TIDMMTRO
RNS Number : 7247G
Metro Bank PLC
28 July 2021
Metro Bank PLC
Interim results
Trading Update H1 2021
28 July 2021
Metro Bank PLC (LSE: MTRO LN)
Interim results for half year ended 30 June 2021
Summary
-- Strategic plan remains on track. The liability-led strategy, supplemented
by an acceleration of asset mix shift, has reduced cost of deposits
and increased lending yield.
-- Remain focused on executing the plan and returning to profitable growth,
meeting the bank's strategic objectives and supporting our colleagues,
customers and communities.
-- Total underlying revenue at GBP179.8 million (H1 2020: GBP153.3 million)
demonstrates the recovery of a significant portion of the income foregone
from the mortgage disposal in December 2020. Adjusting for the disposal,
revenue improved 47% YoY and 14% HoH.
-- Cost of Deposits at 0.31% in H1 2021 (H1 2020: 0.82%) reflects continuing
mix improvement, pricing action taken as well as the Base rate decrease
in March 2020.
-- Underlying loss before tax of GBP110.0 million (H1 2020: loss of GBP183.4
million) largely reflects a reduction in ECL expense YoY. Adjusting
for the disposal, underlying loss improved 49% YoY and 6% HoH.
-- Statutory loss before tax of GBP138.9 million (H1 2020: loss of GBP240.6
million) includes one-off items such as intangible impairment and remediation
costs. Adjusting for the disposal, statutory loss before tax improved
46% YoY and 10% HoH.
Key Financials:
30 31 December Change from 30 Change from
GBP in millions June 2020 FY 2020 June H1 2020
2021 2020
Assets GBP23,013 GBP 22,579 2% GBP22,134 4%
Loans GBP12,325 GBP 12,090 2% GBP14,857 (17%)
Deposits GBP16,620 GBP 16,072 3% GBP15,577 7%
Loan to deposit ratio 74% 75 % (1pps) 95% (21pps)
CET1 capital ratio 13.9 % 15.0 % (110bps) 14.5% (60bps)
Total capital ratio
(TCR) 17.2% 18.1% (90bps) 17.3% (10bps)
MREL ratio 21.7 % 22.4 % (70bps) 21.3% 40bps
Liquidity coverage
ratio 309 % 187 % 122pps 226% 83pps
---------- ------------ ------------ ---------- ------------
H1 H2 Change from H1 Change from
GBP in millions 2021 2020 H2 2020 2020 H1 2020
Total underlying revenue(1) GBP179.8 GBP187.6 (4)% GBP153.3 17%
Adjusted total underlying
revenue(2) GBP179.4 GBP158.0 14% GBP121.8 47%
Underlying loss before (GBP110.0) (GBP88.4) (GBP183.4)
tax(3)
Statutory loss before (GBP138.9) (GBP71.0) (GBP240.6)
tax
Net interest margin 1.28% 1.28% 0 bps 1.15% 13 bps
Underlying EPS (65.1 p) (42.9p) (108.8p)
----------- ---------- ------------ ----------- ------------
1. Underlying revenue excludes grant income recognised relating
to the Capability & Innovation fund and the gain on the
mortgage portfolio sale
2. Adjusted total underlying revenue and loss before tax adjusts
underlying numbers on a like for like basis by excluding loan
income from the mortgage portfolio disposal announced December
2020
3. Underlying loss before tax excludes the FSCS levy (for half
year figures only), Listing Share Awards, impairment and write-off
of property, plant & equipment (PPE) and intangible assets, net
BCR costs, transformation costs, remediation costs, business
acquisition and integration costs and mortgage portfolio sale.
Statutory loss after tax is included in the Profit and Loss
Account.
Daniel Frumkin, Chief Executive Officer at Metro Bank, said:
"In a challenging environment, Metro Bank has continued to
deliver on its strategic priorities. As a community bank our
colleagues have gone above and beyond for our customers and we've
enhanced product offerings to meet more of our customers' needs.
Financial performance reflects where we are in our turnaround plan,
as well as the impact of national lockdowns. We are encouraged by
the momentum we have achieved, including delivering on higher
yielding mortgage products, lower cost of deposits and meaningful
entry into the personal lending market. Looking ahead, we remain
focused on executing the plan and returning to profitable growth,
meeting the bank's strategic objectives and supporting our
colleagues, customers and communities."
A presentation for investors and analysts will be held at 8.30AM (UK time) on 28 July 2021.
The presentation will be webcast on:
https://onlinexperiences.com/Launch/QReg/ShowUUID=D164D86C-B29F-4220-B6F2-A6F1472D95F5
For those wishing to dial-in:
From the UK dial: 0800 358 9473
From the US dial: +1 855 85 70686
Participant Pin: 87111112#
URL for other international dial in numbers:
https://events-ftp.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
Progress on strategic plan
Metro Bank continues to successfully deliver transformational change against
all five pillars of the strategic plan set out in February 2020, despite
significant headwinds presented by the pandemic.
-- Balance sheet optimisation: Decisive action taken in response to the
changing environment. The mortgage disposal and RateSetter back book
acquisition accelerated the shift to higher yielding assets along with
enhancements to existing mortgage products. Repositioning commercial
lending towards full relationship trading businesses and exiting transactional
real estate lending is ongoing.
-- Revenue: More products launched in store including RateSetter loans
and insurance offerings. Government backed lending through the Bounce
Back Loan Scheme (BBLS) top-up and the Recovery Loan Scheme (RLS) to
support communities. Investment in digital capability improves the
multi-channel presence, launching online products such as MFLOW to
support SME customers.
-- Cost: Investment in automation, IT platforms and the customer service
proposition provides greater efficiency and scalability. Agreed the
acquisition of three further store freeholds at attractive yields,
reducing costs and providing greater flexibility, expected to complete
in H2. Successfully disposed of some of our central London office property
(already exited, as previously announced).
-- Infrastructure : The enhancements to IT, regulatory reporting and
financial crime all improve the resilience of the bank. The investment
in digital channels improves the customer journey and enables more
FANs to take advantage of the enhanced customer proposition. Delivery
of the change agenda is exceeding plan.
-- Internal and external communications: Continue support for customers,
colleagues and communities through the pandemic with a range of bank
wide and local initiatives, as well as launching an SME marketing campaign
showcasing our FANs.
Financial performance for the half year ended 30 June 2021
Deposits
GBP in millions 30 31 Change from 30 Change from
June December FY 2020 June H1 2020
2021 2020 2020
Demand: current accounts GBP6,749 GBP 6,218 9% GBP5,274 28%
Demand: savings accounts GBP7,402 GBP 6,430 15% GBP5,982 24%
Fixed term: savings
accounts(4) GBP2,469 GBP 3,424 (28%) GBP4,321 (43%)
---------------- ------------------- ------------ ---------- -------------------
Deposits from customers GBP16,620 GBP 16,072 3% GBP15,577 7%
---------------- ------------------- ------------ ---------- -------------------
Deposits from
customers includes:
Retail customers (excl.
retail partnerships) GBP6,964 GBP 7,364 (5%) GBP7,355 (5%)
SMEs GBP4,605 GBP 4,420 4% GBP4,093 13%
---------------- ------------------- ------------ ---------- -------------------
GBP11,569 GBP 11,784 (2%) GBP11,448 1%
---------------- ------------------- ------------ ---------- -------------------
Retail partnerships GBP1,697 GBP 1,596 6% GBP1,705 -
Commercial customers
(excluding SMEs(5)
) GBP3,354 GBP 2,692 25% GBP2,424 38%
GBP5,051 GBP 4,288 18% GBP4,129 22%
---------------- ------------------- ------------ ---------- -------------------
4. Comprised of personal/business: June 2021 82%/18%; December 2020 85%/15%;
and June 2020 86%/14%
5. SME defined as enterprises which employ fewer than 250 persons and
which have an annual turnover not exceeding EUR50 million, and/or an annual
balance sheet total not exceeding EUR43 million, and have aggregate deposits
less than EUR1 million.
-- Total deposits grew by over GBP0.5 billion in the first six months
to GBP16,620 million as at 30 June 2021 (31 December 2020: GBP16,072
million) , despite fixed term deposit (FTD) accounts falling by GBP1.0
billion following continued action to reduce prices. Growth largely
resulted from an increase in commercial deposits, reflecting customers'
preference for increased liquidity as well as higher balances held
by Conveyancing/Legal firms following elevated completion volumes towards
the end of June.
Following higher than anticipated growth in the first half and transitory
nature of some commercial and BBLS-related deposits, outturn in the
second half will be somewhat dependent on customer behaviour. Focus
will remain on maintaining a high-quality mix of relationship-driven
customer deposits.
-- Cost of deposits was 31bps in the first half, a decrease of 18bps
compared to 49bps in 2H20, reflecting the managed roll-off of higher
cost FTD accounts with a corresponding mix improvement in favour of
non-interest-bearing current accounts and demand savings accounts.
Cost of deposits improved throughout the period and the beneficial
effects of repricing are expected to continue into the second half
of 2021, although at a slower pace than H1.
-- Customer account growth of 0.2 million (H2 2020: 0.1 million) in the
last six months to 2.4 million, reflects incremental growth from the
RateSetter back book acquisition, with an otherwise stable level of
accounts owing to the managed reduction in fixed term deposits.
Loans
GBP in millions 30-Jun 31-Dec Change from 30-Jun Change from
2021 2020 FY 2020 2020 HY 2020
Gross Loans and advances
to customers GBP12,491 GBP 12,244 2% GBP15,002 (17%)
Less: allowance for (GBP 154
impairment (GBP 166) ) 8% (GBP145) 14%
----------- ------------ ------------ ---------- ------------
Net Loans and advances
to customers GBP12,325 GBP 12,090 2 % GBP14,857 (17%)
----------- ------------ ------------ ---------- ------------
Gross loans and advances
to customers consists
of:
----------- ------------ ------------ ---------- ------------
Commercial lending(6) GBP3,416 GBP3,681 (7%) GBP3,834 (11%)
Government-backed lending(7) GBP1,556 GBP1,467 6% GBP780 99%
Retail mortgages GBP6,815 GBP 6,892 (1%) GBP10,190 (33%)
Consumer lending GBP704 GBP 204 245% GBP198 256%
----------- ------------ ------------ ---------- ------------
6. Includes CLBILS (GBP39 million at 30 June 2021)
7. BBLS and CBILS
-- Total net loans as at 30 June 2021 were GBP12,325 million, up 2% from
GBP12,090 million at 31 December 2020 primarily reflecting the acquisition
of the GBP337m RateSetter consumer back book in April, together with
strong organic growth in consumer lending supported by the integration
of the RateSetter platform, offset by the attrition of lower-yielding
residential mortgages and commercial term loans. Total net loans are
expected to increase in the second half of the year, with continuing
mix shift towards higher yielding assets.
-- Commercial loans (excluding BBLS and CBILS) decreased by 7% during
H1 to GBP3,416 million at 30 June 2021 and are 11% below a year earlier
following the attrition of lower-yielding commercial and commercial
real estate term loans.
-- Government backed lending increased GBP89 million in the first half
to GBP1,556 million at 30 June 2021 and up GBP776 million from a year
earlier. Growth in 1H 2021 was primarily driven by BBLS top-up applications.
The bank has recently become an accredited lender for the RLS.
-- Retail mortgages remained the largest component of the lending book
at 55%, with mortgage applicants benefitting from enhancements to the
existing mortgage offering and the launch of further specialist mortgage
products during the first half of the year.
-- Consumer lending increased to 6% of the of the loan book from 2% at
31 December 2020 , resulting from the strong increase in organic lending
as the RateSetter platform was rolled-out across all of Metro Bank's
channels and the completion of the RateSetter back book acquisition.
Consumer originations averaged more than GBP50 million per month during
1H 2021 compared to less than GBP2 million per month a year earlier.
-- Loan to deposit ratio was marginally lower at 74% (31 December 2020:
75%) reflecting the impact of the mortgage portfolio disposal in December
and deposit inflows in the period.
-- Annualised cost of risk at 0.24% (2H 2020: 0.20%) included recognition
of ECL expense associated with organic and inorganic growth in consumer
lending. Non-performing loans increased marginally to 2.52% (31 December
2020: 2.10%) reflecting a limited number of single name commercial
exposures. The loan portfolio remains highly collateralised with average
debt to value (DTV) of the residential mortgage book at 56% (31 December
2020: 56%), while DTV in the commercial book was 59% (31 December 2020:
56%).
Profit and Loss Account
-- Net interest margin (NIM) at 1.28% was in line with the preceding
six month period , with lower cost of deposits, improved lending mix
and higher lending yield, offset by the impact of the mortgage portfolio
disposal in December and higher than expected deposits.
Continued reduction in cost of deposits combined with a favourable
asset mix shift is expected to improve NIM performance in H2 compared
to H1.
-- Underlying net interest income was broadly flat at GBP133.6 million
(H2 2020: GBP134.1 million), despite the mortgage portfolio disposal
in H2 2020. Adjusting for the sale net interest income increased 27%
HoH.
-- Underlying net fee and other income decreased 7% sequentially to GBP46.7
million (H2 2020: GBP50.2 million), as customer activity remained subdued
because of COVID-19 lockdowns and other social restrictions. The outlook
for H2 2021 will be significantly dependent on the pace of recovery
as the country continues its path out of lockdown.
-- Underlying cost:income ratio increased to 153 % in 2020 from 139%
in the prior six months , largely reflecting a combination of fee income
headwinds, the non-repeat of an underlying net gain on sale in H2 2020
and operating cost dynamics outlined below.
'Run the Bank' (RTB) cost growth was less than 2% sequentially on a
like for like basis, adjusting for the RateSetter acquisition or 4%
in total. 'Change the Bank' (CTB) expenditure increased to GBP40.0
million plus GBP20.3 million of amortisation, compared to GBP37.6 million
plus GBP17.4 million of amortisation in the preceding six months, in
line with previous guidance.
Cost focus will continue, with low to mid-single digit percentage growth
in RTB in H2 2021 compared to H1.
-- Underlying loss before tax was GBP110.0 million, an increase from
the GBP88.4 million loss in H2 2020 , reflecting the mortgage book
disposal, reduced fee and other income, inorganic cost expansion following
the RateSetter platform acquisition and higher CTB investment. Adjusting
for the disposal, underlying loss improved 49% YoY and 6% HoH.
-- Statutory loss before tax of GBP138.9 million in H1 2021 (H2 2020:
loss of GBP71.0 million) includes remediation costs primarily related
to sanctions (GBP25.4 million) and the impairment of RateSetter peer-to-peer
intangible assets (GBP7.5 million), partially offset by the residual
gain on sale of the mortgage portfolio (GBP8.4 million). Adjusting
for the mortgage disposal, statutory loss before tax improved 46% YoY
and 10% HoH.
-- Statutory loss after tax of GBP 141.1 million in H1 2021 (H2 2020:
loss of GBP62.4 million) after a GBP 2.2 million corporation tax charge.
Capital, Funding and Liquidity
-- Strong liquidity and funding position maintained , supported by the
settlement of the mortgage portfolio disposal in February and continuing
deposit growth. As a result, the Bank's Liquidity Coverage Ratio (LCR)
was elevated at 309% as of 30 June 2021 (30 December 2020: 187%). Whilst
NIM dilutive, this excess liquidly is earnings neutral and provides
flexibility and optionality at a time of macroeconomic uncertainty.
In H1 2021 a further GBP2.1 billion of maturing Term Funding Scheme
(TFS) drawings were rolled into Term Funding Scheme with additional
incentives for SMEs (TFSME). The Bank has capacity to roll all of its
TFS drawings into TFSME.
-- CET1 capital of GBP1,052 million as at 30 June 2021 (31 December 2020:
GBP1,192) was 13.9% of RWA (31 December 2020: 15.0%) this compares
to our minimum CET1 requirement of 9.3%(8) .
The Bank's capital includes GBP86 million of relief provided through
the EBA's treatment of software assets, equivalent to 1.0% of CET1.
As expected, the PRA announced in July that software will return to
being fully deducted from 1 January 2022 and therefore this benefit
is not considered when making capital decisions.
-- Total capital as a percentage of RWA was 17.2% reflecting the statutory
loss reported in the period. MREL resources were GBP1,643 million with
an MREL ratio of 21.7% of RWA at 30 June 2021, this compares to our
minimum interim requirement of 20.5%(8) and current end-state requirement
of 20.7%(8) . MREL resources may fall below the sum of the firm's MREL
requirement and buffers (the loss absorbing capacity) for a period
of time.
We note the Bank of England's Consultation Paper on MREL.
-- Total RWA as at 30 June 2021 was GBP7,563 million (31 December 2020:
GBP7,957 million). The reduction in H1 reflects the settlement of the
mortgage portfolio in February, partially offset by organic and inorganic
growth in consumer lending. The result is a loan risk weight density
of 47% as at 30 June 2021 (31 December 2020: 47%).
-- Regulatory leverage ratio was 4.9%.
8. Based on current capital requirements including P2A requirement of
1.11% (of which 0.8% must be met with Tier 1) , excluding any confidential
PRA buffer, if applicable.
Metro Bank PLC
Summary Balance Sheet and Profit & Loss Account
(Unaudited)
Balance Sheet YoY change 30-Jun 31-Dec 30-Jun
2021 2020 2020
GBP'million GBP'million GBP'million
Assets
Loans and advances to customers (17%) 12,325 12,090 14,857
Treasury assets(9) 9,474 6,406 6,101
Assets classified as held - 295 -
for sale
Other assets(10) 1,214 3,788 1,176
------------ ------------ ------------
Total assets 4% 23,013 22,579 22,134
------------ ------------ ------------
Liabilities
Deposits from customers 7% 16,620 16,072 15,577
Deposits from central banks 3,800 3,808 3,801
Debt securities 596 600 599
Other liabilities 850 810 810
------------ ------------ ------------
Total liabilities 21,866 21,290 20,787
------------ ------------ ------------
Total shareholder's equity 1,147 1,289 1,347
------------ ------------ ------------
Total equity and liabilities 23,013 22,579 22,134
------------ ------------ ------------
9. Comprises investment securities and cash & balances with the Bank of England
10. Comprises property, plant & equipment, intangible assets
and other assets. Other assets at 31 December 2020 include GBP2.6
billion receivable from NatWest. This was received post year-end
upon the completion of the transaction.
YoY change Half year ended
Profit & Loss Account 30-Jun 31-Dec 30-Jun
2021 2020 2020
GBP'million GBP'million GBP'million
Underlying net interest income 15% 133.6 134.1 116.2
Underlying net fee and other
income 46.7 50.2 36.1
Underlying net gains/(losses)
on sale of assets (0.5) 3.3 1.0
------------ ------------ ------------
Total underlying revenue 17% 179.8 187.6 153.3
------------ ------------ ------------
'Run the Bank' costs (214.9) (206.3) (184.1)
'Change the Bank' costs(11) (60.3) (55.0) (40.6)
------------ ------------ ------------
Underlying operating costs 22% (275.2) (261.3) (224.7)
Expected credit loss expense (14.6) (14.7) (112.0)
Underlying loss before tax (40%) (110.0) (88.4) (183.4)
------------ ------------ ------------
FSCS levy - - (0.2)
Listing Share Awards - 0.4 (0.2)
Impairment and write-off of
property plant & equipment
and intangible assets (7.5) (14.0) (26.6)
Net BCR costs (0.3) - -
Transformation costs (1.8) (4.3) (12.4)
Remediation costs (25.4) (23.0) (17.8)
Business acquisition and integration
costs (2.3) (5.4) -
Gain on mortgage portfolio
sale (net of costs) 8.4 63.7 -
Statutory loss before tax (42%) (138.9) (71.0) (240.6)
------------ ------------ ------------
Statutory taxation (2.2) 8.6 1.1
( 62.4
Statutory loss after tax (41%) (141.1) ) (239.5)
------------ ------------ ------------
Half year ended
Key metrics 30-Jun 31-Dec 30-Jun
2021 2020 2020
Underlying earnings per share -
basic and diluted (65.1p) (42.9p) (108.8p)
Number of shares 172.4m 172.4m 172.4m
Net interest margin (NIM) 1.28% 1.28% 1.15%
Cost of deposits 0.31% 0.49% 0.82%
Cost of risk 0.24% 0.20% 1.55%
Underlying cost:income ratio 153% 139% 147%
11. Change the Bank costs consists of investment spend, including amortisation
For more information, please contact:
Metro Bank PLC Investor Relations
Jo Roberts
+44 (0) 20 3402 8900
jo.roberts@metrobank.plc.uk
Metro Bank PLC Media Relations
Tina Coates / Mona Patel
+44 (0) 7811 246016 / +44 (0) 7815 506845
pressoffice@metrobank.plc.uk
Teneo
Charles Armitstead / Haya Herbert Burns
+44 (0)7703 330269 / +44 (0) 7342 031051
Metrobank@teneo.com
S
About Metro Bank
Metro Bank services more than two million customer accounts and
is celebrated for its exceptional customer experience. It is the
highest rated high street bank for overall service quality and best
for service in-store for personal customers, and best for service
in-store for business customers in the Competition and Market
Authority's Service Quality Survey in February 2021. It was
recognised as 'Bank of the Year' at the 2020 MoneyAge Awards and
'Banking Brand of The Year' at the Moneynet Personal Finance Awards
2021, received Gold Award in the Armed Forces Covenant's Employer
Recognition Scheme 2021 and won Best Open Banking Partnership -
Commercial at the inaugural Open Banking Expo Awards 2021.
The community bank offers retail, business, commercial and
private banking services, and prides itself on giving customers the
choice to bank however, whenever and wherever they choose, and
supporting the customers and communities it serves. Whether that's
through its network of 77 stores open seven days a week, 362 days a
year; on the phone through its UK-based 24/7 contact centres; or
online through its internet banking or award-winning mobile app:
the bank offers customers real choice.
Metro Bank PLC. Registered in England and Wales. Company number:
6419578. Registered office: One Southampton Row, London, WC1B 5HA.
'Metrobank' is the registered trademark of Metro Bank PLC.
It is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and Prudential
Regulation Authority. Most relevant deposits are protected by the
Financial Services Compensation Scheme. For further information
about the Scheme refer to the FSCS website www.fscs.org.uk. All
Metro Bank products are subject to status and approval.
Metro Bank PLC is an independent UK bank - it is not affiliated
with any other bank or organisation (including the METRO newspaper
or its publishers) anywhere in the world. Please refer to Metro
Bank using the full name.
METRO BANK PLC
INTERIM REPORT
30 June 2021
Forward-looking statements
This document contains forward-looking statements.
Forward-looking statements are not historical facts but are based
on certain assumptions of management regarding our present and
future business strategies and the environment in which we will
operate, which the Group believes to be reasonable but are
inherently uncertain, and describe the Group's future operations,
plans, strategies, objectives, goals and targets and expectations
and future developments in the markets. 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 presentation are based on the Group's current expectations
and, by their nature, forward-looking statements are subject to a
number of risks and uncertainties, many of which are beyond the
Group's control, that could cause the Group's actual results and
performance to differ materially from any expected future results
or performance expressed or implied by any forward-looking
statements. As a result, you are cautioned not to place undue
reliance on such forward-looking statements. Past performance
should not be taken as an indication or guarantee of future
results, and no representation or warranty, express or implied, is
made regarding future performance. The Group undertakes no
obligation to release the results of any revisions to any
forward-looking statements in this presentation that may occur due
to any change in its expectations or to reflect events or
circumstances after the date of this presentation and the parties
named above disclaim any such obligation.
Company Information
About Metro Bank
Metro Bank is celebrated for its exceptional customer experience. It is
the highest rated high street bank for overall service quality and best
for service in-store for personal customers, and best for service in-store
for business customers in the Competition and Market Authority's Service
Quality Survey in February 2021. It was recognised as 'Bank of the Year'
at the 2020 MoneyAge Awards and 'Banking Brand of The Year' at the Moneynet
Personal Finance Awards 2021.
Offering retail, business, commercial and private banking services, it
prides itself on giving customers the choice to bank however, whenever
and wherever they choose. Whether that's through its network of stores;
on the phone through its UK-based contact centres; or online through its
internet banking or award-winning mobile app: the Bank offers customers
real choice.
The Bank employs over 4,000 colleagues and is headquartered in Holborn,
London.
------------------------------------------------------------------------------------
Board of Directors Registered Office
Chair One Southampton Row
London
WC1B 5HA
Robert Sharpe (N)
Non-Executive Directors Independent Auditors
Catherine Brown (N,) (O, R) PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
7 More London Riverside
London
SE1 2RT
Sally Clark (A, R)
Anne Grim (R)
Ian Henderson (A, O)
Monique Melis (A, N)
Sir Michael Snyder (N)
Paul Thandi (N,) (R) Registered Number
Michael Torpey (A) (, O) 6419578
Nicholas Winsor (O)
www.metrobankonline.co.uk
(A) Member of the audit committee
(N) Member of the nomination committee
(O) Member of the risk oversight committee
(R) Member of the remuneration committee
Chair of the committee
Executive Directors
Daniel Frumkin - Chief Executive Officer
David Arden - Chief Financial Officer
Company Secretary
Melissa Conway
Metro Bank PLC. Registered in England and Wales. Company number: 6419578.
Registered office: One Southampton Row, London, WC1B 5HA. 'Metrobank'
is the registered trade mark of Metro Bank PLC.
It is authorised by the Prudential Regulation Authority and regulated
by the Financial Conduct Authority and Prudential Regulation Authority.
Most relevant deposits are protected by the Financial Services Compensation
Scheme. For further information about the Scheme refer to the FSCS website
www.fscs.org.uk.
All Metro Bank products are subject to status and approval.
Metro Bank PLC is an independent UK bank - it is not affiliated with any
other bank or organisation (including the METRO newspaper or its publishers)
anywhere in the world. Please refer to Metro Bank using the full name.
sumMarised interim results
Half year to Half year to Change Half year to Change
30 June 2021 31 December 2020 30 June 2020
Profit and loss
Underlying loss before tax(1) (GBP110.0m) (GBP88.4m) 24% (GBP183.4m) (40%)
Statutory loss before tax (GBP138.9m) (GBP71.0m) 96% (GBP240.6m) (42%)
Total income (statutory)(2) GBP196.3m GBP263.5m (26%) GBP168.9m 16%
Total operating expenses (Statutory) GBP320.6m GBP319.8m 0% GBP297.5m 8%
Net interest margin 1.28% 1.28% 0 bps 1.15% 13 bps
Average cost of deposits 0.31% 0.49% (18 bps) 0.82% (51 bps)
30 June 2021 31 December 2020 Change 30 June 2020 Change
Balance sheet
Customer deposits GBP16,620m GBP16,072m 3% GBP15,577m 7%
Customer loans GBP12,325m GBP12,090m 2% GBP14,857m (17%)
Loan to deposit ratio 74% 75% (1 pps) 95% (21 pps)
Total assets GBP23,013m GBP22,579m 2% GBP22,134m 4%
Asset quality
Coverage ratio 1.33% 1.30% 3 bps 0.96% 37 bps
Cost of risk (annualised) 0.24% 0.20% 4 bps 1.55% (131bps)
Capital ratios
Common Equity Tier 1 (CET1) ratio 13.9% 15.0% 14.5%
Regulatory leverage ratio 4.9% 5.6% 5.8%
Total regulatory capital plus MREL ratio 21.7% 22.4% 21.3%
Customer metrics
Customer accounts 2.4m 2.0m 2.1m
Stores 77 77 77
1. Underlying loss before tax is an alternative performance
measure and excludes Listing Share Awards, impairment and write-off
of property, plant & equipment (PPE) and intangible assets, net
Banking Competition Remedies Limited (BCR) costs, transformation
costs, remediation costs, business acquisition and integration
costs and net income resulting from the mortgage portfolio sale
when comparing to our statutory loss.
2. Statutory income in the six months to 31 December 2020
includes GBP69 million gain on sale of residential mortgage
portfolio.
Business review
The first six months of 2021 have shown encouraging progress as
we continue to deliver our strategy. While our operating
environment remains challenging, economic indicators are beginning
to show signs of improvement. The outlook is undoubtedly more
positive compared to the full year, primarily due to the UK's
successful vaccination programme and the gradual lifting of
restrictions, but it remains unclear if and how the recovery will
develop and as such we remain cautious in our approach.
The business performance is in line with that envisaged in our
turnaround plan, even with the additional headwinds and capital
drain caused by COVID-19 and we remain on track with the delivery
of our strategy. The first half of the year has begun to show real
momentum with underlying revenue up 14% over the preceding six
months, when adjusted for the mortgage sale. The discipline of
driving returns is starting to show early signs of success with a
much lower cost of deposits, improving lending yield as a
percentage of risk weighted assets and the lending and deposit mix
shift all being indicators of progress.
2021 has seen the Bank continue to deliver on what we promised,
both in respect of fixing the basics and focusing on addressing the
additional challenges arising from the COVID-19 pandemic. In many
areas the rapid acceleration of changes brought on by COVID-19 has
created opportunities which we continue to capitalise on, building
on the early positive indicators we have seen emerge in the first
half of the year.
Net interest margin (NIM) has remained flat since the second
half of last year, despite the mortgage sale and the excess
liquidity we are carrying from the proceeds of that sale, as well
as higher than anticipated deposit inflows in the first half. Our
lending yields are continuing to accrete and our cost of deposits
are continuing to reduce. Our diversification of lending streams to
focus more on consumer lending, government backed support schemes
and an expanded range of mortgages is allowing us to generate a
greater return on risk-weighted assets.
Operationally the business is performing well and we have
returned our stores to seven-day a week opening. Whilst our head
office colleagues remain almost entirely home-based, we are aiming
for a gradual return to the office from September 2021, with a
hybrid working approach that follows extensive consultation with
our colleagues. We are confident this approach is in the best
interest of our colleagues and will continue to engage with them as
we evolve our flexible working approach.
Review of strategic priorities
We recognised an underlying loss before tax of GBP110.0 million
during the period (six months to 30 June 2020: GBP183.4 million,
six months to 31 December 2020: GBP88.4 million) which reflects the
cost of addressing legacy challenges, where we are in our
turnaround plan and the ongoing impact of lockdowns.
Revenue
Whilst revenue was slightly down in the first six months of the
year, this is a reflection of lower customer activity in line with
national lockdowns impacting fee income. The fall in income arising
from the mortgage sale at the end of last year was largely offset
by a disciplined approach to deposit pricing, reducing cost of
deposits, and the contribution from growth in consumer lending.
Adjusting for the mortgage disposal, revenue increased 14% half on
half. On front book pricing we are seeing strong growth in yields
as we focus on achieving the right balance between risk and return
and we concentrate our attention on areas of the lending market
where we can compete effectively.
We have continued to rebalance our lending mix, with consumer
lending making up a greater percentage of overall lending. This is
mainly due to the acquisition of the RateSetter platform last year,
which has provided a strong brand and enhanced capability in this
area.
Alongside consumer lending we have bolstered our mortgage range
to target underserved areas of the market. This has translated into
higher average mortgage lending yields, despite the broader
mortgage market remaining highly competitive.
By focusing on the right type of lending, whilst at the same
time working to lower the price we pay for deposits, we are driving
positive interest income jaws. Cost of deposits have fallen to
0.31%, from 0.49% in the second half of 2020 and are continuing to
fall, demonstrating our business model is working and that we do
not have to compete on price in order to win deposits. Indeed,
pricing is now in line with the larger high street banks.
Fee and other income has remained subdued owing to the
continuation of lockdown measures and travel restrictions. We
continue to invest in this area as it provides an opportunity for
capital efficient income growth and we are optimistic that the work
we have undertaken in this segment of our business will mean it
returns to growth as restrictions are lifted. New products,
including our recently launched insurance partnerships, are areas
that will assist in this, with initiatives such as our pet
insurance product building on our strong customer proposition.
Costs
We continue to focus on costs, with underlying Run the Bank cost
growth contained below 2% from the second half of 2020 to GBP214.9
million (six months to 31 December 2020: GBP206.3m million) after
adjusting for the integration of RateSetter, which is now largely
complete. Going forward we will be looking to realise the
longer-term cost savings and additional synergies through this
integration.
Infrastructure
We continue to develop our two new stores in Bradford and
Leicester, these both remain large and attractive markets and
present an opportunity to bolster our franchise. We have worked
with new architects and have ensured our new stores are more
sustainable, flexible and cost efficient than previous locations,
whilst not compromising on the unique Metro Bank look and feel.
We have also agreed the further freehold purchase of three
stores, all of which will complete in the second half of the year.
These were secured at an attractive yield with a strong capital
payback. Our strategy of purchasing the freeholds where the price
is right allows us to buy ourselves out of long leases, providing
greater flexibility over the sites, as well as being able to reduce
costs.
In June we opened a new AMAZE Direct call centre in Bristol,
utilising excess space above our store. The call centre underlines
our focus on delivering exceptional service whether that be in
store, on the phone, or digitally. As well as creating new roles to
service our expanding customer base, the call centre also
rationalised some of the existing smaller sites in central London
which were set up earlier in our history and were no longer
practical in terms of size and location for the next stage of our
growth.
We have continued to invest in digital capabilities, namely in
back office systems, and particularly in relation to regulatory
compliance, including financial crime. We have also opened our
business account online to a greater range of businesses, providing
a simple and efficient way to open an account with us.
In addition to our back-office investments, we have also
continued to launch new customer facing features. These include the
addition of in-app invoicing technology for our small business
accounts, helping customers keep track of their finances.
Balance sheet optimisation
We have continued to deliver on our promise of optimising our
Balance Sheet to ensure greater capital efficiency.
2021 started with the completion of the sale of the residential
mortgage portfolio and this was swiftly followed by the purchase of
the RateSetter back book, which helped redeploy some of the capital
and liquidity released though the sale. We are an accredited
provider for the government-backed Recovery Loan Scheme, the latest
government-backed business support programme. The scheme will be
80% government-backed, via the British Business Bank, and like the
earlier schemes, provides both a strong return on capital as well
as reduced risk lending.
Over the course of the first six months of the year we have also
continued to shift our asset mix, with a clear focus on risk
adjusted returns on regulatory capital. This has seen us grow our
unsecured lending portfolio as well as specialist mortgage offering
whilst at the same time letting older and higher risk weighted
commercial loans attrite. This approach is now seeing us generate
an increased level of lending income as a proportion of risk
weighted assets.
Internal and External Communications
In June we launched our first small business advertising
campaign centred around three talented entrepreneurs and showcased
our award-winning small business banking offering. The campaign
forms part of our updated brand strategy and focus on
"people-people banking" - the philosophy that whatever happens in
the future of banking, people need people and value human
relationships.
Colleagues
We continue to invest in our colleagues and in April we were
delighted to celebrate the first cohort of 14 colleagues to
complete the Masters-level apprenticeship for senior banking
professionals from Cranfield School of Management. The course is a
fully funded Masters programme and the UK's first Masters-level
apprenticeship for senior banking professionals funded by the
Apprenticeship Levy. We have two further cohorts currently on the
programme and look forward to enabling more colleagues to take
advantage of this opportunity in the years ahead.
Capital management
Following the mortgage portfolio sale, we do not anticipate the
need to issue debt capital in the second half of the year. W e
continue to take a portfolio view of balance sheet optimisation and
MREL issuance, and we will take actions to optimise where needed.
As in 2020, MREL resources may fall below the sum of the firm's
MREL requirement and buffers (the loss absorbing capacity) for a
period of time.
Outlook
We continue to deliver the strategy outlined in February 2020,
with a focus on cost, revenue, infrastructure, balance sheet
optimisation and internal and external communications. This
strategy aims to return the Bank to sustainable profitability and
provide adequate returns to shareholders.
It has been pleasing in the first half of 2021 to see the early
stages of this strategy come through in our financial performance
with the shift in lending mix, reduced cost of deposit, improved
lending yield over base rate and higher lending income as a
percentage of risk weighted assets all visible proof points.
I continue to be humbled by the phenomenal effort and energy my
colleagues display every day to look after our customers, engage in
our local communities and deliver on our purpose of creating fans.
Our turnaround is driven by our exceptional colleagues and as we
continue to execute our strategy, it will be their continued
dedication that will allow us to become the UK's best community
bank.
Daniel Frumkin
Chief Executive Officer
27 July 2021
Finance review
Our results for the first six months of 2021 reflect where we
are in our strategic turnaround, although also show momentum within
the business and positive signs that the approach adopted is
working.
We recognised a statutory loss before tax for the period of
GBP138.9 million, up from the GBP71.0 million recognised in the
second half of 2020, with the increase primarily due to the GBP69.0
million gain relating to the GBP3.1 billion mortgage sale.
On an underlying basis the loss for the period of GBP110.0
million was an increase of 24% (six months to 31 December 2020:
GBP88.4 million). This has been driven by c.GBP30 million of lost
income in the first half of the year as the resulting liquidity
freed up from the sale only started to be significantly deployed
halfway through the period. Adjusting for this impact both interest
income and profitability have increased half-on-half.
2021 has seen us continue to focus on shifting our deposit mix,
which has led to the costs of deposits falling from 0.49% to 0.31%
from the second half of 2020. Alongside this we have delivered an
increasing lending yield and our approach of optimising the balance
sheet is now seeing us generate a greater level of interest income
as a proportion of risk weighted assets.
We ended the period with CET 1 capital ratio of 13.9% and an
MREL ratio of 21.7%. These compare to the regulatory minima
(excluding any confidential buffer) of 9.3% and 20.5% respectively.
We continue to take a measured approach to capital management and
are focused on building a greater risk adjusted return on
regulatory capital.
Our primary focus remains the transformation of the Bank and in
doing so we are taking a prudent approach in our assessment of the
pace of economic recovery. We recognised an expected credit loss
expense of GBP14.6 million for the period which is broadly flat
half-on-half (six months to 31 December 2020: GBP14.7 million).
Income statement review
Table 1: Summary income statement
Half year Half year Half year
to to to
31 December
30 June 2021 2020 30 June 2020
(unaudited) (unaudited) (unaudited)
GBP'million Year-on-year
GBP'million GBP'million growth
--------------------------------- -------------- ------------- -------------- -------------
Net interest income 133.3 133.8 115.9 15%
Net fee, commission and other
income 54.8 57.6 52.0
Net gains on sale of assets 8.2 72.1 1.0
--------------------------------- -------------- ------------- -------------- -------------
Total income 196.3 263.5 168.9 16%
--------------------------------- -------------- ------------- -------------- -------------
General operating expenses (272.8) (268.2) (234.1) 17%
Depreciation and amortisation (40.3) (37.6) (36.8)
Impairment and write-off of PPE
and intangible assets (7.5) (14.0) (26.6)
Expected credit loss expense (14.6) (14.7) (112.0)
--------------------------------- -------------- ------------- -------------- -------------
Loss before tax (138.9) (71.0) (240.6) (42%)
--------------------------------- -------------- ------------- -------------- -------------
Taxation (2.2) 8.6 1.1
--------------------------------- -------------- ------------- -------------- -------------
Loss after tax (141.1) (62.4) (239.5) (41%)
--------------------------------- -------------- ------------- -------------- -------------
Net interest income
Net interest income increased 15% year-on-year to GBP133.3
million (six months to 30 June 2020: GBP115.9 million), despite the
GBP3.1 billion mortgage book sale, reflecting increased front book
yields, including our meaningful entry into the personal lending
market, combined with actions we have taken to reduce cost of
deposits. Interest income was slightly reduced from the second half
of 2020 (six months to 31 December 2020: GBP133.8 million)
primarily due to the sale of the mortgage portfolio that completed
at the start of the year. Adjusting for the mortgage portfolio
sale, net interest income increased 57% year on year and 27% half
on half.
NIM remained flat from the second half of 2020 at 1.28% (six
months to 31 December 2020: 1.28%) and up from 1.15% in the first
six months of 2020. The preservation of NIM was achieved despite
continued strong deposit inflows and the excess liquidity arising
from the mortgage sale.
Fee, commission and other income
Fee commission and other income remain below pre-pandemic levels
as the lockdowns at the start of 2021 continued to constrain
activity. As restrictions started to be lifted at the end of the
period, we have seen an uptick in activity, particularly in areas
such as foreign exchange, where volumes had been significantly
depressed throughout the pandemic.
Fees and commission remains an area where we believe that we can
deliver strong capital efficient returns by building on our
expanding account base and leading customer service.
Operating expenses
Operating expenses grew to GBP275.2 million on an underlying
basis during the first six months from GBP224.7 million in the same
period for 2020 and GBP261.3 million for the last six months of
2020. The year-on-year increase is impacted by several factors,
including store growth late in the first half of 2020 and the
acquisition of RateSetter which occurred in September 2020. When
compared to the final six months of 2020, which is a more
representative comparison, cost growth was contained to 5%; 3% once
adjusted for the timing of the RateSetter acquisition. On that
adjusted basis, Run the Bank cost growth was less than 2%, in line
with the guidance we provided at the start of the year.
On a statutory basis total operating expenses remained broadly
flat at GBP272.8 million compared to GBP268.2 million for the
second half of 2020 as the absorption of the additional RateSetter
running costs was offset by lower transformation and integration
expenditure.
Remediation issues continue to be a significant expense with
associated costs of GBP25.4 million recognised in the period (six
months to 31 December 2020: GBP23.0 million, six months to 30 June
2020: GBP17.8 million). We are continuing to work closely with the
regulators in these investigations.
Expected credit loss expense
Although the macroeconomic environment has improved in 2021, the
net charge of GBP14.6 million ( six months to 30 June 2020:
GBP112.0 million, six months to 31 December 2020: GBP14.7 million)
recognised for the period reflects the continued uncertainty,
particularly in respect of new COVID variants and the speed and
sustainability of lifted restrictions; during the period we added a
fourth macroeconomic scenario to help capture this cautious
outlook. We have also continued to develop our provisioning models
to capture a greater range of factors, and to apply a material
level of post model overlays to capture factors that are not easily
reflected in the scenarios. These reflect additional uncertainty
arising from the withdrawal of pandemic support measures, including
the jobs retention scheme, stamp duty holiday and payment
deferrals. These also capture newer risks, including the impact on
certain property valuations due to the incidence of cladding.
Our expected credit losses also represent the changes in our
lending mix during the start of the year as unsecured consumer
lending now constitutes a greater proportion of our balance sheet,
following the mortgage portfolio sale in December 2020 and the
increase in unsecured lending delivered via RateSetter; whilst
moving into unsecured lending generates higher yields, by its
nature it also leads to a higher cost of risk. We continue to
manage our unsecured lending within a defined risk appetite, with a
focus on prime and near prime segments, underpinned by strong
credit scoring criteria to ensure we limit losses, which to date
remain low.
Balance sheet review
Table 2: Summary balance sheet
31 December
30 June 2021 2020
(unaudited) (audited)
GBP'million GBP'million Growth
--------------------------------------------- ------------- ------------- -------
Assets
Cash and balances with the Bank of England 5,111 2,993
Loans and advances to customers 12,325 12,090 2%
Investment securities held at fair value
through other comprehensive income (FVOCI) 1,198 773
Investment securities held at amortised
cost 3,165 2,640
Financial assets held at fair value through
profit and loss 5 30
Property, plant and equipment 786 806
Intangible assets 253 254
Prepayments and accrued income 75 77
Assets classified as held for sale - 295
Other assets 95 2,621
--------------------------------------------- ------------- ------------- -------
Total assets 23,013 22,579 2%
--------------------------------------------- ------------- ------------- -------
Liabilities
Deposits from customers 16,620 16,072 3%
Deposits from central banks 3,800 3,808
Debt securities 596 600
Financial liabilities held at fair value
through profit and loss - 30
Repurchase agreements 212 196
Derivative financial liabilities 8 8
Lease liabilities 310 327
Deferred grant 22 28
Provisions 5 11
Deferred tax liability 13 12
Other liabilities 280 198
--------------------------------------------- ------------- ------------- -------
Total liabilities 21,866 21,290
--------------------------------------------- ------------- ------------- -------
Total equity 1,147 1,289
--------------------------------------------- ------------- ------------- -------
Deposits
Deposits grew by 3% from 31 December 2020 to GBP16,620 million
at 30 June 2021 (31 December 2020: GBP16,072 million). The increase
was primarily driven by commercial and SME customers which were up
25% and 4% respectively from the start of the year.
Current account balances grew by 9% during the first half of the
year and make up 41% of total customer deposits as at 30 June 2021
(31 December 2020: 39%). We continue to see customer preference
moving towards having instant access to funds, leading to growth of
current accounts and instant access savings accounts, whilst at the
same time we have proactively let higher cost fixed term deposits
roll off as we continue to manage cost of deposits down.
Deposit growth in the second half will be influenced by customer
behaviour, as cash balances are utilised as the economy recovers
from the impacts of the pandemic, combined within the unwinding of
government support measures. Focus will remain on maintaining a
high-quality mix of relationship-driven customer deposits.
Lending
Net lending ended the period at GBP12,325 million, up 2% from
GBP12,090 million at 31 December 2020. The GBP235 million increase
has been driven by a cGBP500 million growth in consumer lending,
offset by a moderate reduction in the commercial loans and retail
mortgage books. The growth in consumer lending is a result of both
organic origination through the RateSetter platform, and the
purchase of the GBP337 million back book from peer-to-peer
investors. Our investment in consumer lending, including
integrating the RateSetter lending capabilities in store, provides
a strong base on which we can capitalise as the economy opens and
we are ready to serve a consumer-led recovery.
Retail mortgages remained the largest component of the lending
book at 55% of gross lending (31 December 2020: 56%), down GBP77
million to GBP6,815 million at 30 June 2021 from GBP6,892 million
at 31 December 2020. The decrease reflects the attrition of older
loans, offset by our continued penetration into underserved areas
of the mortgage market, which has replaced some of these
balances.
Commercial loans, which now comprise 40% of our lending, saw a
GBP176 million reduction from GBP5,148 million at 31 December 2020.
The decrease is down to older term loans repaying combined with a
slowdown in new government-backed lending in the first half of the
year. We have now started to participate in the new
government-backed Recovery Loan Scheme and therefore expect to see
the return of some growth in this area. The second half of the year
will also see the repayments of BBLS loans as the customer, rather
than the government, starts to pay interest on these loans.
Property, plant & equipment and intangibles
Non-current assets have decreased during the period, driven by a
reduction in our PPE balance, reflecting the scaling back of our
store opening programme. We continue to work on sites in Leicester
and Bradford and we have no further stores in the pipeline once
these are open.
We have also recently agreed the purchase of a further three
freeholds which will complete in the second half of 2021; once
completed a third of our store estate will be freehold. By trading
right of use assets for freeholds at attractive prices we can both
reduce costs and gain flexibility for minimal additional risk
weighted assets.
Intangibles remained flat over the first six months of the year
as continued investment, albeit at a slower rate, was offset by
amortisation and impairment charges.
Capital
Our CET1, Tier 1 and MREL ratios at 30 June 2021 were 13.9 %,
13.9% and 21.7 % respectively, compared to the regulatory minimum
of 7.6%, 9.3 % and 20.5 %, respectively, (excluding any
confidential PRA buffer). MREL resources may fall below the sum of
our MREL requirement and buffers (the loss absorbing capacity) for
a period of time.
Risk weighted assets ended the period down 5% to GBP7,563
million (31 December 2020: GBP7,957 million) reflecting our change
in asset mix and our focus on improving return on regulatory
capital. The reduction was also supported by the settlement of the
final tranche of the mortgage portfolio in February 2021.
Liquidity
Our liquidity position continues to be strong owing to the
liquidity freed up from the mortgage portfolio sale. We ended 30
June 2021 with a Liquidity Coverage Ratio (LCR) of 309 %. We will
continue to prudently manage our investments and to invest in high
quality securities while maintaining a strong cash position.
Going concern
These condensed consolidated interim financial statements are
prepared on a going concern basis, as the Directors are satisfied
that the Group has the resources to continue to operate for a
period of at least twelve months from when the interim financial
statements are authorised for issue. In making this assessment, the
Directors considered a wide range of information relating to
present and future conditions, including future projections of
profitability, liquidity and capital resources as well as factoring
in the uncertainties relating to the economic outlook.
David Arden
Chief Financial Officer
27 July 2021
risk review
As at 30 June 2021, there had been no significant change to the
business model, risk management framework or risk appetites we
outlined in our 2020 Annual Report and Accounts. We have reassessed
the principal and emerging risks we face, including those that
could result in events or circumstances that might threaten our
business model, future performance, solvency or liquidity, and
reputation. The principal risk categories remain similar to those
outlined in the 2020 Annual Report and Accounts, with changes
relating to the identification of legal risk as a principal
risk.
A detailed description of our principal risks and uncertainties
to which we are exposed, along with our approach to mitigating
these risk, is set out in the risk report which can be found on
pages 15 to 22 of our 2020 Annual Report and Accounts. These risks
consist of:
Credit risk - The risk of financial loss should our borrowers or
counterparties fail to fulfil their contractual obligations in full
and on time.
Operational risk - The risk that events arising from inadequate
or failed internal processes, people and systems, or from external
events cause regulatory censure, reputational damage, financial
loss, service disruption and/or detriment to our FANS.
Liquidity and Funding risk - The risk that we fail to meet our
short-term obligations as they fall due or 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).
Market risk - The risk of loss arising from movements in market
prices. Market risk is the risk posed to earnings, economic value
or capital that arises from changes in interest rates, market
prices or foreign exchange rates.
Financial crime - The risk of financial loss or reputational
damage due to regulatory fines, restriction or suspension of
business, or cost of mandatory corrective action as a result of
failing to comply with prevailing legal and regulatory requirements
relating to financial crime.
Regulatory Compliance risk - The risk of failing to understand
and comply with relevant laws and regulatory requirements; not
keeping regulators informed of relevant issues; not responding
effectively to information requests or failing to meet regulatory
deadlines; or obstructing the regulator.
Conduct risk - The risk of treating customers unfairly and
delivering poor outcomes that lead to customer detriment, such as
financial loss and/or distress and inconvenience. This can also
result in wider adverse impacts, for example, loss of our FANS,
reputational damage, regulatory and/or legal action.
Model risk - The risk of potential loss and regulatory
non-compliance due to decisions that could be principally based on
the output of models, due to errors in the development,
implementation or use of such models.
Capital risk - The risk that we fail to meet minimum regulatory
capital (and MREL) requirements. Management of capital is essential
to the appropriate management of our balance sheet, ensuring our
resilience under stress, and the maintenance of the confidence of
our current and potential creditors (including bondholders, the
bond market, and customers) and key stakeholders in the pursuit of
our business strategy.
Legal risk - The risk of loss, including to reputation, that can
result from lack of awareness or misunderstanding of, ambiguity in,
or reckless indifference to, the way law applies to the directors,
the business, its relationships, processes, products and
services.
Further information on credit risk, liquidity and operational
risk are outlined below.
Credit risk
COVID-19 continues to disrupt the economy and has had a material
impact on customers. We reacted quickly to this by offering payment
deferral, and other temporary support options, across both retail
and commercial lending and we continue to provide customer support
through government lending schemes and forbearance measures. In
addition, the Bank has retained prudency in the estimation of
expected credit losses (ECL) across all portfolios, including the
use of management overlays, and continues to assess the validity of
these estimates to ensure an appropriate level of coverage is
maintained.
The effectiveness of government support during the pandemic has
somewhat muted the emergence of defaults and impairments, resulting
in a half year impairment charge GBP14.6 million. Arrears have
remained broadly stable in the first six months of 2021 after most
customers rolled off payment deferrals. The majority of payment
deferral customers have now returned to contractual payments (with
some requiring additional support) and this has led to an
improvement in mix across IFRS 9 stages with customers
transitioning from stage 2 back to stage 1. Whilst we do expect
migrations to stage 2 and 3 to increase, particularly as government
support ceases, we are holding an appropriate level of ECL,
including COVID-19 related management overlays, to account for the
anticipated deterioration.
The macroeconomic outlook has improved as the roll out of the
vaccine continues and lock down measures are relaxed. However,
there remains an unprecedented level of uncertainty with furlough
ending in September, and as payments become due on Government
backed loans schemes. We continue to monitor and assess the impact
of COVID-19 on customers and the performance of our credit
portfolios through these challenging times.
We continue to shift the balance sheet in line with our
strategic objectives. The integration of RateSetter into our
unsecured consumer finance division has supported higher growth in
this area. This has been managed within a Board approved risk
appetite and appropriate controls are in place to manage credit
risk including the modelling of future losses, appropriate credit
policy and referral to specialist manual underwriters where
necessary.
Expected credit losses
We have increased the ECL level slightly during the half year of
2021 to GBP166 million (31 December 2020: GBP154 million) resulting
in an overall coverage level of 1.33% (31 December 2020: 1.30%).
This increase was predominately driven by the origination of new
consumer loans, the purchase of the RateSetter back book, and a
small number of individually assessed impairments on larger
commercial loans.
This has been partly offset by the reduction in management
overlays to reflect customers with previous payment deferrals
options resuming contractual payments, implementation of the new
loss given default (LGD) model and portfolio reductions primarily
driven by the run-off of the legacy consumer unsecured lending
portfolio.
Table 3: Expected credit expense movements
Six months Six months Change
to to GBP'million
30 June 2021 30 June 2020
GBP'million GBP'million
------------------------------------ -------------- -------------- -------------
Retail mortgages (11) (8) (3)
Commercial lending 8 20 (12)
Consumer lending 17 3 14
------------------------------------ -------------- -------------- -------------
Total expected credit loss expense 15 15 -
------------------------------------ -------------- -------------- -------------
COVID support for customers
We participated in all three of the Government's key lending
support programmes and have also become an accredited lender for
the Recovery Loan Scheme (RLS). As at 30 June 2021 there is a total
of GBP1.6 billion of government loans outstanding with GBP1.4
billion of BBLS, GBP162 million of CBILS and GBP39 million
CLBILS.
We have proactively offered support measures to both retail
customers, mainly in the form of payment deferrals, and commercial
customers, in the form of capital repayment holidays, interest roll
up, covenant suspensions and increases in working capital
facilities. As at 30 June 2021 we have less than 1% of the overall
book still requiring this support.
Alongside this, we have provided further support to households
through waiving certain account fees as well as suspending interest
on overdrafts.
We have provided an on-line portal enabling our BBLS customers
to select from Pay as You Grow (PAYG) options to extend the term of
their loan, take a six-month payment holiday or take a six-month
interest only payment period. As at 30 June 2021 approximately five
and half thousand customers have applied for one for above options
which represents 14.9% of all BBLS granted.
Residential mortgage lending
The majority of our lending comprises residential mortgages,
typically issued by ourselves with a loan to value of less than 95%
and with strong collateral providing mitigation to withstand
economic stress and therefore minimise our credit losses.
The average debt to value (DTV) of our residential mortgage book
as at 30 June 2021 was 56% (31 December 2020: 56%).
We have taken advantage of opportunities to lend to customers
with strong credit ratings for greater than 80% DTV, although the
property price growth on back book lending has meant that the DTV
profile has remained largely unchanged.
Asset quality and the standard of lending remain strong.
However, COVID-19 and lockdown will continue to place strain on
customers' financial circumstances. An increase in arrears was
observed at the end of last year primarily driven by those
customers rolling off support schemes, such as payment deferrals,
but who continued to face financial difficulties. Since then
arrears levels have been broadly stable.
Table 4: Residential mortgage lending by DTV banding
30 June 2021 (unaudited) 31 December 2020 (audited)
--------------------------------------------------- -------------------------------------------
Retail Retail Total Retail Retail Total
owner buy-to-let retail owner buy-to-let retail
occupied GBP'million mortgages occupied GBP'million mortgages
GBP'million GBP'million GBP'million GBP'million
-------------------- ------------- -------------
Less than 50% 1,852 504 2,356 1,855 502 2,357
51-60% 795 401 1,196 842 390 1,232
61-70% 971 586 1,557 836 533 1,369
71-80% 951 291 1,242 1,084 407 1,491
81-90% 377 1 378 359 4 363
91-100% 80 - 80 74 - 74
More than 100% 2 4 6 1 5 6
-------------------- --------------- --------------- ----------------- ------------- ------------- -------------
Total retail
mortgage lending 5,028 1,787 6,815 5,051 1,841 6,892
-------------------- --------------- --------------- ----------------- ------------- ------------- -------------
Table 5: Residential mortgage lending by repayment type
30 June 2021 (unaudited) 31 December 2020 (audited)
-------------------------------------------- -------------------------------------------
Retail Retail Total Retail Retail Total
owner buy-to-let retail owner buy-to-let retail
occupied GBP'million mortgages occupied GBP'million mortgages
GBP'million GBP'million GBP'million GBP'million
--------------------------- ------------- -------------
Interest 2,221 1,703 3,924 2,337 1,751 4,088
Capital and interest 2,807 84 2,891 2,714 90 2,804
--------------------------- ------------- -------------- ------------- ------------- ------------- -------------
Total retail mortgage
lending 5,028 1,787 6,815 5,051 1,841 6,892
--------------------------- ------------- -------------- ------------- ------------- ------------- -------------
Table 6: Residential mortgage lending by geographic exposure
30 June 2021 (unaudited) 31 December 2020 (audited)
Retail Retail Total Retail Retail Total
owner buy-to-let retail owner buy-to-let retail
occupied GBP'million mortgages occupied GBP'million mortgages
GBP'million GBP'million GBP'million GBP'million
---------------------- ------------- -------------
Greater London 2,157 1,115 3,272 2,213 1,147 3,360
South East 1,172 295 1,467 1,157 309 1,466
South West 430 87 517 433 91 524
East of England 303 71 374 298 73 371
North West 259 61 320 265 63 328
West Midlands 185 60 245 179 58 237
Yorkshire and the
Humber 140 36 176 139 37 176
East Midlands 137 25 162 131 25 156
Wales 105 20 125 102 21 123
North East 62 10 72 62 10 72
Scotland 78 7 85 72 7 79
---------------------- -------------- --------------- ---------------- ------------- ------------- -------------
Total retail mortgage
lending 5,028 1,787 6,815 5,051 1,841 6,892
---------------------- -------------- --------------- ---------------- ------------- ------------- -------------
Commercial lending
Table 7: Summary of commercial lending
30 June 31 December
2021 2020
(unaudited) (audited)
GBP'million GBP'million
--------------------------------------------- ------------- -------------
Professional buy-to-let 1,037 1,117
Other term loans 1,963 2,138
--------------------------------------------- ------------- -------------
Non-Government backed commercial term loans 3,000 3,255
--------------------------------------------- ------------- -------------
Bounce back loans 1,394 1,353
Coronavirus business interruption loans 162 114
Government backed commercial term loans 1,556 1,467
Total commercial term loans 4,556 4,722
Overdrafts and revolving credit facilities 133 149
Credit cards 3 3
Asset and invoice finance 280 274
Total commercial lending 4,972 5,148
--------------------------------------------- ------------- -------------
Total commercial lending has decreased over the first half of
2021 to GBP5.0 billion. New lending principally reflects government
support schemes. Repayment of professional buy-to-let and
commercial term loans has also led to a reduction in the commercial
portfolio.
Our commercial lending remains largely comprised of secured term
loans and Government backed lending, with the remaining balance
consisting of term loans and facilities secured by other forms of
collateral (such as debentures) and asset and invoice finance.
As at 30 June 2021 the average DTV of our total commercial term
loan book was 59% (31 December 2020: 56%).
DTV greater than 100% includes loans which benefit from
additional forms of collateral which are not included in the DTV
figure (such as debentures or unsupported guarantees) which provide
an additional level of mitigation not accounted for in the
calculation of expected credit loss. Our DTV profile primarily
reflects the value of property collateral supporting our term loans
and does not include any value from government guarantees provided
to support CBILS and CLBILS lending. DTV greater than 100% has
increased over the first half of 2021 primarily due to COVID
impacts on the asset values of a small number of larger commercial
loans.
Table 8: Commercial term lending (exc. BBLS) by DTV banding
30 June 2021 (unaudited) 31 December 2020 (audited)
------------------------------------------------- -------------------------------------------
Total Total
Professional Other commercial Professional Other commercial
buy-to-let term loans term loans buy-to-let term loans term loans
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
---------------------- ------------- -------------
Less than 50% 321 789 1,110 353 876 1,229
51-60% 257 473 730 261 546 807
61-70% 312 221 533 351 255 606
71-80% 129 64 193 133 100 233
81-90% 8 91 99 9 51 60
91-100% 6 10 16 6 13 19
More than 100% 4 477 481 4 411 415
---------------------- --------------- -------------- ---------------- ------------- ------------- -------------
Total commercial term
lending 1,037 2,125 3,162 1,117 2,252 3,369
---------------------- --------------- -------------- ---------------- ------------- ------------- -------------
Table 9: Commercial term lending (exc. BBLS) by industry
exposure
30 June 2021 (unaudited) 31 December 2020 (audited)
Total Total
Professional Other commercial Professional Other commercial
buy-to-let term loans term loans buy-to-let term loans term loans
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
------------------------- ------------- -------------
Real estate (rent, buy
and sell) 1,037 889 1,926 1,117 1,032 2,149
Legal, Accountancy &
Consultancy - 207 207 - 208 208
Health & Social Work - 226 226 - 248 248
Hospitality - 370 370 - 376 376
Retail - 100 100 - 107 107
Real estate (management
of) - 10 10 - 60 60
Construction - 72 72 - 36 36
Recreation, cultural and
sport - 84 84 - 53 53
Investment and unit
trusts - 13 13 - 9 9
Education - 25 25 - 30 30
Real estate
(development) - 36 36 - 60 60
Other - 93 93 - 83 83
------------------------- ------------- ------------- ---------------- ------------- ------------- -------------
Total commercial term
lending 1,037 2,125 3,162 1,117 2,252 3,369
------------------------- ------------- ------------- ---------------- ------------- ------------- -------------
The sector profile for commercial term lending is broadly
consistent with the position as at 31 December 2020. There has been
a reduction in commercial real estate and professional buy-to-let
of c.10%.
We have observed that some sectors have been more severely
impacted by COVID-19 lockdowns. Hospitality and leisure sectors
have experienced a more significant reduction in income than other
sectors, and as a consequence we have seen higher levels of
COVID-19 support required by these customers. We have provisioned
for higher levels of expected credit losses in these sectors to
reflect the risk of higher default rate.
Commercial customers are managed through early warning
categorisation where there have been some early signs of financial
difficulty. The overriding objective is to identify, at an early
stage, those customers for whom we believe repayment difficulties
may develop, thereby allowing timely engagement and appropriate
corrective action to be taken. Early warning categorisation
supports IFRS 9 stage allocation.
Total lending in early warning categories has stabilised over
the first six months of 2021, after the increases driven by
COVID-19 over 2020. The majority of customers in early warning
categories have received temporary COVID-19 support including
payment holidays or government backed loans. We are now observing
that many off these customers no longer require COVID-19 support,
but we remain cautious in our provision approach in respect of
them. There is a risk of increasing default levels as government
support measures come to an end including furlough, VAT deferral,
and moratorium on landlord action, and repayments fall due on BBLS
and CBILS loans.
Therefore, we consider that credit risk remains heightened. We
continue to maintain a cautious approach to impairments until the
vaccine deployment programme is completed, vaccines prove effective
against new COVID-19 variants and the economic recovery takes hold.
We have maintained impairment levels to accommodate expected
increasing default levels over the remainder of 2021.
Table 10: Commercial term lending (exc. BBLS) by repayment
type
30 June 2021 (unaudited) 31 December 2020 (audited)
-------------------------------------------- -------------------------------------------
Total Total
Professional Other commercial Professional Other commercial
buy-to-let term loans term loans buy-to-let term loans term loans
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
--------------------------- ------------- -------------
Interest 979 231 1,210 1,058 281 1,339
Capital and interest 58 1,894 1,952 59 1,971 2,030
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Total commercial term
lending 1,037 2,125 3,162 1,117 2,252 3,369
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Table 11: Commercial term lending (exc. BBLS) by geographic
exposure
30 June 2021 (unaudited) 31 December 2020 (audited)
-------------------------------------------------- -------------------------------------------
Total Total
Professional Other commercial Professional Other commercial
buy-to-let term loans term loans buy-to-let term loans term loans
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
--------------------- --------------- --------------- ---------------- ------------- ------------- -------------
Greater London 723 1,254 1,977 780 1,358 2,138
South East 189 386 575 205 399 604
South West 29 151 180 31 156 187
East of England 46 67 113 48 67 115
North West 19 144 163 20 146 166
West Midlands 9 66 75 10 66 76
Yorkshire and the
Humber 3 13 16 3 13 16
East Midlands 10 13 23 11 18 29
Wales 5 9 14 5 10 15
North East 3 21 24 3 18 21
Northern Ireland 1 - 1 1 - 1
Scotland - 1 1 - 1 1
--------------------- --------------- --------------- ---------------- ------------- ------------- -------------
Total commercial
term lending 1,037 2,125 3,162 1,117 2,252 3,369
--------------------- --------------- --------------- ---------------- ------------- ------------- -------------
Consumer lending
The acquisition of RateSetter has driven improved capability to
lend in the unsecured consumer loans market, with RateSetter loans
now accounting for 80% of unsecured consumer lending. Performance
of new lending is in line with expectations.
Overall asset quality remains strong, although arrears
performance since the onset of COVID-19 has been muted by the
payment deferrals scheme and the government furlough support
schemes.
Non-performing loans
Table 12: Non-performing loans
31 December 2020
30 June 2021 (unaudited) (unaudited)
--------------------------- -------------------------
NPLs NPL ratio NPLs NPL ratio
GBP'million % GBP'million %
------------------------------------- --------------- ---------- ------------- ----------
Retail mortgages 110 1.61% 118 1.70%
Consumer lending (incl. RateSetter) 18 2.57% 13 6.13%
Commercial lending (including asset
and invoice finance) 187 3.76% 127 2.48%
------------------------------------- --------------- ---------- ------------- ----------
Total 315 2.52% 258 2.10%
------------------------------------- --------------- ---------- ------------- ----------
Total Non-Performing Loans (NPLs) increased to GBP315 million
(31 December 2020: GBP258 million). This increase was primarily
driven by commercial customers who have previously sought COVID-19
support measures, and now require further forbearance support. The
increase in NPL has been dampened by the government support
measures still in place and there is a risk this will increase
further in the second half of 2021.
NPLs for consumer customers have decreased to 2.57% (31 December
2020 6.13%) driven by the increase in overall lending, facilitated
by RateSetter in the first half of the year as well as the run off
of legacy consumer loans.
Cost of risk
Cost of risk (CoR) is credit impairment expense expressed as a
percentage of average gross lending. The overall CoR has decreased
to 0.24% in the first half of the year (2020: 0.86%) due to the
significant charges taken in 2020 in response to COVID-19, compared
to the relatively smaller charge movements observed in H1 2021.
Table 13: Cost of risk
Half year
to Full year
30 June 2021 31 December
annualised 2020
(unaudited) (unaudited)
% %
------------------------------------------------------- -------------- -------------
Retail mortgages (0.32%) 0.19%
Consumer lending 7.16% 5.97%
Commercial lending (including asset, invoice finance,
CBLS, BBLS) 0.32% 1.99%
------------------------------------------------------- -------------- -------------
Total 0.24% 0.86%
------------------------------------------------------- -------------- -------------
The decrease in the retail mortgage CoR to -0.32% (2020: 0.19%)
is primarily driven by in the reduction in management overlays for
customers benefiting from payment deferrals, as customers have
returned to contractual monthly payments and implementation of a
new LGD model.
The increase in Consumer lending CoR to 7.16% (2020: 5.97%) is
driven by the purchase of the RateSetter back book. The day one ECL
charge for the acquired loans has artificially inflated the CoR for
the period, as the portfolio was acquired half way through the
period. This means that the average consumer lending balances,
which the charge for the period is divided by to calculate CoR,
only reflects the back book balance for roughly half the
period.
The decrease in Commercial lending CoR to 0.32% (2020: 1.99%) is
driven by a smaller GBP10m impairment charge compared to the
significant charge taken in 2020 in response to the onset of
COVID-19.
Liquidity and funding risk
Liquidity
O ur liquidity position continues to be strong, with our LCR
standing at 309% as at 30 June 2021 (31 December 2020: 187%). Our
strong liquidity position was strengthened by the completion of the
mortgage sale at the start of the year and greater than expected
deposit inflows.
We ended the period with a loan to deposit ratio of 74% (31
December 2020: 75%) and we continue to be deposit funded with no
reliance on the wholesale markets.
We continue to have access to, and have made use of, the Bank of
England's TFS and TFSME, both of which provide us with additional
cost-efficient source of liquidity although are not reliant on this
as a primary source of funding.
Capital
We manage capital in accordance with prudential rules issued by
the Prudential Regulation Authority (PRA) and Financial Conduct
Authority (FCA), in line with the European Union (EU) Capital
Requirements Directive and we are committed to maintaining a strong
capital base, under both existing and future regulatory
requirements.
Our CET1 capital ratio decreased to 13.9% at 30 June 2020 from
15.0% as at 31 December 2020. This was primarily due to the losses
incurred during the period.
The minimum CET1, Tier 1 and Total Capital Ratio requirements,
excluding any confidential PRA buffers, were 7.6%, 9.3% and 11.6%%
respectively at 30 June 2021.
We continue to apply the IFRS 9 regulatory transitional
arrangements, which allows us to add back to our capital base a
portion of the IFRS 9 impairment charges during the transitional
period, and our capital ratios are presented on a transitional
basis after the application of this arrangement.
The CET1 capital ratio at 30 June 2021 includes a c.1.0% benefit
related to software assets which are exempt from the deduction
requirement for intangibles assets from CET1. The PRA has consulted
on a proposal to revert this treatment and on 9 July 2021 a policy
statement was published confirming the requirement for CET1
deduction of intangible software assets will be fully implemented
on 1 January 2022.
In 2021 we are subject to an interim MREL requirement of 18% of
risk-weighted assets plus buffers, which equates to 20.5% of
risk-weighted assets (excluding any confidential PRA buffers). We
ended the period with an MREL ratio of 21.7% (31 December 2020:
22.4%). MREL remains the binding constraint on the Bank and our
MREL resources may fall below the sum of our MREL requirement plus
buffers for a period of time.
Table 14: Capital resources
31 December
30 June 2021 2020
(unaudited) (audited)
GBP'million GBP'million
------------------------------ ------------- -------------
Ordinary share capital - -
Share premium 1,964 1,964
Retained earnings (835) (694)
Other reserves 18 19
Intangible assets (253) (254)
Other regulatory adjustments 158 157
------------------------------ ------------- -------------
Total Tier 1 capital (CET1) 1,052 1,192
------------------------------ ------------- -------------
Debt securities (Tier 2) 249 249
------------------------------ ------------- -------------
Total Tier 2 capital 249 249
------------------------------ ------------- -------------
Total regulatory capital 1,301 1,441
------------------------------ ------------- -------------
Operational risk
Impact of COVID-19
In response to the pandemic, it was necessary to implement new
ways of working and adapt operational processes in 2020, the
associated risks of which continue to be actively assessed for
mitigation or acceptance as appropriate and process improvements
made and embedded as business as usual. Our overall operational
risk profile has remained relatively stable but is subject to
ongoing review as the situation unfolds and the longer-term impacts
of COVID-19 are fully understood. We continue to plan for, and
respond to, ongoing developments to ensure continuity of service,
minimise the impact on the risk profile, keep our colleagues and
customers safe, and comply with UK Government guidance. While the
roll-out of COVID-19 vaccines is underway, it will be some time
before this materially reduces the impact of the pandemic on our
day-to-day operations.
Fraud risk
We continue to work hard in a constantly evolving environment to
minimise the impact of fraud. The level of fraud-related losses has
increased but this is in proportion to the increase seen across the
industry, particularly in relation to scams on our customers, to
which we remain vigilant. Our round-the-clock operation reacts
quickly to the fraudsters' changing tactics, minimising the impact
to customers, and we continue to invest in system defences, and we
provide regular communication and training to our colleagues and
customers to ensure that we maintain a strong position in the
industry. We are also one of nine firms which have signed up to the
Lending Standards Board's Contingent Reimbursement Model voluntary
code and we are fully committed to its principles.
Cyber threat
The impact which a successful cyber attack could have on our
customers remains a very significant focus of attention, as we both
manage our current IT systems and plan to deliver new technology
for the future, recognising the changing cyber landscape and the
increased focus on digital capabilities. This is mitigated by
ongoing investment in our cyber and information security
infrastructure, enabling us to make constant improvements to our
monitoring, control and response capabilities to protect customer
data and minimise the risk of disruption.
Operational resilience
In order to continue to proactively prevent, respond to, recover
and learn from operational disruptions, we are investing in
measures to enhance our operational resilience in line with
increased regulatory requirements, including improving the
management of our use of third party suppliers.
Emerging risks
Within our 2020 annual report we outlined several emerging
risks. An update to these is provided below where appropriate. We
have not identified any new emerging risks in the first half of
2021.
Emerging risk Change from full year
-------------- ------------------------------------------------------------------
Macroeconomic The full extent of the economic impacts from COVID-19 is
environment yet to be seen. The duration and depth of the downturn continues
to remain uncertain due to the emergence of new variants
and risks to credit and margin performance are expected,
with significant disruption to both supply and demand already
occurring. Increasing levels of unemployment could impact
customers' ability to repay their lending. The efficacy of
monetary and fiscal policy, and the speed and ability with
which the UK can return to 'normal' operating conditions,
will determine the overall economic impact for the UK.
We continue to monitor economic and political developments
in light of the ongoing uncertainty, considering potential
consequences for our customers, products and operating model.
We actively monitor our credit portfolios and undertake robust
internal stress testing to identify sectors that may come
under stress as a result of an economic slowdown in the UK.
-------------- ------------------------------------------------------------------
Climate risk There is significant uncertainty around the time horizon
over which climate risks will materialise, as well as the
exact way in which they will occur.
Our mortgage portfolio represents a significant proportion
of our customer lending. Increases in extreme variability
in weather patterns may lead to increased incidence and severity
of physical risks which, in addition to the disruption felt
by customers, can lead to a decrease in the valuations of
property. In addition, tightening minimum energy efficiency
standards for domestic buildings could impact the value of
mortgaged properties or the ability of borrowers to service
debt. We have low levels of lending to carbon-related assets;
however, we may be exposed to future transition risks through
the business portfolio.
Analysis of current river and sea flood risk to properties
within the mortgage portfolio has been undertaken as an initial
step in assessing the physical risk to our lending. Scenario
analysis work will be undertaken to consider the longer-term
impacts, as well as the high degree of uncertainty. Transition
risk within the mortgage portfolio will also be considered,
with an assessment of the energy efficiency of properties,
and we intend to use this information to support our customers
to 'green' their homes. An assessment of sectors (and sub
-- sectors) that may have a higher likelihood of being impacted
by transition risks from moving to a lower carbon environment
has been performed to increase understanding of the possible
risks facing our customers, and support prioritisation of
areas where further analysis is required. Building scenario
analysis capability is a key component of work being undertaken
in 2021.
-------------- ------------------------------------------------------------------
Digitisation COVID-19 has accelerated the digitisation of the banking
industry in the space of a few months and is likely to lead
to rapid change over the coming years as the industry rapidly
adapts to customers' evolving behaviours. This is spurring
an acceleration of investment and delivery by both incumbent
banks and neo-banks to provide enhanced digital propositions
to customers in both the consumer and business markets.
The Bank's strategy had always been predicated on new and
exciting digital propositions, with the implications of the
pandemic supporting that ambition, but also accelerating
the timeframe for delivery. Our rapid response to the pandemic
has demonstrated our ability to implement change and digital
solutions swiftly. We are, therefore, continuously evaluating
the timetable and investment profile of our strategy. We
are continuing with our investment and digital development
in the near term to position us for the future.
-------------- ------------------------------------------------------------------
STATEMENT OF DIRECTOR's RESPONSIBILITIES
The directors confirm to the best of their knowledge these
condensed interim financial statements have been prepared in
accordance with UK adopted International Accounting Standard 34,
'Interim Financial Reporting' and that the interim management
report includes a fair review of the information required by DTR
4.2.7 and DTR 4.2.8, namely:
-- An indication of important events that have occurred during
the first six months ended 30 June 2021 and their impact on the
condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
-- Material related-party transactions in the first six months
ended 30 June 2021 and any material changes in the related-party
transactions described in the last annual report.
Signed on its behalf by:
Daniel Frumkin David Arden
Chief Executive Officer Chief Financial Officer
27 July 2021 27 July 2021
Independent review report to Metro Bank PLC
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Metro Bank PLC's condensed consolidated interim
financial statements (the "interim financial statements") in the
interim report of Metro Bank PLC for the 6 month period ended 30
June 2021 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- The consolidated balance sheet as at 30 June 2021;
-- The consolidated statement of comprehensive income for the period then ended;
-- The consolidated cash flow statement for the period then ended;
-- The consolidated statement of changes in equity for the period then ended; and
-- The explanatory notes to the interim financial statements.
The interim financial statements included in the interim report
of Metro Bank PLC have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim report, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the interim report in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, 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.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
28 July 2021
Consolidated statement of comprehensive income (unaudited)
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
Note GBP'million GBP'million GBP'million
------------------------------------------------- ----- ------------- ------------- -------------
Interest income 2 194.2 208.6 217.7
Interest expense 2 (60.9) (74.8) (101.8)
------------------------------------------------- ----- ------------- ------------- -------------
Net interest income 133.3 133.8 115.9
------------------------------------------------- ----- ------------- ------------- -------------
Net fee and commission income 32.7 36.4 23.5
Net gains on sale of assets 8.2 72.1 1.0
Other income 22.1 21.2 28.5
------------------------------------------------- ----- ------------- ------------- -------------
Total income 196.3 263.5 168.9
------------------------------------------------- ----- ------------- ------------- -------------
General operating expenses 3 (272.8) (268.2) (234.1)
Depreciation and amortisation 7,8 (40.3) (37.6) (36.8)
Impairment and write offs of PPE and intangible
assets 7,8 (7.5) (14.0) (26.6)
------------------------------------------------- ----- ------------- ------------- -------------
Total operating expenses (320.6) (319.8) (297.5)
Expected credit loss expense (14.6) (14.7) (112.0)
------------------------------------------------- ----- ------------- ------------- -------------
Loss before tax (138.9) (71.0) (240.6)
------------------------------------------------- ----- ------------- ------------- -------------
Tax (expense)/credit 5 (2.2) 8.6 1.1
------------------------------------------------- ----- ------------- ------------- -------------
Loss for the period (141.1) (62.4) (239.5)
------------------------------------------------- ----- ------------- ------------- -------------
Other comprehensive (expense)/ income
for the period
------------------------------------------------- ----- ------------- ------------- -------------
Items which will be reclassified subsequently
to profit or loss where specific conditions
are met:
Movements in respect of investment securities
held at fair value through other comprehensive
income (net of tax):
- changes in fair value (1.2) 2.4 3.2
- changes in fair value transferred to
the income statement on disposal (0.4) 0.1 (0.2)
------------------------------------------------- ----- ------------- ------------- -------------
Total other comprehensive (expense)/ income (1.6) 2.5 3.0
------------------------------------------------- ----- ------------- ------------- -------------
Total comprehensive loss for the period (142.7) (59.9) (236.5)
------------------------------------------------- ----- ------------- ------------- -------------
Earnings per share
Basic earnings per share (pence) 12 (81.8) (36.2) (138.9)
Diluted earnings per share (pence) 12 (81.8) (36.2) (138.9)
------------------------------------------------- ----- ------------- ------------- -------------
For the half year to 30 June 2021
Consolidated balance sheet (unaudited)
30 June 31 December 30 June
2021 2020 2020
Note GBP'million GBP'million GBP'million
--------------------------------------------- ----- ------------- ------------- -------------
Assets
Cash and balances with the Bank of England 5,111 2,993 3,080
Loans and advances to customers 6 12,325 12,090 14,857
Investment securities held at FVOCI 1,198 773 444
Investment securities held at amortised
cost 3,165 2,640 2,577
Financial assets held at fair value through
profit and loss 5 30 -
Property, plant and equipment 7 786 806 821
Intangible assets 8 253 254 202
Prepayments and accrued income 75 77 70
Assets classified as held for sale - 295 -
Other assets 95 2,621 83
--------------------------------------------- ----- ------------- ------------- -------------
Total assets 23,013 22,579 22,134
--------------------------------------------- ----- ------------- ------------- -------------
Liabilities
Deposits from customers 16,620 16,072 15,577
Deposits from central banks 3,800 3,808 3,801
Debt securities 596 600 599
Financial liabilities held at fair value - 30 -
through profit and loss
Repurchase agreements 212 196 211
Derivative financial liabilities 8 8 12
Lease liabilities 9 310 327 340
Deferred grants 10 22 28 31
Provisions 5 11 12
Deferred tax liabilities 5 13 12 15
Other liabilities 280 198 189
--------------------------------------------- ----- ------------- ------------- -------------
Total liabilities 21,866 21,290 20,787
--------------------------------------------- ----- ------------- ------------- -------------
Equity
Called up share capital 11 - - -
Share premium account 11 1,964 1,964 1,964
Retained earnings (835) (694) (632)
Other reserves 18 19 15
--------------------------------------------- ----- ------------- ------------- -------------
Total equity 1,147 1,289 1,347
--------------------------------------------- ----- ------------- ------------- -------------
Total equity and liabilities 23,013 22,579 22,134
--------------------------------------------- ----- ------------- ------------- -------------
As at 30 June 2021
The notes below form part of the condensed consolidated interim
financial statements.
These condensed consolidated interim financial statements were
approved and authorised for issue by the Board of Directors on 27
July 2021 and were signed on its behalf by:
Robert Sharpe Daniel Frumkin David Arden
Chairman Chief Executive Officer Chief Financial Officer
Consolidated cash flow STATEMENT ( unaudited)
For the half year to 30 June 2021
Half Half year Half
year to year
to 31 December to
30 June 2020 30 June
2021 GBP'million 2020
Note GBP'million GBP'million
------------------------------------------------------ ----- ------------- ------------- -------------
Reconciliation of loss before tax to net cash
flows from operating activities:
Loss before tax (139) (71) (241)
Adjustments for:
Impairment and write offs of property, plant
and equipment and intangible assets 7,8 8 14 27
Interest on lease liabilities 9 9 10 9
Depreciation and amortisation 7,8 40 37 37
Share option award charges 4 1 1 1
Grant income recognised in the income statement (7) (8) (16)
Amounts provided for - 3 5
Gain on sale of assets (8) (72) (1)
Accrued interest on and amortisation of investment
securities 1 5 (2)
Changes in operating assets and liabilities
Changes in loans and advances to customers (235) 2,767 (176)
Changes in deposits from customers 548 495 1,100
Changes in operating assets 2,817 (2,809) (11)
Changes in operating liabilities 77 (2) (61)
------------------------------------------------------ ----- ------------- ------------- -------------
Net cash inflows from operating activities 3,112 370 671
------------------------------------------------------ ----- ------------- ------------- -------------
Cash flows from investing activities
Net (purchase)/sale of investment securities (953) (391) (454)
Purchase of property, plant and equipment - (19) (10)
Purchase and development of intangible assets 8 (26) (28) (53)
Acquisition of subsidiary, net of cash acquired - (1) -
------------------------------------------------------ ----- ------------- ------------- -------------
Net cash outflows from investing activities (979) (439) (517)
------------------------------------------------------ ----- ------------- ------------- -------------
Cash flows from financing activities
Grants repaid 10 - - (50)
Repayment of capital element of leases 9 (15) (18) (13)
Net cash outflows from financing activities (15) (18) (63)
------------------------------------------------------ ----- ------------- ------------- -------------
Net increase/(decrease) in cash and cash equivalents 2,118 (87) 91
Cash and cash equivalents at start of period 2,993 3,080 2,989
------------------------------------------------------ ----- ------------- ------------- -------------
Cash and cash equivalents at end of period 5,111 2,993 3,080
------------------------------------------------------ ----- ------------- ------------- -------------
Loss before tax includes:
------------------------------------------------------ ----- ------------- ------------- -------------
Interest received 203 290 217
Interest paid 74 69 107
------------------------------------------------------ ----- ------------- ------------- -------------
Consolidated statement of changes in EQUITY ( unaudited)
For the half year to 30 June 2021
Called-up Share
Share Share Retained FVOCI option Total
capital premium earnings reserve reserve equity
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
Balance at 1 January 2021 - 1,964 (694) 3 16 1,289
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Loss for the period - - (141) - - (141)
Other comprehensive
expense
(net of tax) relating to
investment
securities designated at
fair
value through other
comprehensive
income - - - (2) - (2)
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive
expense - - (141) (2) - (143)
Net share option movements - - - - 1 1
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Balance at 30 June 2021 - 1,964 (835) 1 17 1,147
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Balance at 1 July 2020 - 1,964 (632) - 15 1,347
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Loss for the period - - (62) - - (62)
Other comprehensive income
(net of tax) relating to
investment
securities designated at
fair
value through other
comprehensive
income - - - 3 - 3
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive
(expense)/income - - (62) 3 - (59)
Net share option movements - - - - 1 1
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Balance at 31 December
2020 - 1,964 (694) 3 16 1,289
Balance at 1 January 2020 - 1,964 (392) (3) 14 1,583
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Loss for the period - - (240) - - (240)
Other comprehensive income
(net of tax) relating to
investment
securities designated at
fair
value through other
comprehensive
income - - - 3 - 3
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive
(expense)/income - - (240) 3 - (237)
Net share option movements - - - - 1 1
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Balance at 30 June 2020 - 1,964 (632) - 15 1,347
--------------------------- -------------- ------------- ------------- ------------- ------------- -------------
Notes to the condensed consolidated interim financial statements
(unaudited)
1. Basis of preparation and accounting policies
1 General information
Metro Bank PLC ("our" or "we") provides retail and commercial
banking services in the UK, is a public limited liability company
incorporated and domiciled in England and Wales and is listed on
the London Stock Exchange (LON:MTRO). The address of its registered
office is: One Southampton Row London WC1B 5HA.
2 Basis of preparation
The condensed consolidated interim financial statements of Metro
Bank and its subsidiaries for the six months ended 30 June 2021
were authorised for issue in accordance with a resolution of the
Directors on 27 July 2021.
These condensed consolidated interim financial statements for
the six months ended 30 June 2021 have been prepared on the basis
of the policies set out in the 2020 annual financial statements and
in accordance with UK adopted IAS 34 and the Disclosure Guidance
and Transparency Rules sourcebook of the UK's Financial Conduct
Authority, and should be read in conjunction with the annual
consolidated financial statements for the year ended 31 December
2020 which were prepared in accordance with IFRS in conformity with
the requirements of the Companies Act 2006 and IFRS adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
In the year to 31 December 2021 our annual financial statements
will be prepared in accordance with IFRS as adopted by the UK
Endorsement Board. This change in basis of preparation is required
by UK company law for the purposes of financial reporting as a
result of the UK's exit from the EU on 31 January 2020 and the
cessation of the transition period on 31 December 2020.This change
does not constitute a change in accounting policy but rather a
change in framework which is required to ground the use of IFRS in
company law. There is no impact on recognition, measurement or
disclosure between the two frameworks in the period reported.
The comparative financial information as at and for the periods
ending 31 December 2020 and 30 June 2020 do not constitute
statutory accounts as defined in section 434 of the Companies Act
2006. A copy of the statutory accounts for the year ended 31
December 2020 has been delivered to the Registrar of Companies.
The auditor's report on those accounts was not qualified, did
not include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying the report and did
not contain statements under section 498(2) or (3) of the Companies
Act 2006.
Going concern
The Directors consider that it is appropriate to continue to
adopt the going concern basis of accounting in preparing the
condensed consolidated interim financial statements. In reaching
this assessment, the Directors have considered projections for our
capital and funding position. The Directors also considered the key
assumptions and uncertainties that feed into these projections and
the mitigants that are available should actual performance differ
to these projections. 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 a period of at least twelve
months from when the interim financial statements are authorised
for issue. The Directors did not deem there to be any material
uncertainties with regards to the assessment on going concern.
3 Accounting policies
Except as described below, the accounting policies applied in
these condensed consolidated interim financial statements are the
same as those applied in the Group's consolidated financial
statements as at and for the year ended 31 December 2020.
IBOR transition
During the period we have adopted Interest Rate Benchmark Reform
Phase 2 - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
(the Phase 2 amendments).
The only impact on our financial statements is in relation to
our hedging arrangements, which have transitioned from being based
on LIBOR to SONIA. The Phase 2 amendments have allowed us to amend
the designation of our hedging relationships and the associated
hedge documentation to reflect these changes without discontinuing
the hedging relationships. Our accounting policies in respect of
hedging remain unchanged and continue to be applied.
The impact of the changes does not have a significant impact on
these condensed consolidated interim financial statements.
Future accounting developments
There are no known future accounting developments that are
likely to have a material impact on the Group.
4 Critical accounting judgements
In our 2020 Annual Report and Accounts we identified the
following critical accounting judgements:
-- Recognition of provisions
-- Measurement of the expected credit loss allowance -significant increase in credit risk
-- Measurement of the expected credit loss allowance -use of
post model overlays and adjustments
Further details on these critical accounting judgements is set
out below. No new critical accounting judgements have been
identified during the period.
Recognition of provisions
We are currently subject to several regulatory investigations. A
key area of judgement applied in the preparation of these financial
statements is deciding whether a provision should be made for the
outcome of these matters. Specifically, judgement is applied in
determining whether a present obligation exists and where one does,
in estimating the probability, timing and amount of any outflows.
In determining whether a provision needs to be made and whether it
can be reliably estimated, we consult relevant professional experts
and reassess our judgements on an ongoing basis as facts change.
Because of the complex nature of the legal and regulatory matters
we are subject to, it is typically the case that it is not possible
to reliably estimate the outcome and in these cases we do not
provide for their outcome, however we do provide further
disclosures outlining the matters in further detail.
Additional information about legal and regulatory matters which
constitute contingent liabilities is available in note 14.
Measurement of the expected credit loss allowance -significant
increase in credit risk
IFRS 9 requires a higher level of expected credit loss to be
recognised for underperforming loans as a lifetime ECL is
recognised compared to a 12-month ECL for performing loans. This is
considered based on a staging approach. Financial assets that have
had no significant increase in credit risk since initial
recognition, or that have low credit risk at the reporting date,
are considered to be performing loans and are classified as 'Stage
1'. Losses are calculated based on our expectation of losses
expected on defaults which may occur within the next 12 months.
Assets which are considered to have experienced a significant
increase in credit risk since initial recognition, but that do not
have objective evidence of impairment, are classified as 'Stage 2'.
Losses are calculated based on defaults which may occur at any
point in the asset's lifetime.
Judgement is required to determine when a significant increase
in credit risk has occurred. An assessment of whether credit risk
has increased significantly since initial recognition, resulting in
transfer to Stage 2.
As a response to the COVID-19 pandemic, we introduced the
ability for our customers to request payment deferrals as a result
of the COVID-19 pandemic. The use of a payment deferral is not in
itself considered to be trigger of a significant increase in credit
risk and as such the granting of a COVID-19 related payment
deferral does not in itself result in a transfer between stages for
the purposes of IFRS 9. Payment deferral is however a potential
indicator of an increase risk and has been reflected via a post
model overlay.
Measurement of the expected credit loss allowance -use of post
model overlays and adjustments
We use 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 the Bank's Model
Governance Committee, Impairment Committee and Audit
Committees.
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.
As at 30 June 2021, only one PMA remains, as models have been
implemented into production and previously held PMAs have been
released. The remaining PMA reflects the temporary over-estimation
of the amortisation profile of customers with payment deferral
options (30 June 2021: -GBP1.4 million; 31 December 2020: GBP23.0
million).
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).
Given the continued economic uncertainty, government support and
lock down restrictions and further uncertainty on how the pandemic
will unfold, we continue to maintain appropriate levels of PMOs.
Given the reduction in PMAs, the total percentage of ECL stock
comprised of PMAs/PMOs has reduced to 34% (31 December 2020:
50%).
PMOs make up GBP56.6 million of the ECL stock for the half year
ended 30 June 2021 (31 December 2020: GBP54.0 million) and
comprise:
-- An overlay to reflect the introduction of a fourth more
severe downside scenario - to reflect a wider range of
macroeconomic scenarios (30 June 2021: GBP3.9 million; 31 December
2020: GBPnil). This has been incorporated as a PMO pending
completion of formal model validation.
-- An overlay to reflect the existing payment deferrals provided
to customers - for mortgages and consumer lending a portfolio level
overlay has been maintained to reflect the increased risk for
customers currently benefiting from COVID-19 payment deferrals (30
June 2021: GBP2.6 million; 31 December 2020: GBP10.9 million). This
overlay has been reduced during the first half of 2021 as customers
have demonstrated consistent repayments following the end of the
deferral period. We expect this to continue to reduce during H2
2021.
-- Uncertainties to economic forecast - to reflect the
additional uncertainty not captured in the scenarios used. The
latest Commercial portfolio macroeconomic scenarios include a
favourable view of GDP which reflects the benefits of the easing of
lock-down restrictions. Further, government support schemes have
artificially delayed default emergence. The Commercial economic
forecasts have been lagged, to capture the future default risk
expected to emerge, as Government support schemes come to an end in
the second half of the year. (30 June 2021: GBP9.6 million; 31
December 2020: GBPnil).
-- An expert judgement overlay for the Commercial portfolio - to
reflect additional downside risks as a result of COVID-19 and
associated severe economic scenarios, including additional stress
on commercial property values, sector based stress for customers
benefiting from temporary COVID-19 support, and a contagion overlay
to reflect cross default risk (30 June 2021: GBP14.9 million; 31
December 2020: GBP10.6 million).
-- An expert judgement overlay for the Mortgage portfolio - to
reflect additional downside risks as a result of COVID-19 and
associated severe economic scenarios, and potential impact of
cladding on property values (30 June 2021: GBP13.1 million; 31
December 2020: GBP14.6 million).
-- An overlay for losses in respect of government backed lending
schemes - this covers the potential cost to recover for BBLS (30
June 2021: GBP9.6 million; 31 December 2020: GBP7.5 million).
-- An overlay for the RateSetter portfolio - to reflect the
difference in ECL estimated using the newly developed models and
the current approach (30 June 2021: GBP1.9 million; 31 December
2020: GBPnil). This has been incorporated as a PMO pending
completion of formal model validation.
5 Critical accounting estimates
In our 2020 Annual Report and Accounts we identified one
critical accounting estimate relating to the formulation and
incorporation of multiple forward-looking economic scenarios into
the measurement of the expected credit loss allowance. We continue
to consider this to be a critical accounting estimate.
The ECL recognised in the financial statements reflects the
effect on expected credit losses of a range of possible outcomes,
calculated on a probability-weighted basis, based on a number of
economic scenarios and including management overlays where
required. These scenarios are representative of our view of
forecast economic conditions, sufficient to calculate unbiased ECL,
and are designed to capture material 'non-linearities' (i.e. where
the increase in credit losses if conditions deteriorate, exceeds
the decrease in credit losses if conditions improve).
In line with Metro Bank's approved IFRS 9 models, macroeconomic
scenarios provided by Moody's Analytics are used in the assessment
of provisions. The use of an independent supplier for the provision
of scenarios helps to ensure that the estimates are unbiased.
A fourth more severe downside macroeconomic scenario has been
introduced as at 30 June 2020 across all portfolios to ensure the
set of scenarios adequately reflect a wider range of downside risks
which have been previously included within management overlays.
Scenarios and probability weights are as follows:
Half year Half year Half year
to to to
30 June 31 December 30 June
Scenario weighting 2021 2020 2020
-------------------- ---------- ------------- ----------
Baseline 40% 40% 40%
Upside 20% 30% 30%
Downside 30% 30% 30%
Severe Downside 10% - -
-------------------- ---------- ------------- ----------
The macroeconomic scenarios reflect the current macroeconomic
environment as follows:
Baseline scenario (40% Reflects the projection of the median, or "50%"
weight) scenario, meaning that in the assessment there
is an equal probability that the economy might
perform better or worse than the baseline forecast.
----------------------------- -----------------------------------------------------
Upside scenario (20% weight) This above-baseline scenario is designed so there
is a 90% probability the economy will perform
better than in this scenario, broadly speaking,
and a 10% probability it will perform worse.
----------------------------- -----------------------------------------------------
Downside scenario (30% In this recession scenario, in which a deep downturn
weight) develops, there is a 10% probability the economy
will perform better, broadly speaking, and a 90%
probability it will perform worse.
----------------------------- -----------------------------------------------------
Severe Downside scenario In this recession scenario, in which a deep downturn
(10% weight) develops, there is a 4% probability the economy
will perform better, broadly speaking, and a 96%
probability it will perform worse.
----------------------------- -----------------------------------------------------
Key assumptions underpinning the baseline June 2021
scenarios:
-- The Delta variant of COVID-19 is the dominant strain in the
UK and new cases are increasing.
-- The existing vaccines are effective against the new variant,
and the death rate remains low.
-- A fourth lockdown is prevented, but the last restriction
measures remain for a longer period.
-- The unemployment rate spikes in the last quarter of 2021 as a
result of the end of the Coronavirus Job Retention Scheme, which
was extended to the end of September, and the recovery remains
fragile in the second half of the year.
-- Inflation remains contained for several quarters still,
weighed down by the decline in demand. It reaches the 2% target by
the start of 2022.
-- The government continues to support the economy through
massive fiscal stimulus during the first half of 2021, while the
Bank of England keeps monetary policy extremely loose for several
quarters.
-- The EU and the U.K. sign a new financial services agreement,
and the U.K. continues operating in European markets.
The following variables are the key drivers of ECL:
-- UK interest rate (five-year mortgage rate)
-- UK unemployment rate
-- UK HPI change, year-on-year (adjusted in the downside scenarios for regional concentration)
-- UK GDP change, year-on-year
Macroeconomic scenarios impact the ECL calculation through
varying the Probability of Default (PD) and Loss Given Default
(LGD). We use UK HPI to index mortgage collateral which has a
direct impact on LGD. A wide range of potential metrics were
initially considered, representing drivers which capture trends in
the economy at large, and may indicate economic trends which will
impact UK borrowers. This included variables which impact economic
output, interest rates, inflation, stock prices, borrower income
and the UK housing market. Statistical methods were then used to
choose the subset of drivers which had the greatest significance
and predictive fit to our data.
Macroeconomic variable Scenario 2021 2022 2023 2024
----------------------------- ----------------- -------- -------- ------- -----
UK five year mortgage
interest rates (%) Baseline 2.5% 2.8% 3.2% 3.7%
----------------------------- ----------------- -------- -------- ------- -----
Upside 2.8% 3.1% 3.5% 4.2%
----------------------------------------------- -------- -------- ------- -----
Downside 2.1% 2.3% 2.6% 2.9%
----------------------------------------------- -------- -------- ------- -----
Severe Downside 2.1% 2.0% 2.5% 2.8%
----------------------------------------------- -------- -------- ------- -----
Unemployment (%) Baseline 6.7% 6.0% 5.3% 5.0%
----------------------------- ----------------- -------- -------- ------- -----
Upside 6.3% 4.9% 4.3% 4.2%
----------------------------------------------- -------- -------- ------- -----
Downside 7.4% 8.2% 7.6% 7.0%
----------------------------------------------- -------- -------- ------- -----
Severe Downside 7.5% 9.1% 8.2% 7.8%
----------------------------------------------- -------- -------- ------- -----
House price index (YoY%)(1) Baseline (1.4%) 3.2% 6.3% 5.2%
----------------------------- ----------------- -------- -------- ------- -----
Upside 3.8% 10.2% 6.9% 3.9%
----------------------------------------------- -------- -------- ------- -----
Downside (6.3%) (12.0%) (2.0%) 6.6%
----------------------------------------------- -------- -------- ------- -----
Severe Downside (12.8%) (18.1%) (2.2%) 6.7%
----------------------------------------------- -------- -------- ------- -----
UK GDP (YoY%) Baseline 6.4% 4.6% 2.9% 1.3%
----------------------------- ----------------- -------- -------- ------- -----
Upside 9.3% 4.5% 2.3% 1.3%
----------------------------------------------- -------- -------- ------- -----
Downside 2.4% 4.0% 4.2% 2.1%
----------------------------------------------- -------- -------- ------- -----
Severe Downside 1.3% 3.3% 3.9% 2.0%
----------------------------------------------- -------- -------- ------- -----
The period-end assumptions used for the ECL estimate as at 31
December 2020 are as follows:
Macroeconomic variable Scenario 2021 2022 2023 2024
-------------------------- ---------- ------- -------- ----- -----
UK five year mortgage
interest rates (%) Baseline 2.2% 2.8% 3.3% 3.6%
-------------------------- ---------- ------- -------- ----- -----
Upside 2.4% 2.9% 3.7% 4.2%
------------------------------------- ------- -------- ----- -----
Downside 1.7% 2.3% 2.6% 2.7%
------------------------------------- ------- -------- ----- -----
Unemployment (%) Baseline 7.4% 6.8% 5.9% 5.5%
-------------------------- ---------- ------- -------- ----- -----
Upside 6.4% 5.6% 5.0% 4.8%
------------------------------------- ------- -------- ----- -----
Downside 9.2% 9.3% 8.3% 7.6%
------------------------------------- ------- -------- ----- -----
House price index (YoY%) Baseline (5.0%) 3.2%) 5.7% 5.8%
-------------------------- ---------- ------- -------- ----- -----
Upside (1.1%) 7.6% 7.4% 5.5%
------------------------------------- ------- -------- ----- -----
Downside (9.8%) (1.95%) 4.7% 6.8%
------------------------------------- ------- -------- ----- -----
UK GDP (YoY%) Baseline 6.8% 5.4% 2.7% 1.0%
-------------------------- ---------- ------- -------- ----- -----
Upside 10.7% 3.9% 2.4% 1.1%
------------------------------------- ------- -------- ----- -----
Downside 1.8% 7.0% 3.0% 1.0%
------------------------------------- ------- -------- ----- -----
1. For the six months ended 30 June 2021 the HPI economic
forecast has been stressed on the downside and more severe downside
scenarios to reflect Metro Bank's geographical concentration
risk.
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.
Variance to reported
ECL weighted ECL
Scenario GBP'million at 30 June 2021
----------------- ------------------- ---------------------
Weighted 166 100%
Baseline 153 (8%)
Upside 146 (12%)
Downside 182 10%
Severe Downside 208 26%
----------------- ------------------- ---------------------
We note that the sensitivities disclosed above represent example
scenarios and may not represent actual scenarios which occur in the
future. If one of these scenarios did arise then at that time the
ECL would not equal the amount disclosed above, as the amounts
disclosed do not take account of the alternative possible scenarios
which would be considered at that time. We also note that the
sensitivities disclosed above do not take into account movements in
impairment stage allocations that would result under the different
scenarios.
6 Operating segments
We provide retail and commercial banking services. The Board
considers the results of the Group as a whole when assessing the
performance of the business and allocating resources. Accordingly,
we have only a single operating segment.
We operate solely in the UK and as such no geographical analysis
is required
2. Net interest income
Interest income
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
GBP'million GBP'million GBP'million
------------------------------------------------- ------------- ------------- -------------
Cash and balances held with the Bank of England 2.3 1.2 4.9
Loans and advances to customers 182.2 201.6 191.7
Investment securities held at amortised cost 9.1 5.3 19.5
Investment securities held at FVOCI 0.6 0.5 1.6
------------------------------------------------- ------------- ------------- -------------
Total interest income 194.2 208.6 217.7
------------------------------------------------- ------------- ------------- -------------
Interest expense
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
GBP'million GBP'million GBP'million
----------------------------- ------------- ------------- -------------
Deposits from customers 25.5 38.8 60.3
Deposits from central banks 1.9 1.9 6.8
Repurchase agreements 1.1 1.1 1.2
Debt securities 23.6 23.6 24.2
Lease liabilities 8.8 9.4 9.3
Total interest expense 60.9 74.8 101.8
----------------------------- ------------- ------------- -------------
3. General operating expenses
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
GBP'million GBP'million GBP'million
---------------------------------------------- ------------- ------------- -------------
People costs 121.5 108.8 88.7
Information technology costs 27.3 26.6 21.7
Occupancy expenses 16.2 17.1 17.2
Money transmission and other banking related
costs 33.6 32.4 13.5
Transformation costs 1.8 4.2 12.4
Remediation costs 25.4 22.9 17.8
Capability & Innovation fund (C&I) costs 5.8 6.4 15.1
Legal and Regulatory fees 3.4 3.1 2.3
Professional Fees 27.4 32.3 21.7
Contractor costs 2.1 2.7 2.8
Printing, postage and stationery costs 2.4 3.0 3.1
Travel costs 0.5 0.5 1.3
Marketing and advertising costs 1.5 2.8 3.6
Business acquisition and integration costs 2.3 5.4 -
Other 1.6 - 12.9
Total general operating expenses 272.8 268.2 234.1
---------------------------------------------- ------------- ------------- -------------
4. People costs
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
GBP'million GBP'million GBP'million
------------------------------------- ------------- ------------- -------------
Wages and salaries 103.1 92.2 74.6
Social security costs 11.2 10.0 7.9
Pension costs 6.5 5.8 5.0
Equity-settled share based payments 0.7 0.8 1.2
Total people costs 121.5 108.8 88.7
------------------------------------- ------------- ------------- -------------
5. Taxation
Tax (expense)/credit for the period
The components of tax (expense)/credit for the six months ended
30 June 2021, 31 December 2020 and 30 June 2020 are:
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
GBP'million GBP'million GBP'million
--------------------------------------------------- ------------- ------------- -------------
Current tax
Current tax - (0.7) 0.6
Adjustment in respect of prior years (0.1) (0.5) -
--------------------------------------------------- ------------- ------------- -------------
Total current tax (expense)/credit (0.1) (1.2) 0.6
--------------------------------------------------- ------------- ------------- -------------
Deferred tax
Origination and reversal of temporary differences 2.3 4.9 (1.3)
Effect of changes in tax rates (4.4) 0.3 1.8
Adjustment in respect of prior periods - 4.6 -
--------------------------------------------------- ------------- ------------- -------------
Total deferred tax (expense)/credit (2.1) 9.8 0.5
--------------------------------------------------- ------------- ------------- -------------
Total tax (expense)/credit (2.2) 8.6 1.1
--------------------------------------------------- ------------- ------------- -------------
Reconciliation of the total tax (expense)/credit
The tax expense shown in the income statement differs from the
tax expense that would apply if all accounting profits had been
taxed at the UK corporation tax rate.
A reconciliation between the tax expense and the accounting
profit multiplied by the UK corporation tax rate for the half year
ended 30 June 2021, 31 December 2020 and 30 June 2020 are as
follows:
Half Half
year Half year
to year to Effective to
30 June Effective 31 December tax 30 June Effective
2021 tax rate 2020 rate 2020 tax rate
GBP'million % GBP'million % GBP'million %
------------------------------------- ------------- ---------- ------------- ---------- ------------- ----------
Loss before tax (138.9) (70.9) (240.6)
------------------------------------- ------------- ---------- ------------- ---------- ------------- ----------
Tax credit at statutory income tax
rate of 19% 26.4 19.0% 13.5 19.0% 45.7 19.0%
------------------------------------- ------------- ---------- ------------- ---------- ------------- ----------
Tax effects of:
Non-deductible expenses -
depreciation
on non-qualifying fixed assets (0.8) (0.6%) (1.0) (1.4%) (1.4) (0.6%)
Non-deductible expenses - investment
property impairment - - (3.2) (4.5%)
Non-deductible expenses - PPE
impairment - - - - (2.2) (0.9%)
Non-deductible expenses -
remediation (4.6) (3.3%) (3.6) (5.1%) (3.0) (1.3%)
Non-deductible expenses - other (0.1) (0.1%) (0.2) (0.3%) (0.5) (0.2%)
Impact of intangible asset
impairment
on R&D deferred tax liability 1.9 1.4% 0.2 0.3% - -
Share based payments (0.2) (0.1%) - - (0.2) (0.1%)
Adjustment in respect of prior years (0.1) - 4.1 5.8% - -
Losses for the period for which no
deferred tax asset has been
recognised (20.3) (14.6%) (3.7) (5.2%) (39.1) (16.3%)
Derecognition of tax losses arising - - - - - -
in prior years
Effect of changes in tax rates (4.4) (3.2%) 0.3 0.4% 1.8 0.8%
------------------------------------- ------------- ---------- ------------- ---------- ------------- ----------
Tax (expense) / credit reported in
the consolidated income statement (2.2) (1.5%) 6.4 9.0% 1.1 0.4%
------------------------------------- ------------- ---------- ------------- ---------- ------------- ----------
Effective tax rate
The effective tax rate for half year to 30 June 2021 is (1.5)%
(half year to 31 December 2020: 0.4%; half year to 30 June 2020:
9.0%). This has been calculated by applying the effective tax rate
which is expected to apply for the six months ended 30 June 2021
using rates substantively enacted by 30 June 2021 as required by
IAS34 'Interim Financial Reporting'.
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. A reduction
in the UK corporation tax rate from 19% to 17% (effective 1 April
2020) was substantively enacted on 6 September 2016. The March 2020
Budget announced that a rate of 19% would continue to apply with
effect from 1 April 2020, and this change was substantively enacted
on 17 March 2020.
An increase in the UK corporation rate from 19% to 25%
(effective 1 April 2023) was substantively enacted on 24 May 2021.
This will increase the company's future current tax charge
accordingly. The deferred tax liability at 30 June 2021 has been
calculated based on these rates, reflecting the expected timing of
temporary differences.
Deferred tax
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. Further information on the details of
the judgements taken around deferred tax are discussed in note
1.
The following table shows deferred tax recorded in the statement
of financial position and changes recorded in the tax expense:
Investment Property,
Unused tax securities & Share based plant & Intangible
losses impairments payments equipment assets Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
30 June 2021
Deferred tax
assets 13 3 - - - 16
Deferred tax
liabilities - - - (21) (8) (29)
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
Deferred tax
liabilities
(net) 13 3 - (21) (8) (13)
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
At 1 January
2021 12 2 - (16) (10) (12)
Income
statement 1 - - (5) 2 (2)
Other
comprehensive
income - 1 - - - 1
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
At 30 June 2021 13 3 - (21) (8) (13)
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
31 December
2020
Deferred tax
assets 12 3 - - - 15
Deferred tax
liabilities - (1) - (16) (10) (27)
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
Deferred tax
liabilities
(net) 12 2 - (16) (10) (12)
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
At 1 July 2020 - 3 - (14) (4) (15)
Income
statement 12 - - (2) - 10
Other
comprehensive
income - (1) - - - (1)
Acquisition - - - - (6) (6)
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
At 31 December
2020 12 2 - (16) (10) (12)
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
30 June 2020
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
Deferred tax
assets - 5 - - - 5
Deferred tax
liabilities - (2) - (14) (4) (20)
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
Deferred tax
liabilities
(net) - 3 - (14) (4) (15)
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
At 1 January
2020 - 4 - (15) (4) (15)
Income
statement - (1) - 1 - -
At 30 June 2020 - 3 - (14) (4) (15)
---------------- ---------------- --------------- --------------- --------------- ---------------- -------------
6. Loans and advances to customers
30 June 2021
----------------------------------------------
Gross carrying Net carrying
amount ECL allowance amount
GBP'million GBP'million GBP'million
--------------------------------------- --------------- -------------- -------------
Retail mortgages 6,815 (15) 6,800
Consumer lending 704 (42) 662
Commercial lending 4,972 (109) 4,863
--------------------------------------- --------------- -------------- -------------
Total loans and advances to customers 12,491 (166) 12,325
--------------------------------------- --------------- -------------- -------------
31 December 2020
----------------------------------------------
Gross carrying Net carrying
amount ECL allowance amount
GBP'million GBP'million GBP'million
--------------------------------------- --------------- -------------- -------------
Retail mortgages 6,892 (26) 6,866
Consumer lending 204 (25) 179
Commercial lending 5,148 (103) 5,045
--------------------------------------- --------------- -------------- -------------
Total loans and advances to customers 12,244 (154) 12,090
--------------------------------------- --------------- -------------- -------------
30 June 2020
----------------------------------------------
Gross carrying Net carrying
amount ECL allowance amount
GBP'million GBP'million GBP'million
--------------------------------------- --------------- -------------- -------------
Retail mortgages 10,190 (40) 10,150
Consumer lending 198 (22) 176
Commercial lending 4,614 (83) 4,531
--------------------------------------- --------------- -------------- -------------
Total loans and advances to customers 15,002 (145) 14,857
--------------------------------------- --------------- -------------- -------------
Loans and advances to customers by category
30 June 31 December 30 June
2021 2020 2020
GBP'million GBP'million GBP'million
-------------------------------------------- ------------- ------------- -------------
Residential owner occupied 5,028 5,051 8,310
Retail buy-to-let 1,787 1,841 1,880
-------------------------------------------- ------------- ------------- -------------
Total retail mortgages 6,815 6,892 10,190
-------------------------------------------- ------------- ------------- -------------
Overdrafts 71 73 73
Credit cards 11 10 10
Term loans 622 121 115
-------------------------------------------- ------------- ------------- -------------
Total consumer lending 704 204 198
-------------------------------------------- ------------- ------------- -------------
Total retail lending 7,519 7,096 10,388
-------------------------------------------- ------------- ------------- -------------
Professional buy-to-let 1,037 1,117 1,167
Bounce back loans 1,394 1,353 730
Coronavirus business interruption loans 162 114 50
Other term loans 1,963 2,138 2,222
Commercial term loans 4,556 4,722 4,169
Overdrafts and revolving credit facilities 133 149 185
Credit cards 3 3 3
Asset and invoice finance 280 274 257
Total commercial lending 4,972 5,148 4,614
-------------------------------------------- ------------- ------------- -------------
Total gross loans to customers 12,491 12,244 15,002
-------------------------------------------- ------------- ------------- -------------
Included within the consumer term loan figure is the portfolio
back book of loans purchased from the RateSetter peer-to-peer
investors in April for GBP337 million.
Credit risk exposures
The following tables show the loans for each of our portfolios
by days past due along with their corresponding staging. Where
payment deferrals have been given as a result of COVID-19 the days
past due figure exclude the deferral period. Overall COVID-19 has
impacted a number of our customers, and this is reflected in the
deterioration in the proportion of loans which are past due. We
have provisioned for higher levels of expected credit losses to
reflect this risk.
Retail mortgages
30 June 2021
------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI(1)
12 month Lifetime Lifetime Lifetime
ECL GBP'million ECL GBP'million ECL GBP'million ECL GBP'million
------------------------ ------------------ ------------------ ------------------ ------------------
Up to date 5,917 751 32 -
1 to 29 days past due 1 17 10 -
30 to 89 days past due - 18 17 -
90+ days past due - - 52 -
------------------------ ------------------ ------------------ ------------------ ------------------
Gross carrying amount 5,918 786 111 -
------------------------ ------------------ ------------------ ------------------ ------------------
1. Purchase or originated credit impaired
31 December 2020
------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month Lifetime Lifetime Lifetime
ECL GBP'million ECL GBP'million ECL GBP'million ECL GBP'million
------------------------ ------------------ ------------------ ------------------ ------------------
Up to date 5,911 802 47 -
1 to 29 days past due - 18 8 -
30 to 89 days past due - 43 13 -
90+ days past due - - 50 -
------------------------ ------------------ ------------------ ------------------ ------------------
Gross carrying amount 5,911 863 118 -
------------------------ ------------------ ------------------ ------------------ ------------------
30 June 2020
------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month Lifetime Lifetime Lifetime
ECL GBP'million ECL GBP'million ECL GBP'million ECL GBP'million
------------------------ ------------------ ------------------ ------------------ ------------------
Up to date 9,382 680 33 -
1 to 29 days past due - 14 7 -
30 to 89 days past due - 29 11 -
90+ days past due - - 34 -
------------------------ ------------------ ------------------ ------------------ ------------------
Gross carrying amount 9,382 723 85 -
------------------------ ------------------ ------------------ ------------------ ------------------
Consumer lending
30 June 2021
------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month Lifetime Lifetime Lifetime
ECL GBP'million ECL GBP'million ECL GBP'million ECL GBP'million
------------------------ ------------------ ------------------ ------------------ ------------------
Up to date 641 34 1 -
1 to 29 days past due 1 1 - -
30 to 89 days past due - 8 1 -
90+ days past due - - 16 1
------------------------ ------------------ ------------------ ------------------ ------------------
Gross carrying amount 642 43 18 1
------------------------ ------------------ ------------------ ------------------ ------------------
31 December 2020
------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month Lifetime Lifetime Lifetime
ECL GBP'million ECL GBP'million ECL GBP'million ECL GBP'million
------------------------ ------------------ ------------------ ------------------ ------------------
Up to date 149 38 - -
1 to 29 days past due - 3 - -
30 to 89 days past due - 2 - -
90+ days past due - - 12 -
------------------------ ------------------ ------------------ ------------------ ------------------
Gross carrying amount 149 43 12 -
------------------------ ------------------ ------------------ ------------------ ------------------
30 June 2020
------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month Lifetime Lifetime Lifetime
ECL GBP'million ECL GBP'million ECL GBP'million ECL GBP'million
------------------------ ------------------ ------------------ ------------------ ------------------
Up to date 177 - - -
1 to 29 days past due 2 1 - -
30 to 89 days past due - 7 - -
90+ days past due - - 11 -
------------------------ ------------------ ------------------ ------------------ ------------------
Gross carrying amount 179 8 11 -
------------------------ ------------------ ------------------ ------------------ ------------------
Commercial lending
30 June 2021
------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month Lifetime Lifetime Lifetime
ECL GBP'million ECL GBP'million ECL GBP'million ECL GBP'million
------------------------ ------------------ ------------------ ------------------ ------------------
Up to date 3,985 765 165 -
1 to 29 days past due 1 8 2 -
30 to 89 days past due - 27 10 -
90+ days past due - - 9 -
------------------------ ------------------ ------------------ ------------------ ------------------
Gross carrying amount 3,986 800 186 -
------------------------ ------------------ ------------------ ------------------ ------------------
31 December 2020
------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month Lifetime Lifetime Lifetime
ECL GBP'million ECL GBP'million ECL GBP'million ECL GBP'million
------------------------ ------------------ ------------------ ------------------ ------------------
Up to date 4,115 863 96 -
1 to 29 days past due - 21 2 -
30 to 89 days past due - 22 11 -
90+ days past due - - 18 -
------------------------ ------------------ ------------------ ------------------ ------------------
Gross carrying amount 4,115 906 127 -
------------------------ ------------------ ------------------ ------------------ ------------------
30 June 2020
------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 POCI
12 month Lifetime Lifetime Lifetime
ECL GBP'million ECL GBP'million ECL GBP'million ECL GBP'million
------------------------ ------------------ ------------------ ------------------ ------------------
Up to date 4,353 2 43 -
1 to 29 days past due 2 39 1 -
30 to 89 days past due - 97 16 -
90+ days past due - - 61 -
------------------------ ------------------ ------------------ ------------------ ------------------
Gross carrying amount 4,355 138 121 -
------------------------ ------------------ ------------------ ------------------ ------------------
Loss allowance
The following tables explain the changes in both the gross
carrying amount and loss allowances of our loans and advances
during the period.
Retail mortgages
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
------------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
1 January
2021 5,911 863 118 - 6,892 (5) (17) (4) - (26) 5,906 846 114 - 6,866
Transfers
to/from stage
1(1) 369 (352) (17) - - (7) 6 1 - - 362 (346) (16) - -
Transfers
to/from stage
2(1) (280) 288 (8) - - 1 (1) - - - (279) 287 (8) - -
Transfers
to/from stage
3(1) (9) (21) 30 - - - 1 (1) - - (9) (20) 29 - -
Net remeasurement
due to
transfers(2) - - - - - 6 - - - 6 6 - - - 6
New lending(3) 545 77 - - 622 (1) (1) - - (2) 544 76 - - 620
Repayments,
additional
drawdowns
and interest
accrued (92) (11) (1) - (104) - - - - - (92) (11) (1) - (104)
Derecognitions(4) (526) (58) (11) - (595) 1 1 - - 2 (525) (57) (11) - (593)
Changes
to
assumptions(5) - - - - - 1 5 (1) - 5 1 5 (1) - 5
------------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
30 June 2021 5,918 786 111 - 6,815 (4) (6) (5) - (15) 5,914 780 106 - 6,800
------------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Gross carrying amount Loss allowance Net carrying amount
----------------------------------------- ------------------------------------- -----------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- -------- ------ ------ ----- -------- ------ ------ ------ ----- ------ -------- ------ ------ ----- --------
Balance at
1 July 2020 9,382 723 85 - 10,190 (21) (11) (8) - (40) 9,361 712 77 - 10,150
Transfers
to/from stage
1 (18) 20 (2) - - - - - - - (18) 20 (2) - -
Transfers
to/from stage
2 (176) 177 (1) - - - - - - - (176) 177 (1) - -
Transfers
to/from stage
3 (31) (8) 39 - - - 1 (1) - - (31) (7) 38 - -
Net
remeasurement
due to
transfers - - - - - 1 (3) 2 - - 1 (3) 2 - -
New lending 262 44 1 - 307 (1) (3) - - (4) 261 41 1 - 303
Repayments,
additional
drawdowns
and interest
accrued 5 (6) - - (1) - - - - - 5 (6) - - (1)
Transfer
to held for
sale(6) (289) (7) - - (296) 1 - - - 1 (288) (7) - - (295)
Derecognitions (3,224) (80) (4) - (3,308) 3 1 1 - 5 (3,221) (79) (3) - (3,303)
Changes
to
assumptions - - - - - 12 (2) 2 - 12 12 (2) 2 - 12
---------------- -------- ------ ------ ----- -------- ------ ------ ------ ----- ------ -------- ------ ------ ----- --------
Balance at
31 December
2020 5,911 863 118 - 6,892 (5) (17) (4) - (26) 5,906 846 114 - 6,866
---------------- -------- ------ ------ ----- -------- ------ ------ ------ ----- ------ -------- ------ ------ ----- --------
Gross carrying amount Loss allowance Net carrying amount
-------------------------------------- ------------------------------------- --------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------ ------ ------ ----- ------- ------ ------ ------ ----- ------ ------ ------ ------ ----- -------
Balance at
1 January
2020 9,874 502 54 - 10,430 - (3) (5) - (8) 9,874 499 49 - 10,422
Transfers
to/from stage
1 127 (126) (1) - - (1) 1 - - - 126 (125) (1) - -
Transfers
to/from stage
2 (383) 383 - - - - - - - - (383) 383 - - -
Transfers
to/from stage
3 (24) (14) 38 - - - - - - - (24) (14) 38 - -
Net
remeasurement
due to
transfers - - - - - - (5) (3) - (8) - (5) (3) - (8)
New lending 260 4 - - 264 (2) - - - (2) 258 4 - - 262
Repayments,
additional
drawdowns
and interest
accrued (127) (5) - - (132) - - - - - (127) (5) - - (132)
Derecognitions (345) (21) (6) - (372) - - - - - (345) (21) (6) - (372)
Changes to
assumptions - - - - - (18) (4) - - (22) (18) (4) - - (22)
---------------- ------ ------ ------ ----- ------- ------ ------ ------ ----- ------ ------ ------ ------ ----- -------
Balance at
30 June 2020 9,382 723 85 - 10,190 (21) (11) (8) - (40) 9,361 712 77 - 10,150
---------------- ------ ------ ------ ----- ------- ------ ------ ------ ----- ------ ------ ------ ------ ----- -------
2. Represents the stage transfers prior to any ECL remeasurement
3. Represents the remeasurement between the twelve month and
lifetime ECL due to stage transfer, including any changes to the
model assumptions and forward looking information
4. Represents the increase in balances resulting from loans and
advances that have been newly originated, purchased or renewed
5. Represents the decrease in balances resulting from loans and
advances that have been fully repaid, disposed of or written
off
6. Represents the change in loss allowances resulting from
changes to assumptions notably forward looking macro-economic
information and changes in the customer's risk profile
7. Represents the decrease in balances resulting from the
reclassification of loans and advances that as at the reporting
date are treated as held for sale
Consumer lending
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
1 January
2021 149 43 12 - 204 (6) (9) (10) - (25) 143 34 2 - 179
Transfers
to/from stage
1 14 (14) - - - (2) 2 - - - 12 (12) - - -
Transfers
to/from stage
2 (4) 4 - - - - - - - - (4) 4 - - -
Transfers
to/from stage
3 (1) (2) 3 - - - 2 (2) - - (1) - 1 - -
Net
remeasurement
due to
transfers - - - - - 1 - (1) - - 1 - (1) - -
New lending 512 24 5 1 542 (17) (3) (3) - (23) 495 21 2 1 519
Repayments,
additional
drawdowns
and interest
accrued (11) (6) (1) - (18) - - - - - (11) (6) (1) - (18)
Derecognitions (17) (6) (1) - (24) - 1 1 - 2 (17) (5) - - (22)
Changes
to
assumptions - - - - - 4 2 (2) - 4 4 2 (2) - 4
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
30 June 2021 642 43 18 1 704 (20) (5) (17) - (42) 622 38 1 1 662
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
1 July 2020 179 8 11 - 198 (8) (4) (10) - (22) 171 4 1 - 176
Transfers
to/from stage
1 (1) 1 - - - - - - - - (1) 1 - - -
Transfers
to/from stage
2 (54) 54 - - - - - - - - (54) 54 - - -
Transfers
to/from stage
3 (2) (1) 3 - - - - - - - (2) (1) 3 - -
Net
remeasurement
due to
transfers - - - - - - (6) (2) - (8) - (6) (2) - (8)
New lending 47 1 - - 48 (2) - - - (2) 45 1 - - 46
Repayments,
additional
drawdowns
and interest
accrued 11 (20) (1) - (10) - - - - - 11 (20) (1) - (10)
Derecognitions (31) - (1) - (32) - - 1 - 1 (31) - - - (31)
Changes
to
assumptions - - - - - 4 1 1 - 6 4 1 1 - 6
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
31 December
2020 149 43 12 - 204 (6) (9) (10) - (25) 143 34 2 - 179
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
1 January
2020 223 - 10 - 233 (3) (1) (9) - (13) 220 (1) 1 - 220
Transfers
to/from stage
1 1 (1) - - - - - - - - 1 (1) - - -
Transfers
to/from stage
2 (8) 8 - - - 1 (1) - - - (7) 7 - - -
Transfers
to/from stage
3 (1) - 1 - - - - - - - (1) - 1 - -
Net
remeasurement
due to
transfers - - - - - - (1) (1) - (2) - (1) (1) - (2)
New lending 8 1 - - 9 - - - - - 8 1 - - 9
Repayments,
additional
drawdowns
and interest
accrued (25) - - - (25) - - - - - (25) - - - (25)
Derecognitions (19) - - - (19) - - - - - (19) - - - (19)
Changes
to
assumptions - - - - - (6) (1) - - (7) (6) (1) - - (7)
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
30 June 2020 179 8 11 - 198 (8) (4) (10) - (22) 171 4 1 - 176
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Commercial lending
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
1 January
2021 4,115 906 127 - 5,148 (19) (44) (40) - (103) 4,096 863 86 - 5,045
Transfers
to/from stage
1 126 (121) (5) - - (5) 5 - - - 121 (116) (5) - -
Transfers
to/from stage
2 (124) 130 (6) - - 1 (2) 1 - - (123) 128 (5) - -
Transfers
to/from stage
3 (18) (78) 96 - - - 2 (2) - - (18) (76) 94 - -
Net
remeasurement
due to
transfers - - - - - 4 (4) (11) - (11) 4 (4) (11) - (11)
New lending 267 59 5 - 331 (3) (6) - - (9) 264 53 5 - 322
Repayments,
additional
drawdowns
and interest
accrued (141) (9) (13) - (163) - - - - - (141) (9) (13) - (163)
Derecognitions (239) (87) (18) - (344) 2 4 4 - 10 (237) (83) (14) - (334)
Changes
to
assumptions - - - - - (1) 8 (3) - 4 (1) 8 (3) - 4
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
30 June 2021 3,986 800 186 - 4,972 (21) (37) (51) - (109) 3,965 764 134 - 4,863
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
1 July 2020 4,355 138 121 - 4,614 (48) (9) (26) - (83) 4,307 129 95 - 4,531
Transfers
to/from stage
1 (7) 5 2 - - - - - - - (7) 5 2 - -
Transfers
to/from stage
2 (571) 572 (1) - - - - - - - (571) 572 (1) - -
Transfers
to/from stage
3 (18) (1) 19 - - - 1 (1) - - (18) - 18 - -
Net
remeasurement
due to
transfers - - - - - - (22) (9) - (31) - (22) (9) - (31)
New lending 643 197 7 - 847 (4) (13) (3) - (20) 639 184 4 - 827
Repayments,
additional
drawdowns
and interest
accrued (89) 1 (6) - (94) - - - - - (89) 1 (6) - (94)
Derecognitions (198) (6) (15) - (219) 1 1 1 - 3 (197) (5) (14) - (216)
Changes
to
assumptions - - - - - 32 (1) (3) - 28 32 (1) (3) - 28
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
31 December
2020 4,115 906 127 - 5,148 (19) (44) (40) - (103) 4,096 863 86 - 5,045
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Gross carrying amount Loss allowance Net carrying amount
------------------------------------- ------------------------------------- -------------------------------------
GBP'million Stage Stage Stage POCI Total Stage Stage Stage POCI Total Stage Stage Stage POCI Total
1 2 3 1 2 3 1 2 3
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
1 January
2020 3,929 72 51 - 4,052 (6) (1) (6) - (13) 3,923 71 45 - 4,039
Transfers
to/from stage
1 20 (16) (4) - - - - - - - 20 (16) (4) - -
Transfers
to/from stage
2 (107) 107 - - - - - - - - (107) 107 - - -
Transfers
to/from stage
3 (66) (19) 85 - - - - - - - (66) (19) 85 - -
Net
remeasurement
due to
transfers - - - - - - (6) (21) - (27) - (6) (21) - (27)
New lending 919 2 2 - 923 (2) - - - (2) 917 2 2 - 921
Repayments,
additional
drawdowns
and interest
accrued (112) - (3) - (115) - - - - - (112) - (3) - (115)
Derecognitions (228) (8) (10) - (246) - - 1 - 1 (228) (8) (9) - (245)
Changes to
assumptions - - - - - (40) (2) - - (42) (40) (2) - - (42)
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
Balance at
30 June 2020 4,355 138 121 - 4,614 (48) (9) (26) - (83) 4,307 129 95 - 4,531
---------------- ------ ------ ------ ----- ------ ------ ------ ------ ----- ------ ------ ------ ------ ----- ------
7. Property, plant and equipment
Freehold Fixtures Right
Investment Leasehold land & fittings of use
property improvements buildings & equipment IT hardware assets Total
GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
Cost
1 January
2021 18 292 298 25 11 330 974
Additions - 8 (8) - - - -
30 June 2021 18 300 290 25 11 330 974
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
Accumulated
depreciation
1 January
2021 12 66 21 15 7 47 168
Charge for
the period 1 6 2 3 1 7 20
30 June 2021 13 72 23 18 8 54 188
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
Net book
value at
30 June 2021 5 228 267 7 3 276 786
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
Cost
1 July 2020 18 315 266 26 11 335 971
Additions - 3 14 2 - 1 20
Recognised in
business
combinations - 1 - - 1 3 5
Disposals - - - - - (9) (9)
Write-offs - (9) - (3) (1) - (13)
Transfers - (18) 18 - - - -
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
31 December
2020 18 292 298 25 11 330 974
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
Accumulated
depreciation
1 July 2020 10 64 16 14 6 40 150
Charge for
the period - 5 3 3 2 7 20
Recognised in
business
combinations - 1 - - - - 1
Write-offs - (2) - (2) (1) - (5)
Transfers - (2) 2 - - - -
Impairments 2 - - - - 1 3
Disposals - - - - - (1) (1)
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
31 December
2020 12 66 21 15 7 47 168
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
Net book
value at
31 December
2020 6 226 277 10 4 283 806
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
Cost
1 January
2020 18 314 262 26 10 332 962
Additions - 3 4 1 2 3 13
Write-offs - (2) - (1) (1) - (4)
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
30 June 2020 18 315 266 26 11 335 971
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
Accumulated
depreciation
1 January
2020 10 49 14 12 5 16 106
Charge for
the period - 6 2 2 2 9 21
Write-offs - - - (1) (1) - (2)
Impairments - 9 - 1 - 15 25
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
30 June 2020 10 64 16 14 6 40 150
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
Net book
value at
30 June 2020 8 251 250 12 5 295 821
-------------- ------------ ------------- ------------- ------------- ------------- ------------- -------------
8. Intangible assets
Goodwill Brands Software Total
GBP'million GBP'million GBP'million GBP'million
------------------------------------- ------------- ------------- ------------- --------------
Cost
1 January 2021 10 2 328 340
Additions - - 26 26
Deferred grant (see note
10) - - 1 1
------------------------------------- ------------- ------------- ------------- --------------
30 June 2021 10 2 355 367
------------------------------------- ------------- ------------- ------------- --------------
Accumulated amortisation
1 January 2021 - - 86 86
Charge for the period - - 20 20
Impairment - - 8 8
------------------------------------- ------------- ------------- ------------- --------------
30 June 2021 - - 114 114
------------------------------------- ------------- ------------- ------------- --------------
Net book value at 30 June
2021 10 2 241 253
Cost
1 July 2020 4 - 268 272
Additions - - 28 28
Recognised in business combinations 6 2 32 40
Write-offs - - (4) (4)
Deferred grant (see note
10) - - 4 4
------------------------------------- ------------- ------------- ------------- --------------
31 December 2020 10 2 328 340
------------------------------------- ------------- ------------- ------------- --------------
Accumulated amortisation
1 July 2020 - - 70 70
Charge for the period - - 17 17
Write-offs - - (1) (1)
------------------------------------- ------------- ------------- ------------- --------------
31 December 2020 - - 86 86
------------------------------------- ------------- ------------- ------------- --------------
Net book value at 31 December
2020 10 2 242 254
------------------------------------- ------------- ------------- ------------- --------------
Cost
1 January 2020 4 - 224 228
Additions - - 53 53
Write-offs - - (6) (6)
Deferred grant (see note
10) - - (3) (3)
30 June 2020 4 - 268 272
------------------------------------- ------------- ------------- ------------- --------------
Accumulated amortisation
1 January 2020 - - 60 60
Charge for the period - - 16 16
Write-offs - - (6) (6)
30 June 2020 - - 70 70
------------------------------------- ------------- ------------- ------------- --------------
Net book value at 30 June
2020 4 - 198 202
------------------------------------- ------------- ------------- ------------- --------------
9. Lease liabilities
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
GBP'million GBP'million GBP'million
------------------------------------ ------------- ------------- -------------
At beginning of the period 327 340 341
Additions and modifications - 1 3
Recognised in business combination - 3 -
Disposals (11) (9) -
Lease payments made (15) (18) (13)
Interest on lease liabilities 9 10 9
------------------------------------ ------------- ------------- -------------
At the end of the period 310 327 340
------------------------------------ ------------- ------------- -------------
10. Deferred grants
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
GBP'million GBP'million GBP'million
---------------------------------------------- ------------- ------------- --------------
At beginning of the period 28 31 50
Released to the income statement (7) (7) (16)
Offset against capital expenditure (see note
8) 1 4 (3)
At the end of the period 22 28 31
---------------------------------------------- ------------- ------------- --------------
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. As at 30 June 2021 we are currently on
track with the delivery of these commitments.
11. Share capital
As at 30 June 2021 we had 172.4 million ordinary shares of
0.0001 pence (31 December 2020: 172.4 million, 30 June 2020: 172.4
million) in issue.
Called up ordinary share capital (issued and fully paid)
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
GBP'million GBP'million GBP'million
--------------------------- ------------- ------------- -------------
At beginning of the period - - -
At end of the period - - -
--------------------------- ------------- ------------- -------------
Share premium
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
GBP'million GBP'million GBP'million
---------------------------- ------------- ------------- -------------
At beginning of the period 1,964 1,964 1,964
At end of the period 1,964 1,964 1,964
----------------------------- ------------- ------------- -------------
12. Earnings per share
Basic earnings per share (EPS) is calculated by dividing the
(loss)/profit attributable to our ordinary equity holders by the
weighted average number of ordinary shares in issue during the
year.
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
------------------------------------------------ ---------- ------------- ----------
(Loss) attributable to ordinary equity holders
(GBP'million) (141.1) (62.4) (239.5)
Weighted average number of ordinary shares
in issue (thousands) 172,420 172,420 172,420
------------------------------------------------ ---------- ------------- ----------
Basic earnings per share (pence) (81.8) (36.2) (138.9)
------------------------------------------------ ---------- ------------- ----------
Diluted EPS has been calculated by dividing the loss
attributable to our ordinary equity holders by the weighted average
number of ordinary shares in issue during the year plus the
weighted average number of ordinary shares that would be issued on
the conversion to shares of options granted to colleagues. As we
were loss making during the six month periods to 30 June 2021, 31
December 2020 and 30 June 2020, the share options would be
antidilutive, as they would reduce the loss per share. Therefore,
all the outstanding options have been disregarded in the
calculation of dilutive EPS.
Half year Half year Half year
to to to
30 June 31 December 30 June
2021 2020 2020
----------------------------------------------- ---------- ------------- ----------
(Loss)/profit attributable to ordinary equity
holders (GBP'million) (141.1) (62.4) (239.5)
Weighted average number of ordinary shares
in issue (thousands) 172,420 172,420 172,420
----------------------------------------------- ---------- ------------- ----------
Diluted earnings per share (pence) (81.8) (36.2) (138.9)
----------------------------------------------- ---------- ------------- ----------
13. Fair value of financial instruments
Quoted With significant
market Using observable unobservable
price inputs inputs
Carrying Level Level Level Total
value 1 2 3 fair value
GBP'million GBP'million GBP'million GBP'million GBP'million
---------------------------------- ------------- ------------- ----------------- ----------------- -------------
30 June 2021
Assets
Loan and advances to customers 12,325 - - 12,287 12,287
Investment securities held
at FVOCI 1,198 1,198 - - 1,198
Investment securities held
at amortised cost 3,165 1,480 1,632 64 3,176
Financial assets held at FVTPL 5 - - 5 5
---------------------------------- ------------- ------------- ----------------- ----------------- -------------
Liabilities
Deposits from customers 16,620 - - 16,663 16,663
Deposits from central banks 3,800 - - 3,800 3,800
Debt securities 596 503 - - 503
Derivative financial liabilities 8 - - 8 8
Repurchase agreements 212 - - 212 212
---------------------------------- ------------- ------------- ----------------- ----------------- -------------
31 December 2020
Assets
Loan and advances to customers 12,090 - - 11,892 11,892
Investment securities held
at FVOCI 773 723 50 - 773
Investment securities held
at amortised cost 2,640 1,021 1,567 66 2,654
Financial assets held at FVTPL 30 - - 30 30
Liabilities
Deposits from customers 16,072 - - 16,147 16,147
Deposits from central banks 3,808 - - 3,808 3,808
Debt securities 600 483 - - 483
Financial liabilities held
at FVTPL 30 - - 30 30
Derivative financial liabilities 8 - 8 - 8
Repurchase agreements 196 - - 196 196
---------------------------------- ------------- ------------- ----------------- ----------------- -------------
30 June 2020
Assets
Loan and advances to customers 14,857 - - 14,975 14,975
Investment securities held
at FVOCI 444 444 - - 444
Investment securities held
at amortised cost 2,577 850 1,753 - 2,603
---------------------------------- ------------- ------------- ----------------- ----------------- -------------
Liabilities
Deposits from customers 15,577 - - 15,559 15,559
Deposits from central banks 3,801 - - 3,801 3,801
Debt securities 599 460 - - 460
Repurchase agreements 211 - - 211 211
---------------------------------- ------------- ------------- ----------------- ----------------- -------------
Information on how fair values are calculated for the financial
assets and liabilities noted above are explained below:
Loans and advances to customers
Fair value is calculated based on the present value of future
principal and interest cash flows, discounted at the market rate of
interest at the balance sheet date, adjusted for future credit
losses and prepayments, if considered material.
Investment securities
The fair value of investment securities is based on either
observed market prices for those securities that have an active
trading market (fair value level 1 assets),or using observable
inputs (in the case of fair value level 2 assets).
Deposits from customers
Fair values are estimated using discounted cash flows, applying
current rates offered for deposits of similar remaining maturities.
The fair value of a deposit repayable on demand is approximated by
its carrying value.
Debt securities
Fair values are determined using the quoted market price at the
balance sheet date.
Deposits from central banks/repurchase agreements
Fair values are estimated using discounted cash flows, applying
current rates. Fair values approximate carrying amounts as their
balances are generally short dated.
14. Legal proceedings and regulatory matters
As part of the normal course of business we are subject to legal
and regulatory matters, the majority of which are not considered to
have a material impact on the business.
The contingent liabilities detailed below are those which could
potentially have a material impact, although their inclusion does
not constitute any admission of wrongdoing or legal liability. The
outcome and timing of these matters is inherently uncertain. Based
on the facts currently known, it is not possible at the moment to
predict the outcome of any of these matters or reliably estimate
any financial impact. As such, at the reporting date no provision
has been made for any of these cases within the financial
statements.
PRA and FCA investigations into RWA Adjustment and AIRB
Accreditation
We are currently subject to enforcement investigations by both
the Prudential Regulation Authority (PRA) and Financial Conduct
Authority (FCA).
-- The PRA's investigation relates to potential breaches of the
PRA's Fundamental Rules 2 and 6. The PRA is investigating whether
there were failures to conduct regulatory reporting with due skill,
care and diligence, to remedy an issue identified by the PRA in a
timely fashion and/or to provide effective oversight and control to
comply with its regulatory reporting obligations. These issues
relate to our assessment and reporting of our risk-weighted assets.
We are cooperating with the PRA's investigation. At this stage it
is not practicable to identify the likely outcome or estimate the
potential financial impact with any certainty.
-- The current scope of the FCA's investigation concerns
potential breaches of articles 15 and 17 of the Market Abuse
Regulation (EU 596/2014), Principle 11 of the FCA's Principles for
Business, and Listing Principle 1, Premium Listing Principle 6 and
Rule 1.3.3 of the Listing Rules, in the period between 1 June 2017
and 26 February 2019. The investigations relate to the
announcements made on 23 January 2019 and 26 February 2019 in
relation to risk-weighted assets and AIRB accreditation
respectively and the impact these announcements had on our share
price. We are cooperating with the FCA's investigation. At this
stage it is not practicable to identify the likely outcome or
estimate the potential financial impact with any certainty.
Financial Crime
In 2017 and 2019 initial disclosures were made to the United
State's Office of Foreign Assets Control (OFAC) in relation to Cuba
and Iran. We are continuing a review in respect of these matters,
together with a review of our sanctions screening and transaction
monitoring systems and controls, with the support of external
advisers. We continue to engage and fully co-operate with our
regulators in relation to these matters. At this stage it is not
practicable to identify the likely outcome or estimate the
potential financial impact with any certainty.
15. Post balance sheet events
There have been no material post balance sheet events.
END OF the condensed consolidated interim financial
statements
Reconciliation of statutory to underlying results
(unaudited)
Underlying loss represents an adjusted measure, excluding the
effect of certain items that are considered to distort year-on-year
comparisons, in order to provide readers with a better and more
relevant understanding of the underlying trends in the business.
Details of the item that are considered to be non-underlying and
their reasons for exclusion can be found on page 234 of our 2020
Annual Report and Accounts.
A reconciliation from our statutory to underlying results for
the period is set out below:
Impairment
and write Business
offs of PPE acquisition
and and Mortgage
Statutory intangible Net BCR Transformation Remediation integration portfolio Underlying
Half year to basis assets costs costs costs costs sale basis
30 June 2021 GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million GBP'million
------------- ------------ ------------ --------------- ------------- ------------- ------------
Interest
income 194.2 - - - - - - 194.2
Interest
expense (60.9) - 0.3 - - - - (60.6)
------------- ------------ ------------ ------------ --------------- ------------- ------------- ------------ ------------
Net interest
income 133.3 - 0.3 - - - - 133.6
------------- ------------ ------------ ------------ --------------- ------------- ------------- ------------
Net fee and
commission
income 32.7 - - - - - - 32.7
Net gains on
sale of
assets 8.2 - - - - - (8.7) (0.5)
Other income 22.1 - (6.7) - - - (1.4) 14.0
------------- ------------ ------------ ------------ --------------- ------------- ------------- ------------ ------------
Total income 196.3 - (6.4) - - - (10.1) 179.8
------------- ------------ ------------ ------------ --------------- ------------- ------------- ------------
-
General
operating
expenses (272.8) - 6.5 1.8 25.4 2.3 1.7 (235.1)
Depreciation
and
amortisation (40.3) - 0.2 - - - - (40.1)
Impairment
and write
offs of
property,
plant &
equipment
and
intangible
assets (7.5) 7.5 - - - - - -
Total
operating
expenses (320.6) 7.5 6.7 1.8 25.4 2.3 1.7 (275.2)
Expected
credit loss
expense (14.6) (14.6)
------------- ------------ ------------ ------------ --------------- ------------- ------------- ------------ ------------
Loss before
tax (138.9) 7.5 0.3 1.8 25.4 2.3 (8.4) (110.0)
------------- ------------ ------------ ------------ --------------- ------------- ------------- ------------ ------------
Taxation (2.2) - - - - - - (2.2)
Loss after
tax (141.1) 7.5 0.3 1.8 25.4 2.3 (8.4) (112.2)
------------ ------------
Details of our other alternative performance measures including
the methodology used to calculating them can be found on page 233
of our 2020 Annual Report and Accounts.
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