TIDMNBSR
RNS Number : 7582Q
Newcastle Building Society
02 March 2016
NEWCASTLE BUILDING SOCIETY ANNOUNCES FINANCIAL RESULTS FOR THE
YEAR ENDED 31 DECEMBER 2015
Key Highlights
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* Profit before tax up by 35% to GBP5.4m from GBP4.0m
* Strong Capital ratios - Common Equity Tier 1 ratio of
13.6% and Leverage ratio of 5.6%
* Robust liquidity ratio of 17.7%
* Mortgage lending of GBP342m and loans in 3 months
arrears at a record low of 0.49%
* Solid performance from Solutions business with 4 new
contracts launched in 2015
* Overall Customer Satisfaction rating of 95%
* Customer Satisfaction for financial advice of 99%
* Overall staff satisfaction index of 91%
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Chief Executive's Statement
I am pleased to report good progress in 2015 across both
financial and non-financial key performance indicators. As a mutual
our customers are at the heart of our business so I am very pleased
to see higher customer satisfaction scores, low complaint volumes
and achievement of great customer service levels. Of course
financial performance is vitally important and whilst we have
improved profitability, maintained strong capital and liquidity
ratios and achieved record low arrears figures, we have also made
significant investment in the business.
In moving forward with our strategy it is essential that we
focus on the long term success of the Society and invest for the
future in our people, branches and technology so that we grow and
develop to meet the changing needs of our customers.
Since taking on the role of Chief Executive in May 2015 I have
been genuinely impressed with the culture and values that are
central to the mutual ethos of the Society. These are demonstrated
by our staff on a day to day basis, underpinning our vision to be
the best regional building society, delivering excellent customer
outcomes for people of the North East and beyond.
2015 has been another year where we have seen uncertainty in
financial markets with the path for UK interest rates still
unclear. What is clear is that the world economy is still fragile
and may provide significant headwinds to the UK's economic recovery
whether this is from China, uncertainty around a potential Brexit
or from the Middle East. The Bank of England has indicated that the
UK base rate of 0.5% will remain lower for longer and there is no
sign of an increase coming through in 2016.
Low rates have been great news for borrowers who have seen some
of the most competitive mortgage products ever whilst at the same
time seeing house prices rise and disposable incomes grow. Of
course savers continue to fund the low rates on mortgages through
lower rates on savings balances and this makes the provision of
good financial advice to Members even more important so they can
understand the options for investing their savings.
Financial Performance
Profit before tax improved to GBP5.4m for the year ended 31
December 2015 compared to GBP4.0m for 2014, an increase of 35%.
Operating profit before impairment charges and the FSCS levy was
down slightly from GBP12.4m to GBP11.9m due to a higher
depreciation charge reflecting higher levels of investment in
infrastructure and also increased investment in staff as we build
our capability to grow the business. Net interest margin improved
from 0.70% to 0.75% reflecting lower funding costs although spreads
on mortgage lending also narrowed due to a much more competitive
mortgage market.
The profitability of our outsourcing subsidiary, Newcastle
Strategic Solutions, improved reflecting the launch of 4 new
contracts in 2015. It is the nature of these contracts that there
is significant investment in the year of launch but then as the
contracts build over time the income and profitability grows. 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 in to the Society and
support increased investment in services for Members as well as
providing capital to support and grow the business. The pipeline
for the Solutions business continues to be very strong.
Our financial advice subsidiary, Newcastle Financial Services
Limited, delivered a 7% increase in income in 2015 although
profitability was flat compared to 2014 due to increased staff
costs arising from investment in an administrative support team to
enhance service to customers and higher salaries for financial
planning managers. Significant investment is going in to this area
of our business, which has the highest customer satisfaction rating
across all areas of the Society's business at 99%. As part of this
investment we will be expanding our seminar activity for new and
existing customers and also creating two new financial advice
centres in our heartland, this is in addition to the major
refurbishment of our branches to provide a welcoming and engaging
environment within which to provide face to face advice.
There was a decrease in impairment charges from GBP5.9m to
GBP4.6m reflecting the ongoing reduction in the legacy commercial
portfolio and the FSCS levy also decreased from GBP2.5m to GBP1.9m
due to a reduction in the amount of the levy and lower eligible
balances.
Capital ratios continued to improve with Common Equity Tier 1
ratio improving from 12.7% to 13.6% and Tier 1 capital ratio
increasing from 14.6% to 15.3%. The Group's overall capital ratio
(Solvency ratio) increased from 18.6% to 18.7% and the leverage
ratio improved from 5.2% to 5.6%.
The mortgage market was extremely competitive in 2015 which
impacted our achievement of gross and net lending targets with both
figures showing a reduction on the previous year; gross residential
mortgage lending was GBP342m in 2015 compared to GBP350m in 2014
and net lending was GBP10m against GBP134m in the prior year. Net
lending was also impacted by a higher level of mortgage maturities
and capital repayments. We have a much stronger mortgage pipeline
going in to 2016.
The percentage of mortgage loans in arrears of 3 months or more,
across the whole mortgage portfolio based on the number of loans,
reduced again from 0.53% to 0.49%; considerably lower than the
industry average with 2015 seeing a record low since we have been
tracking 3 months arrears.
Our liquidity at the end of the year was 17.7%, excluding
encumbered assets, slightly ahead of the level at the end of 2014
of 17.4%. Including encumbered assets the ratio increased from
23.6% to 24.3%. On 1 October 2015 a new European liquidity regime
was introduced with the focus on the liquidity coverage ratio;
against this new measure the Society's ratio was 230% against a
minimum required level of 80%. This significant headroom reflects
the quality of the Society's liquidity with the majority of it
invested in highly rated assets.
Supporting our Members
Over the last 12 months we have engaged with our Members through
meet the chief executive road-shows, branch events, our customer
panel, and most importantly listening to what our Members tell us
when they give us feedback whether it's good or bad. By
understanding what is important to our Members we can continue to
improve and expand the products and services we offer and also
enhance the quality of our customer service.
2015 was a good year for Members moving home or taking their
first steps to get on the property ladder. Throughout the year we
offered a wide range of mortgage products with fixed rates ranging
from 2 to 10 years duration, first time buyer products where only a
5% deposit was required and our fees free mortgage products
continued to be extremely popular with borrowers. Many of our
products featured in best buy tables and were available directly
with the Society and via mortgage brokers.
In 2015 the Society launched a new Buy to Let proposition with a
maximum loan to value of 75% and prudent lending criteria, this
recognises that a large proportion of residential lending in the UK
relates to this sector. In addition the Society also launched a new
online mortgage application system for mortgage brokers with
further upgrades and enhancements made during the year. Following
on from the launch of new mortgage regulations in 2014 (the
Mortgage Market Review) there has also been major activity on
regulatory projects in 2015 with the Society already implementing
some of the changes required for the new European Mortgage Credit
Directive due in March 2016.
The Government has also taken steps to help First Time Buyers
with the launch of the Help to Buy ISA on 1 December 2015 with the
Society being one of only 14 providers of the product at the date
of launch. The government scheme is very similar to the Big Home
Saver product the Society has operated for many years with a bonus
payable when the customer buys a home based on the amount saved.
The Society has continued to offer its own home savings product
alongside the government scheme which means our customers can
benefit from both great schemes by splitting their annual ISA
allowance using our innovative CustomISA functionality.
While the low rate environment has meant another challenging
year for savers the Society continues to offer a range of good
value savings products including easy access, regular savings and
fixed rate bonds, providing competitive rates wherever possible. We
also offered Member exclusive products with better rates to reward
our loyal savers. Our Big Little Saver was popular with parents and
grandparents alike to help promote the savings habit in young
children.
March 02, 2016 04:03 ET (09:03 GMT)
as at 31 December 2015
2015 2014
ASSETS GBPm GBPm
Liquid assets 726.0 768.1
Derivative financial instruments 7.3 16.4
Loans and advances to customers 2,478.6 2,660.1
Fair value adjustments for hedged
risk 190.8 201.8
Assets pledged as collateral - 48.5
Property, plant and equipment 23.4 23.0
Other assets 19.4 18.3
TOTAL ASSETS 3,445.5 3,736.2
============== ==============
LIABILITIES
Due to Members 2,678.8 2,973.7
Fair value adjustments for hedged
risk 5.3 8.4
Deposits and debt securities 307.1 279.5
Derivative financial instruments 190.4 201.6
Other liabilities 14.7 17.4
Subordinated liabilities 50.0 59.5
Subscribed capital 30.0 29.9
Reserves 169.2 166.2
TOTAL LIABILITIES 3,445.5 3,736.2
CONSOLIDATED CASH FLOW STATEMENTS
for the year ended 31 December 2015
2015 2014
GBPm GBPm
Cash outflows from operating activities (61.6) (149.1)
Payment into defined benefit pension
scheme (2.0) (2.0)
Net cash outflows from operating
activities (63.6) (151.1)
-------- --------
Cash (outflows)/inflows from investing
activities
Purchase of property, plant and equipment (2.5) (3.5)
Sale of investment properties - 4.3
Purchase of investment securities (317.4) (234.4)
Sale and maturity of investment securities 271.1 405.0
Net cash flows from investing activities (48.8) 171.4
-------- --------
Cash outflows from financing activities
Interest paid on subordinated liabilities (3.0) (3.6)
Interest paid on subscribed capital (3.5) (3.8)
Repayment of subordinated liabilities (9.6) -
Repayments under finance lease agreements (0.1) (0.1)
Net cash outflows from financing
activities (16.2) (7.5)
---------- ----------
Net (decrease)/increase in cash (128.6) 12.8
Cash and cash equivalents at start
of year 315.1 302.3
Cash and cash equivalents at end
of year 186.5 315.1
========== ==========
Summary of key financial ratios 2015 2014
% %
Gross capital as a percentage of
shares and borrowings 8.3 7.9
Liquid assets as a percentage of
shares and borrowings 24.3 23.6
========== ==========
Result for the year as a percentage
of mean total assets 0.09 0.08
========== ==========
Management expenses for the year
as a percentage of mean total assets 1.06 0.93
This information is provided by RNS
The company news service from the London Stock Exchange
END
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