2010 Financial Results

Yorkshire Building Society announce record financial results for the year ended 31 December 2010

Strong profitability and an increase in members

Yorkshire Building Society, Britain's second-largest building society, is pleased to report an extremely positive financial performance in 2010, underpinned by strong profitability, a robust capital position and an increase in new members. The results demonstrate the resilience of the Yorkshire throughout the recession and show that the Society has maintained one of the strongest financial positions of any major UK lender, whilst delivering long term value and financial security to customers.

The Society's financial strength has enabled it to take advantage of strategic opportunities, seeing it play a major role in strengthening the mutual sector by its successful mergers with Chelsea Building Society and Barnsley Building Society.

Key Member Benefits in 2010

  • Merged with Chelsea Building Society on 1 April 2010, following overwhelming approval from members of both societies
  • Capital strength returned to pre-merger levels a year ahead of plan - seeing the Society maintaining one of the strongest capital ratios of any UK bank or building society
  • Membership figures increased to approximately 2.6m (2m in 2009)
  • Opened over 270,000 new savings accounts by continuing to offer savers attractive rates, which are sustainable and balance the interests of existing and new members
  • Tripled new lending, demonstrating our commitment to be active in the mortgage market whilst maintaining our prudent lending policy and focus on prime, residential mortgages and high credit quality
  • Overwhelming majority of lending continues to be funded by customer savings (94%) (100% if reserves are included), with low reliance on wholesale funding
  • Continued to hold prudent levels of liquidity whilst improving the efficiency of liquidity management
  • Improved efficiency and underlying cost management
  • Continued expansion of retail network, growing our high street agencies by 6 as well as maintaining our national network of 178 branches
  • Committed to retain a presence in all communities where we currently have a branch

Financial Performance

The strong underlying performance of the Society and impact of the Chelsea merger from 1 April are reflected in the 2010 financial performance;

  • Significant increase in core operating profit, after mortgage provisions, £128.5m (£7.7m 2009), statutory operating profit £115.4m (loss of £12.5m 2009)
  • Total assets increased year on year by 32% to £30.1bn (£22.7bn in 2009)
  • Retail savings balances increased by over 55% to £21.4bn (£13.8bn in 2009)
  • Core tier 1 capital ratio 12.4% (12.2% 2009) having initially reduced as a result of the Chelsea merger, now higher than pre-merger levels
  • Prudent level of high quality liquidity maintained with Group liquidity at 21.1% (31.9% in 2009), as excess cash raised to fund the merger has been managed down over the year
  • Net interest margin 1.03% (0.65% 2009) Improved efficiency and cost management with underlying ManEx ratio at 0.51% (0.54% in 2009)
  • Group average indexed loan to value remains low at 56% (52%)
  • Asset quality maintained with the level of loans in arrears by 2.5% or more (including possessions) by volume stable at 1.64% (1.65% in 2009)
  • Successfully accessed the key Euro-denominated covered bond market in September, demonstrating market confidence in the Society and supporting our balanced funding strategy

Merger Activity

Excellent progress made, with integration well advanced

  • Planned milestones successfully achieved
  • Synergies ahead of plan
  • Significantly strengthened Chelsea's financial position
  • Extended Yorkshire's internet capabilities to Chelsea customers, thereby attracting new retail funds whilst offering long-term value and better service to members
  • Retained all Chelsea's 35 branches

Other highlights in 2010

  • Group average interest rate paid on cash ISAs was 2.21%, more than four times higher than the market average rate of 0.40%*
  • Over 80% of new mortgage lending completed on a fixed rate basis, with almost half on a term of three years or greater, providing protection to borrowers from anticipated interest rate rises
  • One in three of all new mortgages on an offset basis maximising the effectiveness of members savings in a low interest rate environment
  • Achieved over 2,600 'Best Buy' mentions in national newspapers for our mortgage and savings products and was the most quoted mortgage provider in these tables
  • Achieved second place in the Presswatch table for quantity and quality of independent national media mentions for mortgages
  • Share Plan activity continued to grow with 24 new clients and over 85,000 new accounts opened
  • Donated over £500,000 to more than 2,200 local charities and good causes, largely through donations from the Charitable Foundation. The majority of this funding was generated by members through the Society's innovative **Small Change Big Difference Scheme®
  • Industry Awards including Best National Building Society, Best Overall Mortgage Provider, Best Cash Isa Provider for Service and Excellence in Treating Customers Fairly
  • Customer satisfaction survey shows that nine out of 10 members would continue to recommend the Society to their friends and family

Iain Cornish, Chief Executive of Yorkshire Building Society said:

We are extremely pleased to report a very strong set of results for 2010 which have enhanced the resilience of the Society. This was delivered against a background of continued weakness in the UK economy and whilst continuing to provide outstanding levels of service to our members.

Last year was not easy for either borrowers or savers and the Society has remained focused on doing what it can to support members through these challenging times. Whilst we clearly are operating within the constraints of a fragile economy and historically low interest rates we are pleased the Society has made excellent progress in the last year.

For savers, who have seen returns fall dramatically as a result of the record low Bank of England interest rate, we have continued to offer consistent returns. A significant difference in our approach to savers and that of the wider market is to focus on offering long term value rather than promoting headline rates that are then aggressively cut. This is demonstrated by the fact that around 90% of our retail savings balances have an interest rate above the Bank of England base rate and we have not cut the rate of interest on any of our variable rate savings accounts during 2010.

We have also remained committed to providing people with mortgages, allowing them access to the housing market at a time when many lenders have made it much more difficult for home buyers to secure a competitive mortgage deal. This approach has led to a tripling of new mortgage lending, whilst keeping our lending activity within our clearly defined risk appetite.

The Chelsea merger was a transformational development for the Group and I'm pleased we can report that our progress and integration is ahead of plan. Looking ahead, one of our strategic priorities is to seize opportunities, which includes taking advantage of new merger opportunities that may be presented to us. We will, however, only consider doing so where there is a clearly defined benefit to our members.

We believe mergers between building societies are preferable to the alternative of combining with organisations from outside the mutual sector. We anticipate that attractive opportunities of this type will inevitably arise over the next few years and believe that the Yorkshire is well positioned to respond to them. In doing so, we will take the interests of the merger partner, as well as the resulting wider membership, into account in our planning and decision making and continue to play a major role in the strengthening of the mutual sector.

Finally, I would like to take this opportunity to announce that I am planning to step down as Chief Executive of the Yorkshire later this year when a successor has been appointed. The Yorkshire is exceptionally well placed, has an extremely strong and experienced management team and a very bright future. After nearly 20 years with the Society, the last eight as Chief Executive, I believe that now is the right time to allow a new leader to take the Society forward.

Ed Anderson, Chairman of Yorkshire Building Society said:

It is with some regret that we have accepted Iain's resignation. Iain has provided strong and outstanding leadership and, above all, demonstrated a deep commitment to mutuality and ensured members remain at the heart of the business. He has guided the Society successfully through the worst market and economic crisis in a generation and leaves it as a financially strong and successful independent mutual. The Board has started the process of finding a successor to build on Iain's achievements, and Iain will continue as Chief Executive throughout this period. We thank him for his tremendous contribution and wish him well in his future career.

Data sourced from Bank of England Statistics Interactive Database. Cash Individual Savings Account (ISA) rates are selected for £3,000 balances. Rates for Cash ISAs are weighted by month end balances reported on balance sheet returns of institutions in the same sample.

** Small Change Big Difference® is a registered trade mark of Yorkshire Building Society.

Financial Summary

Reconciliation of Core Operating Profits


  2010 £m 2009 £m
Net interest income 272.7 147.8
Other income and charges 44.0 31.2
Net gains arising on realisation 15.2 11.5
Costs - excluding non-recurring items (162.6) (123.8)
Mortgage impairment provisions (40.8) (59.0)
Core Operating Profit 128.5 7.7
Net losses from fair value volatility (10.5) (10.3)
Other losses realised/other impairment provisions (5.1) (0.9)
Other non recurring items (11.0) (6.3)
Negative goodwill (17.1) -
  119.0 (9.8)
Financial Services Compensation Scheme (3.6) (2.7)
Profit/(loss) before tax 115.4 (12.5)
Taxation 23.6 9.2
Profit/(loss) for the year 91.8 (3.3)


Group Income Statement for the year ended 31 December 2010


  2010 £m 2009 £m
Net interest income 272.7 147.8
Net losses from fair value volatility (10.5) (10.3)
Net realised profits 15.2 11.5
Other income and charges 43.4 30.7
  320.8 179.7
Administrative expenses (162.6) (124.3)
Chelsea Building Society merger costs (10.4) (6.7)
Operating profit before provisions 147.8 48.7
Provisions (45.9) (58.5)
  101.9 (9.8)
Financial Services Compensation Scheme levy (3.6) (2.7)
Operating profit/(loss) 98.3 (12.5)
Negative goodwill 17.1 -
Profit/(loss) before taxation 115.4 (12.5)
Taxation (23.6) 9.2
Profit/(loss) for the year 91.8 3.3


Group statement of comprehensive income for the year ended 31 December 2010


  2010 £m 2011 £m
Available-for-sale investments:    
Valuation gains taken to equity, net of releases 3.6 43.9
Cash Flow hedges:    
Profits/(losses) taken to equity 5.3 (6.4)
Actuarial gain/(loss) on retirement benefit obligations 4.8 (50.4)
Tax on items taken directly to or transferred from equity (7.6) 6.7
Net income/(expense) not recognised directly in the income statement 6.1 (6.2)
Net profit/(loss) for the financial year 91.8 (3.3)
Total comprehensive income/(loss) for the year 97.9 (9.5)


Group statement of financial position as at 31 December 2010


  2010 £m 2009 £m
Liquid assets 5,861.8 6,700.4
Mortgages 23,370.7 14,979.4
Derivative financial instruments 579.8 904.5
Other assets 274.0 137.7
Total Assets 30,086.3 22,722.0
Shares 21,382.5 13,793.4
Borrowings 6,336.7 7,183.1
Derivative financial instruments 472.3 468.1
Other liabilities 175.1 106.6
Subordinated liabilities 214.9 111.7
Subscribed capital 167.3 159.3
Reserves 1,337.5 899.8
Total Liabilities 30,086.3 22,722.0


Key Ratios


  2010 % 2009 %
Group net interest margin 1.03 0.65
Group management expenses/mean assets 0.66 0.57
- excluding merger costs 0.51 0.54
Group asset growth 32.4 (1.3)
Group loans and advances growth 57.0 (7.2)
Member balances growth 55.0 0.8
Liquidity ratio 21.1 31.9
Funding ratio 21.4 32.5
Gross capital ratio 6.20 5.6
Free capital ratio 5.69 5.1
Solvency ratio 15.9 15.6
Core tier 1 capital ratio 12.4 12.2