Metro Bank plc: Results for Year ended 31 December 2022

Metro Bank plc (MTRO) Metro Bank plc: Results for Year ended 31 December 2022 02-March-2023 / 07:00 GMT/BST Metro Bank PLC Full year results Trading Update 2022 2 March 2023   Metro Bank PLC (LSE: MTRO LN)   Results for Year ended 31 December 2022   Highlights   Profitable in Q4 2022 on an underlying basis Financials significantly improved year-on-year: Underlying revenue increased 31% NIM improved by 52bps Underlying costs reduced 3% Completed turnaround; 2023 is a transitional year Targeting mid-single digit RoTE by 2024 Resuming store expansion in the North of England   Key Financials £ in millions 31 December 2022 31 December 2021 Change from FY 2021 30 June 2022 Change from H1 2022             Assets £22,119 £22,588 (2%) £22,566 (2%) Loans £13,102 £12,290 7% £12,364 6% Deposits £16,014 £16,448 (3%) £16,514 (3%) Loan to deposit ratio 82% 75% 7pps 75% 7pps             CET1 capital ratio 10.3% 12.6% (230bps) 10.6% (30bps) Total capital ratio (TCR) 13.4% 15.9% (250bps) 13.8% (40bps) MREL ratio 17.7% 20.5% (280bps) 18.3% (60bps) Liquidity coverage ratio 213% 281% (68pps) 257% (44pps)   £ in millions FY 2022 FY 2021 Change from FY 2021 H2 2022 H1 2022 Change from H1 2022               Total underlying revenue1 £522.1 £397.9 31% £285.9 £236.2 21% Underlying loss before tax2 (£50.6) (£171.3) (70%) (£2.6) (£48.0) (95%) Statutory loss before tax (£70.7) (£245.1) (71%) (£10.5) (£60.2) (83%) Net interest margin 1.92% 1.40% 52bps 2.11% 1.73% 38bps Lending yield 3.67% 3.07% 60bps 3.93% 3.40% 53bps Cost of deposits 0.20% 0.24% (4bps) 0.25% 0.14% 11bps Cost of risk 0.32% 0.18% 14bps 0.33% 0.29% 4bps Underlying EPS (30.5p) (101.1p) (70%) (2.0p) (28.5p) (93%) Tangible book value per share £4.29 £4.59 (7%) £4.29 £4.30 (0%)   Underlying revenue excludes income recognised relating to the Capability and Innovation Fund and the mortgage portfolio sale. Underlying loss before tax excludes the impairment and write-off of property, net BCR costs, plant & equipment (PPE) and intangible assets, transformation costs, remediation costs, business acquisition and integration costs, mortgage portfolio sale and costs related to holding company insertion.   Summary     Underlying profit in Q4 achieved as a result of the bank’s commitment to strong cost control and the successful balance sheet optimisation strategy.   Underlying revenue increased by 31% to £522.1 million reflecting the shift in deposit and asset mix, the impact of the higher Bank of England base rate, and a recovery in customer activity.   Underlying costs reduced 3% to £532.8 million despite inflationary pressures, reflecting management actions to control cost and leverage the fixed cost base for profitable growth.   Operating jaws3 for 2022 were 34%.   Underlying loss before tax for the year improved by 70% to £50.6 million as a result of the strong income growth, cost discipline and prudent risk management.   Statutory loss before tax of £70.7 million, improved 71%, as legacy issues, and their associated remediation costs, concluded.   Legacy PRA and FCA issues addressed regarding investigations into historical RWA reporting, and the OFAC investigation was closed during the year.   Targeting mid-single digit ROTE by 2024.   Resuming store expansion in the important economic areas and communities that make up the North of England, supported by funding from the Capability and Innovation Fund.   Continued commitment to customers, communities and colleagues, voted the highest rated high street bank for overall service quality for personal customers and the best bank for service in-store for personal and business customers4 for the 10th time in a row. Unique culture provides local communities with the support they need and builds long-lasting and personal relationships with customers.   Pillar 2A capital requirement reduced to 0.50% in June 2022, further reduced to 0.36% effective January 2023.   The Resolution Directorate of the Bank of England adjusted the bank's existing £250 million 5.5% Tier 2 Notes to remain eligible for MREL until 26 June 2025, following implementation of the holding company.   2023 is a transitional year and the bank will focus on serving customers and maintaining cost discipline whilst continuing to invest in infrastructure and build sustainably. Operating jaws calculated as percentage change in underlying revenue growth less percentage change in underlying cost growth. Competition and Market Authority’s Service Quality Survey February 2023.   Daniel Frumkin, Chief Executive Officer at Metro Bank, said:   “I’m pleased with Metro Bank’s performance over the past year and the successful completion of our transformation plan. We returned to profitability, resolved our legacy issues and further strengthened the foundations for future sustainable growth. While I remain confident in the underlying business, material headwinds do exist, including the macro-economic environment and increasing competition for liabilities. We have established the basis to transition back to being a profitable growth engine, committed to serving our communities through our network of stores, digital offerings and stand-out customer service, as seen in the latest CMA results.”   A presentation for investors and analysts will be held at 9:00AM (UK time) on Thursday 2 March 2023. The presentation will be webcast on:   https://webcast.openbriefing.com/metrobank-mar23/   For those wishing to dial-in:   From the UK dial: +44 800 640 6441 From the US dial: +1 855 9796 654 Access code: 172474   Financial performance for the year ended 31 December 2022   Deposits £ in millions 31 December 2022 31 December 2021 Change from FY 2021 30 June 2022 Change from H1 2022             Demand: current accounts £7,888 £7,318 8% £7,770 2% Demand: savings accounts £7,501 £7,684 (2%) £7,817 (4%) Fixed term: savings accounts £625 £1,446 (57%) £927 (33%) Deposits from customers £16,014 £16,448 (3%) £16,514 (3%)             Retail customers (excl. retail partnerships) £5,797 £6,713 (14%) £6,267 (7%) SMEs5 £5,080 £4,764 7% £4,892 4%   £10,877 £11,477 (5%) £11,159 (3%) Retail partnerships £1,949 £1,814 7% £1,871 4% Commercial customers (excluding SMEs5) £3,188 £3,157 1% £3,484 (8%)   £5,137 £4,971 3% £5,355 (4%)             SME defined as enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding €50 million, and/or an annual balance sheet total not exceeding €43 million, and have aggregate deposits less than €1 million.     Current accounts increased by 8% in the year to £7,888 million, the underlying service-led core deposit franchise continued to grow. The focus remained on increasing share of relationship deposits whilst allowing the fixed term deposits to roll off. As a result, total deposits fell 3% to £16,014 million as at 31 December 2022 (31 December 2021: £16,448 million). Current account and demand deposits now make up 96% of the total deposit base (31 December 2021: 91%).     Cost of deposits decreased to 20bps for the year (2021: 24bps) reflecting improvements in deposit mix and the value of the service-led business model, partially offset by the recent trend of increased competition and pricing in the market.     Customer account growth of 0.2 million in the year to 2.7 million (2021: 2.5 million) reflects continued organic growth in the underlying franchise, with 188,000 personal current accounts and 42,000 business current accounts opened in the year.     Stores remain at the heart of the bank’s service offering and the network will continue to expand as opportunity exists for further market penetration in significant locations where there are currently no stores present. The bank remains committed to opening stores in the North of England, the operational costs post-launch of which will be funded in part by the Capability and Innovation Fund. These stores are expected to be opened in 2024 and 2025.     Future stores have been redesigned and will be built for significantly less cost than previous stores, but will not lose the distinctive Metro Bank style. Our refreshed approach will incorporate appropriate break clauses and will have less surplus floor space and more cost-effective fixtures and fittings.     Loans   £ in millions 31 December 2022 31 December 2021 Change from FY 2021 30 June 2022 Change from H1 2022             Gross Loans and advances to customers £13,289 £12,459 7% £12,535 6% Less: allowance for impairment (£187) (£169) 11% (£171) 9% Net Loans and advances to customers £13,102 £12,290 7% £12,364 6%             Gross loans and advances to customers consists of:           Retail mortgages £7,649 £6,723 14% £6,785 13% Commercial lending6 £2,847 £3,220 (12%) £2,993 (5%) Consumer lending £1,480 £890 66% £1,269 17% Government-backed lending7 £1,313 £1,626 (19%) £1,488 (12%)   Includes CLBILS. BBLS, CBILS and RLS.     Total net loans as at 31 December 2022 were £13,102 million, up 7% from £12,290 million as at 31 December 2021 reflecting growth in residential mortgages and consumer lending, offset by the targeted reduction of commercial term loans including commercial real estate and portfolio buy-to-let exposures. Focus remains on optimising the mix for risk-adjusted return on capital.     Retail mortgages increased by 14% during the year to £7,649 million as at 31 December 2022 (31 December 2021: £6,723 million) and remained the largest component of the lending book at 58% (31 December 2021: 54%). The DTV of the portfolio as at 31 December 2022 was 56% (31 December 2021: 55%) and 82% of originations in 2022 were <80% LTV, compared to 59% in 2021.     Commercial loans (excluding BBLS, CBILS and RLS) decreased by 12% during the year to £2,847 million as at 31 December 2022 (31 December 2021: £3,220 million) reflecting active portfolio management reducing commercial real estate to £681 million (31 December 2021: £837 million) and portfolio buy-to-let to £731 million (31 December 2021: £950 million), as part of the balance sheet optimisation strategy to target higher risk-adjusted return on capital.     Consumer lending increased by £590 million to £1,480 million in the year and now makes up 11% of the of the total loan book (31 December 2021: 7%). The increase is driven by high quality new organic lending, for originations in Q4 2022 the average customer income was £52,000. Non-performing loans for consumer unsecured were 3.38% at 31 December 2022 (31 December 2021: 2.36%). The portfolio has a conservative ECL coverage of 5.07% (31 December 2021: 4.72%).     Government-backed lending reduced by more than £300 million in the year to £1,313 million as at 31 December 2022 (31 December 2021: £1,626 million) as balances continued to roll off, following effective collections management supported by the British Business Bank.     Capital constraints currently limit loan growth, asset originations were in line with replacement levels in Q4 2022.     Cost of risk increased to 32bps for the year (2021: 18bps). Whilst the credit quality of new lending remains strong, the movement reflects the bank’s prudent approach to provisioning in response to the uncertain macro-economic environment and the growth in the consumer unsecured portfolio.     Non-performing loans decreased to 2.65% (31 December 2021: 3.71%) driven by effective management of BBLS collections and reduced commercial exposures. Overall arrears levels have remained broadly stable and there have been no signs of increased stress. Excluding government-backed lending, non-performing loans were 2.02% as at 31 December 2022 (31 December 2021: 2.65%).     The loan portfolio remains highly collateralised and conservatively provisioned. Average DTV for retail mortgages was 56% (2021: 55%) and for commercial lending 55% (2021: 57%). The ECL provision as at 31 December 2022 is £187 million with a coverage ratio of 1.41%, compared to £169 million with a coverage ratio of 1.36% as at the end of 2021.   Profit and Loss Account     Net interest margin (NIM) of 1.92% is up 52bps in the year (2021: 1.40%) reflecting the successful balance sheet optimisation strategy of shifting towards higher yielding assets and rolling off more expensive fixed term deposits, also supported by the higher Bank of England base rate. Exit-NIM for December 2022 was 2.22%.     Underlying net interest income increased 37% to £404.2 million for the year (2021: £295.7 million) driven by controlled asset growth and significant reshaping of lending and deposits supported by the rising interest rate environment.     Underlying net fee and other income increased 16% to £117.9 million for the year (2021: £101.5 million) driven largely by higher customer transactions, increased safe deposit box usage and foreign currency activity, as volumes normalised following Covid-related restrictions in 2021.     Underlying costs reduced 3% to £532.8 million for the year (2021: £546.8 million) despite inflationary pressures, reflecting management actions to control cost.     Positive operating jaws of 34% for 2022 (2021: 4%) underpinned a reduction in the underlying cost:income ratio from 137% in 2021 to 102% in 2022.     Underlying loss before tax improved by 70% to £50.6 million for the year (2021: £171.3 million) as a result of the strong income growth and continued cost discipline. Underlying profit before tax achieved in Q4 2022.     Statutory loss before tax of £70.7 million, improved 71% as legacy issues, and their associated remediation costs, concluded. Capital, Funding and Liquidity   £ in millions 31 December 2022 31 December 2021 Change from FY 2021 Minimum capital requirement8           CET1 capital ratio 10.3% 12.6% (230bps) 4.8% Total capital ratio (TCR) 13.4% 15.9% (250bps) 8.5% MREL ratio 17.7% 20.5% (280bps) 17.0%     While the bank continues to operate within capital buffers, the capital position has been managed above all regulatory minimum requirements8 and the balance sheet continues to be actively managed within capital constraints.     During the year, the Prudential Regulation Authority reduced the bank’s Pillar 2A capital requirement from 1.11% to 0.50%, effective as of 27 June 2022. The Resolution Directorate of the Bank of England also agreed that the bank’s binding MREL applicable from 27 June 2022 shall be equal to the lower of: 18% of the bank’s RWAs; or Two times the sum of the bank’s Pillar 1 and Pillar 2A   Therefore the bank’s minimum MREL requirement8 was reduced to 17.0%.   Effective 1 January 2023, the Prudential Regulation Authority has further reduced the bank's Pillar 2A capital requirement from 0.50% to 0.36%, the reduction implies that the bank's MREL requirement8 would therefore reduce from 17.0% to 16.7%.     The Bank of England's Resolution Directorate has agreed to provide a temporary, time-limited, adjustment for the bank's existing £250 million 5.5% Tier 2 Notes with respect to MREL eligibility until 26 June 2025.     Common Equity Tier 1 (CET1) ratio of 10.3% as at 31 December 2022 (31 December 2021: 12.6%) compares to a minimum CET1 requirement of 4.8%8 (or 8.3% including buffers9) and minimum Tier 1 requirement of 6.4%8 (or 9.9% including buffers9).     Total Capital ratio of 13.4% as at 31 December 2022 (31 December 2021: 15.9%) compares to a minimum requirement of 8.5%8 (or 12.0% including buffers9).     Total Capital plus MREL ratio of 17.7% as at 31 December 2022 (31 December 2021: 20.5%) compares to a minimum requirement of 17.0%8 (or 20.5% including buffers9).     Strong liquidity and funding position maintained. All customer loans are fully funded by customer deposits with a loan-to-deposit ratio of 82% as at 31 December 2022 (31 December 2021: 75%). Strong Liquidity Coverage Ratio (LCR) of 213% as at 31 December 2022 (31 December 2021: 281%) and a Net Stable Funding Ratio (NSFR) of 134%, both far in excess of requirements.     Total RWAs as at 31 December 2022 were £7,990 million (31 December 2021: £7,454 million). The increase reflects actions taken to improve the loan mix whilst managing loan growth within current capital constraints.     UK leverage ratio10 was 4.2% as at 31 December 2022 (31 December 2021: 5.2%).     The bank’s AIRB application continues to progress, and the requirement to implement a holding company for ‘bail in’ purposes is on track to be completed by the deadline in June 2023.   Based on capital requirements at 31 December 2022, excluding all buffers. Based on capital requirements at 31 December 2022 plus buffers, excluding any confidential PRA buffer, if applicable. The PRA Policy Statement 21/21 took affect from 1 January 2022 which required the exclusion of certain central bank claims from the total exposure measure.     Guidance     2022   2023         NIM 1.92%   NIM accretion limited by fewer anticipated base rate moves. Lending yield 3.67%   Continue optimising mix for maximum risk-adjusted return on regulatory capital. Cost of deposits 0.20%   Pricing will reflect rate environment and competitive pressures, expect strong account acquisition to offset lower average customer balances. Underlying costs £533m   Inflationary pressures expected to moderately outweigh cost initiatives. Cost of risk 0.32%   Watchful of economic cycle but not yet seeing signs of stress. RWA £8.0b   Managed for optimal risk-adjusted return on regulatory capital as lending growth constrained by capital. MREL 17.7%   Continue to operate within buffers with increasing headroom to regulatory minima.   Targeting mid-single digit RoTE by 2024. Metro Bank PLC Summary Balance Sheet and Profit & Loss Account (Unaudited)     Balance Sheet YoY change   31-Dec 2022 30-Jun 2022 31-Dec 2021       £'million £'million £'million Assets           Loans and advances to customers 7%   £13,102 £12,364 £12,290 Treasury assets11     £7,870 £9,036 £9,142 Other assets12     £1,147 £1,166 £1,156 Total assets (2%)   £22,119 £22,566 £22,588             Liabilities           Deposits from customers (3%)   £16,014 £16,514 £16,448 Deposits from central banks     £3,800 £3,800 £3,800 Debt securities     £571 £577 £588 Other liabilities     £778 £706 £717 Total liabilities (2%)   £21,163 £21,597 £21,553 Total shareholder's equity     £956 £969 £1,035 Total equity and liabilities     £22,119 £22,566 £22,588   Comprises investment securities and cash & balances with the Bank of England. Comprises property, plant & equipment, intangible assets and other assets.               Year ended Profit & Loss Account   YoY change 31-Dec 2022 31-Dec 2021       £'million £'million           Underlying net interest income   37% £404.2 £295.7 Underlying net fee and other income   16% £117.9 £101.5 Underlying net gains/(losses) on sale of assets     - £0.7 Total underlying revenue   31% £522.1 £397.9           Total underlying costs   (3%) (£532.8) (£546.8)           Expected credit loss expense   78% (£39.9) (£22.4)           Underlying loss before tax   (70%) (£50.6) (£171.3)             Impairment and write-off of property plant & equipment and intangible assets     (£9.7) (£24.9) Transformation costs     (£3.3) (£8.9) Remediation costs     (£5.3) (£45.9) Business acquisition and integration costs     - (£2.4) Gain on mortgage portfolio sale (net of costs)     - £8.3 Holding company insertion     (£1.8) - Statutory loss before tax   (71%) (£70.7) (£245.1)           Statutory taxation     (£2.0) (£3.1)           Statutory loss after tax   (71%) (£72.7) (£248.2)             Year ended Key metrics     31-Dec 2022 31-Dec 2021           Underlying earnings per share – basic and diluted     (30.5p) (101.1p) Number of shares     172.5m 172.4m Net interest margin (NIM)     1.92% 1.40% Lending yield     3.67% 3.07% Cost of deposits     0.20% 0.24% Cost of risk     0.32% 0.18% Arrears rate     3.2% 4.1% Underlying cost:income ratio     102% 137% Tangible book value per share     £4.29 £4.59                     HoH change Half year ended Profit & Loss Account 31-Dec 2022 30-Jun 2022 31-Dec 2021     £'million £'million £'million           Underlying net interest income 23% £223.3 £180.9 £162.1 Underlying net fee and other income   £62.6 £55.3 £54.8 Underlying net gains/(losses) on sale of assets   - - £1.2 Total underlying revenue 21% £285.9 £236.2 £218.1           Total underlying costs - (£266.5) (£266.3) (£271.6)           Expected credit loss expense   (£22.0) (£17.9) (£7.8)           Underlying loss before tax (95%) (£2.6) (£48.0) (£61.3)           Impairment and write-off of property plant & equipment and intangible assets   (£1.5) (£8.2) (£17.4) Net BCR costs   - - £0.3 Transformation costs   (£2.3) (£1.0) (£7.1) Remediation costs   (£2.3) (£3.0) (£20.5) Business acquisition and integration costs   - - (£0.1) Gain on mortgage portfolio sale (net of costs)   - - (£0.1) Holding company insertion   (£1.8) - -           Statutory loss before tax (83%) (£10.5) (£60.2) (£106.2)           Statutory taxation   (£0.5) (£1.5) (£0.9)           Statutory loss after tax (82%) (£11.0) (£61.7) (£107.1)               Half year ended Key metrics 31-Dec 2022 30-Jun 2022 31-Dec 2021           Underlying earnings per share – basic and diluted   (2.0p) (28.5p) (36.0p) Number of shares   172.5m 172.4m 172.4m Net interest margin (NIM)   2.11% 1.73% 1.51% Lending yield   3.93% 3.40% 3.14% Cost of deposits   0.25% 0.14% 0.17% Cost of risk   0.33% 0.29% 0.20% Arrears rate   3.2% 3.1% 4.1% Underlying cost:income ratio   93% 113% 125% Tangible book value per share   £4.29 £4.30 £4.59               Enquiries For more information, please contact: Metro Bank PLC Investor Relations Jo Roberts +44 (0) 20 3402 8900 IR@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   ENDS       About Metro Bank   Metro Bank services 2.7 million customer accounts and is celebrated for its exceptional customer experience. It is the highest rated high street bank for overall service quality for personal customers and the best bank for service in-store for personal and business customers, in the Competition and Markets Authority’s Service Quality Survey in February 2023. Metro Bank has also been awarded “2023 Best Lender of the Year – UK” in the M&A Today, Global Awards, “Best Mortgage Provider of the Year” in 2022 MoneyAge Mortgage Awards, “Best Business Credit Card” in 2022 Moneynet Personal Finance Awards, “Best Business Credit Card 2022”, Forbes Advisor, “Best Current Account for Overseas Use” by Forbes 2022 and accredited as a top ten Most Loved Workplace 2022. It was “Banking Brand of The Year” at the Moneynet Personal Finance Awards 2021 and received the Gold Award in the Armed Forces Covenant’s Employer Recognition Scheme 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 76 stores open seven days a week, 362 days a year; 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.   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 Preliminary Announcement (Unaudited) For the year ended 31 December 2022   Chief executive officer’s statement   I am very pleased that the Bank ended 2022 in its strongest position for several years. We completed our transformation plan, despite facing into a series of challenging economic and external headwinds, and have built the foundations to drive sustainable profitable growth. Perhaps the most significant proof point of our progress is recording in Q4 2022 our first full quarter of underlying profit since Q2 2019 and ahead of our announced intention to break even in Q1 2023. We’ve achieved this as a result of ongoing cost control, building a wider suite of asset products and the rising interest rate environment, in parallel to maintaining our unwavering commitment to local communities and our focus on excellent customer service. We are proud to have kept our position for the tenth time in a row as the top rated high street bank for overall service quality to personal customers, plus ranking as the best high street bank for in-store personal and business service in the CMA service quality survey. We have a solid platform on which to build in 2023, having established strong momentum in 2022, although we recognise the economic challenges which are expected. This is a testament to tireless work by all my colleagues right across the Bank, and I would like to take this opportunity to thank them for their ongoing skill, effort, dedication and laser-like focus on creating FANS. I am proud to lead such an inspiring and hardworking team, and look forward to serving our customers and creating more FANS in 2023. Strong momentum towards a sustainably profitable community bank By delivering our transformation plan, we have proved what we have always known – that our model works and can deliver sustainable growth and profitability. Our delivery of market-leading service helps us attract core deposits allowing us to grow lending, which we flex and balance across a range of asset classes, to generate high-quality earnings. Community banking via our store network is integral to this and will remain a core component of our model and service offering. Our newest store opened in Leicester at the start of 2022 and is performing well. Our transformation plan has enabled newer stores to open at much reduced cost and in 2023 we will undertake planning work with a view to resuming store openings in 2024, focused on locations in the North of England with large local populations and strong SME presence. We remain committed to the elements that have always made our 76 stores stand out, including being open seven days a week, 362 days a year, from early until late. We know we cannot succeed without investing in excellent digital services to complement our store network. As customers’ digital expectations evolve, we will continue to invest in and refine our digital customer services while remaining true to our guiding customer promises. Successful completion of our transformation plan Our strategic priorities were launched three years ago with the objective of setting the Bank on a path back to sustainable profitability and growth, while staying true to our community banking model. Execution against the strategic priorities has been excellent throughout the transformation period and has been instrumental in returning us to profitability. Revenue In a more normalised interest rate environment our model has really come into its own with the combination of core deposits attracted by our excellent customer service proposition and a strategically rebalanced asset mix towards higher yield lending leading to improved net interest margin. We have continued to expand the range of products we offer to meet our customers’ needs. For example, our new enhanced business overdraft product was launched in March and has quickly become popular with our business customers, due to the fully digital journey. In December we launched our motor finance lending product, which operates under our RateSetter brand using the latest technology to ensure a market-leading, fast and efficient customer journey. We’ve also supported customers by growing our mortgage and invoice finance propositions, including developing new products, such as asset based lending. Costs We have retained tight control of our costs by further ingraining discipline across all business functions. Examples of this in practice include simplifying our IT processes; improvements to our online and mobile app which have reduced calls to our AMAZE Direct contact centres; freeing up time to focus on more complex calls. We’ve also continued to embed Agile working practices to deliver better products and services more efficiently and safely.  We recognise the need to continue to target low marginal costs and efficient operations to support our future profitability. Like any responsible retailer we regularly review our store estate, and during 2022 we completed the closure of three stores. This was a difficult decision, but we ensured the impacts were minimal with customers supported and there were no redundancies. We don’t have any plans for further closures and are pleased with how our stores are performing. Infrastructure Our objective is to make the Bank safer, more resilient and fit for the future. We have continued to invest in core infrastructure, enhance risk management and integrate channels to further improve our service offering. We have implemented a programme to identify and respond to the needs of our vulnerable customers with our customary AMAZEING service. We have also invested in regulatory reporting, sanctions compliance, anti-money laundering controls and in systems scalability and resilience. To prepare for the introduction of the Consumer Duty, we are enhancing our products, services, communications and customer journeys, along with monitoring customer outcomes to align with the requirements.    Balance sheet optimisation We continued to shift the balance towards assets with better risk-adjusted returns on regulatory capital, growing our unsecured consumer finance under the RateSetter brand along with higher-yielding residential mortgage lines and asset finance. Communication Our commitment to supporting our colleagues and communities is deep and enduring. Inclusion is at the heart of our culture and we demonstrate this through the local colleagues we employ, the market-leading service we deliver to all our customers and the local causes we support. Our new D&I strategy celebrates our achievements and further raises our ambitions for the future. Being named as one of the UK’s Most Loved Workplaces is a great testament to how special our culture is. I’m delighted to say that we promoted more than 600 colleagues in 2022 across all teams and levels, including the Executive Committee (ExCo). In response to the rising cost of living pressures, in the second half of the year we delivered a 2.75% salary increase to colleagues. This was made up of passing on to colleagues our saving as an employer from the Government’s 1.25% National Insurance reduction and contributing a further 1.5% ourselves. This was on top of the average 5% salary increase delivered at the start of the year – meaning that 98% of colleagues have received on average a 7.75% salary increase during 2022. We decided to take this approach, as opposed to a one-off payment, to provide lasting support to help our colleagues with cost of living challenges. We remain customer-focused As a people-people relationship-based bank, creating FANS has always been and always will be our motivation for delivering superb customer service, and our commitment to delighting our customers is reflected in our recurring position on top of the high street customer service rankings. In 2022, initiatives such as local marketing around our stores and improved digital communications helped deliver strong growth in our personal and business accounts. In addition, our hands-on support for communities is unwavering, from our financial literacy programme, Money Zone, which we have expanded to include young adult care leavers, to our colleagues directly volunteering to help local causes. We’ve drawn a line under the Bank’s legacy issues 2022 has also seen us substantially close out the Bank’s main legacy issues. This included the conclusion of the OFAC investigation into sanctions breaches, with no financial penalty. Following the finalisation of the PRA’s regulatory reporting investigation at the end of 2021, the FCA concluded its RWA investigation in December 2022. The outcome was within the range of outcomes we expected and we can now put this legacy issue firmly behind us, having greatly improved our reporting processes and controls. Navigating through the economic cycle 2022 was a year of political turbulence and economic challenges which we expect to continue into 2023, with the economy slowing and inflation remaining elevated. We now have engines to generate risk-adjusted returns through the economic cycle. Our lending continues to be conservative and our approach to provisioning for loan performance stands us in good stead to navigate economic fluctuations. We will continue to manage our capital position carefully. We know our model can deliver more growth, but we are constrained by our capital and MREL requirements. We will look to optimise our capital stack Capital is a core focus for us, as while we meet all of our minimum requirements, we continue to operate within our capital buffers. Our return to sustainable capital generation, and therefore our path to exiting capital buffers, will consist of our return to profitability combined with a continued focus on balance sheet optimisation, including actively managing lending. Alongside this we are progressing our application to adopt an Internal Ratings Based (IRB) approach to calculating credit risk with the regulator. We will also seek to access the capital markets to raise additional regulatory debt, as and when conditions allow. Evolving our strategic priorities As we come to the end of our transformation journey and are positioned for profitable growth, now is the time to increase focus on our strategic priorities so we can deliver on the things that are important for our stakeholders. In achieving this, our headline priorities will remain unchanged during this transitional year. Our focus will, however, shift from fixing the problems of the past to leveraging the strengths of our business model for future growth. While 2023 is going to be a transitional year, the following few years will see us place a renewed focus on growth, ensuring this is done in both a responsible and sustainable way. We will continue to operate above our minimum requirements although will remain within our capital buffers in the short term. If our capital constraints were to ease we know that we could grow more quickly and generate greater shareholder returns. Momentum towards meeting our goals We have built strong momentum over the last three years by successfully implementing our transformation plan: driving higher revenue, keeping costs firmly under control and optimising our balance sheet, while maintaining our service standards, protecting our culture and supporting communities. Maintaining this disciplined approach for future years instils confidence that our goals of achieving sustainable profitability and realising our ambition to be the number one community bank is within our sights.     Finance review   Summary of the year 2022 was a significant year for Metro Bank with continued momentum in financial performance, marked by a return to underlying profitability in the final quarter of the year, and the continued execution of our ambition to be the number one community bank. We now have a clear opportunity to deliver for our customers, colleagues and shareholders and build sustainable profitability in 2023 and beyond. Underlying loss before tax for the year reduced to £50.6 million down from £171.3 million in 2021 as a result of strong income growth combined with continued tight cost discipline. On a statutory basis losses before tax reduced to £70.7 million (2021: £245.1 million) as we continued to put legacy issues, and their associated remediation costs, behind us. The economic backdrop remains uncertain and during the year we recognised an ECL expense of £39.9 million (2021: £22.4 million). We continue to take a prudent approach to origination and our ECL reflect the quality of our lending. Alongside this we remain deposit funded with a loan-to-deposit ratio as at 31 December 2022 of 82% (31 December 2021: 75%) and retain a strong liquidity position. While we continue to operate in capital buffers we have remained above regulatory minima throughout 2022. We have taken active measures to protect our capital ratios by constraining asset origination to around replacement levels. This, combined with a return to profitability has seen our capital ratios start to stabilise in the fourth quarter. At 31 December 2022 our CET1, Tier 1 and total capital plus MREL ratios were 10.3%, 10.3% and 17.7% respectively (31 December 2021: 12.6%, 12.6% and 20.5%). Income statement   2022 £m 2021 £m Change % Underlying net interest income  404.2  295.7  37% Underlying non-net interest income  117.9  102.2  15% Total underlying revenue  522.1  397.9  31% Underlying operating expenses  (532.8)  (546.8)  (3%) ECL expense  (39.9)  (22.4)  78% Underlying loss before tax  (50.6)  (171.3)  (70%) Non-underlying items  (20.1)  (73.8) ...