Record savings inflow as investors seek security and value
Leeds Building Society has announced record results for 2007 against a background of unprecedented turbulence in the financial services sector.2007 Highlights
Savings balances rise by above market share to a record £757m, providing the funding for 94% of all the Society’s net lending in 2007.
Net lending up by 16% to a record £807m with much lower redemptions than market share.
Quality of lending remains very good with the average loan to value (LTV) on 2007 advances being just 53%. Arrears (3 months or more) remain very low at 0.7%, a rise of only 0.1% during the year.
Efficiency improves even further with cost asset ratio reducing to 53p per £100 of assets from 58p during 2006 and the cost income ratio improving to 40% (41% in 2006, the most favourable level of any building society).
60,000 new members attracted during the year (50,000 in 2006).
Assets rise by over £1bn to £9.2bn (£8.1bn in 2006).
Pre-tax profits rise by 10% to a new record of £63.2m (£57.2m in 2006) thereby providing financial security and strength for members with reserves increasing to £446m
No exposure to US sub-prime assets or any investments in CDOs or SIVs
Chief Executive, Ian Ward, said: “The uncertainty in the markets underlines why building societies are so important. Our sustainable, successful business model produced a 10% increase in pre-tax profits, a 13% rise in assets and our strong balance sheet was underpinned by record levels of savings inflows. The majority of our net lending in 2007 came from our members savings and, as a result, we are much less exposed to the liquidity issues in the market than many banks and other financial organisations.
“Savings balances rose by a record £757m to our highest ever level of £6bn with our net receipts increasing by 46% to £530m. This inflow represented £95m above our natural market share and over 60,000 new members were attracted by the security and value we provide. Our increased presence on the high street, with the acquisition of 12 established branches in the north east following our merger with Mercantile Building Society in 2006, has contributed to savings trebling through our branch network.
“Our long standing prudent approach to underwriting combined with our well developed product pricing delivered record net lending of £807m, a rise of 16% on the previous year. A lower level of redemptions was a key contributor and our ability to retain a greater percentage of existing borrowers is further testimony to our products and exceptional service.
“Over 94% of our residential mortgage book is funded by our own members’ savings and this approach has kept us well insulated from the difficulties experienced by many of our competitors. Our mortgage book is of outstanding quality, with very low levels of arrears that are less than half of the industry benchmark. The average loan to value on new lending was only 53% in 2007 and is just 38% of current values on all our residential lending.
“We attach great importance to our superior efficiency, as demonstrated by our very favourable cost ratios that are essential in maintaining our keen product pricing. Our cost income ratio, the lowest of any Society at 41% in 2006, improved even further to 40% in 2007. The cost asset ratio reduced by 9% to 53 pence per £100 of assets compared to 58 pence a year earlier.
“The security of our members’ savings was further strengthened by an increase in our reserves of £39m to £446m. Liquid assets increased to £1.9bn from £1.7bn at 31st December 2007, representing 22% of total funds. We have absolutely no exposure to US sub-prime lending or any Collateralised Debt Obligations (CDO) or Structured Investment Vehicle (SIV) investments.
We received our annual independent credit assessment from Moody’s in November and this confirmed the upgrade in our rating which we had achieved in 2006. Moody’s cited good financial performance, stronger profitability than our building society peers, effective control of costs, excellent asset quality and a solid funding structure. We have recently received a second rating, from Fitch, which further underlines the Society’s strong position.
“We have grown the Society in a prudent manner to £9.2bn of assets, concentrating on good quality business. Our very strong financial results in 2007 maintain our unbroken trend, for more than a decade, of year-on-year increases in pre-tax profit, which now exceed £63m.
The very high levels of retail savings flows from our members have ensured that we have a solid and sustainable funding base. This, combined with increased reserves and liquidity, means that we are well placed to compete successfully in the short, medium and long-term.”