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Nationwide Building Society Silverstone Presentation January 2015
Nationwide Building Society Q1 Results Presentation For the quarter ending 30th June 2015
2
Contents
Q1 Highlights 3
Business Overview 6
Appendices 12
Unless stated otherwise, information within this presentation is based on our Q1 Interim Management Statement, as of 30th June 2015
3
Q1 Highlights
Q1 Highlights Strong financial performance with underlying profit before tax up 52% at £400m due to higher net
interest income and lower impairment provisions
Solid trading performance with gross mortgage lending up 17.2% to £6.8bn, member deposit balances¹ increasing to £132.5bn and 115,000 new current accounts opened gaining 7.4% of gross switchers
Robust capital position with a best in peer group2 CET1 ratio up 1.0% to 20.8%3 and our leverage ratio strengthening by 0.1% to 4.2%3
Continued to innovate as one of the first UK financial services providers to introduce Apple Pay,
introducing access to current account balance information on Apple Watch and enabling members to send and receive payments using mobile telephone numbers via Paym
Number one for customer satisfaction within our high street peer group; with a lead over the nearest competitor at 30 June 2015 of 6.0%4
Stable credit ratings following reaffirmation at ‘A’ from S&P due to our low-risk business model and internal capital generation, an upgrade from Moody’s to ‘A1’ because of our standalone credit strength and affirmation at ‘A’ by Fitch5
Continued re-engagement with wholesale funding markets through further benchmark issuances enhancing Nationwide’s already robust liquidity position, with LCR increasing to 133.7%
4
¹ Includes current account credit balances
2 Peer group defined as Lloyds Bank, RBS, HSBC, Barclays and Santander 3 The capital ratios provided have been calculated under CRD IV on an end point basis. The leverage ratio is calculated using the CRR definition of Tier 1 for the capital amount and the delegated act definition of the exposure measure. 4 © GfK 2015 (FRS), Financial Research Survey (FRS), 3 months of interviews conducted between April 2015 and June 2015, c. 15,000 adults interviewed, proportion of extremely/very satisfied customers minus proportion of extremely/very/fairly dissatisfied customers summed across current account, mortgage and savings, high street peer group defined as Barclays, Halifax, HSBC, Lloyds Bank (inc. C&G), NatWest and Santander. 5 Last ratings actions from S&P, Moody’s and Fitch were in June 2015.
Financial and Trading Performance NIM increased 16bps, driven by the market fall in retail
funding costs. A modest reduction in NIM is expected over the remainder of the financial year as a result of increased competition in the mortgage market
Income growth exceeded underlying cost growth resulting
in a 30bps improvement in CIR. The phasing of costs within the year, combined with our margin expectations, means the full year cost income ratio is likely to be higher
Underlying profit was up 52% due to higher net interest income and lower impairment provisions
Comparisons based on Q1 2014/15
UNDERLYING COST INCOME RATIO
NET INTEREST MARGIN
UNDERLYING PROFIT BEFORE TAX
STATUTORY PROFIT BEFORE TAX
51.2%
163bps
£400m
£379m
30bps
16bps
52%
50%
5
RESIDENTIAL LENDING BALANCES
PCA OPENING2
CET1 RATIO
£154.9bn
115,000
20.8%
£2.0bn
5,000
100bps
MEMBER DEPOSITS¹ £132.5bn £0.1bn
Residential lending balances continued to grow through the quarter, increasing by £2.0bn
Member deposits¹ increased £0.1bn, reflecting the impact of NS&I Pensioner Bonds
The Group opened 115,000 new current accounts and was a net beneficiary of the current account switching service, gaining 7.4% of gross switchers
CET1 ratio increased to 20.8%, following a strong trading performance and lower risk weighted assets
The leverage ratio increased to 4.2% LEVERAGE RATIO 4.2% 10bps Comparisons based on FY 2014/15
¹ Includes current account credit balances 2 Comparison based on Q1 2014/15
6
Business Overview
7
Business Overview
Top 3 UK mortgage and savings provider UK’s largest building society with national and multi-channel distribution
£198.0bn assets 15m members and customers, 700 branches across the UK and online, mobile and telephone banking services
Significant share of UK retail banking market UK mortgage market share: 12.2%; 2nd in the UK1
UK savings market share: 10.1%; 3rd in the UK1
UK current account market share: 6.8%1
Robust balance sheet Top CET1 ratio in peer group at 20.8%2
Improvement in leverage ratio to 4.2% LCR ratio increased to 133.7%
Strong credit ratings S&P: LT: A ST: A-1 Outlook: Stable Moody’s: LT: A1 ST: P-1 Outlook: Stable Fitch: LT: A ST: F1 Outlook: Stable
Prudent, low risk business model Average indexed mortgage book LTV 55% 3 months + arrears on residential mortgage book of 0.47%
Industry leading customer satisfaction Ranked number 1 for customer satisfaction within our high street peer group3 In the top 10 out of 225 organisations in the UK Customer Satisfaction Index, the highest ranking high street financial services provider4
¹ Market share figures are Nationwide’s management estimates using corporate disclosures and market research from GfK. 2 Peer group comparison based on Lloyds, Santander UK, RBS, HSBC and Barclays. Competitor information is based on corporate disclosures dated 31st March 2015. 3 © GfK 2015 (FRS), Financial Research Survey (FRS), 3 months of interviewed conducted between April 2015 and June 2015, c. 15,000 adults interviewed, proportion of extremely/very satisfied customers minus proportion of extremely/very/fairly dissatisfied customers summed across current account, mortgage and savings, high street peer group defined as Barclays, Halifax, HSBC, Lloyds Bank (inc. C&G), NatWest and Santander. 4 July 2015 survey published by the Institute of Customer Service. High street financial services provider defined as Lloyds Bank, TSB, Halifax, RBS, NatWest, Santander, HSBC, Barclays and Co-op.
8
Financial Performance
1Information as at 4th April 2015 (FY 2014/15)
1,509 1,590 1,981
2,403
2,861
0.80 0.81
1.02
1.25
1.46
2011 2012 2013 2014 2015
Net Interest Income (£m) Net Interest Margin
NIM increased 21bps in FY 2015, driven by the market fall in retail funding costs
Q1 2015 – NIM in the quarter was 1.63%. This increase has been driven by the market fall in retail funding costs over the last 12 months. A modest reduction in the net interest margin is expected over the remainder of the year as a result of increased competition in the mortgage market
Impairments fell by 34% in FY 2015 to £251m. This improvement is almost entirely due to reduced CRE losses
We consider our CRE deleveraging programme essentially complete
Q1 2015 – Credit performance in the quarter has been strong with negligible net impairments. This reflects the continuation of improving market conditions and deleveraging of CRE assets in 2014/15
184 139
95 60 147
175 247
493
309 52
66 42
3
14
52
2011 2012 2013 2014 2015
Treasury & Other Commercial Lending Retail Lending
Net Interest Margin1
Impairments (£m)1
425 428
591
383
251
9%
The average LTV of the mortgage book (by value) at FY 2015 was 56% (2014: 58%)
The average LTV (by value) on new lending was down to 69% (2014: 73%)
The proportion of mortgages in arrears was 0.49% at FY 2015 (2014: 0.63%), significantly below the Council of Mortgage Lenders average of 1.30%
Q1 2015
The book LTV (by value) decreased in Q1 2015 to 55%
The new lending LTV (by value) remained at 69% in the quarter
The proportion of residential mortgage arrears continued to decrease, down to 0.47%
Assets
€ £ $
$
£
€ € €
£
£
9
104.3 105.6 110.6 119.3 124.5
20.3 23.2 24.8 26.3 28.2
2.8 3.0 3.4
3.7 3.6
22.0 21.5 19.0 16.3
12.9 31.9 34.3 23.8 18.0 18.8 7.7
8.5 9.1 6.3 7.6
2011 2012 2013 2014 2015
Other Assets
Liquidity
Commercial Lending
Consumer Banking
Specialist Lending
Prime Mortgages
< 50% 34%
50% - 60% 19%
60% - 70% 21%
70% - 80% 17%
80% - 90% 7%
90% - 100% 1%
> 100% 1%
Residential mortgage balances by LTV1 Proportion of mortgage arrears (3mths+) 1
CML Average NBS Prime
Balance Sheet Evolution (Assets/£bn) 1
1Information as at 4th April 2015 (FY 2014/15)
CML BTL CML Average
NBS BTL NBS Specialist
10
Capital
14.5%
19.8% 20.8%
2.0%
2.2%
1.4% -0.3%
FY 2014 Profits Net ELreduction
RWAs Otherreserves
FY 2015 Q12015/16
3.4%
4.1% 4.2%
0.4%
0.4% -0.1%
FY 2014 Profits Net ELreduction
Otherreserves
FY 2015 Q12015/16
CET1 Ratio Leverage Ratio
During 2014/15 our CET1 ratio increased 530bps to 19.8% and our leverage ratio increased 70bps to 4.1%
CET1 and leverage ratios increased due to a strong financial performance and a reduction in the excess of expected losses over impairment provisions
Reduction in expected losses is primarily a result of continued deleveraging of the non-core commercial real estate portfolio and out of policy treasury assets
Q1 2015
CET1 increased an additional 100bps to 20.8% and leverage an additional 10bps to 4.2%. This increase was due to continued strong financial performance and lower risk weighted assets
Lower risk weighted assets came as a result of reduced CRE exposures and improved asset quality on our buy to let portfolio
19.8% CET1 Ratio 14.5%
CET1 Ratio
Movements in CET1 Ratio & Leverage Ratio1
£10bn
£9bn
£8bn
£7bn
£6bn
£5bn
£4bn
£3bn
£2bn
£1bn
£0bn
27.0%
3.4% Leverage
Ratio1
4.1% Leverage
Ratio
2015
19.8% CET1 Ratio
2014
22.1%
14.5% CET1 Ratio
Common Equity Tier 1 Additional Tier 1 Tier 2
1Information as at 4th April 2015 (FY 2014/15)
Capital and PIBS £10.2bn
Other Liabilities £7.7bn
Retail Savings £138.5bn
Securitisations £4.8bn MTN
£5.2bn
Covered Bond £11.3bn
CP £2.4bn
CDs £3.1bn
Deposits2 £11.0bn
Other £1.4bn
Wholesale Funding £39.2bn
Funding Breakdown¹ Nationwide values a diversified wholesale funding platform
At 4 April 2015, debt securities in issue were £28.1bn
Nationwide prioritises funding from core funding programmes
- EMTN (senior EUR/GBP) - US MTN (senior USD) - Covered Bond
(EUR/GBP) - RMBS (USD/EUR/GBP) - Private placements
In the last financial year we
issued £8bn across these programmes
¹ Information as at 4th April 2015 (FY 2014/15) ² Other deposits comprise wholesale deposits placed with the Treasury Division, commercial deposits which are managed by the retail business and amounts relating to the sale of PEBs by the Group on behalf of Legal & General ³ Excluding FLS 4 Issuance amounts shown in sterling equivalents, translated at swap rate at issuance
Funding
Wholesale funding 3 residual maturity (£bn)¹
Short-term wholesale funding programmes
Long-term wholesale funding programmes
Public issuance (£m) – last 12 months4
Covered Bond
RMBS
Senior Unsecured
€ £ € $
$
£
€
€ € €
£
£
11
< 1 year 18.3
1-2 years 3.6
2-5 years 7.5
> 5 years 9.8
€ $ €
€ £ € $
£ £ €
€
$
0
500
1000
1500
2000
2500
Oct-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jul-15
12
Appendices
13
UK Capital Requirements CRD IV capital requirements took effect from January 2014, these are summarised in the table below Leverage ratio requirements, as implemented in the UK, are also shown below
* From January 2016 the Capital Planning Buffer will be renamed as the PRA Buffer
Risk Based Capital Requirements
2015 2016 2017 2018 2019
Pillar 1
CET1 4.5%
Tier 1 6.0%
Total Capital 8.0%
Pillar 2A
CET1 56% of total Pillar 2A requirements
Tier 1 75% of total Pillar 2A requirements
Total Capital 100% of total Pillar 2A requirements
CRD IV Buffers
Countercyclical Buffer (CET1) At the discretion of the FPC and foreign regulators (0-2.5%)
Capital Conservation Buffer (CET1) 0.625% 1.25% 1.875% 2.5%
Systemic Risk Buffer (CET1) - - - - 0-3%
Pillar 2B Capital Planning Buffer* (CET1) Total CPB, offset by any Capital Conservation Buffer and Systemic Risk Buffer
Leverage Requirements
Leverage
Minimum Requirement (Tier 1) 3% Countercyclical Leverage Buffer (CET1) 35% of risk based Countercyclical Buffer (0-0.9%)
Supplementary Leverage Buffer (CET1) - - - -
35% of Systemic Risk Buffer (0-
1.05%)
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Credit Ratings
Long Term Short Term AT1 Tier 2 Outlook
Standard & Poor’s A A-1 BB+ BBB Stable
Moody’s A1 P-1 - Baa1 Stable
Fitch A F1 BB+ A − Stable
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S&P reaffirmed Nationwide’s ‘A’ rating despite the removal of two notches of government support. One notch was added for additional loss-absorbing capacity and a further notch was added for asset quality and internal capital generation. Moody’s upgraded Nationwide to ‘A1’ from ‘A2’. The upgrade was underpinned by the standalone credit strength and strong capitalisation. Fitch reaffirmed Nationwide’s ‘A’ rating due to strong franchise in the UK mortgage and savings markets, well performing loan book, conservative funding and liquidity profile and strengthened capital ratios.
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This presentation has been prepared by and is the property of Nationwide Building Society (“Nationwide”). By attending this presentation or accepting this document you represent, warrant and agree that (i) you will not reproduce or transmit the contents (in whole or in part) of this presentation by any means; (ii) you have understood and agreed to the terms set out herein; (iii) you consent to delivery of this presentation by electronic transmission, if applicable; (iv) you are not a US Person, as defined below; (v) if you are in the United Kingdom, then you are a person who is (a) an investment professional within the meaning of Article 19 (5)of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (“FPO”) or (b) a high net worth entity falling with Article 49(2)(a) to (d) of the FPO; and (vi) if you are within the European Economic Area (“EEA”), then you are a person who is a “qualified investor” within the meaning of Article 2(1)(e) of EU Directive 2003/71/EC, as amended (the “Prospectus Directive”). Although the statements of fact and certain industry, market and competitive data in this presentation have been obtained from and are based upon sources that are believed to be reliable, their accuracy is not guaranteed by Nationwide and any such information may be incomplete or condensed. In addition, certain of these data come from Nationwide's own internal research and estimates based on the knowledge and experience of management in the market in which it operates. Such research and estimates and their underlying methodology and assumptions have not been verified by any independent source for accuracy or completeness. Accordingly, you should not place undue reliance thereon. All opinions and estimates included in this presentation are subject to change without notice. Nationwide is under no obligation to update or keep current the information contained herein.
In the United Kingdom, this communication is directed only at persons who (i) have professional experience in matters relating to investments falling within Article 19 of the FPO, as amended; or (ii) are Professional Clients (as defined by FCA Rules), all such persons in (i) and (ii) together being referred to as “relevant persons”. This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. In the EEA, this communication is only addressed to and directed at persons who are “qualified investors” within the meaning of Article 2(1)(e) of the Prospectus Directive. NEITHER THIS PRESENTATION NOR ANY COPY HEREOF MAY BE DISTRIBUTED IN ANY JURISDICTIONS WHERE ITS DISTRIBUTION MAY BE RESTRICTED BY LAW. PERSONS WHO RECEIVE THIS PRESENTATION SHOULD MAKE THEMSELVES AWARE OF AND ADHERE TO ANY SUCH RESTRICTIONS. Any failure to comply with these restrictions may constitute a violation of the laws of any such other jurisdictions. This presentation does not constitute an offering document. The information presented herein is an advertisement and does not comprise a prospectus for the purposes of the Prospectus Directive and/or Part VI of the Financial Services and Markets Act 2000.
The information herein has not been reviewed or approved by any rating agency, government entity, regulatory body or listing authority and does not constitute listing particulars in compliance with the regulations or rules of any stock exchange. Any future potential transaction is qualified in its entirety by the information in the final form documentation relating to any such proposed transaction. Investors should not subscribe for any securities except on the basis of the information contained in the final form documentation relating to any such proposed issue of securities, in particular, each reader is directed to any section headed “Risk Factors” in any such documentation. This presentation is published solely for informational purposes and should not be treated as giving investment advice. It has no regard to the specific investment objectives, financial situation or particular needs of any recipient. No representation or warranty, express or implied, is or will be made in relation to, and no responsibility is or will be accepted by Nationwide and its affiliates, agents, directors, partners and employees as to the accuracy or completeness of the information contained in this presentation and nothing in this presentation shall be deemed to constitute such a representation or warranty or to constitute a recommendation to any person to acquire any securities. Nationwide and its affiliates, agents, directors, partners and employees accept no liability whatsoever for any loss or damage howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith.
Disclaimer This presentation may contain statements that constitute forward-looking statements. Such forward-looking statements can be identified by the use of forward-looking terminology, such as the words “believes”, “expects”, “may”, “intends”, “should” or “anticipates”, or the negative or other variations of those terms. Such statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results and performance of securities, Nationwide or its industry to differ materially from any future results or performance expressed or implied in the forward-looking statements. These risks, uncertainties and other factors include, among others: general economic and business conditions in the United Kingdom; currency exchange and interest rate fluctuations; government, statutory, regulatory or administrative rules or initiatives affecting Nationwide; changes in business strategy, lending practices or customer relationships; and other factors that may be referred to in the document. While such statements reflect projections prepared in good faith based upon methods and data that are believed to be reasonable and accurate as of the date thereof, Nationwide undertakes no obligation to revise these forward-looking statements to reflect subsequent events or circumstances. Recipients of this presentation should not place undue reliance on forward-looking statements and are advised to make their own independent analysis and determination with respect to the forecast periods, which reflect Nationwide’s view only as of the date hereof. This presentation shall not constitute or form part of any offer to sell or the solicitation of an offer to buy or subscribe for any securities. Any securities subsequently issued by Nationwide will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state or any other jurisdiction of the United States. Any securities subsequently issued by Nationwide may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
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