Skipton BuildingSkipton Society Annual Report & Accounts Annual Report 2015 & Accounts 2015 2 Skipton Building Society Contents Overview Overview 2015 Group Highlights 4 Chairman’s Statement 6 Group Chief Executive’s Report 8 Strategic Strategic Report Report Our vision 12 The business model 12 Strategy and objectives 13 Responsibility Performance in the year 16 Corporate Performance by division 26 Principal risks and uncertainties 28 Corporate Responsibility Report 29 Governance Governance The Board of Directors 34 Directors’ Report 37 Directors’ Report on Corporate Governance 40 Financials Audit Committee Report 46 Risk Management Report 50 Directors’ Remuneration Report 57 Country by Financials Country Independent Auditor’s Report 73 Income Statements 77 Statements of Comprehensive Income 78 Annual Business Statements of Financial Position 79 Statement Statements of Changes in Members’ Interests 80 Statements of Cash Flows 82 Notes to the Accounts 84 Country by Country Reporting 165 Glossary Annual Business Statement 166 Glossary 171 Annual Report & Accounts 2015 3 2015 Group Highlights Key performance highlights 43,348 £146.9m new customers Total Group profit Society customer numbers increased by 43,348 Total Group profit before tax (PBT) of £146.9m to a record 838,087 (2014: £180.6m) £1.5bn £1.4bn Mortgage book growth Savings balances growth Mortgage book grew by £1.5bn to £14.2bn, an annual Savings balances grew by £1.4bn to £12.8bn, growth rate of 11.9% (2014: 11.2%) an annual growth rate of 11.9% (2014: 11.7%) £3.7bn 23,094 Gross residential Homeowners mortgage lending helped Gross residential mortgage lending up by 23.3% Helped 23,094 homeowners to purchase or to £3.7bn (2014: £3.0bn) remortgage their properties, including 3,847 first time buyers £153.3m 16.80% Underlying Group Common Group profit Equity Tier 1 ratio Underlying Group PBT from continuing operations Group Common Equity Tier 1 ratio increased increased to £153.3m (2014: £150.1m) to 16.80% (2014: 16.09%) 88% 90% net customer employee satisfaction engagement Society net customer satisfaction of 88% (2014: 88%) Society employee engagement of 90% (2014: 88%) 4 Skipton Building Society Three Year Financial Highlights Year ended 31 December 1.40% £180.6m* £153.3m 1.33% £150.1m* Overview £146.9m 1.01% £101.9m* £82.9m* 2013 2014 2015 2013 2014 2015 2013 2014 2015 Net interest margin Total Group profit before tax Underlying Group profit before tax (note 1) 6.1% 16.80% 5.9%* £17.5bn 16.09%* 5.5%* 14.07%* £16.0bn* £14.5bn* 2013 2014 2015 2013 2014 2015 2013 2014 2015 Group Common Equity Leverage ratio Total assets Tier 1 ratio * The comparative figures have been restated due to a change in accounting policy relating 15.37% to dividend payments to non-controlling 18.61% 18.36% 14.15% shareholders of subsidiary undertakings. 16.95% Further details are provided in note 1b) to 12.22% the Accounts. The comparative figures for the Common Equity Tier 1 ratio and leverage ratio also reflect a reclassification of fair value adjustments under CRD IV rules. Note 1. Underlying Group profit before tax excludes Financial Services Compensation Scheme 2013 2014 2015 2013 2014 2015 charges, gains on disposal of subsidiary, associate and equity share investments and Liquidity ratio Wholesale funding ratio profits from discontinued operations. Awards won Listed for the first time 7th in the KPMG Personal Finance in The Sunday Times Nunwood Customer Best junior/children’s ‘100 Best Companies Experience savings provider to Work For’ Excellence survey Best Cash ISA Savings What Mortgage Gold corporate Provider and Best Savings Awards Best engagement award Account Provider in the National Building for Grassroots Giving MoneySuperMarket Society 2015 ‘Supers’ Awards Annual Report & Accounts 2015 5 Chairman’s Statement “As a proud mutual we recognise the importance of having a membership that engages with us and challenges us to be even better.” 2015 was another year of strong performance for your the Society increased to 162,088. The Society continues to Society – growing market share in mortgages and savings – provide a range of mortgage products for first and second and increasing customer numbers to a record 838,087. time buyers, remortgage customers and for those buying properties to let. In addition, our Guernsey based subsidiary, The number of customers saving with the Society increased Skipton International Limited (SIL), provided mortgage to 685,679, despite strong competition in the market, in finance for properties in the Channel Islands and to UK particular from National Savings & Investments in the early expatriates for purchases of buy-to-let properties in the UK. part of the year. Interest rates for savers remain low with UK base rates at a record low of 0.5% for over six years and are We expect the mortgage market to remain relatively buoyant likely to remain relatively low for some time to come. in 2016 and expect that competition for both mortgages and savings will increase. This is likely to result in further We will continue to support our savings customers by pressure on our net interest margin which declined to offering reviews under our ‘no pressure promise’. During 133bps in 2015 compared to 140bps in 2014. The net 2015, we halved the number of historical products interest margin is primarily the difference between what we maintained by the Society and improved the functionality pay our savings customers and other providers of funds of others. This enabled us to simplify our closed product and what we charge to our borrowing customers or earn range, while ensuring that people with those products on other assets, and we will continue to balance what we maintained or saw increases in the interest rate they pay our savers against what we earn on lending and other received. assets. We will also continue to offer financial advice on investments The Society is in a strong financial position as is evident and pensions to customers requiring such advice. Financial from its capital ratios and stable underlying profitability. advice is seen as integral to our core proposition in helping people to plan and prepare ‘For Life Ahead’. In January The strength of the Society is further enhanced through its 2016, we announced that Skipton Financial Services estate agency operations, Connells, that operates under Limited (SFS) will be integrated with the Society, subject to a number of different brands including Connells, William regulatory approval, and following integration we will provide H Brown, Barnard Marcus, Sharman Quinney and Peter advice on pensions and investments, including inheritance Alan. In 2015, Connells acquired Gascoigne Halman estate planning, under a single Skipton Building Society brand. agents and made a number of other small acquisitions of estate agency or letting businesses. Connells reported The mortgage market was fairly buoyant in 2015, with strong profits from the sale of houses, lettings, surveys and increased competition putting pressure on lending margins. valuations and mortgage services and we believe it is well Nevertheless, the number of customers borrowing from 6 Skipton Building Society positioned to continue generating strong profits that support February 2015. In January 2016 our new Executive Director Overview Chairman’s the Society. responsible for Distribution and Financial Services, Andrew Bottomley, joined the Society and became a member of the In 2015 we accelerated our development of online digital Board. We now have a full strength executive team who are services, initially focusing on mortgage intermediaries, highly capable and committed to building a better Society. Statement but increasingly our efforts will be devoted to enhancing functionality and services for our savings members. Skipton In September 2015 we appointed a new Non-Executive Direct, our customer contact centre, supports our branches Director, Denise Cockrem, who is also the Chief Financial and online proposition and has expanded significantly Officer of Good Energy plc, having previously worked to enable us to speak directly with more customers over for banking and insurance companies. And, in February the telephone. Our branches remain the cornerstone of 2016 we announced the appointment of Mark Lund who is our distribution network – reaching out to customers with currently a Non-Executive Director of SFS and will join the Skipton’s renowned friendliness. Board of the Society on the date of our AGM, subject to members voting in favour. Indeed, members will be asked The friendly approach adopted by all our people is evident in to vote on all Directors standing for election or re-election to our customers’ experience, with the Society being in the top the Board at the AGM. 10 UK brands and the UK’s highest rated building society according to the KPMG Nunwood UK Customer Experience We welcome the new Directors and will be saying farewell Excellence survey. We are just as pleased to operate at the to two Non-Executive Directors retiring at the conclusion of ‘Gold Standard’ with Investors in People and to be named the AGM. in The Sunday Times 100 Best Companies To Work For Nimble Thompson has been a member of the Board listing, and we will continue to invest in our people, service since 2009, having previously served on the Board of the excellence and leadership development. Scarborough Building Society. He is the Deputy Chairman It is important that we remain in touch with our membership and Senior Independent Director, and the Chairman of so that we are aware of their views, requirements and the Remuneration Committee. Nimble has contributed concerns. During 2015 we continued to seek our customers’ significantly to the development of the Society over the past views in a number of different ways, including our customer seven years and is a trusted and valued colleague whose panel, which now has over 4,000 members, and our sound advice has been greatly appreciated and will be customer forums.