Questions

• In the CEO's review from page 6 of the 2022 annual report and accounts we refer to the non-standard borrower and the lengths to which we will go to fulfil their ambition of home ownership. This not an ignoble purpose. However, the liability for the members' shares is slightly in excess of the asset on the mortgage book which suggests we are saver-dominated. No mention is made of the subsidy that savers will pay towards today's rather spoilt generation of borrowers. I paid rates from 11% to buy my house which fell during the term, via 9% which persisted for some time, and only in the last three years did I have a fix at 4%. Going back 1-2 years savers could get up to 1% on their deposits when inflation was 3% so it was only devaluing their life savings by 2% to subsidise the cost of borrowing. During the COVID lockdown, everything was done to ease the "pain" of borrowers who had never paid a mortgage rate of 2% in their lives.
  
  The increase in impairment in note 15 of the report and accounts is the consequence rather than future predictions on the world economy. Now inflation is 10% whilst interest rates on deposits at short notice are not quite at 4% because we have increased net interest margin at the expense of savers. So let us say that the borrower subsidy is now devaluing savers by 6% - a three fold reduction in borrowing rates in real terms. Sooner or later savers should surely be given their day in the sun. Whereas borrowers are very likely to bargain their wages to cover the increased cost of mortgages, especially in a labour shortage, pensioners who have worked and saved have no recourse. It all just has to go up in smoke. What plans does the society have to restore the position of savers in order to remain relevant as a mutual?

Our response

• We know how important it is for savers to get a really good interest rate for their hard-earned savings. We have passed on a number of increases to savers and continue to do so with each bank base rate rise we see. The amount we pay savers is dependent upon the amount we can sell mortgages for and in the last few years the prudent risk approach and the capability in the organisation has meant we have played in the entirely mainstream mortgage market. The pricing for these mortgages means we have had to compete against the big banks who pay 0.1% for their current account balances against which they lend which means the pricing is very low.
• Our new strategy is aimed towards different customer segments, which whilst being very considerate of risk should support us in dealing in less price-driven segments. Service and technology is also key to this. The more therefore we lend in those segments the greater we will be able to support savers with higher rates.
• We will continue to assess the rates we pay our savers alongside the rates we are able to generate from our borrowers and the wider interest rate environment whilst delivering a sustainable level of income to keep the Society financially secure.

Questions

• Does the Nottingham have any plans for savers to be able to access their accounts online? The Nottingham stands out for not offering this service.
• Why has the Nottingham, almost uniquely among major Building societies, no simple on-line presence for transactions? In this respect it compares very badly with societies of a similar size (Leeds) or even smaller (Loughborough, Melton, Mansfield).

Our response

• We do offer an online savings platform called Beehive Money, and over the last few years, we have invested in this so we have that option available to customers.
• However, we recognise that we now need to develop this part of our offering to be able to support all our customers, including our branch customers to allow all customers to benefit from having wider online options and can access their branch accounts online too.
• We are currently working hard to understand what that will look like in the future, to ensure both the experience and journey is to a high standard. We understand that our customers’ needs have changed, and we intend to improve what we offer to customers to reflect this change – it is a priority for us in the next 12 to 18 months.

Questions

• I, and other family members have branch-based savings accounts with the Society. We have not received annual statements of account for these for many years (showing interest and balance) and have been informed by your Customer Services team that this is now society policy not to do so as no deposits have been made in the preceding 12 months. I have also been informed that should we want this information we should all travel to a branch and have our passbooks updated. Our nearest branch closed several years ago and we would now have to travel a considerable distance to do so.
  
  Could the Board please explain why the Society has stopped sending out Annual Statements to savers - whilst other mutual societies are still happy to do so? I feel this policy is detrimental to and penalises the elderly and those with disabilities who may not be able to contribute to their accounts annually, may not have internet access and therefore risk losing track of their savings accounts over time. I feel savers should be given the option of having an annual statement if they so wish (either by post or e-mail) and feel this would demonstrate that the Nottingham is genuinely committed to mutuality for all its loyal members if it agrees to this proposal.

Our response

• We stopped sending annual statements to savings customers in 2019. This was a carefully considered decision based on two factors:
  • the costs of sending paper statements by post which could otherwise be reinvested for the benefit of members.
  • the environmental impact of the activity (paper usage, production, postage).
• The transactions included on an annual statement are the same as appear in a passbook; so those customers who use a branch are able to get their passbooks updated to access the information.
• We appreciate not every customer is able to come into a branch, so we are able to provide a simple statement which summarises transaction history on request to any member that needs one, by telephoning our Customer Services Team. There is no charge for this.
• We will also include this thinking as part of our digital build for savings customers.

Questions

• Why is no reference made to the branch closures in the information sent out regarding candidates for board and senior positions? I assume most of these voted for these closures.
  
  Why is no allusion made to staffing problems at the interface with the public? i.e. those encountered at my local branch (Beeston). Since using the Beeston branch after returning to live there, I am surprised at the amateurish way that the Nottingham appears to be run. Adoption of modern business procedures and services are needed and quickly. 
  
  
• On page 11 of the 2022 report and accounts we show an increase in the strategic investment costs to £5.0 million. In fact the branch closures are a strategic divestment. Assuming that the difference from 2021 of £1.1 million is related to the branch closures, it has cost this amount to close branches which we were only too happy to occupy when the Yorkshire Building Society ditched the Norwich & Peterborough brand.
  
  The branch in Harpenden, where I opened my first NBS account, was closed in a previous programme. I can still get to the branch in St Albans using my bus pass, but it surprised me that we could not scratch a living out of a branch in one of the most prosperous towns in South East England where the estate agents' windows start at £450,000 plus and £2-3 million is commonplace. Surely we should be able to cover a form of branch access where we accepted the original deposits into a branch?

Our response

• Over the past few years, like other building societies, we’ve seen significantly lower numbers of customers choosing to carry out transactions in branch. Some branches had less than 10 transactions a day and we were one of the least efficient building societies in the UK in terms of the amount of balances per branch and the amount of transactions so it was no longer viable to have such a large branch network.
• As a result, in 2022, we took the difficult decision to close 17 branches in our network, where customer visits had fallen to extremely low levels. While this was not an easy decision, our teams worked hard to ensure a smooth transition for customers. This will enable us to deliver better value for all of our members, with the savings we make being reinvested in the business.
• We recognise that over the last 12 months we have had some challenges in resourcing a small number of our branches and have been working hard to address this and keeping all of our branches open. There have been several factors that have influenced this; however, we believe this are now rectified, and we remain committed to resourcing and retaining our existing opening hours.
• We remain committed in always offering our customers the best service, and we continue to evolve and review our processes to further enhance our customer journey, however we do recognise that we are still working through these processes, and this may from time-to-time impact our customer experience.

Questions

• Why are the Non-Executives paid so much? How many meetings do they attend to discuss society business?
• Why is the Chairman seeking re-election? What is the time limit for each board member’s term?  

Our response

• The Board members all attend 8 Board meetings a year and between 10 and 18 additional Committee meetings depending on which Committees they serve on. This is only a small proportion of the time they devote to the Society, there is significantly more time spent outside of this in preparation time and informal meetings to support people within the business. They are always available to provide opinions and to input on a number of ad hoc matters as requested by the Executive team. There is more detail on this in the Annual Report and Accounts. We benchmark their pay and can confirm that it is in line with market rates for other building societies.
• The Corporate Governance Code provides for each member of the Board, including the Chair, to serve up to three consecutive terms of three years with an ability to extend that period further if they remain independent and there are justifiable reasons to do so. We have taken the decision to extend the chair's tenure for one additional year from September 2023 to September 2024 to enable us to have the benefit of his considerable experience and expertise as we roll out our new strategy.

Questions

• Last year I asked about member participation and voting when the turnout was 9.11%. I see that in 2022 it fell to 5.96%. Consequently the Board has no realistic mandate to implement its strategy and the validity of the elections to the Board must be questionable. I do not agree that this makes the wholly virtual AGM the great success that the Board claims. What steps will the Board take to increase the participation of members in the AGM vote and foster inter-generational solidarity?  
• Why have you decided to make the AGM fully virtual without consulting the members? I would like to see the face-to-face AGM reinstated with the option for members to join on a virtual basis.
• As a previous regular attender at NBS I would like to know the rational of holding complete virtual meetings. This method precludes non-literate computer members from participating in the business and does not allow others adequate opportunity to air views or indeed engage fully in discussion. When do you propose re-instating a conventional AGM?  

Our response

• Our AGM is a key event for us as it represents an opportunity to engage directly with our membership, respond to questions and set out our priorities for the year ahead.
• We decided to hold this year’s AGM online only as in previous years we have seen a reduced number of in-person attendees at the meeting, following the pandemic and some preferring to do so online. We have been encouraged by the questions we have received online, compared with the number we used to receive in person and we continue to keep this and our interactions with members generally, very much under review.
• Our AGMs have always been quorate and we have always had a level of voter participation that means we have a legitimate mandate for the recommendations however we are continually seeking to improve member engagement and would welcome feedback from members about how we might do so.

Questions

• What is the Gender Pay Gap at the Society?  
• What steps are you currently taking to reduce the gender pay gap?

Our response

• For 2022 our mean gender pay gap is 38% and our median gender pay gap is 41.8%
• Our mean gender pay gap has reduced by just over 1% and our median pay gap by almost 2% (from 2021). Whilst we are pleased to demonstrate an improvement we recognise that ongoing focus is required for us to make further improvements.
• Our gender pay gap is predominantly driven by having a high proportion of women in the lower pay quartiles and a higher proportion of men in the upper quartiles. In 2022, the percentage of females in the lower pay quartile increased slightly while the percentage in the upper quartile decreased slightly. However, our pay gap has fallen due to female appointments at senior levels within the upper quartile.
• We continue to be proud signatories of HM Treasury’s Women in Finance Charter and have over time increased our targets and ambitions in achieving greater gender diversity at The Nottingham. This year, our executive team has agreed a target of 50% for gender diversity to be achieved by 2025.  
• We have attained 38% gender diversity in senior management, which has increased from 33% in 2021 and know that there is more work to do to achieve parity. Our actions have included making diversity a key consideration in succession planning and recruitment at Board and executive level, providing hybrid working permanently to attract and retain a more diverse group of talent and embedding a culture of inclusion in the Society though awareness and education.

Questions

• What is the ethnicity mix of the employees of the Society?  
• What is the ethnicity pay gap at the Society?

Our response

• Diversity and inclusion is a key priority for us at The Nottingham – we know how important it is to have a diverse workforce and aim to be representative of the communities we serve. We recognise we need to do more to attract and retain a diverse mix of colleagues and have actions and targets in place to achieve this.
• Currently around 10% of colleagues are ethnically diverse. 
  We do not currently report our ethnicity pay gap and while this is not something we are required to do at the moment, this is something we will seek to do in the future.

Question

• How will you deliver a carbon zero business?

Our response

• We collect detailed data to enable us to understand and report our carbon footprint on an annual basis.
• As a business at this stage, we have committed to meet the government’s mandatory deadline of 2050 but will be working on ways in which we can at least achieve this target.
• We have focused to date on reducing the aspects of our emissions which are more within our control such as our energy usage and have made good progress:
  • We source all of our electricity from renewable sources.
  • We have removed the use of gas from all of our properties.
  • Our energy usage for 2022 versus 2021 was 30% lower so we are making good progress in that regard.
• However, one of our main challenges and one which applies to all financial institutions is the impact of our mortgage book on our carbon footprint as this accounts for over 87% of our emissions.
• We can’t tackle this issue on our own and we are looking forward to the Government bringing forward its legislation on Scope 3 emissions so we can be part of an industry wide initiative.

Question

• How do you ensure the personal information provided by your customers is protected?  

Our response

• This is a very important issue for customers and for us all in the current time.
• Our Society fully complies with all aspects of the data protection legislation including the DPA and GDPR and other guidance/rules issued by both our regulators (the FCA and PRA) and the ICO.
• The Society has set policies and procedure in place to ensure that it complies with regulations (these include, but are not limited to, a data protection policy, information security policy, data ownership, and data classification policies which all form part of a larger information security policy framework).
• The Society is working to the National Institute of Standards & Technology Cyber Security Framework (NIST CSF). This requires us to have implemented a number of security controls to identify, protect, detect, respond and recover any issues relating to customer data.   
• In addition, the Society also has further procedures in place to ensure that customer data can only be accessed by those who have a legitimate need to do so. Likewise, under our Information security framework, further controls are put in place around the processing of customer data to ensure that it can only processed both when and by those who have a clear and legitimate need to do so. 
• All society staff undertake annual mandatory training on data protection and information security to ensure that they are up to date with the right procedures.

Question

• Assuming that Andrew’s letter is a reflection of the Board's leadership, it is great to read of the Society's financial support and recognition given to both colleagues and savers but with no mention of the significant additional financial impact to borrowers, in my family an increases of over £700 per month in mortgage interest, it appears that the leadership is misguided. Considering that it is borrowers that pay for your colleagues and savers, it is not unreasonable to expect the Board to recognise these challenges on a personal level, as they do for colleagues and savers. Maybe borrowers will vote with their feet, or indeed some will fall behind, this would make the Board wake up to who in fact they should be supporting. I personally have a good size property portfolio and often raising mortgages, after reading Andrew’s letter I am put off The Nottingham.

Our response

• We recognise that the cost-of-living crisis and the higher interest rate environment will have had an impact on our mortgage customers as well as our savers and colleagues. 
• We offer a range of options for mortgage customers impacted by the cost-of-living crisis and review each customer’s circumstances on an individual basis. We offer options for short term support and for those needing longer term support. 
• In addition, for customers who advise they have been impacted by the cost-of-living crisis or are experiencing any type of financial difficulty we signpost them to external agencies such as Money Helper UK and Gov - Help for Households.  
• We have a Payment Support Team dedicated to supporting customers experiencing any type of financial difficulty including the cost-of-living crisis. 
• For those customers looking for short term support we may offer ‘due date’ changes (when the payment is due) and reduced payment concessions. For those who need longer term support we may look at other options such as a term extension. A full affordability assessment will be carried out by a Payment Support Agent to ensure the best outcome is achieved for the customer.

Question

• I have read the accounting policy note on impairment stages and forbearance on pages 59-60 of the 2022 report and accounts. Whilst the amount in stages 1-3 of impairment is stated in the accounts, I cannot see the details of the forbearance. Could we have more details on the amounts in forbearance please?

Our response

• We can confirm that despite the more challenging financial landscape and rising cost of living, our forbearance levels are the same as at the end of 2021. As at 31st December 2022, just 0.4% of mortgage customers have some sort of contractual forbearance arrangement in place.
• We would highlight that Notes 14 and 31 in the Notes to the Accounts within our Annual Report and Accounts documents will provide further details of all our forbearance metrics.

Question

• According to the balance sheet on page 54 of the 2022 Report and Accounts, our scale is £3.8 billion. Our asset on loans and advances to customers is just under £3.0 billion and our liability on members' shares is just above £3.0 billion which suggests a very high degree of retail funding with little recourse to wholesale markets. Does this not pose a significant maturity transformation risk requiring a large liquidity buffer?

Our response

• The Society operates a diverse funding strategy to ensure an optimum mix and duration of retail and wholesale funding to also effectively manage liquidity and interest rate risk.  
• Retail savings remain the cornerstone of the Society’s funding requirement, with the remainder obtained from the secured and unsecured wholesale funding markets. The Society also continues to hold funding from Bank of England’s Term Funding Schemes and other unsecured wholesale funding. 
• The Society operates under stringent requirements for managing liquidity and interest rate risk – including maturity transformation - as part of the PRA requirements set out in PRA SS20/15 Supervising building societies’ treasury and lending activities. The Society has been operating well in excess of liquidity requirements from a Liquidity Coverage Ratio perspective (192% vs. minimum requirements of 100%) and internal stress tests are also run to ensure that the risk of deposit flight is assessed and effectively managed.

Question

• I note the last paragraph on page 25 of the 2022 Pillar III disclosures where we refer to: "Alongside lending to the UK Government and Central Bank, limits are in place with a number of UK building societies and specific UK and overseas banks as well as multilateral development banks. Each counterparty must meet the minimum investment criteria as set out in the Liquidity Risk policy or be specifically approved by the Board Risk Committee." What is the risk of a multilateral development bank please? Is the "interconnectedness" fully accounted for?

Our response

• Multilateral development banks
  The Society runs a conservative approach to its treasury portfolio. The majority of High-Quality Liquid Assets (HQLAs) is placed directly with the Bank of England, UK Gilts and Treasury Bills. A small residual balance is diversified across very low risk asset classes. This includes exposure to Multilateral Development Banks (MDB) which is also subject to maximum exposure limits from a regulatory perspective.
• The Society holds stringent rules for minimum investment criteria for different asset classes to mitigate against counterparty risk. This includes consideration of minimum external credit ratings provided by the major credit rating agencies for relevant exposures. In the context of Multilateral Development Banks, these institutions typically hold the highest level of credit rating which reflects the degree of credit worthiness and lowest risk of default of such institutions. The current exposure to Multilateral Development Banks is also geographically diversified to mitigate potential concentration risk.

Question

• A number of members have been in touch with us to share their thoughts and suggestions and we are engaging with those members directly.

Our response

• We have been closely following developments in the Philips Trust case, which has impacted on a small number of customers of the Nottingham. 
• We recognise this continues to be a very important and, in some cases, very upsetting matter for those of our customers who have been affected.
• From 2011 to 2017 we had a partnership with the Will Writing Company, (which was completely separate and unrelated to Phillips Trust) and we referred a number of customers to them for support with writing Wills and in some cases putting property and savings into trusts. Several other building societies also had a partnership with the Will Writing Company at that time. Unfortunately the Will Writing Company went into administration in 2017 and in 2018 some of the assets of that company were acquired by Phillips Trust Corporation - which in April 2022 also went into administration. We had no links at all to the Phillips Trust company but even so, a number of our customers were moved to the Phillips Trust company.  
• Unfortunately, this has caused some considerable anguish for many of those customers and members as their money is tied up, and the costs of administrators are impacting the amount they will have returned. We have been extremely concerned to hear of the implications for those customers.  
• We had anticipated that the appointment of Kroll as administrators would lead to a clearer situation for impacted customers by April 2023. With the update last month that this process is likely to take a further three years to resolve we are now reviewing the situation to assess the impact on our customers and how we may be able to provide support.