Mortgage lending growth boosts profits as LBS reports record results

Leeds Building Society has continued to build on its growing membership, mortgage lending and savings balances as it reports another record year in 2014.

Chief Executive at the time, Peter Hill said a strong profit performance driven by the growth in lending enabled ongoing investment in the business to further develop the service proposition and provide long-term value to a growing membership.

2014 Highlights:

  • New residential mortgage lending increased by 24% to £2.7bn (£2.2bn 2013), significantly above our market share
  • Net residential lending of £1.1bn (£1.0bn 2013), our best ever performance
  • Operating profit before exceptional item rose by 26% to a record £80.9m (£64.2m 2013)
  • Savings balances grew by £560m (£884m 2013) to £9.2bn, the highest level in our history
  • 69,000 new members were attracted, taking total membership to a record 721,000 (714,000 2013)
  • Capital and reserves increased to £731m (£661m 2013)

Leeds Building Society Chief Executive at the time Peter Hill said: "I am proud to report this excellent performance, which builds on similarly successful results we’ve delivered over the past three years.

"These achievements illustrate how our growth strategy – including investing in the best talent and modernising our brand and the ways in which we can meet our members’ needs – is enabling us to compete with larger rivals to attract more savers and borrowers in a challenging marketplace.

"Our focus on our members remains the same as when we were founded 140 years ago – to offer them a secure place to invest their savings and help them to buy homes, to build their futures together with us.

"We have developed our brand proposition, following extensive member research, and plan further improvements to our digital capability to make it easier to access the information and services our members want, as and when they choose.

Mortgage lending

"Our rise in profit has been driven by growth in mortgage lending across a balanced product range, and lower impairment provisions.

"I am pleased to report that we continue to attract mortgage business well above our market share1 and in 2014 we helped more than 7,800 First Time Buyers to step onto the property ladder, accounting for over a third of our total lending by value.

"Our innovation in the mortgage market has won further awards and industry recognition, with a positive reception from borrowers, intermediaries and sector experts. This includes significant progress on lending on new build homes and our support for the Government’s Help to Buy equity scheme. The latter are both examples of our efforts to support borrowers who are not well-served by the wider market.

Savings and members

"The continuing low interest rate environment has proved challenging for savers and we have worked hard to offer our members good value and to keep interest rates as high as possible for as long as possible. We saw strong demand in 2014 for our range of competitive ISAs and 10 Year Fixed Rate Bond.

"We have amended our legacy savings products to align them to prevailing market rates and have simplified the range from 260 to fewer than 50, whilst also improving access terms. As a result, all our savers receive an interest rate of at least 0.5%, which is equivalent to the current Bank Base Rate.

"As a consequence of the market rate environment, and in common with other providers, we have reduced rates on some of our accounts but delayed taking this action for as long as we could in order to maintain higher rates for as long as possible. Based on the latest information, we continue to pay 0.81%2 more to savers than the market average.

Financial performance

"Achieving good levels of profit enables us to build our financial strength and invest in the business. Operating profit increased by 26% to £80.9m as a result of record mortgage lending and a reduction in impairment losses, and we continued to reduce our commercial exposure, which now stands at less than 3% of total mortgage balances. Closure of our defined benefit pension scheme to future accrual also resulted in an accounting adjustment and took total pre-tax profit to £87.9m.

"Capital and reserves stood at a record £731m and our total assets rose to £12.1bn, so we are well-placed to support further lending growth. At the start of last year, a package of reforms to EU legislation, known as CRD IV, came into effect. A key requirement is that financial institutions have a minimum Total Solvency Ratio of 8%, and a Leverage Ratio of 3%. The Society’s ratios are well above those figures, at 16.4% and 5.6% respectively.

"The credit ratings agencies, Moody’s and Fitch, both continue to assign long-term ‘A’ ratings to the Society as a result of our continuing strong financial performance.

Investing in the future

"Our excellent profitability and sustainable business model mean we can look ahead to the future with confidence as we plan further enhancements to our service to members, including through digital channels, following the successful implementation of the initial phases of our new brand and technological improvements during 2014.

"Our colleagues are vital to our success and their professional service and high motivation ensure overall customer satisfaction remains high at 92%. The Society was the first financial services organisation to secure the new Service Excellence accreditation launched by the independent National Skills Academy and good quality training and career development opportunities help us to recruit and retain high-calibre colleagues.

"We created more than 100 new jobs in 2014, as we did in 2013, to support the growing business, with a similar number planned for the coming 12 months, and our newest colleagues include the first graduates of our Apprenticeship scheme, which is now in its third year.”

The Society's results for 2014 are below.

Leeds Building Society has won four awards for innovation in the past 12 months, including being named 'Innovator of the Year' at the Moneywise Magazine Mortgage Awards 2014 for its Welcome Mortgage. This allows borrowers to pay 0% interest for the first few months of their term so they can free up cash to help them settle into their new home.

The Society scooped the 'Mortgage Innovation Award' and was named 'Most Innovative Personal Finance Provider' at the Moneynet Personal Finance Awards 2014, and also received the 'Innovation Award (Lenders)' at the Mortgage Finance Gazette Awards 2015, in addition to being named 'Best Intermediary Lender', both for the second consecutive year, and winning the award for 'Best Use of Technology (Lenders)'.

Leeds Building Society has 67 branches throughout the UK, Gibraltar and Ireland and assets of £12.1bn (as at 31st December 2014). The Society has operated from the centre of Leeds since 1886.

1 Leeds Building Society defines market share as follows:
Mortgages - Council of Mortgage Lenders market share statistics.
Savings - Mutual sector net retail savings as published by the Building Societies Association.
2 CACI Data, October 2014 – CACI is an independent company that provides Financial Services benchmarking data and covers 85% of the high street cash savings market.


Summary Consolidated Income Statement      
  2014   2013
  £M   £M
Interest receivable and similar income 397.5   384.0
Interest payable and similar charges (212.7)   (220.8)
Net Interest receivable 184.8   163.2
Fees and commissions receivable 13.8   14.6
Fees and commissions payable (0.7)   (0.5)
Fair value gains less losses from derivative financial instruments (0.4)   (0.9)
Other operating income 0.9   0.9
Total income 198.4   177.3
Administrative expenses (64.6)   (54.2)
Depreciation and amortisation (1.6)   (1.3)
Impairment of loans and advances to customers (39.5)   (47.9)
rovisions for liabilities and charges (11.8)   (7.6)
Impairment loss on land and buildings -




Investment property fair value movement -   (1.3)
Operating profit before exceptional item 80.9   64.2
Pension curtailment gain 7.0   -
Profit before tax 87.9   64.2
Tax expense (18.5)   (15.2)
Profit for the financial year 69.4   49.0

Summary Statement of Financial Position      
  31 December 2014   31 December 2013




Liquid assets 1,584.2




Derivative financial instruments 120.4   99.5
Loans and advances to customers 10,260.9   9,151.9
Property, plant and equipment 29.9   28.4
Investment properties 4.4   4.4
Deferred income tax assets 1.4   2.0
Retirement benefit surplus 1.3   -
Prepayments, accrued income and other assets 128.7   87.9
Total assets 12,131.2   11,194.2
Shares 9,181.6   8,622.0
Derivative financial instruments 155.7   100.2
Deposits and securities 1,971.0   1,703.5
Current income tax liabilities 9.3   8.5
Deferred income tax liabilities 2.6   3.0
Provision for liabilities, accruals and deferred income 79.8   93.1
Retirement benefit obligations -   3.3
Subordinated liabilities 0.9   0.9
Subscribed capital 25.0   25.0
Revaluation reserve 12.4   12.4
General reserve 674.7   612.1
Other reserves 18.2   10.2
Total reserves and liabilities 12,131.2   11,194.2

Statement of Comprehensive Income      
  2014   2013
  £M   £M
Valuation of available for sale investments 10.1   (8.3)
Cash flow hedges -   3.5
Actuarial loss on retirement benefit obligations (7.4)   (2.3)
Property revaluation -   (0.9)
Tax on items taken directly to equity (1.5)   1.8
Other comprehensive income net of tax 1.2   (6.2)
Profit for the year 69.4   49.0
Total comprehensive income for the year 70.6   42.8
Summary Consolidated Cash Flow 2014   2013
  £M   £M
Net cash flows from operating activities (229.5)   82.2
Net cash flows from investing activities (203.6)   154.5
  (433.1)   236.7
Cash and cash equivalents at the beginning of the year 1,012.2   775.5
Cash and cash equivalents at the end of the year 579.1   1,012.2
Summary of key ratios      
Gross capital as a percentage of shares and borrowings 6.5%   6.4%
Liquid assets as a percentage of shares and borrowings 14.2%   17.6%
Profit for the financial year as a percentage of mean total assets 0.60%   0.46%
Management expenses as a percentage of mean total assets 0.57%   0.52%

Notes to the Financial Information

1. The financial information set out above, which was approved by the Board of directors on 24 February 2015, does not constitute accounts within the meaning of the Building Societies Act 1986.