For the year ended 4 April 2016 Annual Results Presentation
Nationwide Annual Results 2016 2
2015/16 PERFORMANCE REVIEW
FINANCIAL REVIEW
AGENDA
Nationwide Annual Results 2016
PURPOSE OF A BUILDING SOCIETY
3
Social purpose
Service and innovation
Long term value
Financial resilience
Nationwide Annual Results 2016
HELPING MORE MEMBERS BUY THEIR OWN HOMES
4
Strong mortgage lending – gross market share 13.7%
36% market share of net advances over past 4 years
57,200 loans to first time buyers – 1 in 6 of all FTB mortgages
#2 BTL lender – criteria changes to maintain quality
Market Share of Stock
£27.1bn
+20%
2016
£32.6bn
2015 Gross Mortgage Lending
2016
12.6% 12.1%
2015
Nationwide Annual Results 2016
REWARDING LOYAL SAVERS
5
Strong growth in member deposits
Member value – Loyalty Bond – Flexclusive Regular Saver
Transparent approach – rates typically better than high
street peer group
2015
£1.9bn
2016
+232%
£6.3bn
Growth in Member Deposits
10.2%10.2%
2016 2015 Market Share of Stock
Nationwide Annual Results 2016 6
+12%
2016
525,000
2015
469,000
Current Account Sales
7.1%6.8%
2016 2015 Market Share of Stock
525,000 new accounts
12.5% share of switcher service
‘Recommend a friend’ extremely popular
– >54,000 new accounts through this promotion
Innovation
MORE PEOPLE CHOOSING A NATIONWIDE CURRENT ACCOUNT
Nationwide Annual Results 2016 7
1 © GfK 2016, Financial Research Survey (FRS) measure, as defined in the glossary (slide 31)
Number one for service satisfaction amongst our high street peer group1
Consistently strong
performance
Complaints only 2% of total industry
LEADING SERVICE SATISFACTION
Nationwide Annual Results 2016
BUILDING A FINANCIALLY STRONG SOCIETY
8
Underlying profit
£1,337m
£1,227m
+9%
2016 2015
Strong performance - within optimal range
Investment in the long term
Financial resilience
Statutory profit
£1,279m£1,044m
+23%
2016 2015
Nationwide Annual Results 2016 9 * Annual employee ViewPoint survey, independently conducted on Nationwide’s behalf by HayGroup
77%75%75%
68%70%
80%79%77%
68%69%
2013 2012 2016 2015 2014 2013 2012 2016 2015 2014
Engagement* Enablement*
Highly engaged and enabled
Sunday Times: 3rd best big company to work for
Growth of 500 FTE, of which 132 were on an entry talent scheme
DELIVERED THROUGH OUR PEOPLE
2015/16 Financial Review
Nationwide Annual Results 2016
STRONG PROFIT PERFORMANCE
INCOME1
COSTS
IMPAIRMENTS
OTHER ITEMS
STATUTORY PROFIT
£3,333m
£1,796m
£73m
£58m
£1,279m
+ 5%
+ 10%
- 71%
UNDERLYING PROFIT £1,337m +9%
-68%
+ 23%
OTHER PROVISIONS £127m 115%
1 Comparatives have been restated for the reclassification of foreign currency retranslation amounts from net interest income to gains/(losses) from derivatives and hedge accounting. 11
Other items (£m) 4 Apr 15 4 Apr 16
Bank levy (28) (41)
Transformation costs (52) (10)
FSCS costs (83) (46)
Gains/(losses) from derivatives and hedge accounting (20) 39
Total (183) (58)
Nationwide Annual Results 2016
LOW RISK BALANCE SHEET
Asset growth of 7% driven by growth in residential mortgage lending and prudent liquidity position
12
1 Treasury liquidity and investment portfolio (on balance sheet) 2 Shares (member deposits) and amounts due to customers on consolidated balance sheet 3 Total members’ interests and equity including subscribed capital (PIBS)
Key Ratios 4 Apr 15 4 Apr 16
Liquidity coverage ratio 119.3% 142.6%
Wholesale funding ratio 23.3% 24.8%
CET1 ratio 19.8% 23.2%
Leverage ratio 4.1% 4.2%
RESIDENTIAL MORTGAGES
LIQUIDITY1
OTHER LENDING
RETAIL DEPOSITS2
WHOLESALE FUNDING
£162.1bn
£23.1bn
£16.7bn
£208.9bn
£144.9bn
£45.8bn
+ 6%
+ 23%
-6%
+7%
+5%
+ 17%
OTHER ASSETS £7.0bn +13%
OTHER LIABILITIES £6.9bn -12 %
CAPITAL & RESERVES3 £11.3bn + 12%
£208.9bn + 7%
Nationwide Annual Results 2016
MARGIN EXPECTED TO MODERATE
3,0862,872
2,4311,981
1,602
1.52%
2015
1.47%
2014
1.27%
2013
1.02%
2012
0.82%
2016
13
Net Interest Income
Net Interest Margin
* Comparatives have been restated for the reclassification of foreign currency retranslation amounts from net interest income to gains/losses from derivatives and hedge accounting.
Net interest margin (NIM) Evolution*
(3bps)
(6bps)
8bps (10bps)
16bps
2015
147bps
2016
152bps
Consumer Finance &
Commercial
Group Mortgages
BMR run off Treasury, Other & one offs
Retail Savings
Movement in NIM*
Funding costs down
Lending margins down
Nationwide Annual Results 2016
CONTINUED INVESTMENT
101
45
2523 24 1,796
Other Regulation & Control
Business Volumes
Inflationary & Contractual
Impact of Strategic
Investment
2015
1,626
2016
Underlying Costs (£m)
14
COST INCOME RATIO 51.4% 53.9%
Nationwide Annual Results 2016
REDUCED IMPAIRMENTS
13995
147
247
493
30952
42
52
11460
-34
14
2016
383
251
2014 2015
-71%
591 3
2013
428
73
2012
-7
Retail Lending Commercial Lending Treasury & Other
Impairments (£m)
Retail Lending £m Residential Consumer
banking
2015 2016 2015 2016
Charge excl one-offs 14 (9) 89 67
Update to accounting estimates / model assumptions
44 27 - 29
Reported charge 58 18 89 96
15
Retail Lending Residential Unsecured
lending
2015 2016 2015 2016
Impaired loans (£m) 895 778 72 63
3 month+ arrears 0.49% 0.45%
CML industry average 1.30% 1.04%
Nationwide Annual Results 2016
CUSTOMER REDRESS
103
5320
9520
69 39
32
73
2015
127
2016 2013
59
2014
69
2012
103
2011
16
2010
9
Other PPI
Customer Redress (£m)
PPI (including Plevin) £m 2016
Additional provision in respect of customer redress payments 21
Associated cost of claims administration due to timebar, FCA communications campaign* 74
Reported charge 95
16
Total cumulative charge of £296m for PPI (including Plevin) to date
* Of which £44m relates to change in basis of accounting for refuted claims
Nationwide Annual Results 2016
Movements in CET1 Ratio
CRD IV CET1 AND LEVERAGE RATIO
1.3%
2.7%
Other
(0.6%)
RWAs Profit Mar-16
23.2%
Mar 15
19.8%
0.2%0.5%
Other Mar-16
4.2%
Exposure
(0.2%)
Profit Mar 15
4.1%
17
Peer Group Leverage ratio*
4.0%4.2%4.3%4.7%5.0%5.3%
Lloyds HSBC RBS Santander UK
Nationwide Barclays
11.3%11.6%11.9%12.8%14.6%
23.2%
Barclays RBS Nationwide Santander UK
HSBC Lloyds
Peer Group CET1 ratio*
*As of March 2016
Movements in end-point CRD IV Leverage Ratio
Nationwide Annual Results 2016
CET1 resources are greater than minimum leverage and risk based requirements
We maintain a prescribed PRA Capital Buffer and an internal management buffer above minimum regulatory capital requirements
The expected MDA threshold is below current minimum leverage ratio requirements and is expected to remain so
Buffer requirements reflect anticipated steady state CRD IV buffer implementation of 2.5% capital conservation buffer, 1% systemic risk buffer and 1% countercyclical capital buffer.
Capital Requirements
£0bn
£5bn
£10bn
£15bn
MREL
6% of leverage exposure
Buffers
CET1 Requirements
Buffers
End Point Capital Resources
CET1
AT1
Tier 2
Pillar 1
Pillar 2A
Buffers
Leverage Requirement
CET1
AT1
CAPITAL STRENGTH
18
% of RWA
18.6%
12.6%
26.1% 23.2%
13.9%
4.5% 8.1%
30.9%
Nationwide Annual Results 2016
SUCCESSFUL ISSUANCE ACROSS CORE MARKETS
1 Wholesale funding portfolio excluding FLS. ‘Short Term’ includes certificates of deposit, commercial paper, deposits, business savings and other deposits. ‘Other’ includes £1.9bn of PEB balances 2 Sterling equivalent 3 Including FLS drawings
19
Term wholesale funding issuance of £9.5bn with a weighted average life of 7 years Weighted average life of the wholesale funding portfolio is 50 months3
60.8% of wholesale funding has greater than one year to maturity3
NSFR of 127.9% (2015: 121.9%)
Wholesale funding portfolio (£bn)1 Long term wholesale funding issuance (£bn)2
10
8
6
4
2
0 2015 2016
13.8
3.2 14.2
9.9 4.7
MTNs
Short Term
Securitisation
Covered Bond
Other
Senior Unsecured Securitisation Covered Bond
Nationwide Annual Results 2016
ROBUST LIQUIDITY POSITION
1 Government bonds include supranational bonds and off-balance sheet liquidity (FLS treasury bills) 20
Sources of liquidity (£bn)
LCR of 142.6% (2015: 119.3%)
Excludes non liquidity assets of £3.6bn relating to loans and advances to banks
2.62.3
15.3
4.3
1.32.5
15.3
8.8
2016 £27.9bn
2015 £24.5bn
Cash and reserves at central banks
Government bonds1 Other Central Bank eligible assets
Other securities
Nationwide Annual Results 2016
OUTLOOK
22
Short term uncertainty Long term strategic focus Great confidence in our future
Nationwide Annual Results 2016
Appendices
24
Nationwide Annual Results 2016
SUMMARY
£m 2015 2016 Total income 3,163 3,333 +5%
Administrative expenses (1,626) (1,796) +10%
Pre provision underlying profit 1,537 1,537 Impairment losses (251) (73) (71%)
Provisions for liabilities and charges (59) (127)
Underlying profit before tax 1,227 1,337 +9%
Bank levy (28) (41)
Transformation costs (52) (10)
FSCS costs (83) (46)
(Losses)/gains from derivatives and hedge accounting (20) 39
Statutory profit before tax 1,044 1,279 +23%
25
Nationwide Annual Results 2016
LIQUIDITY: OTHER TREASURY ASSETS
26
2016 £bn Total AAA AA A Other
Loans & advances to banks 3.6 0.9 0.7 1.1 0.9
Asset-backed securities 1.0 0.5 0.1 0.3 0.1
Other 0.3 - 0.1 0.2 -
Other portfolio total 4.9 1.4 0.9 1.6 1.0
% credit rating 100% 29% 18% 32% 21%
Asset backed securities have reduced as a result of ongoing portfolio deleveraging and natural paydown. This includes a reduction in out of policy assets of £200m
Nationwide Annual Results 2016
SUMMARY BALANCE SHEET: AS AT 4 APRIL 2016
Assets
£208.9bn
Prime Mortgages £129.9bn
Specialist Lending £32.1bn
Consumer Banking £3.6bn Commercial £11.8bn
Primary Liquidity £15.6bn Other Liquidity £7.5bn
Other Assets £8.4bn
Retail Savings (inc customer deposits)
£144.9bn
Wholesale Funding £45.8bn
Other Liabilities £5.1bn Subordinated Liabilities £1.8bn Capital and PIBS £11.3bn
Liabilities
£208.9bn
27
Nationwide Annual Results 2016
GLOSSARY
31
Definitions used are in line with the glossary in the Annual Report and Accounts 2016. In addition, further items included in the results presentation are defined below.
Customer satisfaction measure Definition Number one for service satisfaction
Slide 7
© GfK 2016, Financial Research Survey (FRS), 3 months ending 31 March 2016, 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 providers with main current account market share >6% (Barclays, Halifax, HSBC, Lloyds Bank (inc C&G), NatWest and Santander). Prior to April 2015, Lloyds Bank and TSB combined as Lloyds TSB Group (including Lloyds Bank, TSB and C&G).
Nationwide Annual Results 2016
CONTACTS
32
Alex Wall Head of Investor Relations, Rating Agencies & Capital [email protected] 0845 602 9053 Sarah Gardiner Head of Investor Relations [email protected] 0845 602 9053 Nationwide Treasury Mailbox [email protected]
Nationwide Annual Results 2016
DISCLAIMER
33
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”). 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. NOT FOR DISTRIBUTION TO ANY US PERSON (AS SUCH TERM IS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES. 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”.
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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. Although the statements of fact 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. 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. 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 the UK residential mortgage 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. Losses to investments may occur due to a variety of factors. Before purchasing any securities described in this presentation you should take steps to ensure that you understand and have made an independent assessment of the suitability and appropriateness thereof, and the nature and extent of your exposure to risk of loss in light of your own objectives, financial and operational resources and other relevant circumstances. You should take such independent investigations and such professional advice as you consider necessary or appropriate for such purpose. Furthermore, you should consult with your own legal, regulatory, tax, business, investment, financial and accounting advisers to the extent that you deem it necessary, and make your own investment, hedging and trading decisions (including decisions regarding the suitability of any transaction) based upon your own judgement and advice from such advisers as you deem necessary and not upon any view expressed in this presentation. Certain data in this presentation has been rounded. As a result of such rounding, the totals of data presented in this presentation may vary slightly from the arithmetic totals of such data. .