Unity Trust Bank Summary Report & Accounts 2009

summary reportand accounts 2009

25 years1984 - 2009

41402 Unity R&A Summary NEW AW*:2009 08/04/2010 10:45 Page 2

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25 years - a history of unity

1987

1988

1984

1997

1998

2007

20082009

Unity Trust Limited waslaunched, with Lord DavidBasnett as our President

Unity Trust acquired fullstatus as a bank

Lending levels reached £30 millionfor funding jobs, homes and services

Unity saw a 20%increase in market sharein the charity sector

A new corporate lending teamwas established, based in the

London Office at Congress House,to focus on the lending needs ofcommercial organisations

Unity had a make-overand launched its newcorporate branding

Unity increased its lending by68% to stand at its highestlevel ever of £197 million

1994

In response to the Trade Union and EmploymentRights Act, Unity set up a service to advise unionsabout membership communications, subscription

collection and data processing

Unity Trust Limited opened its doors for trading on May Day 1984 – an appropriate launch date for Britain’sfirst trade union bank.Unity’s policy was to be based on prudent, profitablecommercial lending solely within the UK and it aimed toachieve its objectives by combining the resources of thetrade union and co-operative movements.

The Co-operative Bank agreed to match the trades unions’investment and supply management expertise for theinitial launch period. Lewis Lee, Chief General Manager ofThe Co-operative Bank led Unity as its first Chairman,

with the Co-operative’s General Manager, Terry Thomas, as Managing Director and David Basnett, GeneralSecretary of the then GMBATU as the first President.

An equity contribution from the trades unions of £1.25 million,together with a similar amount from The Co-operative Bank,provided Unity’s start-up capital of £2.6 million, which quicklygrew during the remainder of 1984 to over £4 million. At theend of that year, the balance sheet totalled £16 million.

Unity Trust Limited was well on its way to becoming a fully-fledged UK bank.

Unity helped to launch theUK’s first national credit unionfor trade union members

Unity’s website was launched,featuring the organisation’s new

corporate branding

The Head Office which had beenBirmingham-based since 1995, movedfrom The Square to Brindleyplace

Unity was the first bank in the UK tolaunch an Internet Banking Service fornon-personal customers, offering multipleusers with different levels of authority

2000

68%

20%


3

Unity Trust Bank plc...........................................................................................................4

The President’s Statement ..............................................................................6

Dave Prentis, President of Unity Trust Bank plc

The Chairman’s Statement .............................................................................8

Graham Bennett, Chairman of Unity Trust Bank plc

Summary Business and Financial Review..............10

Kevin Turmore, Managing Director of Unity Trust Bank plc

Summary Report of the Directors..............................................16

Summary Directors’ Remuneration Report.........18

Summary Consolidated Income Statement ........20

Independent Auditors’ Report.............................................................20

Summary Consolidated Balance Sheet........................21

Celebrating our 25th Anniversary..............................................22

Unity in the Community 2009

contents

2004

2005

2006

2003

1992

Jimmy Knapp becamePresident and would holdthe position until 2001

Unity was recognised asan Investor in People

Managing Director, Gordon Beesley,retired after 17 years with Unity andIan Sim became Managing Director

Unity e-Payment was launched

Ian Sim retired as ManagingDirector and Kevin Turmore

was appointed

Unity was a principal member in the consortiumthat won the role of administering the

Government’s £125 million Futurebuilders Fund

Unity moved its HeadOffice from Prescot Street

to its new address at 130 Minories

1989

2001


4

unity trust bank plc


5

Unity Trust Bank plc

Registered Head Office and Customer Services Centre

Nine BrindleyplaceBirminghamB1 2HB

Tel: 0845 140 1000Fax: 0845 113 0003

Registered in England and WalesNo. 1713124

FSA firm reference No. 204570

Board of Directors

“A” Directors AlternatesDave Prentis (President) Steve TaskerSteve Glover Bob CrowBilly Hayes Tony KearnsSharon Powell Paul TalbotAllan WylieJohn Youd John Hannett

“B” DirectorsGraham Bennett (Chairman)Keith AldersonKevin BlakeJohn BrooksRichard GoddardKen LewisIan MorrisonMike OsborneKevin Turmore

“C” DirectorRhidian Jones

SecretaryKate Eldridge LLB (Hons) ACIS

Alternate Directors are appointed by their respectivesubstantive director. In the absence of the substantive directorthey are entitled to attend and to vote at Board meetings.

Executive Management

Kevin Turmore, Managing DirectorJohn Brooks Director, Sales and MarketingHeather Brown Director, OperationsIan Morrison Director, Credit Risk & ComplianceMike Osborne, Finance DirectorIan Wardle Director, Human Resources

Auditors

KPMG Audit PlcOne SnowhillSnowhill QueenswayBirminghamB4 6GH

Shareholders

Represented on the Board

Communication Workers’ UnionGMBNational Union of Rail, Maritime, and Transport WorkersUNISONUNITEUSDAWThe Co-operative Bank p.l.c.

Other Trade Union Shareholders

Associated Society of Locomotive Engineers and FiremenBroadcasting, Entertainment, Cinematograph and TheatreUnionCommunityConnectEducational Institute of ScotlandFire Brigades UnionFDAGeneral Federation of Trade UnionsMusicians’ UnionNational Association of Colliery Overmen, Deputies, andShotfirersNational Association of Schoolmasters, Union of WomenTeachersNautilus InternationalNational Union of MineworkersNational Union of TeachersNorthern Ireland Public Service AllianceProspectPublic and Commercial Services UnionTrades Union CongressTransport Salaried Staffs’ AssociationUCUUnity

Shareholders and Capital

Individual trades unions and trade union federations own73.23% of the total equity capital of Unity Trust Bank plc(14.64% in “A” shares and 58.59% in “C” shares). The Co-operative Bank p.l.c., through its subsidiary Co-operativeCommercial Limited, owns 26.66% (14.64% in “B” sharesand 12.02% in “C” shares).

Certain individuals between them own 0.11% of the equitycapital, all in “C” shares. Total equity capital at 31 December2009 was £16,429,301.

The “A” shares owned by trades unions and the “B” sharesowned by The Co-operative Bank p.l.c. have certain classrights attached to them concerning the election of directorsand certain other matters referred to in the Articles ofAssociation and relating to the control of the Bank.

Summary Report and Accounts 2009

The Summary Report and Accounts 2009 is a summary ofinformation in the full Report and Accounts 2009, Directors’Report and Business and Financial Review, all of which willbe available to all shareholders and depositors free of chargeon the Bank’s website (www.unity.co.uk) from 14 May 2010.

The full Report and Accounts 2009 received an unqualifiedaudit opinion from KPMG Audit Plc.


76

As President, I am pleased that the Bankhas produced such excellent results acrossall areas, particularly in this difficulteconomic climate.

This is testament to the excellent service the Bank providesto its customers in the trade union and charity and voluntarysectors who have come to value the socially responsible andinnovative way Unity operates.

I am proud to be the President of a bank that is genuinelydifferent from the mainstream and one that puts socialresponsibility and responsible lending at the heart of itsbusiness model. I can’t help but feel that if the rest of the

banking community had been guided by these principles,the UK economy would probably be in a far better positionthan it is today.

The economy is likely to remain depressed for theforeseeable future and I have no doubt that the recovery willbe protracted and painful. However, Unity remains resolutelyconfident in its business model and is very positive aboutfuture growth. Indeed, its socially responsible businessmodel is one of Unity’s greatest strengths and has evengreater importance today as more and more organisationsare questioning the ethical status of their banks.

There is no doubt that the future will present manychallenges for the Bank, but while we continue to surpassour customers’ expectations and maintain our award-winning customer service we will continue to go fromstrength to strength.

Throughout 2009, Unity provided financial support bysponsoring a number of trade union events which was verymuch appreciated by the movement. It also providedpractical support such as attending a large number of tradeunion conferences including the TUC. Unity also maintainsits financial and practical support for Unions21.

president’s statement


7

The highlight of the Bank’s financial support for the tradeunions was its sponsorship of the TUC’s film competition.Budding film makers were invited to submit a 60 secondfilm promoting the benefits of trade union membership. Thecompetition was also designed to promote social media as atool for organising and campaigning and to encouragegreater use of film within a trade union context. Thecompetition saw entries from as far afield as Malta andThailand. The awards ceremony took place at the TUCconference in Liverpool.

Unity has a proud record of supporting the development ofcredit unions as part of its commitment to help alleviatefinancial exclusion. It is common in the USA, Canada,Australia and Ireland for trade unions to promote anddevelop credit unions. I am pleased to see that a number ofUK trade unions are showing an interest in establishingcredit unions of their own and have contacted Unity for helpand advice.

Unity’s credit union expertise extends far beyond thetheoretical, as a number of Unity staff are members of theirown local credit unions and some even volunteer their timeon credit union committees. This intimate knowledge givesUnity an unrivalled expertise in the process of establishingcredit unions for trade unions. I will watch this developmentwith interest.

The Bank’s socially responsible ideals and sense ofcommunity is also felt far beyond these shores. In theAutumn of 2008, Unity launched an initiative to encouragecustomers to use its on-line banking statement service. Forevery 50 customers who registered for the service, Unityundertook to purchase a ‘Train a Farmer’ package fromOxfam. The scheme helps to train farmers from developingcountries to adopt new techniques enabling them to becomemore productive and adapt to changing climatic conditions.Throughout the initiative, which ended in 2009, Unitydonated £1,500 to Oxfam, which purchased 30 ‘Train aFarmer’ packages.

This is another example of how Unity can play its part inhelping others to help themselves.

Encouraging customers to register for on-line statements is drivenby the Bank’s desire to lessen its impact on the environment byusing less paper and reducing its carbon footprint.

2009 was a very special year for Unity as we celebrated our25th Birthday. The Bank was keen to ensure that this wasmore than just a milestone to celebrate our pastachievements, indeed, we wanted it to act as a stimulus topromote our community spirit. This manifested itself in ayear-long staff initiative called ‘Unity in the Community’which we launched on 5 December 2008 to tie in withInternational Volunteer Day.

I am very proud to report that Unity’s staff raised over£7,500, and more importantly, carried out over 1,700 hoursof volunteering. This was an excellent example of our staff‘living the Unity mission’ and is also a reflection of thecommunity spirit and caring nature which is endemicthroughout the Bank.

The fundraising and volunteering events ranged fromabseiling 120ft down the famous Fort Dunlop Building inBirmingham, volunteering at a children’s hospice and a drugrehabilitation centre, taking part in Christmas concerts andcarol singing, coaching children’s football, rugby and cricketteams to helping out with a sports day at a school for blindand partially sighted children.

In my previous Annual Report statements I have commentedthat one of Unity’s greatest assets is its staff and I am pleasedto say that, as each year passes, this view is reinforced. TheBank is always eager to ensure that its staff are given everyopportunity to volunteer in their local communities andprovides all employees with five days paid volunteer leaveeach year. This policy of community involvement, personaldevelopment and pride in helping local communities paysmassive dividends to the staff who rightly feel that theircontribution is valued by the Bank, the community and ourcustomers. Unity in the Community will continue in 2010and I look forward to seeing what will be achieved.

Another example of how the Bank recognises the worth of itsstaff is by the energy it devotes to their development andtraining. This was evidenced by the Bank winning thecoveted ‘Outstanding Learning and Development’ Award atthe Training Journal’s Annual Conference in London. Thiswas awarded to Unity for its staff-wide training programme,based on the Financial Services Authority’s principle of‘Treating Customers Fairly’.

Unity will continue to invest time and resource to ensure that itstraining and development programme remains a fundamentalelement of its socially responsible business model.

The Bank can be immensely proud of its achievementsduring the past 25 years. Many lessons have been learntand a wealth of experience gained. This invaluableexperience will allow us to continue providing first class,innovative and quality banking services to our shareholdersand customers.

Unity looks to the future with increasing confidence.

Dave PrentisPresident of Unity Trust Bank plc


I was delighted to have been invited tobecome Chairman of Unity Trust followingthe retirement of Lord Fyfe of Fairfield at the2009 Annual General Meeting. I would liketo pay tribute to Lord Fyfe, who played animportant role in the development of Unityduring his term of office. His co-operativevalues and strategic skills were invaluableto the Board. I wish him well for the futureand I will follow his contributions in theHouse of Lords with keen interest.

I am pleased to report that Unity produced a pre-tax profit in2009 of £6.51 million. Operating profit before swaprecognition income amounted to £5.5 million, 20.1% belowthat achieved in 2008. Assets in the balance sheet stand at£601 million at 31 December 2009.

Your Board recognises the continuing support that ourshareholders provide to the Bank. For the 10th year insuccession, an interim dividend was provided at the halfyear and your Board will be recommending the payment of afinal dividend at the rate of 6.5 pence per ordinary share,amounting to a total dividend for the year of 7.5 pence. Thisis a tangible expression of our commitment to reward ourshareholders for their continued loyalty and support.

In his statement in the 2008 Annual Report and Accounts,Lord Fyfe noted that the growth prospects for the UnitedKingdom and other major world economies was forecast tobe negative in 2009, the first contraction since 1982. Thatforecast proved to be demonstrably correct.

Although the world economy is slowly coming out ofrecession, the cost of the banking crisis has been extremelyhigh. According to the Bank of England, total output in theUK fell by around 5% in 2009, the largest fall in outputsince 1931. Furthermore, national income is around 10%below the level it was expected to reach had we not been hitby the current financial crisis.

It is difficult to make any precise predictions for the UKeconomy, however, despite the economic downturn, Unityremains confident in its business model of achieving growthby being socially focused, customer centred and commerciallydriven. Our vision to be the bank of choice for the trade unionand social economy movements remains steadfast.

98

chairman’s statement


9

The Bank’s support for social enterprises is welcomed by thesector. Unity has always recognised the important roleplayed by social enterprises at all levels of the economy. This was demonstrated by Unity committing an additional£5 million in funding to Community Development FinanceInstitutions (CDFIs) after Lord Mandelson announced thatsocial enterprises were to be included in the Government’sEnterprise Finance Guarantee Scheme. This provided amuch needed injection of new loan finance to satisfy theincreasing demand from the many small social enterprisesthat are supported at a local level by CDFIs.

Figures provided by the Social Enterprise Coalition show thatthere are approximately 62,000 social enterprises in the UK.These businesses, which are run for social and environmentalpurposes have a combined turnover of at least £27 billion,and they contribute £8.4 billion per year to the UK economy.The profits from social enterprises are reinvested to sustainand further their mission for positive change.

The Bank was pleased to be a sponsor of the National SocialEnterprise Awards in 2009. The competition was launchedto find the best social enterprise in the UK. The winners ofthe awards for England were honoured at a special receptionat Number 10 Downing Street on 19 November to markSocial Enterprise Day.

The Bank had a number of reasons to celebrate in its 25thbirthday year as we were awarded four major industryaccolades. In April we were rated best for customer servicefor the fifth year running, in Charity Finance magazine’sannual survey of banking services. In May we won CreditToday magazine’s top prize for corporate social responsibility,in June we were voted number one in the ‘Best CommercialTraining Initiative’ in the under 1,000 employees category,awarded by Training Journal and in September we were voted‘Best for Banking Services’ in the Charity Times awards.

Your Board could not have wished for a more fitting birthdaypresent and would like to place on record their thanks to allthe Unity staff and management who worked so hardthroughout the year to ensure we meet our customer’s highexpectations. This is a testament to Unity’s strongcommitment to excellent customer service which willcontinue to act as a beacon to light our future strategy.

Unity’s strengths include understanding the needs of ourcustomers, listening to customers and committing to a highlevel of customer service. In the current economicenvironment, when financial hardship has been at theforefront of business concerns, we recognise the need not topenalise customers any more than is absolutely necessary.Accordingly, we announced a new deal which included thepromise not to levy penalty charges or high levels of interestfor temporary overdrafts provided customers continue to talkto us about their problems.

Similarly, during the current period of contraction in thebanking industry, we also wanted to strengthen ourcommunications with customers in order to reassure themthat Unity, by the nature of its ownership and businessactivities, remains financially secure. We sent out aconsistently clear message throughout the year highlightingour financial soundness and reinforcing the strength ofliquidity in our balance sheet. Additionally, we have nopublicly traded shareholdings and the depth of ourrelationship with the trade union movement, as bothshareholders and customers, has proved a stabilisinginfluence and a great foundation for our business success.

The Bank has also benefitted from the growing consumerconfidence in the co-operative and mutual sector of thefinancial services marketplace and the support given to Unityby its Co-operative Bank shareholder is much appreciated.

The Bank is so confident in its ability to provide first classcustomer service that in 2009 it offered to pay £100 to anycustomer who decides to leave after one year, for servicerelated reasons. This initiative proves, once again, ourcommitment to maintaining excellent standards of day-to-dayservice and it is encouraging to see that, to date, no customershave taken up this offer and moved their banking away from Unity.

Helping to tackle the harmful and costly effects of financialexclusion through its support and development of creditunions has always been high on Unity’s agenda and this wasfurther enhanced in 2009 by the introduction of a prepaidMasterCard card. This new initiative allows credit unionmembers the facility to make purchases on-line, in stores andwithdraw cash from ATMs. The prepaid card also offers a realalternative to cash, credit cards and debit cards, giving creditunion members, as well as customers in other sectors, totalcontrol over their spending, whilst ensuring they do not getinto debt or incur high interest charges. Unlike debit cards,prepaid cards do not give access to credit or borrowingfacilities meaning that members cannot go overdrawn.

The strength of the Bank’s performance in 2009 is due tothe commitment of Unity’s shareholders, the Board, ourcustomers and the work of our dedicated staff. Their supporthelps the Bank to support others in making a positive impactin today’s society. I would therefore like to thank them all fortheir contribution which helps set Unity apart from otherbanking institutions and ensures our continued growth.

This is truly banking as it should be.

Graham BennettChairman of Unity Trust Bank plc


1110

summary business and financial review


The Bank reported profit before taxation forthe year of £6.5 million, 7.5% lower thanachieved in 2008, although strong balancesheet growth has been achieved in bothdeposits and lending. Operating profit beforeswap recognition income amounted to £5.5 million, 20.1% below that achieved in 2008. The results are creditable in thecurrent market conditions.

During the year, the Bank’s capital base has grown with totalcapital and reserves exceeding £45.8 million at 31 December2009. A strong risk management regime remains in placewith higher internal capital requirements than those requiredby the Financial Services Authority (FSA). Maintainingsignificant capital adequacy has been at the centre of businessplanning throughout the year, with both robust liquidity andstrong capital ratios being consistently maintained.

The financial services sector globally has suffered anotherdifficult year with a continued lower level of confidence in thebanking system by consumers. The Bank’s overall lendingpolicies continue to be appropriate for our business model,developing only traditional retail lending products and a strict no trading wholesale operation.

The Bank continues to operate in defined markets and manyof its trade union shareholders are also customers. TheBank’s balance sheet does not rely on wholesale borrowingfrom the financial markets and the Bank continues tomaintain a strong liquidity position. During the year, the Bankhas been successful in a strategy to expand its retail lendingportfolio, being in a healthy position to do so because of arelatively low retail lending to retail deposit ratio, whichincreased slightly to 35.8% (2008: 23.0%) during the year.All liabilities which are not invested in retail loans are placedin the inter-bank money markets, held in realisableCertificates of Deposit with high credit rated institutions.

Interest earnings were 13.6% lower than the previous year dueprimarily to lower interest margins from retail deposits, partiallyoffset by increased interest earnings from retail lending andshort term margin gains due to treasury LIBOR rates.Generally, the environment of low bank base rates whichapplied throughout the year continued to suppress interestmargin capability. Net fee and commission income whichprimarily relates to the provision of banking services grew by13.8% during the year as charges for new loan facilities grew.Operating costs rose to £7.5 million, a growth of only

1.9% compared to 2008. In the current economic climate,additional individual provisions totalling £0.9 million (2008: £1.1 million) have been raised to mitigate potential risks.

New business continues to be generated from activities andconsequently the balance sheet has grown by 6.8% to £601 million at 31 December 2009.

During the year total retail deposits have increased by 8% to£551 million, whilst loans and advances increased by 68% to£197 million, a record high for the Bank. The growth hasbeen facilitated by continued investment in sales skills staffingand credit support.

Due to short term market fluctuations, the market value of theinterest rate swaps at 31 December 2009 was £4.7 millionabove the contract price. In line with the Bank’s accountingpolicies, market value gains are generally transferred direct toreserves in order to reduce Income Statement volatility.However, in the case of one particular hedge contract, thiswas not possible and the increase in market value of £1 million is reflected in the Bank’s Income Statement. Suchshort term fluctuation gains do not form part of the Bank’sconsideration of its overall capital strength.

Well publicised banking failures in previous years have led tocustomers of those banks making claims for deposit lossessuffered and the banking industry has been obliged to providesupportive funding to the Financial Services CompensationScheme (FSCS). During the year, the Bank made paymentsinto the Scheme of £114,000 and has provided a further£28,000 in the 2009 Income Statement.

Economic environment

The UK officially entered recession in January 2009 andreturned to growth in the final quarter of the year withstatistics indicating expansion of 0.1%. During the year the UK evidenced further pressures in the banking sectorspreading to the wider economy.

The Monetary Policy Committee (MPC) reduced interest ratesto an historic low of 0.5% in March 2009 and held them atthis level throughout the year. It also introduced a QuantitativeEasing programme in the same month with the expectationthat buying gilts would support the financial sector andstimulate growth in the economy. The impact that theCommittee’s policies will ultimately have on growth andinflation remain uncertain. What is clearer is that interest ratesare expected to be maintained at very low levels through 2010to support the tentative growth that is now being evidenced.

11

Results summary £000s 2009 2008 Change Change

Net interest income 12,397 14,343 (1,946) (13.6%)

Fee and commission income (net) 1,520 1,336 184 13.8%

Operating expenses (7,508) (7,369) (139) 1.9%

Financial services compensation scheme levy (28) (304) 276 (90.8%)

Impairment loss on loans and advances (884) (1,123) 239 (21.3%)

Profit before other operating income 5,497 6,883 (1,386) (20.1%)

Other operating income - swap recognition 1,008 153 855 -

Profit before taxation 6,505 7,036 (531) (7.5%)


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Performance

Interest rates

During 2008, inter-bank lending saw significant increasesin the LIBOR interest rates being offered and acceptedbetween banks and this environment continued well into2009, with LIBOR rates falling only towards the end of thethird quarter. The Bank’s interest earnings derived from itsinvestment in the money markets, principally Certificates ofDeposit, remained high for the year, although the trend wasdownwards as the year end approached. Financialinstitutions must comply with the Bank’s credit policy to beacceptable as credit counterparties for the Bank and thisthis impacts on interest margins which can be achieved.

Given the low bank base rate, coupled with the need toprovide competitive rates of interest on its customer depositbase, interest margins on retail deposits fell significantly inthe early part of 2009 and continue to be compressed.Looking forward, interest rates are expected to remain lowand pressure on interest margins will continue.

Overall, the interest margin earned during 2009 fell slightlyto 2.2% (2008: 2.3%) as money market rates fell towardsthe end of the year, together with continued pressure onretail deposit margins.

Products and services

The Bank operates in a niche market and provides bankingand financial services for the trades unions and the widersocial economy sector, with a focus on charities andvoluntary organisations.

Retail deposit business is based on the provision of currentand deposit accounts for the Bank’s target sectors. TheBank operates a successful model without a branchnetwork, with electronic access for customers supported bya customer telephone contact centre based in Birmingham.In support of its growth in remote distribution channels, theBank continues to develop its internet channel, includingthe provision of on-line statements.

The Bank has significantly grown its retail loan portfolio,through a variety of channels in line with a detailed creditpolicy. Activity is only undertaken in the non-personalsector and there is no engagement in the subprimeenvironment. Development of the retail lending portfoliohas been a key focus for the Bank and 2009 has seen greatsuccess with ‘new to bank’ loan business amounting tomore than £84 million (2008: £47 million). Due to acombination of customer repayments and changes in groupaccount netting arrangements, the overall loan portfolioindicates a net increase of £80 million, resulting in end ofyear balances of £197 million.

In 2009 the Bank decided not to impose penalty fees asthese were inconsistent with its social values. It was pleasingto note the reaction from the markets, and there has been nomaterial reduction in fee income as a consequence.

Following extensive development during 2009 the Bank waspleased to launch its prepaid card – the ALTO card in thefirst few days of 2010. The card is aimed at the socialeconomy market with a focus on the credit union sectorwhere many members continue to be excluded frommainstream banking services, and for any organisationsrequiring expense facilitation.

Sector development

Development of the Bank’s retail deposit book is focused onthe social economy sector. Principal areas of activity withinthis sector continue to be with charitable and voluntaryorganisations, credit unions and professional associations.

Retail loan growth has been achieved through the commercialenterprise sector where businesses demonstrate sufficientsynergy with the Bank’s core social responsibility, and targetmarkets within the social economy sector. Growth during2009 has been achieved through the success of thecommercial enterprise team and expanded skills within thesocial economy team. The Bank’s loan portfolio at the end of2009 is broadly split between all three core sectors: tradeunions, social economy and commercial enterprises.

Information technology

The Bank’s corporate website www.unity.co.uk together withan internet banking channel enables customers to access theiraccount details, undertake transactional activity and obtaininformation about products and services.

The Bank continues to enhance the customer experiencethrough these channels releasing a significant upgrade in thefirst half of 2009 which included new features, and the Bank’slatest branding. Security has been improved together with theability to access the channel from a wider range of webbrowsers making access easier for a wider range of customers.

The Bank’s customer account management system continues tobe developed with the addition of new workflow functionalityand modules that allow for improved performance andefficiency gains.

Governance and Risk Management

The Board is responsible for approving the Bank’s strategy, itsprincipal markets and the level of acceptable risks articulatedthrough its risk appetite statements. It is also responsible foroverall corporate governance, which includes ensuring that thereis an adequate system of risk management and that the level ofcapital held is consistent with the risk profile of the business.

A strong risk management regime is in place that sets higherinternal capital requirements than those required by the FSAand is supported by risk management practices focussing oncredit, liquidity and capital stress and scenario testing.

The overall risk governance and risk management frameworkis set out in the full Report and Accounts 2009 in theCorporate Governance section on pages 14 to 19 and theRisk Management section on pages 30 to 41.


12


14

Earnings and dividends

Earnings per share in 2009 amounted to 29.3 pence, adecrease of 5.5% compared with a level of 31.0 pence pershare for the previous year.

At the start of 2009, consolidated equity shareholders’ fundstotalled £44.7 million and, after the dividends paid in theyear of 7.5 pence per ordinary share (2008: 7.5 pence pershare), increased to £45.8 million. This represents a growthin equity shareholders’ funds of 2.46%.

Key Performance Indicators

In connection with the Strategic Review for the 2009-11planning period, the Bank agreed to formally monitor thefollowing aspects of its activities for 2009 and beyond:

Customer satisfaction

A central feature of the Bank’s customer-centric businessmodel is high quality customer service and satisfaction. We continue to monitor customer satisfaction in a variety ofways including via incentivised on-line surveys, feedbackpostcards and also through telephone customer contact.During the year, 173 responses were received and scoredaverage marks of 7.5 out of 10 for satisfaction regardinghow customers are treated by our customer services staffand 7.7 out of 10 for satisfaction that queries are dealt withquickly and in a professional manner. We have set anaspirational benchmark of a score of 8 for both these areasand, in 2009, more than 75% of respondents scored the Bank at 8 or better. This is the first complete year that we have monitored this response and we will strive to improveon this score in 2010.

A new process of contacting all new customers after threemonths was initiated towards the end of 2009. Thecontact is to ascertain their views on the quality of servicethat they have received and the first set of results will bereported in 2010.

As part of our on-going Treating Customers Fairly culture, we review all customer complaints and any trends identified.Significant trends are reported to the Bank’s Board togetherwith details of corrective actions taken. During 2009 wereceived 70 compliments and 37 complaints. All of thecomplaints were satisfactorily resolved, with only one singlereferral to the Financial Services Ombudsman and therewere no clear trends identified.

Staff

During 2008, the Bank participated in the annual BestCompanies survey for the first time and achieved the status‘one to watch’. In 2009 we maintained our ‘one to watch’status and improved our overall rating across all measuredareas. The Bank’s aim is to become a ‘one star’ organisationwithin three years and will continue to work towards thatgoal throughout the forthcoming 24 months.

Training

The Bank recognises that the development and training of its staff is fundamental to continuing success. By providingdevelopment opportunities, facilities and financial support,we aim to ensure that all staff have the knowledge, skills andexperience necessary to perform to the highest standards.

Each employee received induction and job related training,together with support available to help individuals developand improve their job performance and keep pace withindustry developments. In total, staff attended almost 1,400hours of formal training sessions and 500 hours of otherdevelopment activities during 2009. In addition, 10 internalsecondments were effected.

Impact on the Community

The Bank operates its business within the wider ‘civil society’- charities, social enterprises, not for profit organisations,trades unions and SME owner managed businesses - andprides itself on being socially responsible in all of itsactivities. During 2009, ‘Unity in the Community’ waslaunched with a focus on encouraging staff to become moreinvolved in their local communities by investing time incharitable and voluntary projects. The Bank supports allstaff in this arena by facilitating up to five paid volunteeringdays each year. The total number of hours volunteered byBank staff in 2009 was in excess of 1,700, with an averageof more than 17.5 hours per member of staff.

The initiative was also designed to be a key element in thepersonal development of our staff whilst offering the opportunityto help communities and support local good causes.

13

2006 2007 2008 2009

40

35

30

25

20

15

10

5

0

Earnings (pence per share)

23.526.0

31.0 29.3

2006 2007 2008 2009

50

40

30

20

10

0

Total equity (£m)

33.236.6

44.7 45.8

pence

£m


Financial highlights

Profit before taxation

The Bank reported a profit before taxation for the year of£6.5 million, a decrease of 7.5% over 2008 results.

Net interest income and margins

The Bank’s management and internal reporting structure is not formally segmented. Total net interest income of £12.4 million was 13.6% lower than in 2008. Thedecrease was due to lower interest margins in respect of retail deposits, and a reduction in LIBOR based interestearnings on treasury assets. The impact was partially offsetby increased interest earnings from the retail loan book, both in terms of volume and margin.

The net interest margin for the year was 2.2% (2008: 2.3%),lower than the previous year primarily due to the lowermargin on retail deposits and the treasury portfolio.

The Bank holds non-trading interest rate swap contracts with its parent company, The Co-operative Bank p.l.c., inaccordance with its interest rate risk policy. As at 31 December 2009, the notional value of the interest rateswaps amounted to £85 million (2008: £110 million).

Due to short term market fluctuations, the market value ofthe interest rate swaps at 31 December 2009 was £4.7million above the contract price. The increase in market valueis not generally reflected in the Bank’s Income Statement buttransferred direct to reserves. Where it is not possible tomatch certain hedges in accordance with the terms of therelevant accounting standard their net effect is reflected inthat statement.

Non-interest earnings

Total fees and commission income amounted to £2.4 million(2008: £2.1 million).

Overall, net banking fees and commission income amountedto £1.5 million, in line with the equivalent fees earned duringthe previous year. Account commissions fell by 9.3% as theBank continued a strategic shift away from fixed accountcommission charges, moving more towards transactionalbased tariffs. Lending fees received increased to £0.7 million(2008: £0.6 million) for the year, due primarily to theincreased level of loan acquisition.

Income derived from the Bank’s financial services activityis non-core business however there was a modest level ofincome gain during the year to £0.26 million (2008: £0.12 million).

Operating Expenses

Operating expenses for the year totalled £7.5 million, anincrease of 1.9% over the previous year. The cost income ratiofor 2009 was 53.9% compared with 47.0% in respect of theprevious year. The ratio is measured before swap fair valueadjustments and provisions for the FSCS. The increase in theratio results primarily from the lower level of interest incomeand a small increase in costs to support the growth strategy.

Staff

Staff costs in 2009 amounted to £4.4 million, 11.1% higherthan 2008. The increase was driven by the presence of a fullsales force complement, which was not in place throughout2008, and increased investment in the credit riskmanagement team. Average staff numbers for the year were95, an increase of 5.6% compared with the previous year.

Other costs

Total expenditure in respect of all other costs was £3.1 million(2008: £3.5 million) and represented a decrease of 11.4%for the year.

14


2006 2007 2008 2009

8000

7000

6000

5000

4000

3000

2000

1000

Profit before taxation (£m)

5,4665,952

7,0366,505

£m


Balance Sheet

Deposits

Retail deposit balances as at 31 December 2009 were£551.0 million, representing a net increase of £39.9 millionacross the year. Growth in new retail customer deposits forthe year amounted to more than £51.7 million and waspredominantly derived from the charity and voluntary sector.

Advances

The total of retail loans and advances at the end of the yearamounted to £197.1 million (2008: £117.4 million). Loansand advances generated from new to Bank activity significantlyincreased during the year and totalled £84 million (2008: £47 million).

Most loan growth was derived from activity within thecorporate and social economy sectors.

Non-performing assets and bad debt provisions

During 2009, the loan portfolio grew significantly for thesecond consecutive year. Due to continued pressures in thewider economy, monitoring the loan portfolio for signs ofcustomer stress remains a priority for the Bank’s credit team.

At 31 December 2009, the Bank continues to take acautious approach and, as a consequence, has raised furtherindividual provisions in respect of customer loans andadvances amounting to £0.9 million (2008: £1.1 million).

Statement on going concern

In common with many financial institutions, the Bankmeets its day-to-day liquidity requirements throughmanaging both its retail and wholesale funding sources,and is required to maintain a sufficient buffer overregulatory capital requirements in order to continue to beauthorised to carry on its business. The Bank’s forecastsand objectives, taking into account a number of potentialchanges in trading performance and funding retention,show that the Bank should be able to operate at adequatelevels of both liquidity and capital, for the foreseeablefuture. The Bank has also considered a number of stresstests on capital and liquidity and these provide assurancethat the Bank is sufficiently capitalised and is comfortablyin excess of liquidity stress tests.

Consequently, after making all appropriate enquiries, theDirectors have a reasonable expectation that the Bank hasadequate resources to continue in operational existence forthe foreseeable future. For this reason, they continue toadopt the going concern basis in preparing the Bank’sfinancial statements.

Summary and Outlook

The difficult conditions in the financial services sector whichwere described in last year’s review have continuedthroughout 2009 with continued low bank base rate andintense competition for retail deposits. The Bank’s businessmodel has ensured that the balance sheet growth andfinancial performance for the year has been commendable.

2010 will evidence further challenges as the economicoutlook remains uncertain. The Bank will look to cautiouslycontinue the growth strategy set out in its Corporate Plan2009-11, whilst meeting regulatory demands, improving thecontrol regime and managing the introduction of the newliquidity requirements.

The low interest rate environment is expected to continue in2010 as is competition for retail deposits which will makefor a challenging period with limited opportunity to improvemargins. Loan growth in 2010 will be more modest in orderto manage continued development of the Bank’s lendingportfolio within capital available as described in the Board’srisk appetite statement.

15

2006 2007 2008 2009

500

400

300

200

100

0

Customer accounts (£m)

426.9

495.2511.1

551.0

600

2006 2007 2008 2009

200

150

100

50

0

Loans and advances to customers (£m)

76.9 74.9

117.4

197.1

Kevin TurmoreManaging Director of Unity Trust Bank plc

£m£m


17

Summary Report of the Directors for the yearending 31 December 2009

The Directors submit their report and audited accounts for the yearended 31 December 2009.

Principal Activities and Business Review

Unity Trust Bank plc offers a range of banking, financial, and relatedservices. A review of the business activities and details of futuredevelopments together with key performance indicators is contained inthe Business and Financial Review on pages 10 to 15 and is deemed toform part of the Directors’ Report.

The full Report and Accounts 2009 contain the Corporate Governancestatement on pages 14 to 19 and the Risk Management section onpages 30 to 41, are deemed to form part of the Directors’ Report. TheCorporate Governance Statement provides information relating to theBoard and its Committees, and the Bank’s system of internal controls.The Risk Management section provides information relating to theprincipal risks and uncertainties facing the Bank and the use offinancial instruments.

Further review of the Bank’s business activities are contained in thestatements by the President and the Chairman on pages 6 and 8.

Results and Dividends

The Bank’s profit attributable to the members for the year, before taxation,amounted to £6.51 million (2008: £7.04 million). Interim dividends of£164,293 were paid on 28 August 2009. The Directors recommend thepayment of a final dividend of £1.07 million (2008: £1.07 million). Theproposed final dividend has not been provided for in accordance withIFRS. A more detailed review of the business is contained in the Businessand Financial Review on pages 10 to 15.

On 24 November 2009, the sole subsidiary of the Bank, Unity LeasingLimited, a company dormant throughout 2009, was dissolved.Consequently, consolidated financial statements have not been preparedfor the year ended 31 December 2009.

Directors - changes to the Board

The present Directors and their biographies are set out below.

Lord Fyfe of Fairfield served as Director and Chairman of the Bank untilhis retirement on 8 June 2009. Graham Bennett was appointed asChairman with effect from that date.

Keith Alderson was appointed as Director of the Bank on 21 December2009. Tony Woodley resigned as Alternate Director to Sharon Powell on28 March 2009.

Directors and their interests

No Director had a material interest at any time during the year in anycontract of significance, other than a service contract, with the Bank orits subsidiary undertaking.

Interests in Ordinary £1 “C” shares

Director 31 December 2009 31 December 2008Lord Fyfe of Fairfield 250 250(Retired 8 June 2009)

Non-Executive Directors

Graham Bennett. Age 59. (CCMI). Joined the Board in 2000 and wasappointed Chairman in June 2009. Previously served as Chairman of TheCo-operative Bank p.l.c. (2000 – 2009), and as a Non-Executive Director of Co-operative Group Limited (1984 – 2009), Co-operative FinancialServices Limited (2002 – 2009), Co-operative Insurance Society Limited(2000-2009), and CIS General Insurance Limited (2005 – 2009). ChiefExecutive of Southern Co-operatives Limited (1983 – 2008).

Keith Alderson. Age 50. Joined the Board in December 2009. Business Leader - Corporate Banking, Co-operative Financial ServicesLimited and Director of Mortgage Agency Services Number One Limitedand The Co-operative Asset Management Limited.

Kevin Blake. Age 51. (BA (Hons), ACIB). Joined the Board in 2002.Business Leader – Banking Risk at Co-operative Financial Services Limited,and Director of Mortgage Agency Services Number One Limited.

Steven Glover. Age 59. (FCIB). Joined the Board in 2004. Officer ofthe RMT Union.

Richard Goddard. Age 52. (MA (Hons), FCA). Joined the Board in2004. Business Leader – Financial Control at Co-operative FinancialServices Limited and Director of Western Mortgage Services Limited.

Billy Hayes. Age 56. Joined the Board in 2001. General Secretary ofthe Communication Workers’ Union.

Rhidian Jones. Age 66. (MA (Hons Law), FCIS, FCMI, Solicitor).Joined the Board in 2004 as an Independent Non-Executive Director.Previously Deputy Chairman of Britannia Building Society where he wasalso Chairman of the Remuneration Committee and a member of theAudit Committee.

Ken Lewis. Age 62. (BSc (Econ) Hons, FCIPD, FCIB). Joined theBoard in 2005. Director of Lewis Consulting (NW) Limited. Previously aDirector of The Co-operative Bank p.l.c. (1993 - 2002).

Sharon Powell. Age 52. Joined the Board in 2003. Executive FinanceDirector of Unite.

Dave Prentis. Age 62. (BA, MA). Joined the Board in 2000 and wasappointed President in 2003. General Secretary of Unison. Member ofthe TUC General Council and Executive Committee, and the Trade UnionLabour Party Liaison Committee. A Director of the Institute of PublicPolicy Research, and an advisor to the Warwick Institute of Governanceand Public Management.

Paul Talbot. Age 60. Joined the Board in 2006. Assistant GeneralSecretary of Unite.

Allan Wylie. Age 54. (MA, CA). Joined the Board in 2004. Officer ofthe GMB Union.

John Youd. Age 56. Joined the Board in 2004. Central Treasurer ofUSDAW.

Executive Directors

Kevin Turmore. Age 48. (ACIB). Joined the Board in 2005 and holdsthe position of Managing Director. Also Executive Director of KibbleDevelopments Limited.

John Brooks. Age 51. (FCIB, DipFS, MCIM, MIoD). Joined the Boardin 2006 and holds the position of Director, Sales & Marketing.

Ian Morrison. Age 49. (ACIB). Joined the Board in 2006 and holdsthe position of Director, Credit Risk and Compliance.

Mike Osborne. Age 53. (ACA). Joined the Board in 1992 and holdsthe position of Finance Director.

16


17

Staff

Unity Trust Bank is committed to ensuring that it is a safe, diverse, andfair environment to work in. It employs 96 members of staff (2008: 90).It recognises and accepts its duty to protect the health and safety of allstaff, temporary employees, and contractors, as well as customers,suppliers, or members of the public that might by affected by operations.

The Bank recognises that the development and training of its staff isfundamental to its continuing success. By providing developmentopportunities, facilities, and financial support, the aim is to ensure that allstaff are in possession of the knowledge skills and experience necessaryto perform to the highest standards.

Each employee received an induction and job related training, andresources are made available to enable individuals to develop andimprove their current job performance and keep pace with internal andexternal developments.

The Bank consults and communicates with staff on customer organisationand performance issues through regular team meetings, surveys,conferences, and forums with Amicus, which represents the staff inemployee and organisational discussions.

Trade Creditors

The Bank’s policy is to agree the terms of payment at the start of tradingwith the supplier, ensure that suppliers are aware of the terms of paymentand pay in accordance with its contracted and other obligations. Creditordays at 31 December were 20 days (2008: 25).

Diversity

The Bank welcomes diversity and actively promotes equality ofopportunity in employment for all employees and job applicants,regardless of sex, gender reassignment, marital status, sexual orientation,colour, race, and nationality, national or ethnic origin, religion or creed,disability, responsibility for dependents, age and membership, or non-membership of a trade union or political affiliation.

Employees with Disabilities

Unity Trust Bank is committed to being an equal opportunities employer.The Bank recognises its responsibilities for making reasonableadjustments for new staff with disabilities whilst in employment.

The Bank is a holder of the “Positive about Disabled People” status, arecognition given by Jobcentre Plus to employers who have agreed to meetfive commitments regarding the recruitment, employment, retention andcareer development of disabled people. The Bank was also reaccredited asan Investor in People in 2008. The Bank has an Equal OpportunitiesPolicy, which includes provisions to consider employment applicationsfrom people with disabilities and to match vacancies with an individual’sparticular aptitudes and abilities. Further guidance and information forstaff on disability issues is available through Human Resources and on thestaff intranet. The Bank recognises its responsibility for making“reasonable adjustments” for new staff with disabilities and for thoseindividuals who develop disabilities whilst in employment.

Charitable and Political Donations

In 2009, as part of our delivering on one of our core values of supportingsocial development and community involvement, we made charitabledonations totalling £10,013 (2008: £13,832) to good causes.

No political donations were made in 2009 (2008: £nil).

Post Balance Sheet Events

There have been no significant events since the balance sheet date.

Statement of Directors’ responsibilities in respect of the Directors’report and the financial statements

The Directors are responsible for preparing the Directors' Report and thefinancial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements foreach financial year. Under that law they have elected to prepare thefinancial statements in accordance with IFRSs as adopted by the EU andapplicable law.

Under company law the Directors must not approve the financialstatements unless they are satisfied that they give a true and fair view ofthe state of affairs of the company and of the profit or loss of the companyfor that period. In preparing these financial statements, the directors arerequired to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

• state whether they have been prepared in accordance with IFRSs asadopted by the EU; and

• prepare the financial statements on the going concern basis unless it isinappropriate to presume that the company will continue in business.

The Directors are responsible for keeping adequate accounting recordsthat are sufficient to show and explain the company's transactions anddisclose with reasonable accuracy at any time the financial position of thecompany and enable them to ensure that the financial statements complywith the Companies Act 2006. They have general responsibility for takingsuch steps as are reasonably open to them to safeguard the assets of thecompany and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of thecorporate and financial information included on the company's website.Legislation in the UK governing the preparation and dissemination offinancial statements may differ from legislation in other jurisdictions.

The Directors statement with respect to going concern is included onpage 15.

Financial Statements

The Directors who held office at the date of the approval of the Directors’Report confirm that, so far as they are each aware, there is no relevantaudit information of which the company’s auditors are unaware, and eachDirector has taken all the steps that they ought to have taken as aDirector, to make themselves aware of any relevant audit information andto establish that the company’s auditors are aware of that information.

Auditor

In accordance with section 489 of the Companies Act 2006, a resolutionconcerning the re-appointment of KPMG Audit Plc as auditor andauthorising the directors to fix their remuneration, will be submitted to theAnnual General Meeting.

By order of the BoardKate Eldridge LLB (Hons) ACISSecretaryRegistered Office:Nine BrindleyplaceBirminghamB1 2HB

26 March 2010


19

Summary Directors’ Remuneration Report

The following information is provided on a voluntary basis.

Non-Executive DirectorsThe Non-Executive Directors receive no remuneration from the Bank, andhave no pension arrangements, incentive schemes or share optionschemes for their services to the Bank with the exception of the Chairmanand the Independent Professional Non-Executive Director (‘IPNED’), whoreceive remuneration only, and one Co-operative Bank appointee who isremunerated by that organisation.

Executive Directors’ service contractsAll existing Executive Directors are employed under service contracts,which have periods of notice of termination of 12 months or less.

Basic salaries and benefitsThe basic salaries and benefit entitlements are determined by theNomination and Remuneration Committee, which consists of the Chairmanand three other Non-Executive Directors. The basic salaries are set aftereach job has been matched with similar posts in comparable organisationsin the financial services sector using data from external sources.

Pension schemeAll Executive Directors are members of the Co-operative Group Pension(Average Career Earnings) Scheme (the PACE Scheme), which is adefined benefit pension scheme available to all employees. The PACEScheme, is a registered occupational pension scheme and providespensions based on 1/60ths of average pensionable earnings, re-valued forinflation for each year of pensionable service from 6 April 2006. Accruedbenefits as at 5 April 2006 continue to be linked to final pensionablesalary at a member’s date of leaving or retirement, which ever is earlier.Pensions are also payable to dependants on death and a lump sum ispayable if death occurs in service.

Members of the PACE Scheme currently contribute 6% of theirpensionable salary towards the cost of providing pension benefits with theemployer paying the balance.

The PACE Scheme maintains a competitive level of pension provision whilstcontrolling the future costs and risks of occupational pension provision.

Incentive schemesa. General staff scheme

The Bank operates a performance related bonus scheme for all members ofstaff, excluding the Executive Directors and sales staff, who have their ownincentive schemes. The scheme is based on the return on shareholders’funds in the financial year in question. The return on shareholders’ funds isdefined as eligible pre-tax profit expressed as a percentage of theshareholders’ equity funds at the commencement of the financial year.Eligible pre-tax profit is the Bank’s “Profit before taxation” as set out in theBank’s audited Financial Statements, excluding “Other income or expense”(gain or loss recognised in the income statement derived from movementsin the market value of the Bank's swap contracts), “Significant items” andany other items as decided by the Nomination & Remuneration Committeeas being outside operating activity.

No payment is made if the return on shareholders’ funds is below 15%other than at the discretion of the Nomination and RemunerationCommittee. Should this threshold be exceeded, a pool of 6.75% of pre-tax profit up to the budgeted level of profit, plus 10% of the pre-taxprofit (if any) above this level, will be distributed to all eligible staff and isdependent upon individual performance assessment.

Payment is made annually in the month of publication of the auditedfinancial statements for the year, although an interim payment is made inNovember of the financial year at the discretion of the Nomination andRemuneration Committee.

b. Sales performance scheme

Sales staff participate in a bonus scheme which is based on individualperformance against targets. Payments to individuals are based on anassessment of their performance for the financial year and are madeannually in the month of publication of the audited financial statementsfor the year. No interim awards are made under this scheme. ThisIncentive Scheme is not contingent upon the Bank’s overall pre-tax profit,although all payments to individuals are required to be approved by theNomination and Remuneration Committee.

c. Executive incentive scheme

The Annual Incentive Scheme was introduced for Executives. The schemeis based on the Bank’s actual performance against budgeted pre-tax profitand no payments are made if the actual level of pre-tax profit for thefinancial year falls below the budgeted target. The scheme requires aminimum return on shareholders’ funds of 15% in the financial year inquestion, and pre-tax profit to be greater than the previous financial year,unless amended at the discretion of the Nomination and RemunerationCommittee. The return on shareholders’ funds is defined as eligible pre-tax profit expressed as a percentage of the shareholders’ equity fundsat the commencement of the financial year. Eligible pre-tax profit is theBank’s “Profit before taxation” as set out in the Bank’s audited FinancialStatements, excluding “Other operating income” (gain or loss recognisedin the income statement derived from movements in the market value ofthe Bank's swap contracts), “Significant items” and any other items asdecided by the Nomination & Remuneration Committee as being outsideoperating activity.

Individual Executive members’ bonus awards range from 15% to 25% of basic salary. Payments are based on achievement against budgeted pre-tax profit (75% of award) and individual achievement againstpersonal targets (25% of award).

d. Payments under incentive schemes

The committee used its judgement within the scope of the Rules of the Annual Incentive Schemes to recognise the performance of Executives and staff in a very difficult year given the major turmoil in financial markets.

Appointments outside the BankExecutive Directors can accept appointments from sources outside theBank, with the consent of the Board, which will be forthcoming if itconsiders the appointment beneficial to the interests of the Bank.

Payments received from such appointments are passed on to the Bank.

18


19

At both 31 December 2009 and 31 December 2008 the above Directors hadretirement benefits accruing under the defined benefit pension schemeoperated by Co-operative Group Ltd. Other payments relate to amounts paid inlieu of the car cash option scheme, together with a contribution to directors’

individual pension scheme payments in accordance with an agreement madeby Co-operative Group Ltd in support of the changes to the terms of the Grouppension scheme.

NotesThe pension entitlement shown in column (3) is the annual pensionpayable on retirement based on the service and pensionable salary at theend of the year.

The increase in accrued pension during the year, shown in column (5), isafter discounting the effect of inflation.

The values in columns (6),(7) and (8) have been calculated inaccordance with the current transfer value method and basis in force forthe PACE scheme.

This is set by the Trustee, after taking actuarial advice, to be consistentwith the requirements of legislation and the rules of the scheme.

Column (9) shows the transfer value at the end of the year less thetransfer value at the start of the year, less contributions paid in the year bythe executive.

The age, service, and accrued pension and transfer values shown incolumns (1), (2), (3), (6) and (8) have been calculated as at 31December 2009.

All transfer values assume that pre-April 2006 benefits will becomepayable from the age of 60, whilst post April 2006 benefits are assumedto become payable from age 65.

On behalf of the Board

G BennettChairman of Nomination and Remuneration Committee

Non-Executive Directors’ RemunerationThe Board of Unity Trust Bank plc includes the Chairman and an IndependentProfessional Non-Executive Director, who are:

• Graham Bennett, who was appointed as Chairman on 8 June 2009, thereplacement to Lord Fyfe, and received remuneration of £21,260 duringthe year (2008: £nil).

• Lord Fyfe of Fairfield (Retiring Chairman), who was appointed to theBoard on 19 April 2000 and retired on 8 June 2009, received totalremuneration of £28,199 during the year (2008: £36,300) which wasmade up of £16,390 fees, in respect of his service as Chair fromJanuary to June and an additional payment of £11,809.

• Rhidian Jones, who was appointed to the Board on 26 March 2004, andreceived total remuneration of £25,047 during the year (2008: £24,200).

• Ken Lewis, who was appointed to the Board on 22 February 2005 andreceived remuneration of £25,047 during the year from The Co-operativeBank p.l.c. (2008: £24,200).

Pension Entitlements for Unity Trust Bank Executives during 2009

Age at Years of Total accrued Increase Increase Transfer value Transfer value Transfer value Transfer value year end company pension at in accrued in accrued of previous of accrued of accrued at year end less service year end pension pension column at pension at pension at transfer value (£) during the during the year end start of the year end at the start of year (gross year (net of less Director’s year (£) the year less of inflation) inflation) contributions (£) contributions (£) (£) (£) (£) (1) (2) (3) (4) (5) (6) (7) (8) (9)

M Osborne 53 20 36,555 2,624 2,529 26,213 469,204 571,196 96,109

I Morrison 49 20 28,761 1,984 1,910 17,844 324,169 405,140 76,749

K Turmore 48 4 10,149 2,479 2,457 14,618 69,128 102,671 24,988

J Brooks 51 3 4,466 1,601 1,593 10,765 26,453 46,076 13,949

Directors’ Emoluments - 2009

Date of Basic salary Performance Benefits Other 2009 Total 2008 Total service contract (£) related pay in kind payments emoluments emoluments or appointment (£) (£) (£) (£) (£)

K Turmore 22 July 2005 142,580 33,120 - 11,500 187,200 179,640

M Osborne 18 September 1992 98,048 17,778 114 11,591 127,531 127,609

I Morrison 11 January 2006 70,368 13,473 - 11,066 94,907 94,223

J Brooks 7 December 2006 94,561 20,963 114 9,800 125,438 121,572

405,557 85,334 228 43,957 535,076 523,044


21

Summary Consolidated Income Statement

For the year ended 31 December 2009

All amounts are stated in £000s unless otherwise indicated

2009 2008

Interest receivable and similar income 14,768 33,543Interest expense and similar charges (2,371) (19,200) Net interest income 12,397 14,343

Fee and commission income 2,436 2,102Fee and commission expense (916) (766) Net fee and commission income 1,520 1,336

Other operating income 1,008 153

Operating income 14,925 15,832

Operating expenses (7,508) (7,369) Financial services compensation scheme levy (28) (304)

Operating profit before impairment losses 7,389 8,159

Impairment losses on loans and advances (884) (1,123)

Profit before taxation 6,505 7,036

Income tax (1,697) (1,949)

Profit for the year attributable to shareholders 4,808 5,087 Earnings per share (basic and fully diluted) 29.3 p 31.0p

Independent auditors’ statement to themembers of Unity Trust Bank plc

We have examined the summary financial statement for the year ended31 December 2009 which comprises the Summary Directors’ Report,Summary Consolidated Income Statement and Summary ConsolidatedBalance Sheet, set out on pages 16 to 17 and 20 to 21.

This statement is made solely to the Bank’s members, as a body, inaccordance with section 427 of the Companies Act 2006. Our work hasbeen undertaken so that we might state to the Bank's members thosematters we are required to state to them in such a statement and for noother purpose. To the fullest extent permitted by law, we do not accept orassume responsibility to anyone other than the Bank and the Bank'smembers as a body, for our work, for this statement, or for the opinionswe have formed.

Respective responsibilities of directors and auditors

The directors are responsible for preparing the Summary Report andAccounts 2009 in accordance with applicable United Kingdom law.

Our responsibility is to report to you our opinion on the consistency of thesummary financial statement within the Summary Report and Accounts2009 with the full annual Report and Accounts 2009 and the Directors’Report and the Directors Remuneration Report and its compliance withthe relevant requirements of section 427 of the Companies Act 2006 andthe regulations made thereunder.

We also read the other information contained in the Summary Report andAccounts 2009 and consider the implications for our report if we becomeaware of any apparent misstatements or material inconsistencies with thesummary financial statement.

Basis of opinion

We conducted our work in accordance with Bulletin 2008/3 The auditor’sstatement on the summary financial statement in the United Kingdomissued by the Auditing Practices Board. Our report on the Bank’s fullannual Report and Accounts 2009 describes the basis of our auditopinion on those Report and Accounts 2009.

Opinion

In our opinion the summary financial statement is consistent with the fullannual Report and Accounts 2009 and the Directors’ Report of UnityTrust Bank plc for the year ended 31 December 2009 and complies withthe applicable requirements of section 247 of the Companies Act 2006and the regulations made thereunder.

Ian S. SmithFor and on behalf of KPMG Audit Plc, Statutory AuditorChartered AccountantsOne SnowhillSnowhill QueenswayBirminghamB4 6GH

26 March 2010

20

Bank Group


21

Summary Consolidated Balance Sheet

As at 31 December 2009

All amounts are stated in £000s unless otherwise indicated

2009 2008Assets

Loan and advances to banks 592 10,552

Loans and advances to customers 197,074 117,371

Investment securities - available for sale 396,763 426,759

Derivative financial instruments 4,741 6,123

Intangible fixed assets 758 825

Property, plant and equipment 493 538

Deferred tax assets 81 62

Other assets 72 139

Prepayments and accrued income 416 222

Current tax assets 50 -

Total assets 601,040 562,591

Liabilities

Customer accounts 550,975 511,090

Derivative financial instruments 47 696

Other liabilities 2,210 1,643

Accruals and deferred income 1,231 1,004

Provisions for liabilities and charges 764 1,036

Current tax liabilities - 2,377

Total liabilities 555,227 517,846

Capital and reserves attributable to the Bank’s equity holders

Ordinary share capital 16,429 16,429

Share premium account 250 250

Retained earnings 27,288 23,712

Other reserves - available for sale 112 1,110

- cashflow hedging reserve 1,734 3,244

Total equity 45,813 44,745

Total liabilities and equity 601,040 562,591

The comparatives have been reclassified to align with current year presentation.

Registered in England and Wales No. 1713124

Approved by the Board on 26 March 2010 and signed on its behalf by:

Dave Prentis (President)

Graham Bennett (Chairman)

Kevin Turmore (Managing Director)

Bank Group


celebrating our 25th anniversary2009 was a busy year for the staff at UnityTrust Bank. To help celebrate our silveranniversary, we were involved in aninitiative called Unity in the Community,which encouraged us to provide our time,energy and expertise to support local andnational charities and good causes.

Those who were already involved in voluntary activities led the way in introducing the rest of us to the difference that we could make by givingsome of our spare timeand raising money for thegood of society.

2009Commu

Unity i

Organising a family funday to raise money forMidlands Air Ambulance

Abseiling to raisefunds for The Simon

Community,Northern Ireland

Skydiving in aid ofMidlands Air Ambulance

Painting, clearing andplanting at Warley

Woods Community Trust

Sprucing up thegarden area and carpark at Edward’s Trust

232322

Taking to the streets to collectdonations for AcornsChildren’s Hospice

Helping to build anamphitheatre atCotteridge Park


09munity

y in the

Taking part in Christmasconcerts to raise

awareness and funds forThe Salvation Army

Coaching a localyouth rugby team

Helping with a Sports Day atPriestley Smith School for blindand partially sighted pupils

Taking part in the Knowle Fun Run

Helping out atthe Well Catrescue centre

Cleaning andpainting at AcornsChildren’s Hospice

Teaching young peopleabout fishing as part ofthe Coarse Angling SkillsTraining Staffordshire(CASTS) programme

Shaking collectionbuckets for Teenage

Cancer Trust

Some of our highlights…

242423


BEST marks for banking services

05 06 07 08 09

(Charity Finance Banking Survey 2005-2009)

Unity Trust Bank plcNine Brindleyplace, Birmingham, B1 2HB

T: 0845 140 1000F: 0845 113 0003www.unity.co.uk

Registered in England and Wales no. 1713124Registered office: Nine Brindleyplace, Birmingham, B1 2HB

Unity Trust Bank plc is authorised and regulated by the Financial Services Authorityand is entered in the FSA’s register under number 204570.


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Unity Trust Bank Summary Report & Accounts 2009

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