2008 Financial Results

One of the UK's strongest savings institutions

Yorkshire Building Society has delivered another solid performance and remains one of the UK's strongest savings institutions in a year of unprecedented turmoil in the financial markets. Its exceptionally strong Tier 1 capital position improved further during the year, without recourse to taxpayer recapitalisation, and its strong funding and liquidity positions were also strengthened.

The Society had no losses from the failed Lehman Bros or Icelandic banks. It has not lent in the commercial or buy-to-let mortgage market and has not acquired mortgage portfolios originated by other lenders. The Society also protected savers by not passing on the full impact of the Bank of England base rate cuts, which over the course of a year will make its savers £50m better off than they would have otherwise been.

The Yorkshire's performance has not been immune to the global banking crisis or the economic recession, but its underlying financial strength means it is very well placed to weather the current storm.

Key highlights in 2008:

  • One of the strongest capital ratios in the sector, without raising capital from the government or the market
  • Strong liquidity and funding position maintained - one of the lowest levels of wholesale funding in the industry
  • Management expense ratio reduced for third successive year
  • Merger with Barnsley Building Society completed
  • Saving members protected from full impact of base rate cuts
  • Member savings balances increased by £1.2bn
  • Growth in savings balances was more than four times the growth in mortgage balances
  • No exposure to the riskier commercial, buy-to-let or unsecured markets
  • Group remains profitable, with core operating profit at £53m - pre-tax profit at £8.3m, impacted in part by the Financial Services Compensation Scheme (FSCS) charge for the failures of Bradford & Bingley, Icelandic and London Scottish banks
  • Retail network expansion, with two new Yorkshire branches opened (Solihull and Wolverhampton) and acquisition of eight branches through the Barnsley merger
  • In a year of unprecedented uncertainty, YBS customer satisfaction survey shows that once again 9 out of 10 members trust the Society enough to recommend it to their friends and family

Financial Results

  • Solvency ratio of 14.8%, and Tier 1 ratio at 14.1% (of which 12.0% is Core Tier 1)
  • Liquid assets increased to £5.3bn (25% of Shares, Deposits and Loans), prudential liquidity maintained above regulatory requirement
  • Group assets up to £23bn
  • Mortgage loan growth of 3.7%
  • Increase in member savings balances of £1.2bn (including Barnsley merger) compared to an increase in net lending of £0.3bn
  • Total retail savings balances fund over 88% of the Group's total mortgage assets
  • Underlying non-interest income broadly maintained at 2007 levels despite reduction in mortgage lending
  • Management expense ratio reduced to just 0.56% - over 20% improvement in cost efficiency since 2005
    • Group core operating profit £53m - profit before tax £8.3m, after the impact of:
    • a £14.7m charge through the FSCS for the failures of the Icelandic, Bradford & Bingley and London Scottish banks
    • impact of fair value and changes to the market value of our residual structured investment portfolio
    • cost of maintaining high levels of liquidity
    • not passing on the full rate cuts to savers
    • prudent mortgage provisioning
  • No exposure to the riskier commercial, buy-to-let or unsecured mortgage markets and no purchased loan portfolios from other lenders
  • Group's averaged indexed loan to value at 50%
  • Group mortgage accounts greater than 3 months in arrears 1.59%, below the industry average of 1.88%, and growing at a slower rate than the industry
  • Arrears of over 12 months and possessions at 0.30% compared to the industry average of 0.46%

  • Other highlights in 2008:

    • The launch of an award winning online savings application service
    • The Society's Charitable Foundation supported almost 2,000 local charity and community groups, donating over £400,000
    • An additional 23 companies chose the Yorkshire to administer their new Sharesave Schemes
    • Recognised with a number of industry awards, including:
      • Best Arrears and Debt Management Strategy - Mortgage Finance Gazette
      • Award for Innovation - ifs School of Finance
      • 5 Star Award for Service - Financial Adviser

    Iain Cornish, Chief Executive of Yorkshire Building Society said:

    The Yorkshire reacted extremely early to a crisis which began in mid-2007 and intensified throughout 2008. Our capital and our funding position are amongst the very strongest in the UK financial sector, we have increased even further our already substantial holdings of high quality liquid assets and we have never been active in the buy-to-let, commercial lending or mortgage portfolio acquisition markets - parts of the market which appear to be suffering most as the recession begins to bite.

    At a time when competition for retail funds has been particularly aggressive, we have grown our retail member savings balances by £1.2bn, more than enough to fund all our mortgage growth in 2008 and without having to resort to unsustainable savings rates. Our commitment to savers is demonstrated by the fact that we haven't passed on the full impact of the Bank of England base rate cuts. As a result, over the course of a full year, our savers will be well over £50m better off than they would otherwise have been. Our core operating profits, although down, remain healthy, and much of the reduction reflects the deliberate decisions we have taken to increase liquidity, lend even more cautiously and protect savers - all of which impact directly on our margins. We have also increased our mortgage loss provisions to reflect our belief that unemployment will rise further and house prices will fall significantly again in 2009.

    Our pre-tax profits have been affected by the extraordinary market conditions in which we have had to operate. We have been adversely impacted by the cost imposed on us for the bailout of the failed Icelandic, Bradford & Bingley and London Scottish banks through the Financial Services Compensation Scheme. I believe that our proportion of these costs, as a building society, is disproportionate and we are lobbying hard to protect our members from further inequitable payments. I am delighted that over 150 MPs have signed the Early Day Motion on this, tabled by one of our local MPs, Ann Cryer. We also hold a small portfolio of structured treasury investments that have adversely affected profits this year, although many of these investments continue to perform and yield a good return. The portfolio accounts for only around 0.3% of the Society's total assets, equivalent to only 0.7% of the Group's very strong solvency ratio of 14.8%.

    The outlook for 2009 is every bit as challenging as we saw in 2008 however the exceptional strength of our capital, liquidity and funding positions mean we continue to be very well placed. As a mutual, our primary focus is on serving our members' interests. In this climate that means maintaining our financial strength and doing everything we can to help savers and borrowers through these very difficult times. Our capital strength in particular gives us the flexibility to do this, even at the expense of short term profitability.