Nationwide Building Society : Half yearly fcial & audit reports / ltd reviews - NATIONWIDE BUILDING SOCIETY

Nationwide Building Society Interim Results

for the period ended 30 September 2024

Nationwide Building Society - Interim Results

Contents

	Page
Chief Executive's review	4
Performance summary	7
Financial review	8
Risk report	15
Condensed consolidated interim financial statements	62
Notes to the condensed consolidated interim financial statements	68
Responsibility statement	92
Independent review report to Nationwide Building Society	93
Other information	95
Contacts	95

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Nationwide Building Society - Interim Results

Introduction

Unless otherwise stated, the income statement analysis compares the period from 5 April 2024 to 30 September 2024 to the corresponding six months of 2023 and balance sheet analysis compares the position at 30 September 2024 to the position at 4 April 2024.

Underlying profit

Profit before tax shown on a statutory and underlying basis is set out on page 9. The purpose of the underlying profit measure is to reflect management's view of the Group's underlying performance and to assist with like-for-like comparisons of performance across periods. Underlying profit is not designed to measure sustainable levels of profitability as that potentially requires exclusion of non-recurring items even though they are closely related to (or even a direct consequence of) the Group's core business activities.

Forward-looking statements

Certain statements in this document are forward-looking with respect to plans, goals and expectations relating to the future financial position, business performance and results of the Group. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, the Group can give no assurance that these expectations will prove to be an accurate reflection of actual results. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the Group including, amongst other things, UK domestic and global economic and business conditions, market-related risks such as fluctuation in interest rates and exchange rates, inflation/deflation, the impact of competition, changes in customer preferences, risks concerning borrower credit quality, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations involving the Society and/or within relevant industries, risks relating to sustainability and climate change, the policies and actions of regulatory authorities and the impact of tax or other legislation and other regulations in the jurisdictions in which the Group operates. The economic outlook remains uncertain and, as a result, the Group's actual future financial condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward-looking statements. Due to such risks and uncertainties, the Group cautions readers not to place undue reliance on such forward-looking statements.

The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

This document is not intended to, and does not constitute, represent or form part of any offer invitation or solicitation of any offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities or the solicitation of any vote or approval in any jurisdiction. No securities are being offered to the public by means of this document. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering to be made in the United States will be made by means of a prospectus that may be obtained from the Group and will contain detailed information about the Group and its management, as well as its financial statements.

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Nationwide Building Society - Interim Results

Chief Executive's review

Record growth and value to members

Debbie Crosbie, Chief Executive, Nationwide Building Society, said:

"Nationwide delivered record first half growth in both mortgages and deposits, and record member value. Over the past 18 months, our mutual model has enabled us to provide over £3.5 billion in member value, including £729 million through the Nationwide Fairer Share Payment.

"Following our acquisition of Virgin Money on 1 October, we've recorded a gain of £2.3bn, as the value of net assets acquired is well above the price we paid. This gain provides significant headroom to cover our investment in integration, as well as in service and value.

"Future profits generated by Virgin Money can now be used for the benefit of customers, rather than being paid to external shareholders."

Business and trading highlights for the period ended 30 September 2024

Record first half year growth in mortgages and deposits

• Mortgage balances of £210.8bn (4 April 2024: £204.5bn), with record half year net lending of £6.3bn (H1 2023/24: £0.5bn). Market share of balances increased to 12.6% (4 April 2024: 12.3%).
• Member deposit balances increased by £8.3bn (H1 2023/24: £4.2bn) to £201.7bn (4 April 2024: £193.4bn). This was a record increase for a first half year. Deposit market share was
  9.6% (4 April 2024: 9.5%).
• Continued growth in current account volumes, and a market share of 9.7%1 (February 2024: 9.7%).

Leading customer service, giving customers a choice in how they bank with us

• First for customer satisfaction among our peer group for over 12 years, with a lead of 6.8%pts2 (March 2024: lead of 5.5%pts).
• We continue to have the largest single-brand branch network in the UK, supported by our Branch Promise - everywhere we have a branch, we promise to still be there until at least the start of 2028.
• More than 35% of our new current accounts were opened in branches this half year.

Mutual model delivers record value to our members

• Member financial benefit increased to £950m (H1 2023/24: £885m), from pricing and incentives that were better than the market average.
• Distributed £385m through our Nationwide Fairer Share Payments to 3.85m eligible members in June 2024.
• On average, interest rates on deposits were 30% higher than the market average, largely driven by our savings rates.

1. CACI's Current Account and Savings Database, Stock (August 2024).
2. Lead at September 2024: 6.8%pts, March 2024: 5.5%pts. © Ipsos 2024, Financial Research Survey (FRS), for the 12 months ending 31 March 2013 to 12 months ending 30 September 2024. Results based on a sample of around 47,000 adults (aged 16+). The survey contacts around 51,000 adults (aged 16+) a year in total across Great Britain. Interviews were face to face, over the phone and online, taking into account (and weighted to) the overall profile of the adult population. The results reflect the percentage of extremely satisfied and very satisfied customers minus the percentage of customers who were extremely or very or fairly dissatisfied across those customers with a main current account, mortgage or savings. Those in our peer group are Barclays, Halifax, HSBC, Lloyds Bank, NatWest, Santander and TSB. Prior to April 2017, those in our peer group were Barclays, Halifax, HSBC, Lloyds Bank (Lloyds TSB prior to April 2015), NatWest and Santander.

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Nationwide Building Society - Interim Results

Chief Executive's review (continued)

Robust financial performance and balance sheet strength

• Underlying profit before tax decreased to £959m (H1 2023/24: £1,262m) and statutory profit before tax was £568m (H1 2023/24: £989m), primarily due to the profile of interest rates over the period and our choice to offer competitive rates.
• Total underlying income of £2,129m (H1 2023/24: £2,449m). Net interest margin of 1.50% (H1 2023/24: 1.66%), higher than H2 2023/24 net interest margin of 1.46%.
• Credit impairment charges of £7m (H1 2023/24: £54m), reflecting the resilience of our lending.
• Underlying costs of £1,154m (H1 2023/24: £1,115m).
• CET1 ratio of 28.4% (4 April 2024: 27.1%) and leverage ratio of 6.7% (4 April 2024: 6.5%).

Making a meaningful impact across society

• Helped 53,000 (H1 2023/24: 31,000) first time buyers into a home of their own.
• Continued to commit 1% of pre-tax profits to good causes each year3, which for 2024/25 includes committing £9m to our three new charity partners, Centrepoint, Action for Children and Dementia UK, under our new Fairer Futures social impact strategy.

Acquisition of Virgin Money UK plc on 1 October 2024

Gain on acquisition of £2.3bn, resulting from a net asset value well in excess of the £2.8bn acquisition price.

• Peer-leadingcombined group CET1 ratio of 19.6% and combined group leverage ratio of 5.4% at 1 October 2024, both comfortably above regulatory minimums.
• A unique opportunity, underpinned by an exceptionally strong business case.

Positioning us to become the UK's first full-service mutual banking provider.

• Acquisition broadens our product range to include business banking, which we intend to offer to more customers over time.
• This will diversify our funding and strengthen us financially, enabling us to deliver even greater value for our customers, including through our Branch Promise, focus on customer service, and competitive deposit and lending rates.

Delivering scale and connecting us with one in three people in the UK.

• Now the UK's second largest provider of mortgages4 and retail deposits, with total assets of over £370 billion.
• Combined, we have £1 in every £6 of mortgage balances and hold £1 in every £8 of retail deposits in the UK.
• Now have an extensive network of 696 branches across the UK.

A long-term, measured and fully funded approach to integration.

• Acquired a profitable business so can take a longer-term approach to managing the Virgin Money business, with gradual integration following an initial 18-month strategic review.
• Gain on acquisition expected to provide significant headroom to cover costs associated with integration, investment in customer service and delivery of value under our mutual model.
• Future profits generated by Virgin Money will be fully retained within the Group, and available for investing in improving services and value for our customers, rather than being paid to shareholders.

The results for the period ended 30 September 2024 do not include the impacts of the Virgin Money acquisition. Further information is included in note 17 to the condensed consolidated interim financial statements, on page 89.

1. The 1% is calculated based on average pre-tax profits over the previous three years.
2. UK Finance 2023 balance database published on 31 July 2024 (latest available data).

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Nationwide Building Society - Interim Results

Chief Executive's review (continued)

Strategy update

More rewarding relationships: We will create deeper, lifelong relationships with our customers, that provide the best value in banking.

We delivered £950 million of member financial benefit, from pricing and incentives that were better than the market average, largely driven by our savings rates. In addition, we distributed £385 million through the Nationwide Fairer Share Payment in June 2024. Over the half year, we supported a record 39,000 (H1 2023/24: 14,700) students with our competitive FlexStudent current account, more than double that of the previous period. We continue to focus on supporting first time buyers, and in September 2024, we extended our Helping Hand mortgage to enable them to borrow six times their income, up to 33% more than through standard mortgages. We also increased the maximum loan to value available for purchasing a new-build house, from 85% to 90%.

Simply brilliant service: We will provide value beyond rates, with distinctive, personalised service our customers can trust, at every touchpoint.

We have the largest single-brand branch network in the UK, supported by our Branch Promise5. More than 35% of our new current accounts were opened in branches this half year, demonstrating the value of our branch network to customers. Our branches provide customers with choice in the way they can interact with us, alongside our digital channels, telephones, 24/7 online chat and dedicated cost-of-living helpline. We added further functionality to our new banking app, that launched in March 2024.

Beacon for mutual good: We want to have a meaningful impact on our customers, colleagues, communities and society, by driving fairer banking practices and positive change.

We launched our new Fairer Futures social impact strategy, helping to tackle three of the biggest issues we see in society today - youth homelessness, families living in poverty and people living with dementia. We are headline partner to three key charities: Centrepoint, Action for Children, and Dementia UK, who will help us make a meaningful difference across these important causes. As part of this, we are rolling out dementia clinics in 200 of our branches.

Continuous improvement: We will be focused, fit and fast, and simplify our processes and ways of working to deliver for the benefit of our customers, while retaining resilient controls that protect our customers and their money.

We continue to drive greater efficiency across our operations and improve our customer experiences. We are enabling faster mortgage offers for customers through our new automated income verification and valuation tools, and we continue to streamline our mortgage advice service, reducing interview times for customers whilst still ensuring appropriate products and good outcomes.

Looking forward

The economic outlook remains uncertain, and the interest rate outlook means we expect to have passed peak profitability. However, lower interest rates and resilience in real earnings are supporting consumer finances which, if maintained, should support a strengthening in housing market activity and overall deposit growth. The credit quality of our lending portfolios remains strong, and our capital resources are robust.

Following the acquisition of Virgin Money, we will use our ongoing financial strength to deliver even greater value to Nationwide and Virgin Money customers, through competitive rates, focus on customer service, and our unique Branch Promise.

Debbie Crosbie

Chief Executive

5 All our 605 Nationwide branches will remain open until at least 1 January 2028. There may be exceptional circumstances outside of our control that mean we have to close a branch. But we will only do this if we do not have another workable option. We have now extended our Branch Promise to include Virgin Money's 91 branches, following the acquisition on 1 October 2024.

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Nationwide Building Society - Interim Results

Performance summary

		Half year to	Half year to
		30 September	30 September
		2024		2023
	Financial performance			£m		£m
	Total underlying income			2,129		2,449
	Underlying administrative expenses			1,154		1,115
	Underlying profit before tax (note i)			959		1,262
	Statutory profit before tax			568		989
	Mortgage Lending	£bn		%	£bn	%
	Group residential - gross/market share	17.6		14.1	12.1	10.5
	Group residential - net	6.3			0.5
	Average loan to value of new residential mortgages (by value)			73		71
	Deposit balance movement	£bn		%	£bn	%
	Member deposits balance movement/market share (note ii)	8.3		15.0	4.2	7.8
	Key ratios			%		%
	Underlying cost income ratio (note iii)			54.2		45.5
	Statutory cost income ratio			54.9		44.2
	Net interest margin			1.50		1.66

		30 September	4 April
		2024			2024
Balance sheet	£bn		%		£bn		%
Total assets	282.4				271.9
Loans and advances to customers	220.0				213.4
Mortgage balances/market share (note iv)	210.8		12.6		204.5		12.3
Member deposits/market share (note ii)	201.7		9.6		193.4		9.5
Asset quality			%				%
Residential mortgages
	Proportion of residential mortgage accounts 3 months+			0.42				0.41
	in arrears
	Average indexed loan to value (by value)			55				55
Consumer banking
	Proportion of customer balances with amounts past due			1.24				1.36
	more than 3 months (excluding charged off balances)
Key ratios			%				%
Capital
	Common Equity Tier 1 ratio			28.4				27.1
	Leverage ratio			6.7				6.5
Other balance sheet ratios
	Liquidity Coverage Ratio (note v)			186				191
	Wholesale funding ratio (note vi)			22.0				22.5

Notes:

1. Underlying profit before tax represents management's view of underlying performance. A reconciliation of statutory to underlying profit before tax is included in the Financial review on page 9. The following items are adjusted from statutory profit before tax to arrive at underlying profit before tax:

• Member reward payments;
• Gains or losses from derivatives and hedge accounting; and
• Costs directly associated with the acquisition of Virgin Money. ii. Member deposits include current account credit balances.
  iii. The underlying cost income ratio represents management's view of underlying performance. Further information is included in the Financial review on page 8. iv. Mortgage balances are presented gross of credit provisions.
  v. The Liquidity Coverage Ratio represents a simple average of the ratios for the last 12 month ends. vi. The wholesale funding ratio includes all balance sheet sources of funding (including securitisations).

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Nationwide Building Society - Interim Results

Financial review

Muir Mathieson, Chief Financial Officer, Nationwide Building Society, said:

"We continue to deliver a robust financial performance. Underlying profit has decreased by 24.0% to £959 million, primarily due to the profile of interest rates over the period and our choice to offer competitive rates. We have delivered record levels of financial value back to our members, a combined £1,335 million, comprising £950 million of member financial benefit through better pricing and incentives than the market average and a Nationwide Fairer Share payment of £385 million to eligible members.

"Our competitive pricing and market leading service have supported robust growth in our deposit and mortgage balances.

"On 1 October we successfully completed the acquisition of Virgin Money. We believe that the combined Group will enhance Nationwide's profit resilience and will allow for more customers to benefit from a broadened range of products and services. Following the acquisition of Virgin Money on 1 October, our combined Group CET1 ratio was 19.6% and our combined Group leverage ratio was 5.4%."

Financial highlights

• Underlying profit before tax for the half year to 30 September 2024 decreased to £959 million (H1 2023/24: £1,262 million), given anticipated movements in Bank rate and continued reduction in overall mortgage margins. A decrease in income and marginally higher costs were partially offset by a reduction in charges for credit impairments. Statutory profit before tax was £568 million (H1 2023/24: £989 million), after reflecting the Nationwide Fairer Share Payment.
• Total underlying income decreased by £320 million, primarily due to a reduction in H1 2024/25 net interest margin to 1.50% (H1 2023/24: 1.66%).
• A combined £1,335 million (H1 2023/24: £1,229 million) of value has been delivered to members. This comprises member financial benefit, which increased to £950 million (H1 2023/24: £885 million) supported by better pricing and incentives than the market average, and the Nationwide Fairer Share Payment to eligible members in June 2024 of £385 million (H1 2023/24: £344 million).
• Member deposit balances increased by £8.3 billion to £201.7 billion
  (4 April 2024: £193.4 billion), with our market share of balances increasing
  to 9.6% (4 April 2024: 9.5%).
• Mortgage balances increased to £210.8 billion (4 April 2024:
  £204.5 billion), with our market share of balances increasing to 12.6% (4 April 2024: 12.3%).

• Underlying administrative expenses increased by £39 million to £1,154 million (H1 2023/24: £1,115 million).
• Credit impairment charges were lower at £7 million (H1 2023/24:
  £54 million), reflecting the resilience of our lending, whilst continuing to hold provisions for economic uncertainty and affordability pressures on borrowers. Mortgage arrears have remained broadly stable and remain well below the market average.
• As at 30 September 2024, CET1 and leverage ratios increased to 28.4% and 6.7% (4 April 2024: 27.1% and 6.5%) respectively.
  Following the acquisition of Virgin Money
• As at 1 October 2024, the combined Group CET1 ratio was 19.6% and combined Group leverage ratio was 5.4%. This reflects the larger combined balance sheet and the impact of a gain on acquisition of £2.3 billion resulting from the difference between the fair value of net assets acquired and the purchase consideration of £2.8 billion.

Underlying profit

before tax:

£959m

(H1 2023/24: £1,262m)

Statutory profit

before tax:

£568m

(H1 2023/24: £989m)

Leverage ratio

6.7%

(4 April 2024: 6.5%)

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Nationwide Building Society - Interim Results

Financial review (continued)

The results are prepared in accordance with International Financial Reporting Standards (IFRSs). Results presented on an underlying basis represent management's view of underlying performance. A reconciliation of underlying results to the statutory results, along with associated ratios, is shown below.

Income statement

Reconciliation of statutory to underlying results
	Half year to 30 September 2024	Half year to 30 September 2023
	Statutory	Adjustments	Underlying	Statutory	Adjustments	Underlying
	basis		basis	basis		basis
	£m	£m	£m	£m	£m	£m
Net interest income	2,076	-	2,076	2,337	-	2,337
Net other income (note i)	73	(20)	53	183	(71)	112
Total income	2,149	(20)	2,129	2,520	(71)	2,449
Administrative expenses (note i)	(1,180)	26	(1,154)	(1,115)	-	(1,115)
Impairment charge on loans and advances to customers	(7)	-	(7)	(54)	-	(54)
Provisions for liabilities and charges	(9)	-	(9)	(18)	-	(18)
Profit before member reward payments and tax	953	6	959	1,333	(71)	1,262
Member reward payments (note i)	(385)	385	-	(344)	344	-
Profit before tax	568	391	959	989	273	1,262
Taxation	(147)	-	(147)	(267)	-	(267)
Profit after tax	421	391	812	722	273	995
Total costs (administrative expenses)	(1,180)	26	(1,154)	1,115	-	1,115
Total income	2,149	(20)	2,129	2,520	(71)	2,449
Cost to income ratio	54.9%		54.2%	44.2%		45.5%

Note:

1. Adjustments are made to exclude the following items from underlying profit before tax as management does not consider them to be representative of underlying business performance:
   • Gains or losses from derivatives and hedge accounting, which are presented within net other income;
   • Transaction-related costs arising from the acquisition of Virgin Money UK plc, which are presented within administrative expenses; and
   • Member reward payments, representing discretionary payments to eligible members of the Society which may be determined by the Board from time to time, depending on the financial strength of the Society.

Total income and net interest margin

Net interest income decreased by £261 million to £2,076 million (H1 2023/24: £2,337 million), with net interest margin decreasing to 1.50% (H1 2023/24: 1.66%). The decrease in net interest income is primarily driven by the timing of changes in Bank rate and continued reduction in overall mortgage margins.

Net other income has reduced by £59 million to £53 million (H1 2023/24: £112 million), predominantly reflecting lower gains from the disposal of treasury assets and lower investment income following the disposal of the Society's investment advice business in February 2024.

Member financial benefit

Net interest margin:

1.50%

(H1 2023/24: 1.66%)

As a building society, we seek to maintain Nationwide's financial strength whilst providing value to our members through pricing, products and service. Through member financial benefit, we measure the additional financial value for members from the competitive mortgage, savings and banking products that we offer compared to the market average. Member financial benefit is calculated by comparing, in aggregate, Nationwide's average interest rates and incentives to the market, predominantly using market data provided by the Bank of England and CACI, alongside internal calculations. The value for individual members will depend on their circumstances and product choices. More information on how we calculate member financial benefit can be found in our Annual Report and Accounts 2024.

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Nationwide Building Society - Interim Results

Financial review (continued)

For the half year ended 30 September 2024, we delivered member financial benefit of £950 million (H1 2023/24: £885 million). The increase is due to our strong savings rates and mortgage products which seek to provide good value to members.

Member reward payments

The Board approved a Nationwide Fairer Share payment in May 2024 as part of our ongoing commitment to reward our members. During the period, a Nationwide Fairer Share payment of £385 million (H1 2023/24: £344 million) was paid to eligible members who had a qualifying current account plus either qualifying savings or a qualifying mortgage as at 31 March 2024. This payment is in addition to delivering the £950 million of member financial benefit outlined above.

Administrative expenses

Underlying administrative expenses have increased by £39 million to £1,154 million (H1 2023/24: £1,115 million), with inflationary increases partially mitigated by efficiencies within strategic investment programmes and cost reductions as a result of the disposal of the Society's investment advice business in February 2024.

An additional £26 million of administrative expenses have been recognised in H1 2024/25 (H1 2023/24: £nil) which directly relate to the acquisition of Virgin Money. These costs are excluded from underlying profit.

Impairment charge on loans and advances to customers

Impairment charge/(release) (note i)

	Half year to	Half year to
	30 September 2024	30 September 2023
	£m	£m
Residential lending	(4)	27
Consumer banking	13	22
Retail lending	9	49
Commercial	(2)	5
Impairment charge	7	54

Note:

i. Impairment charge/(release) represents the net amount recognised in the income statement, rather than amounts written off during the period.

The net impairment charge for the period has reduced to £7 million (H1 2023/24: £54 million). In the period, balance sheet provisions have decreased due to reductions in the provisions held for economic uncertainty and associated affordability risks. Residential mortgage arrears have remained broadly stable and remain well below the industry average, with consumer banking arrears reducing slightly. More information regarding critical accounting judgements, and the forward-looking economic information used in impairment calculations, are included in note 8 to the condensed consolidated interim financial statements.

Provisions for liabilities and charges

Provisions are held to cover the costs of remediation and redress in relation to historical quality control procedures, past sales and administration of customer accounts, and other legal and regulatory matters. The charge of £9 million (H1 2023/24: £18 million) reflects updates to estimates of the amounts that will be paid in relation to these matters.

Taxation

The main UK rate of corporation tax remained at 25% (4 April 2024: 25%) and the banking surcharge remained at 3% (4 April 2024: 3%). The tax charge for the period of £147 million

(H1 2023/24: £267 million) represents an effective tax rate of 25.9% (H1 2023/24: 27.0%) and includes the banking surcharge of £11 million (H1 2023/24: £24 million), which arises on Society profits. The effective tax rate is higher than the statutory UK corporation tax rate primarily due to the banking surcharge. Further information is provided in note 9 to the condensed consolidated interim financial statements.

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