TIDMNBSR
RNS Number : 2516R
Newcastle Building Society
27 February 2019
NEWCASTLE BUILDING SOCIETY ANNOUNCES 2018 FINANCIAL RESULTS
Key Highlights
* Operating profit of GBP14.7m compared to GBP12.1m for
2017
* Total operating income of GBP64.5m compared to
GBP57.9m for 2017
* Strong Capital ratios - Common Equity Tier 1 ratio of
15.7% and Leverage ratio of 5.4%
* Robust liquidity ratio of 14.6%
* Gross mortgage lending of GBP520m
* The number of mortgages in 3 months arrears or more
at a record low of 0.30
* Our multi-million pound branch refurbishment
programme with newly refurbished branches in Durham,
Gosforth and Carlisle
* GBP797,000 or 6% of our pre-tax profits made in
charitable donations
* Newcastle Building Society Community Fund awarded
over GBP179,000 in grants to 76 charities across our
heartland
* Partnership with The Prince's Trust
* Industry awards including for the second year "What
Mortgage Awards 2018" Winner for Best Regional
Building Society
* 1,500 Dementia friends trained by the Society's
Dementia Friends champion
Chief Executive's Statement
I am very pleased to report that 2018 was a year of continued
positive progress for the
Society, with growth in residential lending, more new savers
resulting in an increase in Members and increased levels of
financial advice business.
This progress is underpinned with a robust financial
performance, including increased operating profit, strong capital
and liquidity ratios and very low levels of arrears.
Financial performance
It is only possible for the Society to thrive and continue to
serve the region if our underlying business model is sustainable in
the long term and our financial performance is robust.
Profitability is one of the key financial performance measures.
Profit before tax improved to GBP13.3m for the year ended 31
December 2018 compared to GBP13.1m for 2017. Our 2017 profit before
tax was positively impacted by a one-off credit of over GBP2m
relating to the purchase of our Cobalt office and it is pleasing to
report that in 2018 we saw that one-off credit replaced by an
overall improvement in Operating Profit before provisions and
exceptional items, which increased by GBP2.6m to GBP14.7m.
Overall growth in income of GBP6.6m, was offset by an increase
in costs of GBP3.9m associated with the significant ongoing
investment into the business, including our branch refurbishment
programme and pay and grading project. The cost to income ratio
improved from 79% to 77%. Net interest margin improved from 0.79%
to 0.92% reflecting increased income.
Mortgage impairment charges have increased, from GBP0.2m to
GBP1.5m, the majority of which reflects a small number of legacy
non-performing commercial loans.
Provisions for liabilities and charges decreased by GBP1.1m from
GBP1.0 debit to GBP0.1m credit. The credit relates to the reduction
in the provisions required for the Financial Services Compensation
Scheme levy and consumer redress.
The Group's capital ratios remain robust with Common Equity Tier
1 ratio improving from 15.3% to 15.7% and Tier 1 capital ratio
reducing slightly from 16.6% to 16.3%. The Group's overall capital
ratio (Solvency ratio) also reduced to 17.7% compared to 18.9% at
the end of 2017. Both reductions were as a result of a planned
repayment of one of the Group's Permanent Interest Bearing Shares
during 2018. The leverage ratio (on a transitional basis) was
5.4%.
Despite the weak growth in the mortgage market during 2018 and
strong competition, as noted above, our gross residential mortgage
lending was GBP520m and net residential lending was GBP160m. 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 0.34% to 0.30%; lower than the industry average.
Possession cases also continued at very low levels reflecting the
excellent credit quality of the Society's residential lending.
The Group's liquidity, excluding encumbered assets, ended the
year as 14.6%, compared to 17.0% in 2017. This had been actively
managed down over the second half of the year to improve efficiency
but remains well within in our planned operating guidelines and
above our minimum operating requirements.
The Society's liquidity coverage ratio was 179% against a
regulatory minimum required level of 100%. 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.
Connecting with our Purpose
At the heart of Newcastle Building Society lies our Purpose,
which states that we 'connect communities in the North East with a
better financial future' and leads us to put our customers and the
communities we serve foremost in our plans and ambitions for the
future.
In what proved to be a very busy and productive year for the
Society, we achieved a number of positive outcomes in delivering
our Purpose and making a genuine difference for the communities we
serve. Just some of the highlights from the year include:
-- The launch of our new branch concept for Durham, Gosforth and
Carlisle branches as part of our multi-million pound branch
refurbishment programme;
-- Our continued support for the Newcastle Building Society
Community Fund at the Community Foundation, which has enabled the
launch of Building Improvement Grants, designed to help maintain
and improve community buildings in the region, with the first
GBP50,000 grant awarded to Springfield Community Association;
-- The Newcastle Building Society Community Fund was also
pleased to announce a four-year partnership, committing donations
of more than GBP100,000 to The
Prince's Trust, supporting programmes which seek to invest in
young talent and improve employability in the region. The Prince's
Trust also provides significant
leadership development opportunities for colleagues across the
Society;
-- Our ongoing commitment to Dementia Friends, which has to date
involved over 1,500 colleagues, customers and staff from the local
high street in receiving awareness training from the Society's
Dementia Friend champion; and
-- By no means least welcoming new colleagues to the Society in
particular those who have joined us as part of our early talent
community.
Building authentic and lasting customer relationships
We were pleased to see our customer satisfaction score improve
from 96% to 98% in 2018. Helping people own their homes is a key
pillar of our Purpose and is at the heart of our building
society.
Our gross lending for 2018 exceeded GBP520m, slightly reduced
from GBP535m in 2017, in a fiercely competitive market. Our prime
net lending was over GBP160m leading to an overall increase in our
residential mortgage book.
Despite the broader UK economic challenges, we supported over
1,100 first time buyers in their quest to own their own home. Our
Self Employed mortgage volumes have doubled and we have also
introduced 'Help to Buy' and 'Buy to Let' mortgages for this
growing self-employed market reflecting the continuing change in
employment trends.
Once again it was great to be recognised in a number of industry
awards. For the second year in a row we have been awarded 'What
Mortgage's' Best Regional Building Society. We were also named Best
Self Build Lender by 'Build IT' and we were also recognised by the
Legal and General Mortgage Club Awards as best smaller lender for
2018. When combined with service quality awards received by clients
of our Newcastle Strategic Solutions Limited subsidiary, we were
involved in winning 24 industry awards in 2018.
As well as helping customers own their home, we also believe
that it is important that we encourage people to save and help them
plan their finances.
Despite the backdrop of extensive bank branch closures across
our region, our commitment to being present in the towns and cities
across the North East remains firm. We recognise the power of
communities and the role of the high street as a focus for
community life. That is why we are improving the branch experience
we provide to our customers, as part of a wider investment
programme, delivering modern, bright and open spaces, with private
meeting areas, friendly and knowledgeable colleagues, and a
financial adviser in every branch.
Our latest new branch format was launched in 2018 in Durham,
Gosforth and Carlisle and we continue with our programme to update
all of our branch network by the end of 2019.
Our savings accounts offer some of the best buy savings rates on
the high street and during 2018 we were featured in national press
best buy tables. We added to our savings portfolio a new regular
saver product and a one or two year fixed rate bond. We also
increased the rate on the current issue of The Newcastle Community
Saver easy access account.
In the second half of the year we introduced our Newcastle Cash
Lifetime ISA, which enables customers to save for a deposit for
their first home or for their retirement, attracting a 25% UK
Government bonus on amounts saved each tax year.
Our growing range of savings accounts has been well received and
I am delighted that as a result, 2018 saw an increase in the number
of Members of the Society. We have offered our new Members a warm
welcome to Newcastle Building Society, committing that we will
remain on the high street now and in the future.
Our financial advice subsidiary, Newcastle Financial Advisers
Limited, gives customers financial advice regardless of how much
they have to invest. Newcastle Financial Advisers Limited has a
significant and growing level of funds under management for people
in the region.
Our Pension Clinics were very successful, offering free 30
minute chats with a financial adviser to help people get answers to
their pension questions and see what they may need to do next.
Newcastle Financial Advisers increased income and profits in
2018 and scores highly for customer satisfaction.
Helping our colleagues realise their potential
Our colleagues are the driving force of our Society and in
return we aim to be a great place for them to work, where they can
realise their potential. It is also important to us as a
significant employer, that where appropriate, we continue to offer
and grow the employment opportunities we offer across the region,
adding 68 new jobs in 2018.
Our Human Resources team are central to how we work to develop
the region's talent and potential and it was great to see their
work recognised by the North East HR&D CIPD Awards in June when
they won the award for Excellence in Resourcing & Talent
Management.
We have made a significant investment in our new leadership
programmes for senior managers, and continue to build our early
talent programme as we build our contribution to nurturing regional
talent, which can come from all walks of life and irrespective of
background and personal circumstances.
Our early talent programme has been running for a number of
years for graduate recruitment and undergraduate placement, but has
been further developed to include apprenticeships. Our growing
apprenticeship opportunities are across a range of business areas,
with all apprenticeships attracting a Living Wage salary (paying
above the Government recommended wage), a structured learning
programme with both a nationally recognised qualification and a
career at the end. Our partnership with The Prince's Trust also
plays a key role in our developing talent and supporting
employability in the region.
An important part of our customer offering is the provision of
face to face financial advice. We understand that this service is
highly valued by our customers and we are one of the few financial
services companies still offering financial advice on the high
street.
Fundamental to this is our financial adviser colleagues and our
commitment to growing the financial adviser talent of the future.
Our bespoke training programme between Openwork and Newcastle
Financial Advisers Limited provides opportunities for growth and
development and colleague applications are invited from across the
business. The programme leads to a professional status and a role
as a qualified financial adviser. We are delighted that two more
graduates from the programme have recently taken up full time
financial adviser positions in the branch network after completing
their professional training.
In 2018 we improved employer pension contributions for more than
half our colleagues to help them build a bigger pension pot, and
following a review of pay and grading, more than a third of our
colleagues have enjoyed a salary uplift over and above the cost of
living increase also provided. We are proud to be a Real Living
Wage employer, which goes further than the Government's national
minimum wage.
Connecting with our communities
Our branches continue to play a key role in their local
communities. Where possible, we are introducing community spaces
into our refurbished branches which are available to community
groups and have already been used in a host of different ways.
We have also tried to be sympathetic to local tradition when we
have restored older buildings - for example the restoration work on
the iconic Durham Teapot that sits above our Durham branch,
undertaken by the City of Durham Trust and the stained glass
windows and chandeliers in our new location in Carlisle have both
preserved features which are valued by local residents. We consider
it a privilege to support those in our towns and cities who are
actively working to improve the potential, history and culture of
our region.
We donated GBP797,000 or 6% of our pre-tax profits to charity
during 2018. We have continued to build the Newcastle Building
Society Community Fund at the Community Foundation, through
donations made by the Society in proportion to balances held in our
Community Saver accounts and our colleague fundraising
activities.
The Community Fund is building a legacy for future Members, with
increasing capacity to make grants which support local charities
and community groups. Our grant programme is expanding year on year
and now includes larger grants of up to GBP50,000 to support
community building improvements. In addition, a total of GBP179,000
was awarded in 63 smaller grants during 2018.
We have a long-standing relationship with the Sir Bobby Robson
Foundation. The Newcastle Building Society Community Fund at the
Community Foundation is continuing that relationship with an
ongoing and significant level of funding support for at least the
next five years. The combined contributions of the Society and The
Newcastle Building Society Community Fund have just passed the
GBP2.8m mark in cumulative donations to this worthy cause, which
funds leading cancer research, diagnosis and treatment for people
across our region.
There are around 35,000 people living with dementia in the North
East, a statistic that is expected to increase. We have committed
to ensuring that every colleague will become a Dementia Friend and
have also been offering Dementia Friends sessions to customers in
our branches, and extended an open invitation for others on the
high street to join us. I am proud that we have over 1,500 Dementia
Friends who received training and learnt about improving the lives
of those living with dementia in our region.
Our colleagues have continued to embrace our volunteering
programme in 2018, more than doubling their volunteering
contribution this year with 55% of colleagues volunteering. They
have spent over 4,750 hours in the community supporting 137 groups
and local charities.
Helping our clients and partners succeed
Newcastle Strategic Solutions Limited and Newcastle Systems
Management Limited, two of the Society's subsidiaries received ISO
27001 Certification for their Information Security Management
System. Meeting this international standard benchmark evidences our
ongoing investment in having the right controls to respond to the
threats to data and IT service provision. We were also pleased to
renew our Cyber Essentials Plus accreditation during the year.
Newcastle Strategic Solutions continues to be the UK's leading
provider of outsourced savings management services and we were
delighted to see strong growth in scale of savings balances under
administration throughout 2018 and a number of clients win industry
awards for the quality of service provided to their customers.
Summary
2018 has been a significant year of change and progress for
Newcastle Building Society. We have seen our highest growth in
income compared to recent years with increasing profitability year
on year and our Member base has started to grow again. We have seen
good levels of lending and are particular pleased to be able to
support new homeowners in taking their first steps onto the
property ladder.
Our connection to our communities is even more evident and
embedded in the day to day operations of the Society. Our
contributions to the Newcastle Building Society Community Fund at
the Community Foundation are both enabling a positive impact to be
made immediately through community grants and building a legacy for
future generations as the fund continues to grow. Finally, our
Newcastle Strategic Solutions Limited and Newcastle Systems
Management Limited subsidiaries continue to offer market leading
services and make a positive contribution to our financial
performance.
Whilst economic uncertainties continue from Brexit and other
global issues, we passionately believe in our Purpose of
"Connecting Communities in the North East with a better Financial
Future." and continue to invest in our business, colleagues and
communities to build a strong regional brand that is recognised for
making a genuine difference for the communities we serve.
We have no doubt that the year ahead will bring many unique
challenges but we believe we are well placed to address them and
continue in our long term aspiration to live out our Purpose and
make a genuine, positive contribution in supporting our Members by
helping them save, plan their finances and own their home, and in
our support for their communities across the region.
Andrew Haigh
Chief Executive
27(th) February 2019
NEWCASTLE BUILDING SOCIETY
PRELIMINARY ANNOUNCEMENT
for the year ended 31 December 2018
SUMMARY CONSOLIDATED INCOME STATEMENTS
2018 2017
GBPm GBPm
Interest receivable and similar income 75.2 65.6
Interest payable and similar charges (41.0) (36.5)
Net interest income 34.2 29.1
Other income and charges 30.2 28.7
Gains less losses on financial instruments and hedge accounting 0.1 0.1
Administrative expenses (46.9) (43.0)
Depreciation (2.9) (2.8)
Operating profit before impairments, provisions and exceptional items 14.7 12.1
Impairment charges on loans and advances to customers (1.5) (0.2)
Provisions for liabilities and charges 0.1 (1.0)
Exceptional gain on purchase of Cobalt Offices - 2.2
Profit for the year before taxation 13.3 13.1
Taxation expense (2.5) (2.2)
Profit after taxation for the financial year 10.8 10.9
================ =========
SUMMARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2018 2017
GBPm GBPm
Profit for the financial year 10.8 10.9
------ ---------
Other comprehensive income/(expense):
Items that may be reclassified to income statement
Movement on fair value through other comprehensive
income/available for sale reserve (1.7) 1.8
Income tax on items that may be reclassified to
income statement 0.3 (0.3)
Total items that may be reclassified to income statement (1.4) 1.5
------ ---------
Items that will not be reclassified to income statement
Actuarial remeasurements on retirement benefit obligations - -
Income tax on items that will not be reclassified
to income statement - -
De-recognition of pensions surplus (1.1) (1.7)
------ ---------
Total items that will not be reclassified to income
statement (1.1) (1.7)
------ ---------
Total comprehensive income for the financial year 8.3 10.7
====== =========
SUMMARY CONSOLIDATED BALANCE SHEETS
2018 2017
ASSETS GBPm GBPm
Liquid assets 692.4 789.8
Derivative financial instruments 3.5 4.9
Loans and advances to customers 2,772.2 2,707.3
Fair value adjustments for hedged risk 175.9 206.2
Property, plant and equipment 38.8 38.8
Other assets 15.0 15.1
TOTAL ASSETS 3,697.8 3,762.1
================ ==========
LIABILITIES
Shares 2,713.7 2,788.5
Fair value adjustments for hedged risk 0.4 1.6
Deposits and debt securities 552.4 504.6
Derivative financial instruments 178.3 210.2
Other liabilities 12.9 15.4
Subordinated liabilities 25.0 25.0
Subscribed capital 20.0 30.0
Reserves 195.1 186.8
TOTAL LIABILITIES 3,697.8 3,762.1
================ ==========
SUMMARY CONSOLIDATED CASH FLOW STATEMENTS
2018 2017
GBPm GBPm
Cash (outflows) / inflows from operating activities (50.6) 66.9
Payment into defined benefit pension scheme (1.5) (2.0)
---------- --------
Net cash (outflows) / inflows from operating activities (52.1) 64.9
---------- --------
Cash (outflows)/inflows from investing activities
Purchase of property, plant and equipment (2.9) (18.8)
Sale of property, plant and equipment - -
Purchase of investment securities (72.5) (185.1)
Sale and maturity of investment securities 121.2 154.9
---------- --------
Net cash (outflows)/inflows from investing activities 45.8 (49.0)
---------- --------
Cash outflows from financing activities
Interest paid on subordinated liabilities (0.8) (2.1)
Interest paid on subscribed capital (3.5) (3.5)
Repayment of subordinated liabilities - (25.0)
Repayment of subscribed capital (10.0) -
Repayments under finance lease agreements - (0.1)
---------- --------
Net cash outflows from financing activities (14.3) (30.7)
---------- --------
Net (decrease) in cash (20.6) (14.8)
Cash and cash equivalents at start of year 183.6 198.4
---------- --------
Cash and cash equivalents at end of year 163.0 183.6
========== ========
Summary of key financial ratios 2018 2017
% %
Gross capital as a percentage of shares and borrowings 7.37 7.36
Liquid assets as a percentage of shares and borrowings 21.20 23.94
Profit for the year as a percentage of mean total assets 0.29 0.29
Management expenses for the year as a percentage of mean total assets 1.33 1.24
Notes
1. The financial information set out above, which was approved
by the Board of Directors on 26 February 2019, does not constitute
accounts within the meaning of the Building Societies Act 1986.
2. The financial information for the years ended 31 December
2018 and 31 December 2017 has been extracted from the Accounts for
those years and on which the auditors have given an unqualified
opinion.
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END
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