Skipton Building Society Final Results (1329Y)

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RNS Number : 1329Y

Skipton Building Society

01 March 2017

PRESS RELEASE Wednesday 1 March 2017

RECORD LING AND INCREASED CUSTOMER NUMBERS

AS SKIPTON BUILDING SOCIETY REPORTS ANOTHER STRONG YEAR

Skipton Building Society today announces its annual results for the year ended 31 December 2016.

The UK's fourth largest building society continues to build on the strong performance seen in recent years. Group gross residential mortgage lending in the year of GBP4.0bn is the highest in the Group's history, and total assets rose to GBP19.0bn.

The Society, which provides mortgages, savings, investments and pensions advice, is the head of a group whose subsidiaries include two mortgage portfolios in run-off, a mortgage and savings provider based in Guernsey, a significant presence in estate agency and a small investment portfolio.

The Society has continued to grow its customer base, strengthen its capital position and deliver excellent customer service. Its long term focus remains to help people to plan for their life ahead. Performance highlights in 2016 include:

   --     The Society continued to grow with a 22,316 increase in customers to 860,403; 
   --     Group gross mortgage lending increased by 8.0% to GBP4.0bn (2015: GBP3.7bn);

-- The mortgage book grew by GBP1.3bn to GBP15.5bn, a growth rate of 9.1% (2015: by GBP1.5bn, a growth rate of 11.9%);

-- Savings balances grew by GBP1.3bn to GBP14.1bn, a growth rate of 10.0% (2015: by GBP1.4bn, a growth rate of 11.9%);

   --     Group total assets increased by 8.6% during the year to GBP19.0bn (2015: GBP17.5bn); 
   --     Total Group profit before tax (PBT) increased by 15.0% to GBP168.9m (2015: GBP146.9m); 
   --     Underlying Group PBT[1] decreased by 1.2% to GBP151.5m (2015: GBP153.3m);

-- Group net interest margin reduced to 1.16% (2015: 1.33%) and amounted to GBP212.4m (2015: GBP223.3m), a reduction of GBP10.9m (or 4.9%);

-- Group administrative expenses increased by GBP34.7m or 7.5% to GBP499.1m (2015: GBP464.4m), of which GBP337.7m relates to the Connells estate agency group (2015: GBP289.0m);

-- Loan loss provisions continued to reduce, resulting in a net credit of GBP0.3m, from an GBP8.4m charge in 2015;

-- Charges for provisions and liabilities reduced to GBP10.9m (2015: GBP11.8m) and included a levy of GBP2.1m payable to the Financial Services Compensation Scheme (FSCS) (2015: GBP7.4m);

-- The Society now reports its capital ratios using the Internal Ratings Based (IRB) approach and its Common Equity Tier 1 (CET 1) ratio[2] at 31 December 2016 was 23.9%. Had the Society remained on the standardised approach, its CET 1 ratio as at 31 December 2016 would have been 17.3% (2015: 16.8%);

-- The leverage ratio2, calculated on an IRB basis, was strong at 5.9%, comfortably ahead of the regulator's expected minimum. On a standardised basis, the ratio would have been 6.3% and was 6.1% at 31 December 2015; and

-- In May 2016, the ratings agency Fitch upgraded the Society's long term rating to A- (from BBB+) with a stable outlook and its short term rating was upgraded to F1 (from F2). In October 2016, Moody's maintained its long and short term rating of Baa2 and P-2 respectively but changed its outlook from stable to positive.

David Cutter, Skipton's Group Chief Executive, said:

"Looking after people's savings and enabling home ownership is at the very heart of what the Society does as a mutual building society. I firmly believe that our long term focus of being there to help people plan for their life ahead is resonating with our members.

"Being a 'trusted helper', coupled with excellent customer service, has led to the Society delivering a strong performance in 2016, achieving a net customer satisfaction rating of 90%[3], and an employee engagement score of 90%[4]. Group profit after tax increased by 14.5% to GBP129.8m and, being a mutual, this money is held in reserves and available to be reinvested back into the business, not paid out to shareholders."

Unwavering focus on our members and our people

During 2016 the Society introduced a range of measures to ensure we continue to meet the evolving needs of our members, including the integration of Skipton Financial Services (SFS) into the building society.

David commented: "SFS was set up in 1988 after identifying a growing customer need for high quality, face-to-face financial planning. Nearly 30 years on, and in an increasingly complex financial world, I am convinced this need is greater than ever. In 2016 we integrated our financial advice subsidiary into the Society and in doing so will make it easier and more cost effective to meet our customers' changing needs. This enables us to offer a one-stop-shop for all financial planning matters through a seamless customer experience, without duplicating branding, digital and online investment."

In addition, in 2016 the Society also:

   --   Achieved a net customer satisfaction rating of 90% (2015: 88%);

-- Saw 21% of customer complaints referred to the Financial Ombudsman Service changed in the customer's favour compared with an average of 45%[5] for the financial services industry;

-- Achieved in June 2016 an employee engagement level of 90% (June 2015: 90%), significantly ahead of industry norms; and

   --    Was listed, for the third year running, in The Sunday Times 100 Best Companies To Work For.

Good performance in the Mortgages and Savings division

-- The division produced a PBT of GBP96.6m, compared to GBP103.1m in 2015, a reduction of GBP6.5m (or 6.3%);

-- When expressed as a percentage of mean assets, the Group net interest margin decreased by 17bps to 1.16% from 1.33%. A low interest rate environment, increased competition in the mortgage market and a higher propensity for existing borrowers to switch to a new mortgage product contributed to this reduction in margin;

-- In spite of strong balance sheet growth and continued investment in customer propositions, the division's administrative costs of GBP135.9m were GBP1.2m lower than the prior year, a 0.9% reduction;

-- The cost income ratio of the Mortgages and Savings division was 57.3% (2015: 53.3%), whilst the management expense ratio of the division was 0.75% (2015: 0.83%)[6];

-- The Group remains primarily funded by retail savings, representing 89.59% of total funding (2015: 87.78%);

   --   In addition, the division also accepts deposits through its Guernsey based subsidiary, Skipton International Limited (SIL). Offshore deposits increased by 9.6% to GBP1.2bn from GBP1.1bn; 
   --   SIL increased PBT by GBP1.5m (10.9%) to GBP15.2m from GBP13.7m;

-- The Group's prudent approach to lending is demonstrated by the number of Group residential mortgages in arrears by three months or more. These represent only 0.73% of mortgage accounts (2015: 0.91%) and compares to an industry average of 1.00%[7] (2015: 1.12%);

-- The Society's three months or more arrears levels fell from 0.44% at 31 December 2015 to 0.38% at 31 December 2016. The quality of the SIL mortgage book remains excellent with nil cases in arrears by three months or more (2015: nil);

-- The percentage of cases in Amber Homeloans and North Yorkshire Mortgages in arrears by three months or more at 31 December 2016 were 5.95% and 4.31% respectively (2015: 6.64% and 5.54%), a significant improvement. Both books are closed and in run-off;

-- The average indexed loan-to-value of residential mortgages across the division reduced to 47.9% (2015: 48.5%);

-- At 31 December 2016, the Society had drawn down GBP980m under the Government's Funding for Lending Scheme (2015: GBP880m) and GBP300m under the Term Funding Scheme (2015: GBPnil); and

-- At 31 December 2016, liquidity amounted to 15.90% of shares, deposits and borrowings (2015: 16.95%).

Enabling our members to achieve their life ahead aspirations

-- The Group's net residential UK mortgage lending accounted for 3.5% of the growth in the UK residential mortgage market, compared to our 1.1%[8] share of UK residential mortgage balances;

-- The Society helped 23,666 homeowners (2015: 23,094) to purchase or remortgage their properties, including 4,327 first time buyers (2015: 3,847) and 1,292 (2015: 618) through participation in the Government's Help to Buy equity loan scheme;

-- GBP588.0m or 14.8% of the Group's gross lending during the year was on buy-to-let mortgages (2015: GBP467.2m or 12.7%);

-- Our award-winning range of competitive savings products saw retail deposit balances grow by GBP1.3bn to GBP14.1bn, an annual growth rate of 10.0% (2015: 11.9%);

-- The growth in the Society's savings balances accounted for 1.6% of the growth in the UK deposit savings market[9] (2015: 2.1%), compared to our market share of savings balances of 1.0%;

-- The average savings rate paid across all of our accounts reduced by 0.19% during the 12 month period, but nevertheless averaged 1.50% during the year, compared to an average Bank Base Rate during the period of 0.40%; and

-- The Society paid on average 0.58% higher interest than the market average for banks and building societies during the 11 month period to 30 November 2016 (11 months to 30 November 2015: 0.49%), being the latest available comparable market data[10].

Robust performance from estate agency in a challenging market

-- Connells, our estate agency division, reported PBT of GBP73.4m, compared to GBP62.5m in 2015, an increase of 17.4%. This includes a gain of GBP17.0m on the part disposal of shares in Zoopla Property Group Plc (2015: GBP0.3m). Excluding these gains, PBT in 2016 amounted to GBP56.4m, a 9.3% reduction compared to 2015;

-- In February 2016, Connells acquired 95% of the shares in the 16-branch estate agency Rook Matthews Sayer and in March 2016 acquired the business of Andersons & Associates, increasing surveyor headcount by 14;

-- Total house sales (exchanges) by Connells increased by 8% compared to 2015 and increased by 1% on a like-for-like basis (i.e. excluding the impact of acquisitions of subsidiary undertakings in the current and prior period);

-- The UK housing market was adversely impacted around the date of the EU referendum but gradually improved in the second half of the year. Like-for-like second hand house sales (sold subject to contract), having been 12% higher in the first five months of 2016 compared to the previous year, were 8% lower in quarter 3 and 7% lower in quarter 4;

-- Income increased by 21% from lettings, by 18% from mortgage services and by 16% from surveys and valuations. Properties under management increased by 23%, mortgage sign ups increased by 10% and survey and valuation cases increased by 8% compared to 2015; and

   --   At 31 December 2016, Connells operated 583 branches (2015: 542).

Today, Connells Limited also announces its annual results for 2016 and further details can be found at Connells Group Financial Results 2016.

Other subsidiaries

   --     Skipton Business Finance recorded a PBT of GBP3.3m (2015: GBP3.2m);

-- Jade Software Corporation, the provider of the Society's core database and software development language and 56.4% owned by the Group, recorded a loss before tax of GBP0.4m (2015: loss of GBP1.3m);

-- The Group owns 17.7% of Wynyard Group Limited, a provider of software development services that was spun out of Jade Software Corporation and floated on the NZ stock exchange in July 2013. In October 2016, Wynyard was placed into voluntary administration, and subsequently entered liquidation in February 2017. The Group recognised a loss of GBP15.0m during 2016 on Wynyard related activities, including a GBP10.6m impairment charge against the whole of its investment; and

-- In 2014, the Group sold its 100% shareholding in Homeloan Management Limited, a provider of mortgage services, for GBP56.6m with a right to contingent consideration based on performance. Although the performance period has not yet ended, in 2016 the Group has recognised GBP9.9m of contingent consideration (2015: GBPnil). In addition, the Group's reported profits for 2016 have benefitted by GBP5.8m following expiry of the indemnity period relating to the disposal (2015: GBPnil). Both of these items are excluded from underlying PBT.

Giving something back to our communities

-- Through our award winning Grassroots Giving community funding programme, in 2016 we gave 163 donations of GBP500 to small community groups voted for by the public, bringing the total donated since the scheme launched to GBP323,000;

-- Colleagues from across the Society also raised over GBP76,000 for good causes right across the UK;

-- In 2016 the Society donated GBP150,000 to the Skipton Building Society Charitable Foundation, which enabled the Foundation to support registered charities, involved in helping people of all ages;

-- We continued to support a number of key community partners, including the Great Yorkshire Show and Skipton Building Society Camerata; and

-- During the year, the Group incurred UK taxes of GBP69.9m (2015: GBP72.4m), including corporation tax, business rates, employer's national insurance, and the new 8% bank corporation tax surcharge amounting to GBP4.5m (2015: GBPnil).

For further information, or to arrange interviews, please contact the Skipton Press Office on 03456 017247,

email newsline@skipton.co.uk or visit the press section of our website at www.skipton.co.uk.

Stacey Stothard, Senior Corporate Communications Manager

If outside Press Office hours (8.30am - 5pm, Monday to Friday), please call 07793 699 878.

Skipton Building Society