Page | 2

Page | 3

6,957

64.6%

£887m

4.9

2,462

£91.8m

1.94%

£3.6bn

£8.3m

15bps

£3.6bn

£24.2m

KEY HIGHLIGHTS

New mortgage

customers (2022: 3,984)

Net promoter score

(2022: 64.7%)

Gross new lending

(2022: £659m)

Trustpilot

score (2022: 3.8)

Total interest paid to

savers (2022: £23.9m)

Colleague volunteering

hours (2022: 841)

Total mortgage assets

(2022: £3.0bn)

Net interest margin

(2022: 1.69%)

ECL coverage ratio

(2022: 17bps)

Profit before tax

(2022: £18.9m)

Total savings balance

(2022: £3.0bn

)

Underlying profit

before tax (2022: £15.2m)

15.2% 5.2% 184%

CET1 ratio (2022: 16.8%) Leverage ratio (2022:5.6%) Average LCR (2022: 192%)

__________________________________________________________________________________________

Contents

Page | 3 Annual Report & Accounts 2023 Nottingham Building Society

Chair’s Statement

Chief Executive’s Review

Strategic Report

Stakeholder Engagement Report

Corporate Responsibility Report

Sustainability Report

Your Board of Directors

Directors’ Report

Nomination Committee Report

Risk Management Report

Board Risk Committee Report

Corporate Governance Report

Board Audit Committee Report

Directors’ Remuneration Report

Independent Auditor’s Report

Income Statements

Statements of Comprehensive Income

Statements of Financial Position

Statements of Changes in Members’ Interests

Cash Flow Statements

Notes to the Accounts

Annual Business Statement

Glossary

__________________________________________________________________________________________

Chair’s

Statement

Page | 4 Annual Report & Accounts 2023 Nottingham Building Society

Introduction

I am pleased to introduce the Nottingham’s Annual Report and Accounts

for 2023. In a year defined by continued economic uncertainty, further

base rate rises and sustained higher rates, our Society delivered good

outcomes for our members, our customers and our communities. We

provided attractive savings propositions for our branch and digital

customers and helped new and existing customers purchase new

homes. As we made progress in delivering our transformation strategy,

we took the right steps to ensure our Society is well positioned to

continue to provide a safe and robust home for our members’ savings,

both now and in the future.

Economic backdrop and outlook

As we anticipated, the increases in the Bank of England (‘BoE’) base rate

during 2022 continued in 2023, reaching 5.25% in August. Markets

suggest that interest rates will gradually reduce in the second half of

2024. However, given the turbulent geopolitical trends we are seeing

around the world including the ongoing conflicts in Ukraine and the

Middle East, there is a large degree of uncertainty around the trajectory

and timing for UK rates and how quickly inflation will reduce. The UK

economic position and outlook, and its impact on our customers, has

been central to our discussions this year. More broadly, emerging global

issues and threats to society posed by climate change, cyber security

and artificial intelligence continue to be monitored closely in the Board’s

horizon scanning.

Making mutuality count for our members

Higher base rates have boosted the UK retail savings market and we

have sought to pass on as much of the base rate increases as we can to

our savings members and customers, while still ensuring we keep our

Society strong. We have been able to act quickly and move at pace,

using the digital capability we offer customers through our Beehive app,

to offer rates that have regularly been amongst the most attractive in

the market.

Putting our members at the heart of our decision-making on pricing is a

key aspect of being a mutual building society and we are proud to be

able to serve our members in this way. We have sought to provide the

best value that we can to our mortgage customers while offering a range

of measures to support them should they experience financial difficulty,

including measures introduced by the Government’s Mortgage Charter.

Overall, however, our lending book is low-risk and we have not seen any

material impact on arrears from the higher interest rate and high

inflationary environment.

The Financial Conduct Authority’s ('FCA’) Consumer Duty regulations

came into effect in mid-2023, and our mutual values positioned us well

for this new regulation. Our customer-first approach has been further

strengthened as our teams responded to this area of continued

regulatory focus.

The Board has been delighted to see the renewal of our community

impact programme with colleagues putting in more community

volunteering hours than ever before, and our charitable giving focusing

on tackling homelessness, an issue we recognise as being acute in our

Nottingham heartland as well as being a cause we know matters to our

customers around the country.

In an age where digital innovation and open banking regulations provide

savers and borrowers with more choices than ever before, we remain

committed to our mutual status and recognise that our member-owned

approach continues to be one that resonates strongly.

Financial performance and strategy delivery

We are delighted that we were able to achieve a strong financial

performance this year in a challenging lending market. We achieved

growth ahead of plan, in both savings and mortgages. We also began to

execute the strategy that our Chief Executive Officer (‘CEO’) Sue Hayes

and her team defined for the Society in 2022, and which she describes

later in the Annual Report.

In a fast-changing world, our strategy seeks to future proof our Society.

The Board sought to provide support and challenge to Management as

they put in place new IT and change programmes designed to ensure

strong foundations for the Society as we ensure we are well positioned

to meet the needs of borrowers and savers. As we said last year, our

strategy will involve continuing investment in the systems and data

analytics underpinning our risk analysis, but not any fundamental shift

in our risk appetite.

Our Board and Leadership team

The membership of Board and the Leadership team is reviewed on a

continual basis to ensure that there is an appropriate level of skills,

experience and diversity of thought.

There have been some changes to our Board during 2023. Paul Astruc,

formerly the Chief Financial Officer (‘CFO’) of the Society, joined our

Board in April 2023 for a 12-month period to provide continuity during

a period of change. Paul will be stepping down as planned at the end of

March 2024. Paul was succeeded as CFO by Anthony Murphy, who also

joined the Board as an Executive Director. Simon Baum, previously a

Non-Executive Director and Chair of the Risk Committee, was appointed

to the executive role of Chief Risk Officer (‘CRO’) in June 2023 and

remains on our Board as an Executive Director.

Kerry Spooner, our Senior Independent Director, has taken on Chairing

the Risk Committee. In December, we welcomed Robin Ashton as a new

Non-Executive Director. Robin’s extensive career in non-executive roles

includes seven years as Chair of the Leeds Building Society, along with

board positions at challenger bank Shawbrook and Domestic & General.

His significant experience and proven track record will be extremely

valuable to our Board.

I would like to take this opportunity to thank all our Board members for

their support during what has been a pivotal year for the Society.

Thank you

Our members and customers are central to everything we do as a

Society. We are committed to developing and improving our services

and propositions next year, and reviewing the way in which we

communicate and engage directly with you. Thank you for your

continued loyal custom during 2023.

Finally, my thanks to Sue and the Leadership team and to all our

colleagues for their hard work and commitment to serving our members

during a challenging and successful year.

Andrew Neden

Chair

March 2024

__________________________________________________________________________________________

Chief Executive’s Review

Page | 5 Annual Report & Accounts 2023 Nottingham Building Society

A positive year of progress

I am pleased to report our financial results for 2023 alongside the

progress towards the delivery of our strategy.

I am proud of what we have achieved together over the past 12-months.

We improved our customer service, which was already good, and forged

stronger relationships with mortgage brokers who are the bedrock of the

mortgage industry. We have continued to grow our team of talented

colleagues to support our customers and members and make our

strategy a reality. At the same time in 2023 we renewed our support for

our communities through a refocused programme of activity to tackle

homelessness which fits well with our purpose of supporting people to

own their own home.

We made significant progress in the delivery of the strategy that we

defined in 2022. Colleagues have worked as a team to create increasingly

strong foundations that will function as a springboard for our future

development.

Our purpose as a Society, which sits at the heart of our strategy, is to

fight for the Extra Ordinary to own their own home – focusing on those

who find it more difficult to access mortgage lending due to old

fashioned and rigid linear lending processes.

Offering a range of attractive savings propositions to our members and

customers enables us to deliver our purpose. Providing the right

opportunities for savers is particularly important at a time when interest

rates are at their highest levels in over a decade.

We are proud of our mutual heritage dating back more than 170 years,

serving customers and communities. At the same time, we want to

ensure our success is sustainable and we are relevant in the future.

The strategic transformation we put in place will enable us to deliver our

strategy and continue to provide mutual mortgage and savings solutions

for our customers and members in the years and decades ahead.

Our colleagues have supported us on this journey and continue to

provide outstanding service to our loyal members as we deliver positive

outcomes for all our customers and communities to ensure our future

mutual success.

The external economic environment

The economic landscape in the UK and the broader geopolitical

uncertainty continues to present challenges. Throughout 2023 we

experienced continued base rate increases and higher levels of inflation

triggering cost-of-living challenges that affect all our customers and

members. Whilst the outlook for the UK economy as well as the broader

geo-political environment remains uncertain, we will continue to

monitor the impact on our mortgage customers.

Whilst it is heartening to be able to provide better returns to savers, we

recognise the increasing costs for our mortgage holders, and the

cumulative impact of the continued cost-of-living crisis. As such, we were

one of the first institutions to sign up to the Government’s Mortgage

Charter in August 2023. The Charter provides a range of support options

for customers who are struggling with mortgage payments. To date, very

few of our customers have chosen to access the support the Charter

provides, and we continue to have extremely low levels of mortgage

arrears, reflecting the low-risk nature of our lending book.

We operate from a strong financial base and will continue to adopt a

future focused approach for the benefit of our members, colleagues, and

the communities in which we operate.

Strong financial performance

Our financial performance in 2023 was strong, with a statutory profit

before tax of £8.3m (2022: £18.9m), an underlying profit before tax of

£24.2m (2022: £15.2m) and a 18.3% increase in mortgage balances

compared with 2022.

We achieved significant growth in mortgage lending, particularly

notable as overall lending in the UK mortgage market fell by

approximately 28% as reported by the BoE. We achieved this through

offering attractive pricing despite the rising cost of lending, and by

targeting key customer segments where demand remained resilient and

where our brokers felt there was unmet demand. Whilst we

outperformed the market in terms of organic growth, this was

accelerated through our inorganic lending relationship.

I am pleased to report that the strategic partnership we began with

fintech mortgage provider Generation Home in 2022 supported our

lending growth during the year. The forward lending flow that we

provided made a strong contribution to our total mortgage lending. We

ended 2023 with total assets of £4.5bn – an increase of 17.4% year on

year.

Our lending performance was supported by the purchase of a book of

mortgages from Generation Home. We completed this transaction,

which comprised a mortgage book value of £161.6m in September 2023.

We will continue to seek opportunities to support the growth of our book

through purpose driven products and partners who are customer

focussed to augment our own lending.

Like many financial institutions in the sector, the increases we have

seen in UK base rates have acted as a positive tailwind to our financial

performance. We are pleased that we have been able to pass on a

sizeable proportion of these increases to our savings members and will

continue to do so. We took a deliberate decision not to increase our

Standard Variable Rate (‘SVR’) rate to support mortgage customers.

We achieved good growth in our savings balances of 18.3%. We

diversified our proposition to offer a variety of attractive products and

savings rates to our customers, through our branch network and our

online savings app, Beehive Money. In a higher rate environment, we

saw greater numbers of savers shopping around to achieve the best rates

and our digital app enabled us to anticipate and respond to market

movements with speed and agility.

Our marketing campaigns encouraged members to save for their future

goals, and to maximise the opportunity of higher interest rates. Our first

Community Saver product offered customers the option to donate a

percentage of their savings interest to our charity partners – a real

demonstration of mutuality in action.

Significant investment was made in 2023 in both people and

technology, to support the continued improvement in the level of

service we provide to our members. We also supported our colleagues

with a pay award to reflect the elevated inflationary environment.

Making a difference to our customers

As interest rates have risen and remained high throughout this year, we

have focused on paying savers the best rates we can whilst doing what

we need to strengthen the Society. We paid a total of £91.8m in interest

to savers in 2023 (2022: £23.9m).

We helped 6,957 (2022 3,984) customers either take out a mortgage

with us for the first time or move to a new mortgage.

Improving our customer experience has been and is a key focus and I

have been delighted to see our independent Trustpilot rating for our

customer in-branch experience increasing to 4.9 out of 5 (2022: 3.8 out

of 5). We have also seen continued strong performance in our Net

Promoter Scores of 64.6% on 31

December 2023 (2022: 64.7%).

__________________________________________________________________________________________

Chief Executive’s Review

Page | 6 Annual Report & Accounts 2023 Nottingham Building Society

During the years 2011 – 2018 we referred customers who were looking

for wills and estate planning services to an external third-party company

called The Will Writing Company Limited. The Will Writing Company and

a related company, The Family Trust Corporation Limited, organised wills

and trusts for those customers.

In 2018, The Will Writing Company went into administration. The

administration of the trusts for a number of customers was subsequently

transferred from The Family Trust Corporation to Philips Trust

Corporation without the involvement from the Nottingham Building

Society. This has resulted in some customers being impacted financially

as the assets of some of the customers trusts were transferred into

investments by Philips Trust Corporation. Those subsequent investments

have lost significant value. We are currently reviewing the situation, to

assess the impact of the ongoing Philips Trust Corporation

Administration process on our customers, and how we may be able to

provide support.

It is a complex situation because we had no relationship nor direct

contact with Philips Trust Corporation and have no rights of access to the

information now under the control of the Administrators, Kroll Advisory

Ltd. We have been in contact with Kroll for a number of months to

establish how many of the customers we initially referred to The Will

Writing Company have been subsequently impacted by the

administration of Philips Trust Corporation. On the basis of what we now

know in terms of how our customers have been treated by the third

parties we have asked the relevant regulatory bodies, Serious Fraud

Office and the Police to investigate the treatment of those referred

customers by those third parties.

Positive progress towards delivering our

strategy

When I joined The Nottingham as CEO in 2022, I took the time to work

with colleagues across the Society to define a clear strategy that would

enable success for future generations. Our strategy builds on The

Nottingham’s 170-year heritage looking after savers and helping people

own their own homes while also seeking to address the challenges some

aspiring homeowners face.

It sets out our purpose, and the strategic drivers that will help us deliver

it. Our Strategic Purpose is: ‘Together we fight for the Extra Ordinary to

own their own home.’ Providing a safe place for people’s savings is the

first step in enabling this. Our strategic drivers are to build strong

foundations, to understand our customers and brokers in extraordinary

depth, to drive purposeful innovation and to build powerful partnerships

that will provide mutual support in achieving our goals.

In terms of the Extra Ordinary, we want to meet the needs of borrowers

who traditionally have found it challenging to access mortgage lending

due to professional or lifestyle factors. For example, those who have

complex income patterns due to being freelance or self-employed,

whose professions enable overtime to supplement their incomes or

whose circumstances have changed because of a life event such as

sickness, divorce or by working abroad.

2023 was our first year of starting to deliver our strategy. As I highlighted

in our interim results report published in July 2023, we had three key

priorities for this year and I am pleased to report that we have made

substantial progress towards each of them, delivering change and

innovation that sets us up strongly for 2024 and future years.

Understanding the needs of borrowers

The first key priority was to spend time understanding more about our

new mortgage customers and brokers. I am pleased with the progress

we have made, and this enables us to build for the future. In response to

the insight we gained, we implemented a series of changes to help

ensure our propositions better meet the needs of our target customers,

and this has helped drive our strong lending performance this year.

We have made great strides as we begin to transform our approach to

credit risk, modernising our processes in this area to better support our

customers.

However, we have only just begun this aspect of our journey and there

is much more still to do. I look forward to moving further and faster and

harnessing the best of today’s technology and data alongside great

customer service to meet the needs of customers in 2024.

People and partnerships

Our second priority has been to maximise the potential of our people

and strategic partners. In terms of our people, I am delighted that we

have been able to attract a strong leadership team, both at Executive and

Senior Leader level.

Key Executive hires for us this year have included our CFO, Anthony

Murphy who joined us from a challenger bank and Praven Subbramoney,

our Chief Lending Officer (‘CLO’), who joined from a client-driven and

successful innovation bank based in South Africa. It was a good

demonstration of talent development when we moved Bradley Nicholls

from Finance Director to Director of Savings, Branches and Beehive in

recognition of his capability more broadly as well as being more data

driven in these areas. Harriet Guevara has moved from Head of Strategic

Review to Chief of Staff, again in recognition of her impressive

performance and breadth of capability.

I was also delighted that Simon Baum moved to CRO from his previous

non-executive role given his huge experience in innovative and deep

credit risk expertise and that enabled Paul Roberts, who previously held

both CRO and General Counsel responsibilities, to focus on a broader

General Counsel role with Procurement and Partnerships reflecting the

increasing number of contracts and partners with whom we are now

engaging. We have also welcomed Charlotte Symonds as Head of

Customer and Stephen Donne as Head of Change who both have

building society backgrounds.

We have embarked on a leadership development programme for all the

senior leaders across our organisation to equip them with the skills they

need to lead our strategic transformation and achieve the commercial

success to benefit our members and ensure our Society remains

sustainable and relevant. We have also supported our colleagues

through the transformation; recognising however, that the pace of

change continues to accelerate. Our colleague engagement score was

68%, which has not yet met our aspirations to be in the top quartile. A

high proportion of colleagues did tell us they have a good understanding

of how their role relates to the delivery of our strategy and they have a

powerful sense of being part of a team.

As a mutual with a purpose, we can attract and retain great people, we

also need to create strategic partnerships to maximise our potential.

Our strategic partnership with Generation Home has benefited us

significantly in several aspects during 2023. Firstly, we have seen the

commercial benefits from our relationship. In addition, this partnership

also provided us with deep customer insight into our target market of

borrowers.

We enjoyed the learnings and energy that comes from a close

partnership with this fast growing and innovative fintech lender and this

represents the start of both lending partnerships as well as tech, data

and community partnerships.

We made the decision to exit the partnership with the Panthers Ice

Hockey Team. Whilst it is a great local organisation, we felt it was

important to support initiatives that are more aligned strategically to our

purpose. We will continue to support the Panthers personally as well as

to wish them the best for the future and will see this season out with

them.

__________________________________________________________________________________________

Chief Executive’s Review

Page | 7 Annual Report & Accounts 2023 Nottingham Building Society

Building the right foundations

Thirdly, we wanted to make sure we delivered the things which will

significantly improve the foundations of our business and enable the

innovation to serve the customers of tomorrow.

The regulatory agenda remains key, and we were pleased to deliver the

continuation of regulatory focus through the introduction of Consumer

Duty. We were also one of the first to support the Government’s

Mortgage Charter, ensuring we continue to provide good customer

outcomes. These types of initiatives work alongside our strategic plans

and require significant resource to deliver to a high standard.

In building our strong foundations we have delivered several key IT

upgrades to reinforce our systems and ensure the Society is safe and

secure for the future with resilient systems that protect our customers

and members and enhance our ability to develop our technology in the

future. This is the mid-way point in a three-year journey of

enhancements, involving a great deal of hard work and effort from our

IT and Change colleagues.

The progress towards our new origination platform has been slower than

anticipated, reflecting the time taken to find the right partners to

collaborate with us, on this leg of our transformation in 2024.

We are doubling down on how we can better use data in all its senses,

to enhance our customer and member propositions. The emergence of

artificial intelligence presents another area of potential but like other

financial organisations it is one that we are considering carefully.

This year we have also spent time reviewing our brand strategy and

recognise we will need to ensure our brands remain attractive and

recognised and meaningful in today’s digital environment.

As a mutual, Economic, Social and Regulatory (‘ESG’) has always been at

the heart of our thinking. In 2023 we formalised this with a clear ESG

policy and strategy that will help us focus our thinking and plan key

actions as these issues become more important for all businesses.

Stronger community impact

I am particularly proud of the new focus and momentum we brought

to our community engagement programme in 2023. Aligned to our

purpose, we decided to focus our charitable giving, fundraising, and

volunteering towards tackling homelessness.

We have begun strategic partnerships with two charities dedicated to

ending homelessness and supporting those who are already, or who find

themselves at risk of being homeless. We are pleased to be working with

Emmanuel House, an independent charity helping people in Nottingham

and with Shelter, a charity well recognised for its campaigning and

support on the national stage.

These partnerships are designed to help us make a tangible difference

together in addressing what is a growing issue within the UK and we are

looking forward to playing our part in the years ahead.

Our network of thirty-one branches stretches across central England.

Colleagues play an active role in their local communities, contributing

towards our collective focus on homelessness, and supporting our

customers with a range of issues including bereavement, fraud

awareness and fostering the sense of community.

As a result, we have been able to more than double the number of

volunteering hours we have devoted to helping our communities,

compared with 2022, and reached a charitable giving total of £144,979.

You can find out more about our work together in our community pages,

starting on page 18.

Outlook for 2024

Our financial performance in 2023 provides us with the financial strength

to invest in delivering our strategy through our people, our foundations

more broadly and our core technology systems and data capabilities in

the year ahead. These investments are essential for us to compete in the

market and build for the future, but the associated cost will impact the

financial performance of our business in 2024.

2023 was a strong year in terms of our financial performance and our

strategic progress. However, we also reaped the benefits of sustained

high interest rates, which have buoyed our financial performance. The

economic outlook for the UK remains uncertain and competition will

increase in terms of pricing and propositions, which will challenge

everyone in the industry.

As I indicated at the mid-year, we will continue to monitor the impact of

movements in base rate on our mortgage book and to take a prudent

approach to financial management, while focusing on innovation in our

products. We will also continue to support our saver members with

attractive savings propositions.

Our strategic intent is increasingly important to be:

- A modern successful building society with exceptional customer

service for all our members and customers;

- A place everyone wants to work at and is able to develop

themselves to be their best;

- A Society that is great for the communities it serves; and

- A Society that uses technology and data in purposeful ways

(purposeful innovation) and extraordinary depth whilst not

losing sight of its mighty foundations.

Finally, I would like to thank our hardworking colleagues who deliver for

our customers every day, and our members for their loyal custom. I

would also like to thank the Board for their continued support as we

deliver our plans.

Sue Hayes

Chief Executive Officer

March 2024

__________________________________________________________________________________________

Strategic Report

Page | 8 Annual Report & Accounts 2023 Nottingham Building Society

Our blueprint for the future

There is a constant requirement to assess how the world is changing and

how our strategy needs to adapt to meet the expectations of the modern

consumer. Over the last couple of years this has become even more

important and with the societal changes of the pandemic starting to be

accepted as the new norm, we have taken the opportunity to reset. This

involved an in-depth strategic review process to understand who we were

best placed to help, at a time of so many evolving and emerging needs and

to use this analysis to shape what part we could play as a modern mutual.

Building societies are the original purpose-led financial services

organisations. Redefining our purpose is a crucial step in concentrating our

efforts to maintain a positive impact on our members.

We have created a strategic blueprint that consists of three elements:

• Our purpose - the role we play in our members’ lives, why we do what

we do;

• Our strategic drivers - what we need to prioritise; and

• Our behaviours - how we all need to operate.

The journey we undertook involved our entire organisation, gaining

significant insights into our present and future customers and members, our

competitors and the broader ecosystem. This deep thinking ensured we

landed on something meaningful that demonstrates how we can help

people when they need it the most.

We know home ownership is a life changing milestone, with the potential

to provide happiness, security and opportunity for generations to come.

Whilst we have been helping people buy houses for over 170 years, we

know that home ownership is becoming increasingly difficult for significant

parts of the population and as a Society we want to be there to support

people to achieve this milestone.

We also recognise that treating traditional borrowers in a consistent and

fair way is something that we and the mainstream banks can do well. This

has meant that those audiences are well catered for by mainstream banks

who operate at scale and building societies therefore need to compete on

service and differentiation. We are focused on supporting people who want

to buy their own homes but find it hard to get onto the housing ladder

because they don’t have regular monthly incomes or have hit bumps in the

road but are fundamentally good financial risks. This Extra Ordinary group

has grown significantly over the last few years and so offers a real

opportunity for us to meet the true mutual purpose and to pay our savers

appropriate rates for supplying the funding to help them.

As a result, our new purpose is: “Together we fight for the Extra Ordinary

to own their own home.”

We define Extra Ordinary as hard-working people with circumstances that

many lenders might view as out of the ordinary - from self-employed

professionals to those who have had a setback in their career or financial

history. We believe this community has a right to be understood and that

their needs and circumstances are known so they can achieve their dream

of owning a home. This is something that is worth us all fighting for and we

commit to going the extra mile to do this.

This purpose lives at the core of our blueprint for the future. To support

delivery of this, we have also given clear direction of what we need to do to

deliver this through our strategic drivers and the behaviours our team needs

to embrace.

To achieve our purpose, our decisions will be driven by these principles:

• Mighty Foundations – the right foundations for our business are in

place. The processes, governance, people and technology will

underpin our Society to ensure we are strong and resilient now and in

the future;

• Extra Ordinary Depth – to help our members, customers and partners

including brokers, we must build a deep and ongoing understanding

of them and their circumstances. A journey of deep listening, learning

and adjusting using internal and external data to help us;

• Purposeful Innovation – we want to create and deliver leading

propositions and customer experiences that will support long term

sustainable advantage to lead in these markets and to enable us to

deliver our purpose; and

• 10X Allies – we want our allies to be crucial partners who are

passionate about our purpose and work with us to accelerate and

multiply the impacts we can make. We want to create a movement of

people who are on the journey with us to help more and more people

own their own home.

As a mutual, it is in our DNA to understand the power of working together

and we know our purpose cannot be achieved in isolation. We will identify

the partners and like-minded allies that will join us in pursuit of our purpose.

This includes our saving community who are integral to the movement that

will enable home ownership for thousands of people every year. It also

includes our colleagues, and through our behaviours we will build a culture

where our purpose can be realised.

We encourage them to:

• Have the brave conversation – we create an environment where

people feel confident to speak up and challenge with the intent to

support ongoing improvements in what we do and how we do it;

• Make the bold leap – we take action. We lean into the change and

drive it forward, challenging the status quo to continuously make

things better; and

• Seek the big insight – We demonstrate curiosity, leaving no stone

unturned to find different perspectives and to understand problems

and opportunities equally.

__________________________________________________________________________________________

Strategic Report

Page | 9 Annual Report & Accounts 2023 Nottingham Building Society

Business model and Group strategy

The Nottingham is a Top Ten UK building society with £4.5bn of assets.

The Society operates under three membership hubs:

• Mortgages - via our intermediary-led lending hub, offering a wide

variety of mortgages and more recently through our partnership

agreement with a fintech mortgage provider;

• Branches - via our regional presence of 31 locations across 8 counties;

and

• Beehive Money - our online platform and mobile app, providing

access to digital savings accounts.

Mortgages

During 2023, we have focused on gaining a deeper understanding of our

customers and members to ensure our mortgage products and services help

make borrowing easier to access for those who currently find it harder to

do so for lifestyle or career choices.

Our aim is to provide prospective borrowing members with a choice of

mortgage propositions that suits their needs, through our mortgage broker

network or via our mortgage originator partnership.

Branches

We provide traditional branch services to serve those who prefer face-to-

face propositions, offering branch-based savings accounts alongside

financial planning, estate planning and mortgage advice through our

independent partners. Our colleagues strive to provide members with an

excellent customer service and ensure their financial needs are met.

Beehive Money

Beehive Money is the Society’s online and mobile app proposition providing

savings accounts to members that prefer to manage their savings

themselves, but also supported by our online web chat and telephony

customer advocates.

Beehive offers several tax-free and taxable savings products and provides

several advice partnerships, accessible on the Beehive platform, to help first

time buyers achieve their home purchase goals including access to

mortgage advice, conveyancing services and ways to help manage and

improve their credit scores.

Overall business performance

The economic environment in the UK remained challenging across 2023,

inflation has remained elevated and the BoE has increased base rates in

response.

Throughout this period of economic instability, we have continued to

deliver on our purpose and stay focused on the long-term sustainability of

the Society, whilst balancing the interests of both savings and mortgage

members throughout.

The mortgage market in 2023 has reduced in size versus prior year due to

higher interest rates and cost-of-living pressures, consequently reducing

demand and further compounding competitive pressures. Nevertheless,

against this backdrop we have delivered a record high total asset position

of £4.5bn for the Society, with growth across both organic and inorganic

mortgage volumes, supported by a diversified funding base.

Throughout the period, we have continued to serve our members with a

range of mortgage products, enabling us to generate growth in application

volumes despite the declining market, reflecting the strength of our

proposition and service we provide for brokers, partners and ultimately our

members. The achievement of significant new lending volumes of £887m in

2023 is a testament to the enhancements we have made (and will continue

to embed) with planned investment in our mortgage / credit platforms to

make it even easier to deal with us, ultimately resulting in a better

experience for members and brokers.

We are conscious of the impact that the rise in cost-of-living has had on

mortgage affordability and have proactively supported members facing

difficulties in meeting monthly payments. We were among the first lenders

to sign up to the Mortgage Charter, providing assurance to our members

that they will be helped through these testing times.

Our savings members are of utmost importance to the delivery of our

strategy as their deposits support borrowers achieve their goal of home

ownership. We remain committed to providing savers with secure

propositions that offer easy access to their savings and competitive interest

rates. Following the closures completed in 2022 we have maintained our

network at 31 branches, whilst improving our online Beehive proposition to

ensure an excellent experience for our members when accessing their

savings through their preferred channel.

The Group’s business activities are focused within the UK and

predominantly relate to mortgage lending which is funded primarily

through domestic deposits.

Both the Chair’s and CEO’s reviews include a summary of factors affecting

our performance in 2023 and should be read in conjunction with this report.

This section is presented on a Group basis only as the financial performance

of the Group is assessed by Management at this level given the relatively

simple group structure.

Our financial performance is reviewed regularly by our Board using several

measures, including statutory profit before tax and underlying profit before

tax. Underlying profit represents an alternative performance measure

which excludes items such as fair value volatility and significant one-time

charges that do not reflect the Group’s day-to-day activities. Our Board

considers underlying profit before tax to be an appropriate measure of the

underlying performance of the business.

The presentation of underlying profit before tax remains consistent with

that in prior years. Further information is provided in this Strategic Report

with a reconciliation of the underlying profit to statutory profit included on

page 11.

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Strategic Report

Page | 10 Annual Report & Accounts 2023 Nottingham Building Society

KEY PERFORMANCE INDICATORS

Total Group basis

Gross new lending

£887m

2022: £659m

Total mortgage assets

£3.6bn

2022: £3.0bn

ECL coverage ratio

15bps

2022: (17bps)

Total savings balance

£3.6bn

2022: £3.0bn

Interest paid to savers

£91.8m

2022: £23.9m

Net interest margin

1.94%

2022: 1.69%

Underlying cost to income ratio

70.5%

2022: 73.0%

Profit before tax

£8.3m

2022: £18.9m

Underlying profit before tax

£24.2m

2022: £15.2m profit

CET1 ratio

15.2%

2022: 16.8%

Leverage ratio

5.2%

2022: 5.6%

Average LCR

184%

2022: 192%

Financial highlights

As a mutual we do not pay dividends to external shareholders; our profit

requirements are driven solely by our need for ongoing capital to support

our activities. Profit remains sufficient to ensure we are resilient to severe

economic stresses and enable continued investment to help more members

in the future. In 2023, the key financial highlights included:

• Statutory profit before tax in 2023 of £8.3m (2022: £18.9m);

• Underlying profit for the year increased to £24.2m (2022: £15.2m),

reflecting income growth, partially offset by higher costs and ongoing

investment;

• Interest receivable and similar income has increased to £200.6m

(2022: £97.7m) due to growth in balances and rising interest rates,

with Net Interest Margin (‘NIM’) increasing to 1.94% (2022: 1.69%);

• Gross mortgage balances increased to £3.6bn (2022: £3.0bn), whilst

Member deposit balances increased by £0.6bn to £3.6bn (2022:

£3.0bn);

• Cost to income ratio of 85.5% (2022: 71.7%), the increase is primarily

due to the impact of losses on derivative financial statements in 2023

(gains in 2022) and an increased cost base in 2023;

• Underlying cost to income ratio, which excludes the impact of

derivatives decreased to 70.5% (2022: 73.0%), due to growth in

underlying net income exceeding growth in the cost base;

• Management expenses were £57.6m, an increase of £10.6m versus

2022. A significant proportion of this increase relates to a rise in

people costs (including a pay award that was significantly higher than

the historical average to reflect the higher cost-of-living) and

investment in our transformation programme;

• A small credit of £0.1m was recognised in 2023 on reversals in

provisions relating to impairments (2022: expense of £2.2m), due to

an improved outlook in relation to House Price Index (‘HPI’), whilst

retaining provisions for the continued economic uncertainty and

affordability pressures on borrowers; and

• Common Equity Tier 1 (‘CET1’) and Leverage ratios decreased to 15.2%

and 5.2% respectively (2022: 16.8% and 5.6%), primarily due to growth

in mortgage assets.

The results are prepared in accordance with the, UK-adopted, International

Financial Reporting Standards (‘IFRS’) as set out in Note 1 to the Financial

Statements. Underlying results are shown opposite, together with a

reconciliation to the statutory results.

Income Statement review

INCOME STATEMENT

TOTAL GROUP BASIS

Group

2023

£m

Group

2022

£m

Underlying net interest income

79.3

62.8

Underlying net fees and commissions receivable

2.4

1.6

Underlying Net income

81.7

64.4

Management expenses

(57.6)

(47.0)

Impairment credit / (charge) on loans and advances to

customers

0.1

(2.2)

Underlying profit before tax

24.2

15.2

(Losses) / gains from derivative financial instruments

(14.2)

10.2

Net strategic investment costs

(0.2)

(5.0)

Other

(0.5)

Change in accounting estimates

0.8

(1.5)

Loss on disposal of treasury assets

(1.8)

Profit before tax 8.3 18.9

Tax expense - (3.1)

Profit after tax

8.3 15.8

Profitability

We made a statutory profit before tax in 2023 of £8.3m (2022: £18.9m) and

an underlying profit before tax of £24.2m (2022: £15.2m). The significant

increase in underlying profit is primarily due to a rise in net interest income,

driven by higher market rates and lending volumes coupled with strong

margin performance. Profit after tax is our primary source of new capital

and is essential in ensuring long term security for members, as well as

meeting the regulator’s capital requirements. Statutory profit before tax

benefitted from gains on derivative financial instruments in 2022, which

have partially amortised as losses in 2023.

__________________________________________________________________________________________

Strategic Report

Page | 11 Annual Report & Accounts 2023 Nottingham Building Society

Total Income and Net Interest Margin

2023

2022

Net Interest Margin

1.94%

1.69%

Statutory net interest income was £80.3m (underlying net interest income:

£79.3m) in 2023 (2022 statutory and underlying: £62.8m), increasing

£17.5m year on year, and reflects an improved NIM of 1.94% (2022: 1.69%).

During 2023 we have seen a significant increase in the level of interest paid

to our savers as the base rate continued to rise. We have increased the

average rate paid to our savers above the average paid across the market

to 48bps

, from 20bps in 2022, rewarding our savers with an additional

£14.7m in interest in 2023 (2022: £5.6m).

Despite actively increasing our customer savings rates in response to the

base rate increases, NIM increased steadily during the year as the asset side

of the Balance Sheet benefitted from rising rates. This was largely an

existing book dynamic, driven by the growing level of income from variable

rate mortgages and derivatives hedging fixed rate mortgages, alongside a

higher return on liquid assets.

Other Income

Net fees and commissions receivable relates to fees, commissions and other

operating income.

Management Expenses

The Group’s management expenses include administrative expenses,

depreciation / amortisation and strategic investment costs.

2023

£m

2022

£m

Underlying administrative expenses

50.9

39.3

Depreciation and amortisation – underlying

6.7

7.7

Management expenses – underlying

57.6

47.0

Strategic investment costs

0.2

5.0

Change in accounting estimate

0.7

1.5

Other

0.5

Management expenses – strategic

1.4

6.5

Total management expenses

59.0

53.5

Represents:

Administrative expenses

52.3

42.8

Depreciation & amortisation

6.7

10.7

59.0

53.5

As a result of the cost-of-living crisis, we supported our colleagues with an

elevated pay increase in 2023. Alongside our commitment to colleagues, we

continue to invest in a multi-year transformation programme to improve

the experience for our members, as well as supporting our communities

with charitable donations. Significant expenditure has also been incurred

in 2023 implementing the requirements of both the Consumer Duty and the

Mortgage Charter.

We continue to focus on operating the Society efficiently with close control

over our costs and our cost ratios which remain important measures as we

work to deliver our strategy. Following the disposal of branches in 2022, the

average number of colleagues (full time equivalent) employed by the

Society has decreased to 444 in 2023 (2022: 472). Looking to the future,

headcount is anticipated to grow as we invest in people to support the

delivery of our strategy.

Although costs have increased in the year, we have developed a greater

degree of flexibility to speed up or slow down project related spend to

manage our overall cost position therefore allowing us to be more agile

when responding to the current uncertainty.

As a result of these investments, management expenses have increased by

10.3%, with underlying management expenses increasing by 22.6%

compared to prior year. We continue to carefully manage our costs in line

with internal targets and are continuously looking to identify appropriate

efficiencies whilst at the same time investing for the long-term future of the

Society.

CACI’s CSDB, Stock, January 2022 to December 2023, latest data available. CACI is an independent

company that provides financial benchmarking data of the retail cash savings market.

(Losses) / gains from derivative financial instruments

The Society uses derivative financial instruments to manage the interest

rate risk arising from its fixed mortgage and savings accounts and applies

hedge accounting where possible. Changes in fair value are primarily due

to timing differences, which will trend to zero as the asset or liability reaches

maturity.

During the year, fair value losses on swaps amounted to £14.2m (2022: gain

of £10.2m), including:

2023

£m

2022

£m

Fair value movements on swaps held against the

mortgage pipeline

(2.8)

5.6

Amortisation (losses) / gains from the reversal of gains /

losses recognised in both the prior and current periods

(6.6)

1.4

Movements in the ineffectiveness of the hedge

accounting portfolio

(4.5)

3.1

Fair value movements on swaps associated with the

secured funding vehicle

(0.3)

0.1

(Losses) / gains from derivative financial instruments

(14.2)

10.2

Overall, the hedge accounting portfolio has become more effective in 2023

and the movement in effectiveness represents the reversal of

ineffectiveness gains recognised in the prior period.

More detail on the fair value gains and losses in the period is available in

Note 5.

Impairment Credit / (Charge) on Loans and Advances to Customers

We hold provisions for expected credit losses across all loans, based on the

probability of each loan defaulting and resulting in a loss, whilst considering

a range of assumptions about future economic scenarios and an assessment

of whether the credit risk of the loan has increased.

Despite the challenges faced by borrowers, due to the current uncertain

economic environment, there has not been any significant movement in the

number of borrowers in arrears, with the proportion in arrears by over 30

days or more being 0.35% at 31

December 2023 (December 2022: 0.39%).

Although the economy has remained more resilient than expected in 2023,

there is still downside risk relating to the rise in interest rates, high levels of

inflation and the potentially adverse impacts of tighter financial market

conditions. Affordability concerns remain due to the risk associated with

rising mortgage rates and the effect of these on members coming to the end

of their current fixed term.

An impairment credit of £0.1m was recorded in 2023 (2022: charge of

£2.2m). The credit in 2023 primarily relates to an improved macroeconomic

outlook, resulting in a lower coverage ratio of 0.15% (2022: 0.17%). Total

impairment loss provisions at 31

December 2023 were £5.2m (December

2022: £5.3m). The key judgements and estimates involved in the calculation

of impairment loss provisions, including the use of post model adjustments,

are set out in Note 15.

Taxation

From 1

April 2023, the main rate of corporation tax increased from 19% to

25%. The tax charge for the period amounts to £0.0m (2022: £3.1m),

reflecting the lower level of profitability within the Society as a standalone

entity. Further information is provided in Note 8 to the financial

statements.

We manage our tax obligations to ensure compliance with all statutory

requirements and do not intentionally structure transactions to give a tax

result which is contrary to the intentions of Parliament. We maintain an

open and transparent relationship with His Majesty’s Revenue and Customs

(‘HMRC’) and the Board Audit Committee (‘BAC’) reviews our Tax policy

annually. This provides a framework for the operation, planning and

oversight of tax and tax risk to ensure compliance with relevant legislation.

The policy has been complied with throughout the year.

__________________________________________________________________________________________

Strategic Report

Page | 12 Annual Report & Accounts 2023 Nottingham Building Society

Statement of Other Comprehensive Income review

The defined pension scheme’s liabilities are suitably hedged by the pension

scheme’s assets due to the hedging strategy undertaken by the Society. This

can be observed in both 2023 and 2022, where (losses) / gains on the

pension scheme’s liabilities have been appropriately offset by gains /

(losses) on the pension scheme’s assets.

Treasury disposals in 2023 crystalised Income Statement losses of £1.8m,

with a corresponding gain in other comprehensive income. In addition, fair

value gains have been observed on treasury assets due to interest rate

movements and unwind of fair value losses booked in prior periods.

Statement of Financial Position review

Group

2023

£m

Group

2022

£m

Loans and advances to customers

3,543.9

2,922.8

Liquid assets

801.3

719.3

Other assets

129.7

170.4

TOTAL ASSETS

4,474.9

3,812.5

Retail & wholesale funding

4,150.4

3,528.1

Other liabilities

81.0

53.3

Reserves

243.5

231.1

TOTAL LIABILITIES & RESERVES

4,474.9

3,812.5

We provide residential mortgages in the UK, through a network of approved

mortgage brokers. We fund most of the mortgage lending with members’

savings, through a range of channels, while the remainder is funded from

other financial institutions, including Central Bank facilities, on competitive

terms.

Mortgage lending

Gross balances

2023

£m

2022

£m

Residential 3,155.0 2,702.3

SBL 437.4 334.7

Total

3,592.4 3,037.0

Total gross mortgage lending outstanding was higher than prior period at

£3.6bn (2022: £3.0bn). Net lending in the period was £0.6bn (2022: £0.0bn),

reflecting solid performance given a competitive market with subdued

growth. The volume of new lending has been impacted by reduced levels of

applications in late 2022 and early 2023, with challenging economic

conditions reducing the size of the UK mortgage market.

Residential mortgage balances including owner-occupied and traditional

Buy-To-Let (‘BTL’) increased to £3.2bn (2022: £2.7bn) and Secured Business

Loans (‘SBL’) including commercial / portfolio buy-to-let balances increased

slightly to £0.4bn (2022: £0.3bn). BTL remains an important part of our

lending mix as it allows us to balance risks across our book and supports the

long-term financial resilience of the Society. We also recognise that good

quality rental accommodation represents a vital part of the UK housing

market with many using it as a step towards home ownership.

Our Lending policy reflects an appropriate balance between supporting

home ownership and protecting borrowers and the Society. During the year

we updated our policy in response to the challenging economic

environment and credit criteria were amended in response to the rise in the

cost-of-living. The average loan-to-value of new lending in 2023 was 71.5%

and 61.2% for Residential and SBL, respectively (2022: 70.5% and 66.1%)

and our overall book indexed loan-to-value (‘LTV’) is currently 50.2% and

49.5% for Residential and SBL respectively (2022: 45.5% and 47.6%).

The mortgage portfolio is well distributed throughout England and Wales

and is predominantly focused in the three broad areas of East Midlands,

Yorkshire & Humberside and London & South-East.

Retail and wholesale funding

The Society funds its mortgages through a combination of retail savings and

wholesale funds.

Gross balances

2023

£m

2022

£m

Branch savings

2,672.3 2,508.0

Non-branch savings

895.0 502.7

Retail savings

3,567.3 3,010.7

Secured wholesale

515.0 346.9

Unsecured wholesale

48.8 89.0

Collateral liabilities

19.3 81.5

Retail & Wholesale funding

4,150.4 3,528.1

The Group operates a diverse funding strategy to ensure an optimum mix

and duration of retail and wholesale funding. Retail savings are, and will

continue to be, the cornerstone of our funding requirement, with the

remainder acquired via the secured and unsecured wholesale funding

markets.

As a mutual, we remain committed to providing savers with a secure home

for their deposits, as well as an attractive proposition and competitive

interest rates. Our savings balances now stand at £3.6bn (2022: £3.0bn)

with growth in 2023 particularly driven via Beehive which has offered

market-leading rates during the year. We aim to support our members

through this challenging period of higher living costs by paying attractive

rates while managing current and future financial risks.

Total wholesale funding at 31

December 2023 was £0.6bn (31

December

2022: £0.5bn), representing 14.0% (2022: 14.7%) of total funding.

The movement in wholesale funding in 2023 reflects a £110m repayment of

some of our drawings from the BoE’s Term Funding Scheme with additional

incentives for SMEs (‘TFSME’) significantly ahead of its contractual maturity

date, and the

upsizing of the existing secured bilateral funding facility to

£246.2m (2022: £91.0m).

Liquid assets

The Society maintains a prudent level of liquid resources, of an appropriate

level and quality, to meet its financial obligations as they fall due under

normal and stressed conditions.

The level of liquidity required is closely monitored and considers forecasted

and stressed outflows on a dynamic basis. We have increased our levels of

liquidity during 2023 and the year-end position is strong, which provides

protection and flexibility in this uncertain economic environment.

The Group’s liquidity resources comprise a combination of ‘On-Balance

Sheet’ liquid assets and access to contingent funding from the BoE secured

against approved mortgage portfolios. By holding liquid resources of the

highest quality, which can be turned readily into cash, the Group is able to

manage the excess liquidity it holds to a lower level.

The Group’s ‘On-Balance Sheet’ liquidity is made up as follows:

2023

£m

2022

£m

Balances held with the Bank of England

429.1

289.0

Multilateral Development Banks

28.8

106.0

UK Gilts & T-Bills

63.2

126.7

Mortgage-backed securities

97.8

63.3

Covered Bonds

150.3

54.2

Other

32.1

80.1

Liquid assets

801.3 719.3

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Strategic Report

Page | 13 Annual Report & Accounts 2023 Nottingham Building Society

At 31

December 2023 liquidity included £0.8 billion of High-Quality Liquid

Assets (‘HQLA’) (2022: £0.7 billion), which are either in cash or are readily

realisable as cash when required. 100% of our liquidity assets are rated A or

above (2022: 100%).

The Prudential Regulatory Authority (‘PRA’) monitors liquidity under the

Capital Requirements Regulation (‘CRR’) framework. The two key measures

are the Liquidity Coverage Ratio (‘LCR’) and Net Stable Funding Ratio

(‘NSFR’). These are being reported in accordance with the transitional CRR

/ CRD rules, which came into force on 1

January 2022. The Society was in

excess of the minimum levels required for both measures at the end of the

year with the LCR being 184% (2022: 192%) and NSFR being 143% (2022:

144%).

Capital

The Society continues to focus on maintaining strong capital ratios to

protect members’ interests, with all capital ratios significantly in excess of

the regulatory minima.

Our regulatory capital predominantly comprises accumulated retained

profits in the general reserve and subscribed capital provided through

Permanent Interest-Bearing Shares (‘PIBS’). Capital is ultimately held for the

protection of depositors and other creditors by providing a buffer against

unexpected losses.

The Regulator requires that the Society holds a certain amount of capital

against the assets it holds. This is referred to as its Total Capital Requirement

(‘TCR’). As at 31

December 2023, the Society’s TCR was set at 8.5% (2022:

8.6%) of Risk Weighted Assets (‘RWAs’) or £133.2m (2022: £114.0m).

Total regulatory capital has increased by £15.8 million during 2023 to £261.9

million (2022: £246.1m). This is mainly due to retained profits accumulated

during the year, which are added to the general reserve.

As a result of the regulatory changes and growth in our mortgage book,

RWAs have grown by £240.5m during 2023. Our CET 1 Ratio, calculated on

a transitional basis, has reduced to 15.2% from 16.8% at 31

December

2022.

The following table shows the composition of our regulatory capital as at

December:

2023 2022

Transitional

CRD

Transitional

CRD

CAPITAL RESOURCES

£m

COMMON EQUITY TIER 1 CAPITAL

General reserves

243.3

235.0

Fair value reserves

0.2

(3.4)

Regulatory adjustments & deductions

(5.5)

(9.4)

TOTAL COMMON EQUITY TIER 1 CAPITAL

238.0

222.2

TOTAL ADDITIONAL TIER 1 CAPITAL

TIER 2 CAPITAL

Permanent Interest Bearing Shares

23.9

TOTAL TIER 2 CAPITAL

23.9

TOTAL REGULATORY CAPITAL

261.9

246.1

RISK WEIGHTED ASSETS

1,565.3

1,324.8

CAPITAL RATIOS

Common Equity Tier 1 (‘CET1’) ratio

15.2

16.8

Total Tier 1 ratio

15.2

16.8

Total Capital ratio

16.7

18.6

Leverage ratio

5.2

5.7

Capital requirements

Pillar 1 – we hold capital to meet Pillar 1 requirements for credit risk,

operational risk and market risk.

Pillar 2A – PRA requires us to hold additional Pillar 2A capital for the risks

not covered under Pillar 1. At 31

December 2023, the regulatory

requirement was 0.5% of RWAs, a point in time estimate set by the PRA

during the year.

Capital Buffers – in common with other banks and building societies, we are

required to hold capital buffers that can be utilised to absorb the impact of

a stress scenario. Our buffer comprises the following elements:

• Sector-wide capital conservation buffer, set at 2.5%;

• Macroprudential countercyclical capital buffer currently set at 2% of

RWAs for exposures to the UK; and

• Additional requirements calculated through the Internal Capital

Adequacy Assessment Process (‘ICAAP’) to satisfy our risk appetite

over the planning horizon and absorb the impact of a severe, but

plausible, stress scenario.

The ICAAP is reviewed by the PRA when setting the Society’s Total Capital

Requirement (Pillar 1 and Pillar 2A). We perform regular stress tests on our

capital base and these tests have consistently demonstrated a surplus

above requirement after applying management actions.

We have utilised available transitional arrangements in relation to the

impact of adopting IFRS 9 on regulatory capital and the figures above reflect

those arrangements.

The Leverage ratio, which is calculated as Tier 1 capital divided by total

Balance Sheet exposure, has decreased to 5.2%. This is being reported as

per the transitional CRD rules. This is driven primarily by higher capital

resources and asset exposures.

Further information regarding the Society’s capital management can be

found in the Pillar 3 report available at www.thenottingham.com.

Principal risks and uncertainties

The Nottingham is a low-risk, UK-based organisation and, in common with

other financial institutions, the nature of the business results in several

unavoidable or inherent risks. These inherent risks are continuously

monitored and managed by the Board, as noted in the Risk Management

Report on pages 29 to 33. They are categorised as principal risks within the

Risk Management Framework (‘RMF’) and are defined as follows:

Principal Risk

Category

Definition

Strategy

The risk that The Nottingham does not have an

appropriate strategy and corporate plan to deliver

sustainable long-term value to members and / or

fails to effectively implement and execute the

strategy. Strategy risk includes

consideration of

climate related risks.

Capital

The risk that The Nottingham does not have

sufficient capital or allocates it ineffectively. This

includes The Nottingham’s ability to manage its

capital effectively in a range of business and

economic environments.

Transformation

& Change

The risk that The Nottingham is adversely affected

due to the failed or ineffective implementation of

change or programmes of change.

Market &

Interest Rate

The risk to The Nottingham’s net interest income

and economic value arising from changes in market

interest rates and mismatches in the Society’s

Balance Sheet.

Retail Credit

The risk of loss stemming from a borrower’s failure

to repay a loan or otherwise meet a contractual

obligation.

__________________________________________________________________________________________

Strategic Report

Page | 14 Annual Report & Accounts 2023 Nottingham Building Society

Liquidity

The risk that The Nottingham, although solvent,

does not have sufficient financial resources available

to meet its obligations as they fall due. This includes

consideration of wholesale liquidity risks (e.g.

counterparty selection and management).

Model

Governance

The risk of having an inadequate or ineffective

framework for managing model risk.

Legal,

Regulatory &

Conduct

Legal: risks associated with the failure to meet the

contractual obligations of The Nottingham resulting

in financial liability or litigation and risks associated

with the failure to put in place appropriate

insurance policies to mitigate legal liability.

Regulatory: risks associated with the failure of the

Society to comply with statutory and regulatory

requirements.

Conduct: risks associated with the failure to deliver

good outcomes for The Nottingham’s customers.

Operational

The risk of loss resulting from human factors,

inadequate or failed internal processes and systems

or from external events. The operational risk

category is considered in the context of people,

resilience and data & systems, with each element

covering several sub-categories of risk, including

people risk, health & safety, third party

management risk, information s

ecurity risk

(including cyber risk) and technology.

The Nottingham’s operational risk category includes

managing and overseeing the Society’s compliance

with the PRA’s requirements on operational

resilience.

In recent times, the impacts of Covid-19, Brexit, geopolitical conflict and

cost-of-living crisis has dominated the risk landscape, impacting all principal

risk categories. Despite the impacts of the pandemic diminishing, a high

degree of uncertainty remains. Economic uncertainty and affordability

pressures, created by a number of key external factors, including: inflation,

the ongoing crisis in the Middle East, the war in Ukraine and related energy

crisis, and the government’s financial policy, along with the BoE base rate.

However, in recent months, some of these risks seem to be stabilising, with

inflation having peaked, and interest rate rises plateauing. The uncertainty

these risks create, exacerbated by the next general election expected

before the end of 2024, is reflected in the principal risks facing the Society

and is discussed below, along with the controls and mitigations that have

been put in place to manage the risks and minimise their impacts.

Economic uncertainties

Much uncertainty remains within the economic environment. Whilst The

Nottingham has maintained a good quality lending book with historically

low arrears rates, the impacts of higher costs for homeowners may yet

result in borrowers finding it more difficult to maintain their mortgage

payments, which could result in arrears and subsequent losses increasing.

Whilst the Society remains vigilant to this, an expected increase in arrears

rates has yet to materialise.

Recent communications from the Monetary Policy Committee (‘MPC’) have

indicated that they expect inflation to continue to fall into next year,

underpinning the recent maintenance of interest rates at the 5.25% level at

the December MPC meeting. They have, however, stressed the primacy of

the 2% inflation target, implying scope for an extended plateau or further

increases if required.

In addition, potential house price reductions because of a less active

mortgage market and more conservative consumer behaviour, considering

the cost-of-living crisis and a potential for a recession, could reduce market

buoyancy and further increase competition.

The Nottingham‘s historically low levels of arrears and defaults continue but

the need to remain alert to this risk is recognised, with the sector

anticipating an increase in mortgage defaults and repossessions. Processes

to support customers through financial hardship are well established and

embedded.

The Society has considered the credit losses that may arise from a significant

shock to house prices, increased unemployment and any subsequent

increase in arrears and defaults, which may arise because of the economic

uncertainty and affordability squeeze. The Society undertakes regular

stress-testing, conducts an annual ICAAP, regularly assesses the levels of

provisions held against bad debts and sets a capital appetite requirement at

a level that is designed to be more than adequate to absorb credit losses

should they arise. The Society maintains a strong capital position relative to

its regulatory capital requirement (TCR plus combined buffers).

Lending decision-making is supported by models which are regularly

reviewed and overseen as part of the governance framework to ensure they

remain relevant and accurate in an uncertain macroeconomic environment.

The Society is aware that many models were created at a time when the

current trading environment was not envisaged, presenting a heightened

level of model risk. The Society’s Model Governance Framework is primarily

overseen by the Model Governance Committee, supported by other

governance committees, with key models subject to external development

and review both internally and by specialist third parties.

The Society will continue to take a prudent approach both in its assessment

of house prices and in its forecast of arrears levels. In response to the crisis,

the level of provisions held against future mortgage defaults were

significantly increased in 2022 and remain elevated in 2023 to ensure that

the Society effectively manages the risk of future defaults.

The Nottingham will also continue to monitor closely all relevant economic

forecasts to ensure that all emerging risks and shifts in dynamics are

considered.

Trading environment

Trading conditions continue to be challenging as the mortgages and savings

markets remain highly competitive. As rates fall, there is a risk of margin

compression.

The Society has taken steps to reassess its business model considering the

ongoing trading conditions and any additional risks arising from any change

of approach are being fully considered and managed as these plans are

finalised.

In this environment, it is likely to be challenging for The Nottingham to

maintain its recent level of earnings in the shorter-term. In response, the

Society is considering several initiatives in the medium-term that will enable

it to expand its lending, within an acceptable risk appetite, whilst generating

required higher returns.

__________________________________________________________________________________________

Strategic Report

Page | 15 Annual Report & Accounts 2023 Nottingham Building Society

Strategic review

Longer-term prospects and the need to maintain and promote a sustainable

future for the Society underpinned the strategic review undertaken in 2022.

It was recognised that established ways of attracting, retaining and

interacting with members had changed and that the Society needed to

modernise its proposition to remain relevant in a world where traditional

customer behaviours are changing.

The proposed plans are ambitious and will impact all principal risk

categories. Of note is the pressure on colleagues that is naturally created

through the need to continue to run the business whilst transforming it.

Significant support will be required from existing and new partners to aid

successful execution of the change activity and these alliances will need to

be carefully managed to ensure delivery and commercial targets are

preserved.

Transitioning from the Society’s traditional mortgage activities to fighting

for Extra Ordinary Borrowers represents a shift and will require data-driven

insight which can be used to inform a robust and ongoing assessment of

lending risks as well as an excellent service proposition.

Extensive plans are in place to address these risks and manage execution

risks throughout the implementation of the new strategy.

People risk

People remain a priority at The Nottingham. Several key appointments have

been made at executive level and we have focussed on the enhancements

to our colleague retention programmes and remain committed to ensuring

that the Society remains an attractive place to work. The attraction of new

talent is a focus, with the Society remaining committed to offering a modern

and flexible way of working with a definitive hybrid approach now in place.

The attention of all colleagues has now focussed on the development and

implementation of the new strategy of the Society so that it continues to

meet member needs and deliver great customer outcomes in a sustainable

and relevant manner. This transition will inevitably place considerable

demands on colleagues across the Society. The support of colleagues

through effective communication; provision of training and development;

and the enhancements of target operating models and capacity plans is a

significant focus of Board and Management.

Navigating the fiercely competitive recruitment market to attract talent

remains a challenge, with additional costs incurred because of increased

salary requirements and the use of interim resource solutions to bridge

gaps. To remain competitive and an attractive employer, work to enhance

the appeal of the Society must continue. Investment has been undertaken

in recruitment technology and performance management processes and

tools.

Cyber risk

In tandem with the Society’s increasing digital presence, cyber security risk

continues to rank highly on The Nottingham’s agenda. Work is constantly

undertaken to enhance and monitor the effectiveness of risk management

in this space. The investment of resources to support this will continue, with

the support of third parties who are working closely with the Society to

ensure information security controls remain robust against the fluid

external threat environment.

The measures introduced last year reflecting the heightened threat of

cyber-attack resulting from the outbreak of war in Ukraine and the Middle

East remain in place despite there being no detection of specific threats for

The Nottingham to date. Similarly, additional checks and monitoring for

sanctions will remain operational during this period of elevated risk.

The maintenance of the existing technology estate and upgrading of

systems, software and infrastructure to ensure high levels of resiliency and

to support an increasingly digitalised member offering continues, with the

mitigation of cyber-risks remaining a high priority for the Society.

In all areas, managing cyber risk remains a key focus of the Society’s

management to safeguard the business and protect members’ data and

savings. This includes remote working solutions. The Nottingham continues

to invest in technology to prevent and detect cyber-attacks, whilst

specialists maintain an awareness of prevailing threats and can respond

proactively to events. Strengthening of the Society’s security in systems, is

a constant focus, with a comprehensive programme of technology upgrades

and the implementation of enhanced security tools to keep our members

safe and secure.

Technical expertise is complemented with education and awareness

activities to ensure that employees are equipped to recognise and manage

the risks associated with cyber activity. The capability to respond to and

recover from cyber events is kept under continuous review including

contingency planning, crisis management and disaster recovery plans.

Retail funding

Volatile markets and elevated interest rates have resulted in increases to

costs of funds and balancing the reward of saving customers with margin

management will need continued careful consideration.

The Society possesses a diverse mix of funding options to allow it to secure

retail funding at competitive rates, including the digital capability provided

by the Beehive Money app. Liquidity is assessed as part of the Internal

Liquidity Adequacy Assessment Process (‘ILAAP’) which includes robust

stress testing.

Strategic partnerships

The Nottingham works closely with key partners who provide services to

members on its behalf. As the Nottingham explores new ways of meeting

the needs of its members, it is likely that the number of key strategic

partners will continue to increase.

During 2022, the Society continued to expand its strategic partnership with

a fintech mortgage provider and is continuing in its target to fund £600m of

mortgages via this channel into 2024. The partnership reflects a shared

commitment to boost home ownership.

In recent years, The Nottingham has simplified its business operations,

moving to a partner-based model for the delivery of estate agency services

and expert mortgage advice. This has enabled the Society to maintain its

proposition offering by partnering with specialist providers of these

services. As such, The Nottingham relies on certain key partners for the

delivery of important elements of its proposition and for the generation of

related fee income.

The Society recognises that working with external parties requires close and

continuous oversight. It is a key objective of The Nottingham that selected

partners manage their relationships with members to the same high

standards that are applied internally. Strategic partners also support the

Society in other ways, providing important back-office and technology

services.

The Society continues to manage such relationships closely by rigorous

contractual requirements and strict service delivery standards. All partners

are monitored to ensure that their services meet the Society’s high

standards at all times and, where applicable, ensuring that they meet

defined financial adequacy requirements. Metrics on service delivery are

reviewed regularly at management committees.

__________________________________________________________________________________________

Strategic Report

Page | 16 Annual Report & Accounts 2023 Nottingham Building Society

Technology change risk

The Society continues to make significant investment in its IT infrastructure,

to both enhance operational resilience and provide enhanced capability to

facilitate its strategic goals.

The inherent risks associated with technological change, including potential

business disruption and / or operational loss, will be at heightened levels

during this transformation. This has been recognised by the Society and is

being appropriately managed using a defined change framework, with

additional investment in change management capabilities, including the

appointment of several suitably experienced professionals.

Climate change

Enhancement of the Society’s approach to climate-related risks continues

with greater definition around responsibility frameworks for climate risk

and metrics to monitor objectives related to carbon neutrality and Net Zero.

Risks remain however around interpreting the impact of climate on the

Society’s assets and members with modelling and the sourcing of reliable

data being an industry-wide challenge.

Regulatory change

Several regulatory requirements are currently being delivered. The

implementation of Consumer Duty was completed in line with regulatory

prescribed timeframes, while the potential impact of incoming Basel 3.1

requirements is a key strategic consideration for the Society. Activities for

areas like Climate Risk, Operational Resilience and Consumer Duty are

enduring and require continued dedication of resources to facilitate

effective embedding, evolution of approaches and ongoing monitoring and

management.

The volume of new regulatory activities shows no sign of abating, with

further developments expected into 2024 under the PRA’s ‘Strong & Simple’

prudential regime and potential regulatory change as an outcome of the

banking data review and review of Senior Management & Certification

Regime (‘SMCR’).

The Society monitors the regulatory environment actively to ensure that it

can comply fully with all new and changing regulatory requirements.

Horizon scanning is a key process that supports the work of the Legal,

Regulatory & Conduct Risk Committee (‘LR&CC’), which oversees the

Society’s approach to developing new processes in line with regulatory

changes.

Anthony Murphy

Chief Financial Officer

March 2024

__________________________________________________________________________________________

Stakeholder Engagement Report

Page | 17 Annual Report & Accounts 2023 Nottingham Building Society

The Board acknowledges the variety of stakeholders we have and the significance of evaluating and comprehending their requirements. We have established

communication channels for each stakeholder group to guarantee that their perspectives are considered in the overall decision-making process.

The table below outlines our primary stakeholder groups and how we engage with them:

Stakeholder

Who they are

What is expected from us?

How do we listen and engage?

Members and

customers

• Retail borrowers

• Retail savers

• Offer mortgages that are affordable and

fairly priced;

• offer good value savings accounts;

• provide a friendly, efficient service;

• tailor help for vulnerable customers; and

• support broader societal goals.

• Annual General Meeting (‘AGM’);

• member newsletter;

• member panels;

• focus groups and panels;

• Society’s website;

• face-to-face;

• telephone;

• e-mails; and

• volunteering.

Colleagues

• Colleagues

• Contractors

• Implement equitable reward and

remuneration policies;

• support a good work-life balance;

• encourage and support personal

development and training;

• foster an inclusive culture that values

diversity and celebrates it;

• prioritise the well-being of physical, mental,

and financial aspects;

• demonstrate empathy, respect, and fairness

in all interactions;

• show genuine concern for the physical,

mental, and financial well-being of

colleagues; and

• show empathy, respect, and fairness to all.

• Engagement via leadership;

• colleague surveys;

• provide engagement via leadership

teams;

• connect through colleague networks;

and

• keep colleagues up to date on all things

Society related.

Community

• Local communities

• Charities and community

groups

• Dedicate resources to promote the economic

well-being of communities;

• actively contribute to broader societal goals;

• cultivate an inclusive culture that values and

celebrates diversity; and

• operate as a sustainable business while

embodying social responsibility.

• Advocacy on matters important to

stakeholders;

• addressing climate change,

encompassing carbon footprint

reduction and achieving Net Zero

emissions;

• supporting local community initiatives;

and

• charity donations and charity days for

staff to volunteer their time.

Partners

• Brokers

• Suppliers

• Auditors

• Industry bodies

• Investors

• Ensure ease of interaction and simplicity in

dealings;

• collaborate as trusted partners to achieve

shared success;

• provide helpful, efficient, and approachable

service; and

• take tangible steps to contribute to broader

societal goals.

• Direct engagement through specialist

teams;

• direct engagement through face-to-face

meetings and events;

• Annual Report and Accounts;

• Regulatory News Service

announcements; and

• investor reporting.

Regulators

• Central and local

governments

• PRA

• FCA

• Swiftly and proactively resolve customer

issues;

• act within the law and regulations and in the

interests of our customers;

• be financially strong and secure by

maintaining adequate resources, including

capital and liquidity;

• act with integrity and transparency; and

• prioritise operational resilience.

• Operate in accordance with the law and

regulations, prioritising the well-being

of our members and customers;

• quickly and pre-emptively address

customer concerns; and

• ensure financial strength and security

by upholding sufficient resources,

including capital and liquidity.

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Corporate Responsibility Report

Page | 18 Annual Report & Accounts 2023 Nottingham Building Society

As a mutual building society, it’s important for us to have a meaningful and

lasting impact on our local communities. This impact spans across our 31

branch locations, our Nottingham head office and our colleagues’ home

locations. Our impact takes many forms: through volunteer time, given by

colleagues; charitable fundraising and donation of goods to support

charities and non-profit organisations, in addition to our financial donations

to our chosen charities.

Our focus: tackling homelessness

Throughout 2023 we moved to align our community impact strategy with

the strategic purpose for the Society that we established in 2022 – to help

those who have previously found it difficult to access a mortgage to own

their own home. We defined the parameters of our community

programmes to focus our work in supporting people who are homeless or

at risk of homelessness to access both emergency and longer-term services

to help them towards a safe home. This in turn led to two strategic charity

partnerships that we intend to continue in the coming years. The first is with

Emmanuel House, a Nottingham-based independent charity working to

support people who are homeless, rough sleeping, in crisis or, at risk of

homelessness in and around the city.

Our partnership with Emmanuel House included a charitable donation of

£100,000 which is intended to help them develop their portfolio of

temporary accommodation and wraparound support services to those at

immediate risk. We know that 1 in every 201 people in Nottingham are

homeless

and the number of people rough sleeping in Nottingham in 2023

is 47, up from 23 in 2022. With provision for housing reducing, and the need

for homes clearly rising, we are working with Emmanuel House to fund

temporary accommodation as well as offering the time and skills of our

colleagues to provide additional support to people accessing their services.

In 2023 our colleagues gave over 300 hours of volunteer time to Emmanuel

House, providing practical help such as painting, donation sorting at their

Support Centre and cooking meals at the charity’s Winter Shelter which

offers a safe space for up to 27 people each night from October - April. We

are also working to develop our skills-based volunteering, where colleagues

have been working with Emmanuel House’s women’s group to build a

programme that includes financial resilience tips, practical support for

managing finances and confidence building around money related

conversations. In 2024 we will continue to build on this work as part of a

wider coaching programme with Emmanuel House as well as continuing to

collect donations for the charity in our head office, offer volunteer time and

further collaborative projects.

Our work with Emmanuel House focuses support for people based in and

around the Nottingham area, therefore in our second partnership, we

wanted to find a cause that any of our colleagues, members or customers

could signpost people to, and where assistance could be provided and

accessed across the country. In December 2023 we announced a new

partnership with Shelter, supported by a donation of £50,000 to contribute

to the running of their Sheffield-based helpline, the UK’s only dedicated call

line for people at risk of homelessness and experiencing poor housing

provision. As part of our partnership launch, we began a fundraising and

awareness campaign with colleagues, named ‘Step Out for Shelter’. Our aim

was to bring colleagues across all locations together in support behind one

cause, whilst enabling colleagues to understand more about the housing

crisis.

Data produced in Shelter’s ‘Homelessness in England 2022’ report

We kicked off our partnership with a virtual seminar with some of the

Shelter team, where all colleagues could hear about our new partnership

along with the work Shelter do to fight for a safe and secure home for all.

Our fundraising activities saw colleagues take part in a range of initiatives -

a sponsored 30-day steps challenge, a festive jumper day, bake-offs and a

Super Santa Dash from head office. Colleagues were also supported to run

their own activities across all locations which saw team-members

collectively fundraise over £5,000 for Shelter.

At the end of 2023 we provided an opportunity for our customers and other

savers to join us in support of our charity partners through a new

Community Saver Account. This account offered a competitive interest rate

whilst committing a donation equivalent to 0.5% of all balances held in the

account to be donated equally between Emmanuel House and Shelter. This

is the first time we have brought a community savings product to the market

that directly benefits our charity partners, and we’re proud to have been

able to share this opportunity with our customers in 2023.

At the heart of our branch communities

Beyond our partnerships with Emmanuel House and Shelter, our colleagues

worked hard in 2023 to elevate our community impact through volunteer

time, donations of goods and space as well as fundraising for charities and

non-profits in our local communities. Our 31 branch locations collectively

gave over 1,662 volunteer hours, a material increase from 2022, where

recorded hours were under 250. Our branch teams have thrived in

contributing to our new community programmes, driving and organising in-

house events such as fraud and scam awareness sessions, bereavement

cafes and charity-led coffee mornings to bring members of our local

communities together and provide a safe space for people to connect and

share life experiences with one another.

Our colleagues have gone beyond the branch too, committing regular help

to local organisations providing vital services to people who are homeless

or at risk of homelessness. Our Arnold branch team, work with the local

charity Sharewear Clothing Scheme to volunteer the time of two colleagues

every week for half a day. They also ensure that one of the two volunteers

has already been trained by the charity, so that they can self-manage the

morning hours and maximise time that may otherwise be taken up by

introducing volunteers to processes. This commitment to regular

volunteering means the charity can manage tasks and make best use of their

time to help more people. This is just one example of the meaningful and

committed relationships our colleagues are continuing to build in their local

areas.

We are proud of our work with local Stapleford charity Chayah

Development Project. Chayah are dedicated to making a lasting impact on

communities through tackling social issues to break down barriers. In June

we offered our former Stapleford branch location to the charity on a

peppercorn rent. We worked with ten of our trusted suppliers to refurb and

rebrand the facility for Chayah free of charge, along with a donation of

£3,000 to support them in establishing their services in the Stapleford area.

Our facilities team also gave over 70 hours of volunteer time to help get the

hub ready and host an opening event with Chayah Development Project.

Our local branch Beeston are now running a regular collection to support

Chayah’s food project which offers food parcels to people experiencing food

poverty too. We will continue to support Chayah Development Project in

2024 and are pleased to have been able to repurpose a former branch for

community impact.

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Corporate Responsibility Report

Page | 19 Annual Report & Accounts 2023 Nottingham Building Society

Volunteering our colleagues’ time and skills

Our branch teams are not the only ones engaging more with our community

programmes, together across all locations colleagues gave over 2,462 hours

of volunteer time in 2023, with 43% of people volunteering at least once, an

uplift of nearly 20% compared with 2022. 80% of colleagues told us they

believe The Nottingham is committed to supporting communities and

creates opportunities for them to do the same in our Big Insight people

survey which took place in October.

Colleagues have not only given time to personal passions and local

connections, but they have also engaged with centrally organised activities

such as our ThinkForward business mentoring programme, a six-week

commitment working with young people identified as at risk of becoming

Not in Education, Employment or Training (‘NEET’) when they leave

secondary education. Our volunteers support the young people to build

confidence in their own skills and to open their minds to the various

opportunities they have beyond secondary education.

Another centrally organised cause colleagues gave practical help to is

Operation Orphan, the Nottingham-based charity who work to keep

orphans and vulnerable children around the world safe, warm, healthy and

learning. We have been supporting Operation Orphan since 2022, and in

early 2023, alongside a donation of £20,000 our colleagues spent time

sorting and packing donations of essential clothing to support families in

Turkey impacted by the 7.8 magnitude earthquake on 6

February. The

donations were then distributed by Operation Orphan’s volunteer crisis

response team on the ground in Turkey who worked to reunite families and

help with temporary accommodation, getting people to safety and helping

them with essentials such as food, water, blankets and tents.

As we look to the months ahead, we are excited to develop our purpose-led

community mission, to support people who are homeless or at risk of

homelessness to access essential services. We will do this by furthering our

partnerships with Emmanuel House and Shelter as well as continuing to

support causes and issues impacting our local communities through

empowering our colleagues to continue giving their working time and

resources to make a lasting difference.

__________________________________________________________________________________________

Sustainability Report

Page | 20 Annual Report & Accounts 2023 Nottingham Building Society

The Financial Stability Board created the Task Force on Climate-Related

Financial Disclosures (‘TCFD’) to improve and increase consistent reporting

of climate-related financial information. The following Sustainability Report

presents the Society’s climate-related disclosures under the TCFD

requirements.

Governance

The Nottingham’s Board is ultimately accountable for all climate change

related matters. The Executive Committee (‘ExCo’) is responsible for

deriving the Society’s strategic response to climate change and overseeing

day to day management of climate-related activities. It provides the focal

point for climate-related decision-making and is supported by Subject

Matter Experts from across the Society. The Board Risk Committee (‘BRC')

and the Executive Risk Committee (‘ERC’) are responsible for oversight of

climate-related risks.

Risk oversight committees, include the Asset & Liabilities Committee

(‘ALCo’), Retail Credit Committee, Operational Risk & Resilience Committee,

Model Governance Committee, LR&CC and Change Management

Committee (‘CMC’). These committees have primary responsibility for

identifying, managing, and reporting of climate-related and other risks. The

ExCo has ultimate responsibility for co-ordinating all climate-related risks

and assessing them collectively as part of the quarterly review of the

Strategy Risk dashboard, of which climate risk is a component.

The BRC (under delegated authority from the Board) has been fully engaged

with the Society’s response to climate change.

The Nottingham operates a ‘three lines of defence’ model for risk

management, in common with many financial sector firms. Responsibility

for identifying, managing and reporting risks, including climate-related risks,

resides with the first line of defence. The second line of defence is

responsible for providing challenge and oversight over the first line, the risks

being assessed and modelled and oversight of the reporting of them to

ensure it remains comprehensive. The third line of defence is responsible

for providing independent assurance and assessment of the impacts of

climate-related risks.

In addition, The Nottingham has several policies and procedures in place,

which define the Society’s approach to climate change and ensure that

activities are performed consistently and in accordance with the Board’s

stated objectives and goals.

Strategy

Throughout 2023 we have targeted the reduction in our Scope 1 and 2

emissions as a priority underpinned with a commitment to reduce our

overall Stage 1 and 2 emissions by a minimum 16% over the year versus

2022. As detailed in our 2023 report this approach was agreed due to Scope

1 and 2 being more within our direct control and we have committed to be

Carbon Neutral through offsets for the 2023 reporting period.

During 2023 we have focused on continued deployment of Light Emitting

Diode (‘LED’) lighting throughout the business, and this is now completed

in-house through our Facilities team as part of scheduled maintenance visits

rather than through contractors. The LED rollout was completed by the end

of 2023, supporting further improvements in our Scope 1 and 2 energy

usage.

During 2022 we removed all gas usage from our estate and are now

exclusively using green electricity to power our business. Additionally, we

have rolled out smart meters across the entire estate. We have integrated

this increased quality data with an energy analysis portal that allows us to

identify where we have spikes in usage, which we can then take steps to

address.

Climate change scenario analysis

The Nottingham assesses climate change risk across two main categories.

Physical risk considers the impact of physical effects of climate change or

weather-related events such as flooding. Transitional risk assesses the

transition to a low-carbon and climate resilient future such as changes in

policy and regulation.

To ensure strategic decisions are informed appropriately, a range of

scenario analyses are performed in relation to climate change. These

include the impact of flooding across the mortgage portfolio as well as

transitional risks of an increase in minimum Energy Performance Certificate

(‘EPC’) ratings and the potential costs this could incur.

Analysis is considered across three potential lenses in line with the Climate

Biennial Exploratory Scenario (‘CBES’) published in 2022. These include:

• Early policy action: transition to Net Zero starts early with global

warming limited to 2 degrees;

• Late policy action: policy delayed until 2031 and is more sudden and

disorderly. Global warming limited to 2 degrees; and

• No policy action: mitigation is either absent or unsuccessful and global

warming increases to 3 degrees.

Outputs from the scenarios are used to inform the ICAAP assessment and

are also considered across the risk categories in The Nottingham’s RMF. The

conclusion from the ICAAP assessment is that no additional capital is

required to cover climate change risk.

Risk management

Identification

The Nottingham recognises that climate change is far reaching across its

business and to capture all the material touchpoints, climate change is

embedded within the Society’s enterprise-wide RMF. Alongside the

scenario analysis, The Nottingham recognises that climate change risks

manifest across a broad range of risk categories.

The Nottingham has nine principal risk categories and climate change risk is

included within the Society’s strategy principal risk category. This provides

an elevated and centralised view of climate related risks, which is informed

by the Society’s other principal risk categories via formal assessment at risk

oversight committees.

The risk appetite statement states that The Nottingham has a low-risk

appetite for not meeting the statutory requirements of climate change and

our own stated climate change related goals.

__________________________________________________________________________________________

Sustainability Report

Page | 21 Annual Report & Accounts 2023 Nottingham Building Society

Several targets and metrics have been developed, which support the risk

appetite. These have been informed by several factors, including multiple

scenario analyses. The targets considered in 2023 include:

Short-term

• Physical measures taken to reduce emissions;

• Reduction in Scope 1 and 2 emissions by 16% in 2023; and

Long-term

• Net Zero by 2050.

The metrics and risk appetite are formally assessed by risk oversight

committees (at least quarterly). In addition, climate-related risks are

assessed as part of the half-year forecast and corporate planning processes,

to ensure that the current assessment of climate-related risks and strategic

objectives are aligned and the activities co-ordinated. The risk assessments

performed via risk oversight committees at half and full year points are

presented to the ERC and the BRC as part of the strategic and corporate

planning cycle.

The Nottingham recognises that the identification, measurement and

forecasting of climate-related risks present unique challenges, not least

because of the longer-term nature of the risks, the uncertainty around when

and how they will manifest and challenges around accessing reliable data

and modelling it effectively, all of which are common, to a lesser or greater

extent, to organisations. The Society’s approach to climate change and the

effective management of associated risks will inevitably evolve, as internal

and external understanding and approaches develop.

The most material climate-related risks identified are as follows:

• Credit risk and the impact of climate change on The Nottingham’s

existing and future lending books from both a physical and transitional

risk perspective;

• Operational risks including impacts on how the Society and its third

parties and strategic partners operate and conduct business; and

• Legal, regulatory & conduct risks arising from the need to comply with

challenge laws and regulations and the impacts of them on our

business operations.

As the most material risks, these will form the focus of The Nottingham’s

response to climate change risk management in the short-term.

Management and integration

The risk assessment has informed the Society’s risk appetite statement for

climate change risk, which has been approved by the Board.

Metrics and targets

Carbon Footprint

We have strengthened our relationship with our long-standing utilities

partner, Inspired Energy, during 2023 and they will continue to support us

in developing our carbon strategy.

Deliverables as a direct result of our work with Inspired are as follows:

• quarterly assessment of our Scope 1 and 2 emissions;

• completion of selected site surveys to understand our current

emissions and opportunities for reduction;

• options for carbon offset projects;

• integration of an energy analysis portal within the Estates and

Facilities team; and

• annual review of our performance against targets.

During 2023 we set a target to reduce our Scope 1 and 2 by a minimum of

16% against 2022 full year on a consistent basis. Whilst all natural gas

supplies have been removed, emissions from other fuels have increased

due to a refrigerant top-up in air conditioning units resulting in an increase

in Scope 1 and 2 emissions of 18.3%. Scope 1 and 2 emissions reduced by

14.8% once the impact of other fuels is excluded.

We also set a target in 2023 to reduce our electricity against 2022

performance. We have achieved an 8.3% reduction through several

measures including the completion of the rollout of LED lighting across our

estate and the increased analysis of our energy usage via the data portal

that we now utilise, which has supported us in taking localised actions

where anomalies have been identified.

Whilst our core objective will be to ensure that the business meets the

Government’s Net Zero target date of 2050, we will be seeking to

understand our pathway and whether we can deliver aspects ahead of that

date.

Key to that understanding has been the establishment of our carbon

Balance Sheet, which details our emissions against Scope 1, 2 and 3. This

has been updated and we now have 3 years of data to support us to monitor

trends and performance against targets.

Our internal data has been married with UK Government approved BEIS

greenhouse gas emission conversion factors for calculating carbon

emissions for a range of activities and processes.

Results of the 2023 data analysis show that we continue to generate over

99.2% of our emissions due to Scope 3 which covers indirect emission

sources. Within our Scope 3 emissions over 93.8% are in relation to the

carbon generated by properties where the mortgages that we have granted

provide part of the funding, but where we do not have direct control over

the carbon neutrality or otherwise of those buildings.

In the short-term we have continued to focus on addressing our Scope 1 and

2 emissions and we will be Carbon Neutral in this regard through offsets for

2023.

Details of the data included in our carbon Balance Sheet are shown in the

table on the following page.

2023

C02 in tonnes

2022

CO2 in tonnes

Scope 1 emissions

Direct emissions from owned or controlled sources

Gas

Other Fuels

102

Travel

Scope 2 emissions

Indirect emissions from purchased energy

Electricity

254

277

Total directly attributable

emissions

367 1% 311 1%

Scope 3 emissions

Other indirect emissions that occur in an entity’s value chain

Investments (mortgage portfolio)

44,764 38,240

Purchased Goods and Services

1,564

4,474

Capital Goods 374 410

Other

672

664

Total indirect emissions

47,374 99% 43,788 99%

Total emissions

47,741 44,099

Scope 1 emissions exclude grey fleet emissions as these have been

included within Scope 3.

Scope 2 emissions are presented here on a location-based approach,

presenting the average carbon intensity of the local electricity grids.

Scope 3 indirect emissions associated with the Society’s mortgage

portfolio have been calculated by estimating energy usage and resultant

emissions at mortgaged properties and these have been allocated to the

Society, based on its proportional share of the investment property.

Other includes the impacts of business travel (including grey fleet),

employee commuting and leased assets.

__________________________________________________________________________________________

Sustainability Report

Page | 22 Annual Report & Accounts 2023 Nottingham Building Society

Physical risk metrics

Key metrics of physical risk are potential surface water risk, river and sea

flood risk and the risk of subsidence within the lending portfolio. This is

assessed based on publicly available flood risk data published by the

Environment Agency and subsidence data available from the British

Geological Survey. The data below categorises our mortgage exposures by

annual flood and subsidence probability as at 31

December 2023 and

2022.

Balance by annual flood probability

December 2023

Total

£m

High

(>3.3%)

128.5

3.6

Medium

(>1.1%-3.3%)

112.7

3.1

Low

(0.1%-1.1%)

398.8

11.1

Negligible

(<0.1%)

2,836.6

79.0

Unable to categorise

N/A

115.8

3.2

Total

3,592.4 100%

Balance by annual flood probability

December 2022

Total

£m

High

(>3.3%)

62.0

2.0

Medium

(>1.1%-3.3%)

98.3

3.2

Low

(0.1%-1.1%)

348.0

11.5

Negligible

(<0.1%)

2,518.2

83.0

Unable to categorise

N / A

10.5

0.3

Total

3,037.0 100.0

Balance by subsidence risk 2030

December 2023

Total

£m

Probable

366.8

10.2

Possible

365.1

10.2

Improbable

2,740.3

76.3

Unavailable

120.2

3.3

3,592.4m

100.0

Balance by subsidence risk 2030

December 2022

Total

£m

Probable

221.0

7.3

Possible

268.4

8.8

Improbable

2,538.8

83.6

Unavailable

8.8

0.3

3,037.0

100.0

Transitional risk metrics

As part of understanding transition risks, The Nottingham’s lending portfolio

has been broken down by EPC rating. This will also allow the Society to work

closely with its members to help manage any impact as potential policy and

regulatory changes occur. The table below reflects current EPC ratings taken

from the England and Wales EPC register across the Residential and BTL

portfolios (including Ltd Co BTL).

Energy Performance Certificate Data

As at 31

December 2023

Number

Exposure

£m

EPC Rating A-C

7,582

1,272.6

EPC Rating D-E

11,073

1,705.2

EPC Rating below E

483

78.3

No EPC available

3,693

438.3

Total

22,831

3,494.4

Energy Performance Certificate Data

As at 31

December 2022

Number

Exposure

£m

EPC Rating A-C

6,264

960.9

EPC Rating D-E

10,016

1,387.1

EPC Rating below E

386

51.2

No EPC available

4,487

535.2

Total

21,153

2,934.4

EPC data provides an understanding of the energy efficiency of properties,

with an A rating denoting the most energy efficient. This information also

informs the Society’s scenario analysis for transitional risks.

___________________________________________________________________________________________

Your Board of Directors

Page | 23 Annual Report & Accounts 2023 Nottingham Building Society

Non-Executive Directors

Andrew Neden

Chair

Andrew joined the Board in 2014. He is a Chartered

Accountant with over 40 years’ experience in

financial services in the UK and overseas. After

several years running KPMG's UK Financial Sector

Transaction Services team, he was the global Chief

Operating Officer (‘COO’) for KPMG's financial

services business. Current directorships

include ABC International Bank plc; Kingdom Bank

plc and Clear Bank UK. He also Chairs Aetna

Insurance Company Ltd and is on the board of three

small charities.

Kerry Spooner

Senior Independent Director and Risk Committee

Chair

Kerry joined the Board in September 2016. Kerry had

10 years of financial services experience in the

building society sector before joining the Board. She

acted as a Non-Executive Director at two other

building societies and has experience as Vice Chair,

Senior Independent Director, Chair of Remuneration

Committee and Chair of Nomination Committee.

Prior to that Kerry worked as a solicitor for 20 years,

the last nine years as a Corporate Finance Partner of

the international law firm Allen & Overy LLP. Kerry is

also independent C

hair of the Remuneration

Committee of The Bank of Nova Scotia, London

Branch and Non-Executive C

hair of the

Remuneration Committee of ANZ Banking Group UK

Branch.

Paul Astruc

Non-Executive Director

Paul brings over 30 years of financial services

experience after qualifying as an accountant working as

Finance Director and Executive at a number of UK and

International Banks. Paul became the CFO at The

Nottingham in April 2021 (with additional responsibility

for Technology) and joined the Board as an Executive

Director in June 2022. In April 2023 Paul ceased to be

CFO and an Executive Director of the Society, moving

to become a non-independent Non-Executive Director

of the Society to offer continuity for a period of 12-

months.

Simon Linares

Remuneration Committee Chair

Simon joined the Board in 2019. Simon is also an

Executive Mentor, Coach, and Chairman of the

charity Dreams Come True. He brings a wealth of

commercial and people and development

experience spanning a range of sectors, including

fast moving consumer goods, telecommunications

and financial services. His most recent position was

Group HR Director at Direct Line, where he led the

HR, communications, public affairs and corporate

social responsibility strategies. Prior to Direct Line,

Simon headed up human resources for O2 Europe,

Telefonica’s digital businesses and Diageo, covering

different geographies and cultures, including Africa,

Spain and Portugal. Simon is a fellow of the

Chartered Institute of Personnel Development and

in 2018 was ranked amongst the top five most

influential HR Practitioners in the UK.

Peter O’Donnell

Audit Committee Chair

Peter joined the Board in January 2021. Peter has

over 30 years’ experience in financial services and

worked in a variety of senior finance roles at

Prudential, RSA and Aviva. His most recent position

was Executive Vice President at Unum, a Fortune

500 company where he was also CEO of its UK

business and Chairman of Unum Poland. Peter is a

Non-Executive Director of Queen Victoria Hospital

Foundation Trust and a Trustee for Cardiac Risk in

the Young. Peter has a Bachelor of Commerce

Degree from University College Dublin, is a fellow of

Chartered Institute of Management Accounting

(‘CIMA’) and has significant experience of both

international and UK markets.

Kavita Patel

Non-Executive Director

Kavita joined the Board at the beginning of 2017 and

is the Board Consumer Duty Champion. She is a

Partner and Head of Investment Funds at the law firm,

Shakespeare Martineau. Kavita is also a Non-Executive

Director and Deputy Chair of Foresight Enterprise VCT

plc. Kavita has a wealth of experience advising clients

in the financial services arena both in the retail and

institutional space on corporate, regulatory and

governance matters.

___________________________________________________________________________________________

Your Board of Directors

Page | 24 Annual Report & Accounts 2023 Nottingham Building Society

Executive Directors

Robin Ashton

Non-Executive Director

Robin joined the Board as a Non-Executive

Director in December 2023.

Robin brings

extensive leadership experience to the table,

having served as Chair of Leeds Building Society

for over seven years and held roles at Domestic &

General Group and Shawbrook G

roup plc,

overseeing expansions and digital

transformations. During his tenure at Leeds

Building Society, assets grew notably, and

strategic investments in technology were made.

Sue Hayes

Chief Executive

Sue joined the Society in January 2022 and was

appointed as CEO in March 2022. Sue has

focused her career in Retail and Business Banking

and has held senior positions at Lloyds, HBOS,

NatWest, Santander and Barclays. Sue joined

challenger bank Aldermore in 2018 and more

recently was CEO at GB Bank, a new entrant

challenger, which she took through to the first

stage of the banking licence and raised additional

funding. Sue previously sat on the UK Finance

Mortgage Board as Deputy Chair and has been

nominated to UKF Mortgage Board again as a

Mutual representative for 2023. Sue holds an

Executive MBA from Cranfield Business School.

Simon Baum

Chief Risk Officer

Simon joined the Board as a Non-Executive Director

in June 2018. Simon has spent over 35 years

specialising in risk management within the financial

services arena, holding several senior positions at

Experian, Alliance & Leicester and Santander, both

within the UK and overseas. His previous roles

include Director of Mortgage Risk at Santander.

Simon ceased to be a Non-Executive Director of the

Society in May 2023, moving to become Chief Risk

Officer and an Executive Director of the Society.

Simon Baum

Chief Risk Officer

Simon joined the Board as a Non-Executive Director

in June 2018. Simon has spent over 35 years

specialising in risk management within the financial

services arena, holding several senior positions at

Experian, Alliance & Leicester and Santander, both

within the UK and overseas. His previous roles

include Director of Mortgage Risk at Santander.

Simon ceased to be a Non-Executive Director of the

Society in May 2023, moving to become CRO and an

Executive Director of the Society.

Anthony Murphy

Chief Financial Officer

Anthony joined the Society in March 2023 as CFO.

Anthony was previously CFO of Tandem, a digital

challenger bank, playing a pivotal role in their

strategic transformation and journey towards

profitability. His prior experience includes CFO

positions in a listed regional bank in the United Arab

Emirates and senior roles in finance and strategy at

Lloyds Banking Group, notably supporting the sale

of their Middle East business to HSBC. Anthony's

extensive international and domestic experience in

challenger and established banks aligns with The

Nottingham.

Anthony is a member of CIMA and is on the Board

of Bournemouth University, where he graduated

from in 2001, and further demonstrates his passion

for lifelong learning.

___________________________________________________________________________________________

Your Board of Directors

Page | 25 Annual Report & Accounts 2023 Nottingham Building Society

Changes to the Board in the year to 31

December 2023

Paul Astruc moved from an Executive Director role to a Non-Executive Director role on 7

April 2023.

Simon Baum moved from a Non-Executive Director role to an Executive Director role on 1

May 2023.

Anthony Murphy was appointed as an Executive Director on 23

June 2023.

Robin Ashton was appointed as a Non-Executive Director on 1

December 2023.

Board Committees

Risk

Audit

Nominations

Remuneration

Kerry Spooner (Chair)

Peter O’Donnell (Chair)

Andrew Neden (Chair)

Simon Linares (Chair)

Paul Astruc

Simon Linares

Andrew Neden

Simon Linares

Kavita Patel

Kerry Spooner

Kavita Patel

Peter O’Donnell

Kerry Spooner

Kavita Patel

___________________________________________________________________________________________

Directors’ Report

Page | 26 Annual Report & Accounts 2023 Nottingham Building Society

The Directors’ Report should be read in

conjunction with the Chair’s Statement, the Chief

Executive’s Review and the Strategic Report on

pages 4 to 16.

Business objectives and activities

The Nottingham is a strong and successful mutual building society, which

builds upon its regional foundations, and has a track record of serving

members for over 170 years. At The Nottingham, together we fight for the

Extra Ordinary to own their own home.

Information on the Group’s business objectives and activities are provided

in the Strategic Report on pages 8 to 16.

Business review, future developments and key

performance indicators

The Group’s business activities and future plans are reviewed in the

Strategic Report section of the Annual Report and Accounts on pages 8 to

16. Additionally, within the Strategic Report, we comment upon the

financial (and other) key performance indicators used by the Board during

the year to assist its control, direction and drive for business results.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group are outlined on

pages 13 to 16, and our approach to managing these risks can be found in

the Risk Management Report on pages 29 to 33.

Financial risk management objectives and policies

As a result of its normal business activities, the Group is exposed to a variety

of risks, including credit, market and liquidity risk. The Group’s objective is

to minimise the impact of these risks, as well as financial risk, upon its

performance. The Risk Management Report considers this in detail. A

further explanation of the financial risks and the controls in place to manage

them (including the use of derivatives), is given in Note 31 to the Annual

Report and Accounts. Derivatives, including the impact on the 2023 results,

are disclosed in the Strategic Report on page 11.

Results

Group statutory profit before tax for the year was £8.3m (2022: £18.9m).

The Group profit after tax for the year transferred to general reserves

amounted to £8.3m (2022: profit after tax of £15.8m). As at 31

December

2023, total Group reserves and equity amounted to £243.5m (2022:

£231.6m).

Capital

Group gross capital as at 31

December 2023 was £267.5m, (2022:

£255.6m) being 6.45% (2022: 7.24%) of total shares and borrowings. Free

capital, as at the same date, amounted to £251.9m (2022: £235.1m) and

6.07% (2022: 6.66%) of total shares and borrowings.

The Annual Business Statement set out on page 97 gives the explanation of

these ratios. The Board remains committed to maintaining a strong capital

position.

Loans and advances

During 2023, total new lending was £887m (2022: £659m) with the average

advance being £224,191 (2022: £197,321) and the average debt at the end

of the year being £152,246 (2022: £138,255). As at 31

December 2023,

there were seven cases (2022: four cases) of properties being 12 or more

months in arrears or in possession. The total amount of balances

outstanding in those cases was £497,443 (2022: £131,151), with arrears of

£77,038 (2022: £17,354).

Mortgage losses realised during the year totalled £nil (2022: £14,060).

Provisions for expected credit losses total £5.2m (2022: £5.3m),

representing 0.15% of mortgage balances (2022: 0.17%).

The Group offers several different forbearance options to customers

including reduced payment concessions, payment plans, capitalisations and

mortgage term extensions. As at 31

December 2023, the Group had 80

loans (2022: 87) subject to some form of forbearance.

Property, plant and equipment

Freehold premises owned by the Group are shown in the Annual Report and

Accounts at cost less depreciation. An estimate of the value of those

properties, prepared in late 2023 by the Group’s Property team, indicates

that market value is £5.0m (2022: £3.2m) higher than book value.

Supplier payment policy

The Group is committed to deal responsibly with suppliers. The policy is that

payment will be made 30 days from the receipt of the invoice, provided that

the supplier has complied with all relevant terms and conditions. Variation

of the 30 day policy can be agreed at the time an order is placed.

As at 31

December 2023, the total amount owed to suppliers was

equivalent to 23 days’ credit (2022: 17 days).

Charitable and political donations

During the year, the Group made charitable donations of £144,979 (2022:

£150,000). No contributions were made for political purposes.

Country-by-country reporting

The Capital Requirements (Country-by-Country Reporting) Regulations

place certain reporting obligations on financial institutions within scope of

the Capital Requirements Directive.

The nature of the activities of the Society are set out under business

objectives of this report and for each of the Society’s subsidiaries in Note 16

to the Annual Report and Accounts. All the activities of the Society and its

subsidiaries are conducted in the UK and therefore 100% of the total

income, statutory profit before tax and tax shown in the Income Statement

as well as employee figures disclosed in Note 7, are related to the UK. The

Society and its subsidiaries have not received any public subsidies.

Environment & sustainability

The Sustainability Report on pages 20 to 22 outlines the Society’s position

in line with the requirements of the Financial Stability Board’s TCFD.

Directors’ responsibilities in respect of the Annual

Report, the Annual Business Statement, the

Directors’ Report and the Annual Accounts

The Directors are responsible for preparing the Annual Report, Annual

Business Statement, Directors' Report and the Annual Accounts in

accordance with applicable law and regulations. The Building Societies Act

1986 (‘the Act’) requires the Directors to prepare Group and Society Annual

Accounts for each financial year. Under that law they are required to

prepare the Group Annual Accounts in accordance with UK adopted

International Accounting Standards (‘IAS’) and applicable law and have

elected to prepare the Society Annual Accounts on the same basis.

The Group and Society Annual Accounts are required by law and UK adopted

IAS to present fairly the financial position and the performance of the Group

and the Society; the Act provides in relation to such Annual Accounts that

references in the relevant part of that Act to Annual Accounts giving a true

and fair view are references to their achieving a fair presentation.

___________________________________________________________________________________________

Directors’ Report

Page | 27 Annual Report & Accounts 2023 Nottingham Building Society

In preparing each of the Group and Society Annual Accounts, the Directors

are required to:

• select suitable accounting policies in accordance with International

Accounting Standard 8: Accounting Polices, Changes in Accounting

Estimates and Errors and apply them consistently;

• present information, including accounting policies, in a manner that

provides relevant, reliable, comparable and understandable

information;

• state whether they have been prepared in accordance with UK

adopted IAS and those parts of the Building Societies Act 1986 and

Building Societies (Accounts and Related Provisions) Regulations 1998

applicable to societies reporting under UK adopted IAS; and

• prepare the Annual Accounts on the going concern basis unless it is

inappropriate to presume that the Group and Society will continue in

business.

In addition to the Annual Accounts, the Act requires the Directors to

prepare, for each financial year, an Annual Business Statement and a

Directors' Report, each containing prescribed information relating to the

business of the Group.

Directors’ responsibilities for accounting records

and internal control

The Directors are responsible for ensuring that the Group:

• keeps proper accounting records that disclose with reasonable

accuracy, at any time, the financial position of the Group and Society,

in accordance with the Act; and

• takes reasonable care to establish, maintain, document and review

such systems and controls as are appropriate to its business in

accordance with the rules made by the FCA and the PRA under the

Financial Services and Markets Act 2000.

The Directors have general responsibility for taking such steps as are

reasonably open to them to safeguard the assets of the Group and to

prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the

corporate and financial information included on the Society's website.

Legislation in the UK governing the preparation and dissemination of

financial statements may differ from legislation in other jurisdictions.

The Directors who held office at the date of approval of this Directors’

Report confirm that, so far as each of them is aware, there is no relevant

audit information of which the Group’s auditor is unaware, and each

director has taken all the steps that they ought to have taken as directors to

make themselves aware of any relevant information and to establish that

the Group’s auditor is aware of that information.

Directors’ statement pursuant to the UK

Corporate Governance Code

As required by the UK Corporate Governance Code, the Directors confirm

their opinion that the Annual Report and Accounts, taken as a whole, are

fair, balanced and understandable and provide the information necessary

for members to assess the performance, strategy and business model of the

Society. Details of the governance procedures that have been implemented

to support this can be found in the BAC report on pages 38 and 39.

Going concern and viability

Going concern

In preparing the Annual Accounts the Directors must satisfy themselves that

it is reasonable to adopt the going concern basis.

The Directors have considered the risks and uncertainties discussed on

pages 13 to 16 and 29 to 33, and the extent to which they might affect the

preparation of the Annual Report and Accounts on a going concern basis.

Key to this consideration were the risks associated to regulatory capital,

liquidity and financial performance, and the impact on these risks arising

from the higher interest rate and high inflationary environment as well as

climate-related considerations.

The Group’s business activities and future plans are reviewed in the Chair’s

Statement and CEO’s Review on pages 4 to 7. In addition, Note 31 to the

Annual Report and Accounts includes the Group’s policies and processes for

managing financial instrument risk such as liquidity risk, interest rate risk

and credit risk.

As with many other financial institutions, the Group meets its day-to-day

liquidity requirements through prudent management of its retail and

wholesale funding sources. It ensures it maintains sufficient liquidity to

meet both normal business demands and those that may arise in stressed

circumstances. The Society has a surplus to regulatory capital requirements

and is forecasting this to remain across the going concern assessment

period.

Furthermore, the Group’s forecasts and plans, taking account of current and

possible future operating conditions, including stress tests and scenario

analysis, which have considered income, expenses and overall quality of the

mortgage portfolio, indicate that the Group has sufficient operating liquidity

and capital for the foreseeable future, and specifically for the going concern

assessment period to 31

March 2025 – covering a period of at least twelve

months from the date of the approval of the Annual Report and Accounts.

As such, the Directors are satisfied that the Group has adequate resources

to continue in business and to use the going concern basis in preparing the

accounts.

Viability statement

In accordance with the 2018 revision of the UK Corporate Governance Code,

the Board has also assessed the prospects of the Society over a period longer

than the 12-months required by the going concern provision. The Board has

conducted this review for a period of four years. This is consistent with the

planning horizon used for corporate planning.

The corporate plan considers the Group’s profitability, cash flows, liquidity

and capital requirements as well as other key financial ratios over the

period. These ratios are subject to sensitivity analysis and stress testing,

which involves varying the main assumptions of the forecast, both

individually and in unison. Where appropriate, this stress testing is carried

out to evaluate the potential impact of the Group’s principal risks occurring

(which are outlined on pages 13 to 16 of the Strategic Report and the Risk

Management Report on page 29). This includes the associated risks because

of the higher interest rate and high inflationary environment as well as the

consideration of climate-related risks. Based on the reviews completed, the

Board considers that the Society is viable over the medium-term.

Directors

The names of the Directors of the Society who served during the year and

up to the date of signing the accounts, their roles and membership of board

committees are detailed in the Governance section on pages 35 to 37. Other

business interests are shown in the Annual Business Statement. None of the

Directors have any beneficial interest in, or any rights to subscribe for shares

in, or debentures of, any connected undertaking of the Society, as at 31

December 2023.

In accordance with the agreement made by the Board and in line with the

rules for re-election outlined on page 36, all directors who wish to continue

in role will stand for re-election at the next AGM.

Auditor

A resolution to reappoint Ernst and Young LLP as auditors of the Society will

be proposed at the AGM.

On behalf of the Board,

Andrew Neden

Chair

March 2024

___________________________________________________________________________________________

Nomination Committee Report

Page | 28 Annual Report & Accounts 2023 Nottingham Building Society

Statement by the Chair of the Nomination

Committee

I am delighted to introduce our 2023 Nomination Committee (‘NomCo’)

report, offering an overview and summary of our actions throughout the

calendar year. This report also provides details regarding the Committee's

role and duties.

The Nomination Committee is responsible for:

• selecting and recommending candidates for Leadership roles and Non-

Executive Directors;

• overseeing succession planning;

• promoting diversity;

• evaluating leadership performance;

• managing conflicts of interest; and

• ensuring compliance with legal and ethical standards.

The Committee plays a vital role in building a capable and diverse leadership

team, enhancing governance practices, and fostering the organisation's

long-term success.

Committee structure and operations

The Committee membership was made up as follows:

Andrew Neden (Chair)

Non-Executive Director and Chair of the Board

Simon Linares

Non-Executive Director and Chair of the

Remuneration Committee (‘RemCo’)

Kerry Spooner

Non-Executive Director, Senior Independent

Director and Chair of the BRC

The detail of the skills and experience of the Committee members can be

found in their biographies on pages 23 and 24.

The Committee met on three occasions during the year. After each meeting,

the Committee Chair offers the Board updates, condensing the actions

performed during the meeting and highlighting significant decisions made.

Appointments

There were no appointments or resignations within the Committee in 2023.

Committee activities

During the year, the Committee has:

• recommended the appointment of one Executive Director and two

Non-Executive Directors. All appointments are subject to extensive

external checks and, where necessary, regulatory approval;

• reviewed and agreed the succession plans for both the Board and

Senior Management;

• evaluated the diversity of skills and experience among Board

members;

• reviewed the size and composition of the Board and its committees;

• reviewed the time commitments of Non-Executive Directors; and

• continued a Board development plan and associated activities to

support it.

Equity, diversity and inclusions

The Committee's role is to ensure that both the Board and the Senior

Leadership Team mirror the Society's strategic goal of valuing and

incorporating all colleagues embracing their unique perspectives.

Diversity encompasses various dimensions, including a well-rounded mix of

skills, experiences, backgrounds and qualifications in our workforce. We

recognise the substantial benefits that diversity brings, particularly in

decision-making. Our commitment to diversity and inclusion extends

beyond numerical targets. Our new strategy forms the basis for engaging all

colleagues, from the Board to the branch network.

We remain a signatory to the Women in Finance Charter; however, we

didn’t achieve our gender diversity target of 35% this year, with a total of

32% of women in Senior Management positions. We have also set ourselves

an ambitious target of gender parity by 2025.

We implemented two employee representation Groups: ‘Pride’ and

‘Menopause at Work’. These influential groups represent

various viewpoints, experiences and communities who generate thought-

provoking work to enhance our business and workplace, creating a sense of

belonging and opportunities for all.

Andrew Neden

Chair of the Nomination Committee

March 2024

___________________________________________________________________________________________

Risk Management Report

Page | 29 Annual Report & Accounts 2023 Nottingham Building Society

The Nottingham recognises risk as a natural consequence of its business

activities and environment. It endeavours, through positive risk strategies,

to manage these in a manner that ensures delivery of its strategic objectives

and business plan, whilst protecting members’ interests and its financial

resources.

The Board is responsible for ensuring that an effective framework is in place

to promote and embed a risk-aware culture that identifies, appropriately

mitigates and manages the risks the Group and Society face while delivering

its strategic objectives. This includes both current risks and future risks,

including those associated with the implementation of strategy.

The Board reviews and approves key risk management policies annually,

including the Board Risk policy, ICAAP, ILAAP and the Recovery and

Resolution Plan (‘RRP’).

In pursuing its strategy, the Board ensures there are appropriate capabilities

and resources available, along with sufficient capital strength to succeed.

This includes focusing on risk and reward to ensure both remain at an

acceptable level.

The Society operates a committee governance structure which enables

focused oversight and has clear lines of accountability and alignment to

responsibilities allocated under the SMCR.

The Board Risk Framework

The BRC is an integral part of the Group’s formal structure, assisting the

Board in overseeing all aspects of risk management. It reviews and approves

policy statements, risk appetite statements, and risk management

committee terms of reference. It receives summary management

information and minutes from the individual risk management committees.

The RMF is approved annually by the BRC and is based on the ‘three lines of

defence’ model (described on page 37) and focuses on:

• clear accountability and ownership;

• defined roles and responsibilities;

• identification of business objectives;

• identification of the risks arising from these objectives;

• an assessment of the identified risks and controls using the Board

approved risk framework;

• assessing the effectiveness of the documented controls;

• monitoring the risks and controls on an ongoing basis; and

• reporting risks to the relevant committees.

Day-to-day risk management is the responsibility of the ERC, which oversees

the Society’s risk committees, as detailed in the diagram below.

Board Risk Committee

As detailed on page 34, the membership of the BRC comprises of Non-

Executive Directors. It is responsible for ensuring:

• key risks are identified and appropriate steps taken by Management

to mitigate them;

• new and emerging risks are identified and reviewed through the

horizon scanning process;

• due consideration is given to all significant matters relating to

governance, control, regulatory and compliance issues;

• adequate capital and liquidity are maintained to address the Group’s

key risk exposures, both to ensure regulatory compliance and to

support the achievement of strategic goals;

• all conduct risks (including Consumer Duty) are properly considered,

again to ensure regulatory compliance and the achievement of fair

and proper outcomes for all our members;

• The Nottingham has considered the risks to operational resiliency and

mitigated them to within approved tolerances;

• the climate related financial risks have been appropriately identified,

managed and mitigated; and

• the effective monitoring of the Group’s key risks and controls.

The BRC meets at least four times per year to review risk management

activities and consolidated management information regarding existing and

emerging areas of risk.

The scope of the BRC extends to all types of risk faced by the Group with

the management of certain risks delegated to the ERC, ExCo and relevant

management committees. The responsibilities of these committees are

described below.

Executive Committee

The ExCo is responsible for acting on behalf of the Board in formulating

strategy, the business plan and for organising the Society’s assets and

resources to deliver value to members in a fair and appropriate manner.

The Committee is chaired by the CEO and comprises all Executive team

members.

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Risk Management Report

Page | 30 Annual Report & Accounts 2023 Nottingham Building Society

Strategic risk

When discussing future strategy, the ExCo and ultimately the Board takes

care to ensure that risks associated with maintaining a sustainable society

are evaluated and that plans are in place to affect any required risk

mitigation. These include risks associated with changes to the external and

economic environment, regulatory and statutory developments, people

and resources, strategic partnerships and alliances and change execution.

The ExCo oversees the detailed evaluation and monitoring of these risks.

The Committee also oversees the management of risks relating to changes

in the external environment, which have the potential to affect the Group’s

business model either through the level of demand for products and

services and / or its ability to meet that demand. This includes responsibility

for monitoring the macroeconomic environment and formulating The

Nottingham’s strategic response to regulatory changes such as climate

change, operational resilience and Consumer Duty.

The Committee looks to mitigate this exposure through regular review of its

Group corporate plan, ensuring activities remain within risk appetites.

Executive Risk Committee

The ERC is responsible for acting on behalf of the Board and the BRC in the

management and oversight of The Nottingham’s principal risks. It reviews

relevant policies to ensure that the Society acts in such a way as to organise,

manage and protect the Society’s assets to deliver value to members

through the provision of savings and mortgages, whilst remaining within

law, regulation and agreed Board risk appetites.

The Committee enables the BRC to fulfil its role by ensuring that:

• there is executive level oversight of the RMF;

• accountability and responsibility for managing risk is clearly defined;

• the risk culture of the Society is defined and embedded;

• the nature and extent of the top risks of The Nottingham are

determined and understood, including the nine risk categories and

any thematic risks;

• appropriate risk appetites are defined and documented;

• The Nottingham, at all times, operates within stated risk appetites;

• processes are in place to consistently identify, measure, assess,

monitor and control risks;

• the risk event process is effectively capturing and reporting on

operational failures;

• the horizon scanning process is identifying emerging risks and

regulatory themes;

• The Nottingham is compliant with regulatory requirements, including

the ICAAP and ILAAP process;

• The Nottingham operates within its impact tolerance statements for

its important business services and remains operationally resilient;

• The Nottingham maintains an up to date and adequate RRP which fully

reflects the requirements of the Board and regulators;

• conduct related risks are appropriately identified, managed and

reported up to the BRC; and

• The Nottingham has identified climate-related risks and has

embedded them within its RMF, to facilitate effective mitigation and

oversight.

The Committee is provided with regular updates on the principal risk

categories by first line management.

To ensure the effective monitoring and reporting of risk, The Nottingham

maintains several risk registers, including a top risk register, functional risk

registers and project risk registers. These risk registers help management

assess the probability and impact of the risks identified, and the

effectiveness of mitigating controls.

The Committee is chaired by the CRO and includes all Executive Directors,

certain members of the ExCo and other senior colleagues.

Assets and Liabilities Committee

The ALCo is responsible for overseeing The Nottingham’s liquidity risk,

market and interest rate risk, wholesale credit risk and its capital risk. In

addition, ALCo reviews treasury activity for compliance with approved

treasury policies and procedures. The Committee is chaired by the CFO and

the membership is made up of relevant senior managers.

Market and interest rate risk

The Society defines market and interest rate risk as the risk to net interest

income and economic value arising from changes in market interest rates

and mismatches in the Society’s Balance Sheet. Economic value is the

present value of the Society’s future cash flows.

As the uncertain economic environment persists, the Society continues to

actively monitor its position against its interest risk appetite to mitigate the

impact that any future change to interest rates might have in adversely

affecting the Society’s interest margin.

The Society’s limits for the management of market and interest rate risk are

documented in the Market & Interest Rate Risk policy, which is developed,

defined and recommended by ALCo and considered and approved

ultimately by the BRC.

Basis, gap and repricing risk are all elements of interest rate risk captured

by the market and interest rate risk category.

The Prudential Risk team measures the levels of interest rate risk in the

Society’s Balance Sheet, as well as subjecting the Balance Sheet to stress

tests designed to measure the likely impact of a sudden change in interest

rates. This is assessed weekly for stresses to economic value and monthly

for stresses to net interest income and monitored against the Board

approved risk appetite.

The Treasury team is responsible for day-to-day management of the

Society’s interest rate risk exposures within the approved risk appetites.

Typically interest rate risk is managed by taking advantage of natural

hedging opportunities within our Balance Sheet or using appropriate

hedging instruments.

ALCo is responsible for reviewing Treasury activity, performance and

compliance with the approved policy and risk appetites.

Liquidity risk

The Society defines liquidity risk as the risk that the Society, although

solvent, does not have available sufficient financial resources to enable it to

meet its obligations as they fall due. This risk is managed through holding

cash and other high quality liquid assets and maintaining wholesale funding

facilities.

ALCo develops, defines and recommends the liquidity risk appetite, which

is considered and approved by the Board and documented in the Liquidity

Risk policy. The liquidity risk appetite helps to ensure that the management

of the liquidity portfolio by the Treasury team supports the corporate plan.

The Liquidity policy sets the framework for the day-to-day activities of the

Treasury team to ensure that all liquidity management activities are

conducted within approved risk appetites. The Society maintains a diverse

funding base and ensures compliance with applicable regulatory

requirements. Defined control limits determine the overall level of liquidity

to be maintained. The base level and composition of the Society’s liquidity

is subject to PRA guidance and regular stress testing and is also documented

as part of its ILAAP, as required by the PRA.

The Society is required to be compliant with the LCR, which measures the

amount of HQLA relative to modelled net stressed cash outflows within a

30-day period.

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Risk Management Report

Page | 31 Annual Report & Accounts 2023 Nottingham Building Society

The Society also maintains a funding profile in line with a longer-term

funding measure, the NSFR, which requires financial institutions to hold

sufficient stable funding to cover the duration of their long-term assets.

Based on our current and forecast liquidity positions, the liquidity portfolio

held by the Society comfortably exceeds the minimum requirements of the

LCR. Similarly, the funding profile exceeds the future requirements under

the NSFR.

The Society has documented an RRP, which describes those metrics that

would indicate an emerging market-wide or Society-specific stress event.

The Plan includes a range of options available to the Society should such a

stress event crystalise to ensure adequate levels of liquidity and capital are

maintained.

Regular stress testing is performed to confirm that the Society’s available

liquidity is adequate, within risk appetite and is sufficient to support

extreme levels of net cash outflows.

Responsibility for the day-to-day operational management of liquidity risk

lies with the Society’s Treasurer, with operational oversight provided by the

Prudential Risk team and reported to ALCo. A detailed analysis of the

Society’s liquidity profile can be found on page 12.

Wholesale credit risk

Wholesale credit risk arises from counterparties who may be unable to

repay loans and other financial instruments that the Society holds as part of

its liquidity portfolio.

The Society’s risk of counterparty default is relatively low due to the high

proportion of total liquidity held in UK Sovereign debt securities and the BoE

Reserve Account. The composition of the treasury assets can be found on

page 12.

The Society’s Liquidity policy sets out the amounts, products and

counterparties under which Treasury liquid assets can be held. Credit

worthiness of counterparties is assessed using several factors including

minimum acceptable credit ratings approved by the BRC, together with

lending limits. The policy also allows for investments in multilateral

development banks, covered bonds and Residential Mortgage-Backed

Securities (‘RMBS’), subject to criteria set by the BRC. The Board does not

permit any lending directly to sovereign states, other than the UK

Government, and all lending is in Sterling.

The Board, via the approved policy, further restricts the level of risk by

placing limits on the amount of exposure that can be taken in relation to

one counterparty or group of counterparties, and to industry sectors and

geographical regions.

The Society’s Treasury team has day-to-day responsibility for operating

within Board approved credit limits. Monitoring and oversight, including

assessment of counterparty credit worthiness, is undertaken by the

Prudential Risk team to ensure all exposures remain within risk appetite.

This information is shared with ALCo.

Capital risk

The Nottingham conducts timely evaluations of its capital adequacy and

financial resources to determine the level of capital required to support

current and future risks contained within its strategic plan. This process,

which is a regulatory requirement, is known as the ICAAP.

The ICAAP assesses The Nottingham’s future capital requirements by

considering changes to business volumes, the type and mix of assets, and

business activities within the context of current and future anticipated risks

and stress scenarios. The ICAAP also incorporates the Capital Requirement

Directive requirements.

The PRA uses the ICAAP during its Supervisory Review and Evaluation

Process (‘SREP’) through which it determines the amount of capital it

requires The Nottingham to hold.

The Board monitors the current and future level of capital held by the

Society in relation to its TCR on a regular basis. The Society’s current and

future capital levels remain well in excess of the PRA requirements. An

analysis of the components of The Nottingham’s current capital position can

be found in the Strategic report on page 13.

Retail Credit Committee

RCC is comprised of relevant senior managers and chaired by the CRO. It is

responsible for oversight of the Society’s retail credit risks, which includes

exposures to residential and BTL mortgages, limited company buy-to-let

mortgages and SBL.

Retail credit risk

The Society defines retail credit risk as the risk of loss stemming from a

borrower’s failure to repay a loan or otherwise meet a contractual

obligation. As a building society, this is most likely to arise through the

inability of borrowers to repay a mortgage. The Society’s exposure to retail

credit risk is limited to the provision of loans secured on property within

England and Wales.

A Retail Credit Risk policy (incorporating the credit risk appetites) is

developed and proposed by the RCC, reviewed by ERC and considered and

approved by the BRC. The Society manages the level of credit risk it

undertakes by applying various control disciplines, the objectives of which

are to maintain asset quality in line with approved risk appetite. The Board

receives regular monthly information on key risk appetite limits.

Exposure to retail credit risk is carefully monitored by the RCC. Day-to-day

retail credit risk is managed through the application of prudent lending

policies, which are aligned to the stated risk appetites. This ongoing

monitoring provides assurance that current and future exposures, such as

LTV levels, geographic concentration and probability of default, are

managed within the risk appetite limits set by the Board.

The Society remains committed to promoting home ownership and its risk

appetite allows lending to first time buyers, but it restricts the overall level

of high loan-to-value lending to limit concentration risk. Similarly, The

Nottingham continues to follow its long-term policy of also offering interest-

only products to a small number of borrowers, which are covered by strict

policies and monitoring procedures.

The Society regularly stress tests the mortgage portfolio to detect any signs

of potential payment stress or sensitivity for its borrowers to the impact of

future rate rises. The mortgage portfolio shows resilience to the impact of

recent rate rises, but the Society ensures adequate monitoring and analysis

are in place to ensure early detection of any potential deterioration.

Considering recent regulatory developments, the Society has also designed

a stress testing framework for the potential effects of climate change on

property values. This will be an area of increased focus in future years for

the Society, the wider sector and the regulators.

All mortgage loan applications are reviewed by an individual underwriter

supported using application scorecards. Credit reference bureaux data is

obtained on all applications, which in turn supports our responsible lending

requirements. The Society also shares account performance data with the

selected bureaux. The Society’s lending has become increasingly

geographically diversified throughout England and Wales over the last few

years with no one area dominating the portfolio.

The Society continues to be a responsible lender and its approach to lending

is based on making sure that customers can afford to meet their mortgage

repayments from the outset, using a prudent affordability calculator, as well

as our manual underwriting processes. Should customers find themselves

in financial difficulty, the Society responds with appropriate forbearance

and collections activities to ensure fair customer outcomes. It also supports

customers who experience temporary financial difficulties by providing the

assistance they require to enable them to regularise their financial

arrangements. Only as a matter of last resort does the Society seek to take

the property into possession.

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Risk Management Report

Page | 32 Annual Report & Accounts 2023 Nottingham Building Society

The Society is committed to providing support to those members who are

experiencing difficulties in meeting their mortgage payments due to the

impacts of the cost-of-living crisis. We will continue to treat all customers

fairly and to offer appropriate forbearance activities throughout the cost-

of-living crisis and beyond.

Residential, BTL and SBL loans are granted only against the ‘bricks and

mortar’ value (i.e. loans are provided only for the purchase or re-mortgaging

of a property and not for working capital or machinery etc). A Commercial

Lending policy is used to manage levels of business lending risk with loans

manually underwritten. To ensure appropriate management of lending risk,

the Society maintains watchlists to monitor those loans that are a possible

cause for concern in order that risk mitigating action can be taken as

appropriate. Primarily, SBL loans are made available to Small and Medium-

sized Enterprises ('SME’s) for either owner-occupied or investment property

purposes. The regulatory limit for SBL lending was extended to 20% during

the year and the Society was comfortably within this limit, at 12.2% as at

December 2023.

The Society does not have any exposure to the sub-prime mortgage market,

it lends only to ‘prime’ customers and has never written ‘self-certified’

lending business.

Model Governance Committee

The Model Governance Committee (‘MGC’) assists the ERC in the oversight

of computer-based models and End User Computing (‘EUC’) applications

that are used throughout The Nottingham’s strategic and operational

activities. A model is defined as "a quantitative method (including the

complex manipulations of expert judgements) or system that applies

theories to process input data into quantitative estimates, repeatedly used

for decision making”.

The Committee, which is made up of relevant senior managers and is

chaired by the CRO, oversees the management of risks related to models to

ensure that models are included within the Society’s governance framework

and are robustly designed, developed, documented and reviewed.

The Committee provides oversight ensuring that models and EUC

applications are managed in line with the Model Governance Risk policy,

both on an ongoing basis and during model development. It ensures that

models and EUC applications are compliant with applicable regulation and

remain fit for purpose.

Legal, Regulatory and Conduct Risk Committee

The Society, being a provider of mortgage and savings, is regulated by both

the FCA and the PRA.

The LR&CC oversees how The Nottingham manages legal, regulatory and

conduct risk to ensure that all services are conducted in a clear, transparent

and fair manner, delivering good outcomes for customers.

The Committee is chaired by the General Counsel, supported by relevant

senior managers.

Each business area is responsible for ensuring that all regulatory and

statutory requirements are complied with on a day-to-day basis. Formal

oversight is provided by the Compliance Function through a programme of

compliance monitoring.

The Nottingham has a very low appetite for breaches of regulation or for

any activity that may lead to an unfair outcome for our customers.

During 2023, the LR&CC has overseen the implementation of required

policy and operational changes resulting from the implementation of the

regulatory requirements of Consumer Duty.

Operational Risk and Resilience Committee

Operational Risk & Resilience Committee (‘ORRC’) is responsible for actively

overseeing the management of operational risk across The Nottingham. It

is also responsible for ensuring that the Society maintains sufficient

operational resilience to ensure the ongoing delivery of key services to

customers.

The Committee is chaired by the Chief Technology and Transformation

Officer (‘CTTO’) supported by relevant senior managers.

To allow the Committee to focus on the key elements of operational risk

(which includes ‘people risk’ in respect of our own colleagues and ‘third

party risk’ in respect of reliance on third parties and partners to deliver key

elements of our proposition and our operational resilience framework), the

Committee meets eight times a year with agendas alternating between the

following:

• a quarterly ORRC meeting, covering the full range of operational risks

including review and approval of the operational risk dashboard and

oversight of operational resilience; and

• an information risk focused meeting, largely focused on matters

relating to the management of information security, information

management and technology risks, as well as providing specialist

oversight of the Society’s defences against cyber-attack.

The Nottingham defines operational risk as the risk of loss resulting from

human factors, inadequate or failed internal processes and systems, or from

external events. Operational risk exists in every aspect of The Nottingham’s

business activities. Proactive management of operational risk is essential in

helping The Nottingham achieve both short-term operational objectives

and longer-term strategic goals.

To ensure that The Nottingham’s services are operationally resilient, the

Committee is also responsible for ensuring that processes are in place to

prevent, adapt, respond to, recover and learn from operational disruptions.

The Committee oversees the process by which the Society identifies its

important business services, understands and remediates any potential

weaknesses in the supporting processes, ensures that appropriate business

continuity plans are in place and verifies that third party suppliers can meet

our customers’ needs at all times.

One of the key processes that support the effective identification and

management of operational risk is the risk event process, which provides a

mechanism for operational incidents to be reported, their impacts assessed,

remediation to be performed and root cause analysis to be undertaken,

thereby reducing the risk of recurrence.

The Committee also continues to work on embedding the Society’s

approach to operational resilience, in response to the Regulator’s increased

focus in this area.

Change Management Committee

CMC is responsible for the oversight and management of the

Transformation and Change risk category; for which it reports to ERC. It is

also responsible for ensuring that transformation and change activity

supports the effective delivery of the Society’s strategy. In this second role,

the Committee also reports to the ExCo. The Change Management

Committee acts on behalf of the ExCo and ERC monitoring delivery

execution and operational tolerance impact of transformational, large and

small business change for the Society through the effective control of a

portfolio of change activity. The CMC is informed by the Group corporate

plan and specifically owns the change execution plan on behalf of the ExCo,

ensuring effective delivery, balancing risk and benefit in the achievement of

the Society’s strategy.

The Nottingham’s change activity is underpinned by the Project RMF, which

champions clear responsibilities, regular and transparent status reporting

and a high level of oversight and scrutiny by members of the Executive team

and the Board. All significant projects must be approved by the ExCo and

the Board.

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Risk Management Report

Page | 33 Annual Report & Accounts 2023 Nottingham Building Society

Risk oversight

The RMF is supported by a series of control documents and risk reporting

and is overseen by both the second and third lines of defence working

through the Committee structure detailed above and undertaking

independent oversight and assurance activity on key areas of risk for the

Society.

This framework enables the Board and Senior Management to maintain

effective supervision of the level of risk within The Nottingham and to

ensure that appropriate controls and mitigating activities are in place.

___________________________________________________________________________________________

Board Risk Committee Report

Page | 34 Annual Report & Accounts 2023 Nottingham Building Society

Statement by the Chair of the Board Risk

Committee

The Board Risk Committee (‘BRC’) is tasked with ensuring fit for purpose risk

management arrangements are in place and for reviewing the Society’s risk

exposures on an ongoing basis, on behalf of the Board. It assesses applicable

policies to ensure that the Society operates in a manner that safeguards and

efficiently administers the Society’s assets, delivering benefits to members

via savings and mortgages, all while adhering to legal requirements,

regulations, and the agreed-upon risk appetites of the Board.

Committee structure

The BRC is a Board Committee and at 31

December 2023, the Committee

membership was made up as follows:

Kerry Spooner

(Chair)

Senior Independent Director and Chair of the

BRC

Paul Astruc

Non-Executive Director

Simon Linares

Non-Executive Director and Chair of the

RemCo

Peter O’Donnell

Non-Executive Director and Chair of the BAC

Kavita Patel

Non-Executive Director and Chair of Conduct

Sub-Committee within BRC

The detail of the skills and experience of the Committee members can be

found in their biographies on pages 23 and 24.

The Committee met on six occasions during the year. After each meeting,

the Committee Chair reports to the Board the activities of the BRC

highlighting significant decisions made.

Appointments

In May 2023, the Board appointed Simon Baum to the executive role of CRO

(SMF 4). In line with the requirements of the SMCR regime, he stepped

down as Chair of the BRC (SMF 10) to assume this role. He continues to be

an attendee at the Board Risk Committee but is no longer a voting member.

Following appointment by the Board, Kerry Spooner assumed duties as

Chair of the BRC (SMF 10), which was formally approved at the meeting of

the BRC in July 2023.

Committee responsibilities

The BRC provides support in monitoring the Society’s overall risk exposure.

The BRC enables the Committee to fulfil its role by ensuring:

• there is executive-level oversight of the Risk Management Framework;

• accountability and responsibility for managing risk are clearly defined;

• the risk culture of the Society is defined and embedded;

• the nature and extent of the top risks of the Society are determined

and understood, including the nine principal risk types and any

thematic risks;

• appropriate risk appetites are defined and documented;

• The Nottingham, at all times, operates within stated risk appetites;

• processes are in place to consistently identify, measure, assess,

monitor, and control risks;

• the risk event process is effectively capturing and reporting on

operational failures;

• the horizon scanning process is identifying emerging risks and

regulatory themes;

• The Nottingham is compliant with regulatory requirements, including

the ICAAP and ILAAP process;

• The Nottingham operates within its impact tolerance statements for

its important business services and remains operationally resilient;

• The Nottingham maintains an up-to-date and adequate RRP;

• conduct-related risks are appropriately identified, managed, and

reported up to the BRC; and

• The Nottingham has identified climate-related risks and has

embedded them within its RMF.

Committee activities

The following outlines the Committee’s activities and areas of focus during

the year:

Strategy &

risk appetite

• Review of strategic risk appetite statements;

• review of operational resilience annual assessment; and

• review of strategic risk dashboards.

Policy

• Annual review and approval of Capital Adequacy and

Liquidity and Funding Risk policies;

• annual review and approval of Retail Credit Risk policy;

• annual approval of LR&CC p

olicy and Compliance

Monitoring Plan; and

• approval of Financial Crime policy.

Stress testing

• Annual review and recommendation of the ICAAP to the

Board;

• annual review and recommendation of the ILAAP to the

Board;

• annual review and recommendation of the Recovery and

Resolution Plan to the Board; and

• annual review and recommendation of Pillar 3 Disclosure

to the Board.

Risk

management

• Review of credit risk profile of mortgage portfolios; and

• review of annual Money Laundering Reporting Officer’s

report.

Risk

monitoring

• Review of risk exposure relative to appetite and tolerance

measures;

• review of CRO’s report;

• horizon scanning;

• oversight of ERC and subsidiary risk management

committees;

• review of compliance and conduct r

isk monitoring

activity; and

• in tandem with the RemCo, review the management of

key risks in determining the variable pay awards due to the

Executive Directors and Senior Management

Kerry Spooner

Chair of the Board Risk Committee

March 2024

___________________________________________________________________________________________

Corporate Governance Report

Page | 35 Annual Report & Accounts 2023 Nottingham Building Society

The Nottingham Building Society is committed to

best practice in corporate governance and has

considered the requirements of the UK Corporate

Governance Code.

The Board has reviewed the Society’s corporate governance practices

against the revised UK Corporate Governance Code (July 2018) (the ‘Code’),

which is intended to apply to listed companies, to the extent that it is

relevant to a building society. In the interest of transparency, each building

society is encouraged to explain in its Annual Report and Accounts whether,

and to what extent, it adheres to the Code. The Board is committed to

complying with best practice in corporate governance.

This report sets out how the Board has operated in 2023 and complied with

the provisions of the Code and concludes that the Board has identified that

it is fully compliant with the provisions of the Code.

Leadership

The Board

As at 31

December 2023, the Board consisted of seven Non-Executive

Directors (including the Chair) and three Executive Directors, providing a

complementary balance of skills and expertise.

The Board held nine meetings, two strategy review meetings and one

business planning meeting during 2023. In addition, the Non-Executive

Directors meet regularly, without the Executive Directors present, and

consider all aspects of Board responsibilities, governance and performance.

In line with Code principles, the Board operates effectively and is collectively

responsible for the long-term success of the Society and ensuring that the

necessary resources are in place for the Group to meet this objective. It has

a schedule of reserved matters and its principal function is to focus on how

it has considered and addressed the opportunities and risks to the future

success of the Group, and the sustainability of the Group’s business model,

and how its governance contributes to the delivery of its strategy.

Additionally, it ensures the appropriate financial and business systems and

controls are in place to safeguard members’ interests, maintain effective

corporate governance and measure business performance. All Executive

and Non-Executive Directors can obtain independent professional advice, at

the Society’s expense, should that be necessary in the fulfilment of their

duties, and have access to the services and advice of both the General

Counsel and the Company Secretary.

Division of responsibilities

The roles of the Chair of the Board and the CEO are held by different people

and are distinct in their purpose, with division of responsibility set out in

writing.

The CEO has direct charge of the Group on a day-to-day basis and is

accountable to the Board for the financial and operational performance of

the Group, as well as for the formation of its strategy.

The Chair, who is elected by the Board annually, leads the Board in

approving its strategy and in the achievement of its objectives. The Chair is

responsible for organising the business of the Board, ensuring its

effectiveness and setting its agenda. Following a review by the Board to

validate that the Chair could continue to be regarded as independent, and

approval of that status at a meeting of the Board of Directors, the tenure of

the Chair has been extended up to September 2024, to ensure that there is

an appropriate transition period as the Society moves to a new Chair.

Non-Executive Directors

Independent Non-Executive Directors play a vital role in challenging and

helping develop strategy for The Nottingham, whilst providing independent

judgement, knowledge and experience.

The Board considers all Non-Executive Directors to be independent with the

exception of Paul Astruc (who is considered non-independent as a result of

his employment with the Society prior to his appointment as a Non-

Executive Director) and free of any relationship or circumstances that could

interfere with the exercise of their independent judgement.

One of the independent Non-Executive Directors is appointed as the Senior

Independent Director, to provide a sounding board for the Chair and to

serve as an intermediary for the other Directors, as necessary. The Senior

Independent Director is identified on page 23.

Effectiveness

Composition of the Board

The names of the Directors together with brief biographical details are set

out on pages 23 and 24.

The Board has four committees (‘BRC’; ‘NomCo’; ‘RemCo’ and ‘BAC’) to help

it discharge its duties. The terms of reference for these committees are

reviewed annually.

The four committees meet regularly and current membership of these

committees is shown on page 25.

The table below shows the attendance of each Director at the relevant

Board and Board committee meetings. The number to the left is the number

of meetings attended; the number to the right is the number of meetings

the Director was eligible to attend during 2023.

Director

Board

Risk

Nominations

Remuneration

Audit

R Ashton

P Astruc

8/8

4/4

S Baum

8/8

3/3

1/1

S Hayes

8/8

S Linares

8/8

6/6

3/3

4/4

A Murphy

3/3

A Neden

8/8

3/3

4/4

P O’Donnell

8/8

6/6

5/5

K Patel

8/8

6/6

4/4

5/5

K Spooner

8/8

6/6

3/3

4/4

5/5

P Astruc attended 3 Board Meetings as an Executive Director and 5 Board Meetings as a Non-

Executive Director.

S Baum attended 5 Board Meetings as a Non-Executive Director and 3 Board Meetings as an Executive

Director.

The minutes of committee meetings are available to the Board. The Board

also receives reports from the Chair of each of the committees and

recommendations arising. The terms of reference for these four

committees are available on the Society’s website.

In addition to the four board committees identified above, the Board has

the ExCo and ERC to support the Board in managing the day-to-day

operations of the Group. The Executive and ERC generally meet once a

month and the membership of both committees is made up of both

Executive Directors and senior leaders. Together, both committees are

responsible for acting on behalf of the Board in organising, managing and

protecting the Society’s assets to deliver value to members, whilst ensuring

the Society operates within the law, regulation and clearly agreed Board risk

appetites. Together they are therefore responsible for ensuring the

management and delivery of four key areas on behalf of the Board: Strategy,

Risk Management, Business Planning, and Operational Oversight. The Risk

Management Report on pages 29 to 33 covers these committees in further

detail.

___________________________________________________________________________________________

Corporate Governance Report

Page | 36 Annual Report & Accounts 2023 Nottingham Building Society

Appointments to the Board

Specialist third party recruitment consultants are engaged to assist with all

Board recruitment activities, whether Executive or Non-Executive

appointments.

The NomCo assists the Board by making timely recommendations on the

Board and Executive succession plan, Board recruitment and composition

and other relevant matters. The Committee considers, annually, the

competence and suitability of those directors seeking election or re-election

at each annual general meeting.

The Committee meets at least twice a year. Additional meetings may be

convened if necessary.

Appointments to the Board are made on merit and against objective criteria

balancing skills, experience, independence and knowledge on the Board.

The Society considers diversity in respect of gender and other measures,

both at Board level and in recruitment throughout the business; however,

it is not thought to be in the interest of the business to set measurable

objectives in this regard. Candidates for both Executive and Non-Executive

Directorships are recommended by the NomCo to the Board for approval,

with the assistance of external consultants.

All Directors must meet the requirements of the Senior Managers and

Certification Regime prescribed by the FCA and PRA including, where

appropriate, receiving regulatory approval.

Commitment

Prior to appointment, Non-Executive Directors are required to disclose their

other significant commitments. In addition, Non-Executive Directors

undertake that they will have sufficient time to meet what is expected of

them, recognising the need for availability in the event of crises. In addition,

throughout their tenure with the Society, directors are required to inform

the Board in advance of any other positions they wish to take up so the time

commitment and any potential conflicts of interest can be considered.

Development

Upon appointment, new Directors receive a formal and tailored induction

and throughout their tenure all Directors receive timely and appropriate

training to enable them to properly fulfil their roles. The information and

training requirements of all directors are reviewed annually.

Information and support

The Chair ensures that all Directors receive accurate, timely and clear

information.

The Society has in place appropriate insurance cover in respect of the

Directors.

Evaluation

Executive Directors are evaluated using the Performance Management

Framework for all employees. The CEO is appraised by the Chair. The

performance of the Non-Executive Directors is reviewed annually by the

Chair. The Senior Independent Director conducts interviews with each

Director to appraise the performance of the Chair, the results of which are

discussed with the Chair.

Each year the Board and each of its Committees undertake an assessment

of the effectiveness of their performance during the year. The Corporate

Governance Code prescribes that this review should be undertaken by an

independent external party at least every three years, the last review having

been undertaken by board evaluator, Ian White, in 2022.

The results of that review confirmed that the Board and its Committees

operated effectively and the enhancements noted in that review have been

considered and, where accepted as appropriate, implemented through

2023.

Re-election

In 2024, all Directors with the exception of Paul Astruc will submit

themselves for election at the AGM in accordance with the Code.

Non-Executive Directors can serve up to a maximum of three three-year

terms. The tenure of the Chair was extended in 2022 up to September 2024

to provide a suitable timeframe to appoint a new Chair and to enable an

appropriate transition period.

The Code requires that the independence of all Non-Executive Directors is

considered as part of the Annual Report of the Society. It is confirmed that,

with the exception of Paul Astruc all of the Non-Executive Directors are

considered to be independent, and in particular (noting the requirements

of the Code) Andrew Neden is considered to be independent,

notwithstanding that his tenure was extended beyond the Code limit of nine

years, and as a result of the enhanced check and challenge he has offered

to the Management team as they roll out the new strategy.

The NomCo makes recommendations for the Board concerning the re-

appointment of any Non-Executive Director at the conclusion of their

specified term of office, having due regard to their performance and ability

to continue to contribute to the Board considering knowledge, skills and

experience required.

Accountability and audit

Financial and business reporting

The Directors’ Report on pages 26 to 27 details the responsibilities of the

Directors in preparing the Group’s accounts.

This includes ensuring suitable accounting policies are followed, that a true

and fair view of the Group’s financial position is given and that the Group’s

business is a going concern.

The Board has responsibility to present a fair, balanced and

understandable assessment of the Group’s performance and financial

position, business model and strategy, consideration of which is contained

within the CEO’s Review on pages 5 to 7, the Strategic Report on pages 8

to 16 and within the Annual Report and Accounts taken as a whole.

Viability statement

In accordance with the requirements of the Code, the Board has assessed

the prospects of the Society over a period longer than the 12-months

required by the going concern provision. The Viability Statement is

considered on page 27 within the Directors’ Report.

___________________________________________________________________________________________

Corporate Governance Report

Page | 37 Annual Report & Accounts 2023 Nottingham Building Society

Risk management and internal control

The responsibilities and activities of the BRC are outlined within the Board

Risk Committee Report on page 34.

The Board has carried out a robust assessment of the principal risks facing

the Group, including those that would threaten the business model, future

performance, solvency and liquidity. These principal risks are detailed on

pages 13 to 16 of the Strategic Report and further information on risk

management is given in the Risk Management Report on pages 29 to 33.

In accordance with the Code, the Board is committed to maintaining a

sound system of internal controls to safeguard both its own assets and

those of its members and there is an annual review of risk management and

internal control systems.

The operation of these three lines of defence is embodied in the terms of

reference of the Society’s risk committees. The BRC has a range of policies

and procedures that relate to the identification, assessment, monitoring

and control of all the main areas of risk that the Group faces.

Where weaknesses in controls are identified by the three lines of defence,

the Board monitors the steps taken to remedy the issues and to ensure that

the Society responds to changing external threats and economic

circumstances and to the changing regulatory environment.

Remuneration

Policy and procedures

The level and make-up of Director remuneration and the procedure for

developing policy on Executive remuneration, (including fixing the

remuneration packages of individual directors), is considered by the RemCo.

The RemCo’s work and the Society’s compliance with the Code principles

relating to remuneration is covered in the Directors’ Remuneration Report

on pages 40 to 43.

Relations with members

Dialogue with members

The Society’s members are all customers of the Society. Engagement with

customers is undertaken in various ways including member events, social

media, customer panels, regular literature and mainstream media.

The Society is keen to find out its members’ views so that it can continually

improve. It provides them with several ways and opportunities to give their

feedback. It surveys a selection of its members on a regular basis through

its customer satisfaction survey. The results of this feedback are shared in

Board meetings. The Society also encourages its members to attend its AGM

where they can ask questions and voice their opinions. During 2023, owing

to a desire to protect the health and well-being of members, members were

invited to attend the meeting virtually and invited to pre-submit questions.

Furthermore, each year, the Society produces a Members’ Newsletter,

including the Summary Financial Statement, which provides an abridged

version of information contained within the Annual Report and Accounts.

The Members’ Newsletter is provided to all members as part of its annual

AGM documentation.

Constructive use of the AGM

Each year, notice of the AGM is given to all members who are eligible to

vote. Members are sent voting forms and are encouraged to vote online, by

post, at a local branch or by person or proxy at the AGM.

All postal and proxy votes are counted using independent scrutineers.

All members of the Board are present at the AGM each year (unless,

exceptionally, their absence is unavoidable) and the Chair of the BAC,

NomCo, BRC and RemCo are, therefore, available to answer questions.

The Notice of the AGM and related papers are sent at least 21 days before

the AGM in accordance with the Building Societies Act 1986.

Line:

Focus: Control

Day-to-day management and control of risk by the

business. Results reported to management and BRC

Line:

Focus: Oversight

Maintenance of coherent risk frameworks with regular

validation and challenge of first line controls. Results

reported to Management and BRC

Line:

Focus: Assurance

Independent assurance of effectiveness of risk control

and risk oversight. Results reported to management and

BAC

___________________________________________________________________________________________

Board Audit Committee Report

Page | 38 Annual Report & Accounts 2023 Nottingham Building Society

Board Audit Committee

The principal role of the BAC is providing support to the Board in its

oversight of financial reporting and the financial control environment across

the Society. The Committee’s primary functions are:

• to monitor the integrity of the financial statements and any formal

announcements relating to the Society’s financial performance,

reviewing any significant financial reporting judgements which they

contain including that of the Society’s going concern status;

• to keep under review the Society’s financial control systems and

processes that manage and monitor financial risks;

• to review and approve the statements to be included in the Annual

Report and Accounts concerning internal control, financial risk

management and the Viability statement;

• to review the Society’s procedures for detecting fraud and its systems

and controls for the prevention of bribery;

• to monitor and review the effectiveness of the Internal Audit function;

• to approve and review progress of the annual Internal Audit Plan;

• prior to the members’ vote at the AGM, to make recommendations to

the Board for appointment, re-appointment and removal of the

external auditor;

• to review and monitor the external auditor’s independence and

objectivity and the effectiveness of the audit process, taking into

consideration relevant UK law, regulation and applicable ethical

standards;

• to approve the remuneration and terms of engagement of the

Society’s external auditor;

• to develop and implement policy on the engagement of the external

auditor to supply non-audit services, considering relevant ethical

guidance regarding the provision of non-audit services by the external

audit firm; and

• to report to the Board on how the Committee has discharged its

responsibilities.

Membership and attendance

The BAC consists of four Non-Executive Directors. The members of the

Committee are Peter O’Donnell, Kavita Patel, Kerry Spooner and Paul Astruc

(who joined the Committee in April 2023), who have a broad range of skills,

experience and knowledge relevant to the building society and financial

services sector. The Company Secretary acts as Secretary to the Committee.

Other individuals such as the CEO, CFO, CRO, Head of Internal Audit and

Head of External Reporting, may be invited to attend all or part of any

meeting as and when appropriate. The external auditor was invited to

attend all the Committee’s meetings held in 2023.

Private meetings are held at least once a year with the external auditor and

with the Head of Internal Audit in the absence of management to enable

issues to be raised directly if necessary. The Committee Chair meets with

the Head of Internal Audit and the external auditor on a regular basis.

Following each committee meeting, the minutes of the meeting are

distributed to the Board and the Committee Chair provides an update to the

Society’s Board at the next Board meeting on key matters discussed by the

Committee.

Meeting frequency and reporting

The Committee met five times in 2023 and during the year:

• reviewed the results and draft Annual Report and Accounts for the

year ended 31

December 2022;

• challenged the key loan provision assumptions and judgements,

underlying the analysis of expected credit losses proposed by

management;

• reviewed the going concern and viability statement assumptions and

all key issues and areas of judgement relating to the financial

statement reporting;

• reviewed reports from the external auditor, including the

Management Letter highlighting system and control

recommendations, key accounting and audit issues and conclusions

for the interim and full year financial statement reporting;

• reviewed the year end and interim financial statements and draft

press releases, with consideration of the fair, balanced and

understandable requirements of the UK Corporate Governance Code;

• approved the risk-based 2023 Internal Audit Plan;

• received and reviewed reports from Internal Audit;

• reviewed and approved (working with BRC) the statements to be

included in the Annual Report and Accounts concerning internal

control, financial risk management and the Viability Statement; and

• carried out a review of the Committee’s own effectiveness and terms

of reference

Significant matters in relation to the financial

statements

The Committee considers a wide range of matters in relation to the financial

statements, which relate mainly to key judgements, accounting policies and

estimates which management must make during the preparation of the

statements, particularly in respect of large or unusual transactions. During

2023, the significant matters considered by the Committee included:

Expected credit

loss

provisioning

The Society reviews the IFRS 9 model outputs to

estimate the level of impairment provision required

across the mortgage portfolio, which uses historical

default and loss experience as well as applying

judgement. The Committee reviewed and challenged

the approach to calculating the provisions, including the

impact of the uncertain macroeconomic environment,

inflation and affordability stresses.

Effective

Interest Rate

(‘EIR’)

methodology

The Society recognises interest income using a constant

level of interest over the expected behavioural life of

the loan. The Committee reviewed the basis of the EIR

calculations.

Fair value of

derivative

financial

instruments

Considering the significant market volatility seen in the

external markets in the year and resulting impact on

derivative fair values, the Committee considered the

Income Statement position.

Calculation of

the defined

benefit pension

plan position

The Society has a defined benefit pension scheme which

was closed to new entrants in 1997 and closed to future

service accrual from 31

January 2009. The Committee

reviewed the methodologies and assumptions used in

calculating the latest estimate of the scheme’s assets

and liabilities. This review was supported by a report

provided by the Society’s pension advisors.

Going concern

assumption

The Committee evaluated whether the going concern

basis of accounting was appropriate by considering

forecast profitability, liquidity, funding availability and

regulatory capital positions. The review also considered

the external environment because of the impact of the

uncertain macroeconomic environment, inflation and

affordability stresses.

Fair, balanced

and

understandable

The Committee reviewed the integrity of the financial

statements and any formal announcements. The

content of the Annual Report and

Accounts was

reviewed and the Committee advised the Board that, in

its view, and taken as a whole, it is fair, balanced and

understandable and provides the information necessary

for members to assess the Society’s performance,

business model and strategy. The Committee therefore

recommended that the Board approve the Annual

Report and Accounts.

Viability

Statement

The Committee reviewed the requirements of the UK

Corporate Governance Code to provide the medium-

term Viability statement in the Annual Report and

Accounts and agreed the definition of the medium-term

period.

Corporate

Governance

Code

The Committee reviewed the impacts on the financial

statements of the Corporate Governance Code.

___________________________________________________________________________________________

Board Audit Committee Report

Page | 39 Annual Report & Accounts 2023 Nottingham Building Society

Changes to

accounting

standards and

other relevant

developments

The Committee is kept up to date with changes to

accounting standards and relevant developments in

financial reporting and applicable law. In addition, as

appropriate members attend relevant seminars and

conferences provided by external bodies.

Independence and effectiveness of external

auditor

In 2023, the Society tendered its external audit relationship in line with best

practice and Ernst & Young LLP were re-engaged and therefore have now

been in post for nine years as at 31

December 2023.

In advance of the commencement of the annual audit, the Committee

reviewed a report presented by the external auditor detailing the audit plan,

planning materiality, areas of audit focus, terms of engagement and fees

payable. Following the review of the interim financial statements and the

audit of the annual financial statements, the Committee received a report

detailing the work performed in areas of significant risk, and a summary of

misstatements and internal control related issues identified. The

Committee considered the matters set out in these reports as part of

recommending the interim and annual financial statements for approval.

To monitor and assess any threats to the independence of the auditor, the

Committee reviews a report on the level of spend with the auditor on audit

and non-audit services. The Committee has a framework on the Society’s

use of the external auditor for non-audit work, to ensure their continued

independence and objectivity. The external auditor undertook a six-

monthly review of the Society’s interim results, an audit related assurance

service, conducted in accordance with this policy, and details of any fees

paid for these services are outlined in Note 6 to the accounts.

The Committee considered the performance of Ernst & Young LLP as

external auditor for 2023, and is satisfied with their objectivity,

independence and effectiveness and therefore recommended that they be

re-appointed at the AGM for the current year.

Oversight and effectiveness of internal audit

The Committee receives regular reports from the Head of Internal Audit

setting out the results of assurance activity, proposed changes to the

approved audit plan and the level of resource available. Significant findings

and themes identified were considered by the Committee, alongside

Management’s response and the tracking and completion of outstanding

actions. In addition to approving the annual plan and budget throughout the

year, the Committee reviewed and approved amendments to the Internal

Audit Plan and resources. The effectiveness of the Internal Audit function

was also subject to an external review during the year which identified

several areas for minor improvement and the implementation of those

findings is now being undertaken.

The Committee regularly monitors whether Internal Audit has delivered its

reports in accordance with the agreed plan and to the expected standard.

The Head of Internal Audit also carries out an annual review of the

effectiveness of the Society’s system of internal control and reports on the

outcome of this review to the Committee. The Head of Internal Audit

reported an adequate level of assurance in relation to the Group’s

arrangements for risk management, control infrastructure, governance and

fraud prevention controls. The Committee therefore regards the Internal

Audit function to be effective.

Audit committee performance and effectiveness

As outlined in the Corporate Governance Report on pages 35 to 37, the

Board and each of the committees formally evaluate their own performance

and effectiveness annually. The Committee discussed the results of the

2023 review in February 2024 and concluded that, overall, the Committee

continued to be effective and was adequately discharging its

responsibilities.

Peter O’Donnell

Chair of the Board Audit Committee

March 2024

___________________________________________________________________________________________

Directors’ Remuneration Report

Page | 40 Annual Report & Accounts 2023 Nottingham Building Society

Statement by the Chair of the Remuneration

Committee

On behalf of the Committee, I am pleased to present the annual Directors’

Remuneration Report, which sets out the Remuneration policy and details

of the Directors’ remuneration in the year ended 31

December 2023.

The Nottingham is committed to best practice in its remuneration of

Directors. This report explains how the Society applies the relevant

principles and requirements of the remuneration regulations and Codes.

The report has two sections:

• the Remuneration policy, which sets out the Society’s remuneration

policy for Directors; and

• the Annual Remuneration Report, which outlines how the policy was

implemented in 2023.

In 2023, the RemCo membership was made up as follows:

Simon Linares

Non-Executive Director and Chair of the RemCo

Kerry Spooner

Senior Independent Director and Chair of the BRC

Andrew Neden

Non-Executive Director, Chair of the Board and Chair

of the NomCo

Kavita Patel

Non-Executive Director and Chair of Conduct Sub-

Committee within BRC

2023 performance and awards

The Chair’s Statement, CEO’s and Strategic Report on pages 4 to 16 describe

2023 as a period of strong performance during a period of turbulent

economic conditions. The strong results have been aided by the rising

interest rate environment which positively impacted the Society’s net

interest income. The Nottingham continues to be a top ten building society

with total assets of £4.5 billion. During the year the Society has revitalised

its purpose placing a greater focus on mortgages whilst continuing to

provide a safe and secure home for our members to save with us. We have

ensured that our regulatory capital requirements continue to be maintained

at appropriate levels, whilst continuing to invest in the Society, and

supporting both our savings and mortgage customers.

It is in this context that the payments to Executive Directors have been

determined and are detailed in this report.

The Directors’ variable pay is through the Annual Bonus Plan only. The

Nottingham was pleased to be able to operate an Annual Bonus Plan in

2023. The 2023 Annual Bonus is based on the financial and strategic

performance of The Nottingham, as well the personal performance of each

employee.

In 2023, the Committee reviewed and approved payment of the deferred

element of the 2019 Bonus Plan.

Remuneration Committee

The primary objective of the RemCo, under delegated authority from the

Board, is to make recommendations to the Board on the general

Remuneration policy of The Nottingham and specifically on the

remuneration of Executive Directors. The Committee also has oversight of

the remuneration of both the Leadership team and Remuneration Code

staff, ensuring that remuneration is in line with The Nottingham’s business

drivers, values and ambitions and adheres to the Remuneration policy. In

addition, the Committee is responsible for approving the variable pay and

reward principles and compliance with the Remuneration Code and policy

statement.

The Committee met four times in 2023 and is made up of a minimum of

three Non-Executive Directors, as detailed within the table above. The CEO,

CPO, Legal Counsel and Company Secretary attend the meetings by

invitation.

The Nottingham adheres to the requirements of the Remuneration Code

applicable to a level 3 firm as defined by the Regulator. The Non-Executive

Directors do not receive variable remuneration. Information on The

Nottingham’s other Remuneration Code Staff is set out in the Pillar 3

disclosures published on our website www.thenottingham.com, along with

the Committee terms of reference.

The RemCo’s activities in 2023 also included:

• agreeing a new annual bonus plan for 2023;

• reviewing regulatory updates and assessing the impact on The

Nottingham;

• review of the Remuneration Policy for 2023 and recommending it to

the Board for approval;

• reviewing and approving the Remuneration policy Statement ensuring

its compliance with the Remuneration Code;

• oversight of the activities undertaken by the ExCo in relation to

reward;

• agreeing the terms for any appointments and leavers for executive

level roles, other Material Risk Taker (‘MRT’) roles; and

• considering the annual pay review for all eligible employees.

RemCo intends to review the construct of the Annual Bonus Plan in 2024.

Remuneration policy

The Nottingham’s Remuneration policy reflects its objectives for good

governance, appropriate risk management and acting in the long-term best

interests of members.

The policy is there to ensure that:

• remuneration should be sufficient to attract, reward, retain and

motivate high quality leaders and employees to run The Nottingham

successfully, delivering value for our members whilst avoiding paying

more than is necessary for this purpose in line with our mutual ethos;

and

• remuneration is structured to strike the right balance between fixed

and variable pay. Variable pay schemes are designed to incentivise and

reward appropriate behaviour and performance, aligned with The

Nottingham’s position on risk; rewards are only attributed to the

delivery of success and achievement of objectives.

The Nottingham is classified as a level 3 firm and seeks to apply appropriate

remuneration best practice for all Remuneration Code staff and other staff.

All pay is benchmarked using externally provided data and the approach to

pay reviews is consistently applied to all colleagues across the Society,

regardless of position.

Recruitment policy for Executive Directors

The Nottingham’s approach to recruitment is to pay no more than is

necessary to attract appropriate candidates to roles across the business,

including Executive roles. Any new Executive Director’s remuneration

package will be consistent with our Remuneration policy as outlined in this

report. Any payments made to Executive Directors on joining The

Nottingham to compensate them for forfeited remuneration from their

previous employer will be compliant with the provisions of the

Remuneration Code and will be approved by the RemCo.

Service contracts

All Executive Directors, in line with best practice, have service contracts

outlining their duties and terms and conditions of employment.

Payment for loss of office of Executive Directors

Any compensation in the event of early termination is subject to RemCo

recommendation and Board approval. Pension contributions cease on

termination under the rules of the pension scheme.

Other directorships

None of the Executive Directors currently hold any paid external

directorships.

Executive Directors’ total remuneration

Executive Directors’ emoluments comprise a basic salary, variable pay,

pension entitlement and other taxable benefits as outlined on pages 42 to

43.

___________________________________________________________________________________________

Directors’ Remuneration Report

Page | 41 Annual Report & Accounts 2023 Nottingham Building Society

The total remuneration received by Executive Directors is detailed on page

43. The information has been audited and shows remuneration for the years

ended 31

December 2022 and 31

December 2023 as required under the

Building Societies (Accounts and Related Provisions) Regulations 1998.

The remuneration of Executive Directors is considered annually by the

RemCo attended by The Nottingham’s CEO, who (except in respect of their

own remuneration) makes recommendations regarding executive pay and

agreed recommendations are referred to the Board.

The CEO is the Society’s highest paid employee and no employee earns

more than the CEO.

The salary of Executive Directors increased by 5% in 2023. This is in line with

the wider Society, with the basic salary increase for colleagues ranging from

6% to 14% depending on grade, with minimum salaries implemented.

Chief Executive Officer pay ratio

The CEO pay ratio is presented as follows to promote transparency and

encourage good governance. The CEO is the highest paid person within the

organisation, and this is compared with the 25

, 50

and 75

percentile

employees in the organisation to calculate the CEO pay ratio. This uses a

single total figure of remuneration which includes total salary, variable pay,

pension and taxable benefits.

The Society has chosen to publish the CEO pay ratio using the recommended

and government preferred approach (Option A). Option A involves

calculating the actual full time equivalent remuneration for all relevant

employees for the financial year in question.

These values are then listed in order from lowest to highest and the values

at the three percentile points identified as disclosed below.

Year 25

percentile Median 75

percentile

2023 20:1 15:1 8:1

2022 20:1 15:1 9:1

percentile

Median 75

percentile

2023

Total remuneration £23,721 £31,919 £57,849

Salary £21,204 £27,649 £48,429

2022

Total remuneration £22,357 £30,186 £48,504

Salary £19,174 £25,937 £42,272

Employee data includes full time equivalent total remuneration for Society

employees as at 31

December.

Non-Executive Directors

The Chair and other Non-Executive Directors each receive an annual fee

reflective of the time commitment and responsibilities of the role. Fees for

Non-Executive Directors are set by reference to benchmark information

from a building society comparator group, agreed with the Board and take

into consideration the principles underpinning the annual salary review.

The Non-Executive Directors’ fees are reviewed by the Chair together with

the Executive Directors before recommendations are referred to the Board.

Remuneration of the Chair is considered by the RemCo, together with the

Society’s CEO, without the Chair being present.

Non-Executive Directors do not receive variable pay or pensions to

encourage their independence.

Non-Executive Directors are reimbursed for reasonable expenses incurred

during their work on the Society’s business.

Remuneration Code staff (Material risk takers)

The remuneration of all Remuneration Code staff is overseen directly by the

RemCo. Fixed and variable pay decisions (including appointment packages)

for Remuneration Code Staff (excluding the Head of Internal Audit where

the decision is made by the Chair of the BAC and approved by the RemCo),

are proposed by the Executive and all decisions are recommended to the

RemCo for approval.

The Society’s Remuneration Code staff are informed of their status through

written communication. This communication includes the implications of

their status including the potential for remuneration that does not comply

with certain requirements of the Remuneration Code to be rendered void

and recoverable by the Society.

___________________________________________________________________________________________

Directors’ Remuneration Report

Page | 42 Annual Report & Accounts 2023 Nottingham Building Society

Component Purpose Operation Performance measures Opportunity

Basic salary

Fixed remuneration set to

attract and retain

executives of appropriate

calibre and experience.

Basic salary is assessed by

reference to roles carrying

similar responsibilities in

comparable organisations. A

comparator group is used

that consists of Executive

Director positions within

banks and building societies

of a similar size and

complexity.

Reviewed annually and linked to personal

performance and market sector

benchmarking, including Willis Towers

Watson benchmark data.

Increases based on:

• overall employee pay increases in the

Group;

• benchmarking comparisons;

• personal performance; and

• role and experience.

The base salaries of Executive

Directors are reviewed as for any

other employee in accordance

with the reward matrix, except in

circumstances where:

• m

arket peer benchmarking

indicates that remuneration is

moving out of line of the

appropriate peer group; and/or

• t

here has been a material

increase in scope or

responsibility to the Executive

Director’s role.

Variable pay

Annual

Bonus Plan

Linked to the delivery of the

Society and personal

objectives. Used to reward

Executive Directors within

the context of achieving the

Society’s goals and

objectives.

Payments under the variable

pay schemes are not

pensionable.

The bonus will only be awarded if the

threshold criteria and Society and individual

performance targets are met and a

payment is triggered in the Annual Bonus

Plan.

50% of the bonus is deferred for three years

and payment is subject to meeting Society

and individual performance threshold

criteria in each of the years from award to

payment.

The Committee has the discretion to reduce

or withhold the deferred element if it

becomes apparent that the basis on which

the variable pay award was made was

wrong or that financial performance has

deteriorated materially since the award.

The deferred payment, prior to the 2022

performance period, is subject to clawback

for a period of three years after payment.

For performance periods from 2022

onwards, the deferred payment is subject

to clawback for a period of 7 years after

payment.

The scheme is based upon three elements:

• Financial adequacy - achievement of a

minimum level of adjusted Profit Before

Tax before any bonus is payable.

• The Annual Bonus Plan measures

Society performance against four

strategic pillars:

 growing & rewarding membership;

 responsible society;

 strategic reinvention; and

 safe & secure.

• Individual performance including

achievement of strategic objectives.

Personal performance objectives,

appropriate to the responsibilities of the

Executive Director, including the

achievement of appropriate strategic

progress are set at the start of each year.

Objectives are set within board risk appetite

and regulatory requirements.

The maximum award possible is

50% of basic salary, payable with

50% of the award deferred over a

three-year period.

Pension or

pension

allowance

A part of fixed remuneration

to attract and retain

xecutives of appropriate

calibre and experience.

Executive Directors are invited to join the

Society’s defined contribution pension plan,

or, as an alternative, be provided with an

equivalent cash allowance.

Not applicable.

Pension contributions for new

Executive Directors appointed

post 1

January 2020 will be

aligned with the contribution

matrix for all employees.

Benefits

A part of fixed remuneration

to attract and retain

executives of appropriate

calibre and experience.

The benefits received by Executive

Directors are private medical insurance and

a car allowance.

Not applicable.

Set at a level considered

appropriate for each Executive

Director by the RemCo in line with

market practice.

___________________________________________________________________________________________

Directors’ Remuneration Report

Page | 43 Annual Report & Accounts 2023 Nottingham Building Society

Annual report on remuneration

Executive Director remuneration

2023

2022

Audited

Sue

Hayes

Anthony

Murphy

Simon

Baum

Paul

Astruc

Total

David

Marlow

Sue

Hayes

Paul

Astruc

Total

Society

£000

Fixed remuneration

Salary

375

146

173

761

300

137

492

Benefits

Variable

remuneration

Annual bonus

147

127

196

448

207

210

945

184

358

162

704

Pension contribution

Payments in lieu of

pension

478 214 229 85 1,006 192 380 172 744

The Directors can sacrifice elements of their salary and variable pay. All figures disclosed in the table above are presented pre-sacrifice.

Paul Astruc ceased to be an Executive Director on 6

April 2023, Anthony Murphy became an Executive Director with effect from 23

June 2023 and Simon Baum

became an Executive Director with effect from 1

May 2023 (earnings included above are for the period as an Executive Director, not for the whole year).

The annual bonus figure reflects the amounts awarded in the year, which are not subject to deferral, and any deferred amount from previous financial years,

paid in year. The remaining element, which is subject to deferral and the achievement of threshold criteria, will be disclosed in the year of payment.

The unpaid deferred elements of the annual bonus scheme are as follows:

Executive Directors

Due

2024

Due

2025

Due

2026

Due

2027

Total

Deferred

Performance Year

2020

2021

2022

2023

£000

Paul Astruc

Simon Baum

Sue Hayes

120

David Marlow

Anthony Murphy

113

147

341

Deferred bonus included is for the period as an Executive Director, not for the whole year.

Non-Executive Directors

2023 2022

£000

Paul Astruc (transferred from Executive Director on 6

April 2023)

Robin Ashton

Simon Linares

Simon Baum (transferred to Executive Director on 30

April 2023)

Michael Brierley

Andrew Neden (Chair)

113

Peter O’Donnell

Kavita Patel

Kerry Spooner

Total emoluments for services as directors

466

423

Simon Linares

Chair of the Remuneration Committee

March 2024

___________________________________________________________________________________________

Independent Auditor’s Report

Page | 44 Annual Report & Accounts 2023 Nottingham Building Society

Independent Auditor’s Report to the members of Nottingham Building Society

Opinion

In our opinion:

• the Group financial statements and the Society’s Financial Statements (the “financial statements”) give a true and fair view of the state of the Group’s and

the Society’s affairs as at 31

December 2023 and of the Group’s and the Society’s income and expenditure for the year then ended;

• the financial statements have been properly prepared in accordance with UK adopted international accounting standards; and

• the financial statements have been prepared in accordance with the requirements of the Building Societies Act 1986.

We have audited the financial statements of Nottingham Building Society (the ‘Society’) and its subsidiaries (the ‘Group’) for the year ended 31

December 2023

which comprise:

Group Society

Income Statement for the year ended 31st December 2023 Income Statement for the year ended 31st December 2023

Statement of Comprehensive Income for the year ended 31st December 2023 Statement of Comprehensive Income for the year ended 31st December 2023

Statement of Financial Position as at 31st December 2023 Statement of Financial Position as at 31st December 2023

Statement of Changes in Members’ Interests for the year ended 31st December

2023

Statement of Changes in Members’ Interests for the year ended 31st December

2023

Cash Flow Statement for the year ended 31st December 2023 Cash Flow Statement for the year ended 31st December 2023

Related Notes 1 to 36 to the financial statements, including material accounting policy information, except for tables in Note 31 labelled as “unaudited”

Directors’ Remuneration Report tables identified as “audited”

The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are

further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have

obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group and the Society in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK,

including the FRC’s Ethical Standard as applied to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these

requirements.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Society and we remain independent of the Group and the

Society in conducting the audit.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial

statements is appropriate. Our evaluation of the Directors’ assessment of the Group and Society’s ability to continue to adopt the going concern basis of accounting

included:

• we obtained the Directors’ going concern assessment, which is for a period of at least 12-months from approval of the financial statements;

• we compared the historical budgeted financial information with historical actual results, in order to form a view on the reliability of the forecasting process;

• we assessed the reasonableness of the Group and Society’s funding plans and considered the associated risks with the maturity of significant debt

obligations, and the Group and Society’s planned funding schedule to offset maturities and fund operational activity;

• we considered the analysis of key relevant going concern assumptions, including those relating to financial performance, regulatory capital and liquidity and

performed independent reverse stress testing and sensitivity analysis, including considering the impact of ongoing macroeconomic uncertainty;

• we considered whether there were other events subsequent to the Balance Sheet date which could have a bearing on the going concern conclusion;

• we reviewed regulatory correspondence, committee and board meeting minutes, and met with the Prudential Regulation Authority, in order to identify

events or conditions that may impact the Group and Society’s ability to continue as a going concern; and

• we reviewed the going concern disclosures included in the Annual Report in order to assess whether the disclosures were appropriate and in conformity

with the reporting standards;

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast

significant doubt on the Group and Society’s ability to continue as a going concern for a period to 31 March 2025 – at least twelve months from the date of approval

of the Annual Report and Accounts.

In relation to the Group and Society’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention

to in relation to the Directors’ statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of

accounting.

___________________________________________________________________________________________

Independent Auditor’s Report

Page | 45 Annual Report & Accounts 2023 Nottingham Building Society

Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. However, because

not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability to continue as a going concern.

Overview of our audit approach

Audit scope

• We performed an audit of the complete financial information of two components of the Group.

• The components where we performed audit procedures accounted for 100% of Profit before tax, 100% of Total net income

and 100% of Total assets.

Key audit matters

• Expected credit loss provisions

• Risk of of fraud in relation to revenue recognition of mortgage related income.

• Application of hedge accounting

Materiality

• Overall Group materiality of £1.1m which represents 0.45% of members’ interests.

An overview of the scope of the Society and the Group audits

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the

Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the

Group and effectiveness of Group-wide controls, changes in the business environment and other factors such as recent internal audit results when assessing the

level of work to be performed at each entity.

In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in

the financial statements, of the two reporting components of the Group (2022: two reporting components), we selected both of these components which are both

entities within the UK. We performed an audit of the complete financial information of these two components (“full scope components”) which were selected

based on their size or risk characteristics.

Involvement with component teams

All audit work performed for the purposes of the audit was undertaken by a single Group audit team based in the UK.

Climate change

There has been increasing interest from stakeholders as to how climate change will impact the Group and Society. The Group and Society have determined that

the most significant future impacts from climate change on their operations will be from Credit risk, Operational risks and Legal, Regulatory & Conduct risks. These

are explained on pages 20 to 22 in the Sustainability Report, in the Task Force for Climate related Financial Disclosures, including their commitments to achieve Net

Zero emissions by 2050. All of these disclosures form part of the “Other information,” rather than the audited financial statements. Our procedures on these

disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the

course of the audit or otherwise appear to be materially misstated.

The Group and Society has explained in Note 1, Accounting policies, the articulation of how climate change has been reflected in the financial statements including

how this aligns with their commitment to the aspirations of the Paris Agreement to achieve Net Zero emissions by 2050. These disclosures also explain that

governmental and societal responses to climate change risks are still developing, and are interdependent upon each other, and consequently financial statements

cannot capture all possible future outcomes as these are not yet known. The degree of certainty of these changes may also mean that they cannot be taken into

account when determining asset and liability valuations and the timing of future cash flows under the requirements of UK adopted international accounting

standards.

Our audit effort in considering climate change was focused on evaluating Management’s assessment of the impact of climate risk, physical and transition, their

climate commitments, the effects of climate risks disclosed in Note 1 and whether these have been appropriately reflected in asset and liability values, where these

are impacted by future cash flow forecasts, following the requirements of UK adopted international accounting standards. As part of this evaluation, we performed

our own risk assessment, supported by our climate change specialists, to determine the risks of material misstatement in the financial statements from climate

change which needed to be considered in our audit.

We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and associated disclosures. Where considerations of

climate change were relevant to our assessment of going concern and viability, these are described above.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period

and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had

the greatest effect on the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were

addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these

matters.

___________________________________________________________________________________________

Independent Auditor’s Report

Page | 46 Annual Report & Accounts 2023 Nottingham Building Society

Risk

Our response to the risk

Key observations communicated to the Audit

Committee

Expected credit loss provisions

Group and Society – 31st December 2023: £5.2m

(2022: £5.3m).

Refer to the Board Audit Committee Report (pages 38-

39); Accounting policies (page 57); and Note 15 of the

Consolidated Financial Statements (page 66)

Valuation and completeness of expected credit loss

(‘ECL’) provisions is an area of estimation that requires

management judgement. The ongoing cost-of-living

pressures have an impact on the level of uncertainty in

the valuation of expected credit loss provisions,

particularly in relation to the application of macro-

economic scenarios and the estimation of the

probability of default of customers in the future.

Key judgements and estimates include:

• a

ccounting interpretations and modelling

assumptions used to build the credit models and

calculate the ECL;

• the appropriateness of staging criteria selected to

determine whether a significant increase in credit

risk (“SICR”) has occurred;

• the application of multiple macro-economic

scenarios including the appropriateness of the

probability weightings assigned to the various

scenarios; and

• t

he completeness and valuation of post model

adjustments.

Furthermore, there is a risk that financial disclosures do

not comply with the requirements of UK adopted

international accounting standards.

We understood and evaluated the design

effectiveness of key controls over the ECL process and

adopted a substantive approach.

We tested the assumptions, inpu

ts and calculations

used in the ECL models with the involvement of our

credit risk modelling specialists. This included

assessing the appropriateness of the model design,

model implementation and model performance

along with model assumption testing and sensitivity

analysis.

We considered the key data points in the ECL models

and performed appropriate testing procedures to

establish their completeness and accuracy, including

the valuation of collateral.

With the support of EY economic specialists, we

assessed the base case and alternative macro-

economic scenarios, including challenging the

probability weightings and comparing to other

scenarios from external sources. We assessed

whether the forecasted macro-

economic variables

for unemployment, interest rates and property price

indices were appropriate.

We critically assessed the methodology for

determining the SICR criteria. We independently

tested staging allocation with the support of EY credit

risk modelling specialists.

We assessed the completeness of post-model

adjustments using our knowledge and experience

across the UK lending sector and with the

involvement of our credit risk modelling specialists

we independently recalculated the additional ECL

provision adjustment applied by management.

On completion

of our procedures we performed a

stand-back analysis to assess the overall adequacy of

the ECL provisions. This included an analytical review,

assessing whether any contradictory evidence had

been obtained from other parts of the audit and

considering the

Group and Society’s provision

coverage ratios in comparison to other lenders using

available benchmarking data.

We corroborated the adequacy and appropriateness

of the disclosures made within the financial

statements for compliance with both IFRS 9 and IFRS

We communicated that we were satisfied that

expected credit loss provisions were reasonable

and in compliance with the requirements of IFRS

We considered that the models construction and

implementation, the significant assumptions

within the model

s and data inputs were

materially appropriate.

We considered that the application of staging

criteria was materially appropriate and aligned to

the requirements of IFRS 9.

The basis and calculation of the post model

adjustment was considered to be materially

appropriate.

We considered the multiple economic scenarios

incorporated in the IFRS 9 models to be

materially appropriate.

We concluded that disclosures relating to

expected credit loss provisions were in

compliance with the requirements of IFRS.

Risk of fraud in relation to revenue recognition of

mortgage related income

Group and Society – 31st

December 2023, income

included within

Interest receivable and similar

income: £114.1m (2022: £75.5m), and Fees and

commissions receivable: £2.5m (2022: £3.1m).

Refer to the Board Audit Committee Report (pages 38-

39); Accounting policies (page 55); and Note 3

of the

Consolidated Financial Statements (page 61).

The majority of mortgage and fee income recorded

within interest income and fees and commissions

receivable on the Income S

tatement is low value and

with a calculation based on contractual terms.

We understood and evaluated the design

effectiveness of key controls over the mortgage

income process and adopted a substantive approach.

We critically assessed the accounting policies in

relation to revenue recognition under IFRS 9 and IFRS

15, including effective interest rate accounting.

We independently recalculated mortgage interest

recorded for the year and recalculated the fee income

to be deferred under effective interest rate

accounting.

We agreed, on a sample basis, the initial mortgage

fees charged to supporting evidence.

We communicated that we were satisfied that

the selection and application of accounting

policies, including the application of effective

interest rate accounting, was appropriate under

IFRS 9 and IFRS 15.

We co

mmunicated that our independent

recalculation of mortgage interest and deferred

mortgage fees did not identify any material

differences.

___________________________________________________________________________________________

Independent Auditor’s Report

Page | 47 Annual Report & Accounts 2023 Nottingham Building Society

Risk

Our response to the risk

Key observations communicated to the Audit

Committee

Mortgage income and fee income are a significant

balance a

nd the recognition of income on financial

instruments using the effective interest rate involves

accounting assumptions and complexity. As a result, the

recording of interest income and fees on mortgage

products represents a significant risk of fraud in

revenue recognition.

Application of hedge accounting

Group and Society – 31st

December 2023, fair value

adjustment for hedged risk relating to mortgages:

£39.4m (2022: £109.2m), and savings: £1.4m (2022:

£4.8m), net (losses) /

gains from derivative financial

instruments: £(14.2)m (2022: £10.2m).

Refer to the Board Audit Committee Report (pages 38-

39); Accounting policies (page 56); and Notes 5 and 13

of the Consolidated Financial Statements (pages 62 and

65).

The Group and Society uses derivative instruments to

hedge against interest rate risk exposures on mortgage

portfolios and accounts for hedging relationships using

the provisions of IAS 39. Valuation techniques applied

in the industry have led to greater volatility and

complexity, particularly in relation to fair value hedge

accounting. As a result of the high i

nterest rate

environment in the UK, the size of the hedge accounting

adjustments on the balance sheet has increased.

The Group and Society’s hedge accounting process

involves elements of manual calculation which give rise

to a risk of management override of controls.

Areas of risk and audit focus include:

• v

aluation of derivatives and underlying hedged

items;

• hedge effectiveness calculations; and

• h

edge documentation and compliance with the

requirements of accounting standards.

We understood and evaluated the design

effectiveness of key controls over the hedge

accounting process and adopted a substantive

approach.

We engaged EY derivative valuation specialists and

re-performed the valuation of a sample of derivatives

and underlying hedged items.

We independently recalculated hedge effectiveness

for a sample of hedges, including performing a

sample of both prospective and retrospective

effectiveness tests.

We assessed the completeness and accuracy of the

data used in the hedging calculations and performed

tests to assess whether data was being interpreted

and categorised appropriately.

We corroborated the adequacy and appropriateness

of the disclosures made within the financial

statements for compliance with accounting

standards.

We obtained and

reviewed the relevant hedge

accounting documentation to evaluate and assess

whether each hedge was compliant with the

requirements of accounting standards.

We communicated that we were satisfied that

the hedge accounting methodology applied by

the

Group and Society was compliant with

accounting standards.

We communicated that our independent

recalculation of underlying hedge calculations

did not identify any material differences.

We concluded that disclosures relating to hedge

accounting were in com

pliance with the

requirements of IFRS.

With regards to changes to the key audit matters disclosed in the table above, following a reassessment of the audit risk considering the inherent complexity,

recent volatility and quantum of the associated balances, we included the Application of hedge accounting as a key audit matter, in the current year.

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit

opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users

of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Group to be £1.1m million (2022: £0.9 million), which is 0.45% (2022: 0.40%) of total members’ interests.

We consider total members’ interests provides us with an appropriate measure of materiality given this is a key focus area for the Society’s members and regulators

and is more relevant to users in an uncertain economic environment where profitability and the temporary impact of matters impacting financial reporting is less

predictable.

We determined materiality for the Society to be the same as Group materiality.

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the

aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality

was 75% (2022: 75%) of our planning materiality, namely £0.80m (2022: £0.68m). We have set performance materiality at this percentage after considering our

experience in the prior year, our assessment of an effective control environment and including our perspectives from the current year audit. As a result, we

determined that the higher of our permissible thresholds for our performance materiality was appropriate.

___________________________________________________________________________________________

Independent Auditor’s Report

Page | 48 Annual Report & Accounts 2023 Nottingham Building Society

Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage

of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a

whole and our assessment of the risk of misstatement at that component. All components were allocated Group performance materiality of £0.80m.

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.05m (2022: £0.05m), which is set at 5% of

planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative

considerations in forming our opinion.

Other information

The other information comprises the information included in the Annual Report and Accounts set out on pages 2 to 43 and 97 to 102, including, Key highlights,

Chairman’s statement, Chief Executive’s review, Strategic Report, Stakeholder Engagement Report, Corporate Responsibility Report, Sustainability Report, Your

Board of Directors, Directors’ Report, Nomination Committee Report, Risk Management Report, Board Risk Committee Report, Corporate Governance Report,

Board Audit Committee Report, Directors’ Remuneration Report, Annual Business Statement and Glossary, other than the financial statements and our Auditor’s

Report thereon. The Directors are responsible for the other information contained within the Annual Report.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express

any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements

or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent

material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the

work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

Opinion on other matters prescribed by the Building Societies Act 1986

In our opinion:

• The Annual Business Statement and the Directors’ Report have been prepared in accordance with the requirements of the Building Societies Act 1986;

• the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial

statements; and

• the information given in the Annual Business Statement (other than the information upon which we are not required to report) gives a true representation

of the matters in respect of which it is given.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Building Societies Act 1986 requires us to report to you if, in our opinion:

• Proper accounting records have not been kept by the Society; or

• the Group or Society’s financial statements are not in agreement with the accounting records; or

• we have not received all the information and explanations and access to documents we require for our audit.

Corporate Governance Statement

We have reviewed the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to

the Group and Society’s voluntary compliance with the provisions of the UK Corporate Governance Code specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement are materially

consistent with the financial statements or our knowledge obtained during the audit:

• Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out

on page 27;

• Directors’ explanation as to its assessment of the Society’s prospects, the period this assessment covers and why the period is appropriate set out on page

26;

• Directors’ statement on fair, balanced and understandable set out on page 26;

• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 26;

• the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out on page 26; and;

• the section describing the work of the Audit Committee set out on page 38.

___________________________________________________________________________________________

Independent Auditor’s Report

Page | 49 Annual Report & Accounts 2023 Nottingham Building Society

Directors’ Remuneration Report

The Society voluntarily prepares a Report of the Directors on Remuneration in accordance with the provisions of the Companies Act 2006. The Directors have

requested that we audit the part of the Report of the Directors on Remuneration specified by the Companies Act 2006 to be audited as if the Society were a quoted

company.

In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Responsibilities of Directors

As explained more fully in the Directors’ Responsibilities Statement set out on page 26, the Directors are responsible for the preparation of the financial statements

and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial

statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group and Society’s ability to continue as a going concern, disclosing, as

applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the

Society or to cease operations, or has no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud

or error, and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted

in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,

individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined below,

to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from

error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our

procedures are capable of detecting irregularities, including fraud is detailed below.

However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Society and management.

• we obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most significant are the

regulations, licence conditions and supervisory requirements of the Prudential Regulation Authority (‘PRA’), the Financial Conduct Authority (‘FCA’) and the

Building Societies Act 1986;

• we understood how the Group and the Society are complying with those frameworks by making enquiries of management, internal audit, and those

responsible for legal and compliance matters. We also reviewed correspondence between the Group and UK regulatory bodies; reviewed minutes of the

Board and Board Risk Committee; and gained an understanding of the Group’s approach to governance, demonstrated by the Board’s approval of the Group’s

governance framework and the Board’s review of the Group’s Operational Risk Framework and internal control processes;

• we assessed the susceptibility of the Group and Society’s financial statements to material misstatement, including how fraud might occur by considering the

controls that the Group and Society have established to address risks identified by the entity, or that otherwise seek to prevent, deter or detect fraud.

• based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved inquiries

of legal counsel, executive management, internal audit, and focused testing as referred to in the Key Audit Matters section above; and

• the Group and the Society operate in the financial services sector which is a highly regulated environment. As such the Senior Statutory Auditor considered

the experience and expertise of the engagement team to ensure that the team had the appropriate competence and capabilities, which included the use of

specialists where appropriate.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at

https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report.

Other matters we are required to address

Following the recommendation from the Audit Committee, we were appointed by the Society on 24 March 2015 to audit the financial statements for the year

ended 31

December 2015 and subsequent financial periods.

The period of total uninterrupted engagement including previous renewals and reappointments is nine years, covering the years ended 31

December 2015 to 31

December 2023.

The audit opinion is consistent with the additional report to the Audit Committee.

Use of our report

This report is made solely to the Society’s members, as a body, in accordance with Section 78 of the Building Societies Act 1986. Our audit work has been

undertaken so that we might state to the Society’s members those matters we are required to state to them in an Auditor’s Report and for no other purpose. To

the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Society and the Society’s members as a body, for our audit

work, for this report, or for the opinions we have formed.

Stephen Littler (Senior statutory auditor)

for and on behalf of Ernst & Young LLP, Statutory Auditor

Manchester

6 March 2024

___________________________________________________________________________________________

Income Statements

for the year ended 31

December 2023

Page | 50 Annual Report & Accounts 2023 Nottingham Building Society

		Group	Group	Society	Society
		2023	2022	2023	2022
	Notes	£m	£m	£m	£m
Interest receivable and similar income
Calculated using the effective interest rate method	3	200.6	97.7	203.1	99.3
Other	3	4.9	1.1	0.1	(0.1)
Interest receivable and similar income		205.5	98.8	203.2	99.2
Interest payable and similar charges	4	(125.2)	(36.0)	(123.3)	(36.3)
Net interest income		80.3	62.8	79.9	62.9
Fees and commissions receivable		2.5	3.1	2.5	3.1
Fees and commissions payable		0.4	(1.5)	0.4	(1.5)
Net (losses) / gains from derivative financial instruments	5	(14.2)	10.2	(22.3)	5.7
Total net income		69.0	74.6	60.5	70.2
Administrative expenses	6	(52.3)	(42.8)	(52.2)	(42.7)
Depreciation and amortisation	17,18,19	(6.7)	(10.7)	(6.7)	(10.7)
Operating profit before impairment and loss on disposal of treasury		10.0	21.1	1.6	16.8
assets
Impairment credit / (charge) - loans and advances to customers	15	0.1	(2.2)	0.1	(2.2)
Loss on disposal of treasury assets		(1.8)	-	(1.8)	-
Profit before tax		8.3	18.9	(0.1)	14.6
Tax charge	8	-	(3.1)	-	(3.1)
Profit after tax for the financial year		8.3	15.8	(0.1)	11.5

The Income Statement only includes income and expenditure from continuing operations.

The notes on pages 55 to 102 form part of these accounts.

___________________________________________________________________________________________

Statements of Comprehensive Income

for the year ended 31

December 2023

Page | 51 Annual Report & Accounts 2023 Nottingham Building Society

		Group	Group	Society	Society
		2023	2022	2023	2022
	Notes	£m	£m	£m	£m
Profit for the financial year		8.3	15.8	(0.1)	11.5
Items that will not be re-classified to the Income Statement
Remeasurements of defined benefit obligation	28	0.1	0.1	0.1	0.1
Tax on items that will not be re-classified	8	(0.1)	(0.1)	(0.1)	(0.1)
Items that may subsequently be re-classified to the Income Statement
Fair Value through Other Comprehensive Income reserve
Valuation gains / (losses) taken to reserves	12	2.8	(4.1)	2.8	(4.1)
Loss on disposal of treasury assets taken to Income Statement		1.8	-	1.8	-
Tax on items that may subsequently be reclassified	8	(1.0)	0.8	(1.0)	0.8
Other comprehensive income / (expense) for the period net of income		3.6	(3.3)	3.6	(3.3)
tax
Total comprehensive income for the year		11.9	12.5	3.5	8.2

Both the profit for the financial year and total comprehensive income / (expense) for the period are attributable to the members of the Society.

The Notes on pages 55 to 102 form part of these accounts.

___________________________________________________________________________________________

Statements of Financial Position

as at 31

December 2023

Page | 52 Annual Report & Accounts 2023 Nottingham Building Society

		Group	Group	Society	Society
		2023	2022	2023	2022
	Notes	£m	£m	£m	£m
Assets
Cash in hand and balances with the Bank of England	9	430.2	290.1	430.2	290.1
Loans and advances to credit institutions	10	31.0	16.0	19.0	8.4
Debt securities	12	340.1	413.2	340.1	413.2
Derivative financial instruments	13	105.2	142.6	90.1	136.1
Loans and advances to customers	14	3,543.9	2,922.8	3,543.9	2,922.8
Amounts due from subsidiary undertakings	16	-	-	33.4	26.6
Other assets		4.8	4.4	4.8	4.4
Current tax asset		3.0	0.7	3.0	0.7
Property, plant and equipment	17	8.4	8.3	8.4	8.3
Right of use assets	18	1.2	1.1	1.2	1.1
Intangible assets	19	6.0	11.1	6.0	11.1
Deferred tax assets	20	1.1	2.2	1.1	2.2
Total assets		4,474.9	3,812.5	4,481.2	3,825.0
Liabilities
Shares	21	3,565.9	3,009.7	3,565.9	3,009.7
Amounts owed to credit institutions	22	288.1	419.0	288.1	419.0
Amounts owed to other customers	23	48.8	8.4	48.8	8.4
Amounts owed to subsidiary undertakings	24	-	-	266.9	109.4
Debt securities in issue	25	246.2	91.0	-	-
Derivative financial instruments	13	43.9	14.4	43.9	14.4
Other liabilities and accruals	26	11.4	9.3	11.3	9.3
Lease liabilities	18	1.8	2.2	1.8	2.2
Retirement benefit obligations	28	1.3	2.9	1.3	2.9
Subscribed capital	29	24.0	24.0	24.0	24.0
Total liabilities		4,231.4	3,580.9	4,252.0	3,599.3
Reserves
General reserves		243.3	235.0	229.0	229.1
Fair value reserves	30	0.2	(3.4)	0.2	(3.4)
Total reserves attributable to members of the Society		243.5	231.6	229.2	225.7
Total reserves and liabilities		4,474.9	3,812.5	4,481.2	3,825.0

Society

The Notes on pages 55 to 102 form part of these accounts.

These accounts were approved by the Board of Directors on 6

March 2024 and signed on its behalf:

Andrew Neden Sue Hayes Anthony Murphy

Chair Chief Executive Officer Chief Financial Officer

___________________________________________________________________________________________

Statements of Changes in Members’ Interests

for the year ended 31

December 2023

Page | 53 Annual Report & Accounts 2023 Nottingham Building Society

		General reserve	FVOCI reserve
				Total
Group 2023	Notes	£m	£m	£m
Balance as at 1 st January 2023		235.0	(3.4)	231.6
Profit for the year		8.3	-	8.3
Other comprehensive expense for the period (net of tax)
Net gains from changes in fair value		-	3.6	3.6
Total other comprehensive expense		-	3.6	3.6
Total comprehensive income / (expense) for the period		8.3	3.6	11.9
Balance as at 31 st December 2023		243.3	0.2	243.5
Group 2022
Balance as at 1 st January 2022		219.2	(0.1)	219.1
Profit for the year		15.8	-	15.8
Other comprehensive income / (expense) for the period (net of tax)
Net losses from changes in fair value		-	(3.3)	(3.3)
Total other comprehensive income / (expense)		-	(3.3)	(3.3)
Total comprehensive income / (expense) for the period		15.8	(3.3)	12.5
Balance as at 31 st December 2022		235.0	(3.4)	231.6

Society 2023

Balance as at 1

January 2023

229.1

(3.4)

225.7

Profit for the year

(0.1)

Other comprehensive expense for the period (net of tax)

Net gains from changes in fair value

3.6

Total other comprehensive expense

3.6

Total comprehensive income / (expense) for the period

(0.1)

3.6

3.5

Balance as at 31

December 2023

229.0

0.2

229.2

Society 2022

Balance as at 1

January 2022

217.6

(0.1)

217.5

Profit for the year

11.5

Other comprehensive income / (expense) for the period (net of

tax)

Net gains / (losses) from changes in fair value

(3.3)

Total other comprehensive income / (expense)

(3.3)

Total comprehensive income / (expense) for the period

11.5

(3.3)

8.2

Balance as at 31

December 2022

229.1

(3.4)

225.7

The Notes on pages 55 to 102 form part of these accounts.

___________________________________________________________________________________________

Cash Flow Statements

for the year ended 31

December 2023

Page | 54 Annual Report & Accounts 2023 Nottingham Building Society

		Group	Group	Society	Society
		2023	2022	2023	2022
	Notes	£m	£m	£m	£m
Cash flows from operating activities
Profit before tax from continuing operations		8.3	18.9	(0.1)	14.6
Depreciation and amortisation		6.7	10.7	6.7	10.7
Interest on subscribed capital		2.0	2.0	2.0	2.0
Interest on lease payments		-	0.1	-	0.1
Loss on disposal of treasury assets		1.8	-	1.8	-
Amortisation of debt securities		0.2	0.4	0.2	0.4
(Decrease) / increase in impairment on loans and advances		(0.1)	2.2	(0.1)	2.2
		18.9	34.3	10.5	30.0
Changes in operating assets and liabilities
(Increase) / decrease in loans and advances to credit institutions		(8.4)	1.3	(8.4)	1.3
(Increase) / decrease in loans and advances to customers		(621.0)	85.9	(621.0)	85.9
Decrease / (increase) in prepayments, accrued income and other assets		36.8	(117.2)	196.2	(148.6)
Increase in shares	21	556.2	135.1	556.2	135.1
(Decrease) / increase in amounts owed to other credit institutions and other customers	22,23	(90.5)	58.4	(90.5)	58.4
Increase / (decrease) in debt securities in issue	25	155.2	(36.1)	-	-
Increase in accruals, deferred income and other liabilities		31.2	10.9	31.0	10.9
Decrease in retirement benefit obligation	28	(1.6)	(1.4)	(1.6)	(1.4)
Taxation (paid) / received		(2.2)	(4.1)	(2.2)	(4.1)
Net cash generated from operating activities		74.6	167.1	70.2	167.5
Cash flows from investing activities
Purchase of debt securities		(169.9)	(286.5)	(169.9)	(286.5)
Disposal of debt securities		245.9	129.1	245.9	129.1
Purchase of property, plant and equipment		(1.1)	(0.3)	(1.1)	(0.3)
Purchase of intangible assets		(0.2)	(1.5)	(0.2)	(1.5)
Net cash used in investing activities		74.7	(159.2)	74.7	(159.2)
Cash flows from financing activities
Interest paid on subscribed capital	34	(1.9)	(1.9)	(1.9)	(1.9)
Principal element of lease payments		(0.7)	(0.8)	(0.7)	(0.8)
Net increase in cash and cash equivalents		146.7	5.2	142.3	5.6
Cash and cash equivalents at 1 st January		292.4	287.2	284.8	279.2
Cash and cash equivalents at 31 st December	11	439.1	292.4	427.1	284.8

The Notes on pages 55 to 102 form part of these accounts.

___________________________________________________________________________________________

Notes to the Accounts

Page | 55 Annual Report & Accounts 2023 Nottingham Building Society

1 Accounting policies

The principal accounting policies adopted in the preparation of these

financial statements are set out below.

Basis of preparation

Both the Society and Group Annual Accounts are prepared and approved by

the Directors in accordance with UK adopted international accounting

standards (‘IAS’) and those parts of the Building Societies Act 1986 and

Building Societies (Accounts and Related Provisions) Regulations 1998

applicable to societies reporting under UK adopted IAS. The Annual

Accounts are prepared under the historical cost convention as modified by

the fair value assets and derivatives.

The financial statements are prepared in pounds sterling, which is the

functional currency of the Group, and have been rounded to the nearest

one hundred thousand pounds.

Governmental and societal responses to climate change risks are still

developing, and are interdependent upon each other, and consequently

financial statements cannot capture all possible future outcomes as these

are not yet known nor capable of reasonable estimation. The degree of

uncertainty of these changes may also mean that they cannot be

conclusively considered when determining asset and liability valuations and

the timing of future cash flows under the requirements of applicable

accounting standards. At 31

December 2023, the Group considers its

present financial exposure to climate-related risk to the best of its

knowledge to be low, including with respect of the climate change

commitments made in the Sustainability Report on pages 20 to 22. As such,

no material adjustments have been made to the valuation of assets and

liabilities in these financial statements.

The Directors have considered the risks and uncertainties discussed on

pages 13 to 16 and 29 to 33, and the extent to which they might affect the

preparation of the Annual Report and Accounts on a going concern basis.

Key to this consideration were the risks associated to regulatory capital,

liquidity and financial performance, and the impact on these risks arising

from the continuing uncertainties created by the higher interest rate and

high inflationary environment. As with many other financial institutions, the

Group meets its day-to-day liquidity requirements through prudent

management of its retail and wholesale funding sources. It ensures that it

maintains sufficient liquidity to meet both normal business demands and

those that may arise in stressed circumstances. The Group has a surplus to

regulatory capital requirements and is forecasting this to remain across the

going concern assessment period. Furthermore the Group’s forecasts and

plans, taking account of current and possible future operating conditions,

including stress tests and scenario analysis, which have considered income,

expenses and overall quality of the mortgage portfolio, indicate that the

Group has sufficient operating liquidity and capital for the foreseeable

future, and specifically for the going concern assessment period to 31

March 2025 – twelve months from the date of the approval of the Annual

Report and Accounts. As such, the Directors are satisfied that the Group has

adequate resources to continue in business and to use the going concern

basis in preparing the accounts.

The accounting policies for the Group also include those for the Society

unless otherwise stated.

The preparation of accounts in conformity with UK adopted IAS requires

management to make judgements, estimates and assumptions that affect

the application of policies and reported amounts of assets and liabilities,

income and expenses. These estimates and assumptions are based on

historical experience and various other factors that are believed to be

reasonable under the circumstances. Although these estimates are based

on management’s best knowledge of the amount, event or actions, actual

results may differ from those estimates.

Changes in accounting policy & future accounting developments

There are no new issued standards or amendments effective in the period

that have a material impact on the Group’s accounting policies.

Several amendments and improvements to accounting standards have been

issued by the International Accounting Standards Board (‘IASB’) with an

effective date of 1

January 2024 and beyond. They are not expected to

have a material impact on the financial statements of the Group.

Basis of consolidation

Subsidiary companies are defined as those in which the Society has the

power over relevant activities, has exposure to the rights of variable returns

and has the influence to affect those returns.

Subsidiaries are fully consolidated from the date on which control is

transferred to the Group and de-consolidated from the date that control

ceases. The Group’s accounts consolidate the assets, liabilities and results

of the Society and all its subsidiaries, eliminating intercompany balances

and transactions. All entities have accounting periods ending on 31

December. The results of subsidiary undertakings acquired or disposed of

during the year are included in the Consolidated Income Statement from

the effective date of acquisition or up to the effective date that ownership

ceases.

Special purpose funding vehicle

The Society has transferred the beneficial interest in certain loans and

advances to customers to a Special Purpose Funding Vehicle (‘SPV’). This

SPV enable a subsequent raising of debt to investors who gain the security

of the underlying assets as collateral. The SPV is fully consolidated into the

Group’s accounts in accordance with IFRS 10 as the Society is deemed to

have control over the SPV because it has power and exposure to variable

returns.

The transfer of the beneficial interest in these loans to the SPV is not treated

as sales by the Society. The Society continues to recognise these assets

within its own Statement of Financial Position after the transfer because it

retains substantially all the risk and rewards of the portfolio through the

receipt of the majority of profits of the structured entity. In the accounts of

the Society, the proceeds received from the transfer are accounted for as a

deemed loan repayable to the SPV, which is held at amortised cost.

Business combinations between mutual organisations

Identifiable assets and liabilities are measured at fair value. Intangible

assets are amortised through the Income Statement over their estimated

useful lives, being between one and ten years.

Interest income and expense

Interest income and interest expense for all interest-bearing financial

instruments are recognised in ‘interest receivable and similar income’ or

‘interest payable and similar charges’.

The Effective Interest Rate (‘EIR’) method is applied for all financial assets

or liabilities recorded at amortised cost or Fair Value through Other

Comprehensive Income (‘FVOCI’). The effective interest rate is the rate that

discounts the expected future cash flows, over the expected life of the

financial instrument, to the net carrying amount of the financial asset or

liability. This may include fees and commissions if they are an integral part

of the effective interest rate of a financial instrument.

Interest income on financial assets is calculated by applying the EIR to the

gross carrying amount of the financial asset, unless considered credit

impaired. When a financial asset becomes credit impaired, and therefore

considered as Stage 3, interest income is calculated by applying the EIR to

the net amortised cost of the financial asset. If the financial asset cures and

is no longer credit impaired, interest income is reverted to being calculated

on a gross basis.

Interest income and expense also includes interest on derivatives measured

at Fair Value through Profit and Loss (‘FVPL’), where hedge accounting is not

applied, using the contractual interest rate.

___________________________________________________________________________________________

Notes to the Accounts

Page | 56 Annual Report & Accounts 2023 Nottingham Building Society

1 Accounting policies (continued)

Fees and commissions

Fees receivable are generally recognised when all performance obligations

of the contract have been fulfilled.

Commission receivable from the sale of third-party products is recognised

upon fulfilment of contractual performance obligations, that is the

inception date of the product or on completion of a mortgage.

If the fees are an integral part of the effective interest rate of a financial

instrument, they are recognised as an adjustment to the effective interest

rate and recorded in interest receivable / payable.

Fees payable are recognised on an accruals basis when the service has been

provided or on the completion of an act to which the fee relates.

Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents

comprise balances with less than three months’ maturity from the date of

acquisition, including cash, treasury bills and other eligible bills and loans

and advances to credit institutions.

Derivative financial instruments and hedge accounting

The Group uses derivatives only for risk management purposes. It does not

use derivatives for trading purposes. Derivatives are measured at fair value

in the Statement of Financial Position. Fair values are obtained by applying

quoted market rates to a discounted cash flow model. All derivatives are

carried as assets when fair value is positive and as liabilities when fair value

is negative.

The Group has elected to continue to apply the hedge accounting

requirements of IAS 39 on adoption of IFRS 9.

The Group looks to designate derivatives held for risk management

purposes as hedging instruments in qualifying hedging relationships. On

initial designation of the hedge, the Group documents formally the

relationship between the hedging instruments and hedged items, including

the risk management objective and strategy in undertaking the hedge,

together with the method that will be used to assess the effectiveness of

the hedging relationship. The Group makes an assessment, both at the

inception of the hedge relationship as well as on an ongoing basis, as to

whether the hedging instruments are expected to be highly effective in

offsetting the changes in the fair value of the respective hedged items

during the period for which the hedge is designated, and whether the actual

results of each hedge are within a range of 80-125 percent.

If derivatives are not designated as hedges, then changes in their fair values

are recognised immediately in the Income Statement in the period in which

they arise.

Fair value hedges

Portfolio fair value hedges are used to hedge exposures to variability in the

fair value of financial assets and liabilities, such as fixed rate mortgages and

savings products. Changes in the fair value of derivatives are recognised

immediately in the Income Statement together with changes in the fair

value of the hedged item that are attributable to the hedged risk (in the

same line in the Income Statement as the hedged item).

If the hedging derivative expires or is sold, terminated, or exercised, or the

hedge no longer meets the criteria for fair value hedge accounting, or the

hedge designation is revoked, hedge accounting is discontinued

prospectively. Any adjustment up to that point to a hedge item, for which

the effective interest method is used, is amortised to the Income Statement

over its remaining life.

Financial assets

Classification and Measurement

Financial assets comprise cash, loans and advances to credit institutions,

debt securities, derivative financial instruments and loans and advances to

customers. The Group classifies non-derivative financial assets as either

amortised cost, FVOCI or FVPL depending on the business model for

managing the assets and the contractual cash flow characteristics. The

Group determines its business model at the level that best reflects how it

manages groups of assets to achieve its business objective. In making this

assessment it considers how the performance of the business model is

evaluated and reported within the Group, how the risks of the business

model are managed and the expected frequency, value and timing of sales

of assets. The contractual terms of the financial assets are assessed to

determine whether their cash flows represent solely payments of principal

and interest or expose the Group to other risks. Management determines

the classification of financial assets under IFRS 9 at the later of 1

January

2018 or initial recognition.

Amortised cost

Financial assets whose business model is to hold for collection of

contractual cash flows where those cash flows represent Solely Payments

of Principal and Interest (‘SPPI’) are measured at amortised cost. Interest

income from these financial assets is included in net interest income using

the effective interest rate method. Any gain or loss arising on derecognition

is recognised directly in profit or loss. The carrying value of these assets is

adjusted by any expected credit loss allowance recognised.

The Society classifies the following financial instruments as amortised cost:

• cash in hand and balances with the BoE;

• loans and advances to credit institutions; and

• loans and advances to customers.

Loans and advances to customers

The initial value of loans and advances to customers may, if applicable,

include certain upfront costs and fees such as procuration fees, legal fees,

valuation fees, mortgage indemnity guarantee premiums and application

fees, which are recognised over the expected life of mortgage assets.

Mortgage discounts are also recognised over the expected life of mortgage

assets as part of the effective interest rate.

Throughout the year and at each year end, the mortgage life assumptions

are reviewed for appropriateness. Any changes to the expected life

assumptions of the assets are recognised through interest receivable and

similar income and reflected in the carrying value of the mortgage assets.

Included in loans and advances to customers of the Society are balances

which have been used to secure funding issued by the Group’s special

purpose vehicle, which is consolidated into the Group’s financial

statements. The beneficial interest in the underlying loans has been

transferred to this entity. The loans are retained within the Society’s

Statement of Financial Position as the Society retains substantially all of the

risks and rewards relating to the loans.

Fair value through other comprehensive income

The Society recognises its debt securities as FVOCI assets. The business

model for these financial assets is to hold for collection of contractual cash

flows and for selling the financial assets, where the assets’ cash flows

represent solely payments of principal and interest and are measured at

FVOCI. Movements in the carrying amount are taken through Other

Comprehensive Income (‘OCI’). When the financial asset is derecognised,

the cumulative gain or loss previously recognised in OCI is reclassified from

reserves to the Income Statement. Interest income from these financial

assets is included in net interest income using the effective interest rate

method. The expected credit loss for these assets does not reduce the

carrying amount in the Statement of Financial Position, which remains at

fair value. Instead, an amount equal to the allowance that would arise if the

assets were at amortised cost, is recognised in OCI as an accumulated

impairment amount, with a corresponding charge to profit or loss.

Fair value through profit or loss

Assets that do not meet the criteria for amortised cost or FVOCI are

measured at FVPL. Interest income from these financial assets is included in

net interest income. The Society recognises its derivative financial

instruments as FVTPL assets.

___________________________________________________________________________________________

Notes to the Accounts

Page | 57 Annual Report & Accounts 2023 Nottingham Building Society

1 Accounting policies (continued)

Impairment of financial assets not carried at fair value through profit or

loss

Under IFRS 9, the Group assesses on a forward-looking basis the Expected

Credit Losses (‘ECL’) associated with its financial assets carried at amortised

cost and FVOCI and with the exposure arising from loan commitments. The

allowance is based on the ECLs associated with the probability of default in

the next 12-months unless there has been a significant increase in credit risk

since origination and the measurement of ECL reflects:

• an unbiased and probability weighted amount that is determined by

evaluating a range of possible outcomes;

• the time value of money; and

• reasonable and supportable information that is available without

undue cost or effort at the reporting date about past events, current

conditions and forecasts of future economic conditions.

IFRS 9 outlines a ‘three-stage’ model for impairment based on changes in

credit quality since initial recognition as summarised below:

• Stage 1: A financial instrument that is not credit-impaired on initial

recognition and its credit risk has not significantly increased since

origination. ECL is measured at an amount equal to the portion of

lifetime expected credit losses that result from default events possible

within the next 12-months.

• Stage 2: If a significant increase in credit risk (‘SICR’) since initial

recognition is identified, the financial asset is moved to ‘Stage 2’ but is

not yet deemed to be credit impaired. The definition of a significant

increase in credit risk is detailed below. ECL for Stage 2 assets are

measured based on expected credit losses on a lifetime basis.

• Stage 3: If the financial asset is credit-impaired, it is moved to ‘Stage 3’.

The definition of credit-impaired and default is outlined below. ECL for

Stage 3 assets is also measured on expected credit losses on a lifetime

basis.

Forward-looking information is considered in the measurement of ECL with

its use of economic assumptions such as inflation, unemployment rates,

house price indices and Gross Domestic Product (‘GDP’).

The Group has no purchased or originated credit impaired assets and has

not applied any simplified approaches.

Significant Increase in Credit Risk (‘SICR’)

The Group considers a financial instrument to have experienced a significant

increase in credit risk when one of more of the following criteria has been

met:

Financial instrument

Definition of significant increase in credit risk

Loans and

advances

•

over 30 days past due on contractual repayments;

customers - Retail

•

change

Probability

Default

(‘PD’)

exceeds

relative

threshold of 100% and absolute threshold of 0.5%; or

•

in forbearance.

Loans and advances to

•

over 30 days past due on contractual repayments;

customers – Secured

•

change

exceeds

relative

threshold

100%

and

Business Lending

absolute threshold of 0.5%; or

•

in forbearance.

Wholesale

liquidity

•

Any arrears or receipt of adverse information.

instruments

Definition of default and credit-impaired

The Group defines a financial asset as in default, which is fully aligned with

the definition of credit-impaired, when it is more than 90-days past due on

contractual repayments.

It is the Society’s policy to consider a financial instrument as ‘cured’ and

therefore reclassified out of Stage 3 when none of the default criteria have

been present for at least twelve consecutive months for forbearance

defaults and nine months for any other defaults. The decision whether to

classify an asset as Stage 2 or Stage 1 once cured depends on the updated

position, at the time of the cure, and whether there has been a significant

increase in credit risk compared to initial recognition.

Loans and advances to customers

Forward-looking information incorporated in the ECL models

The assessment of SICR and the calculation of ECL both incorporate

forward-looking information. Forecasts of these economic variables are

provided by a reputable third party on a regular basis and provide the best

estimate view of the economy over the next five years. After five years, to

project the economic variables out for the full remaining lifetime, a mean

reversion approach is used, i.e. long-run averages. In addition to the Base

economic scenario forecast, other possible scenarios along with scenario

weightings are obtained, of which management has applied four (2022:

four) scenarios in the model calculations to align with wider market

practices. Further details of these scenarios are outlined in Note 15.

ECL models

The ECL models are driven by three key components:

• Probability of Default: the PD model takes attributes of the mortgage

accounts on the portfolio (for example, origination vintage and time on

book) and adjusts for the impacts of a range of independently sourced

forward-looking macroeconomic scenarios to produce a vector detailing

the likelihood of an account defaulting in a given month within the

expected behavioural lifetime. The model outputs are scaled against a

number of internal risk grades which are determined using the Society’s

behavioural scoring models. These behavioural scoring models contain a

combination of internal and externally derived data to rank the mortgage

accounts by risk and pool the accounts into groups of comparable

expected performance.

• Exposure at Default (‘EAD’): the EAD model predicts the loan exposure

of each mortgage account at a future default date. The model takes into

account balance amortisation and accrued interest from missed

payments given expected changes in the repayment terms of the

mortgage; for example interest rates may move in a manner consistent

with the macroeconomic scenarios. The calculation produces a vector to

represent ‘expected’ EAD at each potential point of default along the

vector from the reporting date up to the expected behavioural lifetime;

and

• Loss Given Default ('LGD’): the LGD model calculates the likely loss on

asset disposal that the Society would suffer if a default were to occur in

any given month over the expected behavioural lifetime of the mortgage

account. LGD takes into account the EAD in comparison to the value

expected to be recovered through the sale of an asset, given the

macroeconomic scenario specific trend in property price indices. The

expectation of loss is then scaled to reflect the likelihood of a mortgage

account reaching default, progressing on to sale of the asset.

Forbearance strategies and renegotiated loans

A range of forbearance options are available to support customers who are

in financial difficulty. The purpose of forbearance is to support customers

who have temporary financial difficulties and help them get back on their

feet.

The main options offered by the Society include:

• reduced monthly payment;

• an arrangement to clear outstanding arrears;

• temporary interest only; and

• extension of mortgage term.

Customers requesting a forbearance option will need to provide

information to support the request which is likely to include a budget

planner, statement of assets and liabilities, bank / credit card statements,

payslips etc. in order that the request can be properly assessed. If the

forbearance request is granted the account is monitored in accordance with

our policy and procedures. At the appropriate time the forbearance option

that has been implemented is cancelled, except for capitalisation of arrears,

and the customer’s normal contractual payment is restored.

___________________________________________________________________________________________

Notes to the Accounts

Page | 58 Annual Report & Accounts 2023 Nottingham Building Society

1 Accounting policies (continued)

Loans that are subject to restructuring may only be classified as restructured

and up to date once a specified number and / or amount of qualifying

payments have been received. These qualifying payments are set at a level

appropriate to the nature of the loan and the customer’s ability to make the

repayment going forward. Typically, the receipt of six months’ qualifying

payments is required. Loans that have been restructured and would

otherwise have been past due or impaired are classified as renegotiated.

The carrying amount of loans that have been classified as renegotiated

retain this classification until maturity or derecognition. Interest is recorded

on renegotiated loans based on new contractual terms following

renegotiation. The original effective interest rate will be retained.

Modifications

Financial assets are written off either partially or in their entirety only when

the Group has stopped pursuing the recovery, for example by bankruptcy,

insolvency, renegotiation and similar events. If the amount to be written off

is greater than the accumulated loss allowance, the difference is first

treated as an addition to the loss allowance, which is then applied to the

gross carrying amount. Any subsequent recoveries are credited to the

Income Statement on settlement receipt.

Write off of financial assets

Financial assets are written off either partially or in their entirety only when

the Group has stopped pursuing the recovery, for example by bankruptcy,

insolvency, renegotiation and similar events. If the amount to be written off

is greater than the accumulated loss allowance, the difference is first

treated as an addition to the loss allowance, which is then applied to the

gross carrying amount. Any subsequent recoveries are credited to the

Income Statement on settlement receipt.

Cash in hand and balances with the Bank of England, Loans and advances

to credit institutions and debt securities

The Group reviews the external credit ratings of its liquid assets at each

reporting date. Those assets, which are of investment grade or higher, are

considered to have low credit risk and therefore are assumed to have not

had a significant increase in credit risk since initial recognition. This includes

the Society’s debt security portfolio. The Society’s policy to allow only high

quality, senior secured exposures to Residential Mortgage-Backed

Securities (‘RMBS’) and Covered Bonds ensures continued Society receipt of

contractual cash flows in stressed scenarios. For all other wholesale liquidity

balances, a simple model calculates the ECL allowance, based on externally

provided 12-month PD rates for individual counterparties.

Derecognition of financial assets and liabilities

Financial assets are derecognised when the contractual rights to receive

cash flows have expired or where substantially all the risks and rewards of

ownership have been transferred. Financial liabilities are derecognised only

when the obligation is discharged, cancelled or has expired.

Financial liabilities

All non-derivative financial liabilities, that include shares and wholesale

funds, held by the Group are measured at amortised cost with interest

recognised using the effective interest rate method.

Discounts and other

costs incurred in the raising of wholesale funds are amortised over the

period to maturity using the effective interest rate method.

Fair value of financial assets and liabilities

IFRS 13 requires an entity to classify financial instruments held at fair value

and those not measured at fair value but for which the fair value is disclosed

according to a hierarchy that reflects the significance of observable market

inputs in calculating those fair values. The three levels of the fair value

hierarchy are defined as:

Level 1 – Valuation using quoted market prices

Financial instruments are classified as Level 1 if their value is observable in

an active market. Such instruments are valued by reference to unadjusted

quoted prices for identical assets or liabilities in active markets where the

quoted price is readily available, and the price reflects actual and regularly

occurring market transactions on an arm’s length basis. An active market is

one in which transactions occur with sufficient volume and frequency to

provide pricing information on an ongoing basis.

Level 2 – Valuation technique using observable inputs

Financial instruments classified as Level 2 have been valued using models

whose inputs are observable in an active market. Valuations based on

observable inputs include derivative financial instruments such as swaps

and forwards which are valued using market standard pricing techniques

and options that are commonly traded in markets where all the inputs to

the market standard pricing models are observable. They also include

investment securities valued using consensus pricing or other observable

market prices.

Level 3 – Valuation technique using significant unobservable inputs

Financial instruments are classified as Level 3 if their valuation incorporates

significant inputs that are not based on observable market data

(‘unobservable inputs’). A valuation input is considered observable if it can

be directly observed from transactions in an active market, or if there is

compelling external evidence demonstrating an executable exit price.

Unobservable input levels can generally be determined based on

observable inputs of a similar nature, historical observations or other

analytical techniques.

Subscribed capital

Subscribed capital comprises Permanent Interest-Bearing Shares (‘PIBS’)

which have no voting rights and have contractual terms to settle interest

and is therefore classified as a financial liability. It is presented separately

on the face of the Statement of Financial Position. Subscribed capital is

initially recognised at ‘fair value’ being its issue proceeds net of transaction

costs incurred.

The interest on the subscribed capital is recognised on an effective interest

rate basis in the Income Statement as interest expense.

Intangible assets

Computer software

Purchased software and costs and internal time directly associated with the

internal development of computer software are capitalised as intangible

assets where the software is an identifiable asset controlled by the Group

which will generate future economic benefits and where costs can be

reliably measured. Costs incurred to establish technological feasibility or to

maintain existing levels of performance are recognised as an expense as

incurred. Intangible assets are stated at cost less cumulative amortisation

and impairment losses.

Amortisation begins when the asset becomes available for operational use

and is charged to the Income Statement on a straight-line basis over the

estimated useful life of the software, which is generally between 3 to 8

years. The amortisation periods used are reviewed annually.

Assets are reviewed for impairment at each Statement of Financial Position

date or whenever events or changes in circumstances indicate that the

carrying amount may not be recoverable. An asset’s carrying amount is

written down immediately to its recoverable amount, if the asset’s carrying

amount is greater than its estimated recoverable amount. The recoverable

amount is the higher of the asset’s fair value less costs to sell, and its value

in use.

Property, plant and equipment

Additions and improvements to office premises and equipment, including

costs directly attributable to the acquisition of the asset, are capitalised at

cost. The property, plant and equipment value in the Statement of Financial

Position represents the original cost, less cumulative depreciation. The

costs, less estimated residual values of assets, are depreciated on a straight-

line basis over their estimated useful economic lives as follows:

• freehold buildings 50 - 100 years;

• leasehold premises over the remainder of the lease or 100 years if

shorter;

• refurbishment of premises over 5 to 10 years or length of lease if shorter;

• equipment, fixtures, fittings and vehicles over 4 to 10 years; or

• no depreciation is provided on freehold land.

___________________________________________________________________________________________

Notes to the Accounts

Page | 59 Annual Report & Accounts 2023 Nottingham Building Society

1 Accounting policies (continued)

Assets are reviewed for impairment at each Statement of Financial Position

date or whenever events or changes in circumstances indicate that the

carrying amount may not be recoverable. An asset’s carrying amount is

written down immediately to its recoverable amount if the asset’s carrying

amount is greater than its estimated recoverable amount. The recoverable

amount is the higher of the asset’s fair value less costs to sell, and its value

in use.

Employee benefits

Long-term incentive schemes

The costs of bonuses payable after the end of the year in which they are

earned are recognised on an accruals basis in the year in which the

employees render the related service.

Pensions

The Group operated a contributory defined benefit pension scheme until

January 2009 when it was closed to future service accrual. The assets

are held in a separate trustee administered fund. Included within the

Statement of Financial Position is the Group’s net obligation calculated as

the present value of the defined benefit obligation less the fair value of plan

assets less any unrecognised past service costs. Any remeasurements that

arise are recognised immediately in OCI through the Statement of

Comprehensive Income. The finance cost is recognised within finance

income and expense in the Income Statement. The finance cost is the

increase in the defined benefit obligation which arises because the benefits

are one period closer to settlement.

Contributions are transferred to the Trustee administered fund on a regular

basis to secure the benefits provided under the rules of the scheme. Pension

costs are assessed in accordance with the advice of a professionally

qualified actuary.

The Group also operates a contributory defined contribution pension

scheme, the assets of which are held separately from those of the Group.

For this scheme the cost is charged to the Income Statement on an accruals

basis.

Leases

The Group assesses at contract inception whether a contract is, or contains,

a lease. That is, if the contract conveys the right to control the use of an

identified asset for a period of time in exchange for consideration.

Group as a lessee

The Group applies a single recognition and measurement approach for all

leases, except for short-term leases and leases of low value assets. The

Group recognises lease liabilities, as the current value of future lease

payments, and right-of-use assets representing the right to use the

underlying leased assets.

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the

lease (i.e. the date the underlying asset is available for use). Right-of-use

assets are measured at cost, less any accumulated depreciation and

impairment losses, and adjusted for any remeasurement of lease liabilities.

The cost of right-of-use assets includes the amount of lease liabilities

recognised, initial direct costs incurred, and lease payments made at or

before the commencement date less any lease incentives received. Right-

of-use assets are depreciated on a straight-line basis over the lease term,

adjusted to take account of any expected break or extension options.

The lease terms are as follows:

• leasehold premises over 10 to 15 years;

• equipment, fixtures and fittings over 3 to 5 years; or

• motor vehicles over 3 to 5 years;

Right-of-use assets are reviewed for impairment at each Statement of

Financial Position date or whenever events or changes in circumstances

indicate that the carrying amount may not be recoverable. An asset’s

carrying amount is written down immediately to its recoverable amount if

the asset’s carrying amount is greater than its estimated recoverable

amount. The recoverable amount is the higher of the asset’s fair value less

costs to sell, and its value in use.

Lease liabilities

At the commencement date of the lease, the Group recognises lease

liabilities measured at the present value of lease payments to be made over

the lease term, discounted using the incremental borrowing rate. The lease

payments include fixed payments less any lease incentive receivable,

variable lease payments that depend on an index or a rate, and amounts

expected to be paid under any residual value guarantees.

In calculating the present value of lease payments, the Group uses its

incremental borrowing rate at the lease commencement date as the

interest rate implicit in the lease is not readily determinable. The

incremental borrowing rate is determined based on the cost of funding to

the Group. After the commencement date, the amount of lease liabilities is

increased to reflect the accretion of interest and reduced for lease

payments made.

In addition, the carrying amount of lease liabilities is remeasured if there is

a modification, a change in the lease term or a change in the lease

payments.

The Group does not have an option to purchase the underlying asset in its

lease agreements.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-

term leases (i.e. those leases that have a lease term of 12-months or less

from the commencement date). It also applies the lease of low-value assets

recognition exemption to assets that are considered be of low value. Lease

payments on short-term leases and leases of low-value assets are

recognised as an expense on a straight-line basis over the term of the lease.

Taxation

Income tax on the profit or loss for the year comprises current and deferred

tax. Income tax is recognised in the Income Statement except to the extent

that it relates to items recognised directly in OCI, in which case it is

recognised in other comprehensive Income.

Current tax is the expected tax payable on the taxable income and gains

arising in the accounting period.

Deferred tax is recognised on all temporary differences arising between the

tax bases of assets and liabilities and their carrying amounts in the financial

statements. Deferred tax assets and liabilities are offset only if a legally

enforceable right exists to set off current tax assets against current tax

liabilities, the deferred income taxes relate to the same taxation authority

and the authority permits the Society to make a single net payment.

Deferred tax assets are only recognised where it is probable that future

taxable profit will be available against which the temporary differences can

be utilised.

Both current and deferred taxes are determined using the rates enacted or

substantively enacted at the Statement of Financial Position date.

Tax relating to fair value re-measurement of available-for-sale investments,

which are charged or credited directly to OCI, is also credited or charged

directly to other comprehensive income and is subsequently recognised in

the Income Statement when the deferred fair value gain or loss is

recognised in the Income Statement.

Tax relating to actuarial gains / (losses) on retirement benefit obligations is

recognised in other comprehensive income.

___________________________________________________________________________________________

Notes to the Accounts

Page | 60 Annual Report & Accounts 2023 Nottingham Building Society

1 Accounting policies (continued)

Provisions and contingent liabilities

The Group recognises a provision when there is a present legal or

constructive obligation as a result of past events, and it is probable that an

outflow of resources will be required to settle the obligation, and the

amount has been reliably estimated.

The Society has an obligation to contribute to the Financial Services

Compensation Scheme (‘FSCS’) to enable the FSCS to meet compensation

claims from, in particular, retail depositors of failed banks. A provision is

recognised to the extent it can be reliably estimated and when the Society

has an obligation in accordance with IFRIC 21. The amount provided is

based on information received from the FSCS, forecast future interest rates

and the Society's historic share of industry protected deposits.

Contingent liabilities are potential obligations from past events which will

only be confirmed by future events. Contingent liabilities are not recognised

in the Statement of Financial Position.

Accounting estimates and judgements

Whilst preparing the financial statements, no judgements have been made

in the process of applying the Group’s significant accounting policies, other

than those involving estimations, which have had a significant effect on the

amounts recognised in the financial statements. The Group’s significant

estimates, including judgements involving estimations, are shown below.

Impairment losses on loans and advances to customers

The Group reviews its mortgage advances portfolio at least monthly to

assess impairment. In determining whether an impairment loss should be

recorded, the Group is required to exercise a degree of judgement, in

particular, the estimation of the amount and timing of future cash flows and

collateral values and the assessment of significant increase in credit risk. The

Society’s ECL calculations under IFRS 9 are outputs of complex models with

several underlying assumptions regarding the choice of variable inputs and

their interdependencies, which individually are not possible to isolate. The

‘Loans and advances to customers’ section on page 56 outlines the

accounting policies and key definitions for IFRS 9.

Key elements of the ECL models that are considered accounting

judgements, including estimation, include:

• the internal credit grading model, which assigns PDs to individual

accounts;

• the criteria for assessing if there has been a significant increase in

credit risk;

• determination of associations between macroeconomic scenarios,

economic inputs and the effect on PDs, EADs and LGDs;

• selection of forward-looking macroeconomic scenarios and their

probability weightings to derive economic inputs to the ECL models;

and

• post model adjustments to address model limitations, including the:

i) impact to future property values;

ii) potential for interest rate shock;

iii) worsening future recovery profile of assets; and

iv) cost-of-living & inflationary impact.

Expected mortgage life

In determining the expected life of fixed rate mortgage assets, which is used

as part of the effective interest rate calculation, the Group uses historical

and forecast redemption data as well as management judgement. Following

managements approach to deliver an enduring member centric lending

proposition and its increasing conviction that no member should remain on

SVR for any meaningful period of time at the end of their product term, it is

recognised that the level of repayment immediately post-maturity of the

fixed rate deal is a key sensitivity within the EIR assumptions. Assessments

of post-maturity sensitivity and assessing the period of time spent on a SVR

will continue to be performed regularly throughout the year with the

expected life of mortgage assets reassessed for reasonableness. These

estimates will continue to be reviewed on a regular basis to ensure they

reflect the actual performance.

It is determined due to operation changes that sensitivity analysis on post-

maturity behaviour would result in immaterial increase / decrease in the

value of loans on the Statement of Financial Position.

Any variation in the expected life of mortgage assets will change the

carrying value in the Statement of Financial Position and the timing of the

recognition of interest income.

A two-week extension of the time spent on SVR would result in an increase

in the value of loans on the statement of financial position and a gain to

profit before tax of approximately £2.2m.

As we continue to increase the number of mortgage members we retain at

the end of their product term, our change in accounting estimate and

resulting write down of the mortgage EIR asset reflects our increasing

conviction that no member should remain on our SVR for any meaningful

period of time at the end of their product term. This prudent step also

reflects our intention to begin to refine the way we charge for mortgages

over the next two years or so, as we carry out work to develop the capability

to individually price each member’s mortgage, based on their own distinct

characteristics.

Employee benefits

The Group operates a defined benefit pension scheme. Significant

judgements (on such areas as future interest and inflation rates and

mortality rates) have to be exercised in estimating the value of the assets

and liabilities of the scheme, and hence of its net deficit. The assumptions

are outlined in Note 28 to the accounts. Of these assumptions, the main

determinant of the liability is the discount rate. A variation of 0.25% in the

discount rate will change liabilities by approximately £1.4 million (2022:

£1.4 million).

Fair values of financial instruments

The Society uses widely recognised valuation models for determining the

fair value of common and simple financial instruments, such as interest rate

swaps that use only observable market data. Further analysis can be found

in Note 31. The availability of observable market prices and model inputs

reduces the need for management judgement and reduces the uncertainty

associated with determining fair values.

Other notable estimates and judgements

Change in accounting estimate – amortisation of broker portal

As a result of the formation of the future strategy and anticipated future

enhancements in mortgage systems and processes, the average useful lives

of the Society’s mortgage technology assets have been reduced, resulting in

an additional £0.7 million amortisation charge in 2023. The remaining

intermediary portal carrying value of £0.8 million will be amortised to the

Income Statement in 2024.

Change in accounting estimate – Shepshed deferred gains

As a result of accelerated customer mortgage repayments, the Society has

accelerated the release of deferred fair value gains associated with the

acquisition of Shepshed Building Society. This change in accounting

estimate has resulted in a £1.0 million gain being recognised within ‘interest

receivable and other income’ in 2023. The remaining deferred gain of £0.1

million will be amortised to the Income Statement in future periods.

Change in accounting estimate – valuation fees

Due to growth in the Society’s lending volumes and an increase in the

associated valuation fees, the Society has decided to spread valuation fee

expenditure over the expected life of a mortgage product as opposed to

expensing as incurred. This has resulted in a one-off gain of £0.6 million in

2023 relating to fees previously expensed.

___________________________________________________________________________________________

Notes to the Accounts

Page | 61 Annual Report & Accounts 2023 Nottingham Building Society

2 Segmental reporting

The chief operating decision maker has been identified as the Group Board. The Board reviews the Group’s internal reporting in order to assess performance and

allocate resources. Operating segments are reported in a manner consistent with the internal reporting provided to the Board.

Following the disposal of several subsidiaries in prior years, the remaining trade of the Group relates purely to retail financial services which includes the provision

of mortgages, savings, third party insurance and investments.

As there is only one trade within the Group, the results of the financial services business are presented on the face of the Income Statement and as such no

separate disclosure is required within this note.

3 Interest receivable and similar income

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
On loans fully secured on residential property	94.5	64.3	94.5	64.3
On other loans	19.6	11.2	19.6	11.2
On amounts due from group undertakings	-	-	2.5	1.6
On liquid assets	13.5	4.3	13.5	4.3
On instruments held at amortised cost	127.6	79.8	130.1	81.4
On debt securities held at FVOCI	16.2	4.8	16.2	4.8
On derivatives hedging of financial assets	56.8	13.1	56.8	13.1
On instruments calculated on an EIR basis	200.6	97.7	203.1	99.3
On derivatives not in a hedge accounting relationship	4.9	1.1	0.1	(0.1)
	205.5	98.8	203.2	99.2

Interest on debt securities includes £3.1 million (2022: £1.7 million) arising from fixed income investment securities.

Included within interest income is £0.2 million (2022: £nil) in respect of interest income accrued on impaired loans three or more months in arrears.

4 Interest payable and similar charges

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
On shares held by individuals	91.8	23.9	91.8	23.9
On amounts due to group undertakings	-	-	3.1	2.5
On deposits and other borrowings	26.5	8.7	21.5	6.5
On subscribed capital	2.0	2.0	2.0	2.0
On leases	-	0.1	-	0.1
On derivative hedging of financial liabilities	4.9	1.3	4.9	1.3
	125.2	36.0	123.3	36.3

___________________________________________________________________________________________

Notes to the Accounts

Page | 62 Annual Report & Accounts 2023 Nottingham Building Society

5 Net (losses) / gains from derivative financial instruments

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
Derivatives in designated fair value hedge relationships	(71.0)	89.1	(71.0)	89.1
Adjustments to hedged items in fair value hedge accounting relationships	59.8	(78.8)	59.8	(78.8)
Derivatives not in designated fair value hedge relationships	(3.0)	(0.1)	(11.1)	(4.6)
	(14.2)	10.2	(22.3)	5.7

The Group’s net losses from derivative financial instruments of £14.2 million (2022: net gains of £10.2 million) represents the net fair value movement on

derivatives in fair value hedge relationships, including: £2.8m of losses (2022: gains of £5.8m) on swaps held against the mortgage pipeline; £6.6m of amortisation

losses (2022: gains of £1.4m) from the reversal of net gains; and £4.5m of losses (2022: gains of £3.1m) due to movements in the effectiveness of the macro FV

hedge accounting portfolio. The remaining gains / losses in both Group and Society relate to the derivatives hedging the secured funding balance.

Further information regarding the Group and Society’s derivative financial instruments and fair value hedge accounting is presented in Notes 13 and 31 of these

financial statements.

6 Administrative expenses

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
Continuing operations
Wages and salaries	22.2	20.1	22.2	20.1
Social security costs	2.2	2.0	2.2	2.0
Other pension costs	1.2	1.0	1.2	1.0
Total employee costs	25.6	23.1	25.6	23.1
Other administrative costs	26.7	19.7	26.6	19.6
	52.3	42.8	52.2	42.7

The restructuring costs relating to continuing operations included in wages and salaries for the Group and Society in 2023 amounts to £0.3 million (2022: £1.1

million).

Other administrative costs have increased primarily due to investment in technology and other initiatives such as the implementation of Consumer Duty.

		Group	Group	Society	Society
		2023	2022	2023	2022
		£000	£000	£000	£000
Other administrative costs include:
Remuneration of auditors and associates (excluding VAT)
Fees payable to the auditor for the audit of the Annual Accounts		378	346	378	346
Fees payable to the auditor for other services:
-	Audit of the accounts of subsidiary undertakings	11	10	-	-
-	Audit of associated pension schemes	18	14	18	14
-	Audit related assurance services	71	64	71	64
-	Non-audit services	-	-	-	-
Total audit fees for the financial year		478	434	467	424

___________________________________________________________________________________________

Notes to the Accounts

Page | 63 Annual Report & Accounts 2023 Nottingham Building Society

7 Employees

	Group	Group	Society	Society
	2023	2022	2023	2022
	Number	Number	Number	Number
Continuing operations
The average number of persons employed during the year was:
Full-time	361	369	361	369
Part-time	117	144	117	144
	478	513	478	513
Building Society
Central Administration	296	283	296	283
Branches	182	230	182	230
	478	513	478	513

The average number of employees on a full-time equivalent basis in the Society was 444 (2022: 472) and all of these are employed within the UK.

8 Tax charge

		Group	Group	Society	Society
		2023	2022	2023	2022
	Notes	£m	£m	£m	£m
Current tax charge		0.4	3.0	0.4	3.0
Adjustments for prior years		-	0.2	-	0.2
Total current tax		0.4	3.2	0.4	3.2
Deferred tax		(0.3)	-	(0.3)	-
Adjustments for prior years		(0.1)	(0.1)	(0.1)	(0.1)
Total deferred tax	20	(0.4)	(0.1)	(0.4)	(0.1)
		-	3.1	-	3.1

The total tax charge for the period differs from that calculated using the UK standard rate of corporation tax. The differences are explained below:

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
Profit before taxation	8.3	18.9	(0.1)	14.6
Expected tax charge at 23.5% (2022: 19%)	2.0	3.6	-	2.8
Expenses not deductible for corporation tax	-	0.1	-	0.1
Effective securitisation	(2.0)	(0.8)	-	-
Adjustment for prior years	-	0.2	-	0.2
	-	3.1	-	3.1

		Group	Group	Society	Society
		2023	2022	2023	2022
		£m	£m	£m	£m
Tax recognised directly in other comprehensive income
Tax expense / (credit) on FVOCI assets		1.0	(0.8)	1.0	(0.8)
Tax expense on pension scheme		0.1	0.1	0.1	0.1
Tax	expense / (credit) for the year	1.1	(0.7)	1.1	(0.7)

The Society as a standalone entity incurred a loss in 2023 primarily due to losses on derivative financial instruments associated with the Group’s secured funding

vehicle, Arrow Mortgage Finance No. 1 Ltd (‘Arrow’). A corresponding gain was recognised within Arrow and as such these transactions are broadly neutral from

a Group perspective.

The tax charge for Arrow has been calculated in accordance with the permanent regime for taxation of securitisation companies and its corporation tax is

calculated by reference to its retained profits and not its accounting profit and loss. As the gains on derivative financial instruments will not be retained by

Arrow, this has resulted in a negligible tax charge within this entity on a standalone basis and a lower level of taxation within the Group in 2023.

Factors affecting standard rate of tax

The Finance Act 2021, which was enacted in May 2021, increased the rate of tax from 19% to 25% with effect from 1

April 2023.

The blended rate of tax for the year ended 31

December 2023 amounts to 23.5% (2022: 19%).

Deferred tax assets and liabilities are measured at the enacted tax rates that are expected to apply when the related asset is realised or liability is settled.

___________________________________________________________________________________________

Notes to the Accounts

Page | 64 Annual Report & Accounts 2023 Nottingham Building Society

9 Cash in hand and balances with the Bank of England

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
Cash in hand	1.1	1.1	1.1	1.1
Balances with the Bank of England	429.1	289.0	429.1	289.0
	430.2	290.1	430.2	290.1

Balances with the Bank of England includes cash ratio deposits of £6.7 million (2022: £7.1 million) which are not readily available for use in the Group’s day-to-

day operations and therefore are excluded from cash and cash equivalents.

10 Loans and advances to credit institutions

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
Repayable on call and short notice	15.6	9.3	3.6	1.7
Other loans and advances to credit institutions	15.4	6.7	15.4	6.7
	31.0	16.0	19.0	8.4

As at 31

December 2023 £15.4 million (2022: £6.7 million) of cash has been deposited by the Group and Society as collateral against derivative contracts.

11 Cash and cash equivalents

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
Cash in hand and balances with the Bank of England	423.5	283.1	423.5	283.1
Loans and advances to credit institutions	15.6	9.3	3.6	1.7
	439.1	292.4	427.1	284.8

12 Debt securities

Group and Society

		2023	2022
	Notes	£m	£m
Debt securities
Gilts		19.9	67.0
Treasury Bills		43.2	59.7
Fixed rate notes		-	52.2
Floating rate notes		28.8	53.8
Mortgage backed securities		97.9	63.3
Floating covered bonds		150.3	117.2
		340.1	413.2
Movements on debt securities during the year may be analysed as follows:
As at 1 January		413.2	260.3
Additions		169.9	286.2
Disposals and maturities		(247.6)	(129.2)
Loss on disposal of treasury assets taken to Income Statement		1.8	-
Net gains / (losses) from changes in fair value recognised in other comprehensive income	30	2.8	(4.1)
		340.1	413.2

Of this total £63.1 million (2022: £178.9 million) is attributable to fixed income debt securities.

Debt securities include items with a carrying value of £nil (2022: £nil) which have been pledged as collateral under Bank of England facilities.

___________________________________________________________________________________________

Notes to the Accounts

Page | 65 Annual Report & Accounts 2023 Nottingham Building Society

13 Derivative financial instruments

Group

	2023	2023	2023	20142022	22022	202022
	Contract /		Fair value	Contract /		Fair value
	notional	Fair value	of	notional	Fair value	of
	amount	of assets	liabilities	amount	of assets	liabilities
	£m	£m	£m	£m	£m	£m
Derivatives not in a hedge accounting relationship
Interest rate swaps	665.0	14.1	(17.5)	412.4	7.8	(7.0)
Derivatives designated as fair value hedges
Interest rate swaps	2,412.0	91.1	(26.4)	2,132.0	134.8	(7.4)
	3,077.0	105.2	(43.9)	2,544.4	142.6	(14.4)

Society

	2023	2023	2023	20142022	22022	202022
	Contract /	Fair value	Fair value	Contract /	Fair value	Fair value
	notional	of assets	of	notional	of assets	of
	amount		liabilities	amount		liabilities
	£m	£m	£m	£m	£m	£m
Derivatives not in a hedge accounting relationship
Interest rate swaps	397.5	(0.5)	(17.5)	298.7	1.2	(7.0)
Derivatives designated as fair value hedges
Interest rate swaps	2,412.0	90.6	(26.4)	2,132.0	134.9	(7.4)
	2,809.5	90.1	(43.9)	2,430.7	136.1	(14.4)

Derivative fair values have fallen in the year due to changes in the interest rate environment. Further information regarding the Group’s hedge accounting and

fair value hedges is presented in Note 31.

The Group’s interest rate swaps which are not held by the Society are held by Arrow Mortgage Finance No. 1 Ltd and hedge the interest rate risk associated with

the Group’s securitisation funding.

14 Loans and advances to customers

Group and Society

		2023	2022
	Notes	£m	£m
Loans fully secured on residential property		3,155.0	2,702.3
Other loans fully secured on land		437.4	334.7
Loans gross balance		3,592.4	3,037.0
Effective interest rate adjustment		(3.9)	0.3
Provision for impairment losses on loans and advances	15	(5.2)	(5.3)
Fair value adjustment for hedged risk		(39.4)	(109.2)
		3,543.9	2,922.8

Other loans fully secured on land represents SBL assets.

Encumbrance

The Society pledges a proportion of its loans and advances to customers to enable it to access funding either through a secured funding arrangement or as

whole mortgage loan pools with the Bank of England.

Loans and advances to customers used to support these funding activities are as follows:

Group and Society

	Mortgages	Held by third	Held by the	Held by the
	pledged	parties	Group drawn	Group undrawn
2023	£m	£m	£m	£m
Bank of England	857.5	-	335.0	522.5
Other secured funding	267.7	267.7	-	-
	1,125.2	267.7	335.0	522.5

___________________________________________________________________________________________

Notes to the Accounts

Page | 66 Annual Report & Accounts 2023 Nottingham Building Society

14 Loans and advances to customers (continued)

Group and Society

	Mortgages	Held by third	Held by the	Held by the
	pledged	parties	Group drawn	Group undrawn
2022	£m	£m	£m	£m
Bank of England	820.3	-	423.5	396.8
Other secured funding	112.2	112.2	-	-
	932.5	112.2	423.5	396.8

Other secured funding

As at 31

December 2023 loans and advances to customers also includes balances for both the Group and Society which have been used in secured funding

arrangements, resulting in the beneficial interest of these loans being transferred to Arrow Mortgage Finance No.1 Limited, a SPV consolidated into the Group’s

Accounts. All of the loans pledged, with a book value of £267.7 million (2022: £112.2 million) and a fair value of £258.0 million (2022: £108.0 million) are retained

within the Society’s Statement of Financial Position as the Society retains substantially all the risk and rewards relating to the loans. These loans secure £246.2

million (2022: £91.0 million) of funding for the Group (Note 25) and £279.6 million (2022: £117.6 million) of funding for the Society.

15 Provision for impairment losses on loans and advances to customers

Impairment provisions have been deducted from the appropriate asset values on the Statement of Financial Position. The gross carrying amounts and impairment

provisions are presented in detail below:

Group and Society

		Loans fully			Loans fully
		secured on	Other loans		secured on	Other loans
		residential	fully secured		residential	fully secured
		property	on land	Total	property	on land	Total
		2023	2023	2023	2022	2022	2022
	Notes	£m	£m	£m	£m	£m	£m
Gross carrying amount
Stage 1		2,780.0	405.2	3,185.2	2,186.8	305.7	2,492.5
Stage 2		357.5	27.4	384.9	499.4	25.3	524.7
Stage 3		17.5	4.8	22.3	16.1	3.7	19.8
		3,155.0	437.4	3,592.4	2,702.3	334.7	3,037.0

Group and Society

	Loans fully			Loans fully
	secured on	Other loans		secured on	Other loans
	residential	fully secured		residential	fully secured
	property	on land	Total	property	on land	Total
	2023	2023	2023	2022	2022	2022
	£m	£m	£m	£m	£m	£m
Expected credit loss allowance
Stage 1	2.7	1.3	4.0	2.5	1.5	4.0
Stage 2	0.5	0.3	0.8	0.5	0.4	0.9
Stage 3	0.1	0.3	0.4	0.1	0.3	0.4
	3.3	1.9	5.2	3.1	2.2	5.3

The Society’s ECL coverage ratio, as a percentage of gross loans is 0.15% at 31

December 2023 (2022: 0.17%) for the total book.

At 31

December 2023, £4.5m of balances were over 3-months in arrears (2022: £4.8 million), representing 0.13% of the total mortgage book (2022: 0.16%). As

at 31

December 2023, 0.34% (2022: 0.4%) of mortgage customers have some sort of contractual forbearance arrangement in place. Further details of the Society’s

arrears and forbearance cases are disclosed in Note 31.

The ECL allowance recognised against the Society’s future loan commitment balance at 31

December 2023 and 2022 is immaterial to the financial statements

and therefore has not been separately disclosed. Future loan commitments are classified as Stage 1 for ECL calculation purposes under IFRS 9.

___________________________________________________________________________________________

Notes to the Accounts

Page | 67 Annual Report & Accounts 2023 Nottingham Building Society

15 Provision for impairment losses on loans and advances to customers (continued)

Post model adjustment

Due to the level of uncertainty in the economy, at 31

December 2023, the Society has applied multiple overlays to its core ECL models to reflect Management’s

view that there will be an impact on affordability as a result of the cost-of-living crisis, global inflationary pressures and the higher interest rate environment to

manage inflation. An overlay ECL allowance of £4.1 million has been recognised at 31

December 2023 (2022: £4.2 million).

Post model adjustments have been applied to address the following: i) Impact to future property values, ii) potential for interest rate shock, iii) worsening future

recovery profile of assets, and iv) cost-of-living & inflationary impact. Due to easing of inflation at the end of 2023, the PD Uplift associated with cost-of-living

and inflation has reduced to an absolute 7% PD uplift (2022: 8%) to retail and 4% PD uplift (2022: 5%) for commercial Stage 1 and 2 accounts. The post model

adjustment associated with future property prices has been removed in 2023.

The (release) / charge to the Income Statement comprises:

Group and Society

	2023	2023	2023	2022	2022	2022
	Loans fully			Loans fully
	secured on	Other loans		secured on	Other loans
	residential	fully secured		residential	fully secured
	property	on land	Total	property	on land	Total
	£m	£m	£m	£m	£m	£m
(Release) / charge of provision for impairment	0.2	(0.3)	(0.1)	1.4	0.7	2.2
	0.2	(0.3)	(0.1)	1.4	0.7	2.2

There have been no recoveries of debts previously written off.

The tables below reconcile the movement in both gross balances and expected credit losses in the period.

Gross balances

	Non-credit impaired		Credit impaired
	Subject to 12	Subject to	Subject to
	month ECL	lifetime ECL	lifetime ECL
	Stage 1	Stage 2	Stage 3	Total
	£m	£m	£m	£m
At 1 st January 2023	2,492.5	524.7	19.8	3,037.0
Stage transfers:
Transfers from Stage 1 to Stage 2	(258.8)	258.8	-	-
Transfers to Stage 3	(4.0)	(2.2)	6.2	-
Transfers from Stage 2 to Stage 1	255.9	(255.9)	-	-
Transfers from Stage 3	0.5	2.2	(2.7)	-
Net movement arising from transfer of stage	(6.4)	2.9	3.5	-
New assets originated	993.4	22.5	2.1	1,018.0
Net further lending / repayments and redemptions	(294.3)	(165.2)	(3.1)	(462.6)
At 31 st December 2023	3,185.2	384.9	22.3	3,592.4

Expected credit loss allowance

	Non-credit impaired		Credit impaired
	Subject to 12	Subject to	Subject to
	month ECL	lifetime ECL	lifetime ECL
	Stage 1	Stage 2	Stage 3	Total
	£m	£m	£m	£m
At 1 st January 2023	4.0	0.9	0.4	5.3
Stage transfers:
Transfers from Stage 1 to Stage 2	(0.3)	0.3	-	-
Transfers to Stage 3	-	-	-	-
Transfers from Stage 2 to Stage 1	0.3	(0.3)	-	-
Transfers from Stage 3	-	0.1	(0.1)	-
Net movement arising from transfer of stage	-	0.1	(0.1)	-
New assets originated 1	1.7	0.1	-	1.8
Further lending / repayments and redemptions	(1.4)	(0.4)	(0.1)	(1.9)
Changes in risk parameters in relation to credit quality	(0.2)	-	0.2	-
At 31 st December 2023	4.1	0.7	0.4	5.2

New assets originated enter at Stage 1. The balances presented are the final position as at 31

December 2023.

___________________________________________________________________________________________

Notes to the Accounts

Page | 68 Annual Report & Accounts 2023 Nottingham Building Society

15 Provision for impairment losses on loans and advances to customers (continued)

Gross balances

		Non-credit impaired	Credit impaired
	Subject to 12 month	Subject to	Subject to lifetime
	ECL	lifetime ECL	ECL
	Stage 1	Stage 2	Stage 3	Total
	£m	£m	£m	£m
At 1 st January 2022	2,881.2	133.8	17.2	3,032.2
Stage transfers:
Transfers from Stage 1 to Stage 2	(472.6)	472.6	-	-
Transfers to Stage 3	(5.2)	(3.1)	8.3	-
Transfers from Stage 2 to Stage 1	47.6	(47.6)	-	-
Transfers from Stage 3	2.1	1.2	(3.3)	-
Net movement arising from transfer of stage	(428.1)	423.1	5.0	-
New assets originated 1	627.0	5.6	1.2	633.8
Net further lending / repayments and redemptions	(587.6)	(37.8)	(3.6)	(629.0)
At 31 st December 2022	2,492.5	524.7	19.8	3,037.0

Expected credit loss allowance

		Non-credit impaired	Credit impaired
	Subject to 12 month	Subject to	Subject to lifetime
	ECL	lifetime ECL	ECL
	Stage 1	Stage 2	Stage 3	Total
	£m	£m	£m	£m
At 1 st January 2022	2.2	0.7	0.2	3.1
Stage transfers:
Transfers from Stage 1 to Stage 2	(0.3)	0.3	-	-
Transfers to Stage 3	-	(0.1)	0.1	-
Transfers from Stage 2 to Stage 1	0.2	(0.2)	-	-
Transfers from Stage 3	-	-	-	-
Net movement arising from transfer of stage	(0.1)	-	0.1	-
New assets originated 1	1.8	-	-	1.8
Further lending / repayments and redemptions	0.1	-	-	0.1
Changes in risk parameters in relation to credit quality	-	0.2	0.1	0.3
At 31 st December 2022	4.0	0.9	0.4	5.3

New assets originated enter at Stage 1. The balances presented are the final position as at 31

December 2022.

___________________________________________________________________________________________

Notes to the Accounts

Page | 69 Annual Report & Accounts 2023 Nottingham Building Society

15 Provision for impairment losses on loans and advances to customers (continued)

Forward-looking information incorporated in the ECL models

The assessment of SICR and the calculation of ECL both incorporate forward-looking information, which considers key economic impacts such as the Covid-19

pandemic. Key economic variables have been determined by Management, but expert judgement is also applied. Forecasts of these economic variables are

provided by a reputable third party, providing a best estimate view of the economy over the next five years. After five years, a mean reversion approach is used

(i.e. long-run averages).

In addition to the Base economic scenario forecast, other possible scenarios along with scenario weightings are obtained, of which management has applied four

scenarios in the model calculations. In both the current and prior year, the Society applied a four-scenario approach, with weightings of 40% Base (2022: 30%),

30% Upside (2022: 20%), 23% Downside (2022: 35%) and 7% Severe Downside (2022: 15%) applied. These scenarios continue to be consistently provided by a

reputable third party.

As at 31 st December 2023	Weighting
Base
The Base economic scenario assumes that the growth will be below potential for some time. Inflation declines but does not fall below the target until the end of 2024. BoE rates will not rise and will start to fall in mid-2024. Neither the invasion of Ukraine nor Israel's war against Hamas escalate beyond the regions.	40%
Upside
The Upside scenario assumes that the Russia’s invasion of Ukraine is resolved much faster than the baseline case. Growth is stronger than the baseline with a reduction in unemployment rate. Inflation remains weaker than the baseline as the increase in demand is met by an increase in supply. The terminal rate of the BoE interest rate is higher than in the baseline, taking longer to converge to the long-run interest	30%
rate.
Downside
In the Downside scenario, there are worries that the conflicts in the Middle East and Ukraine will escalate further. The BoE cuts rates sooner	23%
than the baseline with interest rates above the neutral level but above zero. There is a moderate recession, and inflation drops below zero
before increasing but remains below target for some time. House prices reduce by 23% peak to trough.
Severe Downside
In the Severe Downside scenario, there are worries that the conflicts in the Middle East and Ukraine will escalate further. The BoE cuts rates	7%
sooner than the baseline with interest rates becoming close to zero. The economy is in a severe recession with a strong and immediate
decline in inflation with inflation remaining below target for a prolonged period. House prices reduce by 31% peak to trough.

As at 31 st December 2022			Weighting
Base
The Base economic scenario assumes that the UK economy is already in recession but will slowly recover from Q2 2023. Inflation peaks in Q4
2022 and as a result, the BoE continue to raise rates which reach 4.5% by Q2 2023. Russia’s invasion of Ukraine continues but does not expand			30%
outside of Ukraine. Global oil prices remain around current high levels and natural gas remains at extremely high prices, however there is no need for gas rationing.
Upside
The Upside scenario assumes that the Russia’s invasion of Ukraine is resolved much faster than the baseline case. Global oil prices decrease			20%
faster (than the baseline) which in turn slows down inflation. This leads to the BoE raising rates at a slower pace than the baseline case.
Unemployment rate continues to drop below pre-pandemic lows and stays below 4% for several years.
Downside
The Downside scenario assumes that Russia cuts off natural gas supplies and that the supply of oil is severely reduced due to the embargo.
This leads to a jump in oil and natural gas prices. The BoE raise interest rates faster than the baseline case but have to reduce this due to the economy being in recession. Households pull back on spending and the unemployment rate exceeds 7% in 2024 due to higher costs and supply			35%
shortages. The increase in unemployment rate and shrinking real incomes causes house prices to drop with a 21% peak to trough reduction.
Severe Downside
The Severe Downside scenario assumes that Russia cuts off natural gas supplies and that the supply of oil is severely reduced due to the embargo. This leads to a jump in oil and natural gas prices. The BoE raise interest rates faster than the baseline case, but as inflation reduces			15%
in 2024, in unemployment rate and shrinking real incomes causes house prices to drop with a 30% peak to trough reduction. The autumn and winter	interest rates are reduced to 0.1%. Due to the collapse of economic demand, unemployment rate peaks at 8% in 2024.	The increase
waves of Covid-19 are stronger than anticipated, whilst not causing a lockdown they cause a temporary drop in consumption.

___________________________________________________________________________________________

Notes to the Accounts

Page | 70 Annual Report & Accounts 2023 Nottingham Building Society

15 Provision for impairment losses on loans and advances to customers (continued)

The summary below outlines the most significant forward-looking assumptions under IFRS 9, over the five year planning period across the optimistic, base and

pessimistic scenarios:

As at 31 st December 2023		2024	2025	2026	2027	2028
		%	%	%	%	%
Unemployment rate	Upside	4.1	3.8	3.9	4.2	4.5
	Base	4.6	4.7	4.8	4.8	4.9
	Downside	6.5	7.4	7.4	7.0	6.4
	Severe Downside	7.7	8.5	8.4	8.1	7.4
House price index	Upside	8.2	6.2	2.1	(1.5)	(0.9)
	Base	(5.1)	3.1	4.7	2.6	1.5
	Downside	(15.5)	(6.3)	4.0	5.4	4.7
	Severe Downside	(21.3)	(10.3)	4.4	4.1	4.0
BoE interest rate	Upside	4.8	2.7	2.3	2.3	2.3
	Base	4.6	2.7	2.3	2.3	2.3
	Downside	3.2	1.0	1.2	1.5	1.8
	Severe Downside	2.6	0.7	0.5	0.7	0.8

As at 31 st December 2022		2023	2024	2025	2026	2027
		%	%	%	%	%
Unemployment rate	Upside	3.9	3.6	3.7	4.0	4.2
	Base	4.3	4.5	4.6	4.6	4.6
	Downside	6.2	7.2	7.2	6.8	6.1
	Severe Downside	7.5	8.3	8.2	7.9	7.2
House price index	Upside	9.0	5.4	2.1	(1.2)	(2.1)
	Base	(4.4)	2.3	4.8	2.9	0.8
	Downside	(14.9)	(7.0)	4.0	5.7	4.1
	Severe Downside	(20.7)	(11.0)	4.4	4.3	3.4
BoE interest rate	Upside	4.3	2.9	2.3	2.3	2.3
	Base	4.5	3.0	2.3	2.3	2.3
	Downside	5.3	1.8	0.4	0.9	1.8
	Severe Downside	5.5	0.8	0.1	0.2	0.9

A significant degree of estimation relates to the relative weightings of the economic scenarios. In order to demonstrate this sensitivity, the impact of applying

100% of a particular scenario on the 31

December 2023 reported ECL position output is shown below:

	ECL provision	(Decrease) /	(Decrease) /
31 st December 2023		increase	increase
	£m	£m	%
IFRS 9 weighted average	5.2	-	-
Base	4.1	(1.1)	(21.2)
Downside	8.1	2.9	55.8
Severe Downside	13.4	8.2	157.7
Upside	2.6	(2.6)	(50.0)

st		ECL provision	(Decrease) /	(Decrease) /
31	December 2022		increase	increase
		£m	£m	%
IFRS 9 weighted average		5.3	-	-
Base		3.7	(1.6)	(30.6)
Downside		6.6	1.3	24.2
Severe Downside		9.3	4.0	45.2
Upside		2.5	(2.8)	(53.0)

___________________________________________________________________________________________

Notes to the Accounts

Page | 71 Annual Report & Accounts 2023 Nottingham Building Society

16 Amounts due from subsidiary undertakings

Society

	2023	2022
	Amount due	Amount due
	£m	£m
As at 1 st January	26.6	26.6
Further advances	6.7	-
Interest payments / expenses	0.1	-
	33.4	26.6

The Society has the following active undertaking, which operates and has a registered office in the UK and is included in the Group’s accounts:

Name of subsidiary undertaking	Principal business activity	Registration number	Ownership interest
Arrow Mortgage Finance No. 1 Ltd	Funding vehicle	09891174	See below

The registered office of Arrow Mortgage Finance No. 1 Limited is 1 Bartholomew Lane, London, EC2N 2AX.This subsidiary is incorporated in England and Wales.

The SPV, Arrow Mortgage Finance No. 1 Limited, has been formed with nominal share capital, is funded through loans from the Society and its activities are

carried out under the direction of the Society, under the legal terms of its operation. The Society is exposed to variable returns from this entity and therefore

the SPV passes the test of control under IFRS 10. Consequently, it is fully consolidated into the Group’s Accounts.

The amounts due from Arrow Mortgage Finance No. 1 Ltd have a contractual maturity of two years and are expected to be repaid within this period in line with

the secured funding term. The amount due from Arrow is classed as Stage 1 for ECL calculation purposes under IFRS 9 and the ECL arising is immaterial to the

financial statements.

17 Property, plant and equipment

	2023	2023	2023	2022	2022	2022
	Land and	Equipment,		Land and	Equipment,
Group and Society	buildings	fixtures, fittings	Total	buildings	fixtures, fittings	Total
	£m	£m	£m	£m	£m	£m
Cost
As at 1 st January	14.7	27.6	42.3	14.7	27.3	42.0
Additions	-	1.2	1.2	-	0.3	0.3
Disposals	(5.0)	(18.4)	(23.4)	-	-	-
As at 31 st December	9.7	10.4	20.1	14.7	27.6	42.3
Depreciation
As at 1 st January	9.1	24.9	34.0	8.8	23.2	32.0
Charge for the year	0.1	1.0	1.1	0.3	1.7	2.0
On disposals	(5.0)	(18.4)	(23.4)	-	-	-
As at 31 st December	4.2	7.5	11.7	9.1	24.9	34.0
Net Book Value
As at 31 st December	5.5	2.9	8.4	5.6	2.7	8.3

The Society has undertaken an exercise during the year to identify obsolete assets and recognised these as a disposal from the fixed asset register. The carrying

value of the disposed assets amounted to £nil.

___________________________________________________________________________________________

Notes to the Accounts

Page | 72 Annual Report & Accounts 2023 Nottingham Building Society

17 Property, plant and equipment (continued)

Group and Society

	2023	2022
	£m	£m
The net book value of land and buildings comprises:
Freehold	5.4	5.5
Short Leasehold	0.1	0.1
	5.5	5.6

Group and Society

	2023	2022
	£m	£m
The net book value of land and buildings occupied for own use:
Building Society	5.1	5.3
Non-Group	0.4	0.3
	5.5	5.6

18 Leases

The Statement of Financial Position shows the following amounts relating to leases:

Group and Society	2023	2023	2023	2023	2022	2022	2022	2022
Right of use assets			Motor				Motor
	Property	Equipment	vehicles	Total	Property	Equipment	vehicles	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Cost
As at 1 st January	4.6	0.3	0.2	5.1	4.9	0.3	0.2	5.4
Additions	0.3	-	-	0.3	-	-	-	-
Lease modifications	-	-	-	-	(0.3)	-	-	(0.3)
Disposals	(1.2)	-	-	(1.2)	-	-	-	-
As at 31 st December	3.7	0.3	0.2	4.2	4.6	0.3	0.2	5.1
Depreciation
As at 1 st January	3.5	0.3	0.2	4.0	2.1	0.2	0.2	2.5
Charge for the year and impairment	0.2	-	-	0.2	1.4	0.1	-	1.5
Charge on disposals	(1.2)	-	-	(1.2)	-	-	-	-
As at 31 st December	2.5	0.3	0.2	3.0	3.5	0.3	0.2	4.0
Net Book Value	1.2	-	-	1.2	1.1	-	-	1.1
As at 31 st December

Group and Society	2023	2022
	£m	£m
Lease liabilities
Current	0.3	0.4
Non-current	1.5	1.8
	1.8	2.2

The Income Statement shows the following amounts relating to leases:

Group and Society		2023	2022
	Notes	£m	£m
Depreciation charge for assets		0.2	1.5
Interest expense (included in interest payable and similar charges)	4	-	0.1
Expense relating to short-term leases (included in administrative expenses)	6	0.3	0.3

The total cash outflow for leases in 2023 was £0.6m (2022: £0.7m) for the Group, of which £0.6m (2022: £0.7m) related to the Society.

___________________________________________________________________________________________

Notes to the Accounts

Page | 73 Annual Report & Accounts 2023 Nottingham Building Society

19 Intangible assets

	2023	2023	2023	2022	2022	2022
	Purchased	Developed		Purchased	Developed
Group and Society	Software	Software	Total	Software	Software	Total
	£m	£m	£m	£m	£m	£m
Cost
As at 1 st January	8.6	40.6	49.2	8.3	39.4	47.7
Disposals	(7.4)	(12.8)	(20.2)	-	-	-
Additions	0.1	0.1	0.2	0.3	1.2	1.5
As at 31 st December	1.3	27.9	29.2	8.6	40.6	49.2
Amortisation
As at 1 st January	8.0	30.1	38.1	7.8	23.1	30.9
Disposals	(7.4)	(12.8)	(20.2)	-	-	-
Charge for the year	0.3	5.0	5.3	0.2	7.0	7.2
As at 31 st December	0.9	22.3	23.2	8.0	30.1	38.1
Net Book Value
As at 31 st December	0.4	5.6	6.0	0.6	10.5	11.1

The Society has undertaken an exercise during the year to identify obsolete assets and recognised these as a disposal from the fixed asset register. The carrying

value of the disposed assets amounted to £nil.

£3.9m of research expenditure relating to intangible projects was expensed during the year as it did not meet the development criteria of IAS 38 and has

therefore been expensed as incurred.

As a result of the formation of the future strategy and anticipated future enhancements in mortgage systems and processes, the average useful lives of the

Society’s mortgage technology assets have been reduced, resulting in an additional £0.7m amortisation charge in 2023. The remaining intermediary portal

carrying value of £0.8 million will be amortised to the Income Statement in 2024.

20 Deferred tax

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
At 1 st January	2.2	1.7	2.2	1.7
Credit to the Income Statement	0.4	0.1	0.4	0.1
Recognised directly in other comprehensive income	(1.5)	0.4	(1.5)	0.4
At 31 st December	1.1	2.2	1.1	2.2

The deferred tax charge / (credit) in the Income Statement comprises the following temporary differences:

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
Property plant and equipment	0.2	(0.2)	0.2	(0.2)
Intangible assets	(0.1)	(0.1)	(0.1)	(0.1)
Tax losses	(0.5)	0.2	(0.5)	0.2
	(0.4)	(0.1)	(0.4)	(0.1)

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
Origination and reversal of temporary differences	(0.3)	-	(0.3)	-
Adjustment in respect to prior periods	(0.1)	(0.1)	(0.1)	(0.1)
	(0.4)	(0.1)	(0.4)	(0.1)

___________________________________________________________________________________________

Notes to the Accounts

Page | 74 Annual Report & Accounts 2023 Nottingham Building Society

20 Deferred tax (continued)

Deferred income tax assets and liabilities as at 31

December are attributable to the following items:

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
Deferred tax assets
Pensions and other post-retirement benefits	0.3	0.7	0.3	0.7
Property, plant and equipment	0.3	0.5	0.3	0.5
Fair value reserves	-	1.1	-	1.1
Tax losses	0.5	-	0.5	-
Other timing differences	0.2	0.2	0.2	0.2
	1.3	2.5	1.3	2.5
Deferred tax liabilities
IFRS transitional adjustments	0.2	0.2	0.2	0.2
Intangibles	-	0.1	-	0.1
	0.2	0.3	0.2	0.3
Net deferred tax asset	1.1	2.2	1.1	2.2

Deferred tax assets and liabilities have been offset as there is a legally enforceable right to set off current tax assets against current tax liabilities, the deferred

income taxes relate to the same taxation authority and the authority permits the company to make a single net payment.

21 Shares

Group

	2023	2022
	£m	£m
Held by individuals	3,567.3	3,014.5
Fair value adjustment for hedged risk	(1.4)	(4.8)
	3,565.9	3,009.7

22 Amounts owed to credit institutions

Group and Society

	2023	2022
	£m	£m
Amounts owed to credit institutions	288.1	419.0
	288.1	419.0

23 Amounts owed to other customers

Group and Society

	2023	2022
	£m	£m
Demand accounts
Retail customers	0.6	0.7
Other	0.2	0.2
	0.8	0.9
Term deposits
Local authorities and universities	48.0	7.5
	48.0	7.5
	48.8	8.4

___________________________________________________________________________________________

Notes to the Accounts

Page | 75 Annual Report & Accounts 2023 Nottingham Building Society

24 Amounts owed to subsidiary undertakings

Society

	2023	2022
	£m	£m
At 1 st January	109.4	145.2
Advance	203.8	-
Repayment	(46.3)	(35.8)
At 31 st December	266.9	109.4

The amounts owed to subsidiary undertakings represents a deemed loan with Arrow Mortgage Finance No.1 Ltd as part of a secured funding balance. The

repayment of the loan will follow the collection of the principal and interest of the underlying mortgage assets, which is contractually due to be settled within

two years.

25 Debt securities in issue

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
Senior secured debt	246.2	91.0	-	-
	246.2	91.0	-	-

The underlying security for the senior secured debt are certain loans and advances to customers (see Note 14 for further detail). The facility is due to mature in

April 2025.

26 Other liabilities and accruals

	Group	Group	Society	Society
	2023	2022	2023	2022
	£m	£m	£m	£m
Trade creditors	0.7	1.0	0.7	1.0
Accruals and deferred income	7.5	4.8	7.3	4.8
Other creditors	3.2	3.5	3.3	3.5
	11.4	9.3	11.3	9.3

27 Provisions for liabilities

FSCS levy

Following the settlement of the loans outstanding from the 2008 / 09 banking failures, there are no further liabilities outstanding. Ongoing costs of the FSCS

scheme are recognised in administrative expenses.

Contingent liabilities

As a deposit taker, the Society continues to have obligations to the FSCS, as well as other contractual obligations to third party suppliers, which may create a

financial obligation in future accounting periods.

___________________________________________________________________________________________

Notes to the Accounts

Page | 76 Annual Report & Accounts 2023 Nottingham Building Society

28 Retirement benefit obligations

a) Defined benefit obligations

The Group operates a contributory defined benefit scheme, the assets of which are held in a separate trustee administered fund. The scheme closed to new

members in 1997 and was closed for future service accrual from 31

January 2009.

The pension cost is assessed following the advice of a qualified independent actuary using the projected unit method. The latest funding review of the schem e

was as at 31

March 2020. This review showed that the market value of the scheme assets as at 31

March 2020 was £55.3 million and that the actuarial value o f

those assets represented 86% of the benefits that had accrued to members after allowing for expected future increase in salaries.

The High Court issued a ruling in respect of Virgin Media vs. NTL Pension Trustees II Limited in relation to the validity of rule amendments made to defined benefi t

pension schemes contracted-out on a Reference Scheme Test basis between 6 April 1997 and 5 April 2016. Pension scheme amendments during this perio d

required confirmation from the Scheme’s Actuary that the Reference Scheme Test would continue to be met and in the absence of such a confirmation, th e

amendments would be considered void. There is still uncertainty in relation to the High Court judgement, with a Court of Appeal hearing for the case set for 25

t h

June 2024 as well as the potential for overriding government legislation to be introduced. The Society has been made aware of this decision and is engaging wit h

the Scheme’s Actuary and Trustees to verify the existence of these actuarial confirmations. As this process is ongoing, no allowance has been made for th e

potential impact of this ruling within the defined benefit scheme deficit presented below.

An updated actuarial valuation at 31

December 2023 was carried out on a market value basis by a qualified independent actuary, as follows:

Group and Society	2023	2022
The principal actuarial assumptions used were as follows:
Discount rate	4.50%	4.85%
Rate of increase in salaries	3.20%	3.40%
Rate of increase in pensions	3.75%	3.60%
Inflation	3.20%	3.35%
Post-retirement mortality	S3PMA_L (Male) / S3PFA	S3PMA_L for males, S3PFA for
	(Female) base table with	females tables with CMI 2019
	CMI_2022 improvement	projections	using a long-term
	model, a long-term trend		improvement rate of 1.25%
	rate of 1% p.a., a smoothing		p.a.
	factor of 7, an initial addition
	parameter of A0.5% and a w
	parameter of 10% (above
	core)

The assumptions applied follow the requirements of IAS 19, which are different to the technical valuation approach. This requires the discount rate to be

benchmarked against AA corporate rated bonds, which as at 31

December 2023 were higher (2022: higher) than the anticipated rate of future inflation.

The table below shows the assumptions used for expected life at 31

December based on an expected normal retirement age of 62.

Group and Society	2023	2023	2022	2022
	Male	Female	Male	Female
	Years	Years	Years	Years
Expected life at retirement for a new pensioner	26.5	28.0	26.6	27.7
Expected life at retirement in 20 years’ time	25.5	26.8	28.0	29.2

Approximate sensitivities of the principal assumptions are set out in the table below which shows the increase or reduction in the pension obligations that woul d

result. Each sensitivity considers one change in isolation.

Group and Society		2023	2022
	Change in
	assumption	£m	£m
Principal actuarial assumption
Discount rate	-0.25%	(1.4)	(1.4)
Rate of increase in salaries	-0.25%	0.1	0.1
Rate of increase in pensions	-0.25%	0.2	0.5
Mortality age adjustment	+0.25%	0.2	0.3
Inflation	-0.25%	0.2	0.6

___________________________________________________________________________________________

Notes to the Accounts

Page | 77 Annual Report & Accounts 2023 Nottingham Building Society

28 Retirement benefit obligations (continued)

Group and Society

	2023	2022
	£m	£m
Fair value of scheme assets:
As at 1 st January	43.3	67.7
Interest on pension scheme assets	2.1	1.3
Contributions by employer	1.5	1.5
Benefits paid	(2.1)	(2.3)
Gain / (loss) on asset returns	1.0	(24.9)
As at 31 st December	45.8	43.3
Present value of defined benefit obligations:
As at 1 st January	(42.1)	(63.4)
Interest on pension scheme liabilities	(2.0)	(1.2)
Benefits paid	2.1	2.3
Experience loss on liabilities	(0.5)	(0.9)
Gain on changes in demographic assumptions	1.1	-
(Loss) / gain on changes in financial assumptions	(1.5)	21.1
As at 31 st December	(42.9)	(42.1)
Surplus in scheme at 31 st December	2.9	1.2
Impact of asset ceiling	(4.2)	(4.1)
Liability in the Statement of Financial Position as at 31 st December	(1.3)	(2.9)

In recognising the net surplus or deficit of the pension scheme, the funded status of the scheme is adjusted to reflect the funding requirement agreed by the

sponsor alongside the rights of any return of surplus, with the recognition of an asset ceiling liability. The actual return on plan assets was a gain of 3.1 million

(2022: £23.7 million loss).

The major categories of plan assets are as follows:

Group and Society

	2023	2022
	£m	£m
Investments quoted in active markets
Listed equity investments	5.9	4.9
Multi asset growth	9.8	9.4
High yield credit	11.0	10.6
Cash and cash equivalents	2.1	6.6
Unquoted investments
Liability driven investments	16.0	10.7
Secured pensioners	1.0	1.1
Fair value of scheme assets	45.8	43.3

Group and Society

	2023	2022
	£m	£m
Amounts recognised in finance cost in Income Statement:
Interest cost on pension scheme liabilities	(2.1)	(1.3)
Interest income on pension scheme assets	2.0	1.2
	(0.1)	(0.1)

The movement in the liability recognised in the Statement of Financial Position is as follows:

Group and Society

	2023	2022
	£m	£m
Opening defined benefit obligation at 1 st January	(2.9)	(4.4)
Amount recognised in Income Statement	(0.1)	(0.1)
Employer contributions	1.5	1.5
Remeasurement gains	0.2	0.1
Closing defined benefit obligation as at 31 st December	(1.3)	(2.9)

___________________________________________________________________________________________

Notes to the Accounts

Page | 78 Annual Report & Accounts 2023 Nottingham Building Society

28 Retirement benefit obligations (continued)

a) Defined benefits obligations

The amount recognised in the Statement of Other Comprehensive Income for remeasurement gains and losses is as follows:

Group and Society

	2023	2022
	£m	£m
Actual return less expected return on plan assets	(4.7)	(24.9)
Experience loss arising on scheme liabilities	(0.4)	(0.9)
Changes in financial assumptions underlying the present value of the scheme liabilities	3.6	21.1
Changes in demographic assumptions underlying the present value of the scheme liabilities	1.1	-
Change in impact of asset ceiling	0.5	4.8
Remeasurement of defined benefit obligation	0.1	0.1

The average duration of the defined benefit obligation as at 31

December 2023 is 13 years (2022 13 years). This number can be analysed as follows:

Group and Society

	2023	2022
	Years	Years
Active members	16	16
Deferred members	17	17
Retired members	11	11

The scheme is subject to the funding legislation outlined in the Pensions Act 2004. This, together with documents issued by the Pensions Regulator, and

Guidance Notes adopted by the Financial Reporting Council, sets out the framework for funding defined benefit occupational pension schemes in the UK. During

the year, the Group made contributions of £1.5 million (2022: £1.5 million) as part of its funding plan. The Group and Society have committed to contribute £1.5

million in 2024 under the agreed funding plan.

b) Defined contribution obligations

The Group also operates contributory defined contribution schemes. The assets of these schemes are held separately from those of the Group.

The pension charge for the period represents contributions payable by the Group and Society to the schemes and amounted for the continuing Group to £1.1

million (2022: £1.0 million) and for the Society to £1.1 million (2022: £1.0 million). There were no outstanding or prepaid contributions at either the beginning or

end of the year.

29 Subscribed capital

Group and Society

	2023	2022
	£m	£m
7.875% sterling permanent interest bearing shares	23.9	23.9
Fair value adjustment for hedged risk	0.1	0.1
	24.0	24.0

The subscribed capital was issued for an indeterminate period and is only repayable in the event of the winding up of the Society. PIBS holders do not have any

right to a residual interest in the Society.

30 Fair value reserves

Group and Society

	FVOCI reserve	FVOCI reserve
	2023	2022
	£m	£m
At 1 st January	(3.4)	(0.1)
Fair value gains / (losses) on treasury assets	2.8	(4.1)
Loss on disposal of treasury assets recycled to Income Statement	1.8	-
Deferred tax (expense) / credit	(1.0)	0.8
At 31 st December	0.2	(3.4)

___________________________________________________________________________________________

Notes to the Accounts

Page | 79 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments

Classification & Measurement

A financial instrument is a contract that gives rise to a financial asset or financial liability. The Nottingham is a retailer of financial instruments, mainly in the form

of mortgages and savings products. The Group uses wholesale financial instruments to invest in liquid assets, raise wholesale funding and to manage the risks

arising from its operations.

The Group has a formal structure for managing risk, including established risk limits, reporting lines, mandates, credit risk appetite and other control procedures.

The Board Risk Committee (‘BRC’) is tasked with monitoring the Group’s overall exposure to risk, supported by the Executive Risk Committee (‘ERC’). Six sub

committees, the Assets and Liabilities Committee (‘ALCo’), Retail Credit Committee (‘RCC’), Model Governance (‘MGC’), Operational Risk & Resilience Committee

(‘ORRC’), Legal, Regulatory & Conduct Risk Committee (‘LR&CC’) and the Change Management Committee (‘CMC’) monitor the individual areas of risk and report

to the BRC quarterly.

ALCo, monitors Statement of Financial Position risks (including the use of derivative financial instruments), funding and liquidity in line with the Group’s prudent

policy statements as well as wholesale credit risk. The RCC ensures that the management of credit risk is consistent with the credit risk appetite statement.

Key performance indicators are provided to the ERC and Board monthly by the ALCo and RCC.

Instruments used for risk management purposes include derivative financial instruments (derivatives), which are contracts where the value is derived from one or

more underlying price, rate or index inherent in the contract or agreement, such as interest rates, exchange rates or stock market indices.

The objective of the Group in using derivatives is in accordance with the Building Societies Act 1986 and is to limit the extent to which the Group will be affected

by changes in interest rates. Derivatives are not used in trading activity or for speculative purposes.

The derivative instruments used by the Group in managing its Statement of Financial Position risk exposures are interest rate swaps. These are used to protect the

Group from exposures arising principally from fixed rate mortgage lending, fixed rate savings products and fixed rate wholesale funding. An interest rate swap is

a contract to exchange one set of interest rate cash flows for another. Such swaps result in the economic exchange of interest rates. No exchange of principal

takes place. Instead, interest payments are based on notional principal amounts agreed at inception of the swap. The duration of the interest rate swap is generally

short to medium-term and their maturity profile reflects the nature of the exposures arising from the underlying business activities.

The Group applies portfolio fair value hedging techniques to reduce its exposure to interest rate risk as follows:

Hedged item	Risk	Fair value interest rate hedge
Fixed rate mortgage	Increase in interest rates	Group pays fixed, receives variable
Fixed rate savings bond	Decrease in interest rates	Group receives fixed, pays variable
Fixed rate funding	Decrease in interest rates	Group receives fixed, pays variable

The fair values of these hedges as at 31

December 2023 are shown in Note 13.

___________________________________________________________________________________________

Notes to the Accounts

Page | 80 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Classification & Measurement (continued)

Below are the summary terms and conditions and accounting policies of financial instruments held by the Group.

Financial instrument	Terms and conditions	Accounting policy: IFRS 9
	Fixed or reference linked interest rate	Amortised cost
Loans and advances to credit institutions	Fixed term	Accounted for at settlement date
	Short to medium-term maturity
	Fixed or reference linked interest rate	Fair value through other comprehensive
Debt securities	Fixed term	income
	Short to medium-term maturity	Accounted for at settlement date
	Secured on residential property or land	Amortised cost
Loans and advances to customers	Standard maximum contractual term of 25 years	Accounted for at settlement date
	Fixed or variable rate interest
Shares	Variable term	Amortised cost
	Fixed or variable interest rates	Accounted for at settlement date
	Fixed or reference linked interest rate	Amortised cost
Amounts owed to credit institutions	Fixed term	Accounted for at settlement date
	Short to medium-term maturity
	Fixed or reference linked interest rate	Amortised cost
Amounts owed to other customers	Fixed term	Accounted for at settlement date
	Short to medium-term maturity
	Fixed or reference linked interest rate	Amortised cost
Debt securities in issue	Fixed term	Accounted for at settlement date
	Short to medium-term maturity
	Fixed interest rate	Amortised cost
Subscribed capital	Issued for indeterminate period	Accounted for at settlement date
	Only repayable upon winding up of the Society
	Fixed interest received / paid converted	Fair value through profit and loss
Derivative financial instruments	to variable interest paid / received	Accounted for at trade date
	Based on notional value of the derivative

Financial assets and liabilities are measured on an ongoing basis either at fair value or at amortised cost. Note 1: ‘Accounting policies’ describes how the classes

of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The tables below analyse the

Group’s assets and liabilities by financial classification:

Carrying values by category

	Held at amortised		Held at fair value
	cost
	Financial	Fair value	Derivatives
	assets and	through other	designated
Group	liabilities at	comprehensive	as fair value	Unmatched
As at 31 st December 2023	amortised cost	income	hedges	derivatives	Total
	£m	£m	£m	£m	£m
Financial assets
Cash in hand and balances with the Bank of England	430.2	-	-	-	430.2
Loans and advances to credit institutions	31.0	-	-	-	31.0
Debt securities	-	340.1	-	-	340.1
Derivative financial instruments	-	-	91.1	14.1	105.2
Loans and advances to customers	3,543.9	-	-	-	3,543.9
Other assets	24.5	-	-	-	24.5
	4,029.6	340.1	91.1	14.1	4,474.9
Financial liabilities
Shares	3,565.9	-	-	-	3,565.9
Amounts owed to credit institutions	288.1	-	-	-	288.1
Amounts owed to other customers	48.8	-	-	-	48.8
Debt securities in issue	246.2	-	-	-	246.2
Derivative financial instruments	-	-	27.8	16.1	43.9
Subscribed capital	24.0	-	-	-	24.0
Other liabilities	14.5	-	-	-	14.5
	4,187.5	-	27.8	16.1	4,231.4

___________________________________________________________________________________________

Notes to the Accounts

Page | 81 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Classification & Measurement (continued)

Carrying values by category

	Held at amortised		Held at fair value
	cost
	Financial	Fair value	Derivatives
	assets and	through other	designated
Group	liabilities at	comprehensive	as fair value	Unmatched
As at 31 st December 2022	amortised cost	income	hedges	derivatives	Total
	£m	£m	£m	£m	£m
Financial assets
Cash in hand and balances with the Bank of England	290.1	-	-	-	290.1
Loans and advances to credit institutions	16.0	-	-	-	16.0
Debt securities	-	413.2	-	-	413.2
Derivative financial instruments	-	-	134.8	7.8	142.6
Loans and advances to customers	2,922.8	-	-	-	2,922.8
Other assets	27.8	-	-	-	27.8
	3,256.7	413.2	134.8	7.8	3,812.5
Financial liabilities
Shares	3,009.7	-	-	-	3,009.7
Amounts owed to credit institutions	419.0	-	-	-	419.0
Amounts owed to other customers	8.4	-	-	-	8.4
Debt securities in issue	91.0	-	-	-	91.0
Derivative financial instruments	-	-	14.0	0.4	14.4
Subscribed capital	24.0	-	-	-	24.0
Other liabilities	14.4	-	-	-	14.4
	3,566.5	-	14.0	0.4	3,580.9

Fair values of financial assets and liabilities carried at amortised cost

The table below analyses the book and fair values of the Group’s financial instruments held at amortised cost at 31

December:

Group

		2023	2023	2022	2022
		Book value	Fair value	Book value	Fair value
		£m	£m	£m	£m
Financial assets
Cash in hand and balances with the Bank of England	a	430.2	430.2	290.1	290.1
Loans and advances to credit institutions	b	31.0	31.0	16.0	16.0
Loans and advances to customers	c	3,543.9	3,498.6	2,922.8	2,914.9
Financial liabilities
Shares	d	3,565.9	3,551.0	3,009.7	2,990.2
Amounts owed to credit institutions	d	288.1	288.1	419.0	419.0
Amounts owed to other customers	d	48.8	49.0	8.4	8.4
Debt securities in issue	e	246.2	246.2	91.0	91.0
Subscribed capital	f	24.0	24.8	24.0	24.2

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the

measurement date. The estimated fair value of the financial assets and liabilities above has been calculated using the following valuation methodology:

a) Cash in hand – Level 1

The fair value of cash in hand and deposits with central banks is the amount repayable on demand.

b) Loans and advances to credit institutions – Level 2

The fair value of overnight deposits is the amount repayable on demand.

The estimated fair value of collateral loans and advances to credit institutions is derived using valuation techniques that use observable market inputs.

___________________________________________________________________________________________

Notes to the Accounts

Page | 82 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Fair values of financial assets and liabilities carried at amortised cost (continued)

c) Loans and advances to customers – Level 3

Loans and advances are recorded net of provisions for impairment together with the fair value adjustment for hedged items. The estimated fair value of loans

and advances represents the discounted amount of estimated future cash flows expected to be received taking account of expected prepayment rates.

Estimated cash flows are discounted at prevailing market rates for items of similar remaining maturity. The fair values have been adjusted where necessary to

reflect any observable market conditions at the time of valuation.

d) Shares, deposits and borrowings – Level 3

The fair value of shares and deposits and other borrowings with no stated maturity is the amount repayable on demand.

The fair value of fixed interest bearing deposits and other borrowings without a quoted market price is based on expected future cash flows determined by

the contractual terms and conditions discounted at prevailing market rates for items of similar remaining maturity.

e) Debt securities in issue – Level 2

The fair value is calculated using a discounted cash flow model. Expected cash flows are discounted at prevailing market rates for items of similar remaining

maturity.

f) Subscribed capital – Level 1

The estimated fair value of fixed interest bearing debt is based on its active market price as at the period end.

Fair values of financial assets and liabilities carried at fair value

The table below summarises the fair values of the Group’s financial assets and liabilities that are accounted for at fair value, analysed by the valuation

methodology used by the Group to derive the financial instruments fair value:

Group

		2023	2023	2023	2022	2022	2022
		Level 1	Level 2	Total	Level 1	Level 2	Total
	Notes	£m	£m	£m	£m	£m	£m
Financial assets
FVOCI – Debt securities	12	340.1	-	340.1	413.2	-	413.2
Derivative financial instruments – interest rate swaps	13	-	105.2	105.2	-	142.6	142.6
		340.1	105.2	445.3	413.2	142.6	555.8
Financial liabilities
Derivative financial instruments – interest rate swaps	13	-	(43.9)	(43.9)	-	(14.4)	(14.4)
		-	(43.9)	(43.9)	-	(14.4)	(14.4)

The Group has no Level 3 financial instruments carried at fair value.

Valuation techniques

The following is a description of the determination of fair value for financial instruments, which are accounted for at fair value using valuation techniques.

The fair value hierarchy detailed in IFRS 13: ‘Fair Value Measurement’ splits the source of input when deriving fair values into three levels, as follows:

• Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly

• Level 3 – inputs for the asset or liability that are not based on observable market data

The main valuation techniques employed by the Group to establish fair value of the financial instruments disclosed above are set out below:

Debt securities

• Level 1 – Market prices have been used to determine the fair value of listed debt securities

• Level 2 – Debt securities for which there is no readily available traded price are valued based on the ‘present value’ method. This requires expected future

principal and interest cash flows to be discounted using prevailing yield curves. The yield curves are generally observable market data which is derived

from quoted interest rates in similar time bandings, which match the timings of the cash flows and maturities of the instruments.

Interest rate swaps

The valuation of interest rate swaps is also based on the ‘present value’ method. Expected interest cash flows are discounted using the prevailing SONIA yield

curves. The yield curves are generally observable market data which is derived from quoted interest rates in similar time bandings which match the timings of

the interest cash flows and maturities of the instruments. All swaps are fully collateralised and therefore no adjustment is required for credit risk in the fair value

of derivatives.

___________________________________________________________________________________________

Notes to the Accounts

Page | 83 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Fair values of financial assets and liabilities carried at fair value (continued)

Transfers between fair value hierarchies

Transfers between fair value hierarchies occur when either it becomes possible to value a financial instrument using a method that is higher up the valuation

hierarchy or it is no longer possible to value it using the current method and it must instead be valued using a method lower down the hierarchy. There have

been no transfers during the current or previously reported periods.

Credit risk

Credit risk is the risk that the Group incurs a financial loss arising from the failure of a customer or counterparty to meet their contractual obligations. The Group

structures the level of credit risk it undertakes, by maintaining a credit governance framework involving delegated approval authority levels and credit

procedures, the objective of which is to build and maintain risk asset portfolios of high quality.

The Group’s maximum credit risk exposure is detailed in the table below:

Group and Society

	2023	2022
	£m	£m
Credit risk exposure
Cash in hand and balances with the Bank of England	430.2	290.1
Loans and advances to credit institutions	31.0	16.0
Debt securities	340.1	417.7
Derivative financial instruments	105.2	142.6
Loans and advances to customers	3,543.9	2,922.8
Total Statement of Financial Position exposure	4,450.4	3,789.2
Off Balance Sheet exposure – mortgage commitments	262.5	281.5
	4,712.9	4,070.7

a) Loans and advances to credit institutions, debt securities and derivative financial instruments

The ERC, supported by ALCo, is responsible for approving treasury counterparties for both derivatives and investment purposes, within the Board’s risk

appetite. Limits are placed on the amount of risk accepted in relation to one counterparty, or group of counterparties, and to industry sectors. This is

monitored weekly by the Society’s Prudential Risk team and reviewed monthly by the ALCo.

The Group’s policy only permits lending to central government (which includes the BoE), UK local authorities, banks with a high credit rating and building

societies. The Group’s Treasury team perform regular analysis of counterparty credit risk and monitoring of publicly available information to highlight possible

indirect exposures.

An analysis of the Group’s treasury asset concentration is shown in the table below:

Group

	2023	2023	2022	2022
	£m	%	£m	%
Industry sector
Banks	164.0	20.5	112.9	15.7
Building Societies	101.6	12.7	76.7	10.7
Multilateral Development Banks	43.5	5.4	114.0	15.8
Central Government	492.2	61.4	415.7	57.8
	801.3		719.3

Group

	2023	AAA	AA	A	2022
	£m	%	%	%	£m
Geographic region
United Kingdom	757.8	30.8%	65.2%	4.0%	605.3
Multilateral Development banks	43.5	100%	-	-	114.0
North America	-	-	-	-	-
	801.3				719.3

___________________________________________________________________________________________

Notes to the Accounts

Page | 84 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Credit risk (continued)

a) Loans and advances to credit institutions, debt securities and derivative financial instruments (continued)

The Group has no exposure to foreign exchange risk. All instruments are denominated in sterling. The Group also has no direct exposure to any sovereign

states, other than the UK.

The Group’s derivative financial instruments are fully collateralised with a central clearing house in the UK and as a result there is no exposure to the Group.

All of the Group’s treasury assets are classified as Stage 1 for ECL calculation purposes under IFRS 9 and there are no impairment charges against any of the

Group’s treasury assets as at 31

December 2023 (2022: £nil).

b) Loans and advances to customers

All mortgage loan applications are assessed with reference to the Group’s retail credit risk appetite statement and Lending policy, which includes assessing

applicants for potential fraud risk, which is approved by the Board. When deciding on the overall risk appetite that the Group wishes to adopt, both numerical

and non-numerical considerations are taken into account, along with data on the current UK economic climate, portfolio information derived from the Group’s

rating system and competitor activity. The statement must comply with all the prevailing regulatory policy and framework.

The lending portfolio is monitored by the RCC to ensure that it remains in line with the stated risk appetite of the Group, including adherence to the lending

principles, policies and lending limits.

For new customers, the first element of the Retail Credit Control Framework is achieved via credit scoring, which assesses the credit quality of potential

customers prior to making loan offers. The customers’ credit score combines demographic and financial information. A second element is lending policy rules,

which are applied to new applications to ensure that they meet the risk appetite of the Group. All mortgage applications are overseen by the Lending Services

team who ensure that any additional lending criteria are applied and that all information submitted within the application is validated.

For existing customers who have been added to the lending portfolio, Management use behavioural scorecards to review the ongoing creditworthiness of

customers by determining the likelihood of them defaulting over a rolling 12-month period together with the amount of loss if they do default. The continual

assessment of customer risk of default is used to assess the customer’s suitability for further lending as well as feed into strategic decision making processes,

such as the corporate plan. Models used within the customer rating process are monitored in line with industry best practice and to provide insight into

changes observed within the mortgage portfolios.

Credit risk management information is comprehensive and is circulated to the RCC on a monthly basis to ensure that the portfolio remains within the Group’s

risk appetite.

It is the Group’s policy to ensure good customer outcomes and lend responsibly by ensuring at the outset that the customer can meet the mortgage

repayments. This is achieved by obtaining specific information from the customer concerning income and expenditure but also external credit reference

agency data.

The Group does not have any exposure to the sub-prime market.

The maximum credit risk exposure is disclosed in the table on page 83.

Loans and advances to customers are predominantly made up of retail loans fully secured against UK residential property of £3,155.0 million (2022: £2,702.3

million), split between residential and buy-to-let loans with the remaining £437.4 million (2022: £334.7 million) being secured on secured business lending.

The Group operates throughout England and Wales with the portfolio well spread throughout the geographic regions. An analysis of the Group’s geographical

concentration is shown in the table below:

	2023	2022
Group and Society	%	%
Geographical analysis
Eastern	9.9	9.5
East Midlands	13.3	15.8
London	13.0	9.4
North East	4.2	5.1
North West	11.2	12.2
South East	16.0	14.0
South West	9.3	8.5
Wales	3.5	3.6
West Midlands	9.2	9.7
Yorkshire & Humberside	10.3	11.9
Other	0.1	0.3
	100.0	100.0

___________________________________________________________________________________________

Notes to the Accounts

Page | 85 Annual Report & Accounts 2023 Nottingham Building Society

31 `Financial instruments (continued)

Credit risk (continued)

b) Loans and advances to customers (continued)

Retail loans (loans fully secured on residential properties)

Loans fully secured on residential property are split between residential and traditional buy-to-let. The average LTV is the mean LTV for the portfolio. Each

individual LTV is calculated by comparing the value of the mortgage loan to the value of collateral held adjusted by a house price index. The simple average LTV

of residential mortgages is 51% (2022: 46%). All residential loans above 80% LTV are insured against loss.

The indexed LTV analysis on the Group’s residential mortgage portfolio is shown below:

Group and Society

	2023	2023	2022	2022
	Residential	Buy-to-let	Residential	Buy-to-let
	%	%	%	%
Loan to Value analysis
< 60%	43.6	74.2	54.6	85.0
60% - 80%	37.4	25.8	37.4	15.0
80% - 90%	14.7	-	6.8	-
> 90%	4.3	-	1.2	-
	100.0	100.0	100.0	100.0
Average loan to value of loans	50.2	49.5	45.5	47.6
Average loan to value of new business	70.3	60.8	70.5	66.1

The quality of the Group’s retail mortgage book is reflected in the number and value of accounts in arrears. By volume 0.17% (2022: 0.16%) of loans are three

months or more in arrears and by value it is 0.11% (2022: 0.22%).

The main factor for loans moving into arrears tends to be the condition of the general economic environment. In general, the lower the loan-to-value percentage,

the greater the equity within the property, and the lower the losses expected to be realised in the event of default or repossession.

The table below shows the fair value of collateral held for residential mortgages.

Group and Society

	2023	2023	2022	2022
	Indexed	Unindexed	Indexed	Unindexed
	£m	£m	£m	£m
Value of collateral held:
Stage 1: 12-month expected credit losses	5,767.3	4,719.3	4,981.3	3,758.0
Stage 2: Lifetime expected credit losses	796.6	615.3	1,183.0	862.4
Stage 3: Lifetime expected credit losses	43.2	30.1	45.6	28.1
	6,607.1	5,364.7	6,209.9	4,648.5

The collateral held consists of residential property. Collateral values are adjusted by the ONS Property Price Index to derive the indexed valuation at 31

December. This is the UK’s longest running house price index and takes into account regional data from the 12 standard planning regions of the UK. The Group

uses the index to update the property values of its residential and buy-to-let portfolios on a quarterly basis.

With collateral capped to the amount of outstanding debt, the value of collateral held against loans in Stages 2 and 3 under IFRS 9 and which are in arrears, is

£13.6 million as at 31

December 2023 (2022: £12.2 million).

Mortgage indemnity insurance acts as additional security. It is taken out for all residential loans where the borrowing exceeds 80% of the value of the property

at the point of application.

The decrease in the collateral held in relation to loans classified in Stage 2 and the increase in the collateral held in relation loans classified in Stage 1 primarily

reflects the movement of loans to between Stage 1 and 2 in the year.

The Group’s residential mortgage exposures and provisions may be disaggregated by probability of default ranges as follows:

Group and Society

	2023	2023	2022	2022
	Gross loans	Expected	Gross loans	Expected
		Credit Loss		Credit Loss
PD %	£m	£m	£m	£m
0% - 2.5%	1.8	-	-	-
2.5% - 5.0%	3.4	-	5.9	-
5.0% - 7.5%	261.3	0.2	3.0	-
7.5% - 10.0%	2,672.1	2.4	1,983.4	1.9
10 – 100%	216.3	0.6	710.3	1.2
	3,154.9	3.2	2,702.6	3.1

The movement in the exposures to lower PD bands in the year is reflective of an improved macroeconomic outlook at the end of 2023 compared to 2022.

___________________________________________________________________________________________

Notes to the Accounts

Page | 86 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Credit risk (continued)

b) Loans and advances to customers (continued)

Retail loans (continued)

The table below provides information on retail gross loans and ECL stages split by the number of days past due (‘DPD’):

Group and Society

	2023	2023	2022	2022
		Expected		Expected
	Gross loans	Credit Loss	Gross loans	Credit Loss
	£m	£m	£m	£m
Stage 1: 12-month expected credit losses
< 30 days past due	2,780.0	2.7	2,186.8	2.5
Stage 2: Lifetime expected credit losses
< 30 days past due	349.9	0.5	493.1	0.5
> 30 days past due	7.6	-	6.3	-
Stage 3: Lifetime expected credit losses
< 90 days past due	14.0	0.1	11.9	0.1
> 90 days past due	3.5	-	4.2	-
	3,155.0	3.3	2,702.3	3.1

Forbearance

Temporary interest only concessions were historically offered to customers in financial difficulty on a temporary basis with formal periodic review. The

concession allowed the customer to reduce monthly payments to cover interest only, and if made, the arrears status will not increase. Interest only concessions

are no longer offered and have been replaced by reduced payment concessions.

Reduced payment concessions allow a customer to make an agreed underpayment for a specific period of time. The monthly underpaid amount accrues as

arrears and agreement is reached at the end of the concession period on how the arrears will be repaid.

Payment plans are agreed to enable customers to reduce their arrears balances by an agreed amount per month, which is paid in addition to their standard

monthly repayment.

Capitalisations occur where arrears are added to the capital balance outstanding for the purposes of restructuring the loan.

The term of the mortgage is extended in order to reduce payments to a level that is affordable to the customer based on their current financial circumstances.

All forbearance arrangements are formally discussed with the customer and reviewed by management prior to acceptance of the forbearance arrangement. By

offering customers in financial difficulty the option of forbearance, the Society potentially exposes itself to an increased level of risk through prolonging the

period of non-contractual payment and / or potentially placing the customer into a detrimental position at the end of the forbearance period.

Regular monitoring of the level and different types of forbearance activity are reported to the RCC on a monthly basis and the LR&CC monitors the level of

arrears and forbearance cases. In addition, all forbearance arrangements are reviewed and discussed with the customer on a regular basis to assess the ongoing

potential risk to the Society and suitability of the arrangement for the customer.

The table below details the number of forbearance cases within the retail loans category:

Unaudited

	2023	2022
Group and Society	Number	Number
Type of Forbearance
Interest only concessions	-	1
Reduced payment concessions	-	4
Payment plans	21	29
Capitalisations	38	38
Mortgage term extensions	34	35
Less: cases with more than one form of forbearance	(34)	(35)
	59	72

These cases are covered by an IFRS 9 ECL allowance of £19,644 (2022: £23,000). In total, £4.4 million (2022: £5.1 million) of loans are subject to forbearance.

___________________________________________________________________________________________

Notes to the Accounts

Page | 87 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Credit risk (continued)

b) Loans and advances to customers (continued)

Secured Business Loans

Secured Business Loans (‘SBL’) are primarily made available to Small and Medium sized enterprises for either owner occupied or investment property purposes

and includes limited company buy-to-let loans. Loans are also only granted against the ‘bricks and mortar’ valuation of the property and not against working

capital or machinery etc.

The make-up of the SBL book as at 31

December is as follows:

Unaudited

	2023	2023	2022	2022
Group and Society	£m	%	£m	%
Owner occupied	37.6	8.6	38.8	11.6
Investment property	399.8	91.4	295.9	88.4
	437.4	100.0	334.7	100.0

The table below provides information on the original LTV of the Group’s SBL mortgage portfolio:

	2023	2022
Group and Society	%	%
Loan to Value analysis
< 60%	21.0	19.9
60% - 80%	77.7	78.2
80% - 90%	1.2	1.8
> 90%	0.1	0.1
	100.0	100.0
Average loan to value of loans	59.2	67.1
Average loan to value of new business	65.3	70.1

The table below shows the fair value of collateral held for SBL loans:

	2023	2023	2022	2022
Group and Society	Indexed	Unindexed	Indexed	Unindexed
	£m	£m	£m	£m
Value of collateral held:
Stage 1: 12-month expected credit losses	720.8	680.8	562.4	520.8
Stage 2: Lifetime expected credit losses	46.5	44.2	44.9	41.8
Stage 3: Lifetime expected credit losses	11.3	10.8	7.6	8.3
	778.6	735.8	614.9	570.9

Collateral reflects the latest valuation completed. If a property has had a desktop valuation since the latest full valuation, the collateral reflects the desktop

valuation (21% of the SBL book has had a desktop valuation (2022: 24%)).

With collateral capped to the amount of outstanding debt, the value of collateral held against loans in Stages 2 and 3 under IFRS 9 and which are in arrears, is

£3.6 million as at 31

December 2023 (2022: £2.9 million).

The Group’s SBL mortgage exposures and provisions may be disaggregated by probability of default ranges as follows:

Group and Society

	2023	2023	2022	2022
	Gross loans	Expected Credit	Gross loans	Expected
		Loss		Credit Loss
PD %	£m	£m	£m	£m
0% - 2.5%	0.2	-	0.1	-
2.5% - 5.0%	0.2	-	0.2	-
5.0% - 7.5%	22.3	0.1	1.7	-
7.5% - 10.0%	314.7	1.0	229.0	0.9
10 – 100%	100.0	0.8	103.7	1.3
	437.4	1.9	334.7	2.2

___________________________________________________________________________________________

Notes to the Accounts

Page | 88 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Credit risk (continued)

b) Loans and advances to customers (continued)

Secured Business Loans (continued)

The table below provides information on SBL gross loans and ECL stages split by the number of days past due (‘DPD’):

Group and Society

	2023	2023	2022	2022
		Expected		Expected
	Gross loans	Credit Loss	Gross loans	Credit Loss
	£m	£m	£m	£m
Stage 1: 12 month expected credit losses
< 30 days past due	405.2	1.3	305.7	1.5
Stage 2: Lifetime expected credit losses
< 30 days past due	25.0	0.2	23.1	0.4
> 30 days past due	2.4	0.1	2.2	-
Stage 3: Lifetime expected credit losses
< 90 days past due	3.9	0.2	3.1	0.2
> 90 days past due	0.9	0.1	0.6	0.1
	437.4	1.9	334.7	2.2

In terms of SBL risk, the single largest borrower represents less than 0.3% (2022: 0.3%) of the SBL mortgage book.

Forbearance

The Group has various forbearance options to support customers who may find themselves in financial difficulty. These include ‘interest only’ concessions,

renegotiation of contractual payment, payment plans and capitalisations.

‘Interest only’ concessions are offered to customers in financial difficulty on a temporary basis with formal periodic review. The concession allows the customer

to reduce monthly payments to cover interest only, and if made, the arrears status will not increase.

Renegotiation of contractual payments is provided to reduce the monthly payment to a level affordable by the customer. The agreement remains within the

Society’s Lending policy, for example within the maximum mortgage term.

Payment plans are agreed to enable customers to reduce their arrears balances by an agreed amount per month which is paid in addition to their standard

monthly repayment.

Capitalisations occur where arrears are added to the capital balance outstanding for the purpose of restructuring the loan.

The table below shows those loans subject to forbearance within the SBL loans category:

	2023	2022
Group and Society	Number	Number
Type of Forbearance
Interest only concessions	19	13
Mortgage term extensions	4	6
Less: cases with more than one form of forbearance	(2)	(4)
	21	15

These cases are covered by an IFRS 9 ECL allowance of £97,000 (2022: £23,000). In total, £3.2 million (2022: £2.5 million) of loans are subject to forbearance.

___________________________________________________________________________________________

Notes to the Accounts

Page | 89 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Liquidity risk

Liquidity risk is the risk that the Society will not have sufficient financial resources available to meet its obligations as they fall due, under either normal business

conditions or a stressed environment. It is the Society’s policy that a significant amount of its total assets are carried in the form of cash and other readily

realisable assets in order to:

i) meet day-to-day business needs;

ii) meet any unexpected cash needs;

iii) maintain public confidence; and

iv) ensure maturity mismatches are provided for.

Monitoring of liquidity, in line with the Society’s prudent policy framework, is performed daily. Compliance with these policies is reported to ALCo monthly and

through to the ERC and BRC.

The Society’s Liquidity policy is designed to ensure the Society has sufficient liquid resources to withstand a range of stressed scenarios. A series of liquidity

stress tests have been developed as part of the Internal Liquidity Adequacy Assessment process (‘ILAAP’). They include scenarios that fulfil the specific

requirements of the PRA (the idiosyncratic, market-wide and combination stress tests) and scenarios identified by the Society which are specific to its business

model. The stress tests are performed monthly and reported to ALCo to confirm that the liquidity policy remains appropriate.

The Society’s liquid resources comprise high quality liquid assets, including a Bank of England reserves account, Gilts, time deposits and investment grade fixed

and floating rate notes issued by highly rated financial institutions, supplemented by unencumbered mortgage assets. At the end of the year the ratio of liquid

assets to shares and deposits was 19.3% compared to 20.4% at the end of 2022.

The Society maintains a contingency funding plan, as part of its RRP process, to ensure that it has so far as possible, sufficient liquid financial resources to meet

liabilities as they fall due under each of the scenarios.

The table below analyses the Group’s assets and liabilities into relevant maturity groupings, based on the remaining period to contractual maturity at the

Statement of Financial Position date. This is not representative of the Group’s management of liquidity. Loans and advances to customers rarely run their full

course. The actual repayment profile is likely to be significantly different from that shown in the analysis. For example, most mortgages have a contractual

maturity of around 25 years but are generally repaid much sooner. The average life of a mortgage at the Group, currently in product, is 4.3 years (2022: 4.3

years). Conversely, retail deposits repayable on demand generally remain on the Balance Sheet much longer.

			More than
			three	More than
			months but	one year
Group		Not more	not more	but not
Residual maturity		than three	than one	more than	More than
as at 31 st December 2023	On demand	months	year	five years	five years	Total
	£m	£m	£m	£m	£m	£m
Financial assets
Liquid assets
Cash in hand and balances with the Bank of England	423.5	-	6.7	-	-	430.2
Loans and advances to credit	15.6	15.4	-	-	-	31.0
institutions
Debt securities	-	29.9	62.8	247.4	-	340.1
Total liquid assets	439.1	45.3	69.5	247.4	-	801.3
Derivative financial instruments	-	2.7	11.6	89.4	1.5	105.2
Loans and advances to customers	384.6	21.2	61.7	380.9	2,695.5	3,543.9
Other assets	-	2.4	5.6	1.0	15.5	24.5
	823.7	71.6	148.4	718.7	2,712.5	4,474.9
Financial liabilities and reserves
Shares	1,037.8	900.6	778.0	849.5	-	3,565.9
Amounts owed to credit institutions	19.3	61.0	-	207.8	-	288.1
Amounts owed to other customers	-	19.3	29.5	-	-	48.8
Debt securities in issue	-	-	-	246.2	-	246.2
Derivative financial instruments	-	-	1.3	40.8	1.8	43.9
Subscribed capital	-	0.1	-	-	23.9	24.0
Reserves	-	-	-	-	243.5	243.5
Other liabilities	2.7	7.0	0.5	2.6	1.7	14.5
	1,059.8	988.0	809.3	1,346.9	270.9	4,474.9
Net liquidity gap	(236.5)	(916.4)	(660.5)	(628.2)	2,441.6	-

___________________________________________________________________________________________

Notes to the Accounts

Page | 90 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Liquidity risk (continued)

			More than
			three	More than
			months but	one year but
Group		Not more	not more	not more
Residual maturity		than three	than one	than five	More than
as at 31 st December 2022	On demand	months	year	years	five years	Total
	£m	£m	£m	£m	£m	£m
Financial assets
Liquid assets
Cash in hand and balances with the Bank	283.0	-	7.1	-	-	290.1
of England
Loans and advances to credit institutions	9.3	6.7	-	-	-	16.0
Debt securities	-	65.5	122.1	217.6	8.0	413.2
Total liquid assets	292.3	72.2	129.2	217.6	8.0	719.3
Derivative financial instruments	-	1.3	14.1	125.3	1.9	142.6
Loans and advances to customers	6.6	23.4	65.4	341.1	2,486.3	2,922.8
Other assets	-	2.9	4.1	0.5	20.3	27.8
	298.9	99.8	212.8	684.5	2,516.5	3,812.5
Financial liabilities and reserves
Shares	956.0	810.4	490.3	732.2	20.8	3,009.7
Amounts owed to credit institutions	81.6	-	20.0	317.4	-	419.0
Amounts owed to other customers	0.9	-	7.5	-	-	8.4
Debt securities in issue	-	-	-	91.0	-	91.0
Derivative financial instruments	-	-	0.7	13.7	-	14.4
Subscribed capital	-	0.1	-	-	23.9	24.0
Reserves	-	-	-	-	231.6	231.6
Other liabilities	2.3	4.6	1.2	3.3	3.0	14.4
	1,040.8	815.1	519.7	1,157.6	279.3	3,812.5
Net liquidity gap	(741.9)	(715.3)	(306.9)	(473.1)	2,237.2	-

There is no material difference between the maturity profile for the Group and that for the Society. As at 31

December 2023, £1,125.2 million (2022: £932.5

million) of the Group’s assets were encumbered.

The following is an analysis of gross contractual cash flows payable under financial liabilities:

			More than	More than one
			three months	year but not
Group	Repayable on	Not more than	but not more	more than five	More than
31 st December 2023	demand	three months	than one year	years	five years	Total
	£m	£m	£m	£m	£m	£m
Shares	1,188.1	900.6	779.1	849.8	-	3,717.6
Amounts owed to credit institutions	19.4	61.6	-	207.8	-	288.8
Amounts owed to other customers	0.8	19.4	29.7	-	-	49.9
Debt securities in issue	-	16.8	38.6	206.8	-	262.2
Derivative financial instruments	-	-	0.9	40.3	1.8	43.0
Subscribed capital	-	0.5	1.5	7.9	23.9	33.8
Total liabilities	1,208.3	998.9	849.8	1,312.6	25.7	4,395.3

Group
31 st December 2022
Shares	1,021.0	810.4	490.8	736.4	20.8	3,079.4
Amounts owed to credit institutions	81.6	-	20.3	317.4	-	419.3
Amounts owed to other customers	0.9	-	7.7	-	-	8.6
Debt securities in issue	-	8.1	20.2	62.7	-	91.0
Derivative financial instruments	-	-	0.7	13.4	-	14.1
Subscribed capital	-	0.5	1.5	7.9	23.9	33.8
Total liabilities	1,103.5	819.0	541.2	1,137.8	44.7	3,646.2

The analysis of gross contractual cash flows differs from the analysis of residual maturity due to the inclusion of interest accrued at current rates, for the

average period until maturity on the amounts outstanding at the Statement of Financial Position date.

___________________________________________________________________________________________

Notes to the Accounts

Page | 91 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Market and interest rate risk

Market risk is the risk of changes to the Society’s financial condition caused by market interest rates. The Society is exposed to market risk in the form of changes

(or potential changes) in the general level of interest rates and changes in the relationship between different types of interest rates (basis risk).

The Society has adopted the ‘Extended’ approach to interest rate risk, as defined by the PRA, which aims to undertake the hedging of individual transactions

within an overall strategy for structural hedging, based on a detailed analysis of the Statement of Financial Position.

The management of interest rate risk is based on a full Statement of Financial Position gap analysis. The Statement of Financial Position is subjected to a range

of stress tests, including a 2% rise in interest rates on a weekly basis. The results are measured against the risk appetite for market risk which is currently set at

a maximum of 4% of capital. In addition, Management review interest rate basis risk and its potential impact on earnings. Risk positions are reviewed monthly

by the ALCo and reported through to the ERC and BRC.

The table below summarises the Group’s exposure to interest rate risk:

	2023	2022
Group and Society	£m	£m
Changes in market value from a 2% parallel upward shift in interest rates	(0.7)	5.1

There is no material difference between the interest rate risk profile for the Group and that for the Society.

The Group is not exposed to foreign currency risk.

The Society does not have any financial assets or liabilities that are offset with the net amount presented in the Statement of Financial Position as IAS 32

‘Financial Instruments – Presentation’ requires both an enforceable right to set off and the intention to settle on a net basis or to realise the asset and settle the

liability simultaneously. Neither of these conditions are met by the Society.

All financial assets and liabilities are presented on a gross basis in the Statement of Financial Position.

The Society centrally clears its derivative instruments, which requires it to enter into Credit Support Annexes (‘CSAs’) and which typically provide for the exchange

of collateral on a daily basis to mitigate net mark to market credit exposure.

The following table shows the impact on derivative financial instruments and repurchase agreements after collateral:

	2023	2023	2023	2022	2022	2022
Group and Society	Gross	Financial	Net amounts	Gross	Financial	Net amounts
	amounts	collateral *		amounts	collateral *
	£m	£m	£m	£m	£m	£m
Financial assets
Derivative financial instruments	105.2	(105.2)	-	142.6	(142.6)	-
Total financial assets	105.2	(105.2)	-	142.6	(142.6)	-
Financial liabilities
Derivative financial instruments	43.9	(43.9)	-	14.4	(14.4)	-
Total financial liabilities	43.9	(43.9)	-	14.4	(14.4)	-

* Financial collateral disclosed is limited to the amount of the related financial asset and liability.

Fair value hedges

The Group holds a portfolio of fixed rate mortgages and savings products as well as fixed rate PIBS and therefore is exposed to changes in fair value due to

movements in market interest rates. The Group manages this risk exposure by entering into pay fixed / receive floating interest rate swaps for its loans to

customers and pay floating / receive fixed interest rate swaps to hedge its fixed rate liabilities.

Only the interest rate risk element is hedged and therefore other risks, such as credit risk, are managed separately but are not managed through hedged

derivative financial instruments by the Group. The interest rate risk component is determined as the change in the fair value of the long-term fixed rate

mortgages arising solely from changes in the appropriate 3-month benchmark rate of interest (SONIA). Such changes are usually the largest component of the

overall change in fair value. This strategy is designated as a fair value hedge and its effectiveness is assessed by comparing changes in the fair value of the loans

attributable to changes in the benchmark rate of interest with changes in the fair value of the loans attributable to changes in the benchmark rate of interest

with changes in the fair value of the interest rate swaps. The Group establishes the hedging ratio by matching the notional of the derivatives with the principal

of the portfolio being hedged. Possible sources of ineffectiveness are as follows:

• differences between the expected and actual volumes of prepayments, as the Group hedges to the expected repayment date taking into account expected

prepayments based on past experience;

• difference in the discounting between the hedged item and the hedging instrument, as cash collateralised interest rate swaps are discounted using the

relevant reference rate discount curves, which are not applied to the fixed rate mortgages; and

• hedging derivatives with a non-zero fair value at the date of initial designation as a hedging instrument.

___________________________________________________________________________________________

Notes to the Accounts

Page | 92 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Market and interest rate risk (continued)

Fair value hedges (continued)

The exposure from this portfolio frequently changes due to new loans originated, contractual repayments and early prepayments made by customers in each

period. As a result, the Group adopts a dynamic hedging strategy (sometimes referred to as a ‘macro’ or ‘portfolio’ hedge) to hedge the exposure profile by

closing and entering into new swap agreements at each month-end. The Group uses the portfolio fair value hedge of interest rate risk to recognise fair value

changes related to changes in interest rate risk in the relevant portfolio, and therefore reduce the profit or loss volatility that would otherwise arise from

changes in fair value of the interest rate swaps alone.

The following table details the hedging instruments included in the derivative financial instruments line of the Group’s Consolidated Statement of Financial

Position:

	2023	2023	2023	2023
Group and Society				Changes in fair
	Contract /			value used for
	notional	Fair value of	Fair value of	calculating hedge
	amount	Assets	Liabilities	ineffectiveness
	£m	£m	£m	£m
Derivatives designated as fair value hedges for interest rate risk (Note 13)
Fixed rate mortgages	2,087.0	88.8	(24.9)	74.5
Fixed rate savings	325.0	2.3	(2.9)	(3.5)
Subscribed capital	-	-	-	-
	2,412.0	91.1	(27.8)	71.0

	2022	2022	2022	2022
Group and Society				Changes in fair
	Contract /			value used for
	notional	Fair value of	Fair value of	calculating hedge
	amount	Assets	Liabilities	ineffectiveness
	£m	£m	£m	£m
Derivatives designated as fair value hedges for interest rate risk (Note 13)
Fixed rate mortgages	1,993.0	134.8	(2.6)	93.4
Fixed rate savings	139.0	-	(4.8)	(4.3)
Subscribed capital	-	-	-	-
	2,132.0	134.8	(7.4)	89.1

The following table details the hedge exposures covered by the Group’s hedging strategies:

	2023	2023	2023	2023	2023	2023
Group and Society						Change in fair
						value of hedged
				Accumulated amount of fair		item for
		Carrying amount of hedged	value adjustments on the		Balance Sheet	ineffectiveness
		Item		hedged item	line item	assessment
	Assets	Liabilities	Assets	Liabilities
	£m	£m	£m	£m		£m
Hedged items in fair value hedges for interest rate risk (Note 13)
Fixed rate mortgages	2,206.0	-	(39.4)	-	Loans & advances	63.2
					to customers
Fixed rate savings	-	351.1	-	1.4	Shares	(3.4)
Subscribed capital	-	-	-	-	Subscribed capital	-
	2,206.0	351.1	(39.4)	1.4		59.8

___________________________________________________________________________________________

Notes to the Accounts

Page | 93 Annual Report & Accounts 2023 Nottingham Building Society

31 Financial instruments (continued)

Market risk (continued)

Fair value hedges (continued)

	2022	2022	2022	2022	2022	2022
Group and Society						Change in fair
						value of hedged
				Accumulated amount of fair		item for
		Carrying amount of hedged	value adjustments on the		Balance Sheet line	ineffectiveness
		Item		hedged item	item	assessment
	Assets	Liabilities	Assets	Liabilities
	£m	£m	£m	£m		£m
Hedged items in fair value hedges for interest rate risk (Note 13)
Fixed rate mortgages	2,093.5	-	(109.2)	-	Loans & advances	(83.2)
					to customers
Fixed rate savings	-	138.4	-	4.7	Shares	4.4
Subscribed capital	-	-	-	-	Subscribed capital	-
	2,093.5	138.4	(109.2)	4.7		(78.8)

The following table contains information regarding the effectiveness of the hedging relationships designated by the Group, as well as the impacts on profit or

loss:

	2023	2023
Group and Society	Hedge ineffectiveness
	recognised in Income	Income Statement line item that includes
	Statement	reclassified amount
	£m
Fair value hedges
Interest rate swaps
Fixed rate mortgages	(11.2)	Net losses from derivative financial instruments
Fixed rate savings	0.1	Net losses from derivative financial instruments
	(11.1)

	2022	2022
Group and Society	Hedge ineffectiveness
	recognised in Income	Income Statement line item that includes
	Statement	reclassified amount
	£m
Fair value hedges
Interest rate swaps
Fixed rate mortgages	10.1	Net gains from derivative financial instruments
Fixed rate savings	(0.1)	Net gains from derivative financial instruments
	10.0

___________________________________________________________________________________________

Notes to the Accounts

Page | 94 Annual Report & Accounts 2023 Nottingham Building Society

32 Capital structure

The Society’s policy is to maintain a strong capital base to maintain member, creditor and market confidence and to sustain future development of the business.

The formal Internal Capital Adequacy Assessment Process (‘ICAAP’) assists the Society with its management of capital. Through its quarterly business plan update

the Board monitors the Society’s capital position to assess whether adequate capital is held to mitigate the risks it faces in the course of its business activities.

The Society’s actual and expected capital position is reviewed against stated risk appetite which aims to maintain capital at a specific level above its Total Capital

Requirement (‘TCR’).

The Board manages the Society’s capital and risk exposures to maintain capital in line with regulatory requirements which includes monitoring of:

• Lending and business decisions - the Society uses application scorecards to help it assess whether mortgage applications fit within its appetite for credit

risk. Once loan funds have been advanced, behavioural scorecards are used to review the ongoing risk profile of both the portfolios and individual

customers. In addition, for residential and buy-to-let mortgages property values are updated on a quarterly basis.

• Pricing - pricing models are utilised for all mortgage product launches. The models include expected loss estimates and capital utilisation enabling the

calculation of a risk adjusted return on capital.

• Concentration risk - the design of retail products takes into account the overall mix of products to ensure that exposure to market risk remains within

permitted parameters.

• Counterparty risk – wholesale lending is only carried out with approved counterparties in line with the Society’s lending criteria and is subject to a range

of limits. The limits are monitored daily to ensure the Society remains within risk appetite.

This is subjected to regular stress tests to ensure the Society maintains sufficient capital for future possible events.

The Society’s regulatory capital consists of independently verified general reserves, accumulated gains and losses recognised in the fair value reserve and IFRS

9 transitional adjustments; less adjustments in relation to intangible assets, deferred tax and assets / liabilities held at fair value. Further information can be

found in the Pillar 3 disclosures which are published on the Society’s website.

The Group’s capital requirements are set and monitored by the PRA. During 2023, the Society has complied with the requirements included within the Capital

Requirements Directive V (Basel III). Further details of these requirements and their impact on the Society are provided in the Strategic Report on page 13.

There were no reported breaches of capital requirements during the year. There have been no material changes in the Society’s management of capital during

the year.

Under Basel III Pillar 3, the Society is required to publish further information regarding its capital position and exposures. The Society’s Pillar 3 disclosures are

available on our website.

33 Related party transactions

Transaction with Group companies

During the year, The Nottingham has received £0.1 million (2022: £0.1 million) in fees for providing cash manager and mortgage servicer fees to Arrow Mortgage

Finance No.1 Limited.

Movement on the intercompany balances are disclosed in Note 16.

At the end of the year the following balances were outstanding between the Society and its subsidiaries:

	2023	2023	2022	2022
	Amount owed to	Amount owed by	Amount owed to	Amount owed by
	subsidiaries	subsidiaries	subsidiaries	subsidiaries
	£m	£m	£m	£m
Arrow Mortgage Finance No. 1 Limited	(266.9)	33.4	(109.3)	26.6
	(266.9)	33.4	(109.3)	26.6

Interest accrues on the balances outstanding with Arrow Mortgage Finance at SONIA plus a margin. The repayment of the loan will follow the collection of the

principal and interest of the underlying mortgage assets, used as security and has a contractual maturity within two years.

___________________________________________________________________________________________

Notes to the Accounts

Page | 95 Annual Report & Accounts 2023 Nottingham Building Society

33 Related party transactions (continued)

Transactions with key management personnel

Transactions with key management personnel are on the same terms and conditions applicable to members and other employees within the Group. The

Directors are considered to be the only key management personnel as defined by IAS 24, which includes Non-Executive Directors.

Compensation for key management personnel for the year totalled £1.5 million (2022: £1.2 million) and a breakdown is disclosed on page 43 in the Directors’

Remuneration Report.

In addition, the following transactions were undertaken through the normal course of business:

	2023	2023	2022	2022
		Amounts in		Amounts in
	Number of key	respect of key	Number of key	respect of key
	management	management	management	management
	personnel and	personnel and	personnel and	personnel and
	their close family	their close	their close family	their close
	members	family members	members	family members
Group and Society	Number	£000	Number	£000
Loans and advances*
Net movements in the year	-	-	(2)	(107)
Balances outstanding 31 st December	-	-	-	-
Share accounts
Net movement in the year	2	122	-	29
Balances outstanding 31 st December	9	286	7	164
Subscribed capital
Net movement in the year	-	(2)	(1)	(6)
Balances outstanding 31 st December	1	5	1	7
Interest receivable on loans and advances		-		-
Interest payable on share accounts		-		-
Interest payable on subscribed capital		-		-

*The loan related to a director, or connected person, who resigned from his post in 2022.

Directors’ loans and transactions

As at 31

December 2023 there were no (2022: no) outstanding secured mortgage loans made in the ordinary course of business at a normal commercial rate to

Directors and their connected persons. A register is maintained at the head office of the Society that shows details of all loans, transactions and arrangements

with Directors and their connected persons. A statement of the appropriate details contained in the register, for the financial year ended 31

December 2023,

will be available for inspection at the head office for a period of 15 days up to and including the Annual General Meeting.

___________________________________________________________________________________________

Notes to the Accounts

Page | 96 Annual Report & Accounts 2023 Nottingham Building Society

34 Notes to the cash flow statements

		2023	2022
Group and Society	Notes	£m	£m
Changes in liabilities arising from financing activities
Subscribed capital at 1 st January		23.9	23.9
Accrued interest		1.9	1.9
Interest paid		(1.9)	(1.9)
Balance at 31 st December	29	23.9	23.9

35 Loan commitments

	2023	2022
Group and Society	£m	£m
Mortgage commitments	198.4	281.5
Committed facilities to fintech mortgage provider	64.1	170.0
Balance at 31 st December	262.5	451.5

The Society has entered into a strategic partnership with a fintech mortgage provider and the outstanding balance from this commitment is presented above.

36 Registered office

The Nottingham is a building society, incorporated and domiciled in the UK. The address of its registered office is Nottingham House, 3 Fulforth Street,

Nottingham, NG1 3DL.

___________________________________________________________________________________________

Annual Business Statement

Page | 97 Annual Report & Accounts 2023 Nottingham Building Society

1 Statutory percentages

2023

Statutory

limit

Lending limit

Proportion of business assets not in the form of loans fully secured on residential property

12.21

Funding limit

Proportion of shares and borrowings not in the form of shares held by individuals

14.05

The percentages are calculated in accordance with, and the statutory limits are those prescribed by, sections 6 and 7 of the Building Societies Act 1986 and

are based on the Group Statement of Financial Position.

Business assets are the total assets of the Society and its subsidiary undertakings as shown in the Group’s Statement of Financial Position plus impairment for

losses on loans and advances (Note 15), less property, plant and equipment, intangible assets and liquid assets.

Loans fully secured on residential property are the amount of principal owing by borrowers and interest accrued not yet payable.

Total ‘shares and borrowings’ are the aggregate of ‘shares’, ‘amounts owed to credit institutions’, ‘amounts owed to other customers’ and ‘debt securities in

issue’ in the Group’s Statement of Financial Position. Shares held by individuals are found in Note 21.

2 Other percentages

2023

2022

As a percentage of shares and borrowings:

Gross capital

6.45

7.24

Free capital

6.07

6.66

Liquid assets

19.31

20.39

As a percentage of mean total assets:

Profit after taxation

0.20

0.44

Management expenses (Group)

1.42

1.44

Management expenses (Society)

1.42

1.43

As a percentage of year-end assets

Return on assets

0.19

0.42

The above percentages have been calculated from the Group’s financial statements.

‘Shares and borrowings’ are the aggregate of ‘shares’, ‘amounts owed to credit institutions’, ‘amounts owed to other customers’ and ‘debt securities in issue’

in the Group Statement of Financial Position.

‘Gross capital’ is the aggregate of subscribed capital and aggregated reserves as shown in the Group Statement of Financial Position.

‘Free capital’ is gross capital less property, plant and equipment, lease assets and intangible assets in the Group Statement of Financial Position.

‘Mean total assets’ are calculated by halving the aggregate of total assets at the beginning and end of the financial year for the Group / Society.

‘Liquid assets’ are the first three items on the asset side of the Group Statement of Financial Position.

‘Management expenses’ are the aggregate of administrative expenses (excluding acquisition and merger costs) and depreciation and amortisation taken from

the Group / Society Statements of Comprehensive Income.

___________________________________________________________________________________________

Annual Business Statement

Page | 98 Annual Report & Accounts 2023 Nottingham Building Society

3 Information about the Directors at 31

December 2023

Director’s name

Date of appointment

Age

Business occupation

Other directorships and offices

Robin Ashton

01.12.23

Director

Domestic and General Limited

Domestic and General Insurance Europe AG

Paul Astruc

21.06.22

Director

Rocket Sense Limited

Simon Baum

Chief Risk Officer

18.06.18

Building Society

Executive

Baum Associates Ltd

Sue Hayes

Chief Executive

08.03.22

Building Society

Executive

UK Finance Mortgage Board

Simon Linares

01.12.19

Director

Dreams Come True charity

Reflective Limited

Andrew Neden

Chair

17.09.14

Director

ABC International Bank plc

Aetna Insurance Company Ltd

Eltham College Ltd

Grace Church Dulwich Ltd

Kingdom Bank Limited (from December 2023)

Northgate (Warwick) Developments Ltd

The Great St Helen’s Trust Ltd (renamed to Gospel

Support and Homes Trust from February 2023)

Wesleyan Assurance Society (and subsidiaries) – until

November 2023

ClearBank UK Ltd (from January 2024)

Anthony Murphy

Chief Financial Officer

23.06.23

Building Society

Executive

Bournemouth University

Peter O’Donnell

01.01.21

Director

Cardiac Risk in the Young

Queen Victoria Hospital

Kavita Patel

01.01.17

Director

Ampa Holdings LLP

Foresight Enterprise VCT PLC

Meaujo Incorporations Ltd

Philsec Ltd

Shakespeare Martineau LLP

Sprecher Grier Halberstam LLP

Kerry Spooner

01.09.16

Non-Executive

ANZ UK branch

The Bank of Nova Scotia, London Branch

Directors’ service contracts:

All contracts are terminable at any time by the Society on 12-months’ notice and by the individual on six months’ notice. Unless notice to terminate is given

by either party, the contracts continue automatically.

___________________________________________________________________________________________

Glossary

Page | 99 Annual Report & Accounts 2023 Nottingham Building Society

Set out below are the definitions of the terms used within the Annual Report and Accounts to assist the reader and to facilitate comparison with other

financial institutions:

Additional Tier 1 capital (‘AT1’)

Capital that meets certain rules under CRD and which comprises the Society’s PIBS but only

under the transitional provisions.

Arrears

A customer is in arrears when they are behind in meeting their contractual obligations with

the result that an outstanding loan payment is overdue. The value of the arrears is the value

of any payments that have been missed.

Basel III

Basel III sets out the details of strengthened global regulatory standards on bank capital

adequacy and liquidity.

Buy-to-let loans (‘BTL’)

Buy-to-let loans are those loans which are offered to customers buying residential property

specifically to let out and generate a rental income.

Capital Requirements Directive (‘CRD’)

CRD is made up of the Capital Requirements Regulation (‘CRR’) and the Capital Requirements

Directive, outlining the capital requirements framework and introduced liquidity

requirements, which regulators use when supervising firms.

Common Equity Tier 1 capital

(‘CET1’)

CET1 capital consists of internally generated capital generated from retained profits, other

reserves less intangible assets and other regulatory deductions. CET1 capital is fully loss

absorbing.

Common Equity Tier 1 ratio

Common Equity Tier 1 capital as a percentage of risk weighted assets.

Contractual maturity

The date at which a loan or financial instrument expires, at which point all outstanding

principal and interest is due.

Cost income ratio

A ratio that represents the proportion of administrative expenses to total income. On an

underlying basis, is defined as total administrative expenses (excluding one-off strategic

investment costs) as a percentage of total income (excluding the impact of fair value gains or

losses from derivatives and one off income).

Credit risk

This is the risk that a customer or counterparty fails to meet their contractual obligations.

Debt securities

Assets representing certificates of indebtedness of credit institutions, public bodies or other

undertakings excluding those issued by central banks.

Debt securities in issue

Transferable certificates of indebtedness of the Society to the bearer of the certificates.

These are liabilities of the Group and include certificates of deposit.

Derivative financial instruments

A derivative financial instrument is a contract between two parties whose value is based on

an underlying price or index rate it is linked to, such as interest rates, exchange rates or stock

market indices. The Society uses derivative financial instruments to hedge its exposure to

interest rate risk.

Effective interest rate method (‘EIR’)

The method used to measure the carrying value of a financial asset or liability and to allocate

associated interest income or expense over the relevant period. The calculation includes all

fees and penalties paid and received between parties which are integral to the contract.

Expected Credit Loss (‘ECL’)

The present value of all cash shortfalls over the expected life of the financial instrument. The

term is used for accounting for impairment provisions under the IFRS 9 standard.

Exposure

The maximum loss a financial institution might suffer if a borrower, counterparty or group

fails to meet their obligations.

Exposure at Default (‘EAD’)

A component of the IFRS 9 expected credit loss calculation. The EAD model calculates the

balance profile of each mortgage account over its expected behavioural lifetime.

Fair value

Fair value is the amount for which an asset could be exchanged or a liability settled, between

knowledgeable, willing parties in an arm’s length transaction.

Fair value through other comprehensive income

(‘FVOCI’)

Financial assets held at fair value on the Balance Sheet with changes in fair value being

recognised through other comprehensive income.

___________________________________________________________________________________________

Glossary (Continued)

Page | 100 Annual Report & Accounts 2023 Nottingham Building Society

Fair value through profit or loss (‘FVPL’)

Financial assets held at fair value on the Balance Sheet with changes in fair value being

recognised through the Income Statement.

Financial Conduct Authority

(‘FCA’)

The statutory body responsible for conduct of business regulation and supervision of UK

authorised firms.

Financial Services Compensation Scheme (‘FSCS’)

The UK’s compensation fund of last resort for customers of authorised financial services

firms. The FSCS may pay compensation to customers if a firm is unable, or likely to be

unable, to pay claims against it, usually because it has stopped trading or has been declared

in default. The FSCS is funded by the financial services industry. Every firm authorised by the

FCA is obliged to pay an annual levy, which goes towards its running costs and

compensation payments.

Fintech

A company whose purpose is to create technology enabled financial innovation.

Forbearance strategies

Strategies to support borrowers in financial difficulty, such as agreeing a temporary

reduction in the monthly payment, extending mortgage terms and a conversion to an

interest-only basis. The aim of forbearance strategies is to avoid repossession.

Free capital

The aggregate of gross capital and provisions for collective impairment losses on loans and

advances to customers less property, plant and equipment and intangible assets.

Funding limit

Measures the proportion of shares and borrowings (excluding the fair value adjustment for

hedged risk) not in the form of shares held by individuals. The calculation of the funding

limit is explained in the Annual Business Statement.

General reserves

The accumulation of the Society’s historic and current year profits which is the main

component of Common Equity Tier 1 capital.

Gross capital

The aggregate of general reserves, fair value reserves and subscribed capital.

Impaired loans

Loans where there is objective evidence that an impairment event has occurred, meaning

that the Society does not expect to collect all the contractual cash flows or expect to collect

them later than they are contractually due.

Interest rate risk

The risk of loss due to a change in market interest rates. Interest rate risk can have an

impact on Society’s mortgages and savings products.

Internal Capital Adequacy Assessment Process

(‘ICAAP’)

The Society’s own assessment, as part of Basel III requirements, of the levels of capital that

it needs to hold in respect of its regulatory capital requirements for risks it faces under a

business as usual scenario including stress events.

Internal Liquidity Adequacy Assessment Process

(‘ILAAP’)

The Society’s own assessment of the liquidity resources it requires to remain within the risk

tolerances it has set. This will include an evaluation of potential stresses based on multiple

market environments.

Lending limit

Measures the proportion of business assets not in the form of loans fully secured on

residential property.

Leverage ratio

The ratio of Tier 1 capital divided by the total exposures, which includes on and off Balance

Sheet items.

Liquid assets

Total of cash in hand, loans and advances to credit institutions, and debt securities.

Liquid assets ratio

A ratio that expresses liquid assets as a percentage of mean total assets.

Liquidity resources

Assets held to manage liquidity risk. Liquidity resources comprise cash and balances with the

Bank of England, UK Government securities and multilateral development banks, other

securities and bank deposits and Bank of England approved mortgage portfolios. Liquid

resources ratio is expressed as a percentage of shares, deposits and funding liabilities.

Liquidity risk

Liquidity risk is the risk that the Society is unable to meet its financial obligations as they fall

due or can only secure them at excessive cost. This risk arises from timing mismatches of

cash inflows and outflows.

Loan to value ratio (‘LTV’)

LTV expresses the amount of a mortgage as a percentage of the value of the property.

Loans past due

Loans on which a payment has not been made as of its due date.

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Glossary (Continued)

Page | 101 Annual Report & Accounts 2023 Nottingham Building Society

Loss Given Default (‘LGD’)

A component of the IFRS 9 expected credit loss calculation. The LGD model calculates the likely loss on

asset disposal that the Society would suffer if a default event were to occur in any given month over the

expected behavioural lifetime of a mortgage account.

Management expenses

The aggregate of administrative expenses, depreciation and amortisation.

Management expense ratio

A ratio that expresses management expenses as a percentage of mean total assets. On an underlying

basis, excludes one-off strategic investment costs.

Market risk

The risk that movements in market risk factors, including foreign exchange rates, interest rates, credit

spreads and customer-driven factors will create potential losses or decrease the value of the Society

Balance Sheet.

Mean total assets

Represents the amount produced by halving the aggregate of total assets at the beginning and end of the

financial year.

Member

A person who has a share investment or a mortgage loan with the Society.

Net interest income

The difference between interest receivable on assets and similar income and interest paid on liabilities

and similar charges.

Net interest margin

A ratio expressing net interest income as a percentage of mean total assets.

Operational risk

The risk of loss arising from inadequate or failed internal processes, people and systems, or from external

events.

Permanent interest bearing shares

(‘PIBS’) / Subscribed capital

Unsecured, deferred shares of the Society which rank behind the claims of all depositors, payables and

investing members of the Society. PIBS are also known as subscribed capital.

Probability of Default (‘PD’)

A component of the IFRS 9 expected credit loss calculation. An estimate of the probability that a

borrower will default on their credit obligation over a fixed time period. A 12 month ECL uses a 12 month

PD, whilst a lifetime ECL uses the estimated PD over the remaining contractual life of the loan.

Prudential Regulation Authority (‘PRA’)

The statutory body responsible for the prudential supervision of banks, building societies, insurers and

small number of significant investment firms in the UK. The PRA is a subsidiary of the Bank of England.

Renegotiated loans

Loans are classed as renegotiated where an agreement between a borrower and a lender has been made

to modify the loan terms either as part of an ongoing relationship or if the borrower is in financial

difficulties. The renegotiated loan may no longer be treated as past due or impaired.

Residential loans

Loans that are loaned to individuals rather than institutions and are secured against residential property.

Right-of-use asset

A lessee’s right to use an asset over the life of a lease. The cost of the asset is calculated as the amount of

lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the

commencement date less any lease incentives received.

Risk appetite

The articulation of the level of risk that the Society is willing to accept (or not accept) to safeguard the

interests of the Society’s members whilst also achieving business objectives.

Risk weighted assets (‘RWA’)

The value of assets, after adjustment, under the relevant Basel III capital rules to reflect the degree of risk

they represent.

Secured business lending (‘SBL’)

Loans secured on commercial property which is only made available to Small and Medium sized

Enterprises and includes limited company buy-to-let lending.

Funds deposited by a person in a retail savings account with the Society. Such funds are recorded as

liabilities for the Society.

Shares and borrowings

The aggregate of shares, amounts owed to credit institutions, amounts owed to other customers and

debt securities in issue.

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Significant increase in credit risk (‘SICR’)

A significant increase in credit risk on a financial asset is judged to have occurred when an assessment,

using quantitative and qualitative factors, identifies at a reporting date that the credit risk has moved

significantly since the last asset was originally recognised.

Special Purpose Vehicle (‘SPV’)

A legal entity (usually a limited company) created to fulfil narrow, specific or temporary objectives. In the

context of the Society, the SPV is used in relation to securitisation activities.

SPPI test

An assessment of whether the contractual terms of the financial asset give rise to cash flows that are in

substance solely payments of principal and interest.

Stage 1

A component of the IFRS 9 expected credit loss calculation. Stage 1 assets are assets which have not

experienced a significant increase in credit risk since the asset was originally recognised on the Balance

Sheet. 12-month ECL are recognised as the impairment provision for all financial assets on initial

recognition. Interest revenue is the EIR on the gross carrying amount.

Stage 2

A component of the IFRS 9 expected credit loss calculation. Stage 2 assets have experienced a significant

increase in credit risk since initial recognition. Lifetime ECL is recognised as an impairment provision.

Interest revenue is the EIR on the gross carrying amount.

Stage 3

A component of the IFRS 9 expected credit loss calculation. Stage 3 assets are identified as in default and

considered credit impaired. Lifetime ECL is also recognised as an impairment provision. Interest revenue

is the EIR on the net carrying amount.

Standardised approach

The basic method used to calculate capital requirements for credit risk. In this approach the risk weighting

used in the capital calculation are determined by specified percentages.

Term Funding Scheme (‘TFS’)

Term Funding with additional incentives

for SMEs (‘TFSME’)

Schemes launched by the Bank of England and HM Treasury, which provides funding to participating

banks and building societies with the aim of stimulating lending within the economy.

Tier 1 capital

A component of regulatory capital, it comprises CET1 and AT1.

Tier 1 ratio

Tier 1 capital as a percentage of risk weighted assets.

Tier 2 capital

Comprises the collective impairment allowance (for exposures treated on a Standardised basis), less

certain regulatory deductions.

Total Capital Requirement (‘TCR’)

The total amount of capital the regulator requires the Society to hold, which is made up of Pillar 1 and

Pillar 2A capital.

Underlying profit

A measure that aims to present Management’s view of the Group’s underlying performance for the

reader of the Annual Report and Accounts with like for like comparisons of performance across years

without the distortion of one-off volatility and items which are not reflective of the Group’s ongoing

business activities.

Wholesale funding

Amounts owed to credit institutions, amounts owed to other customers and debt securities in issue.