Last checked at 29 Jul 2021 07:00
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 £3.7m and statutory profit after tax of £4.9m); · 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 £3.0bn 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 £55m 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 £0.6m 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 £5.7m on a total group basis, compared to a loss of £4.6m 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 £3.7m in the first half, compared to a loss of £1.3m 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 Total Group Basis | Period to 30 June 2021 (Unaudited) |
| Period to 30 June 2020 (Unaudited) |
| Year ended 31 Dec 2020 (Audited) | |
| £m |
| £m |
| £m | |
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 £0.2m 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 30 June 2021 (Unaudited) |
| Period to 30 June 2020 (Unaudited) |
| Year ended 31 Dec 2020 (Audited) | |
| £m |
| £m |
| £m | |
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 2021 (Unaudited) |
| 30 June 2020 (Unaudited) |
| 31 Dec 2020 (Audited) |
| £m |
| £m |
| £m |
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 reserve |
FVOCI reserve |
Total |
| £m | £m | £m |
|
|
|
|
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 2021 (Unaudited) | 30 June 2020 (Unaudited) | 31 Dec 2020 (Audited) |
| £m | £m | £m |
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 2021 | 30 June 2020 | 31 Dec 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. |
| |||