Nottingham Building Society Half-year Report (6154G)
25 Juli 2019 - 8:30AM
UK Regulatory
TIDMNOTP
RNS Number : 6154G
Nottingham Building Society
25 July 2019
Nottingham Building Society
Results for the period ended 30 June 2019
The Nottingham is pleased to present its results for the six
months ended 30 June 2019, which reflect our mutual ownership
ethos as we continue to show progress in the delivery of our
strategy, despite the difficult and uncertain environment in
which we are now operating.
Key performance highlights include:
* Total assets of GBP4.0 bn;
* Gross lending of GBP182m;
* Arrears levels remain at an historic low level;
* Strong liquidity position with liquid assets ratio of
15.8%;
* Strong retail franchise - branch savings membership
continues to increase;
* Sector-leading customer advocacy with a net promoter
score of 78%;
* Strong capital ratios with Common Equity Tier 1 ratio
of 15.3% and leverage ratio of 5.4%; and
* Group pre-tax profit of GBP2.7m.
David Marlow, Chief Executive of The Nottingham, commenting
on the results said
"In our 2018 Report and Accounts, we were clear that as the
Society headed into 2019, we expected market trading conditions
to be challenging and difficult. Increasing competition in
the face of muted demand for mortgages continued to see new
mortgage rates for customers continue to fall, despite their
already record low levels. In fact new business rates for mortgages
in the market currently average 2.10%.
Our primary objective, in running the Society in a sustainable
way, is to balance the conflicting needs of our savers and
borrowers, helping them to plan, protect and save for their
financial futures, whilst making sufficient profit to maintain
our capital strength and invest in the Society for the future.
Our 2019 first half performance strongly reflects this ethos,
which has been achieved in a tough market environment.
As highlighted previously, in the face of falling new mortgage
rates, we have moderated our lending plans as we do not believe
it is sustainable to grow at the rate we have done in recent
years, as this is not in the interest of all our members. Instead,
we believe it is better, in market conditions such as these,
to optimise the yield we earn on our lending without compromising
on our excellent asset quality. We do all that we can to protect
the rates we pay to our savers; as high asset growth in these
market conditions would inevitably lead to lower rates for
our savers.
This has been our key focus in 2019, which we believe we have
managed well. Whilst, as anticipated, this has led to lower
levels of income and profit reported, this has not prevented
us from continuing our significant investment in digital for
the future benefit of our members and improving our high level
of capital strength - our primary mutual objectives.
As new business rates for mortgages remained subject to intense
competition and declining rates, we have been careful to select
the lending that meets our requirements. Although this has
led to lower levels of lending and a reduction in our total
assets, we are pleased with the yield that has been achieved
on this lending. This has enabled us to protect the rates we
pay to our savers, which has actually increased by a small
amount in the first half of 2019 to an average of 1.03% as
at June 2019. This reflects our mutual ethos and demonstrates
the benefits of not needing to maximise profit, particularly
when market conditions are challenging.
It is essential that we continue to invest in the Society for
the future. As we have previously highlighted, consumer behaviour
and expectations are undergoing some of the biggest shifts
for over 50 years, as new digital capabilities begin to transform
the way we interact with all the firms we deal with. This is
particularly apparent for key financial service providers.
We are pleased to confirm that we continue to make good progress
in the development and implementation of our new digital capability
in partnership with Salesforce - a global leader in digital
customer relationship management.
In the first half of this year, we have also introduced digital
LISA functionality, focused largely on helping the first time
buyers of the future save for a home. This is in addition to
our newly launched "Beehive Money" online savings portal. Beehive
is our home for straight forward self-service digital savings
and has already proved popular since its launch.
During the second half of the year, we will launch our new
mortgage portal for brokers and intermediaries. This will significantly
enhance the speed and ease with which our critically important
mortgage partners can deal with us.
In order to broaden our relevance to customers across the UK,
we are also developing a completely new digital first savings
proposition, which will help savers plan for their own financial
future. We expect to launch later in 2020. The Board of The
Nottingham firmly believes that it is crucial for the Society
to continue to prepare itself for a digital future by enhancing
our current proposition enabling us to deliver to the expectations
of the 21st century saver.
Underlying our financial performance, it is essential that
we have a relevant proposition that members value and that
attracts new members to sustain the Society. Despite our deliberate
actions in the mortgage market in terms of reducing our own
lending, our whole-of-market mortgage advice proposition continues
to grow in popularity. In the first half of 2019, we have seen
a 24% increase in the number of members and customers taking
advice from us and securing a new mortgage through this service
compared to the first half of 2018.
We have also continued to grow our Nottingham Building Society
savings membership, which is now close to the 200,000 mark
for the first time. Our members continue to benefit from our
member rewards scheme, which is designed to reward them for
doing the right thing to plan, protect and save for their financial
futures. Thousands of members have taken advantage of the scheme
again in the first half of the year benefiting from over a
quarter of a million pounds of rewards.
We remain encouraged that our combination of advice, value
and choice remains popular with our members. This is best reflected
in the continued growth of our core savings membership as well
as customer advocacy in the shape of our Net Promoter Score,
which remains at the world class level of 78%.
In line with our expectations and plan, we have seen the overall
net interest income profile reduce by 7% in the first half
of 2019, as we acted to achieve what we believe was the right
balance between our saving and borrowing members.
However in anticipation of this reduction in income, we are
actively managing the administrative expenses of the Society,
which have also been reduced by 7% overall when compared to
the first half of 2018. We believe this reflects the robust
and prudent way in which we manage the Society for the benefit
of members, as well as demonstrating our ability to enhance
our efficiency as our investment strategy begins to bear fruit.
On an underlying basis, excluding the movement in derivatives,
the reduction in our level of profit reported compared to the
first half of 2018 is driven by the increase in total investment
spend, broadly equivalent to the additional depreciation charge
as well as project and strategic costs.
The historic low levels of arrears of more than 3 months remains
a de minimis for a book of our size and continues to reflect
the excellent quality of our lending. This is evidenced in
the minimal impairment movement in the period.
When fully reflecting the mutual ethos of our performance,
although our underlying profits for the period are GBP1.9m
lower than in the same period last year, we have acted to protect
savers and continue our significant investment in the Society.
Our capital strength also remains significantly above our regulatory
requirements, with our CET1 and leverage ratios improving further
to 15.3% and 5.4% respectively.
With continued economic and political uncertainty and little
change expected in the nature of the mortgage market for the
foreseeable future, we expect the trend seen in the first half
to continue for the remainder of 2019.
We also expect to continue with the robust and prudent management
approach we have adopted in the first half of the year. We
will continue to strike the right balance between the conflicting
needs of our savers and borrowers; optimise the yield we achieve
from our lending, without compromising on its quality. We will
continue to grow savings membership and increase the number
of members taking advantage of our unique 'all under one roof'
proposition. This will be delivered whilst actively managing
the costs to run the Society appropriately and continuing to
invest in our digital future.
The Board is clear that at times such as these our mutual ownership
model comes to the fore as we manage short-term market challenges
in the best interests of our members; continue to invest strongly
in the Society to enhance and improve the service we offer
whilst maintaining capital strength. Continuing to achieve
all of these aims will remain our focus for the remainder of
2019 and beyond."
David Marlow
Chief Executive
24 July 2019
Consolidated statement of comprehensive
income for the six months ended
30 June 2019
Period Period Year ended
to 30 June to 30 June 31 Dec
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Interest receivable and similar
income 41.9 41.5 85.4
Interest payable and similar charges (18.7) (16.5) (35.2)
------------- ------------- -----------
Net interest income 23.2 25.0 50.2
Fees and commissions receivable 3.1 3.9 7.5
Fees and commissions payable (0.5) (0.8) (1.4)
Net losses from derivative financial
instruments (1.7) (0.3) (0.7)
-------------
Total net income 24.1 27.8 55.6
Administrative expenses (18.8) (20.1) (40.0)
Depreciation and amortisation (2.6) (1.6) (3.4)
Finance cost - - (0.3)
Impairment (charge)/release -
loans and advances - (0.1) 0.3
Impairment charge - goodwill - - (0.5)
Provisions for liabilities - FSCS
levy and other - - 0.1
Profit before tax 2.7 6.0 11.8
Tax expense (0.6) (1.2) (2.4)
------------- ------------- -----------
Profit after tax for the financial
period 2.1 4.8 9.4
------------- ------------- -----------
Other comprehensive income:
Items that will not be re-classified
to the income statement
Remeasurement of defined benefit
obligation - - 0.4
Tax on items that will not be
re-classified (0.1) - (0.1)
Items that may subsequently be
re-classified to the income statement
FVOCI reserve
Valuation gains/(losses) taken
to reserves 0.9 (0.2) (1.2)
Tax on items that may subsequently
be re-classified - - 0.2
-------------
Other comprehensive income/(expense)
for the period net of income tax 0.8 (0.2) (0.7)
------------- ------------- -----------
Total comprehensive income for
the period 2.9 4.6 8.7
------------- ------------- -----------
Consolidated statement of financial
position
as at 30 June 2019
30 June 30 June 31 Dec
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Assets
Liquid assets 580.9 456.3 506.9
Derivative financial instruments 1.5 10.1 8.2
Loans and advances to customers 3,339.3 3,489.1 3,502.9
Fixed and other assets 43.9 33.3 35.6
------------- ------------- -----------
Total assets 3,965.6 3,988.8 4,053.6
------------- ------------- -----------
Liabilities
Shares 2,834.4 2,722.1 2,869.2
Borrowings 849.7 1,001.3 918.0
Derivative financial instruments 14.4 7.2 5.9
Other liabilities 16.5 14.2 12.6
Subscribed capital 24.9 25.3 25.1
------------- ------------- -----------
Total liabilities 3,739.9 3,770.1 3,830.8
Reserves
General reserves 225.8 218.9 223.8
Fair value reserves (0.1) (0.2) (1.0)
------------- ------------- -----------
Total reserves and liabilities 3,965.6 3,988.8 4,053.6
------------- ------------- -----------
Consolidated statement of changes
in members' interests for the period
ended 30 June 2019
General FVOCI reserve
reserve Total
GBPm GBPm GBPm
Balance as at 1 January 2019 (Audited) 223.8 (1.0) 222.8
Profit for the period 2.1 - 2.1
Other comprehensive (expense)/income
for the period (net of tax)
Net gains from changes in fair value - 0.9 0.9
Remeasurement of defined benefit obligation (0.1) - (0.1)
---------- ---------------- --------
Total other comprehensive (expense)/income (0.1) 0.9 0.8
---------- ---------------- --------
Total comprehensive income for the
period 2.0 0.9 2.9
---------- ---------------- --------
Balance as at 30 June 2019 (Unaudited) 225.8 (0.1) 225.7
---------- ---------------- --------
Balance as at 1 January 2018 (Audited) 212.7 - 212.7
Change on initial recognition of IFRS
9 1.4 - 1.4
Profit for the period 4.8 - 4.8
Other comprehensive expense for the
period (net of tax)
Net losses from changes in fair value - (0.2) (0.2)
Total other comprehensive expense - (0.2) (0.2)
---------- ---------------- --------
Total comprehensive income/(expense)
for the period 4.8 (0.2) 4.6
---------- ---------------- --------
Balance as at 30 June 2018 (Unaudited) 218.9 (0.2) 218.7
---------- ---------------- --------
Balance as at 1 January 2018 (Audited) 212.7 - 212.7
Change on initial recognition of IFRS
9 1.4 - 1.4
Profit for the year 9.4 - 9.4
Other comprehensive income/(expense)
for the period (net of tax)
Net losses from changes in fair value - (1.0) (1.0)
Remeasurement of defined benefit obligation 0.3 - 0.3
---------- ---------------- --------
Total other comprehensive income/(expense) 0.3 (1.0) (0.7)
---------- ---------------- --------
Total comprehensive income/(expense)
for the period 9.7 (1.0) 8.7
---------- ---------------- --------
Balance as at 31 December 2018 (Audited) 223.8 (1.0) 222.8
---------- ---------------- --------
Consolidated cash flow statement
for the period ended 30 June 2019
30 June 30 June 31 Dec
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Cash flows from operating activities
Profit before tax 2.7 6.0 11.8
Depreciation and amortisation 2.6 1.6 3.4
Interest on subscribed capital 1.0 1.0 2.0
Net gains on disposal and amortisation
of debt securities 0.2 0.3 0.6
(Decrease)/increase in impairment - (0.1) 0.2
-------------
6.5 8.8 18.0
Changes in operating assets and liabilities
Decrease/(increase) in other assets 6.0 (7.2) (5.2)
Increase/(decrease) in other liabilities 6.9 (3.1) (5.5)
(Increase)/decrease in loans and advances
to credit institutions (12.7) (2.1) 0.7
Decrease in debt securities in issue (26.1) (16.9) (46.7)
Decrease/(increase) in loan and advances
to customers 163.6 (118.5) (132.1)
(Decrease)/increase in shares (34.8) 126.7 273.8
Decrease in borrowings (42.2) (24.1) (77.6)
Taxation paid (0.9) (1.6) (2.9)
------------- ------------- -----------
66.3 (38.0) 22.5
Capital expenditure and financial
investment 7.1 (39.9) (114.8)
Financing activities (1.4) (1.0) (1.9)
------------- ------------- -----------
Increase/(decrease) in cash and cash
equivalents 72.0 (78.9) (94.2)
Cash and cash equivalents at beginning
of period 226.1 360.3 360.3
------------- ------------- -----------
Cash and cash equivalents at end of
period 338.1 281.4 266.1
------------- ------------- -----------
Summary ratios
30 June 30 June 31 Dec
2019 2018 2018
% % %
Common Equity Tier 1 capital ratio 15.3 14.7 14.7
Liquid assets as a percentage of shares
and borrowings 15.77 12.25 13.38
Group profit for the year as a percentage
of mean total assets 0.10 0.24 0.24
Group management expenses as a percentage
of mean total assets 1.07 1.10 1.09
Group interest margin as a percentage
of mean assets 1.16 1.27 1.26
Notes
* The financial information set out above, which was
approved by the Board of Directors on 24 July 2019,
does not constitute accounts within the meaning of
the Building Societies Act 1986.
* The financial information for the year ended 31
December 2018 has been extracted from the Annual
Report & Accounts for the year and on which the
auditors have given an unqualified opinion.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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