2016 Financial Results

Yorkshire Building Society Group has today announced a solid financial performance for 2016 as it continues to help people save for the future and buy a home of their own.

The UK's second largest building society remained true to its mutual values by growing both mortgages and savings balances at the same time as delivering a sustainable level of profit and further improving its capital position, while achieving improvements for customers.

With no external shareholders, the Society chose to forgo some of its potential profit in order to enhance rates offered to savers in a year when the Bank Rate reduced to an unprecedented low.

2016 Key Highlights:

  • Achieved a sustainable financial performance, with a profit before tax of £152m (2015: £173m) and a core operating profit of £128m (2015: £185m).
  • Further improved capital position, with Common Equity Tier 1 capital ratio rising to 14.9% (2015: 14.5%).
  • Increased leverage ratio to 5.1% (2015: 5.0%), well above the minimum requirement of 3.0%.
  • Protected savers by paying an average of 1.36% gross p/a interest on existing and new accounts against a market average of 0.98%[1] (2015: Society 1.40%; market average 1.21%), while increasing savings balances by £1.3bn (2015: -£0.2bn).
  • Achieved gross lending of £7.2bn (2015: £6.9bn) and net lending of £0.7bn (2015: £1.1bn).
  • Increased the proportion of house purchase mortgages to first-time buyers to 45% (2015: 37%), lending £1.3bn to those taking their first steps on to the housing ladder[2].
  • Ranked as one of the UK’s top three most trusted financial services providers[3].
  • Delivered an improved Net Promoter Score®[4] of +31[5] (2015: +29).

Mike Regnier, Yorkshire Building Society’s Chief Executive, said:

Against the backdrop of an extremely competitive market, I am very pleased we have once again delivered robust and sustainable growth in line with our plans.

As a mutual organisation, we’ve successfully achieved our primary responsibility of generating a sustainable level of profit and maintaining our financial security through strengthened capital, leverage and liquidity positions.

With no external shareholders to satisfy, all of our profits are retained or reinvested to provide our members with better rates and services. This gives us flexibility to allocate resources in ways that benefit our customers. In an extraordinarily difficult market for savers, we have therefore chosen to forgo potential profits to protect savings rates as far as possible, while continuing to offer market-leading mortgages. I’m proud that we’ve helped first-time buyers to take their first steps on to the property ladder 6,400 times this year, and we increased gross mortgage lending overall.

Throughout 2016, we’ve continued to invest in the business to improve the service and value we provide to our customers. This has included helping borrowers who may find it less straight-forward to access a traditional mortgage, including self-employed customers and single parents, by taking a principle-based, common-sense approach to lending.

These improvements have also helped support our intermediary lending through Accord Mortgages, which achieved significant enhancements in service including reducing average application to offer times by five days. This has resulted in materially increased broker satisfaction.

As a mutual organisation, it’s paramount that we are delivering good long-term value to our members, who are also our customers, while providing the services they want and need. The market is evolving, with our customers increasingly wanting to transact with us digitally, rather than branches. Last year, only 23% of our customers transacted in one of our branches.

We’ve recently announced a number of changes which reflect our customers’ evolving needs and will ensure we continue to operate efficiently and sustainably for the future. As we realise the benefits of the initiatives we’ve put in place to improve value and service for customers we expect to see a reduction in costs.

The uncertainty caused by Brexit has impacted confidence and makes economic forecasting for the next five to ten years even more difficult than usual. As a UK-focused business, we believe the UK’s withdrawal from the European Union should not materially affect our core mortgages and savings activities, aside from any impact on the wider economy and regulatory environment.

We expect the market to remain increasingly competitive this year but we are in an excellent position to make the most of the opportunities presented by this environment. Our strategy is to continue to prioritise delivering good long-term value to our membership and maintaining a strong and sustainable business for the future. We will do this by focusing on our core business areas of helping people save for their futures and supporting them in buying a home of their own.

2016 Annual Results Summary:

  • Achieved sustainable performance and continued financial strength
  • Achieved a sustainable financial performance, with a profit before tax of £152m (2015: £173m) and a core operating profit of £128m (2015: £185m).
  • Increased total assets to £39.6bn (2015: £38.2bn).
  • Maintained liquid balances comfortably above regulatory requirements at £4.7bn (2015: £4.4bn).
  • Strengthened total capital ratio to 17.3% (2015: 16.8%).
  • Increased leverage ratio to 5.1% (2015: 5.0%), well above the minimum requirement of 3.0%.
  • Achieved net interest margin of 1.22% (2015: 1.41%), in line with our plan.
  • Delivered an increased cost-to-income ratio of 67% (2015: 63%), reflecting continued investment in the business and reduced net interest margin.
  • Supported customers with overdue repayments and reduced the number of accounts in arrears by more than three months (including possessions) to 0.76% (2015: 0.96%), well below the industry average of 1.03%.
  • Successfully issued two bonds as part of our continued wholesale funding strategy, demonstrating continued market confidence in the Group.

 

Delivered a market-leading customer experience

  • Ranked as one of the UK’s top three most trusted financial services providers[6].
  • Delivered an improved Net Promoter Score®4 of +315 (2015: +29).
  • Delivered excellent levels of customer service, maintaining 27th position for customer experience out of 287 UK brands[7].
  • Protected savers by paying an average of 1.36% gross p/a interest on existing and new accounts against a market average of 0.98%[8] (2015: Society 1.40%; market average 1.21%), while increasing savings balances by £1.3bn (2015: -£0.2bn).
  • Achieved gross lending of £7.2bn (2015: £6.9bn) and net lending of £0.7bn (2015: £1.1bn).
  • Increased the proportion of house purchase mortgages to first-time buyers to 45% (2015: 37%), lending £1.3bn to those taking their first steps on to the housing ladder[9].
  • Offered a range of competitive savings accounts to customers, with 114,000 new savings accounts opened.
  • Completed 27,229 mortgages[10] (2015: 29,689), including 6,398 to first-time buyers (2015: 6,306).
  • Improved our mortgage underwriting service, to reduce mortgage offer times further from 16 to 11 days[11].
  • Distributed lending in a diversified way, supporting small and medium size enterprises, registered social landlords and buy-to-let investors.
  • Won 15 industry awards for our products, services and charitable support, including First-time Mortgage Buyers’ Choice (Consumer Moneyfacts Awards 2016), Best Building Society Mortgage Provider (Moneyfacts Awards 2016) and Business of the Year (Third Sector Business Charity Awards 2016).

Our people making a positive impact on communities

  • Worked with members and colleagues to raise just over £320,000 for Marie Curie, to achieve a total of £1.15m for the duration of our charity partnership, funding more than 57,500 hours of nursing care.
  • Donated over £1.3m based on savers’ affinity account balances to charities and local clubs.
  • Supported 64% of colleagues in volunteering (2015: 35%), with 86% reporting an increase in teamwork skills as a result of sharing their abilities and experience with good causes.
  • Helped our colleagues to deliver more than 182 financial education courses to more than 4,700 school pupils throughout the UK in the first year of the Society’s Money Minds scheme.
  • Recruited 12 young people for two-year apprenticeships at our head office and Bradford branch, enabling these 16 to 20-year-olds to build their career in financial services.
  • Increased focus on sustainability and environment including recycling 90% of all waste across the Group.
  • Generated in the region of 350,000 kWh of electricity through solar panels at our offices in Bradford and Peterborough, contributing to a carbon reduction of 8% since 2012 and achieving CarbonNeutral® status in 2016.
  • Yorkshire Building Society Charitable Foundation donated £554,000 to charities and good causes, largely funded by members donating pennies as part of the Small Change Big Difference™ scheme.
PR20-17

 

Reconciliation of Core Operating Profits

2016

2015
 

 £m

 £m

     

Statutory Profit before tax

151.5

173.3

Reverse out the following items:

    
     

FSCS levy

4.6

11.5

Non-core investments

(0.6)

0.7

Timing differences - fair value volatility

(0.3)

5.8

Mergers – adjustments to balances acquired

(2.8)

(4.1)

Other non-core items

(24.4)

(1.9)

Core Operating Profit

128.0

185.3

     
     

Group Income Statement

2016

2015
 

 £m

 £m

     

Net interest income

       475.6

       534.6

Net gains/ (losses) from fair value volatility

0.9

(6.5)

Net realised profits

1.8

2.1

Non-interest income

36.3

18.0

Total income

514.6

548.2

     

Administrative expenses

(346.0)

(346.1)

Operating profit before provisions

168.6

202.1

     

Provisions

(17.1)

(28.8)

Profit before tax

151.5

173.3

     

Tax expense

(37.3)

(34.8)

Net profit

114.2

138.5
     

Group Statement of Comprehensive Income

2016

2015

 £m

 £m

     

Net profit

114.2

138.5
     

Items that may subsequently be reclassified to profit and loss

    

Available-for-sale investments:

    

Valuation gains taken to equity

9.0

12.3

Amounts transferred to income statement (included in net realised profits)

(0.7)

(10.6)

Tax on available for sale securities

(2.3)

(0.3)

Effect of change in corporation tax rate

0.3

             -  

Cash Flow hedges:

    

(Losses) / gains taken to equity

(25.7)

7.5

Amounts transferred to income statement (included in net realised profits)

46.0

7.1

Tax on cash flow hedge reserve

(5.7)

(3.0)

Effect of change in corporation tax rate

0.3

1.9
     

Items that will not be reclassified subsequently to profit and loss

    

Remeasurement of net retirement benefit obligations

(27.0)

(9.5)

Tax relating to retirement benefit obligations

7.6

1.9

Effect of change in corporation tax rate

             -  

(3.3)

Effect of change in corporation tax rate on prior year movements in general reserves

             -  

2.1

 

    

Total comprehensive income for the year

116.0

144.6
     

Group Statement of Financial Position

2016

2015
 

 £m

 £m

     

Liquid assets

4,675.9

4,404.7

Loans and advances to customers

34,103.3

33,321.7

Derivative financial instruments

540.5

180.1

Fixed and other assets

275.8

312.1

Total Assets

39,595.5

38,218.6

Shares

28,693.2

27,396.4

Borrowings

7,916.9

7,955.5

Derivative financial instruments

348.0

340.9

Other liabilities

112.8

128.1

Subscribed capital

6.7

6.7

Subordinated liabilities

297.0

286.1

Reserves

2,220.9

2,104.9

Total Liabilities

39,595.5

38,218.6

     

Key ratios

2016

2015
 

 %

 %

     

Net Interest Margin

1.22

1.41

Management expenses/Mean Assets

0.89

0.91

Asset growth

3.60

1.72

Loans and advances growth

2.35

3.37

Member balance growth

4.73

0.57

Liquidity ratio

12.77

12.46

Funding ratio

21.62

22.50

Gross Capital

6.90

6.78

Free Capital

6.50

6.33

Total Capital Ratio

17.27

16.80

Common Equity Tier 1 ratio

14.95

14.50

Leverage Ratio

5.10

4.95

Cost Income ratio

67.23

63.14

 

[1] Average rates based on Savings stock from CACI’s Current Account and Savings Database (CSDB), currently covering 85% of retail savings market (based on stock value). Data as at 31 October 2016.

 

[2] Excludes commercial lending, social housing lending and residential lending through Norwich & Peterborough Building Society.

 

[3] YBS Brand Tracker, conducted by YouGov; based on 12-month average January to December 2016.

 

[4] Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.

 

[5] Nunwood Customer Voice Programme, 12-month score, January to December 2016, based on interviews with 29,290 customers.

 

[6] YBS Brand Tracker, conducted by YouGov; based on 12-month average January to December 2016.

 

[7] Nunwood Consulting - Nunwood Customer Experience Excellence Centre Top 100 UK Brands 2016, 287 companies were subject to the study but only the top 100 is published.

 

[8] Average rates based on Savings stock from CACI’s Current Account and Savings Database (CSDB), currently covering 85% of retail savings market (based on stock value). Data as at 31 October 2016.

 

[9] Excludes commercial lending, social housing lending and residential lending through Norwich & Peterborough Building Society.

 

[10] Excludes further advances and buy-to-let.

 

[11] Reduction applies to residential lending through Accord Mortgages Ltd.