TIDMNBSR
RNS Number : 8608A
Newcastle Building Society
25 February 2014
Stock Exchange Announcement
Strictly embargoed until 9.00 a.m. Tuesday 25(th) February
2014
NEWCASTLE BUILDING SOCIETY ANNOUNCES FINANCIAL RESULTS FOR THE
YEAR ENDED 31 DECEMBER 2013
Newcastle Building Society today announces continued and steady
progress demonstrating the success of its strategy, with an
operating profit before impairments, provisions and exceptional
items of GBP10.6m and a profit before tax of GBP2.0m.
Key Highlights
-------------------------------------------------------------
* Operating profit (before impairments, provisions and
exceptional items) up to GBP10.6m from GBP10.4m
* Profit before tax up to GBP2.0m from GBP1.5m
* Capital ratios improved further with Solvency ratio
at 17.8%, Tier 1 ratio of 14.1% and Core Tier 1 ratio
of 11.9%
* Strong liquidity position at 26.3% of shares,
deposits and liabilities
* Credit Quality of mortgage portfolio remains robust
with the number of loans in 3 months arrears or more
reduced to 0.64%, below industry averages
* Reduction in legacy mortgage portfolios of GBP160m
covering higher risk/low margin loans
* Gross mortgage lending of GBP350m in 2013 and lending
to First Time Buyers doubled
* Overall Customer Satisfaction of 91%, with
satisfaction within our financial advice subsidiary
of 92%
* Overall staff satisfaction index remained in excess
of 80% with a participation rate of 74%
* Continuing success of our 'Cornerstone' in the
community initiative and GBP700k donated to Sir Bobby
Robson Foundation
-------------------------------------------------------------
Chief Executive's Statement
I am delighted to report that 2013 has been a successful year
for the Society with ongoing improvement across a range of
corporate key performance indicators. I am particularly pleased
that we have been able to do so much to support lending to our
members, especially first time buyers, whilst at the same time
offering a good range of competitive savings products. Our
financial advice subsidiary, Newcastle Financial Services Limited,
also continued to provide advice to customers at a time when others
have decided to exit the market for all but high net worth
individuals.
In 2013 the Building Society sector continued to punch above its
weight in both the mortgage and savings markets and offered a real
alternative to the high street banks. Building society net lending
almost doubled in 2013 while net lending by other lenders was
negative; almost a third of mortgage lending by building societies
was to first time buyers, who are key to a thriving housing market.
Building societies, including Newcastle Building Society, have been
bringing homebuyers and savers together for over 150 years. Being
owned by members, Building Societies can focus on the longer term
and providing excellent service to members; we don't have to worry
about shareholders focussed on share price and investor returns.
The Building Society model has proven to be very resilient over
recent years. It is pleasing to see building societies at the
forefront of the economic recovery, providing a trusted home for
savers and helping homebuyers get on to the property ladder.
When I was first appointed, in 2010, we changed our strategic
focus to return the Society to a traditional building society model
with a diversified income stream via our Solutions business; built
on core building society competencies. At the heart of this
strategy are our members, our staff and the communities within
which we operate alongside ensuring we provide a good range of
products and excellent customer service all of which are
underpinned by the Society's Values. Our year on year continuing
improvement in performance is evidence that our strategy is working
and we will continue to pursue our strategic goals with vigour.
After five long years of the "credit crunch" we can see signs that
the economy is building momentum and that a recovery is more firmly
in train, which should enhance ongoing delivery of our
strategy.
In terms of our achievements in 2013, from a financial
perspective, profitability and capital ratios continue to
strengthen further, and the quality and level of our liquidity
continues to be robust. Our key non-financial measures, the
satisfaction of both our members and employees, continued above
target. We exceeded our targets for wind down of legacy assets and
delivered on schedule on key regulatory projects. Overall, we have
had another very positive year of continued and steady
progress.
Financial Performance
Profit before tax improved by 33% from GBP1.5m to GBP2.0m
reflecting a higher net interest margin that benefitted from
increased mortgage lending activity and reduced funding costs. Our
operating profit (before provisions and Financial Services
Compensation Scheme levy) increased to GBP10.6m from GBP10.4m.
Whilst profitability remained at a modest level, we were pleased to
have achieved this result given lower levels of financial advice
income following the implementation of the Retail Distribution
Review, and the costs of winding down legacy assets. Our
cost-to-income ratio fell to 76% in 2013 from 77% in 2012.
The profitability of our Solutions business remained stable and
performed in line with expectations given we had already identified
a reduced demand for retail savings from clients due to the
availability of cheaper funding from the Funding for Lending
Scheme. The Solutions pipeline for new clients continues at record
levels and we are currently at project stage on four contracts
expected to launch in the next 12 months, with other contracts in
prospect for future periods.
The Society's capital ratios continued to improve with the
Solvency Ratio improving from 16.4% to 17.8% and the Core Tier 1
ratio, the key measure of focus under new proposed capital
regulations, improving from 10.7% to 11.9%. The Tier 1 ratio
improved from 12.6% to 14.1%. Under the new capital requirements
directive the calculation of capital ratios changes from 1 January
2014, the Society will continue to show capital ratios broadly in
line with those at the end of 2013, following this change.
In 2013 the Society continued to unwind legacy portfolios with
higher risk or lower margin that do not fit the traditional
building society model. A reduction of GBP160m was achieved
including GBP30m on commercial investment loans and GBP48m on loans
to housing associations. Since the start of 2010 we have reduced
legacy portfolios by GBP600m with the largest element of this
reduction relating to commercial investment loans, falling by
GBP270m or 50%. As the risks within the commercial portfolio reduce
we have also seen a reduction in provisions for impairment charges
on commercial loans of 25%. The backdrop for commercial investment
property remains challenging and while property prices have
stabilised there continues to be a high incidence of voids, due to
tenant failure and lease maturities, particularly in the retail
sector. The Society has made great progress in reducing the risk
within the Society's balance sheet over the last four years
particularly within the commercial investment loan book.
The number of mortgage loans in arrears of 3 months or more,
across the whole mortgage portfolio, reduced from 0.76% to 0.64%;
well below industry averages.
Our liquidity at the end of the year was strong at 26.3%
compared to over 30% at the start of 2013. This fall was in line
with our expectations and we expect to see a further fall in 2014
as we see momentum continue on residential lending and we reach a
more optimal level of liquidity.
Members
We continued to support first time buyers throughout the year
with a range of competitive 90-95% loan to value products, which
were very popular with homebuyers. We have operated in the first
time buyer space for several years and the Society has its own
mortgage indemnity insurance arrangements in place, which has meant
we have not had to rely on government schemes to support first time
buyer lending. The government initiatives have been successful in
starting to rebuild confidence in the housing market and we are
very supportive of the objectives of the schemes. Our lending to
first time buyers more than doubled in 2013 in comparison to 2012
and our overall gross lending increased to GBP350m. We expect to
maintain this increased level of activity going forward. In
addition to offering a great range of mortgage products, we also
invested in projects to streamline our mortgage processes with the
main focus being on the customer journey and experience. Our
"Members First" project team completed a review of the mortgage
maturity and application processes and identified significant
improvements, with the help of customer feedback, which has
resulted in improved retention rates on maturities and quicker
response times on mortgage applications. In 2014 we will be
devoting significant resource to our online mortgage application
system after several years of major investment in people and
systems to be ready for the Mortgage Market Review, new regulatory
requirements effective from 1 April 2014. We continue to offer all
of our mortgage products to both new and existing customers.
Two of our most popular savings products in 2013 were our Big
Home Saver and Big Little Saver products, both designed to
encourage regular saving for customers wanting to either buy their
own home, or younger members who should be encouraged to get into
the habit of regular saving. Our Sir Bobby Robson Foundation ISA
and Saver accounts continued to be very popular with members and
have enabled the Society to make a significant contribution to the
Foundation on behalf of members. We enhanced our online savings
account in 2013 making it easier for customers to open new accounts
and transfer between accounts.
Our annual customer satisfaction survey showed overall
satisfaction of 91% in 2013, above our target of 90%, with overall
satisfaction within our financial advice subsidiary at 92%. With
all the changes implemented at the beginning of 2013 for the impact
of the Retail Distribution Review it is pleasing that our most
satisfied customers are those that value face-to-face financial
advice.
Over the last 18 months we have enhanced our complaint handling
processes, firstly to ensure we were doing all that we could to
incorporate customer feedback into improving our processes, and
secondly to handle the spike we had seen in complaints relating to
Mortgage Payment Protection Insurance (MPPI), many of which were
speculative. Complaints volumes fell by 58% in 2013, with MPPI
complaints falling by 71% and non-MPPI complaints falling by 9%. We
upheld 38% of non-MPPI complaints and 3% of MPPI complaints with
only 6% of non-MPPI complaints subsequently referred to the
Financial Ombudsman Service. The Society has never sold single
premium policies with charges loaded up front and the Society has
no issues with regard to systemic mis-selling of MPPI.
In 2014 we will continue to engage with Members, and in addition
to our existing financial planning seminars, customer panel, focus
groups and branch events, we will be meeting our Members face to
face via a programme of "Meet the Chief Executive" events, where
Members will be able to have their say.
Employees
Our employees are the Society's most important asset and as a
financial services provider it is our customers that benefit from
loyal, motivated and well-trained staff. Our staff turnover rate
across the whole business was only 10% in 2013, a record low for
the Society, and we continued to invest in a number of programmes
to develop and engage with staff. Overall staff satisfaction
remained in excess of 80% with a participation rate of 74%.
The roll out of our values programme was completed in 2013 and
staff are now very familiar with the FORTS (Friendly, Ownership,
Respect, Trust and Straightforward) acronym and how this represents
the culture of the Society and the way in which we want to do
business with customers and support colleagues in the
workplace.
We continued to get fantastic feedback on the success of our
graduate training and undergraduate student placement programmes
and these programmes are proving successful in providing the
Society with the managers and leaders of tomorrow. We have a number
of managers within the organisation that have previously been
involved with these programmes. In 2013 we also invested in a
training programme for all of the Society's Executives, managers
and team leaders called "Raising the Performance Bar", which
focussed on how we could be more efficient and effective and
ultimately provide an even better service to customers.
Our staff joined us at the historic Newcastle's Great North
Museum in June 2013 to celebrate the Society's 150(th) anniversary
year. The event was created and run by staff and was in recognition
of the hard work and dedication our staff have shown the
organisation during what have been challenging economic times for
everyone.
In April we gave an annual pay award that was in line with UK
wage inflation data. In December the Remuneration Committee
approved a Society-wide corporate bonus, based on achievement of
the Corporate Key Performance Indicators, which will be paid to
staff after the approval of the Annual Report and Accounts.
Communities
We continued our "Cornerstone of the Community" initiative
within our branch network, through activities including
volunteering, charity fundraising, local hero awards and a
financial education initiative for children.
Through our community foundation endowment fund we donated more
than GBP8k to local grassroots good causes within North East
Communities. This was in addition to the time spent by our staff
supporting good causes both via their time and through fund raising
activities.
We have continued to provide support to our corporate charity of
the Year. For 2012/2013 this was Help for Heroes who received a
cheque for GBP24k and for 2013/2014 our chosen charity, as selected
by staff, is the Alzheimer's Society. In addition to staff
organising fund raising events the Alzheimer's Society has also
held "Dementia Friends" training sessions with branch managers to
enable them to support any members coming into the branch that have
a form of dementia.
As I mentioned in the Members section above, through the
popularity of our Sir Bobby Robson Foundation accounts we have
managed to donate over GBP700k to the charity, which has
contributed towards its efforts in fighting the battle against
cancer.
Summary
The Society continued to make great progress in 2013 towards
achieving our long-term goals. With the recovery in the UK economy
more firmly in train, I am more confident than ever that building
societies will continue to thrive and that the Society will be able
to continue its focus on mortgage lending and good long-term value
savings products, trusted financial advice and pursuit of excellent
customer service.
Our success is dependent on the exceptional loyalty and
commitment of our people. I would like to take this opportunity to
thank all our staff and the Executive team, for their significant
contribution to the Society's successful performance in 2013.
Jim Willens Chief Executive
24 February 2014
NEWCASTLE BUILDING SOCIETY
PRELIMINARY ANNOUNCEMENT
for the year ended 31 December 2013
CONSOLIDATED INCOME STATEMENTS
2013 2012
GBPm GBPm
Interest receivable and similar income 95.0 110.3
Interest expense and similar charges (71.6) (90.4)
Net interest receivable 23.4 19.9
Other income and charges 24.7 27.9
Gains less losses from financial instruments 0.5 0.7
Losses recognised on revaluation of investment
properties held for sale (1.1) (1.0)
Administrative expenses (34.6) (34.5)
Depreciation (2.3) (2.6)
Operating profit before impairments, provisions
and exceptional items 10.6 10.4
Impairment credit on loans and advances to banks 0.8 0.7
Impairment losses on loans and advances to customers (6.7) (8.3)
Provisions for liabilities and charges (3.3) (2.1)
Gain on disposal of Prepaid Cards Business 0.6 0.8
Profit for the year before taxation 2.0 1.5
Taxation expense (1.9) (1.5)
Result after taxation for the financial year 0.1 -
============== ==============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2013 2012
GBPm GBPm
Result for the period 0.1 -
-------------- --------------
Other comprehensive (expense)/income
Items that may be reclassified to income statement
Movement on available for sale reserve (7.0) 6.8
Income tax credit/(charge) on items that may
be reclassified to income statement 1.3 (1.6)
-------------- --------------
Total items that may be reclassified to income
statement (5.7) 5.2
-------------- --------------
Items that will not be reclassified to income
statement
Actuarial gain/(loss) on retirement benefit
obligations 2.1 (6.7)
Income tax (charge)/credit on items that will
not be reclassified to income statement (0.6) 1.5
-------------- --------------
Total items that will not be reclassified to
income statement 1.5 (5.2)
Total comprehensive expense for the period (4.1) -
-------------- --------------
CONSOLIDATED BALANCE SHEETS
2013 2012
ASSETS GBPm GBPm
Liquid assets 887.5 1,114.1
Derivative financial instruments 21.4 38.1
Loans and advances to customers 2,700.7 2,727.6
Fair value adjustments for hedged risk 13.6 40.0
Assets pledged as collateral - 54.0
Property, plant and equipment 21.4 23.0
Investment properties held for sale 4.3 14.0
Other assets 20.8 29.3
TOTAL ASSETS 3,669.7 4,040.1
============== ==============
LIABILITIES
Shares 3,236.1 3,445.4
Fair value adjustments for hedged risk 4.5 17.5
Deposits and debt securities 141.6 246.0
Derivative financial instruments 13.1 40.0
Other liabilities 17.7 30.5
Subordinated liabilities 59.0 58.9
Subscribed capital 29.7 29.7
Reserves 168.0 172.1
TOTAL LIABILITIES 3,669.7 4,040.1
CONSOLIDATED CASH FLOW STATEMENTS
2013 2012
GBPm GBPm
Cash flows from operating activities (257.1) (71.3)
Payment into defined benefit pension scheme (2.2) (2.1)
Net cash flows from operating activities (259.3) (73.4)
-------- ----------
Cash flows from investing activities
Purchase of property, plant and equipment (0.6) (1.7)
Sale of investment properties 8.6 0.9
Sale of property, plant and equipment 0.1 -
Purchase of investment securities (625.5) (1,005.7)
Sale and maturity of investment securities 766.0 1,236.3
Net cash flows from investing activities 148.6 229.8
-------- ----------
Cash flows from financing activities
Interest paid on subordinated liabilities (3.4) (2.6)
Interest paid on subscribed capital (3.6) (3.6)
Repayments under finance lease agreements (0.1) (0.2)
Net cash flows from financing activities (7.1) (6.4)
---------- ----------
Net (decrease)/increase in cash (117.8) 150.0
Cash and cash equivalents at start of year 528.0 378.0
Cash and cash equivalents at end of year 410.2 528.0
========== ==========
Summary of key financial ratios 2013 2012
% %
Gross capital as a percentage of shares and
borrowings 7.60 7.05
Liquid assets as a percentage of shares and
borrowings 26.28 30.18
========== ==========
Result for the year as a percentage of mean
total assets - -
========== ==========
Management expenses for the year as a percentage
of mean total assets 0.96 0.88
This information is provided by RNS
The company news service from the London Stock Exchange
END
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