TIDMNOTP
RNS Number : 1839F
Nottingham Building Society
06 March 2020
Nottingham Building Society
The Nottingham announces robust financial performance and continued
progress in the delivery of its unique member proposition as
it prepares for a new digital world of financial services.
The Nottingham is pleased to present its results for the year
ended 31 December 2019, in what was another period of good progress
and performance in the delivery of our unique 'all under one
roof' advice and service proposition for members.
Below are some of the key achievements and financial highlights
of 2019:
* Underlying profit before tax of GBP10.0 million;
* Strong retail franchise growth - total branch savings
balances of GBP2.4 billion, up 2% in 2019;
* Total assets of GBP3.8 billion and gross mortgage
lending of over GBP350 million for 2019;
* The Society welcomed over 20,000 new customers and is
present in over 60 locations across nine counties;
* Successful completion of the project to replace all
of our online/digital member facing activity;
* Achieved a customer Net Promoter Score of 77%;
* Net interest margin at 1.17%;
* Arrears levels remain very low, below a quarter of
the industry average (2019: 0.15% v industry at
average of 0.72%); and
* Capital strength improved with Common Equity Tier 1
at 15.1% and leverage of 5.3%.
Commenting David Marlow, Chief Executive, said:
"There have been a number of market and societal changes that
we have had to face into over the past year and I am pleased
to report good progress across a range of our activities.
One of the biggest challenges of 2019 has been to effectively
balance the conflicting needs of our savings and mortgage members,
in the face of a continued ultra-low interest rate environment
and intense mortgage price competition, as the UK ring-fenced
banks exerted their influence on the market. The challenge for
us here was to respond to falling rates for new mortgages whilst
protecting the average rate we pay to our savers. This has meant
that we have reduced our new mortgage lending, which is down
almost 60% from GBP834m in 2018 to GBP353m in 2019, whilst continuing
to be successful in raising the number of existing borrowers
choosing to stay with us when they get to the end of their promotional
period. This is something we have achieved well this year, with
over 70% of members choosing to stay with us at the end of their
initial product term.
This is in contrast to our savers, where we continue to work
hard to hold up savings rates in the face of falling mortgage
yields. Again, we are pleased with the outcome whereby our average
rate payable on our savings at the end of 2019 is 1.00% compared
to 1.02% at the end of 2018.
How we have strived to strike this balance is best demonstrated
at the income statement level. In 2019, our interest receivable
from mortgages was down 2% or GBP1.4m whereas our interest payable
to savers actually increased by 7.7% or GBP2.7m. This GBP4.1m
swing could be viewed as a further mutual dividend and strong
evidence of our commitment and track record in doing all that
we can to protect saving rates in these market conditions.
A vital component of our membership are those savers that use
our branches. Despite our balance sheet overall undertaking a
controlled contraction in 2019, we have seen the number of members
and saving balances in our branches continuing to grow, with
membership in branches up 2% in the year. We also continue to
see an increasing number of members utilising our unique Member
Rewards Scheme, which has been designed to reward members for
planning for their financial future, in the form of a range of
discounts and cashbacks. In 2019, members enjoyed rewards benefits
of GBP0.6m.
Whilst continuing to grow our branch based membership and aiming
to serve them brilliantly, we have been consistent in stressing
the importance of building a strong digital capability, to ensure
that we can serve the increasing number of existing and potential
members who expect to deal with us not just digitally but mobile-led.
2019 has been a year of significant progress for us on this front,
as we have implemented the Salesforce platform across all our
online/digital member activity and in the process delivered significant
benefits in terms of access, convenience and ease to our members.
Following the successful launch of Beehive Money in December
2018, we launched our member portal offering Lifetime ISAs (LISA)
online for the first time in April. We now have the ability to
open a LISA fully authenticated and ready to fund in under four
minutes. Then in November, we launched our Mortgage Broker Portal,
which has significantly improved our online mortgage decisioning
and processing capability for the thousands of brokers that deal
with us over the course of a year. These enhancements have resulted
in us reducing the time for a broker to receive a decision in
principle and apply for a mortgage with us from just over 2 1/2
hours to under 20 minutes. As a consequence of these innovations
we are seeing some encouraging results with mortgage flows increasing
as we become easier to deal with and in one striking example
we opened over 500 LISAs in less than an hour following the airing
of a popular money advice programme.
These fundamental improvements in how we provide our service
in a digital world, signal a strong beginning to the continuing
digital transformation of the Society and one which we are committed
to in the years ahead. We believe that not only will it make
us more relevant to a broader and younger set of potential members,
but also serve our need to deliver quick, easy access to our
services at lower cost.
Another element of our proposition, which continues to develop
well, is our whole-of-market mortgage advice service which is
increasingly attractive to members (who can qualify for free
advice) and fee paying non-members. We have continued to grow
this part of our offering, with the number of mortgages completed
in 2019, up 15% on 2018. This is particularly important when
considered against the context of our own current reduced appetite
for lending. Our approach ensures that we can always offer our
members the best the mortgage market has to offer in all conditions,
ensuring that we are always relevant.
Whatever we do to support our members to save, plan for and protect
their financial futures, it is important that we do that well
and deliver a level of service that we could expect to receive
ourselves. I am delighted that we have continued to achieve this
and to report that our Net Promoter Score remains at the high
level of 77%; this continues to place us amongst the very best
global service providers. My gratitude goes to our team members
across the Society, who strive to look after and serve our members
in a way that they would wish to be served every day.
Our performance
As we trailed last year, our objectives in 2019 were to undertake
a planned contraction of the balance sheet, do all we could to
protect savings rates and continue to invest strongly in our
digital future. Inevitably this has led us to operating at a
reduced level of profit in 2019.
The ability to do so, without compromising our financial strength,
is one of the attributes of the mutual model, as the Board can
look through short term turbulence and continue to focus on the
medium and longer term.
I have already outlined our actions on accepting lower interest
receivable; whilst boosting interest payable creating a GBP4.1m
reduction in net interest income taking overall income down by
9% in the year, although we have protected our net interest margin
well which was 1.17% in 2019, only 9 basis points down on last
year.
In times such as this, it is very important that management ensure
that the money we spend running the Society on a day to day basis
is well controlled and proportionate to the income we derive.
I am pleased therefore to report that in 2019, due to strong
management action and the benefits of new digital delivery, we
reduced our underlying administration expenses by just over 10%
to GBP35.2m.
But as you might expect our costs related to investment in the
Society increased; when combining depreciation, strategic and
project costs we invested a total of GBP6.8m over the course
of the year; 70% up on 2018.
Overall, this has led us to deliver an underlying profit before
tax of GBP10.0m. Although down on 2018, this is a strong return
in the low interest rate, low profitability market environment
we are in.
Financial strength and quality
As we approached the end of the year, we have reviewed how two
of our core markets, mortgages and estate agency, have changed
in the past couple of years and how we believe these changes
will continue in the years ahead.
The Board has therefore elected to re-evaluate some of the assets
we hold on our balance sheet and in doing so ensure that we are
effectively positioning ourselves for the future. As we continue
to increase the number of mortgage members we retain at the end
of their product term, our change in accounting estimate and
resulting write down of the mortgage EIR asset reflects our increasing
conviction that no member should remain on our SVR for any meaningful
period of time at the end of their product term. This prudent
step also reflects our intention to begin to refine the way we
charge for mortgages over the next two years or so, as we carry
out work to develop the capability to individually price each
member's mortgage, based on their own distinct characteristics.
We have benefitted overall as a Society from the expansion of
building society services to branches facilitated by the acquisition
of Harrison Murray, but the estate agency market has undertaken
material structural changes over the past 2-3 years; in terms
of the UK average annual transaction numbers, in the level of
fees that agents are likely to be able to accrue from these transactions
and in extra costs arising from new additional regulatory requirements.
We have, therefore, deemed it prudent to write off the goodwill
that sits on our balance sheet in relation to the historic acquisition
of the estate agency.
Whilst both of these adjustments take us to an accounting loss
for the year of GBP7.2m after tax, it is a strong affirmation
of our financial strength, that despite these deductions totalling
GBP16.3m, our core capital strength has improved over the period,
with our CET 1 ratio increasing to 15.1%.
In addition to capital, the core components of the financial
strength of a building society are liquidity and credit risk
and I am pleased to report that our performance in each of these
two areas remains very strong.
Our liquidity position, as always, is strong and our liquidity
coverage ratio ended the year at 229% which is significantly
ahead of what we are required to hold.
And finally our credit risk profile remains one of the strongest
in our sector and across all the lending industry. We only had
to make GBP0.4m of loan impairment provisions from a book totalling
GBP3.2bn and only had 36 customers more than 3 months in arrears
at the end of 2019.
People and culture
We would not have been able to achieve and deliver all that we
have during the year without our great team of enthusiastic experts.
In 2019 we have continued to ensure that our people strategy
is focused on supporting our team members to deliver our vision
in line with our values and create a positive open culture focused
on serving our membership.
Our People and Development team have continued to work very hard
on this and this was reflected in our annual Your Voice Matters
team engagement survey where we saw over 25% of responses to
questions improving by 5 points or more.
Engaging our teams and creating an open culture that creates
psychological safety for all to speak up and express themselves
is a vital component of a high performing organisation. In the
latter part of the year we have been carrying out some work across
the Society to help us achieve that aim.
As always, there remains a great deal to still achieve but we
are committed to creating a positive contemporary workplace for
all our people to thrive as they serve our members.
Supporting our communities
As one of our four key pillars, it remains as important as ever
to support the communities we serve. Through our corporate responsibility
programme, we commit to 'doing the right thing for our communities'
by working with a wide range of charities and projects that seek
to tackle homelessness and improve employability and financial
awareness. In 2019, the programme reached a milestone as we surpassed
GBP1m of contributions to local causes.
We have continued to support our charity partners, Young Enterprise
- supporting schools across the East Midlands to deliver their
company programme and Framework - an East Midlands based homeless
charity through support of their Off the Streets campaign.
We are also proud to have worked with the National Literacy Trust
where we have donated over 2,500 books as part of their Better
World Books campaign to raise literacy levels across our heartland.
My particular favourite in 2019, was our partnership work with
Nottingham City Council in delivering their StoryParks initiative.
Inspired by the first Chairman of the Society, Samuel Fox, who
established the first UK adult school in Nottingham, we were
delighted to have our teams spending time in the summer across
all the city's major parks working with park rangers on raising
numeracy and literacy skills amongst the less privileged children
who live in our inner city. The initiative saw us give over 7,000
children a real summer holiday treat and learning experience
in our parks.
I remain overawed at the commitment and skill our team members
continue to demonstrate in all the volunteering and fundraising
they do for such deserving causes.
Outlook
As we head into 2020 and life outside of the EU, the themes and
priorities we have developed over the past 12 months will continue
and in some cases pick up pace.
The Society continues to operate in and adapt successfully to
changing and challenging market conditions. Our results this
year reflect these challenges, but also how we are ensuring that
we take a long lens view of the development of our strategy,
whilst not compromising our financial strength.
We believe that to be successful in the longer run, we will need
to keep members at the heart of our core purpose which is to
help and support them to save, plan for and protect their financial
futures; adapt and develop new mobile-led, digital capabilities;
and have the scale and financial efficiency to successfully grow
membership in a market where a 0.80% to a 1% net interest margin
is seen as the norm.
Our mutual status and ethos serve us well in times like these,
enabling us to utilise and leverage the financial strength that
we have built up over more than 150 years and to adapt to a newly
emerging world whilst continuing to serve our members with a
proposition which is relevant and delivers value to them. We
firmly believe that we remain well placed to do this.
With the decisions we have taken during 2019, we believe we are
doing all the right things to prepare the Society for a new world
of financial services. As the nation grows older and the welfare
state's role in individuals' lives reduces, the younger generation
particularly are going to have to be more financially independent
than their parents and grandparents. We are building a Society
that will be able to meet these needs and serve a new generation
of members as well as we serve our members today, but in a digital
first world. This will no doubt require us to continue to evolve
the Society, introducing innovations in savings and mortgages,
without compromising our service ethos or our financial strength
and continuing to support the communities in which we serve."
David Marlow
Chief Executive
6 March 2020
Consolidated income statement
for the year ended 31 December 2019
2019 2018
GBPm GBPm
Interest receivable and similar income 84.0 85.4
Interest payable and similar charges (37.9) (35.2)
------- ------------
Net interest income 46.1 50.2
Fees and commissions receivable 6.2 7.5
Fees and commissions payable (1.1) (1.4)
Other income 0.2 -
Net losses from derivative financial
instruments (0.6) (0.7)
Total net income 50.8 55.6
Administrative expenses (36.5) (40.0)
Depreciation and amortisation (5.5) (3.4)
Pension finance cost (0.1) (0.3)
------- ------------
Operating profit before impairment,
fair value movement, change in accounting
estimate and provisions 8.7 11.9
Impairment (charge)/ release - loans
and advances (0.4) 0.3
Impairment charge - goodwill (4.0) (0.5)
Change in EIR accounting estimate (12.3) -
Provisions release - FSCS levy and
other - 0.1
(Loss)/profit before tax (8.0) 11.8
Tax credit/(expense) 0.8 (2.4)
------- ------------
(Loss)/ profit after tax for the financial
year (7.2) 9.4
------- ------------
Reconciliation of statutory (loss)/ profit
before taxation
2019 2018
GBPm GBPm
Statutory (loss)/ profit before taxation (8.0) 11.8
Adjusted for:
Losses from derivative financial instruments 0.6 0.7
Other income (0.2) -
Strategic investment costs 1.3 0.6
Impairment - goodwill 4.0 0.5
Change in accounting estimate 12.3 -
------- ------------
Underlying profit before taxation 10.0 13.6
------- ------------
Consolidated statement of comprehensive
income
for the year ended 31 December 2019
2019 2018
GBPm GBPm
(Loss)/profit for the financial year (7.2) 9.4
Items that will not be re-classified
to the income statement
Remeasurements of defined benefit
obligations - 0.4
Tax on items that will not be re-classified - (0.1)
Items that may subsequently be re-classified
to the income statement
FVOCI reserve
Valuation gains/(losses) taken to
reserves 0.7 (1.2)
Tax on items that may subsequently
be re-classified (0.1) 0.2
Other comprehensive income/(expense) for the
period net of income tax 0.6 (0.7)
------- ------------
Total comprehensive (expense)/income
for the year (6.6) 8.7
------- ------------
Consolidated statement of financial position
as at 31 December 2019
2019 2018
GBPm GBPm
Assets
Liquid assets 615.1 506.9
Derivative financial instruments 2.0 8.2
Loans and advances to customers 3,161.4 3,502.9
Fixed and other assets 40.5 35.6
-------- --------
Total assets 3,819.0 4,053.6
-------- --------
Liabilities
Shares 2,781.1 2,869.2
Borrowings 771.3 918.0
Derivative financial instruments 12.8 5.9
Other liabilities 12.9 12.6
Subscribed capital 24.7 25.1
-------- --------
Total liabilities 3,602.8 3,830.8
Reserves
General reserves 216.6 223.8
Fair value reserves (0.4) (1.0)
-------- --------
Total reserves attributable to members of the
Society 216.2 222.8
Total reserves and liabilities 3,819.0 4,053.6
-------- --------
Consolidated statement of changes General FVOCI Total
in members' interests as at 31 December reserve reserve
2019
GBPm GBPm GBPm
Balance as at 1 January 2019 223.8 (1.0) 222.8
Loss for the year (7.2) - (7.2)
Other comprehensive income for the
period (net of tax)
Net gains from changes in fair value - 0.6 0.6
Total comprehensive (expense)/ income
for the period (7.2) 0.6 (6.6)
--------- --------- ------
Balance as at 31 December 2019 216.6 (0.4) 216.2
--------- --------- ------
Balance as at 1 January 2018 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 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 comprehensive income/(expense)
for the period 9.7 (1.0) 8.7
--------- --------- ------
Balance as at 31 December 2018 223.8 (1.0) 222.8
--------- --------- ------
Summary consolidated cash flow statement
for the year ended 31 December 2019
2019 2018
GBPm GBPm
Cash flows from operating activities 4.5 18.0
Changes in operating assets and liabilities 109.0 4.5
Net cash generated by operating activities 113.5 22.5
Cash flows from investing activities (104.0) (114.8)
Cash flows from financing activities (3.0) (1.9)
-------- --------
Increase/(decrease) in cash and cash equivalents 6.5 (94.2)
Cash and cash equivalents at beginning of year 266.1 360.3
-------- --------
Cash and cash equivalents at end of year 272.6 266.1
-------- --------
Summary ratios
2019 2018
% %
Common Equity Tier 1 ratio 15.1 14.7
Liquid assets as a percentage of shares and borrowings 17.32 13.38
Group (loss)/ profit for the year as a percentage of mean
total assets (0.18) 0.24
Group management expenses as a percentage of mean total
assets 1.07 1.09
Society management expenses as a percentage of mean total
assets 0.94 0.95
Society interest margin as a percentage of mean assets 1.17 1.26
Notes
* The financial information set out above, which was
approved by the Board of Directors on 5 March 2020,
does not constitute accounts within the meaning of
the Building Societies Act 1986.
* The financial information for the years ended 31
December 2019 and 31 December 2018 has been extracted
from the Accounts for those years and on which the
auditors have given an unqualified opinion.
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contact rns@lseg.com or visit www.rns.com.
END
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