REG - Yorkshire B.S. - Final Results

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29/02/2024 08:15

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RNS Number : 8489E  Yorkshire Building Society  29 February 2024

YORKSHIRE BUILDING SOCIETY

FULL YEAR RESULTS 2023

"The Yorkshire Building Society has delivered a strong set of results for
2023, further supporting our financial position, and our long-term
sustainability.

In an environment where higher interest rates have increased the cost of
living for many, the Society has focused on supporting our members and
customers. Over 2023, we provided savings rates that were consistently above
the market average, and continued to support new and existing mortgage
borrowers, all while achieving an increase in customer advocacy. Being a
mutual allows us to make decisions in the interests of our membership, and we
will continue to place providing Real Help with Real Life at the centre of all
that we do."

Susan Allen, OBE

Chief Executive

The Society's 2023 Annual Report and Accounts will be published on 7 March
2024. Key highlights from 2023 performance are below:

·      Aligned to its mutual purpose, the Society continued to support
the Financial Wellbeing of members through competitive savings rates,
including increases to variable rates over the year. Overall, savings rates
provided were on average 1.01 percentage points higher than the market average
over 2023 (2022: 0.56 percentage points higher), equating to £441.1m of
additional interest paid(1).

·      Shares balances increased £5.1bn year on year to £47.1bn (2022:
£42.0bn), as a competitive product range, supported by targeted member
loyalty offerings, continued to drive book growth.

·      In support of the Society's Place to Call Home purpose priority,
gross mortgage lending remained high by historical standards, reaching £9.2bn
(2022: £10.3bn), in the context of a smaller market size. Combined with a
higher level of maturities from the mortgage book, this contributed to 2023
net lending of £1.6bn (2022: £3.0bn).

·      Net interest income was £786.0m in 2023, increasing £61.9m year
on year (2022: £724.1m). Net interest margin increased 1 basis point to
1.31%, as a result of effective trading strategies as well as the increases
made to Bank Rate in the year.

·      Accelerated investment in ongoing transformation activities, and
the impacts of price inflation,  contributed to an increase in management
expenses to £332.7m (2022: £298.7). As a proportion of mean assets,
management expenses were 0.56% (0.54%).

·      On a statutory reporting basis, profit before tax was £450.3m
(2022: £502.5m). Core Operating Profit(2) was £449.9m (2022: £425.6m).
Compared to 2022, Core Operating Profit in 2023 more closely resembles
statutory profits; 2022 excludes a £74.9m fair value gain driven by a more
volatile external interest rate environment.

·      Continued strength has been demonstrated in liquidity and capital
positions, both comfortably in excess of regulatory minimums. Liquidity
coverage was 156.4% (2022: 164.0%). Common Equity Tier 1 (CET1) ratio was
16.7% (2022: 16.8%).

·      Retail deposit performance and active wholesale programmes
allowed a further £2.2bn of TFSME to be repaid in 2023. As at December 2023,
£1.0bn of this funding remains.

·      Asset quality of the loan book remains strong. As at December
2023, the number of accounts more than three months in arrears, including
possessions, was 0.50% (2022: 0.44%) which compares favourably to the industry
average of 0.87% (2022: 0.74%)(3).

Alongside the above commercial and financial outcomes, the Society also
continued to make progress in a number of strategically important areas.

 

Here to support members, customers, and communities

As people across the UK have been required to adapt to the challenges relating
to the increased cost of living, the priority of supporting Financial
Wellbeing has only been underlined. Members saving with the Society have
benefitted from competitively priced products, and a proactive strategy of
passing on the Bank Rate increases.

Providing support to mortgage borrowers is also a core priority. Product and
proposition innovation supports prospective borrowers facing challenges in
their pursuit of home ownership. In 2023, new products were added to the range
in order to serve more customers.

The Society is mindful of the challenges faced by existing mortgage customers.
Those who were expected to be most impacted by significant increases in
interest rates were contacted proactively, and the Society also signed up to
the government-led Mortgage Charter.

Focus continues to be placed on enhancing digital capabilities. Change
programmes delivered some tangible benefits for customers in 2023, with
expanded payments functionality, the introduction of a more user-friendly
online experience, and new features for the savings app. Continued increases
in customer satisfaction scores reflect the progress made. Overall Net
Promoter Score - a measure of how willing customers are to recommend products
and services - stood at +61 in 2023, an increase from +54 in 2022(4).

The Society's commitment to positively impacting local communities speaks to a
strong sense of social purpose. Branch locations are an important link, and
the award-winning partnership with Citizens Advice is one example of how
physical locations can be used for the benefit of communities. The Society
announced its newest charity partner, FareShare, in 2023. In a collaboration
that will run to 2026, valuable support for matters relating to financial
hardship and employability skills will be provided.

The external environment

Economic volatility continues to result from world events and increasing
levels of competition are compressing net interest margin across the industry.
Much depends on the evolution of the interest rate environment and the pace at
which monetary policy action can bring the rate of inflation to target levels.

The future of the mortgage market will continue to be strongly influenced by
prevailing interest rates, including the consequences for borrower
affordability, and the supply and demand dynamics in the housing market. The
upcoming maturity of TFSME funding may precipitate an even greater degree of
competition for retail savings balances, which was already observed to have
intensified over the second half of 2023.

Looking ahead

The external context has evolved over the years since the Society set its
Strategic Blueprint in 2020. In 2023, the Society refreshed its strategic
direction, launching Our Strategy. This sets out the longer-term ambitions for
the future of the Society, whilst retaining the purpose of providing Real Help
with Real Life at the heart of the decisions made.

The strength of the results in 2023 bolster the Society's financial position.
The effective generation of capital, with the levels of profits made in 2023
and 2022 being higher than in previous years, helps to protect the long-term
interests of members, and positions the Society well for future challenges
that may arise.

 

 

 

 

 

 

Summary Financial Statements

Consolidated Income Statement

                                     2023     2022
                                     £m       £m
 Net interest income                 786.0    724.1
 Fair value gains and losses         (5.5)    75.6
 Net realised gains                  1.6      2.9
 Other income                        4.3      8.8
 Total income                        786.4    811.4
 Management expenses                 (332.7)  (298.7)
 Operating profit before provisions  453.7    512.7
 Impairment of financial assets      (4.0)    (6.0)
 Movement in provisions              0.6      (4.2)
 Profit before tax                   450.3    502.5
 Tax expense                         (118.6)  (123.2)
 Net profit                          331.7    379.3

 

Statutory profit before tax was £450.3m (2022: £502.5m), and Core Operating
Profit increased to £449.9m (2022: £425.6m). Core Operating Profit excludes
items such as fair value volatility and material one-time charges that do not
reflect the Group's day-to-day activities. The Board considers Core Operating
Profit to be an appropriate measure of the underlying performance of the
business.

Net interest income increased £61.9m year on year, with a net interest margin
of 1.31% in 2023 (up 1 basis point on 2022). The further increases to Bank
Rate, along with growth in both mortgage and savings books, contribute to the
increase on 2022, despite a series of increases to the rates paid to back-book
savers and widening the differential between the average savings rate paid and
the market average.

A £5.5m loss on fair value recorded in 2023 compares to a £75.6m gain in
2022. The movement is primarily driven by interest rate swaps not designated
in the accounting hedge being subject to lower volatility, and this
contributes to total income having reduced year on year.

Management expenses increased £34.0m to £332.7m. This reflects increased
purposeful investment in change activities, the impact of cost inflation, and
increases to staff costs which include a higher-than-typical salary increase
to support with the cost of living.

Reconciliation of Core Operating Profit

The table below shows a reconciliation between core and statutory profit
measures.

                                                             2023   2022
                                                             £m     £m
 Statutory profit before tax                                 450.3  502.5
 Reverse out the following items:

 Fair value gains and losses                                 2.2    (74.9)
 Historical fair value credit adjustments on acquired loans  (2.4)  (2.4)
 Movement in restructuring provision                         (0.2)  0.1
 Other non-core items                                        -      0.3
 Core operating profit                                       449.9  425.6

 

 

 

 

 

 

Consolidated Statement of Comprehensive Income

                                                                      2023    2022
                                                                      £m      £m
 Net profit                                                           331.7   379.3
 Items that may be subsequently reclassified through profit or loss:
 Cash flow hedges:
 Fair value movements taken to equity                                 -       26.1
 Amounts transferred to the income statement                          (13.2)  (28.1)
 Tax on amounts recognised in equity                                  3.7     0.5
 Effect of change in corporation tax rate                             -       0.8
 Financial assets measured through other comprehensive income:
 Fair value movements taken to equity                                 (18.0)  (27.0)
 Amounts transferred to the income statement                          1.2     (1.9)
 Tax on amounts recognised in equity                                  4.7     7.8
 Effect of change in corporation tax rate                             -       1.9

 Items that will not be reclassified through profit or loss:
 Remeasurement of retirement benefit obligations                      (11.2)  (80.0)
 Tax on remeasurement of retirement benefit obligations               3.1     21.6
 Effect of change in corporation tax rate                             -       6.9
 Total comprehensive income for the year                              302.0   307.9

 

Consolidated Statement of Financial Position

                                                                           2023      2022
                                                                           £m        £m
 Liquid assets                                                             12,798.4  12,482.3
 Loans and advances to customers                                           46,815.9  45,203.7
 Fair value adjustment for hedged risk on loans and advances to customers  (615.5)   (1,508.3)
 Other assets                                                              1,969.9   2,576.4
 Total assets                                                              60,968.7  58,754.1
 Shares - retail savings                                                   47,056.7  42,008.2
 Wholesale funding and other deposits                                      7,789.3   11,558.3
 Subordinated liabilities                                                  1,621.7   1,035.1
 Other liabilities                                                         802.5     756.0
 Total liabilities                                                         57,270.2  55,357.6
 Members' interest and equity                                              3,698.5   3,396.5
 Total members' interest, equity and liabilities                           60,968.7  58,754.1

 

The balance sheet increased to £61.0bn as at December 2023, which represents
a growth rate of 3.8% against 2022.

Liquidity levels remain strong, with a liquidity balance sheet ratio standing
at 23.3% (2022: 23.3%), and a Liquidity Coverage Ratio at 156.4% (2022:
164.0%). Sufficient headroom to regulatory requirements for liquidity was
maintained throughout 2023.

Net lending was £1.6bn (2022: £3.0bn), owing to a higher volume of
maturities as well as lower gross lending in a smaller lending market.
Mortgage book growth, excluding fair value adjustments for hedged risk, was
3.6% (2022: 7.2%). Asset quality remains strong, comparing favourably to the
latest industry average (as measured by the number of accounts in arrears by
three months or more, including possessions).

Shares balances increased to £47.1bn, increasing by £5.1bn on 2022, or
12.0%. Sustaining a high rate of growth allowed the amount of value returned
to members through savings rates to increase meaningfully.

The Society continued to maintain a presence in key wholesale funding issuance
markets, successfully issuing within the RMBS, covered bond, and senior
non-preferred markets in 2023. Strong savings inflows in the year supported
further £2.2bn paydown of TFSME funding, continuing the prudent approach to
the refinancing of this funding as market-wide maturities draw nearer.

Key ratios

                             2023  2022
                             %     %
 Net interest margin         1.31  1.30
 Management expense ratio    0.56  0.54
 Asset growth                3.8   11.4
 Loans and advances growth   3.6   7.2
 Shares balance growth       12.0  18.3
 Liquidity ratio             23.3  23.3
 Funding ratio               14.2  21.6
 Gross capital               9.7   8.3
 Free capital                9.5   8.0
 Total capital ratio         18.0  18.2
 Common Equity Tier 1 ratio  16.7  16.8
 Leverage ratio              6.2   6.2
 Cost to core income ratio   42    41

 

About Yorkshire Building Society

Yorkshire Building Society was founded in 1864.

As at December 2023, the Society has assets of £61.0 billion.

Chelsea Building Society and Norwich & Peterborough Building Society are
part of Yorkshire Building Society. Its subsidiary companies include Accord
Mortgages Limited. For more information on Yorkshire Building Society visit
www.ybs.co.uk.

1.     YBS Group average savings rate compared to rest of market average
rates. Source: CACI's Current Account and Savings Database (CSDB), Stock. Data
period January - December 2023.

2.     Core operating profit is an alternative performance measure which
excludes items such as fair value volatility and material one-time charges
that do not reflect the Group's day-to-day activities.

3.     Industry average sourced from UK Finance.

4.     Net Promoter Score and NPS are trademarks of Bain & Company,
Inc., Fred Reichheld and Satmetrix Systems, Inc. Data period January -
December 2023, based on 58,586 responses.

This document contains certain forward-looking statements, which are made in
good faith based on the information available up to the time of the approval
of this report. Such statements should be treated with caution due to the
inherent uncertainties, including both economic and business risk factors,
underlying any such forward-looking information.

References to 'YBS Group' or 'Yorkshire Group' refer to Yorkshire Building
Society, the trading names under which it operates (Barnsley Building Society,
Barnsley, Chelsea Building Society, Chelsea, Norwich & Peterborough
Building Society, N&P and Egg) and its subsidiary companies.

END

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