Leeds Building Society pledges to remain independent mutual

Outgoing chief executive Ian Ward, who is today replaced by operations director Peter Hill, hailed the 136-year-old mutual’s resilience amid tough markets.

Now the UK’s fifth-biggest building society, Leeds grew pre-tax profits by 49 per cent to £26.9m in the first six months of the year.

Its new lending increased by 61 per cent to £642m from £400m a year earlier – with a quarter of this extended to first-time buyers.

It also attracted more savers, helping grow its deposit balances by £127m to a record level of £7.15bn. The lender also gained another 21,000 new members and now has over 685,000 members.

Mr Ward, who was chief executive for almost 16 years, said: “My ambition when I came was to ensure that I passed it on in even better nick than when I came and that it’s a successful independent building society.”

The lender has grown to almost four times its size since he was appointed. Total assets at the end of June were flat on 2010 at £9.5bn.

The building society’s core tier one capital ratio – a key measure of financial strength – increased to 13.8 per cent at the end of June from 12 per cent a year ago.

“My aim is for the society to remain a successful, independent building society,” said Mr Hill, who has been with the mutual for 10 years. “The story is one of evolution, not revolution.”

Mr Hill becomes only the seventh chief executive of Leeds.

The mutual said its mortgage lending is nearly double its natural share of the overall mortgage market. It added new loans were written at an average loan-to-value rate of just 52 per cent.

The mutual aims to satisfy 10 per cent of the UK’s net new mortgage lending this year, extending about £1.2bn of new loans this year.

“Over the next number of years it’s going to be challenging,” said Mr Hill. “But the good news for the society is it’s well capitalised and funded and well run.”

The lender’s net interest margin – the difference between what it makes on loans and the interest it pays out on deposits – improved to 1.39 per cent from 1.06 per cent a year earlier, and drove its profits increase.

Mr Ward admitted the group’s foray into commercial property lending was his biggest regret during his tenure. Leeds stopped commercial property lending at the start of the credit crunch, but commercial loans still make up seven per cent of its total mortgage assets and have been hit by rising arrears.

The arrears rate in its commercial property portfolio – those with arrears of 2.5 per cent or more of the outstanding balance – increased to 10.2 per cent from 8.9 per cent a year earlier.

“If you lend then you’re going to potentially get some pain from that,” said Mr Ward. “Sometimes in a business you’re damned if you do and damned if you don’t.

“Hindsight is a wonderful thing. (But) 90 per cent of it (commercial property) is performing and quite a bit of the other is where we are working with people.” The building society’s bad debt writedowns for the six months dipped slightly to £23.2m from £24m a year earlier. That included a £5m provision for its Irish lending – “resulting from the change in Ireland’s economic outlook”.

The arrears rate in its residential mortgage portfolio improved to 2.29 per cent from 2.32 per cent, but its cumulative writedowns have grown to £78.7m from £64.5m at the end of December. However, the mutual said it is well placed to cope with an increase in arrears from rising interest rates.

“A more rapid increase in interest rates, inflation or unemployment will impact on the ability of the society’s borrowers’ ability to maintain their mortgage payments, which will result in higher than expected arrears, possessions and mortgage losses,” it said. “The society’s successful and sustainable business model means that it remains well placed to deal with these uncertainties.”

Leeds’ capital and reserves increased by £38m to a record £553m, which the mutual said beat its regulatory requirements.

“All the capital we need we generate from our own profits,” said Mr Ward. “We do not pay out huge dividends. We do not go running to the Treasury for handouts.”

The group added it has made more progress on cutting its cost base. Leeds claimed its cost to income ratio of 31 per cent, down from 35 per cent a year ago, is the lowest of any building society.

Leeds added deputy CEO and finance director David Pickersgill retired at the end of June after almost 25 years’ service, following a long spell of poor health.

[email protected]