2011 Highlights:
• Operating profit increased by 21% to a record £102.4m (£84.5m 2010).
• Pre-tax profit rose by 19% to £50.2m (£42.2m 2010).
• Savings balances grew by £329m to a record level of £7.4bn.
• 58,000 new members attracted, taking total membership to a record 691,000.
• New residential lending increased by 25% to £1.23bn (£984m 2010) which is significantly • above our natural market share.
• Remained highly efficient, as demonstrated by our cost income ratio reducing to 31% from • 34% which was the best of any building society in 2010.
• Capital and reserves increased by 8% to a record £572m (£531m 2010).

In my first report as Chief Executive, I am very proud to present an excellent set of results. I have inherited a great business and my aim is to build on our success and provide continuity. My strategy will be evolutionary, not revolutionary, and our mission will remain 'To be a successful independent building society providing excellent value through quality customer service, efficiency and competitive products'.

I am particularly pleased that we achieved a record operating profit, with our membership and savings balances reaching their highest ever levels. We also saw new residential mortgage lending increase by 25%. In challenging trading conditions, we grew our market share in both mortgages and savings. This performance would not have been possible without our loyal and professional staff working hard to serve the needs of all our members.

Savings

The Society attracted over £2.1bn of retail deposits in the year and balances increased to a record £7.4bn. Our net savings growth of £153m (excluding capitalised interest) was £156m better than our natural market share. Despite intense competition, our national branch network contributed significantly to this achievement.

This strong performance was through a combination of existing members increasing their balances, and attracting 41,000 new savings customers. Helping members maximise the return on their savings is vital in this historically low interest rate environment and we offer a broad range of instant access, notice, monthly income, fixed term and tax free savings accounts.

We are very proud to have won the 'Best Cash ISA for Consistency of Rates' award from Moneywise, a consumer magazine, based on votes from over 12,000 people. We also continued to reward our existing members by offering a Member Loyalty Bond last year and I am delighted that we have just launched yet another exclusive product.

We listen to our members to ensure we continue to innovate and offer the products and services you need. In 2011, we introduced a 30-day notice account which proved popular with our branch customers. We also entered the Self Invested Personal Pension (SIPP) market, a facility that has been well received.

Mortgage Lending

Our strong funding platform enabled us to be even more active in the UK mortgage market, increasing lending by 25% to £1.23bn compared to £984m in 2010. We have ensured that quality remains high through sophisticated credit scoring techniques and prudent underwriting. The average loan-to-value on new lending was just 51% (53% 2010).

Our focus on building a balanced mortgage portfolio continued, including lending for buy to let and first time buyers. The Shared Ownership market, which is particularly suited to first time buyers, proves a very effective way of helping people on the first step of home ownership. The Society remains a key player in this sector with one of the most comprehensive Shared Ownership product ranges in the market.

Net lending increased to £259m following a contraction in 2010 of £20m and this helped to increase residential mortgage balances to £6.9bn. With no new commercial lending during the year and net repayments of £40m, we were able to reduce commercial real estate balances to £505m. We have also reduced our Euro based lending balances in Ireland and Spain by £12m to £278m and our strategy is to manage our existing book with no new lending planned.

Good and consistent levels of profitability and a stable funding base provides us with the ability to grow our business over the coming years. While we are currently assessing the potential impact of changes to regulation, as a result of the Mortgage Market Review, we intend to remain active in the mortgage market in 2012 and have plans to increase lending even further, particularly to help first time buyers. To achieve this, we have allocated a limited amount of funding for higher loan-to-values of up to 95%.

Customer Service

I am delighted that our relentless focus on customer service has been reflected in record levels of member satisfaction. Independent surveys, carried out each month, confirm that the proportion of satisfied customers reached 96% in the year. The surveys also assess us against other financial services organisations used by our members and the results show we continue to outperform the industry across a wide range of measures.

Our commitment to service was further endorsed when our York branch won the Consumer Moneyfacts 'Best Branch' award 2011. This was a great accolade as there are many thousands of bank and building society branches across the UK.

Feedback remains a key part of our work to improve service and as always we encourage our members to comment both on positive and negative experiences whenever they are in contact with the Society. We take all customer comments seriously, conducting rigorous reviews of issues raised and taking appropriate corrective action where necessary.

We also launched our 'Nominate a Star' initiative in 2011, which encourages customers to recommend a member of staff or team that has delivered outstanding customer service. I am pleased to report that we have received a fantastic response with excellent feedback about all areas of the business, including the branch network, our Head Office and our North East based Call Centre and processing operations.

Our multi-channel approach means members can choose to contact the Society online, by post, by telephone and through our national branch network. Our Call Centre achieved an average speed of answer of only 20 seconds. A specific area of our website, The Member Zone, has been added to keep members informed of activities and events.

We continue to invest in branches through refurbishments. We also installed new PCs, servers and IT infrastructure across our national branch network, which improved processing speed and reliability, and will provide an even higher level of service. This represents an investment of over £1m and together with a spend of over £1.2m on other capital projects, shows our commitment to maintaining superior levels of service and continued careful investment in the Society's future.

Other Income

Other Income at £21.3m was in line with 2010 and given the difficult market conditions, we consider this a creditable performance. Our Financial Planning Managers (FPMs) continue to advise on a range of investment and protection options through our partnership with Aviva. We also provide a tax efficient capital guarantee structured product facility which continues to prove popular with our members.

We offer a full range of general insurance products through Aviva. Sales increased in 2011 and the re-launch of our home insurance product was a particular success.

The Society continues to assess the impact of the new regulatory requirements from the Retail Distribution Review (RDR) which comes into force in January 2013. This will increase the training requirements for our FPMs and already a number of managers have completed and passed the new, more stringent, qualifications. We are also continuing to discuss RDR implications with product providers to ensure we deliver a solution that will meet the needs of our members and comply with the new regulations.

Corporate Responsibility

The Society takes its commitment to Corporate Responsibility (CR) very seriously and published its first CR report in January 2012, which is available online or in our branches.

We have a national reach through our branch network but maintain a local feel and this is reflected in our charitable and community projects, which contribute to large national charities but also support local communities. An example of this is Mencap Leeds where, with a combination of funding and the hard work of our staff, we renovated the children's play area and parents' room. This initiative was made possible by the Leeds Building Society Charitable Foundation which has donated over £1.1m to charities since its inception.

Other schemes include our Caring Saver account, which pays 1% of the average balance held over the year to our partner charities: Age UK; Marie Curie; Save the Children; Variety, the Children's Charity and our Foundation. By casting your vote at this year's Annual General Meeting, either at the meeting, by post or online, you can also support our other charity partners including British Heart Foundation, World Wildlife Fund, Help for Heroes or St. George's Crypt. The 'Your Interest in Theirs' scheme, where savings members opt to donate the pence amount of any interest they earn, is increasing year on year. Through these three initiatives alone, you donated over £94,000 in 2011.

Our staff freely give their own time to raise money for charities and have held a number of fundraising events. This, combined with our 'Match Funding' scheme, which looks to support everyone at Leeds Building Society who raises funds for charity, has once again been very successful, and our staff have raised over £30,000 in 2011 for worthy causes.

The communities within which we operate are important to the Society, and our contribution was recognised when we received the Mortgage Finance Gazette 'Community Services Award for Large Lenders' in November 2011.

We continue to develop initiatives to reduce our carbon footprint and improve sustainability. Our approach is to do what is right for the Society, our members and the environment. The improvements to our branch systems I mentioned earlier will not only deliver a better service, but will use far less power and, therefore, further reduce our environmental impact.

We have maintained our sporting affinities. Our sponsorship of Leeds Rhinos rugby league team has once again proved an effective way of raising awareness of the Society, particularly as they have won the Super League Grand Final for a magnificent fifth time.

We have high levels of colleague engagement and we encourage the sharing of views and opinions so that they can have input into our future plans. The 2011 employee survey maintained our high satisfaction levels, confirming our inclusive approach to the way the Society operates.

Outlook

The threats from economic uncertainty seen in recent years are set to continue with increasing concerns about the Euro and some economies within the European Union. This backdrop will continue to adversely impact the UK economy as will the potential need to make further cuts to government spending which may, in turn, lead to more job losses and put increasing pressure on household incomes. Therefore, effective management of our current mortgage portfolio, helping customers through any financial difficulties they face, as well as assessing the impact on new business generation will be very important throughout 2012 and beyond.

Achieving our Other Income targets will require significant focus in these volatile markets and as we enter into a period of uncertainty with the introduction of RDR in early 2013.

Notwithstanding this, we will continue to deliver good value products, which will enable new and existing mortgage customers to fulfil their borrowing requirements and help our investor members effectively manage their savings. Our focus will remain on developing business in the UK residential mortgage and savings markets whilst continuing to manage our legacy commercial and Euro mortgage portfolios.

We intend to carry on improving our capital, reserves and overall financial strength which will enable us to take advantage of opportunities that arise, and thus grow in a measured way.

Summary

It has been a pleasure to be able to present such a strong performance in my first Chief Executive's Review. I took up my position in August 2011 and I am already enjoying my new role and the many and varied tasks it entails. I have a strong Board of Directors and senior managers, and a talented team focused on delivering high levels of customer service. I would like to thank them all for their support.

Conditions remain challenging and we continuously monitor economic and financial services sector developments, which may impact on the Society. Whilst market conditions do remain difficult, there are good opportunities for growth for organisations such as your Society, that are well capitalised with strong member support, offering good value products and excellent service. We remain firmly committed to mutuality, allowing us to focus on the needs of our members rather than shareholder returns and I would like to thank you for your continued support.

Peter Hill
Chief Executive
20 February 2012

 

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