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Half-year Report

30 Jul 2020 07:00

RNS Number : 5134U
Nottingham Building Society
30 July 2020
 

Nottingham Building Society

 

Results for the period ended 30 June 2020

 

The Nottingham presents its results for the six months ended 30 June 2020, which shows our mutual ownership ethos coming to the fore as we continue to show progress in the delivery of our strategy, despite the exceptional and uncertain environment in the wake of the COVID-19 pandemic.

 

Key performance highlights include:

 

· Total assets of £3.9 bn;

· Gross lending of £232m;

· Strong liquidity position with liquid assets ratio of 18.6%;

· Strong retail franchise - branch savings membership continues to increase;

· Sector-leading customer advocacy with a net promoter score of 78%; and

· Strong capital ratios with Common Equity Tier 1 ratio of 15.0% and leverage ratio of 5.0%;

 

David Marlow, Chief Executive of The Nottingham, commenting on the results said

 

"The first half of 2020 has been dominated by the COVID-19 pandemic which has brought significant impacts to our nation's health, how we live our daily lives and the economy; with the strong likelihood that the UK will suffer the deepest recession since the Great Frost of 1709.

 

In unprecedented periods of national challenge such as this, organisations and firms come under pressure and scrutiny and it is where we as a mutual, owned by our members, can bring our financial strength to bear to support our members, stakeholders and the communities that we serve. That is what we have focussed on, ensuring that we play our full part in tackling this national crisis.

 

Supporting members

 

The initial phase of the crisis was focussed on providing continuity of service to members as the country went into total lockdown, providing access to their money and support for those in need at a very difficult time, through our branch network and contact centre. We were happy to fulfil this by remaining open in over 60 branches throughout the period of lockdown.

 

We then turned our attention to how we could best support both our savings and borrowing members. We began by making a commitment to all our savers, that despite the Bank of England's decision to reduce Bank Base Rate to a record low of 0.1%, we would not reduce any savings rates for at least three months. We believed that this was the right thing to do, when the nation was effectively locked down and facing enormous uncertainty. We have subsequently extended this for our branch savings members, who represent the vast majority of our savers, for a further three months until the end of September.

 

For mortgage customers, we swiftly put in arrangements to allow borrowers to take a three month deferral on their mortgage if required; knowing that, in the vast majority of cases, a mortgage payment is the largest monthly outgoing. Furthermore, in appropriate circumstances, we have enabled borrowers facing significant challenges, the opportunity to extend that deferral for a further three months. Although a very small number each year, we also took the decision to introduce a moratorium on possession action for those facing payment difficulties due to the pandemic , until the end of October, to keep people in their homes even if they are unable to repay their mortgage.

 

This strong and rapid response to support members would not have been possible without the tremendous commitment and hard work of our team members. They responded brilliantly to their designation as key workers, ensuring we remained open and operational throughout, with hundreds of team members also making the significant adjustment to working from home. This required our support teams to ensure there was a safe and secure working environment in place, whether that has been in branch, at our Head Office, or at home. In response to those fantastic efforts, we committed to pay all our team members in full throughout the period of lockdown, irrespective of their personal situation or circumstances, providing certainty for all through the initial period.

 

In addition to supporting our members and colleagues, we have also taken our broader community responsibilities seriously, making significant contributions to key charities at the outset of the lockdown period. Those benefitting include Framework - our charity partner tackling homelessness; the Trussell Trust - a network of foodbanks who operate across our heartland; and The Silverline, a national charity providing mental wellbeing counselling and support for the elderly and isolated.

 

We believe these changes and support options were the right thing to do to be there for our stakeholders and communities at this most difficult time, irrespective of the cost.

 

Our mutual ethos and financial strength, in the shape of our capital which has been built up over 160 years plus, means that we could deliver that. Because of this, we decided not to take available government support of furlough payments, as we are fortunate enough to be able to finance and support ourselves and members - the mutual benefit. A demonstration of how well received this has been by our members, is reflected in our Net Promoter Score. Despite all the difficulties in 2020, our NPS stands at an incredible 78% - a resounding vote of confidence from our members.

 

Building a relevant vibrant society for the future

 

More recently, we turned our attention to how we ensure that the Society can operate in a relevant and sustainable way in the new world that is rapidly emerging. Following a review of our strategy and priorities for the next three to five years, we concluded that it was important for us to accelerate the plans we had highlighted in the 2019 Report and Accounts; namely that we;

 

· Should continue to manage our balance sheet carefully to balance the needs of our savings and borrowing members;

· Review our range of services to ensure our members receive the right blend of expert advice and service from carefully selected partners; and

· Continue to invest in the use of digital technologies.

 

We have therefore, been taking appropriate decisions to accelerate our activity and plans in these areas.

 

Notwithstanding the fact that our interest payable to savers will be higher than it might otherwise have been due to our commitment not to lower rates, we are beginning to see some encouraging signs in our refocussed approach to mortgage lending and on our investment decisions of the past 12 months. Our mortgage lending to June 2020 is up 24% on the same period last year, despite the disruption of the pandemic and our balance sheet is growing again, albeit by a small amount. We are also earning improved yields on this lending, hence why we are happy to increase our activity levels. We are also seeing good reductions in the number of borrowers leaving us, with redemptions down by 30% compared to the first half of 2019.

 

Our branch savings balances also continue to grow and are 4% up on a year ago with that growth spread evenly over the year. In addition, we now have almost 20,000 LISA members, saving to buy their first home with the Society, and this number is increasing every week. This demonstrates that our core savings and mortgage franchises are in good health despite the challenging macro-economic conditions.

 

In terms of reviewing our services, earlier this month, we announced a strategic alliance with Belvoir Property Management to provide estate agency and lettings services to our members. Having operated our own estate agency for many years, we concluded that now was the right time to transfer most of those operations to a national expert, based in the East Midlands, who are better placed to deliver these services to our members. The alliance will also bring benefits to members in the shape of nationally available discounts on estate agency and letting fees, along with a unique premises share arrangement that should enable both parties to continue to offer and extend High Street services in a more flexible and cost efficient way.

 

We also took this opportunity to review our branch network, which over recent years has doubled in size to over 60 locations across nine counties. The vast majority of our locations, both established and new, achieved their commercial requirements and demonstrated that they deliver significant value to members. However, a relatively small number did not and we have taken the sad decision to close these locations. Apart from those locations directly impacted by our new strategic alliance, the vast majority of branches selected for closure are in very close proximity to each other. For example, in the greater Nottingham area, we currently have 13 branches within a five mile radius of our Head Office. This will be reduced to eight by the end of the year and should not significantly impact choice and access to branches for our members in our home city. Whilst it is always difficult to take decisions to close locations, our actions will enable us to focus our efforts on continuing to grow a vibrant branch network, which is now established across a large geographical footprint.

 

Finally, over the past couple of years, we have successfully invested in developing stronger digital capabilities for members and brokers. One of the key societal changes we have seen as a consequence of the pandemic is a significant increase in consumer usage of digital channels and the increased resilience of firms able to serve customers in a digital, as well as face to face format. We have therefore decided to double down on our digital investment and plan to launch a new unique savings proposition for digital savers in the first quarter of 2021. This will enable the Society to serve a broader age range and demographic of members in the years ahead.

 

There is no doubt that 2020 will stand out as a unique and challenging year. As a mutual we are clear that when confronted with such significant challenges that we should deploy our financial strength built up over more than 160 years to benefit our members.

 

Our decision and actions to support members, continue to invest significantly in the Society ready for the new world emerging and the additional costs of responding to the national crisis will mean that we are expecting to report a full year loss in 2020, as reflected in our statutory loss reported in the first half of the year. However we are able to demonstrate that the underlying performance of the Society, net of the one off costs and committed investments we are making in response to the pandemic and subsequent economic stress, is robust.

 

We are able to do this not only because we have the financial firepower and capital strength to do so, but also because we are already seeing the returns on decisions we have previously taken to effectively manage our balance sheet. Lending is increasing with good demand for our products at improving yields and our branch savings franchise continues to grow. We have taken some difficult decisions, which are set to improve our offering in estate agency and lettings and reduce the costs of running the Society moving forward. Investing in our digital future is something which we believe will enable us to grow membership in the years ahead with a compelling savings proposition but at a lower cost to serve.

 

We are also announcing today that our Chairman, John Edwards, will be stepping down from the Board in September after almost 9 years, the vast majority of it as Chair. In line with our succession plans, John will be succeeded, subject to regulatory approval, by Andrew Neden who is currently the Senior Independent Director and Vice-Chair. Andrew has been a member of The Nottingham's Board since 2014 and has the ideal blend of experience, background and knowledge of the Society to pick up its stewardship from John and steer it into a post-pandemic world ensuring that the Society remains relevant and vibrant. Andrew's appointment was approved by the Board following a selection process with external search support.

 

John has done a magnificent job steering the Society over the past 9 years, a period in which it has significantly grown its asset base, branch footprint and positioned the Society strongly for the digital world.

 

Kerry Spooner, who has been on the Board since 2016 and chairs the Remuneration Committee will, subject to regulatory approval, become the Senior Independent Director (and whistleblowing champion).

 

The Society also announced the appointment of Mike Brierley as a Non- Executive Director and subject to regulatory approval, will succeed Andrew as Chair of the Board Audit Committee. Mike has over 35 years' experience in Chief Financial Officer (CFO) roles within the financial services industry. Most recently Mike was CFO of Metro Bank PLC between 2009 and 2018, where he played a key role in helping lead the challenger bank from start-up to listing. He has been a director of Barclaycard responsible for business risk and, between 1999 and 2006, held a variety of roles with Capital One Bank (Europe) PLC including CFO Europe, CFO UK and Managing Vice President and Chief Enterprise Risk Officer Europe. Mike is a Fellow of The Institute of Chartered Accountants in England and Wales (FCA).

 

Since retiring as an executive, Mike has joined the board of Admiral Group plc, the FTSE 100 general insurance company, where he is a member of both the audit committee and the remuneration committee. He also serves as Chair of their financial services subsidiary. Mike brings a breadth of experience and deep knowledge of financial management to the Board.

 

The next 12 months will continue to bring challenges as the full economic impact of the pandemic takes its toll. We are however well placed to absorb these factors while investing in developing a modern building society that can fulfil its purpose of serving a growing membership - to save, plan for and protect their financial futures, whatever the economic conditions."

 

 

David Marlow

Chief Executive

30 July 2020

 

 

Consolidated income statement for the six months ended 30 June 2020

Period to 30 June 2020

(Unaudited)

Period to 30 June 2019

(Unaudited)

Year ended 31 Dec 2019

(Audited)

£m

£m

£m

Interest receivable and similar income

36.2

41.9

84.0

Interest payable and similar charges

(15.7)

(18.7)

(37.9)

Net interest income

20.5

23.2

46.1

Fees and commissions receivable

2.5

3.1

6.2

Fees and commissions payable

(0.3)

(0.5)

(1.1)

Other income

-

-

0.2

Net losses from derivative financial instruments

(3.3)

(1.7)

(0.6)

Total net income

19.4

24.1

50.8

Administrative expenses

(18.2)

(18.8)

(36.5)

Depreciation and amortisation

(3.1)

(2.6)

(5.5)

Pension finance cost

-

-

(0.1)

Operating (loss)/profit before impairment and change in EIR accounting estimate

(1.9)

2.7

8.7

Impairment charge - loans and advances

(2.7)

-

(0.4)

Impairment charge - goodwill

-

-

(4.0)

Change in EIR accounting estimate

-

-

(12.3)

(Loss)/profit before tax

(4.6)

2.7

(8.0)

Tax credit/(expense)

0.8

(0.6)

0.8

(Loss)/profit after tax for the financial period

(3.8)

2.1

(7.2)

Reconciliation of statutory (loss)/profit before taxation

Period to 30 June 2020

(Unaudited)

Period to 30 June 2019

(Unaudited)

Year ended 31 Dec 2019

(Audited)

£m

£m

£m

Statutory (loss)/profit before taxation

(4.6)

2.7

(8.0)

Adjusted for:

Losses from derivative financial instruments

3.3

1.7

0.6

Other income

-

-

(0.2)

Strategic investment costs

-

0.5

1.3

Impairment - goodwill

-

-

4.0

Change in accounting estimate

-

-

12.3

Underlying (loss)/profit before taxation

(1.3)

4.9

10.0

Impairment charges - loans & advances

2.7

-

-

Underlying profit before impairment charges on loans & advances

1.4

4.9

10.0

 

Consolidated statement of comprehensive income for the six months ended 30 June 2020

Period to 30 June 2020

(Unaudited)

Period to 30 June 2019

(Unaudited)

Year ended 31 Dec 2019

(Audited)

£m

£m

£m

(Loss)/profit for the period

(3.8)

2.1

(7.2)

Items that will not be re-classified to the income statement

Remeasurement of defined benefit obligation

-

-

-

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 taken to reserves

0.4

0.9

0.7

Tax on items that may subsequently be re-classified

-

-

(0.1)

Other comprehensive income for the period net of income tax

0.3

0.8

0.6

Total comprehensive (expense)/income for the period

(3.5)

2.9

(6.6)

 

Consolidated statement of financial position

as at 30 June 2020

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

31 Dec 2019

(Audited)

£m

£m

£m

Assets

Liquid assets

666.2

580.9

615.1

Derivative financial instruments

1.5

1.5

2.0

Loans and advances to customers

3,152.1

3,339.3

3,161.4

Fixed and other assets

39.1

43.9

40.5

Total assets

3,858.9

3,965.6

3,819.0

Liabilities

Shares

2,809.1

2,834.4

2,781.1

Borrowings

764.8

849.7

771.3

Derivative financial instruments

35.8

14.4

12.8

Other liabilities

12.0

16.5

12.9

Subscribed capital

24.5

24.9

24.7

Total liabilities

3,646.2

3,739.9

3,602.8

Reserves

General reserves

212.7

225.8

216.6

Fair value reserves

-

(0.1)

(0.4)

Total reserves and liabilities

3,858.9

3,965.6

3,819.0

 

 

 

Consolidated statement of changes in members' interests for the period ended 30 June 2020

 

General reserve

 

FVOCI reserve

 

 

Total

£m

£m

£m

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 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 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 2019 (Audited)

223.8

(1.0)

222.8

Loss for the year

(7.2)

-

(7.2)

Other comprehensive income for the period (net of tax)

Net gains from changes in fair value

-

0.6

0.6

Total comprehensive (expense)/income for the period

(7.2)

0.6

(6.6)

Balance as at 31 December 2019 (Audited)

216.6

(0.4)

216.2

 

 

Summary consolidated cash flow statement

for the period ended 30 June 2020

30 June 2020

(Unaudited)

30 June 2019

(Unaudited)

31 Dec 2019

(Audited)

£m

£m

£m

Cash flows from operating activities

2.2

6.5

4.5

Changes in operating assets and liabilities

26.9

59.8

109.0

Net cash generated by operating activities

29.1

66.3

113.5

Cash flows from investing activities

124.2

7.1

(104.0)

Cash flows from financing activities

(1.4)

(1.4)

(3.0)

Increase in cash and cash equivalents

151.9

72.0

6.5

Cash and cash equivalents at beginning of period

272.6

266.1

266.1

Cash and cash equivalents at end of period

424.5

338.1

272.6

 

 

Summary ratios

30 June 2020

30 June 2019

31 Dec 2019

%

%

%

Common Equity Tier 1 capital ratio

15.0

15.3

15.1

Liquid assets as a percentage of shares and borrowings

18.64

15.77

17.32

Group profit for the year as a percentage of mean total assets

(0.20)

0.10

(0.18)

Group management expenses as a percentage of mean total assets

1.11

1.07

1.07

Group interest margin as a percentage of mean assets

1.07

1.16

1.17

Notes

· The financial information set out above, which was approved by the Board of Directors on 29 July 2020, does not constitute accounts within the meaning of the Building Societies Act 1986.

· The financial information for the year ended 31 December 2019 has been extracted from the Annual Report & Accounts for the year and on which the auditors have given an unqualified opinion.

 

 

 

 

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
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