TIDMNOTP
RNS Number : 5313R
Nottingham Building Society
09 March 2021
Nottingham Building Society
The Nottingham announces robust financial performance in a year
of extraordinary challenge, with continued progress in the delivery
of its unique member proposition and its journey into the digital
world of financial services; whilst demonstrating its mutual
ethos to members, colleagues and its communities.
The Nottingham is pleased to present its results for the year
ended 31 December 2020. Below are some of the key achievements
and financial highlights of 2020:
* Capital strength maintained with Common Equity Tier 1
at 15.0% and leverage of 5.3%;
* Total assets of GBP3.8 billion and gross mortgage
lending of over GBP490 million for 2020; up 40%;
* The benefits of mutuality shown with millions of
pounds invested supporting members through the
pandemic;
* Arrears levels remain very low, at a quarter of the
industry average (2020: 0.21% v industry at average
of 0.83%);
* Strong retail franchise growth - total branch savings
balances of GBP2.5 billion, up 3% in 2020;
* The Society welcomed over 40,000 new customers in the
year and now has over 35,000 Lifetime ISA customers;
* Present in 48 locations across nine counties;
* Achieved a customer Net Promoter Score of 76%; and
* Net interest margin at 1.07%;
Commenting David Marlow, Chief Executive, said:
"2020 was not the year we were expecting, but once we understood
the significance of the threat of the virus, we acted quickly
on our three key priorities: to ensure the wellbeing of our colleagues;
to protect and serve our members; and to support our communities.
In everything we have done in 2020, we have sought to be true
to our mutual ethos. In fact, the challenges of the pandemic
have enabled us to demonstrate the real benefits of mutuality
to our members. Over the years, we have built up a significant
capital surplus. The Board was unanimous that we should deploy
some of this capital to support our members and communities in
a time of crisis, and at the same time, we were determined to,
increase the level of investment in the Society, to deliver the
required strategic initiatives and respond effectively to the
rapidly changing world around us.
These decisions inevitably have impacted our 2020 financial results
of the Society, reducing overall income and supressing net interest
margin but also increasing investment costs, but position us
well for the future.
Protecting and serving our members
Keeping our network of over 50 branches open and protecting our
team members throughout the pandemic has been one of our greatest
challenges and achievements. We had to move quickly to provide
a Covid-secure environment and deal with the ever-changing advice
and requirements. Through hard work, perseverance and commitment,
we kept our branches open to members and sought to do all that
we could to look after our members, particularly the vulnerable.
For mortgage customers having difficulty making their monthly
payments, we offered payment deferrals, effectively suspending
payments for up to six months and providing some breathing space
for their family finances. During the year over 3,000 members
have used this facility.
One of the largest contributions of direct support to members
we have made, was through our conscious decision to protect savings
rates in the face of the cut to bank base rate to 0.1% in March.
This commitment was to maintain branch savings rates for at least
six months. We felt it was right to protect members at a critical
time of crisis and particularly when they were being asked to
stay at home. The impact of this decision is that we have paid
millions of pounds of additional interest to members during 2020.
At the end of one of the most turbulent years in our history,
our Net Promoter Score remained at the incredibly high level
of 76%, demonstrating our members response to how we have dealt
with the challenges of 2020.
Supporting the wellbeing of our team members
None of the achievements in 2020 would have been possible without
the amazing team we have here at The Nottingham. They strive
every day to help our members save, plan for and protect their
financial futures.
In a year of extraordinary challenge, they have consistently
gone over and above normal expectations to find a way to support
our members, whatever the circumstances. From the beginning of
the pandemic, we acted swiftly to instigate a task team focused
on the health, safety and wellbeing of our team members. This
cross functional team met regularly to plan and put in place
policies, processes and actions in response to government guidelines.
Some of the key decisions and actions taken included an early
policy decision to support all team members with full pay for
Covid-19 related absences due to a positive test result, a requirement
to self-isolate or needing time to care for dependants due to
schools' closures and other restrictions. We responded quickly
to the need for Personal Protective Equipment. Regular and timely
communications to team members ensured we had the support of
all parties in helping to keep everyone safe and well.
Our colleagues have responded positively to our approach and
in fact our annual employee survey, undertaken in November 2020
reported that 91% of respondents felt that safety and security
is taken seriously at The Nottingham. Our engagement score of
82% is a five percentage point increase on the 2019 survey. This
is significantly above the financial services benchmark.
Supporting Our Communities
Through our Doing Good Together programme we placed a strong
focus on alleviating food poverty, homelessness and reducing
social isolation. We also responded quickly to the challenges
of home-schooling and supporting vulnerable families by helping
to further develop literacy and numeracy skills.
We provided financial support to The Trussell Trust foodbank
network, The SilverLine phone-befriending service, BookTrust
and long-term charity partner Framework. This provided aid for
thousands of people. We also launched our Scams and Security
hub aimed at protecting our members getting online for the first
time. We supported "Story Parks at Home" in partnership with
Nottingham City Council, digitising literacy and numeracy activity
for young children. More than 8,000 families logged on this year,
with almost 1,200 visits to our Money Academy virtual classroom.
Education has been a key focus in 2020 and our newly launched
Career Academy has supported over 1,100 students remotely on
their education to employment transition.
In 2020 we have helped thousands of families with the challenges
they have faced and have contributed generously to deserving
causes who have worked tirelessly to support the weak and vulnerable
at a great time of challenges. We have been proud to support
these organisations in their work when they needed it most. Their
amazing efforts demonstrate how the pandemic has brought out
the best in some.
Staying Relevant in the New World
Once we had progressed our three immediate priorities, we turned
our attention to the strategic implications of the pandemic.
Following a review, we agreed a range of actions to ensure that
the Society is well-placed to continue to grow membership and
deliver a sustainable performance in the years ahead. The key
areas of our focus were:- our role as an estate agent; the future
role of branches; and accelerating our digital route map.
Our role as an estate agent
We have operated as an independent estate agent for over 25 years
and during that time have offered both members and non-members
a high-quality home buying and selling service. However long-term
shifts in the level of annual house purchases, how people now
choose a mortgage provider and the increasing digitisation of
estate agency services have all been medium term considerations
for us.
When taking all these factors into account, we determined that
to remain a strong force in estate agency would require a level
of investment that was difficult to justify. We therefore began
to look at how we might adopt a different approach to maintain
access for members to estate agency services, continue to utilise
branch space effectively, but not to incur the full costs of
running an estate agency.
Following this review, we announced our strategic alliance with
the Belvoir Group. The establishment of the strategic alliance
achieved our objectives of maintaining access to discounted home
selling and lettings services for members - now available nationally
and utilising our branch space, whilst no longer carrying the
cost of running an estate agency. We are very optimistic about
the prospects of our strengthening alliance, which provides both
organisations with a number of unique opportunities to work together
in the future.
The future role of branches
Branches are the cornerstone of serving our members, and we have
long been supporters of a strong branch network. This is best
demonstrated by the fact that we have doubled the number of branches
in the past seven years. This has proven very successful with
branch savings balances increasing from GBP1bn in 2013 to over
GBP2.5bn at the end of 2020 for the first time in our history.
The important role of branches, we believe, will remain for many
years to come.
However, as part of our decision regarding estate agency, we
conducted a review of our network to ensure all of our locations
had a good chance of a successful future. There were two clear
emerging themes resulting from this review. Firstly, with the
removal of estate agency, a small number of locations were no
longer viable; and secondly it was difficult, in the current
market conditions to justify such a strong concentration of branches
in our home city of Nottingham, where we had 13 branches within
a five mile radius of our head office. Our review showed that
in reducing this to eight branches, Nottingham based members
still have access to a branch within 1.5 miles of their home.
We therefore regrettably took the decision to close these branches
at the end of 2020 and the cost associated with this is included
within our strategic costs.
Following this review, we still have a large vibrant branch network
of 48 branches, and in a strong demonstration of our confidence
and commitment to our network, we have completed five refurbishments
rolling out a completely new and fresh branch concept, which
is proving popular with members. We plan further refurbishments
in key locations in 2021.
Changing digital expectations
A universal impact of the pandemic has been a greater adoption
of the use of digital channels. The rate of shift in expectations
and level of usage has been significant, in our view accelerating
adoption levels by about five years. Whilst we recognised this
trend some time ago and began to digitise the Society's operations,
it was clear in the summer that we would need to accelerate our
plans significantly if we were to be relevant to younger members
in the post-Covid world.
We have therefore approved further investment in digital and
have been working hard over recent months with our plans to relaunch
Beehive Money in the summer of 2021. Through the launch of an
innovative savings app, we will look to position ourselves as
a digital leader in tax-free savings. We believe this area gives
a significant opportunity to grow our membership particularly
those under 40 years of age - something which is underpinned
by our recent success as a Lifetime ISA (LISA) provider, where
we already have over 35,000 members saving with us in a LISA
to buy their first home or save for their pension.
This will mark an exciting new chapter for the Society. Our aim
is for Beehive Money to become a tax-free savings provider of
choice for a new generation of savers.
Financial performance
In trading terms, despite the turmoil in the economy and markets,
we delivered broadly in line with our plan and the Society maintains
its excellent financial strength.
Following a planned contraction of the balance sheet in 2019,
we broadly maintained our asset size in 2020 supported by a 40%
increase in new advances to GBP493m. Our savings franchise remains
strong and saw 3% growth in 2020.
The key drivers of the 2020 financial results were;
* A reduction in net interest income and net interest
margin compression as a consequence of our conscious
decision not to reduce savings rates for branch
customers for at least six months in the ultra-low
interest rate environment.
* Fall in fee income driven by very low levels of
activity in the first half of the year and our
decision to exit estate agency in the summer.
* Higher depreciation, amortisation and strategic
investment costs driven associated with the Society's
reinvention.
* Whilst our lending portfolio continues to be low risk
and high credit quality with less than 50 accounts
three months of more in arrears, we believe it is
appropriate to remain cautious in this area and
expect to see some increases in arrears activity over
the next year or so as economic uncertainty created
by the third national lockdown and the planned
cessation of government intervention start to bite.
As a result, we have recorded an increased impairment
charge of GBP2.9m.
* Finally, we saw a hedge accounting charge of GBP2.7m
during the year. Reflecting the consequences of rate
changes and market expectations that rates are likely
to remain low or even negative for a considerable
period. This will however, unwind over time.
Overall, these factors led to a significant reduction in underlying
profit before tax to GBP0.4m for the year and a statutory loss
after tax of GBP7.2m.
A second year of losses is not ideal, however the Board believes
that the deployment of capital to support members through higher
savings rates and continued investment in the Society's future
was the right thing to do and a positive reflection on our status
as a mutual; particularly as our levels of capital still remain
significantly in excess of our regulatory requirements. Our CET
1 ratio remains at 15.0%, with a 5.3% leverage ratio on a transitional
basis. Our liquidity position is also very robust with a liquidity
coverage ratio of 215% at the year-end.
We believe that the actions we have taken, achieved without taking
government subsidy, have been the right thing to do and in the
best interests of our members. 2020 was a unique opportunity
for us to demonstrate the benefits of being a member of a mutual
organisation and we trust that this is appreciated by all our
members.
Outlook
As we enter 2021, great uncertainties remain. Against this backdrop,
we expect to steer a steady course but continue to reinvent the
Society for the post-Covid era. Our investments and decisions
taken in 2020 should enable us to grow membership and our balance
sheet, supported by the relaunch of Beehive Money in the summer
and the ongoing success of our branch network. We also plan to
invest in our mortgage capability to ensure we are a more relevant
and efficient lender. With interest rates set to remain low and
potentially even go negative, we expect margins to remain compressed,
but we nonetheless expect to stabilise our margin in 2021, striking
the right balance between historically low lending rates and
offering our savers a fair return.
Despite the significant challenges of the past year, we remain
on track to prepare the Society for a new world of financial
services. We expect to end 2021 as a very different Society to
the one that ended 2019 - one that is growing its membership
base and delivering a sustainable financial performance despite
the challenging economic conditions.
We remain confident that your Society is well placed to continue
to fulfil its purpose and help a growing membership to save,
plan for and protect their financial futures. We have also been
pleased to deliver and demonstrate the true benefits of mutuality
to our members, against a backdrop of one of the most challenging
periods in our history."
David Marlow
Chief Executive
9 March 2021
Consolidated Income Statement 2020 2019
Total Group Basis
GBPm GBPm
--------------------------------------------------- ------- -------
Net interest income 40.6 46.1
Net fees & commissions receivable 3.7 5.1
------- -------
Net underlying income 44.3 51.2
Management expenses (41.1) (40.8)
Impairment charge - loans & advances (2.9) (0.4)
Profit of disposal of property, plant & equipment 0.1 -
--------------------------------------------------- ------- -------
Underlying profit before tax 0.4 10.0
Losses from derivative financial instruments (2.7) (0.6)
Net strategic investment costs (4.5) (1.1)
Change in accounting estimate (1.6) (12.3)
Impairment - goodwill - (4.0)
Reported loss before tax (8.4) (8.0)
Tax credit 1.2 0.8
------- -------
Reported loss after tax (7.2) (7.2)
Represents:
Loss after tax - continuing operations (6.8) (6.5)
Loss after tax - discontinued operations (0.4) (0.7)
=================================================== ------- -------
The Board allocated resources and managed the business on a total
Group basis during 2020. The estate agency business generated
a GBP0.4m loss after tax in the year.
Within the consolidated statutory financial statements, the estate
agency business is reported as a discontinued operation.
Consolidated income statement
for the year ended 31 December 2020
2020 2019
GBPm GBPm
Continuing Operations
Interest receivable and similar income 68.8 84.0
Interest payable and similar charges (28.2) (37.9)
---------- -------
Net interest income 40.6 46.1
Fees and commissions receivable 3.8 4.2
Fees and commissions payable (1.0) (1.1)
Net losses from derivative financial
instruments (2.7) (0.6)
Total net income 40.7 48.6
Administrative expenses (36.8) (33.7)
Depreciation and amortisation (9.1) (5.5)
Operating (loss)/profit before impairment
and change in EIR accounting estimate (5.2) 9.4
Impairment charge - loans and advances (2.9) (0.4)
Impairment charge - goodwill - (4.0)
Change in EIR accounting estimate - (12.3)
Profit on disposal of property, plant 0.1 -
and equipment
Loss before tax (8.0) (7.3)
Tax credit 1.2 0.8
Loss after tax for the financial year for
continuing operations (6.8) (6.5)
Discontinued operations
Loss after tax for the financial year from
discontinued operations (0.4) (0.7)
Loss after tax for the financial year (7.2) (7.2)
---------- -------
Consolidated statement of comprehensive
income
for the year ended 31 December 2020
2020 2019
GBPm GBPm
Loss for the financial year (7.2) (7.2)
Items that will not be re-classified
to the income statement
Remeasurements of defined benefit (3.9) -
obligations
Tax on items that will not be re-classified 0.8 -
Items that may subsequently be re-classified
to the income statement
FVOCI reserve
Valuation gains taken to reserves 0.4 0.7
Tax on items that may subsequently
be re-classified - (0.1)
Other comprehensive (expense)/income for the
period net of income tax (2.7) 0.6
---------- -------
Total comprehensive expense for the
year (9.9) (6.6)
---------- -------
Consolidated statement of financial position
as at 31 December 2020
2020 2019
GBPm GBPm
Assets
Liquid assets 592.2 615.1
Derivative financial instruments 0.8 2.0
Loans and advances to customers 3,128.0 3,161.4
Fixed and other assets 37.4 40.5
-------- --------
Total assets 3,758.4 3,819.0
-------- --------
Liabilities
Shares 2,794.2 2,781.1
Borrowings 685.2 771.3
Derivative financial instruments 32.5 12.8
Other liabilities 16.0 12.9
Subscribed capital 24.2 24.7
-------- --------
Total liabilities 3,552.1 3,602.8
Reserves
General reserves 206.3 216.6
Fair value reserves - (0.4)
-------- --------
Total reserves attributable to members of the
Society 206.3 216.2
Total reserves and liabilities 3,758.4 3,819.0
-------- --------
Consolidated statement of changes General FVOCI Total
in members' interests as at 31 December reserve reserve
2020
GBPm GBPm GBPm
Balance as at 1 January 2020 216.6 (0.4) 216.2
Loss for the year (7.2) - (7.2)
Other comprehensive (expense)/income
for the period (net of tax)
Net (losses)/gains from changes in
fair value (3.1) 0.4 (2.7)
Total comprehensive (expense)/ income
for the period (10.3) 0.4 (9.9)
--------- --------- ------
Balance as at 31 December 2020 206.3 - 206.3
--------- --------- ------
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
--------- --------- ------
Summary consolidated cash flow statement
for the year ended 31 December 2020
2020 2019
GBPm GBPm
Cash flows from operating activities 5.6 4.5
Changes in operating assets and liabilities (46.0) 109.0
Net cash generated by operating activities (40.4) 113.5
Cash flows from investing activities 152.6 (104.0)
Cash flows from financing activities (2.8) (3.0)
------- --------
Increase in cash and cash equivalents 109.4 6.5
Cash and cash equivalents at beginning of year 272.6 266.1
------- --------
Cash and cash equivalents at end of year 382.0 272.6
------- --------
Summary ratios
2020 2019
% %
Common Equity Tier 1 ratio 15.0 15.1
Liquid assets as a percentage of shares and borrowings 17.02 17.32
Group (loss)/ profit for the year as a percentage
of mean total assets (0.19) (0.18)
Total Group management expenses as a percentage
of mean total assets 1.25 1.07
Group continuing management expenses as a percentage
of mean total assets 1.21 0.99
Society management expenses as a percentage of
mean total assets 1.15 0.94
Society interest margin as a percentage of mean
assets 1.07 1.17
Notes
* The financial information set out above, which was
approved by the Board of Directors on 8 March 2021,
does not constitute accounts within the meaning of
the Building Societies Act 1986.
* The financial information for the years ended 31
December 2020 and 31 December 2019 has been extracted
from the Accounts for those years and on which the
auditors have given an unqualified opinion.
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