TIDMNBSR
RNS Number : 2784W
Newcastle Building Society
31 July 2018
Announcement of half-year results for the six months ended 30
June 2018
Key Highlights
* Operating profit increased by 16% to GBP7.2m (2017:
GBP6.2m)
* Profit before tax was GBP6.9m. Profit before tax in
the comparable period ended 30 June 2017 of GBP7.2m
included a credit of GBP2.1m on the purchase of our
Cobalt offices. Excluding the gain on purchase,
profit increased by GBP1.8m (35%)
* Gross lending of GBP229m in the first half of 2018
was in line with plan (2017: GBP303m)
* Mortgage arrears reduced and remain at very low
levels at 0.36% (2017: 0.39%), well below industry
averages
* Capital ratios remain robust with Total Capital Ratio
(Solvency) at 18.9%, Tier 1 Ratio at 16.7%, Common
Equity Tier 1 Ratio at 15.7% and Leverage Ratio at
5.3%
* Liquidity as a percentage of shares, deposits and
liabilities (excluding encumbered assets) was 17.3%
* We have supported over 500 first time buyers and seen
Self Employed mortgage volumes double
* Newcastle Building Society Community Fund at the
Community Foundation continues to grow and increased
levels of grants have been made
* 26 new jobs created
* Colleagues have doubled their volunteering
contribution so far this year. Over 117 organisations
have been able to count on willing support in 2017/18
Chief Executive's Review
For over 150 years Newcastle Building Society has been
connecting communities in the North East with a better financial
future. This is our purpose as a building society and our Members
can rely on us to help them save and plan their finances, buy their
own home, make positive changes to our local communities and of
course be a great place for colleagues to work and develop.
In the first half of 2018 we have made great progress, with
growth in lending, more new savers and increased levels of
financial advice business. In terms of financial performance we are
reporting increased profits from ongoing operations, strong capital
ratios, a robust liquidity position and low levels of arrears,
reflecting the excellent credit quality of our residential mortgage
book.
I am delighted that we have been able to improve operating
profitability at a time when we continue to invest in our branch
network, our community and our people. We have also continued to
upgrade and invest in our systems. The difference this makes to our
customers has been seen in growth in Members in the North East and
industry awards which have included Legal and General Mortgage Club
Award - Best Small Lender and Excellence in Resource and Talent
Management from the Chartered Institute of Personnel Development.
Put simply making sufficient and sustainable profits allows us to
serve all of our stakeholders effectively.
Profitability
Profit before tax was GBP6.9m for the six months ended 30 June
2018 compared to GBP7.2m for the first half of 2017. Although we
have seen a slight headline profit reduction from the prior
comparable period, 2017 profit before tax included a one off credit
of over GBP2m in relation to the purchase of our Cobalt
offices.
Operating profit before provisions and the Financial Services
Compensation Scheme levy increased by 16% to GBP7.2m from
GBP6.2m.
Net interest income increased by GBP2.4m to GBP16.0m reflecting
increased income from mortgage lending, the impact of rises in
LIBOR coupled with the ongoing benefit of reduced funding costs
from participation in the Bank of England Term Funding Scheme. Our
net interest margin improved to 86bp at 30 June 2018. (30 June
2017: 75bps and 31 December 2017: 79bps).
Other income and charges increased by GBP0.5m to GBP14.8m (2017:
GBP14.3m). Income from Newcastle Strategic Solutions Limited, our
Savings Management outsourcing business continues to grow as
balances under management rise. Income from Newcastle Financial
Advisers Limited, our financial advice subsidiary was up by GBP0.2m
when compared to the period ended 30 June 2017.
Our cost to income ratio improved by 1.5% to 76.5% (2017:
78.0%). Management expenses (comprising administration expenses and
depreciation) increased by GBP1.9m from GBP21.7m to GBP23.6m. This
primarily reflects the investment in our People through our Pay and
Grading project which has seen the Society increase pension
provision and benchmark the level of salary it offers. We have also
created new posts which are supporting the Society's growth,
delivering effective management of risk and reflect the continuing
investment being made in the Society and its branch network.
Capital
The Total Capital Ratio (Solvency) increased to 18.9% from 18.3%
at the prior comparable period. The ratio was the same as 31
December 2017 (18.9%) with profit generated through the first half
of 2018 offset by lending growth coupled with the amortisation of
Tier 2 capital as it approaches maturity in 2019. From 30 June 2017
to 30 June 2018, the Tier 1 ratio improved from 15.8% to 16.7% and
Common Equity Tier 1 ratio improved from 14.5% to 15.7%. The
Society's Basel III leverage ratio (transitional basis) was 5.3% at
30 June 2018 (5.0% at 30 June 2017). Capital ratios disclosed
include half year retained profits.
Liquidity
Liquid assets as a percentage of Shares, Deposits and
Liabilities at 30 June 2018 were 23.9% (2017: 25.4%). Excluding
encumbered liquid assets the ratio decreased from 18.3% at 30 June
2017 to 17.3% at 30 June 2018. 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. We expect to carefully
manage liquidity to lower levels over the second half of the
year.
Credit Risk
The percentage of mortgages in arrears by 3 months or more
continued at a level lower than the UK average, at 0.36% compared
to 0.39% at 30 June 2017, and 0.34% at 31 December 2017. Possession
cases remain at very low levels. Gross lending for the first half
of the year was in line with plan. Net lending was lower than the
prior comparable period as continuing growth in mortgages was
offset by higher than forecast redemptions from our closed
commercial and residential social landlord books. The Society's
prime residential mortgage book grew by GBP61m during the first
half of 2018 (GBP155m first half 2017).
Supporting our Customers
We recognise the power of communities and the role of the high
street as a focus for community life. 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 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 format branch launched in Durham earlier this
year. It will be followed by Carlisle and Gosforth, and is part of
an ambitious plan that will see all our branches updated by early
2020.
We continue to provide some of the best buy savings rates on the
high street and earlier this year supplemented this with the launch
of a new regular saver product at 2.25% (including bonus) to
encourage a savings habit across the region.
In the first six months of this year, we have supported over 500
first time buyers in their quest to own their own home. Our gross
lending exceeded GBP220m, with prime net lending increasing by over
GBP50m.
We've seen our Self Employed mortgage volumes double and we have
also introduced Help to Buy and Buy to Let mortgages for this
growing market reflecting the continuing change in employment
trends.
We were very pleased to be recognised by the Legal and General
Mortgage Club Awards as best smaller lender for 2018.
The Society currently offers customers access to Co-op's market
leading funeral plans. Following a recent agreement, customers will
now be able to access broader later-life planning services provided
by Co-op.
In May the Society's subsidiaries, Newcastle Strategic Solutions
Limited and Newcastle Systems Management Limited 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.
Investing in our Colleagues
We have continued to build on our Gold Investors in People
recognition which we were awarded last year. To be able to better
understand and respond to our colleagues' views, we have introduced
a new online engagement tool which gives us the opportunity to
regularly check feedback and opinions. It has already helped guide
some of our developments and improvements.
We have 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 have made a significant investment in our new leadership
programmes for senior managers, and continue to build our
apprentice programme. We offer great apprenticeship opportunities
across a range of business areas, supporting our apprentices with a
Living Wage salary, a structured learning programme with both a
nationally recognised qualification and a career at the end. This
complements the graduate recruitment and undergraduate placement
programmes we have been running for many years.
Our commitment to growing the financial adviser talent of the
future through a bespoke training programme between Openwork and
our Newcastle Financial Adviser subsidiary continues. The programme
provides an opportunity 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.
We have created 26 new roles so far this year to support our
Society's growth and investment plans. Our Human Resources Team are
central to how we work to develop the region's talent and potential
and we were proud to see them recognised by the North East HR&D
CIPD Awards in June when they won the award for Excellence in
Resourcing & Talent Management.
Working with our Communities
We aim to help our communities make positive changes.
There are around 35,000 people living with dementia in the North
East a statistic that is expected to increase. Our response is a
commitment to ensuring that every colleague will become a Dementia
Friend by 2019. We are also making Dementia Friends sessions
available to customers in our branches, and even welcoming staff
from other banks to learn more about improving the lives of those
living with dementia in our region.
Our branch community connections continue to grow, providing us
with unique opportunities to help out in ways that make a real
difference to those involved. Whether that's restoration work on
the Durham Teapot undertaken by the City of Durham Trust, or NE
Youth's 'Projects With Pride' Awards, 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 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. Our grant
programme is expanding year on year and now includes larger grants
of up to GBP50,000 to support community building improvements.
The Community Fund will also maintain support for the Sir Bobby
Robson Foundation, with an ongoing and significant level of funding
support for at least the next five years. We 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.
Our community grants are supplemented by a very active colleague
volunteering programme. Colleagues have doubled their volunteering
contribution so far this year. Over 117 organisations have been
able to count on willing support in 2017/18.
Our commitment to improving access to financial education across
our region continues. Our regular financial 'Big Talks' which are
open to members and non-members alike are ideal for those who want
to learn more about how to manage their finances and plan for the
future. Investments, retirement planning, inheritance tax planning
and estate planning are all covered in our informal but
informative, myth busting sessions that take place across the North
East and at no cost or obligation to those who wish to
participate.
Across our region we continue to work with school children as
part of our primary school education programme, the Boardroom
Charity Challenge. Our branch led financial education sessions
culminate with a presentation to a Chief Executive-led panel. This
year's winner was Rainbird Primary School.
Summary
I am pleased with the Society's improved progress and
performance in the first half of the year. We will continue to
invest in the business and focus on our purpose and why we are here
as a building society. Whilst our Society, colleagues and
communities look set to face continued economic uncertainty from
Brexit and wider global issues, we will continue to do what we do
best; helping people save and plan their finances and own their own
home, being a great place to work and supporting our communities in
making positive changes.
Andrew Haigh
Chief Executive
30th July 2018
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.
Summary Consolidated Income Statement
Unaudited Unaudited Audited
6 months 6 months 12 months
30 Jun 18 30 Jun 17 31 Dec 17
GBPm GBPm GBPm
Interest receivable and similar income 36.0 31.9 65.6
Interest payable and similar charges (20.0) (18.3) (36.5)
---------- ---------- ----------
Net interest income 16.0 13.6 29.1
Other income and charges 14.8 14.3 28.8
Total operating income 30.8 27.9 57.9
Administrative expenses (22.1) (20.5) (43.0)
Depreciation (1.5) (1.2) (2.8)
---------- ---------- ----------
Operating profit before impairments, provisions and exceptional items 7.2 6.2 12.1
Impairment charges on loans and advances to customers (0.2) (0.2) (0.2)
Provisions for liabilities and charges (0.1) (0.9) (1.0)
Exceptional gain on purchase of Cobalt Offices - 2.1 2.2
Profit before taxation 6.9 7.2 13.1
Taxation expense (1.3) (1.4) (2.2)
---------- ---------- ----------
Profit after taxation for the financial period 5.6 5.8 10.9
---------- ---------- ----------
The Notes on pages 10 to 21 form an integral part of this
condensed consolidated half-yearly financial information.
Summary Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months 6 months 12 months
30 Jun 18 30 Jun 17 31 Dec 17
GBPm GBPm GBPm
Profit for the period 5.6 5.8 10.9
---------- ---------- ----------
Other comprehensive (expense)/income:
Items that may be reclassified to income statement
Movement on available for sale reserve (0.1) 1.8 1.8
Income tax on items that may be reclassified to income statement - (0.4) (0.3)
---------- ---------- ----------
Total items that may be reclassified to income statement (0.1) 1.4 1.5
---------- ---------- ----------
Items that will not be reclassified to income statement
Derecognition of pension surplus - - (1.7)
---------- ---------- ----------
Total items that will not be reclassified to the income statement - - (1.7)
---------- ---------- ----------
Total other comprehensive (expense)/income (0.1) 1.4 (0.2)
---------- ---------- ----------
Total comprehensive income for the financial period 5.5 7.2 10.7
---------- ---------- ----------
The Notes on pages 10 to 21 form an integral part of this
condensed consolidated half-yearly financial information.
Summary Consolidated Balance Sheet
Restated
Unaudited Unaudited Audited
30 Jun 18 30 Jun 17 31 Dec 17
GBPm GBPm GBPm
ASSETS
Liquid assets 791.5 843.6 789.8
Derivative financial instruments 5.0 5.0 4.9
Loans and advances to customers 2,721.5 2,702.4 2,707.3
Fair value adjustments for hedged risk 183.0 207.7 206.2
Property, plant and equipment and other assets 53.2 54.8 53.9
---------- ---------- ----------
TOTAL ASSETS 3,754.2 3,813.5 3,762.1
---------- ---------- ----------
Restated
Unaudited Unaudited Audited
30 Jun 18 30 Jun 17 31 Dec 17
GBPm GBPm GBPm
LIABILITIES
Shares 2,775.1 2,830.2 2,788.5
Fair value adjustments for hedged risk 0.8 2.8 1.6
Deposits and debt securities 529.9 490.0 504.6
Derivative financial instruments 186.6 209.3 210.2
Other liabilities 14.5 17.9 15.4
Subordinated liabilities 25.0 50.0 25.0
Subscribed capital 30.0 30.0 30.0
Reserves 192.3 183.3 186.8
---------- ---------- ----------
TOTAL LIABILITIES 3,754.2 3,813.5 3,762.1
---------- ---------- ----------
The Notes on pages 10 to 21 form an integral part of this
condensed consolidated half-yearly financial information.
Summary Consolidated Statement of Movement in Members'
Interests
For the 6 months ended 30 June 2018 (unaudited)
Fair Value
through Other
Comprehensive
General reserve Income Total
GBPm GBPm GBPm
At 1 January 2018 185.0 1.8 186.8
Movement in the period 5.6 (0.1) 5.5
At 30 June 2018 190.6 1.7 192.3
------------------ ------------------ -------
For the 6 months ended 30 June 2017 (unaudited)
Available
General reserve for sale reserve Total
GBPm GBPm GBPm
At 1 January 2017 (Restated) 175.8 0.3 176.1
Movement in the period 5.8 1.4 7.2
At 30 June 2017 (Restated) 181.6 1.7 183.3
------------------ ------------------ -------
For the year ended 31 December 2017 (audited)
Available
General reserve for sale reserve Total
GBPm GBPm GBPm
At 1 January 2017 175.8 0.3 176.1
Movement in the year 9.2 1.5 10.7
At 31 December 2017 185.0 1.8 186.8
------------------ ------------------ -------
The Notes on pages 10 to 21 form an integral part of this
condensed consolidated half-yearly financial information.
Summary Consolidated Cash Flow Statement
Unaudited Unaudited Audited
6 months 6 months 12 months
to to
30 Jun 18 30 Jun 17 31 Dec 17
GBPm GBPm GBPm
Net cash flows from operating activities 26.0 87.8 66.9
Payment into defined benefit pension
scheme (0.6) (0.9) (2.0)
Net cash flows from investing activities 52.7 (47.9) (49.0)
Net cash flows from financing activities (2.2) (3.0) (30.7)
------------------- ---------- ----------
Net increase in cash and cash equivalents 75.9 36.0 (14.8)
------------------- ---------- ----------
Cash and cash equivalents at the start
of period 183.6 198.4 198.4
------------------- ---------- ----------
Cash and cash equivalents at the end
of the period 259.5 234.4 183.6
------------------- ---------- ----------
Other percentages
Restated
6 months 6 months 12 months
30 Jun 18 30 Jun 17 31 Dec 17
% % %
Gross capital as a % of shares and borrowings 7.5 8.0 7.4
Liquid assets as a % of shares and borrowings 23.9 25.4 23.9
Wholesale deposits as a % of shares and borrowings 16.0 14.8 15.3
Liquid assets as a % of shares and borrowings excluding encumbered assets 17.3 18.3 17.0
Net interest receivable as a % of mean total assets ("NIM") 0.86 0.75 0.79
Cost to income ratio 76.5 78.0 79.0
Profit after tax as a % of mean total assets 0.30 0.31 0.29
Management expenses as a % of mean total assets* 1.26 1.18 1.24
Common Equity Tier 1 Ratio 15.7 14.5 15.3
Tier 1 Ratio 16.7 15.8 16.6
Total Capital Ratio (Solvency) 18.9 18.3 18.9
Leverage Ratio (Basel III - end point) 5.0 4.6 4.7
Leverage Ratio (Basel III - transitional) 5.3 5.0 5.2
* Expressed on an annualised basis
The above percentages are unaudited. Capital ratios disclosed
include half year retained profits. The figures for the 12 months
ended 31 December 2017 are extracted from the audited 2017
accounts. The Notes on pages 10 to 21 form an integral part of this
condensed consolidated 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
2017 has been extracted from the financial statements for that
year, and on which the auditors gave an unqualified opinion, and
which have been filed with the Financial Conduct Authority and
Prudential Regulation Authority.
1.3. The half-yearly financial information for the 6 months to
30 June 2018 and the 6 months to 30 June 2017 is unaudited.
1.4. The announcement will be sent to holders of the Society's
permanent interest bearing shares. Copies are available from the
Society's Principal Office at Portland House, Newcastle upon Tyne
NE1 8AL.
2. Basis of preparation
The condensed consolidated financial information for the
half-year ended 30 June 2018 has been prepared in accordance with
the Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34, 'Interim financial reporting' as adopted
by the European Union. The half-yearly financial information should
be read in conjunction with the annual financial statements for the
year ended 31 December 2017, which have been prepared in accordance
with IFRSs as adopted by the European Union.
The Board has reviewed medium and long term plans over a 5 year
horizon with particular emphasis on examining forecast capital,
profitability and liquidity of the Group and the risks to those
forecasts through a variety of stress testing scenarios. In
reviewing the Group capital plans the Board has also considered the
impact of recent pronouncements from the Financial Policy Committee
which increase the capital requirements for Banks and Building
Societies through a higher countercyclical capital buffer. This
horizon is considered appropriate through alignment to the Group's
usual forecasting and management reporting allowing robust and
continuous assessment of the Group's expected position and
principal risks over the time-frame. Active risk management is
undertaken to mitigate the Group's principal risks as detailed in
note 4 of this half-yearly financial information.
The outcome of this review is that the Directors are satisfied
that the Society and the Group have adequate resources to continue
in business and meet their liabilities throughout the period of
assessment. Accordingly the financial statements of the Group have
been prepared on a going concern basis with no material
uncertainties that the going concern basis of accounting is
appropriate.
Restatement
As disclosed in the Group's Annual Report and Accounts 2017, the
Group no longer recognises any net defined benefit asset with
respect to pensions on its balance sheet. The 30 June 2017 balance
sheet presented in this interim report is therefore restated to
reflect retrospective derecognition of the pensions surplus of
GBP2.2m net of any associated deferred tax.
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 2017, as described in those financial statements, except
for the following key developments:
IFRS 15 Revenue from contracts with customers superseded IAS 18
Revenue from 1 January 2018 and established principles for
reporting useful information to users of financial statements about
the nature, amount, timing and uncertainty of revenue and cash
flows arising from an entity's contracts with customers. The
standard moved focus from risks and rewards, to the transfer of
control of goods or services at either a point in time or over
time. IFRS 15's core principle is that revenue should be recognised
in relation to the transfer of goods or services to customers in an
amount that reflects the consideration that is expected in exchange
for those goods or services.
The primary impact of IFRS 15 is to the Group's Solutions
business and has not had a significant impact on the Society or
Group's pattern of income recognition. IFRS 15 does introduce
expanded disclosure requirements, first applicable to these
financial statements. Accordingly, the Group presents its interim
IFRS 15 disclosures in the notes to this half year announcement.
IFRS 9, in precedence to IFRS 15, dictates the accounting for
revenue linked to most financial instruments, including the Group's
mortgages and shares.
IFRS 9 Financial instruments superseded IAS 39 Financial
Instruments from 1 January 2018, impacting the Group's
classification and measurement, impairment and hedge accounting for
financial instruments. While the Group was broadly unaffected by
IFRS 9's classification and unaffected by IFRS 9's measurement
requirements as the previous IAS 39 and current IFRS 9 accounting
requirements are similar across similar classifications, the
Group's accounting policies for financial instruments have been
updated to reflect the specific requirements of IFRS 9 as
follows:
Classification of financial assets is based on the cash flow
characteristics of the assets and the business model under which
the assets are held. Assets may be classified at amortised cost,
fair value through other comprehensive income and fair value
through profit or loss.
Amortised cost
Where the contractual cash flow characteristics of an asset
reflect "solely payments of principal and interest on the principal
amount outstanding" (SPPI), an asset may be classified at
'amortised cost', with income recognised under the effective
interest rate method, where the asset's objective business model is
'held to collect contractual cash flows'. Cash flows are typically
deemed to be SPPI in nature where there is a pre-determined date of
repayment and where interest on the underlying financial assets is
analogous to interest on 'simple debt instruments'- dominated by
compensation for credit risk, the time value of money and a profit
margin.
In assessing the business model applicable to its financial
assets, the Society has considered how financial asset performance
is evaluated and reported to senior management, the key risks
affecting this performance and how these are managed, and how
managers of the business are compensated in respect of asset
performance. This analysis was undertaken at a more granular level
than is presented in the Group's Balance Sheet or Notes to the
Accounts.
The Society operates under a simple and straightforward building
society model and does not trade in financial instruments. This
allows for a more objective assessment of the business model under
which financial assets are managed as typically there is no
history, appetite or expectation that the Society will 'sell' its
financial assets. Similarly, there is no compensation paid to staff
with respect to fair value gains and no risk reporting geared at
the speculative realisation of profit.
-- The Society's core business of mortgage lending is undertaken
with a view to long term recovery of contractual cash flows.
Interest charged on mortgage lending and subsequent mortgage cash
flows are agreed by the Society's Mortgages and Savings Committee
and calculated to ensure that the 'time-value of money' and the
credit risk that lending exposes the Society to is adequately
compensated via the interest rates agreed.
-- The Society's non-mortgage lending, typically loans and
advances to banks, is similarly undertaken with a view to recovery
of contractual cash flows and with interest charged that meets the
SPPI requirements.
-- The Society's cash balances, where interest generative, are
held to collect contractual interest flows (and to ensure
appropriate liquidity is on hand to meet the Society's liabilities
as they fall due).
-- The Society's trade receivables, whether due from third
parties or intra-group companies, are held to collect the
contractual cash balances as they fall due. The Society does not
engage in debt factoring activities.
Fair value through other comprehensive income
Where the contractual cash flow characteristics of an asset
reflect SPPI, an asset may be classified at 'fair value through
comprehensive income' with fair value movements recognised through
other comprehensive income, where the asset's objective business
model is 'held to collect contractual cash flows, or for sale'.
While the Group does not trade in financial instruments, it is
required to demonstrate the liquidity through regular sales of
instruments in its debt security portfolio (held for liquidity
purposes and to generate an interest income return that typically
exceeds the interest return on cash or Bank of England reserve
account holdings). This requirement, while regulatory in nature, is
sufficient to indicate a business model conclusion that the assets
are held to collect contractual cash flows, 'or for sale'. The
Group's primary debt security holdings are in covered bonds,
residential mortgage backed securities (RMBS) and government gilts.
Each attract a rate of interest analogous with a simplified debt
instrument (the Society assessing that the interest rate receivable
is sufficiently compensating for the time value of money and
perceived credit risk inherent in each investment). The Group's
current treasury policy ensures that investment in RMBS is at a
sufficiently 'senior secured' level to conclude that RMBS cashflows
continue to meet the SPPI requirements.
Fair value through profit or loss
Where the contractual cash flow characteristics of an asset do
not reflect SPPI, or where neither of the above business models
suitably reflect management of the asset, an asset is to be
classified at 'fair value through profit or loss', with fair value
movements recognised through the Income Statement. The Group's
derivative financial instruments are classified at fair value
through profit or loss. The Group has not otherwise elected to hold
at fair value through profit or loss financial assets it could
otherwise have held at amortised cost or fair value through
comprehensive income.
A small number of cash-based financial assets previously held at
amortised cost are held at fair value through profit or loss under
IFRS 9 due to either the indeterminate timing of cash flows or
failing the SPPI requirements.
The Group's IFRS9 impairment policy is discussed in detail on
pages 17 to 19 of this half yearly financial information.
4. Principal Risks and Uncertainties
The Group's activities expose it to a variety of risks: market
risk (predominantly interest rate risk), credit risk, liquidity
risk and operational 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 financial statements, and should be read in
conjunction with the Group's Annual Report and Accounts for
December 2017.
There have been no material changes to the Group's risk
appetite.
5. Taxation
The effective tax rate is 19.0% (2017: 19.25%). The tax charge
has been calculated as far as possible 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.
6. Related Party Transactions
During the 6 months to 30 June 2018 the Society purchased
GBP8.3m (2017: GBP7.0m) of Business Support Services from Newcastle
Strategic Solutions Limited (NSSL) and GBP2.0m (2017: GBP2.2m)
Managed IT and Property Services from Newcastle Systems Management
Limited (NSML), both wholly owned subsidiary companies. The Society
received GBP11.8m (2017: GBP6.3m) from NSSL and GBP0.5m (2017:
GBP0.5m) from NSML for the provision of financial and
administrative services during the same period. For further detail
see Note 29 of the Newcastle Building Society Annual Report and
Accounts 2017.
7. Revenue from Contracts with Customers
Unaudited Unaudited Audited
6 months 6 months 12 months
to to
30 Jun 18 30 Jun 17 31 Dec 17
GBPm GBPm GBPm
Interest and similar income 36.0 31.9 65.6
---------- ---------- ----------
Revenue from contracts with customers
Solutions business:
Savings - management services 11.4 10.9 21.8
Savings Management - project and change
services 0.7 0.5 1.1
IT services 0.3 0.4 1.0
Member Business:
Regulated advice services 2.0 1.9 3.8
Third party services 0.4 0.5 0.9
Total revenue from contracts with
customers 14.8 14.2 28.6
---------- ---------- ----------
Other income (non IFRS15) 1.3 1.6 3.1
---------- ---------- ----------
Total Revenue 52.1 47.7 97.3
---------- ---------- ----------
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 above illustrates the disaggregation of revenue in
scope of IFRS 15, 'Revenue from Contracts with Customers'. Revenue
from customers with contracts generated by the Solutions business
and the Member business can be seen in "Other income and charges"
within the Segment information note. During the 6 months to 30 June
2018 other charges included in "Other income and charges" were
GBP1.3m (30 June 2017: GBP1.5m, 31 December 2017: GBP2.9m).
8. 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 (that includes subsidiaries Newcastle
Strategic Solutions Limited and Newcastle Systems Management
Limited) 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, provisions and exceptional
items 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.
Member Solutions
6 months to 30 June 2018
Business Business Total
GBPm GBPm GBPm
Net interest receivable 16.0 - 16.0
Other income and charges 2.3 12.5 14.8
Administrative expenses (13.1) (9.0) (22.1)
Depreciation (0.9) (0.6) (1.5)
--------- ---------- --------
Operating profit before impairments,
provisions and exceptional items 4.3 2.9 7.2
Impairment charges on loans and advances
to customers (0.2) - (0.2)
Provisions for liabilities and charges (0.1) - (0.1)
Profit for the period before taxation 4.0 2.9 6.9
Taxation expense (1.3)
--------
Profit after taxation for the financial
period 5.6
--------
6 months to 30 June 2017 Member Solutions
Business Business Total
GBPm GBPm GBPm
Net interest receivable 13.6 - 13.6
Other income and charges 2.4 11.9 14.3
Administrative expenses (12.1) (8.4) (20.5)
Depreciation (0.6) (0.6) (1.2)
--------- ---------- --------
Operating profit before impairments,
provisions and exceptional items 3.3 2.9 6.2
Impairment charges on loans and advances
to customers (0.2) - (0.2)
Provisions for liabilities and charges (0.9) - (0.9)
Exceptional gain on purchase of Cobalt
Offices 2.1 - 2.1
Profit for the period before taxation 4.3 2.9 7.2
Taxation expense (1.4)
--------
Profit after taxation for the financial
period 5.8
--------
Year to 31 December 2017 Member Solutions
Business Business Total
GBPm GBPm GBPm
Net interest receivable 29.1 - 29.1
Other income and charges 5.6 23.2 28.8
Administrative expenses (26.4) (16.6) (43.0)
Depreciation (1.7) (1.1) (2.8)
--------- ---------- --------
Operating profit before impairments,
provisions and exceptional items 6.6 5.5 12.1
Impairment charges on loans and advances
to customers (0.2) - (0.2)
Provisions for liabilities and charges (1.0) - (1.0)
Exceptional gain on purchase of Cobalt
Offices 2.2 - 2.2
--------- ---------- --------
Profit for the period before taxation 7.6 5.5 13.1
Taxation expense (2.2)
--------
Profit after taxation for the financial
period 10.9
--------
Total Assets 3,745.3 16.8 3,762.1
--------- ---------- --------
9. 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 2018.
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Financial assets
Debt securities - Fair value through
other Comprehensive income 326.4 - - 326.4
Derivative financial instruments - 5.0 - 5.0
Fair value adjustments for hedged
risk on underlying instruments - 183.0 - 183.0
Financial liabilities
Derivative financial instruments - 186.6 - 186.6
Fair value adjustments for hedged
risk on underlying instruments - 0.8 - 0.8
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.
Debt securities issued by the Society held on balance sheet at
their amortised cost of GBP1.0m at 31 December 2017 were repaid in
full during the 6 months to 30 June 2018.
10. IFRS 9 Financial Instruments
The Group first applied the accounting requirements of IFRS 9 on
1 January 2018. Under IFRS 7, Financial Instruments: Disclosures,
the Group is required to disclose quantified and qualitative
information in this half-year report to detail the impact that
transition to IFRS 9 has had between 31 December 2017 and 1 January
2018. As disclosed in the 2017 Annual Report and Accounts, the
Group's closing IAS 39 balance sheet on 31 December 2017 and its
opening balance sheet at the start of 1 January 2018 under IFRS 9
was as follows:
Balance sheet Balance at In scope In scope Current IAS 39 Agreed IFRS 9 Classification
Assets 31 December for IFRS for IFRS 9 accounting accounting and
2017* 9? impairment? classification classification measurement
GBPm impact
Cash and balances with the Bank of
England
Balances with the 176.9 Yes Yes AC AC None
Bank of England
Bank of England cash 3.4 Yes No AC FVTPL Limited. Fair
ratio deposit value and
amortised cost
equivalent in
value.
Physical cash 1.7 Yes No AC AC None
Loans and advances to
banks
Loans and advances to 226.1 Yes No AC FVTPL Limited. Fair
banks (collateral value and
pledged) amortised cost
equivalent in
value.
Loans and advances to 1.6 Yes Yes AC AC None
banks (non-collateral
pledged)
Debt securities
Gilts 84.8 Yes No AFS FVOCI Limited: Fair
value through
other
comprehensive
income is the
equivalent of
Available for
sale
Residential mortgage 157.2 Yes Yes AFS FVOCI
backed securities
Covered bonds 138.1 Yes Yes AFS FVOCI
Derivative financial
instruments
Interest rate swaps 4.9 Yes No FVTPL FVTPL None
Loans and advances to
customers
Prime residential 1,723.2 Yes Yes AC AC None
Buy-to-let 186.5 Yes Yes AC AC None
Equity release 209.9 No No n/a n/a Equity release
IFRS 4 IFRS 4 mortgages are
insurance insurance not in IFRS 9
contract contract scope. IFRS 4
accounting
approximates
IAS 39
accounting
and
provisioning
methodology.
Policy loans 4.4 Yes Yes AC AC None
Housing association 498.0 Yes Yes AC AC None
Commercial (including 64.2 Yes Yes AC AC None
commercial
residential)
Serviced apartments 21.1 Yes Yes AC AC None
Fair value
adjustments for
hedged risk
Fair value 206.2 Yes No FVTPL FVTPL None
adjustments for
hedged risk
Investment in
subsidiaries
Investment in (nil on a group No No n/a n/a n/a, out of
subsidiaries basis) scope
Property, plant and
equipment
Property, plant and 38.8 No No n/a n/a n/a, out of
equipment scope
Deferred tax assets
Deferred tax assets 3.2 No No n/a n/a n/a, out of
scope
Retirement benefit
asset
Retirement benefit - No No n/a n/a n/a, out of
asset scope
Other assets
Trade and other 11.9 Yes Yes AC AC None
receivables
Balances as at 31(st) December 2017 are net of IAS39 provisions.
The quantified impact of classification and measurement at 31(st)
December 2017 is GBPnil.
*No measurement changes would have arisen between 31 December
2017 and 1 January 2018 if IAS 39 had been applied to both
periods.
* No balances were reclassified into the amortised cost category
as a result of transition to IFRS 9.
* No balances were reclassified out of the fair value through
profit and loss category as a result of transition to IFRS 9.
In the table above the following abbreviations are relevant: AC
- amortised cost, FVTPL - fair value through profit or loss and
FVOCI - fair value through other comprehensive income.
Impairment
IFRS 9 replaced the IAS 39 'incurred losses' provisioning model
with a forward looking assessment of impairment. Expected credit
losses are recognised across applicable financial assets (as
detailed in the table above) based on whether there has been a
significant increase in credit risk since the asset's
origination.
Loss allowances for expected credit losses are recognised on all
financial assets held at either amortised cost, in which case loss
allowances impact the Income Statement, or at fair value through
other comprehensive income, in which case loss allowances impact
other comprehensive income and become reserves reductions. A
simplified approach has been adopted for trade receivables and
contract assets.
Loss allowances against in-scope assets are recognised
differently depending upon the initial credit risk of the assets at
their origination, and the movement in said credit risk up to the
current reporting date.
Assets can be assessed on an individual or collective basis and
assessment should consider forward looking information.
When assessing movement in credit risk it is the change in the
risk of default occurring that is key, not the change in the amount
of any expected credit loss.
Scenarios are modelled to determine 12 month and lifetime
expected credit losses against assets. Multiple scenarios to allow
a probability weighted outcome are expected and while it is not
necessary to identify every scenario, and it is advised not to
select unlikely scenarios, the International Accounting Standards
Board still expect at least one scenario to be included that is
'expecting to default', even if historically or presently there is
no indication that a default will occur.
Where an asset has not seen a significant increase in credit
risk since its origination ('Stage 1 assets'), 12 month expected
credit losses are recognised as a loss allowance. These are the
portion of lifetime expected credit losses that result from default
events on the asset that are possible within the 12 months after
the reporting date.
Where an asset has seen a significant increase in credit risk
since origination, but there is no objective evidence of impairment
at the reporting date ('Stage 2 assets'), lifetime expected credit
losses are recognised. Where an asset has seen significant increase
in credit risk since origination and there is objective evidence of
impairment at the reporting date ('Stage 3 assets'), lifetime
expected credit losses are recognised and interest income is to be
calculated against the net carrying amount of the financial asset,
rather than the typical gross amount.
Forward looking assessments of financial assets are undertaken
to support the loss allowances recognised against assets expected
to default at any point in their lifetime (or within 12 months for
stage 1 assets). IFRS 9's multiple, forward looking scenarios have
brought forward to 'now' the recognition of future potential
losses.
Implementation of high quality IFRS 9 impairment models requires
significant management experience and judgement, both in assessing
historic performance trends and factors and in projecting these
into uncertain future economic environments. External professional
modelling assistance has been coupled with the Society's extensive
internal expertise to facilitate a robust and compliant
implementation. Best practice guidance issued by consolidated
professional audit and accountancy firms, IFRS implementation
guidance, and banking centric governance and modelling guidance
from European and domestic authorities form the foundation of the
Society's IFRS 9 impairment response.
IFRS 9 Qualitative Impairment Impact
Residential and new Buy to Let Mortgages
IFRS 9 has had minimal impact on the Group's mortgage
provisions. The Group's core lending, to prime residential and high
quality buy to let customers is considered to be of low risk and
securely collateralised. The Group continues to experience historic
low levels of arrears and does not lend in excess of 95% LTV (75%
LTV for Buy to Let). With the Group holding the first legal charge
over the mortgaged property against which it lends, this protects
the Group from borrower default as proceeds from the sale of any
property are first used to extinguish the Group's exposure to its
borrowers.
Historically, the Group has provided prudently against its
overdue residential lending: providing for the full amount of
expected loss, as assessed at a provisioning Committee level,
against mortgages falling into arrears of three months or more.
Under IFRS 9, the Group's residential and new buy to let
provisioning is informed by tailored IFRS 9 provisioning models.
The models allow a consistent assessment of mortgage assets,
operating as follows:
Staging
-- At the application stage, a prospective borrower's credit
risk is assessed. The Society does not lend to high risk customers
but will lend to 'prime customers' who can fall under a range of
'application scores'- based on a wide variety of factors including
affordability, credit history, committed monthly spend, etc. A
borrower's application score gives a quantified assessment of
borrower risk- a 'risk score'.
-- On a quarterly basis, the Group receives borrower credit
scores from Experian, an industry leader in the provisioning of
consolidated credit scoring information. This data is mapped
internally to a new borrower risk score- allowing continuous
assessment of the movement in borrower risk since origination.
-- Where a borrower's risk score is suitably consistent between
origination and the reporting date, a borrower is categorised as a
'stage 1' borrower.
-- Where a borrower's risk score increases past pre-defined
internal thresholds, but a borrower has not otherwise 'defaulted',
the borrower is categorised as a 'stage 2' borrower. A borrower who
has fallen into >1 month's arrears is automatically considered
to be a stage 2 borrower.
-- A borrower who has defaulted, (assessed against a range of
internal qualitative and quantitative criteria) is categorised as a
'stage 3' borrower. A borrower who has fallen into >3 month's
arrears is automatically considered to be a stage 3 borrower.
Default indicators and Probability of default (PD)
The Society calculates, for each mortgage exposure, a forward
view as to how likely that mortgage is to default at some point
over its expected life. The probability that a mortgage will
default is not 'point in time'- the Society has to calculate a
continuous and forward looking assessment of the probability of
default as IFRS 9's base expectation is that 'lifetime' expected
credit losses will be provided for (or 12 month expected losses for
stage 1 assets).
Lifetime expected credit losses are calculated by the Society as
the discrete losses that would likely be incurred (considering
mortgage exposure vs. the expected sale value of the mortgaged
property) if a mortgage defaulted on any of a large range of future
dates. Each discrete provision needs to be assigned a probability
of default weighting in order to calculate one overall 'lifetime'
expected credit loss. As such, a continuous forward view to the
probability of default must be calculated.
The Society calculates its probability of default as
follows:
-- The Society has undertaken a detailed assessment of more than
12 years of its internal credit risk data to determine the core
factors that lead to borrower default.
-- Default indicators identified included granting of
forbearance, evidence of mortgage fraud, borrowers falling into
> 3 months arrears, borrower insolvency or bankruptcy and
voluntary repossession of property. These are used in the staging
assessment above to assist in the classification of borrowers as
stage 1, stage 2 or stage 3.
-- The Society's assessment also considered 'wider' patterns of
default, analysing historic borrower defaults by their maturity
(how long a mortgage had been held by the Society), vintage (during
which original time period the Society lent to a borrower) and
considering 'exogenous' (external factors including the interest
rate environment, unemployment rates, UK (nominal) GDP, House Price
Index, etc.) factors in play at the time of default.
-- The exogenous, maturity and vintage (EMV) factors are used to
derive point in time and forward looking probability of default
curves: projecting historical information about defaults suffered
under known 'EMV conditions' forward in combination with the
Society forward views on the wider macroeconomic environment (as
this will influence the forward view on how exogenous factors may
develop over time). In combination, these curves form the Society's
forward looking probability of default curve, as calculated under
the 'EMV' model.
Exposure at default (EAD)
-- The Group projects mortgage balances forward to give an
estimate of each borrower's mortgage balance over time. This
factors in forecast interest additions and expected borrower
payments alongside an estimate of the value of each borrower's
property collateral throughout a long term forecast. An adjustment
is made to uplift the Group's exposure to borrowers to simulate a
typical borrower default of 3 missed monthly payments plus typical
fees associated with arrears.
-- The output is a per-mortgage forward projection of mortgage
balances.
Loss given default (LGD)
-- The Group calculates a per-mortgage 'loss given default'
(LGD), an estimate of the proportion of each mortgage loan exposure
that is believed to be at risk if the borrower defaults on their
obligation to repay the outstanding capital and interest and the
property is subsequently possessed and sold.
-- LGD is calculated as the probability of possession given the
default of a borrower (PPD) which estimates the likelihood of
possession following default multiplied by the expected shortfall
on each mortgage: an estimation of the difference between the
exposure at default (as discussed above) and the sale price of the
property, net of relevant sales costs.
Provisions: PD * EAD * LGD
The Group then calculates a final provision for each mortgage:
the probability of default multiplied by the amount the Group
expects to lose in the event of a default. As discussed above, this
is not 'static' or a 'point in time' loss: the Group calculates PD,
EAD and LGD across a continuous forward planning horizon. The final
provision number is not a singular PD*EAD*LGD, it reflects the
discounted overall expected loss that could be incurred over the
life of each mortgage: a weighted average of multiple possible
future loss events.
Multiple economic scenarios
IFRS 9 expects more than one scenario to be considered when
calculating expected credit losses. The Society applies this
principle by assessing the provisions required under three separate
macroeconomic forecasts. These macroeconomic forecasts feed into
the exogenous component of the Society's EMV models.
The Society runs:
-- Base scenario: calculated with reference to the Bank of
England's quarterly forecasts, and in line with budgets;
-- Upside scenario: a positively stressed variant to the base
scenario; and
-- Downside scenario: a negatively stressed variant to the base
scenario.
The Society's final expected credit losses are the losses
calculated under each discrete scenario multiplied by a 'likelihood
factor': currently set to 80% for the base scenario and 10% for
each of the upside and downside scenarios.
Legacy mortgages
Specialist internal departments assess the risk of loss against
the Group's legacy mortgage books on a case by case basis. Across
the Society's historically highest risk exposures, commercial real
estate, this includes the annual completion of tailored risk grade
scorecard designed to encompass the key characteristics
contributing to underlying risk.
Each of the scorecard risks are weighted to provide a final
'weighted risk score' for the loan, which categorises the loan in
terms of likelihood of failure in a moderate or severe recessionary
scenario. The risks that carry the highest weightings relate to
tenant failure and serviceability.
Exposures receiving the highest overall risk scores are placed
onto the Society's 'borrower watchlists' prompting enhanced and
more frequent internal scrutiny.
All payments due are monitored on a real-time basis. In the
event of a late payment the position is reviewed immediately and
appropriate action taken. The facility is then closely
monitored.
IFRS 9 Quantitative Impairment Impact
The impact of IFRS 9's staging and consequent loss provisioning
to the Society's closing 31 December 2017 balance sheet was as
follows:
IFRS 9 Gross Exposure
Stage 1 Stage 2 Stage 3 Total
Of which Months in Arrears Of which Months in Arrears Of which Months in Arrears
< 1 1-3 > 3 < 1 1-3 > 3 < 1 1-3 > 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Prime
residential 1,564.8 - - 155.8 15.0 3.9 1.1 6.8 1,747.4
Buy to Let 175.8 - - 10.6 - - 0.2 - - 186.6
Commercial 32.6 - - - 0.1 - 15.0 - - 47.7
Housing
Association 498.0 - - - - - - - - 498.0
Serviced
Apartments 21.1 - - - - - - - - 21.1
Policy loans 4.2 - - 0.6 - - - - - 4.8
Total 2,296.5 - - 167.0 15.1 - 19.1 1.1 6.8 2,505.6
Expected Credit Losses
Stage 1 Stage 2 Stage 3 Total
Of which Months in Arrears Of which Months in Arrears Of which Months in Arrears
< 1 1-3 > 3 < 1 1-3 > 3 < 1 1-3 > 3
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Prime
residential 83.7 - - 101.7 29.4 103.2 9.5 237.7 565.2
Buy to Let 0.7 - - 2.7 - - 0.4 - - 3.8
Commercial 1,322.0 - - - - - 7,598.0 - - 8,920.0
Housing - - - - - - - - - -
Association
Serviced - - - - - - - - - -
Apartments
Policy loans - - - 360.6 - - - - 21.8 382.4
Total 1,406.4 - - 465.0 29.4 - 7,701.6 9.5 259.5 9,871.4
The impact of IFRS 9's staging and consequent loss provisioning
to the Society's closing 30 June 2018 balance sheet was as
follows:
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 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Prime residential 1,614.5 - - 142.6 15.5 - 3.6 1.7 6.7 1,784.6
Buy to Let 193.3 - - 11.5 0.4 - 0.2 - - 205.4
Commercial 29.3 - - - - - 13.0 - 0.1 42.4
Housing
Association 466.6 - - - - - - - - 466.6
Serviced
Apartments 19.8 - - - - - - - - 19.8
Policy loans 3.6 - - 0.3 0.2 - - - - 4.1
Total 2,327.1 - - 154.4 16.1 - 16.8 1.7 6.8 2,522.9
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 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Prime residential 43.1 - - 139.8 42.4 - 29.1 18.9 278.4 551.7
Buy to Let 1.4 - - 3.8 0.6 - 0.4 - - 6.2
Commercial 1,322.0 - - - - - 7,532.1 - - 8,854.1
Housing - - - - - - - - - -
Association
Serviced - - - - - - - - - -
Apartments
Policy loans - - - 189.2 - - - - - 189.2
Total 1,366.5 - - 332.8 43.0 - 7,561.6 18.9 278.4 9,601.2
Debt securities
The Society's debt security holdings are all of 'investment
grade' or higher. The Society has therefore assessed that the
credit risk on its debt security exposures has not increased
significantly since initial recognition.
The Society's treasury risk department runs very severe annual
stressed scenarios over the Society's residential mortgage backed
securities (RMBS). The Society's policy to allow only investment
grade and senior secured exposures leaves the Society highly
insensitive to stressed scenarios as the 'waterfall structure' of
RMBS payments ensures continued Society receipt of contractual cash
flows even through significantly stressed scenarios.
The Society's covered bond exposures are similarly resilient:
the Society is only exposed to regulated UK covered bonds with the
regulations providing for the full segregation of covered bond
asset pools from the bond issuer. The regulations introduce
numerous investor protections including mandatory
over-collateralisation, an extensive initial application process
and regular regulatory stress testing and supervisory
monitoring.
As a result, the Society was not significantly impacted by the
IFRS 9 impairment requirements with respect to its debt security
exposures. No provisioning was required at 31 December 2017, 1
January 2018 or 30 June 2018.
Trade and other receivables
The company has elected to take advantage of IFRS 9's practical
expedient when assessing the accounting impairment applied to its
trade receivables. Lifetime expected credit losses are therefore
provided against all trade receivables. A provisions matrix
approach, where provisions against receivables are calculated as an
increasing percentage of the receivable balance, rising as
receivables fall further overdue, has been adopted.
Assessment of the appropriate provision percentages has been
made in line with the company's historic trade
receivable recovery. Where appropriate, forward looking views to
recovery will also be incorporated.
The Society was not significantly impacted by the IFRS 9
impairment requirements with respect to its trade and other
receivables. GBP30,000 was provided at 31 December 2017 and 1
January 2018. At 30 June 2018 GBP28,934 was provided.
Impairment Conclusion
The overall quantified impact of IFRS 9 to the Group's
provisions compared to the existing IAS 39 provisions at 31
December 2017 was not material.
Hedge Accounting
IFRS 9's hedging requirements did not have significant impact to
the Society's hedging activities, serving broadly to relax a number
of the IAS 39 hedging criteria.
The Society has elected to adopt IFRS 9's hedging requirements
for its non-macro hedges at 1 January 2018 and continues to apply
the IAS 39 hedging requirements to its macro hedge portfolio.
Statement of Directors' responsibilities
The Directors confirm that this condensed consolidated
half-yearly financial information has been prepared in accordance
with IAS 34 as adopted by the European Union, and that the
half-yearly management report herein includes a true and fair
review of the information required by the Disclosure 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 2017. Angela Russell, Deputy CEO and Finance
Director, retired at the conclusion of the Annual General Meeting
on 25 April 2018. There were no other changes to the Board in the
period.
On behalf of the Board
Andrew Haigh
Chief Executive
30(th) July 2018
Independent review report to the Directors of Newcastle Building
Society
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Newcastle Building Society's condensed
consolidated interim financial statements (the "interim financial
statements") for the 6 month period ended 30 June 2018. Based on
our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in
all material respects, in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union.
What we have reviewed
The interim financial statements comprise:
-- the summary consolidated balance sheet position as at 30 June 2018;
-- the summary consolidated income statement and summary
consolidated statement of comprehensive income for the period then
ended;
-- the summary consolidated cash flow statement for the period then ended;
-- the summary consolidated statement of movement in members'
interests for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the announcement of
half year results have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The announcement of half year results, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors.
Our responsibility is to express a conclusion on the interim
financial statements based on our review. This report, including
the conclusion, has been prepared for and only for the directors of
the Society as a body, for management purposes, in connection with
interim review and for no other purpose. Our report may not be made
available to any other party without our prior written consent. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 and 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the announcement
of half year results and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Newcastle upon Tyne
30 July 2018
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
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR GLGDRRUXBGIB
(END) Dow Jones Newswires
July 31, 2018 03:01 ET (07:01 GMT)
Newcastle 125/8 (LSE:NBSR)
과거 데이터 주식 차트
부터 5월(5) 2024 으로 6월(6) 2024
Newcastle 125/8 (LSE:NBSR)
과거 데이터 주식 차트
부터 6월(6) 2023 으로 6월(6) 2024
