2011 Financial Results

Yorkshire Building Society announce record financial results for the year ended 31 December 2011

Membership grows by more than a quarter

Yorkshire Building Society, the UK's second-largest building society, is pleased to report an extremely positive financial performance in 2011. The Society improved profitability, raising core operating profit by 27% to £163m, maintained its strong capital position and increased its lending by 46%, whilst continuing to deliver long-term value and financial security to an increasing number of members.

The volatile economic and market conditions which continued in 2011, as well as regulatory changes, presented the Society with fresh challenges and opportunities. The Yorkshire's financial strength and stability enabled it to successfully conclude two major transactions during the year - a merger with Norwich & Peterborough Building Society (N&P) and the acquisition of the savings and mortgage balances of Egg Banking plc.

Financial Performance

The Society's strong financial performance in 2011, which reflects the merger and acquisition activity undertaken during the year, includes the following highlights:

  • Core operating profit increased by 27% to £163.2m (£128.5m in 2010)
  • Member savings balances increased by over 20% to £26.0bn (£21.4bn in 2010)
  • Mortgage balances increased by 14% to £26.7bn (£23.3bn in 2010)
  • Total assets increased by 9% to £32.6bn (£30.1bn in 2010)
  • Net interest margin 1.05% (1.03% in 2010)
  • Management expense ratio broadly maintained at 0.67% (0.66% in 2010)

Member security

  • Continued to maintain very strong core tier 1 capital ratio 12.6% (12.4% in 2010)
  • Continued to hold prudent levels of high quality liquidity whilst improving the efficiency of liquidity management - liquidity ratio 16.5% (21.1% in 2010), as excess cash raised to fund the Chelsea merger has continued to be managed down over the year
  • Group average indexed loan to value remains low at 54% (56% in 2010)
  • Asset quality improved with the level of loans in arrears by 3+ months (inc possessions) reduced to 1.78% (2.10% in 2010) and below the CML industry average of 2.10%
  • Reduced mortgage impairment provision charge by 25% to £30.1m (£40.8m in 2010)
  • All sovereign exposure is in the UK (no sovereign exposure in the eurozone)

Merger and Acquisition Activity

  • Acquisition of the savings and mortgage business of Egg Banking plc on 31 October 2011, with customers becoming members of the Yorkshire
  • Merged with N&P on 1 November 2011, following overwhelming approval from its members
  • Successful completion of the integration of Chelsea Building Society into the Yorkshire, including transferring many of the Chelsea systems onto a common Society-wide platform
  • Launched offset functionality on Chelsea mortgage range, with almost half of all new Chelsea borrowers choosing this option to maximise the effectiveness of their savings in the low interest rate environment
  • Achieved annual cost synergies of £33m following Chelsea merger
  • Retained all branches of merged societies, increasing the national network to 224 branches (178 in 2010)

Key Member Benefits

  • Increased the number of members by 27% to over 3.3m (2.6m in 2010)
  • Increased new lending by 46% to £4.1bn (£2.8bn in 2010), with one in four mortgages to first time buyers
  • Opened over 335,000 new savings accounts by continuing to offer savers attractive terms and conditions
  • Virtually all loans (97%) continue to be funded by customer deposits (94% in 2010) - increasing to 103% when reserves are included (100% in 2010)
  • Continued expansion of retail network, growing our high street branches by 46 as a result of the N&P merger and increasing our agency network by 12 in the year
  • Announced this month an intention to open 12 new branches over the next two years

Other highlights

  • Around 90% of variable rate savings accounts paying an interest rate above the Bank of England base rate compared to less than 60% of similar accounts offered by major retail banks
  • Achieved over 2,800* 'Best Buy' mentions in national newspapers for our mortgage and savings products, with the Yorkshire Group the most quoted mortgage provider in these tables
  • Customer satisfaction survey showed that nine out of 10 members would continue to rate our service as excellent or good
  • Net Promoter Score (NPS), which measures the net percentage of customers who would either strongly recommend or strongly detract from the organisation, continues to rank the Yorkshire well above the average for the financial services industry
  • Announced as the Winner in 16 Industry Award categories, including Best National Building Society, Best Children's Savings Account, Best Overall Mortgage Provider and Best Online Mortgage Provider
  • Share Plan activity continued to grow with 24 new clients and 100% of clients saying they would recommend the Society to other companies
  • Donated over £500,000 through affinity savings accounts to several partners including Yorkshire Air Ambulance and a number of football clubs
  • Donated over £500,000 to around 2,300 local charities and good causes, largely through donations from the Charitable Foundation
  • Over 177,000 accounts joined the Small Change Big Difference® Scheme in 2011, with almost 800,000 members now participating in the Scheme
  • Staff volunteered more than 3,500 hours on community projects
  • Achieved first place in the PressWatch Financial table for quantity and quality of independent national media mentions for mortgages*
  • Successfully launched a Sterling denominated issue in the covered bond market and broadened access to wholesale funding sources through the launch of a debut securitisation transaction
  • Became the first institution to redeem bonds issued under the UK Government-backed Credit Guarantee Scheme ahead of the scheduled maturity date, optimising liquidity management and delivering financial benefits to the Group
  • After careful consideration, took the decision to wind down the Society's offshore subsidiary, Yorkshire Guernsey Ltd, after regulatory changes meant that it was unable to serve its original role

*Source - PressWatch Financial from Kantar Media.

Chris Pilling, Chief Executive of Yorkshire Building Society said:

I am extremely pleased to report very strong financial results for the Yorkshire in 2011. This performance shows significant growth in mortgage and savings balances, increased level of operating profit, stable net interest margin and robust capital and liquidity positions despite thecontinuing challenges presented by the economic and market conditions.

I would like to thank Iain Cornish for his tremendous leadership which resulted in the Society being in an exceptionally strong position and with a very bright future. The Society has a long-held reputation for delivering outstanding value and excellent service to its members and as the new Chief Executive I have inherited a fantastic legacy. A key indicator of how effectively the Group is delivering an exceptional customer experience is the net promoter score, which continued to rank the Yorkshire well above the average for the financial services industry.

The Society's focus throughout 2011 has been on providing good, long-term value to both our savers and borrowers. Throughout the global financial crisis, the Society has ensured that the focus has been on protecting savers as far as possible from historically low interest rates and continuing to lend to borrowers looking to get on to the property ladder, whilst demonstrating forbearance to those who are struggling with repayments. I am delighted that throughout 2011, the Society has been able to offer savers in around 90% of our variable rate accounts a return greater than the Bank of England base rate and has enabled 5,475 first-time buyers to get onto the property ladder. As a building society, these achievements are very important to us.

One of the Yorkshire's strategic priorities is 'looking ahead and seizing new opportunities'. To date, the focus of this priority has been on undertaking strategic mergers and acquisition activities. Our focus for 2012 will be to ensure that we take full advantage of the opportunities presented by our newly enlarged business. This will include the effective integration of NP and the Egg business, delivering planned synergies and developing the range of products and services we offer to members by leveraging the capabilities and expertise we have acquired in our recent transactions.

Looking forward, we will continue to develop and invest in the attributes of the Society that make it successful and differentiate us from our competitors. It is clear to me that when trust in banks is at an all-time low, the Yorkshire's success is based on our operating principles as a trusted independent mutual, our financial strength and the commitment, attitude and skills of our people. I would like to thank my colleagues for the way in which they have continued to prioritise providing our members with excellent customer service across all brands throughout a period of considerable change.

Financial Summary

Reconciliation of Core Operating Profits


  2011 £m 2010 £m
Statutory Profit before tax 129.7 115.4
Reverse out the following items:    
Net losses from fair value volatility 10.1 10.5
Sales of assets/other income (0.6) 0.6
Non core provisions    
- Structured Credit - 5.1
- Financial Services Compensation Scheme 5.6 3.6
Negative goodwill (5.6) (17.1)
Mergers, acquisition and closure costs 24.0 10.4
Core Operating Profit 163.2 128.5


Group Income Statement for the year ended 31 December 2011


  2011 £m 2010 £m
Net interest income 328.6 272.7
Other income and charges 47.4 43.4
Net losses from fair value volatility (10.1) (10.5)
Net realised profits 3.5 15.2
  369.4 320.8
Administrative expenses (192.1) (162.6)
Merger & acquisition costs (17.5) (10.4)
Operating profit before provisions 159.8 147.8
Provisions (30.1) (45.9)
  129.7 101.9
Financial Services Compensation Scheme levy (5.6) (3.6)
Operating profit 124.1 98.3
Negative goodwill 5.6 17.1
Profit before taxation 129.7 115.4
Taxation (23.5) (23.6)
Profit for the year 106.2 91.8


Group statement of comprehensive income for the year ended 31 December 2011


  2011 £m 2010 £m
Available-for-sale investments:    
Valuation gains taken to equity, net of releases 70.6 3.6
Cash Flow hedges:    
Profits/(losses) taken to equity (3.8) 5.3
Actuarial gain on retirement benefit obligations 18.7 4.8
Tax on items taken directly to or transferred from equity (36.4) (7.6)
Net income not recognised directly in the income statement 49.4 6.1
Net profit for the financial year 106.2 91.8
Total comprehensive income for the year 155.6 97.9


Group statement of financial position as at 31 December 2011


  2011 £m 2010 £m
Liquid assets 4,917.8 5,861.8
Mortgages 26,659.3 23,296.6
Other loans 362.9 74.1
Derivative financial instruments 373.8 579.8
Other assets 333.2 274.0
Total Assets 32,647.0 30,086.3
Shares 25,973.4 21,382.5
Borrowings 3,866.9 6,336.7
Derivative financial instruments 609.1 472.3
Other liabilities 232.1 175.1
Subordinated liabilities 230.9 214.9
Subscribed capital 177.0 167.3
Reserves 1,557.6 1,337.5
Total Liabilities 32,647.0 30,086.3


Key Ratios


  2011 % 2010 %
Group net interest margin 1.05 1.03
Group management expenses/mean assets 0.67 0.66
- excluding impact of merger/acquisition/closures 0.61 0.56
Group asset growth 8.6 32.4
Group loans and advances growth 15.6 57.0
Member balances growth 21.5 55.0
Liquidity ratio 16.5 21.1
Funding ratio 12.9 21.4
Gross capital ratio 6.59 6.20
Free capital ratio 6.06 5.69
Solvency ratio 15.8 15.9
Core tier 1 capital ratio 12.6 12.4