Manchester-based Co-op Bank said its statutory profit before tax fell about 46% to £71.4 million in 2023 reflecting “exceptional redress of £28.9m in respect of the legacy business, alongside strategic transformation and advisory costs of £22.5m.”

Co-op Bank said it remains in exclusive discussions with Coventry Building Society regarding a possible acquisition of the Manchester firm. “These discussions remain ongoing as we continue to evaluate the merits of the combination,” said Co-op Bank.

Net interest income at Co-op Bank increased 4% to £477 million and net interest margin (NIM) rose 14 basis points (bps) from 166bps to 180bps “with both benefitting from increases in the base rate.”

Co-operative Bank CEO Nick Slape said: “2023 has been a year of transformation and I am extremely proud of what we have achieved.

“The underlying profit before tax of £120.9m reflects our strong, sustainable and low risk business model, while statutory profit before tax of £71.4m was impacted by exceptional redress on legacy mortgage business, strategic transformation and advisor costs.

“We have made significant progress on our IT Simplification programme, including successfully in-housing our mortgage servicing capabilities, going live with our new cloud based mortgage platform and completing 67% of our savings migration. We remain on track to complete the programme in 2024.

“We received a further ratings increase, upgraded three notches in twelve months from Fitch, moving us to BB+. Both Moody’s and Fitch now have the bank on a ‘positive outlook’. Over time, improvements in our credit rating will enable us to further reduce our funding costs and grow our SME customer franchise.

“As a result of our increased capital strength and sustainable profitability, the board has recommended an inaugural ordinary dividend of 0.13p per share for 2023, rewarding our shareholders for their support while we have undertaken the transformation of the bank.

“Our objective is to continue distributions to shareholders through a progressive and sustainable ordinary dividend policy, whilst maintaining the flexibility to undertake returns of surplus capital, when appropriate.

“We remain committed to our core ethical values. In 2023, we were again rated as the UK’s best ESG rated high street bank by Morningstar Sustainalytics and we issued our third green bond.

“The bank has made an excellent start to 2024. We received over 12,500 new current account applications in January, representing an increase of over 300% versus the same period last year.

“New mortgage origination has also been strong with £1.2bn applications in January. Looking to the future, whilst the economic outlook remains uncertain, the bank is well positioned with a low risk balance sheet and strong capital and liquidity positions.

“We remain focused on delivering attractive and sustainable returns to our shareholders through growing our core mortgage and current account business, supported by diversification of our mortgage offering and evolving our SME lending proposition.

“We are ever mindful of the financial challenges that the current economic climate poses for a number of customers and we will continue to support them where needed.

“We announced in December 2023 that the bank is in exclusive discussions with Coventry Building Society regarding a possible acquisition of the bank. These discussions remain ongoing as we continue to evaluate the merits of the combination.”