ANNUAL RESULTS 2010

07/02/2011

Annual Results 2010

Principality Building on Solid Foundations

Principality celebrated its 150th anniversary in 2010 and notwithstanding ongoing turbulence in financial markets delivered a very strong set of results for the year. Commenting on Principality’s business performance, Peter Griffiths, Group Chief Executive, said: “I am pleased to report a very credible performance in 2010. In the most testing of times we have further strengthened our balance sheet which remains in good shape with increased levels of capital, strong levels of liquidity and much improved profitability.

During the year we attracted 52,000 new customers and savings balances broke the £5 billion barrier for the first time in our history, securing Principality’s place as one of the most popular and trusted brands on the high street.”

2010 Trading Highlights

• Profit before tax of £30.8m
• Savings balances increased by 2.1% and now at an all time high (in excess of £5bn)
• Solid capital ratios with a Tier 1 ratio of 13.34% (2009 12.49%)
• Outstanding customer satisfaction levels
• 52,000 new customers welcomed to the Society
• All loans fully funded by member deposits
• Acquisition of 8 agency agreements from competitors
• Cost income ratio of 48.1% (2009: 51.0%)

Satisfying our Stakeholders
Peter commented: “We have continued to successfully manage market and economic challenges achieving a difficult balancing act in delivering to all of our stakeholders agendas. We have launched a new set of loyalty savings accounts with enhanced returns. We have lent some £934.8m of new money. We have maintained solid capital and liquidity ratios and above all delivered profits to help further build our capital base for the future to ensure the safety and security of our members’ money whilst providing a platform for further growth when the market recovers.”
The Society grew slightly during the year bucking the trend of many financial services companies who shrank their balance sheets. A policy of low growth will continue in 2011 whilst market uncertainties persist. Principality seeks to continue to support people in their home ownership aspiration and continues to find new innovative ways to inject funding into Welsh housing.
It was particularly pleasing to reach record levels of savings balances as Principality continues to prudently fund loan books through the traditional, tried and trusted mutual model of member savings supporting member loans.

Key Developments
Peter continued: “We were delighted to further embed our commitment to the high streets of Wales following the exciting expansion of our branch network during the year with the acquisition of eight agency partnership locations from competitors. Whilst a number of financial institutions opted to cut costs by withdrawing from local high streets during 2010, we decided to invest in our face to face services to position us even closer to our communities and improve our personal service.”
2011 will also see the opening of a new branch opening in Monmouth and an improved website designed to provide our customers with even more choice and further service enhancements.

Group Businesses
Principality Group earnings remain strong. The benefit of Principality’s diversified model is demonstrated by its solid net interest margin. Group pre-tax profit of £30.8m, represents an increase of £16.5m from 2009.
Secured loans subsidiary Nemo performed ahead of expectation delivering strong profits. In a tight market for credit the business has improved the quality of its loan book and the returns achieved from it.

Principality Commercial turned in a solid performance. With a planned strategy for low growth the lending book remained flat and arrears and defaults remained at low levels comparing favourably against sector benchmarks. The expansion of the Principality Commercial product portfolio into the Business Savings market also continues to perform well with businesses, registered charities and trusts seeking to maximise their returns in a difficult savings market.

Peter Alan, estate agency business, had a more testing time with sales volumes reduced in a depressed market. A move into Lettings and Asset Management strengthened the franchise and delivered record levels of income. These areas provide good growth opportunities going forward for the business as more people seek to rent property not buy. Property auctions have shown good success rates. The Surveyors business performed as expected albeit volumes remain low in a depressed mortgage market. The ongoing lack of credit availability will likely constrain the housing market in the short term.

Future Outlook
Peter concluded: “Domestically, the short-term outlook will be testing - house prices may fall, interest rates may remain low for some time, unemployment may rise and any recovery in the economy is likely to be slow. There is room however for cautious optimism but these factors in aggregate demand a cautious yet balanced approach.

As Principality embarks on the next chapter in its 150 year history I have every confidence that we can continue to meet challenges head on. 2010 results have enabled us to further strengthen our capital base and make investments for the future helping us to continue to provide safety and security, great value and first class service for our members.”