TIDMNBSR
RNS Number : 2042G
Newcastle Building Society
28 February 2018
NEWCASTLE BUILDING SOCIETY ANNOUNCES 2017 FINANCIAL RESULTS
Key Highlights
-------------------------------------------------------------
* Profit before tax of GBP13.1m compared to GBP8.1m for
2016
* Strong Capital ratios - Common Equity Tier 1 ratio of
15.3% and Leverage ratio of 5.2%
* Robust liquidity ratio of 17.0%
* Gross mortgage lending up 8% to GBP535m
* The number of mortgages in 3 months arrears or more
at a record low of 0.34%
* "What Mortgage Awards 2017" Winner for Best Regional
Building Society
* Achievement of Gold Investors in People status and
launch of apprenticeship programme
* Increased contribution to the Community Fund and over
GBP133,000 in grants awarded to 76 charities across
our heartland
* Purchase of our flagship office building at Cobalt
Park
* Newly refurbished branches in Darlington and Durham
in better locations
* Further increase in customer satisfaction rating to
96%
-------------------------------------------------------------
Chief Executive's Statement
In 2017 we have made great progress, with higher levels of
lending, more new savers, increased levels of ongoing financial
advice business, and delivery of major regulatory and investment
programmes to improve service and support growth. In terms of
financial performance we are reporting increased profits, strong
capital ratios, a robust liquidity position and record low levels
of arrears, reflecting the excellent credit quality of our
residential mortgage book.
For over 150 years Newcastle Building Society has been bringing
communities in the North East together and connecting them with a
better financial future. Our Members can rely on us to help save
and plan their finances, buy their own home, make positive changes
to local communities and of course be a great place for our
colleagues to work and develop.
A few of the highlights of 2017 include: Achievement of Gold
Investors in People status; significantly expanding our programme
of grant giving from the Newcastle Building Society Community Fund;
relocation and refurbishment of branches in Darlington and Durham;
purchase of our flagship offices on Cobalt Business Park; delivery
of critical projects covering regulatory, accounting and
information technology enhancements; major investment in colleagues
through leadership programmes; a new apprenticeship programme; and
last but not least - a record customer satisfaction score of
96%.
Financial Performance
Profit before tax improved to GBP13.1m for the year ended 31
December 2017 compared to GBP8.1m for 2016, an increase of 62%.
This significant improvement was due mainly to a reduction in
charges for impairment provisions and a non-recurring credit
related to the purchase of our Cobalt office of GBP2.2m. Operating
profit before provisions and exceptional items increased by GBP0.2m
to GBP12.1m with overall growth in income of GBP3.3m, being offset
by an increase in costs of GBP3.1m associated with the significant
ongoing investment into the business.
Net interest margin improved from 0.77% to 0.79% reflecting
increased levels of residential mortgage lending despite a very
competitive mortgage market and pressure on margins. Funding costs
were slightly lower as the Society utilised the Bank of England
Term Funding Scheme to provide cost effective 4 year financing.
Income from Newcastle Strategic Solutions, our savings
management outsourcing business, increased by 3.5% while underlying
profitability was lower reflecting a significant investment into
the infrastructure. This included a strengthened senior management
team, an enhanced project support team and a higher depreciation
charge reflecting increased capital expenditure to upgrade and
enhance infrastructure. The Solutions business provides a
diversified income stream, based on core competencies within the
building society business. All of the profits from this business
are ploughed back into the Society and support increased investment
in services for Members as well as providing capital to support and
grow the business.
In 2017 we continued our significant investment programme in IT
systems and supporting processes, particularly around cyber
security, enhancing resilience and information security, reflecting
the latest regulatory and accounting developments and improving
functionality.
Mortgage impairment charges have fallen, as we expected,
reducing from GBP1.8m to GBP0.2m and for the first time in 10
years, the Society had no charge in the period in relation to
legacy commercial lending exposures with the book now representing
only 1.5% of the total mortgage portfolio.
Provisions for liabilities and charges increased by GBP0.4m from
GBP0.6m to GBP1.0m. The charge for the Financial Services
Compensation Scheme levy reduced from GBP0.6m to GBP0.1m reflecting
a lower expected interest levy for the 2017/18 Scheme year.
Offsetting this reduction was an increase in the provision for
consumer redress of GBP0.9m reflecting increased costs of dealing
with claims.
In February 2017 we purchased our office building at Cobalt Park
in North Tyneside, a site that we have occupied for the last nine
years, securing our future occupancy of the building. During the
lease period the Society spread the effective cost of the lease
over what was a 15 year term and built up a significant creditor
for costs recognised but not billed during the rent free period. On
purchase of the building this credit has been released, as it is no
longer required, generating a GBP2.2m one-off profit in the
year.
The Group's capital ratios continue to strengthen with Common
Equity Tier 1 ratio improving from 14.3% to 15.3% and Tier 1
capital ratio increasing from 15.8% to 16.6%. The Group's overall
capital ratio (Solvency ratio) was slightly higher at 18.9%
compared to 18.7% at the end of 2016. The leverage ratio (on a
transitional basis) remained at 5.2%.
Despite the mortgage market being extremely competitive in 2017
we achieved an increase in lending reflecting the investment we
have made in distribution, our mortgage product range and online
systems capability for brokers. Gross residential mortgage lending
increased by 8% from GBP496m to GBP535m and net residential lending
increased by 11% from GBP195m to GBP220m.
The percentage of mortgage loans in arrears of 3 months or more,
across our whole mortgage portfolio based on the number of loans,
reduced again from 0.42% to 0.34%; lower than the industry average
with 2017 seeing a record low since we have been tracking 3 months
arrears. Possession cases also continued at very low levels
reflecting the excellent credit quality of the Society's
residential lending.
Our liquidity at the end of the year was 17.0%, excluding
encumbered assets, down slightly compared to the level at the end
of 2016 of 17.4% but well above our minimum operating requirements.
The Society's liquidity coverage ratio was 180% against a minimum
required level of 100% (from 1 January 2018). This significant
headroom reflects the quality of the Society's liquidity with the
majority of it invested in AAA/AA rated assets, in the UK.
Supporting our Customers
As a building society, helping people own their home is at the
heart of our purpose.
In 2017 we have seen record low mortgage rates. We continued to
offer a wide range of good value products to help house buyers,
from 2 to 10 year fixed periods, variable and discounted rates, and
fee free products. We have a range of retention products available
on maturity for loyal customers. We also provide mortgages for
borrowers with more specialist needs including building their own
home and buying a property to let.
We launched an exclusive range of mortgages to help local people
buy their own home in the North East which have been very popular
particularly for borrowers requiring a 95% LTV mortgage. Whether
it's first time buyers taking their first step on the property
ladder, supporting existing house buyers move home, or simply
helping people save money by re-mortgaging, we are focused on
meeting the needs of our borrowers. We were delighted that our
efforts were recognized in the "What Mortgage Awards 2017" when we
received the award for Best Regional Building Society.
We believe it's important, for individuals and for wider
society, that people are encouraged to save for their future and to
plan their finances. Against a backdrop of falling individual
savings levels, we have launched a range of regular savings
products which include Help to Buy ISA and children's savings
accounts with this range set to be expanded further in 2018 so we
can encourage everyone to get into the regular savings habit.
In November 2017 the Bank of England increased the base rate
from 0.25% to 0.5% giving savers the first sign in 10 years that
savings rates may start to increase. In advance of the Bank of
England announcement we committed to pass on the base rate increase
to all of our retail savers with variable rate savings accounts,
which was very positively received by customers.
Our financial advice subsidiary, Newcastle Financial Advisers
Limited (NFAL), gives customers financial advice regardless of how
much they have to invest. NFAL has a significant and growing level
of funds under management for people in the region, and continues
to invest in growing local financial adviser talent to meet a
customer preference for face-to-face service. The subsidiary
increased income and profits in 2017 and scores highly for customer
satisfaction (currently at 98%). It has been particularly
appreciated in areas of our region that have experienced loss of
ongoing service from other providers of financial advice.
We are committed to our heartland area and continue to invest in
a modern High Street branch network that is fit for the future and
designed around the needs of our customers. Darlington branch was
relocated to a facility that provides a greatly improved
environment for our customers and colleagues, including more
private meeting spaces to discuss financial matters with ease.
Durham branch also has a new location, providing modern premises
and facilities for our customers. Further plans are in place to
invest in the relocation or refurbishment of our Carlisle and
Berwick branches, which we expect to be completed in 2018.
Reflecting our strategic focus on our North East heartland,
during the second half of the year we made the difficult decision
to close our two geographically outlying branches - Dumfries closed
in September and Gibraltar closed in October.
We have plans to upgrade all of our remaining branches, which
have not already been refurbished, over the next 2-3 years.
Supporting our Colleagues
In 2017 we were delighted to be awarded Investors in People -
Gold status. This recognises our commitment to leadership
development, our genuine involvement with local communities, our
values and behaviours, and our investment in colleague engagement
and communication, all of which are driving positive change across
the organisation.
We have made significant progress towards our goal to make the
Society a great place to work, where people can realise their
potential. In 2017 we completed a major review of our pay and
grading structures so we can ensure we have fair remuneration,
competitive packages and all staff have a clear understanding of
their roles. This was aligned with an extensive job evaluation
exercise which will ensure we have the right pay and grading
structures in place to attract and retain talent. This process will
continue in 2018.
Part of our purpose of "Connecting Communities in the North East
with a Better Financial Future" is delivered through the manner in
which we support our colleagues in planning their own future. We
were therefore very pleased to announce improved pension
contributions for over 500 colleagues going into 2018. A corporate
bonus was awarded to colleagues in relation to 2017 performance,
which ranged from 0% to 6% of salary, with the majority of
colleagues being paid 3%.
In 2017 we were officially accredited by the National Living
Wage Foundation as a Real Living Wage employer. This goes further
than the Government's national minimum wage. Real Living Wage Rates
are independently calculated and are the only UK rates based on
real living costs.
We have continued to invest in our Academy programme for
financial advisers, which provides a professional training
programme leading to qualified adviser status. Four new internal
recruits joined the programme this year. Investing in our talent
through this type of opportunity is core to our ongoing commitment
to provide accessible, face to face, affordable financial advice
for people across our region.
We also increased our investment in nurturing regional talent
with the launch of our first ever apprenticeship programme. Five
apprentices aged between 17 and 24 joined us to undertake a 12 to
18 month training and development programme resulting in a
nationally recognised qualification. This supplements the student
placement and undergraduate training programmes that we have
already operated for many years. We plan to expand the
apprenticeship programme in the years ahead.
Supporting our Communities
As a customer-owned business, supporting our communities and
helping them make positive changes is part of our purpose.
Since the launch of our Community Saver accounts, which generate
a Society donation to the Newcastle Building Society Community Fund
at the Community Foundation, we have provided grants to help local
community groups continue, or enhance, their delivery of valuable
local services.
In 2017 we awarded GBP133,823 in grants to 76 charities and
community groups, positively impacting an estimated 74,000 people
across the North East region. From lunch clubs for the socially
isolated, to a talking newspaper for the blind, and the provision
of new children's toys for a local community play group, we have
been privileged to play our part in creating a better outcome for a
number of communities across the North East and Cumbria.
We have also continued to support the North East-based cancer
research charity, the Sir Bobby Robson Foundation through our
charity-linked savings accounts, and this year reached an
impressive GBP2.5m in donations since the fund first started. Our
support to the Sir Bobby Robson Foundation, combined with the
contribution to the Community Foundation to build up the endowment
for the Community Fund saw total charitable giving of GBP770,000 or
6% of our profit before tax.
Our financial education programme continues to deliver memorable
opportunities for primary school children, the basis of which is a
six week classroom based course of lessons all about money -
delivered by our branch staff. The culmination of the programme is
the Boardroom Charity Challenge which asks young participants to
develop business ideas that will benefit their local community
while making a profit. Our 2017 winner was Throckley Primary school
in Newcastle.
This programme is supplemented by an ongoing, region-wide series
of 'Big Talks' which provide a review of developments in pensions,
investments and protection. This year we supplemented our 'Big
Talks' with First Time Buyer information events for those who are
new to the process of buying a home.
Our colleague volunteering policy encourages all our colleagues
to spend two days volunteering to support a range of charities and
groups based in our local communities. Colleagues have supported
more than 70 causes this year.
Summary
I am very pleased with the Society's progress in 2017 which
balances the need for a strong financial performance with investing
in the products and services we provide for customers both now and
for the longer term.
I would like to thank our colleagues for their fantastic
contribution in 2017 and our Members for their ongoing support.
While there may be economic uncertainty from global factors outside
of our control and it is likely the UK mortgage market will
continue to be extremely competitive in 2018, we are well placed to
continue our progress in the year ahead.
Regardless of the economic backdrop we will be true to our
purpose of "Connecting Communities in the North East with a Better
Financial Future", encouraging people to save and plan their
finances and helping people own their home. We will strive to be a
great place to work where our staff can achieve their potential and
help our communities make positive changes.
Andrew Haigh
Chief Executive
27(th) February 2018
NEWCASTLE BUILDING SOCIETY
PRELIMINARY ANNOUNCEMENT
for the year ended 31 December 2017
CONSOLIDATED INCOME STATEMENTS
2017 2016
GBPm GBPm
Interest receivable and similar income 65.6 69.8
Interest payable and similar charges (36.5) (42.7)
Net interest income 29.1 27.1
Other income and charges 28.7 27.4
Gains less losses on financial instruments and hedge accounting 0.1 0.1
Administrative expenses (43.0) (40.3)
Depreciation (2.8) (2.4)
Operating profit before impairments, provisions and exceptional items 12.1 11.9
Impairment charges on loans and advances to customers (0.2) (3.2)
Provisions for liabilities and charges (1.0) (0.6)
Exceptional gain on purchase of Cobalt Offices 2.2 -
Profit for the year before taxation 13.1 8.1
Taxation expense (2.2) (2.0)
Profit after taxation for the financial year 10.9 6.1
============== =======
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
Restated
2017 2016
GBPm GBPm
Profit for the financial year 10.9 6.1
------- ----------
Other comprehensive income/(expense):
Items that may be reclassified to income
statement
Movement on available for sale reserve 1.8 1.0
Income tax on items that may be reclassified
to income statement (0.3) (0.2)
Total items that may be reclassified
to income statement 1.5 0.8
------- ----------
Items that will not be reclassified
to income statement
Actuarial remeasurements on retirement
benefit obligations - 2.6
Income tax on items that will not be
reclassified to income statement - -
De-recognition of pensions surplus (1.7) (2.6)
------- ----------
Total items that will not be reclassified
to income statement (1.7) -
------- ----------
Total comprehensive income for the financial
year 10.7 6.9
======= ==========
CONSOLIDATED BALANCE SHEETS
Restated
2017 2016
ASSETS GBPm GBPm
Liquid assets 789.8 776.5
Derivative financial instruments 4.9 6.5
Loans and advances to customers 2,707.3 2,563.8
Fair value adjustments for hedged risk 206.2 233.8
Property, plant and equipment 38.8 22.8
Other assets 15.1 15.9
TOTAL ASSETS 3,762.1 3,619.3
============== =========
LIABILITIES
Shares 2,788.5 2,709.2
Fair value adjustments for hedged risk 1.6 5.2
Deposits and debt securities 504.6 398.4
Derivative financial instruments 210.2 234.3
Other liabilities 15.4 16.1
Subordinated liabilities 25.0 50.0
Subscribed capital 30.0 30.0
Reserves 186.8 176.1
TOTAL LIABILITIES 3,762.1 3,619.3
============== =========
CONSOLIDATED CASH FLOW STATEMENTS
2017 2016
GBPm GBPm
Cash inflows from operating activities 66.9 18.1
Payment into defined benefit pension scheme (2.0) (2.0)
---------------------- ---------
Net cash inflows from operating activities 64.9 16.1
---------------------- ---------
Cash (outflows)/inflows from investing activities
Purchase of property, plant and equipment (18.8) (2.1)
Sale of property, plant and equipment - 0.2
Purchase of investment securities (185.1) (133.3)
Sale and maturity of investment securities 154.9 137.2
---------------------- ---------
Net cash (outflows)/inflows from investing activities (49.0) 2.0
---------------------- ---------
Cash outflows from financing activities
Interest paid on subordinated liabilities (2.1) (2.6)
Interest paid on subscribed capital (3.5) (3.5)
Repayment of subordinated liabilities (25.0) -
Repayments under finance lease agreements (0.1) (0.1)
---------------------- ---------
Net cash outflows from financing activities (30.7) (6.2)
---------------------- ---------
Net (decrease) / increase in cash (14.8) 11.9
Cash and cash equivalents at start of year 198.4 186.5
---------------------- ---------
Cash and cash equivalents at end of year 183.6 198.4
====================== =========
Restated
Summary of key financial ratios 2017 2016
% %
Gross capital as a percentage of shares and borrowings 7.36 8.24
====================== =========
Liquid assets as a percentage of shares and borrowings 23.94 24.99
====================== =========
Profit for the year as a percentage of mean total assets 0.29 0.17
====================== =========
Management expenses for the year as a percentage of mean total assets 1.24 1.21
====================== =========
Notes
1. The financial information set out above, which was approved
by the Board of Directors on 27 February 2018, does not constitute
accounts within the meaning of the Building Societies Act 1986.
2. The financial information for the years ended 31 December
2017 and 31 December 2016 has been extracted from the Accounts for
those years and on which the auditors have given an unqualified
opinion.
3. Restated figures reflect retrospective application of the
Group's accounting policy, as revised in 2017 to derecognise
defined benefit pension surpluses from the balance sheet. The 2016
surplus of GBP2.6m and associated deferred tax liability of GBP0.4m
have both been restated to GBPnil.
This information is provided by RNS
The company news service from the London Stock Exchange
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