Loan blow dents the Beverley’s profits

The lender, one of the UK’s smallest building societies, was forced to repossess and sell the commercial property, resulting in its pre-tax profits slipping from more than £1m in 2009, to £178,000 in 2010.

Interim chief executive Mike Heenan, the former head of Stafford Railway Building Society, said the Beverley’s continued profitability, despite a tough year, demonstrates its resilience.

“We had modest growth but, nevertheless growth, and apart from the exceptional item, we would have generated a very respectable profit,” he said.

“As far as the general trading position was concerned, it was a satisfactory year. We have done the business of a building society.”

The Beverley’s total assets increased by 2.12 per cent in 2010, to £168.6m.

The Beverley reduced its activity in the mortgage market, reflecting its desire to maintain high liquidity levels amid a tough housing market. As a result, its gross lending dropped to £13.1m from £13.3m in 2009.

However, with low redemption levels, the lender’s total mortgage book grew by 3.03 per cent, to £125.4m. Savers’ balances increased by 5.2 per cent, to £156.5m, driven by the success of its business account.

The society’s general reserves, which are needed to satisfy regulations and provide a buffer to protect savers’ deposits, increased from £7.99m in 2009, to £8.13m in 2010.

Its provision for bad and doubtful debts increased from £361,000 to £888,000.

Mr Heenan declined to say who the failed commercial loan was with, or where the property is, but said the mutual is pursuing legal action against the original valuer and is hopeful of recovering a substantial part of this loss as a result.

“It’s just an unfortunate set of circumstances which has led to this,” he said.

Former chief executive Phil Gray left the lender in August.

Finance director Tony Wilmot stood in as interim chief executive until Mr Heenan’s appointment in January. The society is currently recruiting for a full-time chief executive.

The sector has seen a period of consolidation over the past few years, with Yorkshire Building Society now close to sealing a merger with the Norwich and Peterborough.

However, Mr Heenan said the Beverley is more than capable of remaining an independent entity and does not need to seek a merger.

“I’ve no reservations in saying the society is safe and secure,” he said.

“We’ve had an unfortunate incident and so be it. The Beverley wants to retain its independence and it’s got a good job to do in the local area.

“I think it’s very regrettable that the sector is shrinking. The hostility towards banks is quite great and I think it provides an opportunity for mutuals. I would very much support Northern Rock’s remutualisation. It would be a tremendous signal that mutuality is valid.”

The Beverley paid £11,000 into the Financial Services Compensation Scheme which is used to protect depositors in failed financial institutions.

“This remains a significant cost which has to be met by sensibly-run institutions to bail out riskier businesses but I do believe this is an important scheme to maintain consumer confidence,” said chairman Stuart Young.

The society has one branch in the town, serving 10,000 savers and 1,200 mortgage borrowers.

Mr Heenan said the Beverley offers a competitive alternative to the big lenders.

“The simple fact is there is a role for a community building society operating in a local community,” he said. “It provides a very good home for people’s savings and can sometimes offer keener rates than the banks.

“We’re not set up to make profit – that’s not our main aim – although we have to make a certain amount to keep the numbers in line and have sufficient reserves.

“That’s a completely different mindset to the banks, who are there to serve the shareholders.

“We live and breathe the community in terms of our decision-making, the products we offer, and how we treat people.”

The Beverley is due to face members at its annual meeting on April 18.

Mike Heenan: Factfile

Mike Heenan was chief executive of the Stafford Railway Building Society for 28 years until his retirement at the end of 2010. He joined Beverley Building Society in January on a part-time basis while the society searches for a new chief executive. As well as this, Mr Heenan is a partner in Dean Statham Chartered Accountants in Stafford.

A physics graduate, he qualified as a chartered accountant with Price Waterhouse & Co in 1976. He joined Dean Statham in 1979 and became a partner in 1981.

“My main objective is to offer a smooth transition to a new chief executive,” he said.

“I’m enjoying the challenge here. I hope the new chief executive will take it forward.”