Leeds Building Society 2018 Annual Results March 2019
► Leeds Building Society 2018 Financial Highlights 2018 New Lending & the Mortgage Portfolio Funding, Liquidity and Capital Outlook for 2019 1
Executive Summary Leeds Building Society has continued to build on its strengths and delivered annual growth of 5% and a strong post tax profit performance of £89 million in 2018 Gross mortgage lending was £3.8 billion and was above the Society’s natural market share, net lending was £1.0 billion Issued £200 million of Tier 2 capital, increasing capital resources ahead of the expected future MREL requirement In June, the Prudential Regulation Authority (PRA) granted the Society an Internal Ratings Based (IRB) permission Improved financial stability through further reducing legacy portfolios, via the sale of the Irish mortgage portfolio Colleague engagement improved this year, and the Society’s leadership score was maintained. It continues to be in the top quartile for the financial services industry. The Society gained a two-star award in the Best Companies survey and is the 77 th Best Mid Sized Company to work for 2
Our Future Strategy and 2019 Deliverables Vision To be Britain’s most successful building society Our purpose is to help people save and have the home they want. Mission We will continually adapt to anticipate our members’ changing needs and by doing the things we do well, we will help our members get on with life. Strategic Secure Customer Centred Simple Future Facing Pillars& Generate strong, sustainable Deliver an outstanding Drive efficiency by Invest in our capabilities and member and broker experience removing complexity profit levels by meeting the technology to meet the evolving Corporate needs of key segments needs of members Priorities 1. Deliver net lending plan by 1. Embed Let’s be Superb to 1. Drive agreed efficiency 1. Deliver agreed steps of developing our segmental achieve our customer savings to manage the Project Barney mortgage lending strategy, funded by experience aspirations Society’s cost base underwriting solution and strong retail savings ensure operational 2. Improve customer and 2. Complete all structural readiness 2. Deliver a commercial broker experience in line work and progress the fit advantage by enhancing with the 2019 Customer out of our new Head Office 2. Develop Digital roadmap our pricing and balance Experience plan and deliver 2019 elements 2019 Deliverables sheet management 3. Increase awareness of our 3. Begin to implement digital 3. Improve the resilience of brand by delivering our self-serve functionality our technology platform Brand Strategy 4. Improve the flexibility and 4. Deliver profit target to responsiveness of our support future investment technology and growth 5. Implement our new approach to the strategic organisational roadmap People Maintain ourYourVoice EngagementIndexat 80% 3
► Leeds Building Society 2018 Financial Highlights 2018 New Lending & the Mortgage Portfolio Funding, Liquidity and Capital Outlook for 2019 4
2018 Business Highlights Source: Leeds Building Society Annual Results, as of 31st December 2018 5
Profitability 2018 (£m) 2017 (£m) • Achieved a profit before tax of £116.9 million, Net Interest income 218.1 213.2 including the loss from the sale of the Irish book Fees, commissions and other income 8.5 9.1 Fair value gains less losses (5.7) (1.3) Post-tax profits as a % of mean assets remains • Total Income 220.9 221.0 strong at 0.47% and supports the Society’s Management Expenses (98.9) (95.5) growth capacity of c.9% given its leverage Impairments on loans and advances to 1.2 5.5 appetite of c.5% customers Other impairments and provisions 0.2 (10.1) • Net interest income increased to £218.1 million, Loss on sale of portfolio of loans and (6.5) 0 advances to customers driven by the increased size of the balance sheet Profit Before Tax 116.9 120.9 Tax expense (27.7) (32.9) Profit After Tax 89.2 88.0 Net Interest Income (£m) Profit Before Tax (£m) 218.1 120.9 116.6 116.9 213.2 108.5 207.5 201.8 80.9 184.8 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Source: Leeds Building Society Annual Results, as of 31st December 2018 6
Net Interest Margin Net Interest Margin as % of Mean Assets • Net interest margin continues to reduce as expected to 1.15% 1.62% 1.58% • Reduction in NIM is due to lower margins on new 1.37% 1.24% business, reflecting competition in the mortgage 1.15% market and a reduction in the proportion of balances paying SVR 2014 2015 2016 2017 2018 2017 to 2018 Actual NIM% Bridge (bps) NIM % versus Peers 1.26% 1.26% 1.15% 5 1.11% 6 4 1.09% 6 0.96% 124 115 Source: Leeds Building Society Annual Results and latest available annual results as of 31st December 2018 *Figure from Q3 Interim Management Statement 7
Commercial Performance Mortgage Balances (£bn) 15.8 14.9 13.1 11.1 9.8 • Mortgages and Loans increased by 6% to £15.8 billion whilst improving key credit metrics and maintaining strong capital ratios 2014 2015 2016 2017 2018 • Savings balances increased by 6% to £13.9 billion Residential Lending (£bn) • Gross mortgage lending decreased to £3.8 billion, with 4.1 4.0 3.8 3.1 the Society targeting lower growth in a more 2.7 1.9 1.8 competitive market. The Society’s market share is 1.4%, 1.4 1.1 1.0 significantly higher than its natural market share of 1.1% -1.6 -1.7 -2.1 -2.3 • After two years of above average growth we grew more -2.8 2014 2015 2016 2017 2018 modestly in 2018, in the face of strong competition and higher redemptions from previous growth to maintain Gross Lending Redemptions Net Lending capital ratios Retail Savings (£bn) 13.9 13.1 11.2 9.9 9.2 2014 2015 2016 2017 2018 Source: Leeds Building Society Annual Results, as of 31st December 2018 8
Costs and Efficiency Cost Ratios • The Society maintains close control on costs, 0.62% 0.62% balancing the need to maintain profitability and 0.57% 0.56% 60% 0.64% 0.52% grow capital with the need to invest in the 0.54% 55% 0.44% 50% business in order to meet the changing needs of 45% 43% 43% 0.34% 45% members, continue to grow the business and meet 0.24% 36% 40% 0.14% the requirements of the highly regulated 33% 35% 0.04% environment in which it operates 30% -0.06% 2014 2015 2016 2017 2018 Cost to income ratio is 45% and cost to mean asset • Cost income ratio Cost asset ratio ratio is 0.52%, remaining among the best in the building society sector Management Expenses (£m) • Depreciation and amortisation have increased Average Headcount reflecting the Society’s capital investment in 1,322 1,308 (FTE) 1,221 technology in recent years. This trend is expected 1,092 967 to continue • Headcount dropped slightly, highlighting the 98.9 95.5 91.9 switch between human to technology solutions 77.0 66.2 2014 2015 2016 2017 2018 Source: Leeds Building Society Annual Results, as of 31st December 2018 9
► Leeds Building Society 2018 Financial Highlights 2018 New Lending & the Mortgage Portfolio Funding, Liquidity and Capital Outlook for 2019 10
2018 New Lending 2018 Lending by Segment • We remained focused on helping borrowers who are not well served by the wider market by supporting first time buyers, Shared Ownership, Affordable Housing, Help to Buy and Interest Only • The Society maintains a conservative lending policy, which Mainstream Owner 41% BTL Assisted is reflected in the distribution of LTV ratios. The average Occupied (44%) 37% Purchase (34%) 63% LTV of new lending in 2018 was 62% (2017: 64%) 14% (67%) (14%) Other 7% (9%) Average Margin Maximum LTV LTV Low - New lending LTV Distribution Mainstream Up to 95%. 73% Medium Owner Occupied 4% 8% Shared Ownership Assisted Purchase <= 60% Premium – Up to 95% of 52% Shared ownership, Gov’t assisted, 6% <= 70% Right to Buy, Shared Equity borrower share † 5% <= 75% Interest Only = Up Complex Consumer 7% <= 80% Premium 49% 52% to 60% Interest only <= 85% BTL = Up to 70% 18% <= 90% Medium - for standard BTL, Investment & Wealth BTL 55% > 90% Premium 75% for HMO, 85% BTL, Holiday Let, Second home for 2nd Home Source: December 2018 Internal Reports † Maximum borrower share up to 75% 11
Residential Mortgage Portfolio UK Mortgage Book • Residential owner occupied balances now make 8% Owner Occupied up less than half of UK residential mortgage (7%) balances, with BTL increasing to 29% (25%: 2017) 15% Investment & Wealth (15%) 47% Proportion of the book above 90% fell to 2.2% • Assisted Purchase (53%) (2.6%: 2017) the average indexed LTV fell to 55% (56%: 2017) Other 29% (25%) UK Mortgage Book LTV Improving LTV Distribution of Total Distribution Portfolio 2% 100% 7% 80% <50% 12% 60% 50% - 60% 38% 40% 60% - 70% 20% 70% - 80% 19% 0% 80% - 90% 2014 2015 2016 2017 2018 >90% <= 50% 50% - 60% 60% - 70% 22% 70% - 80% 80% - 90% > 90% 1 Average LTV 1 Average Indexed LTV weighted by balance Source: December 2018 Internal Reports 12
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