Notts.b/s.7 7/8 Regulatory News (NOTP)

Nottingham Building Society

Results for the period ended 30 June 2016

The Nottingham is pleased to present its results for the six months ended 30 June 2016. The Society has delivered another good financial performance in line with its plan, increasing its membership and heartland presence, whilst further investing in the Society for the future.

Key performance highlights include:

· Branch retail balances up by 11% to over £2.0 billion;

· 56 branch locations across 9 counties;

· Customer net promoter score of 76.5%;

· Gross mortgage lending of £409m and mortgage book growth of 4.6%;

· Total assets of £3.45 billion - an increase of 4%;

· Arrears levels remain low at 0.20% of total mortgage book;

· Net interest margin of 1.36%;

· Group pre-tax profit at £7.1m;

· Strong capital ratios with a common equity tier 1 ratio of 15.2% and leverage ratio at 4.8%.

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

"A key feature of our strategy is to provide our members with access to first class building society services, whole-of-market mortgage and financial advice and estate agency services all under one roof from a source that they can trust; something that is increasingly hard to find on high streets across our heartland.

This unique proposition from a UK building society makes us increasingly relevant to a much broader proportion of our heartland population and has played a key part in increasing our heartland based membership. In the first half of 2016 we have added another new location, Belper, to our network and plans are well advanced for a further four new branches to be added by the end of the year. The branch network which is the core of our Society will have increased from 31 locations in 2013 to 60 by the end of this year - underscoring the popularity of our proposition and the success of our strategy.

In fact during the first half of this year, the level of branch based retail savings balances has increased by a further 11% and is now in excess of £2.0 billion; a record level for the Society - having only passed the £1.0 billion mark in May 2012. Our unique proposition and brand of service is valued by our customers and this is demonstrated not only by our rising savings balances, increased membership and activity levels but also in our independently run customer satisfaction programme which looks specifically at the levels of advocacy amongst our customers. This is best demonstrated by our net promoter score, which currently stands at 76.5%, moving towards double the average for the financial services sector overall at 42%1.

The Group continues to deliver our strategy to build the franchise and has grown its balance sheet to £3.45 billion at 30 June 2016. Overall gross lending is up at £409m (June 2015: £268 million), resulting in a 4.6% increase to mortgage assets, whilst we have also continued to support our savers and protect them from the low interest rate environment by offering products competitively positioned in the market. Our average rate paid to our savers is 1.49% almost three times the current bank base rate.

As anticipated in our 2015 Annual Report and in line with our plan, income and profit levels are lower than 2015, when we delivered a record level of profit before tax, as we have looked to finely balance the conflicting needs of our savings and mortgage customers. In the first half of 2016, we have sought to maintain savings rates as best we can whilst the yields on new mortgage business and products offered to existing mortgage customers have fallen to record lows.

If we are to meet the increasing demands of our customers and attract further new members to the Group, it is essential that as we grow and expand we continue to invest in our systems, people and capability. In the first half of 2016 we have invested more than £1 million in our improvement programme, which is reflected in our continued above average depreciation charge, which represents 9% of our total expenditure for the year so far. In the second half of the year we expect to continue to develop and invest in our branches and infrastructure, as well as implement a number of staff development initiatives as we work hard to make The Nottingham an employer of choice in our heartland.

We are pleased therefore to report pre-tax profits of £7.1m in the first six months of this year. The Board has a strong focus on ensuring that our level of profitability enables us to strengthen our capital base as our balance sheet grows and to continue our investment programme of improvements for the benefit of our growing member base. Our level of profitability in 2016 will be more than sufficient to achieve both of these objectives.

Market and Outlook

We are pleased with our strategic progress and are confident that our good performance in the first six months of 2016 will allow us to continue to grow and expand the business and deliver sustainable value to our customers.

Towards the end of the period, we have witnessed unprecedented events as a consequence of the UK voting to leave the EU, which will lead to market uncertainty in the coming months and possibly years, as both the UK and Europe adjust to changing structures of government and trading arrangements.  Whilst it is still too early to ascertain the potential full impact the Bank of England has indicated that an easing of monetary policy is likely in August and we shall await to see what form or forms of actions this takes. There has been a downturn in the housing market in recent weeks, which is expected to remain subdued in the coming months and may remain so until the terms of our exit from the EU become clear.

We will continue to monitor the situation closely. However as we are a UK based organisation with no members' money invested in Eurozone countries and no direct currency exposure our focus will remain on the UK economy.

The low interest rate environment is likely to remain with us for some time yet, with an increasing likelihood that bank base rates could get even closer to 0% in the coming months. Inevitably this will continue to challenge us to strike the appropriate balance between our savers and borrowers in an extremely competitive market, with mortgage rates now at an all-time low. It will be essential therefore that an incentive to save for all UK consumers is maintained.

The Board continues to take its responsibility to operate the Group in a safe and secure manner, meeting all of our regulatory obligations and acting in line with our mutual ethos. We also believe that it is vital for the Society to differentiate strongly from the big banks, through focusing on providing customers with expert advice on their financial affairs supported by a high customer service ethos - something which we are confident will always be in demand whatever the short term economic prospects."

David Marlow

Chief Executive

28 July 2016

Consolidated statement of comprehensive income for the six months ended 30 June 2016

Period to 30 June 2016

(Unaudited)

Period to 30 June 2015

(Unaudited)

Year ended 31 Dec 2015

(Audited)

£m

£m

£m

Interest receivable and similar income

46.2

47.9

94.6

Interest payable and similar charges

(23.1)

(23.6)

(46.6)

Net interest income

23.1

24.3

48.0

Fees and commissions receivable

4.8

4.5

9.9

Fees and commissions payable

(0.6)

(0.1)

(0.5)

Net gains from derivative financial instruments

(0.6)

0.2

1.2

Total net income

26.7

28.9

58.6

Administrative expenses

(17.3)

(16.4)

(33.6)

Depreciation and amortisation

(1.8)

(1.6)

(3.3)

Finance cost

-

-

(0.2)

Impairment losses on loans and advances

0.1

(0.1)

(0.2)

Provisions for liabilities - FSCS levy

(0.6)

(1.5)

(1.4)

Profit on disposal of property, plant and equipment

-

-

0.1

Profit before tax

7.1

9.3

20.0

Tax expense

(1.6)

(2.8)

(4.6)

Profit after tax for the financial period

5.5

6.5

15.4

Other comprehensive income:

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

Remeasurement of defined benefit obligation

-

-

0.3

Tax on items that will not be re-classified

-

-

(0.1)

Items that may subsequently be re-classified to the income statement

Available-for-sale reserve

Valuation gains/(losses) taken to reserves

0.2

(0.2)

(0.2)

Tax on items that may subsequently be re-classified

-

-

-

Other comprehensive income/(expense) for the period net of income tax

0.2

(0.2)

-

Total comprehensive income for the period

5.7

6.3

15.4

Consolidated statement of financial position

as at 30 June 2016

30 June 2016

(Unaudited)

30 June 2015

(Unaudited)

31 Dec 2015

(Audited)

£m

£m

£m

Assets

Liquid assets

477.3

513.9

491.6

Derivative financial instruments

4.2

8.1

3.8

Loans and advances to customers

2,944.4

2,699.2

2,796.5

Fixed and other assets

25.7

26.9

26.1

Total assets

3,451.6

3,248.1

3,318.0

Liabilities

Shares

2,568.4

2,511.2

2,433.2

Borrowings

616.7

501.6

643.0

Derivative financial instruments

28.7

9.7

9.3

Other liabilities

13.0

15.9

13.8

Subscribed capital

26.6

26.3

26.2

Total liabilities

3,253.4

3,064.7

3,125.5

Reserves

General reserves

197.8

183.2

192.3

Available-for-sale reserves

0.4

0.2

0.2

Total reserves and liabilities

3,451.6

3,248.1

3,318.0

Consolidated statement of changes in members' interests as at 30 June 2016

General reserve

Available-for-sale reserve

Total

£m

£m

£m

Balance as at 1 January 2016 (Audited)

192.3

0.2

192.5

Profit for the year

5.5

-

5.5

Other comprehensive income for the period (net of tax)

Net gains from changes in fair value

-

0.2

0.2

Total other comprehensive income

-

0.2

5.7

Total comprehensive income for the period

5.5

0.2

5.7

Balance as at 30 June 2016 (Unaudited)

197.8

0.4

198.2

Balance as at 1 January 2015 (Audited)

176.7

0.4

177.1

Profit for the year

6.5

-

6.5

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

6.5

(0.2)

6.3

Balance as at 30 June 2015 (Unaudited)

183.2

0.2

183.4

Balance as at 1 January 2015 (Audited)

176.7

0.4

177.1

Profit for the year

15.4

-

15.4

Other comprehensive income/(expense) for the period (net of tax)

Net losses from changes in fair value

-

(0.2)

(0.2)

Remeasurement of defined benefit obligation

0.2

-

0.2

Total other comprehensive income/(expense)

0.2

(0.2)

-

Total comprehensive income/(expense) for the period

15.6

(0.2)

15.4

Balance as at 31 December 2015 (Audited)

192.3

0.2

192.5

Consolidated cash flow statement

for the period ended 30 June 2016

30 June 2016

(Unaudited)

30 June 2015

(Unaudited)

31 Dec 2015

(Audited)

£m

£m

£m

Cash flows from operating activities

Profit before tax

7.1

9.3

20.0

Depreciation and amortisation

1.8

1.6

3.3

Profit on disposal of property, plant and equipment

-

-

(0.1)

Interest on subscribed capital

1.0

1.0

2.0

Net gains on disposal and amortisation of debt securities

(0.4)

(0.3)

(0.6)

(Decrease)/increase in impairment of loans and advances

(0.1)

0.1

0.2

9.4

11.7

24.8

Changes in operating assets and liabilities

(Increase)/decrease in other assets

(0.8)

0.7

5.4

Increase/(decrease) in other liabilities

19.8

(4.7)

(7.0)

(Increase)/decrease in liquid assets

(20.7)

12.1

6.2

(Increase)/decrease in loan and advances to customers

(147.8)

19.0

(78.4)

Increase/(decrease) in shares

135.2

(64.2)

(142.2)

(Decrease)/increase in borrowings

(26.3)

44.7

186.1

Taxation paid

(2.1)

(1.5)

(3.6)

(33.3)

17.8

(8.7)

Capital expenditure and financial investment

(9.1)

21.1

61.2

Financing activities

(1.0)

(1.0)

(1.9)

(Decrease)/increase in cash and cash equivalents

(43.4)

37.9

50.6

Cash and cash equivalents at beginning of year

369.2

318.6

318.6

Cash and cash equivalents at end of year

325.8

356.5

369.2

Summary ratios

30 June 2016

30 June 2015

31 Dec 2015

%

%

%

Common Equity Tier 1 capital ratio

15.2

15.9

15.3

Liquid assets as a percentage of shares and borrowings

14.99

17.06

15.98

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

0.32

0.40

0.47

Group management expenses as a percentage of mean total assets

1.13

1.11

1.12

Group interest margin as a percentage of mean assets

1.36

1.49

1.46

Notes

· The financial information set out above, which was approved by the Board of Directors on 28 July 2016, does not constitute accounts within the meaning of the Building Societies Act 1986.

· The financial information for the year ended 31 December 2015 has been extracted from the Accounts for the year and on which the auditors have given an unqualified opinion.