Annual Financial Report Released : 05/06/2019 07:00:00 RNS Number : 1454B NRAM Ltd 05 June 2019 NRAM Limited 05 June 2019 RESULTS ANNOUNCEMENT NRAM Limited ('the Company') today issues its results for the year ended 31 March 2019. The Company is a subsidiary of UK Asset Resolution Limited ('UKAR'), the holding company established in 2010 to facilitate the orderly management of the closed mortgage books of both NRAM plc and Bradford & Bingley plc ('B&B'). The Company's full Annual Report & Accounts are available to view today on the UK Asset Resolution Limited website at www.ukar.co.uk/nram. The Annual Report & Accounts have also been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM. The Company is registered in England and Wales under company number 09655526. The Company and its subsidiary undertakings comprise the NRAM Limited Group. Overview The NRAM Limited Group and Company primarily operates as an asset manager holding mortgage loans secured on residential properties and other financial assets. No new lending is carried out. NRAM plc was taken into public ownership on 22 February 2008. During 2007 and 2008 loan facilities to NRAM plc were put in place by the Bank of England all of which were novated to Her Majesty's Treasury ('HM Treasury') on 28 August 2008. On 28 October 2009 the European Commission approved State aid to NRAM plc confirming the facilities provided by HM Treasury, thereby removing the material uncertainty over NRAM plc's ability to continue as a going concern which previously existed. On 1 October 2010 UKAR was established as the holding company for NRAM plc & B&B, bringing together the two brands under shared management and a common Board of Directors. Following the completion of legal and capital restructuring on 1 January 2010, NRAM1 no longer operates as a deposit taking institution under the supervision of the Financial Conduct Authority ('FCA'). It is now regulated by the FCA as a mortgage administration company and the Directors believe it has appropriate and adequate levels of capital to support these activities. B&B is responsible for the servicing of NRAM mortgages, with costs recharged to NRAM. B&B's mortgage servicing operations are outsourced to Computershare. UKAR's overarching objective is to develop and execute an investment strategy for disposing of its underlying investments in NRAM and B&B in an orderly and active way through sale, redemption, buy-back or other means within the context of protecting and creating value for the taxpayer as shareholder and, where applicable, as provider of financial support, paying due regard to the maintenance of financial stability and to acting in a way that promotes competition. Our mission to maximise value for the taxpayer is supported by four strategic objectives all of which are underpinned by the need to treat all our stakeholders fairly: · To reduce and protect the Balance Sheet; · To challenge and maximise cost-effectiveness and efficiency; · To work with our partners to ensure continued excellence in customer service and debt management; and · To be a great place to work. These strategic objectives continue to support our overarching objective and the successes achieved in those areas over the past 12 months are highlighted in this report. 1 In 2016, NRAM plc was acquired by affiliates of Cerberus Capital Management LP ('Cerberus') and the assets and liabilities not included in the transaction were transferred to a newly established subsidiary of UKAR, which is now known as NRAM Limited. Throughout this results announcement 'NRAM' refers to the underlying business and 'The Group' to the group headed by NRAM plc or NRAM Limited as appropriate. Highlights of 2018/19 During the year we have made significant progress against all our key objectives and overall mission of maximising value for the taxpayer. The key highlights are: · Balance Sheet reduced by a further £0.9bn bringing the total reduction to £62.8bn (90%) since formation of UKAR in 2010. · Government loan repayments of £1.2bn, bringing total repayments to £20.2bn since UKAR was formed. · On 29 March 2019 we agreed the sale of NRAM residential and unsecured assets to Citi for £4.9bn, which completed after the balance sheet date on 24 April 2019, enabling full repayment of the outstanding £1.5bn government loan. · Underlying profit before tax decreased by 38% to £190.3m, primarily reflecting a lower net impairment release on loans to customers and higher administrative expenses. · Statutory profit before tax of £321.1m, which included £162.7m profit on the sale of loans and a £31.4m charge in respect of customer redress provisions, primarily for Payment Protection Insurance ('PPI'). · Mortgage accounts three or more months in arrears, including possessions, have reduced by 17% since March 2018 to 1,6392. 2 When reporting arrears performance the Board consider it appropriate to include all loans under management, which includes loans under interim servicing arrangements, where the economic interest has been sold but legal title, and thus regulatory responsibility, remains with NRAM. Mortgage accounts three or more months in arrears, including possessions on loans retained by NRAM were 130 cases. Key performance indicators ('KPIs') In addition to the primary Financial Statements, we have adopted the following KPIs in managing business performance in the context of its strategic priorities. March 2019 March 2018 Underlying Profit Before Tax £190.3m £306.7m - Statutory Profit Before Tax 1 £321.1m £290.7m - Net Interest Margin on Average 3.48 3.13 Interest Earning Assets Government Loan Repayments £1.2bn £1.9bn - Government Loan Balance £1.5bn £2.7bn - Total Lending Balances 2 £1.9bn £7.3bn 3m+ Residential Arrears 3 1,639 1,963 - 3m+ Residential Arrears on loans retained 130 1,963 by NRAM - Residential Arrears Balance as a percentage of the Total Residential 0.06 0.31 Mortgage Balance - Residential Payments Overdue £1.2m £21.3m - Residential Arrears 3 months and over and possessions as a percentage of the book: - By value 1.34 4.51 - By number of accounts 0.91 3.39 Ongoing Administrative Expenses £69.4m £40.5m - Ratio of costs to average interest earning assets: - Statutory 0.97 0.47 - Ongoing 0.97 0.47 1 An analysis of the difference between statutory and underlying profit is provided below. 2 Total lending balances includes loans to customers and equity release mortgages. 3 3m+ arrears target includes loans managed under interim servicing arrangements. When reporting arrears performance the Board consider it appropriate to include all loans under management, which includes loans under interim servicing arrangements, where the economic interest has been sold but legal title, and thus regulatory responsibility, remains with NRAM. All loans under management are treated consistently, in line with the UKAR Group's customer service policies. However, from a Credit Risk perspective, it is only NRAM retained loans which are relevant. The March 2018 comparative includes equity release loans and assets classified as held for sale. Business review These financial results are for the year to 31 March 2019. Performance The Board continue to believe it is appropriate to assess performance based on the underlying profits of the business, which excludes the remediation of inherited regulatory defects and any associated legal or insurance claims and certain gains or losses such as the sale of assets at a discount or premium. Whilst these gains or losses permanently impact capital reserves, the Board does not believe that they reflect the performance of the underlying business. Also excluded are movements in fair value relating to financial instruments. The commentary on the results in this statement uses underlying profits and its components as the primary measure of performance. An analysis of the difference between the statutory profit and the underlying profit is provided below. Underlying profit for the year to March 2019 has decreased by £116.4m to £190.3m (March 2018: £306.7m). The reduction in underlying profit principally reflects a lower net impairment release on loans to customers and higher administrative expenses. For the year to March 2019, underlying net operating income has decreased by £35.2m to £241.4m (March 2018: £276.6m) due to lower income from the reducing Balance Sheet. For the year to March 2019 ongoing administrative expenses were £28.9m higher than the previous year at £69.4m (March 2018: £40.5m). Impairment on loans to customers for the year to March 2019 was a credit of £18.3m (March 2018: £70.5m credit). The Group adopted IFRS 9 'Financial Instruments' with effect from 1 April 2018. The prior year comparative was prepared under IAS 39 (see below for details). The number of mortgage accounts, including those managed under interim servicing arrangements, 3 or more months in arrears including possessions reduced by 17% compared to March 2018. For the year to March 2019, statutory profit before tax of £321.1m (March 2018: £290.7m) included a £162.7m profit on sale of customer loans and a £31.4m charge in respect of customer redress provisions. Reconciliation of underlying profit before taxation to statutory profit before taxation For the year ended 31 March 2019 2018 £m £m Net interest income 250.3 270.2 Underlying net non-interest income1 (8.9) 6.4 Underlying net operating income 241.4 276.6 Ongoing administrative expenses (69.4) (40.5) Net impairment release on loans to customers 18.3 70.5 Provision for insurance risk on equity release mortgages - (0.1) Net impairment release on investment securities - 0.2 Underlying profit before taxation 190.3 306.7 Unrealised fair value movements on financial instruments - 0.2 Non-recurring administrative expenses (0.5) - Provision for customer redress (31.4) (37.3) Legal and Insurance claims - 19.4 Profit on sale of loans 162.7 1.7 Statutory profit before taxation 321.1 290.7 1 Underlying net non-interest income includes net fee and commission income, net realised gains less losses on investment securities and other operating income.