Last checked at 23 Feb 2017 07:30
Nottingham Building Society
Results for the year ended 31 December 2016
Nottingham Building Society has today announced its results for the year ended 31 December 2016.
Below are some of the key achievements and financial highlights of 2016:
· Strong retail franchise growth - total branch savings balances of £2bn, up 9% in the year and more than doubled in the last five years; · The Society has opened seven new branch locations in 2016 and welcomed 24,000 new customers; · Achieved a Customer Net Promoter Score of 78%; up from 74% in 2015; · Gross mortgage lending of £798m, a record for lending in one year; · Redemption levels reduced by 3% in the year, resulting in mortgage book growth of 8% overall; · Total assets of £3.6billion; · Net interest margin at 1.32%; · Group pre-tax profit of £14.2m; down 29% in the year as the Society consciously protected savers from the full reduction in bank base rate in August; · Arrears levels remain very low, below a quarter of the industry average (2016: 0.16% v Industry at average of 1.00%); representing 38 accounts out of a total mortgage base of over 24,000 accounts; and · Strong capital ratios with Common Equity Tier 1 at 14.7% and leverage of 4.6%.
Commenting David Marlow, Chief Executive said:
"2016 has been a year of twists and turns with a number of unexpected outcomes in the UK and globally; however, despite this, we at The Nottingham have continued to focus on developing our strategy to deliver a unique brand of advice, choice, service and value 'all under one roof', which continues to be well received by members across our heartland.
We have worked hard in recent years to develop services and products that are relevant to, and valued by our members and customers, whether they are looking to save for the future, search the market for the most appropriate mortgage, rent, buy, or sell a home, or plan and protect their families' future.
As I have said consistently, our responsibility is to differentiate ourselves against the big banks using our mutual ethos to deliver a proposition and service that is valued by our members and is also attractive to potential new ones. One area that truly marks us apart from the big banks today is our approach to branches. As the UK continues to see large scale closures - the UK's largest bank reduced its branch network by 25% in 2016 alone, we have continued to open new branches, adding 7 new locations in the year, with great success.
Without exception, existing members and new customers have welcomed us to our new locations where in the past 4 years we have already built savings balances of more than £300m. However it is not just our new locations that have proved so popular with customers; over the same five year period our total branch balances have more than doubled from £946m at the beginning of 2012 to reach £2bn for the first time in 2016.
We believe that this is clear evidence that the role of branches remains important in the eyes of UK consumers and that new customers are attracted to our unique advice and service mutual proposition." Serving our Customers · Our branches remain our focal point where our unique 'all under one roof' proposition is best experienced by our customers. Unlike most banks and many building societies, we have yet again increased the size of the network this year. In 2016 we have opened in a further seven new locations in Belper, Burton upon Trent, Buxton, Scunthorpe, Uttoxeter and two in Sheffield. In fact since the beginning of 2012, we have increased the number of branches we have from 32 to 61, almost double; · Due to the success of our branch network and excellent mortgage performance we have continued to grow our membership with approximately 24,000 new customers joining the Group in the year; · This is further underpinned by the continuing success of our whole-of-market mortgage advice offering; with the number of customers using this service increasing by a further 31% in 2016. In fact we are now helping 73% more people find the right mortgage than in 2013, the last year we advised purely on Nottingham Building Society mortgages, demonstrating the popularity of our unique approach. · We remain focussed on delivering excellent service in all that we do; with branches and customer service teams receiving regular personalised service ratings and updates on how our customers rate them. Their hard work and focus on customers' feedback and suggestions for improvement has resulted in a further increase in our Net Promoter Score which in 2016 has risen a further 4 percentage points to a new high of 78%. This places us at the very top of all organisations and sets a standard that we will need to work hard to maintain in 2017. · It is vital, in this ultra-low interest environment that we maintain an incentive to save. Historically over a 20 year cycle, a building society would typically expect average savings rates to be equivalent to about base rate. We believe that we are doing all we can for savers as reflected by the fact that our average saving rate at the end of 2016 is more than four times base rate; that over 50% of our current savings accounts pay a rate higher than base rate, with some regular savings accounts offering between eight times and twelve times base rate. Financial performance · Whilst we were expecting a reduction in profit in 2016, as trailed at the beginning of the year, the Board decided in response to the base rate cut that it was acceptable to reduce the profit made by the Society further in 2016. We are therefore reporting a profit before tax of £14.2m, a reduction of 29% on 2015. However our profit after tax ratio of 0.32% per £100 assets is a strong level of profitability in historical terms and is more than sufficient to ensure that we can continue to grow, strengthen and develop the Society. · Despite this reduction in profit, which was largely driven by a conscious reduction in net interest income, we have maintained our cost efficiency; so whilst our overall costs have increased in 2016 reflecting our continuing investment in people, technology and branches, our Group management expenses ratio has remained at the same level as 2015 at 1.12%. The Group's reported cost income ratio also reflects the reduction in net interest income, increasing from 64.6% to 71.4%. Notwithstanding the increase in the year the ratio remains within the Board's target range. Management's focus will be to gradually reduce both of these ratios in the years ahead as the Society continues to grow. · In terms of mortgage lending the Society has delivered a strong performance in line with our plan. Gross lending of £798m has been achieved in the year, an increase of 23% on 2015 and a record for the Society in a single year. We have also processed over £1bn of applications in a year for the first time in the Society's history. · Once again we have been very pleased with the number of mortgage customers electing to stay with us and take another product at the end of their term - our central mortgage team retained over £500m of business in the year for the first time, an increase of 16%. This excellent performance resulted in our mortgage redemptions falling by 3% in 2016. All this meant that we exceeded £3bn of mortgage balances for the first time and have increased our assets by 8% in the year. Quality & strength · The Society continues to maintain its very high level of financial strength. Our leverage ratio of 4.6% ensures that we have significantly more high quality capital available to us than is required by regulation, providing additional cover and strength in the event of significant losses or unexpected events; · Central to the ethos of a building society is the prudence we demonstrate when lending our members' money to those people we believe have the willingness and capability to repay their loan. Whilst the overall economic conditions remain relatively benign and interest rates low, we are very proud that at present we only have 38 accounts three or more months in arrears out of a total of over 24,000 accounts.
Supporting local communities
· In 2016 we have continued to support our communities through our Doing Good Together initiative. Our fundraising for local charities has reached £20,000 for over 40 causes.
· Through our Grants for Good, we donated £40,000 to fund 17 local projects to increase employability and financial education and to aid and prevent homelessness.
· Our work with charity partners has also continued - 50 rising sports stars have benefitted from support via our partner, SportsAid. Through Young Enterprise we have financially supported ten local schools to complete the Company Programme and helped to deliver employability skills workshops to more than 500 students. Our monetary donations to Framework have continued to support their Skills Plus programme and we are very proud to have sponsored a number of their fundraising initiatives.
· Our work in the community has been recognised through two awards during the year - Nottingham Post's 'Contribution to the Community' award and Money Age's Best Charity Partnership (SportsAid).
Summary and outlook
As we move forward we do so from firm foundations as we seek to further grow our membership by continuing to differentiate strongly against the big banks. Over recent years we have consistently invested in the infrastructure and capability of the Society, have reviewed and renewed our governance and risk management framework and during the first quarter of 2017 we will move into our newly extended head office, where we have increased our capacity by over 50% to take account of rising demand.
2017 will bring challenges and uncertainty and along with the ultra-low interest rate environment it will be essential that we focus even more strongly on how we build and reward loyal membership of The Nottingham, through the provision of our unique advice and service proposition, whilst maintaining our financial strength and strong mutual ethos.
We have a unique business model that is becoming increasingly popular, one that seeks to build long-term relationships through the consistent delivery of advice, choice, service and value. In 2017 we expect to continue to grow the Society, continue to invest in improving our offering and seek to maintain our world-class level of service. We will seek to do this whilst continuing to effectively balance the contrasting needs of our savings and mortgage customers, finding further ways to deliver value to our members.
|
| |||||||
|
| |||||||
Consolidated income statement for the year ended 31 December 2016 | ||||||||
2016 | 2015 | |||||||
£m | £m | |||||||
Interest receivable and similar income | 89.3 | 94.6 | ||||||
Interest payable and similar charges | (43.7) | (46.6) | ||||||
Net interest income | 45.6 | 48.0 | ||||||
Fees and commissions receivable | 9.8 | 9.9 | ||||||
Fees and commissions payable | (1.2) | (0.5) | ||||||
Other income | 0.3 | - | ||||||
Net (losses)/gains from derivative financial instruments | (0.9) | 1.2 | ||||||
Total net income | 53.6 | 58.6 | ||||||
Administrative expenses | (35.4) | (33.6) | ||||||
Depreciation and amortisation | (3.3) | (3.3) | ||||||
Finance cost | (0.2) | (0.2) | ||||||
Impairment losses on loans and advances | - | (0.2) | ||||||
Provisions for liabilities - FSCS levy and other | (0.4) | (1.4) | ||||||
(Loss)/profit on disposal of property, plant and equipment | (0.1) | 0.1 | ||||||
Profit before tax | 14.2 | 20.0 | ||||||
Tax expense | (3.2) | (4.6) | ||||||
Profit for the financial year | 11.0 | 15.4 | ||||||
| ||||||||
Consolidated statement of comprehensive income for the year ended 31 December 2016 | ||||||||
2016 | 2015 | |||||||
£m | £m | |||||||
Profit for the financial year | 11.0 | 15.4 | ||||||
Items that will not be re-classified to the income statement | ||||||||
Remeasurements of the net defined benefit obligation | (4.5) | 0.3 | ||||||
Tax on items that will not be re-classified | 0.7 | (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) | ||||||
Tax on items that may subsequently be re-classified | (0.1) | - | ||||||
Other comprehensive expense for the period net of income tax | (3.7) | - | ||||||
Total comprehensive income for the year | 7.3 | 15.4 | ||||||
Consolidated statement of financial position as at 31 December 2016 | |||
2016 | 2015 | ||
£m | £m | ||
Assets | |||
Liquid assets | 527.0 | 491.6 | |
Derivative financial instruments | 4.7 | 3.8 | |
Loans and advances to customers | 3,032.6 | 2,796.5 | |
Fixed and other assets | 27.1 | 26.5 | |
Total assets | 3,591.4 | 3,318.4 | |
Liabilities | |||
Shares | 2,457.4 | 2,433.2 | |
Borrowings | 872.0 | 643.0 | |
Derivative financial instruments | 19.7 | 9.3 | |
Other liabilities | 16.3 | 14.2 | |
Subscribed capital | 26.2 | 26.2 | |
Total liabilities | 3,391.6 | 3,125.9 | |
Reserves | |||
General reserves | 199.5 | 192.3 | |
Available-for-sale reserves | 0.3 | 0.2 | |
Total reserves and liabilities | 3,591.4 | 3,318.4 |
Consolidated statement of changes in members' interests as at 31 December 2016 | General reserve | Available-for-sale reserve | Total | |||
£m | £m | £m | ||||
Balance as at 1 January 2016 | 192.3 | 0.2 | 192.5 | |||
Profit for the year | 11.0 | - | 11.0 | |||
Other comprehensive income for the period (net of tax) | ||||||
Net gains from changes in fair value | - | 0.1 | 0.1 | |||
Remeasurement of defined benefit obligation | (3.8) | - | (3.8) | |||
Total comprehensive income for the period | 7.2 | 0.1 | 7.3 | |||
Balance as at 31 December 2016 | 199.5 | 0.3 | 199.8 | |||
Balance as at 1 January 2015 | 176.7 | 0.4 | 177.1 | |||
Profit for the year | 15.4 | - | 15.4 | |||
Other comprehensive income 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 comprehensive income/(expense) for the period | 15.6 | (0.2) | 15.4 | |||
Balance as at 31 December 2015 | 192.3 | 0.2 | 192.5 | |||
|
Consolidated cash flow statement for the year ended 31 December 2016 | |||
2016 | 2015 | ||
£m | £m | ||
Cash flows from operating activities | |||
Profit before tax | 14.2 | 20.0 | |
Depreciation and amortisation | 3.3 | 3.3 | |
Loss/(profit) on disposal of property, plant and equipment | 0.1 | (0.1) | |
Interest on subscribed capital | 2.0 | 2.0 | |
Net (gains) on disposal and amortisation of debt securities | 0.8 | (0.6) | |
Increase in impairment of loans and advances | - | 0.2 | |
20.4 | 24.8 | ||
Changes in operating assets and liabilities | |||
(Increase)/decrease in other assets | (2.3) | 5.4 | |
Increase/(decrease) in other liabilities | 9.0 | (7.0) | |
(Increase)/decrease in loans and advances to credit institutions | (15.7) | 6.2 | |
Increase/(decrease) in debt securities in issue | 89.7 | 5.5 | |
(Increase) in loan and advances to customers | (236.1) | (78.4) | |
Increase/(decrease) in shares | 24.2 | (142.2) | |
Increase in borrowings | 139.3 | 180.6 | |
Taxation paid | (3.9) | (3.6) | |
24.6 | (8.7) | ||
Capital expenditure and financial investment | 1.9 | 61.2 | |
Financing activities | (1.9) | (1.9) | |
Increase in cash and cash equivalents | 24.6 | 50.6 | |
Cash and cash equivalents at beginning of year | 369.2 | 318.6 | |
Cash and cash equivalents at end of year | 393.8 | 369.2 |
Summary ratios | |||
2016 | 2015 | ||
% | % | ||
Common Equity Tier 1 ratio | 14.7 | 15.3 | |
Liquid assets as a percentage of shares and borrowings | 15.83 | 15.98 | |
Group profit for the year as a percentage of mean total assets | 0.32 | 0.47 | |
Group management expenses as a percentage of mean total assets | 1.12 | 1.12 | |
Society management expenses as a percentage of mean total assets | 0.91 | 0.90 | |
Society interest margin as a percentage of mean assets | 1.32 | 1.46 | |
Notes · The financial information set out above, which was approved by the Board of Directors on 22 February 2017, does not constitute accounts within the meaning of the Building Societies Act 1986. · The financial information for the years ended 31 December 2016 and 31 December 2015 has been extracted from the Accounts for those years and on which the auditors have given an unqualified opinion. | |||