yorkshire building society

Annual Report and Accounts 2021

Helping real life happen

Yorkshire Building Society Annual Report and Accounts 2021

YBM 0019 17 03 22

References to ‘YBS Group’ or ‘Yorkshire Group’ refer to

Yorkshire Building Society, the trading names under which it

operates (Chelsea Building Society, the Chelsea, Norwich &

Peterborough Building Society, N&P and Egg) and its subsidiary

companies and where appropriate, its controlled entities. Egg

is a registered trademark of Yorkshire Building Society.

Accord Mortgages Limited is authorised and regulated by

the Financial Conduct Authority. Accord Mortgages Limited is

entered in the Financial Services Register under registration

number 305936. Buy to Let mortgages for business purposes

are not regulated by the Financial Conduct Authority. Accord

Mortgages Limited is registered In England No: 02139881.

Registered Office: Yorkshire House, Yorkshire Drive, Bradford

BD5 8LJ. Accord Mortgages is a registered Trade Mark of Accord

Mortgages Limited.

YBS Share Plans is part of Yorkshire Building Society.

Yorkshire Building Society provides share plan trustee and

administration services, including deposit taking, all of which

are subject to English law, with deposit taking being regulated

by the Financial Conduct Authority. The provision of share plan

trustee and administration services is not regulated by the

Financial Conduct Authority. We are not responsible for share

plan deposits held by local savings carriers outside the UK.

Head Office: YBS Share Plans, Yorkshire House, Yorkshire Drive,

Bradford BD5 8LJ. ybsshareplans.co.uk

Yorkshire Building Society Charitable Foundation is a

Registered Charity (No: 1069082) and a Registered Company

(No: 03545437). It is an independent registered charity

governed by a board of trustees and its results are not

included in the annual report and accounts of Yorkshire

Building Society. Registered Office: Yorkshire House, Yorkshire

Drive, Bradford BD5 8LJ.

End Youth Homelessness (EYH) is a national movement of

local charities working together to end youth homelessness

in the UK. EYH trades through its designated Administrator,

Centrepoint (charity number 292411).

Age UK is a charitable company limited by guarantee and

registered in England and Wales (registered charity number

1128267). Registered address: 7th Floor, One America Square,

17 Crosswall, London EC3N 2LB.

Yorkshire Building Society is a member of the Building

Societies Association and is authorised by the Prudential

Regulation Authority and regulated by the Financial Conduct

Authority and the Prudential Regulation Authority. Yorkshire

Building Society is entered in the Financial Services Register

and its registration number is 106085. Head Office: Yorkshire

House, Yorkshire Drive, Bradford BD5 8LJ. ybs.co.uk

Helping real life happen

together

we make a

great team

helping

happen

Our purpose is to

provide

Real Help with

Real Life

by helping

people to find a place

to call home, helping

people toward greater

financial wellbeing, and

creating long-term value

for our members.

Contents

Introduction

Performance at a Glance 2

Welcome from the Chair of the Board 4

Chief Executive’s Summary 8

Strategic Report

The External Environment 14

Our Business Model 18

Our Purpose, Strategy and Stakeholders 20

Our Customers, Colleagues and Communities 30

Our Financial Review 37

Principal Risks and Uncertainties 44

Building a Greener Society 48

Governance

Our Leadership Team 64

Corporate Governance Report 70

Board Governance and Nominations Committee Report 86

Audit Committee Report 92

Risk Management Report 98

Directors’ Remuneration Report 112

Directors’ Report 132

Independent auditors’ report to the members of Yorkshire Building Society 140

Financial Statements

Income Statements 152

Statements of Comprehensive Income 153

Balance Sheets 154

Statements of Changes in Members’ Interest and Equity 155

Statements of Cash Flows 157

Notes to the Financial Statements 158

Other Information

Annual Business Statement 241

Country-by-Country Report 243

Glossary 245

See the

Summary Income Statement

in the

Our Financial Review

section of the

Strategic Report

for the calculation of core profit and core income. See the

Glossary

for definitions of core operating profit and cost to core income ratio.

Net Promoter Score and NPS

are trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc. Data period January – December 2021,

based on 24,305 responses.

Member value

5.9

16.8

Common Equity Tier 1 ratio

16.7% in 2020

20.7

Liquidity Ratio

19.2% in 2020

Leverage Ratio

5.9% in 2020

297. 3

320.0

Statutory Profit Before Tax

Cost to Core Income Ratio

£161.3

in 2020

£170.5

in 2020

59% in 2020

Core Operating Profit

Average Savings Rate Paid Net Promoter Score (NPS

)

+54

+53 in 20200.78% over 2020

0.60

over 2021

Performance at a Glance

2 | Introduction

Based on Bank of England total industry gross lending. Data period January – December 2021.

Source: YBS analysis of BSA Household savings. Data period January – November 2021.

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 2021.

Climate Related

Financial

Disclosures

Place to call home

Financial wellbeing

10.3

203,000

Gross Lending

Savings Accounts Opened

Gross Mortgage Lending

Market Share

Savings Balance

Market Share

Growth in Mortgage Balances

New Mortgage Accounts

Retail Savings Balances

Average Savings Rate Differential

above Market Average

£7.1

in 2020

227,000 in 2020

2.8% in 2020

1.88% in 2020

2.1% in 2020

39,000 in 2020

£33.4

in 2020

0.17% in 2020

3.2

1.92

8 .1

49,

000

35.5

0.32

Carbon Footprint

+3% in 2020

-5

Landfill Diversion

99.5

of waste

99.0% in 2020

| 3

Introduction

members

. Pursuing these ambitions

is how we believe we can make the

greatest positive impact on real life

and society as a whole. We recognise

that we can help to drive positive

outcomes for not only our membership

but also our broader range of

stakeholders, which includes the

impact we have on the environment.

We are committed to playing our part

in building a greener society and, this

year, our Board was pleased to approve

Since the Yorkshire Building Society

was founded over 150 years ago we

have been strongly committed to our

mutual business model and to our

social purpose, both of which remain

at the very centre of our culture and

operations to this day.

Our purpose is to help people to find

place to call home

, support people

toward greater

financial wellbeing

and deliver long-term

value for our

our climate change strategy, details of

which are disclosed later in this report.

Our members and customers entrust

us with their savings and mortgages,

and it is our duty to them to operate

a strong, financially secure and

resilient business. The strategic

investments we have made over

recent years positioned us well for

the opportunities that were presented

in our core markets of mortgages

Welcome from

the Chair of

the Board

Delivering

Real

Help with Real

Life

I am pleased to present our 2021

Annual Report and Accounts. I

am able to report a strong set of

financial results as well as clear

progress in delivering our long-

term strategic plans as set against

the context of the challenging

economic and market environment

in which we operate.

4 | Introduction

and savings. We were able to deliver

strong mortgage lending by returning

to a number of market segments

where many customers experienced

a shortage of suitable products. This

meant we were able to help even

more customers this year in securing

a mortgage, and we are proud to have

supported a greater number of people

than ever before through our first-time

buyer mortgages. The strength of our

overall financial performance enabled

us to launch our member loyalty

programme which saw us returning

an additional £41 million of value to

our loyal savings members through a

combination of targeted products and

increased rates on our instant access

savings products.

This year we have continued to be

there for our customers who, like many

in society, have found themselves

facing a number of challenges during

this difficult period. We ensured that

our branches and office sites were

COVID-secure, in line with the latest

Government guidelines, and we

facilitated the deferral of mortgage

payments for those customers who

needed this support.

The physical and mental wellbeing of

our colleagues is a matter of significant

importance to us. Alongside ensuring

effective social distancing measures

were in place, we have refreshed and

expanded our colleague wellbeing

programmes to provide additional

resources.

We have also made progress on

our inclusion and diversity agenda,

redefining our strategy to foster a

culture where these essential values

are embedded within everything that

we do, and each and every colleague

is able to pursue their career goals

free from barriers. During the year, the

number of women who hold senior

management positions has increased,

and we were also delighted to receive

the award for

Large Business of the

Year 2021

from the National Centre for

Diversity. This shows the good progress

we have made in this area, though we

recognise that there is always more

that we can do.

Changes to the Board

As previously announced, Mike

Regnier left the Society at the end

of 2021. I would like to thank Mike

for his outstanding contribution

to the Society over the last seven

years, including the last five as

our Chief Executive. Mike led the

Society superbly through a period

of significant change, both as an

organisation and in wider society,

most recently helping us navigate the

challenges of the COVID-19 pandemic.

I am pleased to welcome Stephen

White as our Interim Chief Executive.

Stephen has been our Chief Operating

Officer and Executive Director since

2016 and has extensive financial

services experience. I am confident in

his ability to lead the Society until we

formally appoint Mike’s successor.

I would like to take this opportunity to

express my gratitude to both Gordon

Ireland and Guy Parsons on their

departure from the Board. Gordon,

who stepped down from the Board

in April 2021, and Guy, who is due to

retire from the Board at the conclusion

of the 2022 Annual General Meeting,

made excellent contributions to the

Society during their time here. I wish

them both well for the future.

Finally, I would like to extend a warm

welcome to our new Board members,

Dina Matta and Jennelle Tilling, who

joined us as Non-Executive Directors

in 2021, and to David Morris, our

Chief Commercial Officer who was

appointed as Executive Director in

January 2022 having been with the

Society since 2018. The skills and

experience brought by each of our

new Board members will be highly

valuable as we continue to pursue our

purpose of delivering

Real Help with

Real Life

Our Long-term

Sustainability

Key responsibilities of mine as Chair

of the Board are to ensure that the

Society is a well-run organisation,

has the right skills and experience

at Board level and that the Board is

operating effectively.

We work to the highest standards

of corporate governance and are

committed to maintaining this

approach and to supporting the long-

term success and sustainability of the

Society. We ensure that the Society

is secure in its financial position and

has robust controls in place to enable

us to continue serving our members

and customers for years to come.

The member loyalty programme we

launched this year demonstrated our

commitment to returning value to

our members, and we will continue to

pursue opportunities to deliver value

through similar programmes in the

future, balancing this with the need to

ensure our long-term sustainability.

We are also committed to making

a positive difference to the

communities within which we operate.

Our range of community investment

programmes operate on three levels:

local, regional and national. The

programmes themselves cover various

topics, with focus placed on key

areas including financial wellbeing

and literacy, employability skills and

digital inclusion. Our Money Minds

and Career Minds sessions focus on

supporting local school children;

we have launched a targeted range

of initiatives in our home city of

Bradford; and through our partnership

with Age UK and the Building Better

Lives programme we are funding

specialist advice in eight regions

across the UK.

It is important that we consider the

broader, long-term impacts of our

operations alongside the needs of

our more immediate stakeholder

groups. In wider society, the topic of

climate change has been brought into

increasingly sharp focus in recent

years. The Society is proud to have

been carbon neutral for the last five

years and, this year, we have also

embedded specific environmental

standards into our operations

and governance, as well as having

included new Environmental, Social

and Governance (ESG) disclosures in

this report.

Having deepened our understanding

of the risks posed by climate change

over the course of 2021, this report

announces our climate strategy and

the commitments we have made in

moving toward a future low-carbon

economy. We are clear that our

disclosures and commitments form

part of our broader risk management,

and the Board has set our intended

direction of travel as our approach to

climate change management evolves

over time. Our climate commitments

are designed to complement our

Introduction - Welcome from the Chair of the Board

| 5

purpose and not affect our intention

of helping customers into homes.

Moving to a low-carbon economy

could have unintended consequences,

with one key area concerning us being

the costs relating to improving the

energy efficiency of the UK’s housing

stock. Many customers will struggle

to meet the cost of this transition,

and so our purpose remains critically

important as we focus on helping our

customers to have a place to call home

and to build their financial resilience.

In 2021 we also re-evaluated our

approach to ESG issues following

stakeholder research. Alongside

our three purpose ambitions, we

have identified three additional ESG

priorities. These were identified

through our materiality research

and are: our environmental impact,

investing in our people and operating

responsibly. In 2022 we will publish

an ESG report to show the progress we

are making against our ESG strategy

and share our ambitions for the future.

Regulatory Factors

Updates from the regulatory

environment this year include:

•

Support for customers impacted

by the COVID-19 pandemic – as

the pandemic continues, further

regulatory guidance may come

into force to alleviate the negative

impacts felt by customers. YBS

continues to focus on supporting

our customers and will do so

in line with any subsequent

regulatory changes.

•

Climate change risk – increased

regulatory focus is being placed

on matters concerning climate

change and the risks it poses. The

Prudential Regulation Authority’s

Supervisory Statement SS3/19

became a requirement at the end

of 2021 and large businesses

will soon be required to disclose

climate-related risks in line with

the recommendations of the

Taskforce on Climate-related

Financial Disclosures (TCFD).

Detail on our strategic approach

to climate change risks is included

later in this report. We have

elected to align our disclosures

this year with TCFD, ahead of

this becoming a mandatory

requirement, and given the level of

interest from our key stakeholders

we intend to maintain our

disclosure with best practice as it

continues to evolve.

External factors

We proactively monitor developments

in the external environment which

may impact upon the Society and our

ability to deliver against our purpose.

We ensure that our actions are in the

interests of our members, customers

and colleagues, and that they are in

accordance with maintaining a strong

and sustainable organisation over the

long term.

In terms of the economic environment,

a high degree of uncertainty has

been present since the emergence

of the COVID-19 pandemic.

Successful progress in administering

vaccinations to the UK population,

as well as the lesser degree of active

COVID restrictions, are causes for

optimism and drove the economy

to broadly recover to the levels

seen pre-pandemic by the Autumn.

The subsequent emergence of new

variants of COVID-19 has stalled

this recovery, and in response to

inflationary pressures, the Bank of

England moved to increase Base Rate

in both December 2021 and February

2022. Much uncertainty remains

around potential future developments,

casting doubt over key macroeconomic

outcomes.

We will continue to monitor our

environment closely, taking action

where necessary, in line with our

robust risk management capabilities.

The Yorkshire Building Society remains

well-capitalised, with good levels

of liquidity and access to wholesale

funding. Our strong balance sheet and

capital generation will ensure that

we are well placed to withstand an

economic downturn.

The Challenges That Lie

Ahead

Our core markets of mortgages and

savings will continue to be highly

competitive and overall margins will

remain under pressure. Our overall

external context is one of heightened

uncertainty, through geo-political risks,

including the terrible events currently

occurring in Ukraine, the impacts of

Welcome from the Chair of the Board

the UK’s exit from the EU and the

potential future paths of COVID-19.

These will all contribute to disruption

and supply and demand imbalances

across the economy, and our industry

will be at the heart of this. Customer

expectations will continue to evolve

rapidly, and new competitive models

will emerge.

In this context, our digital

transformation of customer

experience will be central to our

ability to compete and to our future

prospects. Across the organisation, we

are investing in building our digital

skills base, increasing our capability

and capacity, and investing in our

colleagues to support personal growth

and development and redefine the

nature of the work that we do and

the way in which we do it. Our strong

foundations, our purpose, and the

commitment of our colleagues will

enable the Yorkshire Building Society

to rise to meet these challenges.

We would not have been able to

achieve all that we have, or all that

we strive to in the future, without

our dedicated colleagues. I would

like to extend a sincere thank you

to all of our colleagues for once

again demonstrating their resilience,

professionalism and commitment to

providing our members and customers

with the valuable services they

deserve.

Finally, I would like to end on a note

of gratitude to our members for their

continued support.

John Heaps,

Chair of the Board

1 March 2022

6 | Introduction

We are proud to have

supported a greater

number of people

than ever before

through our first-time

buyers mortgages.

The strength of our

overall financial

performance enabled

us to launch our

member loyalty

programme which

saw us returning an

additional £41m of

value to our loyal

savings members.

Introduction - Welcome from the Chair of the Board

| 7

8 | Introduction

Chief

Executive’s

Summary

A Purposeful

Year

I am pleased to introduce

our Annual Report for 2021,

marking a year where we have

delivered strongly against our

purpose of providing

Real Help

with Real Life

. Our existing

strategy has served us well in

these challenging times, and

we are proud to have been

here for our members when

they needed us.

Taking over as Interim Chief Executive

in November 2021, I am proud to be

leading an organisation with such a

strong mutual heritage, always placing

our members and customers at the very

centre of everything we do.

Having been with the Society for a

number of years as Chief Operating

Officer and Executive Director, I very

much look forward to building upon

the progress we have made as an

organisation in recent years as we

continue toward our long-term strategy,

guided by our

Strategic Blueprint

and

Transformation Roadmap

It has been a year since the launch

of our Blueprint, which brings

together our strategic priorities,

culture and behaviours and will guide

us in delivering our purpose. This

is underpinned by our ambitious

programme to transform the experience

of our customers and members,

develop our digital capability and

enhance our risk management

capabilities. I am pleased to confirm

we have made good progress on our

strategic agenda. Key highlights this

year include:

Helping a record 42,000

people into a

place to call

home

through our first-time

buyer mortgages – over

15,000 more than last year

The conditions of the mortgage market

early in the year made it difficult for

many people wanting to secure a

place

to call home

. The COVID-19 pandemic

caused disruption to the availability of

mortgage products at the same time

when Government incentives were

boosting customer demand. Many of

the customers facing difficulties were

those with lower deposits, including

first-time buyers. At YBS, we resumed

lending to these purpose-aligned

segments of the market as soon as

we could responsibly do so. We were

proud to be the first lender to re-enter

the segment for those with five percent

deposits, on the strength of our own

resources and capability.

We plan to do more on our

place to

call home

ambition. As part of our

Strategic Blueprint

we are developing

our mortgage product propositions,

and enhancing our capabilities around

risk management, in order to improve

the range of products we can offer to

those borrowers less well served by

the wider market.

Expanding our savings

product and channel

offering

Financial wellbeing

is a critically

important issue in wider society, with

our own research showing that many

would have difficulty relying on their

savings alone to cover unexpected

events. The ongoing pandemic has

only made the issues many face

more acute, as it affects employment

statuses, disrupts markets and causes

inflationary pressures.

Our savings range offers different

products targeted toward different

needs, including easily accessible

variable rates, fixed rate bonds

and habit-building regular savings

products. With the launch of our new

Christmas regular saver, our customers

now have the ability to set up a

savings account online in as little as

five minutes. Our members opened

over 203,000 savings accounts with

us in 2021 (2020: 227,000), and we

delivered rates which consistently

beat the rest of the market, on

average by 0.32% (2020: 0.17%

higher than the average) which

equates to £107 million additional

interest for our savers. This year,

we have begun to deliver customer

journey improvements for both our

branch and online channels. Our

Transformation Roadmap

will deliver

further enhancements, allowing our

customers to access our savings range

using the channel most suited to their

needs, and continually expanding the

functionality of our mobile app.

Alongside our product offerings, our

community investment programmes

support our ambition to improve

people’s

financial wellbeing

. We have

invested in new initiatives, designed

to support people who are facing a

wide variety of challenges. Our

Money

Minds

and

Career Minds

sessions have

now restarted in schools which is great

to see. These successful programmes

focus on providing valuable financial

and employment skills to help young

people establish healthy habits

early in life. Additionally, our charity

partnership with Age UK will help us to

support those of an older generation,

and a range of other programmes will

be targeted toward the age groups in

between.

The launch of our member

loyalty programme

Returning

member value

is a

fundamental part of our mutual

business model. This year, our strong

performance in mortgage lending,

particularly in the first half of this year,

and our financial stability enabled us to

launch our member loyalty programme.

As part of this, we launched specific

loyalty savings products featuring

some of our best rates, and also raised

the rates we pay our loyal savers

twice in the first half of this year. We

were very proud to have been able

to demonstrate our commitment to

rewarding our membership in this way

– especially given the context where

some of the rates in the wider market

were being cut. We will continue to

pursue opportunities to deliver similar

programmes in the future, balancing

42,000

helping a record

people through

our first time

buyer mortgages -

over 15,000 more

than last year

Introduction - Chief Executive’s Summary

| 9

this with the need to ensure our long-

term sustainability.

Our Colleagues

Such meaningful contributions toward

our purpose would not have been

possible without our colleagues.

Alongside our members and customers,

our colleagues are our highest priority.

We are committed to providing our

colleagues with a safe, welcoming

working environment and supporting

them in their personal development

journeys. Building an inclusive and

diverse workplace plays a key part in

our strategy and we were proud to

receive external recognition for our

work in this area this year, including

Leaders in Diversity accreditation and

being named a Top 10 Employer by

the work-life balance charity Working

Families for our flexible and family-

friendly policies and practices.

Our colleagues are integral in

delivering the standards of service our

customers deserve. Our Net Promoter

Score for 2021 has increased to +54

(2020: +53), which is a great result.

That we are able to continue providing

such a high-quality service to our

customers, even throughout periods

where the challenges are larger in both

number and scale, is a testament to

the valuable contributions from our

hardworking and resilient colleagues.

Our teams remain a source of pride

for all of our leadership and for me

personally.

Our branches were able to remain

open all of this year as we continued to

provide key services to our customers

in COVID-secure environments.

Many of our office-based colleagues

continue to work remotely; we have

proved that we can be effective

operating in this way, and I am very

proud of how well our colleagues

have adapted. That said, remote

working does lead to other challenges

– especially around colleague

wellbeing. We added to our existing

processes to monitor and support

wellbeing and, like many other

organisations, we have begun the

process of evaluating our future ways

of working and have been consulting

with our colleagues about this.

Another challenge presented by the

increase in remote and hybrid working

is in attracting and retaining talent.

As geography has become less of a

factor in selecting a job, the pool of

potential resource has broadened. We

have observed increases in the level

of competition for certain skillsets,

and the risks associated with this will

be monitored closely as they continue

to evolve.

Our Strategy

We have performed strongly in a

year characterised by a great deal of

economic and market uncertainty and

a constantly evolving picture with

regard to the COVID-19 pandemic.

The dynamics of the mortgage market

created an opportunity for us to

increase our lending to purposeful

segments of the market and service the

high levels of demand present. Recent

investments in our IT infrastructure and

resourcing capacity meant we were

well positioned to provide this service

and be there to help our customers.

As a consequence, we have grown our

mortgage lending at a rate higher than

in a typical year, but in a way which

strongly aligns to our purpose and

strategy.

Our strategy remains unchanged

and will be further advanced by our

Strategic Blueprint

and

Transformation

Roadmap

. In the first year of this

journey we have delivered specific

improvements, including the addition

of our Accord buy-to-let lending

channel to our broker platform

and enabling savings accounts to

be opened online, whilst other

parts of our plans are more of a

continuous journey to enhance our

capabilities. Whilst we have delivered

improvements to our online services,

we recognise that we are falling short

of customer expectations in some

parts of our digital service. It is clear

that continued focus on this area

is needed to bring us in line with

expectations. Overall, we are pleased

with the progress we have made on our

strategic agenda.

We are placing an increased focus on

the means by which we deliver against

our strategy, giving due consideration

to our broader environmental and

social context. Taking action to lessen

the negative impact we have on the

environment is a journey we were

already on as an organisation – we

have held carbon neutral status for

10 | Introduction

Chief Executive’s Summary

That we are

able to continue

providing such a

high-quality service

to our customers

is a testament

to the valuable

contributions from

our hardworking

and resilient

colleagues.

the previous five years and actively

reduced the volume of paper we

use – but this year we have gone

further. Over the course of 2021, we

completed the first phase of our work

on climate risk which enabled us to

both understand the risks of climate

change and also begin to develop our

strategy for how we intend to support

the broader transition to a low-carbon

economy. We do not lend to sectors of

the economy which would be regarded

as damaging to the environment,

and so it is important for us to link

our climate strategy to our broader

purpose-led strategy. The main risks

of climate change for the Society are

related to our customers’ homes. These

risks can be physical, where changes

in the natural environment may cause

damage the integrity of a property, or

transitional, which result from changes

in policy as the UK moves toward a

lower carbon economy.

Our annual report includes new

disclosures around our environmental

impacts and announces our strategy

to help manage climate change risk, as

well as announcing the commitments

we are making to support positive

changes in this journey. These

commitments fall into three broad

pillars which are: ensuring that

the Society continues to manage

its operational carbon emissions;

promoting and embedding carbon

literacy into our working culture;

and supporting customers in their

transition to a low-carbon economy

through understanding the risks and

opportunities climate change presents,

providing proactive and reactive

support.

It is important to the Society that

we continue to do the right thing in

supporting broader climate change

goals, though it is essential that our

ambitions in this area remain aligned

to our purpose. Being here to help

customers into homes, build greater

financial resilience and providing value

to our members are our core purpose,

and we have made sure that our climate

ambitions are in harmony with this.

Financial Sustainability

This year, our financial position has

strengthened, and we have shown

that our operational and resourcing

capabilities can be flexed and adapted

to periods of heightened demand.

In support of our

place to call home

ambitions, we increased our net

lending to £3.6bn in 2021, £3.0bn

more than last year. This level of

growth in mortgages was supported by

growth in our savings balances, which

increased by £2.1bn. Additionally,

our track record of effective cost

management has continued; our cost

to core income ratio has decreased

by 9 percentage points to 50% – an

improvement for the fifth consecutive

year.

As a result of this successful

performance in our core markets,

alongside our investment programmes,

we have delivered an increased core

operating profit of £297m, rising

£126m from last year. Our profits

contribute to the sustainability of the

Society, bolstering our reserves, and

enabling us to reinvest in the products

and services we provide to our

customers and membership.

Outlook

We expect that a high level of

competition will continue to

characterise the market for mortgages

and much uncertainty looks set to

remain in the economic environment,

relating to both the ongoing COVID-19

pandemic and the wider consequences

of the UK’s exit from the EU. As a

business we stay alert to the possibility

for further disruptions and ensure

that our risk management capabilities

remain robust. Additionally, we have

recently increased our investment

in operational resilience, with a

particular focus on continuing to

protect ourselves from the evolving

threats to cyber security. Our capital

and liquidity positions remain strong,

and the Yorkshire Building Society is

well resourced to support customers

through potential economic shocks.

Much has been achieved over the

course of 2021, and I am very much

looking forward to delivering against

the next stages of our

Strategic

Blueprint

. We are committed to further

improving the range of products on

offer to our savings and mortgage

customers. Our mortgage propositions

will not only continue to help people

to have a place to call home, but we

are also developing products which

will help to improve the energy

efficiency of people’s properties, in

line with our climate change strategy.

Further enhancements to our digital

servicing capability are also in

development, continuing to simplify

our infrastructure and processes and

also delivering greater functionality

for the 130,000 members who are

already using our app.

The Society is focused on being

an outstanding provider of savings

and mortgages; this underpins our

strategy and purpose, and will provide

real, meaningful benefits to our

membership and customers for the

years to come.

Stephen White,

Interim Chief Executive

1 March 2022

TOP 10

EMPLOYER

for working

families

2021

Introduction - Chief Executive’s Summary

| 11

We are always delighted when customers and industry professionals recognise our hard work in delivering

our purpose. A list of the accolades awarded to the Society in 2021 is below.

Mortgages

Awards

AWARDS ACCOLADE

Moneynet Personal

Finance Awards

Best Overall Mortgage

Provider

Moneynet Personal

Finance Awards

Best Offset Mortgage

Provider

Moneynet Personal

Finance Awards

Best First-Time Buyer

Mortgage Provider

L&G Mortgage Club

Awards 2021

Best Lender for Service

category

Moneyfacts Consumer

Awards 2021

High Street Mortgage

Provider of the Year

Moneyfacts Consumer

Awards 2021

First Time Mortgage

Buyers' Choice Award

Financial Adviser

Service Awards

5 Stars Mortgage category

Your Mortgage Awards

Best Intermediary

Mortgage Lender

Mortgage Finance

Gazette Awards

Innovation by Lenders

TMA Club Awards

Best Lender for

Intermediary Support

2021

12 | Introduction

Chief Executive’s Summary

Savings

AWARDS ACCOLADE

Moneynet Personal

Finance Awards

Best Easy Access Savings

Provider

Moneyfacts Awards 2021

Best Building Society

Savings Provider

Moneyfacts Consumer

Awards 2021

High Street Savings Provider

of the Year

MoneyComms Awards

2021

Best Regular Savings

Provider

Customer Experience

AWARDS ACCOLADE

Business Moneyfacts

Awards 2021

Best Service from a

Commercial Mortgage

Provider

Moneyfacts Awards 2021

Personal Finance Provider

of the Year

Fairer Finance

Gold Ribbon for Savings

Customer Experience

Fairer Finance

Gold Ribbon for Mortgages

Customer Experience

Mortgage Finance Gazette

Awards

Customer Service & Treating

Customers Fairly - Lenders

| 13

Introduction - Chief Executive’s Summary

AWARDS ACCOLADE

National Centre for

Diversity FREDIE Awards

2021

Large Business of the Year

2021

National Centre for

Diversity FREDIE Awards

2021

Financial Services Company

of the Year 2021

Culture

Corporate Business

AWARDS ACCOLADE

Corporate Engagement

Awards

Most Innovative Collaboration

– Gold

Best Business Awards

Best Corporate Social

Responsibility

The environment in which we operate

influences our ability to deliver

sustainable, long-term value to our

members. To inform our strategy and to

understand how we can best prepare

for, and adapt to, emerging risks and

opportunities we monitor the external

environment closely.

The External

Environment

Economic and Political

Overview

For much of 2021, the UK

economy showed strong signs of

recovery. Among other factors,

favourable developments were

driven by significant Government

intervention to support businesses

and the markets for labour and

housing, alongside the success of

the UK vaccination programme and

the phased loosening of COVID-19

restrictions.

However, since late summer some

of this momentum has slowed

due in part to the emergence of

new variants of COVID-19. The

Delta variant resulted in almost

a million workers self-isolating

and shortages in the products

and labour markets. The later

emergence of the Omicron variant

has also had significant negative

impacts, and has been particularly

hard on the hospitality and retail

sectors as consumers exercise

caution. The risk remains that the

COVID-19 pandemic will require

further restrictions to be introduced to

manage the impact of existing or new

variants.

Monthly gross domestic product

(GDP) in the UK as at December 2021

was equal to the level seen before

the COVID-19 pandemic (February

2020). Outputs by sector vary, with

services and construction both above

pre-pandemic levels and production

remaining below

Since the start of 2021 unemployment

in the UK has been falling, with the

estimated rate at 4.1% in December

This is a level higher than that

seen before the pandemic, but has

decreased compared to the preceding

three months. The Coronavirus Job

Retention Scheme (CJRS), which was

designed to support the market for

labour was also withdrawn at the end

of September 2021.

As social restrictions lifted and the

demand for goods and services

increased, certain sectors experienced

recruitment difficulties. This was noted

both in the hospitality sector as well as

in the scarcity of heavy goods vehicle

drivers, which were also impacted by

the UK’s exit from the EU.

These supply and demand conditions

precipitated marked increases in

in global goods prices, with the UK

experiencing rising fuel and energy

prices and global supply issues for

the first time since the 1970s. In

combination with the reversal of the

VAT cut for the hospitality sector and

https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/december2021

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/employmentintheuk/february2022

14 | Strategic Report

a 12% rise in the energy price cap,

this environment has added upward

pressure on inflation. Consumer Price

Index (CPI) inflation has risen by 5.4%

in the twelve months to December

2021

, significantly above the Bank of

England’s target of 2%.

In response to the rising levels of

inflation, the Bank of England’s

Monetary Policy Committee (MPC)

voted by a majority to increase Bank

Base Rate to 0.25%

in December

2021, and further increased this to

0.50% in February 2022. A good

deal of uncertainty remains around

future path of inflation as well as the

responsive action to be taken by the

Bank of England.

The short to medium-term economic

outlook remains uncertain. Whilst the

threat of the Omicron variant appears

to have receded, the economy faces

strengthening headwinds from high

consumer price inflation as well as

the continuing imbalances between

disrupted global supply chains and

high demand. The emergence of new

variants remains a significant risk, with

concerns around their potential ease

of transmission and the possible need

to reintroduce social restrictions.

UK Mortgage Market

The mortgage market remains relatively

buoyant and, although activity has

declined from the highs experienced

earlier in the year, demand remains

ahead of the supply of housing stock.

The drivers of the high demand

observed, in particular over the first half

of the year, included:

•

The introduction of Government

stimulus packages in 2020, namely

Stamp Duty Land Tax relief, which

provided an incentive to those

buying a new home, and later the

Mortgage Guarantee Scheme which

supported lending to customers with

lower deposits.

•

In the opening months of the year

some lenders remained retrenched

from certain lending segments, with

the reduced availability of products

serving to elevate pricing.

•

Incentives for lenders included the

low cost of funding, as a result of

the previous reductions to the Bank

Base Rate, as well as having liquidity

positions supported by access to

TFSME funding and increased retail

deposits.

•

As a result of lockdowns and remote

working, many homeowners have

spent more time in their properties

and so may have reassessed their

needs in the context of a different

style of living and working.

As the financial incentives for home

movers and first-time buyers were

withdrawn, and lenders returned to

the market, competition intensified

and customer rates began to fall.

Additionally, the proportion of lending

generated by re-mortgages increased

markedly in the latter half of the year.

We expect upward pressure on house

prices to persist, at least in the short

term, which may pose a barrier to

first-time buyers in getting onto the

property ladder. Average UK house

prices increased by 10.2% over the

year to October 2021, according to

the Office of National Statistics (ONS)

UK Savings Market

As a result of the low interest rate

environment, the rates paid to savers

have been subject to downward

pressure for a number of years. This

situation was further exacerbated by

https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/december2021

https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/february-2022

https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/october2021

Strategic Report - The External Environment

| 15

the pandemic, as Bank Base Rate was

cut to historic lows and many banks

and building societies responded by

lowering variable rates.

The availability of low-cost liquidity

from the Government’s TFSME scheme,

coupled with high levels of retail

deposit growth given the reduced

opportunities to spend, reduced the

need for banks and building societies

to attract new funding and continued

to place downward pressure on the

customer rates for savers.

Following the lifting of the majority

of the social distancing measures in

the second half of the year, household

spend increased as retailers reopened,

international travel became possible

and some returned to their physical

workplaces. Combined with inflated

energy and food prices, this resulted in

slower retail deposit growth than seen

earlier in the year.

The pandemic has also continued

to influence customer priorities and

preferences; easily accessible, variable

rate products remained more popular

than fixed alternatives. Also, the use

of online channels to manage savings

accounts has increased, as COVID-19

continues to accelerate digital

adoption.

In the latter months of 2021, and in

anticipation of an increase to Bank

Base Rate, some providers increased

their savings rates, with most of the

uplift seen in fixed rate products.

The outlook for the savings market is

uncertain, though appears likely to be

relatively subdued. Much hinges on

the decisions concerning Bank Base

Rate and the extent to which increased

consumer spending will influence the

abundance of retail deposits.

Regulatory Overview

Support for customers impacted by

COVID-19

Since the beginning of the pandemic,

a key focus for the Society has been

supporting the wellbeing of our

customers. Regulatory guidance

during this period allowed lenders to

grant payment deferrals and applied

restrictions on eviction proceedings to

support those borrowers impacted by

the pandemic. Whilst most customers

who were granted deferrals have now

resumed their mortgage payments,

lenders cannot afford to become

complacent and we remain alert to

the possibility of further action being

required in the future. Our continued

focus will be to support our customers

in line with any subsequent regulatory

activities.

FCA Consumer Duty

The Financial Conduct Authority

(FCA) has proposed a new Consumer

Duty for financial services firms. The

FCA are currently consulting on this

Duty, with new regulation proposed

to be in place by 31 July 2022 and a

provisional deadline for firms to be

compliant with that regulation of April

2023. The aim of the Duty is to raise

the standard of consumer protection

and to drive a healthy and successful

financial services system in which

firms can thrive and consumers can

make informed choices about financial

products and services.

The new rules include a Consumer

Principle, alongside cross-cutting rules

which will require firms to act in good

faith; avoid foreseeable harm; and

enable and support retail customers

in their pursuit of their financial

objectives. The focus of the rules is to

drive good outcomes for consumers

across the full lifecycle including the

level of customer service provided

as well as the governance, price and

value of the products or services

themselves.

16 | Strategic Report

The External Environment

FCA Consumer Investments Strategy

The FCA published a new consumer

investment strategy aimed at

encouraging consumers to invest

in suitable products, supported by

high-quality advice. The FCA has set

itself a target to halve the number of

customers investing in unsuitable,

high-risk products, reduce the number

of customers who are missing out on

investment income, and reduce the

amount of money lost to investment

scams. The package of measures set

out by the FCA includes exploring

regulatory changes to make it easier

for firms to provide more help for

consumers who want to invest in

relatively straight-forward products.

This will be supported by the launch

of a new campaign to help consumers

make better-informed investment

decisions. The actions proposed by the

strategy will take place over a three-

year period.

Diversity and Inclusion in the

Financial Sector

The Bank of England, Prudential

Regulation Authority (PRA) and FCA

have highlighted a need to improve

diversity and inclusion in the financial

sector. The aim is for this to result in

firms which have better governance

and risk management, and lead to a

more innovative industry with financial

products and services which meet

the diverse needs of consumers.

The Regulators expect meaningful

steps to be taken to achieve better

representation of all strands of

diversity, at all levels of a business

and in particular at Board and senior

manager level. Diverse and inclusive

environments align to the Regulators'

wider desire for a speak-up culture

where potential wrongdoing can be

called out freely and without fear.

Climate change

Climate change creates financial risks

and economic consequences, both

of which are areas of ongoing focus

for our regulators. PRA Supervisory

Statement 3/19 (SS3/19) –

Enhancing

banks’ and insurers’

approaches to

managing the financial risks from

climate change

became a requirement

for financial firms at the end of

2021. The PRA now expects firms

to be able to demonstrate that the

expectations set out in SS3/19 have

been implemented and embedded

throughout their organisations as fully

as possible. The expectations cover

four key areas:

•

Governance

•

Risk Management

•

Scenario analysis

•

Disclosures

Later in this document we have set out

the work completed in order for the

Society to meet the requirements of

SS3/19. We do anticipate expectations

to continue to develop over time

and so have an ongoing series of

deliverables and commitments to

support our climate agenda.

Following publication of the UK’s Net

Zero Strategy the Government has

committed to making the UK financial

system one of the greenest in the

world. As part of this, the UK is making

it mandatory for large businesses to

disclose their climate-related risks and

opportunities in line with Taskforce on

Climate-related Financial Disclosures

(TCFD) recommendations. This year,

the Society has elected to align our

disclosures with TCFD requirements

ahead of this mandatory requirement,

and we intend to maintain our

disclosures with reference to best

practice as it continues to evolve.

Future Regulatory Framework Review

The Government has published a

document entitled ‘A new chapter

for financial services’ which sets out

the UK Government's vision for the

future of the sector. This vision is

centred on four broad themes: ‘an

open and global financial hub’; ‘a

sector at the forefront of technology

and innovation’; ‘a world-leader in

green finance’ and ‘a competitive

marketplace promoting effective use

of capital’.

In addition to this, the Treasury Select

Committee has separately published

a report which considers the future of

financial services following the Brexit

transition period and examines how

financial regulations should be set and

scrutinised by Parliament. This report

covers matters such as the ownership

of financial regulation; regulatory

independence; activity-based

principles; the Financial Ombudsman

Service, and Parliamentary scrutiny.

Both of these are likely to lead to

further regulatory developments.

Data: a new direction

The UK Government launched a

consultation in September 2021

proposing significant changes to

the UK’s data protection framework

including reform of the Information

Commissioner’s Office. The aim is to

create an agile and adaptable regime

which enables growth and innovation,

underpinned by the responsible use of

data. This consultation is the first step

in the process of reforming the UK’s

regime for the protection of personal

data.

Review of the UK’s Anti-Money

Laundering (AML) and Counter

Terrorist Financing (CTF) Regime

HM Treasury launched a call for

evidence regarding the structure and

effectiveness of supervision and the

effectiveness of the AML/CTF regime,

which will include assessment of

whether key elements of current

regulations are operating as intended.

This is timely considering the recent

package of measures published by

the European Banking Authority, and

was launched alongside a consultation

to amend secondary legislation. The

former may have more fundamental

implications for the regulatory and

supervisory regimes, with the latter

having more immediate implications.

HM Treasury will also consider key

factors impacting the adoption of

new technologies which may be

important not only in improving the

efficiency and consistency, but also

the effectiveness of financial crime

arrangements. This work is expected to

lead to regulatory change.

Strategic Report - The External Environment

| 17

Although our primary concern as a building society is not in the

maximisation of profits, a drive to deliver improved efficiency

helps us to return more value to our members. We always

act in the interests of our membership whilst ensuring our

sustainability over the long term. It is therefore important that

our level of profitability is such that it ensures our stability and

security, generates sufficient capital to support our growth, and

allows us to continue developing and delivering products which

fulfil the needs of our members and customers.

Our

Business

Model

The Society operates a

simple business model –

one which is centred around

our purpose of providing

Real Help with Real Life

. As

a member-owned mutual

we exist to provide our

savers with a safe place to

keep their money and build

their financial resilience.

These savings balances

are then used to fund

mortgage lending, enabling

our customers to secure

a home of their own. This

year, we decided to further

simplify our business model

by exiting the SharePlans

market. The impact of this

decision is not material

with respect to our financial

performance and will

enable us to strengthen our

focus on our core areas of

mortgages and savings.

18 | Strategic Report

YBS

How we fund our business:

How we earn income:

• Income is received from our mortgage customers, as well as

from the liquid asset investments we hold.

• The interest received is offset by the interest payable to our

sources of funding to arrive at our net interest income.

• A small proportion of our income is generated from secondary

lines of business such as insurance products.

How we

manage our

long-term

stability and

sustainability:

• Members Savings

Holding savings deposits from our members, through both

branch and online channels (c.68%).

• Wholesale markets and Government funding schemes

Additional funding is raised from the wholesale markets

through the issuances of bonds or debt securities (c.16%) as

well as Government funding schemes (c.11%). This provides

diversification to our funding sources to ensure we are not

overly reliant on any one source.

• Reserves

Our reserves, generated by the profits from prior years (c.5%).

How this

funding is used:

• Residential Mortgages

Providing residential mortgages

(c.79%) to our owner-occupier and

buy-to-let customers.

• Commercial Mortgages

Providing commercial mortgages

through our Commercial Lending

channel (c.2%).

• Segments

Our lending strategy is to actively

seek out segments which are

aligned to our purpose and

currently underserved by the wider

market. Being selective about the

segments in which we choose

to compete in can be source of

value generation, which can then

be sustainably returned to our

members.

• Liquid Assets

A proportion of our funding is held

as liquid assets (c.19%). We ensure

the liquidity we hold comfortably

exceeds regulatory minimums.

How we spend

and invest:

• We reward our members with fair

interest rates on their savings, aiming to

offer higher than the market average in

circumstances that allow.

• We pay interest to providers of

wholesale funding.

• Our reward and remuneration policies

are designed to attract and retain

colleagues with the skillsets required.

• To be competitive in the long term, we

must keep our costs under control. Over

the long term we aim to reduce our

overall costs to improve our efficiency,

though additional investments will be

made in the pursuit of our strategic

objectives.

• We have robust systems and frameworks for the monitoring of risks. We ensure that our liquidity

and capital positions are sufficient and above regulatory requirements.

• We invest in our strategically important capabilities; our

Transformation Roadmap

will significantly

improve our digital customer experience. This ensures that we evolve alongside the expectations of

the market and its customers.

• High standards of Corporate Governance and compliance with regulations and taxes.

• Adequate provisioning in the event of credit losses.

• Engaging with our wider stakeholders and embracing our social and environmental responsibilities.

Strategic Report - Our Business Model

| 19

As a mutually owned building society,

we are clear on our purpose – to

provide

Real Help with Real Life

There are three core areas where we

are focusing our ambitions: helping

people to find a

place to call home,

supporting

financial wellbeing

and

delivering

long-term member value

Everything we do as an organisation

is aligned to these ambitions, helping

us to make a positive difference to our

members, colleagues, communities

and wider stakeholders.

What we have delivered for our

stakeholders this year includes:

the programme of member loyalty

initiatives; customer journey

improvements in both branch and

online channels; engagement with

an increasingly diversified range of

investors and issuance of our first

Social Bond; improved our overall Net

Promoter Score; and strengthened

colleague engagement.

We have also conducted in-

depth research to determine the

Environmental, Social and Governance

(ESG) issues most material to our

stakeholders in order to better articulate

our ESG priorities and ambitions; we

will publish an ESG report later this

year. Alongside our ESG priorities, we

have completed the first phase of work

on understanding the risks of climate

change and have set out our strategic

direction on how our climate ambitions

align to our purpose.

Member Value

We exist to deliver value for our

members in the form of flexible, well-

priced financial products and friendly,

practical customer service. Our mutual

business model means that we are

accountable to our members, rather

than external shareholders, and our

membership is at the centre of our

decisions.

In a particularly buoyant mortgage

market, which was supported by the

Our Purpose,

Strategy and

Stakeholders

20 | Strategic Report

In 2021, we have

been able to help

85,000 people to

have a place to call

home, whether this

is their first step

onto the housing

ladder, moving

home or renting a

property. 30,000

more than in 2020.

stamp duty relief incentive, we focused

our lending on areas aligned to our

purpose. We achieved a level of

growth higher than that in a typical

year, expanding our share of these

market segments. This, in addition

to the elevated margins on our new

mortgage lending, provided us with an

opportunity to return additional value

to our members through the launch of

our member value programme.

This programme rewarded our loyal

members with our best interest rates,

with the products on offer including

a regular saver and an ISA. These

accounts were available for a limited

period and over 80,000 of these

accounts were opened as our members

took advantage of them. As part of our

loyalty programme, we also increased

the rates we paid many of our existing

savers – raising them in January and

once again in June. At a time when

many market rates are at historic lows,

we were proud to be in the position to

demonstrate our commitment to our

purpose so clearly to our members.

As a result, our instant access savings

rate differential over 2021 stands at

an average of 0.35% above the market

average. At half year this was 0.26%,

and at the previous year end this was

0.05%

. Future decisions around

how we can best return value to our

members will, as ever, be carefully

weighed up alongside the long-term

financial sustainability of the Society.

Our overall Net Promoter Score (NPS), a

measure of how willing our customers

are to recommend us to their friends

and family, stands at +54 compared

to +53 in 2020. Our customers tell

us they especially value the friendly

and practical help provided by our

frontline colleagues, and appreciate

how easy and straightforward it is to

interact with us. We have also received

positive customer feedback about our

mobile app which has good ratings

from app stores, and NPS score of +48.

In a recent NPS survey many praised

its ease of use, safety and the ability

to complete tasks easily. To maintain

an overall NPS score at this level,

despite the challenging environment,

demonstrates our commitment to

delivering a high standard of service to

our customers and members.

Our levels of capital and liquidity have

remained strong throughout 2021,

indicating that we are secure in our

financial position, well equipped to

respond to the challenging market

conditions and can continue to

support our members.

Place to Call Home

Against the backdrop of a housing

market which has seen record levels of

demand from buyers, we are proud to

have meaningfully delivered against

this ambition this year. In the wake

of the disruptions to the national

mortgage market due to the COVID-19

pandemic, we were eager to resume

supporting our customers as soon as

possible. The shortage of low-deposit

mortgages in the market provided

an opportunity for us to support

underserved segments of the market

which align to our purpose.

5,000

42,000

people

Helped

Helped landlords

provide rental

accommodation

to almost

people into a

place called home

through our

first-time buyer

mortgages

YBS Group average savings rate compared to rest of market average rates. Data source: CACI’s Current Account and Savings Database (CSDB), Stock.

Data period January – December 2021.

| 21

Strategic Report - Our Purpose, Strategy and Stakeholders

We get so much pride from

owning our home. Once you’re a

homeowner, you feel like you’ve got

a foundation for life. It’s a really big

step towards independence.

We found the mortgage journey

very easy and Yorkshire Building

Society were super helpful,

everyone we spoke to was caring

and guided us through the whole

process.

Member case study – Shawn and

Lauren

Our operational and analytical

capabilities provided us with the

ability to quickly respond to the

conditions in the market, and we

re-entered underserved markets with

segments as soon as we were safely

able. We were the first lender to re-

we're finally

homeowners

helping

happen

enter the 95% LTV market, and later

the 90% new build market, increasing

customer choice and enabling those

with lower deposits to secure a

home. We did this without utilising

the government-backed Mortgage

Guarantee scheme as we were

confident that we had the experience,

capability and financial strength to

re-enter the market with our own

resources. As the year progressed, we

made changes to our lending criteria

to broaden the range of customers we

were able to help.

Our flexible and principle-led approach

to underwriting means we are more

able than some lenders to support

borrowers whose financial standings

have been affected by the pandemic

– whilst ensuring their borrowing

is sustainable – and brokers we are

working with through Accord Mortgages

are praising this personalised approach.

Over 2021 we were proud to help

42,000 people into a place to call

home through our first-time buyer

mortgages, far exceeding the previous

year (2020: 26,000). Lending to this

segment of customers is core to our

purpose as it gives us the opportunity

to help people reach the first rung of

the property ladder.

Financial Wellbeing

Financial wellbeing, which was already

a priority of ours before the COVID-19

pandemic, has been brought sharply

into focus as events unfolded over the

last couple of years. The pandemic

124,000

Through our savings

products and local

community initiatives to

support people in our local

communities,

we have supported

people toward greater

financial wellbeing this

year, compared to 107,000

in 2020.

22 | Strategic Report

Our Purpose, Strategy and Stakeholders

has impacted the personal finances of

many, in many different ways. Some

have found themselves able to save

more than ever before due to a lack of

opportunity to spend their disposable

income, whilst others experienced

difficulties in making ends meet,

potentially placing additional reliance

on various forms of debt.

The primary ways that we aim to meet

our ambition of supporting greater

financial wellbeing include offering a

range of savings products with above

market average rates in conditions that

allow, and investing in improving the

ease with which customers can transact

with us via the channel of their choice.

I’m a saver not a spender, it’s how I

was brought up. So when we were

expecting twin boys, I opened an

account up for them as babies

and opened another account to

save up. I love going into Yorkshire

Building Society, they’re very

friendly and supportive.

I passed on the value of saving to

my sons. Now they’re saving with

Yorkshire Building Society too.

Member case study – Gillian

my family's

future

helping

happen

Our savings range has products

targeted toward different needs –

including easy access accounts, fixed

rate bonds, cash ISAs and children’s

savers. Our regular saver accounts help

to reinforce a healthy savings habit,

giving our members access to some

of our best savings rates when regular

deposits are made. This includes our

Christmas Saver, launched in October

2021, which is designed to help

people save today and improve their

financial resilience come Christmas

2022 – a time of year which can be one

of the most demanding on personal

finances. More information on our

current savings range can be found on

our website, or in our branches and

agencies.

We also have a range of community

programmes aimed at helping to

support the financial wellbeing of

groups that need it most; the initiatives

include our charity partnership with

Age UK, our Career Minds and Money

Minds sessions delivered to schools,

and new investment to support our

founding city of Bradford.

More information on our

community activities can be found

in the

Communities

section of

Our Customers, Colleagues and

Communities

| 23

Strategic Report - Our Purpose, Strategy and Stakeholders

Our commitment to our long-

term strategic ambitions of

helping people to find a place

to call home, supporting people

with their financial resilience

and delivering value for our

membership is unchanged.

To ensure that we are making

progress toward these ambitions,

in 2020 we developed our

Strategic Blueprint

which will

ensure that we remain strategically

aligned as we navigate the short to

medium term.

Our Strategic Blueprint

Savings

Rebooted

We will optimise the

savings area of our

business by redefining

our range, offering better

products with benefits

more than in price alone.

Properly Personal

Experience

We will build a service

proposition that offers

our customers an efficient

experience which is able

to accommodate a wide

range of individual needs.

Purposeful

Analytics

We will build upon

our existing analytical

capabilities, including

enhanced behavioural and

pricing tools, helping us

to switch our focus from

volume to value.

Unbelievably Easy

and Efficient

We want to make the lives

of our customers easier

by making our processes

as straightforward as

we can, whilst ensuring

that we are fit for the

future through our digital

capabilities.

Our Blueprint outlines four, clear, underpinning priorities

along with four behaviours that will allow us to develop

our culture and deliver against our purpose. Alongside this,

we set out our ambitious programme of change in the form

of our

Transformation Roadmap

, which will enable us to

fundamentally change how we acquire, service, engage with

and retain our customers.

FOUR STRATEGIC PRIORITIES

SR PPE PA UE

24 | Strategic Report

Our Purpose, Strategy and Stakeholders

Progress against our Transformation Roadmap

The roadmap set out a programme of investment spanning four years, of which we are now in the second.

We have made great progress against our priorities in 2021, including:

• Streamline and enhance our savings product proposition

Building on the progress made in 2020, we have continued to streamline and enhance our savings product

proposition, including and especially through digital channels. Our customers are now able to open a

savings account with us online in five minutes. This was enabled by implementing a new digital platform

and provides a direct benefit to customers in the time saved.

•

Continuous improvements to our mobile app

It has been over a year since the successful launch of our mobile app, which now has over 170,000

downloads and over 130,000 registered users. Our app has high ratings, with 4.7 and 4.6 out of 5 stars in

iOS and Google Play app stores respectively, and an NPS score of +48. Customers have praised its ease

of use, safety, and ability to complete tasks easily. We recognise that a feature-rich, efficient app is a key

customer expectation for a banking services provider, and we are making continuous improvements to

develop more functionality and further enhance the overall experience.

•

Enhancement of our analytical capability

The enhancement of our analytical capability is a continuous process, and we have developed tools to

deepen our understanding around the key dynamics of our mortgage lending, with a focus on risk profiles and

behavioural drivers for both new lending and retained customers. This will help us to tailor our product offerings

and pricing toward underserved customers and market segments, and will be managed within our established

Risk Management Framework.

• Aligning our services to customer demand

By better aligning our services to customer demand, we will improve the efficiency and sustainability of our

retail network. In line with this, we made some changes to branch opening times, with some returning to

operating the same hours as pre-pandemic and others having been adapted. We also continued to optimise

the mix of our branch and agency network. As previously announced, we closed twelve of our branch

locations due to their no longer being viable and nine branches were also transferred to agencies, ensuring

that a valuable face-to-face service remained available.

• Adding functionality to our Mortgage Sales and Originations (MSO) platform

In 2021 we added functionality to our Mortgage Sales and Originations (MSO) platform to now include

our Accord buy-to-let mortgages; our Accord residential lending business has been successfully operating

on MSO since 2019. All new Accord buy-to-let mortgages now use this more efficient platform. We have

received positive feedback from brokers as MSO provides a better customer experience by reducing

the time spent inputting information, providing automated updates on how the underwriting process is

progressing and increasing the speed of cases going from application to offer stage. MSO also gives us the

flexibility to enter different sections of this market and launch new products much more quickly.

• Paper reduction

We have continued our paper reduction efforts. All items of post received at our head office site, Yorkshire

Drive, are now digitised upon receipt, and overall we have 42% less paper in the business than in 2019 as a

result of our process improvement efforts.

• Payments

Payments simplification is also underway. The removal of outbound Direct Debits, Standing Orders and ATM

withdrawals on our savings accounts will allow us to operate with a simpler architecture and focus on our

core product offerings.

PPE

| 25

Strategic Report - Our Purpose, Strategy and Stakeholders

We say it

straight

We care

about people

We make it

happen

We reach

for better

The achievement of our

Strategic Blueprint

is a

journey that will take us into 2024.

The activities next on our agenda include:

• Expanding on the savings account opening improvements

already made, and extending these to all channels. Through

their channel of choice, customers will be able to open an

account easily and have immediate access to view and transact.

• Preparing to leverage our improved risk capabilities by

launching products targeted toward under-represented

customers.

• Completing the simplification of our payments processes and

infrastructure.

• Further improving the online experience for our customers,

including removing the key pain points as identified through

customer feedback.

• Continuing to develop our savings app by expanding the range

of functions our customers can perform.

• Building a digital solution to equip our customer-facing

colleagues with greater knowledge and tools to improve first

point of contact resolution.

OUR BEHAVIOURS

Our strategically aligned behaviours were launched in 2021 and have been embraced

by our colleagues. Behavioural and cultural changes are by their nature more difficult

to track than tangible goals and require more time to become established.

• Begun to monitor their

adoption through

our regular colleague

engagement surveys and

the scores are currently

above target in this area;

• Incorporated them into

our colleague recognition

strategy, where awards are

given to celebrate exemplary

colleagues;

• Asked our Colleague Forum

representatives to gather

evidence of behaviours in

action and to help to identify

any barriers;

To help us in directing and tracking this process we have:

• Offered ‘Behaviour

Boost’ development

sessions to all

colleagues.

We plan to accelerate the embedding activity for our behaviours next year, monitoring and adapting our approach

as required.

26 | Strategic Report

Our Purpose, Strategy and Stakeholders

Key

stakeholder

Who they are How we listen and

engage

What they expect from YBS Material ESG topics

identified

MEMBERS

AND

CUSTOMERS

• Members

• Mortgages

and

savings

customers

• Commercial

lending

clients

• Registered

Providers of

Social

Housing

• Member events (Your

Time to Talk sessions,

in-branch events)

• Annual General

Meeting

• Our Member Panel,

My Voice, and regular

surveys on customer

experience and brand

• Direct engagement

through specialist

teams (face-to-face,

online web chat,

telephone calls, letters,

emails and social

media)

• Offer good value and flexible

savings accounts and

mortgages

• Deliver helpful, effective,

approachable, friendly

and efficient service

• Invest in the products and

services they need to gain

better financial resilience or

secure a mortgage

• Run a strong, secure and

sustainable business in their

long term interests

• Demonstrate action to support

a wider societal purpose

• Provide adapted support

to customers in vulnerable

situations

• Invest in transforming our

digital offering

• Affordable housing and

home ownership

• Attractive products

• Business continuity and

performance

• Campaigning on

issues that matter to

stakeholders

• Climate change, including

carbon footprint

reduction and Net Zero

emissions

• Data privacy and security

• Digital transformation

• Executive remuneration

• Financial inclusion

• Financial resilience

• Local community support

• Responsible customer

relations

• Vulnerable member

support

COLLEAGUES

• All colleagues

• Contractors

• Agency

colleagues.

• Colleague Forum,

attended by a

Non-Executive

Director appointed

to lead on colleague

representation

• Focus groups and

surveys

• Colleague events and

virtual conferences

• Intranet (live Q&As,

news, blogs)

• People Experience

Forum

• Direct engagement

through leadership

teams

• Colleague listening

groups

• Colleague networks

• Provide a forum where views

are heard both in terms of

their experience at YBS and

also business strategy

• Treat people with empathy,

respect and fairness

• Encourage and support their

development and training

• Provide fair reward and

remuneration policies

• Support a good work-life

balance

• Care about their physical,

mental and financial wellbeing

• Provide an inclusive culture

where diversity is valued and

celebrated

• Business continuity &

performance

• Climate change, including

carbon footprint

reduction and Net Zero

emissions

• Diversity & Inclusion

• Fair reward and benefits

• Health & wellbeing

• Local community support

• Talent attraction, training

and retention

Our Stakeholders

We regularly engage with our stakeholders in a variety of ways, to ensure that we

continue to meet their changing expectations. In order to shape our Environmental,

Social and Governance (ESG) strategy, we also conducted an in-depth materiality

analysis, to identify the ESG topics most material to our stakeholders.

| 27

Strategic Report - Our Purpose, Strategy and Stakeholders

Key

stakeholder

Who they are How we listen and

engage

What they expect from YBS Material ESG topics

identified

GOVERNMENT

AND

REGULATORS

• Central and

Local

Governments

• Financial Conduct

Authority

• Prudential

Regulation

Authority

• Information

Commissioner’s

Office

• Payment Systems

Regulator

• Direct engagement

through specialist teams

(face-to- face, telephone

calls, letters, emails)

• Engaging with

consultations, including

through industry bodies

• Monitoring, engaging

and complying with

regulatory change and

reporting.

• Act within the law and

regulation and in the interests

of our customers

• Operational resilience

• Swiftly and proactively resolve

customer issues

• Be financially strong and

secure by maintaining

adequate resources including

capital and liquidity

• Act with integrity and

transparency

• Business continuity &

performance

• Climate change, including

carbon footprint

reduction and Net Zero

emissions

• Diversity & Inclusion

• Ethics and accountability

• Financial crime and

whistleblowing

• Sustainable finance

INVESTORS

• Wholesale

investors

• Ratings agencies

• Direct engagement

through face-to-face

meetings and events

• Annual Report and

Accounts

• Regulatory News Service

announcements

• Investor reporting

• Offer appropriately priced

debt securities in the

wholesale markets which

adequately reward them for

the level of risk

• Operate in a prudent manner,

protecting our financial

sustainability and ability to

service our debt

• Behave responsibly in

wholesale markets

• Keep them informed and

updated on our strategy,

financial performance and

principal risks

• Share details of our funding

strategy and the expected

volumes of securities being

issued

• Demonstrate good

Environment, Social and

Governance (ESG) practices,

validated by Non-Financial

Ratings Agencies

• Affordable housing and

home ownership

• Business continuity &

performance

• Climate change, including

carbon footprint

reduction and Net Zero

emissions

• Diversity & Inclusion

• Ethics and accountability

• Financial inclusion

• Financial resilience

• Sustainable finance

28 | Strategic Report

Our Purpose, Strategy and Stakeholders

Key

stakeholder

Who they are How we listen and

engage

What they expect from YBS Material ESG topics

identified

PARTNERS

• Brokers

• Agency

proprietors

• Suppliers

• Trade unions

• Industry bodies

• Direct engagement

through specialist

relationship

management teams

(face-to-face meetings

and events, telephone

calls, letters, emails).

• Be simple and straightforward

to deal with

• Collaborate with them as

trusted partners to achieve

mutual success

• Deliver helpful, effective,

approachable, friendly and

efficient service

• Demonstrate action to support

a wider societal purpose

• Business continuity &

performance

• Responsible supply chain

OUR

COMMUNITIES

• The local,

regional,

and national

communities

in which we

operate

• Charities and

community

groups

• Charitable partnership

and sponsorship

agreements

• A range of initiatives to

support the Bradford

community at a local

level

• Community education

initiatives including

Money Minds and Career

Minds

• Invest resources in support of

the social economic welfare of

communities

• Demonstrate action to support

a wider societal purpose

• Provide an inclusive culture

where diversity is valued and

celebrated

• Affordable housing and

home ownership

• Campaigning on

issues that matter to

stakeholders

• Climate change,

including carbon

footprint reduction and

Net Zero emissions

• Financial inclusion

• Financial resilience

• Local community

support

Our ESG Priorities

Our materiality analysis confirmed

that our purpose ambitions –

member

value, place to call home

and

financial

wellbeing

– remain crucial to our

stakeholders. As we deliver on our

Strategic Blueprint

in service of these

ambitions, we have the opportunity

to maximise our societal impact

and make a tangible difference to

our members, colleagues and local

communities.

We have identified three additional

ESG priorities from our materiality

research: investing in our people,

reducing our environmental impact

and operating responsibly.

In mid-2022, we will publish an ESG

report to show the progress we are

making against this strategy and share

our ambition for the future.

Non-financial ratings agencies

consistently rate our ESG performance

amongst top performers in our

industry, and we have made significant

progress in 2021.

Our ratings are available on page 62.

Climate Change Strategy

We are a purpose-led building society

focused on providing

Real Help with

Real Life

. We understand that this

also means driving positive social and

environmental outcomes through clear

strategy and robust governance over

our impact. We have developed our

environmental policy and reinforced

our commitment to not finance carbon-

intensive activity, and we will align

to the United Nations’ sustainable

development goals.

Our environmental strategy is built

around the following pillars:

•

Ensuring that YBS continues to

manage its operational carbon

emissions;

•

Promoting and embedding carbon

literacy into our working culture;

•

Supporting customers in their

transition to a low-carbon economy

through understanding the risks

and opportunities climate change

presents, and providing both

proactive and reactive support.

The Society has a strategic

commitment to align to the UK’s

Net Zero target. Our plans and

commitments will support this goal,

but we also understand that we are

only a part of that wider goal, which

will only be achievable with significant

progress across a range of areas and

industries, as well as through support

from the general public.

| 29

Strategic Report - Our Purpose, Strategy and Stakeholders

Customers

Our customers are at the forefront

of our decision-making processes,

and we have prioritised their needs,

along with those of our colleagues,

throughout the pandemic. We

ensured that health and safety

measures in our branches adhered

to social distancing guidance, and

remained open all year to provide our

customers with the key services they

need.

In the early months of 2021, due

to many lenders being retrenched

from the mortgage market, the

availability of mortgage products

was significantly reduced – this

issue was especially felt by those

customers with lower deposits. It

was important to us that we resume

serving our customers as soon as we

could safely and sustainably do so.

We mobilised quickly, and re-entered

segments of the market which align

to our purpose, including first-time

buyers, to support these customers

in finding a place to call home. Our

mutual business model then allowed

us to leverage the success we had

in our mortgage lending to make

improvements to our savings product

ranges by launching our member

loyalty programme.

As part of this programme, we

implemented two increases to the

rates that we pay our existing savers.

We were proud to be able to share

our successes with our membership

in this way, rewarding their loyalty

at a time where savings rates in the

wider market remained supressed.

Alongside this, we launched specific

member loyalty savings products,

offering some of our best rates. The

combination of these initiatives has

seen us return a further £41m in

member value in 2021.

The rates we paid our savers over

2021 were on average 0.32%

above the market average, which

Our

Customers,

Colleagues

and

Communities

Along with our wider stakeholders

we are here to serve our

customers, colleagues and

communities. These groups are

central to our decision-making

processes and this section

highlights the key themes over the

course of 2021.

30 | Strategic Report

is an improvement on last year

(2020: 0.17%)

and equates to an

additional £107 million interest

paid to our savers over the course

of 2021. We were also among the

first savings providers to pass on

a benefit following the increase to

Bank Base Rate in December 2021.

We passed the majority of the rate

change on to our savers in February

2022 and, at the same time, we held

the rates our mortgage customers

pay on our standard variable rate

constant. Though of course, customer

expectations of a savings provider

encompass more than rewarding rates

alone and this is why we set ourselves

high standards for customer service.

The honest feedback our customers

give us is highly valued. One of the

ways we track the satisfaction of our

customers is our Net Promoter Score

(NPS). This measures how willing our

customers are to recommend us to

their friends and family based on their

experiences with us. In 2021, our

overall NPS score has increased yet

again, from +53 in 2020 to +54.

Our customers have praised our

helpful, knowledgeable colleagues,

and have found their interactions with

us easy and straightforward. Brokers

interacting with our Accord Mortgages

business highlighted the ease of

interactions, smoothness of the

application process and the efficiency

of our knowledgeable support teams

including Business Development

Managers, underwriters and customer

services. In April this year, our

Mortgage Sales and Originations

(MSO) platform was expanded to

include new business for Accord’s

buy-to-let channel, meaning our

brokers have seen similar benefits

to the residential lending channel,

praising the easy and simple-to-use

systems.

We always try to give our customers

the best possible service, but we

recognise that sometimes we fall

short of the standard our customers

expect and deserve. We encourage

any customer who is unhappy with

the service they have received to

let us know. We try to resolve any

issues as soon as we are made aware

of them; should we be unable to do

this for any reason, our Customer

Solutions Team steps in to make sure

that problems are resolved both fairly

and expediently.

We aim to resolve any payment

issues within 15 days and all

complaints within 28 days, or sooner

when this is possible. Any customers

who are unhappy with our final

response can escalate their complaint

to the Financial Ombudsman Service.

In the second half of 2021, we

received complaints from 4.68 out

of every 1,000 mortgage customers

(2020 H2: 6.65) and 0.39 out of every

1,000 savings customers (2020 H2:

0.65).

Ensuring that our customers are

able to interact with us in a way

which suits their individual needs is

important to us. Our customers tell us

that they value our face-to-face service

channel highly, and this remains a

core part of our business. This year

we have continued to review and

optimise our national distribution

network, both in terms of the services

available in our sites – including a

recent pilot with Citizens Advice – as

well as the geographic spread and cost-

effectiveness of the network itself.

The use of online channels to interact

with financial services providers has

been increasing in popularity for

a number of years – and has only

been accelerated by the COVID-19

pandemic. Our investments in digital

capabilities will see our products

and services evolving alongside this

trend, bringing our proposition more

0.32%

The rates we

paid our savers

over 2021 were

on average

above the

market

average

+54

Increase

in overall

NPS to

Source: CACI’s Current Account and Savings Database (CSDB), Stock. Data period January – December 2021

| 31

Strategic Report - Our Customers, Colleagues and Communities

Joining the colleague networks

have had a great impact on my

working life. I feel a real sense

of community and allyship that

hasn’t been present at previous

places of work. Having support and

a safe place to be able to discuss

issues and experiences with similar

individuals is essential, and the

colleague networks are playing

a major part in making positive

changes happen

Feedback received on the new

Colleague Networks

into line with mainstream customer

expectations.

Despite our good performance in

many of the areas which contribute

to our overall NPS, we acknowledge

that further improvements are needed

with respect to our online services.

Through our

Transformation Roadmap

we aim to deliver a step change in

our online customer experience. We

have already had some successes this

year; our mobile application, launched

over a year ago, has continued to

be developed upon, with additional

features and functionality having been

rolled out on a regular basis. New

features in 2021 include the ability for

users to search and apply for savings

products and update their contact

e-mail address in the app, with much

more to come.

Enhancing our online channel in this

way will increase the options our

customers have in interacting with

us; they will be able to receive the

same high-quality service whether

they engage with us in person, by

telephone, through the website

or by using our mobile app. More

information on our

Transformation

Roadmap

and strategic priorities can

be found in the

Our Strategic Blueprint

section of

Our Purpose, Strategy and

Stakeholders

Colleagues

We want each of our colleagues to feel

properly valued for their contributions,

supported in their wellbeing and be

given the opportunity to flourish.

The COVID-19 pandemic impacted

the lives and working patterns of

our colleagues significantly; the

majority of our head-office-based staff

transitioned to working from home

as social distancing measures were

introduced in 2020. We also ensured

that our branches and office sites were

equipped with the necessary health

and safety precautions in line with the

latest guidance.

In 2021, there have been fewer

disruptions to our operational teams

and our branches and agencies have

remained open to customers. Most

of our head office staff continue to

work remotely and our teams have

adapted to this hybrid working

arrangement. At the onset of the

pandemic many may have thought the

new working arrangements would be

solely temporary measures, however

remote working now appears likely to

be maintained on a more permanent

basis. Accordingly, the ways by which

we can sustain the connectivity

between our teams and support our

colleagues over the long term have

been a high priority for us.

We have a number of accessible

resources and active processes

to support the wellbeing of our

colleagues should they be required.

The resources cover critical areas

including the importance of a good

work-life balance, proper nutrition

and exercise, and stress management.

For our front-line colleagues we also

held bespoke training sessions to

help build a greater understanding

of emotional resilience, helping them

with their own self-care as well as

providing a resource to draw upon

during their interactions with our

customers and the public as a whole.

The importance of clear, two-way

communication has also been

heightened over the last couple of

years. Colleagues were kept up to

date with the latest developments in

the pandemic through updates to our

intranet and e-mails to all colleagues,

and they were given opportunities

to express any challenges they were

facing to ensure an effective dialogue.

Our people managers were equipped

with the tools and guidance they

needed to conduct regular check-ins

with their direct reports, providing

an avenue to discuss the quality of

their working home arrangements

and whether any benefit could be had

from additional support. This guidance

was updated regularly, in line with

COVID-19 and company policy, to

ensure that the questions and topics

discussed remained relevant.

We monitor the levels of sickness

and absence closely as part of our

commitment to supporting our

colleagues and their wellbeing. Over

the course of the year, the pattern of

32 | Strategic Report

Our Customers, Colleagues and Communities

absence we observed was significantly

influenced by the pandemic. We end

the year with a sickness rate of 5.0%,

which compares to 7.5% seen in 2020,

and the proportion which relates to

mental health is broadly similar. We

will continue to monitor these trends

in order to ensure that our colleagues

are provided with the right level of

support.

Engagement

We are committed to building on

the level of engagement felt by

our colleagues; one of the ways we

measure this is through our annual

survey, with regular temperature

check surveys held in the intervening

periods. In 2021, the Society remained

in the top quartile for engagement

and our overall score increased by

0.2 to 8.5, which is considered to be a

significant increase. Our employee NPS

(eNPS) has also improved, increasing

by 10 points compared to October

2020, placing us in the top 5% of

financial organisations.

Among other factors, the level of

engagement our colleagues feel

depends on effective communication

and dialogue, as well as their being

able to see and appreciate how their

individual role fits in with the wider

purpose of our organisation. 2021

marks the first anniversary of our

redefined strategy and the launch of

our

Strategic Blueprint

. To keep all of

our colleagues up to date with our

progress as an organisation, we held

dedicated sessions where everyone

was invited to take a step back from

their day-to-day roles, reflect on the

achievements over this first year, and

gain clarity about the year ahead.

Inclusion and Diversity (I&D)

Inclusion and diversity are important

values to the Society; the ambition

of our redefined I&D strategy is

to foster a culture where all of our

colleagues are supported in their

personal development and are seen

and heard, irrespective of their gender

or background. A broad diversity of

thought and experience also supports

greater creativity and innovation for

the Society as a whole, helping us to

develop products and services that

genuinely deliver

Real Help with Real

Life

Our Senior Leadership Team and

Executive Committee members

actively engage with matters relating

to I&D, participating in colleague

listening groups and this year have

undertaken allyship sessions on the

topics of race and minority ethnic

groups to advance the interests of

these groups.

Our colleagues provide us with

feedback through surveys and

listening groups and, as a result of this

feedback, this year we introduced five

new ‘Colleague Networks’. These are

regular meetings intended to provide

a safe setting to have open, honest

discussions about relevant topics or

issues. Currently there is a network for

topics relating to women; disability;

ethnicity; parents and carers; and

LGBTQIA+. Each has a sponsor from

our Senior Leadership Team and a

feedback structure which will amplify

the voices of these groups and

provide a formal route for any issues

to be escalated and translated into

real actions where needed. We have

become members of the Business

Disability Forum to support us in our

2022 plans.

The Society is proud to have its

commitment to the principles of

diversity acknowledged externally;

this year we received the Leaders in

Diversity accreditation and a series of

awards, including Top 10 Employer for

Working Families, 11th in the National

Centre of Diversity Top 100 Most

Inclusive Workplace; National Centre

for Diversity’s Financial Services

Company and Large Business of the

Year; and Disability Confident Level

2. We have moved from 35th place

in 2020 to 16th place in UK’s Top 50

Most Inclusive Employers.

In support of our Women in Finance

Charter commitment, we reported

an increase in female representation

at senior management level, from

46% last year to 50% by the end of

this year. Female representation on

the Board has increased from 20%

to 36% reaching the target set by

Board Governance and Nominations

Committee as part of the Hampton-

Alexander Review.

We have published our fifth annual

gender pay gap report detailing the

difference between the average pay

of men and women regardless of

seniority. In April our mean gender

pay gap was 28.1%, which is 4.8%

lower than in 2020 and our lowest

level since this reporting was

introduced. The main driver for our

gender pay gap continues to be the

imbalance of women and men at

different levels of the organisation,

with more women occupying less

senior roles. A shift in dynamic has

resulted in the closing of the gap in

2021.

However, there is still more to

do to further improve gender

representation; if YBS were to have

a 50:50 gender split across the

organisation it would have a gender

pay gap of 4.2% (3.5% in 2020). A

driver of the increase in this measure

is the internal promotion of women

into more senior roles. Recently

promoted colleagues initially occupy

9.1 out of 10 – ‘My manager encourages

and supports my development’

8.6 out of 10 – ‘My work enables me to

learn and develop new skills’

8.3 out of 10 – ‘I feel that I’m growing

professionally at YBS’

Results of our 2021 annual colleague engagement survey

| 33

Strategic Report - Our Customers, Colleagues and Communities

the lower end of the salary range, we

therefore expect this gap to narrow.

Learning and Development

With the prevalence of remote

working, in 2021 we have adapted

our methods of delivering training,

converting much of our classroom-

based training into a blend of online

learning and virtual workshops. For the

areas which are most critical to YBS,

including Customer Services, Retail

Distribution and Financial Crime, we

have implemented a learning model

using multiple mediums, where online

learning is complemented in person

by dedicated learning partners.

To give our colleagues the freedom

to learn about the topics they are

interested in at a time which suits

them, we introduced a self-directed

learning resource, provided through

LinkedIn. Over one thousand

colleagues have activated their license

for this resource since its introduction

in July, and over 1,500 hours of

learning has been completed.

At YBS, we encourage our colleagues

to pursue professional and technical

training to enhance their skills

and reach their career goals. Our

apprenticeship schemes provide

support toward achieving a

professional qualification whilst also

learning on the job. We are proud

that six colleagues have completed

their apprenticeships this year, one

of whom was the first student to

complete the full three levels of

a bachelor’s degree as a degree

apprentice. A further 55 colleagues

are either at the beginning or part way

through this journey.

This year we have also supported

two colleagues to build upon

their management and leadership

capability by studying for the Building

Societies Association (BSA) Master’s

in Strategic Leadership programme

at Loughborough University. Four

colleagues completed their Master’s in

2021 and a further four are continuing

with their studies.

Reward and Recognition

It is important to us that our

colleagues feel recognised, valued and

fairly rewarded for the contributions

they make to providing essential

services to our customers and the

effective running of our operations.

In 2021, we maintained our

commitment to pay all colleagues

and contingent workers at or above

the Real Living Wage, proceeded with

our annual pay review in May, and

paid the 2020 annual bonus in March.

Additionally, and as was the case last

year, no YBS colleague was furloughed

under government schemes, and

there were no pay reductions or

forced unpaid leave as a result of any

COVID-19 related absence.

Our colleagues have access to a range

of benefits, including critical illness

cover, private medical insurance

and health cash plan, which can be

flexed depending on their individual

circumstances. For the second

consecutive year, we have also given

our colleagues an additional day off

on Christmas Eve, as a thank you for

their hard work over the course of the

year.

We were delighted to be able to host

our annual Raising the Roof awards in-

person in November 2021, in a COVID-

secure environment, to celebrate

our colleagues’ achievements. Over

400 nominations were received for

colleagues across the business, with

75 chosen to attend the event by a

judging panel of their colleagues and

senior leaders.

Community

Community Programmes

As a building society, we are

committed to supporting the

communities in which we operate,

in line with our purpose. We have

committed to invest more than £1.8

million over 2021 and 2022, with

programmes tailored to the needs

of people in different stages of life.

This section includes some highlights

of our community programmes, with

more information available on our

website.

Young People

As soon as we were safely able to do

so, our colleagues restarted our Money

Minds and Career Minds sessions

in schools, delivering financial and

employability education to local

children aged 5-19. As well as face-to-

face delivery, we piloted the running of

virtual sessions, which garnered great

feedback from students and teachers.

In 2021 we delivered 102 sessions to

over 2,000 children.

Building on the success of these

educational programmes, and to

expand their reach, we worked with

students and teachers to create a

new online platform which provides

interactive, flexible learning suitable

for inside and outside the classroom.

2021 saw us launch a range of

initiatives focused in our home city

of Bradford, to provide much-needed

support to students in their journey

through secondary school and into

further education and working life.

We have partnered with three schools,

one college and two universities

and aim to help just under 3,000

young people a year through a

structured programme of financial

literacy, employability skills and

meaningful workplace experiences. To

complement this work, we have also

partnered with the charity MyBnk, to

deliver financial education sessions for

vulnerable young people who are not

in education, employment or training.

Working Age People

In Bradford, we have partnered with

social change charity, Good Things

Foundation, whose mission it is to help

everyone access the benefits available

from being digitally enabled. With

our support, they have designed a

programme to improve the digital skills

of socially excluded ethnic minority

communities, working jointly with

local community partners. Programme

delivery started at the end of 2021 and

has engaged over 130 people so far.

It will continue into 2022 after which

point we will explore opportunities for

its expansion.

At YBS we actively seek new ways

that we can benefit our communities.

In May 2021, we launched a pilot

programme with Citizens Advice to

fund advisers in six of our branches to

provide free, face-to-face independent

advice and support to members of

the public across a wide range of

issues, including financial wellbeing.

The programme has supported nearly

500 people in the first six months. We

are expanding this partnership into a

further 12 branches in 2022.

34 | Strategic Report

Our Customers, Colleagues and Communities

Older Age People

Now more than ever, older people

need a trusted place they can turn

to for impartial advice and support.

Whether they are facing the loss of

a partner, a health diagnosis, or a

change in care needs, significant life

events as we age can lead to financial

difficulties.

Our current charity partner is Age UK,

and since the start of our partnership,

our colleagues and members have

raised over £154,000, while YBS have

donated nearly £346,000, bringing the

combined total to just over £500,000.

This funding has enabled Age UK to

launch their Building Better Lives

programme, which is providing one-to-

one support sessions, local workshops,

and tailored expert advice to older

people in eight regions across the UK.

So far, Age UK have supported 1,400

older people, and have unlocked over

£2.5m worth of benefits to which they

were entitled, an average of around

£1,800 additional income for each

older person per year. This support

could make a life-changing difference

to the lives of these older people.

In addition to fundraising, YBS

colleagues have also taken part in Age

UK’s Digital Buddies initiative, which

has helped YBS colleagues to learn

how best to support older people to

improve their digital skills.

To support people who are in later

stages of life we created Money

Movement, an online hub designed to

help people make informed decisions

about retirement planning. So far

nearly 49,000 people have used

this service to get straight-talking

guidance on the products and services

available.

Yorkshire Building Society Charitable

Foundation’s Opportunity &

Resilience Fund

In 2021, YBS donated an additional

£70,000 to the Yorkshire Building

Society Charitable Foundation (the

Foundation), together with the

existing £30,000 annual donation, to

create the ‘Opportunity & Resilience

Fund’ to support digital skills and

employability in the UK.

Four charities benefited from the

£100,000 fund to launch projects

supporting vulnerable young people

and people from minority ethnic

communities in 2021 and 2022:

•

Refugee Action – providing an

employability skills course for

refugees.

•

Smart Works – helping people to

prepare for job interviews (including

provision of suitable clothing).

•

Groundwork North East – supporting

vulnerable young people with digital

inclusion.

•

Canopy Housing – helping homeless

and vulnerable individuals move

toward employment in construction,

including accreditation, work

experience and job opportunities.

Alongside the new fund, the

Foundation, which is an independent

registered charity governed by

a board of external and internal

trustees, continued to make donations

every quarter of up to £2,000 to

charities nominated by members and

colleagues.

•

In 2021, the Foundation donated

over £320,000 to 224 charities

focused on improving health,

alleviating poverty and saving lives

around the UK.

•

Donations are made possible

thanks to Yorkshire Building Society

members who take part in the Small

Change Big Difference

scheme.

This scheme allows members to

donate pennies from the interest

they earn on their savings accounts

or round up their mortgage payment

to the next pound and donate the

difference to the Foundation once a

year.

To enhance our disclosures in 2021,

we have updated the methodology we

use to calculate our total community

contribution, using three distinct

categories:

•

YBS donations – includes cash

contributions (the monetary

amount donated to charities and

good causes and the money spent

to fund community projects with

partners), employee time (the

cost of the time that an employee

spends on volunteering) and in-kind

giving (contributions of products,

equipment and services and other

non-cash items to charities and good

causes) directly paid by YBS.

•

Customer and colleague

donations (leverage) – includes

cash contributions (the monetary

amount donated to charities

and good causes) and in-kind

giving (contributions of products,

equipment and services and other

non-cash items to charities and

good causes) from colleagues and

customers, facilitated by YBS.

•

YBS costs – includes the costs

incurred by the Society to facilitate

our community programmes,

including staff costs and other

management overheads.

| 35

Strategic Report - Our Customers, Colleagues and Communities

Community Contributions

2021

2020

YBS Donations

Customer

Colleague

YBS

Costs

Total

YBS Donations

Customer

Colleague

Total

Charitable Community Charitable Community

£000 £000 £000 £000 £000 £000 £000 £000 £000

Age UK

344 - 134 14 492 10 - 21 31

End Youth Homelessness

- - - - - 272 - 47 319

The Foundation

100 - 297 4 401 130 - 307 437

Other charity

10 - 19 - 29 2 - 15 17

Financial resilience

94 176 - 21 291 - - - -

In kind donations

- 92 10 - 102 - 99 5 104

Bradford employability/digital skills

67 7 - 2 76 - - - -

Volunteering time

- 50 - 4 54 - 40 - 40

Other

- - - 429 429 - - - -

TOTAL

615 325 460 474 1,874 414 139 395 948

Climate Change

Climate change is a major issue

we face in wider society, and YBS

acknowledges the part we can play in

tackling this issue on local, national

and international levels.

The Society is pleased to announce it

has joined the Yorkshire and Humber

Climate Commission during 2021, as

well as maintaining its support for the

Leeds Climate Commission.

The Yorkshire and Humber Climate

Commission aims to help the region

reduce its carbon emissions as

quickly as possible, and ensure that

people in Yorkshire are prepared to

cope with the growing physical and

transitional risks related to climate

change. The Commission published

its action plan in November 2021

which calls for meaningful climate

leadership from the Government and

larger institutions in the public and

private sectors to deliver “significant,

tangible contributions” to help tackle

the climate and ecological emergency.

Fostering shared responsibility,

moving from targets and planning

to action, and putting climate and

nature at the heart of all areas of

decision making are three of the key

recommendations from the Yorkshire

and Humber Climate Commission.

Human Rights

Our purpose is to provide

Real Help

with Real Life

and inherent in this

is a commitment that the way we

conduct our business, including

how we interact with our customers,

colleagues and communities, and the

way we manage our supply chain,

should not negatively impact the

human rights of others. In addition to

the measures described in the rest

of this section, the Society’s Modern

Slavery Act Transparency Statement,

which describes the steps put in

place to prevent slavery and human

trafficking in our supply chain, or any

part of our business, can be found on

our website.

Anti-Bribery and Anti-

Corruption

The Society is bound by the laws

of the UK, including the

Bribery

Act 2010

, and is regulated by the

Financial Conduct Authority; both

of which convey responsibilities

for identifying and managing risks

in respect of fraud, bribery and

corruption. The Society takes a

zero-tolerance approach to such

risks and enforces compliance

via systems, processes and our

internal control framework. These

include mandatory annual colleague

training and awareness initiatives, a

whistleblowing procedure and regular

reviews of our Financial Crime Policy,

which includes our Anti-Bribery and

Corruption Standard, our approach to

the management of risks under the

UK Corporate Criminal Offence (CCO)

of Failure to Prevent the Facilitation

of Tax Evasion legislation and other

related policies.

charitable donations paid to Citizens Advice

charitable donations paid to MyBnk and Good Things Foundation

36 | Strategic Report

Our Customers, Colleagues and Communities

Commercial Performance

In the first half of the year, the external

environmental conditions, alongside the

investments we made in our operational

and resourcing capabilities, allowed

us to achieve strong performance in

the mortgage market. The low rate

environment and lack of spending

opportunities also supported deposit

growth. As the year progressed, the

dynamics began to resemble those seen

before the pandemic as strong liquidity

and capital positions contributed to

intensifying competition and renewed

margin pressures.

Our established strategy of focusing

on the value of lending over the

volume, and lending to purpose-aligned

segments, has served us well. In the

early part of the year we adapted to

the high demand for lower deposit

segments, including first-time buyers. In

the latter part of the year, we chose not

to compete on price in an unsustainable

manner and managed our acquisition

savings flows in line with our balance

sheet strategy. The growth in our

mortgage book was funded largely by a

corresponding growth in deposits and

supplemented by our active presence in

wholesale funding markets and TFSME

drawings.

Mortgages 2021 2020

Gross lending £10.3bn £7.1bn

Net lending £3.6bn £0.6bn

Mortgage balance growth 8.1% 2.1%

Market share of gross lending 3.2% 2.8%

Savings 2021 2020

Retail savings balance growth 6.4% 8.8%

Retail savings balance growth £2.1bn £2.7bn

Average savings rate differential vs. market average 0.32% 0.17%

Market share of balances 1.92% 1.88%

Our

Financial

Review

| 37

Strategic Report - Our Financial Review

Mortgage Performance

For more on the external context of

the mortgage market please see The

External Environment

section

Despite the fast-changing nature of

the external environment, our lending

strategy has remained constant:

lending to underserved, purposeful

segments and focusing on lending

value over lending volume. By

leveraging the investments made in our

servicing capabilities in both 2020 and

2021, and investing in further resource,

we were able to meet a higher than

typical level of customer demand,

increasing our lending to some of our

key customers, like first-time buyers,

and at the same time generating value.

In the early months of 2021, the

mortgage market was characterised

by high levels of buyer demand and

wide-scale lender retrenchment,

resulting in a market which offered

only a restricted range of mortgage

products, at attractive margins.

Returning to serving customers in

our core lending segments was high

on our list of priorities and we did

so as soon as we were safely able. In

March, we became the first lender to

re-introduce products at 95% LTV,

and later 90% new build. Though the

Government’s Mortgage Guarantee

Scheme, incentivising lower deposit

lending, launched at a similar time, we

trusted our experience, capability and

the security of our financial position

to re-enter on the strength of our own

resources. Our expedient re-entry into

these segments, alongside demand-

driving factors such as the Stamp Duty

Land Tax waiver tapering from July

2021, allowed us to achieve strong

lending growth in the first half of the

year.

Toward the latter part of the year, the

market dynamics began to change.

House prices increased, incentives

were withdrawn, and capital and

liquidity positions of lenders were

strengthened. As a result, customer

rates began to reduce, product ranges

expanded, and lending criteria were

loosened across the market. Customer

rates were observed falling to record

lows, beginning in the lower LTV bands

where rates fell below one percent, and

impacting the higher LTV bands shortly

thereafter.

In line with our strategy, during this

period we refocused our lending to

reflect the shift in value available,

moving away from high volumes of

lower LTV, mass market mortgage

business and into underserved,

purposeful segments. Accordingly,

lower growth was achieved over this

period.

We expect the mortgage market to

remain challenging. We will be further

developing and leveraging our trading,

analytical, and distribution capabilities

to identify and selectively compete in

areas which offer sustainable business

value. Our business model ensured

that our savings members benefited

from the value created over the course

of this year, as we were able to return

£41m additional value in a sustainable,

meaningful way through the launch of

our member loyalty programme, and

increasing our savings rates.

Savings Performance

For more on the external context of the

savings market please see The External

Environment

section

Savings rates in the wider market have

been low for a number of years, owing

to the low interest rate environment

coupled with the abundance of

liquidity across the banking sector.

The pandemic and its effects further

compounded these issues as the Bank

Base Rate was initially reduced and

disposable income was unable to find

an outlet.

Our strong retail funding performance,

both over 2020 and the first half of

2021, supported our liquidity position

and reduced the requirement for us to

attract new funds. Instead, we directed

our focus toward how we could best

reward our loyal savers in light of

the value created from our mortgage

lending.

This year marked the launch of

our member loyalty programme,

implementing two back-book rate

increases in the first half of the year

as well as launching specific loyalty

products. These products included

an instant access account, a cash ISA

and a regular saver and over 80,000

accounts were opened before the

range came to an end.

Our loyalty programme was well

received by our membership and we

have observed a number of benefits

as a result. Through the increases we

made to our rates, we narrowed the

gap between the rates we pay our

existing, loyal savers and those new

to the Society. This has had a positive

impact on our savings differential

to market; on average, in 2021 our

savings rates were 0.32% above

the rest of market average of 0.28%

(2020: 0.17% above the average)

The loyalty programme has also driven

favourable customer behaviours, with

a higher proportion of customers

being retained and lower levels of

movement between our front and

back book products.

The proportion of variable products

opened with us this year exceeded

the fixed rate alternatives, and this

became more pronounced toward

the end of the year as the future

path of the Bank Base Rate became

a consideration. In addition, we have

acquired a greater proportion of

our new customers through digital

channels this year, and our online

balances continue to grow. We expect

customer preference to continue

in its shift toward online channels

and elements of our

Transformation

Roadmap

are dedicated toward

improving upon the digital customer

experience and providing our

customers with flexibility in how they

wish to interact with us.

YBS Group average savings rate compared to rest of market average rates. Data source: CACI’s Current Account and Savings Database (CSDB), Stock.

Data period January – December 2021.

38 | Strategic Report

Our Financial Review

Our Financial Performance

Our profitability and levels of growth in 2021 have been particularly strong, largely driven by the characteristics of our

mortgage trading in the first half of the year. As the year unfolded, the macroeconomic and market context improved,

requiring us to hold a lower level of expected credit losses than planned.

Our financial performance in 2021 represents a marked improvement on the previous year where the pandemic resulted in

disruption to the housing market and significantly increased provisioning requirements.

The figures below are consolidated amounts in respect of Yorkshire Building Society and its controlled entities (the Group).

2021 2020

Statutory profit before tax £320.0m £161.3m

Core operating profit £297.3m £170.5m

Net interest margin 1.07% 0.95%

Cost to core income ratio 50% 59%

Management expense ratio 0.55% 0.60%

Liquidity ratio 20.7% 19.2%

Common equity tier 1 capital 16.8% 16.7%

Leverage ratio 5.9% 5.9%

Summary Income Statement

2021 2020

£m £m

Net interest income 537.4 438.0

Net realised gains 0.8 12.9

Other income 12.7 13.8

Core income 550.9 464.7

Fair value gains and losses 26.7 (10.7)

Management expenses (274.5) (275.8)

Impairment of financial assets 19.2 (12.2)

Movement in provisions (2.3) (4.7)

Statutory profit before tax 320.0 161.3

| 39

Strategic Report - Our Financial Review

2021 2020

£m £m

Statutory profit before tax 320.0 161.3

Reverse out:

Fair value volatility

(19.1) 10.7

Historical fair value credit adjustments on acquired loans (3.2) (1.2)

Non-core elements of restructuring provision 2.1 2.8

Other non-core items (2.5) (3.1)

Core operating profit 297.3 170.5

Core operating profit

Our financial performance is monitored by our Board who, in addition to looking at statutory profit before tax, look at core

operating profit. 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. Our Board considers core operating profit to

be a more appropriate measure of the underlying performance of the business.

In 2021, statutory profit before tax was £320.0m (2020: £161.3m) and core operating profit was £297.3m (2020: £170.5m).

The main difference between statutory profit before tax and core operating profit is the £19.1m fair value volatility gain (2020:

£10.7 loss), the majority of which relates to interest rate swaps purchased against our mortgage pipeline. These swaps only

qualify for hedge accounting when the mortgage is advanced so we are exposed to their fair value movements during the

pipeline period.

This year, we have reviewed our definition of fair value gains and losses in light of the increasing complexity of our treasury strategy, and have

determined that items which are not demonstrably volatility should no longer be excluded from core operating profit, in order to reflect the true

economic consequences of the transactions. In the context of the 2021 results this relates to the inclusion in core operating profit of: fair value

gains on the Group’s liability management exercises; and payment of the bond premium, offset within fair value on par/par asset swap government

securities. With reference to the prior year, this change has no material impact.

Net interest income

Net interest income for 2021 was

£537.4m, an increase of £99.4m

from last year (2020: £438.0m),

representing a net interest margin of

1.07% (2020: 0.95%). The increase

is a result of the strong new lending

margins during the first half of the year

and the growth in our mortgage book.

Interest payable includes the impacts

of our savings member pass back

activity, improving the rates that we

have paid to our existing loyal savings

members, however this has been partly

offset by positive behavioural impacts

in terms of customer retention and a

relatively benign rate environment.

Fair value gains and losses

A far value gain of £26.7m was

recorded in 2021 (2020: £10.7m loss),

mainly as a result of the effects of

the interest rate environment on our

mortgage pipeline swaps which do not

qualify for hedge accounting.

Following the partial buy back of

two of our existing Medium Term

Note issuances, a fair value gain of

£6.5m was recorded. This liability

management exercise took place in

July 2021.

Other income

Other income received in the year was

£12.7m (2020: £13.8m) and includes

income from our secondary lines of

business which are less material in

nature including insurance and Share

Plans. A gain of £2.5m was recorded

on the sale of properties (2020:

£2.9m) including our sites at Filey

Street and Lynchwood.

Management expenses

Overall management expenses

remain at a similar level to last year

at £274.5m (2020: £275.8m) despite

increased investment in both our

operational risk agenda and our

Transformation Roadmap

. Alongside

our improved income performance,

this results in a cost to core income

ratio of 50%, a decrease from 59% in

2020.

Management Expenses (Cost to Mean Assets) %

2017 2018 2019

2020

2021

0.83%

0.73%

0.60%

0.55%

0.66%

Cost to Core Income Ratio %

2017 2018 2019

2020

2021

65%

63%

59%

50%

60%

40 | Strategic Report

Our Financial Review

Impairment of loans and

advances to customers/

expected credit losses

A net release of £19.2m (2020: £12.2m

charge) has been recognised in respect

of expected credit losses (ECL) as the

economic assumptions supporting

the estimates, particularly those in

respect of house prices, are much more

favourable than those applied at the

end of 2020.

The modelling of climate related

financial risk in the mortgage portfolio

is still evolving and has yet to be

integrated into the core ECL models.

Many of the climate financial risks

identified as part of the Bank of

England’s Climate Biennial Exploratory

Scenario (CBES) process, see

Building a

Greener Society

below, do not impact

our current ECL as they are expected

to occur in a timescale in excess of the

average term of our loan portfolio. We

have, however, recognised an amount

to reflect the risk to those properties

subject to significant flood risk. See

note 32 to the financial statements for

more details.

Provisions

A charge of £2.3m was recognised

relating to other provisions which

include customer redress, restructuring

and other specific items (2020: £4.7m

charge). Restructuring, unrelated to

branch closures or agency conversions

are excluded from core operating

profit, £2.1m (2020: £2.8m), due to

their one-off nature.

Summary Balance Sheet

In addition to improving our net interest income, strong mortgage trading performance in the first half of 2021 helped to

grow our mortgage book by 8.1% in the year (2020: 2.1%). This was largely funded by a 6.4% (2020: 8.8%) growth in retail

deposits in addition to increased drawings from the TFSME scheme. Overall balance sheet growth was 10.0% (2020: 8.2%).

2021 2020

£bn £bn

Liquid assets 10.0 8.4

Loans and advances to customers 41.9 38.8

Other assets 0.8 0.7

Total assets 52.7 47.9

Shares – retail savings 35.5 33.4

Wholesale funding and other deposits 12.9 10.5

Subordinated liabilities 0.9 0.6

Other liabilities 0.3 0.6

Total liabilities 49.6 45.1

Members’ interest and equity 3.1 2.8

Total members' interest, equity and liabilities 52.7 47.9

Liquidity

Our liquidity levels remain robust

at 20.7% (2020: 19.2%) largely

supported by higher levels of

retention within our savings book

as well as increased balances in

the wider market as a result of the

COVID-19 pandemic. In addition,

liquidity has also been supported

by inflows from wholesale funding

including TFSME drawings.

Sufficient headroom to regulatory

requirements for liquidity was

maintained throughout the year. We

have also continued to diversify our

liquidity portfolio across a range of

Level 1 High Quality Liquid Assets

(HQLA), in line with our balance sheet

strategy.

| 41

Strategic Report - Our Financial Review

Wholesale funding

In 2021, we have remained active

in the wholesale funding markets in

which we usually participate; issuing

covered bonds, medium-term notes

(MTN), senior non-preferred (SNP)

and residential mortgage backed

securities (RMBS).

Earlier in the year we issued the

latest in our RMBS programme, Brass

10, which not only marked our first

issuance of a Social Bond, but the

first issuance of a Social Bond by

any building society. The issuance

was verified as being compliant with

the International Capital Markets

Association (ICMA) Social Bond

Principles, given the clear alignment

between these and our purpose and

strategy.

In order to manage our overall

cost of wholesale funding and our

liquidity position, we conducted a

liability management exercise in

July. A proportion of two existing

MTN issuances was bought back from

bondholders, with a new MTN issued

in replacement.

In addition to our drawdown of TFSME

funding, we repaid our existing TFS

drawings in the year

Arrears

The credit quality of our mortgage

book is monitored using a number

of indicators on a regular monthly

basis. An important indicator is the

percentage of outstanding retail

mortgage balances in arrears by

three months or more (including

possessions).

The quality of our loan book has

remained strong; the value of loans

meeting these criteria now stands at

0.36% (2020: 0.43%). The industry

average for mortgage arrears is

measured as the number of accounts

which are more than three months

in arrears (including possessions).

At 0.50% (2020: 0.59%) our

performance continues to remain

better than the industry average of

0.79% (2020: 0.85%).

More information on arrears can be

found in the

Directors’ Report

and in

note 32 to the financial statements.

As at the end of December

2021, we had 50 retail mortgage

properties in possession (2020:

26), however, these figures should

be noted within the context of the

repossession moratorium introduced

by the Financial Conduct Authority in

response to the COVID-19 pandemic

which was in place between March

2020 and April 2021. The amount

written off our loans and advances to

customers in the period was £1.1m

(2020: £2.7m).

More information on write offs

relating to arrears can be found in

note 12 to the financial statements.

Mortgage payment deferrals were

introduced in 2020; the deferrals

came to an end in July 2021. We

have observed that only 4% of

total deferrals have resulted in

deterioration of credit quality versus

their previous position, with the

remainder having resumed their

regular payments.

42 | Strategic Report

Our Financial Review

Tier 1 2021 2020

Common Equity Tier 1 (CET1) £m £m

General reserve 3,051.3 2,779.1

Fair value through other comprehensive income reserve 21.1 12.3

Cash flow hedge reserve 10.4 (0.1)

Common Equity Tier 1 prior to regulatory adjustments 3,082.8 2,791.3

Common Equity Tier 1 regulatory adjustments 21.0 21.9

IFRS 9 transitional arrangements - 1.7

Pension fund adjustments (80.9) (66.4)

Intangible fixed assets (16.5) (14.8)

Prudent valuation adjustment (4.8) (3.8)

Cash flow hedge reserve (10.4) 0.1

Total Common Equity Tier 1 capital 2,970.2 2,708.1

Tier 2

Subordinated liabilities 324.7 350.7

Collective provisions for impairment - 3.5

Total Tier 2 Capital 324.7 354.2

Total capital (audited)

3,294.9 3,062.3

MREL Resources

Secondary Non-Preferential Liabilities

522.5 289.6

Tier 2 MREL Eligible

10.6 4.7

Total MREL Resources (unaudited)

3,828.0 3,356.6

Risk weighted assets (unaudited) 17,631.0 16,175.6

Common Equity Tier 1 capital ratio

16.8% 16.7%

Tier 1 ratio

16.8% 16.7%

Total capital ratio

18.7% 18.9%

Total MREL Resources ratio

21.7% 20.8%

CRR Leverage ratio

5.3% 5.4%

UK Leverage ratio (excluding claims on central banks)

5.9% 5.9%

Please refer to the Glossary at the end of this document for definitions of the terms used in this table.

Capital

The Group is subject to regulatory capital requirements regulated in the United Kingdom (UK) by the Prudential Regulation

Authority (PRA). Our capital position remains strong, as demonstrated by our key capital ratios. Our Common Equity Tier

1 ratio is 16.8% in 2021 (2020: 16.7%), which represents the relationship between the strongest form of capital (largely

accumulated reserves) and risk weighted assets. Our UK leverage ratio, which compares Tier 1 capital with total assets, is also

stable at 5.9% (2020: 5.9%). The Group has complied with the PRA’s regulatory capital requirements during the year, further

details of our capital position can be found in the 2021 Pillar 3 Disclosures for 2021 on our website ybs.co.uk.

| 43

Strategic Report - Our Financial Review

Principal

Risks and

Uncertainties

The environment within which we

operate is continuously evolving

– as is the nature of the threats

we face. The economic and social

implications of the ongoing

COVID-19 pandemic, along with

those relating to the UK’s exit from

the EU, continue to be a significant

source of uncertainty both

nationally and internationally.

A description of the principal risks and

uncertainties to which we are exposed

is included in the table below, and

further commentary on how these

risks have evolved is included after

the table.

We have performed stress tests

to assess the impact of a range

of potential economic downturn

scenarios linked to the COVID-19

pandemic along with other operational

and prudential risk scenarios. Whilst

each bring their individual challenges,

we believe that we are well placed to

manage them.

We continue to invest in our risk

management capability in order to

ensure that emerging and evolving

risks are monitored closely, and that

timely and appropriate action is taken

to protect the interests of Yorkshire

Building Society and its controlled

entities (the Group), its members and

its customers. Significant emerging

risks are regularly reviewed through

the senior risk committees and are

considered as part of our planning

process.

44 | Strategic Report

Risk Description Principal Mitigation

Strategic

Risk

The risk to the Society’s earnings or sustainability which arises

from changes in the business environment (Political, Economic,

Social and Technological), or from the effectiveness of decisions

and actions relating to our strategic response to those changes.

The Group mitigates risks relating to the business

environment and its strategic choices through its horizon

scanning, corporate planning, scenario analysis and stress

testing, and ongoing monitoring and reporting activity.

Retail &

Commercial

Credit Risk

The risk to the Group of credit losses as a result of failure to

design, implement and monitor an appropriate credit risk

appetite.

The Group sets a risk appetite for its retail and commercial

lending activities which manages exposure to higher risk

lending areas, and monitors adherence to this.

Treasury

Risk

The risk of losses following default on exposures arising from

balances with other financial institutions, liquid asset holdings

and from derivative instruments used to manage interest rate and

foreign exchange risk.

The Group sets a risk appetite for treasury risk and

monitors adherence to this. It adopts a low risk approach

to its treasury activities, investing most of its liquidity in

the highest quality assets.

Funding &

Liquidity

Risk

The risk of the Group having inadequate cash flow to meet current

or future requirements and expectations.

The Group sets a risk appetite and stress tests its

positions against this risk appetite. The Society operates a

diversified funding base, primarily through retail savings,

supported by a strong wholesale funding franchise.

Market Risk

The risk to the Group’s earnings or the value of its assets and liabilities

due to changes in external market rates.

The Group adopts a low risk approach to market risk, and

stress tests all positions against a range of scenarios.

Capital Risk There is a risk that the Group is not able to meet regulatory capital

requirements or deliver on its strategic plans due to insufficient

capital resources.

The Group maintains a capital risk appetite and regularly

stress tests its positions against severe scenarios.

Model Risk The risk that the Group’s models that are used to manage the

business are inaccurate, perform inadequately or are incorrectly

used.

The Group operates a Model Risk Management Maturity

Framework which includes monitoring of model suitability

and performance within agreed risk appetite.

Operational

Risk

The risk of direct or indirect loss resulting from inadequate or

failed internal processes, people and systems, or from external

events.

The Group operates an internal control framework in line

with the Board risk appetite and monitors adherence.

Compliance

& Conduct

Risk

The risk of direct or indirect loss as a result of a failure to comply

with regulation or to ensure fair customer outcomes.

The Group operates an internal control framework in line

with the Board risk appetite and monitors adherence.

We have a robust Risk Management Framework, strong capital position, diverse funding sources and high liquidity levels; we

remain confident in the financial resilience and the sustainability of the Group.

Evolution of Principal Risk

Exposures

The principal risks and uncertainties

continue to evolve but the main driver

of change during 2021 has been the

impact of the COVID-19 pandemic on

the economy, which has had a range of

implications for the Group, along with

the additional risks that we continue

to address. This is unlikely to change

in the short to medium term, despite

a significant proportion of the UK

population now being vaccinated.

Operational response to

COVID-19 (Operational

Risk)

The COVID-19 pandemic placed

significant operational demands on

all financial services organisations,

requiring rapid changes to working

arrangements as well as the

adaptation of existing processes to

continue to meet customer needs

under circumstances which were both

unprecedented and challenging.

We successfully implemented

our operational response in line

with Government guidelines and

continue to monitor its effectiveness

and implement changes resulting

from updates to this guidance. Our

approach centred around ensuring the

availability of critical services for our

customers alongside protecting the

health and wellbeing of our customers

and colleagues. Our key customer-

facing processes and services

continued to be managed effectively

during 2021, in order to minimise

service issues.

In particular, we have a number of

strategies in place to support our

colleagues through this period of

uncertainty, recognising the length

of time that colleague work patterns

and environments have been subject

| 45

Strategic Report - Principal Risks and Uncertainties

to disruption. These have included:

refining our people policies and

practices; ensuring that our workplaces

remain in line with the Government’s

guidance; and we have commenced the

development of a longer-term Future

Ways of Working strategy.

Economic impacts of

COVID-19 on credit losses

(Retail & Commercial Credit

Risk)

The impacts of the COVID-19

pandemic have dominated the

economic landscape since March

2020. The lockdown measures taken

to manage the scale of the pandemic,

and the longer-term repercussions of

these following their removal, have

posed risk to the economy. Whilst

lockdown restrictions and Government

support have since ended, there

remains a degree of latent risk

relating to the potential emergence of

arrears as the impacts of changes in

unemployment and affordability may

take time to crystallise.

Our approach to modelling expected

credit losses on loans and advances

to customers in response to these

changing economic conditions is

described in more detail in note 32 to

the financial statements.

We considered our lending criteria

carefully throughout the period with

an approach which was intended to

balance our purpose of providing

Real Help with Real Life

against the

level of risk we take. At all times we

have focused on our lending being

responsible to protect customers and

to minimise arrears.

Economic impacts of Brexit

on credit losses (Retail &

Commercial Credit Risk)

Whilst the UK has now officially left

the EU with a trade deal in place,

the ongoing economic impacts

remain uncertain. These aspects of

uncertainty are incorporated into

our economic scenario modelling.

These scenarios cover a range of

impacts that reflect different levels of

productivity and output of the UK and

the subsequent effects on the broader

economy.

The vast majority of our exposure

relates to UK-based residential and

commercial property values, and so

our risk arises from any potential

economic downturn stemming from

the new trading relationship with the

EU rather than any specific risks to any

particular business sector.

Increased risk of inflation

and rising interest rates

(Retail & Commercial Credit

Risk)

The current combination of macro-

economic factors and associated

events in the UK and overseas have

resulted in an increased risk relating

to rising inflation and the likelihood of

further Bank Base Rate over the short

term. We recognise that although

there is the potential for an adverse

impact on affordability, interest rates

and unemployment are expected to

remain low by historical standards.

Having reviewed the risks to the

Group through our stress testing

approach, including the sensitivity of

our mortgage books and associated

impairment models to increasing

interest rates, we have concluded that

the key sensitivities to our expected

credit losses are principally related to

HPI and unemployment. As a result,

we consider our economic scenarios

and weightings to be fit for purpose as

they are focused on material changes

in these, most sensitive, macro-

economic metrics.

Retaining and attracting

skills and talent in areas of

high demand (Operational

Risk)

The Group is increasingly recognising

that social changes brought about

by the COVID-19 pandemic are

resulting in increased competition in

the recruitment and retention of key

colleagues. We continue to review our

value proposition in relation to talent

acquisition and retention.

Model Risk (Model Risk)

We continue to monitor and address

the risks associated with the use of

models and specifically, with regard

to the impact of the COVID-19

pandemic, the use of models that rely

on historical data being applied to

less predictable future scenarios. We

continue to adapt and develop our

approach to Model Risk Management

and the underlying models

themselves in line with industry good

practice and regulatory guidance.

Regulation and Fair

Outcomes (Compliance &

Conduct Risk)

Compliance and conduct are central

to our values and behaviours, with

an internal control framework which

operates in line with the Board risk

appetite and monitors adherence.

Ongoing focus and robust challenge

will be required to keep pace with the

rapidly changing legal and regulatory

environment. This will also be vitally

important as we move forward

with our ambitious programme

of transformation, exploring new

initiatives and new ways of working.

Against the backdrop of the

pandemic, regulatory expectations

have evolved rapidly and we

have enhanced focus on our risk

management activities on matters of

greatest importance to our regulators,

in particular the

treating customers

fairly

impacts of forbearance (FCA)

and the ongoing effectiveness of our

operations through

Operational and

Prudential Resilience

(PRA).

Dialogue with our regulators

continues to be open and

constructive, and we continue to work

with regulators and industry bodies

to contribute to the developing

regulatory agenda. This includes

matters such as the FCA’s proposal

to introduce a new Consumer Duty

which would set higher expectations

for the standard of care that firms

provide to consumers. As a mutual

organisation, fair customer treatment

is already a key part of our purpose

and intrinsic to everything we do.

Climate change risk

We recognise that climate change is

one of the most critical issues facing

the UK and global economy. The main

climate change risks impacting the

Group are how physical risks such

as flooding, subsidence and coastal

erosion affect our customers’ homes,

together with the risks posed by the

transition to a low-carbon economy

such as energy efficiency regulation

46 | Strategic Report

Principal Risks and Uncertainties

and any exposure to sectors most

affected by this change.

The risks posed by climate change

have been reviewed through 2021 and

have been incorporated into the risk

taxonomy, with implications relating

to several principal risk types. Key

principal risks where climate change

impacts have been considered include:

•

Strategic risk

•

Retail & Commercial Credit risk;

•

Operational risk; and

•

Compliance & Conduct risk.

The

Risk Management Report

provides

more detail on how climate change

risk is incorporated into our risk

management framework. Climate

change risks have been incorporated

into our risk appetite process and

we have completed climate scenario

analysis on our mortgage book. We

have developed a strategy to manage

the ongoing risks as they present

themselves.

Developing IT capabilities

in line with customer

expectations (Operational

Risk)

The ageing and diverse IT

infrastructure, software, applications,

satellite IT and use of third-party

packages present within institutions

across the UK financial services sector,

expose these firms to increasing

operational risks. As IT components age,

their fit and value often deteriorate

whilst cost and risk often conversely

grow. Moreover, future digitalisation

and modernisation initiatives may force

firms to use old technology in ways for

which they were not designed.

We have embedded an approach to

managing and mitigating our legacy IT

risks, including those relating to third

parties, and progress is reported to the

Board at least annually. We continue

to invest in operational resilience and

legacy IT risk mitigation as part of a

Group-wide Security Improvement

Programme.

Increased competition

and new technology

(Operational Risk)

Our digitalisation programme

continues to address increasing

customer expectations of being

able to access products and services

through expanded digital channels.

The digital transformation of direct

competitors, as well as challenger

banks and FinTech firms, continues

to emphasise the need to remain

competitive in these areas. This

acceleration could provide additional

challenges in the increased

competition for appropriately

qualified and experienced Information

Technology resource.

There is, however, a residual risk that

the cost of delivering the level of

change necessary for some customer

groups, aimed at keeping pace with

rapidly changing technology, may also

prove unsustainable. This will require

investment choices which may not

fully meet customer expectations.

Financial crime threats

(Compliance & Conduct Risk

and Operational Risk)

We operate in a hostile and constantly

evolving financial crime environment.

The COVID-19 pandemic has elevated

the level of threats faced, and the

wider financial services industry

continues to see increased cyber-

crime, including phishing and spam

attempts that seek to take advantage

of customers during this time of

uncertainty.

The Group has not seen a meaningful

increase in financial crime incidents

during this period, however the

business remains on high alert. The

Group’s focus on its financial crime

risk management capability remains

paramount in order to keep these

evolving financial crime exposures

within risk appetite. Investment

continues to be made in this area,

with particular focus on anti-money

laundering controls, customer

due diligence and Open Banking

compliance. We constantly assess and

appropriately upgrade our business

standards, due diligence processes, IT

and people capability.

New and evolving

cyber security threats

(Operational Risk)

The pace of technological change

exposes the UK financial services

sector to increasingly sophisticated

cyber security threats – including

ransomware, data breaches and

weaknesses in the supply chain.

Resilience to such threats, and an

ability to effectively respond in the

event of an attack, remains essential

in order to protect the Group, maintain

the trust of customers and the

confidence of regulators. Investment

continues to be made in this area

to ensure that key controls are

appropriately maintained.

Continued risk management

effectiveness

Good progress has been made through

2021; we have continued to embed

our risk management framework

across the business to enable us to

adapt and respond to rapid change

in our operating environment.

This includes development of our

approach to managing climate risk,

continuing to embed accountability

for risk management reporting into

the first line of defence and providing

an increased level of second-line

oversight of key risk management

activities including those relating to

the Group’s transformation agenda.

The Society is focused on our

Strategic Blueprint

and the related

programme of transformation. Our risk

management teams are supporting the

safe delivery of the Blueprint through

ensuring that current risk management

initiatives are appropriately

embedded, with customer experience

and outcomes prioritised as part of

any risk management interventions.

| 47

Strategic Report - Principal Risks and Uncertainties

Building

a Greener

Society

This section contains our 2021

Taskforce on Climate-related

Financial Disclosures (TCFD) report

and an introduction to our future

climate transition plan:

Building a

Greener Society

It is acknowledged and accepted that the financial

services industry needs to act now to help to mitigate,

and support the management of, the physical and

transitional risks posed by present and future climate

change. The risks posed by climate change are wide

reaching and will affect all areas of society. As such, we

have been enhancing our capabilities and embedding

processes to monitor and manage climate change

risk. We have worked to meet the requirements of the

Prudential Regulation Authority’s (PRA’s) Supervisory

Statement 3/19 (SS3/19) –

Enhancing banks’ and

insurers’ approaches to managing the financial risks

from climate change

. This report outlines our approach

to climate, aligned to the recommended guidance of

the TCFD initiative. As the Society is not considered

to have immediate significant transition or physical

risk, the option within the TCFD guidance to disclose a

qualitative summary of our climate scenario modelling

methodology and outputs has been applied. We will

aim to introduce more quantitative disclosures as our

modelling evolves over time.

Disclosure Category Reference

Our climate risk appetite See the

Risk

Management Report

Enterprise Risk Management Framework See the

Risk

Management Report

Climate Governance See below

Streamlined energy and carbon reporting See the

Directors’

Report

The remaining TCFD disclosures and metrics can be found

within this ‘Building a Greener Society’ report.

The Society’s Audit Committee has confirmed that our

disclosures are consistent with the TCFD regulatory guidance.

These disclosures have been integrated throughout the Annual

Report and Accounts as follows:

48 | Strategic Report

Climate Governance

Board and executive level

oversight of climate-related

risks and opportunities

The Board has ultimate accountability

for all climate change risks and

opportunities. The Board meets

regularly and is supported through the

existing governance structure which

manages climate change risk on a

day-to-day basis. See the

Corporate

Governance Report

for more details.

The Board

The Board sets our purpose-led

strategy. In 2020, we launched our

Strategic Blueprint

which focuses on

four key priorities (more information

can be found in the

Our Strategic

Blueprint

section of

Our Purpose,

Strategy and Stakeholders

). Although

climate change and environment

are not directly referenced in the

Blueprint

, they play an important role

in supporting our overarching purpose

of providing

Real Help with Real Life

During 2021, the Board received a

number of updates on climate risk in

addition to two sessions providing

climate strategy and risk management

training which were delivered by

in-house and third-party experts. The

Board will continue to be provided

with regular updates on our external

climate commitments and regulatory

requirements, as well as our progress

toward achieving them. In December

2021, the Board approved our

Building

a Greener Society

climate action

plan and will receive regular updates

against the climate key performance

indicators (KPIs).

Group Risk Committee

Our Group Risk Committee (GRC)

discusses overall climate risk and how

it fits within our risk management

framework. Updates have focused

on overarching climate risk-related

matters, they deal with the approval

of the Society’s scenario analysis,

stress testing and risk appetite with

respect to climate. The Committee

approves the Society’s Enterprise Risk

Management Framework (ERMF) which

now includes climate as a risk which

cuts across multiple traditional risk

categories, details of which can be

found in our

Risk Management Report

Executive Committee

The Executive Committee (ExCo) is

chaired by the Chief Executive and

receives regular updates on climate

change progress. This committee

also oversees, and is updated on, the

day-to-day environmental strategy. All

climate risk matters are approved here

before proceeding to the Board.

Executive Risk Committee

The Executive Risk Committee (ERC)

is responsible for the governance

framework surrounding the climate

risk agenda. The updates provided to

the committee primarily focus on risk

appetite and policy setting, which is

subsequently approved by the Group

Risk Committee. ERC also approves

the Environmental Policy, into which

climate change risk and our climate

action plan have been integrated.

Overall, the Committee helps to steer

our leadership teams in the day-to-day

governance of the climate change

agenda and ensures we have an

effective risk management framework.

Asset and Liability Committee

The Asset and Liability Committee

(ALCO) is responsible for day-to-day

management of climate risk and

stress testing. Updates provided

to the Committee primarily focus

on the financial risks (physical and

transitional) arising from climate

change, and consider the resulting

challenge posed by stress testing and

its impacts. ALCO also receives regular

updates on the Society’s non-financial

ratings agency (NFRA) performance.

Audit Committee

The Audit Committee considers non-

financial disclosures related to the

broader environmental, social and

governance agenda as being linked to

the broader set of disclosures made

by the Group in the Annual Report

and Accounts and the Half-Yearly

Financial Report. The Audit Committee

approve all key public disclosures

and review the assurance surrounding

environmental disclosures before

publication. Furthermore, the Audit

Committee consider the impact

of climate change on accounting

estimates such as

expected credit

losses on loans and advances to

customers

Assigning senior management

accountability

In 2020, the Society embedded

climate change and environmental

governance roles into our Senior

Manager Function accountability

documents. We have assigned key

accountabilities on environment

and climate change to ensure a

clear understanding of ownership

throughout the business.

Accountabilities and responsibilities

are shared between our Chief

Financial Officer (CFO) and our Chief

Risk Officer (CRO).

The CFO is responsible for managing

the physical and transitional financial

risks stemming from climate change.

This includes accountability for

leading the development and

implementation of:

•

Identification, measurement,

monitoring and reporting of the

financial risks of climate change, in

line with our risk appetite including

our risk exposure limits and

thresholds.

•

Scenario analysis (including a

catastrophe modelling approach)

to determine long-term financial

risks and assess the impacts on our

balance sheet.

•

Disclosing the financial risks of

climate change to the PRA.

•

The climate related inputs into the

wider ESG reporting owned by the

Chief People Officer.

The CRO has accountability for

ensuring the development and

implementation of:

•

A governance framework to ensure

that the Board understand and

assess the financial risks from

climate change which affect the

Society, and address and oversee

these risks within our overall

business strategy and risk appetite.

| 49

Strategic Report - Building a Greener Society

Embedding climate into our

policies

As part of our commitment to

protecting the environment and

reducing the impact our business

activities have upon the natural

world, we have developed a

rigorous environmental policy and

environmental management manual.

These documents are reviewed

annually at our Executive Risk

Committee and explain the approach

the Society takes to environmental

and climate change risk, compliance

and protection issues. They further

describe the management framework

behind the broader climate strategy.

Our environmental policy can be

viewed on our website. The Society

has further enhanced our Enterprise

Risk Management Framework to

include climate change risk, more

detail can be found in the

Risk

Management Report

Our climate change operating

model

The Environmental Working Group

meets once every three weeks

and comprises mid-management

colleagues working to deliver our

climate strategy. This working group

provides regular updates to the

Climate Change Steering Group (a

senior-level forum). Oversight is

provided by the Chief Financial Officer

and Chief Risk Officer, and the steering

group reports directly into ALCO. You

can also view our climate governance

structure chart in our

Corporate

Governance Report

. The structure

chart outlines how climate governance

operates at Board, Board Committee,

Executive and Management

Committee levels.

Our Climate Strategy

Identifying the Risks

Climate change is expected to impact financial institutions and the related risks can be broadly categorised as either physical

or transitional. Physical risks are described as changes to the natural environment that may damage the integrity of a property.

Transitional risks are described as resulting from changes in policy as the UK moves toward a lower carbon economy.

In the UK, the key physical risks are flooding, coastal erosion, and subsidence. Transition risks can be more varied and subtle,

for example the proposed UK Government regulation ‘Improving home energy performance through lenders’. These risks

affect the losses experienced by the Society and its members on two different levels. Risks affecting the individual property or

borrower are “micro” and, in contrast, “macro” risks are those operating through the broader economy. These risks will need to

be considered in future Corporate Plan and risk resilience scenarios.

Flood Risk Subsidence Coastal erosion

Flooding has been identified as one of

the most important risks from climate

change in the Government's Climate

Change Risk Assesments and it is also

the climate risk most associated with

climate change in public perception.

Flooding is a recurrent event with

increasing frequency in a climate

scenario.

Subsidence is caused by excessive

drying of clay soil contents in drought

conditions, leading to uneven shrinkage

of the ground underlying buildings.

Properties currently at risk of subsidence

are concentrated in the south-east

of England, with possible future risks

extending into the north of the country

in a climate scenario.

Coastal erosion typically results in

the complete loss of the property

in question unless government

intervention to build defences takes

place. It requires specific geological

conditions to be in place and will be

exacerbated by rising sea levels and

increased storm intensity in a climate

change scenario.

• Fluvial - risk of rivers overtopping their

banks.

• Pluvial - accumulation of surface water

and normally associated with lowest

levels of damage.

• Tidal - extreme tides and storm surges

carrying seawater onto property.

Saltwater normally associated with

highest damage

• FloodRe - currently provides government

backed reinsurance for flood risk for

most properties but is due to stop in

2039.

• Subsidence is assumed to be

resolved as a one-off damage repair,

with a 10 year period over which the

success of the repair is viewed as

uncertain by insurers

• The costs of damage repair costs

have been decreasing over time, with

new resin based solutions emerging

and reducing the need for expensive

underpinnings

• Coastal erosion is the risk showing

the steepest rise in properties to

be affected in a climate scenario,

however the number of properties

ultimately affected would remain

low compared to subsidence and

flood risk.

As a member of the FCA’s and PRA’s Climate Financial Risk Forum, we have worked with peers and regulators to develop a

sector-wide framework to identify climate risk categories. The table below displays the risks which we have been, or will be,

considering as our disclosures advance in line with regulatory and non-financial ratings agency (NFRA) expectations. Our

scenario analysis sought to quantify financial losses as a result of climate change and, in the years ahead, we plan to mature

and extend our analysis to further improve our thinking across all of the categories and questions listed below. Our

Building a

Greener Society

plan supports this agenda.

50 | Strategic Report

Building a Greener Society

The Group’s Principal Risk Exposure Example Key Risk Considerations

Strategic Risk

(Focused on the future viability of the

business model)

•

Adapting the Group’s strategy to meet customers’ green expectations.

•

The policies and processes that will be required to ensure that green products are robust.

Retail & Commercial Credit Risk

(Focused on the credit worthiness of the

customer, the underlying value of the

asset and probability of default)

•

How the Group’s mortgage book would respond to stricter energy efficiency policies.

•

The proportion of the mortgage book which is geographically located in areas which will be

exposed to the impact of more frequent and severe weather events.

•

How lending criteria, focussed on energy efficiency and economic sector, could be

deployed.

Compliance & Conduct Risk

(Focused on the action/inaction of the

Society causing detriment to customers,

to the market and to the competition)

•

The proportion of customers that would be adversely affected by the industry standard

moving toward stricter lending criteria based on physical risk metrics such as the

probability of flood risk.

•

The proportion of customers that would be adversely affected by the industry standard

moving toward stricter lending criteria based on energy efficiency.

Operational Risk

(Focused on the resilience of the Society’s

infrastructure, systems, procedures

and policies, to events that could affect

business continuity)

•

The level of energy efficiency of the Group’s property estate and its exposure to physical

climate risk.

•

The extent of exposure of critical suppliers to more frequent and severe weather events

under climate change.

•

The geographical location of critical suppliers and their exposure to physical climate risk.

•

The adaptations that will be required to be made to ensure the health and safety of

customers and employees.

See the

Our approach to Climate Risk

section of the

Risk Management Report

for more details.

| 51

Strategic Report - Building a Greener Society

• GDP growth is negative

between 2031-2033 with

a trough of -2.7% in 2032.

Following this recession,

the economy bounces back

• Unemployment peaks at

8.5% in 2033

• Property prices fall by

about 20% during the

2031-2033 recession

• GDP grows at a sub tend

rate over the years of the

scenario (1.3% growth), but

does not turn negative

• Unemployment stays at 5%

throughout the scenario

• Property prices grow at a

sub trend level of 2.7%

The global climate goal

is met but the transition

is delayed until 2030

and is more sudden and

substantial. This results in a

material short-term macro

disruption, with an economic

recession, falls in property

and equity prices and

changes in interest rates

No policy action beyond

that which has already been

enacted is delivered. The

transition is insufficient for

the world to meet its climate

goal, leading to severe

physical risks, materially

lower trend growth rates and

impact on asset prices

• Properties are upgraded

to the potential EPC

grade (spread out evenly

through 2031-2050)

• 65% of properties require

a heat pump at a cost of

£5,000

• Properties with a potential

EPC grade below E are

reduced to the value of

the land only

• No actions to upgrade

the energy efficiency of

properties

• Some increase in the

overall level of physical

risk, but it will remain

subdued

• Assumed Met Office RCP

2.6 projections

• Severe increase in

physical risks with the

most material shocks

crystalising 2050-80

• Assumed Met Office RCP

8.5 projections

Late

Policy

Action

Policy

Action

Identifying the Impacts

Our climate change model was designed to estimate the impact of physical and transition risks, operating at both the micro

and macro levels, on the financial health of the mortgage portfolio. The methodology used to estimate the impacts of climate

risk is designed to be compliant with the Bank of England’s Climate Biennial Exploratory Scenario (CBES) guidance. The Society

explored the economic impacts of climate change resulting from these emissions scenarios, as described in the below table.

The Society further considered the utilisation of science-based targets and other opportunities to increase understanding of

climate risk on the Society’s mortgage book and owned assets. The colleague pension scheme is not under the Society’s direct

control and as such is having its climate risk and opportunities reviewed through a separate external workstream. You can view

our qualitative analysis of the CBES and temperature alignment exercises in the

Metrics and Targets

section below.

• GDP growth slows down in

2025-2027 to 1.3% before

returning to trend growth

of 1.6%

• Post covid, unemployment

drops to 5% by 2025 and

stays at that level for the

rest of the scenario

• Property prices grow at 3.4%

throughout the scenario

The transition to a carbon-

neutral economy starts

early and is gradual and

moderate. Carbon prices

and other policies are

introduced slowly and the

increase in global warming

stays below 2

C, in line

with the Paris Agreement

• Properties are upgraded

to potential EPC grade

(spread out evenly

through 2021-2050)

• 65% of properties require

a heat pump at a cost of

£5,000

• Properties with a potential

EPC grade below E are

reduced to the value of

the land only

• Some increase in the

overall level of physical

risk, but it will remain

subdued

• Assumed Met Office RCP

2.6 projections

Early

Policy

Action

Overview Economics Transition risks Physical risks

52 | Strategic Report

Building a Greener Society

Identifying the Opportunities

The Environmental Working Group

is responsible for identifying new

opportunities arising from climate

change and refers these to the Climate

Steering Group and the Executive

Committee for further review on a

regular basis.

The Working Group used the outputs

of CBES, combined with qualitative

studies, to evaluate the opportunities

climate change brings to our social

purpose, ESG and commercial agendas.

Our identified opportunities are

designed around three pillars:

•

Ensuring that YBS manages its

operational carbon emissions year on

year;

•

Promoting and embedding

knowledge and awareness of Carbon

Literacy into the YBS working culture;

and

•

Understanding and supporting the

risks and opportunities climate

change presents to the Society’s

customers.

The underpinning goal of the climate

strategy aims to help our customers

to find a

place to call home

whilst

ensuring we reduce the impact our

operations have on the environment.

Fundamentally the Society believes

the transition to a Net-Zero economy

should be fair and accessible to all.

Ensuring that YBS manages its

operational carbon emissions

year on year

The road to operational Net-Zero

We are committed to taking purposeful

action on climate change. The Society

believes that in order to drive change

it must lead by example. We have

committed to reducing our direct

operational carbon footprint to Net

Zero by 2025. The residual elements,

which we cannot presently reduce

due to critical risk, will be offset into

programmes driving carbon reduction

projects elsewhere in the world.

As a result of this commitment, we

have decided to replace our carbon

neutrality pledge with a pledge to

achieve a Net Zero position across

our scope 1 and scope 2 emissions by

2025. This will enable the Society to

drive action and take direct ownership

for the reduction of our carbon

emissions. For the past five years,

the Society has been accredited with

carbon neutral status. We achieved

this through procuring carbon offsets

through third party verifiers and

complying with the Carbon Neutral

Protocol. The Society will still commit to

offsetting the operational elements of

Scope 3 which it can directly influence,

and is currently working through plans

for aligning to Net Zero on scope 3

emissions.

The Society will achieve its goal

through a 100% green energy (gas and

electricity) pledge. In 2021 we signed

a green gas supply contract, derived

from feedstock, to get the business

started on the journey. We do however

understand that feedstock gas is not

the best viable alternative to natural

gas, which is why we are committed to

procuring our next green gas contract

from landfill sources. YBS has also

conducted a review of our property

estate and, whilst air or geothermal

heat pumps are not practical in many

cases for a number of reasons, we

will upgrade to heat pumps where

feasible. We believe that moving to

green gas and 100% renewable energy

represents a proportionate step toward

reducing our operational emissions.

Additionally, in 2021 we converted

our emergency back-up generator

from diesel to biodiesel to ensure our

residual scope 1 emissions reduce

further over time.

Supply chain

At the beginning of 2021, an in-depth

review of the environmental credentials

of our supply chain was conducted.

The outputs of this review allowed

the business to focus on the top

100 critical suppliers and create an

input and output model to measure

the emissions accrued from the

outsourcing of systems, people and

purchases. The Society is presently

analysing the results of this analysis

and understanding how best to use the

results to inform future procurement

practice. We are further developing our

understanding of the environmental

impacts of our ‘cloud’ outsourcing

strategy.

Providing opportunities to colleagues

Our colleagues also understand

that they too have an important

role to play in reducing the effects

of climate change. The Society has

actively worked to improve colleague

engagement in this area. We launched

an internal climate awareness strategy

and tool pack, providing information as

to how our colleagues can reduce their

environmental impact whether they are

working at home or within the office.

We are further pleased to announce

that we are moving to a low emissions

vehicle fleet. We will move to a

fully electric fleet as soon as it is

operationally practical and will ensure

that from 2025, all new vehicles

acquired onto our fleet are hybrid or

fully electric. To ensure we are reducing

our impacts in line with our target, last

year we introduced an emission cap

on our fossil-fuelled company vehicles

of 160g CO

/km. Other examples

of our commitment to colleagues

include a cycle-to-work scheme,

0% interest season ticket transport

loans and electric vehicle (EV) leasing

opportunities for those colleagues who

do not drive a company car.

| 53

Strategic Report - Building a Greener Society

Promoting and embedding knowledge and awareness of Carbon Literacy into the YBS

working culture

United Nations principles for responsible banking

The The Principles for Responsible Banking are a unique framework for ensuring that a signatory’s strategy and practice

align with the Sustainable Development Goals (see below) and the Paris Climate Agreement.

Yorkshire Building Society intends to become a signatory and commit to fulfilling the following six principles:

Over the next 18 months, the Society will undertake a thorough impact analysis against these Sustainable Development

Goals and set a target to reduce societal and climate impact.

We will align our business strategy to be

consistent with and contribute to individuals’

needs and society’s goals, as expressed in

the Sustainable Development Goals, the Paris

Climate Agreement and relevant national and

regional frameworks.

We will proactively and responsibly consult,

engage and partner with relevant stakeholders

to achieve society’s goals.

We will implement our commitment to these

Principles through effective governance and a

culture of responsible banking.

We will periodically review our individual and

collective implementation of these Principles

and be transparent about and accountable

for our positive and negative impacts and our

contribution to society’s goals.

PRINCIPLE 1:

PRINCIPLE 4: PRINCIPLE 5: PRINCIPLE 6:

PRINCIPLE 2: PRINCIPLE 3:

ALIGNMENT

STAKEHOLDERS GOVERNANCE &

CULTURE

TRANSPARENCY &

ACCOUNTABILTY

IMPACT &

TARGET SETTING

CLIENTS &

CUSTOMERS

We will contnuously increase our positive impacts

while reducing the negative impacts on, and

managing the risks to, people and environment

resulting from our activities, products and services.

To this end, we will set and publish targets where

we can have the most significant impacts.

We will work responsibly with our clients and

our customers to encourage sustainable

practices and enable economic activities that

create shared prosperity for current and future

generations.

54 | Strategic Report

Building a Greener Society

Improving tenant welfare

We are implementing, where financially

viable and subject to listed-property

restrictions, the Department for

Business, Energy and Industrial

Strategy’s (BEIS) recommendation to

upgrade all Society-owned properties

which are let out across England and

Wales to EPC grade C or above by 2027

(all new tenancies from 1 April 2025

and all existing tenancies by 1 April

2027). After which it is the Society’s

intention to work towards the proposed

the minimum energy efficiency

standard requirement for rented non-

domestic property to a B or above by

2030.

Understanding the risks and

opportunities climate change

presents to the Society’s

customers

Operational climate risk

Operational climate risk is an area in

which we are committed to furthering

our understanding and building

resilience. To address this, climate

risk has been incorporated into our

operational risk appetite. More detail

is available in our

Risk Management

Report

Strategic risk

The Society is committed to reducing

its lending exposure to heightened

climate risk sectors of the UK and Global

economy, and has developed a risk

statement which can be viewed in our

Risk Management Report

. Following a

review, the Society can confirm that it

does not directly lend to the Oil and Gas

sector or other heightened climate risk

sectors.

This will be a progressive journey for

the Society, and we plan to introduce

more restrictions to enhance our climate

action in the coming years. However,

given our business model of lending on

UK property, we can confirm that our

strategy does not directly lend support

to heightened climate risk development,

and the Society does not support project

finance.

Credit risk

The Society has developed a qualitative

statement which can be viewed in our

Risk Management Report

. It commits

the Society to a robust climate risk

modelling framework in line with SS3/19

regulatory requirements. The modelling

framework allows the Society to

quantify physical and transitional risks

that could threaten long-term financial

sustainability. Alongside the qualitative

credit risk statement there will sit a

quantitative metric which measures the

quantum of lending against properties

with low EPC ratings (identified as below

grade E).

Conduct risk

As awareness of the climate crisis grows,

we have a responsibility as a business

to ensure that the potential impacts of

climate change, and potential impacts

on climate change, are considered

when making decisions and engaging

with customers. The considerations

are varied but include the use of

sustainable materials when developing

green products, ensuring customers are

made aware of climate change-related

risks (such as flooding), and ensuring

customers are prepared for potential

costs associated with decarbonising our

society when taking out borrowing (such

as the need to improve the EPC rating of

properties).

Financial planning

The Society understands climate

change will play an important role in the

Society’s future financial planning and

commercial strategy. The Society intends

to use the CBES and temperature

alignment outputs to inform future

direction. The focus at the time being

however is ensuring the Society’s

response to climate change risk is

proportionate and supports our purpose

to provide

Real Help with Real Life

Helping our customers transition to

Net-Zero

The Society believes the transition to

a Net-Zero economy should be fair

for all customers. The recent pace at

which climate financial risk regulation

is progressing in the UK, to meet the

Government’s target of Net-Zero by

2050, has the potential to outpace

our customers’ ability to improve the

energy efficiency of their homes to meet

proposed new lending requirements.

The Society anticipates a situation

where our customers, through no

fault of their own, may not be able to

afford the necessary improvements

which would be required in order to

re-mortgage their home, creating a new

set of mortgage prisoners similar to the

current cladding crisis that some flat

owners are facing.

To understand the impacts and

opportunities of moving towards a Net-

Zero economy on our customers, a 1.5C°

temperature alignment exercise was

performed. The Society used the IPCC

climate scenarios in combination with

guidance provided by the Science Based

Target initiative. The Science Based

Target feasibility study demonstrated

that the mortgage portfolio is expected

to perform well from an environmental

perspective over the coming decades

if proactively managed through the

launching of socially minded green

lending propositions.

However, the exercise also

demonstrated that the immediate

placement of severe emission reduction

targets on our mortgaged properties

would present our customers with

significant social and financial

consequences on top of the inflationary

pressures they are presently facing. The

exercise concluded that while a Science

Based Target may represent well in

overall ESG ratings, the business does

not think this initiative is well suited

for the provision of

Real Help with Real

Life

. The Society exists to support our

customers and to help them all find a

place to call home. The business will not

implement activities that could possibly

harm our customers social and financial

wellbeing. Over time however, as the

social and financial consequences of

customer-based emission reduction

targets are resolved at the regulatory

level, it is conceivable the Society

may commit to targets but this is not

anticipated before at least 2025.

The Society is therefore pleased to

stress that it is committed to helping

all our customers transition to Net-Zero

and improve the energy efficiency of

their homes. To do this, YBS will work to

create a customer Net-Zero transition

plan that aligns to our ambition to

Help Real Life Happen

. YBS will aim

to support those with the highest

transitional risk exposure. To get started

on this journey, YBS will launch our first

green mortgage proposition in 2022.

| 55

Strategic Report - Building a Greener Society

2012

2014 2016 2018 2019 2020 2021

First

disclosed our

environmental

impact (scopes 1

and 2).

Prior to 2012, we

always recycled

and donated

old furnishings

resulting from

branch and

head office refit

projects to local

charities and

schools.

Procured

100%

renewable

electricity to

power our

operations.

Installed solar

panels at our

head office

sites.

Achieved

100% carbon

neutral status

for the first

time (including

scope 3

emissions).

Achieved

ISO 14064-1

accreditation

for our carbon

footprint

calculations.

We committed

to reducing

energy

consumption

and heat output

across our IT

function.

Began

anaerobically

digesting our

food waste.

Installed two

sustainable,

sedum green

roofs.

We agreed a

target to remove

all single-use

plastic items

from our head

office sites. In

the first year,

we removed

700,000 single

use plastic

items.

Reduced water

consumption

by installing 19

PropelAir toilet

systems.

Developed a

new carbon

emission

calculator

to begin

capturing the

environmental

impacts of

our capital

works projects,

allowing the

business to

better assess

our estate

improvements.

Removed a

further 132,000

single-use

plastic items

from our

canteen.

Launched the

Environmental

Working Group

to devise

our future

environmental

and climate

strategy.

Our first scope 3

disclosure.

Launched the

beginnings

of our

environmental

strategy

Building

a Greener

Society

Achieved 5

years of carbon

neutrality.

Introduced a

target to reduce

paper usage and

consumption by

15%.

Committed to

understanding

the impacts

of our supply

chain.

YBS joined the

Leeds Climate

Commission.

We achieved our

first success on

the IT energy

consumption

reduction

journey,

reducing the

number of

hard drives

and replacing

with solid state

drives.

We joined the

Yorkshire and the

Humber climate

commission. We

are working help

build up the

climate resilience

of the region over

the coming years.

Committed

to moving

towards 100%

renewable energy

consumption. The

Society secured

a renewable gas

contract.

YBS voluntarily

participated

in the Bank of

England’s Climate

Biennial Scenario

in accordance

with PRA SS 3/19

regulations.

Since 2012, we

have achieved

an overall 78%

operational

carbon reduction.

Supply chain

emissions are

now internally

fully understood.

We have

introduced new

rules that restricts

lending to

environmentally

harming sectors

of the economy.

Supporting our communities

We will take direct action on climate change and seek to reduce our environmental impacts on wider society wherever it is

viable to do so. A cornerstone of this commitment is our engaging proactively with our local communities and policy makers; we

are pleased to announce that the Society has joined the Yorkshire and Humber Climate Commission, as well as maintaining our

support for the Leeds Climate Commission.

The recently launched Yorkshire and Humber Climate Commission is the largest of its kind in the UK and brings together a team

of climate leaders from across the public, private and third sectors. It aims to help the region reduce its carbon emissions as

quickly as possible and ensure that people in Yorkshire are prepared to cope with the growing physical and transitional risks of

climate change.

The Journey so Far

The Society has always been focused on operating a financially sustainable business and, in recent years, we have applied this

concept of sustainability more broadly to include our impact on the environment. Since first publishing our carbon footprint in

2012, we have successfully reduced our emissions by 78%. The below summary shows the progress the Society has made since

our first environmental disclosure in 2012:

56 | Strategic Report

Building a Greener Society

Metrics and Commitments

Climate change metrics and future

commitments are anchored to our

ambition to build a greener society. We

have an expectation that our metrics

will develop over time as our climate

plan is delivered. Therefore, this year’s

metrics focus on operational aspects

and non-financial ratings agency

measures, alongside a qualitative review

of the CBES climate scenario analysis.

You can view the Society’s carbon

intensity ratios per colleagues and per

£m income, in the Streamlined Energy

Carbon Report (SECR) in the

Directors’

Report

SS3/19 CBES outputs

The analysis we have completed across

all three CBES scenarios has shown

that our risks are aligned closely to the

average of the UK mortgage market,

and that we are able to deal with the

potential stresses arising from climate

risk. The proportion of our book that

has a level of physical or transitional

risk is broadly aligned to the average

of the market – we have confirmed

this through broad benchmarking

of physical risks and EPC ratings

comparing our book to the average of

the UK market.

Objectives for further improvement

The YBS climate model is a first generation model and, as such, is subject to certain limitations and areas for potential

enhancement in the future. These are summarised below:

Static balance sheet

approach

This approach does not allow for changes to product/portfolio mix. The intention is to address this in

generation 2 of the model.

Accumulating defaults Credit losses are calculated in line with CBES guidance with no accounts leaving the portfolio and default

accounts accumulating over time.

This approach leads to additional conservatism in the results.

Model complexity and

infrastructure constraints

The climate model is complex, relying on new climate data and additional climate algorithms.

Due to the resource limitations of the model machinery, expected losses have been calculated on residential

portfolios and extrapolated to the remaining accounts.

Climate data Climate data, including EPC ratings, is new and evolving and may not fully capture all the underlying physical

and transition risks.

The climate data feeding into the model is based on a defended position for flood risk, diverging from CBES

guidance requiring a reducing flood defence protection. Reducing flood defence data was not available in

time for the generation 1 climate model.

IFRS 9 expected credit losses Losses are estimated from the proportion of each account that is placed within the repossession risk grade at

the end of 30 years of transition matrices, rather than using staging and 12-month or lifetime losses per IFRS9.

Losses are therefore those crystallised over time rather than IFRS9 expected credit losses.

This is a known limitation in the existing stress testing infrastructure and is being addressed through a process

improvement project.

Vulnerable industry sectors

or regions

Physical and transition risks to employers in vulnerable industry sectors or geographic regions that would

have translated into variations across regions in probability of default were not in scope of the generation 1

model.

The approach for climate modelling is aligned to the current approach for economic stress testing, however

the intention is to enhance this analysis as more data around sector of employment is captured.

Stress Testing The current ICAAP cycle has not allowed for us to specifically include climate risks in our stress testing. We will

look to incorporate this as part of the next cycle.

| 57

Strategic Report - Building a Greener Society

Carbon reduction targets

The Society has conducted a review

of the viability of placing Science

Based Targets on the financial and

operational elements of the business

model. Whilst not being in a position

to sign the Science Based Targets

commitment, the Society wishes to

align our operational emissions to the

latest and best scientific guidance and

take the appropriate steps to reach

operational Net-Zero on Scopes 1 & 2

by 2025. Proportional steps will then

be taken to look at our Scope 3 impacts

and consider ways to align emission

reductions to the UK’s 2050 Net-Zero

goal.

The Society also performed an

additional assessment of heightened

climate risk on commercial business

and treasury activities. The exposure

review illustrated that most of the

financial elements required under

the Science Based Target framework

are not applicable to the Society’s

business model, for example we

do not engage in project finance or

business to business loans in sectors

with heightened environmental risk.

However, to ensure the Society takes

proportionate steps to reduce our

impact, we have introduced new

commercial lending controls which

confirm the economic sectors to which

the Society directly lends. You can view

our economic sector exposure below.

As discussed in the

Our Climate

Strategy

section above, a temperature

alignment review of residential

mortgages was performed, and it was

concluded the book is expected to

perform well if managed correctly

through the creation of and take

up of green mortgage propositions.

The business further reaffirmed its

commitment to helping our customers

find a place to call home and cannot

presently lend support to an initiative

that may place additional financial

and social anxieties on customers.

However, the Society still understands

it is important to reduce its scope 3

financed emissions. The Society has

committed to launching a Net-Zero

customer transition plan and will

report progress on product uptake,

amount of customer homes improved

and financed emission reductions

attributed to the plan. However, in

the short term it is likely financed

emissions will grow as the business

continues to grow its mortgage book to

deliver the

Strategic Blueprint

Commercial lending climate

risk exposure

The Society’s commercial arm does

not engage in project finance but

instead lends on commercial property

via mortgages residential property via

buy-to-let landlords. Whilst the Society

cannot completely rule out having

exposure to heightened risk climate

risk sectors, exposure to the most

environmentally damaging sectors

is minimal. In 2022 the Society will

conduct a further review of commercial

lending policies and climate risk

appetite statements.

Our carbon footprint and

further disclosure

The Society’s 2021 carbon footprint

is 2,565 tonnes of carbon dioxide

equivalent (tCO

e), this represents a

5% reduction on that in 2020. Overall,

since our first disclosure in 2012

we have delivered an overall 78%

reduction through proactive action

across our operations. This is a great

achievement; however, we understand

there is still more that we can do to

transform our carbon reporting into

a meaningful metric in managing the

effects of climate change. Over the

next 12 months, the Society will be

working to comply with the voluntary

Partnership for Carbon Accounting

Financials (PCAF) financed emission

reporting standard, and we look

forward to making a disclosure in our

2023 TCFD report. In 2023, we will also

disclose our first progress report on our

climate commitments.

58 | Strategic Report

Building a Greener Society

Scope 1

Scope 2 Scope 3 Outside of GHG Protocol scope

Direct emissions from owned

sources such as emissions from

the Society’s fuel usages.

Indirect emissions from the

generation and consumption of

purchased electricity.

All other indirect emissions that

occur in our value chain such

as emissions from using the

National Grid to power our estate.

Emissions resulting from the

combustion of bioenergy for

power and heating.

14,000

12,000

10,000

8,000

6,000

4,000

2,000

tCO

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Total Scope 1 Scope 3 Expon. (Total)Scope 2

OPERATIONAL CARBON FOOTPRINT

YEAR

Our Operational

Footprint

2012

2013 2014 2015 2016 2017 2018 2019 2020

2021

tC0

e tC0

Scope 1 1,662 1,480 1,315 1,290 1,233 1,133 1,235 1,029 1,613

1,309

Scope 2 7,868 8,076 8,439 - - - - - - -

Scope 3

2,264 2,877 3,009 2,811 2,318 2,367 1,932 1,598 1,094 1,256

Total 11,794 12,433 12,763 4,101 3,551 3,500 3,167 2,627 2,707 2,565

The Society uses the market-based methodology to report its carbon emissions however you can find our location based carbon footprint within the SECR

section of the

Directors’ Report

To set the carbon reduction benchmark, the pre-2019 carbon footprint figures have been updated to include current modelled Scope 3 data. All previously

reported carbon emissions have increased as a result of this exercise.

2020’s carbon footprint has been updated to include actuals figures rather than the estimates for final month/quarter amounts included in the 2020

disclosures.

2020 scope 1 emissions were higher due to the additional ventilation and heating requirements of making our offices and branches COVID-safe.

You can find a full breakdown of scope 3 emissions within the within the SECR section of the

Directors’ Report

. See below for the Society’s progress on

modelling scope 3 emissions.

| 59

Strategic Report - Building a Greener Society

Updating our carbon footprint

disclosures

Changes in best practice, and

enhancements in our understanding

and ability to collect data, occasionally

result in us reassessing our previously

disclosed carbon footprint metrics.

All such updates are verified by the

Society’s carbon footprint consultancy

provider, Ricardo plc, and assessed

against the requirements of IS0

14064-3 (specification with guidance

for the validation of greenhouse gas

emissions) and the GHG Protocol

Corporate Standard. The main drivers

of such changes have been:

•

As there was limited Scope 3 data

available between 2012 and 2014,

the Society assumed 2015 as the

benchmark and replicated scope

3 emissions back across 2012-

2014 for a number of emissions

categories, primarily business travel.

•

The Society has leased its company

vehicle fleet from a 3rd party since

2013 and previously attributed those

emissions to scope 1. However, it is

now our policy to allocate company

car emissions to scope 3. As such,

historic figures have been restated

to reflect this change – with the only

exception being for 2012 as the

business owned the company car

fleet throughout that reporting year.

Market-based as previously

reported

2012 2013 2014 2015 2016 2017 2018 2019 2020

tC0

e tC0

Scope 1 1,662 1,703 1,660 1,731 1,755 1,577 1,638 1,290 1,630

Scope 2 7,868 8,076 8,439 - - - - - -

Scope 3 650 730 777 941 1,011 788 655 653 738

Total 10,180 10,509 10,876 2,672 2,766 2,365 2,293 1,943 2,368

The historically reported figures for the market based carbon footprint shown above are:

Progress on Scope 3 disclosures

The Society is committed to producing high quality information that has integrity and proves useful to our stakeholders. We are

pleased to share our scope 3 disclosure gaps and pathway towards as full a scope 3 disclosure as possible by 2025.

Scope 3 category Sub-category Status

Business Travel All Externally published

Upstream transportation and distribution Transmission and distribution

Supplier delivery emissions

Externally published

Not yet started

Fuel and energy related activities All Externally published

Waste generated in operations Waste disposal

Capital project waste

End of life customer communications

Externally published

Initial understanding

Supply chain All Initial understanding

Investments and lending (financed emissions) Listed equity and bonds

Residential and commercial mortgages

Project finance/automotive industry loans

Initial understanding

Not applicable

Colleague/employee Working from home (WFH) emissions

Employee commuting

Initial understanding

Not yet started

It is understood that there are significant challenges in data collection and verification for scope 3 disclosures, particularly when

there is a heavy reliance on third party suppliers. However, the Society has put in place a plan to address these challenges and

consider ways in which to reduce scope 3 emissions is as follows:

2023: financed emissions, WFH emissions and capital project waste (property)

2024: supply chain

2025: capital project waste (IT).

60 | Strategic Report

Building a Greener Society

Managing our waste

In 2021, the Society generated 325.5 tonnes of waste, representing an annual reduction of 51.0 tonnes. Only 0.5% of our

business-generated waste was sent to landfill meaning 99.5% was either recycled or recovered. Our next steps, as discussed

above, are to begin reporting our waste derived from capital works projects.

Waste Totals – Head Office and Branch Weight Landfill diversion

Tonnes %

Landfill 1.5 0.5%

Recycling 129.0 39.6%

Recovery 183.8 56.5%

Food

11.2 3.4%

Total 325.5 100.0%

Going paperless

In 2019 the Society set a target to reduce paper consumption by 15% across the organisation and we are pleased to report

that paper use has declined by 42.4%. Emissions resulting from paper usages have also declined by 30 tCO

e. The Society

is committed to reducing material usages where possible and placing many of business activities on our internal information

systems that consume 100% renewable energy.

The Society anaerobically digests its food waste.

Year

Pages Used Change Change Emissions Change

Total Total % tCO

e %

2021 9,412,871 (2,217,216) (19.1) 38 (19.1)

2020

11,630,087 (4,706,390) (28.8) 47 (30.9)

2019

16,336,477 68

Previously disclosed figures have been updated to reflect full year actuals. The 2020 Annual Report and Accounts reported like for like year comparisons as a

full data set was not available at the time of issue.

| 61

Strategic Report - Building a Greener Society

Company Scale Rating

Trend versus

2020

Sustainalytics

Low Risk 0 to 50 High Risk 15.2 Lower risk

S&P Global 0 to 100 50 First disclosure

ISS D- to A+ C This is the 2020

rating as we were

not reviewed in

2021. Our next

review is due July

2022.

MSCI

CCC to AAA Our rating has

improved

Carbon Disclosure Project (CDP) F to A B - First disclosure

sustainalytics.com). Such information and data are proprietary of Sustainalytics and/or its third-party suppliers (Third Party Data) and are provided for

informational purposes only. They do not constitute an endorsement of any product or project, nor an investment advice and are not warranted to be

complete, timely, accurate or suitable for a particular purpose. Their use is subject to conditions available at https://www.sustainalytics.com/legal-

disclaimers.

The use by Yorkshire Building Society of any MSCI ESG RESEARCH LLC or its affiliates (“MSCI”) data, and the use of MSCI logos, trademarks, service

marks or index names herein, do not constitute a sponsorship, endorsement, recommendation, or promotion of Yorkshire Building Society by MSCI.

MSCI services and data are the property of MSCI or its information providers and are provided ‘as-is’ and without warranty. MSCI names and logos are

trademarks or service marks of MSCI.

Non-Financial Reporting

Non-financial ratings agencies consistently rate our ESG performance amongst top performers in our industry, and we have

made significant progress in 2021. Our ratings are available below.

62 | Strategic Report

Building a Greener Society

Our missions

2021 2022 2023 2025 2025 and beyond

Ensuring that

YBS continues

to manage its

operational carbon

emissions

YBS committed

to maintaining a

100% operational

energy supply and

aligning to the

principles of the

‘RE 100’ initiative

of the CDP and the

Climate Group.

YBS will target a

minimum annual

landfill diversion

rate of 97% and

will select a Net-

Zero framework to

align on scope 1

and 2 emissions.

Fully understand

operational scope 3

emissions and devise

a plan to reduce

them.

Work toward

developing

quantitative

emission targets for

operational scope 3

categories.

Achieve Net-

Zero emissions

alignment on scope

1 and 2 in our 2025

benchmark year.

YBS will ensure that

all new vehicles

acquired onto its

vehicle fleet will

be hybrid or fully

electric from 2025.

YBS will align to

the UK Government

goal of Net-Zero on

operational scope 3

emissions by 2050.

Promoting and

embedding Carbon

Literacy into the

YBS working

culture

Introduced

additional controls

within lending

policy to enable

quantitative

confirmation that

the Society does

not lend or invest

in heightened

climate risk and

environmentally

damaging sectors.

Disclose financed

emissions baseline

in the 2022

Annual Report and

Accounts.

YBS will join

the Principles

for Responsible

Banking and

measure progress

against the UN’s

SDGs.

KPIs will need

to be defined to

fully incorporate

sustainability

objectives

within executive

remuneration.

Embed climate risk

into our commercial

decision making.

Continue to evolve

and mature and

develop internal

capability.

YBS will further

improve climate

change resilience

across all

operational areas.

As we progress,

we will update

with further

commitments to

improve our scope

3 position.

Supporting

customers in

their transition

to a low-carbon

economy through

understanding

the risks and

opportunities

climate change

presents, and

providing proactive

and reactive

support

YBS commits

to ensuring our

disclosures are

aligned to the

requirements of

TCFD from 2021.

Engaging customers

around the climate

transition.

The Society

will launch our

customer net-zero

transition plan

and green product

initiatives.

We will help people

buy energy efficient

homes and we

will help people

improve their

homes to make

them more efficient.

We will extend our

proposition range in

2023.

YBS will help

customers make

better choices about

the environment

through proactive

and reactive

communications.

Continue to evolve

and mature.

A consideration

that our purpose

to provide Real

Help with Real

Life should remain

the priority and

our climate

commitments

should not affect

our intention of

helping customers

into homes.

Our Commitments

Plan on a page

We are committed to embedding high environmental standards into all business and financial operations to support our

purpose. Further metrics will be developed, and progress will be reported against them.

Our top 10 climate commitments

1. Achieve net-zero scope 1 and scope 2

emissions by 2025 and net-zero scope 3

operational emissions by 2050.

2. Maintain a 100% renewable operational

energy supply in line with RE100

requirements. The Society will move

towards non-burning green energy

and install heat pump systems in all

properties where this is feasible.

3. Add only hybrid or electric vehicles to our

fleet from 2025 and working towards a

full electric fleet as soon as operationally

possible.

4. Improve climate change resilience across

all areas.

5. Target and maintain a minimum annual

landfill diversion rate of 97%.

6. Implement further policies to prevent

lending or investing in economic sectors

that have a heightened climate risk and/

or are environmentally damaging.

7. Launch a customer net-zero transition

plan, increase understanding of our

financed emissions and support our

customers with their net-zero transition.

8. Support customers to make better

environmental choices by helping them

understand climate change and how it

impacts housing.

9. Launch a member-focused net-zero

transition plan, which will include green

savings product initiatives.

10. Continue to align our TCFD with best

practice and create a platform on the

Society’s website to showcase our

progress and future plans on climate

thinking.

| 63

Strategic Report - Building a Greener Society

Our Board of Directors is responsible

for the overall management of the

Society on the behalf of our members,

who vote to elect all Directors to the

Board at the Annual General Meeting

(AGM). More information on the role

of the Board can be found in the

Corporate Governance Report

At the date of this report, the Board

is made up of eleven Directors: eight

Non-Executive Directors, including

our Chair John Heaps, who are

independent and not employed by the

Society and three Executive Directors

who work for the Society full time,

including our interim Chief Executive,

Stephen White. We also have an

Executive Team which is responsible

for managing the Society and is made

up of our Executive Directors and our

Chief Officers.

Our Board members and Executive

Team bring a diverse set of skills and

experience, which is key to running a

major financial services organisation.

Committee

Membership Key:

Audit Committee

Board Governance and

Nominations Committee

Group Risk Committee

Remuneration Committee

GRC

BGNC

Our

Leadership

Team

64 | Governance

Background and career

Alison started her career at IBM,

progressing to the role of Global Director

of Online Financial Services. She joined

Barclays Bank in 2000 holding a number

of senior management positions. Alison

moved to specialist mortgage provider

Kensington Group plc in 2004 as

Managing Director and then Group Chief

Executive, leading the successful sale

of the business to Investec in 2008. She

left Investec in 2008 and launched The

Pennies Foundation, a registered charity

which supports digital donations to good

causes. She has been the Chief Executive

of the Foundation since 2009. Over the

last 10 years Alison has also developed a

portfolio of non-executive positions.

Skills and experience

Alison has a strong background in

technology and financial services as

well as extensive experience in the retail

financial services sector. She has more

than 30 years of management and Board

level experience. Alison was awarded a

CBE in 2016 for services to the economy

and charities.

Other roles

Chief Executive of The Pennies

Foundation and a Non-Executive Director

of Liverpool Victoria Friendly Society and

the Senior Independent Director of DFS

Furniture plc.

Joined our Board in 2015 and became Vice

Chair and Senior Independent Director in

October 2020.

Alison Hutchinson BSc, CBE

SENIOR INDEPENDENT NON-

EXECUTIVE DIRECTOR, VICE CHAIR

AND NON-EXECUTIVE DIRECTOR FOR

WORKFORCE ENGAGEMENT

RC BGNCGRC

Background and career

A qualified lawyer, John worked in

the legal profession for 40 years and

joined the senior management team

of corporate law firm Eversheds in

1999. He was appointed Chairman of

Eversheds in 2010 for a four-year term

and retired from the law firm in 2015.

Skills and experience

John has extensive commercial and

legal experience in his leadership

role in shaping Eversheds’ long-

term strategy as it grew into a major

international law firm. In the last

few years, he has contributed to the

development and success of both the

Society as well as the various financial

bodies of which he has been a member.

Other roles

Member of the board of The CityUK and

also of its Audit and Risk Committee.

Member of the Audit and Constitutional

and Governance Committee of the

International Bar Association.

Member of the Advisory Board of the

International Business and Diplomatic

Exchange.

John Heaps LLB

CHAIR OF THE BOARD

Joined our Board in 2014 as

Chairman Designate and became

Chair of the Board in 2015.

Non-Executive DirectorsChair of the Board

BGNC

Background and career

Neeta began her career at the Bank

of England, including roles in its

banking department and supervisory

function. She joined the Financial

Services Authority (FSA) when it was

created; leaving in 2000 to move into

consulting, working with a range of

financial services clients. Following

this, Neeta held senior positions in

the financial services sector, including

Chief Risk Officer at TSB until the end of

2016 where she was a member of the

executive team that created and listed

the bank on the London Stock Exchange.

Skills and experience

Neeta has over 30 years’ experience

working in financial services, both in

the private and public sectors across

a range of risk areas, including credit,

operational, financial crime and

regulatory risks.

Other roles

Senior Independent Director and Chair

of the Risk Committee for the British

Business Bank plc and Non-Executive

Director and Chair of Risk Committees of

Nomura Europe Holdings plc and other

group companies. Neeta has also been a

magistrate for over 20 years. Neeta was

awarded an MBE in 2020 for services to

Small Business Finance.

Neeta Atkar MBE BSc (Joint Hons)

INDEPENDENT

NON-EXECUTIVE DIRECTOR

Joined our Board in 2017.

ACGRC

Chair

| 65

Governance - Our Leadership Team

Background and career

Guy worked in the audit profession

for 36 years with KPMG, including 24

as a partner. He was also a member

of KPMG’s UK Board for seven years

and its European Board for five years.

He was the Lead Audit Partner for a

number of banking clients including

Barclays, ING and HSBC.

Skills and experience

Guy is a banking expert and brings

recent and relevant experience

of the UK banking sector. He has

comprehensive knowledge of the

regulatory environment in which we

operate.

Other roles

Non-Executive Director and Chair

of the Audit Committee at ICE Clear

Europe Ltd and a Non-Executive

Director, Chair of the Audit Committee

and a member of the Corporate

Governance and Nominating

Committee at Manulife Financial

Corporation.

Guy Bainbridge MA (Cantab), ACA

INDEPENDENT

NON-EXECUTIVE DIRECTOR

Joined our Board in 2019.

AC GRC

Background and career

Dina began her career in strategy and

technology consulting prior to joining

HSBC/Midland Bank in London. She

subsequently worked with UBS,

British Telecom and ING Bank in

a transformation capacity across

their retail, corporate and wholesale

segments. More recently, Dina joined

the European Bank for Reconstruction

and Development in October 2021

as the Vice President and Chief

Transformation Officer overseeing

the Bank’s digital transformation and

its planned move to a new London

Headquarters in the autumn of 2022.

Skills and experience

Dina is an engineer and economist

and has over 30 years’ experience

in transformation, operations and

technological innovation working

across industries both in Europe and

the US.

Other roles

Director of Cambridge Digital Health

Ltd.

Joined our Board in April 2021.

Dina Matta BSc, BA (Hons)

INDEPENDENT

NON-EXECUTIVE DIRECTOR

Non-Executive Directors

Background and career

Guy was a director of Accor UK,

responsible for sales, marketing and

operations for the Novotel hotel chain.

He has also held director positions at

Whitbread Plc as Sales and Marketing

Director for the hotel division and as

Managing Director for TGI Fridays. In

2004 he joined Travelodge, becoming

Chief Executive in 2010 and successfully

growing the business to over 500 hotels

in the UK, Ireland and Spain. Between

August 2015 and 2019, Guy was Chief

Executive at easyHotel plc. The business

more than doubled in size and raised

finance to build hotels across Europe

during his tenure.

Skills and experience

Guy has more than 25 years’

experience of director level roles in

the leisure and hospitality industry.

Other roles

Chair of Snug Shack and Non-Executive

Director of nuUnlimited Ltd.

Guy is due to stand down as a Non-

Executive Director at the Annual

General Meeting in April 2022.

Guy Parsons BA

INDEPENDENT

NON-EXECUTIVE DIRECTOR

Joined our Board in 2013.

RC RC BGNC

Chair

66 | Governance

Our Leadership Team

Background and career

Mark was Chief Executive of Coventry

Building Society from 2014 until his

retirement in April 2020. Mark has

significant experience working within

retail financial services including roles

at Barclays and Abbey National, as well

as time at PricewaterhouseCoopers.

At Barclays he was the Chief Financial

Officer for Retail and Business Banking

and also served as the Deputy Chief

Executive of Barclays UK Retail Bank.

Skills and experience

Mark has over 35 years’ experience in

financial services and has a range of

executive experience across finance,

human resources, product, retail

management, risk management and

investor relations.

Other roles

Non-Executive Director of Fairstone

Capital Group Ltd.

Joined our Board in 2020.

Mark Parsons BA, FCMA

INDEPENDENT

NON-EXECUTIVE DIRECTOR

ACGRC

Background and career

Jennelle spent over 17 years working

for Yum! Restaurants International

in a variety of senior marketing roles

– culminating in her serving as the

Global Chief Marketing Officer for KFC,

responsible for the company’s marketing,

communications, innovation, digital

presence and reputation in over 125

countries. Jennelle is the Founder and

Chief Brand Strategist at London-based

brand consultancy Marketing with

Insight.

Skills and experience

Jennelle has over 25 years’ consumer

marketing, digital and innovation

experience with leading global FMCG

and food retail brands.

Other roles

Non-Executive Director of Shaftesbury

Plc and Camelot and Trustee for The

Guide Dogs for the Blind Association.

Jennelle Tilling B.Bus, BA

INDEPENDENT

NON-EXECUTIVE DIRECTOR

Joined our Board in November 2021.

Non-Executive Directors

Executive Directors

Stephen White BComm

INTERIM CHIEF EXECUTIVE

Background and career

Stephen started his career with

Abbey National and subsequently

gained experience in management

roles at both Abbey National and

later Ernst & Young. He was also

an Executive General Manager at

National Australia Bank looking

after Payments and Customer

Operations. Before working at YBS

he was Group Chief Operating

Officer at Allied Irish Bank.

Skills and experience

Stephen has over 25 years’

experience in financial services

and has worked internationally

at a senior level, including

significant time in Australia, Asia,

Ireland and the UK.

Joined our Board in 2016 and

appointed Interim Chief Executive in

November 2021.

| 67

Governance - Our Leadership Team

David Morris BA, MA

CHIEF COMMERCIAL OFFICER

Background and career

David began his career at Citigroup

and has subsequently worked

at various Financial Services

institutions across the UK and

abroad. Prior to joining YBS,

David was the Head of Products

at Coventry Building Society. He

is responsible for the innovation,

development and ongoing

management of the Society’s

mortgages and savings products,

YBS’s marketing and its digital

channels, mortgage distribution

and the Society’s branch network.

David is also responsible for our

Commercial Lending business and is

Chair of Accord Mortgages Ltd.

Skills and experience

David has over 15 years’

experience in retail banking

and has a strong track record of

driving commercial performance

in financial services organisations,

including the mutual sector.

He is also a director of Accord

Mortgages Limited.

Joined the Society in 2018 and was

appointed to the Board in January 2022.

Chief Officers

Orlagh Hunt BA, FCIPD

CHIEF PEOPLE OFFICER

Background and career

Orlagh is an experienced human

resources professional who has held

senior roles across a range of industries

including fast-moving consumer goods

and retail, as well as having significant

experience in financial services. Orlagh

is responsible for the People Division

including reward, recognition, training

and development, diversity and

inclusion, internal communications and

social purpose and sustainability.

Skills and experience

Orlagh was previously Head of

Human Resources for AXA Sunlife,

Group Human Resources Director for

FTSE-100 insurer Royal Sun Alliance

as well as Group Human Resources

Director for AIB in Dublin.

Joined the Society in 2019.

Background and career

Alasdair began his career on the

management training programme at

Mars Inc. where he spent a number of

years working in sales, before deciding

to move into finance. Since then, he’s

gained significant experience in the

financial services sector, including as

Finance Director of Retail Products for

Lloyds Banking Group and Group Chief

Finance Officer for BGL Group (owners

of comparethemarket).

Skills and experience

Alasdair has a strong finance

background of over 20 years

including previous experience as a

Chief Finance Officer. Alasdair has

also been a Non-Executive Director

and Audit Committee Chair for both

Sainsbury’s Bank and Coventry

Building Society.

Alasdair Lenman MA, ACMA

CHIEF FINANCE OFFICER

Joined our Board in 2017.

Executive Directors

68 | Governance

Our Leadership Team

Richard Wells FCIB

CHIEF RISK OFFICER

Background and career

Richard has held a number of senior

risk management roles at several of

the UK’s major banks and building

societies. He is responsible for

ensuring that there are appropriate

procedures and capability for the

management of all risks whether

planned or unplanned. In addition

to Risk, he is also responsible for the

Legal, Compliance and Secretariat

functions as well as regulatory

relationships.

Skills and experience

Richard has extensive experience

of risk management within the

financial services industry across a

wide enterprise of risks including

Prudential, Operational and Conduct

Risks. He is also a director of Accord

Mortgages Limited.

Joined the Society in 2010.

| 69

Governance - Our Leadership Team

A WORD FROM THE CHAIR

OF OUR BOARD

I am pleased to present our

Corporate Governance Report for

2021, which sets out the role of the

Board and its Committees, along

with their key activities.

This year has once again been one

of uncertainty as a result of the

impact of the ongoing COVID-19

pandemic. We have continued to

ensure we have a robust governance

framework in place to manage the

challenges created by the pandemic

as well as support the needs of

our key stakeholders and delivery

of our strategy and our purpose of

providing

Real Help with Real Life

Corporate

Governance

Report

70 | Governance

Our approach to Corporate

Governance

Corporate governance is the framework

of rules, practices and processes used

to direct and manage the Society and

our approach is based on the principles

and provisions of the UK Corporate

Governance Code (the Code) published

by the Financial Reporting Council,

which we aim to comply with where

it applies to a building society as we

believe this is in the best interests

of all of our stakeholders. This report

sets out how we have done this during

2021.

For the 2021 financial year we have

applied the Principles and complied

with the Provisions of the Code

published in July 2018 (available

on the Financial Reporting Council’s

website frc.org.uk) as far as they apply

to building societies (as set out in the

Building Societies Association (BSA)

Guidance available at bsa.org.uk).

As a mutual organisation we do not

have shares or shareholders therefore

references to long-term shareholdings

in relation to remuneration (Provision

36) do not apply. We do, however, seek

to apply the provisions of the Code that

reference shareholders as appropriate

to our members and in accordance with

the BSA’s guidance.

Our commitment to operate to this

standard helps to ensure the long-

term success and a sustainable future

for the Society and for the benefit

of our current and future members,

customers, colleagues and all other

stakeholders.

Environment, Social and

Governance

We are a purpose-led building society

focused on providing

Real Help with

Real Life

. This also means driving

positive social and environmental

outcomes through our strategy

supported by a robust governance

framework.

Throughout 2021 the Board has

been overseeing a programme of

work to address climate risk, which

has included sessions provided by

external facilitators to ensure a wide

perspective has been gained as we

continue to develop and build on our

knowledge base in this area. Strong,

Board-level sponsorship and oversight

of our management of climate risk will

continue in 2022.

In December 2021 the Board also

agreed the key priorities for its

Environment Social Governance

(ESG) Strategy going forward which

will enable it to monitor progress

and support effective and efficient

engagement with our stakeholders.

Further details in relation to our

approach and commitments can

be found in the

Our Stakeholders

section of

Our Purpose, Strategy and

Stakeholders

in the

Strategic Report

Our Stakeholders

The global nature of the COVID-19

pandemic has meant that all

stakeholders have been impacted

either directly or indirectly in some

way and we have remained consistent

throughout in our commitment to

protecting the wellbeing of our

colleagues and customers, whilst

supporting our key stakeholders by

providing the very best service we can.

We are committed to ensuring strong

engagement with colleagues remains

in place and, despite the impact of

the pandemic, during 2021 we have

continued to operate our Colleague

Forum through a virtual based

approach to ensure that we have

access to feedback from our colleagues

to inform decision making around key

issues such as the future of work, the

future of retail strategy and of course

our ongoing response to the pandemic.

Further details of the Board’s

engagement with our colleagues is

provided on the

Colleagues

section

Our Customers, Colleagues and

Communities

in the

Strategic Report

We recognise the importance of

ensuring that the views of our members

and customers are part of Board

decision making and have worked to

ensure this has continued to be the

case during 2021 despite the impact of

the pandemic limiting the options for

face to face contact. All Board members

have a duty to act in best interests

of our members and, as part of our

commitment to this, we have appointed

a Non-Executive Director, Mark Parsons,

as a Member Champion to support the

continued prominence of our members’

voice in discussions.

Changes to the Board in 2021

In November 2021 we announced

that our Chief Executive, Mike Regnier,

would be leaving the Society to take up

a new role and I was pleased to confirm

that Stephen White who was our Chief

Operating Officer was appointed as

Interim Chief Executive Officer with

effect from 29 November 2021. I would

like to thank Mike for his outstanding

contribution to the Society over the

last seven years, leading the Society

superbly through a period of significant

challenge as we addressed both the

transformation to a more digitised

world and the complexities of the

COVID-19 pandemic.

I am pleased that Stephen White

has taken over as Interim Chief

Executive Officer, pending a decision

on the permanent Chief Executive

appointment, and will ensure ongoing

stability as we continue to help real

life happen for our members and build

on the Society’s success of over 155

years. Following a review of Board

composition by the Board Governance

and Nominations Committee, the Board

agreed to appoint a new Executive

Director to strengthen the skills and

experience on the Board. David Morris,

who is the Society’s Chief Commercial

Officer, was appointed with effect from

1 January 2022, subject to regulatory

approval, and brings his experience

in retail banking, in particular in the

mutual sector, to the Board.

There has continued to be a significant

focus on Non-Executive Director

succession planning for our Board

during 2021 to ensure it remains

effective now and in the future. As

a result of those succession plans,

I would like to update you on the

following changes to our Board during

the year:

•

Gordon Ireland stepped down from

the Board at the Annual General

Meeting (‘AGM’) on 27 April 2021.

I would like to thank Gordon for

his outstanding contribution to the

Society’s success and wish him well

for the future.

•

Dina Matta joined the Society on

27 April 2021 as a Non-Executive

Director and member of our

Remuneration Committee. Dina’s

depth and breadth of experience

in relation to transformation and

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technological innovation across

a range of industries, alongside

her wider skillset, will further

strengthen our Board.

•

Jennelle Tilling joined the

Society on 1 November 2021

as a Non-Executive Director and

has also become a member of

our Remuneration Committee.

Jennelle brings a range of skills to

the Board including remuneration

committee experience, marketing,

communications, innovation, digital

and reputation from across a range

of lead brands and will further

strengthen our Board as part of our

ongoing succession planning.

•

Non-Executive Director Guy Parsons

is due to retire from the Board at

the conclusion of the 2022 AGM. I

would like to take this opportunity

to thank Guy for his support and

for his outstanding contribution to

the Board and as the Chair of the

Remuneration Committee.

External Board Evaluation

As we reported in last year’s Annual

Report and Accounts, an external

effectiveness review of the Board

and its Committees was completed

by Halex Consulting in late 2020. As

a result, during 2021 the Board has

worked to develop and implement an

action plan taking into account the

outcomes of the review and other key

activities.

Further details can be found on page

83, together with an update on the

Board and Committee effectiveness

review process completed in 2021.

What are the Board’s priorities

for 2022?

During 2022 as well as ensuring an

ongoing focus and commitment to

delivering our Strategy, we will be

working to appoint a permanent

successor to the Chief Executive

role to lead the Society forward in

the next phase of its delivery. We

will also continue to engage with

and encourage participation from

our stakeholders and focus on key

issues including climate as part of

our ongoing work in relation to ESG

matters.

We will also be working through

the outcomes of the Department

for Business Energy and Industrial

Strategy (BEIS) consultation in

relation to Restoring Trust in Audit

and Corporate Governance once

they are published and will ensure

that any requirements or relevant

areas of good practice identified

are implemented by the Society as

appropriate.

John Heaps

Chair of the Board

72 | Governance

Corporate Governance Report

The Board and each of its Committees have terms of reference which set out their roles and responsibilities.

You can find the terms of reference of the Board, Remuneration, Audit, Group Risk and Board Governance and Nominations

Committees on our website at ybs.co.uk/board.

Board Leadership and Company Purpose

BOARD

Chair - John Heaps

Collectively responsible for the long term

success of the Society.

BOARD COMMITTEES

The Board delegates certain matters to Board Committees so that they

can be considered in more detail by those directors who have the most

relevant skills and experience to do so.

MANAGEMENT COMMITTEES

CHAIR'S

COMMITTEE

Chair: John Heaps

Considers ad hoc

matters specifically

delegated to it by the

Board.

Members are the Chair of

the Board, Vice Chair and

Chief Executive or any

other Director appointed

by the Board.

GROUP RISK

COMMITTEE

Chair: Neeta Atkar

Oversees Prudential

Risk, Operational Risk

and Conduct Risk

Strategy, Appetite and

Oversight.

See

Risk Management

Report

for more

details.

EXECUTIVE COMMITTEE

(EXCO)

Chair: Stephen White,

Interim Chief Executive

Oversees and directs the

management of all aspects of the

Society with delegated authority

from the Board. All Chief Officers

are members.

AUDIT

COMMITTEE

Chair: Guy Bainbridge

Reports to the Board

on financial reporting,

internal controls and risk

management systems,

Internal Audit and

External Audit.

See

Audit Committee

Report

for more details.

EXECUTIVE RISK COMMITTEE

(ERC)

Chair: Richard Wells,

Chief Risk Officer

Oversees day to day risk

management activity with

delegated authority from the

Group Risk Committee.

See

Risk Management Report

for more details.

REMUNERATION

COMMITTEE

Chair: Guy Parsons

Oversees the

development and

implementation of the

Remuneration Policy

for all colleagues.

See

Directors’

Remuneration Report

for more details.

BOARD GOVERNANCE

AND NOMINATIONS

COMMITTEE

Chair: John Heaps

Oversees Board

governance, including

composition, succession

and appointment

processes for the Board.

See Board

Governance

and Nominations

Committee Report

for

more details.

OUR BOARD AND COMMITTEE STRUCTURE

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Board’s Responsibilities

The Board is accountable to our members and its role and responsibilities are set out in

its Terms of Reference. These include:

Approval of

strategy and

setting of

Corporate Funding

Plan

BOARD

RESPONSIBILITIES

Review and

oversight of

performance

Overall

management of

Society within

a framework of

risk management

(including approval

of risk appetite)

Acting in the

best interests of

members

Continuous

development of

culture

Maintenance of

a sustainable

business model

Oversight of

the Society's

operations

The Board retains

certain key matters

for its own approval

which it does not

delegate to any of its

committees or any

individual.

These are set out in a

Schedule of Matters

Reserved which can be

found on our website

at ybs.co.uk/board.

The Board has collective

responsibility for the Society's long

term sustainability

Climate and

Environmental

Governance

In line with the Prudential

Regulation Authority

(PRA) expectations

(SS3/19) and our

commitment to aligning

our operations to Task

Force on Climate Related

Financial Disclosures

(TCFD) principles, the

Society has created

a robust governance

process for environment

and climate change. The

diagram on the right

illustrates our climate

governance structure.

You can read more about

our climate governance

in the

Building a Greener

Society

section of the

Strategic Report

YBS Board

Ultimate accountability for financial risks of climate

change and associated responsibilities.

Regular training and updates are provided to support

oversight

Group Risk Committee

Climate Risk Oversight,

including risk appetite

Executive Risk

Committee

Management of the governance

framework for the climate risk

agenda

Audit Committee

Non-financial disclosures in

relation to environment, social and

governance agenda

Executive Committee

Oversight of implementation

of environmental strategy and

approval of climate risk matters for

recommendation to the Board

The Board is supported in its role where appropriate by its

Committees and the Society's Management Committee, including:

Assets and Liability

Committee

Focus on financial risks arising

from climate change

74 | Governance

Corporate Governance Report

Setting our purpose and generating long term success

The Board is committed

to delivering our

purpose of providing

Real Help with Real

Life

as well as creating

long-term value for our

stakeholders through

good governance and

keeps the Society’s

purpose and long-term

success under review.

Relationship with the

executive and senior

leadership teams

Maintaining ongoing discussions and two-way feedback, including

an up to date understanding of industry trends and the internal

environment, are key to the Board’s ability to ensure the Society’s

long-term success.

Strong and robust

governance structure

A strong governance structure supports quicker and more

effective decision making which is in line with the Society’s

purpose and Strategy.

Good quality reporting The quality of information provided to the Board ensures it is able

to make informed decisions which can improve value creation and

reduce costs, this includes details of any impact on stakeholders,

the wider community and the environment.

Compliance Good corporate governance ensures that we meet legal and

regulatory requirements and avoid any consequences of not

doing so.

Brand and reputation A clear and effective framework of corporate governance provides

confidence to our stakeholders, supporting a positive brand

reputation.

Risk Management Ensuring continuous identification and review of principal

business risks and how those risks could affect the Society’s

purpose and long-term success, taking into account the agreed

risk appetite.

It is supported in this through:

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Governance - Corporate Governance Report

Board Activities in 2021

Our Board’s activities during the year are based around an annual cycle to make sure it meets its responsibilities and

oversees overall management of our operations.

The key matters considered by the Board are planned on a rolling 12 month basis with additional items included through the

year as appropriate.

At each meeting

the Board receives:

During 2021 Board agendas have also included the following

key topics at scheduled meetings in the year:

•

Approval of the Annual

Report and Accounts,

Half-Yearly Financial

Report, and Pillar 3

disclosures

•

Approval of key

policies, including

Conflicts of Interest

Policy for Directors and

Chief Officers

•

Approval of the

Board Diversity

Statement (on the

recommendation of

the Board Governance

and Nominations

Committee)

•

Approval and ongoing

review of the Board

Effectiveness Action

Plan

•

Climate Change

•

Cyber Security

•

Data Protection Officer

Annual Report

•

Environmental Social

and Governance,

including Community

Investment

•

Future Ways of

Working proposals

•

Inside Information and

Disclosure Policy

•

Internal Capital

Adequacy Assessment

(ICAAP) Process and

Scenarios

•

Internal Liquidity

Adequacy Assessment

Process (ILAAP)

•

IT Strategy

•

Member engagement,

including member

value, customer insight

and representation

of member/customer

voice in the Boardroom

•

Minutes of Accord

Board meetings and

bi-annual governance

update

•

Modern Slavery Act

Statement

•

Money Laundering

Report Officer’s Annual

Report

•

Operating Plan

•

Operational Resilience

•

Quarterly Change

Portfolio

•

Quarterly Chief

Risk Officer Report,

approval of Risk

Appetite and ongoing

monitoring of

adherence

•

Regulatory matters,

including Senior

Managers and

Certification Regime

and the annual

Prudential Regulation

Authority letter

•

Strategy including

retail network, market

developments, digital

and marketing

•

Whistleblowing Annual

Report (including

Policy)

•

Workforce engagement

•

Strategy and Economic Model

•

People Plan

•

Transformation Plan and Change

Programme

•

Customer Services Strategy

•

Lending Initiative

•

Future growth

•

Report of the Chair of

the Board

•

Member, Market and

Competitor Update

•

Chief Executive’s

Report including an

update on key issues

•

Comprehensive

management

information including

financial and non-

financial

•

Updates from and

minutes of Board

Committee meetings

and Executive

Committee meeting

minutes.

The Board also holds two separate strategy sessions each year which have covered the following topics:

76 | Governance

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Members / Customers

For further details see the

Our Member section below

Others

Including Investors, Regulators,

Partners (such as brokers, agency

proprietors, trade unions, industry

bodies) and communities

Colleagues

For further details see the

Colleagues section of the

Strategic Report

•

‘Member Voice’ Champion

•

My Voice Online Member Forum

•

Board Performance Information

•

Annual General Meeting

•

Customer Voice Programme and

NPS tracking

•

Your Time to Talk Events

•

Branch visits

•

Brand Tracker

•

Analysis of profile and behaviour

of YBS customer segments

•

Ad hoc insight such as

commissioned research

•

All Board papers set out any

impacts or areas to consider

in relation to the Society’s

stakeholders

•

Updates in relation to

regulatory matters

•

Responses to consultations

•

Membership of industry bodies

and involvement in industry

conferences and forums

•

Regular updates in relation to

key stakeholder activities, such

as in relation to our community

interest strategy and resilience

of key suppliers

•

Feedback from trade unions

(through the Remuneration

Committee)

•

Board Performance Information

•

Designated Non-

Executive Director for

Workforce Engagement

•

Regular Board updates

in relation to colleague

engagement

•

Colleague Forum

•

Colleague Listening

Groups

•

Board Performance

Information

•

Engagement surveys

•

Operational site visits,

including branches

Our Board’s Engagement With Stakeholders

A strong relationship between the Board and its stakeholders helps to drive the achievement of the Society’s purpose

and priorities. It is important that our Board understands the areas of interest or concern for our key stakeholders

when it makes decisions and to support this each report to the Board includes where appropriate details of any

consultation undertaken with stakeholders together with details of the impact or potential impact of a decision on

these stakeholders.

Our Board engages with and obtains the views of its key stakeholders in a variety of ways, including (but not

limited to):

For more details on how the wider Society engages with its key stakeholders see the

Our Stakeholders

section of

Our

Purpose, Strategy and Stakeholders

in the

Strategic Report

Our members and customers

As a mutual we have no external

shareholders – we are owned

by our members and we are

committed to ensuring the Society

is run effectively on their behalf.

We encourage feedback from them

and our customers on any aspect of

our activities and use this feedback

to inform the Board’s decisions. In

2021 the Board agreed to establish a

Member Champion role on the Board

to ensure the continued prominence

of our members voice in discussions. It

will not, however, be the sole member

voice on the Board as all directors

have a duty to act in the best interests

of our members. The role will initially

be held by Mark Parsons one of our

independent Non-Executive Directors.

The Board and Leadership Team has

access to a wide range of member

insight which is used to support and

inform decision making. This includes

both routine and tracking activity

a summary of which is set out in

the Our Board’s engagement with

stakeholder’s section above. Where

commissioned by YBS, the approach

is designed to reflect a cross section

of our customers and the Society’s

products, including demographics and

geographic locations.

The ability of Board members and

particularly Non-Executive Directors

to experience day to day interactions

with our members and customers

has been severely impacted by

the COVID-19 pandemic. The

Board recognises the contribution

these visits make to the continued

understanding of what is most

important to our customers and is

committed to restarting visits to key

areas of the Society’s operations as

subject to COVID-19 restrictions

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Governance - Corporate Governance Report

soon as it is safe to do so in 2022,

including YBS branches and our

call centre. Further updates will be

provided in the Annual Report and

Accounts for 2022.

Our members and the Annual

General Meeting

We hold an Annual General Meeting

(AGM) to present to our members

details of how we performed during

the previous year, our plans for the

future and, where circumstances

allow, to give them an opportunity to

ask questions and provide feedback.

Due to the ongoing challenges arising

from the COVID-19 pandemic during

the year, the AGM for 2021 was

held at 2.30 pm on 27 April 2021

at the Society’s office at Yorkshire

House, Yorkshire Drive, Bradford.

We are legally obliged to hold an

AGM as a building society and we

have to start planning this months in

advance to ensure we meet the legal

requirements to send information well

ahead of the meeting. Throughout

the pandemic our priority has been

to protect the wellbeing and safety

of our members and colleagues,

therefore, when planning the 2021

AGM, and as a result of the ongoing

impact of the pandemic at that time,

we made the early, but difficult,

decision that members would not be

able to attend the meeting.

For the AGM to be a valid meeting

we asked Society colleagues who

were already working at Head Office

and were members of the Society,

together with any directors in

attendance, to help us comply with

the meeting requirements in our Rules

on the minimum number of attendees.

Our colleagues and directors followed

the latest government guidance in

place at the time.

Despite the circumstances, it

remained important that our members

were able to have their say at the

AGM even though they were unable to

attend in person. As such, we strongly

encouraged all our eligible members

to exercise their voting rights either

through voting online or returning

their postal vote. In addition, as we

were unable to hold a question and

answer session for our members at

the meeting, members called, emailed

or wrote in with their questions and

responses were issued in a timely

manner. We also ensured that our

members were able to watch the

meeting online from the comfort and

safety of their own home the following

day, with the recording available until

the end of May 2021.

The Code expects that if there is a vote

of 20 per cent or more against any

resolution put forward by our Board

at the AGM, we should give details

of how we will consult our members

to understand the reason why. The

Society has a process in place if this

happens. There were no votes of 20

per cent or more against any of the

resolutions our Board put forward at

the 2021 AGM.

Our colleagues

The Board is committed to ensuring

that there is effective engagement

with our colleagues and that their

views are considered in decision

making. Alison Hutchinson has held

the role of Non-Executive Director for

Workforce Engagement since 2019.

A key part of our engagement

framework is the quarterly

Colleague Forum that has colleague

representation from across the society

and the Workforce Engagement NED

attends. Colleague Forum is designed

to discuss feedback from colleagues

on specific Board topics and to enable

unstructured discussion to capture

other colleague concerns or thoughts.

The Non-Executive Director for

Workforce Engagement feeds back to

the Board after each meeting.

The Colleague Forum has continued

to operate throughout the pandemic,

successfully moving to a virtual

based approach, with colleagues

still able to actively participate and

share views. By aligning the rolling

agenda of the Forum with Executive

Committee and Board agendas where

possible, this has ensured colleague

feedback has been used as input

to inform key topics of interest or

development for the Society. These

include the Future of Work, the Future

of Retail Strategy, development of our

Leadership Framework, challenging

our Inclusion and Diversity ambition

and plan, testing how our strategy

and behaviours are landing with

colleagues, as well as our ongoing

response to COVID-19.

Attendees are well prepared for

forums, enthusiastic, passionate

and bringing substantial amounts of

quality feedback from their areas.

Colleague feedback continues to be

strong and confirms we are creating an

open and trusting environment.

A very visible example where

colleagues have seen their feedback

come to life, that will influence

organisation success in the long

term is in the development of

our Leadership Framework. Three

interactive sessions in July saw

the CEO jointly lead out the newly

developed Leadership Expectations

with two of the working group

members to c350 leaders. This

underpin to the success of our

Strategy was developed by leaders,

for our leaders and was received very

positively.

Following our Colleague Forum

discussion on the Inclusion and

Diversity agenda the conversation

led us to consider the diversity of the

Colleague Forum itself. Whilst it was

good, we identified an opportunity

to reach out and seek engagement

from our Colleague Networks

(Women, LGBTQ+, Disability, Ethnicity

and Parents and Carers). This was

successfully piloted for one meeting

during the year with an agreed plan

going forward for alignment, enabling

the maximum diversity of input from

colleagues to inform Board thinking

and decisions.

Board papers are structured to

ensure they include how they

have taken colleagues’ views into

account to inform decisions and

recommendations. The Board also

receives an annual assessment and

update on the framework for colleague

engagement.

The Board recognises the importance

of colleagues having the opportunity

to engage with other Board members

in addition to the structure provided

by the Non-Executive Director for

Workforce Engagement and the

Colleague Forum. Board listening

sessions were held in January and

July 2021 enabling a wider number

of our Board to hear directly from the

65 colleagues attending, on these and

other topics, including their day-to-

day challenges, and what they need to

deliver for our customers. As outlined

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Examples of colleague

comments include:

"Most recently, we were asked

for views around the ‘Future

Ways of Working’– a very topical

subject for many colleagues

across the business. The

request for feedback focused on

reflections from the previous 12

months, and what’s important

that we keep hold of as the

project progresses – all of this

has been fed into the ‘Future of

Work’ project."

"the feedback feels like it is

gratefully received, listened

to and considered by our

Board Representative, Alison

Hutchinson as well as the Senior

Leaders in the room."

"The informal nature of the

session allowed for open and

honest debate and discussion."

in the Colleague Section, we have

also continued to engage with our

colleagues through Reward Listening

Groups, People Leader calls and

through the colleague survey tool

with questions tailored to feedback

to support during the COVID-19

pandemic and follow up measures.

Our culture

As part of the Society’s

Strategic

Blueprint

launched in 2020, we

developed a set of behaviours

which are an important driver of the

Society’s culture:

•

We care about people

•

We say it straight

•

We reach for better

•

We make it happen

The Blueprint includes our People

Ambition for 2024 to ‘be a high-

performance organisation where

people are clear on what’s expected of

them and accountable for delivering

it, and with great leaders who inspire

their people to achieve more than they

ever thought they could’.

Our Board is key in overseeing and

monitoring the development of our

culture as part of the wider Blueprint.

Whistleblowing

We are committed to making sure

that anyone, including our colleagues,

can be confident that any concerns

raised with us will be taken seriously

and treated as confidential. Nobody

will be the subject of victimisation,

subsequent discrimination or

disadvantage for reporting their

concerns, whatever the outcome.

We have clear processes in our

Whistleblowing Policy which is

approved by our Board annually. Our

Board also oversees how the policy

works. The Society’s Whistleblowing

Champion is Alison Hutchinson, Senior

Independent Director and Vice Chair.

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Director Responsibilities

Non-Executive Directors

John Heaps (Chair) • Leadership of the Board

• Ensures the Board acts effectively, promoting high standards of corporate governance

• Leads annual review of the performance of the Board, its committees and directors

• Identifies ongoing development needs of the Board

• Leads the Board in the development of the Society’s culture

Alison Hutchinson

(Vice Chair and Senior Independent

Director)

• Deputises for and provides support and guidance to the Chair of the Board

• Acts as an intermediary for other directors

• Leads the performance evaluation of the Chair of the Board

• Acts as the main point of contact for the Society’s members should the normal channels of

communication fail

Neeta Atkar

Guy Bainbridge

Dina Matta

Guy Parsons

Mark Parsons

Jennelle Tilling

• Responsible for bringing independent judgement to Board decisions and debate

• Uses their own experience and skills to constructively challenge the Executive Team

Executive Directors

Stephen White

(Interim Chief Executive)

• Overall responsibility for managing the Society

• Implements the strategies and policies agreed by the Board, supported by the Executive Team,

through a number of management and risk committees

Alasdair Lenman

(Chief Finance Officer)

• Responsible for the day-to-day management of specific areas of the business including maintaining

the Society’s financial strength and sustainability

• Brings associated skills and knowledge to the Board

Directors' Duties

Section 172 of t

he Companies Act

2006

describes the duties of company

directors in respect to promoting

the business and considering other

stakeholders. This does not apply to

the Society’s Directors as we are a

building society not a company, but

the Code expects boards to report on

how they have considered the matters

set out in Section 172 in decision

making.

Details of how the Directors have

considered the matters set out in

Section 172 in decision making are

included in Directors' Report.

Conflicts of Interest

Our Board has a Conflicts of Interest

Policy for Directors and Chief Officers

which sets out how we will review

and, where appropriate, approve

any conflicts or potential conflicts

of interest. These are recorded in a

and approved by our Board Governance

and Nominations Committee at each

meeting. If any director wants to take

on a new external position it must first

be approved by our Board, which will

consider whether there could be any

conflicts of interest and/or an impact

on the time they commit to their role

with the Society.

Division of Responsibilities

Independence

The Board has confirmed that all the Non-Executive Directors continue to be independent based on the guidance set out in

the Code, including the Chair of the Board, who was independent on appointment.

Board roles and composition

David Morris was appointed to the Board on 1 January 2022 so whilst not a director at 31 December 2021, he is a member of the Board at the date

of this report.

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The size and composition of the Board and its committees are kept under constant review, including future succession

planning and all aspects of inclusion and diversity.

Attendance at Board and Committee meetings

The table below shows our directors and the scheduled Board and Committee meetings they attended during 2021 (where they were

a member during the year) followed by the number of meetings the director was eligible to attend.

Director Board

Board

Strategy

Board Committees

Chair's Audit

Board Governance and

Nominations

Remuneration Group Risk

Non-Executive Directors

John Heaps

9/9 2/2

No meetings

required in 2021

– 4/4 3/3 –

Alison Hutchinson

9/9 2/2

No meetings

required in 2021

– 4/4 5/5 4/4

Neeta Atkar

9/9 2/2 – 4/4 – – 4/4

Guy Bainbridge

9/9 2/2 – 4/4 – – 4/4

Gordon Ireland

4/4 – – 1/1 – – 2/2

Dina Matta

6/6 2/2 – – – 2/3 –

Guy Parsons

9/9 2/2 – – 4/4 5/5 –

Mark Parsons

9/9 2/2 – 4/4 – – 4/4

Jennelle Tilling

1/1 – – – – – –

Executive Directors

Mike Regnier

8/8 2/2

No meetings

required in 2021

– – – –

Alasdair Lenman

9/9 2/2 – – – – –

Stephen White

9/9 2/2

No meetings

required in 2021

– – – –

Member of the Remuneration Committee until September 2021.

Member of the Board, Group Risk Committee and Audit Committee until 27 April 2021.

Joined the Board and Remuneration Committee on 27 April 2021.

Joined the Board on 1 November 2021 and Remuneration Committee on 14 December 2021.

Resigned from the Board with effect from 30 December 2021.

Member of Chair’s Committee from 29 November 2021.

In 2021 five ad hoc meetings of the Board

Governance and Nominations Committee

were held at short notice in relation to the

recruitment of Non-Executive Directors, the

resignation of the Chief Executive and the

appointment of an Interim Chief Executive.

The Remuneration Committee held three

ad hoc meetings in 2021 to support the

implementation of the Leading for Value

bonus scheme and in relation to the

resignation of the Chief Executive.

If a director cannot attend a meeting they

will receive the papers and provide any

comments they have to the Chair of the

meeting beforehand.

The Chair of the Board and Chief Executive

have the right to attend all committee

meetings and the Chief Risk Officer is invited

to attend all Board meetings.

If an urgent decision is needed when there is

not a Board meeting a decision can be taken

in writing (known as a written resolution)

if there is approval from all directors (or

members in the case of a committee).

Our Rules set out the procedure for written

resolutions and this was used during the

year:

• Three times by the Board

•

Three times by the Remuneration

Committee

•

Once by the Audit Committee.

Directors’ time commitment and

other directorships

All Non-Executive Directors have to make

sure that they have enough time for the

responsibilities of their role and to support

this:

•

Availability and other commitments are

reviewed and taken into account when

recruiting new Non-Executive Directors.

•

Each Non-Executive Director has a letter

of appointment which sets out the

expected time commitment for the role.

•

If a Director is intending to take on an

additional external appointment this is

reviewed and, if appropriate, approved

before it is taken up. Our Board will

consider the impact any additional role

would have on the time they could

commit to their role with the Society.

•

A review of time commitment is also

included as part of the one-to-one

sessions held each year with individual

directors.

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Governance - Corporate Governance Report

The Chair of the Board, John Heaps, was appointed as a designate in

2014 and became Chair of the Board in 2015. His current time on the

Board does not exceed the provision in the Code that states that the

Chair should not remain in post beyond nine years from their first date of

appointment, and our succession plans take this into account.

Prior to appointment, the significant commitments (including the time involved) for Dina Matta and Jennelle Tilling were

disclosed and reviewed. During the year, the Board considered and approved the following significant appointments for existing

Non-Executive Directors:

Non-Executive Director External Appointment Reason for Approval

Alison Hutchinson Foresight Group

Holdings

It was confirmed that there was no conflict arising from the role and

consideration had been given to the time commitment it would require

which would not impact Alison Hutchinson’s position with the Society.

Guy Parsons Snug Shack and

nuUnlimited Ltd

It was confirmed that there was no conflict arising from the roles and that

the time commitment required would not impact Guy Parsons’ position with

the Society.

Mark Parsons Fairstone Capital

Group Limited

It was confirmed that there were no conflicts arising from the appointment

or impact in relation to time commitment.

Composition, Succession and Evaluation

Election of Directors

All of our directors are subject to

annual re-election by our members

at the AGM based on the best

practice set out in the Code (our

Rules require the re-election of our

directors to take place at least once

every three years). Details of each

individual director’s contribution

are set out in the booklet

accompanying the Notice of AGM

sent to all qualifying members.

Group Secretary

The Group Secretary, Robert Moorhouse, provides advice on all governance matters and is available to advise all of the directors.

Tenure of Directors

Length of time spent as a member of our Board, for our Non-Executive

and Executive Directors is set out in the diagram below:

years

5 - 7

years

3 - 4

years

0 - 2

years

82 | Governance

Corporate Governance Report

Key Themes Actions

Medium to long-term horizon Ensure that new developing topics in the external environment continue to be brought forward to the

Board for debate. In 2022, as in previous years, this will be supported by a schedule of topics aligned

with Board meetings.

Governance framework Continue to address succession, inclusion and diversity issues. For further information see the

Board

Governance and Nominations Committee Report

Further develop workforce engagement, for further information see the

Colleagues

section of

Our

Customers, Colleagues and Communities

in the

Strategic Report

Governance developments Ensure the Board remains up to date and addresses any requirements arising from key governance

issues over the next 12 months, including the BEIS consultation on Restoring Trust in Audit and

Corporate Governance.

Member Voice Review existing approach to bringing member voice into Board discussions and consider ways that

this could be enhanced taking into account the future impact of digitalisation.

The findings and key themes have been used to develop a Board Effectiveness Review Action Plan the progress of which will be

monitored during 2022 by the Board Governance and Nominations Committee and the Board on a quarterly basis.

Following on from the external evaluation completed in late 2020, Board and Committee evaluations for 2021 were completed

through an internal online survey. The outcomes of the internal reviews were discussed at the Board meeting in January 2022

with feedback regarding the effectiveness of each Board Committee being discussed by the relevant Committee.

Overall the findings confirmed the view that the Board and its Committees were performing effectively and it was agreed that

any additional actions arising would be incorporated into the Board Effectiveness Review Action Plan for 2022. An update on

progress against the Action Plan will be provided in the Annual Report and Accounts for 2022.

For further details on the process followed for the Board and Committee evaluations please see the

Board Governance and

Nominations Committee Report

Board Evaluation 2021

Each year our Board reviews its

performance, as well as that of its

principal committees and the individual

directors. In 2020 the Board agreed to

undertake an external evaluation of its

performance and that of its Committees

in accordance with the requirement of

the UK Corporate Governance Code to

have an externally facilitated evaluation

at least every three years. The Board

appointed Halex Consulting to facilitate

the review (Halex Consulting have no

other connection with the Society).

The work carried out by Halex Consulting

included a review of key documents,

interviews with Board members and

attendance at Board and Committee

meetings. The initial outcomes of the

review were considered at the Board

meeting in February 2021 and it was

noted that the Board had developed into

an effective Board that provides robust

oversight and challenge.

The table below sets out some of the key themes and actions identified by the Board for 2021/2022 taking into account the

outcomes of the evaluation:

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Governance - Corporate Governance Report

Induction of a Non-Executive Director

All directors have a full, formal and tailored induction programme on joining the Board, based on their skills and experience, including where

appropriate a specific induction to any Committees they will be joining. Role specific inductions are also arranged where a director takes on a

new role or committee membership.

Both Dina Matta and Jennelle Tilling joined the Board as Non-Executive Directors during 2021 and tailored induction programmes were put

into place for each of them based on their existing experience, key areas of the Society and those relating to their areas of expertise.

NEW NON-EXECUTIVE

DIRECTOR DINA MATTA

Dina Matta joined the Board in April 2021

and has taken part in a tailored induction

programme since joining the Society. Due

to the ongoing impact of the COVID-19

pandemic sessions were held through video

conferencing to ensure no aspect of the

induction was delayed as a result of the

inability to hold face-to-face meetings.

The induction took account of Dina’s extensive

experience in relation to transformation and

was tailored to ensure she was provided with

a strong understanding of change in a building

society context and the extensive work being

undertaken by the Society. Specific induction

sessions were also arranged in relation to

her role as a member of the Remuneration

Committee to ensure she was up to date on the

current work of the Committee.

I have been struck by the sense of purpose,

the strategic understanding and execution

focus of everyone I have met albeit in the

virtual reality of Teams due to the impact of

the pandemic. Furthermore, the welcoming

culture I have experienced highlights the

commitment by all stakeholders to the

objectives of the Society and their desire to

achieve real benefits for our members.

Dina Matter,

Non-Executive

Director

Board training and

development

The Board has an annual training plan

which is developed in conjunction with

members of the Board Governance and

Nominations Committee to make sure

that the skills and knowledge of its

directors and the Board as a whole are

kept up to date.

The Board Training Plan includes:

•

Key topics in relation to areas where

the Board would benefit from gaining

an external perspective, such as

climate change.

•

Any training or development

requirements arising from the annual

Board Effectiveness Review.

•

Any areas identified as a result of

ongoing reviews of Board composition

and future succession plans.

•

Topics covered by internal specialists

through standing agenda items

which provide an ongoing refresh of

knowledge in relation to key subject

areas.

The training plan covers those areas

which are required for the Board as

a whole with individual training and

development incorporated into personal

development plans.

84 | Governance

Corporate Governance Report

Audit, Risk and Internal Control

Our Board has overall responsibility for audit, risk and internal control, and delegation oversight to its committees:

Subject Where to find this information

Ensuring that both internal and external audit are effective

More information can be found in the

Audit Committee Report

Setting our risk appetite

More information can be found in the

Risk Management Report

Our systems of internal controls

More information about the internal controls framework can be

found in the

Audit Committee Report

More information on our Board is available in other sections of this document:

Subject Where to find this information

Succession planning for the Board

See the

Board Governance and Nominations Committee Report

Skills and experience of our Board and Committees

See the

Leadership Team

biographies.

Recruitment and appointment of Directors

See the

Board Governance and Nominations Committee Report

Board diversity and inclusion

See the

Board Governance and Nominations Committee Report

Remuneration

Our Board has a Remuneration Committee which has delegated responsibility for setting the policy on the remuneration of Executive

Directors as well as setting the remuneration for the Chair of the Board, Executive Directors and other members of the Leadership

Team.

For further details please see the

Directors Remuneration Report

The remuneration of Non-Executive Directors is a decision reserved for our Board’s approval and is reviewed by the Executive

Directors and the Chair of the Board only

John Heaps

Chair of the Board

1 March 2022

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Governance - Corporate Governance Report

Alison Hutchinson

Independent

Non-Executive Director

I am pleased to introduce the annual

report of the Board Governance and

Nominations Committee for 2021 which

sets out a summary of the Committee’s

activities during the year. The Committee

has continued its important work in

relation to succession planning and

recruitment for Non-Executive Directors

to ensure our Board remains effective

now and in the future. This work will

continue to be a focus during 2022

and beyond as the Committee works

to balance the ongoing stability of

the Board with the need to ensure the

Board is refreshed in accordance with its

succession plans. The Committee will

also be focused on leading a rigorous

recruitment process for a new Chief

Executive following the resignation of

Mike Regnier in November 2021.

John Heaps

Chair of the Board Governance and

Nominations Committee

John Heaps

Committee Chair

Only members of the Board

Governance and Nominations

Committee are entitled to

attend its meetings, although

others may be asked to attend

all or part of a meeting. The

Chief Executive, Chief People

Officer and Group Secretary are

usually invited to attend each

meeting.

The Committee met four

times in 2021 and held five

additional meetings at short

notice in relation to Non-

Executive Director recruitment,

the resignation of the Chief

Executive and appointment of

an Interim Chief Executive.

Details of the number of

scheduled Committee

meetings attended by each

member is available on page

81.

The members of the Committee are:

Board Governance and Nominations

Committee members and meetings

Guy Parsons

Independent

Non-Executive Director

Board

Governance and

Nominations

Committee

Report

A WORD FROM THE CHAIR OF

BOARD GOVERNANCE AND

NOMINATIONS COMMITTEE

86 | Governance

Overseeing the

appointment

process for Non-

Executive Directors

and Executive

Directors

BOARD GOVERNANCE

AND NOMINATIONS

COMMITTEE

RESPONSIBILITIES INCLUDE

Reviewing and

recommending to the

Board the Directors

and Chief Officers

Conflicts of Interest

Policy for approval

and monitoring

potential conflicts

Reviewing and

recommending

to the Board the

Board Diversity

Statement for

approval

Reviewing the

training and

development

plan for the

Board on at least

an annual basis

Reviewing

governance

arrangements

and monitoring

corporate governance

developments, making

recommendations

to the Board where

appropriate

Recommending

to the Board the

election and re-

election of Directors,

including the

ongoing assessment

of independence

Overseeing

succession planning

for Directors

and other senior

executives and the

development of

diverse pipelines

Reviewing the

structure, size and

composition of the

Board taking into

account succession

plans and the

Board’s Diversity

Statement

Reviewing the

approach to the

annual evaluation

process for the

Board and its

Committees

Further detail

on the role and

responsibilities of

the Committee can

be found in the

terms of reference

which are available

on the Your Society

section of our

website, at

ybs.co.uk/board.

Recruiting Directors

Non-Executive Directors

The Committee leads the recruitment of any new Non-Executive Directors on behalf of the Board, based on a thorough and

inclusive process:

Corporate Governance

The Committee has an important role in making sure we work within a strong corporate governance framework. It keeps up to

date on any new developments and recommends changes to the Board to ensure we continue to have a framework based on

best practice. During 2021 this has included monitoring the progress of the Department for Business Energy and Industrial

Strategy (BEIS) Consultation on Restoring Trust in Audit and Corporate Governance with further work anticipated in 2022

following the publication of the outcomes of the consultation.

REQUIREMENT

SPECIFICATION

INTERVIEW

SUPPORT APPOINTMENT

2 43 5

Non-Executive

Director

recruitment

requirement

identified

through ongoing

reviews of Board

composition and

succession plans

Description of role

and capabilities

required for

appointment

agreed taking into

account the Board

Skills Matrix

Preferred

candidate

identified and

recommendation

made to the Board

External search

agency appointed

to support the

process (who must

be a signatory to

the Voluntary Code

of Conduct for

Executive Search

Firms in line with

the Board Diversity

Statement)

Shortlisting and

interview process

completed based

on objective

criteria having

due regard for

the benefits of

diversity on the

Board

search assess appoint

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Governance - Board Governance and Nominations Committee Report

Board Governance and Nominations Committee Report

An external search agency is selected

from our Preferred Recruitment Supplier

List to ensure that there is clarity in

terms of the standard of service to

be provided by the supplier and the

requirements and expectations of the

Society. The purpose of the list is to

ensure that the Committee has access

to a range of search firms to provide

the widest possible pool of diverse

potential candidates. All the search firms

are expected to adhere to the Board’s

Diversity Statement and ensure it is part

of their search process.

As reported in the 2020 Annual Report

and Accounts, the Committee began

a new recruitment process in 2020

as part of agreed succession plans

and to ensure that the Board has the

appropriate mix of skills and experience

to oversee the delivery of the Society’s

Strategy. The external search agency

Warren Partners were appointed to

support the search. Warren Partners

have previously supported senior

executive appointments but they have

not previously assisted in a search for

Non-Executive Directors.

Following a robust process, taking into

account the Board’s commitment to

diversity and the future composition

requirements, the appointment of Dina

Matta as a Non-Executive Director

was agreed from 27 April 2021. Dina’s

appointment has brought to the Board

her extensive skills and experience

in relation to transformation and

technological innovation across a range

of industries.

A new recruitment process was

commenced in Quarter 2 2021 with a

view to appointing an additional Non-

Executive Director to support future

succession planning and strengthen

skills and experience on the Board. The

external recruitment consultancy Egon

Zehnder was appointed to support

the search. Egon Zehnder, who have

previously supported the appointment

of John Heaps as Chair of the Board,

Alison Hutchinson, Catharine French

and Mark Parsons as Non-Executive

Directors, assisted in the search for the

Chief Operating Officer in 2015 and for

the Chief Executive in 2016.

Following a robust process, taking into

account the Board’s commitment to

diversity and the future composition

requirements of the Board, the

appointment of Jennelle Tilling as a

Non-Executive Director was agreed

from 1 November 2021. Jennelle’s

appointment has brought to the Board

her range of skills and experience

in consumer marketing, digital and

innovation across a range of leading

brands as well as her experience

as a Non-Executive Director and

Remuneration Committee member.

The Committee’s work in relation to

succession and composition remains

ongoing and will continue into 2022. A

new recruitment process commenced

at the end of 2021 and further details

in relation to any appointment together

with the related succession plans will

be included in the Annual Report and

Accounts for 2022.

Executive Directors

The Committee is also responsible for

supporting the recruitment of any new

Executive Director.

In November 2021, the Chief Executive

Mike Regnier tendered his resignation

and as a result, following a review

of succession plans, the Committee

recommended to the Board that the

Chief Operating Officer Stephen White

be appointed as the Interim Chief

Executive with effect from 29 November

2021.

In 2022 the Committee will lead a

rigorous recruitment process to find

a permanent successor to the Chief

Executive role to recommend to the

Board. Further detail on the recruitment

process and the outcomes will be

provided in the Annual Report and

Accounts for 2022.

As a result of the changes to the

Executive Team following Mr Regnier’s

resignation and Stephen White’s

appointment as Interim Chief Executive

the existing responsibilities of the

Executive Team have been reviewed.

The Committee considered the revised

responsibilities together with succession

planning for the Executive Directors

and recommended to the Board the

appointment of David Morris, Chief

Commercial Officer, to the Board as an

Executive Director. The appointment of

David Morris was agreed with effect from

1 January 2022, subject to regulatory

approval. As an Executive Director he will

bring his significant skills and experience

in relation to retail banking and the

mutual model.

The Board Governance and Nominations Committee has access

to a range of information to support succession planning

including:

•

Skills Matrix and Skills Map

based on an annual self-evaluation by our directors of their

skills and experience.

•

Succession Timeline

setting out appointment dates, terms of office and expected

retirement dates against the succession plan.

•

Board Committee Membership

setting out current Board Committee membership, composition

and any future requirements.

•

Board Diversity Statement

setting out our Board’s commitments to inclusion and diversity.

Succession Planning for Directors

The Board continually works to ensure it has the right

members both now and, in the future, to deliver our

strategy and ensure the long-term success of the Society.

As part of its role and responsibilities the Committee

supports the Board in regularly reviewing the structure,

size and composition of the Board and ensuring effective

succession plans are maintained.

The Committee carries out a detailed review of

succession planning for Directors at its annual strategy

session in March each year and keeps the plan under

review at each subsequent meeting during the year. It

also plans ahead for future recruitment of Non-Executive

Directors to make sure that the Board continues to have

the skills and experience it needs.

88 | Governance

Diversity Statement

Ambitions

Progress 2021

Only candidate search and specialist

recruitment agencies that have

signed up to the Standard Voluntary

Code of Conduct for Executive

Search Firms will be used for the

appointment of Directors, and we

prefer to use those signed up to the

Enhanced Code.

The Voluntary Code of Conduct was created by executive search firms themselves with the aim of raising the

standards of professionalism and conduct in the recruitment of women to the boards of FTSE350 companies

(the largest 350 companies listed on the London Stock Exchange).

Warren Partners was appointed to support the search for a new Non-Executive Director which commenced in

2020. Warren Partners have adopted the Enhanced Voluntary Code of Conduct for Executive Search firms.

Egon Zehnder was appointed to support the search for a new Non-Executive Director which commenced in

2021. Egon Zehnder was one of the firms that helped develop the code of conduct and were amongst the first

to be accredited under the enhanced code for recruitment practices.

On gender diversity the Board is

committed to a target of at least

30% female representation on the

Board in the medium term.

In 2016 our Board agreed our target of achieving 30% of female representation in the medium term, taking

into account the Hampton Alexander Review* recommendation of 33%.

Following the appointment of Dina Matta on 27 April and the retirement of Gordon Ireland the percentage of

women on the Society’s Board increased to 30%. The appointment of Jennelle Tilling on 1 November 2021

increased the percentage to 36%.

Following the resignation of Mike Regnier, the percentage of women on our Board at 31 December 2021

was 40% (2020: 20%). As such the percentage of women on the Board at the year-end exceeded the target,

however, this figure is expected to fluctuate in 2022 and beyond as part of ongoing recruitment exercises.

We will continue to work to further

increase Board diversity in order to

sustain and enrich our effectiveness.

We want to embrace the talents

of people from all backgrounds

including BAME, and with differing

characteristics, for example those

who identify as LGBTQ+.

Our Board seeks to ensure that its composition reflects a wide range of different skills, experience and

perspectives. It also believes that all appointments should be based on merit and the skills and experience an

individual can bring to our Board as a whole.

The Committee regularly reviews the composition of the Board to ensure that it has the balance of skills,

experience, independence and knowledge through its diverse composition to remain effective.

The Board also wishes to nurture

high-potential and high-performing

candidates to ensure progression

occurs at all levels of the

organisation. The Board is committed

to removing barriers to increase the

pipeline of diverse talent within YBS,

and to increasing diversity overall

by regularly reviewing management

succession and talent plans.

Our inclusion and diversity ambition is to support an inclusive environment where everyone can contribute

to our success. The Board believes investing in this culture is key to making sure it achieves its target.

The importance of having a diverse workforce is recognised because it reflects the composition of our

membership and the wider community.

A review of talent takes place annually; further details are provided in the Director succession planning

section.

Board Diversity

We place great importance on having an inclusive and diverse Board and workforce generally. Our Board has agreed a Diversity

Statement to support this ambition, which is reviewed by the Board Governance and Nominations Committee and approved by the

Board each year.

The table below provides an update on progress during 2021 based on the targets set out in the Diversity Statement:

Hampton Alexander Review was an independent review set up to increase the number of women on the boards of the FTSE350 (the largest 350 public

companies on the London Stock Exchange).

Throughout 2021 the Committee has

been working to ensure that short,

medium and long-term succession

planning takes account of future

changes on the Board as a result of

Non-Executive Director terms of office

coming to an end. The work of the

Committee will support the ongoing

stability and effectiveness of the

Board now and in the future. This has

included the succession of the Chair of

the Remuneration Committee, with the

Board approving the appointment of a

replacement for Guy Parsons upon his

retirement at the AGM in April 2022,

subject to regulatory approval.

Each year the Board Governance and

Nominations Committee also reviews

the succession and talent pipeline for

all our senior roles to understand the

skills required to manage the business

and assess any risks or potential gaps.

This is used to identify any of our

current colleagues who may have high

potential for future roles on the Board.

The Committee will continue to monitor progress against the Board Diversity Statement and provide an annual update

on progress.

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Governance - Board Governance and Nominations Committee Report

Board Governance and Nominations Committee Report

Diverse talent pipelines

An important role for the Committee is to oversee the process which ensures a diverse talent pool exists for

future vacancies. The Committee ensures that diverse talent is encouraged and in place for our Leadership Team,

as part of its work on succession planning.

The Board Governance and

Nominations Committee

agree and recommend

to the Board the process

for the annual review of

the Board’s performance

and that of each of its

committees in accordance

with the UK Corporate

Governance Code,

which recommends the

evaluation of the Board be

externally facilitated every

three years.

Executive Committee

The Leadership Team

immediately below our Board

(as set out in the UK Corporate

Governance Code)

Senior Managers

Our colleagues in roles Grade

E or above (in accordance with

our commitments under the

Women in Finance Charter)

All Colleagues

31 December

2021

31 December

2020

31 December

2021

31 December

2020

31 December

2021

31 December

2020

We have signed the HM Treasury’s Women in Finance Charter and are committed to improving gender balance,

particularly at senior levels in our organisation.

By way of further information, we had the following percentages of women colleagues at 31 December 2021

(and for comparison 2020):

BOARD AND

COMMITTEE

INTERNAL

EVALUATION

2021

Online

questionnaires

completed on

effectiveness

of Board and its

Committees

Results

collated and

any issues or

trends arising

identified

Outcomes and

actions arising

discussed by

the Board and

Committees

Effectiveness

action plan

updated to

reflect outcomes

and progress

monitored

through the year

Evaluation of the Board and its Committees

For an update on the outcomes

of the external Board

evaluation process for 2020

and progress in relation to the

2021 internal review process

please see the

Corporate

Governance Report

The number of members of the Executive Committee reduced to five as at 31 December 2021 compared to eight in 2020 due to changes in

the leadership team. As a result the percentage of women colleagues on the Executive Committee is expected to fluctuate in 2022 pending

the completion of ongoing recruitment exercises.

As an external

review has

completed in

2020, for 2021

it was agreed

that an internal

review would

be completed

based on the

following

cycle:

90 | Governance

Evaluation of Board Members

Chair of the Board

Our Senior Independent Director meets with our Chair twice a year on behalf

of our Board.

The Senior Independent Director, Mrs Hutchinson, conducted the annual

review of the performance of the Chair of the Board during 2021 and the

outcomes were discussed at the January 2022 Board meeting without the

Chair present. It was agreed that he was a respected and valued Chair and his

strong commitment to the role and the Society was recognised. As Chair he

continues to provide strong and effective leadership to our Board focussing

on the right outcomes for the Society in both the short and long term.

Non-Executive Directors

The Chair of our Board has twice yearly meetings with each Non-Executive

Director to review their performance and look at areas for development.

Executive Directors

Executive Director evaluations are carried out by the Chief Executive, (or the

Chair of the Board in the case of the Chief Executive), against agreed objectives

on an annual basis.

You can read more in the

Directors’ Remuneration Report

Evaluation of the Board Governance and Nominations

Committee

As reported in the Annual Report and Accounts for 2020, the Board Committee

evaluations were incorporated in the external evaluation process for 2020.

The Board discussed the findings of the review in February 2021 and the

elements specific to each Committee were then considered separately. The

Committees were found to provide good support to the Board and in relation

to the Board Governance and Nominations Committee the good work of the

Committee in relation to Board skills and Non-Executive Director succession

planning was noted.

The Board Governance and Nominations Committee completed an evaluation

of its own effectiveness in 2021. The outcomes of the review were discussed

at the meeting in January 2022 and it was agreed that the Committee

continued to be effective. Details and progress of any actions identified will

be provided in the Annual Report and Accounts for 2022.

John Heaps

Chair of the Board Governance and Nominations Committee

1 March 2022

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I am pleased to present our 2021 Audit

Committee Report which sets out the

Audit Committee’s role and its key

activities during the year, including its

review of financial reporting matters,

oversight of the Group’s internal controls,

and its internal and external auditors.

During the year working from home, or a

hybrid of home and office, has become

more embedded but I am nevertheless

pleased the Committee has been able to

hold its last two meetings of the year in

person. Our Finance team, internal and

external auditors, the Audit Committee

secretary and my fellow Committee

members have all worked hard to ensure

the Committee remains fully effective.

Whilst COVID-19 related risks and

consequences have very much still been

on our agenda we have also been focused

on other legislative, regulatory, business

and control environment changes which

are impacting us now or will likely do so in

the future.

In 2022, the Audit Committee will continue

its work to protect the interests of all of the

Group's stakeholders.

Guy Bainbridge

Chair of the Audit Committee

Guy Bainbridge

Committee Chair

Independent

Non-Executive

Director

Neeta Atkar

Independent

Non-Executive

Director

Only members of the Audit

Committee are entitled to attend

its meetings, although others may

be asked to attend all or part of a

meeting. Our Chair of the Board, Chief

Executive, Chief Finance Officer, Chief

Internal Audit Officer and the external

auditor were invited to attend all

meetings in 2021, along with other

members of our Leadership Team

and Senior Managers where the Audit

Committee felt it was beneficial.

We had four Audit Committee

meetings in 2021. The meetings

began with a private session

between the invited members of

the Leadership Team and the Audit

Committee members and finished

with a private session between the

Audit Committee members and

our internal and external auditors.

These private sessions allow

the Audit Committee to discuss

confidential matters, which may not

be appropriate to discuss in the main

Audit Committee itself.

Audit Committee membership

Mark Parsons

Independent

Non-Executive

Director

Audit

Committee

Report

A WORD FROM THE

CHAIR OF THE AUDIT

COMMITTEE

The members of the Audit Committee

are:

Gordon Ireland

stepped down as

a member of the

Audit Committee

when he left the

Board on 27 April

2021.

Details on the number of meetings attended by each of the Audit

Committee members during 2021 are shown in the

Corporate

Governance Report

92 | Governance

Our Board appoints members to the

Audit Committee and takes into account

the requirements of the UK Corporate

Governance Code (the Code), as far as

they apply to building societies, when

considering who should be a member.

In line with the Code, all members

have to be independent Non-Executive

Directors, at least one member must

have ‘recent and relevant financial

experience’ and the Audit Committee as

a whole should have experience in the

financial services sector.

You can find out more about the

Code, and how it applies to building

societies, in the

Corporate Governance

Report

In 2021, all the members of the Audit

Committee were independent Non-

Executive Directors, and all have recent

and relevant financial experience gained

through the qualifications they hold and

the roles they have held or currently hold

with other organisations. Whilst no new

members joined the Committee in 2021,

we would like to take the opportunity to

thank Gordon Ireland for his commitment

and service on the Audit Committee.

Gordon joined the Audit Committee in

April 2017 and retired from the Board

in April 2021. The Audit Committee

benefits from a diverse range of expertise

in the areas of auditing, finance and

risk, with particular emphasis on the

financial services sector. Altogether, this

ensures that the Audit Committee has

the required competence in the financial

services sector.

You can find out more about the

skills, qualifications and experience

of the Audit Committee members in

the directors' biographies in the

Our

Leadership Team

section.

The roles and responsibilities of the Audit

Committee are explained in its Terms of

Reference, which set out the areas on

which it provides oversight or guidance to

the Board. The Audit Committee reviews

its Terms of Reference every year to

ensure they continue to meet regulatory

requirements and good practice and both

the Audit Committee and Board approve

them each year.

You can find them on our website ybs.

co.uk/your-society/inside-your-society/

corporate-governance/committees.

html.

Key financial reporting matters

Providing our stakeholders with complete, accurate and relevant financial information is critical to ensuring that the Society

maintains their trust. The Audit Committee is responsible for ensuring that the key accounting policies, estimates and judgements

used in our financial statements are appropriate. To help the Audit Committee achieve this, it receives reports from management

and our external auditor, PricewaterhouseCoopers LLP (PwC).

Matters considered Progress 2021

Expected credit

losses

The calculation of impairment for a portfolio of mortgage loans is inherently uncertain. Expected credit losses (ECL) are

calculated using historical default and loss experience but require judgement to be applied in predicting future economic

conditions (e.g. interest rates and house prices) and customer behaviour (e.g. default rates). Understanding the Group’s

exposure to credit risk, and ensuring that the assumptions feeding into our ECL models are appropriate, are key priorities

for the Audit Committee. This continued to have additional significance throughout 2021 in light of the heightened

uncertainty, and shifting economic outlook, resulting from the COVID-19 pandemic.

The selection of economic assumptions, and the relative weighting of the range of economic scenarios, have a material

impact on ECL and the Audit Committee vigorously challenged management to demonstrate that these decisions

appropriately reflected the uncertainty in the economic outlook.

Post model adjustments (PMA) are applied when an increase in credit risk is identified that is not effectively captured in

the core ECL models. The rapidly changing macro-economic environment over 2021 required management to identify

and quantify a number of PMAs to reflect these risks and exposures. Again, as these are material to the ECL balance, the

Audit Committee reviewed and challenged the rationale and calculation methodology for each of these PMAs.

This challenge was ongoing throughout the period, but particular focus was given to the ECL calculations and disclosures

reported in the 30 June 2021 Half-Yearly Financial Report, and those included in this 31 December 2021 Annual Report

and Accounts.

At the half year, the main points of discussion with the Audit Committee were around updated economic scenarios and

the change in relative weightings to move 5% from ‘downturn’ to ‘core’. In addition, the Audit Committee discussed the

need for, and reviewed the assumptions feeding into, PMAs in respect of the impacts of methodology changes and model

recalibrations, extended time to sale for repossessed properties, cladding, climate change, and the uncertainty around

how rapid rises in HPI impacted the ECL. The impact of these changes on financial statement disclosures, particularly

those around the staging of credit losses, was also presented and discussed.

Over quarter three, and towards year end, the discussions centred on the impact of a levelling off in HPI increases, supply

chain issues, rising energy prices and nascent inflation on the underlying economic assumptions feeding into the ECL

models. The Audit Committee were also provided with updates on the development of the PMAs recognised at half year.

In terms of the input into the final 31 December 2021 ECL balance, the Audit Committee reviewed the impact on

economic assumptions arising from the COVID-19 omicron variant, the UK vaccine booster rollout, and future possible

affordability pressures deriving from increased inflation and interest rates. The Audit Committee were also provided with

an update on the assessment of the financial implications of climate risk on expected credit losses.

You can find out more about our expected credit losses in note 12 and note 32 to the financial statements.

Significant financial reporting matters considered by the Audit Committee since the last Annual Report and Accounts

| 93

Governance - Audit Committee Report

Matters considered Progress 2021

Acquisition fair value

adjustment run-off

The Audit Committee reviewed the run-off profile of the fair value adjustments made on the acquisition of the Chelsea,

Norwich & Peterborough and Egg portfolios and approved changes where the actual run-off experience is either

quicker or slower than that anticipated on initial recognition. The Audit Committee is comfortable that the carrying

amounts reflect the remaining expected life of the acquired loans and savings balances.

Hedge accounting

The Audit Committee continued to review the methodology and key assumptions applied to the hedge accounting

models over the period, including consideration of new hedge strategies. This allows the Audit Committee to be

confident that the amounts set out in the Income Statement are fairly stated and that appropriate disclosures have

been made.

Effective interest

rate (EIR)

The Audit Committee considered the results of management’s detailed reviews of the methods and assumptions used

in the calculation of interest income under the Effective Interest Rate (EIR) methodology, as required under IFRS, and

concluded that the amounts recognised were fairly stated.

Pensions

The Group operates one employee benefit scheme (the Scheme) with both defined benefit and defined contribution

sections. The defined benefit scheme is accounted for by the Group under IAS 19, with the key assumptions presented

to, and approved by, the Audit Committee. During the period the Audit Committee reviewed the assumptions proposed

by management and the scheme administrators (Willis Towers Watson) and reviewed how they benchmark against the

rest of the industry.

Provisions

The Audit Committee reviewed and challenged the provisions for liabilities and charges, being those relating to

restructuring, customer redress and property related costs, and agreed with the overall amount held. More information

on these provisions can be found in note 24 to the financial statements.

Tax

Papers setting out the judgements applied in the recognition of deferred tax balances and the level of transfer pricing

adjustments applied between Group entities were presented to the Audit Committee over the period. The Audit

Committee is satisfied that the recognised amounts of deferred tax are reasonable given the substantive enactment of

scheduled changes in UK corporation tax rates and the transfer pricing assumptions are reasonable.

IBOR reform

The Audit Committee continued to monitor the Group’s risk exposure arising from IBOR reform and the withdrawal of

certain market indices such as LIBOR. The Audit Committee is comfortable that this risk is now largely expired due to

the migration of financial instruments held and issued onto other bases.

Viability and going

concern

The Audit Committee reviewed papers prepared by management and recommended to the Board that the financial

statements should be prepared on a going concern basis. The Audit Committee confirmed that, whilst there is no

guarantee, there is a reasonable expectation that the Society will be able to continue to be viable, i.e. operate and

meet its liabilities as they become due, to 31 December 2024. More information can be found in our Directors’ Report.

Disclosures

The Audit Committee reviewed papers prepared by management and agreed that the disclosures included within this

Annual Report and Accounts met all statutory requirements under the

Building Societies Act 1986

, the disclosure

and transparency rules of the FCA and applicable international financial reporting standards. In addition, the Audit

Committee reviewed and approved voluntarily applied best practice disclosure requirements, including those

in respect of the UK Corporate Governance Code that require a fair, balanced and understandable view of the

performance and position of the Group, the non-financial information statement per section 414 of the

Companies

Act 2006

and the climate related disclosures of the task force on climate-related financial disclosures (TCFD) and the

streamlined energy and carbon reporting (SECR) rules.

The Audit Committee confirmed that disclosures in the Half-Yearly Financial Report met the requirements of the

disclosure and transparency rules of the FCA and international financial reporting standards.

The Audit Committee also reviewed and approved the Group’s regulatory Pillar 3 disclosures included in full on the

Society’s website.

To enable the Board to approve the Letter of Representation to the external auditor at both year end and half year, the Audit Committee reviewed the

specific representations and the basis on which members of the Leadership team have evidenced them.

94 | Governance

Audit Committee Report

Oversight of the external

auditor and external audit

process

The Audit Committee oversees the

audit process and the relationship

with our external auditor. The Audit

Committee begins each annual audit

cycle by reviewing and approving the

proposed audit plan presented by our

external auditor, PwC. This process

includes a discussion between the

Audit Committee and our external

auditor around key risk areas to ensure

that there is agreement on the focus

of the external auditor’s work and

their assessment of materiality for

the financial statements. For further

information about materiality and how

it is calculated, please refer to the

Independent Auditors’ Report.

The Audit Committee has assessed

PwC’s risk assessments, planned work,

resources and audit fees throughout

the year and monitored the progress of

PwC’s audit work through discussions

with PwC and management. The

external auditor provides regular

updates to the Audit Committee on

their work on the Half-Yearly Financial

Report and the Annual Report and

Accounts before the Audit Committee

approves them.

Throughout the year the Audit

Committee assesses the effectiveness

of the external audit process, an

assessment which is based on

guidance from the Financial Reporting

Council (FRC). The Audit Committee’s

assessment includes a survey sent

to members of the Audit Committee

and senior managers in the Society's

Finance Division. This helps the Audit

Committee review the quality of the

external audit team and process. The

Committee also considered the FRC’s

2021 Audit Quality Inspection and

Supervision Report on PwC, and how

findings might manifest themselves

in the audit of the Society. During

2021 the Audit Committee continued

to monitor the impact of COVID-19

on PwC’s working practices, the

operational delivery risks to the

audit, the extent of audit challenge,

and the overall effectiveness of the

audit process. The Audit Committee

concluded that the overall external

audit process in 2021 was effective.

External auditor

independence

The Audit Committee monitors

and annually assesses the external

auditor’s independence and

objectivity, taking into account

relevant laws, professional and

regulatory requirements and the

relationship with the external

auditor as a whole. To fulfil the

responsibilities set out in its Terms

of Reference, the Audit Committee

considers, as described below, the

external auditor's non-audit work, the

fees paid in respect of such non-audit

work, the employment of former

employees of the external auditor,

and the external auditor's tenure.

The Group has a policy on the use

of the external auditor for non-audit

work, and the application of this

policy is overseen by the Audit

Committee. The policy is designed

to ensure the external auditor’s

continued independence and

objectivity.

Fees for individual assignments

that exceed a set threshold are

reviewed by the Audit Committee.

Fees for those assignments under the

threshold are approved by the Chief

Finance Officer under delegated

authority. All non-audit services are

approved in advance of the work

commencing. Our external auditor’s

fee is reviewed regularly. The Audit

Committee is satisfied that the Group

has operated in line with the policy

during 2021.

The total amount of fees paid to our

external auditor for both audit and

non-audit work is disclosed in note 6

to the financial statements.

The Group also has a policy on

the employment of employees of

the Group’s external auditor, and

the Audit Committee monitors the

implementation of this policy. In

summary this restricts the Society

from offering employment to named

individuals from the external audit

firm for key management positions

within a two year period from

working on the Group statutory

audit and ensures any such offers

of employment are vetted by the

Audit Committee to ensure on-going

independence of the external auditor.

The Audit Committee also reviewed

the independence position of the

Committee members and relevant

senior members of the Finance

Division, and it remains satisfied there

are no conflicts or independence

issues.

The Audit Committee takes into

account the performance of the

external auditor when considering

their reappointment as well as their

length of tenure and the date of

rotation of the audit partner. PwC

were appointed as external auditor

following a competitive tender process

in 2018 and their appointment was

approved by members at the 2019

AGM. The Audit Committee was

satisfied with the performance of PwC

during 2020 and they were therefore

reappointed at the 2021 AGM. The

Audit Committee remained satisfied

with the performance of PwC over

2021 and has recommended to the

Board that they be approved for

reappointment as external auditor at

the 2022 AGM.

Review of internal controls

Our Board recognises that to manage

risks effectively we need good internal

controls. These help us to achieve our

purpose of providing

Real Help with

Real Life

by protecting our customers'

and other stakeholders’ interests

and looking after our Group's assets.

They also enable us to become more

efficient and effective at what we

do, produce reliable information and

reports, and comply with laws and

regulations.

The risks that we face change over

time, so the Audit Committee regularly

reviews how our Group's internal

controls are working and whether

our Group needs to strengthen

what it does to manage the nature

and extent of those risks, including

the risk of fraud, (what we call our

internal control framework). Our

Board develops our policies on risk

and control, but all of our Society's

colleagues have a responsibility to

carry out those policies as part of

helping our organisation achieve its

objectives. So that they can do that,

our Leadership Team provides training

and coaching, and then monitors how

colleagues are managing risks.

To support the Audit Committee’s

review of internal controls our

| 95

Governance - Audit Committee Report

Audit Committee Report

Internal Audit function provides

reports to every meeting and our

external auditors also provide their

own independent opinions to us. The

Audit Committee also receives reports

on significant control weaknesses

from the Leadership Team. The Audit

Committee works closely with the

Group Risk Committee to make sure

that the risk management framework

is operating effectively across our

business.

You can find further details of risk

management practices in the

Risk

Management Report

The main types of information the

Audit Committee considered during

2021 were:

•

Internal Audit reports: The Audit

Committee reviewed and approved

the Internal Audit plan for the

year, the proposed revisions to the

plan, and the resources needed

to support it. In doing this the

Audit Committee considered

the ongoing appropriateness of

Internal Audit's coverage of the

Group's risks, processes, systems

and controls. The Audit Committee

also considered reports on the

plan’s progress, including Internal

Audit's findings, their root causes

and the Leadership Team's

responses. Where Internal Audit

reports are rated as 'Unsatisfactory'

the accountable members of the

Leadership Team are asked to

attend the Audit Committee and

explain why the identified control

weaknesses have arisen and what

actions are being taken to address

them. The Audit Committee also

considered reports from the

Leadership Team, the Risk Division

and Internal Audit assessing the

effectiveness of internal controls.

•

External auditor reports: The Audit

Committee reviewed reports from

our external auditors, PwC, about

recommendations in relation to

internal controls for key financial

reporting processes and systems.

No significant weaknesses were

noted but points raised were

prioritised by management

according to impact and areas for

improvement are being addressed

to agreed timescales.

•

The Audit Committee considered

regular updates on the status of

control issues identified by both

Internal Audit and PwC, and the

volume and age profile of those

issues remained within tolerable

limits.

•

The Audit Committee considered

whether any recommendation

should be made to the

Remuneration Committee to adjust

the variable remuneration of the

Leadership Team, in respect of

internal control weaknesses.

Taken together, the information the

Audit Committee reviewed provided

assurance that, in 2021, the Group

maintained an adequate internal

control framework and there were

no significant breaches of control or

regulatory standards. This supports our

aim of complying with the principles

and provisions of the Code where

they apply to building societies. The

Leadership Team proactively took

action to tackle control weaknesses

where it was reasonable to do so,

thereby improving the maturity of the

internal control environment, so that

our Group remains financially and

operationally resilient.

Oversight of the Internal

Audit function

Our Internal Audit function is

governed by a charter, which the Audit

Committee reviews and approves

annually.

The Audit Committee reapproved the

charter in September 2021 and you

can find a copy of it on our website

ybs.co.uk/your-society/inside-your-

society/corporate-governance/

committees.html.

Our Chief Internal Audit Officer

reports directly to the Chair of the

Audit Committee and Internal Audit

has full and unrestricted access to

all of our Group's functions, systems,

records and colleagues. The Chair of

the Audit Committee meets regularly

with the Chief Internal Audit Officer

to review the performance of the

Internal Audit function and discuss

any matters emerging from Internal

Audit activities. The Chair of the Audit

Committee also provides input to the

appraisal of the Chief Internal Audit

Officer's performance. Our previous

Chief Internal Audit Officer, Suzanne

Clark, resigned in March 2021 and

the role was ably performed by the

Deputy Chief Internal Audit Officer,

Chris Brown, on an Acting basis for

the remainder of the year. The Chair

of the Audit Committee was involved

throughout the search for a permanent

successor, including interviewing

shortlisted candidates. In November

the Audit Committee approved the

appointment of Kate Ireland as the

next Chief Internal Audit Officer who

joined the Society in February 2022.

In addition to receiving reports on the

outcomes of Internal Audit activities,

as described above, the Audit

Committee receives regular reports

on the performance of Internal Audit

against an agreed set of measures.

Internal Audit also reports to the Audit

Committee annually on the strategy for

the function, the skills and resources

it has, and what it needs to effectively

discharge its role. The Audit Committee

reviews and approves any proposed

changes to the strategy and resources.

The Audit Committee is satisfied that

Internal Audit has the appropriate

resources, using external third-party

support where necessary, to fulfil its

responsibilities.

Internal Audit continues to operate

its own quality assurance and

improvement programme and during

2021 the Audit Committee considered

the results of this programme and the

actions taken by the Chief Internal

Audit Officer to enhance the function's

approach, effectiveness, quality, skills

and experience.

The Audit Committee will continue to

oversee Internal Audit's development,

including the monitoring of action

plans resulting from external and

internal assessments, to make sure the

function remains equipped for the role

it plays in helping our Society achieve

its purpose.

Audit Committee

effectiveness

As reported in the Annual Report

and Accounts for 2020 the Board

Committee evaluations were

incorporated in the Board external

evaluation process for 2020. The

Board discussed the findings of the

96 | Governance

review in February 2021 and following

consideration of the final report, each

committee reviewed any outcomes

and recommendations relevant to its

role. The Committees were found to

provide good support to the Board

and in relation to the Audit Committee

there were no significant areas for

improvement.

Details on the wider Board and

Committee evaluation process for 2021

can be found in the

Board Governance

and Nominations Committee Report

The outcomes of the Audit Committee

effectiveness review were discussed

by the Committee members in January

2022 and it was agreed that the

Committee continued to be effective.

Areas identified for consideration, none

of which are considered significant, will

be progressed in the coming months.

The Audit Committee undertakes a

detailed review annually of its Terms

of Reference to ensure it meets all

its responsibilities and confirmed

that in 2021 it had met all of its

responsibilities.

Audit Committee members also

take part in training and receive

briefings on areas that concern not

only their roles on the Committee,

but also their roles on the Board. In

2021 the Audit Committee set aside

additional time to be briefed on

Non-Financial Reporting - S172 and

S414 Companies Act disclosures and

their application to the Society and a

review of the anticipated outcomes of

the Department for Business Energy

and Industrial Strategy’s consultation

in relation to Restoring Trust in Audit

and Governance. The Society as a

whole and the Audit Committee will be

considering the latter in more detail in

2022 to ensure that any requirements

or relevant areas of good practice

identified will be implemented by the

Society as appropriate. Preparatory

work has already begun on a number

of topics such as how we might best

develop an Audit and Assurance Policy

and a “UK Sox” programme from our

existing base. The Audit Committee

used a combination of external and

internal specialists to provide these

briefings.

Our Board Chairman oversees

the training and development of

the full Board and you can find

more information on this in the

Composition, Succession and

Evaluation

section of the

Corporate

Governance Report

Guy Bainbridge

Chair of the Audit Committee

1 March 2022

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Governance - Audit Committee Report

As the Chair of the YBS Board’s Group

Risk Committee (GRC), I am pleased to

present our Risk Management Report

for 2021 which describes our approach

to the management of risk through

our Enterprise Risk Management

Framework (ERMF). It also sets out

the principal risks to which we are

exposed, including how those risks are

mitigated, along with emerging risks

and highlights of progress that has

been made during 2021.

We have also made good progress in

developing our approach to climate

risk management within the context

of our ERMF and a summary of this

approach is provided within this report.

The GRC oversees the Group’s risk

management framework and assists the

Board by providing an enterprise-wide

perspective on all risk matters. It usually

meets four times a year but will meet more

frequently when the need arises. As the

Chair of the GRC, I provide regular updates

to the Board on matters considered by the

Committee.

Neeta Atkar

GRC Chair

Independent

Non-Executive Director

Alison Hutchinson

Independent

Non-Executive Director

Mark Parsons

Independent

Non-Executive Director

It is also attended by the

Chair of the Board, John

Heaps, and members of the

Executive Team including the

Chief Executive, the Chief

Finance Officer, the Chief

Operating Officer, Chief Risk

Officer, the Chief Internal

Audit Officer and the Chief

Commercial Officer.

The GRC also invites certain

members of the Leadership

Team when it is felt that this

would help it discharge its

duties.

The GRC’s Terms of

Reference are available from

the Corporate Governance

section of our website.

The GRC Chair ensures

the Committee effectively

oversees and advises on how

risks, including emerging

risks, are being managed

across the Group in line with

our agreed appetite for those

risks.

Group Risk Committee Membership

Guy Bainbridge

Independent

Non-Executive Director

Gordon Ireland

stepped down as a

member of the GRC

when he left the Board

on 27 April 2021.

Risk

Management

Report

A WORD FROM THE CHAIR

OF THE GROUP RISK

COMMITTEE

The members of the GRC

are:

98 | Governance

As you will have read elsewhere in this

document, even more so than usual for

this sector, 2021 has been a year that

has drawn into focus the continued

risks resulting from the economic and

operational impacts of the COVID-19

pandemic, as well as the uncertainty

surrounding Brexit. As a result, the GRC

has continued to press for increasing

levels of insight into our credit risks,

our financial resilience, our operational

resilience and our protections for

customers. I am pleased to say that

the assurances we have received have

demonstrated that we understand well

the risks to which we are exposed,

take a balanced approach to adjusting

our approach to risk management in

the face of uncertainty, even when we

have considered them under material

stress, and confirms that management

is operating in a responsible manner

that protects YBS and its customers

and members.

As Chair of the GRC, I am satisfied that

the Group:

•

has a clear risk appetite to ensure

that it only takes risks in line with

its capabilities;

•

has appropriate controls in place to

identify the risk of deviation from

that risk appetite or to identify

unplanned risks that the Group

encounters; and,

•

appropriately balances the risks it

takes between being purposeful for

our current and future customers,

whilst simultaneously protecting

the resilience and sustainability of

the Group.

My GRC colleagues and I will continue

to press for a purposeful, prudent,

customer focused and capability led

approach to risk management so that

I can continue to report my overall

satisfaction with our risk positions

including when considered against the

range of potential outcomes for them.

Neeta Atkar

Chair of the Group Risk Committee

Matters considered during

2021

The GRC met four times in 2021 and

considered all of the matters relating

to its responsibilities as summarised

in its terms of reference. A wide range

of topics were considered throughout

the year, both specifically in the context

of the COVID-19 pandemic and in the

GRC’s broader work as follows:

•

Monitoring the assessment and

response to the risks to the Group of

the COVID-19 pandemic across its

principal risk exposures, including:

w The Group’s operational response

to the COVID-19 pandemic in

terms of incident management

and operational resilience whilst

ensuring colleague wellbeing and

fair outcomes for customers within

a robust control environment. This

included ensuring that colleagues

working from home continued to

comply with rules and regulations,

and the operational implications

of buildings being opened in a

COVID-19 safe way.

w In response to staffing pressures,

allowing second line risk

management teams to provide

direct risk management support

and oversight activities, whilst

maintaining the integrity of the

Enterprise Risk Management

Framework and the three lines of

defence model.

w Reviewing the conduct approach

and impact of mortgage payment

deferral activity on the Group’s

financial resilience in the context

of its wider lending strategy and

the potential longer-term effects

on the mortgage book.

w Maintaining strong relationships

with the Group’s regulators

through a continuing period of

uncertainty.

Over and above that, the GRC felt that

some areas of risk merited additional

focus and requested in-depth reviews,

examples being:

•

Credit Risk: The GRC has reviewed

analysis of higher risk retail

mortgage cohorts and received an

in-depth deep dive review covering

credit risk capabilities and upgrades,

governance and credit risk outcomes.

There was also a continuous review

of policy, lending practices, stress

testing, management capabilities and

MI for retail credit risk, with specific

consideration of higher risk segments

of the mortgages portfolio, including

debt consolidation and risk layering

dynamics.

•

Financial Risks (physical and

transition) from Climate Change:

We are committed to addressing

the impacts of climate change. This

extends to ensuring readiness for

regulation in respect of the financial

risks from climate change and to

this end the GRC has been receiving

quarterly updates to enable it to

oversee progress in this key area.

•

Operational Risk: Customers rightly

expect things to work when they

need them to, even in times of

stress, and there is, in addition, a

great deal more regulatory scrutiny

of how resilient operational

processes should be across the

industry. The GRC has therefore

been receiving six-monthly updates

to enable it to oversee progress on

operational resilience readiness

and on the upgrades being made to

our operational risk management

capabilities and to seek additional

assurances where appropriate.

•

Financial Crime: We are committed

to minimising the risk of YBS being

used to facilitate financial crime.

To this end, the GRC has overseen

enhancements to, and maturity of,

the financial crime risk management

framework, including an improved

operating model and upgrades in

capability.

•

Customer Treatment Risk: We

share the Financial Conduct

Authority’s passion for appropriate

customer treatment whatever the

circumstances. The GRC has therefore

been keeping a close watch to ensure

that all lending remains responsible

in these changed circumstances

including, in particular, the treatment

of those customers experiencing any

repayment stress.

More broadly, the GRC also focused on

the following areas:

•

The UK’s evolving political and

economic landscape in the context

of the Group’s risk appetite, business

model and strategy.

•

The progress in continuing to

improve our operational risk control

frameworks in relation to Cyber

| 99

Governance - Risk Management Report

We recognise that for the business

to grow and achieve its commercial

aspirations, effective risk management

is essential. Our ERMF enables robust,

yet efficient, risk management, which

has an important and integral role in:

The ERMF explains how a variety of processes fit together to create

a consistent and effective way of managing risk across the Group.

The key elements of risk management encompass the activities

relating to the identification, assessment, control, monitoring and

reporting of risk. The GRC reviews and approves this annually and

it consists of:

• delivering our

Strategic Blueprint

within an appropriate culture

•

protecting against unplanned

financial outcomes

•

being resilient to operational risks

•

protecting customers from unfair

outcomes

• demonstrating credibility to

external stakeholders.

• Strategic risk management

priorities – the Society’s priorities

for risk management and how it is

aligned to the Society’s strategy.

• Society culture – the values and

behaviours that shape our risk

decisions.

•

Risk appetite – how much

risk we can take in order to

deliver the Group’s strategy

while ensuring we provide fair

customer outcomes and continue

to operate as a safe and secure

business.

•

Policy and governance – how

we organise ourselves, make

decisions and take approved risks.

•

Risk assessment and control

– how we identify, assess and

understand our risks and limit

undesirable outcomes.

•

Risk events – how we respond

when things go wrong and stop

the same things happening again.

•

Monitoring and assurance –

how we check that controls are

working and highlight when risks

require attention.

Our Enterprise Risk Management Framework (‘ERMF’)

Risk Management Report

Security Information Management

and Information Security Risks and

compliance with the General Data

Protection Regulation.

•

The approach to preparing for

compliance with applicable

regulation arising from the

Resolvability Assessment Framework.

•

Exploring the potential risks and

mitigation opportunities as the Group

continues to develop its lending

strategy relating to higher Loan-to-

Value Mortgage Lending.

•

Monitoring the progress of

enhancements to the Group’s

management and governance of

Model Risk. This included ownership

of models, ensuring all models

remain in governance, reviewing

model performance and mitigating

risks to models’ predictive power

emanating from the impact of the

COVID-19 pandemic.

Committee Evaluations

In 2020, Board Committee evaluations

were incorporated into the Board

external evaluation process. The Board

discussed the findings of the review

in February 2021 and, following its

consideration of the final report, each

committee reviewed any outcomes and

recommendations relevant to its role.

The GRC adopted the following changes

as a result:

•

The Chief Commercial Officer

became an attendee of the

Committee to lead the Executive

response on matters concerning

credit and conduct risk.

•

The GRC work plan was elevated

to a decision paper to further

facilitate thought around coverage

of not only the standard YBS risk

categories, but also those that were

evolving or where focus needed to

be increased.

•

The Management Information

received by the Committee has also

been enhanced and has continued

to evolve.

Future developments

Good progress has been made in 2021

with the continued embedding of our

risk management framework across the

business, evidenced by our ability to

adapt and respond to rapid change in

our operating environment. We have

developed our approach to managing

climate risk, continued to embed

accountability for risk management into

the first line of defence and provided

an increased level of second-line

oversight of key risk management

activities including those relating to the

Group’s transformation agenda. We also

continue to develop the maturity of our

operational risk control environment, with

plans and supporting investment in place

across the information management

and information security risk categories

along with targeted improvements

and investment in our financial crime

risk management capabilities. This

wider programme of investment and

strengthening of our ability to manage

risk will continue into 2022.

Further areas of focus for 2022 will

also include how our risk management

teams will continue to support the

delivery of our

Strategic Blueprint

This in turn will cover the continued

embedding of current risk management

initiatives, ensure the safe delivery of

the strategic transformation programme,

with customer experience and outcomes

prioritised as part of all risk management

interventions.

100 | Governance

We operate a three lines of

defence approach towards risk

management, which seeks to

differentiate between those:

•

With direct responsibility for

the management and control

of risk.

•

With responsibility

for defining the ERMF,

communicating requirements

and independently

monitoring adherence

through oversight activity, on

behalf of the Board.

•

Providing an independent

and objective opinion to the

Board on the adequacy and

functioning of the system of

internal control.

RISK

A summary of these respective responsibilities is set

out below:

First Line of Defence

The first line of defence consists of all colleagues, who are

responsible for ensuring that risk is effectively managed.

Many colleagues also have additional responsibilities to:

•

Act as owners of the risks relevant to their business

function.

•

Identify and articulate the risks they are responsible

for, from the Group Risk and Control Library, and put

them into a risk register.

•

Assess risks and controls and determine if further

actions are required.

•

Design and operate applicable key controls and

develop and operate supplementary controls as

necessary.

•

Direct policy, which sets out what colleagues can

and cannot do.

Second Line of Defence

The second line is fulfilled

by our Risk Division which

defines our approach

toward risk management

and supports, coaches,

facilitates, independently

monitors, challenges, reports

and if necessary gives direct

instruction to the first line.

This independent second line

risk management function is

responsible for ensuring that

appropriate risk management

and measurement

techniques are used that

are commensurate with the

Group’s strategic aims, its

appetite for risk and the risks

it faces at any time. The Risk

Division ensures that the GRC

receives a comprehensive

programme of decision papers

and reviews to ensure that it is

fully sighted on such matters.

The Chief Risk Officer provides

a formal update to the Board

and to GRC, via the Executive

Risk Committee (ERC) on a

quarterly basis, covering all

areas of risk management.

This includes routine

reporting, emerging risks, the

results of the Risk Division’s

independent oversight and

additional issues that merit

escalation. The Risk Division

is responsible for managing

our regulatory relationships

and for providing independent

briefings and insights to the

Board.

Third Line of Defence

The third line is fulfilled

through the Internal Audit

function. It independently

assesses whether risks

are adequately controlled,

challenging the Executive

Team to improve the

effectiveness of governance,

risk management and internal

controls. Internal Audit

reports directly to the Audit

Committee which is a Board

committee.

| 101

Governance - Risk Management Report

Governance

The Group’s Board and senior management committee structure is illustrated below, with the risk

committees duly highlighted:

Board and related

Committees

Management and

Sub-committees

The Board is ultimately responsible for

the effective management of risk. The

approval of risk appetite and certain

risk management policies are amongst a

number of specific areas which are matters

reserved for the Board.

The GRC is a Board Committee that

oversees, on behalf of the Board, the key

risks inherent in the business and the

system of internal control necessary to

manage such risks, presenting its findings

to the Board.

The Executive Risk Committee looks to

ensure that the Group’s balance between

seeking opportunity and managing risk

is appropriate. It is responsible for the

monitoring of day-to-day risk management

activity including, but not limited to,

reviewing the effectiveness of the Group’s

risk management framework and system

of internal controls. It has authority to

direct the business in relation to mitigating

actions and to approve or endorse risk

acceptance within defined levels.

Below the Board and senior management

committee structure is a set of other Risk

Committees. These committees monitor

risk management activity across the

divisions, acting as a point of escalation

for matters of Group level significance.

These committees also have authority to

direct mitigating actions and to approve or

endorse risk acceptance for risks within the

Division, in accordance with defined levels.

The Board

Chair's

Committee

Group Risk

Committee

Performance

& Reward

Committee

Organisation

Design

Authority

ExCo

Investment

Committee

Executive Risk

Committee

Audit

Committee

Remuneration

Committee

Executive

Committee

Board Governance

& Nominations

Committee

Model Risk

Committee

Commercial

Lending

Sanctioning

Committee

Retail &

Commercial

Credit Risk

Committee

Commercial

Division Risk

Committee

Customer

Services

Division Risk

Committee

Covered

Bond

Management

Committee

Asset & Liability

Committee

Risk Management Report

Wholesale

Funding

Committee

102 | Governance

Strategic Risk

The risk that the Society’s business model or strategy does not create the appropriate value due to changes in the business environment (Political,

Economic, Social and Technological); or, from the effectiveness of decisions and actions relating to the Group’s response to those changes.

Risk mitigation Key risk indicators Commentary

•

The Group mitigates risks relating

to the business environment and its

strategic choices through its horizon

scanning, corporate planning, scenario

analysis and stress testing and ongoing

monitoring reporting activity.

•

The Group’s hedging strategy is

structured in such a way as to mitigate

the risks relating to the Group’s

focused range of products in a highly

competitive marketplace.

•

A formal governance process, with

Board level oversight, is in place

for the Group’s Transformation

Programme which monitors progress

and potential risks.

•

The Group has defined its broader

attitude to risk in relation to its

Purpose, business model and strategy

and detailed risk appetite statements,

metrics and limits are in place for all

other Principal Risks.

•

The Group monitors a wide range of

external financial and non-financial

indicators relating to actual and

potential changes in the environment in

which it operates.

•

Whilst the UK economy has recently

shown signs of recovery and COVID-19

public health measures are gradually

being withdrawn, the risk of new

variants provides a background level

of continuing uncertainty. Potential

macro-economic outcomes, including

those relating to current inflationary

pressures and the likelihood of

further base rate rises, continue to be

explored through the Group's stress

testing linked to its Corporate Planning

processes. The Group remains well-

capitalised, with good levels of liquidity

and access to wholesale funding.

A strong balance sheet and capital

generation will ensure that the Group is

well placed to withstand any potential

economic downturn.

•

The Group’s Transformation Programme

is progressing well and continues to

deliver both customer and colleague

benefits in this challenging business

environment. The Programme is

designed to ensure that the Group

maintains its competitive position

in response to changing customer

behaviour and expectations.

Principal Risks and how we mitigate them

Our principal risks and our risk profile evolve as we move through the economic cycle. The Board has an on-going process for

identifying, evaluating and managing the principal risks faced by the Group; these systems have been in place for the whole of

2021; and the systems are regularly reviewed by the Board.

These risks are set out below, along with how we manage and measure the risk, and the progress that has been achieved in 2021:

| 103

Governance - Risk Management Report

Funding and Liquidity Risk

The risk of having inadequate cash flow to meet current or future requirements and expectations.

Risk mitigation Key risk indicators Commentary

•

Funding and liquidity risk is constrained

by a Board approved risk appetite, which

is further governed through the Funding,

Liquidity and Capital Risk Policy.

•

The key assumptions, risks and

controls around the management of

liquidity risk are outlined in the ILAAP

document which is approved annually

by the Board.

•

We operate a range of internal stress

tests to ensure that sufficient liquidity

is available at all times to address stress

and business as usual requirements.

•

The Group also manages to the

external regulatory measure, the

Liquidity Coverage Ratio (LCR) and the

Net Stable Funding Ratio (NSFR).

•

We are primarily funded through

retail savings balances, supported by

a strong franchise in key wholesale

funding markets.

•

Liquidity levels remained strong

and materially above regulatory

requirements throughout 2021.

•

Liquidity levels are forecast to remain

above regulatory and internally derived

minimum requirements across 2022.

Liquidity Coverage Ratio

2020

2021

192%

199%

Capital Risk

The risk that the Group is not able to meet regulatory capital requirements or deliver on its strategic plans due to insufficient capital resources.

Risk mitigation Key risk indicators Commentary

•

Capital risk is constrained by a Board

approved risk appetite, which is

further governed through the Funding,

Liquidity and Capital Risk Policy.

•

Current and projected capital

positions are regularly monitored and

also considered in stress scenarios as

part of the ICAAP.

•

The Group operates a range of internal

stress tests to ensure that sufficient

capital is available at all times to allow

the Group to maintain its minimum

capital requirements even in a stress

scenario.

•

Specific details on capital

management can be seen in the

Group’s Pillar 3 disclosures (available

on the Group’s website).

•

The Group maintained strong capital levels

throughout 2021, well above regulatory

requirements and internal risk appetite,

and forecasts that this position will be

maintained across its planning horizon.

•

The leverage ratio presented is the UK

leverage ratio as determined by the PRA.

•

The Group is progressing its application

to use the advanced IRB approach

to calculate capital requirements for

credit risk. Once the Group gains IRB

permissions, its key capital ratios (notably

the CET1 ratio) will better reflect its level

of credit risk, with an expected increase in

the ratio.

•

The Group is subject to end state MREL

requirements (double pillar 1 and 2A)

and comfortably met these requirements

throughout 2021.

Leverage Ratio

(UK Definition)

2020

2021

5.9%

CET1 Ratio

2020

2021

16.7%

16.8%

MREL Resources %

Risk Weighted Assets

2020

2021

20.7%

21.7%

104 | Governance

Risk Management Report

Model Risk

The risk that the Society’s models that are used to manage the business are inaccurate, perform inadequately or are incorrectly used.

Risk mitigation Key risk indicators Commentary

•

Model Risk is managed within the

framework set out in the Society’s Model

Risk Policy.

•

Compliance with the policy is monitored

through the Model Risk Committee (MRC)

which is the designated committee for

the oversight of Model Risk.

•

MRC is chaired by the Chief Risk Officer

and is a sub-committee of the ERC.

•

Number of models in governance

by the Model Risk Framework.

•

Individual model ratings which

reflect model performance and

regulatory policy compliance.

•

The Group operates an inventory of all models

which is used to manage compliance with the

Model Risk Policy.

•

In Q1 2020, a final plan to bring all ‘back-book’

models under full governance was agreed at

Model Risk Committee. Significant progress has

been made against this plan with all Critical

models now fully governed. Work will continue

in 2022 to bring the remaining four models

through the governance process with this

expected to be completed by May 2022.

•

A Model Risk Management Maturity

framework has been developed which sets

out the path to evolve and enhance the

level of controls required from a Model Risk

Management perspective. A final framework

was approved at Model Risk Committee with

agreement on which maturity state each

model/model type should be compliant

with. Work is ongoing to establish resource

requirements to ensure compliance.

Market Risk

The risk to the Group’s earnings or the value of its assets and liabilities due to changes in external market rates.

Risk mitigation Key risk indicators Commentary

•

Market Risk is constrained by a Board

approved risk appetite, which is further

governed through the Market Risk Policy.

•

The Group adopts a risk averse approach

to interest rate mismatch although some

scope for position taking is allowed,

subject to the agreed risk appetite.

•

The Group operates a wide range of

measures and scenarios that review this

risk in respect of both earnings and value.

•

The Group operates a range of internal

stress tests to ensure that market risk is

within an acceptable range over a series of

rate scenarios including negative rates and

non-parallel shifts.

•

The Group’s limits for basis risk include

limits for sensitivities around isolated

movements in underlying rates (SONIA),

for overall mismatch ratios and for

ensuring the Group has sufficient levels

of margin management capability.

•

The PV100 (Market value change on the

Society Balance Sheet of a parallel 100bps

increase in interest rates) now results in a loss.

This positions the Society unfavourably for a

rise in rates but favourably should rates fall.

•

The 12-month earnings sensitivity has

increased (impact on 1-year net interest

income of a 2.5% parallel increase/decrease

in rates). The biggest sensitivity last year was

£14.7m, due to the down shock. This year it is

the up shock at a loss of £36.2m. This is due to

a net increase in liabilities repricing within the

12-month window, offset somewhat by interest

rate caps. Whilst this has increased, it is still

within risk appetite. The down shock this year

results in a loss of £0.5m.

•

With respect to IBOR reform risk, the majority of

the Group’s LIBOR position has fully transferred

to other rate drivers.

PV100

2020

2021

£41.1m

(£11.3m)

12 Month Earnings

Sensitivity

2020

2021

(£14.7m)

(£36.2m)

| 105

Governance - Risk Management Report

Retail and Commercial Credit Risk

The risk of credit losses as a result of failure to design, implement and monitor an appropriate credit risk appetite.

Risk mitigation Key risk indicators Commentary

•

Retail and commercial credit risk is

constrained by a risk appetite, which is

approved by Board and further governed

through the Retail and Commercial

Lending Policy.

•

A robust credit risk framework ensures

that lending remains within risk appetite

limits and appropriate remedial action

is taken if a breach occurs. Adherence is

monitored regularly through governance

committees.

•

Stress testing confirms portfolio

resilience.

•

A model governance framework ensures

that credit risk models are operating as

intended.

•

The Group continues to exhibit a low level of

mortgages in arrears. The UK finance market

average for >3 months arrears by volume is

currently 0.79% compared to the Group’s

rate of 0.50%.

•

Our mortgage book has experienced

significant favourable HPI movements over

the year.

•

In 2022, the credit risk focus will continue

to be on the delivery of strong asset quality

aligned to responsible growth of the

mortgage book.

•

The asset quality of our loan portfolio

remains strong. A large proportion of the

expected credit losses held against our

mortgages relates to pre-2009 lending, and

the portfolios acquired on the N&P and

Chelsea mergers, with the Group’s more

recent lending being of a much higher credit

quality.

Treasury Risk

The risk of losses following default on exposures arising from balances with other financial institutions, liquid asset holdings and the use of

derivative instruments to manage interest rate and foreign exchange risk.

Risk mitigation Key risk indicators Commentary

•

Treasury risk is constrained by a Board

approved risk appetite, which is further

governed through the Treasury Risk

Policy.

•

Most of the Liquid Asset Buffer portfolio

is invested in the highest quality assets.

•

The majority of derivative contracts

are subject to centralised clearing

to minimise risk exposures to

counterparties. Where this is not

possible, derivative exposures are

restricted to high quality counterparties

which are subjected to regular review

and scrutiny by the Asset and Liability

Committee (ALCO) within overall risk

limits.

•

Each wholesale counterparty limit is

reviewed at least on an annual basis, or

sooner if a risk event occurs in the interim.

•

The size of the credit limit allocated per

counterparty is driven by their credit status

as determined by internal analysis and is

calibrated to the size of the Group’s capital

position to ensure that the financial viability

of the Society is not overly exposed to any

single counterparty.

•

Exposure to AA- or above counterparties

remains high, maintaining the low risk profile

in accordance with Board risk appetite.

Mortgage arrears

(incl. possessions) ≥3 months

by volume

2020

2021

0.59%

0.50%

Mortgage arrears

(incl. possessions) ≥3 months

by value

2020

2021

0.43%

0.36%

Wholesale AA- or above

2020 2021

94.5% 93.8%

106 | Governance

Risk Management Report

Operational Risk

The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems, or from external events.

Risk mitigation Key risk indicators Commentary

•

Operational risk is constrained by

a Board approved risk appetite,

which is further governed through

the ERMF.

•

The ERMF sets out how colleagues

are expected to identify, assess,

monitor, manage and report their

risk exposures.

•

A Risk & Control Self-Assessment

(RCSA) process outlines the

controls that must be followed

and the frequency of assurance

in order to determine whether

the current set of controls is

appropriate to manage its risks

going forwards.

•

The ERC provides oversight across

the Group’s operational risk

exposures.

•

There has been a decrease in operational losses in 2021

following the time-bar relating to PPI claims.

•

Second line assurance of the Group’s Transformation

Programme has been in place throughout 2021, with

continuous monitoring activity and periodic reporting to

the Group Risk Committee.

•

The Group continues to develop the maturity of its

operational risk control environment, with plans and

supporting investment in place across its information

management and information security risk categories

along with targeted improvements and investment in its

financial crime risk management capabilities.

Compliance and Conduct Risk

The risk of direct or indirect loss as a result of a failure to comply with regulation or to ensure fair customer outcomes.

Risk mitigation Key risk indicators Commentary

•

Compliance and Conduct risk,

including financial crime risk, is

constrained by a Board approved

risk appetite, which is further

governed through the ERMF.

•

Key conduct risk metrics are in

place to protect customer outcomes

in all key areas including sales,

service, complaints and collections.

•

Clear responsibilities have been

determined in a revised governance

model that established defined

risk management and oversight

accountability within the divisions.

•

A comprehensive programme

of independent oversight with

reporting to GRC takes place.

•

Compliance support and guidance

is provided to the business on

all key matters. This includes

regulatory developments, strategic

change programmes and new

developments alongside day to day

BAU support.

•

Contributing to the improved complaints performance has

been the reduction in savings and mortgage complaints,

where purposeful analytics have been used to identify and

address a number of complaint hotspots with the Group’s

processes.

•

A Compliance Monitoring plan, approved by the GRC, has

been completed during 2021 allowing robust oversight

of the key areas of conduct, financial crime and data

protection risk.

•

All oversight findings are the subject of a formal action

plan overseen to closure by the GRC.

•

Focus continued on customers impacted by the COVID-19

pandemic with Compliance providing continuous

monitoring support to Mortgage Collections & Recoveries

and a review focused on the Mortgage Sales and Lending

Journeys.

•

The Group is committed to ensuring that it has robust

policies and procedures in place to effectively identify

and manage financial crime and to support this oversight

was provided with a focus on governance & oversight of

financial crime risks.

•

Compliance has continued to provide support in the

delivery of regulatory changes to support YBS members

and customers impacted by the COVID-19 pandemic,

which has been a significant piece of work. Support has

also been provided in strategic change programmes and

new developments including its Digital transformation

Programme, Payments Simplification, data/privacy,

consumer duty and advising regarding the UK’s review of

the anti-money laundering & counter-terrorist financing

framework.

Complaints per 1,000

accounts - Mortgages (H2)

2020

2021

6.65

4.68

Complaints per 1,000

accounts - Banking,

Savings and Loans (H2)

2020

2021

0.65

0.39

Operational Losses

(Net of monies

recovered)

2020

2021

£5.5m

£2.5m

| 107

Governance - Risk Management Report

Our approach to Climate Risk

The Group recognises that climate risk is pervasive and creates risk exposures for the Group within a number of its existing

Principal Risk categories described above. The Group has, therefore, applied approaches defined within its existing Enterprise

Risk Management Framework (ERMF) to the identification, assessment, management and monitoring of its exposure to the risks

arising from climate change, specifically physical and transition risks. Taking this strategic and holistic approach enables the

consideration of how climate-related risks might impact all aspects of the Group’s risk profile. It also enables the pragmatic

management of climate risk within a framework which continues to be reviewed, developed, embedded and (where necessary)

improved over time.

The detailed elements of the Group’s risk management approach to climate risk in respect of the Task Force on Climate-

Related Financial Disclosures (TCFD) recommendations and in the context of the Group’s ERMF, are summarised below.

Identifying Climate Change Risk

Yorkshire Building Society is a member of the Climate Financial Risk Forum (CFRF), co-chaired by the Financial Conduct

Authority (FCA) and the Prudential Regulation Authority (PRA), and recognises the good practice guidance provided by this

forum. In identifying the risks to the Group, the table below displays the risks and associated considerations that have been,

or will be, forming part of the Group’s disclosures as they advance in line with regulatory and non-financial ratings agency

expectations. Specifically, the Group has reviewed a wide set of considerations through its review activity and sought third

party specialist input, where necessary, in its identification of risks specific to the Group.

The Group’s Principal

Risk Exposure

Example Key Risk Considerations

Strategic Risk

(Focused on the future viability

of the business model)

• Adapting the Group’s strategy to meet customers’ green expectations.

• The policies and processes that will be required to ensure that green products are robust.

Retail & Commercial

Credit Risk

(Focused on the credit

worthiness of the customer,

the underlying value of the

asset and probability of

default)

• How the Group’s mortgage book would respond to stricter energy efficiency policies.

• The proportion of the mortgage book which is geographically located in areas which will be exposed to

the impact of more frequent and severe weather events.

• How lending criteria, focussed on energy efficiency and economic sector, could be deployed.

Compliance & Conduct Risk

(Focused on the action/

inaction of the Society causing

detriment to customers, to the

market and to the competition)

• The proportion of customers that would be adversely affected by the industry standard moving toward

stricter lending criteria based on physical risk metrics such as the probability of flood risk.

• The proportion of customers that would be adversely affected by the industry standard moving toward

stricter lending criteria based on energy efficiency.

Operational Risk

(Focused on the resilience of

the Society’s infrastructure,

systems, procedures and

policies, to events that could

affect business continuity)

• The level of energy efficiency of the Group’s property estate and its exposure to physical climate risk.

• The extent of exposure of critical suppliers to more frequent and severe weather events under climate change.

• The geographical location of critical suppliers and their exposure to physical climate risk.

• The adaptations that will be required to be made to ensure the health and safety of customers and employees.

This review activity has fed into the Group’s scenario analysis work, which sought to quantify financial losses as a result of climate

change. Analysis will be matured and extended across liquidity and funding risk, model risk, reputational and legal risk in the

coming years. The Group’s climate change plan ‘

Building a Greener Society

’ supports this agenda.

108 | Governance

Risk Management Report

Assessing Climate Change Risk

UK financial institutions were required

by the PRA to develop the capability

to assess their exposure to climate

risks by the end of 2021, as outlined

in the PRA published supervisory

statement in April 2019 (SS3/19),

with the additional Climate Financial

Risk Forum (CFRF) guide in June 2020

and the ‘Dear CEO’ letter outlining

expectations in July 2020. During

2021, the Group developed a set of

models for the assessment of the

financial impacts of climate change

risks on the residential and commercial

mortgage portfolios. This enabled

the Group to meet the climate risk

requirements of SS3/19 and conduct

climate change scenario analysis

using the climate scenarios included

in the Bank of England’s 2021 Climate

Biennial Exploratory Scenario (CBES).

For more detail please see the

Building

a Greener Society

in the

Strategic

Report

The Climate Change Model calculates

losses on an average and climate-

stressed basis under each of the

three CBES emissions scenarios

covering early, late, and no policy

action toward reducing carbon

emissions. Each emissions scenario

contains different assumptions as to

the rate of increase of physical and

transition risks over time as well as

different forward-looking forecasts of

macro-economic drivers impacted by

climate change and emissions-control

policies. The model incorporates

physical and transitional climate risks

based on these scenarios, including

risk to property due to flooding,

subsidence and coastal erosion, and

transitional risks from national-level

macroeconomic effects and property-

level energy efficiency regulations. As

physical risks due to climate change

play out over longer time horizons than

are typically considered in traditional

credit risk models, these models

incorporate elements that translate the

long-term impacts of climate risk into

shorter term risks applicable to the

current portfolio.

The Climate Change Model is based

on the Group’s existing stress testing

model and uses a modular design

to add components specific for

estimating additional losses due to

climate-related hazards. The Group

expects the Bank of England to publish

market-wide CBES results in May 2022.

This will provide an opportunity for the

Group to assess the modelled climate

risk relative to the market and allow

for further consideration of mitigating

actions to manage the ongoing risks.

The Climate Change Model has been

used to inform the development of the

Group’s climate strategy and in setting

risk appetite.

| 109

Governance - Risk Management Report

Principal Risk Risk Appetite Statement

Strategic Risk

None of the Group’s direct lending supports development in sectors of the economy which carry heightened risk*. The

Group does not engage in project finance and would not support a project that directly harms the environment. However,

the Group cannot indefinitely rule out indirect involvement through third-party investment.

Retail & Commercial

Credit Risk

The Group’s level of exposure to transitional and physical risks will continue to be stress tested in compliance with PRA

SS3/19 to ensure that it does not knowingly threaten the Group’s financial sustainability.

Compliance &

Conduct Risk

The Group will only offer products and services which meet customer needs, and where it can manage any conduct

risks which arise including consideration of customer vulnerability and impacts on and of climate change. If failures

occur, the Group will proactively identify and establish root cause and remedy via its own actions.

Operational Risk

The Group will seek to limit, understand and mitigate its exposure to climate change risk.

The Group is committed to reducing its impact on the environment and this includes ensuring that, over time, its

suppliers are also actively taking steps to reduce the impact they have on the environment.

Oil & Gas, Electric Utilities, Metals & Mining, Chemicals, Quarrying, Landfill, Airlines, Aerospace and Shipping.

Management of Climate Risk

Climate risk is managed on an ongoing basis through relevant policies, governance arrangements and risk appetite

statements that have been set in place to define the levels of acceptable risk to the Group, and to provide monitoring and

reporting capability within the wider ERMF.

Policies

The Group’s policy universe has been reviewed and updated in respect of climate risk and policies relating to Retail and

Commercial Credit, Compliance & Conduct and Operational Risks have been updated.

Governance

A Climate Risk Steering Group has been created to oversee the delivery of the project. The governance structure has been

reviewed and incorporated climate risk considerations and responsibilities into the existing Committee structure, for

example, Group Risk Committee. Senior Managers & Certification Regime prescribed responsibilities have also been allocated

to relevant members of the Executive Committee.

Risk Appetite

The Group manages the risks arising from climate change through its risk appetite statements. For climate risk appetite

specifically, it is recognised that this will mature and evolve as the Group develops its understanding of these risks; in turn

this will lead to more granular statements and the proposal of further quantitative risk appetite metrics.

New risk appetite statements have been developed in relation to climate risk as part of the first stage of the Group’s climate

change plan. These have been developed within the context of the Group’s Principal Risk exposures and are set out in the

table below.

110 | Governance

Risk Management Report

Next Steps

The Group is committed to delivering

the ‘Building a Greener Society’

agenda by developing the approach

to climate risk in the context of its

existing Enterprise Risk Management

Framework.

Stress Testing

Stress testing is a proactive risk

management tool used throughout the

Society to better understand potential

vulnerabilities in our business model

and to derive effective management

actions. All stress test scenarios are

approved by ALCO before GRC reviews

key stress tests, providing a further

level of governance.

The key uses of stress testing are:

•

To test the robustness of the

Society’s financial plan to adverse

economic conditions, ensuring a

sustainable financial performance

within our risk appetite.

• Scenario analysis of the Society’s

recovery plan and contingency

funding options.

• To support the production of the

ICAAP and ILAAP, informing the

setting of regulatory capital and

liquidity requirements

• Daily stress testing of the liquidity

and market risk, keeping up to

date with market movement and

developments.

• To provide performance

management MI to support

mortgage trading decisions

•

To assess new product and other

initiatives.

•

The evaluation of strategy.

•

To understand through the Society’s

annual reverse stress tests how to

prevent risks crystallising and/or

mitigating them if the impact has

occurred.

It should be noted that unlike other

stress tests, reverse stress tests start

from the identification of a predefined

outcome, that being the point at which

the firm’s business model becomes

unviable, or at which the firm can be

considered to be failing because the

market has lost confidence in it.

Concurrent Stress Test

In addition to the ongoing stress

testing undertaken by the Society that

covers a broad range of scenarios the

Society has also modelled the impact

of the Bank of England’s Annual

Concurrent Stress test (ACS). This

allows the Society to evaluate how it

performs under this scenario, and also

relative to the organisations that are

part of this process. The results of this

are included in the Pillar 3 disclosures.

In summary, the conclusion is that the

Society is well positioned to withstand

a stress event such as that defined by

the ACS.

Neeta Atkar MBE

Chair of the Group Risk Committee

1 March 2022

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Governance - Risk Management Report

I am pleased to share the Director’s Remuneration

Report, including details of the Directors’ pay, for

the year ending 31 December 2021. Our role as the

Remuneration Committee (the Committee) is to ensure

that all of our remuneration policies align with the

Board-approved, long-term strategy to make sure that

the business is run safely, successfully, and sustainably

for our members.

This report includes a summary of the Remuneration

Policy and key decisions made by the Committee this

year. As in previous years, where possible this report

discloses information in line with the

Building Societies

(Accounts and Related Provisions) Regulations 1998

and the Pillar 3 disclosure requirements under CRD V

relevant to a Proportionality Level 2 firm. The Society

also voluntarily complies, where possible, with the

disclosure requirements of the

Large and Medium-

sized Companies (Accounts and Reports) Regulations

2008 and the Companies (Miscellaneous Reporting)

Regulations 2018

and seeks to comply with the

UK Corporate Governance Code (the Code) in its

reporting, expectations of management behaviour and

stakeholder engagement.

Looking back to 2021

This has been another challenging

year for the Society, with the

ongoing COVID-19 pandemic

having real impact on members

and colleagues. Our objectives

have remained to protect and

support the wellbeing of our

colleagues in addition to ensuring

our members and customers

continue to receive the service

needed to help with their lives.

This year’s

Strategic Report

outlines the strong financial

performance of the Society,

particularly in the first half of

the year when trading conditions

were conducive, and with our

mortgage business outperforming

many competitors in the market.

Strong progress has been made

against our Strategic Blueprint to

ensure we deliver ongoing long-

term member value and transform

the Society into a fit for the future

organisation. By maintaining

long-term sustainability for the

Society, this will help us navigate

through the current economic

climate and changes expected

over the coming years as the

financial impact of the pandemic

is realised. We endeavour to be

in a strong position for when our

customers need us.

Directors’

Remuneration

Report

A WORD FROM THE CHAIR OF THE

REMUNERATION COMMITTEE

112 | Governance

Most recently, the Board and the

Committee were informed of Mike

Regnier’s decision to resign as CEO and

step away to become the new CEO of

Santander UK. Mr Regnier has been CEO

for five years and we would like to thank

him for his diligence and efforts and

wish him well for the future. Fortunately,

as we have strong succession plans in

place, the Board asked Stephen White

(previously Chief Operating Officer) to

step into the interim CEO role. The full

Board welcomed the news of Stephen’s

appointment and will support him as he

takes up the reins to lead the delivery

of our strategy.

During the year, the Committee

has maintained its focus on the

evolving regulatory expectations and

remuneration best practice when

overseeing the appropriateness of

remuneration structures and outturns

to protect the interests of our members

and colleagues.

Key considerations and decisions

made by the Committee includes:

•

A 2021 pay settlement of 2.1% to

all colleagues to reflect the vital role

played by colleagues in delivering

critical services to customers and

in our financial performance (Mr

Regnier asked to not be considered

for a pay increase in 2021).

•

Our commitment to how we

demonstrate the Society is inclusive

and diverse in all activities and,

particularly, how our remuneration

policy remains gender neutral, is

ongoing. As at April 2021, our mean

Gender Pay Gap stands at 28.1% (a

reduction from 32.9% in 2020). The

main driver for the gap continues

to be the imbalance of males and

females at different levels in the

organisation. If this were to be equal,

the gap would be 4.2% (3.5% in

2020). Details of progress and key

achievements (including meeting

our 2018 Women in Finance targets)

as part of the Society’s Inclusion

& Diversity strategy is included

in the

Colleagues

section of the

Strategic Report

, (including the

recognition of external parties in our

activities and achievements). The

Society continues to work to build

a more balanced workforce which

is genuinely representative of the

views of our customers, colleagues

and society as a whole. The 2021

YBS Gender Pay Gap Report can be

found on our website.

•

The Society actively seeks the

views of our colleagues through a

number of sources; Our colleague

forum, reward listening group and

Performance & Reward Committee

are examples of where we gain

direct colleague input into the

design and ongoing development

of the Society’s remuneration

framework. This in turn feeds into

the Remuneration Committee

of which Alison Hutchinson, our

Vice-Chair attends and has formal

accountability for the ‘Voice of the

Employee’.

The remuneration principles within the

Capital Requirements Directive (CRD)

have been amended and implemented

in 2021. CRD V, came into force from

28 December 2020 and changes the

minimum deferral period of senior

manager bonus awards, from 3 years

to 4, and increases the deferral period

and how bonuses are paid for a

greater proportion of our Material Risk

Takers. The purpose of this change is

to promote sound and effective risk

management by aligning the long-term

interests of the Society, customers

and colleagues whose activities have

a material impact on the risk profile of

the business.

The Committee has also seen some

recent changes in membership. The

Chair of the Board, John Heaps, has

decided to stand down as a member

and we have two new Non-Executive

Director members in Dina Matta

and Jennelle Tilling (see the

Our

Leadership Team

section for their

individual biographies). Both Dina and

Jennelle bring a wealth of experience

to the Committee and I’m confident

they will serve the interests of our

members to the highest level.

Remuneration Outcomes for

2021

In 2021, we launched the

Leading for

Value

bonus scheme to run parallel

to the Society’s core bonus scheme.

The purpose of the

Leading for Value

scheme was to support the retention

of the skilled and committed Senior

team, the scheme includes stretch

performance objectives set against

our longer term objectives, serving

to protect the Society’s financial

strength but primarily focusing on the

delivery of long-term member value.

The scheme includes a broad set of

performance targets linked to enhanced

member value, ESG (Environment,

Social and Corporate Governance) and

Diversity objectives. The Committee

is accountable for ensuring there are

robust controls in place which support

our decision making in determining

the maximum bonus opportunity for

individuals via our pre-grant assessment

process, and approval of bonus outturns

based on evidence and validation in the

delivery of benefits.

The Committee believes the Executive

Directors have continued to deliver

real benefits for the Society and helped

create value for our members and other

stakeholders. This is demonstrated

by a strong financial performance,

progress in our community and diversity

objectives and ensuring significant

investment in member value through

our savings propositions. It is on this

basis that we have awarded bonuses

to our Executive Directors in respect of

the 2021 performance year. On average,

eligible Executive Directors’ achieved

90.7% of their maximum opportunity

and all other colleagues received an

average of 96.9% of their maximum

bonus opportunity. We have included

full details of how remuneration is

awarded to Executive Directors and the

amounts later in this report.

Looking forward to 2022

Whilst reviewing the Society’s plans

for continued transformation in 2022

and the current economic pressures

for both customer and colleagues, the

Remuneration Committee believes the

current Remuneration Policy is fit for

purpose, and is proposing no changes

for 2022. We believe the policy ensures

long-term member value and the

sustainability of the Society is achieved.

In Conclusion

I trust that members will agree that

the performance of the Society and

its leaders in 2021, warrants your

continued approval of the Director’s

Remuneration Report and support of

the Remuneration Policy. On behalf

of the committee, I recommend you

approve and endorse these items.

One final point to make is to confirm

that it is my intention to step down

| 113

Governance - Directors’ Remuneration Report

Savings

Rebooted

purposeful

analytics

properly

personal

experience

unbelievably

easy and

eﬃ cient

our YBS

behaviours

Financial sustainability and pr t

provides member value and

underpins any bonus pay awarded

Supports informed risk decisions for

member

t - risk performance

is key in determining bonus awards

Customer service performance and

feedback built into bonus underpin

Operating the Society at the right

cost enables value to be passed to

members and enables bonus rewards

Personal performance and displaying

the ‘right’ behaviours is key to

delivering strategy and in determining

bonus award

Overview of our Directors’ remuneration in 2021 (at a glance section)

How much have our Executive Directors

earned in 2021?

Mike Regnier

***

Alasdair Lenman

Stephen White

591

363

437 95 406

76 330

679

769

938

Key

 Base Salary £'000  Other Fixed Pay

£'000  Bonus £'000  Total Earnings £'000

Note that David Morris was appointed as an Executive Director in January 2022, so he did not receive any remuneration in his capacity as an Executive Director

during the year to 31 December 2021.

Fixed pay includes pension allowance, any location or additional responsibilities allowance and taxable benefits.

***

Mike Regnier is the outgoing Chief Executive Officer – Stephen White took over as interim CEO 29 November 2021 and has been awarded an additional

responsibility allowance of £110,500. This allowance is used in the calculation for the proportion of his 2021 bonus as interim CEO (29 November to 31 December

2022) and any potential 2022 bonus. A payment of £10,058 was made as part of this allowance from 29 November 2021 to 31 December 2021 – this is included in

the table above. The allowance is not used to calculate Mr. White’s Pension contributions.

A summary of how we have rewarded Executive Directors is outlined below. The Society’s financial

performance and key customer service measures are used for bonus calculations (in line with the

Remuneration Policy approved at the last advisory vote at the 2021 AGM). Unless otherwise stated the

report is unaudited.

Directors’ Remuneration Report

from the Board and position as

Remuneration Committee Chair at

this year’s AGM, having served as a

Non-Executive Director for 9 years.

I have thoroughly enjoyed working

at YBS and I would like to thank my

colleagues on the Committee for their

diligence and commitment and to

take this final opportunity to thank

our members for their support of our

remuneration policy. I will continue to

closely follow the Society on its future

transformation journey, and feel proud

to have served on the Board.

Guy Parsons

Chair of the Remuneration Committee

114 | Governance

Overview of the Directors’ Remuneration Policy for 2022

The following table sets out the key elements of the proposed Executive Directors’ Remuneration Policy- no changes are

proposed for 2022. Full details of the Directors’ Remuneration Policy are set out below.

Remuneration element Summary Proposed change for 2022

Fixed

remuneration

Base Salary Cash base salary determined based on a combination of

skills, knowledge and experience, on-going performance and

demonstration of the Society’s behaviours and values.

No change proposed.

Benefits Various cash and non-cash benefits including private medical

insurance, life assurance, concessionary financial products, sick

pay and company car (or cash equivalent).

No change proposed.

Pension From April 2021, all current Executive Directors receive a

contribution (or cash allowance) equal to a maximum of 11% of

base salary, aligned to the contribution level for all colleagues.

No change proposed.

Variable

remuneration

Building

Together Bonus

scheme

Annual bonus scheme which rewards Executive Directors’

for performance against challenging financial, customer and

individual measures.

The maximum bonus available for Executive Directors is 50%

of base salary.

No change proposed

Leading for

Value Scheme

The Leading for Value scheme was approved and implemented

for the financial year 2021 and onwards. This scheme

focuses on achieving milestones within our strategic plan

and the delivery of long-term value to our members plus

our commitment to ESG measures (e.g. Inclusion & Diversity,

Community, Social and environmental commitments).

The maximum bonus available under the Leading for Value

scheme is 75% for the Chief Executive and 50% for other

Executive Directors.

All grants under the Leading for Value will be subject to a pre-

grant assessment of performance by the Committee which will

incorporate both YBS and individual performance.

No change proposed

Applicable to

all variable

remuneration

All bonuses will be delivered through a combination of cash

and Share Equivalent Instruments (SEI)*.

All bonus payments will also be subject to regulatory underpins

including risk adjustment, deferral, malus and clawback.

No change proposed

Building

Together

The YBS Remuneration Policy (outlined

in full below) is based on a number

of key principles including the ability

to attract and retain talent; a focus

on the total remuneration package;

and the recognition of both collective

and individual achievements. These

principles are designed to ensure that

colleagues work together for the benefit

of the Society and the best interests of

our members and customers.

This philosophy is reflected in the

remuneration of our Executive

Directors, delivering rewards when

we can demonstrate the alignment

between their performance and

improved member value, delivering

(and designing) strategy to secure long-

term benefits for the Society and our

members, and maintaining success and

sustainability for the future.

The

Building Together

bonus scheme is

based on sharing in business success,

sustainability and delivering for our

members. The senior leadership team

has an additional bonus earning

opportunity which is based on overall

business performance, underpinned

by an individual scorecard and also

a scheme linked to the longer term

objectives of the Society, based

on transformation performance,

member value and delivery of

ESG commitments (Leading for

Value). Full details of the how the

schemes operate is outlined in our

Remuneration Policy below.

The Committee retains the discretion

to make financial and risk adjustments

prior to the payment of any bonus to

ensure it reflects the true underlying

performance of the Society.

Share Equivalent Instruments are units that act like a company share, £1 is the value of each SEI unit. Over the course of the deferral and retention

periods, the SEI can change in value if YBS does not maintain its CET1 capital levels.

| 115

Governance - Directors’ Remuneration Report

Annual Report on Remuneration

Executive Directors’ Remuneration

All remuneration in the 2021 performance year has been awarded in line with the Society’s Remuneration Policy, which was last

approved by members at the 2021 AGM.

The table below shows the single total figure table of remuneration for the Executive Directors of the Society for the years

ended 31 December 2021 and 2020. This information has been audited by our independent auditors, PricewaterhouseCoopers

LLP (‘PwC’). Following the resignation of Mr Regnier, exit arrangements have been made in line with the approved remuneration

policy. This means that no 2021 bonus award will be paid to him.

Base Salary

Our Executive Directors did not receive a pay increase in 2020. Mr. Regnier opted to not take a pay increase in 2021 – awards

were made to Mr White (1.6% - £6,924) and Mr Lenman (1.9% - £6,819), as outlined in the table above. Mr White is provided

with an additional responsibility allowance (of £110,500 per annum) in his role as interim CEO and this was brought into effect

from 29 November 2021. These uplifts are commensurate with those provided to all colleagues and in line with our analysis of

market data.

Building Together

The

Building Togethe

r bonus scheme is linked to financial performance, customer experience and risk management.

All colleagues are invited to participate in the scheme. An additional element is available for senior managers and

Executive Directors up to a maximum of 50% of salary with an on-target opportunity of 30% of salary.

Payment under the scheme is subject to meeting a number of business and personal, financial and non-financial

stretching objectives and is awarded at the discretion of the Committee. All measures are set so they seek to drive

value for the Society and its members. A risk overlay is undertaken to ensure the Society is not exposed to undue risk

and forms part of our sustainability review.

Bonus

Directors’ Remuneration Report

Executive Director

Fixed Remuneration Variable Remuneration

Total

Remuneration

Base Salary Taxable

Benefits

Pension/

Pension

Allowance

Total Fixed

Remuneration

Bonus Total

2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020

£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000

Mike Regnier

CEO

591 591 15 15 73 94 679 700 - 226 - 226 679 926

Alasdair Lenman

CFO

363 359 31 31 45 57 439 447 330 137 330 137 769 584

Stephen White

COO

437 433 41 31 54 69 532 533 406 165 406 165 938 698

Total

1,391

1,383 87 172 1,650 736 736 2,38677 220 1,680 528 528 2,208

116 | Governance

1. FINANCIAL PERFORMANCE

The first performance measure is the profit before tax (PBT)

of Yorkshire Building Society and its controlled entities (‘the

Group’). Under the terms of the

Building Together

scheme, the

Committee has scope to make adjustments to the calculation

of profit within the bonus plan.

The following principles are applied when identifying

potential adjustments:

•

Where an unexpected or unplanned item arises that is not

part of the core, business as usual, running of the Group.

For example, one-off investments or projects that were not

included in the plan profit number against which actual

performance is judged.

•

Adjustments also include removing both positive and

negative impacts from non-core actions that do not reflect

management of the Group. For example, any unplanned

profits (or losses) on the sale of property are not included in

the PBT figure used to calculate bonus levels.

In line with the principles above, the overall PBT figure was

adjusted to produce an achieved position of £297.2 million

against a reported figure of £320.0 million. This represents a

performance above target, which was £195.7 million, and sets

the financial element of the bonus earning potential.

2. CUSTOMER EXPERIENCE

The second performance measure is the customer ‘Net

Promoter Score’ (NPS), which unlocks the bonus award. The

NPS measures how likely our members and customers are

to recommend us, and we obtain this through customer and

broker surveys. The results are combined, at a ratio of 50%

mortgages and 50% savings, to create the ‘combined NPS’

used for bonus calculations. To pay an ‘on-target’ bonus, the

target NPS for the year was +55. The average NPS achieved

throughout 2021 was +54. The PBT achieved in 2021 exceeded

both the target set and the bonus cap (the level at which

achievement ceases to impact bonus payment). Whilst, the

NPS result did not achieve the target set for 2021, it surpassed

the ‘threshold’ set for 2021 (minimum performance required

to trigger a bonus payment) of 47. Therefore, a moderator has

been applied to reduce awards from 100%.

Contribution from different NPS surveys to the overall

combined Society NPS score for Building Together

bonus scheme

Mortgages: 50%

Broker

feedback: 20%

Buy-to-let

customer

feedback: 5%

Residential

Mortgage customer

feedback: 25%

Savings: 50%

Savings customer feedback:

45%

Share Plans

customer feedback:

4. INDIVIDUAL PERFORMANCE FOR SENIOR MANAGERS

The Society’s performance determines the core bonus award; all three elements above need to be achieved before

any bonus will be awarded under both the collective and individual elements of the scheme. Individual performance

determines the percentage of bonus to be awarded for the Executive Directors (and the wider Senior Management

team). This assessment is measured on the achievement of their individual scorecard, containing both financial and

non-financial measures.

3. FINANCIAL SUSTAINABILITY REVIEW

The following calculations are undertaken and reviewed

before any bonus payment is awarded:

•

an assessment of the level of capital held by the Group

to ensure it remains sustainable and compliant with

regulation; and

•

an assessment of the Group’s cost management to

ensure that we are managing our costs in line with

targets approved by the Board.

Payments will be reduced or forfeited if the Group has not

met these targets.

As part of this review, we conducted a risk overlay, which

considers the management of specific business risk

appetite measures and payment can be amended if we

identify material breaches. Following a rigorous review

where we assessed business controls processes, it was

concluded that no action was required to adjust the bonus

levels for the 2021 performance year.

The YBS Share Plans business was closed to new business during

2021. Service is ongoing for existing clients and this measure remains

integral to the 2021 NPS to validate ongoing effective service levels.

| 117

Governance - Directors’ Remuneration Report

Directors’ Remuneration Report

118 | Governance

Leading for Value

The

Leading for Value

scheme operates

in addition to the

Building Together

scheme and is measured by delivery of

key strategic milestones, measurable

and targeted financial value for

members, and ESG performance based

on colleague engagement, inclusion

and diversity and social impact.

The Executive Team and the Chair of the

Board carry out a pre-grant assessment

before determining individual eligibility

for this scheme and consider both

personal (e.g. individual performance

and compensation levels compared

to the market) and the Society’s

performance (e.g. Capital, Liquidity

and risk plus financial measures). The

outcome of this assessment determines

the maximum opportunity that will

be available to the individual, subject

to the overall maximum level set

within the scheme. The Remuneration

Committee oversee this process before

agreeing to any proposals.

The specific annual metrics are

proposed each year by the CEO

and Executive Committee and the

categories are weighted such that

strategic milestones will make up

40% of the bonus, member value

30% and ESG 30%. The Remuneration

Committee assesses performance

against each metric to determine

the bonus outturn. The maximum

achievement against all performance

criteria results in a bonus of 75% of

base salary for the Chief Executive and

50% of base salary for other Executive

Directors. The financial underpin will be

Core Operating Profit being at a level

in line with threshold of the

Building

Together

Bonus plan.

For the 2021 performance year, the

Remuneration Committee agreed

an 84% outturn for the plan, based

on maximum achievement in the

Member Value and ESG sections,

with an on-target (60% of the

maximum) performance in relation to

the achievement of Transformation

measures.

How Leading for Value Bonus was calculated for Executive Directors

In line with the PRA and FCA remuneration regulations, all bonuses payable to Executive Directors designated as Senior

Managers are subject to deferral, delivery in share like instruments and retention. The Society’s Remuneration Policy outlines all

of these measures to ensure the Society delivers variable pay for its Senior Managers in a manner which prevents unnecessary

risk taking.

Measures Levels of achievement

Transformation

40%

• Future proofing high-street presence

• Aligning account opening times with cutomer needs

• Improving access to mortgage lending

• Improved mortgage decisioning

• Environmental efficiencies

• Simplification of services for Savings accounts

24%

Total 84%

Member value

30%

• Improving savings returns for customers

30%

ESG 30%

• Improving female representation at Manager level and

above

• Developing digital, employment skills

• Financial education and increase awareness in local

communities

30%

Share Equivalent Instruments (SEI)

In a performance year, where Executive

Directors’ total remuneration falls below

the de-minimis

limit, the annual bonus

awards will be delivered as cash and

paid over three years: 50% of any bonus

is paid out in the year following the

performance year; the remaining 50%

is deferred with 25% released after one

year and 25% released after two years.

For Executive Directors whose

remuneration is over the ‘de-minimis’

limit, bonus awards are required to have

a longer deferral period, and/or a larger

percentage deferred in line with the

current regulations. Also required by

regulation, is that 50% of each bonus

payment will be delivered via an SEI and

is subject to a retention period. For the

2021 performance year, an Executive

Director whose remuneration exceeds

the de-minimis limit will receive 20% of

their total bonus in 2022, with a further

20% delivered via a SEI in 2023. The

remaining 60% is deferred over seven

years, with a one - year retention period

applying to the SEIs received.

For example:

•

Year 1

40% of any bonus earned is paid out in the

year following the performance year. Half of this

amount is paid in cash (in 2022) and the other half

is delivered in a SEI and subject to an additional

retention period prior to revaluation and payment

(in 2023).

Length of time variable pay is at risk

2021 Bonus Delivery 2022 2023 2024 2025 2026 2027 2028 2029 2030

Undeferred: May Cash

Undeferred: May SEI

Deferred year 3: May Cash

Deferred year 3: May SEI

Deferred year 4: May Cash

Deferred year 4: May SEI

Deferred year 5: May Cash

Deferred year 5: May SEI

Deferred year 6: May Cash

Deferred year 6: May SEI

Deferred year 7: May Cash

Deferred year 7: May SEI

Key

 Cash bonus deferral  SEI deferral  SEI holding period

•

Deferral Years

the remaining 60% is deferred for 7 years and paid equally each

year from 3 years after the award. Each year, the award is split in two,

with half the amount paid in cash and the second half held in a SEI

and subject to an additional retention period prior to revaluation and

payment. SEI valuations continue every 12 months until the bonus

schedule is complete

Governance - Directors’ Remuneration Report

As per CRD V a de-minimis limit level is set by regulation, in relation to the level of bonus deferral applied. It impacts colleagues whose total variable remuneration

is less than £44,000 and where variable remuneration is less than 33% of their total remuneration.

How bonus is awarded for Executive Directors

Executive Director Role Total Award Deferral schedule

% of salary £000 2022 2023 2024 2025 2026 2027 2028 2029

Mike Regnier CEO - - - - - - - - - -

Alasdair Lenman CFO 90.71% 330 130 - - 40 40 40 40 40

Stephen White COO 90.71% 406 161 - - 49 49 49 49 49

For the 2021 performance year, 98.9% of eligible colleagues will receive a bonus. On average an eligible Executive Director achieved

90.7% of their maximum bonus opportunity, with all eligible colleagues on average receiving 96.9% of their maximum bonus

opportunity.

Bonuses for Executive Directors remain subject to malus and clawback, with bonus subject to clawback for up to ten years.

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Directors’ Remuneration Report

Taxable Benefits

The taxable benefits awarded to

Executive Directors are in line with

those offered to all colleagues,

comprising a company car (or

equivalent allowance), private medical

insurance, permanent health insurance

and any location allowances. Executive

Directors, like all colleagues, can also

participate in a concessionary mortgage

scheme which is subject to a maximum

concessionary amount of £160,000; no

Executive Directors have taken up this

mortgage scheme.

No changes to the Executive Directors’

benefits entitlement are planned for

2022.

Pensions

From 1 April 2021, all existing

Executive Directors received a

maximum pension contribution (or cash

allowance) of 11% to align with all

colleagues.

The pension scheme also provides

a lump sum of six times’ their

pensionable salary on death in service.

This is in line with all other colleagues.

CEO Pay Ratio Reporting

For the third year we are publishing the

ratio of the Chief Executive’s pay to the

wider employee population. This ratio

reflects the nature of the Society, in

particular the range of different roles

and skillsets required to operate within

financial services; from a number of

customer facing colleagues in the branch

network and call centres, through to, for

example, heavily technical specialist

roles in our Treasury department. This

year’s calculation is based on the fixed

earnings of Mike Regnier (up to and

including the 28 November 2021)

and the fixed and variable earnings

of Stephen White as he became

Interim Chief Executive Officer from

29 November 2021 to 31 December

2021. As Mr Regnier resigned as CEO

during the year, no bonus is payable and

therefore this is reflected in the lower

reported ratios.

Year Defined Method 25th percentile 50th percentile 75th percentile

2021 Option B 29:1 21:1 14:1

2020 Option B 39:1 28:1 20:1

2019 Option B 40:1 35:1 22:1

25th percentile 50th percentile 75th percentile

Total remuneration £24,661 £34,240 £49,060

Salary £20,193 £28,312 £40,113

The total remuneration values and base salary values for the 25

, 50

and 75

percentile employees for

2021 are:

This ratio compares the total remuneration of the Chief Executive against the total remuneration of the

median employee and those who sit at the 25

and 75

percentiles (lower and upper quartiles).

We have utilised the reporting method

of ‘Option B’, which involves utilising

our existing gender pay gap reporting

data as the basis for identifying the

colleagues at each of the required

quartiles. We have chosen to utilise

Option B as the data collated as part

of the gender pay process is subject

to external assurance, and as such

provides an accurate basis for the

calculation of CEO ratios.

The following elements have

been utilised to calculate the total

remuneration of each colleague; base

salary, pension (including pension

cash allowance), car allowance, private

medical insurance and bonus. Two

of the colleagues identified via the

Gender Pay data works part time hours.

To ensure an accurate representation

of pay at each of the quartiles, the

full-time equivalent salary and total

remuneration has been calculated for

these colleagues.

To ensure that pay is managed

appropriately across the organisation,

we regularly review how similar roles

are paid in both the wider market

and financial services. We take this

approach across all roles in the Society

from our Chief Executive to our

front-line colleagues. When setting

individuals’ base salaries, we also

consider a colleague’s performance and

contribution. The Committee oversee

this process, with a specific focus on

the remuneration of the Society’s

Material Risk Takers.

We are committed to paying all of our

employees the real living wage, whilst

undertaking additional pay analysis

e.g. gender pay gap reporting, to

ensure that we can identify, and where

appropriate, address any pay issues.

Payments for loss of office

There were no payments for loss of office

in 2021.

Payments to past directors

There were no payments to past

Directors in 2021 that had not already

been disclosed in previous reports.

120 | Governance

Non-Executive Director fees (annual equivalents) Fees as at 1 July 2021 Fees as at 1 July 2020

£000 £000

Chair basic fees 201.0 196.9

Vice Chair basic fees 75.1 73.6

Non-Executive Director basic fees 52.7 51.7

Additional fee for:

Audit Committee – Chair 21.8 21.5

Audit Committee – Member 9.0 8.8

Remuneration Committee – Chair 17.8 17.5

Remuneration Committee – Member 6.5 6.4

Group Risk Committee – Chair 21.8 21.5

Group Risk Committee – Member 9.0 8.8

Board Governance and Nominations Committee 6.5 6.4

Chair and Non-Executive

Directors

The Chair of the Board and Non-

Executive Director fees are reviewed

annually. Fees were reviewed and

increased in 2021 by 2.1% following

analysis of the market data available

(and commensurate with the average

award provided to all colleagues),

which suggests that fees for these roles

continue to be broadly well positioned

within the market.

The Committee review the fees payable

to the Society’s Chair. Whilst being

a former member of the Committee,

the Chair of the Board is not involved

in any decisions relating to his own

remuneration. Non-Executive Director

fees are determined and approved by

the Board on recommendation from the

CEO.

Single total figure of Remuneration for each Non-Executive Director

The Non-Executive Directors’ basic and committee fees earned in 2021 are outlined below. Non-Executive Directors do not receive

any benefits, but are reimbursed for any expenses incurred, such as travel and subsistence. Any tax due is the responsibility of

individual Non-Executive Directors. This information has been audited by our independent auditors, PwC.

Basic

Fees

2021

Committee

Fees

2021

Total

2021

Basic

Fees

2020

Committee

Fees

2020

Total

2020

Audited £000 £000 £000 £000 £000 £000

John Heaps (Chair of the Board) 199 - 199 197 - 197

Neeta Atkar 52 31 83 52 30 82

Alison Hutchinson (Vice Chair from 01/10/2020) 74 16 90 57 20 77

Gordon Ireland (retired 27 April 2021) 16 6 22 52 18 70

Guy Bainbridge 52 31 83 52 30 82

Guy Parsons 52 24 76 52 19 71

Mark Parsons (joined 20/10/2020) 52 18 70 10 4 14

Dina Matta (joined 27/04/2021) 36 4 40 - - -

Jennelle Tilling (joined 01/11/2021) 9 1 10 - - -

The remainder of this remuneration report has not been externally audited.

Non-Executive

Director

| 121

Governance - Directors’ Remuneration Report

2022 Remuneration Policy

Our Reward Aims

Our aim is to build a working environment where

colleagues feel engaged and committed to the Society’s

journey, ensuring they feel valued and respected to give

their best. Our reward offering is integral to that, with an

approach founded in our mutuality and values.

Our Remuneration Policy is in place to support our

colleagues in working together for the benefit of the

Society and our members and customers. No changes to

the policy are proposed for the year 2022.

Our Reward Principles

To support us in achieving our long-term aspirations we

follow five key principles, which apply to all colleagues

within the Society. These help us know when we are

doing the right things and set out what we believe good

reward practice for all of our colleagues looks like.

Our five reward principles developed with YBS

colleagues are:

Attract and retain talent, aligned to our mutual

values and forward thinking to ensure relevance in

a changing world.

Focused on total reward; recognising that reward

is more than just pay, enabling colleagues to make

the choices that work for them at different stages

in their life.

Flexible within a framework to ensure a

consistent approach whilst responding to different

challenges, supported by education to help

managers balance doing the right thing for both

the Society and their people.

Reward decisions and choices are clear and

transparent for colleagues; delivered through

effective and open communication.

Our reward arrangements are reflective of Society,

team and individual achievements, with the ability

to recognise the contribution all colleagues have

made to our success.

...working

together

for the

benefit of

the Society

and our

members

and

customers

Directors’ Remuneration Report

122 | Governance

Our Approach to Risk

Management and Governance

of Reward

Our reward provisions meet all

the requirements of both our

internal governance processes and

external regulators. Our provision of

reward and the associated policies,

processes, procedures and practices

relating to these are created in a way

which ensures the appropriate level

of governance is in place to mitigate

any potential risks to the Society,

colleagues, members and customers.

Our Committees

To ensure our reward policies and

procedures are robust and assured we

have two main Committees in place

to support this; the Remuneration

Committee and the Performance

and Reward Committee. These

Committees play different roles

in making sure our approach to

reward meets our required levels of

compliance, as explained below.

Remuneration Committee

This Remuneration Committee has

specific responsibility for making

sure we have the right policies and

processes in place for our most

senior roles and the overarching

Remuneration Policy for the wider

organisation. The Remuneration

Committee is made up of Non-

Executive Directors and its purpose is

to oversee the Remuneration Policy

in place for the Society, making sure

this aligns to our business strategy

and any regulatory requirements.

Details in relation to the composition

and the Terms of Reference of the

Remuneration Committee can be

accessed on the Society’s website.

The Remuneration Committee

oversees a broad range of activities

within the Society such as:

•

Governance of its Material Risk

Takers (MRT’s - senior decision

makers). This responsibility

includes:

w review of MRT performance

objectives to ensure that they

do not encourage excessive risk

taking (along with input and

evidence from the Society’s

control functions – Risk and

Internal Audit).

w the Remuneration Committee can

apply clawback and or discretion

to previous and future MRT

bonus payments if any evidence

of risk taking or behaviour not

conducive with our principles is

identified.

w processes and procedures to

ensure MRT’s do not undertake

hedging strategies in regard to

their bonus opportunities.

•

The activity of the Performance

and Reward Committee to

independently challenge and

ensure any conflicts of interest

(such as individuals making

decisions about their own

remuneration), are managed in

the design and governance of the

Remuneration Policy.

Performance and Reward Committee

The Performance & Reward

Committee is in place to ensure

effective governance and oversight

of our reward policy with a focus

on regulatory compliance and

alignment to our business strategy.

This Committee also ensures that

any bonus arrangements that we

offer colleagues drive the right

behaviours towards risk taking

and safeguard good customer and

member outcomes. The Performance

& Reward Committee comprises

of several senior leadership team

members within the organisation with

representation from the Customer

Services, People, Finance and Risk

functions.

Our Regulators

As a financial services provider we

are regulated by both the Financial

Conduct Authority (FCA) and the

Prudential Regulation Authority

(PRA). The relationship with our

regulators is important to us and

builds trust both inside and outside

of the Society. This means that from

a performance, reward and benefits

perspective we ensure that our base

salary, bonus and benefits not only

meet any necessary obligations of

our regulators but are designed and

provided in a way which develops a

trusted relationship with them.

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Governance - Directors’ Remuneration Report

Directors’ Remuneration Report

Executive Director Remuneration Policy

This document details the Society’s Remuneration Policy for its Executive Directors, making comparisons where applicable to the

wider colleague group. For Executive Directors, the Remuneration Policy is voted on every three years (or sooner if required). It

was last approved by members at the 2021 AGM.

Fixed Remuneration – Base Salary

Purpose

and link to

strategy

To enable the attraction and retention of high performing experienced Executive Directors by ensuring that they are

appropriately rewarded for their role.

The level of base salary awarded serves to reflect the contribution of Executive Directors in their role as defined by the

combination of:

•

Skills, knowledge and experience;

•

On-going performance;

•

Demonstration of the Society’s behaviours and values.

Actual base salary levels are also determined by a review of market conditions to ensure that we offer levels of base

salary that are appropriate in the market and enable us to attract and retain talent into the organisation.

In Practice

Base salary is typically reviewed annually and determined with reference to:

•

Role, experience and individual performance.

•

Affordability – the economic environment and overall financial position of the Society.

•

Comparison to the external market, supported by reference to the Society’s grading structure, the Career Framework.

•

Internal relativities and wider workforce base salary levels.

A consistent set of principles are applied when considering both Executive Directors’ base salaries and those of the

wider organisation.

Opportunity

There is no ‘maximum’ base salary opportunity.

We seek to target a median external market position in relation to ‘total remuneration’. To ensure that this is achieved

base salary ranges are developed with reference to the total package including variable pay.

Annual base salary increases will normally be in line with the typical level of increases awarded to the wider workforce

and will be a reflection of the individual’s performance.

The Remuneration Committee may award increases above this level in certain circumstances, for example taking on

additional responsibilities.

124 | Governance

Short term performance-based remuneration (‘variable pay’ or ‘bonus’)

This is divided into two sections, reflecting the two different bonus schemes which Executive Directors can

participate in.

Building Together Scheme Leading for Value Scheme

Purpose

and link to

strategy

To ensure that an Executive Director’s remuneration has

a direct link to the success of the Society, motivating

delivery of core business metrics in line with our

company values.

The Society’s bonus scheme – Building Together

- rewards annual performance against challenging

financial and customer measures as well as key individual

objectives. All colleagues participate in this scheme.

Bonus is driven by 3 key factors:

•

Financial performance currently measured via adjusted

Profit Before Tax.

•

Customer Experience currently measured via the

Society’s Net Promoter Score.

•

Individual performance measured with reference

to an Executive Director’s performance against key

objectives.

To ensure that an Executive Director’s remuneration has a

direct link to the success of the Society, supporting delivery

of long-term strategic objectives, protecting and creating

sustainable and long-term member value and colleague

interests in line with our company values.

The Society’s bonus scheme – Leading for Value - rewards

annual performance against challenging Group objectives.

Bonus payment is driven by 3 key factors:

•

Delivery of key milestones linked to our strategic blueprint.

•

Delivery of measurable and targeted financial value for

members.

•

ESG performance based on colleague engagement, diversity

and inclusion and social impact.

In Practice

Key measures within the Corporate Plan have to be

achieved for ‘on target’ pay-out, and considerably

exceeded for maximum pay-out.

Bonus is achieved in the following way:

•

The development of a bonus pool determined by

reference to the Group’s financial performance.

•

The bonus pool is moderated up or down as a result of

the Customer Experience received by our members and

customers.

•

The total individual awards are determined by an

Executive Director’s performance against his or her

annual objectives.

A minimum level of performance across all 3 metrics is

required to activate a bonus payment.

Executive Directors and senior management may participate

in this scheme. The Remuneration Committee will carry

out a pre-grant assessment before determining individual

eligibility for this scheme and will consider both personal

and Group performance. The outcome of this assessment

will determine the maximum opportunity that will be

available to the individual, subject to the overall scheme

maxima set out below.

Payments under the bonus will then be achieved in the

following way:

•

For all metrics there will be specific targets set to reflect

threshold, target and maximum performance.

•

The metrics are weighted such that strategic milestones

will make up 40% of the bonus, member value 30% and

ESG 30%.

•

The Remuneration Committee will assess performance

across all performance metrics to determine the bonus

outcome.

All payments are made in line with regulatory requirements

Business

Controls

Process

Bonus payments are subject to the operation of a Business Controls Process that considers current and future risks through a

range of key metrics provided by the Society’s control functions to evidence the robust management of the Society e.g. cost

indicators, risk indicators.

Remuneration

Committee

Discretion

The Remuneration Committee retains the discretion to make adjustments to the bonus to ensure that it reflects a true view of

the underlying performance of the Society prior to the payment of any bonus.

Risk Overlay

Bonus payments applicable to Material Risk Takers are subject to a formal risk overlay process where a series of key risk

indicators are considered to provide assurance that no inappropriate risk taking behaviours have taken place.

Material Risk Taker objectives are subject to review by the Remuneration Committee to ensure the appropriate balance

of financial and non-financial objectives, to align with the Society’s purpose and desired behaviours. The objectives

for the Society’s control functions are also reviewed by the Group Risk and Group Audit Committee Chairs’ to ensure

objectives (and bonus opportunity) are linked to performance of their functions and not the businesses they oversee.

In instances where issues are identified the Remuneration Committee reserve the right to apply a malus adjustment

(reduce bonus or lapse deferred elements) and to apply clawback (recover bonus payments already made) as applicable.

Awards are subject to clawback for up to a maximum of ten years.

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Governance - Directors’ Remuneration Report

Directors’ Remuneration Report

Deferral

and Share

Equivalent

Instrument

(SEI)

In line with relevant remuneration regulations, including the Remuneration part of the PRA Rulebook, the FCA’s Dual-

Regulated Firms Remuneration Code, and the Senior Managers and Certification Regime, all bonuses paid are subject to

deferral. In addition to regulatory requirements, the Society’s Remuneration Policy requires bonuses for all members of the

senior management team to be subject to an element of deferral. Bonus deferral ensures that the Society delivers variable

pay over a multi-year period, in a manner that prevents unnecessary risk taking, whilst achieving a level of sustainable

performance.

In a performance year where Executive Directors’ total remuneration falls below the de-minimis

limit, the annual bonus

awards will be delivered as cash and paid over three years: 50% of any bonus is paid out in the year following the

performance year; the remaining 50% is deferred with 25% released after one year and 25% released after two years.

For Executive Directors whose remuneration is over the ‘de-minimis’ limit, bonus awards are required to have a longer

deferral period, and/or a larger percentage deferred in line with regulations. Where also required by regulation, 50% of each

bonus payment will be delivered via an SEI and is subject to a one-year retention period. For the 2022 performance year,

an Executive Director whose remuneration exceeds the de-minimis limit will receive 40% of their bonus in 2023 with the

remaining 60% deferred over a period of up to seven years.

Bonuses for Executive Directors are disclosed annually in this document, the Annual Report and Accounts.

A de-minimis limit level is set by regulation, in relation to the level of bonus deferral applied. It impacts colleagues whose total variable remuneration is less than

£44,000 and where variable remuneration is less than 33% of total remuneration.

From April 2021, the Society’s pension contributions for all Executive Directors were capped at 11%.

Building Together Scheme Leading for Value Scheme

Opportunity

‘On-target’ achievement of Society performance criteria

results in a bonus of 30% of base salary for the Executive

Directors. The maximum bonus available to Executive

Directors is 50% of base salary.

Failure to meet organisational or individual performance

thresholds can reduce bonus awards to zero.

All Executive Directors are subject to deferral.

All of the Society’s bonus schemes are underpinned by the

same metrics.

Maximum achievement against all performance criteria results

in a bonus of 75% of base salary for the Chief Executive and

50% of base salary for other Executive Directors.

Failure to meet performance thresholds can reduce bonus

awards to zero.

All Executive Directors are subject to deferral.

All of the bonus payments made under the Leading for Value

Scheme are underpinned by the same metrics.

Taxable Benefits

Purpose

and link to

strategy

To provide a total reward package that is in line with market practice and enables the attraction and retention of Executive

Directors of the required calibre.

In Practice

Executive Directors are eligible to receive a number of benefits, principally consisting of:

•

Private medical insurance;

•

Life assurance (6x salary);

•

Concessionary mortgage account;

•

Insured sick pay; and

•

Provision of a company car, or cash equivalent.

Opportunity

There is no ‘maximum’ level of benefits – the overall value of benefits to the Society’s Executive Directors is determined by

the nature of its benefit offering which is subject to change throughout a given year.

Pension

Purpose

and link to

strategy

The Society’s pension arrangements support the recruitment and retention of Executive Directors through the provision of

competitive retirement benefits.

In Practice

The Society operates a single defined contribution pension scheme and all colleagues have the opportunity to participate.

Where contributions exceed the annual or lifetime allowance, or participation in the scheme is tax inefficient, colleagues may

be permitted to take a cash supplement instead of contributions to the plan.

Opportunity

All Executive Directors to receive a maximum pension contribution (or cash allowance) of 11% of base salary, the same as

the contribution levels for all colleagues.**

126 | Governance

New Hires

Remuneration

Package

When agreeing the components of a remuneration package for the appointment of Executive Directors, the Remuneration

Committee will apply the following principles:

•

The packages will be sufficient to recruit high performing individuals, in a highly competitive market, to lead the business

and effectively execute the strategy for members;

•

The Remuneration Committee will look to align the remuneration package offered with the Society’s Remuneration

Policy; and

•

The Remuneration Committee will ensure that the level of pay is necessary but not excessive.

The Remuneration Committee has discretion within the policy to make remuneration decisions where it considers it appropriate

to do so.

In determining remuneration arrangements, the Remuneration Committee will consider similar positions in the market, the

structure of the remuneration package and the experience of the candidate. This ensures that arrangements are in the best

interests of both the Society and its members without paying in excess of what is necessary to recruit an Executive Director of

the required calibre.

Buy out

arrangements

The Remuneration Committee may make awards on hiring an external candidate to the Board to compensate them for the

forfeiture of any award entered into with a previous employer. In determining any such ‘buy out’, the Remuneration Committee

will consider all the relevant factors including the likelihood of the awards vesting should the candidate have remained in their

previous employment, the form in which they were awarded and the time over which they would have vested.

•

The buy-out value may not exceed the aggregate amount of unvested variable remuneration.

•

Consideration is given to the reason for the “firm or relevant business unit suffering material failure of risk management”

when considering any reduction of unvested variable remuneration.

•

The buy-out will vest no faster than any awards they replace.

•

The Society will provide former colleagues with the details and reasons of any proposed application of malus or

clawback to awards in writing and notify the former colleagues within 14 working days of any amounts of malus or

clawback that have been applied.

Bonus buyouts will be liable to forfeiture or ‘clawback’ in the event of early departure and are executed in line with the

Remuneration Code.

Retention

arrangements

The approach to rewarding retention payments is considered on an exceptional basis and will be agreed by the Remuneration

Committee and subject to the relevant regulations, deferral, malus and clawback and Remuneration Committee discretion.

Remuneration Arrangements in relation to specific circumstances

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Governance - Directors’ Remuneration Report

Leaver Arrangements and Loss of Office

The Remuneration Committee shall apply the policy in relation to leavers, considering performance, conduct and commercial justifications,

as summarised below:

Notice period

The standard notice period is 12 months from the Society and 12 months from the Executive Director.

In normal circumstances, Executive Directors will be required to work their notice period. In the event Executive Directors

are not required to fulfil their notice period, they will receive a payment in lieu of notice, or they may be placed on garden

leave.

Chief Officers and other MRTs have notice periods varying between three months and one year, depending on the role

undertaken.

Termination

Payment

Typically, termination payments will consist of basic pay and other contractual benefits for the notice period, the

emphasis being to not reward failure.

Annual Bonus

– Leaver

Provisions

On termination of office, the leaver provisions as set out below will apply. These are also outlined in the Society’s bonus

plan rules:

•

In the event of retirement or redundancy, ill-health or disability, any bonus will be pro-rated to reflect the time served

during the performance period. Any deferred payments due remain subject to future performance conditions and are

payable at the end of the corresponding performance periods. There will be no acceleration of payment. They are also

subject to the Society’s risk overlay process, and therefore subject to the Society’s malus and clawback provisions.

•

In the case of death, any bonus payments will be pro-rated to reflect the time served during the performance period.

Payment of any deferred amounts, including deferred amounts from previous years, is accelerated and payable at the

next payment date.

•

Subject to committee discretion, in the event of resignation, any eligibility to participate in the current year’s bonus

scheme will cease. Leavers under these circumstances will be eligible to receive deferred bonus payments earned in

previous years, subject to the Society’s risk overlay process.

Subject to Remuneration Committee discretion and the Society’s risk overlay process, Executive Directors who resign from

the Society will retain eligibility to any deferred bonus payments earned in previous years. Malus and clawback provisions

continue to apply.

Directors’ Remuneration Report

Non-Executive Director Fees

Purpose

and link to

strategy

Sole element of remuneration set at a level that reflects market conditions and sufficient to attract individuals with appropriate

knowledge and experience to provide a meaningful contribution to the Society.

In Practice

Fees are based on the level of fees paid to Non-Executive Directors and Chairs serving on boards of comparable organisations,

the time commitment, and contribution expected from the role.

•

Non-Executive Director fees are determined and approved by the Board on recommendation from the CEO.

•

The Chair’s fees are determined by the Remuneration Committee.

•

Both the Chair’s and Non-Executive Directors’ fees are reviewed periodically, at least annually.

•

The Chair’s and Non-Executive Directors’ fees are not subject to any specific performance measures; however, their

overall performance is reviewed on a regular basis.

Neither the Chair nor any of the Non- Executive Directors have any influence over the setting of their own fees.

Opportunity

There is no ‘maximum’ fee opportunity.

Fees are set with reference to the level of fees paid to Non-Executive Directors and Chairs serving on boards of comparable

organisations, the time commitment, and contribution expected from the role.

Remuneration Policy in relation to Non-Executive Directors

128 | Governance

Decision-making process: The

Remuneration Committee follows a

robust process when determining

proposed amendments to the

Society’s remuneration policy,

considering both the strategic

Remuneration Scenarios in relation to the 2022 Remuneration Policy

The chart below shows an illustration of the potential split of remuneration between fixed pay (base salary, benefits and pension)

and total variable pay for the CEO and Chief Officer Executive Director under the following scenarios:

•

Minimum – under certain performance conditions, bonus can be zero.

•

Target - represents remuneration (75% of base salary for the Chief Executive Officer and 60% of for the remaining Executive

Directors) that would be paid if Society and personal performance measures are achieved in 2022.

•

Maximum –the maximum bonus (125% of base salary for the Chief Executive Officer and 100% for the remaining Chief Officer

Executive Directors) that could be paid assuming Society and personal performance measures are fully realised.

objectives of the business and

evolving market practice. Input is

also sought from management, while

ensuring that conflicts of interests

were suitably mitigated. An external

market perspective is provided

by our independent advisers. The

Remuneration Committee also

assesses the proposed policy against

the Society’s Remuneration principles,

designed to ensure that colleagues

work together for the benefit of the

Society, our members and customers.

1,400

1,200

1,000

800

600

400

200

100%

62%

15%

20%

23%

30%

50%

100%

57%

17%

26%

44%

22%

33%

Minimum MinimumTarget TargetMaximum Maximum

Chief Executive Officer Chief Officer

Key

 Fixed pay  Undeferred  Deferred

£000

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Governance - Directors' Remuneration Report

Remuneration

Committee Membership

Remuneration Committee

The Remuneration Committee has specific responsibility

for ensuring we have the right policies in place for our most

senior roles and setting the tone for the wider organisation. Its

purpose is to oversee the remuneration policy in place for the

Society, making sure it aligns to our strategy and any regulatory

compliance requirements, with a specific focus on the risks

posed by remuneration policies and practices.

The Remuneration Committee’s terms of reference were

reviewed and updated in November 2021; they are available

on the Society’s website.

The Remuneration Committee met five times during the year

and covered the following activities (please note additional

meetings were held in 2021 to support the implementation of

the

Leading for Value

bonus scheme and the resignation of the

CEO).

•

Reviewing the Society’s Remuneration Policy for Executive

Directors and all colleagues

•

Reviewing the Society’s Reward strategy

•

Reviewing the Society’s bonus scheme structure and targets

•

Ongoing work in relation to the Prudential Regulation

Authority’s (PRA) Remuneration Code and how it applies to

the Society

•

Oversee performance and remuneration of the Society’s

Material Risk Takers

•

Reviewing and monitor the risk measures in place relating

to director performance

•

The Society’s gender pay gap

•

Agreeing the approach for Executive Director base salary

increases in 2021

•

Reviewing the remuneration and exit arrangements relevant

to changes to the Executive Management Team

The Remuneration Committee draws on the advice of

independent external consultants to support in performing

its duties. During the year, the Remuneration Committee

sought advice on Executive Director salaries, variable pay

structures and regulatory matters from EY. The Remuneration

Committee is satisfied that the advice received is objective

and independent. EY’s fees for advice provided to the

Remuneration Committee in 2021 were £45,000 (including

irrecoverable VAT).

Guy Parsons

Chair of the Remuneration Committee

1 March 2022

Guy Parsons

Committee Chair

Independent

Non-Executive Director

Alison Hutchinson

Independent

Non-Executive Director

Dina Matta

Independent

Non-Executive Director

Jennelle Tilling

Independent

Non-Executive Director

The Remuneration Committee is supported by the

Chief People Officer and the Director of Colleague

Experience.

Where it is felt to be appropriate, the Chief Executive

Officer is invited to attend to provide further

background and context to assist the Committee in

discharging its duties.

Directors' Remuneration Report

John Heaps stepped

down from the

Remuneration

Committee in

September 2021

The members of the Remuneration

Committee

consist of Non-Executive

Directors and include a member of the

Group’s Risk Committee:

130 | Governance

Statement of Member Voting

The Society remains committed to ongoing member dialogue and takes an active interest in voting outcomes. The policy has

received strong support from members to date.

2017 2018 2019 2020 2021

To approve the Directors’ Remuneration Report 89.67% 90.29% 91.86% 91.32% 92.45%

To approve the Directors’ Remuneration Policy n/a n/a 90.95% n/a 91.58%

The main components of Material Risk Taker

(MRT) remuneration structures are:

In accordance with the Capital Requirements Regulation (CRR) as part of CRD IV, which requires the disclosure of the

aggregate remuneration data for senior managers and Material Risk Takers (MRT), the Society’s data is as follows:

Ratios between fixed and variable pay

The fixed to variable pay ratio was approved by members at the 2021 AGM to move from 1:1 to 1:2 in respect of the CEO, in line with

regulatory requirements. The maximum annual bonus opportunity for the CEO will be 125% of base salary and for other Executive

Directors is 100% of base salary.

The Group’s full Pillar 3 disclosure is available on our website.

Senior Management Other MRTs Total

£000 £000 £000

Aggregate remuneration data

Fixed pay 6,621 499 7,120

2021 Variable Pay (undeferred) 1,661 31 1,692

2021 Variable pay (deferred) 1,368 - 1,368

2021 Variable Pay of which is due via SEI

1,466 - 1,466

Deferred variable which vested in 2021 700 19 719

Deferred variable unvested as at the end of 2021 2,723 26 2,749

Total 13,073 575 13,648

Aggregate bonus buyout and severance payments

Bonus Buyout Payments - 2021 - - -

Severance Payments - 2021 327 - 327

Total 327 - 327

Senior Management Other MRT Total

Number of MRT colleagues at 1.1.21 28 6 34

Number of MRT colleagues at 31.12.21 24 6 30

Appendix - Aggregate remuneration data (Pillar 3)

Senior managers and colleagues whose actions have a material impact on the risk profile (including Executive Directors).

| 131

Governance - Directors' Remuneration Report

This report contains the statutory

disclosures required under the

Building

Societies Act 1986

(the Act) and the

Disclosure Guidance and Transparency

Rules of the Financial Conduct

Authority (the DTR). It also includes

details of voluntarily applied disclosure

requirements, including those in respect

of the UK Corporate Governance Code (the

Code), the

Companies Act 2006

and the

streamlined energy and carbon reporting

(SECR) rules.

Directors’

Report

Our Directors

The names of the directors of Yorkshire Building Society

(the Society) who served during the year and up to the

date of this report, their roles, previous experience and

membership of board committees are described in the

Our Leadership Team

area of the

Governance

section.

None of the directors had an interest in, or share of,

any associated body of the Society at any time during

the financial year. At our 2022 Annual General Meeting

(AGM) our directors will all retire and stand for re-

election, with the exception of Guy Parsons who plans to

retire at the conclusion of the AGM.

Our Strategy, Future Developments and

Key Performance Indicators (KPIs)

Information on the strategy of Yorkshire Building Society

and its controlled entities (the Group) can be found in

the

Our Purpose, Strategy and Stakeholders

section of

the

Strategic Report

Details of future developments are included in the

Outlook section of the

Chief Executive’s Summary

and

KPIs are set out in the

Performance at a Glance

section.

Details of our corporate governance practices are

included in our

Corporate Governance Report

How We Manage Risks

Our business activity exposes the Group to a variety of

risks, including retail and commercial credit, treasury,

funding and liquidity, market, operational, model, capital,

and compliance and conduct risk. We seek to manage all

the risks that arise from our business activities and we

have a number of committees and policies in place to do

so.

Details of these risks are included in the

Principal Risks

and Uncertainties

section of the

Strategic Report

and the

Risk Management Report

132 | Governance

2021 2020 2021 2020

% of mortgage account/balances

Number of accounts 301 278 0.11% 0.11%

Balances outstanding on accounts £36.4m £34.0m 0.09% 0.09%

Amount of arrears included in balances £4.4m £3.8m 0.01% 0.01%

Our Mortgage Arrears

Details of the mortgage accounts that were 12 months or more in arrears at 31 December are as follows:

Further details of the arrears position are set out in the

Our Financial Review

section of the

Strategic Report

Note 32 to the financial statements also details the various forms of support offered to borrowers experiencing

difficulties in meeting their repayments.

Our Charitable and Political

Donations

Charitable donations made by the

Group during the year were £0.6

million (2020: £0.4 million), more

details and further information on

fundraising by our colleagues, members

and customers, including the value

of volunteering time of YBS staff can

be found in the

Communities

section

Our Customers, Colleagues and

Communities

in the

Strategic Report

No political donations were made in the

year (2020: nil).

Our Colleagues

We continue to listen and respond to

our colleagues’ needs. It is important

that all our colleagues feel connected

to the Society and can contribute

to our success. To achieve this, we

communicate business information to

our colleagues across our organisation

in an appropriate and timely way.

We recognise that employing people

from different backgrounds and with

a range of experience enhances the

way in which we work. We are building

a diverse workforce and we make

workplace adjustments wherever we

possibly can to provide an inclusive

working environment for all colleagues.

See the

Colleagues

section of the

Strategic Report

for more details.

Our responsibilities in

respect of Accounting

Records and Internal Control

We are responsible for ensuring that the

Society:

•

keeps accounting records in

accordance with the

Building

Societies Act 1986

(the Act); and

•

takes reasonable care to establish,

maintain, document and review

such systems and control as are

appropriate to its business in

accordance with the rules made by

the Prudential Regulation Authority

under the

Financial Services Act

2012

We have a general responsibility for the

safeguarding of the assets of the Society

and for taking reasonable steps for the

prevention and detection of fraud and

other irregularities.

Directors’ responsibilities in

respect of the preparation

of the Annual Report and

Accounts

The following statement, which

should be read in conjunction with

the

Auditors’ responsibilities for the

audit of the financial statements

in the

Independent auditors’ report to the

members of Yorkshire Building Society,

is made by the directors to explain

their responsibilities in relation to the

preparation of the financial statements.

We are required by the Act to prepare

financial statements, for both the

Society and the Group, that give a

true and fair view of the income and

expenditure for the financial year,

and the state of affairs at the end

of the financial year. We are also

required to provide details of directors’

remuneration in accordance with part

VIII of the Act and regulations made

under it.

In preparing the financial statements,

the directors are required to:

•

select suitable accounting policies

and apply them consistently;

•

make judgements and accounting

estimates that are reasonable;

•

state whether the financial

statements have been prepared

in accordance with International

Accounting Standards; and

•

prepare the financial statements on

a going concern basis, unless it is

inappropriate to presume that the

Group will continue in business.

The disclosure and transparency rules

of the Financial Conduct Authority (the

DTR) require an annual financial report

to include:

•

audited financial statements for both

the Society and Group;

•

a management report that includes

a fair review of the business and

a description of the principal risks

and uncertainties (see the

Strategic

Report

and the

Risk Management

Report

); and

•

responsibility statements (see

Responsibility Statements

below).

We are responsible for the maintenance

and integrity of statutory and audited

information on the Society’s website.

Information published on the internet

is accessible in many countries with

different legal requirements. Laws in

the United Kingdom governing the

preparation and communication of

financial statements may be different

from laws in other jurisdictions.

| 133

Governance - Directors' Report

Annual Business Statement

The Act also requires the directors to prepare, for each financial year, an annual business statement containing prescribed

information relating to the business of the Group. See pages 241 to 242 for the 2021 Annual Business Statement.

Non-Financial Information Statement

The Society aims to voluntarily apply the requirements of s414CB of the

Companies Act 2006

by including non-financial information intended to help stakeholders understand our position

on key non-financial matters.

Information regarding these matters can be found in the following sections of this document:

Area Strategic Report reference

Environment matters

See

Building a Greener Society

section

Employees

See the

Colleagues

subsection of the

Our Customer, Colleagues and Communities

section

Social matters

See the

Communities

subsection of the

Our Customer, Colleagues and Communities

section

Respect for human rights

See the

Communities

subsection of the

Our Customer, Colleagues and Communities

section

Anti-corruption and anti-bribery

See the

Communities

subsection of the

Our Customer, Colleagues and Communities

section

Our business model

See

Our Business Model

section of the

Strategic Report

Principal risks

See the

Principal Risks and Uncertainties

section

Key performance indicators

See

Performance at a Glance

section in the

Introduction

and the

Colleagues

section of

Our

Customer, Colleagues and Communities

for a description of employee engagement scores

134 | Governance

Directors' Report

Summary of s172

Requirements

Yorkshire Building Society Board Relevant Disclosure

A director must act in a way they

consider, in good faith, would

most likely promote the success

of the business for the benefit of

its members as a whole (i.e. the

company’s shareholders) and in

doing so have regard (amongst

other matters) to the:

As a mutual the Society does not have external shareholders, we are

owned by our members. The Board is committed to promoting the

long-term success of the Society for the benefit of our current and

future members. Building on our purpose to provide

Real Help with

Real Life

our

Strategic Blueprint

strategy underpins our commitment

to the success of the business for our members both now and in the

future.

Our Business Model

section

Our Purpose, Strategy and

Stakeholders

section

• likely consequences of any

decision in the long-term

Our Board recognises the importance of ensuring the likely

consequences of decisions in the long term are considered which

is reflected in our

Strategic Blueprint

built around our purpose of

providing

Real Help with Real Life

Our Business Model

section

Our Purpose, Strategy and

Stakeholders

section

• interests of employees The Board understands that our people are the foundation of our

business and recognises the importance of ensuring that their voice

is heard in the board room. Each paper considered by the Board sets

out the implications for our employees and, where relevant, how they

have been consulted on the proposals.

The Board has also put in place a framework to ensure colleague

views inform its decision.

Our Customers, Colleagues and

Communities

section

• need to foster business

relationships with suppliers,

customers and others

The Society’s Board is committed to fostering and monitoring the

effectiveness of our wider business relationships with all our key

stakeholders. This was reflected in the shaping of our Strategic

Blueprint which was supported through detailed stakeholder

engagement exercises.

Our Purpose, Strategy and

Stakeholders

section

Our Customers, Colleagues and

Communities

section

• impact of the business’s

operations on the community

and the environment

The environment, social and governance impact of the Society

underpins the

Strategic Blueprint

and each paper considered by the

Board sets out any social or environmental implications of a decision

ensuring that the Board has regard to the impact of these as part of its

overall approach to promoting the success of the Society.

Our Customers, Colleagues and

Communities

section

Building a Greener Society

section.

• desirability of maintaining a

reputation for high standards

of business conduct

The Board’s commitment to maintaining high standards of business

conduct helps to ensure the long-term success of the Society for our

current and future members, customers, colleagues and all other

stakeholders. The Society’s behaviours help drive the culture and

supports the delivery of the

Strategic Blueprint

Our Business Model

section

Our Purpose, Strategy and

Stakeholders

section

• need to act fairly as between

members (i.e. the company’s

shareholders)

The Society does not have external shareholders, instead our members

are our owners and at the heart of what we do. The Board understands

the importance of engaging with our members and is committed to

ensuring their views inform future decision making to ensure it is fair

and in the interests of our membership as a whole.

Our Customers, Colleagues and

Communities

section

Directors’ Duties

Section 172 of the

Companies Act 2006

(s172) describes the duties of company directors in respect of promoting the business

and considering other stakeholders. This does not apply to the Society’s Directors as we are a building society not a company,

but the Code expects boards to report on how they have considered the matters set out in s172 in decision making. The table

below summarises the s172 requirements and cross references to where this consideration is covered in other sections of this

document.

| 135

Governance - Directors' Report

Energy Use and Emissions Report

Per the GHG Protocol, energy usage and emissions from our business activities are classified as follows:

Internal Energy Usage 2021 2020

kWh kWh

Heating and emergency fuel usage 9,654,526 8,718,223

Company owned vehicle transport 6,825 431,187

Scope 1

9,661,351 9,149,410

Electricity consumption 11,199,210 12,092,006

Electric cars 156,060 91

Scope 2 11,355,270 12,092,097

Leased/hired business transport 202,588 -

Scope 3 202,588 -

Total 21,219,209 21,241,507

tCO

Total emissions from internal energy usage (new for 2021) 4,167

Streamlined Energy and

Carbon Reporting (SECR)

The Group continues to voluntarily

apply the UK’s Streamlined Energy and

Carbon Reporting (SECR) requirements

and the relevant disclosures are

included below. A full review of our

environmental achievements and

commitments can be found within the

Building a Greener Society

section of

the

Strategic Report

Methodology

Greenhouse gas emissions and

environmental impacts for the

Group are calculated in line with the

Greenhouse Gas Protocol Corporate

Standard (GHG Protocol). Emissions are

reported in tonnes of carbon dioxide

equivalent (tCO

) and electricity usage

Directors' Report

in kilowatt hours (kWh). The Society

utilises the Department for Business,

Energy and Industrial Strategy emission

conversion metrics to ascertain exact

emissions totals for all three scopes.

Scope 1

- emissions cover those

generated from burning gas for heating

and diesel for emergency generators

within Group occupied buildings,

UK owned vehicles (e.g. facility

management vans) and refrigerant/air

conditioning gases.

Scope 2

- emissions account for all

direct electricity usages within the

business. Emissions generated from

electricity consumption are zero under

the ‘market’ based calculations due to

the purchase of certified renewable

electricity derived from biomass.

Scope 3

- emissions cover indirect

business activity. For example, a ‘Well-

to-Tank’ emissions factor is an average

of all the GHG emissions released into

the atmosphere from the production,

processing and delivery of a fuel or

energy.

Given the timing of this report, and the

availability the underlying data, certain

estimates and assumptions are made

in calculating the overall emissions

and energy usage figures for the

current year. In particular, some data is

received a quarter in arrears, requiring

an estimate of the last 3 months

based on historic usage and current

year trends. 2020 figures have been

updated to adjust for actual usage.

136 | Governance

Carbon footprint

2021 2020

Location Market Market Market

tCO

e tCO

Scope 1

Generation of heat (gas consumption) 1,766 1,286 1,582 1,582

Diesel (back-up generators) 3 3 28 28

Vehicles used on Society business 18 18 72 72

Refrigerant gases 2 2 2 2

Total 1,789 1,309 1,684 1,684

Scope 2

Electricity consumption 2,378 - 2,819 -

Total 2,378 - 2,819 -

Scope 3

Well-to-tank – Electricity 675 675 422 422

Well-to-tank – Fuels 303 284 245 245

Transmission and distribution - Electricity consumption 210 210 242 242

Business travel – Transport 65 65 62 62

Business travel – Hotel 2 2 13 13

Water supply and treatment 11 11 29 29

Waste disposal 9 9 9 9

Total 1,275 1,256 1,022 1,022

Total Carbon Footprint 5,442 2,565 5,525 2,706

In addition to the scopes 1-3, the following ‘Out of Scope’ emissions are from the combustion of renewable energy (new for 2021):

Electricity - Biomass - 1,197

Gas - Feedstock - 522

Total ‘out of scope’ - 1,719

Ricardo plc, our external carbon footprint verifiers, have carried out a limited level assurance review of these figures. This

review assessed data collection and calculation methodologies against the applicable requirements. Based on the process

and procedures conducted, they have concluded that there is no evidence that the 2021 GHG assertion: is not materially

correct; is not a fair representation of greenhouse gas data and information, and has not been prepared in accordance with

the ISO 14064-1

specification with guidance for the validation and verification of greenhouse gas assertions

and the GHG

Protocol.

Energy Efficiency Actions

Below is a list of the energy savings measures taken over the course of 2021:

•

Lighting control and building management system upgrades

•

Installation of infrastructure and 4 electric car charging

points

•

Data Centre power migration

•

Sedum roof covering of the west side of the Bradford head

office

•

Solar film to south and east facing elevations of the Bradford

head office

•

Air conditioning replacement for the Comms Room

•

Minimum Energy Efficiency Standard (MEES) review works

across all branches

•

Relocation and refurbishment of Manchester branch to a

smaller site with more efficient equipment.

| 137

Governance - Directors' Report

Going Concern

The directors confirm that they

consider that the Group and the

Society has adequate resources to

continue in existence for at least 12

months from the date of this report.

This confirmation is made after

having reviewed assumptions about

future trading performance, liquidity

requirements, capital requirements

and organisational sustainability. The

directors also considered potential

risks and uncertainties in the

business, credit, market and liquidity

risks, including the availability and

repayment profile of funding facilities.

Details of how the Board monitor

longer term risks are included in

the

Risk Management Report

in the

Governance

section.

Based on the above, together with

available market information and the

directors’ knowledge and experience

of the business and our markets, the

directors continue to adopt the going

concern basis in preparing the Annual

Report and Accounts for the year

ended 31 December 2021.

Viability

The UK Corporate Governance Code

(the Code), which the Society adopts to

the extent that it applies to a Building

Society, requires the directors to assess

the prospects and ongoing viability of

the Group over a longer period than

the 12 months required for the going

concern assessment.

For the purposes of assessing longer

term viability, the directors have

determined three years to be the most

appropriate period as this covers the

typical term of most of our fixed rate

products and is the longest period

over which the directors consider that

they can form a reasonably firm view

over the macroeconomic environment

and associated key drivers of business

performance. The directors have

therefore assessed the viability of

the Group and the Society over the

three years to December 2024, taking

account of the current position and

the potential impact of the risks

documented in the

Strategic Report

and the

Risk Management Report

Our financial planning process consists

of an operating plan for the next

financial year and a corporate plan for

the following additional four financial

years. The one-year operating plan has

a greater level of certainty and is used

to set near-term targets. The five-year

corporate plan is less certain than the

operating plan but provides a longer

term outlook against which strategic

decisions can be made.

The financial planning process

forecasts the Group’s profitability,

capital position, liquidity and other

key financial metrics over the period,

including regulatory measures such

as MREL (Minimum Requirement for

Eligible Liabilities). These metrics

are subject to sensitivity analysis

through the annual Group ICAAP

(Internal Capital Adequacy Assessment

Process) and ILAAP (Internal Liquidity

Adequacy Assessment) processes. The

Group stresses its capital and liquidity

plans, under ‘severe but plausible’

stress test scenarios, in line with PRA

requirements.

The ICAAP stress test ensures that

the plan projections for capital

requirements and capital generation

are resilient to stresses should the

environment deteriorate beyond

the levels currently envisaged. The

Group maintains capital buffers that

are sufficient to absorb the level of

capital erosion in the stress scenario

over and above its minimum capital

requirement, ensuring that the Group

can continue to meet its minimum

capital requirements throughout

a ‘severe but plausible’ stress. The

ILAAP stress test ensures that the

Group holds adequate liquid assets

in terms of both quality and quantity

sufficient to meet both its business as

usual liquidity needs and increased

requirements that could occur as a

result of the Group entering into a

period of stress. Planned liquidity

levels meet the Group’s key risk

appetite measures over a period of

three years.

The Board has undertaken a robust

assessment of the principal risks and

uncertainties that could threaten the

business model, future performance,

solvency or liquidity of the Group and

the Society. Based on this assessment,

the directors have a reasonable

expectation that the Group and the

Society will be able to continue in

operation and meet its liabilities

as they fall due over the period to

December 2024.

Directors' Report

Intensity Ratios

2021 2020*

Income GHG Emissions Intensity ratio Income GHG Emissions Intensity ratio

Income intensity ratio £m tCO

e tCO

e/£m £m tCO

e/£m tCO

e/£m

Location

577.6

5,442 9.4

454.0

5,525 12.2

Market 2,565 4.4 2,706 6.0

Colleague intensity ratio Colleagues tCO

e tCO

e/person Colleagues tCO

e tCO

e/person

Location

4,534

5,442 1.2

4,623

5,525 1.2

Market 2,565 0.6 2,706 0.6

2020’s Intensity Ratio’s have been updated to include actuals figures rather than the estimates for final month/quarter amounts included in the 2020

disclosures.

138 | Governance

Responsibility Statements

As required by the Disclosure

Guidance and Transparency Rules of

the Financial Conduct Authority, the

directors confirm that, to the best of

their knowledge:

•

the financial statements give a

true and fair view of the assets,

liabilities, financial position and

profit or loss of the Society and the

Group; and

•

The

Strategic Report

includes a

fair review of the development

and performance of the business

and the position of the Society

and the Group, and the

Strategic

Report

and the

Risk Management

Report

contain a description of the

principal risks and uncertainties.

Fair, Balanced and

Understandable

As required by the UK Corporate

Governance Code, which the Group

adopts to the extent that it applies to

a Building Society, the directors are

satisfied that the Annual Report and

Accounts, taken as a whole, are fair,

balanced and understandable and

provide the information necessary

to assess our performance, business

model and strategy.

External Auditor

The reappointment of

PricewaterhouseCoopers LLP as the

Group’s external auditor is to be

proposed at the AGM. The directors

in office at the date of this report

confirm that, so far as they are aware,

there is no relevant audit information

of which the external auditor is

unaware. Each director has taken all

the steps necessary in order to make

themselves aware of any relevant audit

information and to establish that the

external auditors are also aware of that

information.

John Heaps,

Chair of the Board

1 March 2022

| 139

Governance - Directors' Report

INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

OPINION

In our opinion, Yorkshire Building

Society’s Group financial statements

and Society financial statements (the

“financial statements”):

•

give a true and fair view of the

state of the Group’s and of the

Society’s affairs as at 31 December

2021 and of the Group’s and the

Society’s income and expenditure

and the Group’s and the Society’s

cash flows for the year then ended;

•

have been properly prepared

in accordance with UK-adopted

international accounting standards;

and

•

have been prepared in accordance

with the requirements of the

Building Societies Act 1986.

BASIS FOR OPINION

We conducted our audit in accordance

with International Standards on

Auditing (UK) (“ISAs (UK)”) and

applicable law. Our responsibilities

under ISAs (UK) are further described

in the Auditors’ responsibilities for

the audit of the financial statements

section of our report. We believe that

the audit evidence we have obtained

is sufficient and appropriate to provide

a basis for our opinion.

Independence

We remained independent of the

Group in accordance with the ethical

requirements that are relevant to our

audit of the financial statements in the

UK, which includes the FRC’s Ethical

Standard applicable to public interest

entities and we have fulfilled our other

ethical responsibilities in accordance

with these requirements.

To the best of our knowledge and

belief, we declare that non-audit

services prohibited by the FRC’s

Ethical Standard were not provided to

the Group.

Other than those disclosed in note 6

to the financial statements, we have

provided no non-audit services to the

Group in the period from 1 January

2021 to 31 December 2021.

We have audited the financial

statements, included within the

Annual Report and Accounts (the

“Annual Report”), which comprise:

the Group and Society balance sheets

as at 31 December 2021; the Group

and Society income statements and

statements of comprehensive income,

the Group and Society statements

of cash flows, and the Group and

Society statements of changes in

members’ interest and equity for

the year then ended; and the notes

to the financial statements, which

include a description of the significant

accounting policies.

Our opinion is consistent with our

reporting to the Audit Committee.

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

140 | Governance

OUR AUDIT APPROACH

Overview

Materiality

Group financial statements

•

£14.6m (2020: £8.6m)

•

5% of the current year (2020: three year average) profit before tax adjusted to exclude net gains and losses arising from

financial instruments held at fair value

Society financial statements

•

£8.0m (2020: £5.6m)

•

5% of the current year (2020: three year average) profit before tax adjusted to exclude net gains and losses arising from

financial instruments held at fair value

Scoping

•

The scope of our audit and the nature, timing and extent of audit procedures performed were determined by our risk

assessment, the financial significance of components and other qualitative factors.

•

We performed audit procedures over components considered financially significant in the context of the Group (full scope

audit) or in the context of individual primary statement account balances (audit of specific account balances).

•

We performed other procedures including evaluating entity level controls, testing information technology general controls

and analytical review procedures to mitigate the risk of material misstatement in the residual components.

Key audit matters

•

The application of key judgements and assumptions in relation to applying expected credit loss provisioning on loans and

advances to customers (Group and Society);

•

Hedge accounting (Group and Society); and

•

Appropriateness of estimates used within the valuation of the defined benefit pension obligation (Group and Society).

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial

statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant

accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all

of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was

evidence of bias by the directors that represented a risk of material misstatement due to fraud.

INDEPENDENT AUDITORS’ REPORT (CONTINUED)

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

Governance | 141

Capability of the audit in detecting

irregularities, including fraud

Irregularities, including fraud,

are instances of non-compliance

with laws and regulations. We

design procedures in line with our

responsibilities, outlined in the

Auditors’ responsibilities for the audit

of the financial statements section,

to detect material misstatements in

respect of irregularities, including fraud.

The extent to which our procedures

are capable of detecting irregularities,

including fraud, is detailed below.

Based on our understanding of the

Group and its industry, we identified

that the principal risks of non-

compliance with laws and regulations

related to but are not limited to, the

Financial Conduct Authority’s (‘FCA’)

regulations, the Prudential Regulation

Authority’s (‘PRA’) regulations and

we considered the extent to which

non-compliance might have a material

effect on the financial statements.

We also considered those laws

and regulations that have a direct

impact on the financial statements

such as the Building Societies Act

1986 and UK tax legislation. We

evaluated management’s incentives

and opportunities for fraudulent

manipulation of the financial

statements (including the risk of

override of controls), and determined

that the principal risks were related

to posting manual journal entries to

manipulate financial performance,

management bias through judgements

and assumptions in significant

accounting estimates and accounting

for any significant one-off or unusual

transactions.

Audit procedures performed included:

•

Enquiries of management and

those charged with governance

throughout the year including

consideration of known or

suspected instances of non-

compliance with laws and

regulations;

•

Enquiries of internal legal counsel;

•

Assessment of matters reported

on the Group’s whistleblowing

helpline and the results of

management’s investigation of

such matters;

•

Review of internal audit reports

throughout the year, in so far

as these related to the financial

statements;

•

Review of correspondence with,

and reports to, the PRA and FCA;

•

Incorporation of an element of

unpredictability in our testing

through altering the nature, timing

and/or extent of work performed;

•

Challenging estimates and

judgements made by management

in forming significant accounting

estimates in particular those as

described under the key audit

matters below;

•

Identifying and testing higher

risk journal entries, in particular

any journals posted by senior

management, postings to unusual

account combinations based on

our understanding of business

operations and material late

adjustments.

There are inherent limitations in the

audit procedures described above.

We are less likely to become aware

of instances of non-compliance

with laws and regulations that are

not closely related to events and

transactions reflected in the financial

statements. Also, the risk of not

detecting a material misstatement

due to fraud is higher than the risk

of not detecting one resulting from

error, as fraud may involve deliberate

concealment by, for example, forgery

or intentional misrepresentations or

through collusion.

INDEPENDENT AUDITORS’ REPORT (CONTINUED)

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

OUR AUDIT APPROACH (CONTINUED)

142 | Governance

Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the

financial statements of the current period and include the most significant assessed risks of material misstatement (whether

or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the

allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we

make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a

whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete

list of all risks identified by our audit.

COVID-19, which was a key audit matter last year, is no longer included because we deem our consideration of this area in

the current year to be adequately captured by our other key audit matters and to not represent an area of increased audit

attention in its own right. Otherwise, the key audit matters below are consistent with prior year.

Key audit matter How our audit addressed the key audit matter

The application of key judgements and assumptions in

applying expected credit loss (‘ECL’) provisioning on loans and

advances to customers (Group and Society)

As at 31 December 2021:

•

The Group has gross loans and advances to customers of

£41,977m, with ECL provisions of £54m held against them.

•

The Society has gross loans and advances to customers of

£11,493m, with ECL provisions of £36m held against them.

The determination of ECL provisions is inherently judgemental and

involves setting assumptions using forward looking information

reflecting the Group’s view of potential future economic events. This

can give rise to increased estimation uncertainty.

There continues to be uncertainty in the determination of ECL

provisions driven by socio-economic factors. It is unclear how the

‘Omicron’ and other variants of COVID-19, inflation, and other

economic developments may impact the credit performance of the

lending book.

We consider the following elements of the determination of modelled

ECL for residential mortgages to be significant:

•

The application of forward-looking economic assumptions used

in the models and the weightings assigned to those scenarios,

particularly in respect of assumptions relating to future house

prices and unemployment levels since these have the largest

impact on the provision, and

•

The completeness and appropriateness of post-model adjustments

that are recorded to take into account latent risks and known

model limitations.

The relevant disclosures are given in note 32.

Management’s associated accounting policies are detailed on

page161.

Management’s judgements in the application of accounting policy

and critical estimates are disclosed on pages 165 to 166 and the

considerations of the effect of the future economic environment are

given on page 212.

The Audit Committee’s consideration of the matter is described on

page 93.

With the support of our credit risk modelling specialists and economics

experts, we performed the following procedures.

We understood and critically assessed the appropriateness of the ECL

accounting policy and model methodologies used by management.

We tested model performance by replicating key model components

and comparing actual outcomes with those previously predicted by the

models.

We critically assessed the reasonableness of management’s selected

economic scenarios and associated scenario weightings, giving specific

consideration to current and future economic uncertainty. We assessed

their reasonableness against known or likely economic, political and

other relevant events including the potential future economic impact

of developments in the COVID-19 pandemic, prolonged inflation, and

other economic developments.

We compared the severity and magnitude of the assumptions used in

each economic scenario to external forecasts and historic trends.

Based on our knowledge and understanding of the limitations in

management’s models and emerging industry risks, we evaluated

the completeness of the post model adjustments proposed by

management. We tested the valuation of in-scope post model

adjustments by critically assessing the methodology and testing the

underlying assumptions used in the calculation to supporting evidence.

We tested the ECL disclosures made by management to assess

compliance with accounting standards.

From the evidence we obtained we found that the application of

forward-looking economic assumptions and the completeness and

appropriateness of the post model adjustments as they relate to the

ECL provision to be reasonable.

INDEPENDENT AUDITORS’ REPORT (CONTINUED)

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

OUR AUDIT APPROACH (CONTINUED)

Governance | 143

Key audit matter How our audit addressed the key audit matter

Hedge accounting (Group and Society)

The business enters into derivative contracts in order to manage and

economically hedge risks such as interest and foreign exchange rate

risk. These arrangements create accounting mismatches which are

addressed through designating instruments into fair value or cash flow

hedge accounting relationships.

Certain hedge accounting relationships are maintained in spreadsheets

with associated reliance on manual processing, which elevates the risk

of operational errors and hence the risk that financial reporting is not

compliant with IFRS requirements.

During the period, interest rate cap derivatives used to mitigate

increases in wholesale funding costs were designated into new cash

flow hedging relationships for the first time.

The hedging relationships are maintained in spreadsheets and the risk

of error is further heightened due to them being new and there being

a heightened risk of ineffectiveness due to the one-sided nature of the

risk mitigation.

The relevant disclosures are given in note 27.

Management’s associated accounting policies are detailed on

page162.

The Audit Committee’s consideration of the matter is described on

page 94.

We understood the nature of the hedge accounting relationships

designated by management in the context of the risk management

strategies that they are associated with.

For a sample of hedging relationships, we obtained and evaluated

the hedge accounting documentation to assess whether each hedge

was compliant with the requirements of accounting standards. This

included a sample of newly designated hedges in the year.

For a sample of hedging relationships which are managed manually, we:

•

revalued hedging derivatives and underlying hedged items

•

re-performed hedge effectiveness calculations, agreeing key terms

to underlying support, and

•

tested that the hedge accounting was appropriately recorded.

For a sample of interest rate cap hedging relationships, we additionally:

•

evaluated the construction of the hypothetical derivative used to

represent the hedged items when measuring hedge effectiveness

•

re-performed the valuation of the hypothetical derivative, using

industry-standard modelling, and

•

critically evaluated the extent of the downward interest rate

stresses applied by management in their prospective hedge

effectiveness testing.

Based on the evidence obtained, we determined the application of

hedge accounting to be appropriate.

Appropriateness of estimates used within the valuation of the

defined benefit pension obligation (Group and Society)

The Group and Society operates funded and unfunded defined benefit

pension schemes for certain current and former members of staff. The

present value of the defined benefit obligation at 31 December 2021

is £928.2m.

The critical assumptions in the measurement of the defined benefit

obligation are discount rate, inflation and mortality rates. Changes in

these assumptions can have significant impacts on the valuation.

The relevant disclosures are given in note 18.

Management’s accounting policies are detailed on page 164.

Management’s judgements in application of accounting policy and

critical estimates are disclosed on page 165.

The Audit Committee’s consideration of the matter is described on

page 94,

We considered the independence, objectivity and competence of

the third-party actuaries engaged by management to perform their

valuation.

We confirmed our understanding of the actuary’s roll-forward

methodology used in determining the valuation of the defined benefit

obligation. We tested samples of census data of scheme membership

data back to source documents and found the data used to be

appropriate.

We have engaged our actuarial experts to evaluate the judgements

and estimates made by management in determining the key financial

and mortality assumptions used in calculating the defined benefit

obligation.

We reviewed the third-party actuaries’ report and discussed it with

those actuaries to obtain an understanding of how key assumptions

are set and the methodologies adopted in calculating the defined

benefit obligation. We assessed the reasonableness of the assumptions

and methodologies adopted using our knowledge of current market

practice, PwC developed benchmark and external market data.

Based on the work performed and evidence obtained, we found the

methodology to be compliant with accounting standards and key

assumptions to be within our independent derived ranges.

INDEPENDENT AUDITORS’ REPORT (CONTINUED)

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

OUR AUDIT APPROACH (CONTINUED)

Key audit matters (continued)

144 | Governance

INDEPENDENT AUDITORS’ REPORT (CONTINUED)

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

OUR AUDIT APPROACH (CONTINUED)

How we tailored the audit scope

We tailored the scope of our audit to

ensure that we performed enough

work to be able to give an opinion on

the financial statements as a whole,

taking into account the structure of the

Group, and the Society, the accounting

processes and controls, and the industry

in which they operate.

The Group comprises the Society, its

wholly owned subsidiaries and special

purpose vehicles over which, under

accounting standards, the Society has

control. Each entity is located in the

UK and is considered to be a financial

reporting component.

In establishing the overall approach to

our audit of the financial statements,

we determined the type of work that

was required to be performed over each

component. The Society and Accord

Mortgages Limited were considered

individually financially significant in

the context of the Group’s consolidated

financial statements and were hence full

scope audit components.

We considered the individual financial

significance of other components in

relation to primary statement account

balances. We considered the presence

of any significant audit risks and other

qualitative factors (including history

of misstatements through fraud or

error). Any component which was not

already included as a full scope audit

component but was identified as being

individually financially significant in

respect of one or more account balances

was subject to specific audit procedures

over those account balances.

All remaining components were subject

to procedures which mitigated the risk

of material misstatement including

testing of entity level controls and Group

level analytical review procedures.

All audit work was performed in the UK

and by the same engagement team.

In planning and executing our audit,

we have considered the Group’s

governance framework and preliminary

climate change risk assessment

processes as outlined in the Strategic

Report. This, together with our own risk

assessment, has provided us with a good

understanding of the potential impact

of climate change on the financial

statements. We have specifically

considered the potential impacts of

climate change and assessed that the

key financial statement line item and

estimates which are more likely to be

materially impacted by climate risks are

those associated with expected credit

losses. We have concluded that there is

no material impact at the reporting date.

The more notable impacts of climate

change on the business are expected to

arise in the medium to long term over

which period the financial impacts are

more uncertain.

Governance | 145

INDEPENDENT AUDITORS’ REPORT (CONTINUED)

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

OUR AUDIT APPROACH (CONTINUED)

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.

These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and

extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of

misstatements, both individually and in aggregate, on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall materiality

Group financial statements

£14.6m (2020: £8.6m)

Society financial statements

£8.0m (2020: £5.6m)

How we determined it 5% of the current year (2020: three year average) profit before tax adjusted to exclude net gains

and losses arising from financial instruments held at fair value.

Rationale for benchmark applied Profit before tax is a primary measure used by stakeholders in assessing the performance of

Group’s and Society’s performance and is a generally accepted benchmark for determining audit

materiality.

Management assess the performance of the business using the

core operating profit

measure, which

itself excludes net gains and losses on financial instruments held at fair value through the income

statement, as these are not considered to reflect the underlying performance of the business. The

fair value movement relates predominantly to swaps which are not yet in accounting hedging

relationships, rather than underlying business performance.

For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.

The range of materiality allocated across components was between £6.0m and £13.9m.

We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and

undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope

of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example

in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to £11.0m for the Group

financial statements and £6.0m for the Society financial statements.

In determining the performance materiality, we considered a number of factors – the history of misstatements, risk

assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our

normal range was appropriate.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £730,000

(2020: £430,000) in respect of the Group and £400,000 (2020: £280,000) in respect of the Society as well as misstatements

below that amount which, in our view, warranted reporting for qualitative reasons.

146 | Governance

Our evaluation of the directors’

assessment of the Group’s and the

Society’s ability to continue to adopt

the going concern basis of accounting

included:

•

A risk assessment to identify

factors that could impact the

going concern basis of accounting,

including the current and forecast

financial performance, regulatory

metrics and the sector in which the

Group operates;

•

Evaluation of management’s going

concern assessment;

•

Consideration of the Group’s

Operating plan, ICAAP and ILAAP,

regulatory correspondence and

reports provided to governance

forums, and assessment of the total

capital resources; and

•

Evaluation of the appropriateness

of the relevant disclosures in the

financial statements.

Based on the work we have performed,

we have not identified any material

uncertainties relating to events

or conditions that, individually or

collectively, may cast significant doubt

on the Group’s and the Society’s

ability to continue as a going concern

for a period of at least twelve months

from the date on which the financial

statements are authorised for issue.

In auditing the financial statements,

we have concluded that the directors’

use of the going concern basis of

accounting in the preparation of the

financial statements is appropriate.

However, because not all future events

or conditions can be predicted, this

conclusion is not a guarantee as to

the Group’s and Society’s ability to

continue as a going concern.

Our responsibilities and the

responsibilities of the directors with

respect to going concern are described

in the relevant sections of this report.

INDEPENDENT AUDITORS’ REPORT (CONTINUED)

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

CONCLUSIONS RELATING TO GOING CONCERN

Governance | 147

The other information comprises all of

the information in the Annual Report

other than the financial statements

and our auditors’ report thereon. The

directors are responsible for the other

information, which includes reporting

based on the Task Force on Climate-

related Financial Disclosures (TCFD)

recommendations. Our opinion on the

financial statements does not cover

the other information and, accordingly,

we do not express an audit opinion

or, except to the extent otherwise

explicitly stated in this report, any

form of assurance thereon.

In connection with our audit of the

financial statements, our responsibility

is to read the other information and, in

doing so, consider whether the other

information is materially inconsistent

with the financial statements or

our knowledge obtained in the

audit, or otherwise appears to be

materially misstated. If we identify

an apparent material inconsistency

or material misstatement, we are

required to perform procedures

to conclude whether there is a

material misstatement of the

financial statements or a material

misstatement of the other information.

If, based on the work we have

performed, we conclude that there is

a material misstatement of this other

information, we are required to report

that fact. We have nothing to report

based on these responsibilities.

With respect to the Annual Business

Statement and Directors’ Report

we also considered whether the

disclosures required by the Building

Societies Act 1986 have been

included.

Building Societies Act 1986 –

Opinion on Annual Business

Statement and Directors’ Report

In our opinion, based on our work

undertaken in the course of the audit:

•

the Annual Business Statement

and the Directors’ Report have

been prepared in accordance with

the requirements of the Building

Societies Act 1986;

•

the information given in the

Directors’ Report for the year

ended 31 December 2021 is

consistent with the accounting

records and the financial

statements; and

•

the information given in the Annual

Business Statement (other than

the information upon which we are

not required to report) gives a true

representation of the matters in

respect of which it is given.

In light of the knowledge and

understanding of the Group and

Society and their environment

obtained in the course of the audit,

we did not identify any material

misstatements in the Directors’ Report.

INDEPENDENT AUDITORS’ REPORT (CONTINUED)

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

REPORTING ON OTHER INFORMATION

148 | Governance

INDEPENDENT AUDITORS’ REPORT (CONTINUED)

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

CORPORATE GOVERNANCE STATEMENT

ISAs (UK) require us to review the

directors’ statements in relation to

going concern, longer-term viability

and that part of the corporate

governance statement relating to

the Society’s compliance with the

provisions of the UK Corporate

Governance Code, which the Listing

Rules of the Financial Conduct

Authority specify for review by

auditors of premium listed companies.

Our additional responsibilities with

respect to the corporate governance

statement as other information are

described in the Reporting on other

information section of this report.

Based on the work undertaken as part

of our audit, we have concluded that

each of the following elements of the

corporate governance statement is

materially consistent with the financial

statements and our knowledge

obtained during the audit, and we

have nothing material to add or draw

attention to in relation to:

•

The directors’ confirmation that

they have carried out a robust

assessment of the emerging and

principal risks;

•

The disclosures in the Annual

Report that describe those

principal risks, what procedures are

in place to identify emerging risks

and an explanation of how these

are being managed or mitigated;

•

The directors’ statement in the

financial statements about whether

they considered it appropriate to

adopt the going concern basis of

accounting in preparing them, and

their identification of any material

uncertainties to the Group’s and

Society’s ability to continue to do

so over a period of at least twelve

months from the date of approval

of the financial statements;

•

The directors’ explanation as to

their assessment of the Group’s

and Society’s prospects, the period

this assessment covers and why the

period is appropriate; and

•

The directors’ statement as to

whether they have a reasonable

expectation that the Society will be

able to continue in operation and

meet its liabilities as they fall due

over the period of its assessment,

including any related disclosures

drawing attention to any necessary

qualifications or assumptions.

Our review of the directors’ statement

regarding the longer-term viability of

the Group was substantially less in

scope than an audit and only consisted

of making inquiries and considering

the directors’ process supporting their

statement; checking that the statement

is in alignment with the relevant

provisions of the UK Corporate

Governance Code; and considering

whether the statement is consistent

with the financial statements and

our knowledge and understanding

of the Group and Society and their

environment obtained in the course of

the audit.

In addition, based on the work

undertaken as part of our audit, we

have concluded that each of the

following elements of the corporate

governance statement is materially

consistent with the financial

statements and our knowledge

obtained during the audit:

•

The directors’ statement that they

consider the Annual Report, taken

as a whole, is fair, balanced and

understandable, and provides

the information necessary for the

members to assess the Group’s and

Society’s position, performance,

business model and strategy;

•

The section of the Annual Report

that describes the review of

effectiveness of risk management

and internal control systems; and

•

The section of the Annual Report

describing the work of the Audit

Committee.

We have nothing to report in respect

of our responsibility to report when

the directors’ statement relating to the

Society’s compliance with the Code

does not properly disclose a departure

from a relevant provision of the Code

specified under the Listing Rules for

review by the auditors.

Governance | 149

Responsibilities of the directors

for the financial statements

As explained more fully in the

statement of

Directors’ responsibilities

in respect of the preparation of the

Annual Report and Accounts

, the

directors are responsible for the

preparation of the financial statements

in accordance with the applicable

framework and for being satisfied that

they give a true and fair view. The

directors are also responsible for such

internal control as they determine is

necessary to enable the preparation of

financial statements that are free from

material misstatement, whether due to

fraud or error.

In preparing the financial statements,

the directors are responsible for

assessing the Group’s and Society’s

ability to continue as a going concern,

disclosing as applicable, matters

related to going concern and using

the going concern basis of accounting

unless the directors either intend to

liquidate the Group and Society or to

cease operations, or have no realistic

alternative but to do so.

Auditors’ responsibilities for the

audit of the financial statements

Our objectives are to obtain

reasonable assurance about whether

the financial statements as a whole

are free from material misstatement,

whether due to fraud or error, and to

issue an auditors’ report that includes

our opinion. Reasonable assurance is

a high level of assurance, but is not a

guarantee that an audit conducted in

accordance with ISAs (UK) will always

detect a material misstatement when

it exists. Misstatements can arise from

fraud or error and are considered

material if, individually or in the

aggregate, they could reasonably be

expected to influence the economic

decisions of users taken on the basis

of these financial statements.

Our audit testing might include

testing complete populations of

certain transactions and balances,

possibly using data auditing

techniques. However, it typically

involves selecting a limited number

of items for testing, rather than

testing complete populations. We

will often seek to target particular

items for testing based on their size

or risk characteristics. In other cases,

we will use audit sampling to enable

us to draw a conclusion about the

population from which the sample is

selected.

A further description of our

responsibilities for the audit of the

annual accounts is located on the

Financial Reporting Council’s website at:

www.frc.org.uk/auditorsresponsibilities.

This description forms part of our

auditors’ report.

Use of this report

This report, including the opinions,

has been prepared for and only for

the Society’s members as a body in

accordance with Section 78 of the

Building Societies Act 1986 and for

no other purpose. We do not, in giving

these opinions, accept or assume

responsibility for any other purpose

or to any other person to whom this

report is shown or into whose hands

it may come save where expressly

agreed by our prior consent in writing.

RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT

INDEPENDENT AUDITORS’ REPORT (CONTINUED)

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)

150 | Governance

BUILDING SOCIETIES ACT 1986

EXCEPTION REPORTING

Under the Building Societies Act 1986

we are required to report to you if, in

our opinion:

•

adequate accounting records have

not been kept by the Society; or

•

the Society annual accounts are not

in agreement with the accounting

records; or

•

we have not received all the

information and explanations

and access to documents we

require for our audit.

We have no exceptions to report

arising from this responsibility.

APPOINTMENT

Following the recommendation of the

Audit Committee, we were appointed

by the directors on 30 April 2019

to audit the annual accounts for

the year ended 31 December 2019

and subsequent financial periods.

The period of total uninterrupted

engagement is 3 years, covering the

years ended 31 December 2019 to

31December 2021.

INDEPENDENT AUDITORS’ REPORT (CONTINUED)

TO THE MEMBERS OF YORKSHIRE BUILDING SOCIETY

OTHER REQUIRED REPORTING

In due course, as required by

the Financial Conduct Authority

Disclosure Guidance and

Transparency Rule 4.1.14R, these

financial statements will form part of

the ESEF-prepared annual financial

report filed on the National Storage

Mechanism of the Financial Conduct

Authority in accordance with the

ESEF Regulatory Technical Standard

(‘ESEF RTS’). This auditors’ report

provides no assurance over whether

that annual financial report will be

prepared using the single electronic

format specified in the ESEF RTS.

DIRECTORS’ REMUNERATION

The Society voluntarily prepares a

Directors’ Remuneration Report in

accordance with the provisions of the

Companies Act 2006. The directors

requested that we audit the part of

the Directors’ Remuneration Report

specified by the Companies Act 2006

to be audited as if the Society were a

quoted company.

In our opinion, the part of the

Directors’ Remuneration Report to be

audited has been properly prepared

in accordance with the Companies

Act2006.

Heather Varley

(Senior Statutory Auditor)

for and on behalf of

PricewaterhouseCoopers LLP

Chartered Accountants and

Statutory Auditors

Leeds

1 March 2022

OTHER MATTER OTHER VOLUNTARY REPORTING

Governance | 151

INCOME STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2021

Group Society

2021 2020 2021 2020

Notes £m £m £m £m

Interest revenue calculated using the effective interest method 3 962.7 900.5 756.1 847.2

Other interest revenue 3 30.8 37.5 56.5 56.1

Interest revenue 3 993.5 938.0 812.6 903.3

Interest expense 4 (456.1) (500.0) (543.2) (598.4)

Net interest income 537.4 438.0 269.4 304.9

Fee and commission revenue 24.1 21.8 11.9 12.4

Fee and commission expense (15.2) (12.8) (6.0) (6.0)

Net fee and commission income 8.9 9.0 5.9 6.4

Gains/(losses) from financial instruments held at fair value 5 26.7 (10.7) 39.3 (1.8)

Income from investments 8 0.1 – 75.1 59.3

Net realised gains on disposal of financial instruments 0.8 12.9 0.8 12.9

Other operating income 3.7 4.8 71.9 67.2

Total income 577.6 454.0 462.4 448.9

Administrative expenses 6 (251.8) (250.0) (251.8) (249.8)

Depreciation and amortisation (22.7) (25.8) (22.7) (25.8)

Impairment of financial assets 7 19.2 (12.2) 15.4 (6.8)

Movement in provisions 24 (2.3) (4.7) (2.3) (4.7)

Profit before tax 320.0 161.3 201.0 161.8

Tax expense 9 (62.9) (37.8) (23.7) (25.2)

Profit for the year 257.1 123.5 177.3 136.6

All profit for the year arises from continuing operations and is attributable to members.

The notes on pages 158 to 240 form part of these financial statements.

152 | Financial Statements

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2021

Group Society

2021 2020 2021 2020

Notes £m £m £m £m

Profit for the year 257.1 123.5 177.3 136.6

Items that may be subsequently reclassified through profit or loss

Cash flow hedges:

Fair value movements taken to equity 15.3 – 15.3 –

Amounts transferred to the income statement 0.4 0.6 0.4 0.6

Tax on amounts recognised in equity (4.2) (0.2) (4.2) (0.2)

Effect of change in corporation tax rate 9 (0.9) – (0.9) –

Financial assets measured through other comprehensive income:

Fair value movements taken to equity 18.3 36.6 18.3 36.6

Amounts transferred to the income statement (3.7) (29.8) (3.7) (29.8)

Tax on amounts recognised in equity (4.0) (1.8) (4.0) (1.8)

Effect of change in corporation tax rate 9 (1.9) (0.2) (1.9) (0.2)

Items that will not be reclassified through profit or loss

Remeasurement of retirement benefit obligations 18 30.5 4.3 30.5 4.3

Tax on remeasurement of retirement benefit obligations (8.0) (1.4) (8.0) (1.4)

Effect of change in corporation tax rate 9 (7.2) (1.7) (7.2) (1.7)

Total other comprehensive income 34.6 6.4 34.6 6.4

Total comprehensive income for the year 291.7 129.9 211.9 143.0

The notes on pages 158 to 240 form part of these financial statements.

Financial Statements | 153

BALANCE SHEETS

AS AT 31 DECEMBER 2021

Group Society

2021 2020 2021 2020

Notes £m £m £m £m

Assets

Cash and balances with the Bank of England 10 5,539.8 4,455.7 5,539.8 4,455.7

Loans and advances to credit institutions 381.4 1,087.4 295.8 964.8

Debt securities 11 4,075.5 2,860.1 14,940.5 9,451.9

Loans and advances to customers 12 41,922.4 38,798.6 11,456.6 13,154.5

Derivative financial instruments 27 490.9 416.2 419.5 217.5

Investments 8 5.4 13.6 33,136.0 29,223.8

Intangible assets 13 23.5 30.2 23.5 30.2

Investment properties 14 14.5 14.6 14.5 14.6

Property held for sale 15 0.3 7.7 0.3 7.7

Property, plant and equipment 16 122.0 126.6 122.0 126.1

Deferred tax assets 17 – 6.0 – 5.9

Retirement benefit surplus 18 120.8 91.0 120.8 91.0

Other assets 19 27.2 23.1 56.0 42.2

Total assets 52,723.7 47,930.8 66,125.3 57,785.9

Liabilities

Shares 20 35,506.4 33,368.3 35,506.4 33,368.3

Amounts owed to credit institutions 6,089.8 3,836.9 6,089.8 3,836.9

Other deposits 21 873.5 535.7 15,562.1 11,394.5

Debt securities in issue 22 5,890.9 6,128.3 4,993.7 5,379.6

Derivative financial instruments 27 272.7 490.9 180.9 465.1

Current tax liabilities 4.0 2.9 4.0 2.9

Deferred tax liabilities 17 50.4 34.9 48.4 33.1

Other liabilities 23 83.6 82.4 98.4 86.0

Provisions 24 6.1 8.6 6.1 8.6

Subordinated liabilities 25 857.7 645.0 857.7 645.0

Total liabilities 49,635.1 45,133.9 63,347.5 55,220.0

Members’ interests and equity 3,088.6 2,796.9 2,777.8 2,565.9

Total members’ interest, equity and liabilities 52,723.7 47,930.8 66,125.3 57,785.9

Approved by the Board of Directors on 1 March 2022 and signed on its behalf by:

Stephen White Alasdair Lenman John Heaps

Interim Chief Executive Officer Chief Finance Officer Chair of the Board

The notes on pages 158 to 240 form part of these financial statements.

154 | Financial Statements

STATEMENTS OF CHANGES IN MEMBERS’ INTEREST AND EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2021

Group General

reserve

Cash flow

hedge

reserve

Fair value

through other

comprehensive

income

Total

£m £m £m £m

At 1 January 2021 2,784.5 – 12.4 2,796.9

Profit for the year 257.1 – – 257.1

Net remeasurement of defined benefit obligations 15.3 – – 15.3

Net movement in cash flow hedge reserve – 10.6 – 10.6

Net movement in fair value through other comprehensive income – – 8.7 8.7

Total comprehensive income 272.4 10.6 8.7 291.7

At 31 December 2021 3,056.9 10.6 21.1 3,088.6

At 1 January 2020 2,659.6 (0.4) 7.6 2,666.8

Transitional tax adjustment 0.2 – – 0.2

At 1 January 2020 restated 2,659.8 (0.4) 7.6 2,667.0

Profit for the year 123.5 – – 123.5

Net remeasurement of defined benefit obligations 1.2 – – 1.2

Net movement in cash flow hedge reserve – 0.4 – 0.4

Net movement in fair value through other comprehensive income – – 4.8 4.8

Total comprehensive income 124.7 0.4 4.8 129.9

At 31 December 2020 2,784.5 – 12.4 2,796.9

The notes on pages 158 to 240 form part of these financial statements.

Financial Statements | 155

STATEMENTS OF CHANGES IN MEMBERS’ INTEREST AND EQUITY (CONTINUED)

FOR THE YEAR ENDED 31 DECEMBER 2021

Society General

reserve

Cash flow

hedge

reserve

Fair value

through other

comprehensive

income

Total

£m £m £m £m

At 1 January 2021 2,553.5 – 12.4 2,565.9

Profit for the year 177.3 – – 177.3

Net remeasurement of defined benefit obligations 15.3 – – 15.3

Net movement in cash flow hedge reserve – 10.6 – 10.6

Net movement in fair value through other comprehensive income – – 8.7 8.7

Total comprehensive income 192.6 10.6 8.7 211.9

At 31 December 2021 2,746.1 10.6 21.1 2,777.8

At 1 January 2020 2,417.5 (0.4) 7.6 2,424.7

Change in accounting policy adjustment* (2.3) – – (2.3)

Transitional adjustment 0.5 – – 0.5

At 1 January 2020 restated 2,415.7 (0.4) 7.6 2,422.9

Profit for the year 136.6 – – 136.6

Net remeasurement of defined benefit obligations 1.2 – – 1.2

Net movement in cash flow hedge reserve – 0.4 – 0.4

Net movement in fair value through other comprehensive income – – 4.8 4.8

Total comprehensive income 137.8 0.4 4.8 143.0

At 31 December 2020 2,553.5 – 12.4 2,565.9

* In the prior year the Society changed the accounting policy for intra group interest rate swaps from fair value through the income statement to

amortised cost. For further details please refer to note 1 to the financial statements.

The notes on pages 158 to 240 form part of these financial statements.

156 | Financial Statements

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2021

Group Society

2021 2020 2021 2020

Notes £m £m £m £m

Cash flows from operating activities

Profit before tax 320.0 161.3 201.0 161.8

Non-cash items included in profit before tax 35 (45.5) 43.4 (40.2) 36.5

Net change in operating assets 35 (3,155.4) (878.7) (2,385.2) (941.5)

Net change in operating liabilities 35 4,214.8 3,607.1 8,002.3 4,599.7

Tax paid (66.5) (51.3) (27.7) (26.8)

Net cash flow from operating activities 1,267.4 2,881.8 5,750.2 3,829.7

Cash flows from investing activities

Purchase of property, plant and equipment, and intangible

assets

(14.5) (16.3) (14.9) (16.3)

Sale of property, plant and equipment 13.1 5.0 13.1 5.0

Purchase of debt securities (1,828.8) (3,569.8) (7,396.3) (6,295.3)

Redemption and other movements of debt securities 628.7 3,277.6 1,923.0 4,775.9

Net cash flow from investing activities (1,201.5) (303.5) (5,475.1) (1,530.7)

Cash flows from financing activities

Redemption of debt securities in issue 35 (1,365.6) (1,129.5) (1,082.2) (831.9)

Issue of debt securities 35 1,424.0 1,050.0 968.4 1,050.0

Redemption of subordinated liabilities – – – –

Issue of subordinated liabilities 250.0 – 250.0 –

Redemption of subscribed capital – – – –

Interest paid on subordinated liabilities and subscribed capital (23.5) (22.5) (23.5) (22.5)

Interest paid on lease liabilities (0.9) (0.9) (0.9) (0.9)

Capital repayments on lease liabilities (5.6) (4.2) (5.6) (4.2)

Net cash flow from financing activities 278.4 (107.1) 106.2 190.5

Net change in cash and cash equivalents 344.3 2,471.2 381.3 2,489.5

Opening balance 5,421.4 2,950.2 5,298.8 2,809.3

Closing cash and liquid cash equivalents 5,765.7 5,421.4 5,680.1 5,298.8

Cash and liquid cash equivalents

Cash and cash equivalents 5,539.8 4,455.7 5,539.8 4,455.7

Less Bank of England cash ratio deposit (155.5) (121.7) (155.5) (121.7)

Loans and advances to credit institutions 381.4 1,087.4 295.8 964.8

Closing cash and liquid cash equivalents 5,765.7 5,421.4 5,680.1 5,298.8

The notes on pages 158 to 240 form part of these financial statements.

Financial Statements | 157

NOTES TO THE FINANCIAL STATEMENTS

1. STATEMENT OF ACCOUNTING POLICIES

BASIS OF PREPARATION

These financial statements present the

results of Yorkshire Building Society

(‘YBS’ or ‘the Society’) and its controlled

entities (collectively ‘the Group’ or

‘the YBS Group’) for the year ended

31December 2021.

The Group is required under the

Building Societies Act 1986

to apply

‘UK-adopted international accounting

standards’ as endorsed by the UK

Endorsement Board (UKEB). As a

result, these financial statements have

been prepared in accordance with

international accounting standards

– being International Accounting

Standards (IAS), International

Financial Reporting Standards (IFRS)

and interpretations (IFRICs) issued

by the International Accounting

Standards Board (IASB) endorsed by

the UKEB and effective from 1 January

2021 – and with those parts of the

Building Societies Act 1986

and the

Building Societies (Accounts and

Related Provisions) Regulations 1998

applicable to societies reporting under

international accounting standards.

The 31 December 2020 financial

statements were prepared using

international accounting standards

endorsed by the European Union but,

given the two bases were equivalent to

each other at 31 December 2021, no

prior year restatement is required.

The financial statements have been

prepared on the historical cost basis, as

modified by the revaluation of certain

financial instruments measured at

fair value. Pounds sterling is both the

functional currency of the YBS Group

and the presentation currency applied

to these financial statements. Except

where otherwise stated, all figures in

the financial statements are rounded to

the nearest hundreds of thousands of

pounds sterling (£0.0m).

Accounting policies have been

consistently applied, except where a

new accounting standard has been

introduced.

The preparation of financial statements

under international accounting

standards requires the use of certain

critical accounting estimates and

judgements. The areas involving

a higher degree of judgements or

complexity, or areas where assumptions

and estimates are significant to the

financial statements are set out in

note2.

Going concern

The YBS Board of Directors (the Board)

undertake regular assessments of

whether the Group is a going concern,

taking into account changing economic

and market conditions, and using all

available information about future risks

and uncertainties.

Whilst there is still uncertainty

around the future direction of the

macroeconomic environment, the

significant increases in UK house prices

over 2021, and the resulting increase

in the value of collateral backing the

mortgage portfolio, have resulted

in the Group requiring lower levels

of expected credit losses than at 31

December 2020. The impacts on the

Group’s modelling of impairment losses

on loans and advances to customers are

discussed in more detail in note 2.

Given its strong capital position and

high liquidity levels, the Group is well

placed to cope with any economic

volatility. As a result, the directors

confirm that, based on the latest formal

review undertaken in February 2022,

and stress tests performed throughout

the period, they consider the Group

has adequate resources to continue in

existence for the foreseeable future.

Accordingly, they continue to adopt the

going concern basis in preparing these

financial statements.

Basis of consolidation

The Group financial statements

consolidate the financial statements of

the Society and the entities it controls

as listed in note 8. Control is deemed

to exist when the Group has the power

to govern the financial and operating

policies of an entity so as to obtain

benefits from its activities. Upon

consolidation, intra-group assets and

liabilities, equity, income, expenses

and cash flows relating to transactions

between members of the Group are

eliminated. Investments in controlled

entities are stated in the Society

accounts at cost less any provisions for

impairment.

Securitisation transactions

The Group securitises mortgage loans

by transferring them into special

purpose vehicles (SPV) and issuing

debt securities to investors, using the

underlying loan assets as collateral. As

the Society is deemed to control these

SPVs, they are fully consolidated into

these financial statements.

Generally, the transfer of the mortgage

loans to the structured entities does not

meet the derecognition criteria under

IFRS 9

Financial Instruments

as the

Society retains all the risks and rewards

of ownership through the receipt of the

residual profits or losses of the SPVs.

In this instance, the Society continues

to recognise the mortgage loans on its

own balance sheet after the transfer,

with the proceeds received from the

transfer accounted for as a deemed

loan from the SPVs. For covered bonds,

the Society issues the covered bonds,

not the structured entity. The proceeds

are then lent to the structured entity

on back to back terms. These proceeds

are used as consideration for the loans

transferred from the Society. Neither

the loan to the structured entity nor

the consideration for the transfer

of mortgage loans is recognised

separately as an additional asset and

liability in the accounts of the Society.

To manage interest rate risk, the Group

enters into derivative transactions with

its structured entities, receiving a rate

of interest based on the securitised

mortgages and paying a rate inherent

in the debt issuances. These internal

derivatives are treated as part of

the deemed loan and not separately

measured at fair value because the

relevant mortgage loans are not

derecognised.

158 | Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING DEVELOPMENTS

Changes to Accounting Standards

Effective in the Period

Interest rate benchmark reform –

Amendments to IAS 39, IFRS9

and IFRS 7

Adoption of Phase 2 of the

amendments to IFRS 9

Financial

Instruments

, IAS 39

Financial

Instruments: Recognition and

Measurement

and IFRS 7

Disclosures

released by the IASB is mandatory

from 1 January 2021.

Phase 2 addresses issues that arise

once an existing interest rate is

replaced with an alternative interest

rate.

The YBS Group has transitioned all the

relevant instruments from LIBOR to

alternative bases, with the exception

of two financial instruments within

one of the SPV controlled entities,

Brass No.8 PLC (Brass 8). Residential

mortgage backed securities (RMBS)

issued by Brass 8 (and their related

interest rate swap derivatives) are

linked to USD LIBOR. These financial

instruments have not transitioned to

an alternative benchmark as the RMBS

will be fully repaid by the USD LIBOR

cessation date in June 2023.

Transitioning of the LIBOR based swaps

has not resulted in any of the hedge

relationships failing the effectiveness

testing and any gains or losses from

the change of benchmarks and

discount curves has been recognised

in profit and loss.

Standards issued but not yet

effective

The following standards or

amendments were in issue but were

either optional, or not yet effective,

and have not been adopted in these

financial statements.

IFRS 9 and Hedge Accounting

IFRS 9

Financial Instruments

was issued

in 2014 as a replacement of IAS 39

Financial Instruments: Recognition and

Measurement

and was mandatorily

effective for periods beginning on or

after 1 January 2018.

However, IFRS 9 did not replace the

requirements for portfolio fair value

hedge accounting for interest rate

risk since this phase of the project

was separated out due to its longer-

term nature. This is currently at the

discussion paper phase and the

IASB plans to make a decision of the

direction of the project is expected in

the middle of 2022.

As a result, IFRS 9 included a

transitional relief allowing the

continued use of the hedge accounting

requirements of IAS 39, and the Group

continue to adopt this approach.

The development of the discussion

paper will be closely monitored and

the Group will continue to assess the

impacts of full adoption of IFRS 9 for

hedge accounting.

IFRS17 Insurance Contracts

IFRS 17

Insurance Contracts

is the

comprehensive standard establishing

recognition and measurement

requirements for insurance contracts.

It is expected that this standard will

be effective for periods beginning on

or after 1 January 2023. Only a small

equity release portfolio in run-off

falls under the scope of IFRS17 so

the impact of applying this revised

standard is not expected to be

material.

Change in Accounting Policy

There were no changes to accounting

policies during the year ended

31December 2021.

SIGNIFICANT ACCOUNTING

POLICIES

Interest revenue and expense

calculated using the effective

interest rate method

The effective interest rate method

is used to calculate the revenue and

expense for financial instruments

held at amortised cost. The effective

interest rate is the rate that exactly

discounts estimated future cash flows

(excluding credit losses) over the

expected life of the instrument back to

the fair value on initial recognition.

For mortgage loans and advances to

customers this includes an estimate of

any early repayment income. Directly

attributable acquisition costs, such as

application and arrangement fees, are

also incorporated in the calculation.

This has the effect of spreading these

fees and costs over the expected

life of the mortgage. Expected lives

are estimated using historical data

and management judgement. The

calculation is adjusted when actual

experience differs from estimates, with

changes in deferred amounts being

recognised immediately in the income

statement.

Fees and commissions

Fees and commissions on referral

of customers to third party service

providers of financial products is

accounted for on an effective interest

rate basis, similar to interest revenue

and expense above. Other fees and

commissions are recognised on an

accruals basis as the relevant service

is provided or at a point in time if the

service or product provided relates to

a one-off action.

Other operating income

Other operating income comprises

profits on disposal of fixed assets,

rental income from investment

property and software licensing

income. The Society also includes the

recharge of administrative expenses to

its subsidiaries.

Income from investments

This consists of dividend income and is

recognised when the rights to receive

the payment have been established.

Financial Statements | 159

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED)

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Financial instruments

Classification and measurement

of financial assets and financial

liabilities

The Group initially recognises

financial assets and liabilities at

their fair value (less any directly

attributable transaction costs for those

subsequently classified at amortised

cost) on the date that the Group

becomes a party to the contractual

provisions of the instrument.

Subsequent measurement of financial

assets and financial liabilities

depends on the contractual cash flow

characteristics of the instrument.

Amortised cost: this measurement

approach is applied to instruments

that are held to collect interest and

principal payments over the life of the

contract. Subsequent measurement

is via the effective interest rate

method (see

Interest revenue and

expense calculated using the effective

interest rate method

above), subject

to impairment (see

Impairment

below)

plus any adjustment if designated as

part of an effective hedge arrangement

(see

Hedging

below).

Fair value though other

comprehensive income: this

measurement approach is applied

to financial assets whose business

objective is collection of interest

and principal payments but that are

also bought and sold. Subsequent

measurement is at fair value with

changes in fair value recognised in

other comprehensive income. When

the instrument is derecognised, the

cumulative gain or loss previously

recognised in reserves is reclassified to

the income statement.

Fair value through profit and loss:

this method is applied to those

instruments that are not classed as

amortised cost or fair value through

other comprehensive income.

Subsequent measurement is at fair

value with any movements recognised

in the income statement in the period

in which they arise.

The table below summarises the Group’s financial instruments and the treatment adopted in these financial statements:

Financial instrument Description Subsequent measurement

Cash and cash equivalents Cash balances and statutory deposits

Amortised cost

Loans and advances to credit institutions Fixed and variable interest rates Amortised cost

Debt securities Fixed, variable and indexed linked interest

rates

Fair value through other comprehensive

income, amortised cost and fair value through

profit and loss

Loans and advances to customers Primarily mortgage products offering a variety

of fixed and variable interest rates

Amortised cost

Derivative financial instruments* Swaps and options to manage interest rate

and foreign exchange risk exposures

Fair value through profit and loss (unless

designated as a cash flow hedge, see

‘Hedging’ below, then fair value through other

comprehensive income)

Investments in subsidiaries Equity investments in controlled entities Amortised cost

Investment in equities Equity investments in non-controlled entities Fair value through profit and loss

Shares Deposits made by members with a variety of

fixed and variable interest rates

Amortised cost

Amounts owed to credit institutions Time Deposits at fixed and variable interest

rates

Amortised cost

Debt securities in issue, subordinated

liabilities and other deposits

Fixed and variable interest rates Amortised cost

* The Society holds intra group derivatives to manage interest rate risk within the special purpose securitisation vehicles and these are measured at

amortised cost. These internal derivatives are treated as part of the deemed loan with the SPV.

160 | Financial Statements

1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED)

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Financial instruments (continued)

Derecognition of financial

instruments

Financial assets are only derecognised

when the contractual rights to receive

cash flows from the financial assets

have expired, or when the Group

has transferred substantially all the

risks and rewards of ownership. As

described in

securitisation transactions

above, the Group has not derecognised

the loans transferred to the SPVs to

secure the issue of covered bonds and

mortgage backed securities because

substantially all the risks and rewards

are retained.

Financial liabilities are only

derecognised when the obligation is

discharged, cancelled, or has expired.

Impairment of financial assets

At each reporting date the Group

assesses financial assets held at

amortised cost for impairment.

For

loans and advances to customers

the Group uses the expected credit

loss (ECL) staging model to assess any

impairment in the carrying value of

the mortgage assets. This model uses

forward looking assessments of overall

expected credit losses and recognises

impairment based on a three-staged

approach as follows.

Stage 1: financial assets are

categorised into ‘stage 1’ on initial

recognition. Impairment is based on

expected credit losses resulting from

default events projected within the

next 12 months (12 month ECL).

Stage 2: financial assets move into

‘stage 2’ when they are deemed

to have experienced a significant

increase in credit risk (SICR), based

on quantitative risk grade thresholds.

Impairment is then based on expected

losses over the full lifetime of the

contract (lifetime ECL).

The Group assesses a SICR to have

occurred when the accounts are more

than 30 days past due or there has

been a significant relative increase in

the lifetime probability of default (PD)

compared to that at initial recognition.

For retail accounts, PD is based on the

customer’s credit quality, including

analysis of their behaviour scores

and other account characteristics.

For non-retail portfolios, the Group

assess a significant increase in credit

risk using a combination of individual

and collective information, including

monitoring through the watch list

process.

Stage 3: financial assets are moved

into ‘stage 3’ when there is objective

evidence that the loan is credit

impaired, with expected credit losses

still calculated on a lifetime basis.

A loan is considered credit impaired

when it is 90 days past due, has been

renegotiated for credit risk reasons, or

otherwise considered to be in default

(including possession, insolvency and

assets beyond term expiry).

The Group’s use of forbearance tools,

including arrears arrangements,

payment deferrals, term extension,

transfers to interest only and interest

capitalisation, are factored into

the criteria for identifying stage 3

accounts. The impairment provision is

determined using the same calculation

as stage 2 accounts, but with the PD

set to 100%.

Loans that are either purchased or

originated credit impaired (POCI)

are classified as stage 3 at initial

recognition and cannot be transferred

to stage 1 or 2 even if the credit

quality of these assets improves. The

Group has a portfolio of loans acquired

as part of the Chelsea and Norwich &

Peterborough acquisitions that meet

this definition.

ECL calculations: these are assessed at

individual loan level using three main

components.

•

PD, being the probability, at the

point of assessment, that the

customer will default in the future.

•

Exposure at default (EAD), being

the outstanding value of the loan,

taking into account the repayment

of principal and interest between

the date of assessment and

expected default date.

•

Loss given default (LGD), is the

net impact of the EAD after taking

into account the mitigating effect

of collateral and the time value of

money.

PD is a calculation based on current

conditions and adjusted to take into

account estimates of future conditions

that will impact PD.

EAD is modelled based on expected

payments over the term and is not

floored at the current balance.

LGD takes into account the expected

impact of future economic conditions,

such as changes in value of collateral,

and does not include any floors.

Only costs directly associated with

obtaining/selling collateral are

included. Discounting of the expected

cash flows is performed using the

effective interest rate of the loan.

The ECL is calculated using models

that build up separate estimates for

PD, EAD and LGD for every month that

a loan is due to be outstanding.

PD and LGD estimates are then

flexed under different scenarios to

capture the effects of changes to

the forward looking macroeconomic

variables (including interest rates,

unemployment, house prices and

inflation). The final ECL figure takes a

probability weighted average of these

different scenarios.

Loans are written off against this ECL

balance when there is no realistic

prospect of recovery. This is generally

after receipt of any proceeds from the

realisation of the collateral backing the

loan.

Other financial assets are considered

low credit risk at the reporting date as

they are investment grade instruments.

As a result, impairment is based on

12-month ECL as per stage 1 above.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 161

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED)

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Financial instruments (continued)

Financial instruments acquired in

business combinations

Financial assets and liabilities

acquired in a business combination

are recognised at fair value upon

acquisition. To the extent that this

differs from the underlying amortised

cost carrying value assumed on

the transaction date, a fair value

adjustment is recognised on the

statement of financial position.

This balance is then amortised

through the income statement over

the expected life of the acquired

portfolio in a manner that reflects

the consumption of the economic

benefits arising from the underlying

assets and liabilities. To the extent that

the fair value adjustment relates to

estimated credit losses on a portfolio

of mortgage assets, the

fair value credit

adjustment

is included in the overall

ECL balance.

The Group continues to run off

balances in relation to the Chelsea

Building Society and Norwich &

Peterborough acquisitions. In addition

to the

fair value credit adjustments

, it

also includes

interest rate fair value

adjustments

in the

loans and advances

to customers

and

balances.

Hedging

As discussed above, IFRS 9

Financial

Instruments

included a transitional

relief allowing the continued use of

the hedge accounting requirements

of IAS 39

Financial Instruments:

Recognition and Measurement

, and the

Group continue to adopt this approach.

The Group applies hedge accounting

when the specific rules and conditions

in IAS 39 are fulfilled. The Group

has designated the majority of its

derivatives as either fair value or

cash flow hedges in order to reduce

volatility in the income statement.

Fair value hedges

Where a derivative financial

instrument meets the requirements of

a fair value hedge, changes in the fair

value of the hedged item are taken to

the income statement offsetting the

effect of the related movements in the

fair value of the derivative.

Where the hedge no longer meets

the criteria the adjustment to the

hedged item is released to the income

statement, over the remaining life of

the original hedged relationship.

Cash flow hedges

Where a derivative financial

instrument is designated as a cash

flow hedge, the effective part of

any gain or loss on the derivative

financial instrument is recognised

directly in other comprehensive

income and recycled to the income

statement over the life of the forecast

transaction. Any ineffective portion

of the gain or loss on the hedging

instrument is recognised in the income

statement immediately. If the forecast

transaction is no longer expected to

occur, the cumulative unrealised gain

or loss recognised in equity is then

recognised immediately in the income

statement.

Segmental Reporting

The Executive Committee (ExCo) is

responsible for allocating resources

and assessing the performance of the

Group and is therefore identified as

the Chief Operating Decision Maker.

The Group’s policy on segmental

reporting was updated during 2020

to better reflect the information

reported to the Chief Operating

Decision Maker for the purposes of

resource allocation and assessment of

performance. The Group determined

that it has one reportable segment

as the ExCo reviews performance

and makes decisions on the Group

as a whole. As a result, no segmental

disclosure is provided.

Intangible assets

Intangible assets held by the Group

consist primarily of externally

acquired and internally developed

computer software. This is measured

at cost less accumulated amortisation

and impairment.

Costs incurred in the development of

computer software for internal use are

capitalised as intangible assets where

the expenditure leads to the creation

of an identifiable non-monetary asset

and it is probable that the expected

future economic benefits that are

attributable to the asset will flow to

the Group.

Purchased software is classified

as an intangible asset where it is

not an integral part of the related

hardware. Computer software costs

are amortised using the straight line

method over their estimated useful

lives, which are generally three to

five years.

Intangible assets are reviewed for

impairment at each reporting date

or at any point in time where there

is an indication of impairment.

Impairment is assessed by estimating

the recoverable amount of the asset,

being the higher of: fair value less

costs of disposal; and value in use.

In assessing value in use, the

estimated future cash flows are

discounted to their present value. If

the recoverable amount of the asset is

estimated to be less than its carrying

amount, the carrying amount of the

asset is reduced to its recoverable

amount. Any impairment in the

value of these assets is recognised

immediately in the income statement.

162 | Financial Statements

1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED)

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Investment properties

Investment properties comprise

freehold properties, and parts of

freehold properties, that are not used

in the business and held for rental

income or capital appreciation. These

properties are generally flats and

offices ancillary to branch premises.

Investment properties are held at cost

less accumulated depreciation and

impairment.

Property, plant and equipment

Freehold properties used in the

business, major alterations to office

premises, fixtures and fittings,

equipment and other tangible

fixed assets are stated at cost less

accumulated depreciation and

impairment. Costs incurred after the

initial purchase of fixed assets are

expensed unless it directly results in

increased future economic benefits that

can be reliably measured. Repairs and

maintenance are treated as an expense.

Depreciation is a measure that

recognises the cost, less estimated

residual value, over the estimated

useful economic lives as follows:

•

Freehold/long leasehold buildings

(including investment properties) –

50 years

•

Short leasehold property and Right

of Use property assets – Life of

lease

•

Equipment, fixtures, fittings and

vehicles – 3 to 20 years

•

Freehold land is stated at cost less

accumulated impairment losses

and is not depreciated.

Property (including investment

property), plant and equipment are

reviewed for impairment annually

and where there is an indication

that events or circumstances may

mean that the carrying amount is not

recoverable. Where the recoverable

amount of the asset is estimated to

be less than the carrying amount,

the carrying amount is written down

immediately to the recoverable

amount. Any impairment in the value

of assets is recognised in the income

statement as it arises.

Properties held for sale

The Group classifies property as held for

sale when management is committed

to a plan to sell and the asset is being

actively marketed. It is measured at the

lower of the carrying value and the fair

value less costs to sell.

Leases

Contracts are accounted for as leases

when the terms of the contract

transfer substantially all the risks and

rewards of ownership to the lessee.

For such arrangements a ‘right-of-use’

asset, included in

property, plant and

equipment

, and a corresponding lease

liability, included in other liabilities,

are recorded on the balance sheet

upon initial recognition.

The right-of-use asset is measured

at the lower of its fair value and the

present value of the minimum lease

payments at inception of the lease,

less accumulated depreciation and

impairment. The lease liability is

measured at the present value of the

minimum lease payments.

Depreciation is recorded by the

Group to write off the cost over the

estimated useful economic life of the

asset. Rent payable on finance leases

is apportioned between the finance

element, charged to the income

statement, and the reduction of the

lease obligation so as to achieve

a constant rate of interest on the

remaining balance of the liability.

Leases with a short life, or relating

to low value assets, are expensed to

the income statement on a straight

line basis over the period of the lease

agreement.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 163

1. STATEMENT OF ACCOUNTING POLICIES (CONTINUED)

SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Retirement benefit costs

The asset or liability is recognised in

respect of the Group’s defined benefit

pension scheme measured at the

present value of the defined benefit

obligation at the reporting date, less the

fair value of the plan assets, together

with adjustments for unrecognised past

service costs.

An asset is only recognised to the extent

that it is recoverable by the Group via

available refunds and reductions in

future contributions to the scheme.

The defined benefit obligation is

calculated annually by independent

actuaries using the projected unit credit

method. Gains or losses arising from

changes in assumptions are recognised

in other comprehensive income in the

period in which they occur.

Defined benefit obligations are

discounted to present value using the

rate of return available on high quality

corporate bonds of an equivalent term

to the obligations.

Past service costs are recognised

immediately in the income statement

to the extent that benefits are already

vested and otherwise are amortised on

a straight line basis over the average

period until the benefits become vested.

Taxation including deferred tax

Tax comprises current tax and deferred

tax. Tax is recognised in the income

statement except to the extent

that it relates to items recognised

directly in equity, in which case the

tax is recognised in the statement of

comprehensive income.

Current tax is the expected tax

payable on the taxable profits for

the year, using tax rates enacted or

substantively enacted at the reporting

date, and any adjustment to tax

payable in respect of previous years.

Deferred tax is recognised for

temporary differences arising between

the carrying amount of certain assets

and liabilities for accounting purposes

and for taxation purposes. Deferred tax

is provided using tax rates enacted or

substantively enacted at the reporting

date effective on the date at which

they are expected to reverse.

The following temporary differences

are not provided for:

•

The initial recognition of assets

or liabilities that affect neither

accounting nor taxable profit.

•

Differences relating to investments

in subsidiaries, to the extent that

the parent is able to control the

reversal of temporary differences,

and it is probable they will not

reverse in the foreseeable future.

Deferred tax assets are recognised

to the extent that it is probable that

future taxable profits will be available,

against which a temporary difference

can be utilised. The carrying amount

of the deferred tax asset is reviewed

at the reporting date and reduced to

the extent that it is no longer probable

that sufficient taxable profits will be

available to allow all or part of the

asset to be recovered.

Provisions

Provisions are recognised when: the

Group has a present obligation (legal

or constructive) as a result of a past

event; it is probable that the Group will

be required to settle that obligation;

and a reliable estimate can be made of

the amount of the obligation.

The amount recognised as a provision

is the best estimate of the net present

value of the consideration required

to settle the obligation, taking into

account the risks and uncertainties

surrounding the obligation.

A restructuring provision is recognised

when the Group has developed

a detailed formal plan for the

restructuring and raised a valid

expectation that it will carry out the

restructuring through announcing the

main features of the plan to those

affected by it.

Foreign currency

Assets and liabilities denominated in

foreign currencies are translated into

Sterling at the appropriate rates of

exchange prevailing at the reporting

date and exchange differences are

recognised in the income statement. All

income and expense is translated into

Sterling at the rate of exchange on the

day of receipt or payment.

Statement of cash flows

For the purposes of the statements of

cash flows, cash and cash equivalents

comprise cash and liquid financial

instruments maturing within 3 months.

The statement of cash flows has been

prepared using the indirect method.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

164 | Financial Statements

2. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In applying its accounting policies, the

Group makes judgements that have

a significant impact on the amounts

recognised in the financial statements.

In addition, estimates and assumptions

are used that could affect the reported

amounts of assets and liabilities. The

estimates and underlying assumptions

are reviewed on an ongoing basis.

As explained in the

Audit Committee

Report

in the

Governance

section, the

Audit Committee has considered the

accounting judgements and estimates

applied in the financial statements.

The Audit Committee have confirmed

to the Board that they consider these

to be appropriate.

The key assumptions concerning

the future, and other key sources of

estimation uncertainty at the reporting

date that may have a significant risk

of causing a material adjustment to

the carrying amount of assets and

liabilities within the next financial year,

are discussed below.

RETIREMENT BENEFIT COSTS

The Group’s accounting policy

states that a net defined benefit

pension scheme asset should only be

recognised to the extent that the Group

has the ability to access the pension

scheme surplus in the form of a refund

or reduction in future contributions.

The scheme trustees could act

unilaterally in order to restrict the

ability of the Group to seek a refund

or reduce future contributions, hence

a judgement on the likelihood of

this event is required. The Group has

received a legal opinion supporting

the judgement that any surplus of

the scheme can be recovered in full

and that pension scheme trustees are

unable to act to amend the scheme

rules, and ultimately prevent the

Society accessing the surplus, without

the Society’s support.

In addition, significant estimation

uncertainty in respect of areas such

as future interest rates and mortality

rates have to be applied in estimating

the value of the assets and liabilities of

the defined benefit scheme. These are

outlined in note 18.

The impact of a 0.5% increase in the

rate used to discount future liabilities

from 1.85% to 2.35% would result in

a decrease of liability of 9% (2020:

decrease of 9%). The impact of a 0.5%

increase in inflation would increase

liabilities by 5% (2020: 4%). The

impact of a one year increase in life

expectancy at age 60 would be to

increase liabilities by around 4% (2020:

4%). Note that these sensitivities have

been modelled independently as single

variable adjustments and have not

anticipated any correlation between

movements in the inputs.

IMPAIRMENT OF LOANS AND

ADVANCES TO CUSTOMERS

The impairment calculation of

expected credit losses (ECL) for

a portfolio of mortgage loans

is inherently uncertain. ECL are

calculated using historical default and

loss experience but require judgement

to be applied in predicting future

economic conditions (e.g. interest

rates and house prices) and customer

behaviour (e.g. default rates). The

most critical judgements that lead to

estimation uncertainty are as follows:

Economic scenarios and

weightings

A forum, supported by Finance, Credit

Risk, Balance Sheet Management

and economic experts considers the

forward-looking macroeconomic

assumptions with the objective

of developing internally coherent

economic scenarios to propose

to the Group Asset and Liability

Committee (ALCO) for challenge and

approval. ALCO ensures that the ECL

meets the requirement for unbiased

and weighted amounts derived

by evaluating a range of possible

outcomes and assumptions, or

economic scenarios.

Judgements are made in arriving at

the level of each economic variable,

such as house price index (HPI)

and unemployment, applied in

each economic scenario to support

the estimate of ECL. ALCO applies

judgements to arrive at these

assumptions while the consensus view

on these economic variables is being

reached.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 165

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

2. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

(CONTINUED)

IMPAIRMENT OF LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

Economic scenarios and

weightings (continued)

Judgement is also applied in

determining the relative weighting

of each economic scenario in the

ECL estimate. The Group assessed

the uncertainty associated with the

ongoing COVID-19 pandemic and the

economic assumptions applied to

the ECL model and determined that

applying a combined 45% weighting

to downside and stress scenarios as

at the balance sheet date reflects a

reasonable view of the outturn for the

UK economy. The Group has applied a

5% weighting to upside, 50% to Core,

30% to Downside and 15% to Stress

scenarios. This reflects a move of 5

percentage points from Downside to

Core compared to 31 December 2020.

The Group considered alternative sets

of weightings in reaching these results.

The most severe applied the same

weightings as at 31 December 2020

i.e. 45% Core and 35% Downside

– this would result in a £2.2 million

increase in ECL. The least severe

applied weightings of 55% Core and

10% Stress – this would result in a

£3.2 million decrease in ECL). These

changes in weightings have been fully

modelled and been allowed to impact

staging.

In terms of sensitivity to changes in

key economic variables within the

model, if UK House Price Index (HPI)

forecasts were uplifted by 1% a year

for the next 5 years, ECL would reduce

by £2.9 million. The key in-year impact

of changes to economic variables

came from applying quarterly Office of

National Statistics (ONS) HPI updates,

which accounted for £17.0 million

of the impairment release over 2021

(2020: £6.3 million release).

The determination, application and

calculation of post model adjustments

(PMA) also requires judgement to be

applied. Further detail on economic

assumptions, weightings and PMAs can

be found in note 32.

Core model assumptions

Significant increase in credit risk

A judgement is applied to determine

the threshold at which a significant

relative increase in credit risk is

deemed to have occurred. If 10%

of the accounts in stage 1, on a

proportional basis, were to be

transferred to stage 2 and subject to

a calculation of full lifetime expected

credit losses, this would result

in a £2.3 million increase (2020:

£4.0million) increase in ECL.

Acquired interest-only mortgages

A judgement has been applied in

determining which probability of

default assumptions to apply to

different cohorts of customer for

acquired interest-only mortgages.

The existence of an appropriate

repayment vehicle has only been

substantiated for 27% (2020: 28%)

of these customers and so there is

a risk that the full amount due at

maturity (average maturity being

2028) will not be collected. A model

is applied to estimate the probability

that accounts will reach the end of the

term without being recovered, with

the average probability across these

accounts being 8.8% (2020: 8.3%).

This results in an ECL of £10.2 million

(2020: £16.7million).

Two alternative probability of default

(PD) estimates are applied, one for

those customers that we are unable

to contact, and another for those

that have confirmed there is no

appropriate repayment vehicle in

place. If the ‘novehicle’ PD is applied

to the ‘unable to contact’ customers,

expected credit losses increase by

£6.7 million (2020: £7.1 million).

166 | Financial Statements

3. INTEREST REVENUE

Group Society

2021 2020 2021 2020

£m £m £m £m

Calculated using the effective interest rate method:

Loans secured on residential property 912.3 846.4 279.0 315.2

Loans secured on connected undertakings – – 381.0 426.7

Other loans 19.2 19.8 19.2 19.8

Liquid assets 4.8 7.7 4.8 7.5

On debt securities 26.4 26.6 72.1 78.0

Interest revenue calculated using the effective interest rate method 962.7 900.5 756.1 847.2

Other:

Derivatives in hedge relationships 16.4 16.6 15.1 16.6

Derivatives not included in hedge relationships 14.4 20.9 41.4 39.5

Other interest revenue 30.8 37.5 56.5 56.1

Total interest revenue 993.5 938.0 812.6 903.3

4. INTEREST EXPENSE

Group Society

2021 2020 2021 2020

£m £m £m £m

Shares held by individuals 218.0 246.3 218.0 246.3

Deposits from banks 4.4 8.0 4.4 8.0

Deposits from connected undertakings – – 75.1 96.5

Other deposits 0.2 0.8 0.2 0.8

Debt securities in issue 61.1 68.8 53.6 57.8

Subordinated liabilities 23.5 22.5 23.5 22.5

Derivatives in hedge relationships 134.6 134.6 125.8 125.8

Derivatives not included in hedge relationships 13.4 18.1 41.7 39.8

Interest expense for leasing arrangements 0.9 0.9 0.9 0.9

Total interest expense 456.1 500.0 543.2 598.4

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 167

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

5. GAINS/(LOSSES) FROM FINANCIAL INSTRUMENTS HELD AT FAIR VALUE

Group Society

2021 2020 2021 2020

£m £m £m £m

Equity investments held at fair value 0.1 5.0 0.1 5.0

Hedge accounting ineffectiveness (3.6) (1.0) 7.6 5.3

Derivatives and debt securities not included in hedge relationships 30.2 (14.7) 31.6 (12.1)

Net gains/(losses) from financial instruments held at fair value 26.7 (10.7) 39.3 (1.8)

DERIVATIVES AND HEDGING

Fair value gains and losses on derivatives and hedging relates to changes in the fair value of derivatives that provide effective

economic hedges but where the Group has either not achieved hedge accounting or the nature of the hedge relationship has

given rise to ineffectiveness.

6. ADMINISTRATIVE EXPENSES

Group Society

2021 2020 2021 2020

£m £m £m £m

Staff costs:

Salaries and wages 119.4 114.7 119.4 114.7

Social security costs 12.4 11.7 12.4 11.7

Pension costs – defined benefit plans 1.6 0.6 1.6 0.6

Pension costs – defined contribution plans 10.2 10.0 10.2 10.0

Contractor staff costs 14.9 13.4 14.9 13.4

Other staff costs 1.1 2.1 1.1 2.1

Professional consultancy costs 12.2 9.5 12.2 9.5

Premises costs 15.9 17.4 15.9 17.6

IT costs 30.0 33.0 30.0 33.0

Marketing 9.8 9.7 9.8 9.7

Other expenses 24.3 27.9 24.3 27.5

Total administrative expenses 251.8 250.0 251.8 249.8

The Society operates a salary sacrifice scheme whereby employees can opt to make contributions from their pre-tax salaries.

The amount shown in the table above under salaries and wages includes the headline salary (i.e. before the salary sacrifice

deduction) and pension costs exclude the additional contributions made by the Society on employees’ behalf as a result of

the salary sacrifice scheme. Full details of directors’ remuneration, including the number of directors, the total remuneration

of directors, including that of the highest paid director, bonuses and pensions are given in the

Directors’ Remuneration Report

within the

Governance

section.

168 | Financial Statements

6. ADMINISTRATIVE EXPENSES (CONTINUED)

REMUNERATION OF THE AUDITORS

Group Society

2021 2020 2021 2020

£000 £000 £000 £000

Audit fees for the Group and Society statutory audit 629.0 664.3 629.0 664.3

Audit fee for the statutory audit of controlled entities 353.5 349.0 – –

Audit related assurance services required by law or regulation 149.0 8.5 149.0 8.5

Total audit and audit related assurance services 1,131.5 1,021.8 778.0 672.8

Other permitted non-audit services 270.7 252.9 224.7 212.9

Total remuneration of the auditors 1,402.2 1,274.7 1,002.7 885.7

The above figures, relating to auditor’s remuneration, exclude value added tax. Details of the Society’s policy on non-audit

work is given in the

Audit Committee Report

The classifications

audit related assurance services required by law or regulation

and

other permitted non-audit services

reflect

the terminology included in guidance issued by the UK Financial Reporting Council.

Other permitted non-audit services

primarily consist of the half-year review and profit verification as well as assurance work in respect of our debt issuances.

STAFF NUMBERS

The average number of persons employed by the Group and Society during the year (including executive directors)

was as follows:

2021 2020

Full time Part time Full time Part time

Central administration 1,964 453 1,860 470

Branches 390 442 487 527

Total staff numbers 2,354 895 2,347 997

7. IMPAIRMENT OF FINANCIAL ASSETS

Group Society

2021 2020 2021 2020

£m £m £m £m

Impairment (release)/charge loans and advances to customers (18.5) 13.3 (15.0) 7.2

Recoveries relating to loans and advances previously written off (1.0) (1.2) (0.7) (0.5)

Impairment of other financial assets 0.3 0.1 0.3 0.1

Impairment (release) / charge (19.2) 12.2 (15.4) 6.8

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 169

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

8. INVESTMENTS

INCOME FROM INVESTMENTS

Group Society

2021 2020 2021 2020

£m £m £m £m

Dividend income from subsidiaries – – 75.0 59.3

Dividend income from equity investments 0.1 – 0.1 –

Income from investments 0.1 – 75.1 59.3

During 2021, the Society received dividends from Accord Mortgages Limited of £75.0m (2020: £50.0m) and

Norwich & Peterborough Insurance Brokers Limited of £nil (2020: £9.3m).

INVESTMENTS

Group Society

2021 2020 2021 2020

£m £m £m £m

Equities 5.4 13.6 5.4 13.6

Controlled entities – – 33,130.6 29,210.2

Total investments 5.4 13.6 33,136.0 29,223.8

Investment in equities

The Group holds equity investments in a banking and credit card service provider due to our historic participation in their card

servicing operations. A tranche of these equity shares was sold for £8.5m in August 2021. The investments are held at fair

value through profit or loss and the valuation technique is detailed in note 33.

Controlled entities

Society Equity Loans Total

£m £m £m

At 1 January 2021 104.9 29,105.3 29,210.2

Additions – 5,142.8 5,142.8

Repayments – (1,222.4) (1,222.4)

At 31 December 2021 104.9 33,025.7 33,130.6

At 1 January 2020 104.9 27,037.3 27,142.2

Additions – 2,925.5 2,925.5

Repayments – (857.5) (857.5)

Total as at 31 December 2020 104.9 29,105.3 29,210.2

All loans are charged interest with amounts recognised in interest revenue.

170 | Financial Statements

8. INVESTMENTS (CONTINUED)

SUBSIDIARIES

The Society holds 100% of the ordinary equity share capital for each of the following subsidiary entities, all of which are

audited and consolidated.

Subsidiary Principal activity

Accord Mortgages Limited .................................................................................................................................................................................................................. Mortgage lending

Norwich and Peterborough Insurance Brokers Limited ................................................................................................................................................................... Non-trading

Norwich and Peterborough (LBS) Limited ....................................................................................................................................................................................Mortgage finance

YBS Properties (Edinburgh) Limited .................................................................................................................................................................................................Property holding

The Group has taken advantage of the audit exemptions available for small and dormant subsidiaries under sections 479

and 480 of the

Companies Act 2006

for the following subsidiary entities, all of which are consolidated:

•

BCS Loans and Mortgages Limited

•

Chelsea Mortgage Services Ltd

•

YBS Ltd

•

Yorkshire Direct Ltd

•

YBS Group Ltd

•

YBS Pension Trustees Limited

•

Yorkshire Group Ltd

•

Yorkshire Insurance Services Ltd

•

Yorkshire Life Assurance Services Ltd

•

Yorkshire Mortgage Services Ltd

•

Yorkshire Personal Financial Services Ltd

•

Yorkshire Property Services Ltd

•

Yorkshire Services Ltd

•

Yorkshire Key Services Limited

All subsidiaries have a 31 December accounting period end, are registered in England and have their registered office as

Yorkshire Drive, Bradford, BD5 8LJ.

OTHER CONTROLLED ENTITIES

The following entities are deemed to be controlled as, whilst the Group does not have a controlling equity shareholding, it has

the right to variable returns from its involvement in the entity. The Society’s interests in these entities are, in substance, no

different than if they were wholly-owned subsidiary undertakings and, as a result, they are consolidated into the Group. The

carrying value of the equity holdings in these entities in the Society is nil (2020: nil).

•

Brass No.5 PLC

•

Brass No.5 Mortgage Holdings Limited

•

Brass No.6 PLC

•

Brass No.6 Mortgage Holdings Limited

•

Brass No.7 PLC

•

Brass No.7 Mortgage Holdings Limited

•

Brass No.8 PLC

•

Brass No.8 Mortgage Holdings Limited

•

Brass No.9 PLC

•

Brass No.9 Mortgage Holdings Limited

•

Brass No.10 PLC**

•

Brass No.10 Mortgage Holdings Limited**

•

Tombac No.2 PLC*

•

Tombac No.2 Mortgage Holdings Limited*

•

Tombac No.3 PLC**

•

Tombac No.3 Mortgage Holdings Limited**

•

Yorkshire Building Society Covered Bonds LLP

•

YBS Covered Bonds Finance (Holdings) Limited

•

YBS Covered Bonds Finance Limited

All these entities are subject to audit and have a 31 December year end, apart from those entities currently in liquidation or

incorporated during the year. Their registered office is Third Floor, 1 King’s Arms Yard, London, EC2R 7AF, with the exceptions

Yorkshire Building Society Covered Bonds LLP

whose registered address is Yorkshire Drive, Bradford, BD5 8LJ.

JOINT VENTURES

The Society has a 22.2% joint venture investment in Arkose Funding Limited. The carrying value of the investment at

31December 2021 is £nil (2020: £nil).

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

* in liquidation

** incorporated during the year

Financial Statements | 171

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

9. TAX EXPENSE

Group Society

2021 2020 2021 2020

£m £m £m £m

UK Corporation tax at 19% 67.3 39.6 28.3 26.9

Corporation tax – adjustment in respect of prior periods 0.3 (1.6) 0.3 (1.6)

Total current tax 67.6 38.0 28.6 25.3

Deferred tax – current year (4.1) (2.1) (3.9) (1.8)

Deferred tax – adjustment in respect of prior periods 0.2 1.7 0.2 1.7

Deferred tax – impact of rate change (0.8) 0.2 (1.2) –

Total tax expense in the income statement 62.9 37.8 23.7 25.2

The actual tax expense for the year differs from that calculated using the standard rate of UK corporation tax of 19% (2020:

19%), making the effective tax rate 19.7% (2020: 23.4%). A full breakdown of the difference is provided below:

Group Society

2021 2020 2021 2020

£m £m £m £m

Profit before tax 320.0 161.3 201.0 161.8

Tax calculated at a tax rate of 19% (2020: 19%) 60.8 30.7 38.2 30.8

Effects of:

Income not subject to tax (1.8) (1.8) (18.2) (13.1)

Fair value movements on securitisation 0.3 0.5 – –

Expenses not deductible for tax purposes 0.5 2.1 1.0 1.4

Banking surcharge 5.8 6.0 5.8 6.0

Adjustment to tax charge in respect of previous periods 0.5 0.1 0.5 0.1

Recognition and utilisation of capital losses (2.4) – (2.4) –

Change in tax rate (0.8) 0.2 (1.2) –

Total tax expense in income statement 62.9 37.8 23.7 25.2

Tax (credit)/expense recognised directly in equity:

Tax on financial instruments held at fair value through other

comprehensive income

4.0 1.8 4.0 1.8

Change in tax rate on financial instruments held at fair value through

other comprehensive income

1.9 0.2 1.9 0.2

Tax on remeasurement of net retirement benefit obligations 8.0 1.4 8.0 1.4

Change in tax rate on net retirement benefit obligations 7.2 1.7 7.2 1.7

Deferred tax on cash flow hedges 4.2 0.2 4.2 0.2

Change in tax rate on cash flow hedges 0.9 – 0.9 –

Total tax expense recognised directly in equity 26.2 5.3 26.2 5.3

172 | Financial Statements

9. TAX EXPENSE (CONTINUED)

An increase in the UK corporation tax rate from 19% to 25% (effective 1 April 2023) was announced in March 2021 and

substantively enacted on 24 May 2021. This will increase the future rate at which the Group pays tax. The deferred tax assets

and liabilities at 31 December 2021 have been calculated based on the 25% rate, with a blended rate applied where it is

known that the associated temporary difference will reverse prior to 1 April 2023.

During the Autumn 2021 Budget, it was announced that the banking surcharge would be reduced from 8% to 3% (on taxable

profit above £100 million) from 1 April 2023. This change had not been

substantively enacted

(i.e. the changes to the tax

legislation fully approved) at the balance sheet date and as a result, deferred tax balances continue to be measured based on

the existing surcharge rate of 8% on taxable profit above £25 million. If the surcharge rate change had been substantively

enacted, the impact would have been a £7.4 million reduction in the net deferred tax liability.

10. CASH AND BALANCES WITH THE BANK OF ENGLAND

Group Society

2021 2020 2021 2020

£m £m £m £m

Cash in hand 8.5 9.2 8.5 9.2

Unencumbered deposits with the Bank of England 5,375.8 4,324.8 5,375.8 4,324.8

Cash in hand and unencumbered deposits 5,384.3 4,334.0 5,384.3 4,334.0

Cash ratio deposit with the Bank of England 155.5 121.7 155.5 121.7

Cash and balances with the Bank of England 5,539.8 4,455.7 5,539.8 4,455.7

Cash ratio deposits are mandatory requirements of the Bank of England. They are considered to be encumbered assets and

are non-interest-bearing.

11. DEBT SECURITIES

Group Society

2021 2020 2021 2020

£m £m £m £m

Debt securities issued by:

Public bodies 667.7 582.4 667.9 582.4

Other borrowers 3,407.8 2,277.7 3,319.4 2,215.1

Group companies – – 10,953.2 6,654.4

Total debt securities 4,075.5 2,860.1 14,940.5 9,451.9

Debt securities issued by Group companies comprise retained investments in the Group’s securitisation vehicles.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 173

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

11. DEBT SECURITIES (CONTINUED)

Group Held at

fair value

Fair value

through Other

Comprehensive

Income

Amortised

cost

Total

£m £m £m £m

Movements in debt securities during the year were:

At 1 January 2021 – 2,471.0 389.1 2,860.1

Additions 27.3 1,386.5 415.0 1,828.8

Disposals and repayments – (497.0) (4.6) (501.6)

Exchange translation – (6.7) (7.0) (13.7)

Other changes in value 1.3 (98.4) (1.0) (98.1)

At 31 December 2021 28.6 3,255.4 791.5 4,075.5

At 1 January 2020 – 2,548.2 – 2,548.2

Additions – 3,182.7 387.1 3,569.8

Disposals and repayments – (3,330.8) (2.4) (3,333.2)

Exchange translation – 1.6 2.8 4.4

Other changes in value – 69.3 1.6 70.9

At 31 December 2020 – 2,471.0 389.1 2,860.1

Society Held at

fair value

Fair value

through Other

Comprehensive

Income

Amortised

cost

Total

£m £m £m £m

Movements in debt securities during the year were:

At 1 January 2021 – 2,471.1 6,980.8 9,451.9

Additions 27.3 1,386.5 5,982.5 7,396.3

Disposals and repayments – (497.0) (1,302.4) (1,799.4)

Exchange translation – (6.7) (6.7) (13.4)

Other changes in value 1.3 (98.5) 2.3 (94.9)

At 31 December 2021 28.6 3,255.4 11,656.5 14,940.5

At 1 January 2020 – 2,548.2 5,363.8 7,912.0

Additions – 3,182.7 3,112.6 6,295.3

Disposals and repayments – (3,330.8) (1,492.0) (4,822.8)

Exchange translation – 1.6 2.6 4.2

Other changes in value – 69.4 (6.2) 63.2

At 31 December 2020 – 2,471.1 6,980.8 9,451.9

174 | Financial Statements

12. LOANS AND ADVANCES TO CUSTOMERS

Group Society

2021 2020 2021 2020

£m £m £m £m

Loans secured on residential property:

Loans fully secured on residential property 40,899.5 37,387.6 10,421.7 11,729.4

Other loans secured on residential property 6.6 7.9 – –

Loans secured on commercial property 1,309.1 1,204.8 1,309.1 1,204.8

Fair value hedging adjustments (238.3) 274.3 (238.5) 274.3

Gross loans and advances to customers 41,976.9 38,874.6 11,492.3 13,208.5

Impairment (26.1) (43.9) (7.3) (21.9)

Fair value credit adjustment (28.4) (32.1) (28.4) (32.1)

Expected credit losses (ECL) (54.5) (76.0) (35.7) (54.0)

Total loans and advances to customers 41,922.4 38,798.6 11,456.6 13,154.5

The following tables analyse the changes in ECL impairment and fair value credit adjustments.

Group Society

2021 2020 2021 2020

£m £m £m £m

Opening Impairment 43.9 30.2 21.9 13.6

Amounts written off in the period (0.6) (1.2) (0.4) (0.2)

Discounting recognised in net interest income 1.3 1.6 0.9 1.3

(Release)/charge for the year recognised in the income statement (18.5) 13.3 (15.1) 7.2

Impairment 26.1 43.9 7.3 21.9

Group Society

2021 2020 2021 2020

£m £m £m £m

Opening fair value credit adjustment 32.1 34.9 32.1 34.9

Release recognised in the income statement through net interest (3.2) (1.2) (3.2) (1.2)

Write-offs (0.5) (1.6) (0.5) (1.6)

Fair value credit adjustment 28.4 32.1 28.4 32.1

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 175

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

13. INTANGIBLE ASSETS

Group and Society Development

costs

Software Internally

generated assets

Other Total

£m £m £m £m £m

Cost:

At 1 January 2021 2.1 61.3 16.5 7.1 87.0

Additions – 2.3 – – 2.3

Disposals – (3.4) (1.4) – (4.8)

Transfers (1.7) 1.7 – – –

At 31 December 2021 0.4 61.9 15.1 7.1 84.5

Amortisation:

At 1 January 2021 – 34.1 15.6 7.1 56.8

Charged in year – 8.7 0.3 – 9.0

Disposals – (3.3) (1.5) – (4.8)

At 31 December 2021 – 39.5 14.4 7.1 61.0

Net book value at 31 December 2021 0.4 22.4 0.7 – 23.5

Cost:

At 1 January 2020 1.9 61.5 18.2 7.1 88.7

Additions 0.2 4.3 0.2 – 4.7

Disposals – (4.5) (1.9) –

(6.4)

At 31 December 2020 2.1 61.3 16.5 7.1 87.0

Amortisation:

At 1 January 2020 – 32.2 13.5 7.0 52.7

Charged in year – 8.4 2.1 0.1 10.6

Disposals – (6.5) – – (6.5)

At 31 December 2020 – 34.1 15.6 7.1 56.8

Net book value at 31 December 2020 2.1 27.2 0.9 – 30.2

Other intangible assets primarily comprise the intrinsic value of items acquired on mergers (retail savings and brands)

and an amount paid for the transfer of a number of employee sharesave schemes to the Society. Transfers relate to the

reclassification of assets from development costs to software and internally generated assets. The development costs related

mainly to the Society’s investment in a new mortgage processing system.

176 | Financial Statements

14. INVESTMENT PROPERTY

Group Society

2021 2020 2021 2020

£m £m £m £m

Cost:

At 1 January 19.8 20.3 19.6 20.1

Additions 0.3 0.2 0.3 0.2

Disposals (0.4) – (0.2) –

Transferred to held for sale – (1.5) – (1.5)

Transfers – 0.8 – 0.8

At 31 December 19.7 19.8 19.7 19.6

Depreciation:

At 1 January 5.2 5.5 5.0 5.3

Charged in year 0.3 0.3 0.3 0.3

Disposals (0.3) – (0.1) –

Transferred to held for sale – (0.8) – (0.8)

Transfers – 0.2 – 0.2

At 31 December 5.2 5.2 5.2 5.0

Net book value 14.5 14.6 14.5 14.6

Fair value 13.5 14.6 13.5 14.2

Investment properties are generally flats and offices ancillary to branch premises and not used by the Group. Rental income

of £1.1m on investment properties has been included within other operating income (2020: £1.3m).

Transfers relate to the reclassification of assets between investment properties and property, plant and equipment, usually

due to changes in occupancy.

The fair value of the Group’s investment properties at 31 December 2021 is based predominantly on external valuations.

During the year, the Group transferred a property from YBS Properties (Edinburgh) Limited to the Society. As a result, there is

now no difference between the Group and Society balances.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 177

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

15. PROPERTY HELD FOR SALE

Group and Society 2021 2020

£m £m

Cost:

At 1 January 15.3 8.8

Transfer from property, plant and equipment – 12.1

Disposals (12.9) (5.6)

At 31 December 2.4 15.3

Depreciation:

At 1 January 7.6 5.7

Transfer from property, plant and equipment – 4.1

Disposals (5.5) (3.9)

Impairment – 1.7

At 31 December 2.1 7.6

Net book value 0.3 7.7

During the year, a number of properties were disposed of from Property held for sale. A gain of £2.5m was recorded on the

sale of properties (2020: £2.9m), including our sites at Filey Street and Lynchwood.

178 | Financial Statements

16. PROPERTY, PLANT AND EQUIPMENT

Group Land and

buildings

Equipment,

fixtures and

fittings

Right of Use

property

Right of Use

motor vehicles

Total

£m £m £m £m £m

Cost:

At 1 January 2021 100.5 71.3 42.6 1.2 215.6

Reallocation (0.7) – 0.7 – –

Revised balance at 1 January 2021 99.8 71.3 43.3 1.2 215.6

Additions 3.2 5.8 2.8 0.1 11.9

Disposals (0.5) (8.7) (3.9) (0.1) (13.2)

Assets transferred to held for sale – – – – –

Transfers – – – – –

At 31 December 2021 102.5 68.4 42.2 1.2 214.3

Depreciation:

At 1 January 2021 29.5 50.6 8.5 0.4 89.0

Charged in year 3.7 5.4 4.0 0.3 13.4

Disposals (0.3) (7.9) (1.9) – (10.1)

Assets transferred to held for sale – – – – –

Transfers – – – – –

At 31 December 2021 32.9 48.1 10.6 0.7 92.3

Net book value at 31 December 2021 69.6 20.3 31.6 0.5 122.0

Cost:

At 1 January 2020 110.2 69.9 42.5 0.9 223.5

Reallocation 0.3 – (0.3) – –

Revised balance at 1 January 2020 110.5 69.9 42.2 0.9 223.5

Additions 2.8 7.3 1.0 0.3 11.4

Disposals (1.4) (5.9) (0.6) – (7.9)

Assets transferred to held for sale (10.6) – – – (10.6)

Transfers (0.8) – – – (0.8)

At 31 December 2020 100.5 71.3 42.6 1.2 215.6

Depreciation:

At 1 January 2020 30.7 51.4 4.6 0.1 86.8

Charged in year 3.6 5.1 4.2 0.3 13.2

Disposals (1.4) (5.9) (0.3) – (7.6)

Assets transferred to held for sale (3.2) – – – (3.2)

Transfers (0.2) – – – (0.2)

At 31 December 2020 29.5 50.6 8.5 0.4 89.0

Net book value at 31 December 2020 71.0 20.7 34.1 0.8 126.6

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 179

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

16. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Society Land and

buildings

Equipment,

fixtures and

fittings

Right of Use

property

Right of Use

motor vehicles

Total

£m £m £m £m £m

Cost:

At 1 January 2021 99.8 70.9 42.6 1.2 214.5

Reallocation (0.7) – 0.7 – –

Revised balance at 1 January 2021 99.1 70.9 43.3 1.2 214.5

Additions 3.7 5.7 2.8 0.1 12.3

Disposals (0.3) (8.2) (3.9) (0.1) (12.5)

Assets transferred to held for sale – – – – –

Transfers – – – – –

At 31 December 2021 102.5 68.4 42.2 1.2 214.3

Depreciation:

At 1 January 2021 29.3 50.1 8.5 0.5 88.4

Charged in year 3.8 5.4 4.0 0.2 13.4

Disposals (0.2) (7.4) (1.9) – (9.5)

Assets transferred to held for sale – – – – –

Transfers – – – – –

At 31 December 2021 32.9 48.1 10.6 0.7 92.3

Net book value at 31 December 2021 69.6 20.3 31.6 0.5 122.0

Cost:

At 1 January 2020 109.5 69.5 42.5 0.9 222.4

Reallocation 0.3 – (0.3) – –

Revised balance at 1 January 2020 109.8 69.5 42.2 0.9 222.4

Additions 2.8 7.3 1.0 0.3 11.4

Disposals (1.4) (5.9) (0.6) – (7.9)

Assets transferred to held for sale (10.6) – – – (10.6)

Transfers (0.8) – – – (0.8)

At 31 December 2020 99.8 70.9 42.6 1.2 214.5

Depreciation:

At 1 January 2020 30.5 50.9 4.6 0.2 86.2

Charged in year 3.6 5.1 4.2 0.3 13.2

Disposals (1.4) (5.9) (0.3) – (7.6)

Assets transferred to held for sale (3.2) – – – (3.2)

Transfers (0.2) – – – (0.2)

At 31 December 2020 29.3 50.1 8.5 0.5 88.4

Net book value at 31 December 2020 70.5 20.8 34.1 0.7 126.1

180 | Financial Statements

17. DEFERRED TAX

Group Society

2021 2020 2021 2020

£m £m £m £m

At 1 January as originally presented: (28.9) (23.9) (27.2) (22.4)

Remeasurement due to change in accounting policy – 0.2 – 0.5

At 1 January (restated) (28.9) (23.7) (27.2) (21.9)

Income statement (expense)/credit (note 9) 4.7 0.2 4.9 0.1

Tax (expense)/credit recognised directly in equity (26.2) (5.4) (26.1) (5.4)

At 31 December (50.4) (28.9) (48.4) (27.2)

Deferred tax assets and liabilities are attributable to the following items:

Deferred tax assets

Other temporary differences 0.1 0.1 0.1 –

Fair value movements on external swap on intercompany loan 4.6 2.9 4.6 2.9

Deferred remuneration 1.7 1.3 1.7 1.3

Restructuring costs 0.4 – 0.4 –

Transitional adjustment arising following implementation of IFRS9 1.2 1.2 1.2 1.2

Transitional adjustment arising following change in accounting treatment 0.6 0.5 0.6 0.5

Capital losses 1.4 – 1.4 –

Total deferred tax assets 10.0 6.0 10.0 5.9

Deferred tax liabilities

Pensions and other post-retirement benefits (39.9) (24.6) (39.9) (24.6)

Capital allowances in excess of depreciation (1.0) (0.1) (1.0) (0.1)

Other temporary differences (1.3) (1.1) (1.2) (1.0)

Financial instruments held at fair value through profit and loss (0.8) (2.9) (0.8) (2.9)

Financial instruments held at fair value through other comprehensive

income

(10.4) (4.5) (10.4) (4.5)

Cash flow hedging (5.1) – (5.1) –

Transitional adjustment arising following implementation of IFRS9 (1.5) (1.4) – –

Transitional adjustment arising following change in accounting treatment (0.4) (0.3) – –

Total deferred tax liabilities (60.4) (34.9) (58.4) (33.1)

Net deferred tax liabilities (50.4) (28.9) (48.4) (27.2)

The presentation of the deferred tax assets and liabilities in the Balance Sheet for the current year reflects a reassessment

of the requirements of IAS12, with reference to the netting off of deferred tax assets and liabilities. This has resulted in the

current year deferred tax assets being fully offset against deferred tax liabilities. The prior year balances have not been

restated, as the changes are not material.

The deferred tax assets have not been discounted. The Group considers that sufficient future taxable trading profits will be

available to utilise the Group’s trading deferred tax assets and the Group has therefore recognised such deferred tax assets

where they have arisen.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 181

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

17. DEFERRED TAX (CONTINUED)

The deferred tax charge/(credit) in the income statement comprise the following temporary differences:

Group Society

2021 2020 2021 2020

£m £m £m £m

Pensions and other post-retirement benefits 0.1 (0.2) 0.1 (0.2)

Depreciation in excess of capital allowances 0.9 1.9 0.8 1.9

Other temporary differences – 0.1 – 0.1

Fair value movements on external swap on intercompany loan (1.7) (3.1) (1.7) (3.1)

Deferred remuneration (0.4) (0.4) (0.4) (0.4)

Financial instruments held at fair value through profit and loss (1.9) 1.3 (1.9) 1.3

Restructuring costs (0.4) 0.3 (0.4) 0.3

Transitional adjustment arising following implementation of IFRS9 0.1 (0.1) – –

Capital losses (1.4) – (1.4) –

Total deferred tax expense/(credit) in the income statement (4.7) (0.2) (4.9) (0.1)

182 | Financial Statements

18. RETIREMENT BENEFIT OBLIGATIONS

The Group operates one main employee benefit scheme (the Scheme), the costs of which are borne by the Society, with both

defined benefit and defined contribution sections.

In addition, the Group operates unfunded defined benefit pension schemes for certain current and former members of staff.

The present value at 31 December 2021 of the defined benefit obligation in relation to these schemes was £11.9m (2020:

£12.3m) and the relevant disclosures have been aggregated with those of the main employee benefits scheme.

NET DEFINED BENEFIT ASSET

As at 31 December 2021 the defined benefit asset is £120.8m, an increase of £29.8m from 31 December 2020.

PENSIONER BUY-IN

In mid-November 2018 the Scheme entered into a pensioner buy-in with the Pension Insurance Corporation (PIC). The premium

of c£248m was paid for out of the Scheme’s assets, with no additional funding required from the Society. The asset loss from

the buy-in was approximately £25m on an accounting basis. The transaction covered around £250m of the Scheme’s pensioner

liabilities, based on the Technical Provisions basis. As such, some pensioners remain uninsured and not covered by the buy-in.

At 31 December 2021, the YBS Scheme insurance contract with PIC has been valued to be equal to the corresponding IAS19

defined benefit obligation in respect of the insured members. The assessed value of £238.4m (2020: £253.8m) was calculated

using a methodology consistent with the approach used to calculate the total pension benefit.

DEFINED CONTRIBUTION POST-EMPLOYMENT BENEFITS

In addition to the defined benefit section (see below), the Group operates a defined contribution (DC) section of the main

scheme. This Scheme is used by the Society to fulfil its auto enrolment duties. In 2021, the total Society contribution into the

pension scheme in respect of DC benefits was c£9.6m (2020: c£9.2m). In addition to this YBS also paid £0.9m (2020: £0.9m)

into the pension scheme to cover the approximate cost of DC expenses, including the cost of life assurance which is provided

through the Scheme for all YBS colleagues.

DEFINED BENEFIT POST-EMPLOYMENT BENEFITS

The Group operates a funded defined benefit scheme for certain employees, providing benefits based on final salary.

However, benefits earned by members of the defined benefit section of the main scheme from, with the exception of N&P

Section members, 1 April 2010 are based on career average revalued earnings. N&P Section members’ benefits are based on

their Final Pensionable Salary (following the removal of the 31 March 2010 freeze). The defined benefit section was closed to

new employees in 2000 and to future accrual on 31 December 2015. The assets of the scheme are held in a separate trustee-

administered fund. Contributions are assessed in accordance with the advice of an independent qualified actuary using the

projected unit method.

The defined benefit section of the Scheme has a weighted average maturity of around 19 years (2020: 20 years). This

weighted average duration of a pension scheme is the average discounted term until benefit payments are due, weighted by

the size of the payment. A breakdown of the scheme liabilities by members is included in the following table.

2021 2020

£m £m

Deferred in service liability 121.6 128.0

Deferred liability 315.5 335.2

Pensioner liability 491.1 517.9

Total liabilities 928.2 981.1

GMP EQUALISATION

On 26 October 2018, the High Court ruled that the Lloyds Bank schemes had to equalise pension scheme benefits between

males and females for the effects of Guaranteed Minimum Pension (GMP) and identified acceptable methods as to how this

can be achieved. As a result, the Group included £1.7m allowance for GMP equalisation in the determination of the defined

benefit obligation in the 31 December 2018 accounting disclosures.

On 20 November 2020, the High Court ruled that individual transfer payments made since 17 May 1990 would need to be

equalised for the effects of GMP. No further allowance has been made for this judgment as the impact is not material.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 183

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

18. RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)

SCHEME SPECIFIC RISKS

The ultimate cost of the Scheme to the Society will depend upon actual future events rather than the assumptions made.

Many of the assumptions made are unlikely to be borne out in practice and, as such, the cost of the schemes may be higher or

lower than disclosed. In general, the risk to the Society is that the assumptions underlying the disclosures, or the calculation

of contribution requirements, are not borne out in practice and the cost to the Society is higher than expected. This could

result in higher contributions being required from the Society and a higher deficit being disclosed. This may also impact the

Society’s ability to grant discretionary benefits or other enhancements to members.

The assumptions not being borne out in practice could include:

•

The investment return on the Scheme’s assets being lower than assumed, resulting in an unaffordable increase in the

contributions required from the Society. The level of bond returns will be a key determinant of overall investment return;

the investment portfolio is also subject to a range of other risks typical of the asset classes held, in particular equity

returns, credit risk on bonds and exposure to the property market.

•

Falls in asset values (particularly equities) not being matched by similar falls in the value of liabilities. This risk has been

mitigated to some degree by the implementation of an asset liability matching investment strategy which is designed to

match a proportion of the Scheme’s interest rate exposure.

•

Future levels of inflation being higher than assumed, resulting in higher than anticipated annual increases to benefits in

payment, revaluations of benefits prior to retirement and salary increases. This risk has been mitigated to some degree

by the implementation of an asset liability matching investment strategy, which is designed to match a proportion of the

Scheme’s inflation exposure.

•

Unanticipated improvements in the longevity of members leading to an increase in the Scheme’s liabilities.

ASSETS

The Scheme’s investment strategy, with a significant proportion of the assets invested in liability driven investments

(consisting of index-linked government and corporate bonds and swaps), is expected to reduce the volatility of the difference

between the market value of the assets and the IAS 19 liabilities.

Disaggregation of assets

2021 2020

% %

Equities 3 3

Index-linked bonds 51 50

Corporate and other bonds 9 11

Cash and other 8 7

Swaps 6 5

Pensioner buy-in insurance contract 23 24

100 100

The majority of the Scheme’s investments are in quoted assets, with the exception of the liability matching assets classified as

‘Swaps’ and the reinsurance ‘buy-in’.

SCHEME INVESTMENT STRATEGY

The Trustees set the investment strategy for the Defined Benefit (‘DB’) section taking into account considerations such as the

strength of the employer covenant, the long-term liabilities of the DB Section and the funding agreed with the Employer.

The Scheme’s investment strategy had been to seek to reduce investment risk over time, within an agreed ‘journey plan’ that

anticipates a managed transition to assets that carry lower risk albeit with expectations of lower investment returns. This

transition would occur when the funding level met pre-agreed de-risking levels. The investment objective of the DB Section

was to maintain a portfolio of suitable assets of appropriate liquidity which will generate investment returns to meet, together

with future contributions, the benefits of the DB Section payable under the Trust Deed and Rules as they fall due.

184 | Financial Statements

18. RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)

SCHEME INVESTMENT STRATEGY (CONTINUED)

During 2018, the Trustees agreed to implement a long-term, lower risk portfolio targeting a return of gilts + 1% pa. It was

agreed that this portfolio should incorporate Secure Income Assets, Diversified Return Seeking Assets and Long Term Credit.

The Trustees also agreed to implement a buy-in policy, the size of which was carefully considered and positioned in the

context of the Scheme’s investment objective.

Over 2021 the Trustees continued to review the investment strategy and remained satisfied that asset growth has continued

such that the Scheme remains on track to meet the Scheme’s liabilities on the Scheme’s long term funding target of Gilts

+ 0% (‘gilts flat’). The Trustees also reviewed the risk associated with the investment strategy, including reviewing how the

Scheme’s long term funding target deficit would be impacted under a number of stress scenarios.

As part of these changes the Trustees agreed that the investment objectives for the DB Section should be:

•

To achieve a return on the Scheme’s assets that is consistent with the long-term assumptions in determining the funding

of the Scheme, whilst at the same time balancing risk.

•

To aim for the assets to exceed the liabilities as determined in the event of the Scheme winding up on the basis of cash

equivalent transfer values.

•

To minimise the requirement for the Society to make further deficit recovery plan contributions.

•

The investment strategy is set out in its Statement of Investment Principles (SIP).

The strategy is to hold:

•

A range of instruments that provide a better match both to changes in liability values and expected cash flows, including

(but not limited to) gilts, corporate bonds, derivatives, secure income assets and insurance policies.

•

A diversified range of return-seeking assets, including (but not limited to) equities, corporate bonds, reinsurance and

secure income assets, which may be provided through a multi-asset diversified growth fund.

•

Passive and actively managed portfolios as appropriate, following consideration of efficiency, liquidity and level of

transaction costs likely to prevail within each market as well as the impact of the investment managers’ fees on future

expected returns.

31 DECEMBER 2019 ACTUARIAL VALUATION

The most recent actuarial valuation of the Scheme was carried out with an effective date of 31 December 2019 and was

completed on 30 June 2020. The value of the benefits promised to members that fall within the DB section of the Scheme

are referred to as the Technical Provisions, and are valued on a prudent basis as determined by the Trustees, having received

advice from the Scheme Actuary.

The funding level (the ratio of assets to Technical Provisions) at 31 December 2019 was 102.3%. As the Scheme is in surplus

i.e. the value of the Scheme’s assets is higher than the value of the Technical Provisions, a Recovery Plan is not required.

One of the key financial assumptions is the discount rate and the approach to setting this is in line with that adopted at the

previous actuarial valuation as at 31 December 2016. The discount rate used in calculating the Technical Provisions must be

prudent and reflect the Trustees’ long-term investment strategy. Therefore, this is set in line with gilt yields, plus a margin of

0.5% pa. The discount rate used in calculating the DB obligation for accounting purposes is prescribed by IAS19 and must be

set with regard to the yield available on high quality corporate bonds. In general, this results in a higher discount rate for the

calculation of the DB obligation.

The demographic assumptions adopted for accounting purposes have previously been set in line with the Technical Provisions

basis, except that for accounting purposes the latest CMI model for future improvements in mortality would typically be

reflected each year. Given the impact that COVID-19 had on mortality rates in 2020, the most recent CMI model has been

reflected in the calculation of the DB obligation but no weight has been placed on the 2020 experience as it is too early to

tell what long-term implications COVID-19 will have on future mortality.

For the 31 December 2019 actuarial valuation, an explicit allowance is made in the Technical Provisions to cover expenses

(1.5% of the liabilities to cover administration expenses, plus an increased GMP equalisation allowance to cover the expected

expenses of that project). There is no such allowance made for accounting purposes.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 185

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

18. RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)

COVID-19

The Trustees recognise that the COVID-19 pandemic has had an impact on the global economy, the UK economy and on

the day-to-day life of the members of the Scheme. Throughout 2020 and 2021, the Trustees have monitored the situation

and taken steps to mitigate the impact on the pension scheme members. The Trustees have maintained dialogue with their

advisers and scheme administrators to ensure that service levels have been maintained and managed. The Trustees have

undertaken additional member communications during the year to reassure and inform members about the potential impact

of COVID-19 on the scheme and member benefits.

The Trustees continue to actively monitor the Scheme’s investments as part of the Investment Sub Committee, which includes

analysis on future expected returns for the investments. Further, the Trustees have an Integrated Risk Management Framework

in place as to monitor and the challenge the Covenant, Investment and Funding risk linked to the Scheme.

SUMMARY OF ASSUMPTIONS

2021 2020

% pa % pa

Retail prices index (RPI) inflation 3.6 3.1

Consumer price index (CPI) inflation 2.9 2.4

Discount rate 1.9 1.3

Salary increases 4.1 3.6

Rate of increase of pensions in payment:*

In line with RPI, subject to a min of 3% and a max of 5% pa 3.9 3.7

In line with RPI, subject to a min of 0% and a max of 5% pa 3.4 3.0

In line with RPI, subject to a min of 0% and a max of 2.5% pa 2.2 2.1

In line with CPI, subject to a min of 0% and a max of 3% pa 2.3 2.1

The most significant non-financial assumption is the assumed rate of longevity. The assumptions made are equivalent to the

following life expectancies for scheme member at age 60.

2021 2020

Years Years

For a current 60 year old male 28.3 28.3

For a current 60 year old female 30.1 30.0

For a current 45 year old male 29.4 29.4

For a current 45 year old female 31.2 31.1

Defined benefit actual contributions paid wholly relate to contributions made by the Society.

Changes in market conditions generate an actuarial gain (decrease in liabilities) and a return on plan less than discount rate

(decrease in assets).

* Term dependent inflationary increases have been adopted to reflect expected inflation in each future year. Illustrative inflationary assumptions have

been provided which have been calculated to reflect the broad profile of the Society’s pension obligations.

186 | Financial Statements

18. RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)

RECONCILIATION OF FUNDED STATUS

Group and Society 2021 2020

£m £m

Present value of defined benefit obligation (928.2) (981.1)

Assets at fair value 1,049.0 1,072.1

Funded status/defined benefit asset 120.8 91.0

STATEMENT OF COMPREHENSIVE INCOME (SCI)

Group and Society 2021 2020

£m £m

Cumulative actuarial gains recognised at 1 January 35.1 30.8

Gain/(loss) due on change in financial assumptions 54.7 (99.4)

Gain due to demographic assumptions 0.9 0.7

(Loss) due to experience (17.4) (6.1)

(Loss)/gain due to investment return different from return implied by the discount rate (7.7) 109.1

Total actuarial (loss)/gain recognised in SCI 30.5 4.3

Cumulative actuarial gains recognised at 31 December 65.6 35.1

COMPONENTS OF PENSION EXPENSE AS SHOWN IN THE INCOME STATEMENT

Group and Society 2021 2020

£m £m

Administrative expenses 1.8 1.3

Interest on net defined benefit surplus (1.1) (1.6)

Total pension expense 0.7 (0.3)

RECONCILIATION OF PRESENT VALUE OF DEFINED BENEFIT OBLIGATION

Group and Society 2021 2020

£m £m

Present value of defined benefit obligation at 1 January 981.1 897.2

Administrative expenses 1.8 1.3

Interest cost 12.6 16.7

Actuarial (gain)/loss (38.2) 104.8

Defined benefit actual benefits and costs paid (29.1) (38.9)

Present value of defined benefit obligation at 31 December 928.2 981.1

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 187

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

18. RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)

MOVEMENT IN DEFINED BENEFIT FAIR VALUE OF ASSETS

Group and Society 2021 2020

£m £m

Fair value of assets at 1 January 1,072.1 983.6

Interest income on scheme asset 13.7 18.3

Return on plan assets (less)/greater than discount rates (7.7) 109.1

Defined benefit actual Society contributions – –

Defined benefit actual benefits and costs paid (29.1) (38.9)

Fair value of plan assets at 31 December 1,049.0 1,072.1

SENSITIVITIES

The IAS19 liability measurement and the service cost are sensitive to the assumptions made about future inflation and salary

growth levels, as well as the assumptions made about life expectation. They are also sensitive to the discount rate, which

depends on market yields on sterling-denominated high quality corporate bonds. A decrease in corporate bond yields will

increase the liabilities although this will be partially offset by an increase in matching assets.

The table below shows the sensitivity of the defined benefit obligation and Scheme assets to changes in these assumptions.

The final assumptions are chosen by the Society.

Principal Sensitivity Illustrations

Defined benefit

obligation

Assets Net effect

£m £m £m

Total as at 31 December 2021 (928.2) 1,049.0 120.8

Change in defined benefit obligation/assets given the following change in assumption:

Discount rate:* 1.00% decrease (197.2) 247.0 49.8

Salary Escalation: 0.75% increase (5.2) – (5.2)

Inflation:** 0.50% increase (46.2) 55.0 8.8

Life expectancy: 1 year average increase (41.8) 12.9 (28.9)

The asset liability matching strategy implemented for the Scheme means that a change in discount rate or inflation

assumption has a broadly similar impact on the liabilities and the assets, reducing the volatility of the net impact. It should be

noted that this strategy is based on liabilities on the self-sufficiency basis, i.e. higher liabilities than on an accounting basis.

As such, on an accounting basis, for the sensitivities above, the assets increase by more than the liabilities, resulting in an

improvement in the accounting balance sheet position.

* The change in the discount rate is assumed to be equivalent to a 1% decrease in gilt, swap and credit based interest rates.

** The sensitivity illustrations above are calculated changing each assumption in isolation, keeping all other assumptions constant. In practice this is

unrealistic as it ignores the impact from correlation between assumptions.

188 | Financial Statements

19. OTHER ASSETS

Group Society

2021 2020 2021 2020

£m £m £m £m

Prepayments and accrued interest 20.5 16.5 20.5 16.5

Due from subsidiary undertakings – – 29.9 20.2

Other assets 6.7 6.6 5.6 5.5

Total other assets 27.2 23.1 56.0 42.2

Included in other assets are finance lease receivables. The Group has entered into agency sublease arrangements as an

intermediate lessor on former branch properties that are considered to be finance leases. As substantially all risks and reward

are passed over as the subleases match the payment terms and duration of the headline leases they are classified as finance

leases. The maturity analysis of lease receivables, including the undiscounted lease payments to be received are as follows:

Group Society

2021 2020 2021 2020

£m £m £m £m

Less than 1 year 0.5 0.5 0.5 0.5

1-2 years 0.4 0.2 0.4 0.2

2-3 years 0.4 0.2 0.4 0.2

3-4 years 0.3 0.2 0.3 0.2

4-5 years 0.2 0.1 0.2 0.1

More than 5 years 0.3 – 0.3 –

Total undiscounted lease payments receivable 2.1 1.2 2.1 1.2

Unearned Finance Income – – – –

Net investment in the lease 2.1 1.2 2.1 1.2

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 189

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

20. SHARES

Group Society

2021 2020 2021 2020

£m £m £m £m

Shares comprising balances held by individuals 35,506.6 33,375.0 35,506.6 33,375.0

Acquisition fair value adjustments (0.2) (6.7) (0.2) (6.7)

Total Shares 35,506.4 33,368.3 35,506.4 33,368.3

21. OTHER DEPOSITS

Group Society

2021 2020 2021 2020

£m £m £m £m

Amounts owed to:

Subsidiary undertakings – – 15,077.0 11,229.9

Other customers 873.5 535.7 485.1 164.6

Total other deposits 873.5 535.7 15,562.1 11,394.5

22. DEBT SECURITIES IN ISSUE

Group Society

2021 2020 2021 2020

£m £m £m £m

Covered bonds 3,347.3 3,520.4 3,327.0 3,471.8

Medium term notes 1,660.7 1,795.8 1,660.7 1,795.8

Residential mortgage backed securities 876.9 700.1 – –

Certificate of deposits 6.0 112.0 6.0 112.0

Total debt securities in issue 5,890.9 6,128.3 4,993.7 5,379.6

Debt securities in issue include amounts secured on certain loans and advances to customers in Group £4.2bn (2020: £4.2bn)

and Society £3.3bn (2020: £3.5bn).

190 | Financial Statements

23. OTHER LIABILITIES

Group Society

2021 2020 2021 2020

£m £m £m £m

Accruals and deferred income 37.4 32.0 37.4 32.0

Finance lease liabilities 38.5 41.2 38.5 41.2

Other 7.7 9.2 22.5 12.8

Total other liabilities 83.6 82.4 98.4 86.0

The lease liabilities are secured by the related underlying assets. The underlying maturity analysis of lease liabilities at

31December 2021 for the Group is as follows:

Buildings

Lease

payments

Finance

charges

NPV Vehicles

Lease

payments

Finance

charges

NPV

£m £m £m £m £m £m

Within 1 year 4.9 (0.8) 4.1 0.3 – 0.3

1-2 years 3.9 (0.7) 3.2 0.2 – 0.2

2-3 years 3.7 (0.6) 3.1 0.1 – 0.1

3-4 years 3.2 (0.6) 2.6 – – –

4-5 years 2.9 (0.5) 2.4 – – –

5-10 years 11.8 (1.9) 9.9 – – –

10-15 years 9.8 (0.9) 8.9 – – –

Over 15 years 4.5 (0.8) 3.7 – – –

Total at 31 December 2021 44.7 (6.8) 37.9 0.6 – 0.6

The Group has elected not to recognise a lease liability for short-term leases and leases of low value assets which consist

entirely of printing equipment. Payments made under such leases are expensed on a straight-line basis. At 31 December

2021 the Group had no short-term lease commitments (2020: £0.5m).

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 191

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

24. PROVISIONS

Group and Society Customer

redress

Restructuring Property

provision

Other Total

£m £m £m £m £m

At 1 January 2021 2.1 3.9 2.3 0.3 8.6

Amounts utilised during the year (0.8) (3.7) (0.3) – (4.8)

Provision (release)/charge 0.1 2.0 0.4 (0.2) 2.3

At 31 December 2021 1.4 2.2 2.4 0.1 6.1

At 1 January 2020 5.8 3.0 2.0 0.3 11.1

Amounts utilised during the year (3.4) (3.3) (0.5) – (7.2)

Provision (release)/charge (0.3) 4.2 0.8 – 4.7

At 31 December 2020 2.1 3.9 2.3 0.3 8.6

Customer redress provisions of £1.4 million (2020: £2.1 million) have been made in respect of various potential customer

claims and represent management’s best estimate of the likely costs.

Restructuring provisions of £2.2 million (2020: £3.9 million) are held in relation to business and organisational changes

announced during 2021 and earlier periods.

Property related provisions of £2.4 million (2020: £2.3 million) are held in respect of lease costs for branch premises that are

no longer in use. This will be utilised over the remaining term of the unoccupied leasehold branches.

192 | Financial Statements

25. SUBORDINATED LIABILITIES

Group and Society 2021 2020

£m £m

6⅜% Subordinated Bonds 2024 4.1 4.1

13½% Convertible Tier 2 Capital Notes 2025 26.5 26.5

3⅜% Subordinated Bonds 2028 301.2 300.9

3% Senior Non-Preferred Bonds 2025 277.7 280.2

1½% Senior Non-Preferred Bonds 2029 251.1 –

Fair value hedging adjustments (2.9) 33.3

857.7 645.0

All subordinated liabilities are denominated in sterling. The following notes are repayable at the dates stated or earlier at the

option of the Society and with the prior consent of the PRA under the following conditions:

•

Redemption of the 3⅜% Notes at par on 13 September 2027 after giving thirty to sixty days’ notice. In the event the

Society does not redeem the notes on this date the fixed rate of interest will become the sum of the six month mid-swap

rate plus 2.3175%.

•

Redemption of the 13½% Convertible Tier 2 Capital Notes will occur on 1 April 2025 unless the notes are converted to

Profit Participating Deferred Shares (PPDS). The ‘Conversion Trigger’ shall occur if on any Calculation Date the Society’s

Common Equity Tier 1 Capital Ratio, as confirmed in a report of the auditor to the Society and addressed to the Board of

Directors of the Society, is less than 5%. Should the Conversion Trigger occur and these notes convert into PPDS, the PPDS

will be perpetual in nature.

•

Redemption of the 3% Notes at par on 18 April 2024 after giving thirty to sixty days’ notice. In the event the Society does

not redeem the notes on this date the fixed rate of interest will become the sum of the yield on the relevant 1-year UK

gilt-edged reference bond plus 2.15%.

•

Redemption of the 1½% Notes at par on 15 September 2028 after giving thirty to sixty days’ notice. In the event the

Society does not redeem the notes on 15 September 2028 the fixed rate of interest will become the sum of the yield on

the relevant 1-year UK gilt-edged reference bond plus 1.15%.

The rights of repayment of the holders of subordinated liabilities are subordinated to the claims of all depositors, creditors

and members holding shares in the Society, as regards the principal of their shares and interest due on them.

26. FINANCIAL COMMITMENTS

Group and Society 2021 2020

£m £m

Committed undrawn standby facilities 242.2 438.2

The above amounts represent undrawn elements on credit facilities with customers. The amount has reduced over the year

due to further drawdowns against these facilities and the maturity of a number of agreements.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 193

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

27. DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments used for the management of market risk include derivative financial instruments (derivatives)

which are contracts or agreements whose value is derived from one or more underlying price, rate or index inherent in the

contract or agreement, such as interest rates, exchange rates or stock market indices.

Derivatives are used by the Group in accordance with the

Building Societies Act 1986

. This means that such instruments are

not used in trading activity or for speculative purposes and are only used to reduce the risk of loss on core assets or liabilities

arising from changes in interest rates, currency rates or other factors of a prescribed description.

The principal derivatives used in balance sheet risk management are interest rate swaps, interest rate options, cross currency

interest rate swaps and foreign exchange contracts. These are used to hedge Group exposures arising from fixed rate

mortgage lending and savings products, funding and investment activities.

The following table describes the significant activities undertaken by the Group, the related risks associated with such

activities and the type of derivatives which are typically used in managing such risks after considering any offsetting risk from

other activities.

Activity Risk Type of hedge

Management of the investment of reserves and non-

interest bearing liabilities

Sensitivity to changes in interest rates Interest rate swaps

Fixed rate savings products and debt issuance Sensitivity to changes in interest rates Interest rate swaps

Fixed rate mortgage lending Sensitivity to changes in interest rates Interest rate swaps

Management of the interest basis risk arising from

differences in the underlying pricing basis of assets

and liabilities

Sensitivity to changes in relationships

between interest rate basis

Interest rate swaps

Management of foreign currency risk arising from

investment and funding

Sensitivity to changes in foreign exchange

rates

Cross currency interest rate swaps and

foreign exchange contracts

Floating rate liabilities Sensitivity to changes in cashflows Capped interest rate options (caps)

The Group’s objective is to manage risk within its risk tolerance, irrespective of the accounting treatment. Whilst all

derivatives have been entered into for hedging purposes, only certain arrangements meet the conditions necessary to be

designated as such for accounting purposes. In some cases a natural offset can be achieved and applying hedge accounting is

not required. The Group only designates accounting hedges where a high degree of effectiveness can be achieved.

HEDGING

The following table shows the balance sheet categories covered by hedge accounting relationships:

Hedge Relationship Balance Sheet Line Item

Fair value hedge for interest rate risk

Fixed rate mortgages Loans and advances to customers

Fixed rate debt securities held Debt securities

Fixed rate debt securities issued Debt securities in issue

Fair value hedge for interest rate and FX risk

Fixed rate debt securities issued Debt securities in issue

Cash flow hedge for interest rate risk

Floating rate deposits Amounts owed to credit institutions

Floating rate debt securities issued Debt securities in issue

194 | Financial Statements

27. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

INTEREST RATE RISK ON FIXED RATE

MORTGAGES AND PURCHASED

DEBT SECURITIES (FAIR VALUE)

The Group holds portfolios of fixed

rate mortgages and debt securities

which are financed mainly by variable

rate savings, exposing the Group to

interest rate risk due to re-pricing

mismatches. The Group manages this

risk exposure by entering into pay

fixed/receive floating interest rate

swaps and then designating both the

securities and the swaps into fair value

hedge accounting relationships.

Only the interest rate risk element is

hedged and therefore other risks, such

as credit risk, are managed but not

hedged by the Group. The interest rate

risk component is determined as the

change in fair value of the long-term

fixed rate mortgages arising solely

from changes in SONIA (the benchmark

rate of interest). Such changes are

usually the largest component of

the overall change in fair value. This

strategy is designated as a fair value

hedge and its effectiveness is assessed

by comparing changes in the fair

value of the hedged item attributable

to changes in the benchmark rate of

interest with changes in the fair value

of the interest rate swaps.

Possible sources of ineffectiveness are

as follows:

•

differences between the expected

and actual volume of prepayments

for mortgage portfolios, as the

Group hedges to the expected

repayment date taking into account

expected prepayments based on

past experience;

•

difference in timing of cash flows

between the mortgage loans and

the hedging interest rate swaps;

•

difference in the designated

coupon rate % of the hedged asset

and the hedging derivative; and

•

hedging derivatives with a non-

zero fair value at the date of

initial designation as a hedging

instrument.

The exposure from the mortgage

portfolio frequently changes due

to new loans being originated,

contractual repayments and early

prepayments made by customers in

each period. As a result, the Group

adopts a portfolio hedging strategy

to hedge the exposure by closing and

entering into new swap agreements.

The Group uses the portfolio fair

value hedge of interest rate risk to

recognise fair value changes related

to changes in interest rate risk in the

mortgage portfolio, and therefore

reduce the profit or loss volatility that

would otherwise arise from changes

in the fair value of the interest rate

swaps alone. This hedge relationship

is updated on a monthly basis for

changes in the portfolio.

FOREIGN EXCHANGE AND INTEREST

RATE RISK ON FIXED RATE DEBT

ISSUANCE (FAIR VALUE)

The Group accesses international

markets in order to obtain effective

sources of funding. As part of this

process, the Group issues fixed

rate debt in both GBP and EUR. The

foreign currency and interest rate

risk associated with the EUR debt is

mitigated by the use of cross currency

swaps, which exchange fixed interest

payments in the foreign currency for

floating interest payments in GBP. The

interest rate risk associated with the

GBP debt is mitigated by the use of

interest rate swaps which exchange

fixed interest payments with variable

payments. These instruments are

entered into to match the maturity

profile of the Group’s debt instruments.

The foreign currency risk component

is determined as the change in cash

flows of the foreign currency debt

arising solely from changes in the

relevant foreign currency exchange

rate. The interest rate risk component is

determined as the change in fair value

of the debt arising solely from changes

in the benchmark rate of interest.

Such changes are usually the largest

component of the overall change in

fair value. This strategy is designated

as a fair value hedge and its

effectiveness is assessed by comparing

changes in the fair value of the debt

attributable to changes in the hedged

risk(s) with changes in the fair value of

the hedging derivatives.

Possible sources of ineffectiveness are

as follows:

•

differences in discounting

approach between the hedged

item and hedging instrument,

including the cross currency basis

spread applied in the valuation of

cross currency swaps;

•

hedging derivatives with a non-

zero fair value at the date of

initial designation as a hedging

instrument;

•

difference in the designated

coupon rate % of the hedged

liability and the hedging derivative;

and

•

counterparty credit risk

which impacts the value of

uncollateralised cross currency

swaps but not the hedged items.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 195

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

27. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

INTEREST RATE RISK ON FLOATING RATE LIABILITIES (CASH FLOW HEDGE)

During 2021 the Group purchased some capped interest rate options (caps) to protect from the risk of increases in market

interest rates impacting the variable rate savings products. The caps were entered into a cash flow hedge relationship on the

basis that the pay outs on the caps will offset the increase in interest payable on these variable savings products.

Possible sources of ineffectiveness are as follows:

•

Basis risk: the hypothetical derivative and the caps have different reset dates; and

•

Embedded financing: as the caps are off-market and in-the-money at the designation date, any unwind of the designation

date intrinsic value may result in ineffectiveness.

INEFFECTIVENESS

All ineffectiveness is recorded in the income statement in

Gains/(losses) from financial instruments held at fair value

The following table shows the ineffectiveness in relation to the hedging relationships designated by the Group.

Group Society

2021 2020 2021 2020

£m £m £m £m

Fair value hedges

Fixed rate mortgages (1.5) 10.5 (1.5) 10.5

Fixed rate debt securities held 2.7 (1.6) 2.7 (1.6)

Fixed rate debt securities issued (4.4) (9.3) 6.8 (3.0)

Cash flow hedges

Floating rate debt securities issued (0.4) (0.6) (0.4) (0.6)

Total (3.6) (1.0) 7.6 5.3

196 | Financial Statements

27. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

The following tables summarise the notional and fair value of all derivative financial instruments and the hedging

designations in place at that date.

Contract/

Notional

amount

Fair values Change in fair

value used for

calculating

ineffectiveness

Assets Liabilities

£m £m £m £m

Group

At 31 December 2021

Interest rate swaps designated as fair value hedges 26,437.4 321.0 69.6 544.8

Interest rate caps designated as cash flow hedges 2,310.0 20.5 – –

Cross currency interest rate swaps designated as fair value hedges 3,580.5 103.5 166.2 (22.0)

Derivatives not designated as hedges:

Interest rate swaps 10,038.3 37.0 29.2 n/a

Equity linked interest rate swaps – – – n/a

Foreign exchange 386.6 8.9 7.7 n/a

Total derivative financial instruments 42,752.8 490.9 272.7 522.8

Society

At 31 December 2021

Interest rate swaps designated as fair value hedges 26,437.4 321.0 69.6 544.8

Interest rate caps designated as cash flow hedges 2,310.0 20.5 – –

Cross currency interest rate swaps designated as fair value hedges 1,479.8 35.8 81.9 9.5

Derivatives not designated as hedges:

Interest rate swaps 34,711.4 37.0 29.2 n/a

Equity linked interest rate swaps – – – n/a

Foreign exchange 114.6 5.2 0.2 n/a

Total derivative financial instruments 65,053.2 419.5 180.9 554.3

The expected future cash flows have been discounted using the Overnight Indexed Swap (OIS) curve (SONIA) for all

derivatives. Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA) are incorporated into the fair value

of derivative valuations to reflect the impact of counterparty credit risk and the Group’s own credit quality respectively for

uncollateralised derivatives.

Credit risk on derivative exposures is significantly mitigated within the Group by the existence of a Credit Support Annex

(CSA) with the vast majority of our derivative counterparties. Under a CSA, cash is passed between parties to mitigate the

counterparty risk inherent in the outstanding positions. Where cash collateral is received, to mitigate the risk inherent in

amounts due to the Group, it is included as a liability within amounts owed to credit institutions. Where cash collateral is

given, it is included as an asset in loans and advances to credit institutions. Credit risk is also mitigated by the use of central

counterparties (CCPs) for eligible derivatives.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 197

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

27. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

Contract/

Notional

amount

Fair values Change in fair

value used for

calculating

ineffectiveness

Assets Liabilities

£m £m £m £m

Group

At 31 December 2020

Interest rate swaps designated as fair value hedges 23,376.8 78.1 419.8 (169.3)

Interest rate caps designated as cash flow hedges – – – –

Cross currency interest rate swaps designated as fair value hedges 3,599.1 298.3 27.0 (12.8)

Derivatives not designated as hedges:

Interest rate swaps 6,825.3 38.2 41.2 n/a

Equity linked interest rate swaps – – – n/a

Foreign exchange 117.8 1.6 2.9 n/a

Total derivative financial instruments 33,919.0 416.2 490.9 (182.1)

Society

At 31 December 2020

Interest rate swaps designated as fair value hedges 23,376.8 78.1 419.8 (169.3)

Interest rate caps designated as cash flow hedges – – – –

Cross currency interest rate swaps designated as fair value hedges 1,349.7 99.6 18.2 (6.3)

Derivatives not designated as hedges:

Interest rate swaps 22,468.4 38.2 24.2 n/a

Equity linked interest rate swaps – – – n/a

Foreign exchange 117.8 1.6 2.9 n/a

Total derivative financial instruments 47,312.7 217.5 465.1 (175.6)

198 | Financial Statements

27. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

The following tables show the maturity profile, by notional amount, of the hedging instruments designated in hedge

relationships used in the Group’s hedging strategies:

Group and Society Repayable

up to

three years

In more than

three years

but less than

five years

Over

five years

Total

At 31 December 2021 £m £m £m £m

Interest rate caps 2,310.0 – – 2,310.0

Total cash flow hedges 2,310.0 – – 2,310.0

At 31 December 2020 £m £m £m £m

Interest rate caps – – – –

Total cash flow hedges – – – –

Group Repayable

up to

three years

In more than

three years

but less than

five years

Over

five years

Total

At 31 December 2021 £m £m £m £m

Interest rate swaps (pay fixed) 17,462.8 7,021.9 714.5 25,199.2

Interest rate swaps (receive fixed) 282.5 705.6 250.0 1,238.1

Cross currency interest rate swaps 1,593.0 953.4 1,034.1 3,580.5

Total fair value hedges 19,338.3 8,680.9 1,998.6 30,017.8

At 31 December 2020 £m £m £m £m

Interest rate swaps (pay fixed) 14,165.7 6,196.5 1,134.1 21,496.3

Interest rate swaps (receive fixed) 449.9 280.6 1,150.0 1,880.5

Cross currency interest rate swaps 2,249.4 899.8 449.9 3,599.1

Total fair value hedges 16,865.0 7,376.9 2,734.0 26,975.9

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 199

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

27. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

Society Repayable

up to

three years

In more than

three years

but less than

five years

Over

five years

Total

At 31 December 2021 £m £m £m £m

Interest rate swaps (pay fixed) 17,462.8 7,021.9 714.5 25,199.2

Interest rate swaps (receive fixed) 282.5 705.6 250.0 1,238.1

Cross currency interest rate swaps 332.6 533.3 613.9 1,479.8

Total Fair value hedges 18,077.9 8,260.8 1,578.4 27,917.1

At 31 December 2020 £m £m £m £m

Interest rate swaps (pay fixed) 14,165.7 6,196.5 1,134.1 21,496.3

Interest rate swaps (receive fixed) 449.9 280.6 1,150.0 1,880.5

Cross currency interest rate swaps 899.8 449.9 – 1,349.7

Total Fair value hedges 15,515.4 6,927.0 2,284.1 24,726.5

The following table shows the average price/rate of the hedging instruments by maturity used in the Group’s hedging

strategies:

Group and Society 2021 2020

Repayable

up to

three years

In more than

three years

but less than

five years

Over

five years

Repayable

up to

three years

In more than

three years

but less than

five years

Over

five years

Average fixed interest rate – Fair value hedges

Interest rate swaps (pay fixed) 0.59 0.29 0.64 0.68 0.62 0.45

Interest rate swaps (receive fixed) 0.87 2.38 1.50 0.88 0.93 1.52

Cross currency interest rate swaps 0.56 0.28 0.32 0.72 0.38 0.01

Average EUR:GBP FX rate – Fair value hedges

Cross currency interest rate swaps 1.23 1.09 1.16 1.26 1.12 1.10

200 | Financial Statements

27. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

The following tables show the fair value hedge exposures covered by the Group’s hedging strategies. The change in fair value

of the hedged item for calculating ineffectiveness is based on all hedge relationships designated during the year.

Carrying amount of

hedged item

Accumulated fair value

adjustments on the

hedged item

Change in fair

value of the

hedged item

for calculating

ineffectiveness

Assets Liabilities Assets Liabilities

£m £m £m £m £m

Group

At 31 December 2021

Fixed rate mortgages (interest rate risk) 23,243.0 – (238.2) – (512.6)

Fixed rate debt securities held (interest rate risk) 2,383.3 – (56.6) – (107.8)

Fixed rate debt securities issued (interest rate risk) – 1,250.5 – 3.6 95.5

Fixed rate debt securities issued (interest rate and FX risk) – 3,364.3 – 6.8 (1.2)

Society*

At 31 December 2021

Fixed rate mortgages (interest rate risk) 23,243.0 – (238.2) – (512.6)

Fixed rate debt securities held (interest rate risk) 2,383.3 – (56.6) – (107.8)

Fixed rate debt securities issued (interest rate risk) – 1,250.5 – 3.6 95.5

Fixed rate debt securities issued (interest rate and FX risk) – 1,261.7 – 4.8 (21.5)

Group

At 31 December 2020

Fixed rate mortgages (interest rate risk) 19,774.4 – 274.3 – 188.3

Fixed rate debt securities held (interest rate risk) 1,659.5 – 51.6 – 22.0

Fixed rate debt securities issued (interest rate risk) – 999.4 – (55.9) (31.7)

Fixed rate debt securities issued (interest rate and FX risk) – 3,612.6 – (29.4) 3.2

Society*

At 31 December 2020

Fixed rate mortgages (interest rate risk) 19,774.4 – 274.3 – 188.3

Fixed rate debt securities held (interest rate risk) 1,659.5 – 51.6 – 22.0

Fixed rate debt securities issued (interest rate risk) – 999.4 – (55.0) (31.7)

Fixed rate debt securities issued (interest rate and FX risk) – 1,358.0 – (11.1) 2.9

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

* The amount disclosed for the Society includes £17,421m (2020: £13,164m) of mortgages written by Accord Mortgages Limited (Accord) which are

funded by a fixed rate loan from the Society to Accord. The hedged item in the Society hence comprises £5,822m of mortgages and the £17,421m loan

to Accord.

Financial Statements | 201

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

27. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

The accumulated amount of fair value hedge adjustments remaining on the balance sheet for hedged items that have

ceased to be adjusted for hedging gains and losses but where the hedged item remains on the balance sheet is £7.9 million

(2020: £37.4 million).

The following tables show the cash flow hedge exposures (gross of tax) covered by the Group’s hedging strategies:

Group and Society Assets Liabilities Change in fair

value of hedged

item used for

calculating

ineffectiveness

Cash flow hedge reserve

Continuing

hedges

Discontinued

hedges

£m £m £m £m £m

At 31 December 2021

Floating rate debt securities issued – 1,220.0 (6.6) (6.2) (0.4)

Floating rate liabilities – 1,090.0 (9.1) (9.1) –

At 31 December 2020

Floating rate debt securities issued – – (0.6) – 0.1

Floating rate loans – – – – –

The following table shows the movements in the cash flow hedge reserve during the year:

Group and Society 2021 2020

£m £m

At 1 January (0.1) (0.5)

Effective portion of changes in fair value of interest rate swaps:

Floating rate debt securities issued 6.2 –

Floating rate liabilities 9.1 –

Amounts reclassified from reserves to income statement:

Floating rate debt securities issued 0.4 0.6

Floating rate loans – –

Taxation (5.2) (0.2)

At 31 December 10.4 (0.1)

202 | Financial Statements

28. LIQUIDITY RISK

Liquidity risk is an intrinsic part of the Group’s business as long-term mortgages are funded by short-term retail customer

balances. Most mortgages have a contractual maturity date of around 25 years but in practice are frequently repaid early;

currently the estimated average life of a mortgage is approximately five years. Conversely, experience shows that retail

deposits, nominally repayable on demand or with short notice periods, actually remain with the Society for relatively long

periods. It is this inherent mismatch in the maturity profiles of retail assets and liabilities that creates liquidity risk.

The Group’s liquidity management policy is designed to ensure the maintenance of adequate investments in liquid assets

to cover statutory, regulatory and operational requirements. The primary function of liquidity is the provision of sufficient

assets in realisable form to ensure the Group is able to meet its liabilities as they arise and to absorb potential cash flow

requirements created by the maturity mismatches referred to above or by a liquidity stress scenario.

The Group’s liquidity management comprises the following key areas:

•

At the highest level, the Group manages its liquidity levels to ensure compliance with the Overall Liquidity Adequacy Rule,

as set out by the PRA in Chapter 2 of the Internal Liquidity Adequacy Assessment part of the PRA Rulebook (ILAA rules).

•

Limits are established by the Board that govern the quantity, quality and marketability of and returns from the Group’s

portfolio of liquidity investments. The portfolio is managed by the Treasury function, monitored by the first and second

line risk functions and overseen by the Asset and Liability Committee (ALCO) under a series of delegated authorities.

•

The Group conducts a series of daily stress tests that are designed to ensure that its liquidity is sufficient to meet its cash

flow needs under any one of a number of adverse scenarios should they arise. The scenarios include those caused by

both Group specific and general market events, and incorporate both severe retail savings outflows and the unavailability

of wholesale funding. They are constructed on various timescales up to three months in advance. These scenarios are

updated and approved by the Board annually through the Internal Liquidity Adequacy Assessment Process (ILAAP).

•

The Group also manages liquidity in line with prevailing regulatory requirements, namely the Liquidity Coverage Ratio

(LCR) as prescribed under the PRA Rulebook, Liquidity Coverage Ratio (CRR) part. The LCR measures the quantity of High

Quality Liquid Assets (HQLA) against net liquidity outflows over a 30 day period. YBS currently reports to the PRA on a

monthly basis at a Group and Society-only level, with the lower of the two being reported as 198.93% for December 2021

month end. For comparison, the lowest as at 31 December 2020 was 191.86%.

•

The Group has also implemented internal backstop limits for liquidity, to mitigate the potential risk of liquidity levels

under a risk-based approach being able to be reduced to below what is considered a minimum appropriate level for the

Group. These are linked to balance sheet size.

•

The liquidity position of the Group is forecast across the next two years and measured against forecasts of the

requirements on both a regulatory and internal basis. This is to ensure that the short-term plans of the Group do not lead

to liquidity limits being breached and the financial sustainability of the organisation being threatened.

The above metrics are the key elements of the suite of measures by which the Group actively seeks to manage its liquidity

position, along with other complimentary metrics which are included within the Group’s risk appetite framework.

Liquidity risk in subsidiary companies is mitigated by the use of appropriate intercompany loans and deposits.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 203

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

28. LIQUIDITY RISK (CONTINUED)

PLEDGED ASSETS

The Group’s asset backed funding programmes, reported within debt securities in issue (see note 22) are secured against

pools of loans and advances to customers.

In addition, as part of its liquidity management, the Group enters into sale and repurchase agreements whereby the Group

sells but agrees to repurchase assets at a future date. Typically, this is for up to three months and for UK government

securities and listed transferable debt securities. Proceeds of these sale and repurchase agreements are included within loans

and advances to credit institutions with the liability to repay included within amounts owed to credit institutions.

Assets pledged are as follows:

Group Carrying

amount of

encumbered

assets

Carrying

amount of

unencumbered

assets

Total

2021 £m £m £m

Liquid assets 1,616.2 8,380.5 9,996.7

Loans and advances to customers 15,025.3 26,897.1 41,922.4

Other assets – 804.6 804.6

Total assets 16,641.5 36,082.2 52,723.7

2020 £m £m £m

Liquid assets 1,927.1 6,476.1 8,403.2

Loans and advances to customers 10,447.0 28,351.6 38,798.6

Other assets – 729.0 729.0

Total assets 12,374.1 35,556.7 47,930.8

All of the assets pledged as security are shown in the Balance Sheet as the Group has retained substantially all the risk and

rewards of ownership. The Society established Yorkshire Building Society Covered Bonds LLP in November 2006. The LLP

provides security for issues of covered bonds made by the Society to external counterparties. As at 31 December 2021 the

Society had in issue £1,250m and €2,500m of covered bonds.

The Group established its first securitisation programme in 2011. This year the latest securitisation structures, Brass No.10

PLC and Tombac 3 PLC were established with £1,480m and £4,300m of listed debt securities secured against specific loans

of Accord Mortgages Limited issued in March 2021 and November 2021 respectively. Of these securities, £456m were

issued externally, with the remainder being retained by the Society to be used as collateral for use in sale and repurchase

agreements or central bank operations. The Group plans to issue further public notes in 2022. As at 31 December 2021, the

Group had £10,835m of securitisation notes in issue, of which £9,953m were retained by the Society.

Whole mortgage loan pools are placed at the Bank of England under their latest Term Funding Scheme (TFSME). The whole

loan pool is pledged and drawings are made directly against the eligible collateral.

204 | Financial Statements

28. LIQUIDITY RISK (CONTINUED)

The tables below provide an analysis of gross contractual cashflows. The sum of the balances depicted in the analysis do not

reconcile with the carrying value of the liabilities as disclosed in the Group balance sheet as they include estimated future

interest payments calculated using balances outstanding at the balance sheet date. Amounts are allocated to the relevant

maturity band based on the timing of individual contractual cashflows.

Group Repayable on

demand and

up to three

months

In more than

three months

but not more

than one year

In more than

one year but

not more than

five years

Over five

years

Total

As at 31 December 2021 £m £m £m £m £m

Shares 24,707.3 7,370.1 3,426.8 – 35,504.2

Amounts owed to credit institutions 377.8 24.7 5,739.6 – 6,142.1

Other deposits:

Society 320.3 165.9 – – 486.2

Subsidiaries 388.4 – – – 388.4

Debt securities in issue 203.2 704.8 3,785.2 1,349.6 6,042.8

Subordinated liabilities – 25.8 385.6 577.8 989.2

Operating lease payments – 0.1 – – 0.1

Derivative financial liabilities 30.0 63.4 202.8 78.9 375.1

Total 26,027.0 8,354.8 13,540.0 2,006.3 49,928.1

As at 31 December 2020 £m £m £m £m £m

Shares 22,752.8 6,740.8 3,878.2 – 33,371.8

Amounts owed to credit institutions 468.8 1,738.4 1,652.0 – 3,859.2

Other deposits:

Society 69.0 97.2 – – 166.2

Subsidiaries 371.1 – – – 371.1

Debt securities in issue 32.8 625.5 4,727.4 864.0 6,249.7

Subordinated liabilities – 22.1 382.6 330.4 735.1

Operating lease payments – 0.1 – – 0.1

Derivative financial liabilities 31.3 115.0 302.9 48.6 497.8

Total 23,725.8 9,339.1 10,943.1 1,243.0 45,251.0

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 205

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

28. LIQUIDITY RISK (CONTINUED)

The table below analyses the Group’s financial assets and liabilities into relevant maturity groupings, based on the remaining

period between the balance sheet date and the contractual maturity date.

Group Repayable

on demand

Less than

three

months

In more

than three

months but

not more

than one

year

In more

than one

year but

not more

than five

years

Over five

years

Total

As at 31 December 2021 £m £m £m £m £m £m

Financial Assets

Cash in hand and balances with the Bank of England 5,539.8 – – – – 5,539.8

Loans and advances to credit institutions 381.4 – – – – 381.4

Debt securities – 110.5 203.7 2,343.1 1,418.2 4,075.5

Loans and advances to customers – 330.0 102.1 1,487.9 40,002.4 41,922.4

Derivatives financial instruments – 29.6 80.8 325.3 55.2 490.9

Total financial assets 5,921.2 470.1 386.6 4,156.3 41,475.8 52,410.0

Financial liabilities

Shares 22,662.9 2,046.7 7,370.0 3,426.8 – 35,506.4

Amounts owed to credit institutions 49.4 326.9 12.0 5,701.5 – 6,089.8

Other deposits 396.9 306.0 170.6 – – 873.5

Debt securities in issue – 195.8 671.3 3,687.1 1,336.7 5,890.9

Derivative financial instruments – 7.6 9.9 139.3 115.9 272.7

Subordinated liabilities – – – 308.2 549.5 857.7

Total financial liabilities 23,109.2 2,883.0 8,233.8 13,262.9 2,002.1 49,491.0

As at 31 December 2020 £m £m £m £m £m £m

Financial Assets

Cash in hand and balances with the Bank of England 4,455.7 – – – – 4,455.7

Loans and advances to credit institutions 1,087.4 – – – – 1,087.4

Debt securities – 80.5 233.4 1,451.9 1,094.3 2,860.1

Loans and advances to customers – 349.2 108.0 1,420.6 36,920.8 38,798.6

Derivatives financial instruments – 0.6 60.7 296.8 58.1 416.2

Total financial assets 5,543.1 430.3 402.1 3,169.3 38,073.2 47,618.0

Financial liabilities

Shares 20,714.8 2,034.5 6,740.8 3,878.2 – 33,368.3

Amounts owed to credit institutions 103.6 364.5 1,718.4 1,650.4 – 3,836.9

Other deposits 379.5 49.0 107.2 – – 535.7

Debt securities in issue – 20.0 545.0 3,982.4 1,580.9 6,128.3

Derivative financial liabilities – 2.2 33.6 378.6 76.5 490.9

Subordinated liabilities – – – 310.7 334.3 645.0

Total financial liabilities 21,197.9 2,470.2 9,145.0 10,200.3 1,991.7 45,005.1

206 | Financial Statements

29. MARKET RISK

Market risk is the risk to earnings and capital arising from changes in interest rates, foreign currency exchange rates, structural

mismatches within the balance sheet and the price of financial instruments.

VALUE AT RISK (VaR)

VaR is a risk management tool which evaluates the potential losses that may be incurred as a result of movements in market

conditions over a specified holding period and to a given level of confidence. The model used is based on a 10 day holding

period and a 99% confidence level.

The VaR model calculates potential movements in market prices by reference to market data from the last 252 days and

incorporates underlying risk factors based on historic interest rate volatilities and correlations.

VaR for individual portfolios is calculated and reported on a daily basis with the Group position reported on a monthly basis.

A back test of the VaR model is performed to test the validity of the assumptions and parameters within the model.

A number of limitations should be considered in relation to the VaR model:

•

Historic data is not necessarily a reliable guide to future events.

•

The model, by definition, does not capture potential losses outside the 99% confidence level, i.e. those events that are

extreme in nature.

•

VaR is calculated on the basis of exposures outstanding at the close of business and, therefore, does not necessarily

reflect intra-day exposures.

STRUCTURAL RISK ANALYSIS (BASIS RISK)

An analysis of interest bearing items by rate type is performed to illustrate key areas of structural mismatch. It identifies

mismatches between administered rates, fixed rates and other rates including those linked to Bank Base Rate, SONIA and

LIBOR. The effect of LIBOR and SONIA mismatches within the Balance Sheet is measured as the impact on net interest income

(for a 12month rolling period) of an isolated increase in LIBOR/SONIA of one basis point (0.01%). A one basis point sensitivity

measure is an industry standard approach to quantify the quantum and direction of the interest rate exposure within the Group.

Basis Point value (BP) sensitivity

These measures calculate the change in value of the assets and liabilities resulting from both a one basis point (PV01) and

100 basis points (PV100) parallel upward shift in interest rates. This is calculated and reported on a daily basis separately for

each currency and at the full Group level on a monthly basis.

Repricing gap analysis

Repricing dates are analysed primarily to avoid repricing risk concentrations, i.e. the situation where too great a proportion of

the Group’s assets and liabilities see the interest rates earned or charged on them resetting within a given time period. The

aim is to prevent excessive volatility in the net interest margin that could arise if rates shifted adversely within a given time

period, and since the Group cannot dictate interest rate movements themselves, the best approach is to limit the amount of

assets or liabilities that are exposed in this way. The analysis identifies the net asset/liability repricing position across a series

of time intervals. Positions are calculated using nominal amounts and exclude interest flows. General reserves, fixed assets

and other liabilities are classified as having ‘non-specific’ repricing characteristics with a zero rate of interest. The measure is

calculated as a reverse cumulative gap.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 207

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

29. MARKET RISK (CONTINUED)

STRUCTURAL RISK ANALYSIS (BASIS RISK) (CONTINUED)

Repricing gap analysis (continued)

Year end Average Maximum Minimum

2021 £m £m £m £m

LIBOR basis 0.1 0.1 0.2 –

SONIA basis 1.8 1.7 1.9 1.4

PV01 sensitivity (0.1) 0.1 0.5 (0.3)

PV100 sensitivity (11.3) 10.4 46.6 (23.7)

VaR 14.3 5.3 15.5 1.2

2020 £m £m £m £m

LIBOR basis 0.1 0.1 0.1 –

SONIA basis 1.5 1.5 1.5 1.3

PV01 sensitivity 0.4 0.4 0.5 0.3

PV100 sensitivity 41.1 42.0 49.0 32.8

VaR 1.2 1.4 2.7 0.6

Greater than

one year

Greater than

five years

Greater than

ten years

2021 £m £m £m

Repricing gap 1,144.0 155.0 –

2020 £m £m £m

Repricing gap (549.0) 83.0 2.0

30. CURRENCY RISK

Currency exchange risk is monitored daily and the Group seeks to minimise its net exposure to assets and liabilities

denominated in currencies other than Sterling. In particular the Group’s existing non-sterling Liquidity portfolio and

Wholesale Funding exposures are swapped back into Sterling. Maximum positions throughout the year represented less than

0.02% of total assets (2020: less than 0.01%).

Actual exposures were:

Group and Society 2021 2020

£m £m

Year end 1.2 1.6

Maximum 9.0 1.9

208 | Financial Statements

31. WHOLESALE CREDIT RISK

The Group’s wholesale credit risk arises principally from assets held for liquidity purposes. The risk is that counterparties with

whom the Group invests liquid assets fail to repay those investments when they fall due. The Group, through the Treasury

function, undertakes its own internal rating of all its counterparties and sets individual limits accordingly. These limits are

regularly reviewed internally and against the external rating agencies, with revocation or suspension taking place where

considered appropriate.

Limits are in place governing the types of instrument in which the Group will invest, as well as geographic limits designed

to prevent over-exposure to a given country. The Group uses an internal credit ratings process to identify potential risks and

wholesale related credit risks are reported and discussed monthly at the Asset and Liability Committee.

Whilst recognising that exposures will be maintained across a spectrum of counterparties the Board has maintained a low risk

appetite for wholesale credit risk resulting in our inter-bank exposures being limited to operational requirements.

A diversified range of counterparties is in place to meet business and regulatory requirements and to meet the Board

approved strategies. No credit risk exposures being undertaken by Treasury to counterparties that have not been through

an internal approvals process, including a formal review by the second line of defence. The following tables break down

wholesale Group exposures by type using the composite external credit rating of the issuer.

Aaa-Aa3 A1-A3 Baa1-Baa3 Ba1-B3 Caa1-C3 Unrated Total

2021 £m £m £m £m £m £m £m

Central Bank and Sovereigns 6,347.0 – – – – – 6,347.0

Financial Institutions 2,485.3 911.2 92.1 – – – 3,488.6

Supranational bonds 652.0 – – – – – 652.0

Other – – – – – – –

Total 9,484.3 911.2 92.1 – – – 10,487.6

2020 £m £m £m £m £m £m £m

Central Bank and Sovereigns 5,028.9 – – – – – 5,028.9

Financial Institutions 1,566.0 1,602.2 58.5 – – – 3,226.7

Supranational bonds 563.8 – – – – – 563.8

Other – – – – – – –

Total 7,158.7 1,602.2 58.5 – – – 8.819.4

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 209

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

31. WHOLESALE CREDIT RISK (CONTINUED)

The Group has a low risk appetite to exposures outside the UK. This is reflected in the country exposure by type shown in the

tables below.

Central Banks

and Sovereigns

Financial

Institutions

Supranational

bonds

Total

2021 £m £m £m £m

United Kingdom 6,207.5 2,099.2 – 8,306.7

Australia – 38.6 – 38.6

Canada – 385.0 – 385.0

France 47.8 184.9 – 232.7

Germany – 427.0 – 427.0

Japan 91.7 2.4 – 94.1

Netherlands – 111.4 – 111.4

Norway – 82.8 – 82.8

Spain – 20.7 – 20.7

Sweden – 31.8 – 31.8

United States – 104.8 – 104.8

International – – 652.0 652.0

Total 6,347.0 3,488.6 652.0 10,487.6

2020 £m £m £m £m

United Kingdom 5,028.9 2,530.1 – 7,559.0

Canada – 20.0 – 20.0

France – 196.7 – 196.7

Germany – 330.7 – 330.7

Netherlands – 120.6 – 120.6

United States – 28.6 – 28.6

International – – 563.8 563.8

Total 5,028.9 3,226.7 563.8 8,819.4

The Group’s main Sovereign exposure is to the UK which had an average external rating of ‘AA-’. At the year end, UK Sovereign

exposure was £5,539.8m (2020: £4,446.5m) to the Bank of England and £667.7m (2020: £582.4m) in UK Government

bonds. There has been a further geographical diversification of assets over the year but these exposures are with well rated

institutions in mature markets so are within risk appetite. None of the wholesale exposures is either past due or impaired and

there are no assets that would otherwise be past due or impaired whose terms have been renegotiated.

210 | Financial Statements

31. WHOLESALE CREDIT RISK (CONTINUED)

Wholesale credit exposure per the balance sheet is as below:

Group 2021 2020

£m £m

Cash in hand and balances with the Bank of England 5,539.8 4,455.7

Loans and advances to credit institutions 381.4 1,087.4

Debt securities 4,075.5 2,860.1

Derivative financial instruments 490.9 416.2

Total wholesale credit risk 10,487.6 8,819.4

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS

GROSS CONTRACTUAL EXPOSURE

The table below splits the

loans and advances to customers

balance per the statement of financial position into its constituent

parts and reconciles to the gross exposures used in the expected credit loss (ECL) model.

Effective Interest Rate

(EIR) and

hedging adjustments

have been excluded from the ECL model as these do not form part of the contractual cash flows from the

assets.

EIR is the measurement method used for financial assets held at amortised cost, including

loans and advances to customers

which spreads income and fees over the life of the asset. See note 1 for more details.

Hedging

is described in more detail

in note 27. The

fair value rate adjustment

reflects the market value adjustment on acquired portfolios of mortgage assets

in respect of interest rates on the underlying products. This is amortised over the expected life of the acquired portfolio.

Impairment

represents the difference between the total ECL and the

fair value rate adjustment

Group 2021 2020

£m £m

Gross contractual exposures 42,211.5 38,609.6

EIR 52.8 52.0

Hedging (238.2) 274.4

Fair value rate adjustment (49.2) (61.4)

Gross loans and advances to customers 41,976.9 38,874.6

Impairment (26.1) (43.9)

Fair value credit adjustment (28.4) (32.1)

ECL (54.5) (76.0)

Loans and advances to customers 41,922.4 38,798.6

EXPECTED CREDIT LOSSES (ECL)

ECL are calculated using models that take historical default and loss experience and apply predictions of future economic

conditions (e.g. unemployment and house prices) and customer behaviour (e.g. default rates). In certain circumstances, the

core models may not accurately reflect factors that have resulted in an increased credit risk. When this happens, post model

adjustments (PMA) are overlaid to reflect the impact on ECL. The economic scenarios and the PMAs applied at 31 December

2021 are described below.

Economic Scenarios

The Group continues to use four scenarios: an upside scenario that assumes minimal disruption; our core or central scenario;

a more negative downturn scenario; and a worst-case stress scenario. These four scenario’s are generated internally using

external data, statistical methodologies, and senior management judgement to span a wide range of plausible economic

conditions. Scenarios are projected over a five-year window, reverting to long term averages past that point.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 211

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

ECL (CONTINUED)

Economic Scenarios (continued)

Current Macroeconomic Conditions

The phased reopening of the economy from mid-April 2021 resulted in a strong rebound in activity, aided by a combination of

government support measures and the progress of the UK vaccination programme. However, over the second half of the year

this momentum slowed due to the emergence of the Delta and Omicron COVID-19 variants. At the height of the ‘pingdemic’

almost a million workers were self-isolating, leading to shortages in the labour markets. This, coupled with greater consumer

caution going into December in light of the unknown impact of Omicron at that time, meant the year ended with the economy

on a downward trend, particularly for the hospitality and retail sectors.

Whilst the surge in Omicron cases did not lead to a spike in hospitalisation and fatalities as many feared, and more severe

lockdown measures in early 2022 were avoided, the pace of a return to any semblance of ‘normality’ is still not clear. The risk

of further COVID-19 surges remains, especially if new variants of the virus continue to develop and supplies of boosters are

not available or as effective.

The spectre of inflation has also emerged over the last few months with the UK experiencing rapidly rising fuel and energy

prices and global supply issues for the first time since the 1970s. Unemployment continues to fall and job vacancies

continue to rise, resulting in wage growth pressures. The conflict in Ukraine is also adding to volatility in energy prices and

global markets.

The Bank of England has responded with back to back rate rises for the first time since 2004, the 15 basis point rise in

December 2021 being quickly followed by the 25 basis point rise to 0.5% in February 2022.

As such, the economic assumptions applied within our scenarios are showing improvement since December 2020, but our

outlook continues to reflect significant downside risks.

Upside

This assumes the continued availability of effective boosters and new vaccines successfully negate the impact of new

COVID-19 variants. The removal of all social distancing restrictions allows businesses to return to full normality by mid-2022.

After the strong performance in 2021, GDP continues to grow in 2022 and reverts to pre-pandemic levels from 2023.

Unemployment falls back to multi-decade lows and house prices grow at 3% per annum over 2023 and 2024.

Core

The core scenario is the Group’s best estimate of how the UK economy will evolve and is aligned with the central scenario

used in the Group’s financial planning processes. It assumes a steady return to post-pandemic normality over 2022 with no

further restrictions or lockdowns.

The economic environment is more favourable than the 2020 lockdown easing as the level of uncertainty has greatly reduced,

and households and businesses more quickly resume spending and investment plans. Having paid down bank debt and

accumulated ‘excess’ cash holdings during the pandemic, large companies report robust investment intentions in response

to strengthening demand. The ‘super deduction’ tax incentive further encourages firms to make use of this cash and bring

forward capital spending.

Successive base rate rises successfully bring the rising inflation seen in early 2022 back to the Bank of England’s 2% target.

House Price Index (HPI)

The core scenario expects both the supply of, and demand for housing stock to normalise in 2022 and for some of the 2021

gains to unwind. HPI increases by 1.2% in 2022 and rises to 2.0% per annum from 2023.

Gross Domestic Product

In this scenario gross domestic product (GDP) growth for 2022 is expected to be 5.9%. This reflects increased capital

spending of stockpiled cash of large companies, albeit partially offset with growing labour costs and component shortages.

The UK economy returns to near its pre-pandemic level in Q3 2022 but is structurally marginally smaller due to lost

investment, business closures and labour market scarring (i.e. the longer a person is unemployed the more difficult they find

it to re-enter the jobs market even with rising job vacancies). In 2022 to 2025 GDP growth then slows to similar rates seen

in the past decade. Brexit is assumed to leave GDP around 4% lower than the pre-virus level by 2025 due to lower inward

investment and productivity.

Unemployment

As uncertainty fades and demand continues to grow, we anticipate a recovery in business investment and therefore job

creation, as a result we expect unemployment to fall.

212 | Financial Statements

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

ECL (CONTINUED)

Economic Scenarios (continued)

Downturn

The downturn scenario assumes the emergence of new COVID-19 variants that current vaccines are ineffective against,

resulting in spikes in cases but with hospitalisations and fatalities following suit. In the absence of effective boosters and new

vaccines taking longer to roll out due to longer clinical trial periods and production constraints, the UK Government imposes a

further national lockdown to combat the pressure on the healthcare system. Non-essential sectors are restricted from trading,

with the economy continuing to take a hit as there is no further government support for jobs and businesses. Although bank

base rate is reduced to zero, unemployment accelerates and earnings growth falls behind inflation, reducing spending power.

HPI

A combination of a rapid rise in unemployment, falling real earnings and a collapse in consumer confidence drives

house prices down sharply in 2022 by 12.7% and a further 5% in 2023, with no recovery in values until 2025. A rise in

repossessions further drives down valuations.

GDP

Lockdowns and restrictions result in a GDP contraction of 5.6% in 2022 and a contraction of 5.0% in 2023 but it starts to

grow slowly in Q3 2023 as the economy is gradually reopened. However, with weakness in the labour markets, declining

real earnings and low demand/business investment, downturn forecasts growth rates of 1.3% for 2024 and 1.5% for 2025

and 2026.

Unemployment

With no government backed job retention or income support schemes, unemployment starts to accelerate to a peak of 8.8%.

As recovery sets in, unemployment gradually starts to fall, although it is still high by recent standards.

Stress

In the stress scenario there are further challenges with the current vaccines’ ability to cope with new strains of COVID-19,

requiring the UK government to reimpose strict public health measures with a national lockdown in mid-2022 and wider local

restrictions for the remainder of the year.

An updated vaccine emerges in late 2022 but supply chain and production issues mean it is not widely available until late 2023.

In addition, the supply chain shortages cause further disruption as economies attempt to reopen and demand outstrips supply.

The extended stress incorporates a risk that UK supply chains are also impacted by climate catastrophes on a global scale over

the 5-year scenario horizon, further undermining recovery. Increased tensions between the EU and the UK put into doubt the

workability of the 2020 trade agreement, increasing uncertainty in the business sector, reducing investment, hiring and growth.

There is no financial support for workers in non-essential sectors and affected businesses as the UK government cannot continue

the level of support given during the 2020 first wave. Although the Bank Rate is reduced to zero, unemployment accelerates and

earnings growth falls behind inflation, reducing spending power. A contracting economy and a large public sector deficit put

pressure on sterling, giving rise to inflation and a decline in real wage growth.

This adds further stress to household finances and consumer spending in addition to the high level of unemployment.

Furthermore, by the end of 2025 the UK government begins to implement debt reduction strategies that take demand out of the

economy through higher taxes and spending cuts. This results in a less pronounced GDP fall in 2023 than the downturn scenario

but leads to a more prolonged recession.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 213

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

ECL (CONTINUED)

Economic Scenarios (continued)

2021 Scenario 2020 Scenario

2022 2023 2024 2025 2026 2021 2022 2023 2024 2025

HPI

Upside 4.0 3.0 3.0 2.0 2.0 3.2 3.4 3.4 3.6 3.5

Core 1.2 2.0 2.0 2.0 2.0 (4.0) – 2.0 2.0 2.0

Downturn (12.7) (5.0) – 1.5 2.0 (17.0) (4.0) – 1.5 2.0

Stress (13.0) (10.5) (5.0) – 1.0 (12.0) (10.0) (5.0) (2.0) –

GDP

Upside 6.3 2.1 2.0 2.0 2.0 6.5 2.5 2.0 2.0 2.0

Core 5.9 1.8 1.6 1.6 1.6 5.7 2.5 1.8 1.6 1.6

Downturn (5.6) (5.0) 1.3 1.5 1.5 (5.5) 1.3 1.5 1.7 1.8

Stress (5.1) (2.0) (0.7) – – (5.5) (2.0) (0.8) (0.5) –

Unemployment

Upside 4.3 4.3 4.2 4.1 4.1 5.0 4.0 3.9 3.8 3.8

Core 4.7 4.7 4.5 4.4 4.4 7.9 7.5 6.5 5.5 4.5

Downturn 7.0 8.8 7.8 7.5 7.0 9.5 8.5 7.5 7.0 6.0

Stress 10.0 11.9 9.0 8.0 7.0 8.8 11.9 10.8 9.0 8.0

Bank base rate

Upside 0.5 0.8 0.8 0.8 0.8 0.5 0.8 0.8 0.8 0.8

Core 0.5 0.8 0.8 0.8 0.8 0.1 0.3 0.3 0.3 0.3

Downturn – – – – – 0.1 0.1 0.1 0.1 0.1

Stress – – – – – – – – – –

The following table shows the average values of the key economic variables used by each economic scenario for the

period until December 2026. The table includes the three key parameters used to predict probability of default (PD) –

unemployment, HPI and UK Bank of England base rate. GDP is also presented as it is the key input for determining the

economic parameters used and provides context to the nature of the overall scenario. The values in the table are calculated

as either a simple average of the rate across the five-year forecasting period or as peak to trough.

Upside Core Downturn Stress

2021 2020 2021 2020 2021 2020 2021 2020

5 year average

GDP 2.1 2.3 1.8 2.0 (1.6) (0.5) (2.2) (2.4)

HPI 2.8 3.4 1.8 0.4 (3.0) (3.8) (5.7) (5.9)

Unemployment 4.2 4.4 4.6 6.5 7.5 7.8 9.1 9.5

Bank base rate 0.7 0.7 0.6 0.2 – 0.1 – –

Peak to trough

GDP – – (7.8) (8.8) (8.8) (7.8) (4.3) (4.9)

HPI – – (8.3) (5.8) (14.3) (16.8) (23.5) (24.0)

Unemployment 4.5 7.0 4.9 7.9 8.8 9.5 11.9 11.9

214 | Financial Statements

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

ECL (CONTINUED)

Alternative Scenarios Considered

In the

Principal Risks and Uncertainties

section of the

Strategic Report

we refer to the increasing risk of inflation and rising

interest rates. Given the potential for an adverse impact on affordability, the possibility of introducing a fifth economic

scenario as an alternative base case was considered. However, in that scenario interest rates and unemployment would

be expected to remain low by historical standards. After review, including consideration of the sensitivity of our mortgage

books and associated impairment models to increasing interest rates, we concluded that the existing four scenario approach

provides sufficient coverage across the range of potential credit loss outcomes.

Weightings

The following table shows the expected credit loss under each of our four economic scenarios along with the weightings that

have been applied to arrive at the weighted average ECL.

Group 2021 2020

Weighting ECL Weighting ECL

Scenario % £m % £m

Upside 5 29.7 5 37.4

Core 50 30.9 45 42.4

Downturn 30 74.9 35 105.5

Stress 15 100.5 15 120.7

Weighted scenario 100 54.5 100 76.0

The relative weighting of the scenarios has been re-assessed as a result of a number of positive economic indicators and

developments over the year. Whilst downside and upside risks remain, the strength of the recovery, particularly in the housing

market and the efficacy of the vaccine rollout even in the face of the Omicron variant, are considered to signify a return to

a more ‘normal’ set of economic conditions, albeit a post-pandemic ‘new normal’. As a result, it was deemed appropriate to

reweight the core scenario to 50%, moving a 5% weighting from downturn.

As in prior periods, the stress scenario is an operational measure used to stress test the rigour of the Group’s balance sheet

and applying a 15% weight to this scenario is still considered appropriate. The upside of 5% is also still deemed appropriate.

If the December 2020 weightings had been applied to the December 2021 balances the ECL would be £2.2 million higher.

Post Model Adjustments

Post model adjustments (PMAs) are applied when an increase in credit risk is identified that is not effectively captured in the

core expected credit loss models. 2021 has seen a rapidly changing macro-economic environment and there has therefore

been an increased focus on identifying and quantifying the resulting risks and exposures. There has also been a rigorous

review of previously applied PMAs to determine whether the risks identified are still applicable. The PMAs applied at 31

December 2021 are as follows:

2021 2020

£m £m

Methodology changes 6.4 –

Model recalibration 1.4 –

Extended time to sale 2.2 –

Cladding 1.3 –

Uncertainty 3.6 3.0

Payment deferrals – 3.5

Total PMA 14.9 6.5

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 215

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

ECL (CONTINUED)

Post Model Adjustments (continued)

Methodology Changes

The Group has updated the definition of default (DoD) and the probability of default (PD) rating scale on the back of a

comprehensive review as part of the transition to the fourth-generation internal ratings based (Gen 4 IRB) method of

calculating regulatory capital. However, given the time and governance required to manage the introduction of amendments

into the core underlying models, they will be updated to reflect these changes in 2022. A PMA was established to provide a

high-level overlay to the models to reflect the impacts, primarily:

•

the additional accounts that would be classified as being Stage 3 due to meeting the additional default criteria;

•

the accounts that would be more likely to be classified as Stage 2 due to an increase in risk, either by their transition to a

higher rating grade or potentially to a higher risk PD model; and

•

reflect changes to the eligibility of accounts meeting the definition of a significant increase in credit risk (‘SICR’). The

changes reflect using initial recognition PD as a comparison point for SICR rather than lifetime PD.

Model Recalibration

Regular model performance monitoring has highlighted that the observed default rates (ODRs) of certain risk grades have

moved above their upper tolerance thresholds and are expected to remain that way for an extended period. This PMA

represents the recalibration of the behavioural and application score to grade mappings to correct the tolerance breaches.

Extended Time to Sale

In response to the COVID-19 pandemic, the FCA put in place a moratorium on the enforcement of lender repossession and

this remained in place until 1 April 2021. This has led to an industry-wide backlog of repossessions and impacted some of the

model parameters, specifically those related to time to sale.

This post model adjustment adjusts for this by increasing each of the time from default to possession (TFDP) parameters by

12months to reflect the under-estimation present in the core model. This PMA will continue to be monitored and is expected

to be released as the repossession activity reverts back to historic levels as backlogs are cleared.

Cladding

Following the Grenfell Tower fire in June 2017, the UK Government mandated that aluminium composite material (ACM), the

cladding type used on Grenfell Tower, be removed from all blocks of flats in excess of 18 metres or six storeys high. In January

2020 the Ministry for Housing, Communities & Local Government (MHCLG) also published guidelines that introduced a duty

on freeholders to obtain a detailed assessment, and undertake remedial works, on any potentially combustible elements of

any cladding, of any height, on all blocks of flats.

Subsequently, the

Fire Safety Act 2021

legislated that repair costs could be passed onto leaseholders in accordance with the

standard lease terms and that the obligation to pay for remediation works would fall to the current leaseholder. The main

area of risk therefore is residential leaseholders that have these costs passed on to them and this impacts their ability to meet

mortgage payments. In addition, whilst the Group does not have exposure to individual residential freehold flats, there are

a number of block freeholds within the Commercial lending portfolio. In the cases affected, the freeholder is able to recover

the costs of any necessary works from the leaseholders but there is a risk of non-recovery if the leaseholder has neither the

means nor the desire to pay.

However, at this point in time, there is insufficient data to determine which accounts may be subject to cladding, or other fire

safety issues, and therefore require remedial work. As such, quantification of the Group’s exposure has been calculated at this

stage via a series of assumptions applied to the portfolio. As more data becomes available, this exposure will be assessed and

monitored at a more granular, account-by-account level.

Note: in January 2022 the UK Government’s announced proposals for ensuring leaseholders do not pay the remediation costs

associated with cladding on properties greater than 11 metres in height. This has been reviewed and the PMA has not been

adjusted as a result as they remain proposals at this stage.

Whilst these recommendations are welcome, they do not resolve a number of fire safety issues that would still require

leaseholder funded remediation like fire stopping, internal fire doors, balconies and service voids. The impact on our PMA will

be considered once there is a final agreed position from government and industry.

216 | Financial Statements

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

ECL (CONTINUED)

Post Model Adjustments (continued)

Uncertainty

Whilst we incorporate a range of economic assumptions in the scenarios and probability weightings used to calculate ECL,

this approach still has certain limitations, particularly given the current volatility in market conditions. The resulting unusual

and largely unforeseen impacts on the credit risks faced by the Group have given rise to several assumption uncertainties and

a PMA has been established to aim to correct for these.

The key risks that this PMA provides an estimate for are provided below.

Buy-to-Let (BTL)

Whilst BTL has been very resilient during the COVID-19 pandemic, the level of risk and uncertainty in this book is increasing.

The UK and Devolved Governments have significantly increased tax rates to landlords in recent years and these are only just

starting to impact market behaviour as they have been phased-in gradually.

In addition, structural changes in the rental market, both in terms of demographics and geography, may place some landlords

in a position where they cannot find tenants in their area who can afford rent at a level that would cover the loan servicing

and maintenance costs of the property. Whilst there has not been an increase in BTL defaults over the last 12 months, it is

assumed that this has been due to landlords meeting mortgage obligations by means other than rental income and there is a

latent risk that defaults are masked behind the lack of arrears.

House Price Volatility

This PMA has been raised in response to extraordinary growth in house prices since the easing of the first COVID-19 lockdown

and, in particular, the limitations of the underlying models to cope with the HPI being applied at regional level in our models.

In a rapidly rising market, we expect there to be significant local variances in house price inflation between areas within a

region. The uncertainty being modelled in this PMA is that the HPI increases at a regional level are not evenly distributed and

the ECL impact of changes in collateral values is non-linear.

This PMA seeks to correct for the standard deviation from the regional type mean and not an attempt to correct for any

perceived current market wide over-valuation. The HPI assumptions applied in the underlying economic scenarios estimate

the impacts of future HPI trends at a macro level based on the current baseline.

Climate risk

We have assessed the risks associated with climate change, both physical and transitional, in the context of ECL and

concluded that the majority of these risks do not meet the requirements for recognition as:

•

There have been no observed climate related defaults and therefore no identifiable significant increase in credit risk

(SICR); and

•

The material transition risks identified are expected to occur over a timescale in excess of the current behavioural life

of our portfolio (i.e. the average term before a customer either moves onto an alternative deal or transfers to another

provider) and, as such, any potential impact would be against loans yet to be underwritten.

We have, however, assessed the impact on our current loan book from properties subject to significant flood risk. The detailed

assessment conducted for the purposes of Climate Biennial Exploratory Scenario (CBES) reporting, see the

Building a Greener

Society

section of the

Strategic Report

, have yet to be incorporated into the core ECL models so a PMA is therefore required to

assess the current level of risk.

This has been estimated by taking the proportion of properties at risk based on an external benchmark and applying a 10%

additional loss against these properties. Factoring in the 12-month loss window for stage 1 balances, and assuming that the

loss would be incurred as a result of a 1 in 25 flood event, a £1 million PMA has been raised as an estimate of the impact. We

will continue to evaluate the need for this PMA as our modelling evolves and the full exposure to physical risks, and transition

risks as they emerge, are embedded into the ECL process.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 217

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

ECL (CONTINUED)

Post Model Adjustments (continued)

Uncertainty (continued)

Credit Bureau Data

A £2.0 million PMA was applied at 31 December 2020 to cover the scenario where a Group mortgage customer has been

granted a payment deferral on another product with another provider and where there is a delay in this information flowing

through credit reference agency data used to generate probability of default estimates.

These risks have either now been largely extinguished or the impacts have worked their way through the credit bureau

data system and are reflected in the underlying ECL models. As a result, the PMA for this risk was released in the first half

of the year.

Payment Deferrals

A £3.5 million PMA was applied at 31 December 2020 to ensure that the levels of increased risk in the book potentially

masked by payment deferrals granted to our mortgage customers was adequately reflected. A post model adjustment was

developed to reflect the risk and uncertainty surrounding customer behaviour when coming out of the deferral period.

Throughout 2021, the PMA was fully released in line with reducing balance of mortgage customers granted deferrals.

218 | Financial Statements

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

ECL (CONTINUED)

Staging and POCI

The tables below show the staging of loans and advances plus those classed as purchased or originated credit impaired (POCI)

recognised as part of the acquisitions of Norwich & Peterborough Building Society (N&P) and Chelsea Building Society (CBS).

The fair value discount applied on acquisition is recognised as the

fair value credit adjustment

The Group has £440.1 million of POCI loans (2020: £515.4 million). Of these, 87% (2020: 87%) are now considered

performing loans but are not permitted to be reclassified to stage 1 or 2.

2021

2020

Gross Exposure PMA Total ECL Coverage Average LTV Exposure Coverage

£m % £m £m % % % %

Stage 1 37,614.0 89.1 2.0 5.6 – 51.7 89.3 –

Stage 2 3,791.2 9.0 8.3 17.5 0.5 35.7 8.6 0.8

Stage 3 366.2 0.9 4.6 15.4 4.2 43.9 0.8 5.0

POCI 440.1 1.0 – 16.0 3.6 45.9 1.3 5.1

Total 42,211.5 100.0 14.9 54.5 0.1 49.5 100.0 0.2

The

cost of risk

measure has been calculated using the impairment charge for the year divided by the average balance over

the period. This is negative due to the large impairment release over the year.

Problem loans

represent the total of the Group’s

stage 3 balances and the non-performing portion of our POCI loans.

2021 2020

£m % £m %

Gross exposures

Stage 1 37,614.0 89.1 35,228.9 91.2

Stage 2 3,791.2 9.0 2,556.6 6.7

Stage 3 366.2 0.9 308.7 0.8

POCI 440.1 1.0 515.4 1.3

Total gross exposures 42,211.5 100.0 38,609.6 100.0

Problem loans 423.7 1.0 375.0 1.0

Cost of risk – (0.1) – 0.1

ECL and Coverage ratios

Stage 1 5.6 – 4.0 –

Stage 2 17.5 0.5 27.2 1.1

Stage 3 15.4 4.2 15.4 5.0

POCI 16.0 3.6 26.4 5.1

Unstaged PMA – – 3.0 –

Total ECL 54.5 0.1 76.0 0.2

Of which impairment 26.1 47.9 43.9 57.8

Of which fair value credit adjustment 28.4 52.1 32.1 42.2

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 219

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

ECL (CONTINUED)

Staging and POCI (continued)

The following table shows expected credit losses, split by impairment and fair value credit adjustments, and a best estimate

of the collateral against these mortgages. The collateral is calculated as the lower of the value of the property and the

outstanding loan amount so does not represent the overall value of properties backing the loans.

Group Gross Exposure Collateral Impairment Fair Value Credit

Adjustment

2021 2020 2021 2020 2021 2020 2021 2020

£m £m £m £m £m £m £m £m

Stage 1 37,614.0 35,228.9 37,611.5 35,226.7 5.6 4.0 – –

Stage 2 3,791.2 2,556.6 3,790.5 2,555.2 15.8 26.1 1.7 1.1

Less than 30 days past due 3,700.0 2,435.1 3,699.3 2,433.8 14.7 22.3 1.6 1.0

More than 30 days past due 91.2 121.5 91.2 121.4 1.1 3.8 0.1 0.1

Stage 3 366.2 308.7 365.8 308.1 11.8 10.5 3.6 4.9

Less than 30 days past due 183.6 110.2 183.5 110.1 3.9 1.3 1.0 1.0

30-90 days past due 57.3 67.4 57.3 67.3 1.3 1.2 0.3 0.4

More than 90 days past due 125.3 131.1 125.0 130.7 6.6 8.0 2.3 3.5

POCI 440.1 515.4 439.3 514.0 (7.1) 0.3 23.1 26.1

Less than 30 days past due 392.7 461.6 392.0 460.4 (6.7) (0.8) 19.2 22.0

30-90 days past due 26.5 30.7 26.5 30.7 0.1 0.6 1.2 1.3

More than 90 days past due 20.9 23.1 20.8 22.9 (0.5) 0.5 2.7 2.8

Unstaged PMA – – – – – 3.0 – –

Total 42,211.5 38,609.6 42,207.1 38,604.0 26.1 43.9 28.4 32.1

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

220 | Financial Statements

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

ECL (CONTINUED)

Staging and POCI (continued)

Society Gross Exposure Collateral Impairment Fair Value Credit

Adjustment

2021 2020 2021 2020 2021 2020 2021 2020

£m £m £m £m £m £m £m £m

Stage 1 9,395.6 10,675.4 9,393.5 10,689.1 2.6 1.4 – –

Stage 2 1,816.8 1,682.6 1,816.4 1,671.4 9.7 17.1 1.7 1.1

Less than 30 days past due 1,781.7 1,631.9 1,781.3 1,624.7 9.2 15.7 1.6 1.0

More than 30 days past due 35.1 50.7 35.1 46.7 0.5 1.4 0.1 0.1

Stage 3 140.9 133.8 140.8 134.2 2.1 1.2 3.6 4.9

Less than 30 days past due 78.3 51.9 78.2 52.3 1.2 0.2 1.0 0.9

30-90 days past due 22.0 28.7 22.0 24.8 0.2 0.1 0.3 0.4

More than 90 days past due 40.6 53.2 40.6 57.1 0.7 0.9 2.3 3.6

POCI 439.5 514.8 438.7 508.4 (7.1) 0.2 23.1 26.1

Less than 30 days past due 392.1 461.0 391.4 456.2 (6.7) (0.9) 19.2 22.0

30-90 days past due 26.5 30.7 26.5 29.4 0.1 0.6 1.2 1.3

More than 90 days past due 20.9 23.1 20.8 22.8 (0.5) 0.5 2.7 2.8

Unstaged PMA – – – – – 2.0 – –

Total 11,792.8 13,006.6 11,789.4 13,003.1 7.3 21.9 28.4 32.1

All accounts in stage 1 are less than 30 days past due. All accounts in stage 2 are less than 90 days past due.

LENDING BY TYPE

Group 2021 2020

Percentage split of gross contractual exposure % %

Residential Prime 86.0 85.3

Residential Sub-Prime/Self-Cert 0.6 0.8

Retail Buy-To-Let 11.3 11.1

Social Housing 0.5 0.8

Commercial Lending (exc. Social Housing) 1.6 2.0

100.0 100.0

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 221

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

CREDIT RISK MANAGEMENT

The

Retail and Commercial Credit Risk

section of the

Risk Management Report

describes how the Group manages credit risk via

a robust risk appetite, credit risk framework, governance framework and through stress testing.

The Group’s exposure to mortgage related credit risk is monitored and reporting on risk exposures is provided regularly to the

Group’s risk committees, including analysis of mortgages in arrears and monitoring of the characteristics of the loan portfolios

(e.g. geographic location and loan-to-value).

Group 2021 2020

Retail Commercial Retail Commercial

Arrears % % % %

No arrears 98.3 98.1 97.9 98.1

Less than three months 1.3 1.9 1.7 1.5

Equal to or more than three months, less than six months 0.2 – 0.2 0.3

Equal to or more than six months, less than twelve months 0.1 – 0.1 0.1

Twelve months or more 0.1 – 0.1 –

Property in possession – – – –

Total gross exposure (contractual amounts) 100.0 100.0 100.0 100.0

Number of properties in possession at the year end 50 – 26 –

The percentage of retail mortgages with arrears of three months or more (as a % of outstanding balances, including

possessions) has reduced during 2021 from 0.43% to 0.36%.

The UK Finance industry average ratio for mortgage arrears is measured using the number of accounts (including possessions).

On this basis, the Group’s retail mortgage arrears ratio of 0.50% (2020: 0.59%) is below the comparable UK Finance ratio

0.79% (2020: 0.84%). Arrears on more recent lending are minimal, reflecting the Group’s credit risk appetite. Arrears is also

lower than average for the buy-to-let portfolio with an arrears ratio of 0.16% (2020: 0.24%).

Society 2021 2020

Arrears % %

No arrears 98.0 97.7

Less than three months 1.4 1.6

Equal to or more than three months, less than six months 0.3 0.3

Equal to or more than six months, less than twelve months 0.1 0.2

Twelve months or more 0.1 0.2

Property in possession 0.1 –

Total 100.0 100.0

Number of properties in possession at the year end 43 24

222 | Financial Statements

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

RETAIL MORTGAGE LENDING

The Group’s retail mortgage exposure can be broken down by customer type and geographical region as follows:

Group Book New Lending

2021 2020 2021 2020

Retail Mortgage Customer Type % % % %

First time buyer 24.8 20.8 36.8 31.0

Other buyers e.g. movers 38.1 37.1 40.5 35.0

Re-mortgage 25.1 30.4 12.2 23.4

Buy-to-let 11.8 11.6 10.1 9.8

Other 0.2 0.1 0.4 0.8

100.0 100.0 100.0 100.0

2021

2020

Retail Mortgage Geographical Distribution % %

Scotland 6.5 6.7

North East 3.3 3.3

Yorkshire & Humberside 8.8 9.0

North West 10.5 10.5

Midlands 12.9 13.1

East 10.7 10.6

South West 7.2 7.2

Greater London 18.3 18.2

South East 17.7 17.4

Wales & Northern Ireland 4.1 3.9

Non-UK – 0.1

100.0 100.0

The Group’s retail mortgages are secured on property. The value of these properties is updated on a quarterly basis using the

Office for National Statistics (ONS) regional property price indices which comprise relative house price movements across the

UK. These indexed valuations provide senior management with a view of the value and risk of the properties on which retail

mortgages are secured.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 223

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

RETAIL MORTGAGE LENDING (CONTINUED)

Group Book New Lending

2021 2020 2021

2020

Loan-to-value distribution of retail mortgages % % % %

100% or greater – 0.1 – –

95 to 100% – – – –

90 to 95% 0.9 1.4 4.4 4.8

85 to 90% 3.2 5.8 22.4 20.0

80 to 85% 7.1 9.6 25.8 27.2

75 to 80% 10.3 9.5 16.7 10.6

70 to 75% 11.9 10.5 12.9 13.2

60 to 70% 20.4 17.9 8.2 10.4

Less than 60% 46.2 45.2 9.6 13.8

100.0 100.0 100.0 100.0

Average LTV (all retail) 49.6 50.8 77.1 74.2

Average LTV (buy-to-let) 55.0 57.2 71.0 66.6

Group 2021 2020

Not impaired Impaired Not impaired Impaired

Loan-to-value distribution of retail mortgages % % % %

100% or greater – – – –

95 to 100% – – – –

90 to 95% 0.9 – 1.0 –

85 to 90% 3.2 – 5.0 –

80 to 85% 7.1 – 9.3 0.1

75 to 80% 10.2 0.1 9.3 0.1

70 to 75% 11.7 0.1 10.2 0.2

60 to 70% 20.1 0.3 17.7 0.5

Less than 60% 44.9 1.4 45.4 1.2

98.1 1.9 97.9 2.1

The definition of default/impaired includes accounts that are 90 days past due, interest only accounts past term end, those

under certain forbearance measures and others exhibiting other unlikeliness to pay indicators. Accounting standards require

accounts considered to be credit impaired at the time of business combinations (POCI) to be classed as impaired until

de-recognition.

224 | Financial Statements

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

COMMERCIAL LENDING

In 2019 the Group relaunched commercial lending though the YBS brand, providing loans to commercial owner occupiers

and corporate entity landlords of commercial and residential property. The majority of loans are advanced against commercial

properties using a vacant possession valuation to mitigate against future losses. Loans against specialist properties are strictly

limited and no lending is given against land only.

The valuations of commercial properties are updated on a quarterly basis using MSCI’s commercial property price indices

based on region and property type. Residential valuations are indexed using the regional ONS house price indices. The

indexed valuations are used to assess the risk of loss on individual loans and to monitor whether loan-to-value covenants

are met. Where borrowers are more than two months in arrears, consideration is given to obtaining a professional valuation

of the property.

Group and Society 2021

2020

Average loan to value (%) 50.6 52.8

Average loan size (£m) 0.4 0.3

Value of security held (£m) 2,217.8 1,863.0

Balance of loans >100% LTV (£m) 16.6 21.8

Largest exposure to a single counterparty (£m) 17.9 17.9

At the year end only 0.04% (2020: 0.40%) of commercial balances (including repossessions) were more than three months

in arrears.

‘Watch list’ loans include those where there are circumstances which could impact on the quality and recoverability of

the loan. Examples include borrowers requesting forbearance or reporting trading losses. Loans on the watch list total

decreased to £33.9m in 2021 (2020: £65.3m). Our appetite and approach to the provision of commercial lending is to

provide amortising term loans, typically over 10 – 25 years. We do not provide short-term, interest only facilities which

require repayment on expiry through refinance. Where a period of interest only is agreed, it will be for a short period

following which the loan will be structured to amortise over the remaining term. Corporate buy-to-let loans increased to

£551.4m (2020:£382.0m). These loans are mainly interest only and are continuously monitored to ensure that full

repayment is made on the expiry of the loan term.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 225

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

COMMERCIAL LENDING (CONTINUED)

Group and Society 2021

2020

Commercial mortgage balances by geographical region % %

Scotland – –

North East 0.5 0.7

Yorkshire & Humberside 3.3 3.4

North West 5.3 4.7

Midlands 7.3 7.4

East 4.5 4.3

South West 6.8 4.9

Greater London 46.1 48.2

South East 25.0 25.3

Wales & Northern Ireland 1.2 1.1

100.0 100.0

Group and Society 2021

2020

Commercial mortgage balances by lending type % %

Commercial owner occupied 6.4 8.2

Commercial investment property 42.9 32.5

Corporate Buy-To-Let 33.9 33.0

Social Housing 16.8 26.3

100.0 100.0

The Group has an active business lending to housing associations in England and Wales, via the Yorkshire Building

Society brand. This sector has particularly robust credit characteristics and the lending is low risk albeit at low margins.

At 31December 2021 this loan book was £215.0m (2020: £312.6m). The Group has written further undrawn Term Loan/

Revolving Credit facilities in the region of £242.0m (2020: £438.2m) and these are expected to draw down over the next

fiveyears.

RISK ASSESSMENT

The following tables are included to give an overview of the Group’s credit risk. This includes analysis of exposures by

12month probability of default (PD) bands and origination year.

The risk models cover the majority of loans underwritten by the Group, with exceptions for portfolios subject to bespoke

modelling requirements including Accord buy-to-let, commercial lending and POCI accounts. These portfolios are shown

within the ‘Other’ line of the tables. The Accord BTL population currently has very strict underwriting criteria and limited

behavioural history, with only a single possession to date. Commercial lending has significantly different behavioural

characteristics to the retail mortgages.

226 | Financial Statements

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

RISK ASSESSMENT (CONTINUED)

Lending by Risk Grade

Group 2021 2020

Stage 1 Stage 2 Stage 3 POCI Total

Exposure

ECL Total

Exposure

ECL

PD Band £m £m £m £m £m £m £m £m

0.00%–<0.15% 30,830.6 2,127.7 – – 32,958.3 2.0 27,443.8 1.0

0.15%–<0.25% 642.9 151.1 – – 794.0 0.4 2,970.4 0.6

0.25%–<0.50% 285.6 267.0 – – 552.6 0.3 752.7 0.5

0.50%–<0.75% 313.6 317.8 – – 631.4 1.0 498.0 0.4

0.75%–<1.00% 151.8 185.3 – – 337.1 1.1 463.8 0.8

1.00%–<2.50% 251.3 405.8 – – 657.1 4.4 665.9 4.4

2.50%–<10.0% 34.1 147.4 – – 181.5 3.2 432.6 7.4

10.0%–<100% 3.1 92.4 – – 95.5 1.9 184.1 8.1

Default – – 366.2 57.4 423.6 16.2 375.0 19.9

Other 5,101.0 96.7 – 382.7 5,580.4 24.0 4,823.3 32.9

Total 37,614.0 3,791.2 366.2 440.1 42,211.5 54.5 38,609.6 76.0

Society 2021 2020

Stage 1 Stage 2 Stage 3 POCI Total

Exposure

ECL Total

Exposure

ECL

PD Band £m £m £m £m £m £m £m £m

0.00%–<0.15% 7,662.7 858.7 – – 8,521.4 0.2 9,290.5 0.3

0.15%–<0.25% 196.0 71.5 – – 267.5 0.1 699.0 0.2

0.25%–<0.50% 137.5 136.0 – – 273.5 0.1 260.1 0.2

0.50%–<0.75% 178.1 187.9 – – 366.0 0.7 289.1 0.3

0.75%–<1.00% 78.8 119.4 – – 198.2 0.9 248.9 0.6

1.00%–<2.50% 87.7 263.3 – – 351.0 3.2 366.9 2.9

2.50%–<10.0% 7.6 73.9 – – 81.5 1.9 227.5 4.8

10.0%–<100% 1.3 45.7 – – 47.0 1.0 82.9 3.5

Default – – 140.9 57.4 198.3 9.6 200.1 10.5

Other 1,045.9 60.4 – 382.1 1,488.4 18.0 1,341.6 30.7

Total 9,395.6 1,816.8 140.9 439.5 11,792.8 35.7 13,006.6 54.0

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 227

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

RISK ASSESSMENT (CONTINUED)

Lending by origination year

The table below shows exposures and expected credit losses by origination year for retail loans. The table shows that the

credit quality of newly written business is of significantly higher quality than that written before 2009 or acquired as part of

business combinations.

Group 2021 2020

Stage 1 Stage 2 Stage 3 POCI Total

Exposure

ECL Total

Exposure

ECL

Origination year % % % % £m £m £m £m

2021 23.4 0.6 – – 10,143.8 4.2 – –

2020 14.6 0.5 – – 6,368.6 2.5 6,438.9 1.0

2019 12.4 0.6 0.1 – 5,515.4 2.8 6,999.2 1.5

2018 11.9 0.5 0.1 – 5,266.7 2.7 6,405.9 2.9

2017 8.0 0.4 – – 3,558.6 1.7 4,426.4 1.8

2013 – 2016 12.0 2.1 0.1 – 6,014.9 3.1 7,801.2 3.2

2009 – 2012 2.2 0.8 – – 1,278.8 0.5 1,594.9 0.3

Pre-2009 2.1 2.0 0.4 – 1,880.6 8.7 2,301.7 15.9

Acquired loans 2.5 1.5 0.2 1.0 2,184.1 28.3 2,641.4 42.9

PMA – – – – – – – 6.5

Total 89.1 9.0 0.9 1.0 42,211.5 54.5 38,609.6 76.0

For 2009 and post lending, the average indexed LTV is 54.9% and the 90 days plus arrears rate is 0.1%. For Lending prior to

2009 the average indexed LTV is 29.1% and the 90 days arrears rate is 2.7%.

228 | Financial Statements

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

MOVEMENT ANALYSIS

The following tables detail the movement in the gross exposures and ECL from the beginning to the end of the reporting

period split by class of financial instrument.

Group Stage 1 Stage 2 Stage 3 POCI Total

£m £m £m £m £m

Gross exposure at 31 December 2020 35,228.9 2,556.6 308.7 515.4 38,609.6

Transfers from stage 1 to 2 (1,826.9) 1,826.9 – – –

Transfers from stage 1 to 3 (89.7) – 89.7 – –

Transfers from stage 2 to 1 371.1 (371.1) – – –

Transfers from stage 2 to 3 – (64.2) 64.2 – –

Transfers from stage 3 to 1 9.1 – (9.1) – –

Transfers from stage 3 to 2 – 42.1 (42.1) – –

Changes to carrying value (1,807.5) 134.7 4.8 (13.4) (1,681.4)

New financial assets originated or purchased 10,706.9 – – – 10,706.9

Financial assets derecognised during the year (4,977.9) (333.8) (47.0) (61.1) (5,419.8)

Write-offs – – (3.0) (0.8) (3.8)

Gross exposure at 31 December 2021 37,614.0 3,791.2 366.2 440.1 42,211.5

Group Stage 1 Stage 2 Stage 3 POCI Total

£m £m £m £m £m

ECL at 31 December 2020 4.0 27.2 15.4 26.4 76.0

Transfers from stage 1 to 2 – 5.0 – – 5.0

Transfers from stage 1 to 3 – – 2.8 – 2.8

Transfers from stage 2 to 1 0.1 – – – 0.1

Transfers from stage 2 to 3 – – 1.5 – 1.5

Transfers from stage 3 to 1 – – – – –

Transfers from stage 3 to 2 – 0.8 – – 0.8

Changes in PDs/LGDs/EADs 6.6 (8.9) – – (2.3)

New financial assets originated or purchased 2.3 – – – 2.3

Changes to model assumptions and methodologies (6.9) (4.4) (2.5) (8.3) (22.1)

Unwind of discount – – 0.5 0.6 1.1

Financial assets derecognised during the year (0.5) (2.2) (1.6) (2.5) (6.8)

Write-offs – – (0.7) (0.2) (0.9)

Unstaged PMA – – – – (3.0)

ECL at 31 December 2021 5.6 17.5 15.4 16.0 54.5

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 229

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

MOVEMENT ANALYSIS (CONTINUED)

Society Stage 1 Stage 2 Stage 3 POCI Total

£m £m £m £m £m

Gross exposure at 31 December 2020 10,675.4 1,682.6 133.8 514.8 13,006.6

Transfers from stage 1 to 2 (722.3) 722.3 – – –

Transfers from stage 1 to 3 (26.1) – 26.1 – –

Transfers from stage 2 to 1 277.1 (277.1) – – –

Transfers from stage 2 to 3 – (32.5) 32.5 – –

Transfers from stage 3 to 1 2.4 – (2.4) – –

Transfers from stage 3 to 2 – 20.2 (20.2) – –

Changes to carrying value (539.2) (78.1) (4.9) (13.5) (635.7)

New financial assets originated or purchased 1,240.9 – – – 1,240.9

Financial assets derecognised during the year (1,512.6) (220.6) (22.3) (61.0) (1,816.5)

Write-offs – – (1.7) (0.8) (2.5)

Gross exposure at 31 December 2021 9,395.6 1,816.8 140.9 439.5 11,792.8

Society Stage 1 Stage 2 Stage 3 POCI Total

£m £m £m £m £m

ECL at 31 December 2020 1.4 18.2 6.1 26.3 54.0

Transfers from stage 1 to 2 – 3.2 – – 3.2

Transfers from stage 1 to 3 – – 1.1 – 1.1

Transfers from stage 2 to 1 – – – – –

Transfers from stage 2 to 3 – – 0.7 – 0.7

Transfers from stage 3 to 1 – – – – –

Transfers from stage 3 to 2 – 0.5 – – 0.5

Changes in PDs/LGDs/EADs 4.3 (6.4) (0.4) 0.1 (2.4)

New financial assets originated or purchased 0.3 – – – 0.3

Changes to model assumptions and methodologies (3.3) (2.7) (0.8) (8.3) (15.1)

Unwind of discount – – 0.2 0.6 0.8

Financial assets derecognised during the year (0.1) (1.4) (0.7) (2.5) (4.7)

Write-offs – – (0.5) (0.2) (0.7)

Unstaged PMA – – – – (2.0)

ECL at 31 December 2021 2.6 11.4 5.7 16.0 35.7

230 | Financial Statements

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

FORBEARANCE

Forbearance tools are used, in line with industry guidance, where they are deemed appropriate for an individual customer’s

circumstances. These include capitalisation, interest only concessions, arrears arrangements and term extensions. Forbearance

measures are incorporated into the calculation of ECLs.

The table below shows the retail accounts that are forborne. These accounts have been further classified as follows:

•

non-performing – where an account meets the definition of default at the point it is granted a forbearance measure; and

•

probationary – for accounts that have exited forbearance measures and been re-classed from non-performing in the last

2years.

The definition of non-performing and stage 3 are aligned such that no accounts in stage 2 are classed as non-performing.

Any accounts that were previously in default have a cure period of 12 months, after which they are able to move back into

stage 2 or 1.

Group Arrangements Other Concessions Term extension Interest Only

Exposure ECL Exposure ECL Exposure ECL Exposure ECL

2021 £m £m £m £m £m £m £m £m

Probation 49.2 0.5 1.5 – 3.2 – 0.2 –

Stage 1 13.5 – – – 0.4 – 0.2 –

Stage 2 35.7 0.5 1.5 – 2.8 – – –

Non-performing 175.1 7.2 12.0 1.0 5.5 0.1 5.8 –

Stage 3 141.9 5.5 8.2 0.6 3.6 0.1 5.6 –

POCI 33.2 1.7 3.8 0.4 1.9 – 0.2 –

Total 224.3 7.7 13.5 1.0 8.7 0.1 6.0 –

2020 £m £m £m £m £m £m £m £m

Probation 76.0 1.3 2.3 0.1 3.2 – 0.1 –

Stage 1 23.1 0.1 0.7 – 0.2 – – –

Stage 2 52.9 1.2 1.6 0.1 3.0 – 0.1 –

Non-performing 180.6 10.5 11.7 1.1 6.8 0.2 0.2 –

Stage 3 137.8 7.6 8.1 0.6 2.4 – 0.2 –

POCI 42.8 2.9 3.6 0.5 4.4 0.2 – –

Total 256.6 11.8 14.0 1.2 10.0 0.2 0.3 –

All requests for forbearance on commercial loans are subject to full credit risk appraisal and are predominantly for a period

of interest only, which allows the borrower to improve income from trading or rent receipts, pending the sale of the property.

The appraisal process considers the likelihood of a loss being substantiated from any borrower granted a concession and

ensures that the concession is in the interests of both the borrower and the Group. In 2021 there were 29 accounts (2020:21)

in the commercial loans portfolio subject to forbearance with a total balance of £7.0m (2020: £5.9m). There has been no

underlying increase in the risk of the portfolio.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 231

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

32. CREDIT RISK ON LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

LOANS PURCHASED OR ORIGINATED CREDIT IMPAIRED (POCI)

The table below shows the status of the Group’s POCI loans and how they are distributed across loan-to-value (LTV) bands.

A substantial proportion of POCI balances, were they not required to classified as stage 3 by accounting standards, would

transfer to other stages. The table below shows that 70.4% (2020: 71.3%) of balances have been fully up to date for the last

24 months and only 13.1% (2020: 12.9%) of balances would be classified as in default.

Group and Society Up-to-date

for the last 24

months

Some arrears

in the last 24

months

Meets

definition of

default

Total

£m £m £m £m

2021

Gross exposure 309.8 72.8 57.4 440.1

ECL 8.8 4.0 3.2 16.0

2020

Gross exposure 367.3 81.9 66.2 515.4

ECL 15.1 6.6 4.7 26.3

2021 LTV Split

Less than 60% 240.3 49.9 32.7 322.9

From 60 to 70% 43.8 13.8 16.4 74.0

From 70 to 80% 16.1 5.9 7.1 29.1

From 80 to 90% 4.2 2.1 0.4 6.7

90% or greater 5.4 1.1 0.9 7.4

Total 309.8 72.8 57.5 440.1

232 | Financial Statements

33. FAIR VALUES

Fair value is the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction

between market participants at the measurement date.

Where external market prices are available they have been used to determine fair value. Otherwise, internal pricing models

using external market data have been used. The Group measures fair value using the following fair value hierarchy:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly

(i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The table below summarises the carrying value and fair value of financial assets and liabilities measured at amortised cost as

at the balance sheet date.

2021 Carrying

Value

Fair Values Total Fair

Value

Level 1 Level 2 Level 3

Group £m £m £m £m £m

Assets

Loans and advances to credit institutions 381.4 – 381.4 – 381.4

Loans and advances to customers 41,922.4 – – 41,974.7 41,974.7

Debt securities – amortised cost 791.5 791.3 – – 791.3

Liabilities

Shares 35,506.4 – 35,475.4 – 35,475.4

Amounts due to credit institutions 6,089.8 – 6,089.8 – 6,089.8

Other deposits 873.5 – 873.5 – 873.5

Debt securities in issue 5,890.9 5,087.6 884.0 – 5,971.6

Subordinated liabilities 857.7 846.9 39.5 – 886.4

Society £m £m £m £m £m

Assets

Loans and advances to credit institutions 295.8 – 295.8 – 295.8

Loans and advances to customers 11,456.6 – – 11,713.1 11,713.1

Debt securities – amortised cost 11,656.5 11,638.8 – – 11,638.8

Liabilities

Shares 35,506.4 – 35,475.4 – 35,475.4

Amounts due to credit institutions 6,089.8 – 6,089.8 – 6,089.8

Other deposits 15,562.1 – 15,562.1 – 15,562.1

Debt securities in issue 4,993.7 5,087.6 – – 5,087.6

Subordinated liabilities 857.7 846.9 39.5 – 886.4

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 233

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

33. FAIR VALUES (CONTINUED)

2020 Carrying

Value

Fair Values Total Fair

Value

Level 1 Level 2 Level 3

Group £m £m £m £m £m

Assets

Loans and advances to credit institutions 1,087.4 – 1,087.4 – 1,087.4

Loans and advances to customers 38,798.6 – – 38,695.3 38,695.3

Debt securities – amortised cost 389.1 396.0 – – 396.0

Liabilities

Shares 33,368.3 – 33,413.8 – 33,413.8

Amounts due to credit institutions 3,836.9 – 3,836.9 – 3,836.9

Other deposits 535.7 – 535.7 – 535.7

Debt securities in issue 6,128.3 5,520.7 706.9 – 6,227.6

Subordinated liabilities 645.0 627.1 42.7 – 669.8

Society £m £m £m £m £m

Assets

Loans and advances to credit institutions 964.8 – 964.8 – 964.8

Loans and advances to customers 13,154.5 – – 12,974.1 12,974.1

Debt securities – amortised cost 6,980.8 7,021.1 – – 7,021.1

Liabilities

Shares 33,368.3 – 33,413.8 – 33,413.8

Amounts due to credit institutions 3,836.9 – 3,836.9 – 3,836.9

Other deposits 11,394.5 – 11,394.5 – 11,394.5

Debt securities in issue 5,379.6 5,520.7 – – 5,520.7

Subordinated liabilities 645.0 627.1 42.7 – 669.8

The fair values of all cash in hand, balances with the Bank of England and loans and advances to credit institutions are

deemed to be their carrying value as they are all due in under one year.

The fair value of loans and advances to customers is assessed as the value of the expected future cash flows. Future cash

flows are projected using contractual interest payments, contractual repayments and the expected prepayment behaviour of

borrowers. The resulting expected future cash flows are discounted at current market rates to determine fair value.

For standard variable rate mortgage products, the interest rate on such products is equivalent to a current market product rate

and as such the Group considers the fair value of these mortgages to be equal to their carrying value. Fixed rate mortgages

have been discounted using current market product rates. The difference between book value and fair value results from

market rate volatility relative to the fixed rate at inception of the loan; in addition to assumptions applied in relation to

redemption profiles, which are regularly reviewed and updated where necessary.

As these redemption profiles are not considered to be observable by the market, then the fair value of loans and advances to

customers continues to be a Level 3 valuation technique. Overall the fair value is higher than the carrying value by £52.3m

(2020: £103.3m lower), which arises primarily due to the hedging adjustment reducing the carrying values.

234 | Financial Statements

33. FAIR VALUES (CONTINUED)

All of the Group’s non-derivative financial liabilities are initially recorded at fair value less directly attributable costs and

are subsequently measured at amortised cost, except where an adjustment is made to certain fixed rate shares balances

that are in hedging relationships. The fair value of shares and deposits that are available on demand approximates to the

carrying value. The fair value of fixed term shares and deposits is determined from the projected future cash flows from those

deposits, discounted at the current market rates. In 2021, the estimated fair value of share balances, using a Level 2 method,

is lower than the carrying value by £31.1m (2020: £45.5m higher) due to the increase of market interest rates in throughout

the year.

Society accounts include some subordinated liabilities classified as Level 2 as fair values are calculated using a method based

on observable market prices. The fair value of subordinated liabilities is higher than the carrying value due to the significant

movement in market rates over the course of the year and a new debt issuance.

The table below classifies all financial instruments held at fair value on the face of the Group’s Statement of Financial Position

according to the method used to establish the fair value.

Group Fair Values Total Fair

Value

Level 1 Level 2 Level 3

2021 £m £m £m £m

Assets

Debt securities 28.6 – – 28.6

Debt securities – fair value through OCI 3,255.4 – – 3,255.4

Derivative financial instruments – 487.2 3.7 490.9

Investments – – 5.4 5.4

Liabilities

Derivative financial instruments – 265.3 7.4 272.7

2020 £m £m £m £m

Assets

Debt securities – fair value through OCI 2,471.0 – – 2,471.0

Derivative financial instruments – 416.1 0.1 416.2

Investments 8.1 – 5.5 13.6

Liabilities

Derivative financial instruments – 473.8 17.1 490.9

The Group’s Level 1 portfolio of available for sale debt securities comprises liquid securities for which traded prices are

readily available.

Some derivative financial instruments are included within Level 2 as fair values are derived from discounted cash flow models

using yield curves based on observable market data.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 235

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

33. FAIR VALUES (CONTINUED)

LEVEL 3 INSTRUMENTS

Derivative financial instruments within Level 3 are external interest rate swaps held in the SPVs. These are valued using

similar valuation technique as Level 2 derivatives, namely present value calculations using interest rate curves, but these are

not based on market observable data.

The interest rate swaps are balance tracking and the swap notional is projected, and changes over time to match the

balance of the underlying mortgage portfolio. The changes in the fair value of these instruments from movements in Level 3

parameters related to prepayment risk will largely offset across the interest rate swaps as the Group is hedged across these

positions. Sensitivity analysis to the individual Level 3 parameters has not been disclosed on the basis that the Group does

not have a significant exposure to these.

Investments classified in Level 3 relate to the Group’s holding in equity preference shares. These shares are convertible into

common equity shares at various intervals during the life of the instrument, based on a conversion factor set by the issuer.

The valuation method therefore uses the quoted share price of the unrestricted stock as a base, applies the current estimated

conversion factor as advised by the issuer and applies a discount.

This discount reflects the current illiquidity of the instrument and the risks to changes in the conversion factor between the

balance sheet date and the next conversion date. Whilst the valuation is primarily based on an observable market price, the

level and significance of the unobservable input relating to the calculation of the discount moves this asset into Level 3.

Changes in the carrying value of Level 3 financial instruments in the period all relate to changes in fair value. There have been

no changes in methodology, redemption, additions or transfers in or out of Level 3 in the year.

FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Amounts within the fair value through comprehensive income reserve are transferred to the income statement upon the

disposal of debt securities. During the year a gain of £4.2m (2020: £29.8m) was recognised in net realised gains.

34. RELATED PARTIES

IDENTITY OF RELATED PARTIES

The Society has related party relationships with its controlled entities, a joint venture, the pension schemes and key

management personnel. The Society considers its key management personnel to be its directors.

CONTRIBUTIONS TO THE PENSION SCHEME

The Society paid contributions of £17.2m to the pension schemes (2020: £14.1m).

REMUNERATION OF AND TRANSACTIONS WITH DIRECTORS

Full details of directors’ remuneration, including the highest paid director, bonuses and pensions are given in the

Directors’

Remuneration Report

. In addition, past directors’ pensions in respect of services as directors from the closed scheme

amounted to £22,246 (2020: £21,598).

None of the directors of the Society had any equity interest in, or loans to or from, any subsidiary of the Society at any time

during the financial year.

A register containing details of loans, transactions and arrangements between the Society and its directors and connected

persons is maintained at the head office of the Society. A statement containing the details of this register for 2021 will be

available for inspection at the head office by members for a period of 15 days up to and including the date of the annual

general meeting.

236 | Financial Statements

34. RELATED PARTIES (CONTINUED)

KEY MANAGEMENT PERSONNEL COMPENSATION

The directors of the Society are considered to be the key management personnel as defined by IAS 24

Related party

Disclosures

. Total key management personnel compensations was as follows:

2021 2020

£000 £000

Short-term employee benefits 2,899 2,654

Post-employment benefits 187 220

Total key management personnel compensation 3,086 2,874

Key management compensation in 2021 includes amounts paid to key management personnel who both retired and joined the

Society during 2021. The number of key management personnel at 31 December 2021 totalled 10 (31 December 2020: 12).

TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL

Key management personnel and their close family members have undertaken the following transactions with the Society

under normal business terms.

2021 2020

No. of key

management

personnel

Amounts in

respect of key

management

personnel

and their

close family

No. of key

management

personnel

Amounts in

respect of key

management

personnel

and their

close family

£000 £000

Mortgage loans

At 1 January 1 9 2 234

Net movements in the year (1) (9) (1) (225)

At 31 December – – 1 9

Deposit accounts and investments

At 1 January 11 1,425 10 986

Net movements in the year (1) (360) 1 439

At 31 December 10 1,065 11 1,425

Amounts relating to directors who joined or left during the year are included in net movement in the year.

Mortgage loans made to key management personnel and their close family members were granted in the ordinary course of

business and are subject to repayment under normal lending terms. The maximum outstanding balances during the year were

£9,044 (2020: £233,957).

Amounts deposited by key management personnel and their close family members earn interest at the same rates offered to

the public.

Key management personnel and their close family members paid interest totalling £4 (2020: £1,150), received interest

totalling £5,312 (2020: £8,231), and paid no fees and commissions during the year. Interest paid includes amounts relating to

‘offset’ mortgages where savings balances are used to reduce the interest-bearing balance of mortgage loans.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 237

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

34. RELATED PARTIES (CONTINUED)

TRANSACTIONS WITH CONTROLLED ENTITIES

The Society transacts with its controlled entities in the form of intra-group loans and equity shareholdings in the normal

course of business. The value of related party transactions, outstanding balances at the year end and related income and

expense for the financial year are as follows:

2021 2020

£m £m

Shares in subsidiaries

At 1 January 104.9 104.9

At 31 December 104.9 104.9

Loans to controlled entities

At 1 January 29,105.3 27,037.4

Net movements 3,920.4 2,067.9

At 31 December 33,025.7 29,105.3

Deposits from controlled entities

At 1 January 11,229.9 10,180.8

Net movements 4,741.8 1,049.0

At 31 December 15,971.7 11,229.8

Interest receivable on loans 381.0 426.7

Interest payable on deposits (75.1) (96.5)

Fees and expenses receivable 60.5 56.0

Fees and expenses payable (0.1) (0.2)

Dividends received 75.0 59.3

OTHER

The Society has a joint-venture investment in Arkose Funding Limited. In 2014, a loan of £4.0 million to Arkose Funding

Limited was fully impaired.

238 | Financial Statements

35. NOTES TO THE CASH FLOW STATEMENTS

Group Society

2021 2020 2021 2020

£m £m £m £m

Depreciation and amortisation 22.7 25.8 22.7 25.8

Loss/(profit) on sale of assets (2.5) (2.9) (2.5) (2.9)

Interest on subordinated liabilities 23.5 22.5 23.5 22.5

Impairment (release)/charge for the year (19.2) 12.2 (15.4) 6.7

Provision charge for the year 2.3 4.7 2.3 4.7

Non-cash movements on subordinated liabilities (37.3) 18.6 (37.3) 18.6

(Gain)/loss on realisation of debt securities (0.8) (12.9) (0.8) (12.9)

(Increase) in cash ratio deposit, other assets and non-OCI element of

retirement benefit surplus

(37.2) (8.6) (46.9) (13.0)

Cash movements in other liabilities and provisions 3.0 (16.0) 14.2 (13.0)

Non-cash items included in profit before tax (45.5) 43.4 (40.2) 36.5

(Increase)/decrease in operating assets:

Non-impairment change in loans and advances to customers (3,104.6) (826.3) 1,713.3 1,127.2

Investments 8.2 (4.4) (3,912.2) (2,072.4)

Non-OCI elements of derivative financial assets (59.0) (48.0) (186.3) 3.7

Net increase in operating assets (3,155.4) (878.7) (2,385.2) (941.5)

Increase/(decrease) in operating liabilities:

Shares 2,138.1 2,691.0 2,138.1 2,691.0

Amounts owed to credit institutions 2,252.9 531.9 2,252.9 531.8

Non cash movements on debt securities (295.8) 173.0 (272.1) 172.8

Other deposits 337.8 (48.9) 4,167.6 971.4

Derivative financial liabilities (218.2) 260.1 (284.2) 232.7

Net increase in operating liabilities 4,214.8 3,607.1 8,002.3 4,599.7

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

Financial Statements | 239

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

35. NOTES TO THE CASH FLOW STATEMENTS (CONTINUED)

The following table reconciles liabilities arising from financing activities.

Liabilities from

financing activities

Brought

forward

Cash flows Non-cash changes caused by: Carried

forward

Redemption Issue Foreign

exchange

Accrued

interest

Fair value

and other

movements

2021 – Group £m £m £m £m £m £m £m

Debt securities in issue 6,128.3 (1,365.6) 1,424.0 (228.8) (6.4) (60.6) 5,890.9

Subordinated liabilities 645.0 – 250.0 – 1.1 (38.4) 857.7

Total 6,773.3 (1,365.6) 1,674.0 (228.8) (5.3) (99.0) 6,748.6

2020 – Group £m £m £m £m £m £m £m

Debt securities in issue 6,034.8 (1,129.5) 1,050.0 169.4 (6.2) 9.9 6,128.3

Subordinated liabilities 626.4 – – – – 18.6 645.0

Total 6,661.2 (1,129.5) 1,050.0 169.4 (6.2) 28.5 6,773.3

2021 – Society £m £m £m £m £m £m £m

Debt securities in issue 5,379.6 (1,082.2) 968.4 (233.8) (6.7) (31.6) 4,993.7

Subordinated liabilities 645.0 – 250.0 – 1.1 (38.4) 857.7

Total 6,024.6 (1,082.2) 1,218.4 (233.8) (5.6) (70.0) 5,851.4

2020 – Society £m £m £m £m £m £m £m

Debt securities in issue 4,988.7 (831.9) 1,050.0 173.2 (3.1) 2.7 5,379.6

Subordinated liabilities 626.4 – – – – 18.5 645.0

Total 5,615.1 (831.9) 1,050.0 173.2 (3.1) 21.2 6,024.6

240 | Financial Statements

1. STATUTORY PERCENTAGES

2021 2020 Statutory

limit

% % %

Lending limit 2.8 2.6 25.0

Funding limit 26.6 23.9 50.0

The above percentages have been calculated in accordance with the provisions of the

Building Societies Act 1986

The Lending limit measures the proportion of business assets not in the form of loans fully secured on residential property.

The Funding limit measures the proportion of shares and borrowings not in the form of shares.

The statutory limits are as laid down under the

Building Societies Act 1986

and ensure that the principal purpose of a building

society is that of making loans which are secured on residential property and are funded substantially by its members.

2. OTHER PERCENTAGES

2021 2020

% %

As a percentage of shares and borrowings:

Gross capital 8.16 7.85

Free capital 7.83 7.44

Liquid assets 20.67 19.16

Profit after taxation for the financial year as a percentage of mean total assets 0.51 0.27

Management expenses as a percentage of mean total assets 0.55 0.60

The above percentages have been prepared from the Group financial statements and further details on the above percentages

can be found in the

Glossary

ANNUAL BUSINESS STATEMENT

Other Information | 241

3. INFORMATION RELATING TO THE DIRECTORS AT 31 DECEMBER 2021

Director name and

date of birth

Business

occupation

Date of appointment Other

Directorships

J R Heaps, LLB

8 July 1953

Chair of the Board 20 November 2014 TheCityUk Limited

N A K Atkar, MBE, BSc

11 November 1965

Non-Executive Director 25 April 2017 British Business Bank plc

British Business Finance Ltd

British Business Financial Services Ltd

Nomura Bank International plc

Nomura Europe Holdings plc

Nomura Financial Products Europe

Nomura International plc

G L T Bainbridge,

MA (Cantab), ACA

13 September 1960

Non-Executive Director 1 January 2019 ICE Clear Europe Ltd

Manulife Financial Corporation

The Manufacturers Life Insurance Company

A E Hutchinson, CBE, BSc

5 February 1967

Charity Chief Executive 4 February 2015 DFS Furniture plc

Foresight Group Holdings Ltd

Liverpool Victoria Financial Services Ltd

Your Penny Ltd

A B Lenman, MA, ACMA

25 December 1969

Chief Finance Officer and

Executive Director

4 December 2017 YBS Pension Trustees Ltd

D Matta, BSc, BA

15 May 1962

Non-Executive Director 27 April 2021 Cambridge Digital Health Ltd

Fat Fractal Inc

G P C Parsons, BA

31 July 1963

Non-Executive Director 1 May 2013 NuUnlimited Ltd

M Parsons, BA, FCMA

24 October 1961

Non-Executive Director 20 October 2020 Fairstone Capital Group Ltd

J L Tilling, BBus, BA

19 June 1969

Non-Executive Director 1 November 2021 Marketing with Insight Ltd

Camelot UK Lotteries Ltd

Shaftesbury Plc

Guide Dogs for the Blind Association (The)

S C White, BComm

4 April 1971

Interim Chief Executive

Officer and Executive

Director

24 February 2016 Accord Mortgages Ltd

BCS Loans & Mortgages Ltd

YBS Properties (Edinburgh) Ltd

Yorkshire Key Services Ltd

Mr S.C. White entered into a contract on 1 February 2016 and was appointed to the Board on 24 February 2016 – his mutual

contractual notice period is one year. Mr A.B. Lenman entered into a contract on 28 September 2017 and was appointed to

the Board on 4 December 2017 – his mutual contractual notice period is six months.

Documents may be served on the above named directors: Ref. ‘Yorkshire Building Society’ c/o PricewaterhouseCoopers LLP at

the following address: Central Square, 29 Wellington Street, Leeds, LS1 4DL.

4. REGISTERED OFFICE

Yorkshire Building Society is a building society incorporated and domiciled in the United Kingdom. The address of the

principal office is Yorkshire House, Yorkshire Drive, Bradford, BD5 8LJ.

ANNUAL BUSINESS STATEMENT (CONTINUED)

242 | Other Information

DISCLOSURE REQUIREMENTS UNDER CRD IV COUNTRY-BY-COUNTRY REPORTING

We are required to disclose the following information in our Annual Report and Accounts to comply with the Regulations of

Article 89 of the Capital Requirements Directive IV (CRD IV) country-by-country reporting (CBCR). This regulation requires us

to disclose financial information by country. Yorkshire Building Society has a number of subsidiaries; these can be found in

note 8 to the financial statements.

All Group companies operate in the United Kingdom. Therefore, total income and profit before tax shown in the Income

Statement and corporation tax paid shown in the Statement of Cash Flows, as well as the average number of employees

disclosed in note 6 to the financial statements, are related to the United Kingdom. No public subsidies were received in 2021.

INDEPENDENT AUDITORS’ REPORT TO THE DIRECTORS OF YORKSHIRE BUILDING SOCIETY

REPORT ON THE AUDIT OF THE COUNTRY-BY-COUNTRY INFORMATION

Opinion

In our opinion, Yorkshire Building

Society’s country-by-country

information for the year ended 31

December 2021 has been properly

prepared, in all material respects, in

accordance with the requirements of

the Capital Requirements (Country-by-

Country Reporting) Regulations 2013.

We have audited the country-by-

country information for the year ended

31 December 2021 in the Country-by-

Country Report.

Basis for opinion

We conducted our audit in accordance

with International Standards on

Auditing (UK) (“ISAs (UK)”), including

ISA (UK) 800 and ISA (UK) 805, and

applicable law. Our responsibilities

under ISAs (UK) are further described

in the Auditors’ responsibilities for

the audit of the country-by-country

information section of our report.

We believe that the audit evidence

we have obtained is sufficient and

appropriate to provide a basis for our

opinion.

Independence

We remained independent of the

Society in accordance with the ethical

requirements that are relevant to

our audit of the country-by-country

information in the UK, which includes

the FRC’s Ethical Standard, and

we have fulfilled our other ethical

responsibilities in accordance with

these requirements.

Emphasis of matter –

Basis of preparation

In forming our opinion on the country-

by-country information, which is

not modified, we draw attention to

the fact that the country-by-country

information is prepared by the

directors for the purpose of complying

with the requirements of the Capital

Requirements (Country-by-Country

Reporting) Regulations 2013. The

country-by-country information has

therefore been prepared in accordance

with a special purpose framework and,

as a result, the country-by-country

information may not be suitable for

another purpose.

Conclusions relating to

going concern

Our evaluation of the directors’

assessment of the Society’s ability to

continue to adopt the going concern

basis of accounting included:

•

We critically assessed the directors’

conclusions on their going

concern assessment, including

consideration of the impact of

COVID-19 on the country-by-

country information.

•

We reviewed the impact of

management’s stress test scenarios

and considered the likelihood

of successful implementation of

management actions to mitigate

the impacts. We considered

whether the Society would

continue to operate above required

regulatory capital and liquidity

minima during times of stress.

•

We challenged the reasonableness

of the scenarios used by the

directors in their going concern

assessment and checked

the appropriateness of the

assumptions used within their

forecasting.

Based on the work we have performed,

we have not identified any material

uncertainties relating to events

or conditions that, individually or

collectively, may cast significant doubt

on the Society’s ability to continue as

a going concern for a period of at least

twelve months from the date on which

the country-by-country information is

authorised for issue.

In auditing the country-by-country

information, we have concluded that

the directors’ use of the going concern

basis of accounting in the preparation

of the country-by-country information

is appropriate.

However, because not all future events

or conditions can be predicted, this

conclusion is not a guarantee as to the

Society’s ability to continue as a going

concern.

Our responsibilities and the

responsibilities of the directors with

respect to going concern are described

in the relevant sections of this report.

COUNTRY-BY-COUNTRY REPORT

Other Information | 243

INDEPENDENT AUDITORS’ REPORT TO THE DIRECTORS OF YORKSHIRE BUILDING SOCIETY

(CONTINUED)

REPORT ON THE AUDIT OF THE COUNTRY-BY-COUNTRY INFORMATION (CONTINUED)

Responsibilities for the country-

by-country information and the

audit

Responsibilities of the directors for

the country-by-country information

The directors are responsible for

the preparation of the country-by-

country information in accordance

with the requirements of the Capital

Requirements (Country-by-Country

Reporting) Regulations 2013 as

explained in the basis of preparation

in the country-by-country information,

and for determining that the basis of

preparation and accounting policies

are acceptable in the circumstances.

The directors are also responsible for

such internal control as they determine

is necessary to enable the preparation

of country-by-country information that

is free from material misstatement,

whether due to fraud or error.

In preparing the country-by-

country information, the directors

are responsible for assessing the

Society’s ability to continue as a going

concern, disclosing as applicable,

matters related to going concern

and using the going concern basis of

accounting unless the directors either

intend to liquidate the Society or to

cease operations, or have no realistic

alternative but to do so.

Auditors’ responsibilities for the

audit of the country-by-country

information

It is our responsibility to report on

whether the country-by-country

information has been properly

prepared in accordance with the

relevant requirements of the Capital

Requirements (Country-by-Country

Reporting) Regulations 2013.

Our objectives are to obtain

reasonable assurance about whether

the country-by-country information

as a whole is free from material

misstatement, whether due to fraud

or error, and to issue an auditors’

report that includes our opinion.

Reasonable assurance is a high level

of assurance, but is not a guarantee

that an audit conducted in accordance

with ISAs (UK) will always detect a

material misstatement when it exists.

Misstatements can arise from fraud

or error and are considered material

if, individually or in the aggregate,

they could reasonably be expected

to influence the economic decisions

of users taken on the basis of this

country-by-country information.

Irregularities, including fraud, are

instances of non-compliance with laws

and regulations. We design procedures

in line with our responsibilities,

outlined above, to detect material

misstatements in respect of

irregularities, including fraud. The

extent to which our procedures are

capable of detecting irregularities,

including fraud, is detailed below.

Based on our understanding of the

Society and industry, we identified that

the principal risks of non-compliance

with laws and regulations related to

breaches of UK regulatory principles,

such as those governed by the

Prudential Regulation Authority, and

we considered the extent to which

non-compliance might have a material

effect on the country-by-country

information. We also considered

those laws and regulations that have

a direct impact on the country-by-

country information such as applicable

tax legislation and the Capital

Requirements (Country-by-Country

Reporting) Regulations 2013. We

evaluated management’s incentives

and opportunities for fraudulent

manipulation of the country-by-

country information (including the

risk of override of controls), and

determined that the principal risks

were related to posting inappropriate

journal entries to increase revenue or

reduce expenditure and management

bias in accounting estimates. Audit

procedures performed included:

•

Review of correspondence with

and reports to the regulators;

•

Testing significant accounting

estimates;

•

Testing of journal entries which

contained unusual account

combinations back to corroborating

evidence;

•

Discussions with management and

those charged with governance

in relation to known or suspected

instances of non-compliance with

laws and regulation and fraud; and

•

Review of internal audit reports

in so far as they related to the

country-by-country information.

There are inherent limitations in the

audit procedures described above.

We are less likely to become aware of

instances of non-compliance with laws

and regulations that are not closely

related to events and transactions

reflected in the country-by-country

information. Also, the risk of not

detecting a material misstatement

due to fraud is higher than the risk

of not detecting one resulting from

error, as fraud may involve deliberate

concealment by, for example, forgery

or intentional misrepresentations, or

through collusion.

A further description of our

responsibilities for the audit of the

country-by-country information is

located on the FRC’s website at:

www.frc.org.uk/

auditorsresponsibilities.

This description forms part of our

auditors’ report.

Use of this report

This report, including the opinion, has

been prepared for and only for the

Society’s directors in accordance with

the Capital Requirements (Country-by-

Country Reporting) Regulations 2013

and for no other purpose. We do not, in

giving this opinion, accept or assume

responsibility for any other purpose or

to any other person to whom this report

is shown or into whose hands it may

come, save where expressly agreed by

our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants and Statutory

Auditors

Leeds

1 March 2022

COUNTRY-BY-COUNTRY REPORT (CONTINUED)

244 | Other Information

The following glossary defines terminology used within the Annual Report and Accounts:

Additional Tier 1 (AT1) capital Capital that meets certain criteria set out in CRD IV. In particular, the criteria require that

upon the occurrence of a trigger event, the AT1 capital instrument converts to a form of

Common Equity Tier 1 capital or the principal is written down on a permanent basis.

Arrears Amounts unpaid at their contractual date. A customer is in arrears when they fall

behind in meeting their obligations to pay their mortgage.

Buy-to-let (BTL) mortgages Lending on property that is rented out to individuals.

Capital Requirements Directive (CRD) &

Capital Requirements Regulation

European legislation that defines the regulatory capital framework in the UK. The latest

legislation – the Capital Requirements Regulation (CRR) and the Capital Requirements

Directive (CRD) (together commonly referred to as CRD IV) came in to effect from 1

January 2014.

Collateral (for loans and advances to

customers)

Security (property) pledged for the repayment of a loan. Collateral is valued as the

lower of the value of the property or the outstanding loan amount.

Commercial lending Secured loans to a commercial borrower.

Common Equity Tier 1 (CET1) capital The highest quality regulatory capital resources, comprising retained earnings less

regulatory adjustments, as defined under CRD IV. Equivalent to Core Tier 1 defined

under previous CRD legislation.

Contractual maturity The final payment date of a loan or financial instrument, at which all the outstanding

loan and interest is repayable.

Council of Mortgage Lenders (CML) A not-for-profit organisation and trade association for the mortgage lending industry.

Covered bonds A type of wholesale funding backed by cash flows from mortgages that are segregated

from the issuer’s other assets to be solely for the benefit of the holders of the covered

bonds.

Credit Valuation Adjustment (CVA) The risk of financial loss arising from a failure of a customer or counterparty to settle

their financial and contractual obligations as they fall due.

These are adjustments applied to the fair values of derivatives to reflect the

creditworthiness of the counterparty.

Cross currency interest rate swap An arrangement in which two parties exchange equivalent principal amounts of

different currencies at inception and subsequently exchange interest payments on the

principal amounts. At the maturity of the swap, the principal amounts are re-exchanged

at the original rates.

Currency risk The exposure to risk from assets and liabilities denominated in currencies other than

Sterling.

GLOSSARY

Other Information | 245

Debt securities in issue Transferable certificates of indebtedness including certificates of deposits and fixed

and floating rate notes.

Debit Valuation Adjustment (DVA) These are adjustments applied to the fair values of derivatives to reflect the entity’s

own credit risk.

Defined Benefit Obligation The present value of expected future benefit payments resulting from past service of

employees in the defined benefit pension plan.

Derivative financial instruments Contracts or agreements whose value is derived from one or more underlying prices,

rates or indices inherent in the contract or agreement, such as interest rates, exchange

rates or stock market indices. Examples of derivatives include interest rate swaps,

forward rate agreements and futures.

Effective interest rate The method used to calculate the amortised cost of financial instruments and to

recognise interest receivable or payable over the relevant period. The effective interest

rate is the rate that exactly discounts estimated cash flows (excluding credit losses) to

zero, through the expected life of the instrument.

Encumbered assets Assets on the balance sheet which are pledged in order to secure, collateralise or

credit-enhance a financial transaction from which they cannot be freely withdrawn.

Expected credit losses An estimate of the potential losses on current exposures due to potential defaults.

Exposure The maximum loss that a financial institution might suffer if a borrower or counterparty

fails to meet its obligations to the Group.

Exposure at default (EAD) An estimation of the amount of exposure that will be outstanding at the time of default.

Fair value The price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date in the

principal or, in its absence, the most advantageous market to which the Group has

access at that date.

Financial Conduct Authority (FCA) The UK conduct regulator which is responsible for regulation of conduct in retail, as

well as wholesale, financial markets and the infrastructure that supports those markets.

The FCA’s objective is to protect consumers, promote competition and enhance market

integrity.

Financial Ombudsman Service (FOS) An independent service which provides a service for settling disputes between

financial services providers and their customers.

Financial Services Compensation Scheme

(FSCS)

A protection fund for depositors of failed institutions. This is funded by the financial

services industry and each firm, including the Society, is obliged to pay an annual levy.

GLOSSARY (CONTINUED)

246 | Other Information

Forbearance The Group grants concessions to assist borrowers who experience difficulties in

meeting their obligations to pay their mortgage. Examples of forbearance tools are

described in note 32.

Free capital The aggregate of gross capital and collective impairment provision less property, plant

and equipment, intangible assets and investment properties.

Gross capital The aggregate of general reserve, hedging reserve, available for sale reserve,

subordinated liabilities and subscribed capital.

Impaired loans Loans which have been assessed and there is evidence to suggest a measurable

decrease in the present value of cash flows expected from the loans that have occurred

after initial recognition of the asset, but before the statement of financial position date.

Individual Liquidity Adequacy Assessment

Process (ILAAP)

The Group's internal assessment of the levels of liquidity that need to be held by the

Society to meet its regulatory liquidity requirements.

Interest rate swap An arrangement under which two counterparties agree to exchange periodic interest

payments based on a predetermined notional principal amount.

Internal Capital Adequacy Assessment

Process (ICAAP)

The Group's internal assessment of the levels of capital that need to be held by the

Society to meet its regulatory capital requirements.

International Financial Reporting Standards

(IFRS)

International Financial Reporting Standards issued by the International Accounting

Standards Board (IASB).

Level 1 High Quality Liquid Assets (HQLA) Assets which can be easily and immediately converted into cash at little or no loss of

value.

Liquidity Coverage Ratio (LCR) A liquidity metric which aims to ensure that a firm maintains an adequate level of

liquidity to meet its needs for a 30 calendar day time horizon under a severe stress

scenario.

LIBOR (London Interbank Offered Rate) A benchmark interest rate which banks can borrow funds from other banks in the

London interbank market. Due to the IBOR reform this has been phased out during

2021, with the exception of USD LIBOR that will be phased out by cessation date of

June 2023.

Liquid assets The total of cash in hand and balances with the Bank of England, loans and advances to

credit institutions, debt securities and other liquid assets.

Liquidity risk The risk that the Group does not hold sufficient liquidity, in terms of quantity and

quality, to meet its liabilities as they fall due.

GLOSSARY (CONTINUED)

Other Information | 247

Loan-to-value (LTV) A ratio showing outstanding loan balance as a percentage of the value of the security.

Loss given default (LGD) An estimate of the difference between exposure at default (EAD) and the net amount of

the expected recovery expressed as a percentage of EAD.

Loss given possession The loss that is expected to crystallise when a repossessed property is sold.

Management expenses The aggregate of administrative expenses, depreciation and amortisation.

Market Risk The risk that the value of, or income derived from, the Group’s assets and liabilities

changes unfavourably due to movements in interest rates or foreign currency rates.

Mean total assets The amount produced by halving the aggregate of total assets at the beginning and end

of the financial year.

Medium-term notes (MTN) Corporate notes continuously offered by a company to investors through a dealer.

Investors can choose from differing maturities.

Member A person who has a share account or a mortgage loan with the Society.

Minimum Requirement for Eligible Liabilities

(MREL)

The minimum requirements a financial institution must hold to meet the loss

absorption and recapitalisation components if an institution were to fail.

Net interest income The difference between the interest received on assets and the interest paid on

liabilities.

Net interest margin The ratio of net interest income as a percentage of mean total assets.

Operational risk The risk of direct and indirect loss resulting from inadequate or failed internal

processes, people and systems or from external events.

Other income The income received from selling non-mortgage and savings products (e.g. home and

contents insurance, investment products and other insurances).

PRA Remuneration Code Guidance provided by the PRA on directors’ remuneration.

Probability of default (PD) An estimate of the probability that a borrower will default on their credit obligations.

Probability of possession The likelihood of an account moving into possession. This is used when calculating loan

loss provisions.

GLOSSARY (CONTINUED)

248 | Other Information

Prudential Regulation Authority (PRA) The UK prudential regulator, which is a part of the Bank of England and alongside the

FCA has responsibility for the oversight of building societies, banks and insurers. The

PRA’s objective is to promote the safety and soundness of regulated firms.

Repossessions Property taken into ownership by the Society as a result of the borrower’s failure to

make contractual loan repayments.

Residential Mortgage Backed Securities

(RMBS)

An asset backed security that represents a claim on the cash flows from residential

mortgage loans through a process known as securitisation.

Risk appetite The level of risk that the Group is willing to take (or not take) in order to safeguard the

interests of members whilst achieving business objectives.

Risk weighted assets A regulatory measure that adjusts the value of assets to reflect their level of risk when

calculating capital requirements.

Securitisation A process by which a group of assets, usually loans, are aggregated into a pool which

is used to back the issuance of debt securities in issue. A firm transfers these assets

to a special purpose vehicle which then issues securities backed by the assets. The

Group has established securitisation structures as part of its funding activities and uses

residential mortgages as the asset pool.

Shares Money deposited by members in a retail savings account with the Society and held as a

liability in the balance sheet.

Shares and borrowings The total of shares, amounts owed to credit institutions, amounts owed to other

customers and debt securities in issue.

SONIA (Sterling Overnight Interbank

Average)

An index that tracks actual market overnight funding rates calculated as a weighted

average overnight deposit rate for each business day.

Subordinated liabilities Tier 2 capital that is subordinated to the claims of all depositors, creditors and

members holding shares in the Society (other than holders of PIBS).

Term Funding Scheme with additional

incentives for small and medium sized

entities (TFSME)

A scheme launched by the Bank of England designed to boost lending to households

and businesses by providing term funding to banks and building societies participating

in the scheme at rates close to Bank Rate.

Tier 1 (T1) capital The sum total of Common Equity Tier 1 and Additional Tier 1 capital.

Tier 1 capital ratio The ratio of Tier 1 capital to risk weighted assets.

Tier 2 (T2) capital A measure of regulatory capital that includes subordinated liabilities and provisions for

collective impairment, less regulatory adjustments.

GLOSSARY (CONTINUED)

Other Information | 249

Total capital The total capital resources, including retained earnings, PIBS and subordinated

liabilities, less regulatory adjustments.

Total capital ratio The ratio of total capital to risk weighted assets.

UK Corporate Governance Code The UK code on corporate governance, published by the Financial Reporting Council in

October 2012 and revised in July 2018, which sets out standards of good practice in

relation to Board leadership and effectiveness, accountability and remuneration.

Value at Risk (VaR) A risk management tool which evaluates the potential losses that may be incurred as

a result of movements in market conditions over a specified holding period and to a

given level of confidence.

Watch list The watch list is used by the commercial lending team to flag those loans where there

are circumstances which could impact on the quality and safety of the loan.

Wholesale funding The funding that is available between banks and other financial or commercial

institutions. Examples of wholesale funding include covered bonds, deposits and

government guarantees.

GLOSSARY (CONTINUED)

250 | Other Information

The following glossary defines Alternative Performance Measures (APM) used within the Annual Report and Accounts:

APM Calculation of Measure Reconciling items to statutory

measure

Definition and purpose

Income Statement measures

Core operating

profit

Profit before tax

adjusted for one-off

items.

A full reconciliation between profit

before tax as shown in the income

statement and core operating profit is

shown in the

Strategic Report

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.

Our Board considers core operating profit to be

a more appropriate measure of the underlying

performance of the business and this is how

financial performance is reported to and assessed

by the Board.

Cost to income

ratio

Management expenses

as a percentage of core

income.

Management expenses =

administrative expenses plus

depreciation and amortisation per the

income statement.

Core income = total income less

gains/(losses) from financial

instruments held at fair value per the

income statement.

This is a measure of the Group’s costs in relation

to its income excluding fair value volatility. This

is used by the Group to monitor and manage its

overall cost position and understand how efficient

the Group is at generating income on an underlying

basis.

Cost to income

ratio

Management expenses

as a percentage of total

income.

Management expenses =

administrative expenses plus

depreciation and amortisation per the

income statement.

Total income as per the income

statement.

This is an industry-standard measure of the Group’s

costs in relation to its income. This is used by

the Group to monitor and manage its overall cost

position and understand how efficient the Group is

at generating income.

Management

expense ratio

Management expenses

(the aggregate

of administrative

expenses, depreciation

and amortisation) as

a percentage of mean

total assets.

Administrative expenses and

depreciation and amortisation

(management expenses) are as shown

in the income statements. Mean total

assets are calculated by taking the

average of the value of the opening

balance for the year and the value of

the closing balance, as shown in the

Statements of Financial Position.

This is an industry-standard ratio of the Group’s

costs as a proportion of its mean assets during

the year, and is used to measure how efficient the

Group is at maintaining its asset base.

Net interest

margin

Net interest income as

a percentage of mean

total assets.

Net interest income is as shown in

the income statements. Mean total

assets are calculated by taking the

average of the value of the opening

balance for the year and the value of

the closing balance, as shown in the

Statements of Financial Position.

This is an industry-standard measure of the

relationship between net interest income (the

difference between the interest received on assets

and the interest paid on liabilities) and assets. This

is a key measure used by the Board to monitor how

the Group manages income from its assets and

interest paid on funding.

GLOSSARY (CONTINUED)

Other Information | 251

APM Calculation of Measure Reconciling items to statutory

measure

Definition and purpose

Balance Sheet items

Asset growth Total assets at the end

of the year less total

assets at the start of the

year.

Total assets are as shown in the

Statements of Financial Position.

Movement in total asset over the period.

Average savings

rate differential

None Not applicable Calculates the average savings rate applied to the

Group’s savings accounts during the period versus

the average UK savings interest rates for the rest

of the market, based on savings stock from CACI’s

Current Account and Savings Database (CSDB),

covering 86% of retail savings market (based on

stock value). This is used to assess how much the

Group is paying out in interest in comparison to

peers. Given the time lag in CACI providing this

data, the disclosure in the 31 December ratios

represents January to November figures.

Gross lending None Not applicable The total value of mortgage loans advanced by

the Group in the period, including loans for house

purchase, further advances, re-mortgages etc.

Lending to first

time buyers

None Not applicable The total value of mortgage loans advanced by

the Group in the period to first time home buyers.

This measure displays how the Group is helping

people overcome the challenge of buying their

first property.

Liquidity ratio Cash in hand and

balances with the

Bank of England,

loans and advances to

credit institutions and

debt securities as a

percentage of shares

and borrowings.

Cash in hand, balances with the Bank

of England, loans and advances to

credit institutions, debt securities,

and shares are as shown in the

Statements of Financial Position.

Borrowings comprise amounts owed

to credit institutions, other deposits

and debt securities in issue, also as

shown in the Statements of Financial

Position.

The liquidity ratio measures those assets available

to meet requests by savers to withdraw their

money, to fund mortgage advances and to fund

general business activities. It expresses cash and

assets easily converted into cash as a percentage of

the Group’s liabilities to investors.

Mortgages funded

by retail savings

and retained

profits

Shares and total

reserves as a percentage

of loans and advances

to customers.

Shares, total reserves and loans

and advances to customers are as

shown in the Statements of Financial

Position.

The retail savings and reserves to mortgages ratio

shows the extent to which the Group is dependent

on financing from the wholesale markets.

Mortgage balance

growth

Loans and advances to

customers at the end of

the year less loans and

advances to customers

at the start of the year.

Loans and advances to customers

are as shown in the Statements of

Financial Position.

Movement in mortgage balances including

impairment provisions and fair value accounting

adjustments over the period.

Net lending Loans and advances to

customers at the end of

the year less loans and

advances to customers

at the start of the year,

excluding movements

in provisions and

accounting adjustments

detailed in note 12.

Mortgage growth less movements

in provisions and accounting

adjustments detailed in note 12.

Net lending represents gross lending less

repayment of principal and redemptions

and is a key measure to monitor the Group’s

overall lending performance. This measures our

effectiveness in both new mortgage lending and in

retaining borrowers.

GLOSSARY (CONTINUED)

252 | Other Information

APM Calculation of Measure Reconciling items to statutory

measure

Definition and purpose

Number of

accounts more

than three months

in arrears

None Not applicable The number of mortgage accounts where the

amount of arrears is greater than three monthly

payments, or the account is in possession, as

a proportion of the total number of mortgage

accounts.

The industry average for mortgage arrears is

measured as the number of accounts more than

three months in arrears (including possessions).

We produce this KPI to assess how our level of

mortgage arrears compares to the market.

Percentage of

outstanding retail

mortgage balances

in arrears by three

months or more

None Not applicable The percentage of mortgage account balances

where the amount of arrears is equal to or greater

than three monthly payments, or the account

is in possession, as a proportion of the entire

mortgage book.

This measures the overall quality of our mortgage

book.

Retail Savings

balance growth

Shares at the end of the

year less shares at the

start of the year.

Shares are as shown in the

Statements of Financial Position.

Movement in overall savings balances over

the period, including capitalised interest and

accounting adjustments.

Savings inflow/

outflow

None Not applicable Displays the cash in/out of savings accounts

held, excluding capitalised interest. The Group

uses this to monitor its main funding source

throughout the year.

Share of the gross

mortgage market

None Not applicable Displays the Group’s total gross lending as a

percentage of the gross lending in the UK housing

market by banks, building societies and other

lenders as measured by the Council of Mortgage

Lenders (CML), which represents 97% of the UK

mortgage market. From 1 July 2017 the Council

of Mortgage Lenders integrated into a new trade

association, UK Finance.

Regulatory Measures

Common Equity

Tier 1 (CET1)

capital ratio

None Common equity tier 1 capital ratio

is defined as a percentage of risk

weighted assets.

This ratio represents the relationship between the

strongest form of capital (primarily accumulated

profits that have built up over time) and assets,

weighted by the level of risk they carry. It is a

regulatory-defined ratio whose purpose is to ensure

that institutions are able to absorb unexpected

losses. It is a key measure of financial sustainability.

Leverage ratio Reserves as a

percentage of total

assets.

Leverage ratio measures the Society’s

Tier 1 capital as a percentage of total

assets adjusted for certain off-balance

sheet exposures. The CRR leverage

ratio is defined by the EU’s Capital

Requirements Regulation, while the

UK leverage ratio modifies this ratio

to exclude Central Bank reserves.

The leverage ratio is also a regulatory-defined ratio

used to assess capital adequacy, but removes the

risk-weighting element of assets. It is therefore a

more simplified measure of financial sustainability.

Total capital ratio None Total capital ratio is defined as a

percentage of risk weighted assets.

This measure is used to assess the total amount

of capital the Group retains compared to its risk

weighted assets, hence it includes externally

issued capital. It is also defined by the regulatory

authorities.

GLOSSARY (CONTINUED)

Other Information | 253

APM Calculation of Measure Reconciling items to statutory

measure

Definition and purpose

Non-financial measures

Absenteeism None Not applicable This indicator is for measuring the average

absenteeism rate, as a % of the total working

days. This KPI can be an indicator of colleague

motivation as a high absence rate may indicate

poor motivation and engagement.

Colleague

engagement score

None Not applicable Our annual colleague engagement survey is used

to calculate an engagement score which helps to

understand our people’s needs and what will lead

to their enjoyment and commitment in work.

Net Promoter

Score (NPS)

None Not applicable NPS is a measure of how willing customers are to

recommend the Group to others. It measures the

difference between the percentage of ‘promoters’

(those willing to recommend the Group to others)

and ‘detractors’ (those unwilling to recommend

the Group). The score can range from -100 if all

customers are ‘detractors’ to +100 if all customers

are ‘promoters’. The Group uses this as a key

measure of customer satisfaction with our products

and service.

Peakon survey

result

None Not applicable This is an external benchmarking exercise

conducted by Peakon, involving an employee

survey and a culture audit. The Group uses this

measure to understand how successful we are

at delivering our vision as a workplace where

our people can give their best and thrive. This is

monitored annually and reported to the Board as a

colleague engagement measure.

GLOSSARY (CONTINUED)

254 | Other Information

NOTES

Other Information | 255

NOTES

256 | Other Information

Our purpose is to

provide

Real Help with

Real Life

by helping

people to find a place

to call home, helping

people toward greater

financial wellbeing, and

creating long-term value

for our members.

yorkshire building society

Annual Report and Accounts 2021

Helping real life happen

Yorkshire Building Society Annual Report and Accounts 2021

YBM 0019 17 03 22

References to ‘YBS Group’ or ‘Yorkshire Group’ refer to

Yorkshire Building Society, the trading names under which it

operates (Chelsea Building Society, the Chelsea, Norwich &

Peterborough Building Society, N&P and Egg) and its subsidiary

companies and where appropriate, its controlled entities. Egg

is a registered trademark of Yorkshire Building Society.

Accord Mortgages Limited is authorised and regulated by

the Financial Conduct Authority. Accord Mortgages Limited is

entered in the Financial Services Register under registration

number 305936. Buy to Let mortgages for business purposes

are not regulated by the Financial Conduct Authority. Accord

Mortgages Limited is registered In England No: 02139881.

Registered Office: Yorkshire House, Yorkshire Drive, Bradford

BD5 8LJ. Accord Mortgages is a registered Trade Mark of Accord

Mortgages Limited.

YBS Share Plans is part of Yorkshire Building Society.

Yorkshire Building Society provides share plan trustee and

administration services, including deposit taking, all of which

are subject to English law, with deposit taking being regulated

by the Financial Conduct Authority. The provision of share plan

trustee and administration services is not regulated by the

Financial Conduct Authority. We are not responsible for share

plan deposits held by local savings carriers outside the UK.

Head Office: YBS Share Plans, Yorkshire House, Yorkshire Drive,

Bradford BD5 8LJ. ybsshareplans.co.uk

Yorkshire Building Society Charitable Foundation is a

Registered Charity (No: 1069082) and a Registered Company

(No: 03545437). It is an independent registered charity

governed by a board of trustees and its results are not

included in the annual report and accounts of Yorkshire

Building Society. Registered Office: Yorkshire House, Yorkshire

Drive, Bradford BD5 8LJ.

End Youth Homelessness (EYH) is a national movement of

local charities working together to end youth homelessness

in the UK. EYH trades through its designated Administrator,

Centrepoint (charity number 292411).

Age UK is a charitable company limited by guarantee and

registered in England and Wales (registered charity number

1128267). Registered address: 7th Floor, One America Square,

17 Crosswall, London EC3N 2LB.

Yorkshire Building Society is a member of the Building

Societies Association and is authorised by the Prudential

Regulation Authority and regulated by the Financial Conduct

Authority and the Prudential Regulation Authority. Yorkshire

Building Society is entered in the Financial Services Register

and its registration number is 106085. Head Office: Yorkshire

House, Yorkshire Drive, Bradford BD5 8LJ. ybs.co.uk

Helping real life happen

together

we make a

great team

helping

happen