Why Leeds Building Society is confident about its future outlook

The mutual said it had made significant progress on its future-proofing investment programme as it reported pre-tax profit before £88m for the year ended December 31, 2019.

This was down from £116.9m the previous year - a reduction primarily due to a fair value charge of £19.7m under international accounting rules, Leeds Building Society said.

The society said its investment programme is continuing at pace, with major projects - upgrading IT systems and fitting out its new head office in central Leeds - progressing to plan and on budget.

Richard Fearon, who completed his first year as CEO, said both projects will bring efficiency savings to ensure the society can keep delivering long term value and better service to its membership as a whole.

Mr Fearon said: “Our approach to providing long term value to our membership as a whole is illustrated by our performance in 2019.

“Last year we carried on paying above the market average on savings and our net mortgage lending approached £1bn, in spite of fierce competition.

“However, high levels of borrower refinancing translated into lower mortgage income, without an equivalent reduction in funding costs, and has suppressed net interest income.

“In addition, under International Financial Reporting Standards (IFRS), we have booked a fair value measurement reduction of £19.7m, which includes the effect of market rate volatility on both our legacy equity release portfolio and other mortgage assets. This is an accounting adjustment which will typically unwind in future periods.

“A reduction in our profit before tax was anticipated and, while we expect profits in the short to medium term to remain at lower levels than in recent years, they’ll be at the right level to support planned, sustainable growth, and add to our reserves.

“Prudent use of our profits has bolstered the society’s established financial security and strong capital position, with CET1 and total capital ratios of 33.6 per cent and 41 per cent respectively.

“These are among the strongest risk-based measures of any UK bank or building society and underpin our ongoing investment so we’re fit for the future and stay relevant, responsive and secure for existing and new members, and our broker partners.

“We retain our keen cost focus and our cost to income and cost to mean asset ratios of 53.5 per cent and 0.50 per cent respectively are among the best in the sector.

“Our long term financial strength ensures we’re well-placed to withstand economic shocks and market uncertainty, and retain a confident outlook.”