TIDMNBSR
RNS Number : 0003K
Newcastle Building Society
27 August 2021
Newcastle Building Society announcement of half-year results for
the six months ended 30 June 2021
The first half of 2021 has seen the country move to a more
positive place in terms of the Covid-19 pandemic, with the
vaccination programme well underway and enabling greater freedoms.
However, the pandemic is far from over and there will no doubt be
further challenges ahead. We are mindful that uncertainty related
to the pandemic continues to dominate both our Members' lives and
the economic environment too, and can be expected to do so for some
time to come.
The Society delivered a strong performance in the first half of
2021 despite the ongoing Covid-19 restrictions and concerns. Our
underlying business is performing very well with a 78% increase in
operating profit of GBP5.7m taking the total for the period to
GBP13.0m (from GBP7.3m in the first half of last year).
At the 2020 year end, we reported a significant increase in our
credit and legacy provisions which resulted in a pre-tax profit of
GBP2.0m for last year. During the first half of this year we have
not seen any indication that these provisions need to increase
further, however we do continue to be watchful of the economic
conditions in this respect. In addition to positive headlines in
our financial performance, we remain strongly capitalised and
continue to operate with appropriate levels of liquidity.
The UK s avings market has continued to see significant growth
in 2021 following the uplift seen in 2020 as a result of reduced
spending linked to the Covid-19 lockdown. We expect some of this
growth will be reinvested back into the economy as levels of
normality return, however some of these 'accidental savers' may
look to maintain their savings habit and the improved financial
stability that this supports.
The Bank of England base rate remains at a historic low of 0.1%,
with savings rates therefore also continuing to be low, bringing
continuing challenges for many savers.
The mortgage market has been buoyant in 2021, fuelled by
changing requirements as working from home has driven changing
needs for home owners. Gardens, a home office, strong internet
connections, or simply more space, are all factoring into people's
desires and prompting house moves. Housing market sales and house
prices have recently been running at their strongest levels since
the global financial crisis and look set to continue positively for
much of the year.
While the government intervention to introduce a stamp duty
holiday on homes up to GBP500,000 in 2020, and its subsequent
extension to 30 June 2021, has no doubt stimulated the market, its
phased removal will see some demand cool off in the second half of
2021. First time buyers continue to struggle as rising house prices
have exacerbated affordability pressures by lifting the size of
loans needed and deposit requirements. Government assistance
schemes, including the Mortgage Guarantee Scheme and First Homes
scheme, designed to support low deposit lending, have been
introduced. Getting a deposit together is still the biggest barrier
for first time buyers, but the structural problem at the root of
high house prices remains the lack of available housing.
Highlights of the first half of 2021:
-- Operating profit before impairment and provisions increased
by GBP5.7m to GBP13.0m (Half year 2020: GBP7.3m);
-- Profit before tax increased significantly by GBP11.7m to
GBP13.9m (Half year 2020: GBP2.2m);
-- Gross lending was GBP483m (Half year 2020: GBP357m);
-- Net core residential lending for the first half of the year
was GBP220m (Full year 2020: GBP228m);
-- Highest ever colleague advocacy scores;
-- Customer Net Promoter Score increased to +81 (+78 for Full year 2020);
-- Mortgage arrears remain at low levels with 0.43% of mortgages
in arrears by 3 months or more (Full year 2020: 0.36%);
-- Capital ratios remain robust with Total Capital Ratio
(Solvency) at 14.6% (Full year 2020:15.5%), Tier 1 Ratio at 13.5%
(Full year 2020: 14.4%), Common Equity Tier 1 Ratio at 13.3% (Full
year 2020:14.1%) and Leverage Ratio at 4.3% (Full year 2020:
4.4%);
-- Robust Liquidity with Liquidity as a percentage of shares,
deposits and liabilities of 21.6% (Full year 2020: 25.2%) and cash
liquidity of 16.7% (Full year 2020: 19.1%);
-- Committed GBP111k in community grants: focusing our support
on employability skills, food poverty and debt management charities
across our heartland;
-- Average savings rate paid to Members 0.83%, which is over
50bps more than the market average;
-- Deposit Unlock - the first lender in an innovative new build
homes initiative which will be piloted exclusively in the North
East, supporting those with a small deposit to get a foot on the
housing ladder;
-- First Homes - participation in the government scheme to
support affordable home ownership; and
-- Awards:
o What Mortgage Awards Best Regional Building Society for the
5th consecutive year
o Newcastle Strategic Solutions was shortlisted for the National
Contact Centre Awards.
Purpose Led Strategy
We have managed your Society through these uncertain times under
the consistent guidance of our Purpose: Connecting our communities
with a better financial future.
Our Purpose continues to serve us well, and has given us a clear
sense of direction through this challenging period. It has helped
us decide how we might best support our customers, and deliver a
wider positive impact for communities across our region. We are
determined to make a positive difference for those we serve and
that we will continue to be present and accessible through and
beyond the current pandemic, in the months and years ahead.
To emphasise our commitment to diversity, inclusion and the
environment we have revised the wording of the pillars which
support our Purpose. This includes introducing a new pillar "Caring
for our environment and ensuring sustainability for future
generations" which brings emphasis to our inter-generational
commitment to longer term sustainability.
We support our communities; we remain committed to our high
streets and continue to invest in our physical branch presence as
well as new digital technologies. Looking after our customers means
being available to them and making it easy to interact with us in
the way they choose.
We have remained open for business throughout the pandemic. We
have continued to help people own their own home through the
provision of mortgages; maintained a full branch operation
including access to cash which was vital for some of our most
vulnerable customers; and provided ongoing financial advice through
our subsidiary, Newcastle Financial Advisers Limited, who found new
and innovative ways to continue to safely meet the needs of our
customers.
Early in 2021 we moved out of our Newcastle city centre head
office location, reducing our administrative building footprint
from two to one. As we look to a future of hybrid working, top of
our agenda is the opportunity this provides for us to embed an
environmentally friendly approach and practice as we transform our
new head office building at Cobalt Park, North Tyneside. Investing
in our shared future to reduce our carbon footprint has also
included the introduction of an environmentally friendly electric
vehicle leasing scheme as a colleague benefit.
We continue to encourage our colleagues to share their views, to
empower them to realise their potential and that of others in our
region. We believe that actively fostering inclusion drives
diversity, talent optimisation, and performance excellence.
Investment, innovation and collaboration have characterised our
approach across our Group businesses as we have moved through the
first half of the year. This has been underpinned by the passion
and commitment of our colleagues who have continued to focus on
delivering to the needs of our customers, clients, partners and
communities.
Innovation and collaboration
Saving
A key part of our purpose is helping people to save and we are
pleased that we continued to offer significantly better than UK
average savings interest rates - paying an average rate across our
products of 0.83% versus a whole of market average of 0.32%, based
on CACI's independent financial benchmarking data.* We know how
important it is for people to make the most of their savings which
is why we always offer existing customers access to our best
savings rates. For the first half of this year we have seen over
80% of our savers continue to save with us after their fixed rate
savings product matured.
* CACI Current Account and Savings Database, Stock, including
fixed and variable rates. CACI is an independent company that
provides financial benchmarking data which covered 87% of the cash
savings market in 2020. Data correct as at April 2021.
Financial Advice
Continuing from last year's strong performance relative to the
challenging economic environment, our financial advice subsidiary,
Newcastle Financial Advisers, which provides access to face to face
advice on the high street, has delivered another strong performance
in the first half of this year.
Options and advice for customers to manage their financial
plans, pensions and investments, and maximise returns in a low
interest rate environment are now also delivered by video.
Meanwhile, the popular Big Talk free financial information sessions
have successfully moved to an online webinar format and extended
their reach in the process.
In the past six months, Newcastle Financial Advisers has
successfully grown its customer base, level of funds invested, and
funds under management, well ahead of planned targets and continues
to deliver an outstanding customer service.
The subsidiary's financial advisers have a 4.9 out of 5.0 rating
on the professional adviser review and rating site,
VouchedFor.co.uk, from more than 600 customer reviews.
Owning your own home
Strong savings balances in our branches provide stable funding
for our lending. Our mortgage lending volumes have increased as we
have focused both on managing market risk and opportunity, while
maintaining our sensible lending approach in a heated market. Our
gross mortgage lending in the first half of 2021 was GBP483m (Half
year 2020: GBP357m) with net core lending at GBP220m and we
welcomed 2,331 (June 2020: 1,933) new mortgage customers.
House prices across the country continue to rise and achieving
the dream of home ownership can often feel out of reach when a
large deposit is required. This impacts both first time and next
time buyers. Our support for both has been further strengthened in
the past few months through our participation in two new innovative
mortgage support schemes.
One area of the market particularly challenging for buyers is
purchasing a new build home with a small (5%) deposit, as most
lenders don't offer high loan to value lending on a new build
mortgage.
We were therefore delighted to announce 'Deposit Unlock' in
June, an innovative new-build mortgage product which provides an
option for those with a small deposit to realise their dream of
owning a new-build home. We helped develop this innovative scheme,
a first for the UK, collaborating with insurance broker, Gallagher
Re, The Home Builders Federation and four of its Members: Vistry
Group, Barratt Developments, Keepmoat Homes, and Bellway Homes.
As a key player in the development of Deposit Unlock, Newcastle
Building Society is the first lender to offer mortgages under this
arrangement, which is being piloted exclusively in our region
before being rolled out nationally.
This launch quickly followed our announcement of participation
in the Government-led 'First Homes' scheme. This helps local
first-time buyers - many of whom could be key workers such as NHS
staff and veterans - onto the property ladder by offering homes at
a discount of at least 30% compared to the market price.
First Homes will make a proportion of new homes available with a
minimum 30% discount on the open market value, which will be passed
on with the sale of the property to future first-time buyers. This
means homes will always be sold below market value and local
communities will benefit from easier access to them for generations
to come. The Government is working with several regional and
national lenders, including your Society, to deliver the first of
these homes in England.
Our recent announcements mean that we now help first time buyers
through five different mortgage and savings schemes: Deposit
Unlock; First Homes; Help to Buy; Joint Mortgage Sole Proprietor
and Lifetime ISAs.
The first half of 2021 also saw us re-introduce 90% and 95% loan
to value (LTV) lending on home purchases, and we extended the
availability of our Self Build and Custom Build mortgages by
increasing the LTV cap from 80% to 85% to support those with less
to invest in the initial build phase. As with savings we have seen
a high proportion of customers with a maturing mortgage product
take out a new mortgage with us.
In line with the financial support package set out by the FCA in
response to the pandemic, the Society has continued to offer
payment deferral support to customers who are experiencing
financial difficulties as a result of Covid-19. We're pleased that
over 98.5% of borrowers who requested a payment deferral have since
returned to making normal monthly payments, which is in line with
the rest of the building society sector.
Our mortgage arrears remain better than the industry average
with the percentage of mortgages in arrears by 3 months or more at
0.43% against an overall industry average of 0.85%. *.
* UK Finance. Data correct as at 13(th) May 2021.
Investing
Building lasting relationships with our customers
Our 30 local branches across our region means that colleagues
are always on hand, on the high street, with a warm welcome for our
customers - up to 6 days a week.
We continue to invest in our branch network as part of an
ongoing multi-million pound programme of improvements. For example,
we are currently working with North Tyneside Council to open a
community branch in the Tynemouth Library building after its
refurbishment. The branch is expected to open in 2022, supporting
the re-introduction of local financial services to Tynemouth's high
street.
We're also underway with the relocation of our West Denton
branch to a better location where we will create a modern,
accessible and welcoming space for our customers in the area. Our
Bishop Auckland branch will be next this year to undergo a major
refurbishment as part of a programme of work that was originally
put on hold due to the Covid-19 pandemic.
Our work with the High Streets Task Force and ongoing
collaboration with the North East of England Chamber of Commerce
and its members continues as high streets and towns across our
region work to improve their offer and manage the pace of change
they are currently experiencing.
Whilst we remain committed to providing a face-to-face service
on the high street, we also continue to invest in our digital
capability ensuring customers have access to help and support
across multiple channels:
-- We have developed the capability to run our financial
information 'Big Talks' both in person and virtually, incorporating
personalised and local delivery. Our virtual Big Talks on the
Little Screen will continue alongside in person seminars in the
future .
-- The launch of our online customer community forum in April,
has provided a great opportunity to share views and build
conversations with and between our customers on our Connected
Communities platform, and we will use this insight to help develop
and deliver future products and services, as well as understanding
other priorities for our customers.
-- We use a quick and convenient digital feedback tool for our
customers to rate their experience across branch, telephone or
online. Whether in the physical or virtual world, the tool enables
our colleagues to know almost immediately how our customers rate
the experience they've delivered.
-- Our savings app, provided by Newcastle Strategic Solutions,
continues to be developed and provides customers with an increasing
range of features to help manage their account.
Our customer satisfaction score at the half year point is 96%
and our net promoter score (NPS), which measures the loyalty of our
customer relationships driven by the quality and value delivered by
our colleagues, is +81 (NPS scores range from -100 to +100).
Building lasting relationships with our clients and partners
Our subsidiary, Newcastle Strategic Solutions Limited, has
delivered a solid first half financial performance. It is the UK's
market leading provider in third party savings management and
welcomed new client, Recognise Bank, on board earlier this
year.
It also extended its proposition to provide business savings for
SMEs, complementing the existing retail savings offering. Ongoing
development of the mobile savings app continue at pace with
transactional capabilities and a range of other functions now
available for Newcastle Strategic Solutions' clients to offer to
their customers.
Our Newcastle Strategic Solutions subsidiary also serves the
Group's technology needs. Investment in the Group technology
infrastructure to strengthen and enhance resilience and
performance, build greater business flexibility, and adapt to
changing propositions while delivering value for clients and
customers is ongoing. Investment in capacity and capability across
the business has continued across IT, risk and compliance,
financial crime, as well as the Group's IT Security and
infrastructure stability to drive Newcastle Strategic Solutions'
overall proposition and service provision.
Investing in our people
Our colleagues are key to our success as a business and we are
pleased that our employee advocacy is at an all-time high
We are committed to attracting and retaining talent by fostering
inclusion, and this approach is already driving positive outcomes.
In February this year we were rated tenth in the 'Rate my
Placement' Top 50 Employer list. We work hard with our partner
organisations, The Prince's Trust and Newcastle United Foundation,
to deliver meaningful opportunities for young people to build
workplace skills and experience with a view to turning this into
real employment with permanent roles. This year will offer
apprenticeships, graduate roles and student placements, in addition
to a ring fenced Prince's Trust apprenticeship.
For the second year we sponsored the 'Young Leader Programme'
with Common Purpose which supports young people in the UK, to
develop their leadership skills. Five of our own young leaders have
attended the programme this year, along with two young people from
the Newcastle United Foundation's NU Futures Programme.
Investing in our communities
Recognising that the pandemic has brought significant challenge
to our communities, our community grant giving programme through
the Newcastle Building Society Community Fund at the Community
Foundation Tyne & Wear and Northumberland has been refocused to
support Covid recovery.
The Newcastle Building Society Community Fund grants are
providing ongoing support to programmes delivering employability
skills and experience; addressing food poverty; and helping with
debt management. So far this year we have provided or committed
GBP111,000 in support grants across these areas of focus.
Colleague volunteering continues to be a fundamental way we
offer support to our communities. We worked with tech for good
business, onHand and the National Innovation Centre for Ageing to
roll out an innovative volunteering app across our region. To date
this year, colleagues have delivered more than 148 days of
volunteering in our communities.
Following the launch of our GBP1.1m partnership with the
Newcastle United Foundation last year to deliver 'NUCASTLE powered
by Newcastle Building Society', a new community hub for sports,
education and wellbeing, we marked a key point in the construction
in May. Along with other key supporters, we signed the building
foundation steels, and were joined by two of the participants from
the NU Futures programme who, following completion of the programme
we support, have since gone on to full employment.
Both our NUFutures and the Prince's Trust partnerships have
challenged our creativity in being able to deliver the quality of a
face to face experience when delivered by our colleagues remotely.
It is testament to the commitment of those who have put themselves
forward, from our branch network and across our Society, that the
feedback they have received from participants has been
outstanding.
Board changes
We have announced a number of changes to our Board.
In July, the current Chair of our Board, Phil Moorhouse
announced that he intended to stand down. Phil has given
outstanding service as a non-executive director of our Society for
nearly 10 years, having joined the Board in 2011 and becoming Chair
after the AGM in 2013. In his time as Chair, Phil has led the Board
through a period of sustained growth for the Group while providing
stewardship through some uniquely challenging periods in the
aftermath of the last financial crisis and more recently, during
the most difficult days of the Covid-19 pandemic. As a Board and a
Society, we are extremely appreciative of Phil's contribution to
our Society's progress.
After the completion of a thorough recruitment process, we have
selected James Ramsbotham CBE DL as our new Chair. Through his role
as Chief Executive of North East of England Chamber of Commerce,
James brings extensive knowledge of business throughout our region
and specific experience of financial services gained as both an
executive and a non-executive, together with a clear focus on
customers and communities. I am sure that all colleagues across our
Society will very much look forward to making James welcome in his
new role and working with him in the years ahead.
We also welcome a new non-executive director, Michele Faull to
the Board. Michele, a former Chief Financial Officer at Coventry
Building Society and a Risk Director at Nationwide, will also
become a member of the Board's Audit and Group Risk Committees.
Financial Performance
The Society has been well placed to meet the ongoing financial
challenges arising from the pandemic, with robust capital, good
levels of liquidity and a sound underlying business, further
supported with diversified income from our Newcastle Strategic
Solutions and Newcastle Financial Adviser subsidiaries.
Profitability
Operating profit before impairment and provisions increased by
GBP5.7m to GBP13.0m from GBP7.3m at half year 2020. Profit before
tax was GBP13.9m for the six months ended 30 June 2021 compared to
GBP2.2m for the first half of 2020. The increase in profit before
tax is primarily due to an increase in income combined with a
smaller increase in the cost base but also a modest write-back of
impairment charges.
Net interest income was GBP23.9m and our net interest margin
increased to 99bps at 30 June 2021. (30 June 2020: 81bps and 31
December 2020: 87bps). The increase in margin is driven by falling
market interest rates as well as the Group continuing to access
central bank funding via the TFS and TFSME schemes.
Other income and charges increased by GBP1.9m to GBP21.6m (30
June 2020: GBP19.7m) reflecting steady first half year performance
from Newcastle Strategic Solutions, our savings management and IT
subsidiary. Member income, which includes our financial advice
subsidiary, increased, with Newcastle Financial Advisers, recording
strong performance over the first half of the year, despite the
challenging economic environment.
Our cost to income ratio decreased to 71.5% (30 June 2020:
80.7%) and management expenses (comprising administration expenses
and depreciation) increased by GBP2.2m from GBP30.3m to GBP32.5m.
The increase in costs is attributable to continued investment in
our colleagues and infrastructure. The decrease in the cost to
income ratio is as a result of the increase in income being in
excess of the increase in costs.
Credit Risk
Impairment charges on loans and advances to customers were a
reversal of GBP0.9m (30 June 2020: charge of GBP5.1m). The GBP0.9m
reversal on impairment charges includes write-backs of GBP0.7m on
the Group's commercial portfolio, GBP0.5m on the residential
portfolio, and a slight increase in provision of GBP0.3m on the
Group's equity release portfolio.
Covid-19 continues to have severe impact on the economic
activity in the UK and worldwide, with the UK currently
experiencing a third wave of the pandemic.
The Group's credit risk in relation to its prime residential
mortgage portfolios is closely correlated with significant rises in
unemployment rates and falls in property values. Provisions against
residential exposures are based on the Society's provisioning
model, using economic scenarios assuming significant downsides,
including the increased potential for rising unemployment and
reduced property values. The reduction in provisions is due to more
positive economic data and the outlook for the UK economy when
compared with the situation at 31 December 2020.
The Society had made significant progress in winding down its
legacy commercial lending exposures. Credit risk for the remaining
exposure depends primarily on the sectors which the tenants operate
in and to what extent the commercial properties are likely to be
attractive for businesses after the pandemic. Provisions for these
exposures have been calculated on an individual basis, taking into
account all information the Society has on individual
customers.
Credit risk in the Society's legacy lifetime lending is most
sensitive to assumptions on longer term house price rises. In
determining these assumptions consideration has been given to the
potential impact Covid-19 may have on the economy with provisions
for this exposure being based on reduced levels of assumed house
price inflation.
The percentage of mortgages in arrears by 3 months or more
remain at low levels at 0.43% (0.36%: 30 June 2020 and 0.36%: 31
December 2020). Possession cases remain at very low levels. Gross
lending for the first half of the year was GBP483m (First half of
2020: GBP357m). The net change across the whole of our lending for
the first half of 2021 was GBP191m (First half of 2020: GBP163m),
which includes a GBP29m reduction in our exposure to the legacy
lending book (First half of 2020: GBP15m). The Society's core
residential mortgage book grew by GBP220m during the first half of
2021 (First half of 2020: GBP178m).
Liquidity
We continue to manage our liquidity levels efficiently and
comfortably within our regulatory limits. Liquid assets as a
percentage of Shares, Deposits and Liabilities at 30 June 2021 were
21.6% (31 Dec 20: 25.2%). Cash liquidity was 16.7% at 30 June 2021
(19.1% at 31 Dec 2020). This is in excess of the Society's minimum
operating level. The Liquidity Coverage Ratio (LCR) measures
unencumbered high quality liquid assets as a percentage of net cash
outflows over a 30 day stress period. The LCR as at 30 June 2021
was 202% (31 Dec 20: 226%) comfortably in excess of the minimum
regulatory limit of 100%. The quality of liquidity continues to be
excellent, comprising assets held in cash or that can easily be
converted to cash through treasury markets (repo) or via the
various Bank of England liquidity schemes.
Capital
Capital ratios remain robust. Total Capital Ratio (Solvency)
reduced to 14.6% (31 December 2020: 15.5%). The Tier 1 ratio was
13.5% (31 December 2020: 14.4%) and Common Equity Tier 1 ratio was
13.3% (31 December 2020: 14.1%). The Society's Basel III leverage
ratio (transitional basis) was 4.3% at 30 June 2021 (31 December
2020: 4.4%). Capital ratios disclosed include unverified half year
2021 retained profits.
Summary and look ahead
The Society has continued to focus on what is important: our
customers; our communities; our region; delivering excellent
service and good value through the products and services we offer
and all while maintaining a robust financial performance. Once
again, I thank all colleagues across the Society for their
continued efforts, resilience, compassion and positivity in
addressing the many challenges in serving our customers and
communities through this unique and demanding period. I also thank
the Society's Members for their ongoing support and loyalty to the
Society, and for the many messages of positive feedback and
encouragement we have received.
Throughout the pandemic we have been more conscious than ever of
the role we play and the difference we can make for our customers
and communities - driven by a clear sense of purpose across the
Society. While there is no doubt that we are not yet clear of the
pandemic and all the challenges it brings, this does feel like
another moment of change, when we must ask ourselves again how we
can best support all those whom we aim to serve through this next
chapter. The Society is well placed to move forward with
confidence, to continue to invest for the future and to remain
focused on 'Connecting our communities with a better financial
future', in the months and years ahead.
Andrew Haigh
Chief Executive
Forward-looking statements
Certain statements in this half-yearly information are
forward-looking. These statements are made in good faith based on
the information available up to the time of approval of this report
and such statements should be treated with caution due to the
inherent uncertainties, including both economic and business risk
factors, underlying any such forward-looking information. Therefore
actual results may differ materially from those expressed or
implied by these forward-looking statements. The Directors
undertake no obligation to update any forward-looking statements
whether as a result of new information, future events or
otherwise.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Condensed Consolidated Income Statement
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 Jun 21 30 Jun 20 31 Dec 20
GBPm GBPm GBPm
Interest receivable and similar income 40.6 42.2 82.9
Interest payable and similar charges (16.7) (24.3) (42.7)
------------ ------------ -------------
Net interest income 23.9 17.9 40.2
Other income and charges 21.6 19.7 39.0
------------ ------------ -------------
Total operating income 45.5 37.6 79.2
Administrative expenses (30.0) (28.0) (57.9)
Depreciation and amortisation (2.5) (2.3) (4.9)
------------ ------------ -------------
Operating profit before impairments and provisions 13.0 7.3 16.4
Impairment reversals/(charges) on loans and advances to customers 0.9 (5.1) (10.5)
Impairment reversals/(charges) on property and equipment 0.1 - (3.8)
Provisions for liabilities and charges (0.1) - (0.1)
------------ ------------ -------------
Profit before taxation 13.9 2.2 2.0
Taxation expense (2.3) (0.4) (0.6)
------------ ------------ -------------
Profit after taxation for the financial period 11.6 1.8 1.4
------------ ------------ -------------
The Notes on pages 14 to 22 form an integral part of this
condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Condensed Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 Jun 21 30 Jun 20 31 Dec 20
GBPm GBPm GBPm
Profit for the period 11.6 1.8 1.4
------------ ------------ -------------
Other comprehensive income/(expense):
Items that may be reclassified to income statement
Movement on fair value of debt securities through other comprehensive
income/(expense) 0.2 (0.5) 0.6
Income tax on items that may be reclassified to income statement (0.1) 0.1 (0.2)
------------ ------------ -------------
Total items that may be reclassified to income statement 0.1 (0.4) 0.4
------------ ------------ -------------
Items that will not be reclassified to income statement
Derecognition of pension surplus - (0.2) (0.2)
Other non classified items - - 0.1
------------ ------------ -------------
Total items that will not be reclassified to the income statement - (0.2) (0.1)
------------ ------------ -------------
Total other comprehensive income/(expense) 0.1 (0.6) 0.3
------------ ------------ -------------
Total comprehensive income for the financial period 11.7 1.2 1.7
------------ ------------ -------------
The Notes on pages 14 to 22 form an integral part of this
condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet
Unaudited Unaudited Audited
30 Jun 21 30 Jun 20 31 Dec 20
GBPm GBPm GBPm
ASSETS
Liquid assets 959.7 771.5 1,109.7
Derivative financial instruments 2.1 0.2 -
Loans and advances to customers 3,669.9 3,452.7 3,477.9
Fair value adjustments for hedged risk 168.4 228.6 214.3
Property, plant and equipment and other assets 62.0 68.3 62.4
---------- ---------- ----------
TOTAL ASSETS 4,862.1 4,521.3 4,864.3
---------- ---------- ----------
Unaudited Unaudited Audited
30 Jun 21 30 Jun 20 31 Dec 20
GBPm GBPm GBPm
LIABILITIES
Shares 3,771.5 3,489.9 3,776.3
Deposits and debt securities 664.3 557.1 628.0
Derivative financial instruments 169.5 228.4 214.3
Other liabilities 17.6 18.9 18.2
Subscribed capital 20.0 20.0 20.0
Reserves 219.2 207.0 207.5
---------- ---------- ----------
TOTAL LIABILITIES 4,862.1 4,521.3 4,864.3
---------- ---------- ----------
The Notes on pages 14 to 22 form an integral part of this
condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Condensed Consolidated Statement of Movement in Members'
Interests
For the 6 months ended 30 June 2021
(unaudited)
Fair Value Total
General through Other
reserve Comprehensive
Income
GBPm GBPm GBPm
At 1 January 2021 205.7 1.8 207.5
Movement in the period 11.6 0.1 11.7
At 30 June 2021 217.3 1.9 219.2
---------- --------------- ------
For the 6 months ended 30 June 2020
(unaudited)
General Fair Value Total
reserve through Other
Comprehensive
Income
GBPm GBPm GBPm
At 1 January 2020 204.4 1.4 205.8
Movement in the period 1.6 (0.4) 1.2
At 30 June 2020 206.0 1.0 207.0
---------- --------------- ------
For the year ended 31 December 2020
(audited)
General Fair Value Total
reserve through Other
Comprehensive
Income
GBPm GBPm GBPm
At 1 January 2020 204.4 1.4 205.8
Movement in the year 1.3 0.4 1.7
At 31 December 2020 205.7 1.8 207.5
---------- --------------- ------
The Notes on pages 14 to 22 form an integral part of this
condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Condensed Consolidated Cash Flow Statement
Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 Jun 21 30 Jun 20 31 Dec 20
GBPm GBPm GBPm
Net cash flows from operating activities (102.7) (134.2) 227.3
Corporation tax paid (1.9) (0.8) (2.2)
Payment into defined benefit pension
scheme - (0.2) (0.2)
---------- ---------- ----------
Cash (outflows)/inflows from operating
activities (104.6) (135.2) 224.9
---------- ---------- ----------
Purchases of property, plant and equipment (3.0) (2.6) (5.6)
Purchase of investment securities (62.4) (83.1) (110.7)
Sale and maturity of investment securities 27.0 126.5 158.8
---------- ---------- ----------
Net cash flows from investing activities (38.4) 40.8 42.5
---------- ---------- ----------
Interest paid on subscribed capital (1.2) (1.2) (2.3)
Payment for finance lease arrangements (0.4) (0.4) (1.2)
---------- ---------- ----------
Net cash flows from financing activities (1.6) (1.6) (3.5)
---------- ---------- ----------
Net (decrease)/increase in cash and
cash equivalents (144.6) (96.0) 263.9
Cash and cash equivalents at the start
of period 490.3 226.4 226.4
---------- ---------- ----------
Cash and cash equivalents at the end
of the period 345.7 130.4 490.3
---------- ---------- ----------
The Notes on pages 14 to 22 form an integral part of this
condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Other percentages
6 months 6 months 12 months
30 Jun 21 30 Jun 20 31 Dec 20
% % %
Gross capital as a % of shares and borrowings 5.4 5.6 5.2
Liquid assets as a % of shares and borrowings 21.6 19.1 25.2
Wholesale deposits as a % of shares and borrowings 15.0 13.8 14.3
Overall liquidity adequacy ratio 21.0 21.3 26.4
Liquid assets as a % of shares and borrowings excluding encumbered assets 16.7 12.0 19.1
Net interest receivable as a % of mean total assets ("NIM") 0.99 0.81 0.87
Cost to income ratio 71.5 80.7 79.0
Profit after tax as a % of mean total assets 0.48 0.08 0.03
Management expenses as a % of mean total assets* 1.35 1.37 1.35
Common Equity Tier 1 Ratio 13.3 13.7 14.1
Tier 1 Ratio 13.5 13.9 14.4
Total Capital Ratio (Solvency) 14.6 15.0 15.5
Leverage Ratio (Basel III - end point) 4.2 4.5 4.1
Leverage Ratio (Basel III - transitional) 4.3 4.6 4.4
* Expressed on an annualised basis
Capital ratios disclosed include unverified half-year retained
profits. The figures for the 12 months ended 31 December 2020 are
extracted from the audited 2020 accounts. Definitions of the ratios
above are included in the audited 2020 accounts.
The Notes on pages 14 to 22 form an integral part of this
condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Notes
1. General information
1.1. The half-yearly financial information set out above, which
was approved by the Board of Directors, does not constitute
accounts within the meaning of the Building Societies Act 1986.
1.2. The financial information for the 12 months to 31 December
2020 has been extracted from the accounts for that year. The
auditors gave an unqualified opinion on the accounts for the 12
months to 31 December, and they have been filed with the Financial
Conduct Authority and the Prudential Regulation Authority.
1.3. The half-yearly financial information for the 6 months to
30 June 2021 and the 6 months to 30 June 2020 is unaudited.
1.4. The Society has legacy Equity Release Mortgages with a
gross value of GBP175m (2020: GBP185m). The Society is exposed to
interest rate risk that arises from this portfolio of assets and to
mitigate this risk, a portion of the assets are designated into a
macro fair value hedge. The fair value of the hedged risk is
included on the balance sheet under the heading "Fair value
adjustments for hedged risk" and at 30 June 2021, the adjustment
totalled GBP81m (2020: GBP98m). By design, the Society's hedges are
expected to be economically effective, with notional balances,
durations and rates on interest rate swaps agreed only where they
are expected to be a good fit to the same characteristics of the
underlying assets that are to be hedged.
In the second quarter of 2021, the Society commenced a review of
all our interest rate swaps associated with this legacy Equity
Release Mortgage portfolio, which includes preparation for the
associated transfer of these swaps from LIBOR to SONIA. As part of
this work, the Society is reviewing the relevant historical
accounting entries associated with hedging of these financial
instruments given the complexity and the compounding nature of
these requirements, over a significant period of time. This review
is not expected to be complete until the final quarter of 2021, at
which point any material findings impacting the Society will be
reflected in the full year financial statements, which may include
prior period adjustments.
The Society has recently appointed new external auditors
(Deloitte LLP), who will work through the outputs of this review
once available and as such Deloitte have not expressed a view on
the 30(th) June 2021 half-yearly information. All connected prior
year balances and corresponding in year adjustments had been the
subject of an unqualified audit opinion from our previous auditors
PricewaterhouseCoopers LLP.
1.5. The announcement is available at www.newcastle.co.uk .
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
2. Basis of preparation
The condensed consolidated financial information for the
half-year ended 30 June 2021 has been prepared in accordance with
the Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34, 'Interim financial reporting' as
applicable in the United Kingdom. It does not include all the
information required by International Financial Reporting Standards
(IFRSs). The half-yearly financial information should be read in
conjunction with the annual accounts for the year ended 31 December
2020, which have been prepared in accordance with International
Financial Reporting Standards (IFRSs) as applicable in the United
Kingdom.
The Directors have assessed whether the Group continues to be a
going concern, based on internal forecasts and stress testing,
taking into account all available information about the Group and
its trading environment as detailed below
The outbreak of Covid-19 has resulted in a severe economic
contraction in 2020, causing an increase in expected credit losses
in that year. Governments, central banks and other public
institutions have responded with unprecedented support for the
economy and those most affected, and as a result, hardly any of the
expected credit losses have realised yet. However, whilst the
economic outlook has improved significantly, due to the success of
mass vaccinations and the reopening of the economy, the impact of
unwinding government support could still lead to the realisation of
these losses. Therefore, the level of provisioning has been held
largely constant since the 2020 year end (see note 12 for
details).
Based on the most recent formal review in July 2021 which
includes the Group's latest stress and scenario testing, the
Directors have concluded that the Group has adequate resources to
continue in business for the foreseeable future, due to its robust
underlying profitability, in conjunction with a strong capital
position and liquidity buffers and resources. Accordingly the
accounts have been prepared on a going concern basis with no
material uncertainties that the going concern basis of accounting
is appropriate.
3. Accounting policies
The half-yearly financial information has been prepared on the
basis of the accounting policies adopted for the year ended 31
December 2020, as described in those financial statements.
4. Accounting Estimates and Judgements in Applying Accounting Policies
The Group has to make judgements in applying its accounting
policies, which affect the amounts recognised in the Half-yearly
financial information. These judgements are based on management's
best knowledge but the eventual outcome may differ from them. In
addition, estimates and assumptions are made that could affect the
reported amounts of assets and liabilities within the following
year. Whilst there have been no changes to the accounting areas
where the most significant estimates and judgements are applied, an
overview on the impact the changed economic situation has had on
these is provided below.
Estimates
Pensions
In accordance with requirements in IAS 19, the Group does not
recognise its IAS 19 pension surplus. Changes in economic
conditions suggest that the pension surplus is likely to have
increased since December 2020, which is in line with updated
valuations received from the scheme's actuary. Therefore, it was
not considered necessary to obtain a formal valuation of the scheme
as at 30 June 2021.
Effective Interest Rate (EIR)
Management regularly review the assumptions in respect of the
expected lives of loans, used to determine the EIR adjustment.
Management have observed higher levels of early repayments compared
to recent years in the first half of 2021. This is likely the
result of low interest rates encouraging customers to remortgage.
In addition, increased levels of savings due to lockdowns and
travel restrictions are used to repay debt. Management consider
these increased levels of early redemptions a temporary event.
Assuming a 1% increase in prepayments would results in an increase
in EIR asset by GBP0.1m, and assuming a 1% decrease would result in
a decrease of the EIR asset by GBP0.1m.
Fair Value of Derivatives and Financial Assets
Fair Values are determined by the three tier valuation hierarchy
as defined within IFRS 7. Please see note 12 for details. There
have been no significant changes to valuation methodologies applied
since the publication of the Group's 2020 Annual Report and
Accounts.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Judgements
Impairment of Financial Assets
Management experience and judgement is required in using IFRS 9
impairment models and IFRS 4 insurance liability models to project
historic performance into uncertain future economic environments,
in particular in economic environments as unstable as the current
one. Note 12 provides a summary of management's most central
estimates and judgements applied in determining provisions as well
as the tables of sensitivities relating to these assumptions.
5. Principal Risks and Uncertainties
The Group's activities expose it to a variety of risks: credit
risk, liquidity risk, market risk (predominantly interest rate and
macro-economic risk), pension fund obligation risk, capital risk,
operational risk, conduct risk and climate change risk. There have
been no changes in the principal risks and uncertainties facing the
Group and no significant changes to these risks are currently
expected in the second half of the year.
The interim condensed consolidated financial information does
not include all risk management information and disclosures
required in the annual accounts, and should be read in conjunction
with the Group's 2020 Annual Report and Accounts.
There have been no material changes to the Group's risk appetite
since publication of the Group's 2020 Annual Report and
Accounts.
6. Taxation
The effective tax rate is 19.0% (2020:19.0%). The tax charge has
been calculated to approximate to the expected full year tax rate
and includes an adjustment to deferred tax assets, and to current
tax for changes in the enacted corporation tax rate.
7. Related Party Transactions
During the 6 months to 30 June 2021 the Society purchased
GBP2.8m of Business Support Services and Managed IT and Property
Services from Newcastle Strategic Solutions Limited (NSSL) a wholly
owned subsidiary (In the same period in 2020, GBP2.9m were procured
from NSSL). The Society received GBP4.8m from NSSL in the 6 months
to 30 June 2021 for the provision of Financial and Administrative
Services. (This compares to GBP5.0m from NSSL for the same period
in 2020). For further detail see Note 31 of the Group's 2020 Annual
Report and Accounts.
8. Interest receivable and similar income
Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 Jun 21 30 Jun 20 31 Dec 20
GBPm GBPm GBPm
Interest Income calculated using effective
interest rate 45.5 45.9 91.6
Interest recognised in respect of
insurance contracts 6.0 6.3 12.7
Net expense on derivatives used for
hedging purposes (10.9) (10.0) (21.4)
---------- ---------- ----------
Total Interest Income 40.6 42.2 82.9
---------- ---------- ----------
Certain costs and income recognized using the effective interest
rate method are included in Interest income calculated using
effective interest rate in line with IFRS 9 since the 2020 year end
accounts, but had been included elsewhere in the Income Statement
in previous periods. To ensure the prior half year balance is
comparable, the following reclassifications have been made to the
2020 half year results. Other income and charges increased by
GBP1.0m, administrative expenses decreased by GBP0.2m, resulting in
a net decrease in interest income of GBP1.2m.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
9. Revenue from contracts with customers
In accordance with IFRS 8, 'Operating Segments', the Group
reports the following segments; Member business and Solutions
business. When the Group prepares financial information for
management, it disaggregates revenue by segment and service
type.
The table below illustrates the disaggregation of revenue in
scope of IFRS 15, 'Revenue from Contracts with Customers'. Revenue
from contracts with customers generated by the Solutions business
and the Member business is included in "Other income and charges"
within the Segment information note.
Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 Jun 21 30 Jun 20 31 Dec 20
GBPm GBPm GBPm
Revenue from contracts with customers
Solutions business:
Savings management services 16.3 16.1 31.6
Savings management project and change
services 0.4 0.6 1.2
IT services 0.3 0.3 0.7
Member business:
Regulated advice services 2.4 2.5 4.3
Third party services 0.8 0.3 0.6
Other services 0.1 - 0.1
Total revenue from contracts with
customers 20.3 19.8 38.5
---------- ---------- ----------
10. Segment information
The chief operating decision maker has been identified as the
Board of Directors. The Board reviews the Group's internal
reporting in order to assess performance and allocate resources.
Management has determined the operating segments based on these
reports. Following the management approach of IFRS 8, operating
segments are reported in accordance with the internal reporting
provided to the Board of Directors. The operating segments used by
the Group meet the definition of a reportable segment under IFRS
8.
The 'Member business' segment provides mortgage, savings,
investment and insurance products to Members and customers. The
'Solutions business' segment (also referred to as Newcastle
Strategic Solutions Limited (NSSL)) provides business to business
services through people, processes and technology. The Board
assesses performance based on profit before tax after the
allocation of all central costs. Operating profit before
impairments and provisions is also assessed as this provides
information on underlying business performance.
Income and directly attributable costs are allocated to each
segment and support costs are apportioned, based on direct salary
costs and detailed allocations by budget holders.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
6 months to 30 June 2021 Member Solutions
Business Business Total
GBPm GBPm GBPm
Net interest income 24.4 (0.5) 23.9
Other income and charges 1.7 19.9 21.6
Administrative expenses (12.9) (17.1) (30.0)
Depreciation (1.3) (1.2) (2.5)
--------- ---------- -------
Operating profit before impairments
and provisions 11.9 1.1 13.0
Impairment reversals on loans and
advances to customers 0.9 - 0.9
Provisions for liabilities and charges (0.1) - (0.1)
12.7 1.1 13.8
Impairment reversals on property and
equipment 0.1
-------
Profit before taxation 13.9
Taxation expense (2.3)
-------
Profit after taxation for the financial
period 11.6
-------
6 months to 30 June 2020 Member Solutions
Business Business Total
GBPm GBPm GBPm
Net interest income 18.7 (0.8) 17.9
Other income and charges 1.7 20.0 21.7
Administrative expenses (13.5) (16.5) (30.0)
Depreciation (1.3) (1.0) (2.3)
--------- ---------- -------
Operating profit before impairments
and provisions 5.6 1.7 7.3
Impairment charges on loans and advances
to customers (5.1) - (5.1)
Provisions for liabilities and charges - - -
Profit before taxation 0.5 1.7 2.2
Taxation expense (0.4)
-------
Profit after taxation for the financial
period 1.8
-------
Year to 31 December 2020 Member Solutions
Business Business Total
GBPm GBPm GBPm
Net interest income 41.8 (1.6) 40.2
Other income and charges - 39.0 39.0
Administrative expenses (24.8) (33.1) (57.9)
Depreciation (2.8) (2.1) (4.9)
--------- ---------- -------
Operating profit before impairments
and provisions 14.2 2.2 16.4
Impairment charges on loans and advances
to customers (10.5) - (10.5)
Provisions for liabilities and charges - (0.1) (0.1)
3.7 2.1 5.8
Impairment charges on property and
equipment - (3.8)
-------
Profit before taxation 2.0
Taxation expense (0.6)
Profit after taxation for the financial
period 1.4
-------
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
11. Fair value measurement
The following table summarises the fair value measurement basis
used for assets and liabilities held on the Balance Sheet at fair
value at 30 June 2021.
Level Unaudited Unaudited Audited
30 Jun 30 Jun 31 Dec 20
21 20
GBPm GBPm GBPm
Financial assets
Debt securities - Fair value
through other comprehensive income 1 404.4 372.1 368.7
Equity investments (included
in other assets) 1 0.2 0.2 0.3
Derivative financial instruments 2 2.1 0.2 -
Fair value adjustments for hedged
risk on underlying instruments 2 168.4 228.6 214.3
Equity investments (included
in other assets) 3 0.3 0.3 0.3
Financial liabilities
Derivative financial instruments 2 169.5 228.4 214.3
Level 1: Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either directly
(i.e. as price) or indirectly (i.e. derived from prices).
Level 3: Inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
These definitions have been taken from the March 2009 amendment
to IFRS 13 'Improving Disclosures: Financial Instruments'.
There were no transfers between levels in the period.
12. Credit risk
Loans and advances to customers consist of the following
balances:
Product 30 Jun 2021 30 Jun 2020 31 Dec 2020
GBPm GBPm GBPm
Prime residential 2,680.4 2,483.0 2,497.5
Buy to let 390.0 315.8 352.0
Legacy books:
Legacy buy to let 32.0 37.0 32.0
Commercial 18.1 28.9 21.8
Housing association 363.7 384.9 381.4
Serviced apartments 17.7 18.1 18.0
Policy loans 1.8 2.2 1.9
Equity release mortgages 174.5 185.4 182.5
Accrued interest 6.6 7.5 6.4
Provisions (14.9) (10.1) (15.6)
------------ ------------ ------------
Total 3,669.9 3,452.7 3,477.9
------------ ------------ ------------
Loans and advances to customers are accounted for under IFRS 9:
Financial Instruments, with the exception of the equity release
portfolio which is accounted for under IFRS 4: Insurance Contracts.
This note provides an overview of changes in credit risk since
December 2020.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Residential and retail Buy To Let portfolios
Under IFRS 9, scenario analysis is used to assess and provide
for expected credit losses. Please see the Group's 2020 Annual
Report and Accounts for details of the Society's methodology of
this assessment.
No changes were made to the model or scenario weightings since
the December 2020 accounts. However, The House Price growth
assumptions (HPI) within the scenarios have been updated slightly
to reflect the more positive economic outlook. The following table
summarises the HPI assumptions used. They are provided as annual
percentage growth or contraction compared to the previous year.
There have been no adjustments to post model adjustments and the
treatment of payment holidays since December 2020 and they are not
material individually or in aggregate. No other assumptions have
been changed since the December 2020 accounts.
Scenario 2021 2022 2023 2024 2025
---------- ------- ------- ------ ----- -----
Upside 7.0 4.0 3.0 3.5 3.5
Base (1.0) (6.0) 2.0 5.0 5.0
Downside (3.0) (7.0) (2.0) 1.0 5.0
Stress (20.0) (25.0) (5.0) 5.3 16.7
IFRS 9 staging and loss provisioning
The impact of IFRS 9's staging and loss provisioning to the
Society's closing 30 June 2021 balance sheet was as follows
(payment holidays are not considered to be arrears):
IFRS 9 Gross Exposure
Stage 1 Stage 2 Stage 3 Total
Of which Months in Of which Months in Of which Months in Arrears
Arrears Arrears
< 1 1-3 > 3 < 1 1-3 > 3 < 1 1-3 > 3
GBPm
Prime
residential 2,378.4 - - 268.1 9.0 - 11.9 1.4 11.6 2,680.4
Buy to Let 361.1 - - 25.7 1.7 - 0.7 0.2 0.6 390.0
Total 2,739.5 - - 293.8 10.7 - 12.6 1.6 12.2 3,070.4
---------- -------- ---- --------- ----- ------ ---------- -------- --------- --------
Expected Credit Losses
Stage 1 Stage 2 Stage 3 Total
Of which Months in Of which Months in Of which Months in Arrears
Arrears Arrears
< 1 1-3 > 3 < 1 1-3 > 3 < 1 1-3 > 3
GBP000
Prime
residential 438.5 - - 1,169.2 85.0 - 636.1 6.8 190.6 2,526.2
Buy to Let 70.1 - - 173.5 24.9 - 339.1 3.5 3.7 614.8
Total 508.6 - - 1,342.7 109.9 - 975.2 10.3 194.3 3,141.0
--------- --------- ---- --------- ------ ----- ---------- -------- --------- --------
Sensitivity
The 30 June 2021 provisions are sensitive to the likelihood
factor applied to the different scenarios. The analysis below
demonstrates the impact of changes to the scenario weightings.
Upside Base Downside Severe downside Provision
GBPm
------------------ ------- ----- --------- ---------------- ----------
Actual weighting 10% 40% 35% 15% 3.1
Sensitivity 1 0% 100% 0% 0% 1.8
Sensitivity 2 0% 0% 100% 0% 2.3
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Legacy portfolios
The provisioning methodology for Commercial, Legacy Buy to Let,
and Service Apartments exposures follows that outlined in the
December 2020 accounts. Economic scenarios have been updated to
correspond with the scenarios used for residential mortgages and
the same scenario weightings are used for these books as are used
for the core books above.
The following sector specific discounts and uplifts have been
used, compared to current collateral valuations:
Sector Upside Base Downside Severe downside
-------------- ------- ----- --------- ----------------
Retail 90% 80% 60% 40%
Banking 100% 90% 80% 50%
Leisure 70% 50% 40% 30%
Residential 106% 94% 82% 50%
Hotel 106% 75% 60% 40%
Distribution 120% 100% 90% 80%
These discounts and uplifts are applied to the latest valuation
of the collateral property used for provisioning. No losses are
expected on exposures to housing associations and policy loans
The resulting gross balances and corresponding provisions are as
follows:
Product 30 Jun 2021 30 Jun 2020 31 Dec 2020
Exposure Provision Exposure Provision Exposure Provision
GBPm GBPm GBPm GBPm GBPm GBPm
--------- ---------- --------- ---------- --------- ----------
Legacy Buy to Let 32.0 3.6 37.0 2.0 32.0 3.0
Commercial 18.1 4.7 28.9 2.3 21.8 5.6
Housing Associations 363.7 - 384.9 - 384.1 -
Serviced Apartments 17.7 0.8 18.1 - 18.0 0.9
Policy Loans 1.8 - 2.2 - 1.9 -
--------- ---------- --------- ---------- --------- ----------
Total 433.3 9.1 471.1 4.3 457.8 9.5
--------- ---------- --------- ---------- --------- ----------
Sensitivity
The 30 June 2021 provisions are sensitive to the likelihood
factor applied to the different scenarios. The analysis below
demonstrates the impact of changes to the scenario weightings.
Upside Base Downside Severe downside Provision
GBPm
------------------ ------- ----- --------- ---------------- ----------
Actual weighting 10% 40% 35% 15% 8.9
Sensitivity 1 0% 100% 0% 0% 6.5
Sensitivity 2 0% 0% 100% 0% 10.4
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Equity release mortgages
The exposure and corresponding insurance liability relating to
the equity release mortgage portfolio are as follows:
30 Jun 2021 30 Jun 2020 31 Dec 2020
GBPm GBPm GBPm
Gross mortgage balances 174.5 185.4 182.5
Insurance liability (2.7) (2.4) (2.4)
------------ ------------ ------------
Net position 171.8 183.0 180.1
------------ ------------ ------------
Since December 2020, the model used to determine the insurance
liability for the equity release book has been updated to better
reflect the liability associated with each individual account. HPI
and dilapidation assumptions have also been changed to best reflect
historic experience and management's expectations about medium and
long term economic developments. The following table provides
details about the assumptions used and the sensitivities to
alternative assumptions.
Scenario Description Insurance liability
GBPm
The actual provision is based on an initial shock
to HPI of 7.5% followed by 0% growth for 3 years.
HPI then grows at 4.5% from 2024 onwards. Dilapidation
costs are estimated at 6.5%. 2.7
Assuming an initial shock to HPI of 7.5% followed
by 0% growth for 3 years. HPI then grows at 4.5%
from 2024 onwards. Dilapidation costs fall 200bips
to 4.5% 2.2
Assuming an initial shock to HPI of 7.5% followed
by 0% growth for 3 years. HPI then grows at 4.5%
from 2024 onwards. Dilapidation costs increase
200bips to 8.5% 3.3
Assuming no shock to HPI and HPI at a rate of
3% throughout, which is significantly below long
term average. Dilapidation costs are estimated
at 6.5%. 3.3
Assuming no shock to HPI and HPI at a rate of
4% throughout, which is below long term average.
Dilapidation costs are estimated at 6.5%. 0.8
--------------------
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Statement of Directors' responsibilities
The Directors confirm that this condensed consolidated
half-yearly financial information has been prepared in accordance
with IAS 34 as applicable in the United Kingdom, and that the
half-yearly management report herein includes a true and fair
review of the information required by the Disclosure Guidance and
Transparency Rules (DTR 4.2.4, DTR 4.2.7 and DTR 4.2.8).
The Society's Home Member State is the United Kingdom.
The Directors of Newcastle Building Society are listed in the
Annual Report for 2020, subject to the following changes: Phil
Moorhouse stood down from the Board on 23(rd) August 2021, James
Ramsbotham and Michele Faull joined the Board on 23(rd) August 2021
.
On behalf of the Board
Andrew Haigh
Chief Executive
26 August 2021
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
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IR GLGDICBDDGBR
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