METO BANK : 2023 Annual Report and Accounts

Annual Report and Accounts 2023

Strategic report

1. Summary of the year
2. Our purpose and strategy framework

1. Chair's statement

1. Operating environment

1. Chief Executive Officer's statement

1. Business model

1. Key performance indicators

1. Financial review

1. Environmental, social and governance review

1. Non financial information and sustainability information statement

1. Section 172 statement
2. Task Force on Climate-related Financial Disclosures

1. Risk overview summary

1. Viability statement

Governance

1. Corporate governance introduction

1. Board of Directors

1. 2023 governance at a glance
2. Board activities and stakeholder engagement

1. Stakeholder engagement

1. Letter from the Designated Non- Executive Director for Colleague Engagement

1. Board leadership and company purpose

1. Board roles and responsibilities
2. Board effectiveness

1. Group Audit Committee report

1. Group Risk Oversight Committee report

1. Group Nomination Committee report

1. People and Remuneration Committee report

1. Remuneration at a glance

1. Remuneration for colleagues below Board level

1. Directors' remuneration policy

1. Annual report on remuneration

1. Directors' report

Risk

1. Risk management framework
2. Risk governance and oversight

1. Risk culture

1. Financial risks

1. Non-financialrisks

Financial statements

159 Independent auditors' report to the members

of Metro Bank Holdings PLC

1. Consolidated statement of comprehensive income
2. Consolidated balancesheet
3. Consolidated statement of changes in equity
4. Consolidated cash flow statement
5. Notes to the financial statements

1. Company balancesheet
2. Company statement of changes in equity
3. Company cash flow statement
4. Notes to the financial statements

Additional information

1. Country-by-countryreport
2. Independent auditors' report to the Directors of

Metro Bank Holdings PLC

229 Other disclosures

230 Alternative performance measures

1. Abbreviations
2. Shareholder information

Building resilience

Whilst 2023 has had its challenges, we have successfully undertaken the ground work necessary to ensure we have a strong platform for sustainable profitability in the years ahead. This has seen us establish our new holding company, execute a £925 million capital package and take the first steps in delivering a disciplined cost reduction programme.

Focused on growth

We remain focused on the opportunities for future growth and ensuring we fulfil our ambition to be the number one community bank. We will achieve this by continuing to deliver on our strategy through which we aim to create value for all our stakeholders.

Read more in the Chief Executive

Officer's statement on page 8

The actions we have taken provide us with the platform to create sustainable growth.

Daniel Frumkin

Chief Executive Officer

Metro Bank Holdings PLC Annual Report and Accounts 2023

Strategic report Governance Risk report Financial statements Additional information

1

Summary of the year

2023 has been a year of two halves: whilst the first six months saw us return to profitability on both a statutory and underlying basis, our results in the second six months were impacted by speculation surrounding our capital options, contributing to the need to raise capital.

Statutory profit/(loss) before tax	Loan to deposit ratio
(£m)	(%)

Who we are

We opened our doors in the summer of 2010 and were the first high street bank to open in the UK in over 100 years.

Since then, we've built a business that is providing meaningful competition against larger incumbents and offering a compelling alternative for retail, private, small business and commercial customers.

Our approach

Our approach is centred on our colleagues, customers and communities. This allows us to deliver our ambition to be the number one community bank and create FANS. Our community-centric model and focus on our localness informs everything we do and the decisions we make.

2023		30.5	2023
2022	(70.7)		2022
2021	(245.1)		2021
2020	(311.4)		2020
2019	(130.8)		2019

79

82

75

75

101

#1

In-store service for personal and business customers¹

Top 10

Net interest margin		Deposits
(%)			(£bn)
2023		1.98	2023		15.6
2022		1.92	2022		16.0
2021	1.40		2021		16.4
2020	1.22		2020		16.1
2019	1.51		2019		14.5

Underlying loss before tax	Loans and advances
(£m)	(£bn)

Most loved UK workplaces²

3m

Customer accounts

2023		(16.9)	2023
2022		(50.6)	2022
2021	(171.3)		2021
2020	(271.8)		2020
2019		(11.7)	2019

12.3

13.1

12.3

12.1

14.7

1. Competition and Markets Authority (CMA) survey carried out in Great Britain by Ipsos and BVA-BDRC between January 2023 and December 2023 - Services in branches. Results at ipsos.com and bva-bdrc.com
2. Newsweek survey carried out in the United Kingdom. Results at newsweek.com

Metro Bank Holdings PLC Annual Report and Accounts 2023

Our purpose and strategy framework

Our ambition is to be the number one community bank

2

It's achieved	Strengthened
through our	by our AMAZEING
purpose	behaviours

Despite the challenges faced in 2023, our ambition remains the same: to be the number one community bank. Community banking means being embedded in the local communities we serve and prioritising local decision-making. It also means we provide simple and straightforward business, commercial and retail banking services that meet the needs of our customers in the area.

Our purpose is to create FANS.

FANS are customers created through delivering exceptional customer service, who then champion us through actively recommending us to friends and family.

This simple purpose guides everything we do as it places the customer at the heart of all of our decision-making.

Our AMAZEING behaviours strengthen everything we do and are ingrained throughout our organisation helping us drive our customer centric-approach.

• Attend to every detail.
• Make every wrong right.
• Ask if you're not sure, bump it up.
• Zest is contagious, share it.
• Exceed expectations.
• Inspire colleagues to create FANS.
• Nurture colleagues so they grow.
• Game-changebecause this is a revolution.

Read more about our people and culture on page 22

Metro Bank Holdings PLC Annual Report and Accounts 2023

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Our purpose and strategy framework

Continued

Delivered via	Supported by	Measured by our	Aligned with
our business	our strategic	key performance	performance based
model	priorities	indicators	remuneration

Our business model is how we generate stakeholder value. It involves combining stores and digital channels with exceptional customer service to generate sustainable long-term value and tangible book growth.

Integrated model

Our model combines delivery through physical and digital channels.

Unique culture

Our colleagues deliver superior service and are the heart of our people-people banking approach.

Service-led core deposits

We seek to attract core deposits through our service-led relationship banking model with specific emphasis on our core retail and SME franchise.

Risk-adjusted returns

We seek to balance our lending mix through a broad yet simple product offering that is priced proportionate to risk.

Our strategic priorities are what we focus on on a day-to-day basis that are crucial to developing our long-term success.

Revenue

Create FANS to deliver strong growth.

Balance sheet optimisation Continued focus on risk-adjustedreturns.

Cost

Cost discipline to support profitable growth and reinvestment.

Infrastructure

Protect value through safe, scalable infrastructure.

Communications

Engage colleagues, communities and other stakeholders to tell our story.

Our key performance indicators (KPIs) are the metrics we monitor to check we are on track with the delivery of our strategy as well as to assess how our business model is performing. These consist of:

• Customer accounts.
• Colleague engagement.
• Customer satisfaction.
• Senior leadership diversity.
• Statutory profit/(loss).
• Underlying profit/(loss).
• Total capital plus MREL.
• Cost of deposits.
• Cost of risk.
• Statutory cost:income ratio.
• Return on tangible equity.
• Loan-to-depositratio.
• Total shareholder return.

Our approach to remuneration for management is based on a simple and clear scorecard in addition to a Long Term Incentive Plan (LTIP). Scorecard measures are aligned to the four components of our business model with the LTIP based upon the successful generation of sustainable long-term value and tangible book growth.

Read more about our	Read more about our	Read more about our	Read more about our
business model on page 11	strategy on page 12	KPIs on page 14	remuneration on page 86

Metro Bank Holdings PLC Annual Report and Accounts 2023

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Chair's statement

In a world of continued uncertainty we remain focused on delivering value for all of our stakeholders. We aim to achieve this through the continued execution of our strategy and an unrelenting focus on our ambition to be the number one community bank.

Dear stakeholder

I am pleased to introduce the first annual report of Metro Bank Holdings PLC, following the successful insertion of our new holding company in May 2023. Whilst our name might have changed, our ambition to be the number one community bank has not, and 2023 has been another key year in moving towards this.

As I reflect upon both the progress and challenges we have overcome during the past year, I do so with immense gratitude. The continued trust shown to us by you, our shareholders, bondholders, customers and colleagues reinforces mine and the Board's

determination to see Metro Bank thrive and succeed. I want to take this opportunity to express my deepest thanks to you all.

Capital raise

The announcement in October of our £925 million capital package (comprising

£150 million of new equity, £175 million of new MREL-eligible debt and £600 million of debt refinancing) was a defining moment. The Board was fully engaged in this process

and active in both supporting and challenging the executive team to set this important foundation for the future. The shareholder vote of over 90% in favour of this was a demonstration of the support shareholders have for the business and the importance of strengthening our capital position.

Whilst we acknowledge that many shareholders were unable to participate in the capital raise, we believe that the package represented the best possible outcome for all stakeholders and will allow us to move forward with strengthened financial resources and renewed sense of purpose.

As part of the capital package, Jaime Gilinski Bacal - a long-time investor, became our majority shareholder through his company, Spaldy Investment Limited. Spaldy Investments Limited is entitled to appoint up to three shareholder appointed Non-Executive Directors to the Board. Dorita Gilinski, who has been a shareholder-appointedNon-Executive Director since September 2022 will continue as one of the three roles. The Board continues to be made up of a majority of independent Non-Executive Directors and together the Board remains committed to fulfilling its duty to act on behalf of all shareholders and wider stakeholders.

Results

The first six months of 2023 saw us return to profitability on both a statutory and underlying basis, a culmination of all the hard work delivered by Dan and the team over the past few years. The second six months of 2023, however, precipitated the conditions that required us to raise capital.

As I reflect upon both the progress and challenges we have overcome during the past year, I do so with immense gratitude.

Robert Sharpe

Chair

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Chair's statement

Continued

The increase in capital requirements in July through the increase in the counter cyclical capital buffer, alongside the news that we should not expect to receive AIRB approval in 2023 placed incremental pressure on our capital position. The Board has been continuously considering capital options, and these factors, along with the need to refinance our existing MREL debt before October 2024, meant that the window for raising capital from the market was scheduled for the fourth quarter of 2023. At the start of October, several speculative media reports contributed to uncertainty around the capital negotiations and an increased outflow of customer deposits. Our strong levels of liquidity and prudent approach meant these outflows were manageable and, indeed, as at 31 December 2023 we had returned to broadly the same deposit levels as we reported for the third quarter, with strong liquidity and funding regulatory ratios.

Since the capital package announcement, and financial completion, we have seen core deposit flows stabilise, supplemented through a combination of repricing and new deposit initiatives. The higher cost of this funding combined with the higher interest rate payable on our new and refinanced debt have acted as a drag on underlying profitability in the fourth quarter.

Crucially, the delivery of the capital package in November has seen us restore our regulatory capital ratios, ending the year with total capital plus MREL of 22.0% (31 December 2022: 17.7%) providing both certainty to stakeholders and a platform for future growth.

Responding to an evolving landscape

In November, the Board approved a cost saving plan to ensure the organisation is right-sized going forward. The programme included reducing our store hours, leading to 1,000 colleagues across stores and the wider business being made redundant. Alongside the cost savings, plans include making additional investments in areas including automation of services, improving our productivity and responding to customer trends.

The Board remains fully engaged in helping drive our strategy and supporting the executive team in its execution. In doing so, we remain mindful of the need to appropriately balance the interests and expectations of all our stakeholders.

Governance

During the year we appointed Clare Gilligan as our new Company Secretary. Clare joins us from Bank of Ireland (UK) plc where she was Company Secretary, bringing with her a wealth of expertise. Her appointment helps to ensure that our governance framework remains of the highest standard.

At the end of the year Anne Grim, Monique Melis and Ian Henderson stepped down from the Board. On 11 January, we announced that James Hopkinson, Chief Financial Officer, would step down as Executive Director and would leave the business during the first quarter of 2024 after a period of handover.

I would like to thank all of them for their contribution.

The Board appointed Cristina Alba Ochoa to act as interim Chief Financial Officer, effective 15 January 2024.

On 29 February 2024, we announced the appointment of Marc Page as the permanent Chief Financial Officer and member of the Board from September 2024 (subject to regulatory approval). Marc will join us from Barclays where he was Chief Financial Officer of Kensington Mortgages since its acquisition by Barclays in 2023. He will bring with him a wealth of knowledge and experience across retail banking strategy, distribution and product management.

Whilst we will be a leaner organisation going forward, including at Board level, this is not at the expense of having the right level of skills within the organisation.

Outlook

The road ahead is not without uncertainty. We continue to see political and economic turbulence with a general election likely in 2024 set against the backdrop of cost-of- living pressures and a subdued economy.

Alongside these external challenges, we also face Bank-specific headwinds. This includes entering 2024 with elevated funding costs, which act as a drag on near-term profitability.

Despite these challenges, I remain confident in our ability to be the number one community bank. Metro Bank's resilience and ability to navigate obstacles as well as seize new opportunities is one of its great strengths and will drive our success in the coming year. We will continue to champion customer service and traditional banking values of trust, honesty and integrity, delivering excellence in our products and services and nurturing the relationships we hold dear.

Robert Sharpe

Chair

16 April 2024

Where to find out more

How governance is supporting our transformation

Stakeholder impact

We focus on the impact on our stakeholders of all the decisions we make and ensuring we are delivering the right outcomes to them is fundamental to delivering our ambition to be the number one community bank.

Read more in our Stakeholder Engagement on pages 59 to 61 and in our Section 172 Statement on page 34.

Stakeholder engagement

We were pleased to get support of over 90% for all our resolutions in relation to the capital package in November.

We look forward to further shareholder engagement throughout 2024 including at our AGM which will take place on

21 May 2024.

Read more in the Chair's governance letter on pages 52 to 53 and in our Section 172 Statement on page 34.

Metro Bank Holdings PLC Annual Report and Accounts 2023

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Operating environment

The environment we operate in is both competitive and rapidly changing.

This presents us with challenges but also creates exciting opportunities for us as we grow.

Economic and political outlook

How we see it

Whilst 2023 has been a turbulent year with continued global uncertainty, the UK economy has been remarkably resilient, despite entering a technical recession in the final two quarters of the year. Inflation has fallen back from recent highs although remains in excess of the Bank of England's long-term target of 2%. Part of this softening has been as a result of continued increases in base rates which were increased from 3.50% to 5.25% over the course of the year. Whilst the outlook is that rates have peaked, the increases seen in 2023 will continue to impact customers in the years ahead as they roll-offlower-costfixed-rate borrowing. Although this has resulted in an increase in arrears, this has come off a low base.

We have started to see signs of the job market softening, with lower levels of hiring activities and the prospect of potential rises in unemployment in 2024, adding to an uncertain economic outlook.

Competition

How we see it

The UK banking market remains highly competitive in respect of both deposits and lending.

For core current accounts, digital-only operators are achieving high levels of customer satisfaction whilst incumbent players continue to deploy switching offers and heavy marketing campaigns to maintain market share. At the same time, average current account balances are reducing industry-wide as customers repay debt, deploy excess deposits into higher rate savings and weather the increased cost of living.

In the lending market, larger incumbent players continue to competitively price mortgages with mortgage rates ending 2023 at below 4%, compared to the base rate of 5.25%.

Equally, specialist lenders continue to make inroads into non-relationship driven segments, often delivered via intermediaries or aggregators.

We have also started to see the early signs of consolidation within the industry, which is likely to see market share concentrated further between larger incumbents.

Customer behaviour

How we see it

Customer behaviour in 2023 has been marked by the higher rate environment and cost-of-living pressures. This has seen customers move their money to savings accounts to maximise interest as well as becoming increasingly willing to switch providers. The higher savings rates have also seen customers making greater use of ISAs as a tax shield, particularly amongst savers with high balances where interest payments exceed the personal savings allowance.

We are also continuing to witness the acceleration of digitisation with customers continuing to prefer digital-first channels. This rise in use of new technology also gives rise to increasingly sophisticated fraud.

How we are responding

We see the current levels of uncertainty remaining elevated through 2024 due to continuing global conflict and key elections in both the UK and USA, as well as a subdued economic outlook.

We continue to take a prudent approach to expected credit loss (ECL) provisioning and believe this reflects the current uncertainties, including those related to slower economic growth and increased unemployment.

At the end of 2023 we took the decision to move away from unsecured lending given the return on capital it is providing in the current economic climate.

How we are responding

We are continuing to invest in our deposit proposition to ensure we remain competitive and gain market share. Whilst we saw a reduction in average current account balances, both due to wider-market forces and the speculation around our capital raise, we continue to grow account numbers and deepen customer relationships.

In the lending space we are focusing our attention on targeting more specialist segments of the market. This is in part due to the setback in our AIRB ambitions, which we announced in September. Being a non-AIRB approved lender makes it hard to compete in the prime 'vanilla' segment of the market in respect of both volume and price due to the structural disadvantages in the capital treatment of residential mortgages compared to larger AIRB-approved competitors.

How we are responding

We have increased our investment in our deposit gathering channels including building out our ISA proposition ready for the 2024 season. We were able to deploy some of these deposit gathering tools in the fourth quarter where we were able to quickly attract new deposits to replace balances lost in response to the speculation surrounding our capital raise.

We expect the current digitisation trend to continue and we will carry on making disciplined investment choices in

this area.

We remain committed to stores and maintaining a fully integrated offering, although have reduced hours in response to changing customer needs.

Metro Bank Holdings PLC Annual Report and Accounts 2023

Operating environment

Continued

Strategic report Governance Risk report Financial statements Additional information	7

Regulatory environment

How we see it

The UK regulatory environment has undergone significant changes in recent years and continues to evolve, with multiple changes on the horizon from key regulatory bodies.

Regulatory authorities including the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have introduced reforms aimed at enhancing financial stability, consumer protection and market integrity.

Key regulatory initiatives have included the new Consumer Duty requirement and Basel 3.1, which sees changes to the industry's capital requirements.

We are also continuing to see regulators take a firm approach to misconduct and ensuring fair outcomes for customers. An example of this is the FCA's review into historical motor finance commission arrangements, the cost of which to lenders could be significant.

Capital and funding regime

How we see it

The UK's stringent approach to capital management continues to shape the banking industry. This is particularly true for new and mid-sized challengers like ourselves who remain subject to MREL requirements but unable to take advantage of the structural advantages of larger players who are able to benefit from their Advanced Internal Ratings Based (AIRB) status for determining risk-weightings. This makes providing the required return on capital challenging, particularly in mainstream lending, which would benefit from additional competition.

With respect to funding, the Bank of England's continued planned withdrawal of TFSME (combined with additional quantitative tightening) will put additional pressure on banks' funding requirements, with firms needing to either shrink balance sheets or increase their deposits to replace this form of funding. Equally, given the high-profile international bank failures in 2023, we see liquidity remaining a core focus for banks going into 2024, with firms likely to continue to hold excess liquidity over minimum requirements.

Focus on sustainability

How we see it

2023 was the hottest year on record globally and we are continuing to see the impacts of climate change both around the world and in the UK.

As awareness of environmental and social issues continues to grow, stakeholders are increasingly scrutinising companies' responses to these sustainability challenges. In particular, customers are continuing to have increased expectations of companies they interact with to deliver for the environment and wider society.

As well as our own decisions around sustainability, we recognise the role we play in broader society, primarily through the decisions over who and what we choose to finance. We see that the financial system has a central role in acting as a catalyst for change in broader society and as such can play an outsized role in contributing to the transition to a more sustainable and resilient economy.

How we are responding

We continue to deliver a range of comprehensive projects to ensure we remain compliant with changes to the regulatory environment. During the year, we have made good progress on the implementation of our Consumer Duty requirements and continue to prepare for the introduction of Basel 3.1.

We retain proactive engagement with our regulators, industry bodies and other stakeholders to help shape the regulatory agenda, provide feedback on proposed reforms and continue to advocate for proportionate and pragmatic regulations that support both innovation and growth, whilst protecting the integrity of the financial system.

The current FCA investigation into motor finance shows the continued focus of regulators on ensuring customers are treated fairly. As a community bank we support the regulator to achieve this outcome for customers.

How we are responding

The capital raise during the year saw us restore all our capital ratios to above minima including CRD4 buffers.

The cost of capital remains high, both industry-wide and for ourselves in particular. We are therefore continuing to ensure we optimise our return on regulatory capital when determining our product and pricing strategy. Equally, we are working to ensure we are right-sizing our cost base to aid in the delivery of sustainable organic capital generation.

We retain high levels of liquidity with a liquidity coverage ratio (LCR) as at 31 December of 332% (compared to the minimum requirement of 100%), and were able to weather deposit outflows in response to press speculation in October 2023. Our strong levels of liquidity have also allowed us to repay £550 million of TFSME drawings early.

How we are responding

We recognise the interconnectedness between sustainable business practices and long-term financial performance and as a result continue to integrate sustainability into all of our core operations and decision-making processes.

We continue to deliver our plan to achieve our 2030 net zero carbon emissions goal. In achieving this we remain committed to being transparent in respect of our reporting of progress to deliver this.

As a community bank we also recognise the importance of giving back to society and this will continue to be achieved through a range of initiatives which utilise our physical and digital channels.

Our corporate governance structure ensures that sustainability remains a key focus as part our ambition to be the number one community bank.

Metro Bank Holdings PLC Annual Report and Accounts 2023

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Chief Executive Officer's statement

With 3.0 million customer accounts covering retail, SME and commercial, a national network of stores and our continued digital investments we remain the UK's leading full-servicemid-sized bank.

The start of the year began with continued momentum from 2022, which saw us return to profit on both a statutory and underlying basis and deliver our best set of results for several years in the first half. For the full year, we recognised an underlying loss before tax

of £16.9 million for 2023 (2022: loss of £50.6 million), impacted in part by deposit pricing actions taken in the second half of the year. On a statutory basis, we delivered a profit before tax of £30.5 million (2022: loss of £70.7 million), largely as the result of a one-off gain from the capital restructure completed in November.

2023 saw the continued execution of our strategic priorities with tangible progress made across all areas. We enter 2024 with an improved and longer-dated capital position, and continue to take a disciplined approach to cost saving and have commenced further activities to achieve the savings outlined, all of which will set us up to continue on our path to sustainable profitability, and deliver on our ambition to be the number one community bank.

Capital package

Going into the year we were always clear about our need both to access the capital markets comfortably ahead of the call date for our MREL in October 2024 and to deliver profitability as a prerequisite. The increased capital requirements in July, combined with the setback in September to our ambition to achieve AIRB accreditation for residential mortgages, put pressure on our capital position, impacting the levels to which we were able to grow capital organically. Speculative media reporting contributed to our decision to accelerate and address our capital position in the fourth quarter.

The ability to secure the £925 million capital package demonstrates our investors' faith in us and in our customer service-centric model. We believe that this capital support provides certainty for us going forward.

Strategic delivery

Throughout the year, our customers have remained supportive and our promise to provide better service and to support the communities in which we operate continues to resonate. Progress has been achieved in the automation of back-office processes and investment in core infrastructure aimed at ensuring the stability and security of systems. Alongside this we have seen the launch of new products including enhanced commercial overdrafts and business credit cards. Whilst we see near-term pressure on profitability resulting from the increased cost of deposits gathered in the final quarter of the year, we are optimistic that the good work put in throughout 2023 continues to set us up well for the future.

We remain committed to increasing market share as we support more customers and communities.

Daniel Frumkin

Chief Executive Officer

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