the measurement approach used to determine the fair value of the debt securities as set out in note 34 to the Group’s consolidated financial statements. 1.1 General information The separate financial statements of the Company are presented as required by the Companies Act 2006. The basis of preparation and principal accounting policies adopted are the same as those set out in within the Group’s consolidated financial statements, aside from the accounting policy in relation to share-based payments. For the Company, the cost of the awards are recognised on a straight-line basis to investment in subsidiaries (with a corresponding increase in the share-based payment reserve within equity) over the vesting period in which the employees become unconditionally entitled to the awards. Incorporation of Metro Bank Holdings PLC The Company was incorporated on 29 September 2022 as MB Group TopCo PLC with £50,000 of redeemable preference shares and £2 of ordinary shares, which were issued to Robert Sharpe (Chair) and Daniel Frumkin (Chief Executive Officer). On 12 December 2022, the Company changed its name to Metro Bank Holdings PLC. The Company remained a dormant company with no trading activities until the 19 May 2023, when it was inserted as the new ultimate holding company and listed entity of the Group. The Company’s main activity consists of holding the Group’s external regulatory debt and share capital which is then downstreamed to Metro Bank PLC to meet the Bank of England’s resolution requirements. The Company adopted the predecessor value method with an investment in subsidiary of Metro Bank PLC being the book value of the balance sheet in Metro Bank PLC at the date of insertion. As part of this the share option reserve was transferred from Metro Bank PLC to the Company at its carrying amount on the same day. 1.2 Critical accounting 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 2023 are appropriate and that these financial statements therefore present our financial position and results fairly. The areas involving a higher degree of complexity, judgement or where estimates have a significant risk of resulting in a material adjustment to the carrying amounts within the next financial year are: Area Estimates Judgements Impairment of investments in subsidiaries Key assumptions used for VIU calculations n/a Further details Note 3 Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the company financial statements Continued Strategic report Governance Risk report Financial statements Additional information 223 3. Investment in subsidiaries The Company had the following subsidiaries at 31 December 2023: Name Metro Bank PLC SME Invoice Finance Limited SME Asset Finance Limited RDM Factors Limited Country of incorporation and place of business UK UK UK UK Nature of business Retail banking Invoice financing Asset financing Dormant Proportion of ordinary shares directly held by the Parent (%) 100% – – – Proportion of ordinary shares directly held by the Group (%) – 100% 100% 100% All of the Company’s subsidiaries have their registered address at One Southampton Row, London, WC1B 5HA. 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. On implementation of the Holding company, the group adopted predecessor accounting as explained on page 222. The investment in Metro Bank PLC was recorded at the carrying value of the net assets of the bank on acquisition which was £965 million. In November 2023, the Company issued 500.0 million ordinary shares for consideration of £150 million, with associated costs of £6 million having been offset against the amount raised (see note 26 to the Group’s financial statements for further details). In line with the resolution requirements, Metro Bank PLC issued 500.0 million new shares for consideration of £144 million to the Company to allow the proceeds of the capital raised to be downstreamed. An impairment of £428 million was recognised at year end. Accounting policy The Company’s only directly held subsidiary is that of Metro Bank PLC, which was recognised on 19 May 2023. The value of the subsidiary was recognised using the predecessor value method as set out in note 1. At the end of each reporting period, the investment in the subsidiary is tested for impairment when there is an indication that the investment may be impaired. An impairment is recognised when the carrying amount exceeds the recoverable amount for that investment. The recoverable amount is the higher of the investment’s fair value less costs of disposal and its VIU, in accordance with the requirements of IAS 36. The VIU is calculated by discounting management’s cash flow projections for the investment. The cash flows represent the free cash flows based on the subsidiary’s binding capital requirements. Critical accounting estimate Impairment of investment in subsidiary The review identified that the carrying amount exceeded the VIU and that an impairment in the investment in Metro Bank PLC, the Company’s only directly held subsidiary, of £428 million was required, which reduced the carrying amount to £682 million. Key assumptions used for VIU calculations The rate used to discount the cash flows is based on the cost of capital related to the investment, which is derived using a capital asset pricing model and market implied cost of equity. A discount rate of 17.50% (31 December 2022: n/a) has been used in the VIU. In determining the discount rate, management has used judgement and applied the Group’s cost of equity, as this represents a proxy for the subsidiary’s cost of equity given it represents substantially all of the Group. The impairment assessment is most sensitive to the discount rate. A 2% increase or decrease in the discount rate would increase and decrease the impairment amount by £119 million and £160 million respectively. Reducing the discount rate to 13.2% eliminates the impairment entirely. The profitability and growth rates applied are consistent with those used in the Group’s impairment assessment as set out in note 15 to the Group’s consolidated financial statements. Increasing the free cash flows used in the VIU calculation by 10% would reduce the impairment by £68 million and decreasing the free cash flows used in the VIU calculation by 10% would increase the impairment by £68 million. As the investment is eliminated upon consolidation within the Group’s financial statements, it has no impact on the Group’s capital position or regulatory ratios. Metro Bank Holdings PLC Annual Report and Accounts 2023 Notes to the company financial statements Continued 224 3. Investment in subsidiaries Continued 6. Directors and employees Transactions between the Company and Group subsidiaries In addition to the intercompany loans used for downstreaming regulatory debt set out in note 2, Metro Bank PLC provides the Company with a small amount of operational funding. The amounts outstanding as at 31 December 2023, primarily relate to the costs of the capital raise in November 2023 which were paid by Metro Bank PLC on the Company’s behalf. As at 31 December 2023 Metro Bank PLC had £7 million of accrued interest payable to the Company on the internal debt instruments used for downstreaming the regulatory debt. The timing of interest payments on these internal instruments is aligned to the interest payment dates on the external debt securities (see note 4). Amounts owed by Metro Bank PLC Amounts owed to Metro Bank PLC 2023 £’million 2022 £’million 7 24 – – The Company has no employees. Metro Bank PLC provides the Company with employee services and bears the costs, associated with the Directors of the Company. These costs are not recharged to the Company. 7. Controlling party As at 31 December 2023 the controlling party of Metro Bank Holdings PLC was Jaime Gilinski Bacal, through Spaldy Investments Limited a company registered in the British Virgin Islands and of which he is the sole director and shareholder. The registered office of Spaldy Investments Limited is at the offices of Aleman, Cordero, Galindo & Lee Trust (BVI) Limited, 3rd Floor, Yamraj Building, Market Square, P.O. Box 3175, Road Town, Tortola, British Virgin Islands. The transactions above are eliminated upon consolidation within the Group’s financial statements. 4. Debt securities Details of the Company’s debt securities in issue can be found in note 20 to the Group’s consolidated financial statements. Hedge accounting is not applicable to the debt securities in issue at the Company level. 5. Called-up share capital As set out in note 1 the Company was incorporated on 29 September 2022 with £50,000 of redeemable preference shares and £2 of ordinary shares. The £2 of ordinary shares have since been redeemed with the £50,000 of preference shares in the process of being redeemed. As at 31 December 2023 the Company had 672.7 million ordinary shares of 0.0001p authorised and in issue. Further details on the Company’s called-up share capital can be found in note 26 to the Group’s consolidated financial statements. Metro Bank Holdings PLC Annual Report and Accounts 2023 Strategic report Governance Risk report Financial statements Additional information 225 Additional information In this section 226 Country-by-country report 227 Independent auditors’ report to the Directors of Metro Bank Holdings PLC (on country-by-country information) 229 Other disclosures 230 Alternative performance measures 235 Abbreviations 236 Shareholder information Metro Bank Holdings PLC Annual Report and Accounts 2023 Country-by-country report 226 The reporting obligations set out in the Capital Requirements Directive IV (CRD IV) have been implemented in the UK by the Capital Requirements (Country-by-Country Reporting) Regulations. The purpose of the regulations is to provide clarity on the source of the Group’s income and the locations of its operations. Basis of preparation Country Metro Bank Holdings PLC and its subsidiaries only operate within the UK and are all UK registered entities. The Group is a credit institution for the purposes of CRD IV and is therefore within the scope of Country-by-Country Reporting. Our activities are disclosed within note 1 to the financial statements. For the purposes of Country-by-Country Reporting, the appropriate disclosures required are summarised below: Number of employees (average full-time equivalent) Turnover (£’million) Profit before tax (£’million) Tax expense (£’million) Corporation tax paid (£’million) No public subsidies were received during the year. UK 4,286 648.9 30.5 (1.0) 0.8 Full-time equivalent employees FTE employees are allocated to the country in which they are primarily based for the performance of their employment duties. The figures disclosed represent the average number of FTE employee, all of which were employed in the UK. Turnover and profit before tax Turnover and loss before tax are compiled from the Metro Bank Holdings PLC consolidated financial statements for the year ended 31 December 2023, which are prepared in accordance with IFRS. Turnover represents the sum of the Group’s net interest income, net fee and commission income, net gains on sale of assets and other income. Tax credit and corporation tax paid Corporation tax paid represents the net cash taxes paid to the tax authority, HMRC, during 2023. Corporation tax paid is reported on a cash basis and will normally differ from the tax expense recorded for accounting purposes due to: • Timing differences in the accrual of the tax charge. • Brought forward losses from previous years that were used to extinguish a portion of its taxable profits. • Other differences between when income and expenses are accounted for under IFRS and when they become taxable. Metro Bank Holdings PLC Annual Report and Accounts 2023 Strategic report Governance Risk report Financial statements Additional information 227 Independent auditors’ report to the directors of Metro Bank Holdings PLC Report on the audit of the country-by-country information Opinion In our opinion, Metro Bank Holdings plc’s (the “Group”) country-by-country information for the year ended 31 December 2023 has been properly prepared, in all material respects, in accordance with the requirements of the Capital Requirements (Country-by-Country Reporting) Regulations 2013. We have audited the country-by-country information for the year ended 31 December 2023 in the Country-by-Country Report. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”), including ISA (UK) 800 and ISA (UK) 805, and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the country-by- country information section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the country-by-country information in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Emphasis of matter – Basis of preparation In forming our opinion on the country-by-country information, which is not modified, we draw attention to note 1 of the country-by-country information which describes the basis of preparation. The country-by-country information is prepared for the directors for the purpose of complying with the requirements of the Capital Requirements (Country-by-Country Reporting) Regulations 2013. The country-by-country information has therefore been prepared in accordance with a special purpose framework and, as a result, the country-by-country information may not be suitable for another purpose. Conclusions relating to going concern Our evaluation of the directors’ assessment of the Group’s ability to continue to adopt the going concern basis of accounting included: • Understanding the Directors’ going concern assessment process, including the preparation and approval of the budget. We obtained management’s Board approved forecast covering the period of the going concern assessment to 30 June 2025. We evaluated the forecasting method adopted by the Directors in assessing going concern; • Evaluation of management’s financial and regulatory capital forecasts. We checked the mathematical accuracy of the model and evaluated the key assumptions using our understanding of the Group and external evidence where appropriate. We used our Prudential Regulatory experts to review the Bank’s risk weighted assets and forecast capital requirement assumptions. We also performed a comparison of the 2023 budget and the actual results to assess the accuracy of the budgeting process; • Evaluation of the appropriateness of management’s severe but plausible scenario using our firm’s economics experts and our understanding of the Bank and the external environment. We evaluated management’s assumptions by performing an independent stress test to determine whether a reasonable alternative stressed scenario would result in a breach of minimum regulatory requirements; • Considering the mitigating actions that management identified, including the reduction of costs and slowing down the origination of new loans and advances, and assessing whether these were in the control of management and possible in the going concern period of assessment; • Reviewing management’s stress testing of liquidity and evaluation of the impact on liquidity of past stress events. We substantiated the liquid resources held, and liquidity facilities available to the group, for example, with the Bank of England. We also reconciled Metro Bank Holdings PLC’s liquidity position to its regulatory liquidity reporting returns; • Reviewing correspondence between the Bank and its regulators and we met with the PRA during the audit and understood the PRA’s perspectives on the Bank’s risks and its capital and liquidity position; and • Assessing the adequacy of disclosures in the Going Concern statement in note 1 of the Consolidated and Company Financial Statements and within the Assessment of going concern section of the Viability statement on page 50 and found these appropriately reflect the key areas of uncertainty identified. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for a period of at least twelve months from the date on which the country-by-country information is authorised for issue. In auditing the country-by-country information, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the country-by-country information is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s ability to continue as a going concern. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Metro Bank Holdings PLC Annual Report and Accounts 2023 Independent auditors’ report to the directors of Metro Bank Holdings PLC Continued 228 Responsibilities for the country-by-country information and the audit Responsibilities of the directors for the country-by-country information The directors are responsible for the preparation of the country-by-country information in accordance with the requirements of the Capital Requirements (Country-by-Country Reporting) Regulations 2013 as explained in the basis of preparation in note 1 of the Country-by-Country Report and the accounting policies in the Consolidated and Company financial statements, and for determining that the basis of preparation and accounting policies are acceptable in the circumstances. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of country-by-country information that is free from material misstatement, whether due to fraud or error. In preparing the country-by-country information, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. • Enquiries of the Audit Committee, management, internal audit and the group’s legal counsel, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud; • Evaluation of the design and implementation of controls designed to prevent and detect irregularities relevant to financial reporting; • Reviewing key correspondence and holding discussions with regulators, such as the FCA and the PRA, in relation to the group’s compliance with banking regulations; • Incorporating unpredictability into the nature, timing and/or extent of our testing; • Challenging assumptions and judgements made by management in respect of the determination of allowance for expected credit losses on loans and advances to customers, the carrying value of non-financial assets and the carrying value of the investment in subsidiary; and • Identifying and testing journal entries including those posted by infrequent or unexpected users, related to significant one off or unusual transactions, as well as year-end provisions or write downs and those posted late in the financial reporting process. 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. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of the rules of the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) and we considered the extent to which non-compliance might have a material effect on the country-by-country information. We also considered those laws and regulations that have a direct impact on the country-by-country information such as UK tax legislation and the Capital Requirements (Country-by-Country Reporting) Regulations 2013. We evaluated management’s incentives and opportunities for fraudulent manipulation of the country-by-country information (including the risk of override of controls), and determined that the principal risks were related to posting manual journal entries to manipulate financial performance and management bias in accounting estimates. Audit procedures performed included: There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the country-by-country information. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. A further description of our responsibilities for the audit of the country-by-country information is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinion, has been prepared for and only for the Group’s directors in accordance with the Capital Requirements (Country-by-Country Reporting) Regulations 2013 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come, save where expressly agreed by our prior consent in writing. The engagement partner responsible for this audit is Jonathan Holloway. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 16 April 2024 Metro Bank Holdings PLC Annual Report and Accounts 2023 Other disclosures (unaudited) Strategic report Governance Risk report Financial statements Additional information 229 Reconciliation of statutory balance sheet to risk-weighted asset 31 December 2023 31 December 2022 Cash and balances with the Bank of England Loans and advances to customers Investment securities held at FVOCI Investment securities held at amortised cost Financial assets held at fair value through profit and loss Derivative financial assets Property, plant and equipment Intangible assets Prepayments and accrued income Deferred tax assets¹ Other assets Total assets Off-balance sheet assets Credit risk (excluding counterparty credit risk) Counterparty credit risk Market risk Operational risk Total risk-weighted assets Financial statements £’million Average risk density % 3,891 12,297 476 4,403 – 36 723 193 118 3 108 22,248 1% 46% 2% 4% – – 100% – 43% 267% 96% 30% Risk- weighted assets £’million 44 5,597 11 187 – – 723 – 51 8 104 6,725 79 6,804 26 – 703 7,533 Financial statements £’million Average risk density % 1,956 13,102 571 5,343 1 23 748 216 85 1 73 22,119 Risk- weighted assets £’million 30 5,949 20 215 – – 2% 45% 4% 4% – – 100% 748 – 47% 100% 89% 32% – 40 1 65 7,073 169 7,242 9 – 739 7,990 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. Metro Bank Holdings PLC Annual Report and Accounts 2023 Alternative performance measures (unaudited) 230 In the reporting of financial information, we use certain measures that are not required under IFRS, the Generally Accepted Accounting Principles under which we report. These measures are consistent with those used by management to assess underlying performance. These alternative performance measures have been defined below: Metric Cost of deposits KPI Yes Scorecard measure No LTIP No Cost of risk Yes Yes No Coverage ratio No No No Definition 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 Expected credit loss expense divided by average gross loans. Expected credit loss expense (note 30) Average gross lending Cost of risk Expected credit losses as a percentage of gross loans. Expected credit losses (note 12) Gross loans and advances to customers (note 12) Coverage ratio Retail mortgages Expected credit losses – retail mortgages (note 12) Gross retail mortgage lending (note 12) Coverage ratio Consumer Expected credit losses – consumer (note 12) Gross consumer lending (note 12) Coverage ratio Commercial Expected credit losses – commercial (note 12) Gross commercial lending (note 12) Coverage ratio 2023 £’million 147.8 15,237 0.97% 2023 £’million 33.2 12,778 0.26% 2023 £’million 199 12,496 1.59% 2023 £’million 19 7,817 0.24% 2023 £’million 108 1,297 8.33% 2023 £’million 72 3,382 2.13% 2022 £’million 32.9 16,351 0.20% 2022 £’million 39.9 12,611 0.32% 2022 £’million 187 13,289 1.41% 2022 £’million 20 7,649 0.26% 2022 £’million 75 1,480 5.07% 2022 £’million 92 4,160 2.21% Metro Bank Holdings PLC Annual Report and Accounts 2023 Alternative performance measures (unaudited) Continued Strategic report Governance Risk report Financial statements Additional information 231 Metric Loan-to-deposit ratio KPI Yes Scorecard measure No LTIP No Definition Net loans and advances to customers expressed as a percentage of total deposits as at the year end. It is a commonly used ratio within the banking industry to assess liquidity. Net interest margin No No No Non-performing loan ratio No No No Net loans and advances to customers (note 12) Deposits from customer (note 18) Loan-to-deposit ratio Net interest income as a percentage of average interest-earning assets. Net interest income (note 2) Average interest-earning assets 2023 £’million 12,297 15,623 79% 2023 £’million 411.9 20,786 2022 £’million 13,102 16,014 82% 2022 £’million 404.1 21,029 Net interest margin Gross balance of loans in stage 3 (non-performing loans) as a percentage of gross loans as at year end. 1.98% 1.92% Total book Stage 3 loans (note 30) Loans and advances to customers (note 12) Non-performing loan ratio Retail mortgages Stage 3 loans – retail mortgages (note 30) Gross retail mortgage lending (note 12) Non-performing loan ratio – retail mortgages Consumer Stage 3 loans – consumer (note 30) Gross consumer lending (note 12) Non-performing loan ratio – consumer Commercial Stage 3 loans – commercial (note 30) Gross commercial lending (note 12) Non–performing loan ratio - commercial 2023 £’million 389 12,496 3.11% 2023 £’million 146 7,817 1.87% 2023 £’million 77 1,297 5.94% 2023 £’million 166 3,382 4.91% 2022 £’million 352 13,289 2.65% 2022 £’million 111 7,649 1.45% 2022 £’million 50 1,480 3.38% 2022 £’million 191 4,160 4.59% Metro Bank Holdings PLC Annual Report and Accounts 2023 Alternative performance measures (unaudited) Continued Metric Return on tangible equity KPI Yes Scorecard measure No LTIP Yes Statutory cost:income ratio Yes Yes No Total shareholder return Yes No Yes Definition Statutory profit after tax as a percentage of average tangible equity (average total equity less intangible assets). Statutory profit after tax (Consolidated statement of comprehensive income) Average tangible equity Return on tangible equity Statutory total operating expenses as a percentage of statutory total income. Total operating expenses (Consolidated statement of comprehensive income) Total income (Consolidated statement of comprehensive income) Statutory cost:income ratio Total capital gains and dividends returned to investors over a three-year rolling period. Share price at the start of the three-year period Share price at the end of the three-year period Total shareholder return¹ 1. No dividends were paid in either period Underlying cost:income ratio No No No Underlying total operating expenses as a percentage of underlying total income. Total underlying operating expenses (page 234) Total underlying income (page 234) 232 2023 £’million 2022 £’million 29.5 795 4% 2023 £’million 585.2 648.9 90% 2023 126p 37p (71%) (72.7) 749 (10%) 2022 £’million 554.3 523.5 106% 2022 205p 121p (41%) 2023 £’million 530.2 546.5 2022 £’million 532.8 522.1 Underlying loss Yes Yes No Underlying cost:income ratio 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. 102% 97% 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. Details of the calculation of underlying loss can be found on pages 233 to 234. Metro Bank Holdings PLC Annual Report and Accounts 2023 Alternative performance measures (unaudited) Continued Strategic report Governance Risk report Financial statements Additional information 233 Non-underlying item Description Reason for exclusion Impairment and write-offs of property, plant, equipment and intangible assets Net C&I costs Remediation costs Transformation costs Holding company insertion costs Capital raise and refinancing (2023 only) The costs associated with non-current assets that are either no longer being used by or are no longer generating future economic benefit for the business. The impairments and write-offs relating to property, plant, equipment and intangible assets are removed as they distort comparison between years. This is on the basis that the write-offs and impairments relate to specific events and triggers which are not consistent between years. These costs and income relate to the delivering the commitments associated with the Capability and Innovation Fund (awarded by BCR). Further details on this grant can be found in note 23. The commitments under the Capability and Innovation Fund continue through to 2025. The costs associated with fulfilling the commitments and associated income are felt to distort year-on-year comparison. Given the offsetting nature of the income and expenditure, there is no net impact on our profitability from this adjustment. Remediation costs consists of money spent in relation to the RWA adjustment including the associated investigations by the PRA and FCA (2022 only) as well as work undertaken in relation to financial crime. The remediation costs are felt to be time limited and will disappear once the investigations have concluded, as such these are removed to allow greater comparability between periods. Transformation costs primarily consist of the costs associated with redundancy programmes during the year as part of our approach to right- sizing teams as well as the costs of work undertaken to establish our cost reduction programme. The transformation costs are seen as a nonrecurring cost stream aimed at addressing the challenges the business faces. These are therefore removed in order to prevent year-on-year distortion. Costs associated with the establishment and insertion of a holding company (Metro Bank Holdings PLC) above the operating company (Metro Bank PLC) to meet regulatory requirements. During 2022 we started work on implementing our new holding company, which we sucessfully completed in May 2023. As such no further associated costs will be recognised in 2024. In November 2023 shareholders approved a £925 million capital package which consisted of £150 million of new equity, £175 million of new MREL- eligible debt and £600 million of debt refinancing. Costs associated with the refinancing were expensed to the income statement, including the impact of discontinuing the previous hedge relationships. Alongside this a £100 million gain was recognised on the haircut agreed by Tier 2 bondholders. The nature of the capital package meant it was both significant and one-off and as such will not see any additional costs recur in relation to this. Metro Bank Holdings PLC Annual Report and Accounts 2023 Alternative performance measures (unaudited) Continued 234 A reconciliation from statutory profit/(loss) before tax to underlying loss before tax is set out below. Year ended 31 December 2023 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 property, plant, equipment and intangible assets Total operating expenses Expected credit loss expense Profit/(loss) before tax Year ended 31 December 2022 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 property, plant, equipment 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 Net C&I costs £’million Transformation costs £’million Remediation costs £’million Holding company insertion costs £’million Capital raise and refinancing £’million Underlying basis £’million – – – – – – – 4.6 4.6 – 4.6 – – – (2.4) (2.4) 2.4 – – 2.4 – – – – – – – 20.2 – 20.2 – 20.2 – – – – – – – – – – – – – – – – 1.8 – – 1.8 – 1.8 – – – (100.0) (100.0) 26.0 – – 411.9 90.4 2.7 41.5 546.5 (452.5) (77.7) – 26.0 (530.2) – (74.0) (33.2) (16.9) Impairment and write-off of property, plant, equipment and intangible assets £’million – – – – – – – 9.7 9.7 – 9.7 Net C&I costs £’million Transformation costs £’million Remediation costs £’million Holding company insertion costs £’million Capital raise and refinancing £’million 0.1 – – (1.5) (1.4) 1.4 – – 1.4 – – – – – – – 3.3 – 3.3 – 3.3 – – – – – 5.3 – – 5.3 – 5.3 – – – – – 1.8 – – 1.8 – 1.8 – – – – – – – – – – – Underlying basis £’million 404.2 81.8 – 36.1 522.1 (455.8) (77.0) – (532.8) (39.9) (50.6) Statutory basis £’million 411.9 90.4 2.7 143.9 648.9 (502.9) (77.7) (4.6) (585.2) (33.2) 30.5 Statutory basis £’million 404.1 81.8 – 37.6 523.5 (467.6) (77.0) (9.7) (554.3) (39.9) (70.7) Metro Bank Holdings PLC Annual Report and Accounts 2023 Abbreviations Strategic report Governance Risk report Financial statements Additional information 235 AGM Annual General Meeting ALCO Asset and Liability Committee ATM Automated teller machine BAME Black, Asian and Minority Ethnic BBLS Bounce Back Loan Scheme BCR BEIS bps C&I CEO CET1 CFO CMA CRD CRO D&I Banking Competition Remedies Department of Business, Energy and Industrial Strategy Basis points Capability and Innovation Fund Chief Executive Officer Common Equity Tier 1 Capital Chief Financial Officer Competition and Markets Authority Capital Requirements Directive Chief Risk Officer Diversity and inclusion DNED Designated Non-Executive Director for Colleague Engagement DTR DTV Disclosure Guidance and Transparency Rules Debt-to-value DVRP Deferred Variable Reward Plan EAD ECL EPC ERC ESG Exposure at default Expected credit losses Energy Performance Certificate Executive Risk Committee Environmental, social, and governance ExCo Executive Committee FCA FRC Financial Conduct Authority Financial Reporting Council FSQS Financial Services Qualification System FTE Full time equivalent FVOCI Fair value through other comprehensive income GDP GHG Gross domestic product Greenhouse gases HMRC His Majesty’s Revenue and Customs HPI IAS House price index International Accounting Standards Board ICAAP Internal Capital Adequacy Assessment Process IFRS International Financial Reporting Standards ILAAP Internal Liquidity Adequacy Assessment Process IRB KPI Internal ratings-based Key performance indicator LGBTQ+ Lesbian, gay, bisexual, transgender, queer plus LGD Loss given default LIBOR London Inter-Bank Offered Rate LTI LTIP LTV MPs Loan-to-income Long Term Incentive Plan Loan-to-value Members of Parliament MREL Minimum requirement for own funds and eligible liabilities MSc NED NICs NPL Master of Science Non-Executive Director National insurance contributions Non-performing loan OFAC Office of Foreign Assets Control PAYE PCAF PD PMA PMO POCI PRA PwC Pay as you earn Partnership for Carbon Accounting Financials Probability of default Post model adjustments Post model overlays Purchased or originated credit impaired Prudential Regulation Authority PricewaterhouseCoopers LLP REGO Renewable Energy Guarantee of Origin RLS ROC Recovery Loan Scheme Risk Oversight Committee RWAs Risk-weighted assets SBTi SICR SME Science-Based Targets Initiative Significant increase in credit risk Small or medium-sized enterprise SONIA Sterling Overnight Index Average TCFD Task Force on Climate-related Financial Disclosures TFSME Term Funding Scheme with additional incentives for SMEs UK VAT VIU United Kingdom Value added tax Value in use Metro Bank Holdings PLC Annual Report and Accounts 2023 Shareholder information 236 Registrars We have appointed Equiniti Limited to maintain our register of members. Shareholders should contact Equiniti using the details below in relation to all general enquiries concerning their shareholding: Annual General Meeting Our 2024 AGM will be held on 21 May 2024. Full details for the arrangements for the AGM and details of the resolutions to be proposed, together with explanatory notes, will be set out in the Notice of AGM to be published on our website. Equiniti Limited1,2 Aspect House Spencer Road Lancing West Sussex BN99 6DA Telephone: 0371 384 2311 International callers: +44 121 415 7095 Shareholder profile Shareholder profile by size of holding as at 31 December 2023 Range 0-100 101-500 501-5,000 Total number of holdings 203 122 196 153 56 59 789 Percentage of holders 25.73% 15.46% 24.84% 19.39% Total number of shares held at 31 December 2023 8,067 32,525 344,346 4,331,319 7.10% 12,820,897 7.48% 655,139,393 Percentage of total 0.00% 0.01% 0.05% 0.64% 1.91% 97.39% 100.00% 672,676,547 100.00% 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. 5,001-100,000 100,001-500,000 500,000+ Total Registered and other offices Our registered office and head office is: One Southampton Row London WC1B 5HA Telephone: 0345 08 08 500/0345 08 08 508 Website: metrobankonline.co.uk Unsolicited mail We are required by law to make our share register available on request to unconnected organisations. As a consequence, shareholders may receive unsolicited mail, including mail from unauthorised investment firms. If you wish to limit the amount of unsolicited mail received, please contact the Mailing Preference Service, an independent organisation whose services are free for consumers. Further details can be obtained from: Mailing Preference Service MPS Freepost LON 20771 London W1E 0ZT Website: mpsonline.org.uk Shareholder profile by category as at 31 December 2023 Category Number of holders Percentage of holders within type Shares held at 31 December 2023 Private shareholders 501 63.50% 1,083,970.00 Banks Nominees and other institutional investors Total 2 0.25% 66,183 286 789 36.25% 100% 671,526,394 672,676,547 Percentage of issued share capital 0.16% 0.01% 99.83% 100% Forward-looking statements This Annual Report and Accounts contains statements that are, or may be deemed to be, forward-looking statements. Forward-looking statements typically use terms such as ‘believes’, ‘projects’, ‘anticipates’, ‘expects’, ‘intends’, ‘plans’, ‘may’, ‘will’, ‘would’, ‘could’ or ‘should’ or similar terminology. Any forward-looking statements in this Annual Report and Accounts are based on our current expectations and, by their nature, forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, that could cause our actual results and performance to differ materially from any expected future results or performance expressed or implied by any forward-looking statements. As a result, you are cautioned not to place undue reliance on such forward-looking statements. Past performance should not be taken as an indication or guarantee of future results, and no representation or warranty, expressed or implied, is made regarding future performance. No assurances can be given that the forward-looking statements in this Annual Report and Accounts will be realised. We undertake no obligation to release the results of any revisions to any forward- looking statements in this Annual Report and Accounts that may occur due to any change in its expectations or to reflect events or circumstances after the date of this announcement and we disclaim any such obligation. Metro Bank Holdings PLC Annual Report and Accounts 2023 Printed by Park Communications – A Carbon Neutral printing company The material used in this Report is from sustainable sources and the paper is recyclable and biodegradable. The papermill and printer are both registered with the Forestry Stewardship Council (FSC) ® and additionally have the Environmental Management System ISO 14001. It has been printed using 100% offshore wind electricity sourced from UK wind. 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