2017 Financial Results

Yorkshire Building Society Group has today announced a strong financial performance for 2017, as it continues to help millions of people across the UK achieve their saving and home-buying goals.

Despite a competitive market, the mutual recorded a 9% increase in pre-tax profits to £165.8m (2016: £151.5m) and a 25% rise in core operating profit to £160.2m (2016: £128.0m) while delivering sustainable long-term value for customers.

The Group supported thousands of people in homeownership, financing more than 36,000 home loans, increasing gross mortgage lending by 13% to a record £8.1bn (2016: £7.2bn) and net lending by 46.5% to £1bn (2016: £0.7bn).

It supported members in saving for their futures, opening 193,000 new accounts and increasing savings balances to £28.9bn (2016: £28.7bn).
 

2017 key highlights:

  • Profit before tax of £165.8m (2016: £151.5m) and core operating profit of £160.2m (2016: £128.0m)
  • Gross lending of £8.1bn (2016: £7.2bn) and net lending of £1bn (2016: £0.7bn)
  • Average Net Promoter Score of +41, a seven-point improvement (2016: +34)[i]
  • Helped homeowners by providing 36,064 mortgages (2016: 27,229), including 7,011 (2016: 6,398) to first-time buyers[ii]
  • Maintained good value savings rates, paying on average 0.28% higher rates than the rest of market average[iii]
  • Common Equity Tier 1 ratio of 15.8% (2016: 14.9%).
  • Liquidity at £6.1bn (2016: £4.7bn) and liquidity ratio of 15.7% (2016: 12.8%), ahead of regulatory liquidity requirements

Mike Regnier, Chief Executive of Yorkshire Building Society, said:

I’m pleased to be reporting a strong financial performance for 2017, despite a very competitive market and ongoing wider economic uncertainty.

We’ve continued to fulfil our core purpose of helping people achieve their key financial goals, whether that’s buying a home, saving for today, or leaving a legacy for the next generation.

Our strategy to concentrate on our core business areas has led to adjustments in how we operate. As we announced in 2017, we are making changes to our brands and high street locations, and are withdrawing from the current account market. We believe these changes, which will be completed in 2018, are vital in ensuring the Society is well-positioned for the future so we can continue to provide good long-term value to our members.

It is important that we become a more efficient building society, and the year-on-year reduction in operating costs, along with improvement in the management expense ratio shows the progress we are making.

We exist to help our members with their financial objectives, so continual improvement of our services is fundamental to us. The increased focus on our core businesses of mortgages and savings has helped us in this aim, illustrated by the year-on-year increase in customer advocacy.

We will continue to prioritise improving customer service and delivering good long-term value to our membership while maintaining financial strength.

 

2017 results highlights:

Achieving sustainable performance and real financial security through mutuality

  • Total capital ratio of 20.1% (2016: 17.3%)
  • Liquidity at £6.1bn (2016: £4.7bn) and liquidity ratio of 15.7% (2016: 12.8%), ahead of regulatory liquidity requirements
  • Net interest margin of 1.23% (2016: 1.22%) and a net interest income of £502.1m (2016: £475.6m), in line with our strategic plan and supporting investment in the business
  • Cost:income ratio of 63.4% (2016: 67.2%) and management expense ratio of 0.83% (2016: 0.89%)
  • Proportion of accounts in arrears by more than three months (including possessions) reduced to 0.56% (2016: 0.76%), against an industry average of 0.88%[iv], reflecting the high quality of lending and the benign economic conditions
  • Completed three bond issuances as part of our continued wholesale funding strategy, demonstrating market confidence in the Group
  • Long-term local and foreign currency senior unsecured debt rating with Moody’s Investors Service upgraded to A3 in September 2017

Delivering a simply brilliant customer experience

  • Average Net Promoter Score of +41, a seven-point improvement (2016: +34)[i]
  • Maintained good value savings rates, paying on average 0.28% higher rates than the rest of market average[iii]
  • Invested in changes to our online service which will enable mortgage customers to carry out product transfers at an earlier date and more efficiently
  • Digitalised our ISA transfer process to ensure it is quicker and simpler for members
  • Won 25 industry awards, with accolades for mortgages, digital experience, customer service transformation, process improvement and charitable support, including Best First Time Buyer Mortgage Provider (Moneynet Personal Finance Awards), Best Business Improvement Project Under 90 Days (Process Network Excellence Awards), and  Financial Service E-commerce Website of the Year (Northern E-commerce Awards)

Providing real help with real life to our members

  • Helped first time buyers get on to the property ladder more than 7,000 times
  • Opened 193,000 new savings accounts and increased savings balances to £28.9bn (2016: £28.7bn)
  • Ensured our savings members benefited from the first Bank Rate rise in a decade by passing on the full 0.25% increase to all our existing and new variable rate savers
  • Created an innovative scheme to help employers improve the financial wellbeing of their employees by working with Salary Finance to provide an easy-to-use, direct-from-salary regular savings account
  • Expanded the availability of mortgages for people with non-standard incomes, including those who are self-employed, through our intermediary arm, Accord Mortgages
  • Became the first lender to work with Age Partnership to give customers coming to the end of an interest-only mortgage access to full-market free advice
  • Increased mortgage flexibility by offering an interest-only option for new borrowers, through Accord

Making a positive impact on colleagues and communities

  • Raised £293,352 for End Youth Homelessness in the first 12 months of a three-year partnership, helping to provide young people with a safe place to call home
  • Yorkshire Building Society Charitable Foundation, which is largely funded by members taking part in the Small Change Big Difference™ scheme, made more than 200 donations totalling £234,684 to UK charities
  • Helped 56% of colleagues to share their skills and experience with charities and good causes by making use of their annual 31 hours’ volunteering allowance
  • Delivered financial education to more than 7,000 young people in more than 70 schools through our innovative Money Minds programme
  • Contributed 3,800 hours of volunteering support to charities committed to ending youth homelessness
  • Ranked amongst UK’s Best Large Workplaces and a top 30 employer for working families
  • Doubled the annual intake on our award-winning apprenticeship scheme, which offers young people a permanent role on the same terms and conditions as other colleagues as well as the chance to complete relevant professional qualifications
  • Introduced a wellbeing programme to help colleagues maintain good mental and physical health, and support them in times of ill-health, which was accessed by 1,200 colleagues in 2017
  • Reduced our gas and electricity consumption by 9% year-on-year, and helped 500 colleagues to car share and more than 260 to take part in the Cycle to Work scheme

 

 

[i] KPMG Nunwood Customer Voice Programme, January to December 2017.  Based on 25,107 completed interviews with customers. Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.

 

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

 

[iii] Average rates are based on savings stock from CACI’s Current Account & Savings Database (CSDB) which covers 86% of the retail savings market (based on stock value). Data period January to October 2017, Yorkshire Building Society average rate 0.98% against a rest of market average of 0.70%.

 

[iv] UK Finance (December 2017).
 

Group Income Statement

2017

2016

 

 £m

 £m

     

Net interest income

       502.1 

       475.6

Non-interest income

14.5 

36.3

Net gains/ (losses) from fair value volatility

13.1 

0.9

Net realised profits/(losses)

6.1 

1.8

Total income

535.8 

514.6

     

Administrative expenses

(339.5)

(346.0)

Operating profit before provisions

196.3 

168.6

     

Provisions

(30.5)

(17.1)

Profit before tax

165.8 

151.5

     

Tax expense

(41.4)

(37.3)

Net profit

124.4 

114.2


Reconciliation of Core Operating Profits

2017

2016

 

 £m

 £m

     

Statutory Profit before tax

165.8 

151.5

Reverse out the following items:

   
     

FSCS levy

2.5 

4.6

Non-core investments

(5.7)

(0.6)

Timing differences - fair value volatility

(7.4)

(0.3)

Mergers – adjustments to balances acquired

(3.5)

(2.8)

Other non-core items

8.5 

(24.4)

Core Operating Profit

160.2 

128.0


Group Statement of Comprehensive Income

2017

2016

 £m

 £m

     

Net profit

124.4 

114.2

     

Items that may subsequently be reclassified to profit and loss

   

Available-for-sale investments:

   

Valuation gains taken to equity

11.6 

9.0

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

(8.0)

(0.7)

Tax on available for sale securities

(1.0)

(2.3)

Effect of change in corporation tax rate

0.1 

0.3

Cash Flow hedges:

   

(Losses) / gains taken to equity

2.2 

(25.7)

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

(3.8)

46.0

Tax on cash flow hedge reserve

(1.6)

(5.7)

Effect of change in corporation tax rate

0.1 

0.3

     

Items that will not be reclassified subsequently to profit and loss

   

Remeasurement of net retirement benefit obligations

49.6

(27.0)

Tax relating to retirement benefit obligations

(13.5)

7.6

Effect of change in corporation tax rate

             1.2  

             -  

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

             -  

             -  

 

   

Total comprehensive income for the year

168.9

116.0


Group Statement of Financial Position

2017

2016

 

 £m

 £m

     

Liquid assets

6,095.7

4,675.9

Loans and advances to customers

35,061.2

34,103.3

Derivative financial instruments

591.8

540.5

Fixed and other assets

298.5

275.8

Total Assets

42,047.2

39,595.5

Shares

28,938.0

28,693.2

Borrowings

9,805.1

7,916.9

Derivative financial instruments

156.9

348.0

Other liabilities

157.3

112.8

Subscribed capital

6.4

6.7

Subordinated liabilities

593.7

297.0

Reserves

2,389.8

2,220.9

Total Liabilities

42,047.2

39,595.5


Key ratios

2017

2016

 

 %

 %

     

Net interest margin

1.23

1.22

Management expenses/Mean assets

0.83

0.89

Asset growth

6.2

3.6

Loans and advances growth

2.8

2.4

Member balance growth

0.9

4.7

Liquidity ratio

15.7

12.8

Funding ratio

25.3

21.6

Gross capital

7.7

6.9

Free capital

7.4

6.5

Total capital ratio

20.1

17.3

Common equity tier 1 ratio

15.8

14.9

Leverage ratio

5.7

5.6

Cost:income ratio

63.4

67.2