26 Feb 2009 07:00
| 26th February 2009 | For immediate release |
Leeds Building Society delivers strong results
Leeds Building Society, the UK's seventh largest building society, today announced a strong set of results for 2008 despite the global financial downturn.
2008 Business Highlights:
Savings balances rose by over £500m to a record level of £6.6bn.
For the third successive year, our growth in lending has been entirely funded by retail investments.
Quality of lending remains good with the average loan to value (LTV) on 2008 advances being just 52%. The average LTV on all our residential mortgages is only 49%, even after the fall in house prices.
Efficiency improved even further with a small decrease in our costs in 2008. Our superior efficiency was also confirmed by:
- Cost asset ratio reducing to 48p per £100 of assets from 53p in 2007.
- Cost income ratio remaining at 40% - the same as 2007's level which was the most favourable of any building society.
58,000 new members attracted taking our total membership up to 667,000.
Assets rose by over £900m to £10.1bn.
Operating profit before impairment provisions remained very strong at £68.6m (2007 £69.4m).
After a prudent increase in our provisions, the Society's pre-tax profit before the Financial Services Compensation Scheme levy remained solid at £30m (2007 £63.2m).
Capital and reserves rose to a record level of £526m (2007 £511m).
Chief Executive, Ian Ward, said "Leeds Building Society delivered another set of good financial results for its members in the context of a market that has been characterised by uncertainty and declining confidence.
"Savings balances, which are a vital component of our traditional, mutual, building society business, rose by over £500m to a record £6.6bn. We attracted 44,000 new savings' members in 2008, which was even higher than our 2007 total. This was particularly pleasing in a market where the competition for retail savings was very high. Retail savings through our national network of branches were particularly strong.
"Our new lending totalled £1.28bn in 2008 and with total repayments of £1.20bn, net lending was £80m. For the third successive year, our growth in lending has been entirely funded by retail investments.
"Our lending policies have consistently been very prudent and this is demonstrated by our average LTV on new lending in 2008 of 52% and an average LTV of only 49% on all our properties in mortgage.
"We attach great importance to our superior efficiency, as demonstrated by our very favourable cost ratios. Our cost income ratio, the lowest of any Society in 2007, remained at 40% in 2008. The cost asset ratio reduced to 48 pence per £100 of assets compared to 53 pence a year earlier.
"The security of our members' savings was further strengthened by an increase in our capital and reserves of £15m to £526m. Liquid assets increased to £2.3bn from £1.9bn at 31st December 2008, representing 25% of total funds. We have absolutely no exposure to US sub-prime lending or any Collateralised Debt Obligations (CDO) or Structured Investment Vehicle (SIV) investments.
"We achieved another strong operating profit figure of £68.6m, this being similar to the 2007 total of £69.4m. There were, however, two significant items of unexpected expenditure in 2008.
"The first was a provision of £9.7m in respect of the full amount imposed under the Financial Services Compensation Scheme (FSCS) levy in order to compensate the investors in failed banks, including Bradford & Bingley, London Scottish and three Icelandic banks with UK subsidiaries. It is extremely galling for building societies, which run less risky business models, to meet these costs particularly as the scheme effectively imposes the highest levy on those organisations, such as building societies, which have the greatest proportion of savers' balances. Pleasingly, this issue has been taken up by a number of MPs and political pressure is mounting to find a fairer solution.
"Secondly, we have made a £10m provision in respect of an exposure to Kaupthing Singer and Friedlander which was, until it went into administration in October 2008, a long-established UK bank (owned by an Icelandic Bank) and regulated by the UK authorities. We believe that there is a strong chance that we will recover some of this investment. In the meantime, however, we have taken the prudent action of making this level of provision.
"In addition, the deteriorating economic situation has resulted in a small, but inevitably growing, number of our borrowers having difficulty meeting their repayments. At 31 December 2008, only 0.83% (2007 0.28%) of mortgages were over 3 months in arrears, which is considerably lower than the Council of Mortgage Lenders (CML) average. We started the year with £17m of mortgage provisions and we increased this by £27m to £44m at 31st December 2008. Our total provisions for mortgage and liquidity losses, liabilities and charges at the end of the year rose to £65m from £22m at the end of 2007. We believe this to be consistent with the prudence which has been the watchword of the running of the Society over many years.
"The combination of factors set out above has resulted in our pre-tax profits falling to £20.3m. Our strong level of operating profit has meant that we are able to deal with these unexpected items in full, without reducing our capital, and significantly increase our total provisions. In fact, our pre-tax profit has enabled the Society to increase capital and reserves to a record £526m (2007 £511m).
"In November 2008, we were one of only two societies assessed by the credit rating agency Fitch, that did not have their ratings downgraded. In Fitch's view, Leeds' strong cost efficiency and low credit risk profile should help the Society to withstand the negative impact of an economic downturn on its profitability, asset quality and capital."
"A welcome additional endorsement of our strategy and performance, came from His Royal Highness the Duke of York who formally re-opened our newly refurbished Head Office in Leeds in December last year. He said: 'This visit has been a wonderful course in understanding how a building society should be run properly'.
"Our successful, sustainable business model combined with our prudent approach to lending, keen cost control, very strong levels of capital and high levels of liquidity means that we are in a very good position to deal with the challenging economic outlook for 2009 and beyond."
| GROUP RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008 | |||||
| Summary Consolidated Income Statement | |||||
| Profit before FSCS levy | FSCS levy | Profit after FSCS levy | |||
| 2008 | 2008 | 2008 | 2007 | ||
| £M | £M | £M | £M | ||
| Interest receivable and similar income | 583.1 | 583.1 | 538.9 | ||
| Interest payable and similar charges | (490.4) |
| (490.4) | (445.0) | |
| 92.7 | 92.7 | 93.9 | |||
| Net Interest receivable | |||||
| Fees and commissions receivable | 20.4 | 20.4 | 20.5 | ||
| Fees and commissions payable | (0.1) | (0.1) | (0.1) | ||
| Fair value gains less losses from derivative financial instruments | 0.3 | 0.3 | (0.4) | ||
| Other operating income | 1.4 | 1.4 | 1.7 | ||
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| Total income | 114.7 | 114.7 | 115.6 | ||
| Administrative expenses | (44.8) | (44.8) | (44.6) | ||
| Depreciation and amortisation | (1.3) | (1.3) | (1.6) | ||
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| Operating profit before impairment and provisions | 68.6 | 68.6 | 69.4 | ||
| Impairment of loans and advances to customers | (32.1) | (32.1) | (5.9) | ||
| Impairment of investment securities | (10.0) | (10.0) | |||
| Provision for financial guarantee contracts | - | (0.5) | |||
| Provisions for liabilities and charges | |||||
| Other | 3.5 | 3.5 | 0.2 | ||
| FSCS levy | - | (9.7) | (9.7) | - | |
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| Operating profit and profit on ordinary activities before income tax | 30.0 | (9.7) | 20.3 | 63.2 | |
| Income tax expense | (8.7) | 2.7 | (6.0) | (19.4) | |
| Profit for the financial year | 21.3 | (7.0) | 14.3 | 43.8 | |
| Summary Consolidated Balance Sheet | |||||
| 31 December 2008 | 31 December 2007 | ||||
| £M | £M | ||||
| Assets | |||||
| Liquid assets | 2,301.7 | 1,885.6 | |||
| Derivative financial instruments | 195.5 | 59.4 | |||
| Loans and advances to customers | 7,479.0 | 7,193.6 | |||
| Other investments | 0.1 | 0.1 | |||
| Property, plant and equipment | 33.4 | 32.0 | |||
| Deferred income tax assets | 3.8 | 4.9 | |||
| Prepayments, accrued income and other assets | 123.1 | 5.2 | |||
| Total assets | 10,136.6 | 9,180.8 | |||
| Liabilities | |||||
| Shares | 6,555.0 | 6,026.1 | |||
| Derivative financial instruments | 227.2 | 40.4 | |||
| Deposits and securities | 2,671.2 | 2,548.4 | |||
| Current income tax liabilities | 0.0 | 5.9 | |||
| Deferred income tax liabilities | 6.1 | 3.6 | |||
| Provision for liabilities, accruals and deferred income | 147.2 | 44.3 | |||
| Retirement benefit obligations | 3.0 | 1.5 | |||
| Subordinated liabilities | 41.4 | 39.8 | |||
| Subscribed capital | 25.0 | 25.0 | |||
| Revaluation reserve | 16.9 | 16.9 | |||
| General reserve | 433.7 | 422.4 | |||
| Other reserves | 9.9 | 6.5 | |||
| Total reserves and liabilities | 10,136.6 | 9,180.8 | |||
| Statement of Recognised Income and Expense | ||||||
| Audited | Audited | |||||
| 31 December 2008 | 31 December 2007 | |||||
| £M | £M | |||||
| Property revaluation | - | (1.8) | ||||
| Valuation losses on revaluation of available for sale investments | (5.8) | (10.3) | ||||
| Gains on cash flow hedges | 10.4 | 3.3 | ||||
| Actuarial (loss)/gain on retirement benefit obligations | (4.1) | 1.2 | ||||
| Tax on items taken directly to equity | (0.1) | 2.3 | ||||
| Net income recognised directly in equity | 0.4 | (5.3) | ||||
| Profit for the period | 14.3 | 43.8 | ||||
| Total recognised income and expense for the period | 14.7 | 38.5 | ||||
| Summary Consolidated Cash Flow | ||||||
| 31 December 2008 | 31 December 2007 | |||||
| £M | £M | |||||
| Net cash flows from operating activities | 533.9 | 114.8 | ||||
| Net cash flows from investing activities | (804.0) | 88.5 | ||||
| (270.1) | 203.3 | |||||
| Cash and cash equivalents at the beginning of the year | 504.5 | 301.2 | ||||
| Cash and cash equivalents at the end of the year | 234.4 | 504.5 | ||||
| Summary of key ratios | ||||||
| Gross capital as a percentage of shares and borrowings | 5.7% | 6.0% | ||||
| Liquid assets as a percentage of shares and borrowings | 25.0% | 22.0% | ||||
| Profit for the financial year as a percentage of mean total assets | 0.15% | 0.51% | ||||
| Management expenses as a percentage of mean total assets | 0.48% | 0.53% | ||||
| Notes to the Financial Information | ||||||
| 1. The financial information set out above, which was approved by the Board of directors on 25 February 2009, does not constitute accounts within the meaning of the Building Societies Act 1986. | ||||||