2016 Review

Spring 2017

Including the Summary Financial Statement for the year ended 31 December 2016

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I’m delighted to have joined Teachers Building Society in February this year. You can read about my background on page 5 and with more than 25 years at Nationwide, I strongly believe mutual societies offer customers a real alternative. Teachers has a reputation for offering great personal service and good value savings and mortgage products to its’ members and I’m looking forward to working with my team to serve more teachers and Wessex residents as we grow the Society.

I would also like to wish James Bawa every success in his new role as CEO at the Monmouthshire Building Society.

2016 saw challenging market conditions for financial services organisations including the Bank of England base rate cut to a new low of 0.25%, fierce competition from banks and increased uncertainty following the Brexit referendum. Despite this demanding environment your Society performed robustly, posting a prudent pre-tax profit of £621K, following much needed investment in technology and systems. These enhancements help lay the foundations for sustainable growth in the future.

We were also proud to be shortlisted for two major mortgage awards – we were a finalist for Moneyfacts Regional Lending

Provider of the Year and also the What Mortgage Best Local Building Society award for the sixth year running.

We aspire to continue to receive nominations for and to win awards for the services and products that we provide. With this in mind, we have a comprehensive programme to fine tune our understanding of what teachers require, carry out additional enhancements to our online capabilities and continue to support our staff by helping them develop their skills and knowledge. All designed to further develop the personalised service that you receive; whilst continuing to offer competitive mortgages and savings products.

The coming year will undoubtedly see further uncertainty in the UK economy as we navigate Brexit and the structural shortage in the housing market will continue to prove a major factor for potential homebuyers.

I would like to thank all our members for continuing to support the Society, and I look forward to working with my team to help Teachers thrive and grow.

Welcome

The ‘My’ Life programme, run by Destination Education, supports students in providing quality workshops for local schools. Often linked to their GCSE options, the ‘My’ Life programme allows young people to identify their goals and dreams for the future and to think about the all-important steps they need to take when they leave school.Following the success of workshops in 2015 and 2016, Teachers Building Society is now funding further workshops for 2017.The programme is run by Destination Education with staff from Teachers Building Society attending as mentors during the workshops. Julie Holden, Managing Director at Destination Education, said, “We are thrilled that Teachers has really seen the benefits of working with us over the last two years and want to continue. Their sponsorship is crucial and will ensure that together, we can give more young people a better chance of success.”

Michele Alcock from Teachers Building Society said of the day she volunteered, “This was a really great opportunity to do something different and challenging – an experience that will stay with me for a long time for all the right reasons. These amazing kids and teachers really made me think about my own values and what is important - a real lesson in life!”The workshops take place in a number of locations, including Rock Reef, Bournemouth Rugby Club, the Dolphin Centre and Hamworthy Fire Station.

Having helped hundreds of local young people with a ‘My’ Life schools programme over the last two years, Teachers Building Society is delighted to pledge further support – funding more workshops than ever before.

ContentsWelcomePledging Further SupportCustomer Story - Struan & MontserratSpotlight on Simon BeresfordDeveloping Our StaffFinancial Summary 2016Improving our Communication

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Pledging Support

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Spotlight on...

When Struan and Montserrat Wight needed to upsize their home in London, they approached Teachers Building Society for help. With Montserrat on maternity leave, they were delighted when they were able to purchase a new home that was not only convenient for work, but perfect for their growing family. “When we bought our first property in London, it was through the Shared Ownership scheme. We originally purchased a 50% share, but wanted to staircase in order to buy the property outright. We came across Teachers Building Society online and approached them to see whether we would be able to borrow the amount that we needed. Luckily, Teachers were able to help, which was great,” Struan says.“A year later, we had our daughter, Margot, and were suddenly in a situation where we needed a lot more space. Our one bedroom flat wasn’t great for a growing family, and we started the process of looking for a new home.”

Montserrat explains: “We spent a long time looking for the right place, and eventually found the one we’re in today. We spoke to Teachers Building Society to arrange more lending, and they were incredibly helpful.”Struan said: “We really appreciate the approach that Teachers took. With Montserrat on maternity leave, our circumstances weren’t exactly conventional, but Teachers took the time to look at the whole picture. We were really, really happy and grateful.”Struan was also impressed that throughout the process, he would always speak to the same few people: “I would always get through to Katie or to Jo, and it’s just amazing. It’s never happened with any other organisation I have approached. You can pick up the phone and know not only who you’re going to speak to, but that they’ll know your case history.”“It shows what a positive impression Teachers has made that I can remember the advisors by name!”

Simon Beresford joins from BlackRock taking over from Dean Fensome, Finance Director, who has been Interim Chief Executive since October following the departure of James Bawa who joined the Monmouthshire Building Society.

Recently Managing Director in the BlackRock Retail business, Simon previously held senior positions at Nationwide. He said, “It is a privilege to be appointed to the role of Chief Executive at Teachers Building Society. I believe the Society is very well placed to thrive and grow by helping more teachers to own their homes.

“At Teachers, we offer a distinctive mix of deep sector expertise and a track record of personal service; delivered by a team who are passionate about their customers.”

If you would like to share your Teachers Building Society story, please contact marketing@teachersbs.co.uk.

We are delighted to welcome Simon Beresford as the new Chief Executive of the Society. Here, he tells us how he is looking forward to taking on the helm.

Developing our StaffSupporting staff to develop skills and gain qualifications continues to be an integral part of the values at Teachers.

This year, the Society is proud to have supported Katie Pullen, Digital & Content Marketing Executive, in achieving her CIM Certificate in Professional Marketing Level 4.

Katie said, “I was delighted to be given the opportunity to study for this qualification - it’s been hard work but definitely worth it. I’m now looking forward to starting Level 5 with further support from the Society.”

Team leaders also completed their CMI in First Line Management Level 3 in 2016, and Natalie Martin, Hannah Neish and Charlotte Elmy-Liddiard from Member Services all took their CRBC Certificate in Retail Banking Conduct of Business.

Jo McLean, HR Manager at the Society also completed her CRPD Level 5. She said, “I’m really proud of all that we’ve achieved this year, and it’s great to continue to support our staff to help them progress their careers.”

Simon Beresford said, “It’s excellent to see so many staff furthering their skills and knowledge. They’ve shown real commitment and Teachers will continue to support them in 2017.”

Struan & Montserrat

Jo McLean

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For the year ended 31 December 2016

The Summary Financial Statement is a summary of information in the audited Annual Accounts, the Directors’ Report and Annual Buiness Statement, all of which will be available to members and depositors free of charge on demand from the offices of Teachers Building Society from 10 April 2017 or can be downloaded from www.teachersbs.co.uk from 23 March 2017. Members are reminded that the Summary Financial Statement does not contain sufficient information to allow a full understanding of the results and state of affairs of the Society.

The Summary Directors’ Report includes information taken from the Chairman’s Statement and Strategic Report as set out in the Society’s Annual Report and Accounts.

Financial highlights:

• Profit for the year before tax was £621k

• Mortgage assets grew to £219.2m

• Shares increased to £213.7m

• Gross capital ratio improved to 8.4%

Summary Directors’ Report

I am pleased to report that 2016, the year of our 50th anniversary, was our best year for new lending and the Society generated a profit before tax of £621k. While the profit is lower than in previous years it is in line with expectations. This trend reflects the competitiveness of the mortgage market, low interest rate environment and the gradual reduction in margins from historic higher interest rate products. A significant contributory factor in the decrease in profit was a result of fair value accounting volatility which reflect changes in underlying market rates and are largely timing differences which are expected to reverse in the future. Fair value adjustments, including effective interest rate accounting, changed from a £238k net gain in 2015 to £277k net loss in 2016 resulting in an overall reduction in profit before tax of £515k year-on-year. This year’s profit has enabled the Society to improve capital strength, with the gross capital ratio increasing to 8.4% (2015: 8.1%).

Mortgage Lending The Society was founded to help teachers to own their own homes and we have continued to help more teachers to get on to the housing ladder in 2016 with around 40% of new lending being to first-time buyers, including through schemes such as Help to Buy. Mortgage assets increased by £9.2m to £219.2m (2015: 210.0m). We passed on the August 0.25% base rate reduction in full in our Standard Variable Rate (SVR) for mortgage customers. Our personal service and approach of individually assessing all mortgage applications for credit quality and affordability has continued to ensure that our mortgage arrears remain low compared to the building society sector and the industry as a whole.

Savings and Funding Shares and other customer deposits remained stable in 2016 increasing slightly to £224.9m (2015: £222.6m). We are committed to providing competitive rates to our members while seeking to balance the amount of savings balances against the amount of mortgage lending. However, following the base rate cut in August, and in common with other banks and building societies, we were compelled to reduce rates paid to savers in order to protect our net interest rate margin. The liquidity position remains healthy with a total liquidity ratio of 20.2% (2015: 24.6%). In 2016 we repaid £6m of funds from the Bank of England’s Funding for Lending Scheme (‘FLS’) as part of a phased repayment plan ahead of the FLS coming to an end in 2018. In January 2017 the Society joined the Term Funding Scheme (‘TFS’), which has replaced the FLS, and has subsequently pledged £12m of collateral. This will enable the Society to continue to access Bank of England funding, on favourable terms, to support planned growth in lending in 2017-18.

Looking Forward In recent years the Society has made comparatively high profits and these are now returning to a more normal but sustainable level. While profits are expected therefore to be lower in 2017, the Society is actively seeking to optimise its margin in order to ensure it maintains a sustainable level of profitability by changing its product mix and pricing. The decision to leave the European Union has increased economic uncertainly which could, in the future, adversely affect the Society. However, the Society is well capitalised, with strong liquidity resources and hedged interest rate risk positions which mitigate the risks of an unexpected economic or financial shock arising from Brexit. Finally, I would like to take the opportunity to thank my colleagues on the Board and all our staff for their hard work in achieving another successful year for the Society and its members.

Approved by the Board of Directors on 7th March 2017 and signed on its behalf by:

Roy Spragg Simon Beresford Dean Fensome Chairman Chief Executive Finance Director

Summary Financial Statement

Principal Office Allenview House, Hanham Road, Wimborne, Dorset, BH21 1AGFirm Reference Number 156580Directors R J Spragg, Chairman S Beresford, Chief Executive A P Lee, Non-executive Director A L Pike, Non-executive Director I Grayson, Non-executive Director D Fensome, Finance Director P E Jarman, Legal Director & SecretaryAuditors Deloitte LLP, BirminghamInternal Auditor RSM Risk Assurance Services LLP, LeedsBankers National Westminster Bank PLC

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Gross capital as a percentage of shares and borrowingsGross capital comprises general reserves (i.e. accumulated profits) and the revaluation reserve. The gross capital ratio measures the relationship between capital resources and the Society’s liability to investors and depositors.Liquid assets as a percentage of shares and borrowings

Liquid assets consist of cash, balances with the Bank of England and other assets easily converted into cash. Liquid assets enable the Society to meet requests for withdrawals from investors, make new mortgage loans to borrowers and to fund its general business activities.

The liquid asset ratio measures the relationship between liquid assets and the Society’s liability to investors and depositors.

The Society has borrowed from the Funding for Lending Scheme (“FLS”), one consequence of which is that some liquid assets are held “off balance sheet”, though they remain available to draw on when required. If the liquidity ratio is recalculated to include “off balance sheet” liquidity, it rises to 20.2% (2015: 24.6%).

Profit for the year as a percentage of mean total assets

The Society aims to make a reasonable level of profit in order to support growth and maintain capital strength.

The profit to asset ratio measures profit after taxation for the year as a percentage of the Society’s average total assets during the year.

Management expenses as a percentage of mean total assets

The Society seeks to manage its operating expenditure as efficiently as possible in delivering the financial products and services members require.

Management expenses comprise operating expenses, excluding other operating charges, as reported in this document which includes staff costs, depreciation and amortisation of property, plant and equipment and intangible assets, and other administrative costs.

The management expenses ratio expresses the Society’s management expenses as a percentage of mean average total assets during the year.

Income statement for the year ended 31 December 2016

2016 2015

£’000 £’000Net interest receivable 3,669 4,636Other income and charges 220 175Fair value (losses) and gains (84) 191Administration expenses (3,236) (3,093)Operating profit before provisions 569 1,909Provisions 52 (95)Profit for the year before taxation 621 1,814Taxation (197) (229)Profit for the year 424 1,585

Statement of financial position as at 31 December 2016

2016 2015

AssetsLiquid assets 32,749 43,622Mortgages 219,242 210,028Derivative financial instruments 25 59Fixed and other assets 1,468 1,684Total assets 253,484 255,393LiabilitiesShares 213,655 209,594Borrowings 19,271 25,526Derivative financial instruments 384 220Other liabilities 590 893General reserve 18,833 18,406Revaluation reserve 751 754Total equity and liabilities 253,484 255,393

Key financial ratios 2016 2015

Gross capital as a percentage of shares and borrowings 8.4% 8.1%

Liquid assets as a percentage of shares and borrowings* 14.1% 18.6%

Profit for the year as a percentage of mean total assets 0.17% 0.63%

Management expenses as a percentage of mean total assets 1.26% 1.23%

*Excludes FLS off-balance sheet finance

Summary Financial Statement Explanation of key financial ratios

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To the members and depositors of Teachers Building Society We have examined the Summary Financial Statement for the year ended 31 December 2016 which comprises the Summary Income Statement and Statement of Financial Position together with the Summary Directors’ Report.

This report is made solely to the Society’s members, as a body, in accordance with section 76(5) of the Building Societies Act 1986. Our work has been undertaken so that we might state to the Society’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Society and the Society’s members as a body for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

The directors are responsible for preparing the Society Summary Financial Statement in accordance with applicable United Kingdom Law.Our responsibility is to report to you our opinion on the consistency of the Society’s Summary Financial Statement with the full Annual Report and Accounts, Annual Business Statement and Directors’ Report and its compliance with the relevant requirements of Section 76 of the Building Societies Act 1986 and regulations made under it.We conducted our work in accordance with Bulletin 2008/3 issued by the Auditing Practices Board. Our report on the Society’s full Annual Report and Accounts describes the basis of our audit opinion on those financial statements.OpinionIn our opinion, the Society’s Summary Financial Statement is consistent with the Annual Report and Accounts, the Annual Business Statement and the Directors’ Report of Teachers Building Society for the year ended 31 December 2016 and comply with the applicable requirements of Section 76 of the Building Societies Act 1986 and regulations made under it.Deloitte LLPChartered Accountants and Statutory Auditor, Birmingham, United Kingdom, 7th March 2017.

Policy on Directors’ RemunerationThe Board aims to follow best practice in its remuneration policy for Directors and has regard to the principles in the United Kingdom Corporate Governance Code relating to remuneration.

Executive Directors’ RemunerationRemuneration of executive directors is reviewed annually by the Remuneration Committee. Remuneration is assessed by reference to jobs carrying similar responsibilities in comparable organisations, and other criteria such as expertise, experience and contribution to the Society’s performance.Non-executive Directors’ RemunerationThe remuneration of Non-executive Directors (other than the Chairman) is reviewed each year by the Executive Directors and the Chairman, and a recommendation is made to the Board. The Chairman’s remuneration is reviewed each year by the Remuneration Committee without the Chairman being present. The committee compares the level of fees to that paid in similar financial services organisations and considers the responsibilities of each Director and the amount available determined by the Society’s rules.

Fees paid to Non-executive Directors 2016 £000

2015 £000

R J Spragg 31 30A P Lee 23 22A L Pike 20 19I Grayson (from 08.07.15) 20 9M J Reed (until 30.06.15) - 9Total 94 89

Individual Directors’ emolumentsStatement of the independent auditor

Summary Report on Remuneration

Executive Directors’ Remuneration

J J Bawa (until 03.10.16)Salary 138 134Car allowance and taxable benefits 14 13Medium term bonus - 28Pension contributions 13 14Total 165 189D Fensome (from 24.09.15)Salary 133 36Relocation allowance - 2Medium term bonus 24 4Pension contributions - -Total 157 42P E Jarman (from 11.05.15)Salary 70 42Medium term bonus 19 14Pension contributions 1 -Total 90 56A Evans (until 20.02.15)Salary - 62Medium term bonus - -Pension contributions - 6Total - 68

Total Directors’ Remuneration 506 444

Good news for savers From 30 January 2017, the FSCS protection limit increased from £75,000 to £85,000. This means that you can save more and still be fully protected under the FSCS. This limit is applied to the total of your eligible deposits held with Teachers Building Society.

Improving our communication with youIn 2017, we will be improving the way we communicate with you. We will continue to write to you with annual statements and relevant rate changes, but many of our members miss out on the monthly newsletter we send; these newsletters include general Society news and information as well as news on savings and mortgage products. In 2017 all of our customers with an email address will receive these regular emails from us (unless they have previously unsubscribed).

We would also like to keep open the opportunity to inform our members of any other news via other methods of communication, including post, telephone and SMS (we would not look to use these methods often but it may happen on occasion.)You can opt out of receiving these communications at any time by: Visiting www.teachersbs.co.uk/opt-out Calling 0800 783 2367 Writing to us at Allenview House, Hanham Road, Wimborne, Dorset BH1 1AG

If you would like to receive emails from Teachers Building Society but we don’t have your email address, you can provide it online: www.teachersbs.co.uk/email-signup

Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Register no 156580)12

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Contact usMember Services: 0800 783 2367 Mortgage Team: 0800 378 669Email: members@teachersbs.co.ukWeb: teachersbs.co.uk

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