Nottingham Building Society Half-year Report (8056G)
29 Juli 2021 - 8:00AM
UK Regulatory
TIDMNOTP
RNS Number : 8056G
Nottingham Building Society
29 July 2021
Nottingham Building Society
Results for the period ended 30 June 2021
The Nottingham delivers a resilient performance for the six
months ended 30 June 2021, with a return to profitability and
continued investment in its member and digital propositions,
which are attracting a growing number of new members, whilst
remaining true to its mutual ethos as a responsible society
to members, colleagues and the communities it serves.
Key performance highlights include:
* Capital strength improved with CET 1 ratio at 15.7%,
up from 15.0% at 31 December 2020;
* Continued investment in the Society's business and
digital capability, whilst delivering profitability
at both an underlying and statutory level (underlying
profit before tax of GBP3.7m and statutory profit
after tax of GBP4.9m);
* Strong liquidity and funding position with liquidity
coverage ratio of 208%;
* Arrears levels remain very low at less than a quarter
of mortgage industry average;
* Strong customer advocacy with a Net Promoter Score of
73%; and
* Strong retail franchise with over 50,000 Lifetime ISA
customers alongside increased branch savings
balances;
* Mortgage assets of GBP3.0bn are slightly lower than
the position at 31 December 2021, but reflect a solid
performance in a competitive market.
David Marlow, Chief Executive of The Nottingham, commenting
on the results said
"As we entered 2021, we were clear that great uncertainties
remained, both economically and socially. Our priorities through
the first half of 2021 therefore have been to steer a steady
course, manage our balance sheet carefully, grow our membership
and return to a sustainable level of profitability. We also
committed to continue with our plans to reinvent the Society
for the new world of digital financial services. I am very
pleased to report therefore that, as we head into the second
half of 2021, we have made substantial progress against all
our objectives and priorities.
Reinventing The Nottingham
We have worked hard this year to build on the initiatives and
progress we achieved in 2020, to reinvent the Society for the
future. Our aim is to deliver a unique combination of traditional
building society activities and independent advice services,
in our branch network and digitally.
In June we announced the next step in our reinvention, when
we set out our new approach to providing independent mortgage
advice to our members and non-members through a differentiated
strategic partnership with Mortgage Advice Bureau and Belvoir
Financial Services. This new partnership, which will include
the sale of our mortgage broking subsidiary Nottingham Mortgage
Services to the Belvoir Group, provides us access to the capacity
of expert advisors and digital tools that will be essential
to our future home buyers. This deal enables us to provide
fast access to independent mortgage advice across our branch
network and to offer digital-led mortgage advice to the tens
of thousands of Lifetime ISA (LISA) savers, who are already
saving with us to buy their first home.
Trading and financial performance
In a period of very sound progress, despite the ongoing restrictions
of the pandemic, a clear highlight of the year so far has been
the continuing growth of younger members saving with us in
a LISA to buy their first home. We now have over 50,000 members
doing so, the vast majority digitally, with balances in excess
of a quarter of a billion pounds, up from just over GBP55m
a year ago. We expect both member numbers and balances to continue
to grow during the second half of the year and are very much
looking forward to welcoming them to our unique Beehive Money
app when it is launched in the autumn. Our branch savings balances
have also continued to grow, despite now having a smaller number
of locations across our heartland.
Our Net Promoter Score has showed good resilience. We believe
the slight reduction on where we have consistently been before
reflects the ongoing restrictions on service delivery to members
during the pandemic. Our score of 73 still places us amongst
the best performing businesses in the UK.
Amongst our priorities for 2021 was to return to profit and
to manage our balance sheet carefully in the ongoing uncertain
environment. We are pleased that at the half year mark we are
delivering on both of these priorities. The key drivers of
the performance in the period to 30 June 2021 were:
* increased activity seen in the housing market
generally has delivered over half a billion pounds in
mortgage applications received in the first half of
2021; up over a third on the same period in 2020 with
completions up 18% and a good pipeline of business
heading into the second half;
* An improving income profile up 8% on the first six
months of 2020, supported by a strong improvement in
our net interest margin to 1.20%, compared to 1.07%
for 2020;
* An improving picture on Society non-interest income.
This is a good endorsement of our new emerging
business model, which we expect to be further boosted
as we begin to bed in our new mortgage advice
partnership model;
* The benefit of a modest release of GBP0.6m on loan
impairments due to improved expectations driven by
stronger economic forecasts and the continued low
incidence of arrears;
* Finally, we have also seen some unwinding of charges
booked for the fair valuing of derivatives in the
prior periods and continuation of strategic
investment expenditure supporting the reinvention of
the Society.
Overall, this has taken us to a statutory profit before tax
of GBP5.7m on a total group basis, compared to a loss of GBP4.6m
declared in the first half of 2020. This robust all-round improvement
in financial performance is also demonstrated at the underlying
level, where we delivered a profit before tax of GBP3.7m in
the first half, compared to a loss of GBP1.3m in 2020 for the
total group.
We continue to manage our balance sheet conservatively. At
the half year point our balance sheet has reduced by 3%. However
this is accompanied by improvements in our CET 1 ratio to 15.7%
and improved leverage ratio of 5.5%. We have maintained a strong
liquidity position with the LCR at 208% despite continuing
to reduce the level of funding from the Bank of England's term
funding schemes.
Our arrears ratio of 0.19% remains at sector lending levels,
with only 44 accounts more than 3 months in arrears at the
end of June. The vast majority of the nearly 3,000 members,
who we supported with mortgage payment deferrals, have now
returned to making payments as normal, with only a handful
now in place.
We highlighted in our 2020 annual statement the phenomenal
role played by every member of the team at The Nottingham and
how this had significantly contributed to how we have been
able to support our members throughout the pandemic. This is
along with the hard work that went on behind the scenes to
drive the significant initiatives and projects required in
our reinvention of the Society. This outstanding commitment
has continued throughout this year. The Board remain enormously
grateful for their continued hard work and focus, without which
we would not have been able to report such continued marked
progress in 2021 so far.
Outlook
As lockdown begins to unwind during the summer, we remain cautious
around some uncertainties that will remain, particularly as
the unprecedented level of government support and subsidy is
withdrawn and the pandemic continues to evolve. There are also
potential headwinds that we may face from Brexit which have
so far been largely masked by the significance of the impact
of the pandemic. Inflation too, could prove to be more persistent
than some commentators and experts are currently anticipating.
We will continue to monitor developments and adapt our plans
accordingly.
Over recent months, the Board and I have been in discussions
regarding the long-term leadership of the Society. We have
agreed that after more than ten years as CEO of the Society,
a period book-ended by the financial crisis and a global pandemic,
I will step down during 2022. The process to appoint my successor
to lead the Society through the next period of its development
is currently underway.
The past 15 months have brought unprecedented challenges to
our society and our communities at large. We have navigated
those challenges well so far, whilst demonstrating our mutual
credentials in support of our members, colleagues, and communities.
We are also fundamentally reshaping the Society to support
our growing membership well in a newly emerging world. It will
be important that we continue to focus on this and be ready
for the challenges and opportunities that lie ahead in the
remainder of 2021 and beyond ."
David Marlow
Chief Executive
29 July 2021
Consolidated Income Statement Period to Period to Year ended 31
30 June 30 June Dec 2020
2021 2020
Total Group Basis (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Net interest income 22.2 20.5 40.6
Net fees & commissions receivable 1.8 2.2 3.7
-------------- ------------- --------------
Net underlying income 24.0 22.7 44.3
Management expenses (20.9) (21.3) (41.1)
Impairment release/(charge) - loans
& advances 0.6 (2.7) (2.9)
Profit of disposal of property, plant
& equipment - - 0.1
-------------- ------------- --------------
Underlying profit/(loss) before tax 3.7 (1.3) 0.4
Gains/(losses) from derivative financial
instruments 2.6 (3.3) (2.7)
Net strategic investment costs (0.6) - (4.5)
Change in accounting estimate - - (1.6)
-------------- ------------- --------------
Reported profit/(loss) before tax 5.7 (4.6) (8.4)
Tax (expense)/ credit (0.8) 0.8 1.2
-------------- ------------- --------------
Reported profit/(loss) after tax 4.9 (3.8) (7.2)
-------------- ------------- --------------
Represents:
Profit/(loss) after tax - continuing
operations 4.7 (3.7) (7.0)
Profit/(loss) after tax - discontinued
operations 0.2 (0.1) (0.2)
-------------- ------------- --------------
The Board allocates resources and manages the business on a total
Group basis. The whole-of-market mortgage advice business generated
a profit after tax of GBP0.2m in the period.
Within the consolidated statutory financial statements, the mortgage
advice business, is reported as a discontinued operation. In the
prior year, the estate agency business was also classified as discontinued.
Consolidated income statement
for the six months ended 30 June
2021
Period to Period to Year ended 31
30 June 30 June Dec 2020
2021 2020
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Continuing operations
Interest receivable and similar income 31.8 36.2 68.8
Interest payable and similar charges (9.6) (15.7) (28.2)
-------------- ------------- --------------
Net interest income 22.2 20.5 40.6
Fees and commissions receivable 1.6 1.0 2.1
Fees and commissions payable (0.6) (0.3) (1.0)
Net gains/(losses) from derivative
financial instruments 2.6 (3.3) (2.7)
--------------
Total net income 25.8 17.9 39.0
Administrative expenses (18.0) (16.6) (35.3)
Depreciation and amortisation (2.9) (3.1) (9.1)
Operating profit/(loss) before impairment 4.9 (1.8) (5.4)
Impairment release/(charge) - loans
and advances 0.6 (2.7) (2.9)
Profit on disposal of property, plant
& equipment - - 0.1
Profit/(loss) before tax 5.5 (4.5) (8.2)
Tax (expense)/credit (0.8) 0.8 1.2
-------------- ------------- --------------
Profit/(loss) after tax for the financial
period from continuing operations 4.7 (3.7) (7.0)
Discontinued operations
Profit/(loss) after tax for the financial
period from discontinued operations 0.2 (0.1) (0.2)
-------------- ------------- --------------
Profit/(loss) after tax for the financial
period 4.9 (3.8) (7.2)
-------------- ------------- --------------
Consolidated statement of financial
position
as at 30 June 2021
30 June 30 June 31 Dec
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Assets
Liquid assets 561.7 666.2 592.2
Derivative financial instruments 4.5 1.5 0.8
Loans and advances to customers 3,045.9 3,152.1 3,128.0
Fixed and other assets 38.5 39.1 37.4
------------- --- ------------- --- -----------
Total assets 3,650.6 3,858.9 3,758.4
------------- --- ------------- --- -----------
Liabilities
Shares 2,891.0 2,809.1 2,794.2
Borrowings 491.0 764.8 685.2
Derivative financial instruments 17.8 35.8 32.5
Other liabilities 15.0 12.0 16.0
Subscribed capital 24.0 24.5 24.2
------------- --- ------------- --- -----------
Total liabilities 3,438.8 3,646.2 3,552.1
Reserves
General reserves 211.1 212.7 206.3
Fair value reserves 0.7 - -
------------- --- ------------- --- -----------
Total reserves attributable to members
of the Society 211.8 212.7 206.3
Total reserves and liabilities 3,650.6 3,858.9 3,758.4
------------- --- ------------- --- -----------
Consolidated statement of changes
in members' interests for the period
ended 30 June 2021
General FVOCI reserve
reserve Total
GBPm GBPm GBPm
Balance as at 1 January 2021 (Audited) 206.3 - 206.3
Profit for the period 4.9 - 4.9
Other comprehensive (expense)/income
for the period (net of tax)
Net gains from changes in fair value - 0.7 0.7
Remeasurement of defined benefit obligation (0.1) - (0.1)
Total comprehensive income for the
period 4.8 0.7 5.5
---------- ---------------- --------
Balance as at 30 June 2021 (Unaudited) 211.1 0.7 211.8
---------- ---------------- --------
Balance as at 1 January 2020 (Audited) 216.6 (0.4) 216.2
Loss for the period (3.8) - (3.8)
Other comprehensive (expense)/income
for the period (net of tax)
Net gains from changes in fair value - 0.4 0.4
Remeasurement of defined benefit obligation (0.1) - (0.1)
---------- ---------------- --------
Total comprehensive (expense)/income
for the period (3.9) 0.4 (3.5)
---------- ---------------- --------
Balance as at 30 June 2020 (Unaudited) 212.7 - 212.7
---------- ---------------- --------
Balance as at 1 January 2020 (Audited) 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 gains from changes in fair value - 0.4 0.4
Remeasurement of defined benefit obligation (3.1) - (3.1)
Total comprehensive (expense)/income
for the period (10.3) 0.4 (9.9)
---------- ---------------- --------
Balance as at 31 December 2020 (Audited) 206.3 - 206.3
---------- ---------------- --------
Summary consolidated cash flow statement
for the period ended 30 June 2021
30 June 30 June 31 Dec
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Cash flows from operating activities 9.1 2.2 5.6
Changes in operating assets and liabilities (25.8) 26.9 (46.0)
------------- ------------- -----------
Net cash generated by operating activities (16.7) 29.1 (40.4)
Cash flows from investing activities (67.8) 124.2 152.6
Cash flows from financing activities (1.3) (1.4) (2.8)
(Decrease)/increase in cash and cash
equivalents (85.8) 151.9 109.4
Cash and cash equivalents at beginning
of period 382.0 272.6 272.6
------------- ------------- -----------
Cash and cash equivalents at end of
period 296.2 424.5 382.0
------------- ------------- -----------
Summary ratios
30 June 30 June 31 Dec
2021 2020 2020
% % %
Common Equity Tier 1 ratio 15.7 15.0 15.0
Liquid assets as a percentage of shares
and borrowings 16.61 18.64 17.02
Group profit/(loss) for the year as
a percentage of mean total assets 0.26 (0.20) (0.19)
Total Group management expenses as
a percentage of mean total assets 1.16 1.11 1.25
Group continuing management expenses
as a percentage of mean total assets 1.13 1.03 1.17
Group interest margin as a percentage
of mean assets 1.20 1.07 1.07
Notes
* The financial information set out above, which was
approved by the Board of Directors on 28 July 2021,
does not constitute accounts within the meaning of
the Building Societies Act 1986.
* The financial information for the year ended 31
December 2020 has been extracted from the Annual
Report & Accounts for the year and on which the
auditors have given an unqualified opinion.
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