Summary Financial Statement
This financial statement is a summary of information in the audited Annual Accounts, the Directors’ Report and the Annual Business Statement, all of which will be available to Members and Depositors free of charge at every office of Norwich and Peterborough Building Society from 2nd April 2007. The statement is a consolidation of the results of the Society and its subsidiary undertakings.
To read more please visit the links below:
- Business highlights
- Directors' remuneration
- Summary of key financial ratios
- Independent auditor's statement
Business highlights
Economic background
The UK economy grew strongly during 2006, driven largely by the buoyant services sector. Rising house prices, record employment and a mild recovery in manufacturing, helped the economy to recover from a slowdown in 2005. High energy prices contributed to the upward pressure on inflation and the Bank of England's Monetary Policy Committee responded with two quarter-point increases during the year, taking the official Bank Base Rate to 5% at the year-end.
By historic standards, UK mortgage rates are still at relatively low levels, while at the same time the rate increases will have been welcomed by savers.
House prices increased steadily from recent low levels seen around the middle of 2005 and many forecasters were surprised by the resilience of the domestic housing market. London prices drove up the national average while at the same time mortgage approvals unexpectedly rose to a record high in November at £33.1 billion. Prices rose by 13% in East Anglia, slightly above the UK average. Sales volumes in the region grew by 22% to 135,000.
Much press coverage was given to the fact that some lenders relaxed their lending criteria significantly during the year, causing concern that some borrowers might be tempted to overstretch themselves. Both the Financial Services Authority and the Bank of England were prominent in calling for these lenders to exercise more caution.
Over the course of the year the UK stock market performed well, despite reacting negatively for a period during the second quarter along with other world markets to concerns about higher inflation. The FTSE 100 index increased by over 600 points to end the year at 6,221. As in 2005, this provided long-term investors with some excellent returns
Our services
Savings and investments
In 2006, the Society's savings portfolio saw a significant increase in new balances. N&P appeared in ‘best buy’ tables throughout the year. A very popular product was the 50 Plus Savings Account which was launched in September and is available to savers who are aged 50 and over. End of year figures show a net savings inflow of £229m, an increase in market share and a large rise in the number of new savings customers.
In March, the Society launched its first Club Savers Account - an internet-based affinity savings account through which savers can support a selected football club. Earlier, the Football League endorsed N&P as its preferred provider of affinity savings accounts to Championship and lower league clubs. Each year the Society pays a bonus of up to 1.25% to the club, calculated on the average total balance held in all of the supporters' accounts for that club. In total, 27 clubs went live in 2006. The Society also has three long-running, established and successful accounts with Norwich City, Peterborough United and Lincoln City.
Financial Advice Service
Since the introduction of the independent Financial Advice Service in October 2003, 13,000 customers have received independent advice and expertise from N&P's financial planners on areas such as Inheritance Tax, investments, protection and pensions. In 2006 alone, our advisers invested £100 million for our customers. We will continue to provide every opportunity for customers to access this service in 2007 through our branch network and over the telephone, with a supporting series of seminars to be held throughout the region. We also see our advisory service to businesses growing, following the appointment of financial planners who will focus on providing a range of advice for both employers and their employees.
Banking
Throughout 2006, the Society's Gold Current Account was continuously mentioned as a 'best buy' in the national press. We have grown our personal and business current account base by more than 9% to just under 130,000 open accounts this year and have helped over 3,000 new customers switch their current account to N&P. In October we launched the Business Gold multi-function card (which is similar to our personal current account card) for sole traders and partnership accounts.
Mortgages
One of the major aims of the Society's mortgage portfolio is to provide our customers with good value and choice, which is why we continue to develop our wide range of mortgage products. In July we launched a new category of lending - 100% loan to value mortgages, ideal for first time buyers. 2006 has seen good volumes of mortgages distributed through both our customerfacing and intermediary channels. We have also seen a significant increase in the number of buy to let loans released, which we plan to build on in 2007.
We have continued to streamline our mortgage processes with a view to reducing internal processing costs and speeding up turnaround times, whilst still ensuring high quality service.
Commercial lending had another very successful year which, with advances exceeding £100m, has generated a profit contribution of around £5m for the year. Another significant achievement for this year was winning the Business Moneyfacts “Best Commercial Mortgage Provider” for the third year running. The Society was also awarded the Credit Today “Business Lender of the Year” award, beating off strong competition from the high street banks.
Insurance
Customers now have a wide choice in the way they can purchase insurance from Norwich and Peterborough Insurance Brokers - by telephone, in-branch and now online. In 2006, the Society launched online 'quote and buy' facilities for travel, motor and home insurance.
Expertise and Quality
Capital
A new legislative framework (the Capital Requirements Directive, commonly referred to as Basel II) governing how much capital all banks and building societies must hold to protect their members, depositors and shareholders, was introduced by the European Union from the beginning of 2007. In the UK, this is being implemented by our regulator, the Financial Services Authority (FSA). The FSA reviews the methods used in lending decisions and if an organisation is judged to be in control of its risk profile, with a detailed understanding of its customer base, it is permitted to set capital levels using internally developed models rather than through ratios set by the FSA.
N&P has worked over a number of years to develop models predicting potential losses that can arise in a recession from its lending activities in mortgages (both commercial and residential) and banking. Our aim is to ensure that we protect our members' savings by having sufficient capital to weather an economic downturn.
We are proud to be the first financial services organisation in Europe to be given approval to use these models in 2007.
Having these systems allows us to control our balance sheet more efficiently but perhaps more importantly, we can price more competitively and increase the range of customers we offer mortgages to by adjusting our price to match more exactly the 'risk profile' of the borrower.
Investment advice
Our 47 independent financial advisers are all highly qualified professionals. They use product and investment research and analysis from leading city-based independent research companies. They are kept up-to-date with the latest regulations and legislation through regular training.
Mortgage advice
The Society also has 87 CeMap qualified mortgage advisors. Training takes place in-house and encourages our mortgage advisors to learn about the whole house buying process, not just mortgages.
Retailing and marketing
Findings from the GFK Financial Research Survey in July revealed that compared to the rest of the market, N&P customers were more likely to feel they received better customer service compared to other financial institutions they deal with. This message, combined with over 300 ‘best buy’ mentions in national newspapers in 2006, formed the basis for a major branch campaign in the run-up to Christmas.
2006 saw the closure of two N&P branches, in Peterborough and Northampton, brought on by the decline of the local retail environment. We also relocated and redesigned two other branches, in Lincoln and Wymondham. In February, N&P's Lincoln branch relocated from the city centre to the Carlton Centre - a brand new shopping area in the north east of the city. In June, our Wymondham branch relocated literally over the road to give disabled customers better access to the branch and give all customers more private interview space. Both moves gave us the opportunity to implement the new retail design that was piloted in our Chapelfield branch last year. We held members' meetings in Lincoln and Wymondham to canvas feedback on the changes, which proved overwhelmingly positive.
Community and Good Governance
Member engagement
As a mutual building society, we listen very carefully to the views and opinions of our members. This includes holding members' meetings, which we will continue to hold regularly in 2007, and through independent research. Our monthly customer satisfaction survey showed that we averaged 70% 'very satisfied' customers in 2006.
In July, the FSA published its latest update report on the progress firms are making with “Treating Customers Fairly” (TCF). In line with the FSA guidelines, we have a TCF policy and project plan in place. TCF has always been an integral part of our business culture - incorporated into product development and sales processes, staff induction training and career progression.
To help us strike a balance in setting policies, our Customer Service Review Committee continues to review individual complaints, our TCF processes and critical areas of customer service. Two members of the Committee stepped down in January 2007 and so the Society has been actively recruiting two new members from the Society's broad membership.
Community sponsorships and donations
N&P continues to support local requests for support through its branch network. In 2006 we gave £149,000 to local charities and other worthy causes. This included support for environmental causes, such as the Schools' Energy Club in West Norfolk (to which we have donated £15,000), and those working with the more vulnerable members of our communities.
The environment
In December, N&P was commended highly in the 'Large Business' category of the prestigious National Energy Efficiency Awards. Competing against national and international companies, N&P proved it punches well above its weight in terms of the environmental measures it has put in place over the last eight years. The Society will continue with its environmental focus in 2007, working with the Carbon Neutral Company to reduce and offset its emissions, initially over the next three years, and became “Carbon Neutral” on 1 January 2007.
Board rotation
2006 saw the retirement of Executive Directors Martyn Willgress and Ray Roberts and the appointment of David Jervis (Business Services Director), Jeff Pritchard (Risk & Compliance Director) and Richard Wells (Finance Director). Gordon Horsfield joined the Board as a Non-executive Director and was appointed Chairman of the Audit Committee. Zara Hammond and Geoff Loades will be retiring as Non-executive Directors at the 2007 AGM, which will be held in Peterborough in April. We would like to thank them for their contributions to the Society’s success over the past 6 years and wish them well for the future.
Martyn Willgress joined the Norwich Building Society in 1976 and Ray Roberts joined the Peterborough Building Society in 1983. They therefore had a combined service of 53 years. We would like to thank Martyn and Ray for their considerable input to the Society’s growth and success in this period.
Outlook for 2007
Our strategy of “organic” diversification will continue in 2007 to focus on the independent revenue streams provided by our Financial Advice Service, banking and general insurance products. We recently launched our own personal loan service and have introduced a fourth interest rate tier to our Gold Current Account. Our business services portfolio will also be developed in 2007 and we expect to see continued growth of mortgage business, particularly through the intermediary sector, aided by our new capital models. However, should opportunities arise that might grow the Society “inorganically”, then we would also pursue these if they were in the interests of our members.
Keith Bedell-Pearce
Chairman
Matthew Bullock
Chief Executive
Directors' Details
Follow the link to view full Directors Details
Directors' Remuneration
Policy on Directors’ Remuneration
The remuneration policy complied with the principles of the Code of Governance contained in the Interim Prudential Sourcebook for building societies. The remuneration of Executive Directors is determined by the Society's Remuneration Committee. Non-executive Directors receive only their fees.
The policy is based on the principles that pay arrangements should support the Group in the achievement of business objectives by attracting and retaining the right calibre of staff, motivating individuals towards improved performance, recognising and rewarding individual performance, and ensuring pay systems are clear, simple and fair.
Executive Directors' remuneration comprise a number of elements: basic pay, annual and medium term incentive schemes, contribution to pension schemes, and other benefits. The basic pay is set by reference to information supplied by an independent external organisation(Watson Wyatt LLP). The annual bonus comprises a team bonus related to cost management, income generation and mortgage growth, and a personal bonus assessed on a balanced scorecard covering financial, customer, process and staff management targets. The medium-term incentive targets relate to customer satisfaction, growth in customer numbers and growth in customer product holdings.
Directors’ Emoluments
As part of the Society's continuing commitment to best practice in corporate governance, the following details concerning Directors' emoluments are reproduced in full from the Report and Accounts.
2006 |
2005 |
|
£000 |
£000 |
|
| Total for service as directors | 238 |
257 |
| Total for service as executives | 1,182 |
1,173 |
1,420 |
1,417 |
2006 |
2005 |
|
Fees* |
Fees* |
|
| Non-executive Directors | £000 |
£000 |
| Keith Bedell-Peace | 56 |
55 |
| Alan Brown | 30 |
28 |
| Bernie Foster | 28 |
29 |
| Michael Fowle (to 24.4.06) | 10 |
30 |
| Zara Hammond | 30 |
29 |
| Gordon Horsfield(from 22.3.06) | 24 |
- |
| Sir Christopher Howes (to 25.4.05) | - |
10 |
| Geoff Loades | 30 |
27 |
| Ian Peacock (to 25.4.05) | - |
11 |
| Alex Tweedie | 30 |
25 |
238 |
244 |
* Fees include Directors' travelling expenses.
| Fees/Salary | Annual Bonus | Medium-Term Bonus | Benefits | Sub-total | Increase in accrued pension | Pension scheme contributions | Total |
|
| Executive Directors | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
£000 |
| 2006 | ||||||||
| Matthew Bullock | 283 |
71 |
36 |
14 |
404 |
- |
49 |
453 |
| Mike Hounsell | 186 |
47 |
24 |
12 |
269 |
3 |
4 |
276 |
| David Jervis | 57 |
12 |
6 |
- |
75 |
1 |
- |
76 |
| (from 1.8.60) | ||||||||
| Jeff Pritchard | 33 |
8 |
3 |
- |
44 |
1 |
- |
45 |
| (from 5.10.06) | ||||||||
| Ray Roberts | 122 |
23 |
5 |
8 |
158 |
7 |
- |
165 |
| (to 4.10.06) | ||||||||
| Richard Wells | 31 |
7 |
3 |
1 |
42 |
1 |
- |
43 |
| (from 5.10.06) | ||||||||
| Martyn Willgress* | 108 |
- |
6 |
4 |
118 |
6 |
- |
124 |
| (to 31.7.06) | ||||||||
820 |
168 |
83 |
39 |
1,110 |
19 |
53 |
1,182 |
|
| 2005 | ||||||||
| Matthew Bullock | 283 |
65 |
33 |
7 |
388 |
- |
47 |
435 |
| Mike Hounsell | 180 |
44 |
22 |
12 |
258 |
2 |
14 |
274 |
| Ray Roberts | 157 |
30 |
18 |
9 |
214 |
6 |
- |
220 |
| Martyn Willgress | 172 |
40 |
19 |
6 |
237 |
7 |
- |
244 |
792 |
179 |
92 |
34 |
1,097 |
15 |
61 |
1,173 |
|
* In addition, payments were made and benefits provided to Martyn Willgress of £360,540 in respect of the period of contractual notice and severance. Normal pension contributions were made in respect of these amounts. These costs were accrued in the 2005 Accounts.
Summary Statement
2006 |
2005 |
|
£m |
£m |
|
| Results for the year | ||
| Net Interest receivable | 47.9 |
43.5 |
| Income from investments | - |
1.2 |
| Other income and charges | 27.8 |
24.6 |
| Administrative expenses | (53.2) |
(51.6) |
| Profits before provisions | 22.5 |
17.7 |
| Provisions | (2.3) |
(1.7) |
| Operating profit for the year before taxation | 20.2 |
16.0 |
| Taxation | (6.1) |
(5.0) |
| Profit for the year | 14.1 |
11.0 |
| Total recognised gains and losses | ||
| Profit for the year | 14.1 |
11.0 |
| Actuarial (loss)/gain recognised in pension scheme | (0.1) |
(2.7) |
| Deferred taxation relating to pension scheme | - |
0.8 |
| Tax on realised property revaluation gains of previous years | - |
(0.1) |
| Total recognised gains and losses in the year | 14.0 |
9.0 |
2006 |
2005 |
|
£m |
£m |
|
| Financial position at end of year | ||
| Assets | ||
| Liquid assets | 762.0 |
710.5 |
| Mortgages | 2,848.6 |
2,638.4 |
| Other loans | 9.8 |
6.9 |
| Fixed and other assets | 49.1 |
46.7 |
| Total assets | 3,669.5 |
3,402.5 |
| Liabilities | ||
| Shares | 2,364.3 |
2,088.1 |
| Borrowing | 1067.9 |
1,080.9 |
| Other liabilities | 20.2 |
20.4 |
| Subordinate liabilities | 30.0 |
40.0 |
| Reserves | 187.1 |
173.1 |
| Total liabilities | 3,669.5 |
3,402.5 |
This Summary Financial Statement was approved by the Board of Directors on 21 February 2007.
Keith Bedell-Pearce, Chairman
Matthew Bullock, Director and Chief Executive
Richard Wells, Finance Director
2006 |
2005 |
|
Group |
Group |
|
% |
% |
|
| Gross capital as a percentage of shares and borrowing | 6.33 |
6.73 |
| Liquid assets as a percentage of shares and borrowing | 22.20 |
22.42 |
| Profit for the year as a percentage of man total assets | 0.40 |
0.33 |
| Management expenses as a percentage of mea total assets | 1.51 |
1.55 |
Explanation of Ratios
1 Gross capital as a percentage of shares and borrowings measures the proportion which the Society's capital (defined as total
reserves plus subordinated liabilities) bears to the Society’s liabilities to investors. Capital provides a financial cushion against
difficulties which might arise in the Society’s business and, therefore, protects investors.
2 Liquid assets as a percentage of shares and borrowings measures the proportion of the Society’s borrowings which are held in the
form of cash, short term deposits and debt securities. These assets are generally readily realisable which enables the Society to
meet requests by investors for withdrawals, make new mortgage loans and fund general business activities.
3 Profit for the year as a percentage of mean total assets measures the proportion which the profit after taxation bears to the
average total assets of the Society (defined as the average of the total assets at the start and end of the year). The Society needs
to make a reasonable level of profit each year in order to maintain its capital strength at a suitable level to protect investors.
4 Management expenses as a percentage of mean total assets measures the proportion which administrative expenses as reported
in this document (which includes depreciation and amortisation) bear to the average total assets. The ratio is one measure of the
cost efficiency of the Society.
Independent Auditors' Statement to the Members and Depositors of Norwich and Peterborough Building Society
We have examined the Summary Financial Statement of the Norwich and Peterborough Building Society Group set out on
pages 2 to 6 and 9.
Respective responsibilities of Directors and Auditors
The Summary Financial Statement is the responsibility of the Directors. Our responsibility is to report to you our opinion on its consistency with the full Annual Accounts, Annual Business Statement and Directors’ Report and its conformity with the requirements of Section 76 of the Building Societies Act 1986 and regulations made under it.
This statement, including the opinion, has been prepared for and only for the Society’s members as a body and depositors as a body in accordance with Section 76 of the Building Societies Act 1986 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this statement is shown or in to whose hands it may come save where expressly agreed by our prior consent in writing.
Basis of opinion
We performed our work in accordance with the Bulletin 1999/6 ‘The Auditors’ Statement on the Summary Financial Statement’ issued by the Auditing Practices Board for use in the United Kingdom.
Opinion
In our opinion the Summary Financial Statement is consistent with the full Annual Accounts, Annual Business Statement and Directors’ Report of the Norwich and Peterborough Building Society Group for the year ended 31 December 2006 and conforms with the requirements of Section 76 of the Building Societies Act 1986 and regulations made under it.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
21 February 2007