Last checked at 25 Jul 2019 07:30
Nottingham Building Society
Results for the period ended 30 June 2019
The Nottingham is pleased to present its results for the six months ended 30 June 2019, which reflect our mutual ownership ethos as we continue to show progress in the delivery of our strategy, despite the difficult and uncertain environment in which we are now operating.
Key performance highlights include:
·; Total assets of £4.0 bn; ·; Gross lending of £182m; ·; Arrears levels remain at an historic low level; ·; Strong liquidity position with liquid assets ratio of 15.8%; ·; Strong retail franchise - branch savings membership continues to increase; ·; Sector-leading customer advocacy with a net promoter score of 78%; ·; Strong capital ratios with Common Equity Tier 1 ratio of 15.3% and leverage ratio of 5.4%; and ·; Group pre-tax profit of £2.7m.
David Marlow, Chief Executive of The Nottingham, commenting on the results said
"In our 2018 Report and Accounts, we were clear that as the Society headed into 2019, we expected market trading conditions to be challenging and difficult. Increasing competition in the face of muted demand for mortgages continued to see new mortgage rates for customers continue to fall, despite their already record low levels. In fact new business rates for mortgages in the market currently average 2.10%.
Our primary objective, in running the Society in a sustainable way, is to balance the conflicting needs of our savers and borrowers, helping them to plan, protect and save for their financial futures, whilst making sufficient profit to maintain our capital strength and invest in the Society for the future. Our 2019 first half performance strongly reflects this ethos, which has been achieved in a tough market environment.
As highlighted previously, in the face of falling new mortgage rates, we have moderated our lending plans as we do not believe it is sustainable to grow at the rate we have done in recent years, as this is not in the interest of all our members. Instead, we believe it is better, in market conditions such as these, to optimise the yield we earn on our lending without compromising on our excellent asset quality. We do all that we can to protect the rates we pay to our savers; as high asset growth in these market conditions would inevitably lead to lower rates for our savers.
This has been our key focus in 2019, which we believe we have managed well. Whilst, as anticipated, this has led to lower levels of income and profit reported, this has not prevented us from continuing our significant investment in digital for the future benefit of our members and improving our high level of capital strength - our primary mutual objectives.
As new business rates for mortgages remained subject to intense competition and declining rates, we have been careful to select the lending that meets our requirements. Although this has led to lower levels of lending and a reduction in our total assets, we are pleased with the yield that has been achieved on this lending. This has enabled us to protect the rates we pay to our savers, which has actually increased by a small amount in the first half of 2019 to an average of 1.03% as at June 2019. This reflects our mutual ethos and demonstrates the benefits of not needing to maximise profit, particularly when market conditions are challenging.
It is essential that we continue to invest in the Society for the future. As we have previously highlighted, consumer behaviour and expectations are undergoing some of the biggest shifts for over 50 years, as new digital capabilities begin to transform the way we interact with all the firms we deal with. This is particularly apparent for key financial service providers.
We are pleased to confirm that we continue to make good progress in the development and implementation of our new digital capability in partnership with Salesforce - a global leader in digital customer relationship management.
In the first half of this year, we have also introduced digital LISA functionality, focused largely on helping the first time buyers of the future save for a home. This is in addition to our newly launched "Beehive Money" online savings portal. Beehive is our home for straight forward self-service digital savings and has already proved popular since its launch.
During the second half of the year, we will launch our new mortgage portal for brokers and intermediaries. This will significantly enhance the speed and ease with which our critically important mortgage partners can deal with us.
In order to broaden our relevance to customers across the UK, we are also developing a completely new digital first savings proposition, which will help savers plan for their own financial future. We expect to launch later in 2020. The Board of The Nottingham firmly believes that it is crucial for the Society to continue to prepare itself for a digital future by enhancing our current proposition enabling us to deliver to the expectations of the 21st century saver.
Underlying our financial performance, it is essential that we have a relevant proposition that members value and that attracts new members to sustain the Society. Despite our deliberate actions in the mortgage market in terms of reducing our own lending, our whole-of-market mortgage advice proposition continues to grow in popularity. In the first half of 2019, we have seen a 24% increase in the number of members and customers taking advice from us and securing a new mortgage through this service compared to the first half of 2018.
We have also continued to grow our Nottingham Building Society savings membership, which is now close to the 200,000 mark for the first time. Our members continue to benefit from our member rewards scheme, which is designed to reward them for doing the right thing to plan, protect and save for their financial futures. Thousands of members have taken advantage of the scheme again in the first half of the year benefiting from over a quarter of a million pounds of rewards.
We remain encouraged that our combination of advice, value and choice remains popular with our members. This is best reflected in the continued growth of our core savings membership as well as customer advocacy in the shape of our Net Promoter Score, which remains at the world class level of 78%.
In line with our expectations and plan, we have seen the overall net interest income profile reduce by 7% in the first half of 2019, as we acted to achieve what we believe was the right balance between our saving and borrowing members.
However in anticipation of this reduction in income, we are actively managing the administrative expenses of the Society, which have also been reduced by 7% overall when compared to the first half of 2018. We believe this reflects the robust and prudent way in which we manage the Society for the benefit of members, as well as demonstrating our ability to enhance our efficiency as our investment strategy begins to bear fruit. On an underlying basis, excluding the movement in derivatives, the reduction in our level of profit reported compared to the first half of 2018 is driven by the increase in total investment spend, broadly equivalent to the additional depreciation charge as well as project and strategic costs.
The historic low levels of arrears of more than 3 months remains a de minimis for a book of our size and continues to reflect the excellent quality of our lending. This is evidenced in the minimal impairment movement in the period.
When fully reflecting the mutual ethos of our performance, although our underlying profits for the period are £1.9m lower than in the same period last year, we have acted to protect savers and continue our significant investment in the Society. Our capital strength also remains significantly above our regulatory requirements, with our CET1 and leverage ratios improving further to 15.3% and 5.4% respectively.
With continued economic and political uncertainty and little change expected in the nature of the mortgage market for the foreseeable future, we expect the trend seen in the first half to continue for the remainder of 2019.
We also expect to continue with the robust and prudent management approach we have adopted in the first half of the year. We will continue to strike the right balance between the conflicting needs of our savers and borrowers; optimise the yield we achieve from our lending, without compromising on its quality. We will continue to grow savings membership and increase the number of members taking advantage of our unique 'all under one roof' proposition. This will be delivered whilst actively managing the costs to run the Society appropriately and continuing to invest in our digital future.
The Board is clear that at times such as these our mutual ownership model comes to the fore as we manage short-term market challenges in the best interests of our members; continue to invest strongly in the Society to enhance and improve the service we offer whilst maintaining capital strength. Continuing to achieve all of these aims will remain our focus for the remainder of 2019 and beyond."
David Marlow Chief Executive 24 July 2019
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Consolidated statement of comprehensive income for the six months ended 30 June 2019 | |||||
Period to 30 June 2019 (Unaudited) | Period to 30 June 2018 (Unaudited) | Year ended 31 Dec 2018 (Audited) | |||
£m | £m | £m | |||
Interest receivable and similar income | 41.9 | 41.5 | 85.4 | ||
Interest payable and similar charges | (18.7) | (16.5) | (35.2) | ||
Net interest income | 23.2 | 25.0 | 50.2 | ||
Fees and commissions receivable | 3.1 | 3.9 | 7.5 | ||
Fees and commissions payable | (0.5) | (0.8) | (1.4) | ||
Net losses from derivative financial instruments | (1.7) | (0.3) | (0.7) | ||
Total net income | 24.1 | 27.8 | 55.6 | ||
Administrative expenses | (18.8) | (20.1) | (40.0) | ||
Depreciation and amortisation | (2.6) | (1.6) | (3.4) | ||
Finance cost | - | - | (0.3) | ||
Impairment (charge)/release - loans and advances | - | (0.1) | 0.3 | ||
Impairment charge - goodwill | - | - | (0.5) | ||
Provisions for liabilities - FSCS levy and other | - | - | 0.1 | ||
Profit before tax | 2.7 | 6.0 | 11.8 | ||
Tax expense | (0.6) | (1.2) | (2.4) | ||
Profit after tax for the financial period | 2.1 | 4.8 | 9.4 | ||
Other comprehensive income: | |||||
Items that will not be re-classified to the income statement | |||||
Remeasurement of defined benefit obligation | - | - | 0.4 | ||
Tax on items that will not be re-classified | (0.1) | - | (0.1) | ||
Items that may subsequently be re-classified to the income statement | |||||
FVOCI reserve | |||||
Valuation gains/(losses) taken to reserves | 0.9 | (0.2) | (1.2) | ||
Tax on items that may subsequently be re-classified | - | - | 0.2 | ||
Other comprehensive income/(expense) for the period net of income tax | 0.8 | (0.2) | (0.7) | ||
Total comprehensive income for the period | 2.9 | 4.6 | 8.7 | ||
Consolidated statement of financial position as at 30 June 2019 | |||
30 June 2019 (Unaudited) | 30 June 2018 (Unaudited) | 31 Dec 2018 (Audited) | |
£m | £m | £m | |
Assets | |||
Liquid assets | 580.9 | 456.3 | 506.9 |
Derivative financial instruments | 1.5 | 10.1 | 8.2 |
Loans and advances to customers | 3,339.3 | 3,489.1 | 3,502.9 |
Fixed and other assets | 43.9 | 33.3 | 35.6 |
Total assets | 3,965.6 | 3,988.8 | 4,053.6 |
Liabilities | |||
Shares | 2,834.4 | 2,722.1 | 2,869.2 |
Borrowings | 849.7 | 1,001.3 | 918.0 |
Derivative financial instruments | 14.4 | 7.2 | 5.9 |
Other liabilities | 16.5 | 14.2 | 12.6 |
Subscribed capital | 24.9 | 25.3 | 25.1 |
Total liabilities | 3,739.9 | 3,770.1 | 3,830.8 |
Reserves | |||
General reserves | 225.8 | 218.9 | 223.8 |
Fair value reserves | (0.1) | (0.2) | (1.0) |
Total reserves and liabilities | 3,965.6 | 3,988.8 | 4,053.6 |
Consolidated statement of changes in members' interests for the period ended 30 June 2019 | |||
General reserve |
FVOCI reserve |
Total | |
£m | £m | £m | |
Balance as at 1 January 2019 (Audited) | 223.8 | (1.0) | 222.8 |
Profit for the period | 2.1 | - | 2.1 |
Other comprehensive (expense)/income for the period (net of tax) | |||
Net gains from changes in fair value | - | 0.9 | 0.9 |
Remeasurement of defined benefit obligation | (0.1) | - | (0.1) |
Total other comprehensive (expense)/income | (0.1) | 0.9 | 0.8 |
Total comprehensive income for the period | 2.0 | 0.9 | 2.9 |
Balance as at 30 June 2019 (Unaudited) | 225.8 | (0.1) | 225.7 |
Balance as at 1 January 2018 (Audited) | 212.7 | - | 212.7 |
Change on initial recognition of IFRS 9 | 1.4 | - | 1.4 |
Profit for the period | 4.8 | - | 4.8 |
Other comprehensive expense for the period (net of tax) | |||
Net losses from changes in fair value | - | (0.2) | (0.2) |
Total other comprehensive expense | - | (0.2) | (0.2) |
Total comprehensive income/(expense) for the period | 4.8 | (0.2) | 4.6 |
Balance as at 30 June 2018 (Unaudited) | 218.9 | (0.2) | 218.7 |
Balance as at 1 January 2018 (Audited) | 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/(expense) 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 other comprehensive income/(expense) | 0.3 | (1.0) | (0.7) |
Total comprehensive income/(expense) for the period | 9.7 | (1.0) | 8.7 |
Balance as at 31 December 2018 (Audited) | 223.8 | (1.0) | 222.8 |
Consolidated cash flow statement for the period ended 30 June 2019 | |||
30 June 2019 (Unaudited) | 30 June 2018 (Unaudited) | 31 Dec 2018 (Audited) | |
£m | £m | £m | |
Cash flows from operating activities | |||
Profit before tax | 2.7 | 6.0 | 11.8 |
Depreciation and amortisation | 2.6 | 1.6 | 3.4 |
Interest on subscribed capital | 1.0 | 1.0 | 2.0 |
Net gains on disposal and amortisation of debt securities | 0.2 | 0.3 | 0.6 |
(Decrease)/increase in impairment | - | (0.1) | 0.2 |
6.5 | 8.8 | 18.0 | |
Changes in operating assets and liabilities | |||
Decrease/(increase) in other assets | 6.0 | (7.2) | (5.2) |
Increase/(decrease) in other liabilities | 6.9 | (3.1) | (5.5) |
(Increase)/decrease in loans and advances to credit institutions | (12.7) | (2.1) | 0.7 |
Decrease in debt securities in issue | (26.1) | (16.9) | (46.7) |
Decrease/(increase) in loan and advances to customers | 163.6 | (118.5) | (132.1) |
(Decrease)/increase in shares | (34.8) | 126.7 | 273.8 |
Decrease in borrowings | (42.2) | (24.1) | (77.6) |
Taxation paid | (0.9) | (1.6) | (2.9) |
66.3 | (38.0) | 22.5 | |
Capital expenditure and financial investment | 7.1 | (39.9) | (114.8) |
Financing activities | (1.4) | (1.0) | (1.9) |
Increase/(decrease) in cash and cash equivalents | 72.0 | (78.9) | (94.2) |
Cash and cash equivalents at beginning of period | 226.1 | 360.3 | 360.3 |
Cash and cash equivalents at end of period | 338.1 | 281.4 | 266.1 |
Summary ratios | ||||
30 June 2019 | 30 June 2018 | 31 Dec 2018 | ||
% | % | % | ||
Common Equity Tier 1 capital ratio | 15.3 | 14.7 | 14.7 | |
Liquid assets as a percentage of shares and borrowings | 15.77 | 12.25 | 13.38 | |
Group profit for the year as a percentage of mean total assets | 0.10 | 0.24 | 0.24 | |
Group management expenses as a percentage of mean total assets | 1.07 | 1.10 | 1.09 | |
Group interest margin as a percentage of mean assets | 1.16 | 1.27 | 1.26 | |
Notes ·; The financial information set out above, which was approved by the Board of Directors on 24 July 2019, does not constitute accounts within the meaning of the Building Societies Act 1986. ·; The financial information for the year ended 31 December 2018 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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