Nottingham's Half Year Results

Nottingham Building Society

Results for the period ended 30 June 2017

The Nottingham is pleased to present its results for the six months ended 30 June 2017. In what was another period of good performance we continued to develop our unique 'all under one roof' advice and service proposition for members.

Key performance highlights include:

· Gross lending of £544m up 33% on the same period last year and mortgage book growth of 7.1%;

· Strong retail franchise - 3.9% increase in branch balances;

· Strong customer advocacy with a net promoter score of 78.4%;

· Net interest margin at 1.29%;

· Pre-tax profit of £7.6m, up 7%;

· Arrears levels remain at a historic low level; and

· Strong capital ratios with Common Equity Tier 1 ratio of 14.4% and leverage ratio of 4.6%.

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

"At the beginning of the year we undertook to continue to grow the Society, invest in improving our offering and service as well as look at how we could build and reward loyal membership of The Nottingham.

At the half year point we are pleased to report good progress in all of these objectives. We have continued to grow the balance sheet and have delivered asset growth of 6.1% in the first six months of the year.

We have achieved this whilst continuing to invest heavily in the Society's capability both for today and the future. Investment in our technology infrastructure is key to both enhancing our offering and developing our defences against the ever-increasing threat of cyber crime. We are well advanced in our project to house all of the Society's key systems in state of the art dedicated data centres, as well as announcing a partnership with globally renowned technology and customer experience experts Salesforce. This will enable us to provide members with access to our unique advice and service proposition in a manner of their choosing; seamlessly combining phone, tablet, PC and face-to-face advice and service in our growing branch network. The scale of the investment required to achieve these important improvements highlights the Society's ambition, confidence and financial strength.

We were also delighted to launch our member rewards programme in May. Central to our strategy is to support and reward our loyal members for doing the right thing to protect and plan for their family's financial future, through providing our unique combination of advice and service all available under one roof.

Our member rewards programme is designed to reward our loyal members for doing just that, through a range of unique discounts and offers. Benefits range from £500 off estate agency fees, to discounted fees for making a will, free access to whole-of-market mortgage advice against a standard advice fee of £249 and access to enhanced savings rates on special issues (Member Rewards Issue 1 paying a fixed rate of 1.30%).

This is very much the beginning of an ongoing programme to reward a growing membership for their loyalty to The Nottingham but also rewarding them for planning for their financial futures, something which we believe perfectly demonstrates our mutual ethos.

As the Group focuses on the delivery of its unique strategy, it does so against a backdrop of good financial performance.

This is highlighted by the continued growth of our balance sheet driven by gross lending of £544m, up 33% on the first six months of last year. In fact we have exceeded half a billion pounds of lending in a six month period for the first time. This combined with continued strong levels of existing customer retention has enabled us to increase our mortgage assets by 7.1% in the first half of the year.

We have also sought to continue to build and develop our loyal savings base in branches, where despite a record low UK savings ratio in the first few months of 2017, our savings balances from our 60 branches have continued to grow, up by 3.9% over the period.

One of our principal responsibilities is to effectively balance the conflicting needs of our savers and borrowers, whilst maintaining sufficient surplus to run the Society, meet our regulatory capital requirements and continue to invest for the future. In the face of continuing reductions in mortgage market rates we feel we have achieved this balance well; attracting good levels of new mortgage lending whilst paying our savers an average rate of 1.0% (four times base rate) and delivering a margin of 1.29%, only a 0.03% point reduction from the 2016 average.

Overall this has enabled us to deliver a surplus before tax of £7.6m - just above what we achieved in H1 2016. This outcome has resulted from an overall increase in our income of 3.5% compared to the first half of 2016, offset by a 9.8% increase in costs, as the Society continues to invest heavily as outlined.

The current level of profitability meets the Board's requirements, which aligned with our strategy and investment plans seeks to ensure a strong, sustainable and independent future for the Society and its membership.

Market and Outlook

As already highlighted, the current economic and political picture remains very uncertain. Inflation remains above 2%, whilst real wages fall, personal indebtedness continues to increase, and interest rates remain at ultra-low levels. This picture overlaid with the uncertainty regarding the potential outcome of Brexit means that we must remain vigilant in how we manage the Society and protect members' interests. This uncertainty was also reflected by the Bank of England in its latest financial stability report. We therefore will seek to deliver a broadly consistent performance in the second half of the year.

However, what is clear is that our members and new customers across our heartland want to be supported and rewarded for how they protect and plan for their family's financial futures, by a trusted local source. We were therefore pleased to recently announce that following collaborative discussions with the Yorkshire Building Society, The Nottingham intends to open in a further seven new locations in Bourne, Spalding, Stamford, Huntingdon, Dereham, Fakenham and Thetford, following the closure of the Norwich & Peterborough Society branches in those locations. In doing so we will be able to offer advice, choice, service and value to the residents of those towns as well as alternative employment opportunities for staff being made redundant. The Nottingham believes that this, in combination with the investment in technology highlighted, underscores the strength of our strategy and vibrancy of a regional building society model to offer the residents of towns across our heartland a strong, attractive alternative to the big banks that will help them plan for and protect their futures, whilst rewarding their loyalty.

The Society remains strong with a clear strategy for growing membership and a proposition which is distinct and valued. Whilst headwinds and uncertainties remain, the Board of The Nottingham has confidence in its plans to continue to grow the Society in a safe and secure way, through differentiating strongly from the big banks and continuing to support and reward our growing membership."

David Marlow

Chief Executive

26 July 2017

Consolidated statement of comprehensive income for the six months ended 30 June 2017

Period to 30 June 2017

(Unaudited)

Period to 30 June 2016

(Unaudited)

Year ended 31 Dec 2016

(Audited)

£m

£m

£m

Interest receivable and similar income

40.9

46.2

89.3

Interest payable and similar charges

(17.0)

(23.1)

(43.7)

Net interest income

23.9

23.1

45.6

Fees and commissions receivable

4.8

4.8

9.8

Fees and commissions payable

(0.8)

(0.6)

(1.2)

Other income

-

0.6

-

0.3

Net gains/(losses) from derivative financial instruments

(0.6)

(0.9)

Total net income

28.5

26.7

53.6

Administrative expenses

(19.0)

(17.3)

(35.4)

Depreciation and amortisation

(1.5)

(1.8)

(3.3)

Finance cost

-

-

(0.2)

Impairment losses on loans and advances

-

0.1

-

Provisions for liabilities - FSCS levy and other

(0.4)

(0.6)

(0.4)

Loss on disposal of property, plant and equipment

-

-

(0.1)

Profit before tax

7.6

7.1

14.2

Tax expense

(1.6)

(1.6)

(3.2)

Profit after tax for the financial period

6.0

5.5

11.0

Other comprehensive income:

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

Remeasurement of defined benefit obligation

-

-

(4.5)

Tax on items that will not be re-classified

-

-

0.7

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

Available-for-sale reserve

Valuation (losses)/gains taken to reserves

(0.2)

0.2

0.2

Tax on items that may subsequently be re-classified

-

-

(0.1)

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

(0.2)

0.2

(3.7)

Total comprehensive income for the period

5.8

5.7

7.3

Consolidated statement of financial position

as at 30 June 2017

30 June 2017

(Unaudited)

30 June 2016

(Unaudited)

31 Dec 2016

(Audited)

£m

£m

£m

Assets

Liquid assets

536.1

477.3

527.0

Derivative financial instruments

5.9

4.2

4.7

Loans and advances to customers

3,239.2

2,944.4

3,032.6

Fixed and other assets

29.5

25.7

27.1

Total assets

3,810.7

3,451.6

3,591.4

Liabilities

Shares

2,608.3

2,568.4

2,457.4

Borrowings

940.2

616.7

872.0

Derivative financial instruments

14.7

28.7

19.7

Other liabilities

16.0

13.0

16.3

Subscribed capital

25.9

26.6

26.2

Total liabilities

3,605.1

3,253.4

3,391.6

Reserves

General reserves

205.5

197.8

199.5

Available-for-sale reserves

0.1

0.4

0.3

Total reserves and liabilities

3,810.7

3,451.6

3,591.4

Consolidated statement of changes in members' interests as at 30 June 2017

General reserve

Available-for-sale reserve

Total

£m

£m

£m

Balance as at 1 January 2017 (Audited)

199.5

0.3

199.8

Profit for the period

6.0

-

6.0

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

6.0

(0.2)

5.8

Balance as at 30 June 2017 (Unaudited)

205.5

0.1

205.6

Balance as at 1 January 2016 (Audited)

192.3

0.2

192.5

Profit for the period

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

0.2

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 2016 (Audited)

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 other comprehensive (expense)/income

(3.8)

0.1

(3.7)

Total comprehensive income for the period

7.2

0.1

7.3

Balance as at 31 December 2016 (Audited)

199.5

0.3

199.8

Consolidated cash flow statement

for the period ended 30 June 2017

30 June 2017

(Unaudited)

30 June 2016

(Unaudited)

31 Dec 2016

(Audited)

£m

£m

£m

Cash flows from operating activities

Profit before tax

7.6

7.1

14.2

Depreciation and amortisation

1.5

1.8

3.3

Loss 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

0.3

(0.4)

0.8

(Decrease)/increase in impairment of loans and advances

-

(0.1)

-

10.4

9.4

20.4

Changes in operating assets and liabilities

Increase in other assets

(1.7)

(0.8)

(2.3)

(Decrease)/increase in other liabilities

(6.0)

19.8

9.0

Increase in loans and advances to credit institutions

(1.1)

(20.7)

(15.7)

(Decrease)/increase in debt securities in issue

(17.0)

(1.0)

89.7

Increase in loan and advances to customers

(206.6)

(147.8)

(236.1)

Increase in shares

150.9

135.2

24.2

Increase/(decrease) in borrowings

85.2

(25.3)

139.3

Taxation paid

(1.4)

(2.1)

(3.9)

12.7

(33.3)

24.6

Capital expenditure and financial investment

2.1

(9.1)

1.9

Financing activities

(1.0)

(1.0)

(1.9)

Increase/(decrease) in cash and cash equivalents

13.8

(43.4)

24.6

Cash and cash equivalents at beginning of year

393.8

369.2

369.2

Cash and cash equivalents at end of year

407.6

325.8

393.8

Summary ratios

30 June 2017

30 June 2016

31 Dec 2016

%

%

%

Common Equity Tier 1 capital ratio

14.4

15.2

14.7

Liquid assets as a percentage of shares and borrowings

15.11

14.99

15.83

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

0.32

0.32

0.32

Group management expenses as a percentage of mean total assets

1.11

1.13

1.12

Group interest margin as a percentage of mean assets

1.29

1.36

1.32

Notes

· The financial information set out above, which was approved by the Board of Directors on 26 July 2017, does not constitute accounts within the meaning of the Building Societies Act 1986.

· The financial information for the year ended 31 December 2016 has been extracted from the Accounts for the year and on which the auditors have given an unqualified opinion.