Last checked at 15 Mar 2019 07:00
Nottingham Building Society
The Nottingham announces robust financial performance and continued progress in the delivery of its unique member proposition.
The Nottingham is pleased to present its results for the year ended 31 December 2018, in what was another period of good progress and performance in the development of our unique 'all under one roof' advice and service proposition for members.
Below are some of the key achievements and financial highlights of 2018:
· Gross mortgage lending of over £800 million, resulting in overall mortgage book growth of 4%; · Strong retail franchise growth - total branch savings balances of £2.4 billion, up 13% in 2018; · The Society welcomed over 25,000 new customers and is now present in 67 locations across 11 counties; · Achieved a customer Net Promoter Score of 79%; · Total assets of £4.1 billion, an increase of 4%; · Net interest margin at 1.26%; · Group pre-tax profit of £11.8 million; · Arrears levels remain very low, below a quarter of the industry average (2018: 0.16% v industry at average of 0.79%); representing 42 accounts out of a total mortgage base of almost 26,000 accounts; and · Strong capital ratios with Common Equity Tier 1 at 14.7% and leverage of 5.1%.
Commenting David Marlow, Chief Executive, said:
"As we headed into 2018, we undertook to focus on four key pillars of serving and rewarding our growing membership, delivering operational excellence, strong financial adequacy and developing a culture which continually encourages our people to do the right thing for members and supporting the communities that we operate in.
Over recent years we have championed the role of branches in the delivery of our unique proposition and finished 2017 by opening seven new branches in Cambridgeshire, Lincolnshire and Norfolk. I am pleased to report that we have continued to see our members taking advantage of our enlarged network. Savings balances in branches increased in 2018 by 13% and have now reached almost £2.4 billion; up from just over £1 billion in 2013. We have been very pleased with the performance of our seven new branches with balances achieved of almost £100 million and over 5,000 new members welcomed. This is ahead of our expectations. We now have £0.5 billion of balances in our new branches which have opened between 2013 and 2017. We continue to attract new members, with over 25,000 joining us in 2018. This included new LISA customers, as we became only the second provider to offer a Cash Lifetime ISA, giving our members an opportunity to save for their first home and receive up to a £1,000 bonus every year from the Government. We are excited about the opportunity to grow a new section of our membership in 2019, particularly when we offer our LISA account online for the first time through our new innovative savings platform.
Members continued to benefit from our unique member rewards scheme which is designed to reward members, with cashback and discounts for planning and protecting their financial futures - in 2018 members benefited to the tune of just under £0.5 million. Members also continue to increase their use of our unique whole-of-market mortgage advice service through Nottingham Mortgage Service (NMS), with a record number benefiting from our advice in 2018. Over the past five years we have helped almost 12,000 customers find the right mortgage for them, from across the market. This is set to grow further as increasing numbers of members remortgage through the service - in fact in 2018, over 30% of our total business was for existing NMS customers taking a new deal.
In December we were excited to launch our concept branch in new premises at Newark. There are a number of new innovations which we expect to be popular with members including individual seated booths for transacting, no more standing at the counter and the introduction of a new community area which provides facilities and technology for community groups to take advantage of. We will be reviewing the results and findings closely before commencing a broader rollout of our new approach to branch advice and service. Continued excellence in advice and service from our team members has enabled us to continue to deliver world class levels of customer service. as we have maintained our Net Promoter Score of 79%, some way ahead of the financial service average of 49%. We were also very pleased to note that The Nottingham was announced as one of the firms with the lowest level of complaints across the entire financial services industry, according to official FCA figures, for the first half of 2018.
Our performance
We ended the year by growing our mortgage book by 4% to £3.5 billion; this was supported by gross lending of £834m and over £600m of existing customers switching to new terms with us at the end of their current deal. Whilst gross lending was not at the record level of the previous year, our capability to retain customers supported the good overall growth of the mortgage book.
As a mutual, we benefit from the ability to plan for the long term in the best interests of the Society's members. As such we do not need to strive to maximise profit, but continue to operate and develop the Society in a sustainable manner. This is well demonstrated in our financial performance for 2018, where we have grown net interest income, in the year by 4%. However, we have seen the anticipated impact of our investment plans for the Society's future as we report a profit before tax of £11.8m, which is down £2.7m or 19% on 2017. This is despite managing administration expenses to an increase of just £1.7m (4%) over the period. Overall this has enabled us to reduce our management expense ratio, which has fallen slightly in 2018 to 1.09%. In the coming period, we expect to need to continue to closely manage our mix of investment and administrative expenses, to strike the right balance for our members. We believe that this is the right approach to secure the future capability and sustainability of the Society, as we respond to significant shifts in customer behaviour and expectations.
Operational excellence
If we are to maintain our current standards and develop our proposition and service so that it remains relevant to existing and prospective new members, we must continue to invest in, and develop, the capability of the Society to ensure that we meet our members needs now and in the future.
In 2018, we have embarked on an extensive programme of digital development to ensure that in the future our members can benefit from an engaging and innovative online offering, which seamlessly integrates with our face-to-face service, ultimately offering the best of both worlds.
In December, we were proud to announce the launch of 'Beehive Money'; our first large scale implementation of our new internet platform capability delivered in partnership with Salesforce - a global leader in digital customer relationship management. All existing online savers have now been moved over to Beehive Money, which offers a speedier, simpler, and more intuitive way to save money online.
In 2019 we aim to move our mortgage intermediary broker application system onto the new platform and, in doing so, radically reduce the time it takes to apply for, and receive, a decision in principle from us. We will also introduce the opportunity for our LISA savings customers to apply for and conduct their account online as well as in branch, and ultimately offer all Society savings customers the opportunity to operate their savings accounts online in addition to in-branch. At present they must choose one or the other.
In addition to launching our new concept branch in Newark, we have also been investing in technology across our branch network to provide quicker access to advice and support. We have installed a high definition video capability across our branch network, which enables us to offer customer interviews in branch with one of our specialists wherever they may be across our branch network or at our head office in Nottingham. Initial customer reaction to this new innovation has been excellent and it has significantly reduced the need to make an appointment with one of our specialist mortgage advisers. This is another example of how we can maximise the utilisation of our branch network as an advice and service hub.
Quality and strength
As always, the Society has continued to maintain a high level of financial strength underpinned by strong capital, liquidity and high credit risk standards. Our performance in 2018 has sustained our strong capital levels at a leverage ratio of 5.1% as well as maintaining appropriate levels of high quality liquidity. Despite increased competition, we have maintained our high standard of credit assessment and this is reflected in our market leading credit quality. Under new IFRS 9 provisioning methodology, we have seen a small release of provisions for losses related to our lending this year. This is underpinned by the fact that from over 26,000 mortgage accounts, we only have 42 which are three months or more in arrears, remaining at an almost de minimis level for a book of this size. All evidencing the financial strength of the Society.
People and culture
Our culture and values are driven by our vision to reward our members for planning, protecting and saving for their future. We deliver our 'all under one roof' advice and service offering through enthusiastic expert team members. We strive to be easy to deal with and to be known as a force for good in our heartland.
Over the past 18 months we have worked hard with colleagues to live our values of being accountable and relevant to members as our ultimate owners; that we are respectful, open and work together as one team, whilst supporting our communities. It is their hard work and commitment that has enabled us to make such strong progress in the delivery of our member focused strategy.
Our people strategy and performance management approach are focused on supporting our team members to deliver our vision in line with our values, and in doing so create a positive open culture which is focused on serving our membership fairly. In 2018 we have focused hard on continuing to improve our leadership and communication across our growing operations, as well as engaging and encouraging all team members to speak up and for managers and leaders to listen carefully, to ensure we remain aligned with our stated vision and values. In 2018 our members have benefited greatly from this as more of our colleagues have come forward to highlight areas of opportunities or activities where we could improve our proposition and service.
Supporting our communities
One of the four pillars upon which we base the Society is how we support our communities through our Doing Good Together initiative. I am pleased and proud that we have continued to do this through a wide range of activities all aimed to support one of our charitable themes of homelessness, employability and financial awareness.
Our Grants for Good scheme provided £32,000 to a whole range of groups, supporting over 3,000 people across Nottinghamshire, Leicestershire, Lincolnshire, Norfolk and South Yorkshire - our grant programme has now distributed over £170,000 in the past seven years.
We also continued to commit strongly to our charity partnership in 2018. 250 students at more than 15 schools and colleges have benefited from our support of the great work carried out by Young Enterprise to ignite commercial and entrepreneurial skills in teenagers. 300 students have also benefited from our Money Academy sessions, designed to help with personal money management.
We have sponsored and participated in three Sleep Out events in support of Framework this year - supporting 500 fundraisers to fund the rough sleeper hotline and support the charity's off the street campaign. We have also supported 50 local up and coming athletes through our support of the charity SportsAid, some of whom have gone on to represent Great Britain at a range of international events.
Of course our staff continued to do fantastic things. Volunteering for a whole range of charitable activities in support of our charity partners and a significant amount of fundraising for Macmillan, Help for Heroes, MND, Homestart, Stonebridge City Farm and Second Helpings. As ever, my gratitude and immense respect go to all our team members who selflessly gave their time and financial support to such a wide range of deserving causes
Outlook
2019 will undoubtedly be a year of uncertainty for us all. We continue to believe that our unique proposition, if delivered brilliantly and continually evolving to match changing expectations, will remain as popular as ever with our growing membership.
We have embarked on investing in and developing leading technology for our members and expect to need to continue to do so for the foreseeable future as we continue to successfully grow our membership sustainably, both now and in the years ahead.
It is at times like these that our mutual ethos serves us well, enabling us to continue to invest in the long term success of the Society, despite short term market, economic and political uncertainties. This has been made possible by our financial strength and the progress we have achieved in recent years to grow the Society and build our capability. Whilst we expect profitability to reduce in the short term, the Board remains confident that it is in the long term interests of our membership to continue to deliver world class service, great value and invest for the future, rather than pursue short term profit.
We are committed to creating the ideal hybrid of traditional service and advice with digital accessibility and innovation. That will enable us to help our growing membership plan for their financial futures more effectively and efficiently. We aim to do this by continuing to focus on serving and rewarding membership and having strong financial adequacy, whilst being reputable and resilient to all market conditions and supporting the communities in which we serve."
David Marlow Chief Executive
15 March 2019
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Consolidated income statement for the year ended 31 December 2018 | ||||||||
2018 | 2017 | |||||||
£m | £m | |||||||
Interest receivable and similar income | 85.4 | 82.2 | ||||||
Interest payable and similar charges | (35.2) | (33.9) | ||||||
Net interest income | 50.2 | 48.3 | ||||||
Fees and commissions receivable | 7.5 | 9.1 | ||||||
Fees and commissions payable | (1.4) | (1.6) | ||||||
Net losses from derivative financial instruments | (0.7) | (0.2) | ||||||
Total net income | 55.6 | 55.6 | ||||||
Administrative expenses | (40.0) | (38.3) | ||||||
Depreciation and amortisation | (3.4) | (3.0) | ||||||
Finance cost | (0.3) | (0.3) | ||||||
Impairment release - loans and advances | 0.3 | 1.3 | ||||||
Impairment charge - goodwill | (0.5) | - | ||||||
Provisions for liabilities - FSCS levy and other | 0.1 | (0.8) | ||||||
Profit before tax | 11.8 | 14.5 | ||||||
Tax expense | (2.4) | (3.0) | ||||||
Profit after tax for the financial year | 9.4 | 11.5 | ||||||
Consolidated statement of comprehensive income for the year ended 31 December 2018 | ||||||||
2018 | 2017 | |||||||
£m | £m | |||||||
Profit for the financial year | 9.4 | 11.5 | ||||||
Items that will not be re-classified to the income statement | ||||||||
Remeasurements of the defined benefit obligation | 0.4 | 2.1 | ||||||
Tax on items that will not be re-classified | (0.1) | (0.4) | ||||||
Items that may subsequently be re-classified to the income statement | ||||||||
Available-for-sale reserve | ||||||||
Valuation losses taken to reserves | - | (0.4) | ||||||
Tax on items that may subsequently be re-classified | - | 0.1 | ||||||
FVOCI reserve | ||||||||
Valuation losses taken to reserves | (1.2) | - | ||||||
Tax on items that may subsequently be re-classified | 0.2 | - | ||||||
Other comprehensive (expense)/income for the period net of income tax | (0.7) | 1.4 | ||||||
Total comprehensive income for the year | 8.7 | 12.9 | ||||||
Consolidated statement of financial position as at 31 December 2018 | |||
2018 | 2017 | ||
£m | £m | ||
Assets | |||
Liquid assets | 506.9 | 494.9 | |
Derivative financial instruments | 8.2 | 7.3 | |
Loans and advances to customers | 3,502.9 | 3,368.8 | |
Fixed and other assets | 35.6 | 29.4 | |
Total assets | 4,053.6 | 3,900.4 | |
Liabilities | |||
Shares | 2,869.2 | 2,595.4 | |
Borrowings | 918.0 | 1,042.3 | |
Derivative financial instruments | 5.9 | 9.9 | |
Other liabilities | 12.6 | 14.5 | |
Subscribed capital | 25.1 | 25.6 | |
Total liabilities | 3,830.8 | 3,687.7 | |
Reserves | |||
General reserves | 223.8 | 212.7 | |
Fair value reserves | (1.0) | - | |
Total reserves attributable to members of the Society | 222.8 | 212.7 | |
Total reserves and liabilities | 4,053.6 | 3,900.4 |
Consolidated statement of changes in members' interests as at 31 December 2018 | General reserve | FVOCI reserve | Available-for-sale reserve | Total | ||||
£m | £m | £m | £m | |||||
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 | ||||
Balance as at 1 January 2017 | 199.5 | - | 0.3 | 199.8 | ||||
Profit for the year | 11.5 | - | - | 11.5 | ||||
Other comprehensive income for the period (net of tax) | ||||||||
Net losses from changes in fair value | - | - | (0.3) | (0.3) | ||||
Remeasurement of defined benefit obligation | 1.7 | - | - | 1.7 | ||||
Total comprehensive income/(expense) for the period | 13.2 | - | (0.3) | 12.9 | ||||
Balance as at 31 December 2017 | 212.7 | - | - | 212.7 | ||||
Consolidated cash flow statement for the year ended 31 December 2018 | |||
2018 | 2017 | ||
£m | £m | ||
Cash flows from operating activities | |||
Profit before tax | 11.8 | 14.5 | |
Depreciation and amortisation | 3.4 | 3.0 | |
Interest on subscribed capital | 2.0 | 2.0 | |
Net gains on disposal and amortisation of debt securities | 0.6 | 0.7 | |
Increase/(decrease) in impairment | 0.2 | 1.3 | |
18.0 | 21.5 | ||
Changes in operating assets and liabilities | |||
Increase in other assets | (5.2) | (3.9) | |
Decrease in other liabilities | (5.5) | (10.5) | |
Decrease in loans and advances to credit institutions | 0.7 | 10.4 | |
(Decrease)/Increase in debt securities in issue | (46.7) | 54.8 | |
Increase in loan and advances to customers | (132.1) | (337.5) | |
Increase in shares | 273.8 | 138.0 | |
(Decrease)/Increase in borrowings | (77.6) | 115.5 | |
Taxation paid | (2.9) | (2.6) | |
22.5 | (14.3) | ||
Capital expenditure and financial investment | (114.8) | (17.3) | |
Financing activities | (1.9) | (1.9) | |
Decrease in cash and cash equivalents | (94.2) | (33.5) | |
Cash and cash equivalents at beginning of year | 360.3 | 393.8 | |
Cash and cash equivalents at end of year | 266.1 | 360.3 |
Summary ratios | |||
2018 | 2017 | ||
% | % | ||
Common Equity Tier 1 ratio | 14.7 | 14.6 | |
Liquid assets as a percentage of shares and borrowings | 13.38 | 13.60 | |
Group profit for the year as a percentage of mean total assets | 0.24 | 0.31 | |
Group management expenses as a percentage of mean total assets | 1.09 | 1.10 | |
Society management expenses as a percentage of mean total assets | 0.95 | 0.92 | |
Society interest margin as a percentage of mean assets | 1.26 | 1.29 | |
Notes · The financial information set out above, which was approved by the Board of Directors on 14 March 2019, does not constitute accounts within the meaning of the Building Societies Act 1986. · The financial information for the years ended 31 December 2018 and 31 December 2017 has been extracted from the Accounts for those years and on which the auditors have given an unqualified opinion. | |||