Nottingham Building Society Annual Financial Report (5734D)
04 März 2022 - 8:00AM
UK Regulatory
TIDMNOTP
RNS Number : 5734D
Nottingham Building Society
04 March 2022
Nottingham Building Society
The Nottingham announces robust financial performance against
the backdrop of the challenges from the ongoing pandemic, 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 2021. Below are some of the key achievements
and financial highlights of 2021:
* Group pre-tax profit of GBP15.1m reported on a
statutory basis, with underlying pre-tax profit of
GBP7.4m;
* Net interest margin of 1.24% - up 17 basis points
from 1.07%;
* Strong capital position with Common Equity Tier 1 at
16.5% and leverage of 5.6%;
* Gross mortgage lending up 13% at over GBP550 million
for 2021 resulting in total assets of GBP3.6 billion
* Arrears levels remain very low, at a quarter of the
industry average (2021: 0.21% v industry at average
of 0.83%(1) );
* New Beehive Money app launched looking after more
than 55,000 Lifetime ISA customers;
* Present in 48 locations across nine counties with a
strong retail franchise - total branch savings
balances of GBP2.5 billion; and
* Achieved a customer Net Promoter Score of 71%; and
* Employee engagement score of 80%.
Commenting David Marlow, Chief Executive, said:
"Entering 2021, we had a number of key areas on which to focus
our energies: the ongoing Covid-19 pandemic; the significant
economic uncertainty brought about by a combination of the pandemic
and Brexit; our intent to reinvent the Society for the emerging
new world; continue to act as a responsible society accepting
our responsibilities to stakeholders, communities and the environment;
and to continue to grow membership, whilst delivering a level
of financial performance that would sustain us for the future.
Whilst the challenges of the pandemic remain, I am delighted
to report good progress on the development and delivery of our
strategy, as well as a return to strong financial performance
providing the platform for continued investment and growth.
The ongoing pandemic
Despite entering 2021 in national lockdown, I doubt many of us
would have predicted that we would end the year under the same
threat, due to the Omicron variant. We have become accustomed
to living with varying degrees of restrictions and controls,
whilst maintaining the priorities of keeping our team members
safe and continuing to serve our members.
Through the amazing commitment of our team members and the enduring
support and understanding of our members, we have managed this
well and I am enormously proud of that achievement.
We have not been immune from the challenges and sadness that
the virus has brought but we have responded strongly, focusing
on ensuring that we continue to serve our members, helping them
to save, plan and importantly protect their futures. Whatever
the next phase of the pandemic brings in 2022, we will continue
to face it with the same stoicism and purpose that we have done
for the past 21 months.
Reinventing the Society
The rapidly changing world, exacerbated by the pandemic, has
required us to reinvent the Society for that newly emerging world.
In 2021, we continued our efforts to ensure that we have a proposition
that is relevant to a broader community, delivered in the manner
which members expect.
In the early part of the year, we completed a number of previously
announced branch closures. These were conducted in a professional
and sympathetic manner. You may recall that the closures focused
on our significant concentration of branches in and around greater
Nottingham. Despite closures always being regrettable, I am pleased
to confirm that as we end 2021, the vast majority of members
have chosen to stay with us. We are very grateful for their understanding
and loyalty.
A significant focus for 2021 was to relaunch our Beehive Money
digital platform as an app-led savings capability for younger
savers looking to take advantage of the government tax-free and
Lifetime ISA (LISA) savings regime. Our vision is to offer a
market leading savings app that helps younger savers achieve
their goals through saving and enabling access to first class
independent advice on matters that are important to them.
We were delighted to launch our app to existing members in September
and to the whole market at the end of November. This is a first
for a UK Building Society offering a 'FinTech' standard savings
capability, with access to independent mortgage advice; essential
as around 80% of Beehive members are saving with us to buy their
first home. I am delighted to say that at the end of 2021, we
have over 55,000 members saving with us in Beehive Money. We
are excited at the new opportunities for growth and innovation
that Beehive Money brings us, along with a completely new cohort
of younger savings members. In 2019, 26% of savings members were
under 40 years of age. That is now 39% and growing.
As we developed the Beehive Money platform and saw the significant
rise in members, especially those saving with us to buy their
first home, it prompted us to look at our capacity and capability
to deliver digital-led independent mortgage advice at scale in
the years ahead. Following a review of our group in-house capability,
we launched a formal process to find a strong digital-led partner
for our mortgage advice offering.
Following a competitive bid process, we were delighted to announce
a new partnership with Mortgage Advice Bureau (MAB) and Belvoir.
Combining MAB's market leading mortgage network and digital capability
with Belvoir's national high street based advisors, we agreed
to sell our own mortgage broking business (Nottingham Mortgage
Services) to Belvoir and have entered a long-term distribution
agreement with MAB/Belvoir for the provision of independent mortgage
advice. Many of our members continue to be served by their existing
advisor whilst also giving us access to digital capability and
significant advisor capacity to serve the growing number of Beehive
members. Beehive members can access the advice they need to find
the right mortgage for their first home direct through the Beehive
Money app - a modern approach for today's first-time home buyer.
In the face of intense mortgage competition, we have continued
to enhance and widen our mortgage offering. A series of improvements
have been introduced, with several developments also in progress
that include rewarding brokers for retaining Society mortgage
customers, enhancements to make our Limited Company buy-to-let
offering even more relevant to our customers, as well as plans
to enter the growing holiday let market. These enhancements are
viewed as initial attempts to broaden our appeal as a lender
with more to come in 2022 and beyond.
A responsible society
With the seismic global changes comes a stronger focus on being
a responsible organisation which embraces our responsibilities
to our employees and members, as well as the communities and
the environment in which we operate. As a mutual organisation
we feel that responsibility even more keenly. Throughout 2021
we have worked tirelessly to live up to this expectation.
Highlights include over GBP200,000 of donations made to worthy
causes in our communities, over 1,000 hours of colleagues' time
volunteered to make a difference and the launch of our Career
Academy, in association with national partner Ever-Fi, to provide
an employability programme for young people.
Towards the end of the year, we were delighted to launch the
Samuel Fox Foundation, named after our founding Chairman and
philanthropist. The foundation will focus on building skills
and employability in our communities, with a particular focus
on enabling young people to fulfil their potential and inspire
their futures. We have already made several significant donations
from the foundation. We are looking forward to the foundation
playing a strong role in encouraging our communities to thrive
in the years ahead.
COP26 brought the climate crisis into sharp focus during the
year. This reaffirmed that the work we were carrying out to better
understand our carbon footprint and then to reduce it, was essential.
For the first time this year, we have outlined our approach to
becoming a Net Carbon Zero organisation, which includes several
commitments, not least to reduce our scope 1 and 2 emissions
by at least 10% by the end of 2022. We will continue to work
on our plans over the next year or two to fulfil our obligations
towards ensuring our climate can sustain the planet as it was
intended.
Financial performance
Another priority in 2021 was to return to a strong level of financial
performance that ensured we could continue to invest in and grow
the Society in line with our long-term plans. Despite some significant
headwinds, we have been very successful in meeting this objective.
In the face of intense competition and sub 1% mortgage pricing,
we have managed the growth versus margin dynamic well. Overall,
we increased our new mortgage applications by 22% over 2020 but
by being selective in the areas we were active, and not being
lulled into lending at rates we would not have been comfortable
with, we increased our interest margin by 17bps to 1.24%. This
has supported an increase in our net interest income of 13% to
GBP45.9m. Overall, our underlying income in the year for the
total Group, excluding gains from derivatives has risen 11% to
GBP49m.
Despite the significant ongoing investment in the Society, we
have continued to manage our costs well and have also benefitted
from the unwinding of some headwinds we experienced in 2020.
Our strong focus on good credit quality was rewarded with the
robust performance of our lending book, enabling us to release
GBP1.4m of the impairment charge we made on a prudent basis last
year. We have also benefitted from the shift in market expectations
of interest rates, which have moved from being potentially negative
at the beginning of 2021 to an upward track, reflected in the
Bank of England's MPC decision to increase rates in December
and February to 0.5%.
Overall, this has delivered a total Group profit before tax of
GBP15.1m and a profit after tax of GBP12.6m. A profit after tax
ratio of 0.34% has returned us to a level that enables capital
accretive growth and is a strong response to the deficit we ended
up with last year.
Outlook
Whilst we all hope that the pandemic will abate in the coming
year, or at least shift to an endemic, which we learn to live
with; nonetheless we also recognise a period of extreme uncertainty
will continue as the economic, socio-political and behavioural
impacts of Covid-19 continue to unwind and a new normal emerges
over the years ahead. Despite this, we enter 2022 financially
strong and confident that the changes we are making to reinvent
the Society are the right ones ensuring that we have a relevant
and vibrant future. We can therefore move forward with a strong
sense of confidence.
Areas of focus, other than continuing to protect our colleagues
and to serve members through the pandemic, will be to continue
to fashion our new approach to mortgage lending to reflect the
changing landscape and to ensure we can continue to increase
levels of lending at a yield we are comfortable with.
Having successfully relaunched Beehive Money, there is much to
achieve to build on our strong start and develop the proposition
further so that an increasing number of younger savers see Beehive
Money as their primary source of support and advice to help them
save, plan for, and protect their futures.
We will also ensure that our branch network continues to meet
the needs of our traditional passbook-based savers; helping them
to save, plan and protect their future. It will be important
therefore that we continue to work effectively with our network
of partners who enable us to deliver our unique proposition to
members.
David Marlow
Chief Executive
4 March 2022
(1) UK Finance Arrears on mortgages, number of months measure,
UK; over 3 months in arrears ratio Q4 2021
Consolidated income statement 2021 2020
Total Group Basis
GBPm GBPm
Net interest income 45.9 40.6
Net fees & commissions receivable 3.1 3.7
------- -------
Net underlying income 49.0 44.3
Management expenses (43.0) (41.1)
Impairment release/(charge) - loans & advances 1.4 (2.9)
Profit of disposal of property, plant & equipment - 0.1
------- -------
Underlying profit before tax 7.4 0.4
Gains/(losses) from derivative financial instruments 7.9 (2.7)
Net strategic investment costs (0.2) (4.5)
Change in accounting estimate - (1.6)
Reported profit/(loss) before tax 15.1 (8.4)
Tax (charge)/credit (2.5) 1.2
------- -------
Reported profit/(loss) after tax 12.6 (7.2)
Represents:
Profit/(loss) after tax - continuing operations 12.4 (7.0)
Profit/(loss) after tax - discontinued operations 0.2 (0.2)
------- -------
The Board allocated resources and managed the business on a total
Group basis during 2021. The mortgage broking business generated
a GBP0.2m profit after tax in the year, until its disposal in
July 2021.
Within the consolidated statutory financial statements, the mortgage
broking business is reported as a discontinued operation.
Consolidated income statement
for the year ended 31 December 2021
2021 2020
GBPm GBPm
Continuing Operations
Interest receivable and similar income 64.4 68.8
Interest payable and similar charges (18.5) (28.2)
------- ------------
Net interest income 45.9 40.6
Fees and commissions receivable 3.0 2.1
Fees and commissions payable (0.9) (1.0)
Net gains/(losses) from derivative
financial instruments 7.9 (2.7)
Total net income 55.9 39.0
Administrative expenses (36.5) (35.3)
Depreciation and amortisation (6.8) (9.1)
Operating profit/(loss) before impairment 12.6 (5.4)
Impairment release/(charge) - loans
and advances 1.4 (2.9)
Profit on disposal of subsidiary undertaking 0.5 -
Profit on disposal of property, plant
and equipment 0.4 0.1
Profit/(loss) before tax 14.9 (8.2)
Tax (charge)/credit (2.5) 1.2
Profit/(loss) after tax for the financial year
for continuing operations 12.4 (7.0)
Discontinued operations
Profit/(loss) after tax for the financial year
from discontinued operations 0.2 (0.2)
Profit/(loss) after tax for the financial
year 12.6 (7.2)
------- ------------
Consolidated statement of comprehensive
income
for the year ended 31 December 2021
2021 2020
GBPm GBPm
Profit/(loss) for the financial year 12.6 (7.2)
Items that will not be re-classified
to the income statement
Remeasurements of defined benefit
obligations - (3.9)
Tax on items that will not be re-classified 0.3 0.8
Items that may subsequently be re-classified
to the income statement
FVOCI reserve
Valuation (losses)/gains taken to
reserves (0.3) 0.4
Tax on items that may subsequently 0.2 -
be re-classified
Other comprehensive income/(expense) for the
period net of income tax 0.2 (2.7)
------- ------------
Total comprehensive income/(expense)
for the year 12.8 (9.9)
------- ------------
Consolidated statement of financial position
as at 31 December 2021
2021 2020
GBPm GBPm
Assets
Liquid assets 562.5 592.2
Derivative financial instruments 26.1 0.8
Loans and advances to customers 3,010.9 3,128.0
Fixed and other assets 35.3 37.4
-------- --------
Total assets 3,634.8 3,758.4
-------- --------
Liabilities
Shares 2,874.6 2,794.2
Borrowings 496.1 685.2
Derivative financial instruments 6.5 32.5
Other liabilities 14.5 16.0
Subscribed capital 24.0 24.2
-------- --------
Total liabilities 3,415.7 3,552.1
Reserves
General reserves 219.2 206.3
Fair value reserves (0.1) -
-------- --------
Total reserves attributable to members of the
Society 219.1 206.3
Total reserves and liabilities 3,634.8 3,758.4
-------- --------
Consolidated statement of changes General FVOCI Total
in members' interests as at 31 December reserve reserve
2021
GBPm GBPm GBPm
Balance as at 1 January 2021 206.3 - 206.3
Profit for the year 12.6 - 12.6
Other comprehensive income/(expense) for
the period (net of tax)
Net gains/(losses) from changes in
fair value 0.3 (0.1) 0.2
Total comprehensive income/(expense)
for the period 12.9 (0.1) 12.8
--------- --------- ------
Balance as at 31 December 2021 219.2 (0.1) 219.1
--------- --------- ------
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
--------- --------- ------
Summary consolidated cash flow statement
for the year ended 31 December 2021
2021 2020
GBPm GBPm
Cash flows from operating activities 22.0 5.6
Changes in operating assets and liabilities 3.2 (46.0)
Net cash generated from/ (used in) operating
activities 25.2 (40.4)
Cash flows from investing activities (117.2) 152.6
Cash flows from financing activities (2.8) (2.8)
-------- -------
(Decrease)/ increase in cash and cash equivalents (94.8) 109.4
Cash and cash equivalents at beginning of year 382.0 272.6
-------- -------
Cash and cash equivalents at end of year 287.2 382.0
-------- -------
Summary ratios
2021 2020
% %
Common Equity Tier 1 ratio 16.5 15.0
Liquid assets as a percentage of shares and borrowings 16.69 17.02
Group profit/(loss) for the year as a percentage of mean
total assets 0.34 (0.19)
Total Group management expenses as a percentage of mean
total assets 1.19 1.25
Group continuing management expenses as a percentage of
mean total assets 1.17 1.17
Society management expenses as a percentage of mean total
assets 1.17 1.15
Society interest margin as a percentage of mean assets 1.24 1.07
Notes
* The financial information set out above, which was
approved by the Board of Directors on 3 March 2022,
does not constitute accounts within the meaning of
the Building Societies Act 1986.
* The financial information for the years ended 31
December 2021 and 31 December 2020 has been extracted
from the Accounts for those years and on which the
auditors have given an unqualified opinion.
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